"Hillary Clinton, following a long tradition of mainstream Democrats, had a grab bag of proposals that, if enacted, would collectively
make a huge difference in the lives of working people. "
I think you are wrong here.
Hillary was/is a neoliberal, and as such is hostile to the interests of working people and middle class in general. Like most
neoliberals she is a Machiavellian elitist. Her election promises are pure demagogy, much like Trump or Obama election promised
(immortalized in the slogan "change we can believe in" which now became the synonym of election fraud)
Also she was/is hell-bent of preserving/expanding the US neoliberal empire and the wars for neoliberal dominance (in ME mainly
for the benefit of Israel and Saudis). War are pretty costly ventures and they are financed at the expense of working class and
lower middle class, never at the expense of "fat cats" from Wall Street.
All-in-all I think the role of POTUS is greatly "misunderestimated" in your line of thinking. As we can see differences between
Trump and Hillary in foreign policy are marginal. Why are you assuming that the differences in domestic economic policies would
be greater ?
In reality there are other powerful factors in play that diminish the importance of POTUS:
The US Presidential Elections are no longer an instrument for change. They are completely corrupted and are mostly of "bread
and circuses" type of events, where two gladiators preselected by financial elite fight for the coveted position, using all kind
of dirty tricks for US public entertainment.
While the appearance of democracy remains, in reality the current system represents that rule of "deep state". In the classic
form of "National security state". In the National Security State, the US people no longer have the any chances to change the
policies.
Political emasculation of US voters has led to frustration, depression and rage. It feeds radical right movement including
neo-fascists, which embrace more extreme remedies to the current problems because they correctly feel that the traditional parties
no longer represent the will of the people.
Insulated and partially degenerated US elite have grown more obtuse and is essentially a hostage for neocons. They chose
to ignore the seething anger that lies just below the surface of brainwashed Us electorate.
The "American Dream" is officially dead. People at a and below lower middle class level see little hope for themselves,
their children or the country. The chasm between top 1% (or let's say top 20%) and the rest continues to fuel populist anger.
While Trump proved to be "yet another turncoat" like Barak Obama (who just got his first silver coin in the form of the
$400K one hour speech) Trump's election signify a broad rejection of the country's neoliberal elite, including neoliberal MSM,
neocon foreign policy as well as neoliberal economic system (and first of all neoliberal globalization).
The country foreign policy remains hijacked by neocons (this time in the form of fiends of Paul Wolfowitz among the military
brass appointed by Trump to top positions in his administration) and that might spell major conflict or even WWIII.
8. We can now talk about the USA as "neocon occupied country" (NOC), because the neocons policies contradict the USA national
interests and put heavy burden of taxpayers, especially in lower income categories. Due to neglect in maintaining infrastructure,
in some areas the USA already looks like third word country. Still we finance Israel and several other countries to the tune of
$40 billion dollars in military aid alone (that that's in case of Israel just the tip of the iceberg; real figure is probably
double of that) https://fas.org/sgp/crs/mideast/RL33222.pdf
Since Bill Clinton POTUS is more or less a marionette of financial oligarchy (which Obama -- as a person without the past (or
with a very fuzzy past) - symbolizes all too well).
Petras did not mention that it was Carter who started neoliberalization of the USA. The subsequent election of Reagan signified
the victory of neoliberalism in this country or "quite coup". The death of New Deal from this point was just a matter
of time. Labor relations drastically changes and war on union and atomization of workforce are a norm.
Welfare state still exists but only for corporation and MIC. Otherwise the New Deal society is almost completely dismanted.
It is true that "The ' New Deal' was, at best, a de facto ' historical compromise' between the capitalist class
and the labor unions, mediated by the Democratic Party elite. It was a temporary pact in which the unions secured legal recognition
while the capitalists retained their executive prerogatives." But the key factor in this compromise was the existence of the USSR as
a threat to the power of capitalists in the USA. when the USSR disappeared cannibalistic instincts of the US elite prevailed over caution.
Notable quotes:
"... The earlier welfare 'reforms' and the current anti-welfare legislation and austerity practices have been accompanied by a series of endless imperial wars, especially in the Middle East. ..."
"... In the 1940's through the 1960's, world and regional wars (Korea and Indo-China) were combined with significant welfare program – a form of ' social imperialism' , which 'buy off' the working class while expanding the empire. However, recent decades are characterized by multiple regional wars and the reduction or elimination of welfare programs – and a massive growth in poverty, domestic insecurity and poor health. ..."
"... modern welfare state' ..."
"... Labor unions were organized as working class strikes and progressive legislation facilitated trade union organization, elections, collective bargaining rights and a steady increase in union membership. Improved work conditions, rising wages, pension plans and benefits, employer or union-provided health care and protective legislation improved the standard of living for the working class and provided for 2 generations of upward mobility. ..."
"... Social Security legislation was approved along with workers' compensation and the forty-hour workweek. Jobs were created through federal programs (WPA, CCC, etc.). Protectionist legislation facilitated the growth of domestic markets for US manufacturers. Workplace shop steward councils organized 'on the spot' job action to protect safe working conditions. ..."
"... World War II led to full employment and increases in union membership, as well as legislation restricting workers' collective bargaining rights and enforcing wage freezes. Hundreds of thousands of Americans found jobs in the war economy but a huge number were also killed or wounded in the war. ..."
"... So-called ' right to work' ..."
"... Trade union officials signed pacts with capital: higher pay for the workers and greater control of the workplace for the bosses. Trade union officials joined management in repressing rank and file movements seeking to control technological changes by reducing hours (" thirty hours work for forty hours pay ..."
"... Trade union activists, community organizers for rent control and other grassroots movements lost both the capacity and the will to advance toward large-scale structural changes of US capitalism. Living standards improved for a few decades but the capitalist class consolidated strategic control over labor relations. While unionized workers' incomes, increased, inequalities, especially in the non-union sectors began to grow. With the end of the GI bill, veterans' access to high-quality subsidized education declined ..."
"... With the election of President Carter, social welfare in the US began its long decline. The next series of regional wars were accompanied by even greater attacks on welfare via the " Volker Plan " – freezing workers' wages as a means to combat inflation. ..."
"... Guns without butter' became the legislative policy of the Carter and Reagan Administrations. The welfare programs were based on politically fragile foundations. ..."
"... The anti-labor offensive from the ' Oval Office' intensified under President Reagan with his direct intervention firing tens of thousands of striking air controllers and arresting union leaders. Under Presidents Carter, Reagan, George H.W. Bush and William Clinton cost of living adjustments failed to keep up with prices of vital goods and services. Health care inflation was astronomical. Financial deregulation led to the subordination of American industry to finance and the Wall Street banks. De-industrialization, capital flight and massive tax evasion reduced labor's share of national income. ..."
"... The capitalist class followed a trajectory of decline, recovery and ascendance. Moreover, during the earlier world depression, at the height of labor mobilization and organization, the capitalist class never faced any significant political threat over its control of the commanding heights of the economy ..."
"... Hand in bloody glove' with the US Empire, the American trade unions planted the seeds of their own destruction at home. The local capitalists in newly emerging independent nations established industries and supply chains in cooperation with US manufacturers. Attracted to these sources of low-wage, violently repressed workers, US capitalists subsequently relocated their factories overseas and turned their backs on labor at home. ..."
"... President 'Bill' Clinton ravaged Russia, Yugoslavia, Iraq and Somalia and liberated Wall Street. His regime gave birth to the prototype billionaire swindlers: Michael Milken and Bernard 'Bernie' Madoff. ..."
"... Clinton converted welfare into cheap labor 'workfare', exploiting the poorest and most vulnerable and condemning the next generations to grinding poverty. Under Clinton the prison population of mostly African Americans expanded and the breakup of families ravaged the urban communities. ..."
"... President Obama transferred 2 trillion dollars to the ten biggest bankers and swindlers on Wall Street, and another trillion to the Pentagon to pursue the Democrats version of foreign policy: from Bush's two overseas wars to Obama's seven. ..."
"... Obama was elected to two terms. His liberal Democratic Party supporters swooned over his peace and justice rhetoric while swallowing his militarist escalation into seven overseas wars as well as the foreclosure of two million American householders. Obama completely failed to honor his campaign promise to reduce wage inequality between black and white wage earners while he continued to moralize to black families about ' values' . ..."
"... Obama's war against Libya led to the killing and displacement of millions of black Libyans and workers from Sub-Saharan Africa. The smiling Nobel Peace Prize President created more desperate refugees than any previous US head of state – including millions of Africans flooding Europe. ..."
"... Forty-years of anti welfare legislation and pro-business regimes paved the golden road for the election of Donald Trump ..."
"... Trump and the Republicans are focusing on the tattered remnants of the social welfare system: Medicare, Medicaid, Social Security. The remains of FDR's New Deal and LBJ's Great Society -- are on the chopping block. ..."
"... The moribund (but well-paid) labor leadership has been notable by its absence in the ensuing collapse of the social welfare state. The liberal left Democrats embraced the platitudinous Obama/Clinton team as the 'Great Society's' gravediggers, while wailing at Trump's allies for shoving the corpse of welfare state into its grave. ..."
"... Over the past forty years the working class and the rump of what was once referred to as the ' labor movement' has contributed to the dismantling of the social welfare state, voting for ' strike-breaker' Reagan, ' workfare' Clinton, ' Wall Street crash' Bush, ' Wall Street savior' Obama and ' Trickle-down' Trump. ..."
"... Gone are the days when social welfare and profitable wars raised US living standards and transformed American trade unions into an appendage of the Democratic Party and a handmaiden of Empire. The Democratic Party rescued capitalism from its collapse in the Great Depression, incorporated labor into the war economy and the post- colonial global empire, and resurrected Wall Street from the 'Great Financial Meltdown' of the 21 st century. ..."
"... The war economy no longer fuels social welfare. The military-industrial complex has found new partners on Wall Street and among the globalized multi-national corporations. Profits rise while wages fall. Low paying compulsive labor (workfare) lopped off state transfers to the poor. Technology – IT, robotics, artificial intelligence and electronic gadgets – has created the most class polarized social system in history ..."
"... "The collaboration of liberals and unions in promoting endless wars opened the door to Trump's mirage of a stateless, tax-less, ruling class." ..."
"... Corporations [now] are welfare recipients and the bigger they are, the more handouts they suck up ..."
"... Corporations not only continuously seek monopolies (with the aid and sanction of the state) but they steadily fine tune the welfare state for their benefit. In fact, in reality, welfare for prols and peasants wouldn't exist if it didn't act as a money conduit and ultimate profit center for the big money grubbers. ..."
"... The article is dismal reading, and evidence of the failings of the "unregulated" society, where the anything goes as long as you are wealthy. ..."
"... Like the Pentagon. Americans still don't readily call this welfare, but they will eventually. Defense profiteers are unions in a sense, you're either in their club Or you're in the service industry that surrounds it. ..."
The American welfare state was created in 1935 and continued to develop through 1973. Since then, over a prolonged period, the
capitalist class has been steadily dismantling the entire welfare state.
Between the mid 1970's to the present (2017) labor laws, welfare rights and benefits and the construction of and subsidies for
affordable housing have been gutted. ' Workfare' (under President 'Bill' Clinton) ended welfare for the poor and displaced
workers. Meanwhile the shift to regressive taxation and the steadily declining real wages have increased corporate profits to an
astronomical degree.
What started as incremental reversals during the 1990's under Clinton has snowballed over the last two decades decimating welfare
legislation and institutions.
The earlier welfare 'reforms' and the current anti-welfare legislation and austerity practices have been accompanied by a
series of endless imperial wars, especially in the Middle East.
In the 1940's through the 1960's, world and regional wars (Korea and Indo-China) were combined with significant welfare program
– a form of ' social imperialism' , which 'buy off' the working class while expanding the empire. However, recent decades are characterized
by multiple regional wars and the reduction or elimination of welfare programs – and a massive growth in poverty, domestic insecurity
and poor health.
New Deals and Big Wars
The 1930's witnessed the advent of social legislation and action, which laid the foundations of what is called the ' modern
welfare state' .
Labor unions were organized as working class strikes and progressive legislation facilitated trade union organization, elections,
collective bargaining rights and a steady increase in union membership. Improved work conditions, rising wages, pension plans and
benefits, employer or union-provided health care and protective legislation improved the standard of living for the working class
and provided for 2 generations of upward mobility.
Social Security legislation was approved along with workers' compensation and the forty-hour workweek. Jobs were created through
federal programs (WPA, CCC, etc.). Protectionist legislation facilitated the growth of domestic markets for US manufacturers. Workplace
shop steward councils organized 'on the spot' job action to protect safe working conditions.
World War II led to full employment and increases in union membership, as well as legislation restricting workers' collective
bargaining rights and enforcing wage freezes. Hundreds of thousands of Americans found jobs in the war economy but a huge number
were also killed or wounded in the war.
The post-war period witnessed a contradictory process: wages and salaries increased while legislation curtailed union rights via
the Taft Hartley Act and the McCarthyist purge of leftwing trade union activists. So-called ' right to work' laws effectively
outlawed unionization mostly in southern states, which drove industries to relocate to the anti-union states.
Welfare reforms, in the form of the GI bill, provided educational opportunities for working class and rural veterans, while federal-subsidized
low interest mortgages encourage home-ownership, especially for veterans.
The New Deal created concrete improvements but did not consolidate labor influence at any level. Capitalists and management still
retained control over capital, the workplace and plant location of production.
Trade union officials signed pacts with capital: higher pay for the workers and greater control of the workplace for the bosses.
Trade union officials joined management in repressing rank and file movements seeking to control technological changes by reducing
hours (" thirty hours work for forty hours pay "). Dissident local unions were seized and gutted by the trade union bosses
– sometimes through violence.
Trade union activists, community organizers for rent control and other grassroots movements lost both the capacity and the
will to advance toward large-scale structural changes of US capitalism. Living standards improved for a few decades but the capitalist
class consolidated strategic control over labor relations. While unionized workers' incomes, increased, inequalities, especially
in the non-union sectors began to grow. With the end of the GI bill, veterans' access to high-quality subsidized education declined.
While a new wave of social welfare legislation and programs began in the 1960's and early 1970's it was no longer a result of
a mass trade union or workers' "class struggle". Moreover, trade union collaboration with the capitalist regional war policies led
to the killing and maiming of hundreds of thousands of workers in two wars – the Korean and Vietnamese wars.
Much of social legislation resulted from the civil and welfare rights movements. While specific programs were helpful, none of
them addressed structural racism and poverty.
The Last Wave of Social Welfarism
The 1960'a witnessed the greatest racial war in modern US history: Mass movements in the South and North rocked state and federal
governments, while advancing the cause of civil, social and political rights. Millions of black citizens, joined by white activists
and, in many cases, led by African American Viet Nam War veterans, confronted the state. At the same time, millions of students and
young workers, threatened by military conscription, challenged the military and social order.
Energized by mass movements, a new wave of social welfare legislation was launched by the federal government to pacify mass opposition
among blacks, students, community organizers and middle class Americans. Despite this mass popular movement, the union bosses at
the AFL-CIO openly supported the war, police repression and the military, or at best, were passive impotent spectators of the drama
unfolding in the nation's streets. Dissident union members and activists were the exception, as many had multiple identities to represent:
African American, Hispanic, draft resisters, etc.
Under Presidents Lyndon Johnson and Richard Nixon, Medicare, Medicaid, OSHA, the EPA and multiple poverty programs were implemented.
A national health program, expanding Medicare for all Americans, was introduced by President Nixon and sabotaged by the Kennedy Democrats
and the AFL-CIO. Overall, social and economic inequalities diminished during this period.
The Vietnam War ended in defeat for the American militarist empire. This coincided with the beginning of the end of social welfare
as we knew it – as the bill for militarism placed even greater demands on the public treasury.
With the election of President Carter, social welfare in the US began its long decline. The next series of regional wars were
accompanied by even greater attacks on welfare via the " Volker Plan " – freezing workers' wages as a means to combat inflation.
Guns without butter' became the legislative policy of the Carter and Reagan Administrations. The welfare programs were based
on politically fragile foundations.
The Debacle of Welfarism
Private sector trade union membership declined from a post-world war peak of 30% falling to 12% in the 1990's. Today it has sunk
to 7%. Capitalists embarked on a massive program of closing thousands of factories in the unionized North which were then relocated
to the non-unionized low wage southern states and then overseas to Mexico and Asia. Millions of stable jobs disappeared.
Following the election of 'Jimmy Carter', neither Democratic nor Republican Presidents felt any need to support labor organizations.
On the contrary, they facilitated contracts dictated by management, which reduced wages, job security, benefits and social welfare.
The anti-labor offensive from the ' Oval Office' intensified under President Reagan with his direct intervention
firing tens of thousands of striking air controllers and arresting union leaders. Under Presidents Carter, Reagan, George H.W. Bush
and William Clinton cost of living adjustments failed to keep up with prices of vital goods and services. Health care inflation was
astronomical. Financial deregulation led to the subordination of American industry to finance and the Wall Street banks. De-industrialization,
capital flight and massive tax evasion reduced labor's share of national income.
The capitalist class followed a trajectory of decline, recovery and ascendance. Moreover, during the earlier world depression,
at the height of labor mobilization and organization, the capitalist class never faced any significant political threat over its
control of the commanding heights of the economy.
The ' New Deal' was, at best, a de facto ' historical compromise' between the capitalist class and the labor
unions, mediated by the Democratic Party elite. It was a temporary pact in which the unions secured legal recognition while the capitalists
retained their executive prerogatives.
The Second World War secured the economic recovery for capital and subordinated labor through a federally mandated no strike
production agreement. There were a few notable exceptions: The coal miners' union organized strikes in strategic sectors and some
leftist leaders and organizers encouraged slow-downs, work to rule and other in-plant actions when employers ran roughshod with special
brutality over the workers. The recovery of capital was the prelude to a post-war offensive against independent labor-based political
organizations. The quality of labor organization declined even as the quantity of trade union membership increased.
Labor union officials consolidated internal control in collaboration with the capitalist elite. Capitalist class-labor official
collaboration was extended overseas with strategic consequences.
The post-war corporate alliance between the state and capital led to a global offensive – the replacement of European-Japanese
colonial control and exploitation by US business and bankers. Imperialism was later 're-branded' as ' globalization' . It
pried open markets, secured cheap docile labor and pillaged resources for US manufacturers and importers.
US labor unions played a major role by sabotaging militant unions abroad in cooperation with the US security apparatus: They worked
to coopt and bribe nationalist and leftist labor leaders and supported police-state regime repression and assassination of recalcitrant
militants.
' Hand in bloody glove' with the US Empire, the American trade unions planted the seeds of their own destruction at home.
The local capitalists in newly emerging independent nations established industries and supply chains in cooperation with US manufacturers.
Attracted to these sources of low-wage, violently repressed workers, US capitalists subsequently relocated their factories overseas
and turned their backs on labor at home.
Labor union officials had laid the groundwork for the demise of stable jobs and social benefits for American workers. Their collaboration
increased the rate of capitalist profit and overall power in the political system. Their complicity in the brutal purges of militants,
activists and leftist union members and leaders at home and abroad put an end to labor's capacity to sustain and expand the welfare
state.
Trade unions in the US did not use their collaboration with empire in its bloody regional wars to win social benefits for the
rank and file workers. The time of social-imperialism, where workers within the empire benefited from imperialism's pillage, was
over. Gains in social welfare henceforth could result only from mass struggles led by the urban poor, especially Afro-Americans,
community-based working poor and militant youth organizers.
The last significant social welfare reforms were implemented in the early 1970's – coinciding with the end of the Vietnam War
(and victory for the Vietnamese people) and ended with the absorption of the urban and anti-war movements into the Democratic Party.
Henceforward the US corporate state advanced through the overseas expansion of the multi-national corporations and via large-scale,
non-unionized production at home.
The technological changes of this period did not benefit labor. The belief, common in the 1950's, that science and technology
would increase leisure, decrease work and improve living standards for the working class, was shattered. Instead technological changes
displaced well-paid industrial labor while increasing the number of mind-numbing, poorly paid, and politically impotent jobs in the
so-called 'service sector' – a rapidly growing section of unorganized and vulnerable workers – especially including women and minorities.
Labor union membership declined precipitously. The demise of the USSR and China's turn to capitalism had a dual effect: It eliminated
collectivist (socialist) pressure for social welfare and opened their labor markets with cheap, disciplined workers for foreign manufacturers.
Labor as a political force disappeared on every count. The US Federal Reserve and President 'Bill' Clinton deregulated financial
capital leading to a frenzy of speculation. Congress wrote laws, which permitted overseas tax evasion – especially in Caribbean tax
havens. Regional free-trade agreements, like NAFTA, spurred the relocation of jobs abroad. De-industrialization accompanied the decline
of wages, living standards and social benefits for millions of American workers.
The New Abolitionists: Trillionaires
The New Deal, the Great Society, trade unions, and the anti-war and urban movements were in retreat and primed for abolition.
Wars without welfare (or guns without butter) replaced earlier 'social imperialism' with a huge growth of poverty and homelessness.
Domestic labor was now exploited to finance overseas wars not vice versa. The fruits of imperial plunder were not shared.
As the working and middle classes drifted downward, they were used up, abandoned and deceived on all sides – especially by the
Democratic Party. They elected militarists and demagogues as their new presidents.
President 'Bill' Clinton ravaged Russia, Yugoslavia, Iraq and Somalia and liberated Wall Street. His regime gave birth to the
prototype billionaire swindlers: Michael Milken and Bernard 'Bernie' Madoff.
Clinton converted welfare into cheap labor 'workfare', exploiting the poorest and most vulnerable and condemning the next
generations to grinding poverty. Under Clinton the prison population of mostly African Americans expanded and the breakup of families
ravaged the urban communities.
Provoked by an act of terrorism (9/11) President G.W. Bush Jr. launched the 'endless' wars in Afghanistan and Iraq and deepened
the police state (Patriot Act). Wages for American workers and profits for American capitalist moved in opposite directions.
The Great Financial Crash of 2008-2011 shook the paper economy to its roots and led to the greatest shakedown of any national
treasury in history directed by the First Black American President. Trillions of public wealth were funneled into the criminal banks
on Wall Street – which were ' just too big to fail .' Millions of American workers and homeowners, however, were '
just
too small to matter' .
The Age of Demagogues
President Obama transferred 2 trillion dollars to the ten biggest bankers and swindlers on Wall Street, and another trillion
to the Pentagon to pursue the Democrats version of foreign policy: from Bush's two overseas wars to Obama's seven.
Obama's electoral 'donor-owners' stashed away two trillion dollars in overseas tax havens and looked forward to global free trade
pacts – pushed by the eloquent African American President.
Obama was elected to two terms. His liberal Democratic Party supporters swooned over his peace and justice rhetoric while
swallowing his militarist escalation into seven overseas wars as well as the foreclosure of two million American householders. Obama
completely failed to honor his campaign promise to reduce wage inequality between black and white wage earners while he continued
to moralize to black families about ' values' .
Obama's war against Libya led to the killing and displacement of millions of black Libyans and workers from Sub-Saharan Africa.
The smiling Nobel Peace Prize President created more desperate refugees than any previous US head of state – including millions of
Africans flooding Europe.
'Obamacare' , his imitation of an earlier Republican governor's health plan, was formulated by the private corporate
health industry (private insurance, Big Pharma and the for-profit hospitals), to mandate enrollment and ensure triple digit profits
with double digit increases in premiums. By the 2016 Presidential elections, ' Obama-care' was opposed by a 45%-43% margin
of the American people. Obama's propagandists could not show any improvement of life expectancy or decrease in infant and maternal
mortality as a result of his 'health care reform'. Indeed the opposite occurred among the marginalized working class in the old 'rust
belt' and in the rural areas. This failure to show any significant health improvement for the masses of Americans is in stark contrast
to LBJ's Medicare program of the 1960's, which continues to receive massive popular support.
Forty-years of anti welfare legislation and pro-business regimes paved the golden road for the election of Donald Trump
Trump and the Republicans are focusing on the tattered remnants of the social welfare system: Medicare, Medicaid, Social Security.
The remains of FDR's New Deal and LBJ's Great Society -- are on the chopping block.
The moribund (but well-paid) labor leadership has been notable by its absence in the ensuing collapse of the social welfare
state. The liberal left Democrats embraced the platitudinous Obama/Clinton team as the 'Great Society's' gravediggers, while wailing
at Trump's allies for shoving the corpse of welfare state into its grave.
Conclusion
Over the past forty years the working class and the rump of what was once referred to as the ' labor movement' has contributed
to the dismantling of the social welfare state, voting for ' strike-breaker' Reagan, ' workfare' Clinton, ' Wall Street crash' Bush,
' Wall Street savior' Obama and ' Trickle-down' Trump.
Gone are the days when social welfare and profitable wars raised US living standards and transformed American trade unions
into an appendage of the Democratic Party and a handmaiden of Empire. The Democratic Party rescued capitalism from its collapse in
the Great Depression, incorporated labor into the war economy and the post- colonial global empire, and resurrected Wall Street from
the 'Great Financial Meltdown' of the 21 st century.
The war economy no longer fuels social welfare. The military-industrial complex has found new partners on Wall Street and
among the globalized multi-national corporations. Profits rise while wages fall. Low paying compulsive labor (workfare) lopped off
state transfers to the poor. Technology – IT, robotics, artificial intelligence and electronic gadgets – has created the most class
polarized social system in history. The first trillionaire and multi-billionaire tax evaders rose on the backs of a miserable
standing army of tens of millions of low-wage workers, stripped of rights and representation. State subsidies eliminate virtually
all risk to capital. The end of social welfare coerced labor (including young mother with children) to seek insecure low-income employment
while slashing education and health – cementing the feet of generations into poverty. Regional wars abroad have depleted the Treasury
and robbed the country of productive investment. Economic imperialism exports profits, reversing the historic relation of the past.
Labor is left without compass or direction; it flails in all directions and falls deeper in the web of deception and demagogy.
To escape from Reagan and the strike breakers, labor embraced the cheap-labor predator Clinton; black and white workers united to
elect Obama who expelled millions of immigrant workers, pursued 7 wars, abandoned black workers and enriched the already filthy rich.
Deception and demagogy of the labor-
If the welfare state in America was abolished, major American cities would burn to the ground. Anarchy would ensue, it would be
magnitudes bigger than anything that happened in Ferguson or Baltimore. It would likely be simultaneous.
I think that's one of the only situations where preppers would actually live out what they've been prepping for (except for
a natural disaster).
I've been thinking about this a little over the past few years after seeing the race riots. What exactly is the line between
our society being civilized and breaking out into chaos. It's probably a lot thinner than most people think.
I don't know who said it but someone long ago said something along the lines of, "Democracy can only work until the people
figure out they can vote for themselves generous benefits from the public treasury." We are definitely in this situation today.
I wonder how long it can last.
While I agree with Petras's intent (notwithstanding several exaggerations and unnecessary conflations with, for example, racism),
I don't agree so much with the method he proposes. I don't mind welfare and unions to a certain extent, but they are not going
to save us unless there is full employment and large corporations that can afford to pay an all-union workforce. That happened
during WW2, as only wartime demand and those pesky wage freezes solved the Depression, regardless of all the public works programs;
while the postwar era benefited from the US becoming the world's creditor, meaning that capital could expand while labor participation
did as well.
From then on, it is quite hard to achieve the same success after outsourcing and mechanization have happened all over the world.
Both of these phenomena not only create displaced workers, but also displaced industries, meaning that it makes more sense to
develop individual workfare (and even then, do it well, not the shoddy way it is done now) rather than giving away checks that
probably will not be cashed for entrepreneurial purposes, and rather than giving away money to corrupt unions who depend on trusts
to be able to pay for their benefits, while raising the cost of hiring that only encourages more outsourcing.
The amount of welfare given is not necessarily the main problem, the problem is doing it right for the people who truly need
it, and efficiently – that is, with the least amount of waste lost between the chain of distribution, which should reach intended
targets and not moochers.
Which inevitably means a sound tax system that targets unearned wealth and (to a lesser degree) foreign competition instead
of national production, coupled with strict, yet devolved and simple government processes that benefit both business and individuals
tired of bureaucracy, while keeping budgets balanced. Best of both worlds, and no military-industrial complex needed to drive
up demand.
The American welfare state was created in 1935 and continued to develop through 1973. Since then, over a prolonged period,
the capitalist class has been steadily dismantling the entire welfare state.
Wrong wrong wrong.
Corporations [now] are welfare recipients and the bigger they are, the more handouts they suck up, and welfare for
them started before 1935. In fact, it started in America before there was a USA. I do not have time to elaborate, but what were
the various companies such as the British East India Company and the Dutch West India Companies but state pampered, welfare based
entities? ~200 years ago, Herbert Spencer, if memory serves, pointed out that the British East India Company couldn't make a profit
even with all the special, government granted favors showered upon it.
Corporations not only continuously seek monopolies (with the aid and sanction of the state) but they steadily fine tune
the welfare state for their benefit. In fact, in reality, welfare for prols and peasants wouldn't exist if it didn't act as a
money conduit and ultimate profit center for the big money grubbers.
Well, the author kind of nails it. I remember from my childhood in the 50-60 ties in Scandinavia that the US was the ultimate
goal in welfare. The country where you could make a good living with your two hands, get you kids to UNI, have a house, a telly
ECT. It was not consumerism, it was the American dream, a chicken in every pot; we chewed imported American gum and dreamed.
In the 70-80 ties Scandinavia had a tremendous social and economic growth, EQUALLY distributed, an immense leap forward. In the
middle of the 80 ties we were equal to the US in standards of living.
Since we have not looked at the US, unless in pity, as we have seen the decline of the general income, social wealth fall way
behind our own.
The average US workers income has not increased since 90 figures adjusted for inflation. The Scandinavian workers income in the
same period has almost quadrupled. And so has our societies.
The article is dismal reading, and evidence of the failings of the "unregulated" society, where the anything goes as long
as you are wealthy.
Between the mid 1970's to the present (2017) labor laws, welfare rights and benefits and the construction of and subsidies
for affordable housing have been gutted. 'Workfare' (under President 'Bill' Clinton) ended welfare for the poor and displaced
workers. Meanwhile the shift to regressive taxation and the steadily declining real wages have increased corporate profits
to an astronomical degree.
What does Hollywood "elite" JAP and wannabe hack-stand-up-comic Sarah Silverman think about the class struggle and problems
facing destitute Americans? "Qu'ils mangent de la bagels!", source:
https://en.wikipedia.org/wiki/Let_them_eat_cake
Like the Pentagon. Americans still don't readily call this welfare, but they will eventually. Defense profiteers are unions
in a sense, you're either in their club Or you're in the service industry that surrounds it.
As other commenters have pointed out, it's Petras curious choice of words that sometimes don't make too much sense. We can probably
blame the maleable English language for that, but here it's too obvious. If you don't define a union, people might assume you're
only talking about a bunch of meat cutters at Safeway.
The welfare state is alive and well for corporate America. Unions are still here – but they are defined by access and secrecy,
you're either in the club or not.
The war on unions was successful first by co-option but mostly by the media. But what kind of analysis leaves out the role
of the media in the American transformation? The success is mind blowing.
America has barely literate (white) middle aged males trained to spout incoherent Calvinistic weirdness: unabased hatred for
the poor (or whoever they're told to hate) and a glorification of hedge fund managers as they get laid off, fired and foreclosed
on, with a side of opiates.
There is hardly anything more tragic then seeing a web filled with progressives (management consultants) dedicated to disempowering,
disabling and deligitimizing victims by claiming they are victims of biology, disease or a lack of an education rather than a
system that issues violence while portending (with the best media money can buy) that they claim the higher ground.
""Democracy can only work until the people figure out they can vote for themselves generous benefits from the public
treasury." We are definitely in this situation today."
Quite right: the 0.01% have worked it out & US democracy is a Theatre for the masses.
I don't know who said it but someone long ago said something along the lines of, "Democracy can only work until the people
figure out they can vote for themselves generous benefits from the public treasury."
Some French aristocrat put it as, once the gates to the treasury have been breached, they can only be closed again with gunpowder.
Anyone recognize the author?
The author doesn't get it. What we have now IS the welfare state in an intensely diverse society. We have more transfer spending
than ever before and Obamacare represents another huge entitlement.
Intellectuals continue to fantasize about the US becoming a Big Sweden, but Sweden has only been successful insofar as it has
been a modest nation-state populated by ethnic Swedes. Intense diversity in a huge country with only the remnants of federalism
results in massive non-consensual decision-making, fragmentation, increased inequality, and corruption.
The welfare state is alive and well for corporate America. Unions are still here – but they are defined by access and
secrecy, you're either in the club or not.
They are largely defined as Doctors, Lawyers, and University Professors who teach the first two. Of course they are not called
unions. Access is via credentialing and licensing. Good Day
Bernie Sanders, speaking on behalf of the MIC's welfare bird: "It is the airplane of the United States Air Force, Navy, and
of NATO."
Elizabeth Warren, referring to Mossad's Estes Rockets: "The Israeli military has the right to attack Palestinian hospitals
and schools in self defense"
Barack Obama, yukking it up with pop stars: "Two words for you: predator drones. You will never see it coming."
It's not the agitprop that confuses the sheep, it's whose blowhole it's coming out of (labled D or R for convenience) that
gets them to bare their teeth and speak of poo.
What came first, the credentialing or the idea that it is a necessary part of education? It certainly isn't an accurate indication
of what people know or their general intelligence – although that myth has flourished. Good afternoon.
For an interesting projection of what might happen in total civilizational collapse, I recommend the Dies the Fire series of
novels by SM Stirling.
It has a science-fictiony setup in that all high-energy system (gunpowder, electricity, explosives, internal combustion, even
high-energy steam engines) suddenly stop working. But I think it does a good job of extrapolating what would happen if suddenly
the cities did not have food, water, power, etc.
Spoiler alert: It ain't pretty. Those who dream of a world without guns have not really thought it through.
It has been pointed out repeatedly that Sweden does very well relative to the USA. It has also been noted that people of Swedish
ancestry in the USA do pretty well also. In fact considerably better than Swedes in Sweden
Neoliberalism as "Die-now economics." "Embodiment into lower class" or "the representation as a member the lower
class" if often fatal and upper mobility mobility is artificially limited (despite all MSM hype it is lower then in Europe). So just
being a member of lower class noticeably and negatively affects your life expectancy and other social metrics. Job insecurity
is the hazard reserved for lower and lower middle classes destructivly effect both physical and mental health. Too much stress
is not good for humans. Neoliberalism with its manta of competition uber alles and atomization of the workforce is a real killer.
also the fact that such article was published and the comments below is a clear sign that the days of neoliberalism are numbered.
It should go.
Notable quotes:
"... In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. ..."
"... Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways . ..."
"... Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything. ..."
"... "Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning. ..."
"... Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve." ..."
"... As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I". ..."
"... Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings ..."
"... "we have measurable health outcomes from political choices" So True!!! ..."
In our new book
, we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies.
Focusing on the social determinants
of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives,
while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity,
stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. They are
epidemics because they are observable on such an international scale and have been transmitted so quickly across time and space
that if they were biological contagions they would be seen as of epidemic proportions.
(The Case-Deaton study provides an obvious fifth: Deaths of despair. There are doubtless others.)
Case in point for
one of the unluckier members of the 90%:
On the morning of 25 August 2014 a young New Jersey woman, Maria Fernandes, died from inhaling gasoline fumes as she slept
in her 13-year-old car. She often slept in the car while shuttling between her three, low-wage jobs in food service; she kept
a can of gasoline in the car because she often slept with the engine running, and was worried about running out of gasoline. Apparently,
the can accidentally tipped over and the vapours from spilled gasoline cost her life. Ms Fernandes was one of the more obvious
casualties of the zero-hours culture of stress and insecurity that pervades the contemporary labour market under neoliberalism.
And Schrecker and Bambra conclude:
Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment,
inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your
skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in
biologically measurable ways .
... ... ...
Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction."
In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage
work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children,
families, household work ). So, even if class in our political economy is the driver, it's not everything.
L.S. reminiscent of Ernst Becker's, "The Structure of Evil" – "Escape from Evil"? (..not to indicate good vs. evil dichotomy)
A great amount of perspective must be agreed upon to achieve "change" intoned. Divide and conquer are complicit, as noted .otherwise
(and as indicated by U.S. economic history) change arrives only when all have lost all and can therefore agree begin again.
There is however, Naomi Klein perspective, "Shock Doctrine", whereby influence contributes to destabilization, plan in hand
leading to agenda driven ("neoliberal"=market fundamentalism) outcome, not at all spontaneous in nature:
"Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers,
whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It
maintains that "the market" delivers benefits that could never be achieved by planning.
Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services
should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions
that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility
and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive
and morally corrosive. The market ensures that everyone gets what they deserve."
On Case-Deason: Sounds like home. I keep the scanner on(local news) ems and fire only since 2006(sheriff got a homeland security
grant). The incidence of suicide, overdose and "intoxication psychosis" are markedly increased in the last 10+ years out here
in the wilderness(5K folks in whole county, last I looked). Our local economy went into near depression after the late 90's farm
bill killed the peanut program then 911 meant no hunting season that year(and it's been noticeably less busy ever since) then
drought and the real estate crash(we had 30 some realtors at peak..old family land being sold off, mostly). So the local Bourgeoisie
have had less money to spend, which "trickles down" onto the rest of us.:less construction, less eating out even at the cheap
places, less buying of gas, and on and on means fewer employees are needed, thus fewer jobs. To boot, there is a habit among many
employers out here of not paying attention to labor laws(it is Texas ) the last minwage rise took 2 years to filter out here,
and one must scrutinize one's pay stub to ensure that the boss isn't getting squirrelly with overtime and witholding.
Geography plays into all this, too 100 miles to any largish city.
I'm not well versed in Foucault or Lacan but I've read some of both and in reading between the lines of their writing (the
phantom philosophy?) I saw a very different message than that often delivered by post-modern theorists.
As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that
they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood
the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we"
are not possible because we have all become "I".
Considering what both their philosophies claimed, if identity is a lie, and the subject is always generated relative to the
other, then how the hell can there be any security or well being in self-actualization? It is like trying to hit a target that
does not exist.
All potentially oppressive cultural categorizations are examples of this (black, latino, gay, trans, etc.). If the identity
is a moving target, both to the oppressor and the oppressed, then how can it ever be a singular source of political action? You
can't hit what isn't there. This is not to say that these groups (in whatever determined category) are not oppressed, just that
formulating political action based strictly on the identity (often as an essential category) is impossible because it does not
actually exist materially. It is an amalgamation of subjects who's subjectivity is always relative to some other whether ally
or oppressor. Only the manifestations of oppression on bodies (as brought up in Lambert's post) can be utilized as metrics for
political action.
I thought of a couple of other advantages of the "embodiment" paradigm:
Better Framing. Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is
at once belittling (it's all about f-e-e-e-lings *) and disempowering (solutions are individual, like therapy or drugs).
Embodiment by contrast insists that neoliberalism (the neoliberal labor market (class warfare)) has real, material, physiological
effects that can be measured and tracked, as with any epidemic.
"... The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers. ..."
"... By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy ..."
"... Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation. ..."
"... One suspects big money will be thrown at this by the leading tech giants. ..."
"... Out of idle curiosity, how could you accurately deduce my country of origin from my name? ..."
December 14, 2017 by Yves Smith Yves here. Notice that Costa
Rica is served up as an example in this article. Way back in 1997, American Express had
designated Costa Rica as one of the countries it identified as sufficiently high income so as
to be a target for a local currency card offered via a franchise agreement with a domestic
institution (often but not always a bank). 20 years later, the Switzerland of Central America
still has limited Internet connectivity, yet is precisely the sort of place that tech titans
like Google would like to dominate.
The initiative described in this article reminds me of how the World Bank pushed hard
for emerging economies to develop capital markets, for the greater good of America's investment
bankers.
By Burcu Kilic, an expert on legal, economic and political issues. Originally published
at
openDemocracy
Today, the big tech race is for data extractivism from those yet to be 'connected' in
the world – tech companies will use all their power to achieve a global regime in which
small nations cannot regulate either data extraction or localisation.
To avoid a 'failure ministerial," some countries see the solution as pushing governments to
open a mandate to start conversations that might lead to a negotiation on binding rules for
e-commerce and a declaration of the gathering as the "digital ministerial". Argentina's MC11
chair, Susana Malcorra, is actively pushing for member states to embrace e-commerce at the WTO,
claiming that it is necessary to " bridge the gap between the
haves and have-nots ".
It is not very clear what kind of gaps Malcorra is trying to bridge. It surely isn't the
"connectivity gap" or "digital divide" that is growing between developed and developing
countries, seriously impeding digital learning and knowledge in developing countries. In fact,
half of humanity is not even connected to the internet, let alone positioned to develop
competitive markets or bargain at a multilateral level. Negotiating binding e-commerce rules at
the WTO would only widen that gap.
Dangerously, the "South Vision" of digital trade in the global trade arena is being shaped
by a recent alliance of governments and well-known tech-sector lobbyists, in a group called
'Friends of E-Commerce for Development' (FED), including Argentina, Chile, Colombia, Costa
Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, Uruguay, and, most recently, China. FED
claims that e-commerce is a tool to drive growth, narrow the digital divide, and generate
digital solutions for developing and least developed countries.
However, none of the countries in the group (apart from China) is leading or even remotely
ready to be in a position to negotiate and push for binding rules on digital trade that will be
favorable to them, as their economies are still far away from the technology revolution. For
instance, it is perplexing that one of the most fervent defenders of FED's position is Costa
Rica. The country's economy is based on the export of bananas, coffee, tropical
fruits, and low-tech medical instruments, and almost half of its population
is offline . Most of the countries in FED are far from being powerful enough to shift
negotiations in favor of small players.
U.S.-based tech giants and Chinese Alibaba – so-called GAFA-A – dominate, by
far, the future of the digital playing field, including issues such as identification and
digital payments, connectivity, and the next generation of logistics solutions. In fact, there
is a no-holds-barred ongoing race among these tech giants to consolidate their market share in
developing economies, from the race to grow the advertising market to the race to increase
online payments.
An e-commerce agenda that claims unprecedented development for the Global South is a Trojan
horse move. Beginning negotiations on such topics at this stage – before governments are
prepared to understand what is at stake – could lead to devastating results, accelerating
liberalization and the consolidation of the power of tech giants to the detriment of local
industries, consumers, and citizens. Aware of the increased disparities between North and
South, and the data dominance of a tiny group of GAFA-A companies, a group of African nations
issued a statement opposing the digital ambitions of the host for MC11. But the political
landscape is more complex, with China, the EU, and Russia now supporting the idea of a
"digital" mandate .
Repeating the Same Mistakes?
The relationships of most countries with tech companies are as imbalanced as their
relationships with Big Pharma, and there are many parallels to note. Not so long ago, the
countries of the Global South faced Big Pharma power in pharmaceutical markets in a similar
way. Some developing countries had the same enthusiasm when they negotiated intellectual
property rules for the protection of innovation and research and development costs. In reality,
those countries were nothing more than users and consumers of that innovation, not the owners
or creators. The lessons of negotiating trade issues that lie at the core of public interest
issues – in that case, access to medicines – were costly. Human lives and
fundamental rights of those who use online services should not be forgotten when addressing the
increasingly worrying and unequal relationships with tech power.
The threat before our eyes is similarly complex and equally harmful to the way our societies
will be shaped in the coming years. In the past, the Big Pharma race was for patent
exclusivity, to eliminate local generic production and keep drug prices high. Today, the Big
Tech race is for data extractivism from those who have yet to be connected in the world, and
tech companies will use all the power they hold to achieve a global regime in which small
nations cannot regulate either data extraction or data localization.
Big Tech is one of the most concentrated and resourceful industries of all time. The
bargaining power of developing countries is minimal. Developing countries will basically be
granting the right to cultivate small parcels of a land controlled by data lords -- under their
rules, their mandate, and their will -- with practically no public oversight. The stakes are
high. At the core of it is the race to conquer the markets of digital payments and the battle
to become the platform where data flows, splitting the territory as old empires did in the
past. As
the Economist claimed on May 6, 2017: "Conflicts over control of oil have scarred
the world for decades. No one yet worries that wars will be fought over data. But the data
economy has the same potential for confrontation."
If countries from the Global South want to prepare for data wars, they should start thinking
about how to reduce the control of Big Tech over -- how we communicate, shop, and learn the
news -- , again, over our societies. The solution lies not in making rules for data
liberalization, but in devising ways to use the law to reduce Big Tech's power and protect
consumers and citizens. Finding the balance would take some time and we are going to take that
time to find the right balance, we are not ready to lock the future yet.
One suspects big money will be thrown at this by the leading tech giants. To paraphrase
from a comment I made recently regarding a similar topic : "with markets in the developed
world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next
3 billion users for their products/services are going to come from developing world". With
this dynamic in mind, and the "constant growth" mantra humming incessantly in the background,
it's easy to see how high stakes a game this is for the tech giants and how no resources will
be spared to stymie any efforts at establishing a regulatory oversight framework that will
protect the digital rights of citizens in the global south.
Multilateral fora like the WTO are de facto enablers for the marauding frontal attacks of
transnational corporations, and it's disheartening to see that some developing nations have
already nailed the digital futures of their citizens to the mast of the tech giants by
joining this alliance. What's more, this signing away of their liberty will be sold to the
citizenry as the best way to usher them into the brightest of all digital futures.
One suspects big money will be thrown at this by the leading tech giants.
Vast sums of money are already being thrown at bringing Africa online, for better
or worse. Thus, the R&D aimed at providing wireless Internet via giant
drones/balloons/satellites by Google, Facebook, etc.
You're African. Possibly South African by your user name, which may explain why you're a
little behind the curve, because the action is already happening, but more to the north --
and particularly in East Africa.
The big corporations -- and the tech giants are competing with the banking/credit card
giants -- have noted how mobile technology leapt over the dearth of last century's telephony
tech, land lines, and in turn enabled the highest adoption rates of cellphone banking in the
world. (Particularly in East Africa, as I say.) The payoffs for big corporations are massive
-- de facto cashless societies where the corporations control the payment systems
–and the politicians are mostly cheap.
In Nigeria, the government has launched a Mastercard-branded national ID card that's also
a payment card, in one swoop handing Mastercard more than 170 million potential customers,
and their personal and biometric data.
In Kenya, the sums transferred by mobile money operator M-Pesa are more than 25 percent of
that country's GDP.
You can see that bringing Africa online is technically a big, decade-long project. But
also that the potential payoffs are vast. Though I also suspect China may come out ahead --
they're investing far more in Africa and in some areas their technology -- drones, for
instance -- is already superior to what the Europeans and the American companies have.
Hoisted from a comment I made here recently: "Here in South Africa and through its Free
Basics programme, facebook is jumping into bed with unsuspecting ISPs (I say unsuspecting
because fb will soon be muscling in on their territory and becoming an ISP itself by
provisioning bandwidth directly from its floating satellites) and circumventing net
neutrality "
I'm also keenly aware of the developments in Kenya re: safaricom and Mpesa and how that
has led to traditional banking via bank accounts being largely leapfrogged for those moving
from being unbanked to active economic citizens requiring money transfer facilities. Given
the huge succes of Mpesa, I wouldn't be surprised if a multinational tech behemoth (chinese
or american) were to make a play for acquiring safaricom and positioning it as a triple-play
ISP, money transfer/banking services and digital content provider (harvesting data about
users habits on an unprecedented scale across multiple areas of their lives), first in Kenya
then expanded throughout east, central and west africa. I must add that your statement about
Nigeria puts Mark Zuckerberg's visit there a few months back into context somewhat, perhaps a
reconnaissance mission of sorts.
Out of idle curiosity, how could you accurately deduce my country of origin from my
name?
As you also write: "with markets in the developed world pretty much sewn up by the
tripartite tech overlords (google, fb and amazon), the next 3 billion users for their
products/services are going to come from developing world."
Absolutely true. This cannot be stressed enough. The tech giants know this and the race is
on.
At 5:30 every morning, Tony Gwiazdowski rolls out of bed, brews a pot of coffee and carefully arranges his laptop, cell phone
and notepad like silverware across the kitchen table.
And then he waits.
Gwiazdowski, 57, has been waiting for 16 months. Since losing his job as a transportation sales manager in February 2009, he wakes
each morning to the sobering reminder that, yes, he is still unemployed. So he pushes aside the fatigue, throws on some clothes and
sends out another flurry of resumes and cheery cover letters.
But most days go by without a single phone call. And around sundown, when he hears his neighbors returning home from work, Gwiazdowski
-- the former mayor of Hillsborough -- can't help but allow himself one tiny sigh of resignation.
"You sit there and you wonder, 'What am I doing wrong?'" said Gwiazdowski, who finds companionship in his 2-year-old golden retriever,
Charlie, until his wife returns from work.
"The worst moment is at the end of the day when it's 4:30 and you did everything you could, and the phone hasn't rung, the e-mails
haven't come through."
Gwiazdowski is one of a growing number of chronically unemployed workers in New Jersey and across the country who are struggling
to get through what is becoming one long, jobless nightmare -- even as the rest of the economy has begun to show signs of recovery.
Nationwide, 46 percent of the unemployed -- 6.7 million Americans -- have been without work for at least half a year, by far the
highest percentage recorded since the U.S. Labor Department began tracking the data in 1948.
In New Jersey, nearly 40 percent of the 416,000 unemployed workers last year fit that profile, up from about 20 percent in previous
years, according to the department, which provides only annual breakdowns for individual states. Most of them were unemployed for
more than a year.
But the repercussions of chronic unemployment go beyond the loss of a paycheck or the realization that one might never find the
same kind of job again. For many, the sinking feeling of joblessness -- with no end in sight -- can take a psychological toll, experts
say.
Across the state, mental health crisis units saw a 20 percent increase in demand last year as more residents reported suffering
from unemployment-related stress, according to the New Jersey Association of Mental Health Agencies.
"The longer the unemployment continues, the more impact it will have on their personal lives and mental health," said Shauna Moses,
the association's associate executive director. "There's stress in the marriage, with the kids, other family members, with friends."
And while a few continue to cling to optimism, even the toughest admit there are moments of despair: Fear of never finding work,
envy of employed friends and embarassment at having to tell acquaintances that, nope, still no luck.
"When they say, 'Hi Mayor,' I don't tell a lot of people I'm out of work -- I say I'm semi-retired," said Gwiazdowski, who maxed
out on unemployment benefits several months ago.
"They might think, 'Gee, what's wrong with him? Why can't he get a job?' It's a long story and maybe people really don't care
and now they want to get away from you."
SECOND TIME AROUND
Lynn Kafalas has been there before, too. After losing her computer training job in 2000, the East Hanover resident took four agonizing
years to find new work -- by then, she had refashioned herself into a web designer.
That not-too-distant experience is why Kafalas, 52, who was laid off again eight months ago, grows uneasier with each passing
day. Already, some of her old demons have returned, like loneliness, self-doubt and, worst of all, insomnia. At night, her mind races
to dissect the latest interview: What went wrong? What else should she be doing? And why won't even Barnes & Noble hire her?
"It's like putting a stopper on my life -- I can't move on," said Kafalas, who has given up karate lessons, vacations and regular
outings with friends. "Everything is about the interviews."
And while most of her friends have been supportive, a few have hinted to her that she is doing something wrong, or not doing enough.
The remarks always hit Kafalas with a pang.
In a recent study, researchers at Rutgers University found that the chronically unemployed are prone to high levels of stress,
anxiety, depression, loneliness and even substance abuse, which take a toll on their self-esteem and personal relationships.
"They're the forgotten group," said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers,
and a co-author of the report. "And the longer you are unemployed, the less likely you are to get a job."
Of the 900 unemployed workers first interviewed last August for the study, only one in 10 landed full-time work by March of this
year, and only half of those lucky few expressed satisfaction with their new jobs. Another one in 10 simply gave up searching.
Among those who were still unemployed, many struggled to make ends meet by borrowing from friends or family, turning to government
food stamps and forgoing health care, according to the study.
More than half said they avoided all social contact, while slightly less than half said they had lost touch with close friends.
Six in 10 said they had problems sleeping.
Kafalas says she deals with her chronic insomnia by hitting the gym for two hours almost every evening, lifting weights and pounding
the treadmill until she feels tired enough to fall asleep.
"Sometimes I forget what day it is. Is it Tuesday? And then I'll think of what TV show ran the night before," she said. "Waiting
is the toughest part."
AGE A FACTOR
Generally, the likelihood of long-term unemployment increases with age, experts say. A report by the National Employment Law Project
this month found that nearly half of those who were unemployed for six months or longer were at least 45 years old. Those between
16 and 24 made up just 14 percent.
Tell that to Adam Blank, 24, who has been living with his girlfriend and her parents at their Martinsville home since losing his
sales job at Best Buy a year and half ago.
Blank, who graduated from Rutgers with a major in communications, says he feels like a burden sometimes, especially since his
girlfriend, Tracy Rosen, 24, works full-time at a local nonprofit. He shows her family gratitude with small chores, like taking out
the garbage, washing dishes, sweeping floors and doing laundry.
Still, he often feels inadequate.
"All I'm doing on an almost daily basis is sitting around the house trying to keep myself from going stir-crazy," said Blank,
who dreams of starting a social media company.
When he is feeling particularly low, Blank said he turns to a tactic employed by prisoners of war in Vietnam: "They used to build
dream houses in their head to help keep their sanity. It's really just imagining a place I can call my own."
LESSONS LEARNED
Meanwhile, Gwiazdowski, ever the optimist, says unemployment has taught him a few things.
He has learned, for example, how to quickly assess an interviewer's age and play up or down his work experience accordingly --
he doesn't want to appear "threatening" to a potential employer who is younger. He has learned that by occasionally deleting and
reuploading his resume to job sites, his entry appears fresh.
"It's almost like a game," he said, laughing. "You are desperate, but you can't show it."
But there are days when he just can't find any humor in his predicament -- like when he finishes a great interview but receives
no offer, or when he hears a fellow job seeker finally found work and feels a slight twinge of jealousy.
"That's what I'm missing -- putting on that shirt and tie in the morning and going to work," he said.
The memory of getting dressed for work is still so vivid, Gwiazdowski says, that he has to believe another job is just around
the corner.
"You always have to hope that that morning when you get up, it's going to be the day," he said.
"Today is going to be the day that something is going to happen."
I collect from the state of iowa, was on tier I and when the gov't recessed without passing extension, iowa stopped paying
tier I claims that were already open, i was scheduled to be on tier I until july 15th, and its gone now, as a surprise, when i
tried to claim my week this week i was notified. SURPRISE, talk about stress.
This is terrible....just wait until RIF'd teachers hit the unemployment offices....but then, this is what NJ wanted...fired
teachers who are to blame for the worst recession our country has seen in 150 years...thanks GWB.....thanks Donald Rumsfeld......thanks
Dick Cheney....thanks Karl "Miss Piggy" Rove...and thank you Mr. Big Boy himself...Gov Krispy Kreame!
For readers who care about this nation's unemployed- Call your Senators to pass HR 4213, the "Extenders" bill. Unfortunately,
it does not add UI benefits weeks, however it DOES continue the emergency federal tiers of UI. If it does not pass this week many
of us are cut off at 26 wks. No tier 1, 2 -nothing.
The longer you are unemployed, the more you are effected by those factors.
Notable quotes:
"... The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects. ..."
"... Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system. ..."
"... Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises. ..."
"... Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem. ..."
"... One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available. ..."
"... Depression is universally hated by anyone who's ever had it. ..."
"... Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either. ..."
"... You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard. ..."
It's almost impossible to describe the various psychological impacts, because there are so many. There are sometimes serious consequences,
including suicide, and, some would say worse, chronic depression.
There's not really a single cause and effect. It's a compound effect, and unemployment, by adding stress, affects people, often
badly.
The world doesn't need any more untrained psychologists, and we're not pretending to give medical advice. That's for professionals.
Everybody is different, and their problems are different. What we can do is give you an outline of the common problems, and what
you can do about them.
The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent
they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they
suffer few, and minor, ill effects.
For others, there are a series of issues, and the big three are:
Stress
Anger, and other negative emotions
Depression
Stress
Stress is Stage One. It's a natural result of the situation. Worries about income, domestic problems, whatever, the list is as
long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation
over time. The chemistry of stress is complex, but it can be rough on the hormonal system.
Over an extended period, the body's natural hormonal balances are affected, and this can lead to problems. These are actually
physical issues, but the effects are mental, and the first obvious effects are, naturally, emotional.
Anger, and other negative emotions
Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite
intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress.
Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those
affected, these are by now, at this stage, real crises.
If the actual situation was already bad, this mental state makes it a lot worse. Constant aggravation doesn't help people to keep
a sense of perspective. Clear thinking isn't easy when under constant stress.
Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these
conditions. Even that comes at a cost, and although under control, the stress remains a problem.
One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress
over the last decade. This is a common situation, and help is available.
If you have reservations about seeking help, bear in mind it can't possibly be any worse than the problem.
Depression
Depression is universally hated by anyone who's ever had it. This is the next stage, and it's caused by hormonal imbalances which
affect serotonin. It's actually a physical problem, but it has mental effects which are sometimes devastating, and potentially life
threatening.
The common symptoms are:
Difficulty in focusing mentally, thoughts all over the place in no logical order
Fits of crying for no known reason
Illogical, or irrational patterns of thought and behavior
Sadness
Suicidal thinking
It's a disgusting experience. No level of obscenity could possibly describe it. Depression is misery on a level people wouldn't
conceive in a nightmare. At this stage the patient needs help, and getting it is actually relatively easy. It's convincing the person they need to do something about it that's difficult. Again, the mental state is working against the person. Even admitting there's a problem is hard for many people in this condition.
Generally speaking, a person who is trusted is the best person to tell anyone experiencing the onset of depression to seek help. Important: If you're experiencing any of those symptoms:
Get on the phone and make an appointment to see your doctor. It takes half an hour for a diagnosis, and you can be on your
way home with a cure in an hour. You don't have to suffer. The sooner you start to get yourself out of depression, the better.
Avoid any antidepressants with the so-called withdrawal side effects. They're not too popular with patients, and are under
some scrutiny. The normal antidepressants work well enough for most people.
Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly
the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either.
Alcohol, in particular, makes depression much worse. Alcohol is a depressant, itself, and it's also a nasty chemical mix with
all those stress hormones.
If you've ever had alcohol problems, or seen someone with alcohol wrecking their lives, depression makes things about a million
times worse.
Just don't do it. Steer clear of any so-called stimulants, because they don't mix with antidepressants, either.
Unemployment and staying healthy
The above is what you need to know about the risks of unemployment to your health and mental well being.
These situations are avoidable.
Your best defense against the mental stresses and strains of unemployment, and their related problems is staying healthy.
We can promise you that is nothing less than the truth. The healthier you are, the better your defenses against stress, and the
more strength you have to cope with situations.
Basic health is actually pretty easy to achieve:
Diet
Eat real food, not junk, and make sure you're getting enough food. Your body can't work with resources it doesn't have. Good food
is a real asset, and you'll find you don't get tired as easily. You need the energy reserves.
Give yourself a good selection of food that you like, that's also worth eating.
The good news is that plain food is also reasonably cheap, and you can eat as much as you need. Basic meals are easy enough to
prepare, and as long as you're getting all the protein veg and minerals you need, you're pretty much covered.
You can also use a multivitamin cap, or broad spectrum supplements, to make sure you're getting all your trace elements. Also
make sure you're getting the benefits of your food by taking acidophilus or eating yogurt regularly.
Exercise
You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic
exercises, you're talking about 30-45 minutes a day. It's not hard.
Don't just sit and suffer
If anything's wrong, check it out when it starts, not six months later. Most medical conditions become serious when they're allowed
to get worse.
For unemployed people the added risk is also that they may prevent you getting that job, or going for interviews. If something's
causing you problems, get rid of it.
Nobody who's been through the blender of unemployment thinks it's fun.
Anyone who's really done it tough will tell you one thing:
Don't be a victim. Beat the problem, and you'll really appreciate the feeling.
"... Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%. This was an effective $500 million wealth transfer from drivers to Uber's investors. ..."
"... Uber's P&L gains were wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in any improvement in Uber profit margins. ..."
"... In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing drivers an additional $3 billion. [6] Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a week. ..."
"... An independent study of the net earnings of Uber drivers (after accounting for the costs of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range. [7] Multiple recent news reports have documented how Uber drivers are increasing unable to support themselves from their reduced share of passenger payments. [8] ..."
"... Since mass driver defections would cause passenger volume growth to collapse completely, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017. ..."
"... Socialize the losses, privatize the gains, VC-ize the subsidies. ..."
"... The cold hard truth is that Uber is backed into a corner with severely limited abilities to tweak the numbers on either the supply or the demand side: cut driver compensation and they trigger driver churn (as has already been demonstrated), increase fare prices for riders and riders defect to cheaper alternatives. ..."
"... "Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype brilliance" was to con the market with "revenue growth" and signs ..."
Uber lost $2.5 billion in 2015, probably lost $4 billion in 2016, and is on track to lose $5
billion in 2017.
The top line on the table below shows is total passenger payments, which must be split
between Uber corporate and its drivers. Driver gross earnings are substantially higher than
actual take home pay, as gross earning must cover all the expenses drivers bear, including
fuel, vehicle ownership, insurance and maintenance.
Most of the "profit" data released by Uber over time and discussed in the press is not true
GAAP (generally accepted accounting principles) profit comparable to the net income numbers
public companies publish but is EBIDTAR contribution. Companies have significant leeway as to
how they calculate EBIDTAR (although it would exclude interest, taxes, depreciation,
amortization) and the percentage of total costs excluded from EBIDTAR can vary significantly
from quarter to quarter, given the impact of one-time expenses such as legal settlements and
stock compensation. We only have true GAAP net profit results for 2014, 2015 and the 2nd/3rd
quarters of 2017, but have EBIDTAR contribution numbers for all other periods.
[5]
Uber had GAAP net income of negative $2.6 billion in 2015, and a negative profit margin of
132%. This is consistent with the negative $2.0 billion loss and (143%) margin for the year
ending September 2015 presented in part one of the NC Uber series over a year ago.
No GAAP profit results for 2016 have been disclosed, but actual losses likely exceed $4
billion given the EBIDTAR contribution of negative $3.2 billion. Uber's GAAP losses for the 2nd
and 3rd quarters of 2017 were over $2.5 billion, suggesting annual losses of roughly $5
billion.
While many Silicon Valley funded startups suffered large initial losses, none of them lost
anything remotely close to $2.6 billion in their sixth year of operation and then doubled their
losses to $5 billion in year eight. Reversing losses of this magnitude would require the
greatest corporate financial turnaround in history.
No evidence of significant efficiency/scale gains; 2015 and 2016 margin improvements
entirely explained by unilateral cuts in driver compensation, but losses soared when Uber had
to reverse these cuts in 2017.
Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate
revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%.
This was an effective $500 million wealth transfer from drivers to Uber's investors. These
driver compensation cuts improved Uber's EBIDTAR margin, but Uber's P&L gains were
wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in
any improvement in Uber profit margins.
In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing
drivers an additional $3 billion.
[6] Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was
in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a
week.
An independent study of the net earnings of Uber drivers (after accounting for the costs
of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to
Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range.
[7] Multiple recent news reports have documented how Uber drivers are increasing unable to
support themselves from their reduced share of passenger payments.
[8]
A business model where profit improvement is hugely dependent on wage cuts is unsustainable,
especially when take home wages fall to (or below) minimum wage levels. Uber's primary focus
has always been the rate of growth in gross passenger revenue, as this has been a major
justification for its $68 billion valuation. This growth rate came under enormous pressure in
2017 given Uber efforts to raise fares, major increases in driver turnover as wages fell,
[9] and the avalanche of adverse publicity it was facing.
Since mass driver defections would cause passenger volume growth to collapse completely,
Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%.
This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in
2016 will probably only grow by about 15% in 2017.
"Uber's business model can never produce sustainable profits"
Two words not in my vocabulary are "Never" and "Always", that is a pretty absolute
statement in an non-absolute environment. The same environment that has produced the "Silicon
Valley Growth Model", with 15x earnings companies like NVIDA, FB and Tesla (Average
earnings/stock price ratio in dot com bubble was 10x) will people pay ridiculous amounts of
money for a company with no underlying fundamentals you damn right they will! Please stop
with the I know all no body knows anything, especially the psychology and irrationality of
markets which are made up of irrational people/investors/traders.
My thoughts exactly. Seems the only possible recovery for the investors is a perfectly
engineered legendary pump and dump IPO scheme. Risky, but there's a lot of fools out there
and many who would also like to get on board early in the ride in fear of missing out on all
the money to be hoovered up from the greater fools. Count me out.
The author clearly distinguishes between GAAP profitability and valuations, which is after
all rather the point of the series. And he makes a more nuanced point than the half sentence
you have quoted without context or with an indication that you omitted a portion. Did you
miss the part about how Uber would have a strong incentive to share the evidence of a network
effect or other financial story that pointed the way to eventual profit? Otherwise (my words)
it is the classic sell at a loss, make it up with volume path to liquidation.
apples and oranges comparison, nvidia has lots and lots of patented tech that produces
revenue, facebook has a kajillion admittedly irrational users, but those users drive massive
ad sales (as just one example of how that company capitalizes itself) and tesla makes an
actual car, using technology that inspires it's buyers (the put your money where your mouth
is crowd and it can't be denied that tesla, whatever it's faults are, battery tech is not one
of them and that intellectual property is worth a lot, and tesla's investors are in on that
real business, profitable or otherwise)
Uber is an iphone app. They lose money and have no
path to profitability (unless it's the theory you espouse that people are unintelligent so
even unintelligent ideas work to fleece them). This article touches on one of the great
things about the time we now inhabit, uber drivers could bail en masse, there are two sides
to the low attachment employees who you can get rid of easily. The drivers can delete the
uber app as soon as another iphone app comes along that gets them a better return
For many air travelers, getting to and from the airport has long been part of the whole
miserable experience. Do they drive and park in some distant lot? Take mass transit or a
taxi? Deal with a rental car?
Ride-hailing services like Uber and Lyft are quickly changing those calculations. That
has meant a bit less angst for travelers.
But that's not the case for airports. Travelers' changing habits, in fact, have begun to
shake the airports' financial underpinnings. The money they currently collect from
ride-hailing services do not compensate for the lower revenues from the other sources.
At the same time, some airports have had to add staff to oversee the operations of the
ride-hailing companies, the report said. And with more ride-hailing vehicles on the roads
outside terminals,
there's more congestion.
Socialize the losses, privatize the gains, VC-ize the subsidies.
The cold hard truth is that Uber is backed into a corner with severely limited abilities
to tweak the numbers on either the supply or the demand side: cut driver compensation and
they trigger driver churn (as has already been demonstrated), increase fare prices for riders
and riders defect to cheaper alternatives. The only question is how long can they keep the
show going before the lights go out, slick marketing and propaganda can only take you so far,
and one assumes the dumb money has a finite supply of patience and will at some point begin
asking the tough questions.
The irony is that Uber would have been a perfectly fine, very profitable mid-sized company
if Uber stuck with its initial model -- sticking to dense cities with limited parking,
limiting driver supply, and charging a premium price for door-to-door delivery, whether by
livery or a regular sedan. And then perhaps branching into robo-cars.
But somehow Uber/board/Travis got suckered into the siren call of self-driving cars,
triple-digit user growth, and being in the top 100 US cities and on every continent.
I've shared a similar sentiment in one of the previous posts about Uber. But operating
profitably in decent sized niche doesn't fit well with ambitions of global domination. For
Uber to be "right-sized", an admission of folly would have to be made, its managers and
investors would have to transcend the sunk cost fallacy in their strategic decision making,
and said investors would have to accept massive hits on their invested capital. The cold,
hard reality of being blindsided and kicked to the curb in the smartphone business forced
RIM/Blackberry to right-size, and they may yet have a profitable future as an enterprise
facing software and services company. Uber would benefit from that form of sober mindedness,
but I wouldn't hold my breath.
I know nothing about Softbank or its management, but I do know that the Japanese were the
dumb money rubes in the late '80's, overpaying for trophy real estate they lost billions
on.
Until informed otherwise, that's my default assumption
Softbank possibly looking to buy more Uber shares at a 30% discount is very odd. Uber had
a Series G funding round in June 2016 where a $3.5
billion investment from Saudi Arabia's Public Investment Fund resulted in its current $68
billion valuation. Now apparently Softbank wants to lead a new $6 billion funding round to
buy the shares of Uber employees and early investors at a 30% discount from this last
"valuation". It's odd because Saudi Arabia's Public Investment Fund has pledged
$45 billion to SoftBank's Vision Fund , an amount which was supposed to come from the
proceeds of its pending Aramco IPO. If the Uber bid is linked to SoftBank's Vision Fund, or
KSA money, then its not clear why this investor might be looking to literally 'double down'
from $3.5 billion o $6 billion on a declining investment.
"Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype
brilliance" was to con the market with "revenue growth" and signs of efficiency, and
hopes of greater efficiency, and make most people just overlook the essential fact
that Uber is the most unprofitable company of all time!
What comprises "Uber Expenses"? 2014 – $1.06 billion; 2015 $3.33 billion; 2016 $9.65
billion; forecast 2017 $11.418 billion!!!!!! To me this is the big question – what are
they spending $10 billion per year on?
ALso – why did driver share go from 68% in 2016 to 80% in 2017? If you use 68% as in
2016, 2017 Uber revenue is $11.808 billion, which means a bit better than break-even EBITDA,
assuming Uber expenses are as stated $11.428 billion.
Perhaps not so bleak as the article presents, although I would not invest in this
thing.
I have the same question: What comprises over 11 billion dollars in expenses in 2017?
Could it be they are paying out dividends to the early investors? Which would mean they are
cannibalizing their own company for the sake of the VC! How long can this go on before
they'll need a new infusion of cash?
Oh article does answer your 2nd question. Read this paragraph:-
Since mass driver defections would cause passenger volume growth to collapse completely
, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to
80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over
200% in 2016 will probably only grow by about 15% in 2017.
As for the 1st, read this line in the article:-
There are undoubtedly a number of things Uber could do to reduce losses at the margin,
but it is difficult to imagine it could suddenly find the $4-5 billion in profit
improvement needed merely to reach breakeven.
in addition to all the points listed in the article/comments, the absolute biggest flaw
with Uber is that Uber HQ conditioned its customers on (a) cheap fares and (b) that a car is
available within minutes (1-5 if in a big city).
Those two are not mutually compatible in the long-term.
Thus (a) "We cost less" and (b) "We're more convenient" -- aren't those also the
advantages that Walmart claims and feeds as a steady diet to its ever hungry consumers? Often
if not always, disruption may repose upon delusion.
When this Uber madness blows up, I wonder if people will finally begin to discuss the
brutal reality of Silicon Valley's so called "disruption".
It is heavily built in around the idea of economic exploitation. Uber drivers are often,
especially when the true costs to operate an Uber including the vehicle depreciation are
factored in, making not very much per hour driven, especially if they don't get the surge
money.
Instacart is another example. They are paying the deliver operators very little.
At a fundamental level, I think that the Silicon Valley "disruption" model only works for
markets (like software) where the marginal cost for production is de minimus and the
products can be protected by IP laws. Volume and market power really work in those cases. But
out here in meat-space, where actual material and labor are big inputs to each item sold, you
can never just sit back on your laurels and rake in the money. Somebody else will always be
able to come and and make an equivalent product. If they can do it more cheaply, you are in
trouble.
There aren't that many areas in goods and services where the marginal costs are very
low.
Software is actually quite unique in that regard, costing merely the bandwidth and
permanent storage space to store.
Let's see:
1. From the article, they cannot go public and have limited ways to raise more money. An
IPO with its more stringent disclosure requirements would expose them.
2. They tried lowering driver compensation and found that model unsustainable.
3. There are no benefits to expanding in terms of economies of scale.
From where I am standing, it looks like a lot of industries gave similar barriers. Silicon
Valley is not going to be able to disrupt those.
Tesla, another Silicon Valley company seems to be struggling to mass produce its Model 3
and deliver an electric car that breaks even, is reliable, while disrupting the industry in
the ways that Elon Musk attempted to hype up.
So that basically leaves services and manufacturing out for Silicon Valley disruption.
UBER has become a "too big to fail" startup because of all the different tentacles of
capital from various Tier 1 VCs and investment bankers.
VCs have admitted openly that UBER is a subsidized business, meaning it's product is sold
below market value, and the losses reflect that subsidization. The whole "2 sided platform"
argument is just marketecture to hustle more investors. It's a form of service "dumping" that
puts legacy businesses into bankruptcy. Back during the dotcom bubble one popular investment
banker (Paul Deninger) characterized this model as "Terrorist Competition", i.e. coffers full
of invested cash to commoditize the market and drive out competition.
UBER is an absolute disaster that has forked the startup model in Silicon Valley in order
to drive total dependence on venture capital by founders. And its current diversification
into "autonomous vehicles", food delivery, et al are simply more evidence that the company
will never be profitable due to its whacky "blitzscaling" approach of layering on new
"businesses" prior to achieving "fit" in its current one.
It's economic model has also metastasized into a form of startup cancer that is killing
Silicon Valley as a "technology" innovator. Now it's all cargo cult marketing BS tied to
"strategic capital".
UBER is the victory of venture capital and user subsidized startups over creativity by
real entrepreneurs.
It's shadow is long and that's why this company should be ..wait for it UNBUNDLED (the new
silicon valley word attached to that other BS religion called "disruption"). Call it a great
unbundling and you can break up this monster corp any way you want.
2. The elevator pitch for Uber: subsidize rides to attract customers, put the competition
out of business, and then enjoy an unregulated monopoly, all while exploiting economically
ignorant drivers–ahem–"partners."
3. But more than one can play that game, and
4. Cab and livery companies are finding ways to survive!
If subsidizing rides is counted as an expense, (not being an accountant, I would guess it
so), then whether the subsidy goes to the driver or the passenger, that would account for the
ballooning expenses, to answer my own question. Otherwise, the overhead for operating what
Uber describes as a tech company should be minimal: A billion should fund a decent
headquarters with staff, plus field offices in, say, 100 U.S. cities. However, their global
pretensions are probably burning cash like crazy. On top of that, I wonder what the exec
compensation is like?
After reading HH's initial series, I made a crude, back-of-the-envelope calculation that
Uber would run out of money sometime in the third fiscal quarter of 2018, but that was based
on assuming losses were stabilizing in the range of 3 billion a year. Not so, according to
the article. I think crunch time is rapidly approaching. If so, then SoftBank's tender offer
may look quite appetizing to VC firms and to any Uber employee able to cash in their options.
I think there is a way to make a re-envisioned Uber profitable, and with a more independent
board, they may be able to restructure the company to show a pathway to profitability before
the IPO. But time is running out.
A not insignificant question is the recruitment and retention of the front line
"partners." It would seem to me that at some point, Uber will run out of economically
ignorant drivers with good manners and nice cars. I would be very interested to know how many
drivers give up Uber and other ride-sharing gigs once the 1099's start flying at the
beginning of the year. One of the harsh realities of owning a business or being an contractor
is the humble fact that you get paid LAST!
We became instant Uber riders while spending holidays with relatives in San Diego. While
their model is indeed unique from a rider perspective, it was the driver pool that fascinates
me. These are not professional livery drivers, but rather freebooters of all stripes driving
for various reasons. The remuneration they receive cannot possibly generate much income after
expenses, never mind the problems associated with IRS filing as independent contractors.
One guy was just cruising listening to music; cooler to get paid for it than just sitting
home! A young lady was babbling and gesticulating non stop about nothing coherent and
appeared to be on some sort of stimulant. A foreign gentleman, very professional, drove for
extra money when not at his regular job. He was the only one who had actually bought a new
Prius for this gig, hoping to pay it off in two years.
This is indeed a brave new world. There was a period in Nicaragua just after the Contra
war ended when citizens emerged from their homes and hit the streets in large numbers,
desperately looking for income. Every car was a taxi and there was a bipedal mini Walmart at
every city intersection as individuals sold everything and anything in a sort of euphoric
optimism towards the future. Reality just hadn't caught up with them yet .
This was a pretty profitc book, if you think that it was publishe in 1995. At the same time
neoliberalm is not atolerant isther and we can talk about "neoliberal jihad"
Notable quotes:
"... As neoliberal economic theory -- not to be confused with social liberalism -- is the force behind globalization, this critique is relevant on a much larger scale. ..."
"... Barber argues that there are several imperatives that make up the McWorld, or the globalization of politics : a market imperative, a resource imperative, an information-technology imperative, and an ecological imperative. Due to globalization, our market has expanded and is vulnerable to the transnational markets where free trade, easy access to banking and exchange of currency are available. ..."
"... Barber sees Jihad as offering solidarity and protecting identities, but at the potential cost of tolerance and stability. ..."
The book was based on a March 1992 article by Barber first published in The Atlantic Monthly .
[1]
The book employs the basic critique of neoliberalism seen in Barber's earlier,
seminal work Strong
Democracy . As neoliberal economic theory -- not to be
confused with social
liberalism -- is the force behind globalization, this critique is relevant on a much larger
scale. Unregulated market forces encounter parochial (which he calls tribal ) forces.
These tribal forces come in many varieties: religious, cultural, ethnic, regional, local,
etc. As globalization imposes a culture of its own on a population, the tribal forces feel
threatened and react. More than just economic, the crises that arise from these confrontations
often take on a sacred quality to the tribal elements; thus Barber's use of the term "Jihad"
(although in the second edition, he expresses regret at having used that term). [
why? ]
Barber's prognosis in Jihad vs McWorld is generally negative -- he concludes that
neither global corporations nor traditional cultures are supportive of democracy . He further posits that McWorld could ultimately win the
"struggle". He also proposes a model for small, local democratic institutions and
civic engagement
as the hope for an alternative to these two forces.
Barber argues that there are several imperatives that make up the McWorld, or the
globalization of politics
: a market imperative, a resource imperative, an information-technology imperative, and an
ecological imperative. Due to globalization, our market has expanded and is vulnerable to the
transnational markets where free trade, easy access to banking and exchange of currency are
available. With the emergence of our markets, we have come up with international laws and
treaties in order to maintain stability and efficiency in the interconnected economy. Resources
are also an imperative aspect in the McWorld, where autarky seems insufficient and inefficient
in presence of globalization. The information-technology of globalization has opened up
communications to people all over the world, allowing us to exchange information. Also,
technology is now systematically integrated into everyone's lives to the point where it "gives
every person on earth access to every other person". [3] Globalization of
ecology may seem cliche; Barber argues that whatever a nation does to their own ecology, it
affects everyone on earth. For instance, cutting down a jungle will upset the overall oxygen
balance, which affects our "global lungs". McWorld may promote peace and prosperity, but Barber
sees this as being done at the cost of independence and identity , and notes that no more
social justice or equality than necessary are needed to promote efficient economic production
and consumption.
Barber sees Jihad as offering solidarity and protecting identities, but at the potential
cost of tolerance and stability. Barber describes the solidarity needed within the concept
of Jihad as being secured through exclusion and war against outsiders. As a result, he argues,
different forms of anti-democratization can arise through anti-democratic one-party
dictatorships, military juntas, or theocratic fundamentalism. Barber also describes through
modern day examples what these 'players' are. "they are cultures, not countries; parts, not
wholes; sects, not religions, rebellious factions and dissenting minorities at war not just
with globalism but with the traditional nation-state. Kurds, Basques, Puerto Ricans, Ossetians,
East Timoreans, Quebecois, the Catholics of Northern Ireland, Catalans, Tamils, and of course,
Palestinians- people with countries, inhabiting nations not their own, seeking smaller worlds
within borders that will seal them off from modernity." [4]
Barber writes democracy can be spread and secured through the world satisfying the needs of
both the McWorld and Jihad. "With its concern for accountability, the protection of minorities,
and the universal rule of law, a confederalized representative system would serve the political
needs of McWorld as well as oligarchic bureaucratism or meritocratic elitism is currently
doing." [4] Some can accept
democracy faster than others. Every case is different, however "Democracy grows from the bottom
up and cannot be imposed from the top down. Civil society has to be built from the inside out."
[1] He
goes on to further explain exactly what the confederal option means and how it will help. "It
certainly seems possible that the most attractive democratic ideal in the face of the brutal
realities of Jihad and the dull realities of McWorld will be a confederal union of semi
autonomous communities smaller than nation-states, tied together into regional economic
associations and markets larger than nation-states -- participatory and self-determining in
local matters at the bottom, representative and accountable at the top. The nation-state would
play a diminished role, and sovereignty would lose some of its political potency."
[4]
The book was based on a March 1992 article by Barber first published in The Atlantic Monthly .
[1]
The book employs the basic critique of neoliberalism seen in Barber's earlier,
seminal work Strong
Democracy . As neoliberal economic theory -- not to be
confused with social
liberalism -- is the force behind globalization, this critique is relevant on a much larger
scale. Unregulated market forces encounter parochial (which he calls tribal ) forces.
These tribal forces come in many varieties: religious, cultural, ethnic, regional, local,
etc. As globalization imposes a culture of its own on a population, the tribal forces feel
threatened and react. More than just economic, the crises that arise from these confrontations
often take on a sacred quality to the tribal elements; thus Barber's use of the term "Jihad"
(although in the second edition, he expresses regret at having used that term). [
why? ]
Barber's prognosis in Jihad vs McWorld is generally negative -- he concludes that
neither global corporations nor traditional cultures are supportive of democracy . He further posits that McWorld could ultimately win the
"struggle". He also proposes a model for small, local democratic institutions and
civic engagement
as the hope for an alternative to these two forces.
Barber argues that there are several imperatives that make up the McWorld, or the
globalization of politics
: a market imperative, a resource imperative, an information-technology imperative, and an
ecological imperative. Due to globalization, our market has expanded and is vulnerable to the
transnational markets where free trade, easy access to banking and exchange of currency are
available. With the emergence of our markets, we have come up with international laws and
treaties in order to maintain stability and efficiency in the interconnected economy. Resources
are also an imperative aspect in the McWorld, where autarky seems insufficient and inefficient
in presence of globalization. The information-technology of globalization has opened up
communications to people all over the world, allowing us to exchange information. Also,
technology is now systematically integrated into everyone's lives to the point where it "gives
every person on earth access to every other person". [3] Globalization of
ecology may seem cliche; Barber argues that whatever a nation does to their own ecology, it
affects everyone on earth. For instance, cutting down a jungle will upset the overall oxygen
balance, which affects our "global lungs". McWorld may promote peace and prosperity, but Barber
sees this as being done at the cost of independence and identity , and notes that no more
social justice or equality than necessary are needed to promote efficient economic production
and consumption.
Barber sees Jihad as offering solidarity and protecting identities, but at the potential
cost of tolerance and stability. Barber describes the solidarity needed within the concept of
Jihad as being secured through exclusion and war against outsiders. As a result, he argues,
different forms of anti-democratization can arise through anti-democratic one-party
dictatorships, military juntas, or theocratic fundamentalism. Barber also describes through
modern day examples what these 'players' are. "they are cultures, not countries; parts, not
wholes; sects, not religions, rebellious factions and dissenting minorities at war not just
with globalism but with the traditional nation-state. Kurds, Basques, Puerto Ricans, Ossetians,
East Timoreans, Quebecois, the Catholics of Northern Ireland, Catalans, Tamils, and of course,
Palestinians- people with countries, inhabiting nations not their own, seeking smaller worlds
within borders that will seal them off from modernity." [4]
Barber writes democracy can be spread and secured through the world satisfying the needs of
both the McWorld and Jihad. "With its concern for accountability, the protection of minorities,
and the universal rule of law, a confederalized representative system would serve the political
needs of McWorld as well as oligarchic bureaucratism or meritocratic elitism is currently
doing." [4] Some can accept
democracy faster than others. Every case is different, however "Democracy grows from the bottom
up and cannot be imposed from the top down. Civil society has to be built from the inside out."
[1] He
goes on to further explain exactly what the confederal option means and how it will help. "It
certainly seems possible that the most attractive democratic ideal in the face of the brutal
realities of Jihad and the dull realities of McWorld will be a confederal union of semi
autonomous communities smaller than nation-states, tied together into regional economic
associations and markets larger than nation-states -- participatory and self-determining in
local matters at the bottom, representative and accountable at the top. The nation-state would
play a diminished role, and sovereignty would lose some of its political potency."
[4]
Financialization of the economy and the lust for war goes hand in hand. That means that
"casino capitalism" is an aggressive capitalism.
" In the transition, politicians, who had no connection to domestic industry, found a
powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and
disseminating domestic spats, intrigues and conspiracies to the voters." -- this is an astute
observation.
Notable quotes:
"... Simultaneously, finance reversed its relation to industry: Industrial capital was now harnessed to finance, speculation, real estate, insurance sectors and electronic gadgets/play-by-yourself ' i-phones' promoting isolated ' selfies' and idle chatter. ..."
"... Wall Street, Silicon Valley and Hollywood replaced Detroit, Pittsburgh, Cleveland and Chicago. Stockbrokers proliferated, while master tool-and-die makers disappeared and workers' children overdosed on 'Oxy'. ..."
"... In the transition, politicians, who had no connection to domestic industry, found a powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and disseminating domestic spats, intrigues and conspiracies to the voters. ..."
"... In this historic transformation, American political culture put on a new face: perpetual wars, Wall Street swindles and Washington scandals. It culminated in the farcical Hillary Clinton – Donald Trump presidential election campaign: the war goddess-cuckquean of chaos versus the crotch-grabbing real-estate conman. ..."
"... Trump's presidential election campaign went about the country pleasuring the business and finance elite (promises of tax cuts, deregulations, re-contamination and jacking up the earth's temperature with a handful of jobs), and successfully pushed aside the outrage over his crude rump grabbing boasts. Wars, Wall Street, Silicon Valley and Hollywood all gathered to set the parameters of the United States' political economy: The chase was on! ..."
The chaotic free-for-all in the US political economy is manipulated by scandalmongers,
conspirators and flight capitalists. Instead of preparing an economic plan to ' make America
great again' , they have embraced the political blackmailers and intriguers of Saudi Arabia
in a sui-generis global political alliance. Both countries feature purges, resignations and
pugnacious politicos who have never been weaned from the destructive bosom of war.
As a point of history, the United States didn't start out as a bloated, speculative state of
crony capitalists and parasitical allies: The US was once a powerful industrial country,
harnessing finance and overseas investments to securing raw materials for domestic industries
and directing profits back into industry for higher productivity.
Fake, or semi-fake, political rivalries and electoral competition counted little as
incumbents retained their positions most of the time, and bi-partisan agreements ensured
stability through sharing the spoils of office.
Things have changed. Overseas neo-colonies started to offer more than just raw materials:
They introduced low-tax manufacturing sites promising free access to cheap, healthy and
educated workers. US manufacturers abandoned Old Glory, invested overseas, hoarded profits in
tax havens and happily evaded paying taxes to fund a new economy for displaced US workers.
Simultaneously, finance reversed its relation to industry: Industrial capital was now
harnessed to finance, speculation, real estate, insurance sectors and electronic
gadgets/play-by-yourself ' i-phones' promoting isolated ' selfies' and idle
chatter.
Wall Street, Silicon Valley and Hollywood replaced Detroit, Pittsburgh, Cleveland and
Chicago. Stockbrokers proliferated, while master tool-and-die makers disappeared and workers'
children overdosed on 'Oxy'.
In the transition, politicians, who had no connection to domestic industry, found a
powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and
disseminating domestic spats, intrigues and conspiracies to the voters. Vietnam and
Watergate, Afghanistan and Volker, Iran-Contra and Reaganomics , Yugoslavia and Iraq,
daily drone strikes and bombings and Bill Clinton's White House sex scandals giving salacious
birth to SpecialProsecutors . . .
In this historic transformation, American political culture put on a new face: perpetual
wars, Wall Street swindles and Washington scandals. It culminated in the farcical Hillary
Clinton – Donald Trump presidential election campaign: the war goddess-cuckquean of chaos
versus the crotch-grabbing real-estate conman.
The public heard Secretary of State Clinton's maniacal laugh upon her viewing the
'snuff-film' torture and slaughter of the wounded Libya's President Gadhafi: She crowed: '
We came, we saw and he died' with a sword up his backside. This defined the Clinton
doctrine in foreign affairs, while slaughter of the welfare state and the bloated prison
industry would define her domestic agenda.
Trump's presidential election campaign went about the country pleasuring the business
and finance elite (promises of tax cuts, deregulations, re-contamination and jacking up the
earth's temperature with a handful of jobs), and successfully pushed aside the outrage over his
crude rump grabbing boasts. Wars, Wall Street, Silicon Valley and Hollywood all gathered to set
the parameters of the United States' political economy: The chase was on!
This great article is an elaborate intellectual expansion on what Mr. Gerald Celente of
Trendsresearch.com has been proclaiming for years that" while the business of China is
business, the business of America is war". Professor Petras is pointing to the moral decline
that is behind the social and economic decline of the nation of America that was once a
beacon of light to the world.
This analysis leaves the reader with little doubt as to the direction in which the momentum
of historic leadership is moving; it is to the East away from the West in a reversal of the
dawn of the Renaissance era of Europe. The last hope for the west to stay at the helm of
civilisation is to have a leader who can ignite a moral renaissance in the West short of
which the 21st century will definitely be China's century. The impetus for such a revival is
a shake up of the world of finance that will chase the money changers out of the altar of the
Western economy and put he lying scribes of the Western media in labour camp where they will
be re educated about the virtues of truth and reality.
Official truth has become a stinking mound of offal.
Has become?
A good thing about it is that we should know to laugh at it whenever we hear it, and
accept the fact that "authority" is lying until proven otherwise.
Were I to indulge my own theory, I should wish [the states] to practise neither commerce
nor navigation, but to stand with respect to Europe precisely on the footing of China.
We should thus avoid wars
-Thomas Jefferson, letter To G. K. van Hogendorp , Paris, Oct. 13, 1785
Isn't Western "civilization" just peachy? Civilization?
One has to have had a "naissance" of morals to experience a "re" of them, but yes, chasing
the money changers out of the temple and money worship out of our souls would have
helped.
Would have.
Our great mass of workers have labored for the money changers too long.
You're right about many things you presented, but you still don't understand the
multi-layered gradually administered releases of mis-information, dis-information, and
information, designed to awaken and transform our nation, planet, and human consciousness.
Given that half the population has below average intelligence, new positive leadership does
not merely announce that generations of psychopaths have manipulated them. As a personal
example, half the people I communicate with are sub-average intelligence, and I've learned to
very gradually wake them up, or they will, in their unreasonable thinking, try to make
trouble for me. There's the saying, "Don't throw pearls before swine." I know this too
harshly stated, and I should have gradually and gently presented it for half the reader's.
Sorry.
P.S. . Unz.com and it's reader's are likely far above average.
Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost
everywhere, as the political backlash in Europe and the US in recent years has shown. The challenge is to minimize the
risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.
NEW YORK – Fifteen years ago, I published
Globalization and Its
Discontents,
a book that sought to explain why there was so much dissatisfaction with globalization within the
developing countries. Quite simply, many believed that the system was "rigged" against them, and global trade agreements
were singled out for being particularly unfair.
The Year Ahead 2018
The world's leading thinkers and policymakers examine what's come apart in the past year, and anticipate
what will define the year ahead.
Order now
Now discontent with globalization has fueled a wave of populism in
the United States and other advanced economies, led by politicians who claim that the system is unfair to their
countries. In the US, President Donald Trump insists that America's trade negotiators were snookered by those from
Mexico and China.
So how could something that was supposed to benefit all, in developed
and developing countries alike, now be reviled almost everywhere? How can a trade agreement be unfair to all parties?
To those in developing countries, Trump's claims – like Trump himself
– are laughable. The US basically wrote the rules and created the institutions of globalization. In some of these
institutions – for example, the International Monetary Fund – the US still has veto power, despite America's diminished
role in the global economy (a role which Trump seems determined to diminish still further).
To someone like me, who has watched trade negotiations closely for
more than a quarter-century, it is clear that US trade negotiators got most of what they wanted. The problem was with
what
they wanted. Their agenda was set, behind closed doors, by corporations. It was an agenda written by and for large
multinational companies, at the expense of workers and ordinary citizens everywhere.
Indeed, it often seems that workers, who have seen their wages fall
and jobs disappear, are just collateral damage – innocent but unavoidable victims in the inexorable march of economic
progress. But there is another interpretation of what has happened: one of the objectives of globalization was to weaken
workers' bargaining power. What corporations wanted was cheaper labor, however they could get it.
This interpretation helps explain some puzzling aspects of trade
agreements. Why is it, for example, that advanced countries gave away one of their biggest advantages, the rule of law?
Indeed, provisions embedded in most recent trade agreements give foreign investors more rights than are provided to
investors in the US. They are compensated, for example, should the government adopt a regulation that hurts their bottom
line, no matter how desirable the regulation or how great the harm caused by the corporation in its absence.
There are three responses to globalized discontent with
globalization. The first – call it the Las Vegas strategy – is to double down on the bet on globalization
as it has
been managed for the past quarter-century
. This bet, like all bets on proven policy failures (such as trickle-down
economics) is based on the hope that somehow it will succeed in the future.
The second response is Trump_vs_deep_state: cut oneself off from globalization,
in the hope that doing so will somehow bring back a bygone world. But protectionism won't work. Globally, manufacturing
jobs are on the decline, simply because productivity growth has outpaced growth in demand.
Even if manufacturing were to come back, the jobs won't. Advanced
manufacturing technology, including robots, means that the few jobs created will require higher skills and will be
placed at different locations than the jobs that were lost. Like doubling down, this approach is doomed to fail, further
increasing the discontent felt by those left behind.
Trump will fail even in his proclaimed goal of reducing the trade
deficit, which is determined by the disparity between domestic savings and investment. Now that the Republicans have
gotten their way and enacted a tax cut for billionaires, national savings will fall and the trade deficit will rise,
owing to an increase in the value of the dollar. (Fiscal deficits and trade deficits normally move so closely together
that they are called "twin" deficits.) Trump may not like it, but as he is slowly finding out, there are some things
that even a person in the most powerful position in the world cannot control.
There is a third approach: social protection without protectionism,
the kind of approach that the small Nordic countries took. They knew that as small countries they had to remain open.
But they also knew that remaining open would expose workers to risk. Thus, they had to have a social contract that
helped workers move from old jobs to new and provide some help in the interim.
The Nordic countries are deeply democratic societies, so they knew
that unless most workers regarded globalization as benefiting them, it wouldn't be sustained. And the wealthy in these
countries recognized that if globalization worked as it should, there would be enough benefits to go around.
American capitalism in recent years has been marked by unbridled
greed – the 2008 financial crisis provides ample confirmation of that. But, as some countries have shown, a market
economy can take forms that temper the excesses of both capitalism and globalization, and deliver more sustainable
growth and higher standards of living for most citizens.
We can learn from such successes what to do, just as we can learn
from past mistakes what not to do. As has become evident, if we do not manage globalization so that it benefits all, the
backlash – from the New Discontents in the North and the Old Discontents in the South – is at risk of intensifying.
"... Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species ..."
"... "Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine." ..."
@ Daniel ending with "This "Clash of Civilizations" type narrative is not encouraging." That
is exactly what they want you to focus on as a narrative rather than the simple truth about
the demise of private banking. On the previous thread about the Republican: Ryan deficit BS
there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it
simply explains the history of the Gordian Knot we face as a species
"Banking came into existence as a fraud. The fraud was legalized and we've been living
with the consequences, both good and bad, ever since. Even so it is also a great
invention-right up there with fire, the wheel, and the steam engine."
Clash of Civilizations is as vapid a meme as the common understanding of the Capitalism
myth as that article so clearly states. Spread his word far and wide to wake up the zombies.
It is time!
"During my whole career at Goldman Sachs - 1967 to 1991 - I never owned a foreign stock or emerging market bonds. Now I have
hundreds of millions of dollars in Russia, Brazil, Argentina and Chile, and I worry constantly about the dollar-yen rate. Every
night before I go to bed I call in for the dollar-yen quote, and to find out what the Nikkei is doing and what the Hang Seng Index
is doing. We have bets in all these markets. Right now Paul [one of my traders] is long [on] the Canadian dollar. We have bets all
over the place. I would not have worried about any of these twenty years ago. Now I have to worry about all of them."
Economic globalization is probably the most fundamental transformation of the world's political and economic arrangements since
the Industrial Revolution. Decisions made in one part of the world more and more affect people and communities elsewhere in the
world. Sometimes the consequences of globalization are positive, liberating inventive and entrepreneurial talents and accelerating
the pace of sustainable development. But at other times they are negative, as when many people, especially in less-developed countries,
are left behind without a social safety net. Globalization undermines the ability of the nation to tax and to regulate its own economy.
This weakens the power of sovereign nations relative to that of large transnational corporations and distorts how social and economic
priorities are chosen.
Economic globalization is most often associated with rapid growth in the flow of goods and services across international borders.
Indeed, the economic "openness" of a nation is often measured by the value of its exports, imports, or their sum when compared to
the size of its economy. Economic globalization also involves large investments from outside each nation, often by transnational
corporations. These corporations often combine technology and know-how with their investments that enhance the productive capacity
of a nation. Previous position papers of the Mobilization, contained in Speaking of Religion & Politics: The Progressive Church
Tackles Hot Topics2, have dealt with globalization primarily in these terms.
But international trade and investment are only part of the openness that has come to be called globalization. Another part,
and arguably the most important, is the quickening flow of financial assets internationally. While a small portion of this flow
is directly associated with the "real" economy of production and exchange, its vast majority is composed of trades in the "paper"
economy of short-term financial markets. This paper economy is enormous: The value of global financial securities greatly exceeds
the value of annual world output of goods and services. Moreover, the paper economy often contributes to crises in the real economy.
Thus it is important to the well being of humanity and the planet as a whole, yet it is little understood by most people. This essay
undertakes to provide a basic understanding of this paper economy, especially as its more speculative features have multiplied during
the last two or three decades, so that Christians and others concerned about what is happening in our world can join in an intelligent
discussion of how the harmful consequences of financial markets can be controlled.
Financial markets 101
To better understand this paper economy, one first needs to know something about foreign exchange markets, international money
markets, and "external" financial markets.
In an open economy, domestic residents often engage in international transactions. American car dealers, for example, buy Japanese
Toyotas and Datsuns, while German computer companies sell electronic notebooks to Mexican businessmen. Similarly, Australian mutual
funds invest in the shares of companies all over the world, while the treasurer of a Canadian transnational corporation parks idle
cash in 90-day Bank of England notes. Most of these transactions require one or more participants to acquire a foreign currency.
If an American buys a Toyota and pays the Japanese Toyota dealer in dollars, for example, the latter will have to exchange the dollars
for yens in order to have the local currency with which to pay his workers and local suppliers.
The foreign exchange market is the market in which national currencies are traded. As in any market, a price must exist at which
trade can occur. An exchange rate is the price of a unit of domestic currency in terms of a foreign currency. Thus, if the exchange
rate of the dollar in terms of the Japanese yen increases, we say the dollar has depreciated and the yen has appreciated. Similarly,
a decrease in the dollar/yen exchange rate would imply an appreciation of the dollar and a depreciation of the yen.
Foreign exchange markets can be classified as spot markets and forward markets. In spot markets currencies are bought and sold
for immediate delivery and payment. In forward markets, currencies are bought or sold for future delivery and payment. A U.S. music
company, say, enters into a contract to buy British records for delivery in 30 days. To guard against the possibility of the dollar/pound
exchange rate increasing in the meantime, the company buys pounds forward, for delivery in 30 days, at the corresponding forward
exchange rate quoted today. This is called hedging.
Of course, there has to be a counterpart to the music company's forward purchase of pounds. Who is the seller of those pounds?
The immediate seller would be a commercial bank, as in the spot market. But the bank only acts as an intermediary. The ultimate
seller of forward pounds may be another hedger, like the music company, but with a position just its opposite. Suppose, for example,
that an American firm or individual has invested in 30-day British securities that it wants to convert back into dollars after the
end of 30 days. The investor may decide to sell the pound proceeds forward in order to assure itself of the rate at which the pounds
are to be converted back into dollars after 30 days.
Another type of investor may be providing the forward contract bought by the music company. This is the speculator, who attempts
to profit from changes in exchange rates. Depending on their expectations, speculators may enter the forward market either as sellers
or as buyers of forward exchange. In this particular case, the speculator may have reason to believe that the dollar/pound exchange
rate will decrease in the next 30 days, permitting him to obtain the promised pounds at a lower price in the spot market 30 days
hence.
The main instruments of foreign exchange transactions include electronic bank deposit transfers and bank drafts, bills of exchange,
and a whole array of other short-term instruments expressed in terms of foreign currency. Thus, foreign exchange transactions do
not generally involve a physical exchange of currencies across borders. They generally involve only changes in debits and credits
at different banks in different countries. Very large banks in the main financial centers such as New York, London, Brussels and
Zurich, account for most foreign exchange transactions. Local banks can provide foreign exchange by purchasing it in turn from major
banks.
Although the foreign exchange market is dispersed in many cities and countries, it is unified by keen competition among the highly
sophisticated market participants. A powerful force keeping exchange rate quotations in different places in line with each other
is the search on the part of market participants for foreign exchange arbitrage opportunities. Arbitrage is the simultaneous purchase
and sale of a commodity or financial asset in different markets with the purpose of obtaining a profit from the differential between
the buying and selling price.
When foreign exchange is acquired in order to engage in international transactions involving the purchase or sale of goods and
services, it is said that international trade has taken place in the real economy. When international transactions involve the purchase
or sale of financial assets, they are referred to as international financial transactions. They constitute the paper economy.
Financial markets are commonly classified as capital markets or money markets. Capital markets deal in financial claims that
reach more than one year into the future. Such claims include shares of stock, bonds, and long-term loans, among others. Money markets,
on the other hand, deal in short-term claims, with maturities of less than one year. These include marketable government securities
(like Treasury bills), large-denomination certificates of deposit issued by banks, commercial paper (representing short-term corporate
debt), money market funds, and many other kinds of short-term, highly liquid (easily transferable) financial instruments. It is
these short-term money market securities that account for most of the instability in the global paper economy.
Buying or selling a money market security internationally involves the same kind of foreign exchange risk that plagues buyers
or sellers of merchandise internationally. If one wishes to guard against the possibility of an increase or decrease in the foreign
exchange rate, one can insure against such fluctuations by "covering" in the forward market. By the same token, the decision about
whether to own domestic or foreign money market securities is not simply a comparison of the rates of interest paid on otherwise
comparable securities, because one must also take into account the gain (or loss) from purchasing foreign currency spot and selling
it forward. Thus, choosing the security with the highest return does not necessarily imply the one with the highest interest rate.
People who trade in international money markets, moreover, need to take into account many other variables, including the costs
of gathering and processing information, transaction costs, the possibility of government intervention and regulation, other forms
of political risk, and the inability to make direct comparisons of alternative assets. Speculating in international money markets
is a risky proposition.
International money markets involve assets denominated in different currencies. External financial markets involve assets denominated
in the same currency but issued in different political jurisdictions. Eurodollars, for example, are dollar deposits held outside
the United States (offshore), such as dollar deposits in London, Zurich, or even Singapore banks. The deposits may be in banks owned
locally or in the offshore banking subsidiaries of U.S. banks. Deutsche mark deposits in London banks or pound sterling deposits
in Amsterdam banks also are examples of external deposits. They are referred to as eurocurrency deposits. (The advent of a new common
currency in the European Community - the Euro - will require the development of new nomenclature for external financial markets)
External banking activities are a segment of the wholesale international money market. The vast majority of eurocurrency transactions
fall in the above $1 million value range, frequently reaching the hundreds of millions (or even billion) dollar value. Accordingly,
the customers of eurobanks are almost exclusively large organizations, including multinational corporations, government entities,
hedge funds, and international organizations, as well as eurobanks themselves. Like domestic banks, eurobanks that have excess reserves
may make loans denominated in eurocurrencies, expanding the supply of eurocurrency deposits. The eurocurrency market funnels funds
from lending countries to borrowing countries. Thus, it performs an important function as global financial intermediator.
Early history
The origins of what Karl Polanyi3 called haute finance can be traced to Renaissance Italy,
where as early as 1422 there were seventy-two bankers or bill-brokers in or near the Mecato Vecchio of Florence.4
Many combined trade with purely financial business. By the middle of the fifteenth century, the Medici of Florence had opened branches
in Bruges, London and Avignon, both as a means of financing international trade and as a way of marketing new kinds of financial
assets. Many banking terms and practices still in use today originated in the burgeoning financial centers of Renaissance Europe.
By the early seventeenth century, the Dutch and East India Companies began issuing shares to the public in order to fund imperial
enterprises closely linked to Holland and Britain. Their shares were made freely transferable, permitting development of a secondary
financial market for claims to future income. Amsterdam opened a stock exchange in 1611, and shortly thereafter, the British government
began issuing lottery tickets, an early form of government bonds, to finance colonial expansion, wars and other major areas of state
expenditure. A lively secondary market in these financial instruments also emerged.5
Throughout these early years, financial markets were anything but riskless and stable. Consider the famous Dutch tulip mania
of 1630, for example. This speculative bubble saw prices of tulip bulbs reach what seemed like absurd levels, yet "the rage among
the Dutch to possess them [tulips] was so great that the ordinary industry of the country was neglected." Some investors in Britain
and France shared this "irrational exuberance," though it was centered mostly in Holland. Then, not unlike speculative bubbles of
more recent vintage, prices crashed6, pushing the economy into a depression and leaving many
investors angry and confused.
Paris developed into an early financial center in the eighteenth century, but the Revolution of 1789 dissipated its power. The
New York Stock Exchange was formally organized in 1792 and the official London Stock Exchange opened in 1802. The expansion westward
of the railroads in the U.S. offered the financial community opportunity to sell railway shares and bonds that quickly became dominant
in the financial markets. Indeed, the bond markets of London, Paris, Berlin, and Amsterdam were vehicles for collecting massive
amounts of European savings and transferring it at higher returns to the emerging markets of the U.S., Canada, Australia, Latin
America and Russia in the century preceding World War I.
Forward markets soon developed, especially in the U.S., in order to counter the impact of long distances and unpredictable weather.
As capital and money markets expanded, other new financial instruments came into use. Joint stock companies were formed, enabled
by legislation that clarified the distinction between the owners and managers of corporations. This, in turn, helped stimulate the
growth of the American stock market in the late nineteenth century. To be sure, financial markets did not grow continuously in the
nineteenth century. Lending to the emerging markets was interrupted by defaults in the 1820s, 1850s, 1870s and 1890s, but each wave
of default was confined to a relatively small number of countries, permitting growth of financial flows to resume.7
In the four decades leading up to World War I, a truly worldwide economy was forged for the first time, extending from the core
of Western Europe and the U.S. to latecomers in Eastern Europe and Latin America and even to the countries supplying raw materials
on the periphery. Central to this expansion of trade and investment was an expanding system of finance that girded the globe. The
amount was enormous: between 1870 and 1914 something like $30 billion,8 the equivalent in
2002 dollars of $550 billion, was transferred to recipient countries, in a world economy perhaps one-twelfth as large as today's.
During this "Gilded Age" of haute finance, the risks of participating in international trade and investment were generously shared
with governments and the banking system. The reason is that foreign exchange rates were kept reasonably stable by the commitment
of most governments to the "high" gold standard. In this way, businesses and individuals engaging in international transactions
were reasonably certain that the value of their contracts was not going to change before they matured. Their exchange risk was shared
with government by its willingness to buy or sell gold in order to keep the exchange rate constant. Because of this assurance, financial
flows were reasonably free of regulation.
They were not immune from crises, however. When the sources of financial capital temporarily dried up, capital-importing countries
occasionally found they could not expand export earnings sufficiently to avoid suspending interest payments on their debts or abandoning
gold parity. On two occasions, the United States faced this possibility. The first was in 1893, when it switched in a sharp economic
downturn to bimetallism (which caused William Jennings Bryan to denounce the "cross of gold"), and the second was in 1907, which
led to the creation of the Federal Reserve System, handing to the government the function of lender of last resort previously carried
out by Wall Street banks under the tutelage of J. Pierpont Morgan.
In his magisterial book The Great Transformation, Karl Polanyi reflected on the pervasive influence of haute finance on the policies
of nations even in this "Gilded Age." The globalising financial markets and the gold standard, according to Polanyi, left very little
room for states, especially smaller ones, to adopt monetary and fiscal policies independent of the new international order. "Loans,
and the renewal of loans, hinged upon credit, and credit upon good behavior. Since, under constitutional government ..., behavior
is reflected in the budget and the external value of the currency cannot be detached from the appreciation of the budget, debtor
governments were well advised to watch their exchanges carefully and to avoid policies which might reflect upon the soundness of
budget positions." Thus, even one hundred years ago the then-dominant world power, Great Britain, speaking as it did so often through
the voice of the City of London, "prevailed by the timely pull of a thread in the international monetary network.9
Following World War I, the United States emerged not merely as a creditor country but as the primary source of new international
financial flows. At first, the principal borrowers were the national governments of the stronger countries, but as the boom in security
underwriting developed in the U.S, numerous obscure provinces, departments and municipalities found it possible to sell their bonds
to American investors.10 Just as domestic construction, land, and equity markets went through
speculative rises in the 1920s, so too did the U.S. experience a speculative surge in foreign investment. In the aftermath of successive
defaults by foreign debtors in 1932, the Senate Committee on Banking and Currency concluded:
The record of the activities of investment bankers in the flotation of foreign securities is one of the most scandalous chapters
in the history of American investment banking. The sale of these foreign issues was characterized by practices and abuses that violated
the most elementary principles of business ethics.11
Speculation in the stock markets leading up to 1929 offers still another window on the instability of short-term financial flows.
A speculative market can be defined as one in which prices move in response to the balance of opinion regarding the future movement
of prices rather than responding normally to changes in the demand for and supply of whatever is priced. Helped by the willingness
of Wall Street to allow people to buy stocks on margin, people were only too ready to bet prices would rise as long as others thought
so too. Day after day and month after month the price of stocks went up in 1927. The gains by later standards were not large, but
they had an aspect of great reliability. Then in 1928, the nature of the boom changed. "The mass escape into make-believe, so much
a part of the true speculative orgy, started in earnest.12
Following World War I, the gold standard itself took on new form. Nations were allowed to hold their international reserves in
either gold or foreign exchange. This worked for a while in the 1920s, but as speculation mounted and balances of payments disequilibria
grew, fears of devaluation led central banks to try to replace their foreign-exchange holdings with specie in a "scramble for gold."
The worldwide result of these shifts in central bank portfolios was an overall contraction of the supply of money and credit that
sapped aggregate demand and forced prices to fall and output levels to shrink. Thus, it can be argued - persuasively in our view
- that the Great Depression of the 1930s was as much, if not more, the result of mismanagement of money and credit as it was the
result of protectionist policies. Protectionist policies were more likely the result of slowed growth and stalled trade. Countries
that broke with the gold-exchange standard early, such as Britain in 1931, and pursued more expansionary monetary policies fared
somewhat better.
The Bretton Woods system
During the darkest days of World War II, a radically new economic architecture was designed for the postwar world at a New Hampshire
ski resort called Bretton Woods. With the competitive devaluation and protectionist policies of the 1930s still fresh in their minds,
the mostly British and American delegates to the conference wanted most of all to design a system with fixed exchange rates that
did not rely on national gold hoards to keep exchange rates stable. They decided to depend instead on strict controls of international
financial movements. In this way, they hoped to allow countries to pursue full-employment policies through appropriate monetary
(money and credit) and fiscal (tax and spending) policies without some of the anxieties associated with open financial markets.
The role of monetary and financial stabilizer was given to the International Monetary Fund (IMF), which was provided with modest
funds to assist nations to adjust imbalances in their external payments obligations. The International Bank for Reconstruction and
Development (IBRD, later the World Bank) assumed the task of helping to finance post-war reconstruction.13
The IMF as it emerged from Bretton Woods had inadequate reserves to advance money for the long periods that many countries require
for "soft-landings" from big current-account deficits. It would make only short-term loans. To make sure that borrowing nations
were constrained, "conditionality" attached to IMF loans became standard practice, even in the early years of the Fund's operation.
Policy limitations and "performance targets" tied to credit lines advanced under "standby agreements" began in the middle 1950s
and were universal by the 1960s, long before the notions of "stabilization" and "structural adjustment" came into common parlance.
The Bretton Woods agreement also imposed a foreign exchange standard by which exchange rates between major currencies were fixed
in terms of the dollar, and the value of the dollar was tied to gold at a U.S. guaranteed price of thirty-five dollars per ounce.
By devising a system that controlled financial movements and assisted with the adjustment of countries' balances of payments, the
new system succeeded in keeping exchange rates remarkably stable. They were changed only very occasionally, e.g., as when the value
of sterling relative to the dollar was reduced in 1949 and again in 1966. This meant that companies doing business abroad did not
need to worry constantly about the risk of exchanging one currency for another.
Among the reasons for this remarkable stability was the willingness of the central banks of other countries to hold an increasing
proportion of their official reserves in the form of U.S. dollars. It was an essential part of the system that the dollars held
by other countries would be seen as IOUs backed by the U.S. offer to exchange them for gold at a fixed pre-war price. But as the
balance-of-payments of the U.S. moved more deeply into deficits in the 1960s, there were more and more U.S. dollars held by other
countries, and this so-called "dollar overhang" became disturbingly large.15 General de
Gaulle called it "the exorbitant privilege," meaning that the Americans were paying their bills - for defense spending to fight
the Vietnam War among other things - with IOUs instead of real resources in the form of exports of goods and services.
Strict control over financial movements began to weaken as early as the 1950s, when the first eurodollar (later eurocurrency)
deposits were made in London. At first a trickle, limited originally to Europe, these offshore banking operations soon expanded
worldwide. The American "Interest Equalization Tax" (IET) instituted in 1963 raised the costs to banks of lending offshore from
their domestic branches.16 The higher external rates led dollar depositors such as foreign
corporations to switch their funds from onshore U.S. institutions to eurobanks. Thus, the real effect of the IET was to encourage
the dollar to follow the foreigners abroad, rather than the other way around. Eurobanks paid higher interest rates on deposits and
loaned eurocurrencies at lower rates than U.S. banks could at home. Still another large inflow of eurodeposits occurred in 1973-74
as the Organization of Petroleum Exporting Countries (OPEC) began "recycling" their surplus dollar earnings through eurobanks. Because
of their existence, a country such as Brazil could arrange within a reasonably regulation-free environment to obtain multimillion-dollar
loans from a consortium of offshore American, German and Japanese banks and thereby finance its oil imports. Net eurocurrency deposit
liabilities that amounted to around $10 billion in the mid-1960s, grew to $500 billion by 1980.
These eurocurrency transactions taught the players in financial markets how to shift their deposits, loans, and investments from
one currency to another whenever exchange rates or interest rates were thought to be ready to change. Even the ability of central
banks to regulate the supply of money and credit was undermined by the readiness of commercial banks to borrow and lend offshore.
Hence, the effectiveness of regulatory mechanisms that had been put in place to implement the Bretton Woods agreement - interest
rate ceilings, lending limits, portfolio restrictions, reserve and liquidity requirements - gradually eroded as offshore transactions
started to balloon.
The world economy developed at unprecedented rates during the roughly twenty-five years immediately following World War II. Growth
and employment rates during these years were at historic highs in most countries. Productivity also advanced rapidly in most developing
countries as well as in the technological leaders. These facts suggest that the system devised at Bretton Woods worked reasonably
well, despite occasional adjustments. To be sure, it helped to sow the seeds of its own destruction by failing to retain operational
control of international financial flows. But the twenty-five years of its survival leading up to August 15, 1971, when President
Nixon closed the gold window, have nonetheless come to be called by some economic historians the "Golden Years."
Controlling private risk
Fixed exchange rates did not last long after the U.S. stopped exchanging gold for claims on the dollar held by foreign central
banks. The pound sterling was allowed to float against the dollar in July, 1972. Japan set the yen free to float in February, 1973,
and most European currencies followed suit shortly thereafter. The Bretton Woods gold-dollar system was doomed.
The fact that exchange rates no longer were fixed meant that companies doing business in different countries had to cope with
the day-to-day shifts in the dollar's rate of exchange with other currencies. The risks of unexpected changes in the value of international
contracts suddenly had shifted from the public to the private sector. Corporate finance officers now had to hedge against possible
exchange losses by buying a currency forward and investing the equivalent in the short-term money market, or by investing in the
eurocurrency market. The corporations' banks, in turn, tried to match each foreign currency transaction with another contrary transaction
in order not to leave each of the banks exposed to foreign exchange risk overnight. Since no single bank was likely to balance its
foreign exchange positions exactly, the need arose to swap deposits in different currencies in order to match corporate hedging
transactions and to square the bank's books.
The price of this forward cover on inter-bank transactions - that is to say, the premium or discount on a currency's spot value
- has tended to accord with the differences between interest-rates offered for eurocurrency deposits in different currencies. This
is the connection between the foreign exchange market and the short-term credit markets, between exchange rates and interest rates.
Whenever exchange rates move up or down, therefore, their influence is immediately transmitted through the eurocurrency markets
to the credit markets.
It is this scramble to avoid private risk that accounted for the dramatic rise in international financial movements following
the demise of the Bretton Woods system. By 1973, daily foreign exchange trading around the world varied between $10 and $20 billion
per day. This amount was approximately twice the value of world trade at the time. Bank of International Settlements data suggests
that the daily average of foreign exchange trading had climbed by 1980 to about $80 billion, and that the ratio between foreign
exchange trading and international trade was more nearly ten to one. The data for 1992 was $880 billion and fifty to one, respectively;
for 1995, $l,260 billion and seventy to one; and for 2000, almost $1,800 and ninety to one.
There is very little doubt, therefore, that the lion's share of international financial flows is relatively short-run. Indeed,
about eighty percent of foreign exchange transactions are reversed in less than seven business days. Only a very small proportion
is used to finance international trade and direct foreign investment. The vast majority must be used with the expectation of gain
or to avoid losses that may result from changes in the value of financial assets. In general terms, they are speculative, made in
hope of capital gain or to hedge against potential capital loss, or to seek the gains of arbitrage based on slight differences in
rates of return in different financial centers.
Foreign exchange markets and markets for money and credit seem remote and abstract to most people. This section introduces the
real institutions that operate these markets and assesses the nature of their power.
Commercial banks They take deposits, lend money, and create credit to the extent their capitalization allows. In
Europe, they tend to combine commercial and investment banking services, but in the U.S. and Japan they are still kept at least
partially separate by regulation. The foreign exchange trading facilities of the largest commercial banks, e.g. Citibank and
J.P.Morgan/Chase in the U.S., tend to dominate the market. The banking industry as a whole represents the largest pool of world
financial capital.
Investment banks They facilitate international payments, manage new issues of stocks and bonds, advise on mergers
and acquisitions in all industries, and engage in securities and foreign exchange trading as allowed by law. Investment banks
(previously called merchant banks in the U.K.) have specialized in particular kinds of derivative products. Derivatives are
financial contracts whose value is based upon the value of other underlying financial assets such as stocks, bonds, mortgages
or foreign exchange.
Brokerage houses They handle the bulk of stock exchange transactions and a major part of foreign exchange transactions.
Investment banks recently have acquired several of the main brokerage houses in the U.S. The development of investor-friendly
methods of buying and selling securities, e.g., over-the-counter markets and electronic brokerage, also have diminished the
role of independent brokerage houses.
Mutual funds They are pools of funds provided by clients that are run by professional investment managers. These
collective investments are held in portfolios with various mixes of money-market instruments, bonds and equities. Mutual funds
account for the second largest pool of global financial capital.
Hedge funds They resemble mutual funds, but they are much less restricted in investment activities and techniques.
Their customers are high net-worth individuals and large institutional investors. They specialize in complex financial instruments
and tend to take significant speculative positions, especially on expected future changes in macroeconomic conditions. They
exploit arbitrage opportunities embedded in the relative prices of related securities. They frequent offshore centers and tax
havens.
Tax havens Offshore centers and tax havens shelter perhaps $10 trillion of wealth from capital and income taxation.
The British Virgin Islands, the Bahamas, Bermuda, the Cayman Islands, Dublin and Luxembourg are among the most important. Many
hedge funds are registered there.
Wealthy individuals They are an important source of funds, as many of them invest their liquid funds in financial
markets. They account for about eighty percent of hedge fund investors.
Private pension funds They function like annuities, receiving funds today in return for a promise to pay future benefits.
With large pools of funds to invest, they tend to depend on investment banks, mutual funds or hedge funds to supervise placement
of their assets in global financial markets.
Insurance companies They pool risks by selling protection against the loss of property, income, or life. Since the
risks they insure have various durations, they call for varied investment strategies. A portion of their funds is invested in
short-term financial instruments, often through mutual and hedge funds.
Transnational corporations They produce and sell goods and services in a number of countries. Their finance departments
seek the best ways to raise and transfer funds across borders, and administer the transfer prices18
of international trade conducted within the corporation. Some even have in-house corporate banks.
According to recent work by political scientists, the power of these financial actors is based in part on a complicated "process
of multiplication" of loans, assets and transactions. Many investors in financial markets buy financial instruments on very thin
margins, based on loans obtained by pledging the assets as collateral. This is called "leverage" in the jargon of financial markets.
In turn, the borrowed funds are invested in other financial assets, multiplying the demand for credit and financial assets. As demand
rises, more sophisticated financial assets are invented, including many forms of financial derivatives. A major portion of the accumulated
debt remains serviceable only as long as the prices of most assets will rise or at least remain relatively stable. If prices turn
down, they easily can lead to a chain-reaction. If investors respond instinctively like a herd, they will bring a far-reaching collapse
that constitutes a crisis.
As the flow of financial assets climbs, some bankers, brokers, and managers of financial institutions become prominent players
in the competition for investor dollars. Some become known for picking profitable places to invest and for promoting their selections
successfully. This can influence markets if people have confidence in their advice. A notorious example of the influence of prominent
players was the attack on British sterling in 1992 by George Soros' Quantum Fund. Believing that sterling was overvalued, the Fund
quietly established credit lines that allowed it to borrow $15 billion worth of sterling and sell it for dollars at the then "overvalued"
price. Its purpose, of course, was to pay back the loan with cheaper pounds after they had depreciated. Having gone long on dollars
and short on sterling, Soros decided to speak up noisily. He publicized his short-selling and made statements in newspapers that
the pound would soon be devalued. It wasn't long before sterling was devalued; he made $1 billion in profit.
The point can be made more generally: financial markets are subject to manipulation because they have become socially structured.
Market leaders and financial gurus are admired and followed (at least until very recently). The heavyweights thus dominate the business.
An obvious consequence of this is that there is a strong tendency in financial markets for further concentration of resources.
Another source of the power of financial actors is their obvious affinity for the rampant free-market philosophy of neo-liberalism.
The freedom with which they move financial capital around depends, of course, on the market-friendly policies of the so-called Washington
Consensus.19 As long as they are seen as part of the governing coalition, they derive special
powers to regulate themselves rather than be controlled by an independent government agency or civil society. Their power also is
reinforced by the activities of several collective associations of financial actors,20
which lobby on their behalf.
One more source of power for the financial actors is their knowledge that if they are big enough and sufficiently interlaced
with other financial actors, then the "system" will keep them from failing. Consider the case of Long-term Capital Management, a
hedge fund partnership started in 1994. It was able to borrow from various banks the equivalent of forty times its capitalization
in order to make bets on changes in the relative prices of bonds in the U.S. and abroad. When the Russian government announced a
devaluation and debt moratorium in August, 1998, it produced losses that the fund could not sustain. Nor could some of the banks
that had loaned large amounts to the fund. Accordingly, the Federal Reserve Bank of New York, fearful that the risk to the entire
system was too high, orchestrated a private rescue operation by fourteen banks and other financial institutions, which re-capitalized
the company for $3.5 billion.
Financial actors also have the power indirectly to influence non-financial actors such as firms or states. By providing economic
incentives to gamble and speculate on financial instruments, global financial markets divert funds from long-term productive investments.
In all probability, they also encourage banks and financial institutions to maintain a regime of higher real interest rates that
reduce the ability of productive enterprises to obtain credit. The volatility of global financial markets, moreover, brings uncertainty
and volatility in interest rates and exchange rates that are harmful to various sectors of the real economy, particularly international
trade.
The above stories about George Soros and Long-term Capital Management are good illustrations of the consequences for non-financial
actors of actions by financial actors. Both episodes are examples of games that are basically zero-sum, at least in the short-run.
Nothing new was produced; no new values were created. In the 1992 case about speculating against sterling, the Quantum Fund's profits
were at the expense of the British government, especially the Bank of England, and British taxpayers. In 1998, the losses suffered
by Long-term Capital Management came out of the pockets of the stockholders of the banks that bailed it out, as the stock-market
value of their shares depreciated. Hence, the financial system tends to feed itself by drawing more resources from other sectors
of the economy, undermining the vitality of the real economy.
Consequences of global financial flows
The dominant economic ideology of the last twenty-five years has been embodied in the so-called Washington Consensus. It is a
"market-friendly" ideology that traces its roots to longstanding policies of the IMF that encourage macroeconomic "stabilization;"
to adoption by the World Bank of ideas in vogue in Washington early in the Reagan period concerning deregulation and supply-side
economics; to the zeal of the Thatcher government in England for privatizing public enterprises; and perhaps most of all to the
neo-liberal tendencies of the business community and the economics profession in the U.S. The implementation of these policies of
economic "reform," by first "stabilizing" the macro-economy and then "adjusting" the market so that it can perform more efficiently,
are supposed to pay off in the form of faster output growth and rising real incomes
Among these policy prescriptions is financial liberalization in both the developed and the developing countries. Domestically
it is achieved by weakening or removing controls on interest and credit and by diluting the differences between banks, insurance
and finance companies. International financial liberation, on the other hand, demands removal of controls and regulations on both
the inflows and outflows of financial instruments that move through foreign exchange markets. It is the implementation of these
reforms that is perhaps the single most important cause of the surge in global financial flows. To be sure, the influence of technological
advances has broken the natural barriers of space and time for financial markets as twenty-four hour electronic trading has grown.
The fact that throughout most of the 1980s and 1990s the developed countries suffered from over-capacity and overproduction in manufacturing
may also have led the owners of financial capital to look for alternative profit opportunities.
It now is time to ask whether the implementation of all these reforms, on balance, has produced good or bad results. The focus
of this section will be mostly on the consequences of large and expanding international financial flows. After all, they are the
main concern of this essay. But first, we should ask whether or not the policies of growth and rising real incomes promoted by the
Washington Consensus have borne fruit.
Growth and income
There is little doubt that the introduction of the Washington Consensus' policy mix expanded the volume of international trade.
As a result, trade in goods and services has grown at more than twice the rate of global gross domestic product (GDP), and developing
countries' share of trade has risen from 23 to 29 percent. Increasing numbers of firms from developing countries, like their industrial-country
counterparts, engage in transnational production and adopt a global perspective in structuring their operations. The flow of foreign
direct investments and foreign portfolio investments has multiplied even more rapidly than trade, despite the financial instability
experienced in Asia, Brazil, Russia, and elsewhere in recent years.
The effects of liberalization have not been uniformly favorable, however. After at least ten full years of experience with the
Washington Consensus, several recent studies have begun to assess the consequences for developing countries of this experiment in
more open markets.21 Except for the years of crisis in a number of the countries studied,
most developing countries achieved moderate growth rates of gross domestic product in the 1990s - considerably higher than in the
l980s in Africa and Latin America during the debt crisis, but remarkably unchanged in most other regions. Moreover, average annual
growth in the 1990s was slightly lower than in the twenty-five years preceding the debt crisis when a strategy of substituting domestic
production for imports was in fullest use. When population growth rates are taken into consideration, the growth rate of per capita
income in the developing countries studied during the 1990s also was somewhat lower than in the 1960s and 1970s. Toward the end
of the 1990s, growth tapered off in many countries due to emerging domestic financial crises or external events. There is little
evidence in these figures, therefore, to suggest the strategy of liberalization boosted growth rates appreciably.
Nor did the distribution of income improve in most developing countries in the 1990s. On the contrary, virtually without exception
the wage differentials between skilled and unskilled workers rose with liberalization. The reasons for this varied widely among
countries, but one of the most important reasons was the fact that the number of relatively well-paid jobs in sectors of the economy
involved with international trade, though growing, was insufficient to absorb available workers, forcing many workers into more
precarious and poorly paid employment in the non-traded, informal trade, and service sectors or where traditional agriculture served
as a sponge for the labor market. Between the mid-1960s and the late-1990s, the poorest 20 percent of the world population saw its
share of income fall from 2.3 to 1.4 percent. Meanwhile, the share of the wealthiest quintile increased from 70 to 85 percent.22
Risk and reward
While all markets are imperfect and subject to failure, financial markets are more prone than others to fail because they are
plagued with three particular shortcomings: asymmetric information, herd behavior and self-fulfilling panics. Asymmetric information
is a problem whenever one party to an economic transaction has insufficient information to make rational and consistent decisions.
In most financial markets where borrowing and lending take place, borrowers usually have better information about the potential
returns and risks associated with the investments to be financed by the loans than do the lenders. This becomes especially true
as financial transactions disperse across the globe, often between borrowers and lenders of widely different cultures.
Asymmetric information leads to adverse selection and moral hazard. Adverse selection occurs when, say, lenders have too little
information to choose from among potential borrowers those who are most likely to use the loans wisely. The lenders' gullibility,
therefore, attracts more unworthy borrowers. Moral hazard occurs when borrowers engage in excessively risky activities that were
unanticipated by lenders and lead to significant losses for the lender. Yet another form of moral hazard occurs when lenders indulge
in lending indiscriminately because they assume that the government or an international institution will bail them out if the loans
go awry.
A good illustration of asymmetric information is the story of bank lending following OPEC's large increase in oil prices following
1973. Awash in cash, the oil exporters deposited large amounts in commercial banks that then perfected the Euro-currency loan for
developing countries. Eager to put excess reserves to use, the banks spent little time discriminating among potential borrowers,
in part because they believed host governments or international agencies would guarantee the loans. At the same time, developing
countries found they could readily borrow not only to import oil, but also to increase other kinds of expenditures. This meant they
could use borrowed funds to maintain domestic spending rather than be forced to adjust to the new realities of higher prices for
necessary imports. There is considerable evidence that moral hazard also was present in the Mexican crises in 1982 and 1994, and
in the Southeast Asian crises in 1997-8.
Yet another illustration of asymmetric information is the tendency of financial firms, especially on Wall Street and in the City
of London, to invent ever more complex derivatives to shift risk around the financial system. The market for these products is growing
rapidly, both on futures and options exchanges (two of the several places where derivatives are traded). A financial engineer, for
example, can take the risk in, say, a bond and break it down into a series of smaller risks, such as that inflation will reduce
its real value or that the borrower will default. These smaller risks can then be priced and sold, using derivatives, so that the
bondholder keeps only those risks he wishes to bear. But this is not a simple task, particularly when it involves assets with risk
exposures far into the future and which are traded so rarely that there is no good market benchmark for setting the price. Enron,
for instance, sold a lot of these sorts of derivatives, booking profits on them immediately even though there was a serious doubt
about their long-term profitability. Stories of huge losses incurred in derivative trading are legion. The real challenge before
central banks and regulatory bodies is to curb speculative behavior and bring discipline in derivative markets.
A second source of risk in financial markets is the tendency of borrowers and lenders alike to engage in herd behavior. John
Maynard Keynes, writing in the 1930s, suggested that financial markets are like "beauty contests." His analogy was to a game in
the British Sunday newspapers that asked readers to rank pictures of women according to their guess about the average choice by
other respondents. The winner, therefore, does not express his own preferences, but rather anticipates "what average opinion expects
average opinion to be." Accordingly, Keynes thought that anyone who obtained information or signals that pointed to swings in average
opinion and to how it would react to changing events had the basis for substantial gain. Objective information about economic data
was not enough. Rather, simple slogans "like public expenditure is bad," "lower unemployment leads to inflation," "larger deficits
lead to higher interest rates," were then the more likely sources of changes in public opinion. What mattered was that average opinion
believed them to be true, and that advance knowledge of, say, more public spending, lower unemployment, or larger deficits, respectively,
offered the speculator a special advantage.
A financial market that operates as a beauty contest is likely to be highly unstable and prone to severe changes. One reason
for this is that people trading in financial assets, even today, know very little about them. People who hold stock know little
about the companies that issued them. Investors in mutual funds know little about the stocks their funds are invested in. Bondholders
know little about the companies or governments that issued the bonds. Even knowledgeable professionals are often more concerned
with judging how swings in conventional opinion might change market values rather than with the long-term returns on investments.
Indeed, since careful analysis of risks and rewards is costly and time consuming, it often makes sense for fund managers and traders
to follow the herd. If they decide rationally not to follow the herd, their competence may be seriously questioned. On the other
hand, if fund managers follow the herd and the herd suffers losses, few will question their competence because others too suffered
losses. When financial markets are operated like a beauty contest, everyone wants to sell at the same time and nobody wants to buy.
The financial markets behaved as predicted shortly after several industrial countries, including the U.S. and Germany, abolished
all restrictions on international capital movements in 1973. The new system proved to be highly volatile, with exchange rates, interest
rates, and financial asset-prices subject to large short-term fluctuations. The markets also were susceptible to contagion when
financial tremors spread from their epicenter to other countries and markets that seemingly had little connection with the initial
problem. In less than five years, it already was clear that both the surpluses and the deficits on the major countries' balance
of payments were getting larger, not smaller, despite significant changes in the exchange rates.
In some cases, a financial crisis can be self-fulfilling. A rumor can trigger a self-fulfilling speculative attack, e.g. on a
currency, that may be baseless and far removed from the economic fundamentals (unlike the Soros story above). This can cause a sudden
shift in the herd's intentions and lead to unanticipated market movements that create severe financial crises. Consider, for example,
the succession of major financial crises that have pock-marked the recent history of international financial markets, including
Latin America's Southern Cone crisis of 1979-81, the developing-country debt crisis of 1982, the Mexican crisis of 1994-95, the
Asian crisis of 1997-98, the Russian crisis of 1998, the Brazilian crisis of 1999, and the Argentine crisis of 2001-02.
Perhaps the Asian crisis of 1997-98 is the most interesting in this regard, for there were relatively few signals beforehand
of impending crisis. All the main East Asian economies displayed in 1994-96 low inflation, fiscal surpluses or balanced budgets,
limited public debt, high savings and investment rates, substantial foreign exchange reserves and no signs of deterioration before
the crisis. This background has led many analysts to suppose that the crisis was a mere product of the global financial system.
But what could have triggered the herd to stampede out of Asian currencies? No doubt several factors were at work. Before the crisis
that started in the summer of 1997, there was a rise in short-term lending to Asians by Western and Japanese banks with little or
no premiums, a fact that the Bank for International Settlement raised questions about. Alert investors, especially hedge funds,
also noticed that substantial portions of East and Southeast Asian borrowings were going into non-productive assets and real estate
that often were linked to political connections. In fact, some of the funds pouring into non-productive assets were coming out of
the productive sector, mortgaging the longer-term viability of some real economies. Information about the structure and policies
of financial sectors was opaque. Thus, opinions began to change among key lenders about the regulation of financial sectors in several
Asian countries and their destabilizing lack of transparency. Suddenly, several important hedge funds reduced their exposure by
shorting currency futures, followed quickly by Western mutual funds. The calling of loans led quickly to deep depression in several
Asian countries. It has been estimated that the Asian crisis and its global repercussions cut global output by $2 trillion in 1998-2000.
Loss of government autonomy
Both economic theory and the experience of managing the external financial affairs of nations tell us that it is virtually impossible
to maintain (1) full financial mobility, (2) a fixed exchange rate, and (3) freedom to seek macro-economic balance (full employment
with little inflation) with appropriate monetary and fiscal policies. Only two of these policy objectives can be consistently maintained.
If the authorities try to pursue all three, they will sooner or later be punished by destabilizing financial flows, as in the run
up to the Great Depression around 1930 and in the months before sterling's collapse 1992. If a government tries to stimulate its
economy with lax monetary policy, for example, and players with significant market power like George Soros sense that at a fixed
exchange rate, foreigners will be unwilling to lend enough to finance the country's current account deficit, they will begin to
flee the home currency in order to avoid the capital losses they will suffer if and when there is a devaluation. If reserve losses
accelerate and more players follow suit, crisis ensues. The authorities are forced to devalue, interest rates soar, and the successful
attackers sit back to count their profits.
For nations wishing to retain reasonably independent monetary and fiscal authority in order to cater to domestic needs, the solution
is to allow the exchange rate to move up or down as conditions in the foreign exchange markets dictate, or to establish some sort
of control over the movement of financial instruments in and out of the country, or to devise some combination of these two adjustment
mechanisms. The debate over whether fixed or flexible exchange rates is the wiser policy continues to rage in academic quarters
and in finance ministries all over the world. For the most part, the international business community prefers reasonably fixed exchange
rates in order to minimize their costs of hedging foreign currency positions. Thus instituting some form of control over speculative
financial movements may be an appropriate solution to the "trilemma."
The capacity of a nation to levy enough taxes to finance needed public expenditures is another important reason to retain independent
authority. A central function of government has been to insulate domestic groups from excessive market risks, particularly those
originating in international transactions. This is the way governments have maintained domestic political support for liberalizing
trade and finance throughout the postwar period. Yet many governments are less able today to help citizens that are injured by freer
markets with unemployment compensation, severance payments, and adjustment assistance because the slightest hint of raising taxes
to pay for these vital public services leads to capital flight in a world of heightened financial mobility.
This is a dilemma. Increased integration into the world economy has raised the need of governments to redistribute tax revenues
or implement generous social programs in order to protect the vast majority of the population that remains internationally immobile.
At the same time, governments find themselves less able to maintain the safety nets needed to preserve social stability. It seems
reasonable to suppose, therefore, that doing things that will bolster the ability of governments to levy sufficient taxes - curbing
tax avoidance by transnational corporations, controlling offshore tax havens, regulating capital flight - would help make globalization
slightly more democratic.
Winners and losers
The people who benefit from speculative financial movements are, for the most part, better educated and wealthier than the vast
majority of fellow citizens. They are the elites, whatever the country. As noted above, they have fewer connections to the real
economy of production and exchange than most people. And their purpose in trading financial assets, again for the most part, is
to make a profit quickly rather than wait for an investment project to mature.
People who do not participate directly in the buying and selling of short-term financial instruments are nonetheless influenced
indirectly by the macroeconomic instability and contagion that often accompany interruptions in financial market flows. This is
true for people both in developed and developing countries. In developed countries, the voracious appetite of financial markets
for more and more resources saps the vitality of the real economy - the economy that most people depend upon for their livelihood.
It has been shown that real interest rates rise as a result of the expansion of speculative financial markets. This rise in real
interest rates, in turn, dampens real investment and economic growth while serving to concentrate wealth and political power within
a growing worldwide rentier class (people who depend for their income on interest, dividends, and rents).23
Rather, the long-term health of the economy depends upon directing investable funds into productive investments rather than into
speculation.
In developing countries, attracting global investors' attention is a mixed blessing. Capital market inflows provide important
support for building infrastructure and harnessing natural and human resources. At the same time, surges in money market inflows
may distort relative prices, exacerbate weakness in a nation's financial sector, and feed bubbles. As the 1997 Asian crisis attests,
financial capital may just as easily flow out of as into a country. Unstable financial flows often lead to one of three kinds of
crises:
Fiscal crises. The government abruptly loses the ability to roll over foreign debts and attract new foreign loans, possibly
forcing the government into rescheduling or default of its obligations.
Exchange crises. Market participants abruptly shift their demands from domestic currency assets to foreign currency assets,
depleting the foreign exchange reserves of the central bank in the context of a pegged exchange rate system.
Banking crises. Commercial banks abruptly lose the ability to roll over market instruments (i.e., certificates-of-deposit)
or meet a sudden withdrawal of funds from sight deposits, thereby making the banks illiquid and possibly insolvent.
Although these three types of crises sometimes appear singly, they more often arrive in combination because external shocks or
changed market expectations are likely to occur simultaneously in the market for government bonds, the foreign exchange market,
and the markets for bank assets. Approximately sixty developing countries have experienced extreme financial crises in the past
decade.24
The vast majority of people in the developing world suffer from these convulsive changes. They are tired of adjusting to changes
over which they exercise absolutely no control. Most people in these countries view Western capitalism as a private club, a discriminatory
system that benefits only the West and the elites who live inside "the bell jars" of poor countries. Even as they consume the consumer
goods of the West, they are quite aware that they still linger at the periphery of the capitalist game. They have no stake in it,
and they believe that they suffer its consequences. As Hernando deSoto puts it, "Globalization should not be just about interconnecting
the bell jars of the privileged few."25
Social solidarity
Karl Polanyi in The Great Transformation sought to explain how the "liberal creed" contributed to the catastrophes of war and
depression associated with the first half of the twentieth century. Polanyi's central argument, which in fact can be traced back
to Adam Smith, is that markets do indeed promote efficiency and change, but that they achieve this through undermining social coherence
and solidarity. Markets must therefore be embedded within social institutions that mitigate their negative consequences.
The evidence of more recent times suggests that the global spread of free-market policies has been accompanied by the decline
of countervailing institutions of social solidarity. Indeed, a main feature of the introduction of market-friendly policies has
been to weaken local institutions of social solidarity. Consider, for example, the top-down policy prescriptions of the IMF and
World Bank during the developing world's debt crisis in the 1980s. These policies evolved into an intricate web of expected behaviors
by developing countries. In order for developing countries to expect private businesses and financial interests to invest funds
within their borders and to boost the growth potential of domestic economies, they needed to drop the "outdated and inefficient"
policies that dominated development strategies for most of the postwar period and adopt in their place policies that are designed
to encourage foreign trade and freer financial markets. Without significant adjustments in the ways economies were managed, it was
suggested, nations soon would be left behind.
The list of Washington Consensus requirements was long and daunting:
Make the private sector the primary engine of economic growth
Maintain a low rate of inflation and price stability
Shrink the size of the state bureaucracy
Maintain as close to a balanced budget as possible, if not a surplus
Eliminate or lower tariffs on imported goods
Remove restrictions on foreign investment
Get rid of quotas and domestic monopolies
Increase exports
Privatize state-owned industries and utilities
Deregulate capital markets
Make currency convertible
Open industries, stock, and bond markets to direct foreign ownership
Deregulate the economy to promote domestic competition
Eliminate government corruption, subsidies and kickbacks
Open the banking and telecommunications systems to private ownership and competition
Allow citizens to choose from an array of competing pension options and foreign-run pension and mutual funds.
In a provocative article, Ute Pieper and Lance Taylor point out that market outcomes often conflict with other valuable social
institutions. In addition, they emphasize that markets function effectively only when they are "embedded" in society. The authors
then look carefully at the experience of a number of developing countries as they struggled to comply with the policy prescriptions
of the IMF and the Fund. In almost every case, they demonstrate conclusively that the impact of these efforts was to make society
an "adjunct to the market."26
An appropriate balance is not being struck between the economic and non-economic aspirations of human beings and their communities.
Indeed, the evidence is mounting that globalization's trajectory can easily lead to social disintegration - to the splitting apart
of nations along lines of economic status, mobility, region, or social norms. Globalization not only highlights and exacerbates
tensions among groups; it also reduces the willingness of internationally mobile groups to cooperate with others in resolving disagreements
and conflicts.
Policy options
History confirms that free-markets are inherently volatile institutions, prone to speculative booms and busts. Overshooting,
especially in financial markets, is their normal condition. To work well, free markets need not only regulation, but active management.
During the first half of the post-war era, world markets were kept reasonably stable by national governments and by a regime of
international cooperation. Only lately has a much earlier idea been revived and made an orthodoxy - the idea adopted by the Washington
Consensus that, provided there are clear and well-enforced rules-of-the-game, free markets can be self-regulating because they embody
the rational expectations that participants form about the future.
On the contrary, since markets are themselves shaped by human expectations, their behavior cannot be rationally predicted. The
forces that drive markets are not mechanical processes of cause and effect, as assumed in most of economic theory. They are what
George Soros has termed "reflexive interactions."27 Because markets are governed by highly
combustible interactions among beliefs, they cannot be self-regulating.
The question before us then, is what could be done to better regulate financial markets and to bring active management back into
the task of "embedding" markets in society, rather than the other way around? Monetary authorities such as the Federal Reserve System
in the U.S. and the central banks of other countries were formed long ago in order to dampen the inherent instabilities of financial
market in their home countries. But the evolution of an international regulatory framework has not kept pace with the globalization
of financial markets. The International Monetary Fund was not designed to cope with the volume and instability of recent financial
trends.
Capital controls
Given the problems outlined above about short-term speculative financial transactions, one might wonder why national policy-makers
have not insulated their financial markets by imposing some sort of control over financial capital. The answer, of course, is that
some have continued trying to do so despite discouragement from the IMF. For example, some have put limitations on the quantity,
conditions, or destinations of financial flows. Others have tried to impose a tax on short-term borrowing by national firms from
foreign banks. This is said to be "market-based" because it operates by altering the cost of foreign funds. If such transactions
were absolutely prohibited, they would be called "non-market" interventions.
A more extreme form of financial capital controls, one that controls movement of foreign exchange across international borders,
also has been tried in a number of countries. This form of control requires that some if not all foreign currency inflows be surrendered
to the central bank or a government agency, often at a fixed price that differs from that which would be set in free market. The
receiving agency then determines the uses of foreign exchange. The absence of exchange controls means that currencies are "convertible."
The neo-liberal argument opposing financial capital controls asserts that their removal will enhance economic efficiency and
reduce corruption. It is based on two basic propositions in economic theory that depend for their proof on perfectly competitive
markets in the real economy and perfectly efficient gatherers and transmitters of information in financial markets. Neither assumption
is realistic in today's world. Indeed, a number of empirical studies have reported the effectiveness of capital controls in controlling
capital flight, curbing volatile capital flows and protecting the domestic economy from negative external developments.
Developing countries have only recently abandoned, or still maintain, a variety of control regimes. Latin American countries
traditionally have used market-based controls, putting taxes and surcharges on selected financial capital movements or tying them
up in escrow accounts. Non-market based restrictions were more common in Asia until the early 1990s. Many commentators believe that
their sudden removal in the early 1990s was a contributing cause to the Asian financial crises in 1997-8. The experience of two
countries, Malaysia and Chile, with capital controls is especially instructive.
Malaysia, unlike its Asian neighbors, was reluctant to remove its restrictions on external borrowing by national firms unless
they could show how they could earn enough foreign exchange to service their debts. Then when the Asian crises hit, its government
imposed exchange controls, in effect making its local currency that was held outside the country inconvertible into foreign exchange.
After the ringget was devalued, exporters were required to surrender foreign currency earnings to the central bank in exchange for
local currency at the new pegged rate. The government also limited the amount of cash nationals could take abroad, and it prohibited
the repatriation of earnings on foreign investments that had been held for less than one year. Thus, Malaysia's capital controls
were focused mostly on controlling the outflow of short-term financial transactions. Happily, the authorities were able to stabilize
the currency and reduce interest rates, leading to a degree of domestic recovery.28
Chile, on the other hand, tried to limit the inflow of short-term financial transactions. It did so by imposing a costly reserve
requirement on foreign-owned capital held in the country for less than one year. Despite attempts to stimulate foreign direct investment
of the funds, most of the reserve deposits were absorbed in the form of increased reserves at the central bank. In turn, this created
a potential for expanding the money supply, which the government feared would lead to inflation. Rather than allow this to happen,
the government "sterilized" the inflows by selling government bonds from its portfolio. But this pushed down the prices of bonds
and pushed up the interest rates on them, discouraging business investment. Finally, when prices of copper (Chile's primary export)
fell sharply in 1998, the control regime was scrapped.29
The tobin tax
A global tax on international currency movements was first proposed by James Tobin, a Yale University economist, in 1972.30
He suggested that a tax of one-quarter to one percent be levied on the value of all currency transactions that cross national borders.
He reasoned that such a tax on all spot transactions would fall most heavily on transactions that involve very short round-trips
across borders. In other words, it would be speculators with very short time-horizons that the tax would deter, rather than longer-term
investors who can amortize the costs of the tax over many years. For example, the yearly cost of a 0.2 percent round trip tax would
amount to 48 percent of the value of the traded amount if the round trip were daily, 10 percent if weekly and 2.4 percent if monthly.
Since at least eighty percent of spot transactions in the foreign exchange markets are reversed in seven business days or less,
the tax could have a profound effect on the costs of short-term speculators.
Of course, for those who believe in the efficiency of markets and the rationality of expectations, a transactions tax would only
hinder market efficiency. They argue that speculative sales and purchases of foreign exchange are mostly the result of "wrong" national
monetary and fiscal policies. While we readily admit that national policies sometimes do not accord with desired objectives, they
nonetheless have little relevance for speculators focused on the next few seconds, minutes or hours.
Tobin did not intend for his proposal to involve a supranational taxation authority. Rather, governments would levy the tax nationally.
In order to make the tax rate uniform across countries, however, an international agreement would have to be entered into by at
least the principal financial centers. The revenue obtained from the tax could be designated for each country's foreign exchange
reserve for use during periods of instability, or it could be directed into a common global fund for uses like aid to the poorest
nations. In the latter case, the feasibility of the tax also would depend on an international political agreement. The revenue potential
is sizeable, and could run as high as $500 billion annually.
There are two other advantages often cited by proponents of the Tobin tax. Tobin's original rationale for a foreign exchange
transactions tax was to enhance policy autonomy in a world of high financial capital mobility. He argued that currency fluctuations
often have very significant economic and political costs, especially for producers and consumers of traded goods. A Tobin tax, by
breaking the condition that domestic interest rates may differ from foreign interest rates only to the extent that the exchange
rate is expected to change (see p. 10), would allow authorities to pursue different policies than those prevailing abroad without
exposing them to large exchange rate movements. More recent research suggests that this is only a very modest advantage.31
An additional advantage of the tax is that it could facilitate the monitoring of international financial flows. The world needs
a centralized data-base on all kinds of financial flows. Neither the Bank for International Settlements nor the IMF has succeeded
in providing enough information to monitor them all. This information should be regularly shared among countries and international
institutions in order to collectively respond to emerging issues.
The feasibility issues raised by the Tobin tax are more political than technical. One of the issues is about the likelihood of
evasion. All taxes suffer some evasion, but that has rarely been a reason for avoiding them. Ideally all jurisdictions should be
a party to any agreement about a common transactions tax, since the temptation to trade through non-participating jurisdictions
would be high. Failing that, one could levy a penalty on transactions with "Tobin tax havens" of, say, double the normal tax rate.
Moreover, one could limit the problem of substituting untaxed assets for taxed assets by applying the tax to forwards, swaps and
possibly other contracts.
Tobin and many others have assumed that the task of managing the tax should be assigned to the IMF. Others argue that the design
of the tax is incompatible with the structure of the IMF and that the tax should be managed by a new supranational body. Which view
will prevail depends upon the resolution of other outstanding issues. The Tobin tax is an idea that deserves careful consideration.
It should not be dismissed as too idealistic or too impractical. It addresses with precision the problems of excessive instability
in the foreign exchange markets, and it yields the additional advantage of providing a means to assist those in greater need.
Reforming the IMF
The IMF was established in 1944 to provide temporary financing for member governments to help them maintain pegged exchange rates
during a period of internal adjustment. With the collapse of the pegged exchange rate regime in 1971, that responsibility has been
eclipsed by its role as central arbiter of financial crises in developing countries. As noted above (p. 20), these crises may be
of three different kinds: fiscal crises, foreign exchange crises, and banking crises.
Under current institutional arrangements, a nation suffering a serious fiscal crisis that could easily lead to default must seek
temporary relief from its debts from three different (but interrelated) institutions: the IMF, which is sometimes willing to renegotiate
loans in return for promises to adopt more stringent policies (see above); the so-called Paris Club that sometimes grants relief
on bilateral (country to country) credits; and the London Club that sometimes gives relief on bank credits. This is an extremely
cumbersome process that fails to provide debtor countries with standstill protection from creditors, with adequate working capital
while debts are being renegotiated, or with ways to ensure an expeditious overall settlement. The existing process often takes several
years to complete.
There is a growing consensus that this problem is best resolved with creation of a new international legal framework that provides
for de facto sovereign bankruptcy. This could take the form of an International Bankruptcy Code with an international bankruptcy
court, or it could involve a less formal functional equivalent to its mechanisms: automatic standstills, priority lending, and comprehensive
reorganization plans supported by rules that do not require unanimous consent. Jeffrey Sachs recommends, for example, that the IMF
issue a clear statement of operating principles covering all stages of a debtor's progression through "bankruptcy" to solvency.
A new system of emergency priority lending from private capital markets could be developed, he suggests, under IMF supervision.
He also feels that the IMF and member governments should develop model covenants for inclusion in future sovereign lending instruments
that allow for priority lending and speedy renegotiation of debt claims.32
At the Joint Meeting of the IMF and the World Bank in September, 2002, the policy committee directed the IMF staff to develop
by April, 2003, a "concrete proposal" for establishing an internationally recognized legal process for restructuring the debts of
governments in default. It also endorsed efforts to include "collective action" clauses in future government bond issues to prevent
one or two holdout creditors from blocking a debt-restructuring plan approved by a majority of creditors. The objective of both
proposals is to resolve future debt crises quickly and before they threaten to destabilize large regions, as happened in Southeast
Asia in 1997-98.
Member countries rarely receive support from the IMF any longer to maintain a particular nominal exchange rate. Because financial
capital is so mobile now, pegged exchange rates probably are unsupportable. But there are special times when the IMF still might
give such support during a foreign exchange crisis. International lending to support a given exchange rate is legitimate if the
government is trying to establish confidence in a new national currency, or if its currency is recovering from a severe bout of
hyperinflation. Ordinarily the foreign exchange should be provided from an international stabilization fund supervised by the IMF.
National central banks usually supervise and regulate the domestic banking sector. Thus, banking crises normally are handled
by domestic institutions. This may not be possible, however, if the nation's banks hold large short-term liabilities denominated
in foreign currencies. If the nation's central bank has insufficient reserves of foreign currencies to fund a large outflow of foreign
currencies, there may be circumstances when the IMF or other lenders may wish to act as lenders-of-last-resort to a central bank
under siege. Nations like Argentina that have engaged in "dollarization" are learning about the downside risks of holding large
liabilities denominated in foreign currencies. The best way to avoid this problem is for governments and central banks to restrict
the use of foreign currency deposits or other kinds of short-term foreign liabilities at domestic banks.
Overall, what is most needed is the availability of more capital in developing countries and much quicker responses, amply funded,
to emerging financial crises.. George Soros has argued powerfully that the IMF needs to establish a better balance between crisis
prevention and intervention.33 The IMF has made some progress in prevention by introducing
Contingency Credit Lines (CCLs). The CCL rewards countries that follow sound policies by giving them access to IMF credit lines
before rather than after a crisis erupts. But CCL terms were set too high and there have been no takers. Soros also has recommended
the issuance of Special Drawing Rights (SDRs) that developed-countries would donate for the purpose of providing international assistance.
Its proceeds would be used to finance "the provision of public goods on a global scale as well as to foster economic, social, and
political progress in individual countries."34
A growing number of civil society institutions, however, oppose giving more money to the IMF unless it is basically reformed.
They point out that it is a committed part of the Washington Consensus, the application of whose policies have made societies adjuncts
of the market. They see the IMF as an instrument of the U.S. government and its corporate allies. The conditions it attaches to
loans for troubled countries often do more to protect the interests of first world investors than to promote the long-term health
of the developing countries. The needed chastening of speculative investors does not occur under these circumstances. There is evidence
that in several major crises, IMF requirements for assisting nations have in fact worsened the situation and protracted the crises.
The IMF opposed the policies that enabled Malaysia to weather the crisis in Southeast Asia, for example, while it urged the failed
policies of other Southeast Asian nations. The vast literature cited by Pieper and Taylor (p. 22) is a convincing chronicle of earlier
missteps. For such reasons as these, some civil society institutions argue that, unless IMF policies are changed, giving the institution
more money will do more harm than good.
Fortunately, the IMF's policies are beginning to change, partly as a result of criticisms by civil society institutions, but
more through recognition of the seriousness of the problems with the present system. In the wake of recent financial crises, leaders
in the IMF as well as the World Bank are looking for ways to reform the international financial architecture. Arguably, their emphasis
is shifting away from slavish devotion to the prescriptions of the Washington Consensus and toward more state intervention in financial
markets. Joseph Stiglitz, the Nobel Laureate who has been particularly critical of the IMF, nonetheless acknowledges that its policy
stances are improving.35
The IMF has begun to recognize the importance of at least functional public interventions in markets and the need to provide
more supporting revenues. It has realized that controls on external financial movements and prudent regulation can help contain
financial crises. It has abandoned the doctrine, long the backbone of structural adjustment policies, that raising the local interest
rate will stimulate saving and thereby growth. Both the IMF and the World Bank have rolled over or forgiven the bulk of official
debt owed by the poorest economies.
Whether these and other promising changes in IMF thinking and policy formation are sufficient to assure that its future responses
to crises will be benign still is not clear. While celebrating what they view as belated improvements, many critics of the IMF among
civil society institutions are not convinced that they are sufficiently basic. Even if the IMF avoids repeating some of its more
egregious mistakes, some believe that it is likely to continue to function chiefly for the benefit of the international financial
community rather than the masses of people. Rather, they believe that, at least in the long term, it would be much better for control
over international finance to reside in new institutions under a restructured United Nations. They favor the U.N. because it has
a broader mandate, is more open and democratic, and, in its practice, has given much greater weight to human, social, and environmental
priorities.
Many civil society institutions want the primary focus of reform to be on taming speculation, restoring the control of their
economies to nations, and embedding economies in the wider society. They believe that if these policies are adopted there will be
less need for large funding to deal with financial crises. There remains, however, the fact that such crises are occurring and will
continue to occur for some time. The IMF is the only institution positioned to respond to these crises. Hence, even for those who
sympathize with the goals of the civil society institutions, there is a strong argument for more financing for the IMF.
A world financial authority
A variety of public and private citizens and institutions have recently proposed the establishment of a World Financial Authority
(WFA) to perform in the domain of world financial markets what national regulators do in domestic markets. Some believe it should
be built upon the foundation of global financial surveillance and regulation that have already been laid by the Bank for International
Settlements in Basel, Switzerland. Others regard it as a natural extension of the activities of the IMF. Still others are less interested
in the precise institutional form it would take than in the clear delineation of the tasks that need to be done by someone.
Its first task probably should be to provide sufficient and timely financial assistance during crises to avert contagion and
defaults. This requires a lender-of-last-resort with sufficient resources and authority to disperse rescue money quickly. Perhaps
the best example to date is the bailout loan to Mexico by the U.S. Treasury and the IMF at the end of 1994. It supplied sufficient
liquidity for Mexico to make the transition back to stability and to pay back the loans ahead of time. The management of the Asian
crises in 1997-8, on the other hand, was badly handled. The bailout packages offered by the IMF were not only significantly smaller
than in the Mexico case; they also were constrained with so many conditions that a year later only twenty percent of the funds had
been disbursed. This slow response to the crisis probably worsened the contagion. Surprisingly, the error was repeated in the Russian
crisis in 1998 and the Brazilian crisis in 1999.
A World Financial Authority also should provide the necessary regulatory framework within which the IMF or a successor institution
can develop as a lender-of-last-resort. As long as domestic regulatory procedures function properly, there will be no need for a
world authority to be involved, any more than to certify that domestic regulatory procedures are effective. In countries where domestic
financial regulation is unsatisfactory, the WFA would assist with regulatory reform. In this way, the WFA could aid financial reconstruction,
reduce the likelihood of moral hazard, and give confidence to backers of the operation.
There is little appetite today, especially in Washington, to create a new international bureaucracy. This fact gives support
to the idea of building the WFA from the existing infrastructure of the Bank for International Settlements (BIS). The BIS is a meeting
place for national central bankers who have constructed an increasingly complicated set of norms, rules and decision-making procedures
for handling and preventing future crises. Its committees and cooperative cross-border regulatory framework enjoy the confidence
of governments and of the financial community. It may well be the best place to govern an international regulatory authority at
the present time.
Theological and ethical considerations
While Christian theology cannot provide us with detailed recommendations on how to correct the adverse consequences of speculative
financial movements, it can provide us with an empowering perspective or worldview. Our theological expressions of the faith describe
the source of our spiritual energy and hope. They betray our ultimate values and the source of our ethical norms. They shape how
we perceive and judge the "signs of the times."
God's world and human responsibilities
Nothing in creation is independent of God. "The earth is the Lord's and all that is in it, the world, and all those who live
in it." (Ps. 24:1 NRSV) Thus, no part of the creation - whether human beings, other species, the elements of soil and water, even
human-made things - is our property to use as we wish. All is to be treated in accord with the values and ground rules of a loving
God, their ultimate owner, who is concerned for the good of the whole creation. All of God's creation therefore deserves to be treated
with appropriate care and concern, no matter how remote from one's daily consciousness or existence.
The doctrine of creation reminds us that our ultimate allegiance is not to the nationalistic and human-centered values of our
culture, but rather to the values of the loving Maker of heaven and earth. When we seek plenty obsessively, consume goods excessively,
compete against others compulsively, or commit ourselves to Economic Fate, we are worshiping false gods. Modern idolatries are often
encountered in economic forms, just as in the New Testament's warnings about the spiritual perils of prosperity in the parables
of the rich, hoarding fool (Luke 12:15-21) and the rich youth (Matt. 19:16-24 and Luke 18:18-25).
The fact that so much of financial speculation is divorced from the real economy of production and exchange suggests that its
paper transactions are more like bets in a casino than an essential component of God's real economy, which seeks the good of all
creation. It is wrong to subject people to the effects of wholesale gambling. The fact that the practice of financial speculation
is secretive, compulsively competitive, and frequented by lone rangers, moreover, hints at a cult of false idols. Its practitioners,
including especially day-traders, seem interested only in exceedingly short-term personal financial advantage, unconcerned about
the long-term consequences of their actions or their impact on others. This also indicates a degree of idolatry that contradicts
the doctrine of creation.
Image of God
The conviction that human beings have a God-given dignity and worth (Gen. 1:26-28) unites humanity in a universal covenant of
rights and responsibilities - the family of God. All humans are entitled to the essential conditions for expressing their human
dignity and for participation in defining and shaping the common good. These rights include satisfaction of basic biophysical needs,
environmental safety, full participation in political and economic life, and the assurance of fair treatment and equal protection
of the laws. These rights define our responsibilities in justice to one another, locally, nationally and - because they are human
rights - internationally.
Financial speculation often leads to unmanageable floods of funds into and out of host societies, creating unwanted bubbles and
panics. Financial speculators normally ignore the human consequences of their activities on the rights of people in host societies,
where economic adjustments are shared widely and painfully. Their primary interest is short-term personal financial gain. The absence
of a sense of covenantal unity with their brothers and sisters of the developing world is a sad commentary on the governing ethic
of speculators in the capital markets. Their arrogance calls for some form of control over foreign exchange and financial capital
markets.
Justice in covenant
The rights and responsibilities associated with the image of God are inextricably tied to the stress on justice in Scripture
and tradition. We render to others their due because of our loving respect for their God-given dignity and value. The God portrayed
in Scripture is the "lover of justice" (Ps. 99:4, 33:5, 37:28, 11:7; Isa. 30:18, 61:8; Jer. 9:24). Justice is at the ethical core
of the biblical message. Faithfulness to covenant relationships, moreover, demands a justice that recognizes special obligations,
"a preferential option" to widows, orphans, the poor, and aliens, which is to say the economically vulnerable and politically oppressed.
Hence, the idea of the Jubilee Year (Lev. 25) was meant to prevent unjust concentrations of power and poverty. Jesus' ministry embodies
concern for the rights and needs of the poor; He befriended and defended the dispossessed and the outcasts.
The fact that the liberalization of trade and finance has failed to improve the distribution of incomes, indeed, that it has
widened the gap between rich and poor in virtually every country, is not a sign of distributive justice but of its opposite. The
standard of living for the least skilled, least mobile, and poorest citizens of many developing countries has declined absolutely.
This, too, is an unjust result of a broken system. The fact that governments that wish to assist the vulnerable and weak of their
societies are less able to do so, in part because they no longer can levy sufficient taxes on foreign interests, is a violation
of justice in community.
Sin and judgment
Sin is a declaration of autonomy from God, a rebellion against the sovereign source of our being. It makes the self and its values
the center of one's existence, in defiance of God's care for all. Sin tempts us to value things over people, measuring our worth
by the size of our wealth and the quantity of goods we consume, rather than by the quality of our relationships with God and with
others. Sin involves injustice because its self-centeredness defies God's covenant of justice, grasping more than one's due and
depriving others of their due.
Sin is manifested not only in individuals, but also in social institutions and cultural patterns. These structural injustices
are culturally acceptable ways of giving some individuals and groups of people advantage over others. Because they are pervasive
and generally invisible, they compel our participation. They benefit some and harm many others. Whether or not we deserve blame
as individuals and churches for these social sins depends in part on whether we defend or resist them, tolerate or reject them.
The fact that the freeing of financial markets has permitted financial speculators to engage in high-risk gambles without regard
to the consequences for others is abundant evidence of both individual and institutional sin. The policies of the Washington Consensus
frequently lead to adverse consequences for the poor and the environment, even as its proponents gain advantages from the implementation
of such policies. They are another serious expression of social sin in our time. These policies inevitably increase the concentration
of economic power in fewer hands. The fact that the global spread of free-market policies has led to the decline of countervailing
institutions of
social solidarity means that it is easier for the centers of economic power to corrupt governments, control markets, alienate
neighbors, manipulate public opinion, and contribute to a sense of political impotency in the public.
The Church's mission and hope
The church is called to be an effective expression of the Reign of God, which Jesus embodied and proclaimed. This ultimate hope
is a judgment on our deficiencies
and a challenge to faithful service. God's goal of a just and reconciled world is not simply our final destiny but an agenda
for our earthly responsibilities. We are called to be a sign of the Reign of God, on earth as it is in heaven, to reflect the coming
consummation of God's new covenant of shalom to the fullest extent possible.
A new financial architecture
In her path-breaking book, Casino Capitalism,36 Susan Strange likens the Western financial
system to a vast casino. As in a casino,
"the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing
to be done - the foreign-exchange market and all its variations; or in bonds, government securities or shares. In all these markets
you may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial
inventions. Some of the players - banks especially - play with very large stakes. There are also many quite small operators. There
are tipsters, too, selling advice, and peddlers of systems to the gullible. And the croupiers in this global finance casino are
the big bankers and brokers. They play, as it were, "for the house.' It is they, in the long run, who make the best living."
She goes on to observe that the big difference between ordinary kinds of gambling and speculation in financial markets is that
one can choose not to gamble at roulette or poker, whereas everyone is affected by "casino capitalism." What goes on in the back
offices of banks and hedge funds "is apt to have sudden, unpredictable and unavoidable consequences for individual lives."
It is this volatility, this instability in financial markets that has given rise to recurring financial crises. They must be
tamed. In the wake of recent financial crises, people are beginning to look for ways to reform the international financial architecture.
Although it is difficult to move from general theological convictions to specific proposals, we offer the following suggestions
for consideration by Christians and other persons of good will.
Capital controls should be an integral part of national strategies to tame the financial system. They can be made an effective
and meaningful tool to protect and insulate the domestic economy from volatile capital flows and other negative external developments.
Regulatory and supervisory measures should supplement capital controls when appropriate. They should include regulation
of financial derivatives and hedge funds. Regulation is a necessary complement to domestic capital controls. Nations influenced
by hedge funds and their complex financial instruments should seek international cooperation, including the governments of host
countries, to regulate their practices.
A new international legal framework should be created, which provides for de facto sovereign bankruptcy. The existing international
system for dealing with insolvent governments is woefully inadequate. Provision must be made for automatic standstills, priority
lending, and planned reorganizations.
An international transactions tax (like the Tobin tax) should be designed and implemented to discourage short-term speculative
capital movements. It is neither "too idealistic" nor "too impractical." It would reduce short-term trading and strengthen the
defensibility of the exchange rate regime.
International cooperation should be sought to curb dubious activities of offshore financial centers. Strict international
regulation and supervision of offshore centers is essential to curb tax and regulatory evasions. They also are a primary conduit
for money laundering and various criminal activities.
The IMF's responsibilities as a lender-of-last-resort should be enhanced, expanding its authority and resources to make
possible quick action to avert financial crises. The IMF must have effective and swift mechanisms to increase the Fund's access
to official monies in times of crisis, including authority to borrow directly from financial markets under those circumstances.
A World Financial Authority based on the cross-border regulatory framework of the Bank for International Settlements should
be developed. It should provide the necessary regulatory framework within which the IMF or a successor organization can develop
as a lender-of-last-resort.
Of these recommendations, perhaps the most controversial is that more funds be given to the IMF. We noted above that much of
the criticism of the IMF is justified. We also acknowledged that the IMF is improving its policies. We hope that these improvements
will continue. Meanwhile, there is no other viable candidate to serve as lender-of-last-resort - an absolutely essential feature
of any new financial architecture.
The major reason some civil society institutions resist funding the IMF further is its history of misguided structural adjustment
policies, policies that are now widely recognized to have caused widespread suffering. We hope that recent changes will improve
this situation as well and enable the IMF to perform the important role we recommend for it.
Along with the World Bank, it is beginning to contextualize its performance criteria and conditionalities, taking much more seriously
the unique circumstances of particular economies. It is listening more and nitpicking less. To be sure, the IMF is not likely to
abandon its policy of making its loans conditional on the adoption by borrowing countries of mutually agreed economic policies.
Even so, there is considerable evidence that when it has had more resources on hand, conditionality has been correspondingly wiser
and less draconian.
The IMF now recognizes that it can leave more decisions to developing countries partly because these have better informed and
more sophisticated employees than was once the case. Certainly in Latin America and Asia and increasingly in Africa, country economic
teams are better qualified technically than the lower rung Ph.D.s from American and European universities to whom the IMF and World
Bank entrust their missions. Local economists can do financial programming and standard macroeconomic modeling as well as or better
than the people from Washington can; they also know how to do investment project analysis. To be sure, decisions about financial
and project plans must include input from many other elements of a society.
We can encourage the IMF (and World Bank) to reverse the typical procedure in setting conditions for multilateral loans. Instead
of waiting for it to specify the policies that must be followed to justify additional financing, country economic teams, in consultation
with other agencies of their government, should be allowed to propose economic programs to the IMF. Disagreements between Washington
staff assessments and the local teams could be resolved directly or by third-party arbitration. The scope of economic conditionality
could also be restricted, for example, just to a balance-of-payments target, while the country could pursue its own agenda regarding
inflation, income distribution, and growth.
What Christians can do
A primary part of the "principalities and powers" referred to in the Bible is composed of the political-economic institutions
and processes that govern how people relate economically to each other and to God's whole creation. The church has a stake in their
design. Yet many church members feel powerless to change basic political-economic reality. They think either that the economic conditions
of society result "naturally" from the forces of markets that are only marginally within the power of human control, or that economic
conditions result from powerful interests that are beyond the reach of ordinary citizens. Thus, there's nothing that can be done
about it, or there's nothing we can do about it.
On the contrary, Mobilization for the Human Family believes that the political economy is shaped by deliberate social policy
decisions; that conditions at any given time are the result of those decisions; that conditions can be changed by human decisions;
and that the will of a nation's and the world's citizens about what the commitments and purposes of the nation and the world should
be can be expressed in the political economy through the framework of democratic process provided in our national and transnational
polity. Accordingly, we offer below some suggestions for action that may be taken by individual Christians and by our churches and
their denominations to correct some correctable flaws of financial globalization.
Actions by individual Christian
Pray for persons working in governments, international organizations, institutions, and non-governmental organizations who
are trying to work toward a better world, including especially a world financial architecture that better assures fairness in
capital markets.
In the management of personal and family investments, seek fuller understanding of the uses to which the banks, companies,
mutual funds, and investment counselors are putting your money. Avoid speculative investments that are likely to be made without
regard to their consequences for others.
Reflect upon decisions about work and career choices that are consistent with a Christ-like commitment to economic justice
for all.
Organize Bible study in your local congregation, where possible together with people of other backgrounds and life-styles,
to learn and identify with God's continuing struggle to seek economic justice in the world.
Commit oneself to some voluntary organization that is trying to promote greater economic justice in the local and/or global
economy.
Become involved politically in your area or nation, seeking political and economic change in the direction of economic justice.
Actions by churches and denominations
Concern for economic justice must be fully reflected in the prayer life, worship, and educational programs and mission outreach
of all congregations.
Seek assistance from members who work for banks, brokerage houses, and mutual funds to help mould an educational program
that will assist members of the congregation to become more socially responsible investors.
Seek collaborative programs among clusters of congregations, perhaps with the aid of local Councils of Churches, to provide
educational opportunities where Christians and other faith groups can come to understand some of the complex economic issues
amidst which they live and work. Since virtually nothing is now available to explain the problems of financial speculation,
this paper could be used to assist study of this phenomenon.
Over and beyond educational programs, local churches - again perhaps best working together in the same neighborhood or town
- can enter into a deliberate dialogue or partnership with one or more voluntary bodies in the civic society, so as to put their
energies into the health of the wider society. Engagement with the International Forum on Globalization (l009 General Kennedy
Avenue #2, San Francisco, CA 94129) is a good way to explore the means of influencing the debate on the globalization of trade
and finance.
At the denominational level, churches should review their investment criteria to reassure themselves that social responsibility
is a primary goal of their financial management.
Also at the denominational level, agencies responsible for the formation of social witness policies need to monitor global
economic indicators on a continuing basis in order to assist its programmatic agencies to form effective and timely social witness
regarding the local and national consequences of the globalization of trade and finance.
Want to know more?
Globalization is a vast topic. For a general introduction, see Sarah Anderson and John Cavanagh, Field Guide to the Global Economy
(New York: New Press, 2000) and Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Farrar Straus
Giroux, 1999). A classic introduction to the financial side of globalization is Susan Strange, Casino Capitalism, (New York: Mnchester
University Press, 1986). See also Kavaljit Singh, The Globalisation of Finance: A Citizen's Guide (London: Zed Books, 1999) and
John Eatwell and Lance Taylor, Global Finance at Risk: The Case for International Regulation (New York: The New Press, 2000). The
best introduction to the Tobin Tax is Mahbub ul Haq et al (eds), The Tobin Tax: Coping with Financial Volatility (New York: Oxford
University Press, 1996). For how church people might react, see Pamela Brubaker, Globalization at What Price? (Cleveland: Pilgrim
Press, 2001).
Questions For Discussion
How have the linkages and interconnections of international finance impacted your life? On balance, do you regard them as
advantages or disadvantages for a healthy Christian life?
The frequency and severity of recent financial crises have fueled calls for a radical redesign of the rules of global finance.
If you were the advisor to an international commission asked to design "A New International Financial Architecture," what would
you recommend?
Do you favor allowing sovereign nations to declare bankruptcy? What Christian traditions might be invoked to support or
deny such an action?
A growing number of civil society institutions oppose giving more money to the IMF. They point out that it is part of the
Washington Consensus, the application of whose policies have made societies adjuncts of the market. Yet this paper suggests
that the IMF needs more money. As a committed Christian, which view do you favor?
Is it too late to expect justice in a globalizing world? Since much of the direction the global economy has taken is irreversible,
how can a balance between market and society be negotiated? How might Christians play a role in those negotiations?
Up early today and lit the shop woodstove; just waiting for light to get on with my day which
always starts (after chores) with my dog and I going for a walk.
Ron, I do not disagree with your post or comments, with the exception of when population
will peak and the aspect/timing of social disruption?
On this morning wait for daylight I have been reading various blog sites with CNN ticking
over in the background. Maybe it is the speed of the news cycle and my being used to the
insanity of what is being reported, but today, after seeing the Trump tweets on Muslim
Violence (film clips), the so-called tax plan, sexual misconducts, the recent reports on KSA,
Yemen, Syria, and what is ramping up concerning North Korea, I think we are at a crux right
now. I think there will be a Market collapse and war; perhaps global in scale. Further to
that I don't see any desire or mechanism for defusing tensions or a way to recall the
situation.
I am 62 and was a kid during a recent/last big social reset. I had older sibs and parents
who moved us north to Canada in '68 because they had had enough. My WW2 veteran parents
proclaimed they had seen enough to be afraid, and sold out to start over and build new lives.
While I was thinking about it, and your post, I realized that in today's situation there are
no simple answers and not really any places to run to. It seems different because of the
population numbers and armaments, plus the willingness of people to pretend it's just
'tribal/crooked politics as usual'. Then, I thought about photographs and how a few
catapulted us into rapid change last century. Certainly, the haunted faces of the Dust Bowl
sparked a move towards reform. Images from the south and the stories of the KKK perhaps Rosa
Parks herself helped galvanize the Civil Rights Movement. For me, the image of the young lady
holding the dead student at Kent State, (her anguish), the burning Monk and young girl coated
with napalm coupled with the lie about the Gulf of Tonkin incident pushed me into cynicism;
so much that I was not surprised about the non-existent WMD of Iraq.
Perhaps it won't be an image, or story that we look back to as a turning point. Maybe it
will be a tweet. Maybe it will be the Market collapse or a premptive attack on North Korea
that sets everything in motion. I just think we are loaded and tamped down like a pipe bomb
ready to blow.
I do not think we will continue to grow in population until 2050. I think it could start
to unravel pretty fast and any day. I don't see any step back from war(s) in either the ME,
or Korea.
From Wiki: (just one event that pales alongside today's triggers)
Kent State
"Just five days after the shootings, 100,000 people demonstrated in Washington, D.C.,
against the war and the killing of unarmed student protesters. Ray Price, Nixon's chief
speechwriter from 1969 to 1974, recalled the Washington demonstrations saying, "The city was
an armed camp. The mobs were smashing windows, slashing tires, dragging parked cars into
intersections, even throwing bedsprings off overpasses into the traffic down below. This was
the quote, student protest. That's not student protest, that's civil war."[10] Not only was
Nixon taken to Camp David for two days for his own protection, but Charles Colson (Counsel to
President Nixon from 1969 to 1973) stated that the military was called up to protect the
administration from the angry students; he recalled that "The 82nd Airborne was in the
basement of the executive office building, so I went down just to talk to some of the guys
and walk among them, and they're lying on the floor leaning on their packs and their helmets
and their cartridge belts and their rifles cocked and you're thinking, 'This can't be the
United States of America. This is not the greatest free democracy in the world. This is a
nation at war with itself.'"
I apologize if this seems North American centric; and in blinders. I wish to reiterate
that our population numbers, plus increasing divide and disparity, proliferation of weapons
and intolerance, coupled with environmental degradation and Climate Change, makes this much
much worse. It's a gun waiting for a trigger, imho.
Yes, things are pretty bad. But things were bad during the Kent State/Nixon era. Yet we
survived.
It has been my experience, following this biosphere destruction for many years now, that
people who see and understand the destruction, almost always expect things to fall apart real
soon. They never do.
I once spent several months as a stockbroker. One thing I learned during that period was a
truth about insider traders. That is traders who trade the stock of the company they work for.
They see things happening inside their company and expect it to cause great trouble or great
profit. They are almost always right and almost always way too early with their predictions.
Things just never seem to happen as fast as they expected.
We, you and I and a few others, are insiders to this problem that I have described in my
above post. We know something terrible is going to happen. But most of us expect it to happen
way before it actually will happen.
An example is "The Population Bomb" by Paul Ehrlich. I think he was spot on, but things just
did not happen as fast as he expected. I hope to avoid his mistake.
Yep, Ron, and we need to be careful about saying "this time is different". Perhaps we need a
list of things that really are different this time.
One that should be obvious to anyone paying attention is that, in the late 60s, US debt to
GDP was in the mid 30% range. It is now over 100% according to a number of sources. As Gail T.
is wont to say, unserviceable debt will likely be the trigger that results in a cascading
failure of financial systems, and everything else is likely to follow. In short, our financial
house of cards has grown three-fold in 50 years, as the global reserve currency is tagged to
nothing.
I think the debt problem is a little overblown. Now people use debt differently sometimes
implying "total debt" and sometimes "public debt" and sometimes "central government debt".
Which one are you talking about? I don't read Tverberg's stuff. Looking at your numbers and the
link below
They have been over 100% debt to GDP since 1999 and have been around 200% since 2014.
If Japan has collapsed, I missed it. Note that I agree with the idea that when the US
economy is doing well (which at present is the case), that paying down debt is a better idea
than reducing taxes. I would raise taxes if anything ( a carbon tax would be ideal) and reduce
the deficit to less than zero and pay down the debt.
Or just balance the budget and let economic growth reduce the debt to GDP ratio.
As for Japan, most of what they owe is to themselves while they own a lot of that US debt,
above. Japan also uses the carry trade to stay afloat.
I only posted this as being one of the things that is different about our situation ~50
years ago. People can make of it what they will. I personally think it is significant since the
world runs on credit. No credit, no growth.
Hard to imagine no credit. Also in the 1960s there was less borrowing by the government (so
less credit) and higher growth rates (at least in the US) than today. In the old days there was
concern the government would "crowd out" private debt, as if there was some fixed amount of
debt the system could sustain and the system always remained at this maximum debt level.
Instead it seems the system had room for higher levels of debt as government debt as
increased, but there is little evidence of "crowding out". There may be some maximum debt level
that an economy can sustain and Japan may be there. Also note that 50 years ago debt was at
fairly low levels, but in 1946 Debt to GDP was 118% of GDP, rapid economic growth from 1946 to
1974 reduced this debt to GDP to 31%, by 1992 it was at 61%, and in 2016 it was 105%.
Strange that the Republicans want to raise the debt higher by cutting taxes, this made sense
when the economy was doing poorly during the Obama years and the aftermath of the GFC.
I agree debt could become a problem and would be worried if central government debt to GDP
was 200% (as in Japan).
I also don't buy into the unfunded liabilities argument, laws change and governments don't
always fulfill their promises, that is just a fact of life.
Personally I believe Tverberg is a person who has discovered a niche she can exploit and is
making a living out of it. I had the pleasure of seeing her make her canned presentation at a
conference once, where all the presentations were repeated several times over for three days so
the entire attending crowd could see them all.
If you ask her a real question, she seizes up like a deer in headlights. She knows some
elementary level stuff that is worth some thought, in the case of people who know little or
nothing about the overall economy and environment.
Her answer in the case of a real question is the same answer you get from a politician who
doesn't WANT to answer. She just pretends you asked a DIFFERENT question, and provides a stock
answer to THAT question.
She doesn't have anything to say worth listening to , in terms of the level of understanding
of the contributing members of this forum.
UK government debt to GDP was well over 400% for decades running; it was never a problem. Don't
worry about it. Government debt is not really debt, it's actually money.
Good point on the rate. I remember my grade 11 Social Studies teacher talking to me after class
in 1972. One of our class texts was The Population Bomb. He expected to see, in his lifetime, a
collapse of sorts. When I asked him to expand further he described small scale gardens/farms of
no more the 2 acres. The primary machinery used would be walk-behind tractors.
I smiled at the memory when I bought my BCS walk-behind ten years ago. I smile every spring
when I till the gardens. I still think he was right, just off on the timing (just like I was
when I got out of stocks several years ago and put my money in term deposits.)
The older I get, the less I understand. I take comfort in knowing my Dad wouldn't get it,
either.
I thought Ehrlich's book "The Dominant Animal" was fairly well measured, and generally in line
with the post above (I haven't read the population bomb).
"... In other words, Germany already effectively controls the armies of four countries. And the initiative, Foreign Policy notes, 'is likely to grow'. This is not surprising: if Germany ('the EU') wants to become truly autonomous from the US, it needs to acquire military sovereignty, which it currently lacks. ..."
"... so many people in Europe will see it being necessitated by the growing chaos in the Middle East and in Africa. ..."
"... Never let a crisis go to waste ..."
"... Certainly not those of the inhabitants of the constituent "nations" of the EU (ironic quotation marks fully intended). And now Muti Merkel and the authoritarian scolds of Brussels are trying to force a quota of these migrants upon all of the "nations" – or should we say, the administrative zones – of the EU. Orban, Le Pen, the AfD, and ilk are not stupid, you know. ..."
"... I worked in and with "Brussels" for many years and can say that many, if not most, of the personnel involved with EU institutions are neo-liberals, neo-cons and deluded with the fantasy of an EU imperium, Greece to America's Rome. ..."
"... I think I concur with Mitchell that a Federal EU State is a big no no for Germany, based on the fact fiscal transfers would be out of the German coffers, and this fact is amplified by the exit of the UK, which was a big net EU contributor. The rumour mill has it that Jans Weidmann will be the next ECB Head, which means we can expect more, not less austerity imposed as the EU elite push further EMU, which, is certainly not in the interests of the average Joe across the Euro member states. ..."
"... Anyhow, check Bill Mitchell out, so decent material and nice to see people standing up for the Nation State, rather than supranational entities and corporations. ..."
"... If Germany is trying to build a mini-imperial system straddling all of Europe, then it would seek willing 'elites' in the small European countries to give a slice of pie to in exchange for their cooperation with that agenda. This is standard (neo)colonial policy today, which is best understood as the neocon/neoliberal approach the United States has taken to world domination – aka bad cop/good cop. "Accept our offer of a carpet of gold or we'll deliver a carpet of bombs", is another version of that offer. The one that can't be refused? ..."
"... This is because public debt in the eurozone is used as a political tool – a disciplining tool – to get governments to implement socially harmful policies (and to get citizens to accept these policies by portraying them as inevitable), which explains why Germany continues to refuse to seriously consider any form of debt relief for Greece, despite the various commitments and promises to that end made in recent years: debt is the chain that keeps Greece (and other member states) from straying 'off course'. ..."
"... That would be the neoliberal mechanism of control; notice here how debts assumed by small nations are not like debts assumed by the controlling powers, either. Rather like student loan holders vs. central banks – students can't print money to pay off their debts, that's the difference. ..."
"... So, if it is true in economics that stability creates instability, then the creation of a stable Europe will undo itself in the manner that this article appears to be saying. ..."
"... This corporate super-entity reminds me of "Omnius Prime" in the Dune universe – a computer with nearly total sociopathic control over humanity. The corporate super-entity, whose AI program's only concern is maximizing short term profits by inflating securities and equities, will eat the Earth if we allow it to continue – digesting and purging humans which have been commodified like everything else. ..."
"... Then we see power blocks aligning, the US (and it's proxies), the EU under Germany, Russia, and China. Clearly we are sitting on a powder keg that is the disintegrating neo-liberal world orde. What will serve as the spark that lights the fuse? Trump and North Korea? War for fun and profit in the Middle East? ..."
The basis of this thesis was plain when the ECB was placed in Germany.
The Economic regime is: Germany books the profits, and you lazy (non Germans) book the
losses.
Welcome to the neoliberal roots of the next 30 years war. The 30 years war was the
imposition of the ruler's denomination, Catholicism, on the people. This next 30 years one is
imposing asset stripping (rent extraction) on the people and enriching a few Aristocrats, as
a dogma.
Now do you understand Brexit? Do you believe the British could not see this coming?
I'll repeat: This was the obvious outcome when the ECB was placed in Germany. I'm English
and discussed this very topic with my family and friends there, and there was general
agreement that German ambition would pave the path.
Those who don't know their history are condemned to repeat it.
Now do you understand Brexit? Do you believe the British could not see this coming?
Exactly. Those average British voters weren't stupid as claimed. If the EU/Germans are
trying to do this whose aims are, and I quote:
"to further erode what little sovereignty and autonomy member states have left, particularly
in the area of fiscal policy, and to facilitate the imposition of neoliberal 'structural
reforms' – flexibilisation of labour markets, reduction of collective bargaining
rights, etc. – on reluctant countries." and the year is only 2017, then what would it
be like in the EU by the year, say, 2040?
Those British voters knew exactly what was coming down the turnpike and decided to bail and
accept a whole lot of present pain. It was not their fault that it turned out that their
leadership turned out to be a load of stuff-ups. To reinforce the point, look at the pain and
deaths that the American colonies had to endure to get out of the British Empire. Before 1777
that would not have seemed to be the logical thing to do.
Does this direction become a hazard to the United States? Mr. Putin appears to have an answer, but perhaps does not have ready yet the next step,
namely the needed set of trained personnel, trays, software, and printed pieces of paper, so
that one way or another a country that wants to jettison the Euro can convert its ATMs very
quickly to do so. Being set up to print very large stocks of Euros from the country that is
leaving also comes to mind. Readers will recognize other steps.
Unlike some years ago, fast air access from Russia to southern European countries by
overflying Mr Putin's friend Turkey is now probably available.
A good summary of a situation that is too complex to be neatly summarized – so many
political, historical, religious, cultural, etc. issues come into play not only for each
nation involved but also on an individual level for hundreds of millions of people. My most
immediate reaction to these suggestions that a militarily capable fourth Reich may be
emerging is that so many people in Europe will see it being necessitated by the growing chaos
in the Middle East and in Africa.
In other words, Germany already effectively controls the armies of four countries.
And the initiative, Foreign Policy notes, 'is likely to grow'. This is not surprising: if
Germany ('the EU') wants to become truly autonomous from the US, it needs to acquire
military sovereignty, which it currently lacks.
And I seriously doubt that Germany really "controls" the armies of four countries.
The fact is that so far Germany's military strategy was conceived only within the NATO
framework -- where it could rely upon the heavy-lifting of the USA logistical train, the
ground experience and battle-readiness of the French and the British, and the availability of
the navies from Spain and Italy. Germany has neither the equipment, nor the personnel, nor
the experience to take the lead of a EU military, and other countries will probably
strenuously oppose such endeavours which would rob them from their last symbolic and
practical vestiges of sovereignty.
On the other hand, as the article explains, Germany is well on its way to assert its
complete dominion over the economic and institutional arrangements in the EU.
Ah, yes, a crisis greatly exacerbated by taking down Libya, a country which had served as
a bulwark against much of the tide of migration into Southern Europe from Sub-Saharan Africa,
as well as an enemy to Wahabbi/Salafist terror.
Not to mention the EU support for the dismemberment of Syria that launched its own tidal
wave of migration into Europe, whilst Syria was also an enemy of Wahabbi/Salafist terror.
In light of that, one must ask, in whose interest were these actions undertaken, and at
whose behest? Well?
Certainly not those of the inhabitants of the constituent "nations" of the EU (ironic
quotation marks fully intended). And now Muti Merkel and the authoritarian scolds of Brussels
are trying to force a quota of these migrants upon all of the "nations" – or should we
say, the administrative zones – of the EU. Orban, Le Pen, the AfD, and ilk are not
stupid, you know. Europeans, at least those of you who still possess a quantum of
self-respect, and who honor your histories and cultures, gather your courage and tell Muti
and the Commissars of Brussels that the game is over before they can inflict yet more damage.
But – perhaps – you are already too comfortably numb to remember why and how to
do this? Well, then, into the veal pen with you.
Further to "France's corporate offensive in Italy", one-sided as France took recent
exception to the take over of one its shipbuilders by an Italian rival, I would argue that
it's an offensive by the EU's 1%, a strategy of immiseration facilitated by the likes of Guy
Verhofstadt as per http://www.sofina.be/board-management/ . Sofina
is well-connected with the French establishment by way of Eurazeo and the Italian
establishment by way of Banca Leonardo.
I worked in and with "Brussels" for many years and can say that many, if not most, of
the personnel involved with EU institutions are neo-liberals, neo-cons and deluded with the
fantasy of an EU imperium, Greece to America's Rome. It suits them and their
cheerleaders, including in Blighty, to pretend that this is due to the malign influence of
Albion perfide or Anglo-Saxons. One should not expect a change of tack after Brexit. The
"racaille" are profit(eer)ing too much and are able to get away with it under the cover of
more Europe.
As far as EMU is concerned, monetarist economic thinking has been predominant in much of
the Europhiles output on monetary union since the 70s, that is, prior to the UK joining the
Community. Bill Mitchell has written concisely on this over the past week & is quite
scathing of Mitterrand and Delors for their embrace of what we now term 'neoliberalism',
combine this with a desire for an actual military arm & one really does worry about the
direction of the EU, with or without the UK.
Further, and within the lecture presented by Sir Ivan Rogers last week concerning Cameron
& Brexit, the fact remains both the UK Elite & Euro Elite were keen on pushing TTIP,
this despite the fact many believe it was the UK pushing neoliberalism on to Europe.
I think I concur with Mitchell that a Federal EU State is a big no no for Germany, based
on the fact fiscal transfers would be out of the German coffers, and this fact is amplified
by the exit of the UK, which was a big net EU contributor. The rumour mill has it that Jans
Weidmann will be the next ECB Head, which means we can expect more, not less austerity
imposed as the EU elite push further EMU, which, is certainly not in the interests of the
average Joe across the Euro member states.
Anyhow, check Bill Mitchell out, so decent material and nice to see people standing up for
the Nation State, rather than supranational entities and corporations.
I found the first about 1/3 of this post informative. But then the author gets to the main
thesis:
The process underway can only be understood through the lens of the
geopolitical-economic tensions and conflicts between leading capitalist states and regional
blocs, and the conflicting interests between the different financial/industrial capital
fractions located in those states , which have always characterised the European economy.
In particular, it means looking at Germany's historic struggle for economic hegemony over
the European continent.
This suggests that the national battles in Europe are battles between different national
"capital fractions," in particular German capital with its everlasting desire for economic
hegemony over Europe against (presumably) other European national capitals that are opposed
to Germany.
That does not strike me as an accurate description of the current status of Europe or the
EU, and nothing in the rest of the piece suggests that this is a (the most?) useful lens for
interpreting events. The author even admits that elites from smaller Euro countries are happy
in the role of compradors to Germany's economically dominant capitalists and that "European
elites" are united in their anti-democratic tendencies. Even the German election results show
this thesis to be dubious – if "Germany" is well on its way to it's long-cherished goal
of European economic hegemony, why on earth would voters be tired of Merkel? They should make
her Kaiser!
If Germany is trying to build a mini-imperial system straddling all of Europe, then it
would seek willing 'elites' in the small European countries to give a slice of pie to in
exchange for their cooperation with that agenda. This is standard (neo)colonial policy today,
which is best understood as the neocon/neoliberal approach the United States has taken to
world domination – aka bad cop/good cop. "Accept our offer of a carpet of gold or we'll
deliver a carpet of bombs", is another version of that offer. The one that can't be
refused?
Jump down a few paragraphs from your quote to this:
This is because public debt in the eurozone is used as a political tool – a
disciplining tool – to get governments to implement socially harmful policies (and to
get citizens to accept these policies by portraying them as inevitable), which explains why
Germany continues to refuse to seriously consider any form of debt relief for Greece,
despite the various commitments and promises to that end made in recent years: debt is the
chain that keeps Greece (and other member states) from straying 'off course'.
That would be the neoliberal mechanism of control; notice here how debts assumed by
small nations are not like debts assumed by the controlling powers, either. Rather like
student loan holders vs. central banks – students can't print money to pay off their
debts, that's the difference.
As far as Germany's voters, well, the reality of Empire is that trickle-down is a myth.
Empires always deliver the tribute from foreign holdings to a small circle of politically
connected elites – British lords, French aristocrats, Wall Street billionaires, Third
World tin-pot dictators, etc. The general public always suffers as a result; you have to fund
the foreign military adventures over the domestic infrastructure, health care and education
needs. Hence Empires always try to limit and undermine democratic rule; the German voters
probably see this as well.
So, if it is true in economics that stability creates instability, then the creation of a
stable Europe will undo itself in the manner that this article appears to be saying. In order
to avoid conflict, the European Union has created a trading zone that has a great deal of
inequality in it–not just in trade but inequality in the financial system that will
continue to grow as corporations merge and become ever larger and as banks become ever more
monolithic. Perhaps, national sovereignty will succumb to financial hegemony rather than
becoming the victims of German hegemony.
And what would have been the plans for Britain?
Big omission in the article. That was a damned if they do, damned if they don't option.
Isn't a lot of the EU's bill for Britain about making sure they pay for EU officials
pensions?
While everywhere else it is austerity for Eurozone and EU countries' pensioners
Although I found this article helpful in summarizing many of the changes in EU politics,
the author is incorrect in his premise that the German government is at the root of the
anti-democratic, neoliberal EU movement. The author ignores the dominant role that the
interconnected multinational corporations (
https://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world/
) play in running the global political economy.
69 of the top 100 economies are now corporations (
https://blogs.worldbank.org/publicsphere/world-s-top-100-economies-31-countries-69-corporations
). National politics have become subservient to the interests of the financial economy which
can move money quickly and destroy a state's economy when political decisions do not follow
the neoliberal script of austerity. The author's premise that "Germany needs to seize control
of the most coveted institution of them all – the ECB –, which hitherto has never
been under direct German control" is backwards. It is the ECB that has had control of the
German political leaders for years. Whether "Merkel now has her eyes on the ECB's presidency"
or not does not matter. She is merely a cog in the corporate machine – easily replaced
if she fails to follow the neoliberal agenda of austerity.
Of course we must recognize that austerity is only imposed as an attempt to inflate the
debt bubble by squeezing those least capable of paying, those considered disposable in the
sociopathic and mechanistic corporate hive mind. The "automatic stabilizing mechanisms" that
"put the economy on 'autopilot', thus removing any element of democratic discussion and/or
decision-making" are really just manifestations of the emergent behavior that this corporate
super-organism expresses and imposes on the global economy. (
https://www.counterpunch.org/2017/12/01/ai-has-already-taken-over-its-called-the-corporation/
)
This corporate super-entity reminds me of "Omnius Prime" in the Dune universe – a
computer with nearly total sociopathic control over humanity. The corporate super-entity,
whose AI program's only concern is maximizing short term profits by inflating securities and
equities, will eat the Earth if we allow it to continue – digesting and purging humans
which have been commodified like everything else.
This total corporatization is at the root of both existential threats to humanity –
nuclear war and climate change. The risk of nuclear war (primarily from some mistake or
miscalculation) results from the military-industrial complex's imperial program of
globalization to further multinational corporate profits and control, and climate change is a
cancer driven by corporate resource exploitation that will surely kill humanity if we don't
cut out the corporate tumors and stop smoking that oil.
I'm beginning to think that the only way to save humanity, to save the planet, will be a
"Butlerian Jihad" to rid us of the existential threat that corporations represent. I wonder
how many people will have to be consumed by this corporate monster before we rise up to kill
it. There will be a cost to eliminating corporations, to ending the limited liability of the
owners, but that cost will be well worth the price of saving humanity, civilization, and our
ecosystem. "There is an evil which ought to be guarded against in the indefinite accumulation
of property from the capacity of holding it in perpetuity by corporations. The power of all
corporations ought to be limited in this respect. The growing wealth acquired by them never
fails to be a source of abuses." James Madison
Argument by assertion doesn't work here. There is no evidence whatsoever that the ECB has
influence over German leaders. More generally, German politics are dominated by industrial
capital, particularly its automakers, not financial capital. And in fact the Bundesbank has
disproportionate influence over the ECB. And Germany has repeatedly checked measures that
would provide more support to the banking system and lead to more Eurozone integration to
preserve its advantaged position.
In addition, the EU is perfectly willing to take on global corporations, contrary to your
claims. Did you miss the massive anti-trust fine it imposed on Microsoft, and the fines it
has imposed on Google? The EU competition ruling on Google will force Google to change how it
does business in a fundamental manner, and the fines (up to 10% of global revenues for a
violation in a single line of business) are high enough to bring Google to heel. The EU also
is requiring Apple to pay a ginormous tax bill for its special tax avoidance scheme in
Ireland.
If you are going to comment on European politics, you need to know the terrain. You don't,
and worse you say things that mislead readers.
Jeebus! I had no idea that Germany had extended it's claws so far into the affairs of
other countries as to be integrating their army units.
I suppose it's a much better strategy than attacking those armies and risking people
getting killed. :-/
But, seriously, Germany has moved far beyond it's mercantilist advantages and subjugation
of Greece and other periphery nations. It has become beyond obvious to me that they learned
from their experience in WWII and decided that economic hegemony was the way to go to achieve
de facto political hegemony. I think the Fourth Reich is fitting.
Thank you for having the courage to put those two words together so chillingly: "Fourth
Reich". You are not an alarmist to do so – you are right on the money. This has indeed
been a deliberate decades-long campaign to install German hegemony (no "accident"), and the
project is well along its way.
From here we can soberly project a future in which Europe *does* finally institute a
fiscal compact – wholly on Germany's terms. Is it too outrageous to suggest that there
will one day be a new Holy Roman Emperor to wear the crown of Charlemagne? And would it be
too forward to make guesses as to the nationality of said emperor?
Then we see power blocks aligning, the US (and it's proxies), the EU under Germany,
Russia, and China. Clearly we are sitting on a powder keg that is the disintegrating
neo-liberal world orde. What will serve as the spark that lights the fuse? Trump and North
Korea? War for fun and profit in the Middle East?
"... By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in
Asia and is currently working on a book about textile artisans. ..."
"... The Unbanking of America: How the New Middle Class Survives ..."
Posted on
December 4, 2017 by Jerri-Lynn ScofieldBy Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia
and is currently working on a book about textile artisans.
Three Democrats and three Republicans have co-sponsored a resolution, under the Congressional Review Act (CRA), to scuttle the
Consumer Financial Protection Bureau's payday lending rule.
CRA's procedures to overturn regulations had been invoked, successfully, only once before Trump became president. Congressional
Republicans and Trump have used CRA procedures multiple times to kill regulations (as I've previously discussed (see
here ,
here ,
here and here ). Not
only does CRA provide expedited procedures to overturn regulations, but once it's used to kill a regulation, the agency that promulgated
the rule is prevented from revisiting the issue unless and until Congress provides new statutory authority to do so.
Payday Lending
As I wrote in an extended October post,
CFPB Issues Payday Lending Rule: Will it Hold, as the Empire Will Strike Back, payday lending is an especially sleazy part of
the finance sewer, in which private equity swamp creatures, among others, operate. The industry is huge, according to this
New York Times report I quoted
in my October post, and it preys on the poorest, most financially-stressed Americans:
The payday-lending industry is vast. There are now more payday loan stores in the United States than there are McDonald's restaurants.
The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. Some 12 million people,
many of whom lack other access to credit, take out the short-term loans each year, researchers estimate.
The CFPB's payday lending rule attempted to shut down this area of lucrative lending– where effective interest rates can spike
to hundreds of points per annum, including fees (I refer interested readers to my October post, cited above, which discusses at greater
length how sleazy this industry is, and also links to the rule; see also this
CFPB fact sheet
and press
release .)
Tactically, as with the ban on mandatory arbitration clauses in consumer financial contracts– an issue I discussed further in
RIP, Mandatory Arbitration
Ban , (and in previous posts referenced therein), the CFPB under director Richard Cordray made a major tactical mistake in not
completing rule-making sufficiently before the change of power to a new administration- 60 "session days" of Congress, thus making
these two rules subject to the CRA.
The House Financial Services Committee
press release lauding
introduction of CRA resolution to overturn the payday lending rule is a classic of its type, so permit me to quote from it at length:
These short-term, small-dollar loans are already regulated by all 50 states, the District of Columbia and Native American tribes.
The CFPB's rule would mark the first time the federal government has gotten involved in the regulation of these loans.
.
House Financial Services Committee Chairman Jeb Hensarling (R-TX), a supporter of the bipartisan effort, said the CFPB's rule
is an example of how "unelected, unaccountable government bureaucracy hurts working people."
"Once again we see powerful Washington elites using the guise of 'consumer protection' to actually harm consumers and make
life harder for lower and moderate income Americans who may need a short-term loan to keep their utilities from being cut off
or to keep their car on the road so they can get to work," he said. "Americans should be able to choose the checking account they
want, the mortgage they want and the short-term loan they want and no unelected Washington bureaucrat should be able to take that
away from them."
[Rep Dennis Ross, a Florida Republican House co-sponsor]. said, "More than 1.2 million Floridians per year rely on Florida's
carefully regulated small-dollar lending industry to make ends meet. The CFPB's small dollar lending rule isn't reasonable regulation
-- it's a de facto ban on what these Floridians need. I and my colleagues in Congress cannot stand by while an unaccountable federal
agency deprives our constituents of a lifeline in times of need, all while usurping state authority. Today, we are taking bipartisan
action to stop this harmful bureaucratic overreach dead in its tracks."
"The rule would leave millions of Americans in a real bind at exactly the time need a fast loan to cover an urgent expense,"
said Daniel Press, a policy analyst with the Competitive Enterprise Institute, in a statement after the bill's introduction.
Consumer advocates think otherwise (also from CNBC):
"Payday lenders put cash-strapped Americans in a crippling cycle of 300 percent-interest loan debt," Yana Miles, senior legislative
counsel at the Center for Responsible Lending, said in a statement.
Prospects Under CRA
When I wrote about this topic in October, much commentary assumed that prospects for CRA overturn were weak. I emphasized instead
the tactical error of failing to insulate the rule from CRA, which could have been done if the CFPB had pushed the rule through well
before Trump took office:
If the payday rule had been promulgated in a timely manner during the previous administration it would not have been as vulnerable
to a CRA challenge as it is now. Even if Republicans had then passed a CRA resolution of disapproval, a presidential veto would
have stymied that. Trump is an enthusiastic proponent of deregulation, who has happily embraced the CRA– a procedure only used
once before he became president to roll back a rule.
Now, the Equifax hack may have changed the political dynamics here and made it more difficult for Congressional Republicans–
and finance-friendly Democratic fellow travellers– to use CRA procedures to overturn the payday lending rule.
The New York Times certainly seems to think prospects for a CRA challenge remote:
The odds of reversal are "very low," said Isaac Boltansky, the director of policy research at Compass Point Research & Trading.
"There is already C.R.A. fatigue on the Hill," Mr. Boltansky said, using an acronymn for the act, "and moderate Republicans
are hesitant to be painted as anti-consumer.
I'm not so sure I would take either side of that bet. [Jerri-Lynn here: my subsequent emphasis.]
A more telling element than CRA-fatigue in my assessment of the rule's survival prospects was my judgment that Democrats wouldn't
muster to defend the payday lending industry– although that assumption has not fully held, as this recent
American Banker account makes clear:
After the
payday rule was finalized in October , it was widely expected that Republicans would attempt to overturn it. It's notable,
though, that the effort has attracted bipartisan support in the House.
.
Passage in the Senate, however, may be a much heavier lift. The chamber's
vote to overturn the arbitration rule in late October came down to the wire, forcing Republicans to call in Vice President
Mike Pence to cast the tie-breaking vote.
Bottom Line
I continue to think that this rule will survive– as the payday lending industry cannot count on a full court press lobbying effort
by financial services interests. Yet as I wrote in October, I still hesitate to take either side of the bet on this issue.
I think this whole article is totally disingenuous. There is a serious need for many Americans to have access to small amount,
short term loans. While, these lenders may appear predatory, they do serve a large sector of society.
Maybe you need to read: The Unbanking of America: How the New Middle Class Survives by
Lisa Servon . It might be worth the read.
Where's the Post Office Bank when you need it. This overturning of the rule is just an effort to stop the Post Office Bank
from gaining traction as the alternative non-predatory source of small loans to the people. Most pay day lender companies are
owned by large financial players.
I agree that's a far better approach and indeed, I discussed the Post Office bank in my October post– which is linked to in
today's post. Permit me to quote from my earlier post:
The payday lending industry preys on the poorest financial consumers. One factor that has allowed it to flourish is current
banking system's inability to provide access to basic financial services to a shocking number of Americans. Approximately 38
million households are un or underbanked– roughly 28% of the population.
Now, a sane and humane political system would long ago have responded with direct measures to address that core problem,
such as a Post Office Bank (which Yves previously discussed in this post,
Mirabile Dictu! Post Office Bank Concept Gets Big Boost and which have long existed in other countries.)
Regular readers are well aware of who benefits from the current US system, and why the lack of institutions that cater to
the basic needs of financial consumers rather than focusing on extracting their pound(s) of flesh is not a bug, but a feature.
So, instead, the United States has a wide-ranging payday lending system. Which charges borrowers up to 400% interest rates
for short-term loans, many of which are rolled over so that the borrower becomes a prisoner of the debt incurred.
With phrasing like "unbanked" or "underbanked", I worry that you've bought into the banking-industry framing of this issue,
which I'm sure is not your intent.
Ordinary people should not need any bank (not even a government or post office bank) for everyday life, with the possible exception
of mortgages. De-financialization of the medium of exchange, and basic payments, is something the public should be fighting for.
I would consider myself an ordinary person and I pay in cash when purchasing day to day items the vast majority of the time
and yet I'd still prefer to deposit my money in a bank rather than hiding it in my mattress for any number of good reasons.
Banks aren't the problem – their predatory executives are.
But there are, or at least ought to be, safe and secure ways to store money other than by lending it to banks or stuffing it
into mattresses. Or carrying wads of cash.
For instance, a debit card (or possibly cell phone) with a secure identity / password can already act as a cashless wallet.
The digital cash could be stored directly on the device, and accounted for through something similar to TreasuryDirect, without
any intermediaries. But this would require the Federal Government to get serious about having a modern Digital Dollar of some
kind (not bitcoin, shudder)
Even better would be State Banks. Every state should have one. I believe the State Bank of North Dakota made money in 2008.
While the TBTF Banks came hat in hand to our Reps. Of course OUR Reps handed them a blank check and told them to "Make it go Away".
However Post Office Banks would be GREAT!!
This is the boilerplate argument that always gets brought up by payday loan defenders, and there is a good bit of truth to
it. However, what you are not mentioning is that there are already far superior options available to pretty much any person who
needs a small, short term loan. That solution is your friendly neighborhood Credit Union, most of which offer very low interest
lines of overdraft coverage. I don't mind saying that it has saved my heiny on more than one occasion. Pay check a little late
in arriving? No problem, transfer $200 from your overdraft account into your checking account on-line and you're good to go. Pay
it back at your convenience, also on-line, at 7% APR.
Payday lenders are legal loansharks. The problems with their predatory lending model and the damage it does to low-income people
are well documented. Simply pointing out that there is a reason that people end up at payday lenders is not a valid justification
for the business practices of those lenders, especially when there are much better alternatives readily available.
Very true! There are several web sites that point out how the fees associated with payday loans raise the effective annual
percentage rate into the stratosphere, ranging from 300% to over 600%. Here's one:
One frustration that I have with legislation in general, and finance legislation in particular, is that it does not tell the
truth, the whole truth and nothing but the truth.
In my Panglossian world, I envision a financial services bill that lays out the following:
Define the problem
Unserviced people: X percent( for discussion, say 10% to make the math easy) of people are un-serviced (or under-, or rapaciously-serviced)
by conventional financial companies, whether banks, credit unions or other, whatever other is conventionally.
Unserviced and don't want: Y percent of that X percent (say, 50% of 10%, so 5%) doesn't want services.
Unserviced and want: 1-Y percent of that X percent (say, 50% of 10%, so 5%) wants services but can not get them. That could be
due to various factors, ranging from bad credit (how defined?, say FICO < 600?) to geographic remoteness (no branches within miles,
no internet, precious little slow mail service, whatever).
Within that deemed unserved 5% of the population, what are the costs to serve and what are the alternatives?
What would an honest service provider need to provide service, accounting for credit risks and the like, and still make a profit
sufficient to induce investment?
If I knew how to make and add a nice graphic, I'd include a waterfall chart here to show the costs and components of the interest
and fees paid in regular and default mode. Sorry, please bear with me as I make up numbers.
Default mode costs:
Interest at 275%
Plus: Fees at 25%
Less: cost of funds 20%
Less: personnel, overhead, etc 5%
Less: added default cost not in personnel etc line, say 25%
Pre-tax profit: 250%
In that little example, who couldn't make money at those rates?
Extending the notion of APR and Truth-In-Lending to include payday lenders and anyone else without a brick-and-mortar branch
who wants to do business in the US, how about mandating some type of honest waterfall chart as dreamt of above?
Then cross-reference and publicize the voting on finance legislation with the campaign contributions from payday people and
their ilk, and layer in the borrower costs and credit scores and other metrics in those Congressional districts and zip+4 codes
and census tracts and whatever other level of granularity will help provide any amount of disinfecting sunlight to help see the
scattering cockroaches.
The problem I suspect is that your "friendly neighborhood credit union" is actually rarely anywhere near the neighborhoods
where people who need these kind of loans live.
They don't have cars and mass transit is non-existent or so slow they couldn't get to the Credit Union during business hours,
and back again, anyway. That's the problem with expecting Private Enterprise to be a solution for people at the bottom. They don't
set up shop where those people live, or the ones that do are not exactly do-gooders.
I just checked and a lot of credit unions let you apply for a loan online, (earlier you can set up membership online). So the
issue of transport and time is lessened assuming folks have some form of net access.
One might ask why there are millions of people reduced to having to get ripped off by payday and auto-title lenders, to somehow
survive from week to week. Maybe because people can't make a living wage? Can't save any money, however prudent and abstemious
they may be? Because inter-citizen cruelty and Calvinism are so very strong a force in this rump of an Empire?
Some of the comments here seem to build on the baseline assumption that's part of the liberal-neoliberal mantra, "You get what's
coming to you (or the pittance we can't quite squeeze out of you yet)".
diptherio, I am guessing you may mean that there are models of better alternatives readily available, like paying
a living wage, a social safety net for the worst off, a postal bank, national health care, stuff like that. I don't see that there
are any alternatives actually available to most real people "on the ground."
You are, of course, correct in that the underlying problem is that so many people are forced to live on so little that they
need payday loans in the first place. Thanks for pointing that out.
My point is simply that in the short-term, as a matter of practicality for those of us who don't always make it until payday
before running out of money, a CU overdraft account is a very good option.
This is a far superior option and thank you for bringing it up. The only problem is most banks and credit unions will not tell
you it exists because they make a lot more money if you just keep bouncing checks.
I only learned about it when I worked for WAMU. We were tasked by management with promoting various new products to customers
as a condition of being paid a monthly bonus which was the only thing that made the job pay enough to live on. Funny, they never
asked us to promote the overdraft line of credit (aka an ODLOC), ever. I do remember one of my managers tell me that circa 2000
or so, WAMUs operating costs for the entire company for the entire year were offset just by the fees they collected off of bounced
checks etc.
The fees or interest you pay for using an ODLOC are a small fraction of what you'd pay for bouncing just one check. IIRC, if
I overdrew by $200 or so and paid it back on my next payday, the interest was generally less than $1. My local credit union has
since added a $5 fee for accessing the ODLOC on top of the interest, but it's still much less than a bounced check fee or interest
on a payday loan. I believe that depending on your credit history, you can get an ODLOC of up to $2500 or so which pretty much
negates the need for any payday loans.
A friend of mine was evicted from her apartment because of a payday loan. She failed to pay it off in full quick enough and
it spiraled out of control tripling in a very short time. I really fail to see how usury is beneficial to society.
Frank Pistone is part of the dying breed known as the American Loan Shark. Not so long ago, the loan shark flourished, offering
short-term, high-interest loans to desperate people with nowhere else to turn. Today, however, Pistone and countless others
like him are being squeezed out by the major credit-card companies, which can offer money to the down-and-out at lower rates
of interest and without the threat of bodily harm
I read Servon's book. It is not a brief on behalf of the payday loan industry. She worked at a couple of payday lenders and
explains how they serve the communities they're in, but a few things need to be noted:
The business she was most sympathetic with was a small, local one with only a couple of storefronts, in an east coast inner
city. The owner and his help knew the customer base, often by name. Much of her sympathy came from her respect for the women who
were dishing out the loans at the windows, not the owners and not the business model. This local joint operated like the most
benign of old time pawnbroker/loansharking operation from the early part of the last century.
Most "Cash America" storefront shops (on shabby, midcentury shopping strips in inner ring scuburbs across the US) aren't this
decent. They aren't "part of a community" in any sense. And the rates are usurious any way, for all of them.
Thank you to Ms. Scofield for continuing to cover this and related businesses. The upper, cleaner part of our finance industry
derives more filthy lucre from these kinds of loan shops than they ever want you to know (sub-prime lending shops, title loans
shops . there are a lot of modalities for fleecing the poor and the near-poor nowadays).
The NC staff must be pleased that it seems like so many subtle apologists for the looters, predators, "intelligence community,"
and so forth, appear to be turning up here early in the opening of new site posts. I'm guessing the Elite are not exactly quaking
in fear that NC's reporting will catalyze some change that might sweep the political economy in the direction of what the mopery
would categorize as "fairness," but still
Raised the dollar definition of middle class and declared a 'new middle class' or could it be 'new middle class' is actually
referring to the 'new middle poor'. The former middle class is desperately trying to avoid a plunge into the pits of the 'poor
poor'. Payday Loan predators are greasing the handrails.
"Where will the money-changers change money if not in the Holy Temple? Aren't we starving the priests of much-needed revenue?
This Jesus guy is totally disingenuous."
In good neo liberal fashion that Jesus dude got exactly what he deserved. The effrontry of that guy to chase those hard working
money lenders out of the temple square. Got exactly what was coming to him.
H.J.Res.122 – Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted
by the Bureau of Consumer Financial Protection relating to "Payday, Vehicle Title, and Certain High-Cost Installment Loans".
December 1, 2017
Sponsor Rep. Ross, Dennis A. [R-FL-15] (Introduced 12/01/2017)
Rep. Hastings, Alcee L. [D-FL-20]
Rep. Graves, Tom [R-GA-14]
Rep. Cuellar, Henry [D-TX-28]
Rep. Stivers, Steve [R-OH-15]
Rep. Peterson, Collin C. [D-MN-7]
Ahhh ..look at this list. TWO Florida lawbreakers introducing this banker bill. And one from Minnesota. Y'all know that Jacksonville,
FL and St. Paul, MN are the two places where the forgeries continue to be provided to the financial crooks? So, it goes to figure
that the lawbreakers are attempting to protect the financial crooks committing forgery in their prospective states! How appro.
If any of these House critters are "representing" you, time for lots of calls to them.
And thanks, SD, for listing them. I always wonder why our vaunted free press so seldom lists the sponsors of legislation when
it's reported on . Hhmm .
m .
I have mixed feelings about this specific issue.
The larger issue of a grossly skewed economic system is what needs to be fixed.
There will always be people that lack common sense and brains regarding money. There will always be people that will take advantage
of that.
I don't know how or why you would try and legislate that away.
We need to move in the direction of solving the biggest problems and not get wrapped up in the little problems.
The numbers above sound horrendous, but 7 billion in profit on 46 billion loaned is 14% return. Credit card companies are worse.
7 billion in profit off of 12 million people is $600 per person. Alot for poor folks I recognize, but not necessarily life shattering
for all.
The "system" loves to wrangle around with issues like this (trivial in my mind) so the handful of big ones go unattended.
some have apparently not felt it necessary to bail out family members for aggressive, egregious and immediate interest rates
and escalations charged by these scammers
but there certainly appears concerted effort by (likely) shills to perpetuate scams (and to discredit Consumer Financial Protection
Agency and Liz Warren )
I think there's an error in the original article, where it says:
CRA's procedures to overturn legislation had been invoked, successfully, only once before Trump became president. Congressional
Republicans and Trump have used CRA procedures multiple times to kill regulations (emphasis added)
My understanding is that CRA gives Congress the power to overturn executive branch regulations , not legislation
(which Congress already can overturn anyway). Is that incorrect?
P.S. It's sad that it might not even matter. Nowadays the public can't tell the difference between regulations (written by
unaccountable, unelected officials who take the revolving door back to working at the firms they regulated) and legislation (written
by unaccountable, only notionally elected politicians who get paid off in various ways by lobbyists for the same firms)
You're correct– fixed it! Slip of the fingers there that I didn't catch when I proofread the post. As the rest of the paragraph
makes clear, CRA procedures are used to overturn regulations.
Thanks for reading my work so carefully and drawing the error to my attention.
Finally bipartisan!
Trump loves it
Obomber woulda loved it
She who cannot be named woulda loved it, too.
Time for them all to get over that little spat she did it before trump should appoint her to something useful I bet she'd love
secdef
Where is the lovely Debbie Wasserman schultz in all of this? She has not surprisingly been a leading cheerleader for these
pay day lender sharks. but hey, what the hey, the lobby money is good!
This was written a decade ago. neoliberalism is a stable social system but nothing changed, although fault lines of the system
became more evident.
Notable quotes:
"... "The prototype of the successful man in modern society is not the scientist, the inventor, the scholar. It is the financier, the gambler and those with social pull. The others share [in the winnings] sometimes, it is true, but their share is modest compared with the oligarchs and tycoons; and they don't usually keep their share for long. They are no match for the commercial prowlers." ..."
"... Mr Monks contrasted businesses' healthy profitability with the ruthless way some have treated their staff recently, whether through large-scale redundancies or the constant threat that jobs may be sent off-shore or outsourced. While median wages have stagnated, record executive salaries are legion. ..."
"... he was appalled by the increasingly "shameless", short-termist behaviour of overpaid corporate executives. "More and more they resemble the Bourbons - and they should be aware of what eventually happened to the Bourbons." ..."
"... "All this is too important to be left to the practitioners who have a vested interest in obscuring what they do from the rest of us," he said. And, with bonus season fast approaching, he took one final, sweeping aim at the high rollers of "casino capitalism". Their actions are "dangerous to economic stability, traditional industry and jobs", he said. "I would like to see the City pages of the press more challenging and less respectful on these matters . . . Our future - the world's future - is too important to place in the hands of the new capitalists." ..."
"... Half a century ago, Nye Bevan expressed a similar concern. In In Place of Fear he wrote: "There is a sense of injustice in modern society, and this induces a feeling of instability even in normal circumstances. The rewards are not in keeping with social worth, and the consciousness of this, both among the successful and the unsuccessful, will simmer and bubble, blowing up into geysers of political and social disturbance in times of economic stress." ..."
"The prototype of the successful man in modern society is not the scientist, the inventor, the scholar. It is the financier, the
gambler and those with social pull. The others share [in the winnings] sometimes, it is true, but their share is modest compared
with the oligarchs and tycoons; and they don't usually keep their share for long. They are no match for the commercial prowlers."
A snap-shot of London's Mayfair district, home to the burgeoning hedge-fund phenomenon, in November 2006? Actually, no. The above
words were written in 1952 by the Labour politician Aneurin Bevan in his book In Place of Fear. Bevan had a gift - his most
passionate supporters would say a genius - for exposing the truth of a situation in language that could be both scintillating and
pungent.
Fifty years ago, he criticised the prime minister of the day, Sir Anthony Eden, for his reckless actions during the Suez crisis.
"[He] has been pretending that he is now invading Egypt in order to strengthen the United Nations," Bevan said in a famous speech
in Trafalgar Square. "Every burglar of course could say the same thing: he could argue that he was entering the house in order to
train the police. So, if Sir Anthony Eden is sincere in what he is saying, and he may be . . . then he is too stupid to be a prime
minister!" Here was political rhetoric with a touch of prophesy about it.
It was the enduring appeal of speeches such as these that helped draw a good crowd to the fifth annual Bevan memorial lecture
in London last week. The lecture was to be given by John Monks, formerly general secretary of the British Trades Union Congress,
now the Brussels-based leader of the European trade union confederation.
No one in the audience would have been expecting Bevanite rhetorical fireworks from Mr Monks. That has never been his style. Between
1993 and 2003, he led the British trade union movement with modesty and distinction. He was the moderate's moderate: avoiding confrontation
wherever possible and advocating partnership at work between management and employees. Business leaders were happy to do business
with him.
They would not have found this lecture so easy to deal with. Confronted by today's turbo-charged capitalism, Mr Monks cast off
his former moderation. He even seemed to be on the verge of recanting his commitment to the partnership model. "Partnership with
who?" he asked. There has been, he said, a "disintegration of the social nexus between worker and employer - a culture containing
broad social rights and obligations. The new capitalism wants none of it."
Mr Monks contrasted businesses' healthy profitability with the ruthless way some have treated their staff recently, whether through
large-scale redundancies or the constant threat that jobs may be sent off-shore or outsourced. While median wages have stagnated,
record executive salaries are legion.
He admitted that he had possibly been a bit naive in the past. "I did not fully appreciate what was happening on the other side
of the table," Mr Monks said. While he sympathised with business leaders for the relentless pressure they find themselves under -
"It cannot be easy running a firm . . . when you are up for sale every day and every night of every year" - he was appalled by the
increasingly "shameless", short-termist behaviour of overpaid corporate executives. "More and more they resemble the Bourbons
- and they should be aware of what eventually happened to the Bourbons."
For someone like me, who has sat through 10 years of reasonableness from John Monks, this speech was remarkable, devastating stuff.
Maybe there is something in the Brussels water. Perhaps the ghost of Nye Bevan was speaking through him. Or was it just anxiety over
the career choice of his daughter's boyfriend? He is now working for - you guessed it - a hedge fund. Whatever its cause, a challenge
was being thrown down.
"All this is too important to be left to the practitioners who have a vested interest in obscuring what they do from the rest
of us," he said. And, with bonus season fast approaching, he took one final, sweeping aim at the high rollers of "casino capitalism".
Their actions are "dangerous to economic stability, traditional industry and jobs", he said. "I would like to see the City pages
of the press more challenging and less respectful on these matters . . . Our future - the world's future - is too important
to place in the hands of the new capitalists."
Will corporate leaders - those that have read this far anyway - simply shrug their shoulders and get back to their slashing and
burning ways? Is Mr Monks merely offering a wholly predictable, knee-jerk, lefty rant? I do not think so. This general secretary
just does not do lefty rants. So business people should take note. When the John Monkses of this world say enough is enough, that
the capitalist system itself is sick, you can be sure that elsewhere in the world there is deep-seated, lingering resentment and
unhappiness.
Half a century ago, Nye Bevan expressed a similar concern. In In Place of Fear he wrote: "There is a sense of injustice
in modern society, and this induces a feeling of instability even in normal circumstances. The rewards are not in keeping
with social worth, and the consciousness of this, both among the successful and the unsuccessful, will simmer and bubble, blowing
up into geysers of political and social disturbance in times of economic stress."
Reading these words, you can see why so many people were prepared to come out on a dark Tuesday night...
Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates
of the view that the global casino is out of control.
Notable quotes:
"... Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates of the view that the global casino is out of control. Although she is not a household name, she played an important role in developing the intellectual framework to support the casino thesis. Her Casino Capitalism (1986) is a Keynesian account of the damage inflicted on the world as a result of financial deregulation which was taken up by many better known writers such as William Greider in the US and Will Hutton in Britain. ..."
"... Mad Money, the sequel to Casino Capitalism, takes into account the impact of information technology and the rise of financial crime. It also places new emphasis on the role of international institutions. For example, she backs George Soros's plan for an international credit insurance corporation as a complement to the IMF. ..."
The dominant image of the financial markets is that of a giant casino. Brash young men in red braces, driven by insatiable greed,
gamble with huge sums every day. When the bets go wrong the innocent suffer. Reckless financial markets pose an immediate threat
to the future prosperity of humanity.
Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates
of the view that the global casino is out of control. Although she is not a household name, she played an important role
in developing the intellectual framework to support the casino thesis. Her Casino Capitalism (1986) is a Keynesian account of the
damage inflicted on the world as a result of financial deregulation which was taken up by many better known writers such as William
Greider in the US and Will Hutton in Britain.
With the onset of the Asian financial crisis Strange's account of financial markets has become almost mainstream. Her ideas inform
many of the discussions about a "new international financial architecture." Economists who would once have scorned her views
now agree with her that deregulation has gone too far and that new forms of regulation are needed.
The British government has floated the idea of a world financial authority to regulate global finance.
The IMF, once a bastion of
free market economics, has conceded that capital controls may be necessary under some circumstances.
Mad Money, the sequel to Casino Capitalism, takes into account the impact of information technology and the rise of financial
crime. It also places new emphasis on the role of international institutions. For example, she backs George Soros's plan for an
international credit insurance corporation as a complement to the IMF.
"... Barbarians at the Gate: The Fall of RJR Nabisco ..."
"... The Wall Street Journal ..."
"... The triumph of gossip over substance is manifest in many other ways. Wall Street's deft manipulation of the business press is barely touched upon, and the laissez-faire ..."
"... Fulminations about the socially corrosive effects of greed aside, the buyout phenomenon may represent one of the biggest changes in the way American business is conducted since the rise of the public corporation, nothing less than a transformation of managerial into financial capitalism. The ferocious market for corporate control that emerged during the 1980s has few parallels in business history, but there are two: the trusts that formed early in this century and the conglomerate mania that swept corporate America during the 1960s. Both waves resulted in large social and economic costs, and there is little assurance that the corporate infatuation with debt will not exact a similarly heavy toll. ..."
"... the high levels of debt associated with buyouts and other forms of corporate restructuring create fragility in business structures and vulnerability to economic cycles ..."
"... Germany and Japan incur higher levels of debt for expansion and investment, whereas equivalent American indebtedness is linked to the recent market for corporate control. That creates a brittle structure, one that threatens to turn the U.S. government into something of an ultimate guarantor if and when things do fall about. It is too easy to construct a scenario in which corporate indebtedness forces the federal government into the business of business. The savings-and-loan bailout is a painfully obvious harbinger of such a development. ..."
"... The many ramifications of the buyout mania deserve thoughtful treatment. Basic issues of corporate governance and accountability ought to be openly debated and resolved if the American economy is to deliver the maximum benefit to society and not just unconscionable rewards to a handful of bankers, all out of proportion to their social productivity. It is disappointing, but a sign of the times, that the best book about the deal of deals fails to educate as well as it entertains. ..."
Inside Casino Capitalism Barbarians at the Gate: The Fall of RJR Nabisco
By Bryan Burrough and John Helyar
Harper & Row. 528 pp. $22.95
In 1898, Adolphus Green, chairman of the National Biscuit Company, found himself faced with the task of choosing a trademark for
his newly formed baking concern. Green was a progressive businessman. He refused to employ child labor, even though it was then
a common practice, and he offered his bakery employees the option to buy stock at a discount. Green therefore thought that his trademark
should symbolize Nabisco's fundamental business values, "not merely to make dividends for the stockholders of his company, but to
enhance the general prosperity and the moral sentiment of the United States." Eventually he decided that a cross with two bars and
an oval – a medieval symbol representing the triumph of the moral and spiritual over the base and material – should grace the package
of every Nabisco product.
If they had wracked their brains for months, Bryan Burrough and John Helyar could not have come up with
a more ironic metaphor for their book. The fall of Nabisco, and its corporate partner R.J. Reynolds, is nothing less than the exact
opposite of Green's business credo, a compelling tale of corporate and Wall Street greed featuring RJR Nabisco officers who first
steal shareholders blind and then justify their epic displays of avarice by claiming to maximize shareholder value.
The event which made the RJR Nabisco story worth telling was the 1988 leveraged buyout (LBO) of the mammoth tobacco and food
conglomerate, then the 19th-largest industrial corporation in America. Battles for corporate control were common during the loosely
regulated 1980s, and the LBO was just one method for capturing the equity of a corporation. (In a typical LBO, a small group of
top management and investment bankers put 10 percent down and finance the rest of their purchase through high-interest loans or
bonds. If the leveraged, privately-owned corporation survives, the investors, which they can re-sell public shares, reach the so-called
"pot of gold"; but if the corporation cannot service its debt, everything is at risk, because the collateral is the corporation
itself.
The sheer size of RJR Nabisco and the furious bidding war that erupted guaranteed unusual public scrutiny of this particular
piece of financial engineering. F. Ross Johnson, the conglomerate's flamboyant, free-spending CEO (RJR had its own corporate airline),
put his own company into play with a $75-a-share bid in October. Experienced buyout artists on Wall Street, however, immediately
realized that Johnson was trying to play two incompatible games. LBOs typically put corporations such as RJR Nabisco through a ringer
in order to pay the mammoth debt incurred after a buyout. But Johnson, desiring to keep corporate perquisites intact, "low-balled"
his offer. Other buyout investors stepped forward with competing bids, and after a six-week-long auction the buyout boutique of
Kohlberg, Kravis, Roberts & Company (KKR) emerged on top with a $109-a-share bid. The $25-billion buyout took its place as one of
the defining business events of the 1980s
Burrough and Helyar, who covered the story for The Wall Street Journal, supply a breezy, colorful, blow-by-blow account
of the "deal from hell" (as one businessman characterized a leveraged buyout). The language of Wall Street, full of incongruous
"Rambo" jargon from the Vietnam War, is itself arresting. Buyout artists, who presumably never came within 10,000 miles of wartime
Saigon, talk about "napalming" corporate perquisites or liken their strategy to "charging through the rice paddies, not stopping
for anything and taking no prisoners."
At the time, F. Ross Johnson was widely pilloried in the press as the embodiment of excess; his conflict of interest was obvious.
Yet Burrough and Helyar show that Johnson, for all his free-spending ways, was way over his head in the major leagues of greed,
otherwise known as Wall Street in the 1980s. What, after all, is more rapacious: the roughly $100 million Johnson stood to gain
if his deal worked out over five years, or the $45 million in expenses KKR demanded for waiting 60 minutes while Ross Johnson prepared
a final competing bid?
Barbarians is, in the parlance of the publishing world, a good read. At the same time, unfortunately, a disclaimer
issued by the authors proves only too true. Anyone looking for a definitive judgment of LBOs will be disappointed. Burrough and
Helyar do at least ask the pertinent question: What does all this activity have to do with building and sustaining a business? But
authors should not only pose questions; they should answer them, or at least try.
Admittedly, the single most important answer to the RJR puzzle could not be provided by Burrough and Helyar because it
is not yet known. The major test of any financial engineering is its effect on the long-term vitality of the leveraged corporation,
as measured by such key indicators as market share (and not just whether the corporation survives its debt, as the authors imply).
However, a highly-leveraged RJR Nabisco is already selling off numerous profitable parts of its business because they are no longer
a "strategic fit": Wall Street code signifying a need for cash in order to service debts and avoid bankruptcy.
If the authors were unable to predict the ultimate outcome, they still had a rare opportunity to explain how
and why an LBO is engineered. Unfortunately, their fixation on re-creating events and dialogue – which admittedly produces a fast-moving
book – forced them to accept the issues as defined by the participants themselves. There is no other way to explain the book's uncritical
stance. When, for example, the RJR Nabisco board of directors tried to decide which bid to accept, Burrough and Helyar report that
several directors sided with KKR's offer because the LBO boutique "knew the value of keeping [employees] happy." It is impossible
to tell from the book whether the directors knew this to be true or took KKR's word. Even a cursory investigation would have revealed
that KKR is notorious for showing no concern for employees below senior management after a leveraged buyout.
The triumph of gossip over substance is manifest in many other ways. Wall Street's deft manipulation of the business press is
barely touched upon, and the laissez-faire environment procured by buyout artists via their political contributions is
scarcely mentioned, crucial though it is. Nowhere are the authors' priorities more obvious than in the number of words devoted to
Henry Kravis's conspicuous consumption compared to those devoted to the details of the RJR deal. In testimony before Congress last
year, no less an authority than Treasury Secretary Nicholas Brady – himself an old Wall Street hand – noted that the substitution
of tax-deductible debt for taxable income is "the mill in which the grist of takeover premiums is ground."
In the case of RJR Nabisco, 81 percent of the $9.9 billion premium paid to shareholders was derived from tax breaks achievable
after the buyout. This singularly important fact cannot be found in the book, however; nor will a reader learn that after the buyout
the U.S. Treasury was obligated to refund RJR as much as $1 billion because of its post-buyout debt burden. In Barbarians,
more time is spent describing Kravis's ostentatious gifts to his fashion-designer wife than to the tax considerations that make
or break these deals.
Fulminations about the socially corrosive effects of greed aside, the buyout phenomenon may represent one of the biggest changes
in the way American business is conducted since the rise of the public corporation, nothing less than a transformation of managerial
into financial capitalism. The ferocious market for corporate control that emerged during the 1980s has few parallels in business
history, but there are two: the trusts that formed early in this century and the conglomerate mania that swept corporate America
during the 1960s. Both waves resulted in large social and economic costs, and there is little assurance that the corporate infatuation
with debt will not exact a similarly heavy toll.
As the economist Henry Kaufman has written, the high levels of debt associated with buyouts and other forms of corporate restructuring
create fragility in business structures and vulnerability to economic cycles. Inexorably, the shift away from equity invites the
close, even intrusive involvement of institutional investors (banks, pension funds, and insurance companies) that provide the financing.
Superficially, this moves America closer to the system that prevails in Germany and Japan, where historically the relationship between
the suppliers and users of capital is close. But Germany and Japan incur higher levels of debt for expansion and investment, whereas
equivalent American indebtedness is linked to the recent market for corporate control. That creates a brittle structure, one that
threatens to turn the U.S. government into something of an ultimate guarantor if and when things do fall about. It is too easy to
construct a scenario in which corporate indebtedness forces the federal government into the business of business. The savings-and-loan
bailout is a painfully obvious harbinger of such a development.
The many ramifications of the buyout mania deserve thoughtful treatment. Basic issues of corporate governance and accountability
ought to be openly debated and resolved if the American economy is to deliver the maximum benefit to society and not just unconscionable
rewards to a handful of bankers, all out of proportion to their social productivity. It is disappointing, but a sign of the times,
that the best book about the deal of deals fails to educate as well as it entertains.
"... This Note argues that the current framework in antitrust-specifically its pegging competition to "consumer welfare," defined as short-term price effects-is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output. ..."
"... This Note maps out facets of Amazon's dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive aspects of Amazon's structure and conduct, and underscores deficiencies in current doctrine. The Note closes by considering two potential regimes for addressing Amazon's power: restoring traditional antitrust and competition policy principles or applying common carrier obligations and duties. ..."
Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery
and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television
and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked
staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy,
the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses
that depend upon it. Elements of the firm's structure and conduct pose anticompetitive concerns -- yet it has escaped antitrust
scrutiny.
This Note argues that the current framework in antitrust-specifically its pegging competition to "consumer welfare," defined
as short-term price effects-is unequipped to capture the architecture of market power in the modern economy. We cannot cognize
the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output.
Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business
lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the
economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded.
Under these conditions, predatory pricing becomes highly rational-even as existing doctrine treats it as irrational and therefore
implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these
platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit
information collected on companies using its services to undermine them as competitors.
This Note maps out facets of Amazon's dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive
aspects of Amazon's structure and conduct, and underscores deficiencies in current doctrine. The Note closes by considering two
potential regimes for addressing Amazon's power: restoring traditional antitrust and competition policy principles or applying
common carrier obligations and duties.
And I feel like the Democrats get so distracted. They have been talking about sexual
harassment and stuff instead of the TAX BILL. It is so damn easy to get them to take their
eyes off the ball! and get played again and again. . . and TRAGIC given the consequences . .
.
It's the perfect "distraction". Allows them to engage in virtue-signaling and "fighting
for average Americans". It's all phony, they always "lose" in the end getting exactly what
they wanted in the first place, while not actually having to cast a vote for it.
It's all related, less safety net and more inequality means more desperation to take a
job, *ANY* job, means more women putting up with sexual harassment (and workplace bullying
and horrible and illegal workplace conditions etc.) as the price of a paycheck.
Horrible Toomey's re-election was a parallel to the Clinton/Trump fiasco. The Democrats
put up a corporate shill, Katie McGinty that no-one trusted.
"Former lobbyist Katie McGinty has spent three decades in politics getting rich off the
companies she regulated and subsidized. Now this master of the revolving-door wants
Pennsylvania voters to give her another perch in government: U.S. Senator." Washington
Examiner.
She was a Clintonite through and through, that everyone, much like $Hillary, could see
through.
To paraphrase the Beatles, you say you want a revolution but you don't really mean it. You
want more of the same because it makes you feel good to keep voting for your Senator or your
Congressman. The others are corrupt and evil, but your guys are good. If only the others were
like your guys. News flash: they are all your guys.
America is doomed. And so much the better. Despite all America has done for the world, it
has also been a brutal despot. America created consumerism, super-sizing and the Kardashians.
These are all unforgivable sins. America is probably the most persistently violent country in
the world both domestically and internationally. No other country has invaded or occupied so
much of the world, unless you count the known world in which case Macedonia wins.
This tax plan is what Americans want because they are pretty ignorant and stupid. They are
incapable of understanding basic math so they can't work out the details. They believe that
any tax cut is inherently good and all government is bad so that is also all that matters.
They honestly think they or their kids will one day be rich so they don't want to hurt rich
people. They also believe that millionaires got their money honestly and through hard work
because that is what they learned from their parents.
Just send a blank check to Goldman Sachs. Keep a bit to buy a gun which you can use to
either shoot up a McDonalds or blow your own brains out.
And some people still ask me why I left and don't want to come back. LOL
Macedonia of today is not the same are that conquered the world. They stole the name from
Greeks.
That being said, the US is ripe for a change. Every policy the current rulers enact seems
to make things better. However, I suspect a revolution would kill majority of the population
since it would disrupt the all important supply chains, so it does not seem viable.
However, a military takeover could be viable. If they are willing to wipe out the most
predatory portions of the ruling class, they could fix the healthcare system, install a
high-employment policy and take out the banks and even the military contractors. Which could
make them very popular.
Yeah, right. Have you seen our generals? They're just more of the same leeches we
have everywhere else in the 0.01%. Have you seen any of the other military dictatorships
around the world, like actually existing ones? They're all brilliantly corrupt and total
failures when it comes to running any sort of economy. Not to mention the total loss of civil
rights. Americans have this idiotic love of their military thanks to decades of effective
propaganda and think the rule of pampered generals would somehow be better than the right to
vote. Bleh.
This is a military dictatorship. The fourth and sixth amendments have been de facto
repealed. Trump cared about one thing and one thing only, namely to repeal the estate tax. He
is the ultimate con man and this was his biggest con. It is truly amazing how he accomplished
this. He has saved his family a billion $$$. He will now turn over governing to the generals
and Goldman Sachs. He may even retire. Truly amazing. One has to admire the sheer perversity
of it all. When will the American electorate get tired of being conned? The fact is they have
nothing but admiration for Trump. We live in a criminal culture, winner take all. America
loves its winners.
There is an old 2003 David Brooks column in which he mentions that
"The Democrats couldn't even persuade people to oppose the repeal of the estate tax, which
is explicitly for the mega-upper class. Al Gore, who ran a populist campaign, couldn't even
win the votes of white males who didn't go to college, whose incomes have stagnated over the
past decades and who were the explicit targets of his campaign. Why don't more Americans want
to distribute more wealth down to people like themselves?"
Then Brooks goes on to explain
"The most telling polling result from the 2000 election was from a Time magazine survey
that asked people if they are in the top 1 percent of earners. Nineteen percent of Americans
say they are in the richest 1 percent and a further 20 percent expect to be someday. So right
away you have 39 percent of Americans who thought that when Mr. Gore savaged a plan that
favored the top 1 percent, he was taking a direct shot at them."
The Republicans have conditioned people to believe government services (except for
defense/military) are run poorly and need to be "run like a business" for a profit.
The problem is that not all government services CAN be profitable (homeless care, mental
health care for the poor, EPA enforcement, OSHA enforcement). And when attempts are made to
privatize some government operations such as incarceration, the result is that the private
company tries to maximize profits by pushing for laws to incarcerate ever more people.
The history of the USA as viewed by outsiders, maybe 50 years hence, will be that of a
resource consuming nation that spent a vast fortune on military hardware and military
adventures when it had little to fear due to geography, a nation that touted an independent
press that was anything but, a nation that created a large media/entertainment industry which
helped to keep citizens in line, a nation that fostered an overly large (by 2 or 3 times per
Paul Whooley) parasitical financial industry that did not perform its prime capital
allocation task competently as it veered from bubble to bubble and a nation that managed to
spend great sums on medical care without covering all citizens.
But the USA does have a lot of guns and a lot of frustrated people.
Maybe Kevlar vests will be the fashion of the future?
The provision to do away with the estate tax, if not immediately, in the current versions
(House and Senate) is great news for the 1%, and bad for the rest of us.
And if more people are not against that (thanks for quoting the NYTImes article), it's the
failure of the rest of the media for not focusing more on it, but wasting time and energy on
fashion, sports, entertainment, etc.
he provision to do away with the estate tax . . . is great news for the 1%
I think it's even a little more extreme than that. The data is a few years old, but it is
only the top 0.6% who are affected by estate taxes in the United States. See the data at
these web sites:
The military adventures were largely in support of what Smedley Butler so accurately
called the Great "Racket" of Monroe Doctrine colonialism and rapacious extractive
"capitalism" aka "looting."
It took longer and costed the rich a bit more to buy up all the bits of government, but
the way they've done will likely be more compendious and lasting. Barring some "intervening
event(s)".
While Republicans show their true colors, im out there seeing a resurgence of civil
society. And im starting to reach Hard core Tea Party types. Jobs, Manufacturing, Actual
Policy.
"The power and influence of the financial sector threatens a continuation of the regulatory capture that contributed to the financial
crisis. Financial firms, too often, have significant say in the appointment of high regulatory officials.
The tendency of some former government officials to obtain highly lucrative positions in the financial sector after leaving
government may well act as an inducement to those remaining in government to serve the interest of the financial sector rather
than those of the public."
The Western Banks are all over these markets, from commodities to equities. They are creating huge amounts of money debt, and providing
it to the financial industry as top down stimulus. What results is little aggregate or 'organic' growth and a series of paper asset
bubbles. They should be ashamed but they are too busy plundering to feel any twinge of conscience. They are like a herd of swine,
racing for the abyss.
I had to chuckle when the pampered princesses and giggling jackals were talking about the jobs report tomorrow,
and said that the ideal situation would be 'a strong jobs number with no wage growth,' a true 'goldilocks' scenario.
I have given up any expectation of reform from within. There will have to be some eye-opening incidents to shake the complacency
of the fortunate few.
Renegade ( ex-? ) Republican David Stockman NAILS IT TO THE WALL:
To be sure, some element of political calculus always lies behind legislation. For instance, the Dems didn't pass the Wagner
Act in 1935, the Voting Rights Act of 1965 or the Affordable Care Act of 2010 as exercises in pure civic virtue -- these measures
targeted huge constituencies with tens of millions of votes at stake.
Still, threadbare theories and untoward effects are just that; they can't be redeemed by the risible claim that this legislative
Rube Goldberg contraption being jammed through sight unseen ( in ACA redux fashion ) is for the benefit of the rank
and file Republican voters, and most especially not for the dispossessed independents and Dems of Flyover America who voted
for Trump out of protest against the failing status quo.
To the contrary. The GOP tax bill is of the lobbies, by the PACs and for the money. Period.
There is no higher purpose or even nugget of conservative economic principle to it. The battle cry of "pro-growth tax cuts"
is just a warmed over 35-year-old mantra from the Reagan era that does not remotely reflect the actual content of the bill
or disguise what it really is: namely, a cowardly infliction of more than $2 trillion of debt on future American taxpayers
in order to fund tax relief today for the GOP's K Street and Wall Street paymasters.
On a net basis, in fact, fully 97% of the $1.412 trillion revenue loss in the Senate Committee bill over the next decade
is attributable to the $1.369 trillion cost of cutting the corporate rate from 35% to 20% (and repeal of the related AMT).
All the rest of the massive bill is just a monumental zero-sum pot stirring operation.
Stockman, who knows federal budgeting better than most of us know the contents of our own homes, goes on to shred the tax bill
item by item, leaving a smoking, scorched-earth moonscape in his deadly rhetorical wake. And he's not done yet.
But Lordy, how he scourges the last hurrah of the know-nothing R party, just before it gets pounded senseless at the polls
next year. Bubble III is the last hope of the retrograde Republican Congressional rabble. But it's a 50/50 proposition at best
that our beloved bubble lasts through next November. :-(
thanks Jim, yes, this looks like it will knock the legs out of the "main st" economy, but over at versailles on the potomac
they'll be listening to/playing the fiddle and watching the country burn while guzzling 300 dollar scotch and and admiring their
campfire.
Right next to "Versailles on the Potomac" is the site of the former Bonus Army camp, Anacostia Flats. The burning of the Bonus
Army camp at Anacostia Flats could be seen, as a red glow, from the White House. Historians charitable to Herbert Hoover suggest
that Gen. Douglass MacArthur 'conned' Hoover into letting the Army 'disperse' the Bonus Army. The resulting spectacle can be said
to be one of the prime reasons why the American public rejected Hoover when he ran for re-election against Franklin Roosevelt.
I don't know if Hoover played the fiddle, but MacArthur was known to be able to play politicians like one.
The lesson here, if there is one, is that the present occupant of the White House had better be very circumspect about taking
advice from Generals.
"anacostia flats" bonus army raided by Wall Street General MacArthur which is reason in previous iteration of Wall Street power
grab by "American Liberty League", ("The Plot To Seize the White House"-Jules Archer) Marine General Smedley Butler felt forced
play whistle-blower, providing FDR leverage he needed to prosecute banksters.
Big River Bandido December 2, 2017 at 3:26 pm
The gist of the commenter's statement was true - Democrats are totally complicit in the end result of Republican economic and
foreign policy. Until now, Republicans could only deliver on their promises when Democrats helped them out. The Democrats' enabling
strategy eventually alienated their own core supporters. With this tax cut, the Republicans have shown, for the first time, the
ability to enact and sign their own legislation.
The Democrats basically accommodated the Republicans long enough to ensure their own irrelevance. They will not rise again
until their "mixed stances" and those who encourage them are purged.
Former Goldmanite and current Minneapolis Fed president, Neel Kashkari, conducted
another #AskNeel session on Twitter where the dovish FOMC voter (he was the only one to
dissent to the Fed's rate hike decision earlier this year) received numerous questions. Among
them was the following one from Zero Hedge:
#AskNeel You have
admitted the Fed has a "third mandate" and are worried about financial instability. What do you
look at to gauge "instability" and what is the biggest S&P drop the Fed will accept before
intervening
Our job is not to protect investors. Tech bubble bursting didn't cause crisis - only mild
recession. We don't see leverage building across the economy the way it did in housing run-up.
If stocks correct - fine. Need to worry about what would trigger a real crisis. #AskNeelhttps://t.co/Wl7Pv1BX18
The answer echoed a similar
response from back in March , when he claimed that he doesn't "care about stock market fall
itself. Care abt potential financial instability. Stock market drop unlikely to trigger
crisis."
Needless to say, Kashkari's answer was token, superficial and condescending: while he is
right that the tech bubble bursting didn't cause a crisis, the Fed's dramatic easing in
response to the bursting of the tech bubble bursting lay the foundations for the housing and
credit bubble; in other words, the Fed responded to one bubble by creating an even bigger
bubble, and the bursting of that bubble in 2007/2008 did cause a crisis: the biggest financial
crisis since the Great Depression to be precise. And, in turn, the bursting of the current
global financial bubble - in which the Fed has been joined by all other central banks to inject
$20 trillion in global liquidity, or a third of global GDP - and is the biggest in history,
will have a far more disastrous outcome than the last one.
Kashkari also said that "we don't see leverage building across the economy the way it did in
housing run-up", which of course is a surprisingly naive way of looking at leverage, especially
following last night's explanation from
Fasakanara that when one takes into account ehe world's vol-sellers, it's all just one
giant, $22 trillion position shorting volatility with record gama and all-time high leverage,
both explicit and synthetic. Which also makes his next statement that the Fed needs "to worry
about what would trigger a real crisis" especially bizarre: we now live in a world in which the
market itself, thanks to QE and NIRP, has become systemic risk (see
""It's All One Single, Giant $22 Trillion Position": How Market Risk Became Systemic Risk
").
The fact that, as Kashkari confirms, the Fed is completely oblivious to its footprint and
impact in the market should be terrifying to anyone. Well, anyone but not traders because
despite what Kashkari also claimed, namely that " If stocks correct - fine ", one thing we can
be certain of is that the moment stocks have a 5-10% swoon, the Fed will be right back assuring
traders that it will ease back on its tightening, if not launch QE4 (right, James Bullard?)
Neel..I have respect for u but I know what I saw in August 2015..market dropped 7-8% and fed
speak became "the case for tightening is less compelling"...
But wait, it gets better, because in the very next question, immediately after stating that
the Fed's job is not to protect investors, in response to a question whether the Fed creates
moral hazard by keeping rates extra low, Kashkari answers that " If we raised interest rates to
drive down the stock market, how does that help workers/wages/employment? " Or investors, for
that matter. But the point is that the Fed quite clearly is intent on keeping stocks high.
The punchline: his very next statement: "If Greenspan had acted on his irrational exuberance
call the economic costs may have been high."
We pay close attention to leverage across asset classes and economy. If we raised interest
rates to drive down the stock market, how does that help workers/wages/employment? If Greenspan
had acted on his irrational exuberance call the economic costs may have been high. #AskNeelhttps://t.co/hfDycYCXkg
Here's a thought: if Greenspan had acted on his "irrational exuberance" call, there would
have been pain, yes, but there would never be a tech bubble, and there would never be a global
financial crisis, Lehman, AIG or trillions and trillions in central bank liquidity keeping the
global financial system propped up now. In fact, Kashkari's statement once again demonstrates
just how utterly clueless the "macroprudential regulators" at the Fed truly are.
* * *
There were some other tangential, but notable insights from the Minneapolis Fed president.
One was his accurate observation that the
Fed's constantly wrong dot plots have destroyed the Fed's credibility:
I'm not a fan of the dot plot. Forward guidance is a wonderful tool. Forward misguidance may
do harm and undermine our credibility . I would rather only give guidance when we are pretty
sure about the path forward
In response to whether the Fed's ZIRP was responsible for "zombie companies" in the shale
patch and the record glut of oil inventory, the former
Goldmanite was non-commital :
I think low interest rates brought down costs for people and businesses to invest - across
sectors. That is what they were designed to do. But commodity markets always have cycles of
under and overinvestment.
When asked how US investors are supposed to compete with foreign buyers of US stocks,
including such buyers as the Swiss National Bank which is price-indescriminate as it creates
money out of thin air, Kashkari's response :
It is a global market for investors. I don't think US economic growth would be stronger if
we forbade foreign investment. If we can get job and wage growth up, that will help regular
Americans make ends meet and save for their futures.
That Kashkari explicitly ignored the stated implication, namely that foreign central banks
buying US stocks has led to a giant asset bubble, was one more warning either how clueless or
how devious and premeditated this entire asset reflation experiment truly is.
Kashkari was also asked if the Fed would "ever consider forgiving the Treasury debt on its
books?" to
which the answer - sadly for the Magic Money Treers who have no grasp of elementary finance
- was "No. That would violate our independence and likely cause high inflation as people lost
confidence in the Fed's independence. "
Among the other interesting exchanges was a question if the Fed plans on using blockchain in
the future, where the response was that "researches
around the Fed System are looking at it (and other fintech developments). Too soon to know how
and if it will be used by the Fed."
Kashkari also touched on inflation price targeting: when asked "What level of inflation
would be a reason to 'tap the brakes'?" He responded that, as price targeting would suggest,
"2% core PCE on a 12-month basis would be a good place to start. We've been 1.3% for 5+ years
so we should be comfortable at 2.7% for 5+ years. That's what we are saying when we call it a
target and not a ceiling." In other words, Kashkari supports doubling the rate of core
inflation for the next 5 years.
Finally when asked "at what point does the flattening of the Treasury curve become a concern
for the Fed?" Kashkari responded that "it's
a concern now. We r raising rates, driving the front end up, meanwhile inflation expectations r
low keeping the long end anchored. The more we commit to driving rates higher (regardless of
data), the more we risk pressuring inflation expectations to the downside." He has good reason
to be concerned: the flatter - and eventually inverted - the curve gets, the more the market is
telling the Fed what should be obvious to everyone, if not Kashkari: that the Fed has lost
control, as
Citi warned last week .
Former Goldmanite and current Minneapolis Fed president, Neel Kashkari, conducted
another #AskNeel session on Twitter where the dovish FOMC voter (he was the only one to
dissent to the Fed's rate hike decision earlier this year) received numerous questions. Among
them was the following one from Zero Hedge:
#AskNeel You have
admitted the Fed has a "third mandate" and are worried about financial instability. What do you
look at to gauge "instability" and what is the biggest S&P drop the Fed will accept before
intervening
Our job is not to protect investors. Tech bubble bursting didn't cause crisis - only mild
recession. We don't see leverage building across the economy the way it did in housing run-up.
If stocks correct - fine. Need to worry about what would trigger a real crisis. #AskNeelhttps://t.co/Wl7Pv1BX18
The answer echoed a similar
response from back in March , when he claimed that he doesn't "care about stock market fall
itself. Care abt potential financial instability. Stock market drop unlikely to trigger
crisis."
Needless to say, Kashkari's answer was token, superficial and condescending: while he is
right that the tech bubble bursting didn't cause a crisis, the Fed's dramatic easing in
response to the bursting of the tech bubble bursting lay the foundations for the housing and
credit bubble; in other words, the Fed responded to one bubble by creating an even bigger
bubble, and the bursting of that bubble in 2007/2008 did cause a crisis: the biggest financial
crisis since the Great Depression to be precise. And, in turn, the bursting of the current
global financial bubble - in which the Fed has been joined by all other central banks to inject
$20 trillion in global liquidity, or a third of global GDP - and is the biggest in history,
will have a far more disastrous outcome than the last one.
Kashkari also said that "we don't see leverage building across the economy the way it did in
housing run-up", which of course is a surprisingly naive way of looking at leverage, especially
following last night's explanation from
Fasakanara that when one takes into account ehe world's vol-sellers, it's all just one
giant, $22 trillion position shorting volatility with record gama and all-time high leverage,
both explicit and synthetic. Which also makes his next statement that the Fed needs "to worry
about what would trigger a real crisis" especially bizarre: we now live in a world in which the
market itself, thanks to QE and NIRP, has become systemic risk (see
""It's All One Single, Giant $22 Trillion Position": How Market Risk Became Systemic Risk
").
The fact that, as Kashkari confirms, the Fed is completely oblivious to its footprint and
impact in the market should be terrifying to anyone. Well, anyone but not traders because
despite what Kashkari also claimed, namely that " If stocks correct - fine ", one thing we can
be certain of is that the moment stocks have a 5-10% swoon, the Fed will be right back assuring
traders that it will ease back on its tightening, if not launch QE4 (right, James Bullard?)
Neel..I have respect for u but I know what I saw in August 2015..market dropped 7-8% and fed
speak became "the case for tightening is less compelling"...
But wait, it gets better, because in the very next question, immediately after stating that
the Fed's job is not to protect investors, in response to a question whether the Fed creates
moral hazard by keeping rates extra low, Kashkari answers that " If we raised interest rates to
drive down the stock market, how does that help workers/wages/employment? " Or investors, for
that matter. But the point is that the Fed quite clearly is intent on keeping stocks high.
The punchline: his very next statement: "If Greenspan had acted on his irrational exuberance
call the economic costs may have been high."
We pay close attention to leverage across asset classes and economy. If we raised interest
rates to drive down the stock market, how does that help workers/wages/employment? If Greenspan
had acted on his irrational exuberance call the economic costs may have been high. #AskNeelhttps://t.co/hfDycYCXkg
Here's a thought: if Greenspan had acted on his "irrational exuberance" call, there would
have been pain, yes, but there would never be a tech bubble, and there would never be a global
financial crisis, Lehman, AIG or trillions and trillions in central bank liquidity keeping the
global financial system propped up now. In fact, Kashkari's statement once again demonstrates
just how utterly clueless the "macroprudential regulators" at the Fed truly are.
* * *
There were some other tangential, but notable insights from the Minneapolis Fed president.
One was his accurate observation that the
Fed's constantly wrong dot plots have destroyed the Fed's credibility:
I'm not a fan of the dot plot. Forward guidance is a wonderful tool. Forward misguidance may
do harm and undermine our credibility . I would rather only give guidance when we are pretty
sure about the path forward
In response to whether the Fed's ZIRP was responsible for "zombie companies" in the shale
patch and the record glut of oil inventory, the former
Goldmanite was non-commital :
I think low interest rates brought down costs for people and businesses to invest - across
sectors. That is what they were designed to do. But commodity markets always have cycles of
under and overinvestment.
When asked how US investors are supposed to compete with foreign buyers of US stocks,
including such buyers as the Swiss National Bank which is price-indescriminate as it creates
money out of thin air, Kashkari's response :
It is a global market for investors. I don't think US economic growth would be stronger if
we forbade foreign investment. If we can get job and wage growth up, that will help regular
Americans make ends meet and save for their futures.
That Kashkari explicitly ignored the stated implication, namely that foreign central banks
buying US stocks has led to a giant asset bubble, was one more warning either how clueless or
how devious and premeditated this entire asset reflation experiment truly is.
Kashkari was also asked if the Fed would "ever consider forgiving the Treasury debt on its
books?" to
which the answer - sadly for the Magic Money Treers who have no grasp of elementary finance
- was "No. That would violate our independence and likely cause high inflation as people lost
confidence in the Fed's independence. "
Among the other interesting exchanges was a question if the Fed plans on using blockchain in
the future, where the response was that "researches
around the Fed System are looking at it (and other fintech developments). Too soon to know how
and if it will be used by the Fed."
Kashkari also touched on inflation price targeting: when asked "What level of inflation
would be a reason to 'tap the brakes'?" He responded that, as price targeting would suggest,
"2% core PCE on a 12-month basis would be a good place to start. We've been 1.3% for 5+ years
so we should be comfortable at 2.7% for 5+ years. That's what we are saying when we call it a
target and not a ceiling." In other words, Kashkari supports doubling the rate of core
inflation for the next 5 years.
Finally when asked "at what point does the flattening of the Treasury curve become a concern
for the Fed?" Kashkari responded that "it's
a concern now. We r raising rates, driving the front end up, meanwhile inflation expectations r
low keeping the long end anchored. The more we commit to driving rates higher (regardless of
data), the more we risk pressuring inflation expectations to the downside." He has good reason
to be concerned: the flatter - and eventually inverted - the curve gets, the more the market is
telling the Fed what should be obvious to everyone, if not Kashkari: that the Fed has lost
control, as
Citi warned last week .
"... With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership
transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of government
and mortgage-backed securities (MBS) it holds on its books. ..."
"... "This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative easing
(QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven, a Goldman
economist. ..."
"... A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects
on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven added.
..."
"... Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces
a huge task trying to pare down its bloated balance sheet. ..."
Yellen's exit may prompt the Fed to pare its balance sheet sooner rather than later, Goldman says
Yuri Gripas | Reuters
It's often said that good things come to those who wait - but a bloated $4.5 trillion balance sheet might be a notable exception
to that rule.
With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership
transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of
government and mortgage-backed securities (MBS) it holds on its books.
In a research note to clients, the bank pointed to the likelihood that President Donald Trump may "reshape the leadership" of
the Federal Open Market Committee (FOMC), the Fed's powerful policy-making body, as the terms of Fed Chair Janet Yellen and Vice
Chair Stanley Fischer expire in early 2018.
"This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative
easing (QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven,
a Goldman economist.
If the new appointments-especially the new chair-are thought to favor aggressive balance sheet normalization, perhaps even including
asset sales, and if all decisions are left up to the incoming team, financial markets might experience heightened uncertainty during
the transition."
Goldman suggested there was a "strong 'risk management' case for an announcement of very gradual balance sheet runoff later this
year," because of the political risk associated with new leadership at the Fed.
"Our forecast is that the discussion around reinvestment continues for most of this year and the plan is formally announced in
December 2017," Struyven said. "At that meeting, we expect the committee to hold the funds rate steady after hiking in both June
and September. We expect the quarterly hikes to resume in March 2018."
The economist harked back to 2013's "taper tantrum," in which markets reacted the Fed's suggestions of tighter monetary policy
by sending bond yields surging and stocks reeling - albeit temporarily.
A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects
on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven
added.
'The uncertainty is substantial'
As the central bank begins a campaign to tighten benchmark interest rates - making a quarter-point hike just last week - it's
renewed a debate over how to unwind the Fed's massive bond buying program.
Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces
a huge task trying to pare down its bloated balance sheet.
"The bigger the Fed's credit footprint, the more it interferes with the efficient employment and pricing of credit," wrote George
Selgin, a senior fellow and director of the Center for Monetary and Financial Alternatives at the libertarian-leaning Cato Institute,
in a blog post last month.
"By directing a large share of savings to purchases of longer-term MBS and Treasury securities, for example, the Fed has artificially
raised both the prices of those securities, and the importance of the housing market and the federal government relative to the rest
of the U.S. economy," Selgin wrote. "It has also dramatically increased its portfolio's duration gap and, by so doing, the risk that
it will suffer losses should it sell assets before they mature."
On Friday, Minneapolis Federal Reserve Bank President Neel Kashkari, the lone dissenter against the U.S. central bank's decision
last week to raise interest rates, the U.S. economy is still falling short on employment and inflation.
Kashkari, an alumnus of both Goldman Sachs and the U.S. Treasury who oversaw the government's Temporary Asset Relief Program (TARP)
during the financial crisis, believes the Fed should wait on raising interest rates until it publishes a detailed plan for how and
when it will reduce its $4.5 trillion balance sheet.
Goldman set forth two scenarios under which the Fed could begin trimming its balance sheet. Under an "early start, passive runoff"
scenario, the bank said the Fed "gradually tapers reinvestment in December 2017 over 10 months but does not sell assets."
Conversely, under a "late start, active sales" scenario, Goldman said the Fed could cease reinvesting in bonds in July 2018 "without
tapering and actively sells $40bn of assets per month."
Under the latter, the Fed could shrink its balance sheet by about $250 billion per quarter starting in the second half of next
year, "with similar contributions from maturing assets and active sales," the bank added.
However, neither scenario is without its risks, Goldman's economist wrote: "While our baseline estimate suggests relatively little
tightening from balance sheet rundown, the uncertainty is substantial. The 2013 'taper tantrum' also provides a reminder that the
impact of balance sheet policy on financial conditions is uncertain and could be larger than our baseline estimate."
Every time the Fed deals with the financial asset trading marketplaces the private parties wish to make a profit, no wonder
Goldman is shilling to get the more valuable Fed holdings 'sold' to these parties.
No article on reserves or Fed asset holdings is legitimate unless it also discusses the use of administrative offset with Treasury
(whether the bonds are mature and as a result, redeemable at that time, or not, they could all be offset with Treasury now).
The Fed has a lot it can do with the assets they bought with newly created money, but subsidizing the money center banks once
again ought to be low on the list (moral hazard rewarded again?). The asset-handling plans should be pursued only after Treasury
coordination talks are settled and according to well discussed, publicly known plans.
It is not clear to me who the public should trust here, so open public programming should be expected and press involvement
sought after by the Fed. Look at the magnitudes here, no one should be looking the other way on this.
RGC what is your point except to note that private interests sweep monies out of private positions in order to create the cash
to buy the bond being offered by the Fed should they sell some. It is a way to sweep excess monies out of the economic system,
though that is not a completed end-game unless the Fed destroys the money or it is remitted to Treasury where it covers other
claims for payment (reducing the need to borrow anew) turnstiling the monies back into the economy.
It is simpler with regard to Treasury to have both sides agree to osset their position.
But offsets means that Treasury offers none or fewer bonds for sale to outsude interests, including China and other govts or
within the banks or elsewhere.
Is the Fed ready to do all of these approaches, and is it coordinated with the oublic's govt via Treasury agreement?
The Fed has instruments with 8 percent coupons, I just don't like the idea of them selling these to the banking segment, at
a price that allows them to profit, with little risk, especially when you consider that they were the ones who caused the financial
crisis in the first place.
It will be interesting to see what the Feds do, what they do with the cash they get, and what Treasury and the Trump Administration
does as more cash remittances come in (and why was this not done to help the Obama Admin look good fiscally before?).
Stagnation that is gripping several of the world's largest economies should be viewed as a secular, long term phenomenon, not
something transient. It is connected with the neoliberalism entering a new phase of its development, when New Deal was already
devoured, 90% or so of population standard of living slides and thus there are no direct mechanisms to increase consumer demand.
Notable quotes:
"... Stagnation is gripping several of the world's largest economies and many view this as secular, not transient. ..."
"... Above all, ideology must conceal, denigrate, diminish, slander and distract from the ONE effective strategy that workers collectively have. This is the spectre that haunts all economics. ..."
"... For many of those who consume the bottom layers of it, what they are ingesting is a barbarous Pink Slime cultural sludge that makes them stupid, frivolous, dependent, impulsive and emotionally erratic – something like perpetual 15 year olds. ..."
"... In the center, we have the neoliberals, who are convinced that our world will spontaneously and beneficially organize itself if only we turn the macroeconomic tumblers and stumble on the right interest rate, or inflation rate, or some other version of the One Parameter to Rule Them All mindset. They are also too devoted to the religion of demand-goosing: the idea that everything will be all right as long as we generate enough "demand" – as though it makes no difference whether people are demanding high fructose cotton candy or the collected works of Shakespeare. ..."
"... Profits and income share at the top soared; wages and income share at the bottom fell, and employment was maintained by speculative bubbles and increasing debt until the last bubble burst, and the system collapsed. ..."
"... How is an increasing deficit and QE supposed to solve our problems in this situation other than by propping up a failed system that makes the rich richer and the poor poorer by increasing government debt? ..."
"... It seems quite clear to me that it is going to take a very long time for the system to adjust to this situation in the absence of a fall in the value of the dollar and the concentration of income. That kind of adjustment means reallocating resources in a very dramatic way so as to accommodate an economy in which resources are allocated to serve the demands of the wealthy few in the absence of the ability of those at the bottom to expand their debt relative to income. ..."
"... It was the fall in the concentration of income that led to mass markets (large numbers of people with purchasing power out of income) that made investment profitable after WW II in the absence of speculative bubbles, and it was the increase in the concentration of income that led to the bubble economy we have today that has led us into the Great Recession. ..."
"... I think neoliberalism naturally leads to secular stagnation. This is the way any economic system that is based on increasing of inequality should behave: after inequality reached certain critical threshold, the economy faces extended period of low growth reflecting persistently weak private demand. ..."
"... The focus on monetary policy and the failure to enact fiscal policy options is structural defect of neoliberalism ideology and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hit the USA. 2008 crisis, while discrediting neoliberalism, was clearly not enough for the abandonment of this ideology. Like in most cults adherents became more fanatical believers after the prophecy did not materialized. ..."
"... In a way behaviour of the USA elite in this respect is as irrational as behavior of the USSR elite. My impression is that they will stick to neoliberal ideology to the bitter end. But at the same time they are much more reckless. Recent attempt to solve economic problems by unleashing a new wars and relying of war time mobilization so far did not work. Including the last move is this game: Russia did not bite the offer for military confrontation that the USA clearly made by instilling coup d'état in Ukraine. ..."
This column argues that many economies need both demand-side stimulus and supply-side reform to close the output gap and restore
potential-output growth. A combined monetary-fiscal stimulus – i.e. helicopter money – is needed to close the output gap, and
this should be accompanied with extensive debt restructuring, policies to halt rising inequality, and additional public infrastructure
investment.
Selected Skeptical Comments
Sandwichman -> anne:
Workers, collectively, have a single, incontrovertible lever for effecting change -- withholding their labor power. Nothing
-- not even imprisonment or death -- can prevent workers from withholding their labor power! Kill me and see how much work you
can get out of me.
This is the elementary fact that the elites don't want workers to know. "It is futile!" "It is a fallacy!" "You will only hurt
yourselves!"
Once one comprehends the strategic importance of making the withholding of labor power taboo, everything else falls into place.
Economics actually makes sense as a persuasive discourse to dissuade from the withholding of labor power.
Above all, ideology must conceal, denigrate, diminish, slander and distract from the ONE effective strategy that workers
collectively have. This is the spectre that haunts all economics.
Dan Kervick:
Good stuff by Buiter et al, but here are some suggested additions to the litany of supply side woes:
1. Ineffective economic organization, both inside corporate firms and outside of them.
a. Many corporations are now quite dysfunctional as engines of long-term value creation – but not dysfunctional as vehicles
of short-term value extraction for their absurdly over-incentivized key stakeholders.
b. The developed world societies are facing an extreme failure of strategic economic leadership, at both the national and global
level, and at both the formal level of government and the informal level of visionary public intellectuals and industrial "captains".
There is no coherent consensus on which way lies the direction of progress. Since nobody is setting the agenda for what the future
looks like, risk trumps confidence everywhere and nobody knows what to invest in.
2. Dyspeptic dystopianism. The intellectual culture of our times is polluted by obsessive, nail-biting negativity and
demoralizing storylines preaching hopelessness: the robots are going to destroy all the jobs; the Big One is going to bury everything,
the real "neutral" interest rate is preposterously negative, etc. etc. etc. With so much doom and gloom in the air, there is no
reason to invest wealth, rather than consume it. Robert Schiller touched on this at a recent talk at LSE.
3. The popular culture of 2015 America is – as in so many other areas - a tale of two cultural cities.For many
of those who consume the bottom layers of it, what they are ingesting is a barbarous Pink Slime cultural sludge that makes them
stupid, frivolous, dependent, impulsive and emotionally erratic – something like perpetual 15 year olds. People like this
can be duped by the most shallow demagoguery and consumerist manipulation, and can't organize themselves to pursue their enlightened
self-interest. Enlightened artists and cultural custodians need to step up, organize and find a way to seize the American mind
back from the clutches of consumer capitalist garbage-mongers and philistine society-wreckers.
4. Laissez faire backwardness. We are struggling under left-right-center conspiracy of Pollyanna freedom fools, who
despite their constant kvetching at one another all share in common the view that progress is self-organizing.
On the left we have the Chomsky and Graeber-style "libertarian socialists" who are convinced we could have a functioning and
prosperous society in which seemingly every action is voluntary and spontaneous, nobody is ever compelled to do anything that
their delicate little hearts don't throb to do, and who seemingly have no idea of what it takes even to run a carrot farm.
On the right, we have the clueless paranoid libertarians who think the whole world should revolve around their adolescent desire
not to be "tread on", and seem to have no idea of what it takes – and what it took historically - to build a livable civilization.
In the center, we have the neoliberals, who are convinced that our world will spontaneously and beneficially organize itself
if only we turn the macroeconomic tumblers and stumble on the right interest rate, or inflation rate, or some other version of
the One Parameter to Rule Them All mindset. They are also too devoted to the religion of demand-goosing: the idea that everything
will be all right as long as we generate enough "demand" – as though it makes no difference whether people are demanding high
fructose cotton candy or the collected works of Shakespeare.
5. I'm an optimist! This is all going to change. We have nearly reached Peak Idiocracy. We're on the verge of a new age of
social organization and planning and a return to mixed economy common sense and public-spirited mobilization and adulthood. This
will happen because ultimately all of those teenagers will stop denying reality, and stop struggling to escape the realization
that a more organized and thoughtfully planned way of life is the only thing that will work in our small, resource strapped, crowded
21st century planet.
George H. Blackford:
Since the 80s, US companies have been buying abroad to sell at home as foreign countries used our trade deficits to depress
their exchange rates. Profits and income share at the top soared; wages and income share at the bottom fell, and employment
was maintained by speculative bubbles and increasing debt until the last bubble burst, and the system collapsed.
There seem to be no more bubbles in the offing. The dollar is overvalued. Debt relative to income is unprecedented, and the
concentration of income has created stagnation for lack of investment opportunities.
How is an increasing deficit and QE supposed to solve our problems in this situation other than by propping up a failed
system that makes the rich richer and the poor poorer by increasing government debt? Does anyone really believe this sort
of thing can go on forever in the absence of a fall in the value of the dollar and in the concentration of income? Who's going
to be left holding the bag when this system collapses again?
It seems quite clear to me that it is going to take a very long time for the system to adjust to this situation in the
absence of a fall in the value of the dollar and the concentration of income. That kind of adjustment means reallocating resources
in a very dramatic way so as to accommodate an economy in which resources are allocated to serve the demands of the wealthy few
in the absence of the ability of those at the bottom to expand their debt relative to income.
We didn't smoothly transition from an agricultural economy to one based on manufacturing. That transition was plagued with
a great deal of civil unrest, speculative bubbles, booms and busts that eventually led to a collapse of the system and the Great
Depression.
And we didn't smoothly transition out of the Great Depression. That was ended by WW II and dramatic changes in our economic
system, the most dramatic changes being the role and size of government and the fall in the concentration of income for thirty-five
years after 1940.
It was the fall in the concentration of income that led to mass markets (large numbers of people with purchasing power
out of income) that made investment profitable after WW II in the absence of speculative bubbles, and it was the increase in the
concentration of income that led to the bubble economy we have today that has led us into the Great Recession.
What this means to me is that we are not going to get out of the mess we are in today in the absence of some kind of catastrophe
comparable to WW II if we, and the rest of the world, do not come to grips with the fundamental problem we face in this modern
age, namely, the trade deficit and the concentration of income.
I think neoliberalism naturally leads to secular stagnation. This is the way any economic system that is based on increasing
of inequality should behave: after inequality reached certain critical threshold, the economy faces extended period of low growth
reflecting persistently weak private demand.
An economic cycle enters recession when total spending falls below expected by producers and they realize that production level
is too high relative to demand. What we have under neoliberalism is kind of Marx constant crisis of overproduction.
The focus on monetary policy and the failure to enact fiscal policy options is structural defect of neoliberalism ideology
and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hit the
USA. 2008 crisis, while discrediting neoliberalism, was clearly not enough for the abandonment of this ideology. Like in most
cults adherents became more fanatical believers after the prophecy did not materialized.
The USA elite tried partially alleviate this problem by resorting to military Keynesianism as a supplementary strategy. But
while military budget was raised to unprecedented levels, it can't reverse the tendency. Persistent high output gap is now a feature
of the US economy, not a transitory state.
"Top everything" does not help iether (top cheap oil is especially nasty factor). Recent pretty clever chess gambit to artificially
drop oil price playing Russian card, and sacrificing US shall industry like a pawn (remember that Saudi Arabia is the USA client
state) was a very interesting move, but still expectation are now so low that cheap gas stimulus did not work as expected in the
USA. It would be interesting to see how quickly oil will return to early 2014 price level because of that. That will be the sign
that gambit is abandoned.
In a way behaviour of the USA elite in this respect is as irrational as behavior of the USSR elite. My impression is that
they will stick to neoliberal ideology to the bitter end. But at the same time they are much more reckless. Recent attempt to
solve economic problems by unleashing a new wars and relying of war time mobilization so far did not work. Including the last
move is this game: Russia did not bite the offer for military confrontation that the USA clearly made by instilling coup d'état
in Ukraine.
Now it look like there is a second attempt to play "madman" card after Nixon's administration Vietnam attempt to obtain concession
from the USSR by threatening to unleash the nuclear war.
"... An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website ..."
"... One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends Let us begin with definitions from the Encarta® World English Dictionary: ..."
"... Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time ..."
"... Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly ..."
"... Secular stagnation is when the predators of finance have eaten too many sheeple. ..."
"... Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently. ..."
"... Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear. ..."
"... . . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit . It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system and raise the cost of living and doing business . ..."
GORDON LONG: Thank you for joining us. I'm Gordon Long with the Financial Repression Authority. It's my pleasure to have with
me today Dr. Michael Hudson Professor Hudson's very well known in terms of the FIRE economy to-I think, to a lot of our listeners,
or at least he's recognized by many as fostering that concept. A well known author, he has published many, many books. Welcome, Professor
Hudson.
MICHAEL HUDSON: Yes.
LONG: Let's just jump into the subject. I mentioned the FIRE economy cause I know that I have always heard it coming from yourself-or,
indirectly, not directly, from yourself. Could you explain to our listeners what's meant by that terminology?
HUDSON: Well it's more than just people getting fired. FIRE is an acronym for Finance, Insurance and Real Estate. Basically that
sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and
services and paying labor to produce them – and then, labour is going to buy these goods and services. But this production and consumption
economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts,
and to whom.
LONG: How would you differentiate it (or would you) with what's often referred to as financialization, or the financialization
of our economy? Are they one and the same?
HUDSON: Pretty much. The Finance, Insurance, and Real Estate sector is dominated by finance. 70 to 80% of bank loans in North
America and Europe are mortgage loans against real estate. So instead of a landowner class owning property clean and clear, as they
did in the 19 th century, now you have a democratization of real estate. 2/3 or more of the population owns their own
home. But the only way to buy a home, or commercial real estate, is on credit. So the loan-to-value ratio goes up steadily. Banks
lend more and more money to the real estate sector. A home or piece of real estate, or a stock or bond, is worth whatever banks are
willing to lend against it
As banks loosen their credit terms, as they lower their interest rates, take lower down payments, and lower amortization rates
– by making interest-only loans – they are going to lend more and more against property. So real estate is bid up on credit. All
this rise in price is debt leverage. So a financialized economy is a debt-leveraged economy, whether it's real estate or insurance,
or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So
debt equity ratios rise. But financialization also means that more and more of people's income and corporate and government tax revenue
is paid to creditors. There's a flow of revenue from the production-and-consumption economy to the financial sector.
LONG: I don't know if you know Richard Duncan. He was with the IMF, etc, and lives in Thailand. He argues right now that capitalism
is no longer functioning, and really what he refers to what we have now is "creditism." Because in capitalism we have savings that
are reinvested into productive assets that create productivity, which leads to a higher level of living. We're not doing that. We
have no savings and investments. Credit is high in the financial sector, but it's not being applied to productive assets. Is he valid
in that thinking?
HUDSON: Not as in your statement. It's confused.
LONG: Okay.
HUDSON: There's an enormous amount of savings. Gross savings. The savings we have that are mounting up are just about as large
as they've ever been – about, 18-19% of the US economy. They're counterpart is debt. Most savings are lent out to borrowers se debt.
Basically, you have savers at the top of the pyramid, the 1% lending out their savings to the 99%. The overall net savings may be
zero, and that's what your stupid person from the IMF meant. But gross savings are much higher. Now, the person, Mr. Duncan, obviously-I
don't know what to say when I hear this nonsense. Every economy is a credit economy.
Let's start in Ancient Mesopotamia. The group that I organized out of Harvard has done a 20-study of the origins of economic structuring
in the Bronze Age, even the Neolithic, and the Bronze Age economy – 3200 BC going back to about 1200 BC. Suppose you're a Babylonian
in the time of Hammurabi, about 1750 BC, and you're a cultivator. How do you buy things during the year? Well, if you go to the bar,
to an ale woman, what she'd do is write down the debt that you owe. It was to be paid on the threshing floor. The debts were basically
paid basically once a year when the income was there, on the threshing floor when the harvest was in. If the palace or the temples
would advance animals or inputs or other public services, this would be as a debt. It was all paid in grain, which was monetized
for paying debts to the palace, temples and other creditors.
The IMF has this Austrian theory that pretends that money began as barter and that capitalism basically operates on barter. This
always is a disinformation campaign. Nobody believed this in times past, and it is a very modern theory that basically is used to
say, "Oh, debt is bad." What they really mean is that public debt is bad. The government shouldn't create money, the government shouldn't
run budget deficits but should leave the economy to rely on the banks. So the banks should run and indebt the economy.
You're dealing with a public relations mythology that's used as a means of deception for most people. You can usually ignore just
about everything the IMF says. If you understand money you're not going to be hired by the IMF. The precondition for being hired
by the IMF is not to understand finance. If you do understand finance, you're fired and blacklisted. That's why they impose
austerity programs that they call "stabilization programs" that actually are destabilization programs almost wherever they're imposed.
LONG: Is this a lack of understanding and adherence to the wrong philosophy, or how did we get into this trap?
HUDSON: We have an actively erroneous view, not just a lack of understanding. This is not by accident. When you have an error
repeated year after year after year, decade after decade after decade, it's not really insanity doing the same thing thinking it'll
be different. It's sanity. It's doing the same thing thinking the result will be the same again and again and again. The result
will indeed be austerity programs, making budget deficits even worse, driving governments further into debt, further into reliance
on the IMF. So then the IMF turns them to the knuckle breakers of the World Bank and says, "Oh, now you have to pay your debts by
privatization". It's the success. The successful error of monetarism is to force countries to have such self-defeating policies that
they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and
transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane.
It's part of the program, not a bug.
LONG: Where does this lead us? What's the roadmap ahead of us here?
HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources
and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into
a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual
cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the
1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources,
so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing
the 99%.
LONG: Well I think most people, without understanding economics, would instinctively tell you they think that's what's happening
right now, in some way.
HUDSON: Right. As long as you can avoid studying economics you know what's happened. Once you take an economics course you step
into brainwashing. It's an Orwellian world.
LONG: I think you said it perfectly well there. Exactly. It gets you locked into the wrong way of thinking as opposed to just
basic common sense. Your book is Killing the Host . What was the essence of its message? Was it describing exactly what we're
talking about here?
HUDSON: Finance has taken over the industrial economy, so that instead of finance becoming what it was expected to be in the 19
th century, instead of the banks evolving from usurious organizations that leant to governments, mainly to wage war, finance
was going to be industrialized. They were going to mobilize savings and recycle it to finance the means of production, starting with
heavy industry. This was actually happening in Germany in the late 19 th century. You had the big banks working with government
and industry in a triangular process. But that's not what's happening now. After WW1 and especially after WW2, finance reverted to
its pre-industrial form. Instead of allying themselves with industry, as banks were expected to do, banks allied themselves with
real estate and monopolies, realizing that they can make more money off real estate.
The bank spokesman David Ricardo argued against the landed interest in 1817, against land rent. Now the banks are all in favor
of supporting land rent, knowing that today, when people buy and sell property, they need credit and pay interest for it. The banks
are going to get all the rent. So you have the banks merge with real estate against industry, against the economy as a whole. The
result is that they're part of the overhead process, not part of the production process.
LONG: There's a sense that there's a crisis lying ahead in the next year, two years, or three years. The mainstream economy's
so disconnected from Wall Street economy. What's your view on that?
HUDSON: It's not disconnected at all. The Wall Street economy has taken over the economy and is draining it. Under what economics
students are taught as Say's Law, the economy's workers are supposed to use their income to buy what they produce. That's why Henry
Ford paid them $5 a day, so that they could afford to buy the automobiles they were producing.
LONG: Exactly.
HUDSON: But Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers,
you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends
up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today's
debt quandary by saying it's just a cycle, or it's "secular stagnation." That removes the element of agency – active politicking
by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That's what happened
in America and Canada since the late 1970s.
LONG: What does an investor do today, or somebody who's looking for retirement, trying to save for the future, and they see some
of these things occurring. What should they be thinking about? Or how should they be protecting themselves?
HUDSON: What all the billionaires and the heavy investors do is simply try to preserve their wealth. They're not trying to make
money, they're not trying to speculate. If you're an investor, you're not going to outsmart Wall Street billionaires, because the
markets are basically fixed. It's the George Soros principle. If you have so much money, billions of dollars, you can break the Bank
of England. You don't follow the market, you don't anticipate it, you actually make the market and push it up, like the Plunge Protection
Team is doing with the stock market these days. You have to be able to control the prices. Insiders make money, but small investors
are not going to make money.
Since you're in Canada, I remember the beginning of the 1960s. I used to look at the Treasury Bulletin and Federal Reserve
Bulletin figures on foreign investment in the US stock market. We all used to laugh at Canada especially. The Canadians don't
buy stocks until they're up to the very top, and then they lose all the money by holding these stocks on the downturn. Finally, when
the market's all the way at the bottom, Canadians decide to begin selling because they finally can see a trend. So they miss the
upswing until they decide to buy at the top once again. It's hilarious to look at how Canada has performed in the US bond market,
and they did the same in the silver market. I remember when silver was going up to $50. The Canadians said, "Yes, we can see the
trend now!" and they began to buy it. They lost their shirts. So, basically, if you're a Canadian investor, move.
LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.
HUDSON: I'd think so. Once they get in, you know the bubble's over.
LONG: Absolutely on that one. What are you currently writing? What is your current focus now?
HUDSON: Well, I just finished a book. You mentioned Killing the Host . My next book will be out in about three months:
J is for Junk Economics . It began as a dictionary of terms, so I can provide people with a vocabulary. As we got in the argument
at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary
taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms.
If you look at the television reports on the market, they say that any loss in the stock market isn't a loss, it's "profit taking".
And when they talk about money. the stock market rises – "Oh that's good news." But it's awful news for the short sellers it wipes
out. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening. For instance, "secular
stagnation" means it's all a cycle. Even the idea of "business cycles": Nobody in the 19 th century used the word "business
cycle". They spoke about "crashes". They knew that things go up slowly and then they plunge very quickly. It was a crash. It's not
the sine curve that you have in Josef Schumpeter's book on Business Cycles . It's a ratchet effect: slow up, quick down. A
cycle is something that is automatic, and if it's a cycle and you have leading and lagging indicators as the National Bureau of Economic
Research has. Then you'd think "Oh, okay, everything that goes up will come down, and everything that goes down will come up, just
wait your turn." And that means governments should be passive.
Well, that is the opposite of everything that's said in classical economics and the Progressive Era, when they realized that economies
don't recover by themselves. You need a-the government to step in, you need something "exogenous," as economist say. You need something
from outside the system to revive it. The covert idea of this business cycle analysis is to leave out the role of government. If
you look at neoliberal and Austrian theory, there's no role for government spending, and no role of public investment. The whole
argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19 th
century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten.
He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit. It's to lower the cost
of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive.
But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions. Obviously
these financialized charges are factored into the price system and raise the cost of living and doing business.
LONG: Well, Michael, we're-I thank you for the time, and we're up against our hard line. I know we didn't have as much time as
we always like, so we have to break. Any overall comments you'd like to leave with our listeners who might be interested this school
of economics?
HUDSON: Regarding the downturn we're in, we're going into a debt deflation. The key of understanding the economy is to look at
debt. The economy has to spend more and more money on debt service. The reason the economy is not recovering isn't simply because
this is a normal cycle. And It's not because labour is paid too much. It's because people are diverting more and more of their income
to paying their debts, so they can't afford to buy goods. Markets are shrinking – and if markets are shrinking, then real estate
rents are shrinking, profits are shrinking. Instead of using their earnings to reinvest and hire more labour to increase production,
companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take
their revenue in the form of bonuses and stocks and live in the short run. They're leaving their companies as bankrupt shells, which
is pretty much what hedge funds do when they take over companies.
So the financialization of companies is the reverse of everything Adam Smith, John Stuart Mill, and everyone you think of as a
classical economist was saying. Banks wrap themselves in a cloak of classical economics by dropping history of economic thought from
the curriculum, which is pretty much what's happened. And Canada-I know since you're from Canada, my experience there was that the
banks have a huge lobbying power over government. In 1979, I wrote for the IRPP Institute there on Canada In the New Monetary
Order . At that time the provinces of Canada were borrowing money from Switzerland and Germany because they could borrow it at
much lower interest rates. I said that this was going to be a disaster, and one that was completely unnecessary. If Canadian provinces
borrow in Francs or any other foreign currency, this money goes into the central bank, which then creates Canadian dollars to spend.
Why not have the central bank simply create these dollars without having Swiss francs, without having German marks? It's unnecessary
to have an intermediary. But the more thuggish banks, like the Bank of Nova Scotia, said, "Oh, that way's the road to serfdom." It's
not. Following the banks and the Austrian School of the banks' philosophy, that's the road to serfdom. That's the road
to debt serfdom. It should not be taken now. It lets universities and the government be run by neoliberals. They're a travesty of
what real economics is all about.
LONG: Michael, thank you very much. I learned a lot, appreciate it; certainly appreciate how important it is for us to use the
right words on the right subject when we're talking about economics. Absolutely agree with you. Talk to you again?
Interesting, but after insulting Duncan, Hudson says the banks stopped partnering with industry and went into real estate,
which sounded like what Duncan said.
I mention this because for a non- expert like myself it is sometimes difficult to tell when an expert is disagreeing with someone
for good reasons or just going off half- cocked. I followed what Hudson said about the evils of the IMF, but didn't see where
Duncan had defended any of that, unless it was implicit in saying that capitalism used to function better.
"As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the
words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen
– is basically a set of euphemisms ."Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are
happening."
May consider it's about recognizing and deciphering the "doublespeak", "newspeak", "fedspeak", "greenspeak" etc, whether willing
or unwitting using words for understanding and clarifying as opposed to misleading and confusing dialectic as opposed to sophistry.
What I objected to was the characterization of today's situation as "financialization." I explained that financialization is
the FIRST stage - when finance WORKS. We are now in the BREAKDOWN of financialization - toward the "barter" stage.
Treating "finance" as an end stage rather than as a beginning stage overlooks the dynamics of breakdown. It is debt deflation.
First profits fall, and as that occurs, rents on commercial property decline. This is already widespread here in New York, from
Manhattan (8th St. near NYU is half empty) to Queens (Austin St. in Forest Hills.).
I wrote an article you might be interested in reading. It outlines a tax policy which would help prevent what you are discussing
in your article. The abuse of credit to receive rents and long term capital gains.
Thank you for another eye-opening exposition. My political economy education was negative (counting a year of Monetarism and
Austrian Economics around 1980), so I appreciate your interviews as correctives.
From your interview answer to the question about what we, the 99+% should do,I gathered only that we should not try to beat
the market. Anything more than that?
From my understanding, post Plaza banking lost most of its traditional market to the shadow sector, as a result, expanded off
into C/RE and increasingly to Financialization of everything sundry.
Disheveled Marsupial interesting to note Mr. Hudson's statement about barter, risk factors – ?????
One of the most important distinctions that investors have to understand is the difference between secular and cyclical
trends Let us begin with definitions from the Encarta® World English Dictionary:
Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period
of time
Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions
of an event or phenomenon that occurs regularly
Secular stagnation is a condition of negligible or no economic growth in a market-based economy . When
per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term
investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of
such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of
per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes
to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings
to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially
boost their exports, assuming that the country did have goods or services that could be exported.
Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European
economies, such as Germany, in the past few years.
Words. What they mean depends on who's talking.
Secular stagnation is when the predators of finance have eaten too many sheeple.
Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking.
Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many
markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to
have happened yet consistently.
Perhaps he meant to say that markets are going to shrink as the debt deflation becomes more evident?
Yes, I think we are into turnip country now. Figure 1 in
this
prior article looks clear enough – even if you don't like the analysis that went with it. Wealth inequality still climbs but
income inequality has plateaued since Clinton I. Whatever the reasons for that, the 1% should be concerned – where is the ROI?
Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal,
which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot
be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the
same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites
nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to
be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting
over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt
with Nike gear.
Labor has no problem with multiwhatever presidents, geneticists, psychologists, or economists, trying to hunt down and replace
labor, in or out of turn, but none are going to be any more successful than the others. Trump is being employed to bypass the
middle class and cut a deal. There is no deal. Labor is always going to pay males to work and their wives to raise children. Obviously,
the majority will vote for a competing economy, and it is welcome to do so, but if debt works so well, why is the majority voting
to kidnap our kids with public healthcare and education policies.
I'm not sure I heard an answer to the question of what people, who might be trying to save for the future or plan for retirement,
can do? Is the point that there isn't anything? Because I'm definitely between rocks and hard places
Yeah, he basically said there is no good savings plan. Big-money interests have rigged the rules and are now manipulating the
market (this used to be the definition of what was NOT allowed). Thus, they use computer algorithms to squeeze small amounts out
of the market millions of times. This means that the "investments" are nothing of the sort. You don't "invest" in something for
milliseconds. He said that the 1% are mostly just trying to hold on to what they have. Very few trust the rigged markets.
Low rent & cheap energy are key to the arts & innovations. My model has to work for airports, starts at the fuel farm as the
CIA & MI6 Front Page Avjet did. Well before that was Air America. I wonder if now American Airlines itself is a Front.
All of America is a Front far as I can about tell. Hadn't heard that Manhattan rents were coming down. Come in from out of
town, how you going to know? Not supposed to I guess.
I got that textbook and I liked that guy John Commons. He says capitalism is great, but it always leads to Socialism because
of unbridled greed.
The frenzy to find another stable cash currency showing in Bit Coin and the discussion of Future Tax Credits while the Euro
is controlled by the rent takers demands change on both sides of the Atlantic.
We got shot dead protesting the war, and civil rights backlash is the gift that keeps giving to the Southerners looking up
every day in every courthouse town, County seat is all about spreading fear and desperation.
How to change it all without violence is going to be really tricky.
. . . So, basically, if you're a Canadian investor, move.
LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.
HUDSON: I'd think so. Once they get in, you know the bubble's over.
When one reads the financial press in Canada, every dollar extracted by the lords of finance is a glorious taking by brilliant
people at the top of the financial food chain from the stupid little people at the bottom, but when it counts, there was silence,
in cooperation with Canada's one percent.
The story starts about five years ago, with smart meters. Everyone knows what they are, a method by which electrical power
use can be priced depending on the time of day, and day of the week.
To make this tasty, Ontario's local utilities at first kept the price the same for all the time, and then after all the meters
were installed, came the changes, phased in over time. Prices were increased substantially, but there was an out. If you changed
your living arrangements to live like a nocturnal rodent and washed your clothes in the middle of the night, had supper later
in the evening or waited for weekend power rates you could still get low power rates, from the three tier price structure.
The local utilities bought the power from the government of Ontario power generation utility, renamed to Hydro One, and this
is where Michael Hudson's talk becomes relevant.
The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to
privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like
you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's
part of the program, not a bug .
LONG: Where does this lead us? What's the roadmap ahead of us here?
HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural
resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads
us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs
in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically,
financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises,
land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the
top of the pyramid, impoverishing the 99% .
Eighteen months ago, there was an election in Ontario, and the press was on radio silence during the whole time leading up
to the election about the plans to "privatize" Hydro One. I cannot recall one instance of any mention that the new Premier, Kathleen
Wynne was planning on selling Hydro One to "investors".
Where did this come from? Did the little people rise up and say to the politicians "you should privatize Hydro One" for whatever
reason? No. This push came from the 1% and Hydro One was sold so fast it made my head spin, and is now trading on the Toronto
Stock exchange.
At first I though the premier was an economic ignoramus, because Hydro One was generating income for the province and there
was no other power supplier, so one couldn't even fire them if they raised their prices too high.
One of the arguments put forward by the 1% to privatize Hydro One was a classic divide and conquer strategy. They argued that
too many people at Hydro One were making too much money, and by privatizing, the employees wages would be beat down, and the resultant
savings would be passed on to customers.
Back to Michael Hudson
. . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools
in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school,
was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit
. It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing
business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments,
stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system
and raise the cost of living and doing business .
Power prices have increased yet again in Ontario since privatization, and Canada's 1% are "making a killing" on it. There has
been another change as well. Instead of a three tier price structure, there are now two, really expensive and super expensive.
There is no longer a price break to living like a nocturnal rodent. The 1% took that for themselves.
I am so tired of seeing that old lie about Old Henry and the $5 a day. I realize it was just a tossed off reference to something
most people believe for the purpose of describing a discarded policy, but the fact is very, very few of Old Henry's employees
ever got that pay. See, there were strings attached.
Old Henry hired a lot of spies, too. He sent them around to the neighborhoods where his workers lived (it was convenient having
them all in Detroit). If the neighbors saw your kid bringing a bucket of beer home from the corner tavern for the family, you
didn't get the $5.
If your lawn wasn't mowed to their satisfaction, you didn't get the $5. If you were thought not to bathe as often as they liked,
you didn't get the $5. If you didn't go to a church on Sundays, you didn't get the $5. If you were an immigrant and not taking
English classes at night school, you didn't get the $5. There were quite a lot of strings attached. The whole story was a public
relations stunt, and Old Henry never intended to live up to it; he hated his workers.
"... Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy, whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities. Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane. ..."
"... In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish that. ..."
"... At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying. All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program. ..."
Macro-prudential regulations follow financial crises, rarely do they precede one. Even when evidence is abundant of systemic risks
building up, as is today, regulators and policymakers have a marked tendency to turn an institutional blind eye, hoping for imbalances
to fizzle out on their own – at least beyond the duration of their mandates. It does not work differently in economics than it does
for politics, where short-termism drives the agenda, oftentimes at the expenses of either the next government, the broader population
or the next generation.
It does not work differently in the business world either, where corporate actions are selected based on the immediate gratification
of shareholders, which means pleasing them at the next round of earnings, often at the expenses of long-term planning and at times
exposing the company itself to disruption threats from up-and-comers.
Long-term vision does not pay; it barely shows up in the incentive schemes laid out for most professions . Economics is no exception.
Orthodoxy and stillness preserve the status quo, and the advantages hard earned by the few who rose from the ranks of the establishment
beforehand.
Yet, when it comes to Central Banking, and more in general policymaking, financial stability should top the priority list. It
honorably shows up in the utility function, together with price stability and employment, but is not pursued nearly as actively as
them. Central planning and interventionism is no anathema when it comes to target the decimals of unemployment or consumer prices,
yet is residual when it comes to master systemic risks, relegated to the camp of ex-post macro-prudential regulation. This is all
the more surprising as we know all too well how badly a deep unsettlement of financial markets can reverberate across the real economy,
possibly leading into recessions, unemployment, un-anchoring of inflation expectations and durable disruption to consumer patterns.
There is no shortage of reminders for that in the history books, looking at the fallout of dee dives in markets in 1929, 2000 and
2007, amongst others.
Intriguingly, the other way round is accepted and even theorized. Manipulating bond and stock prices, directly or indirectly,
is mainstream policy theory today. From Ben Bernanke's 'portfolio balance channel theory', to the relentless pursuit of the 'wealth
effect' via financial repression under Janet Yellen and Haruhiko Kuroda, to Mario Draghi tackling the fragmentation of credit markets
across the EU via direct asset purchases, the practice has become commonplace. To some, like us, the 'wealth effect' may be proving
to be more of an 'inequality effect' than much, leading to populism and constantly threatening regime change, but that is beyond
the scope of this note today.
What we want to focus on instead is the direct impact that monetary interventionism like Quantitative Easing ('QE') and Negative
or Zero Interest Rate Policies ('NIRP' or 'ZIRP') have on the structure of the market itself, how they help create a one-sided investment
community, oftentimes long-only, fully invested when not levered up, relying on record-highs for bonds and stocks to perpetuate themselves
endlessly - despite a striking disconnect from fundamentals, life-dependent on the lowest levels of volatility ever seen in history
. The market structure morphed under the eyes of policymakers over the last few years, to become a pressure cooker at risk of blowing-up,
with a small but steadily growing probability as times goes by and the bubble inflates. The
positive feedback loops between monetary flooding and the private investment
community are culpable for transforming an ever present market risk into a systemic risk, and for masking as peaceful what is instead
an unstable equilibrium and
market fragility.
Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks
Positive feedback loops , in finance like in biology, chemistry, cybernetics, breed system instability, as they orchestrate a
further divergence from equilibrium . An unstable equilibrium is defined as one where a small disturbance is sufficient to trigger
a large adjustment.
QE and NIRP have two predominant effects on markets: (i) relentless up-trend in stocks and bonds (the 'Trend Factor') , dominated
by the buy-the-dip mentality, which encapsulates the 'moral hazard' of investors knowing Central Banks are prompt to come to their
rescue (otherwise known as 'Bernanke/Yellen/Kuroda/Draghi put'), and (ii) the relentless down-trend in volatility the 'Volatility
Factor').
Two Factors Explain All: Trend and Volatility
The most fashionable investment strategies these days are directly impacted by either one or both of these drivers. Such strategies
make the bulk of the overall market, after leverage or turnover is taken into account : we will refer to them in the following as
'passive' or 'quasi-passive' . The trend impacts the long-only community, crowning it as a sure winner, making the case for low-
cost passive investing. The low volatility permeates everything else, making the case for full- investment and leverage.
The vast majority of investors these days are not independent from the QE environment they operate within : ETFs and index funds,
Risk Parity funds and Target Volatility vehicles, Low Volatility / Short Volatility vehicles, trend-chasing algos, Machine Learning-inspired
funds, behavioral Alternative Risk Premia funds. They are the poster children of the QE world. We estimate combined assets under
management of in excess of $8trn across the spectrum. They form a broad category of 'passive' or 'quasi-passive' investors, as are
being mechanically driven by two main factors: trend and volatility.
Source: Fasanara Presentations | Market Fragility
- How to Position for Twin Bubbles Bust, 16 th October 2017. The slide is described in details in this
video recording.
Extraordinary monetary policies have feedback loops with the asset management industry as a whole, reinforcing the effects on
markets of such policies in a vicious – or virtuous - cycle . QE and NIRP help a large number of investment strategies to flourish,
validating their success and supporting their asset gathering in the process, and are in return helped in boosting bond and stock
markets by their flows joining the already monumental public flows.
Private flows so reach singularity with public flows, and the whole market economy morphs into a one big common bet on ever-rising
prices, in shallow volatility. Here is the story of how $15trn of money printing by major Central Banks in the last ten years, of
which $3.7trn in 2017 alone, is joined by total assets of $8trn managed into buying the same safe and risk assets across, with leverage,
indiscriminately.
How Market Risk became Systemic Risk
Let's give a cursory look at the main players involved (a recent presentation we did is recorded
here) . As markets trend higher, no matter what happens (ever against the
shocked disbeliefs of Brexit, Trump, an Italian failed referendum and nuclear threats in North Korea), investors understand the outperformance
that comes from pricing risks out of their portfolios entirely and going long-only and fully-invested. Whoever under-weighs positions
in an attempt to be prudent ends up underperforming its benchmarks and is then penalized with redemptions. Passive investors who
are long-only and fully invested are the winners, as they are designed to be bold and insensitive to risks. As Central Banks policies
reduce the level of interest rates to zero or whereabouts, fees become ever more relevant, making the case for passive investing
most compelling. The rise of ETF and passive index funds is then inevitable.
According to JP Morgan, in the last 10 years, $2trn left active managers in equities and $2trn entered passive managers (pag.39
here) . We may be excused for thinking they are the
same $ 2trn of underlying investors progressively pricing risk provisions out of books, de facto , while chasing outperformance and
lower fees.
To be sure, ETFs are a great financial innovation, helping reducing costs in an expensive industry and giving entry to markets
previously un-accessible to most investors. Yet, what matters here is their impact on systemic risks, via positive feedback loops.
In circular reference, beyond Central Banks flows, markets are helped rise by such classes of valuations-insensitive passive investors,
which are then rewarded with further inflows, with which they can then buy more. The more expensive valuations get, the more they
disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become.
In ever-rising markets, 'buy-and-hold' strategies may only possibly be outsmarted by 'buy-the-dip' strategies. Whatever the outcome
of risk events, be ready to buy the dip quickly and blindly. As more investors design themselves up to do so, the dips are shallower
over time, leading to an S&P500 that never lost 3% in 2017, an historical milestone. Machine learning is another beautiful market
innovation, but what is there to learn from the time series of the last several years, if not that buy- the-dip works, irrespective
of what caused the dip. Big Data is yet another great concept, shaping the future of us all. Yet, most data ever generated in humankind
dates back three years only, in and by itself a striking limitation. The quality of the deduction cannot exceed the quality of the
time series upon which the data science was applied. If the time series is untrustworthy, as is heavily influenced by monumental
public flows ($300bn per months), what trust can we put on any model output originating from it? What pattern recognition can we
really be hopeful of getting, in the first place? May some of it just be a commercial disguise for going long, selling volatility
and leveraging up in various shapes or forms? What is hype and what is real? A short and compromised data series makes it hard, if
not possible, to really know. Once public flows abate and price discovery is let free again, then and only then will we be in a position
to know the difference.
Low volatility does what trending markets alone cannot. A state of low volatility presents the appearance of
stuporous, innocuous, narcotized markets, thus
enticing new swathes of unfitting investors in, mostly retail-type 'weak hands'. Weak hands are investors who are brought to like
investments by certain characteristics which are uncommon to the specific investment itself, such as featuring a low volatility.
It is in this form that we see bond-like investors looking at the stock market for yield pick-up purposes, magnetized by levels of
realized volatility similar to what fixed income used to provide with during the Great Moderation. It is in this form that Tech companies
out of the US have started filling the coffers of not just Growth ETF, where they should rightfully reside, but also Momentum ETF,
and even, incredibly, Low-Volatility ETF.
Low volatility is also a dominant input for Risk Parity funds and Target Volatility vehicles . The lower the volatility, the higher
the leverage allowed in such players, mechanically. All of which are long-only players, joining public flows, again helping the market
rise to record levels in the process, in circular reference. Rewarded by new inflows, the buying spree gathers momentum, in a virtuous
circle. Valuations are no real input in the process, volatility is what matters the most. Volatility is not risk, except for them
it is.
It goes further than that. It is not only the level of volatility that count, but its direction too . As volatility implodes,
relentlessly, into historical lows never seen before in history, a plethora of investment strategies is launched to capitalize on
just that, directly: Short Volatility vehicles . They are the best performing strategy of the last decade, by and large. The problem
here is that, due to construction, as volatility got to single-digit territory, relatively small spikes are now enough to trigger
wipe-out events on several of these instruments. Our analysis shows that if equity volatility doubles up from current levels (while
still being half of what it was as recently as in August 2015), certain Short Vol ETFs may stand to lose up to 75% or more. Moreover,
short positions on long-vol ETFs can lose up to 250% of capital. For some, 'termination events' are built into contracts for sudden
losses of this magnitude, meaning that the notes would be prematurely withdrawn. It is one thing to expect a spike in volatility
to cause losses, it is quite another to know that a minor move is all it takes to trigger a default event.
On such spikes in volatility, Morgan Stanley Quant Derivatives Strategy desk warns further that market makers may be forced to
rebalance their exposure non-linearly on a spike in volatility. A drop in the S&P 500 of 5% in one day may trigger approximately
$ 400mn of Vega notional of rebalancing (pag.48 here)
. We estimate that half a trillion dollars of additional selling on S&P stocks may occur following a correction of between 5% and
10%. That is a lot of selling, pre-set in markets, waiting to strike. Unless you expect the market to not have another 5% sell-off,
ever again.
What do ETFs, Risk Parity and Target Vol vehicles, Low Vol / Short Vol vehicles, trend-chasing algos, Machine Learning, behavioral
Alternative Risk Premia, factor investing have in common? Except, of course, being the 'winners take all' of QE-driven markets. They
all share one or more of the following risk factors: long-only, fully invested when not leveraged-up, short volatility, short correlation,
short gamma Thanks to QE and NIRP, the whole market is becoming one single big position.
The 'Trend Factor' and the 'Volatility Factor' are over-whelming, making it inevitable for a high- beta, long-bias, short-vol
proxy to disseminate across. Almost inescapably so, given the time series the asset management industry has to deal with, and derive
its signals from.
Several classes of investors may move to sell in lock-steps if and when markets turn. The boost to asset prices and the zero-volatility
environment created the conditions for systemic risks in the form of an over-compensation to the downside. Record-low volatility
breeds market fragility, it precedes system instability.
Flows Matter, Both Ways!
We will know soon if the fragility of markets is that bad. The undoing of loose monetary policies (NIRP, ZIRP) will create a liquidity
withdrawal of over $1 trillion in 2018 alone (pag.61-62
here) . The reaction of the passive and quasi-passive communities will determine the speed of the adjustment in the pricing for
both safe and risk assets, and how quickly risk provisions will re- enter portfolios. Such liquidity withdrawal will represent the
first real crash-test for markets in 10 years.
As public spending on Wall Street abates, the risk is evident of seeing the whole market turning with it. The shocks of Trump
and Brexit did not manage to derail markets for long, as public flows were overwhelming. Flows is what mattered, above all elusive,
over-fitting economic narratives justifying price action at the margin. Flows may matter again now as they fade
Systemic Risk is Not Just About Banks: Look at Funds
The role of trending markets is known when it comes to systemic risks: a not sufficient but necessary condition. Most trends do
not necessarily lead to systemic risks, but hardly systemic risks ever build up without a prolonged period of uptrend beforehand.
Prolonged uptrends in any asset class hold the potential to instill the perception that such asset class will grow forever, irrespective
of the fundamentals, and may thus lead to excessive risk taking, excess leverage, the formation of a bubble and, ultimately, systemic
risks. The mind goes to the asset class of real estate, its undeterred uptrend into 2006/2007, its perception of perpetuity ("we
have never had a decline in house prices on a nationwide basis''
Ben Bernanke) , the credit bubble built on banks hazardous activities on subprime mortgages as a result, and the systemic risks
which emanated, with damages spanning well beyond the borders of real estate.
The role of volatility is also well-researched, especially low volatility. Hayman Minsky, in his "
Financial Instability
Hypothesis '' in 1977, analyses the behavioral changes induced by a reduction of volatility, postulating that economic agents
observing a low risk are induced to increase risk taking, which may in turn lead to a crisis: "stability is destabilizing". In a
recent study, Jon Danielsson, Director
of the Systemic Risk Centre at the LSE, finds unambiguous support for the 'low volatility channel', insofar as prolonged periods
of low volatility have a strong predictive power over the incidence of a banking crisis, owing to excess lending and excess leverage
. The economic impact is the highest if the economy stays in the low volatility environment for five years : a 1% decrease in volatility
below its trend translates in a 1.01% increase in the probability of a crisis. He also finds that, counter-intuitively, high volatility
has little predictive power : very interesting, when the whole finance world at large is based on retrospective VAR metrics, and
equivocates high volatility for high risk.
Both a persistent trend and prolonged low-volatility can lead banks to take excessive risks. But what about their impact on the
asset management industry?
Thinking at the hard economic impact of the Great Depression (1929-1932) and the Great Recession (2007-2009), and the eminent
role played by banks in both, it comes as little surprise that the banking sector captures all the attention. However, what remains
to be looked into, and perhaps more worrying in today's environment, is the role of prolonged periods of uptrend and low-vol on the
asset management industry
In 2014, the Financial Stability Board (FSB), an international body that makes recommendations to G20 nations on financial risks,
published a consultation paper asking whether fund managers might need to be designated as " global systemically important financial
institution " or G-SIFI, a step that would involve greater regulation and oversight. It did not result in much, as the industry lobbied
in protest, emphasizing the difference between the levered balance sheet of a bank and the business of funds.
The reason for asking the question is evident: (i) sheer size , as the AM industry ballooned in the last few years, to now represent
over [15trnXX] for just the top 5 US players!, (ii) funds have partially substituted banks in certain market-making activities, as
banks dialed back their participation in response to tighter regulation and (iii) , funds can indeed do damage: think of LTCM in
1998, the fatal bailout of two Real Estate funds by Bear Stearns in 2007, the money market funds 'breaking the buck' in 2008 amongst
others.
But it is not just sheer size that matters for asset managers. What may worry more is the positive feedback loops discussed above
and the resulting concentration of bets in one single global pot , life-dependent on infinite momentum/trend and ever-falling volatility.
Positive feedback loops are the link for the sheer size of the AM industry to become systemically relevant. Today more than ever,
they morph market risks in systemic risks.
Volatility will not forever be low, the trend will not forever go: how bad a damage when it stops? As macro prudential policy
is not the art of "whether or not it will happen" but of "what happens if", it is hard not to see this as a blind spot for policymakers
nowadays.
I have never seen it this bad, the numbers are all moutof wack!
It seems many of us are drawn to a good illusion and this proves true for most people in their daily life as well. In some
ways, it could be said that our culture has become obsessed with avoiding what is real.
We must remember that politicians and those in power tend to throw people under the bus rather than rise up and take responsibility
for the problems they create. The article below looks at how we have grown to believe things are fine.
The real estate boom features all the unknowns in today's thinking, which is why they are global.
This simple equation is unknown.
Disposable income = wages – (taxes + the cost of living)
You can immediately see how high housing costs have to be covered by wages; business pays the high housing costs for expensive
housing adding to costs and reducing profits. The real estate boom raises costs to business and makes your nation uncompetitive
in a globalised world.
The unproductive lending involved that leads to financial crises.
The economy gets loaded up with unproductive lending as future spending power has been taken to inflate the value of the nation's
housing stock. Housing is more expensive and the future has been impoverished.
" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015.
He wouldn't know, that's financial intermediation theory.
Bank lending creates money, which pours into the economy fuelling the boom; it is this money creation that makes the housing
boom feel so good in the general economy. It feels like there is lots of money about because there is.
The housing bust feels so bad because the opposite takes place, and money gets sucked out of the economy as the repayments
overtake new lending. It feels like there isn't much money about because there isn't.
They were known unknowns, the people that knew weren't the policymakers to whom these things were unknown.
The global economy told policymakers there was something seriously wrong in 2008, but they ignored it, I didn't.
They had pushed Greece into debt deflation by cutting Government spending with austerity.
It wasn't just the IMF, the Troika all went along with this fatally flawed policy, this means the ECB and EU Commission also
didn't know what they were doing.
Richard Koo had watched as Western "experts" told Japan to cut Government spending and seen the fall in GDP as the economy
went downhill. The only way to get things going again was to increase Government spending and he has had decades to work out what
was going on.
The Troika's bad economics has been wreaking havoc across the Club-Med.
Another superficially correct analysis of "Positive Feedback Loops create divergence from general equilibrium, and Systemic
Risks." The vicious feedback loops which have the most leverage are all aspects of the funding of the political processes, which
have resulted in runaway systems of legalized lies, backed by legalized violence, the most important of which are the ways that
the powers of public governments enforce frauds by private banks, the big corporations that have grown up around those big banks.
About exponentially advancing technologies have enabled enforced frauds to become about exponentially more fraudulent. The
underlying drivers were the ways that the combined money/murder systems developed, whose social successfulness became more and
more based on maximizing maliciousness. From a superficial point of view, those results may appear to be due to incompetence,
however, from a deeper point of view those results make sense as due to the excessively successful applications of the methods
of organized crime through the political processes, due to the vicious feedback loops of the funding of those political processes.
The only connections between human laws and natural laws are the abilities to back up lies with violence. Natural selection
pressures have driven Globalized Neolithic Civilization to develop the most dishonest artificial selection systems possible, while
the continuation of the various vicious feedback loops that made and maintained those developments are driving about exponentially
increasing dishonesty. Although the laws of nature are not going to stop working, and the laws of nature underpinned the runaway
development of excessively successful vicious feedback loops of organized crime, on larger and larger scales, to result in Globalized
Neolithic Civilization, the overall results are that Civilization is becoming about exponentially more psychotic. Since Civilization
necessarily operates according to the principles and methods of organized crime, while those who became the biggest and best organized
forms of organized crime, namely, banker dominated governments, also necessarily became most dishonest about themselves, and yet,
their bullshit social stories continue to dominate the public schools, and mainstream mass media, as well as the publicly significant
controlled "opposition" groups.
Political economy is INSIDE human ecology, and therefore, the greatest systematic risks are to be found in the tragic trajectory
of human ecologies which are almost totally buried under maximized maliciousness. "Public debates" about the human death control
systems are based on previously having being as deceitful and treacherous as possible regarding those topics. The most extreme
forms of that manifest as the ways that money is measurement backed by murder. Of course, that the debt controls are backed by
the death controls are issues which are generally not publicly admitted nor addressed.
Global Neolithic Civilization has become almost totally based on being able to enforce frauds, in ways which have become about
exponentially more fraudulent, as the vicious feedback loops which enable that to happen automatically reinforce themselves to
get worse, faster. The almost total triumph of enforced frauds has resulted in social "realities" which are becoming exponentially
more insane, since the social successfulness of enforced frauds requires the most people do not understand that, because they
have been conditioned to not want to understand that. Rather, almost everyone takes for granted deliberately ignoring and misunderstanding
the laws of nature in the most absurdly backward ways possible, because of the long history of successful warfare based on deceits
and treacheries becoming the more recent history of successful finance based on enforcing frauds, despite that tragic trajectory
of vicious feedback loops resulting in about exponentially increasing overall fraudulence.
Various superficially correct analyses, such as the one in the article above, are typical of the content on Zero Hedge , which
does not come remotely close to recognizing the degree to which the dominate natural languages and philosophy of science have
undergone series of compromises with the biggest bullies' bullshit-based world views, which became the banksters' bullshit about
economics. Although it is theoretically possible for human beings to better understand themselves and Civilization, it continues
to become more and more politically impossible to do so, due to the ever increasing vicious feedback loops of enforced frauds
achieving symbolic robberies ...
Although the laws of nature are never going to stop working, it is barely possible to exaggerate the degree to which Civilization
overall is becoming about exponentially more psychotic, due to the social "realities" based on successfully enforcing frauds becoming
more and more out of touch with the surrounding, relatively objective, physical and biological facts. The various superficially
correct analyses presented on Zero Hedge regarding that kind of runaway collective psychosis, driven by the vicious feedback loops
of the funding of all aspects of the funding of the political processes, tend to always grossly understate the seriousness of
that situation, especially including the crucial issues of how to operate the human murder systems after the development of weapons
of mass destruction, which is unavoidable due to the rapid development of globalized electronic monkey money frauds, backed by
the threat of force from apes with atomic weapons.
Those who believe that possessing precious metals, or cryptocurrencies, etc., are viable solutions to those problems are not
remotely close to being in the right order of magnitude. Although there is no doubt that exponentially more "money" is being made
out of nothing as debts, in order to "pay" for strip-mining the natural resources of a still relatively fresh planet, and so,
there is no doubt that the exponentially decreasing value of that "money" is driving the accumulation of apparent anomalies, such
as outlined in the article above, the actually crucial issues continue to be the ways that money is measurement backed by murder,
as the most abstract ways that private property are claims backed by coercions. Stop-gap individual responses to the runaway fraudulence,
such as faith in possessing precious metals or cryptocurrencies, make some relative sense in terms of the public "money" supplies
becoming exponentially more fraudulent, but otherwise dismally fail to be in the ball park of the significant issues driven by
prodigious progress in physical sciences, WITHOUT any genuine progress in political sciences, other than to continue to be able
to better enforce bigger frauds, through the elaborations of oxymoronic scientific dictatorships, which adamantly refuse to become
more genuinely scientific about themselves.
Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves
as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy,
whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization
through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities.
Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated
governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames
of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane.
That Civilization has been driven by natural selection pressures to manifest runaway psychoses is not going to stop the laws
of nature from continuing to work through that Civilization. However, that will nevertheless drive the currently dominate artificial
selection systems to become increasingly psychotic, in ways whereby their vicious feedback loops are less and less able to be
sanely responded to ... Although some human beings have better and better understood some general energy systems, e.g., electric
and atomic energy, etc., since warfare was the oldest and best developed forms of social science and engineering, whose successfulness
was based on being able to maximize maliciousness, and since those then enabled successful finance to become based on runaway
enforced frauds, human beings living within Globalized Neolithic Civilization are so hidebound by adapting to living inside those
vicious feedback loops based on being able to enforce frauds that those human beings are mostly unwilling and unable to better
understand themselves as also manifestations of general energy systems.
As the report, embedded in the article, begins by quoting Leonardo da Vinci:
"Learn how to see. Realize that everything connects to everything else."
In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based
on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent
anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore
increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific
revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations
of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms
of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish
that.
At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying.
All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw,
volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the
money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program.
"... Well, again, what he was doing was running a program of a certain scale, of a large scale, through a set of standard macroeconomic assumptions. And that, again, is a reasonable exercise. If you ask me what my personal view is, I've written a whole book called The End of Normal in which I lay out reasons for my chronic pessimism about the capacity of the world economy to absorb a great deal more rapid economic growth. ..."
"... But that's not in the standard models, and it would not be appropriate to layer that on to a forecast of this kind. What Friedman was criticized for was not for putting his thumb on the scale, but for failing to put his thumb on the scale. In fact, that was the reasonable thing to do ..."
"... So what we had here was a, what was essentially an academic exercise that produced a result that was highly favorable to the Sanders position, and showed that if you did an ambitious program you would get a strong growth response. It's reasonable, certainly, for the first three or four years that that would transpire in practice. And what happened was that people who didn't like that result politically jumped on it in a way which was, frankly speaking, professionally irresponsible, in my view. It was designed to convey the impression, which it succeeded in doing for a brief while through the broad media, that this was not a reputable exercise, and that there were responsible people on one side of the debate, and irresponsible people on the other. ..."
"... The true nature of Capitalism has obviously been forgotten over time. Today we think it brings prosperity to all, but that was certainly never the intention. Today's raw Capitalism is showing its true nature with ever rising inequality. Capitalism is essentially the same as every other social system since the dawn of civilization. The lower and middle classes do all the work and the upper, leisure Class, live in the lap of luxury. The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure. ..."
"... The nature of the Leisure Class, to which the benefits of every system accrue, was studied over 100 years ago. "The Theory of the Leisure Class: An Economic Study of Institutions", by Thorstein Veblen. (The Wikipedia entry gives a good insight. It was written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.) We still have our leisure class in the UK, the Aristocracy, and they have been doing very little for centuries. The UK's aristocracy has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work. ..."
"... Feudalism – exploit the masses through land ownership. Capitalism – exploit the masses through wealth (Capital) ..."
"... Now the competition has gone, the US middle class is being wiped out. The US is going third world, with just rich and poor and no middle class. Raw Capitalism can only return Capitalism to its true state where there is little demand and those at the bottom live a life of bare subsistence. ..."
"... "The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction" ..."
"... "We came, we saw, he died" rinse and repeat for 5,000 years. ..."
"... By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce. ..."
"... They knew that if wealth concentrated too much there would not be enough demand. ..."
"... Fiscal conservatism, which champions a balanced budget and expenditure restraints, is often hailed as a politico-economic philosophy as well as a policy of financial responsibility. In practice, it has been used as an argument against free spending by governments which can lead to high levels of debt and inflation. It has not been a positive philosophy which advocates the pro-growth and stability benefits coming from balanced budgets. Rather, it is a negative one – reacting against excessive spending and its consequences. This is probably why modern examples of fiscal conservatism in the United States and the United Kingdom have not led to sustainable growth or a significant reduction in public debt. Instead, in the case of the Ronald Reagan era in the US in the 1980s, public debt soared as fiscal conservatism and other policies were abandoned. ..."
"... Galbraith is probably my favorite economist, and eminently reasonable here. It makes me think that Sanders should have used him, or someone like him as an adviser/in house economist, rather than relying on external analyses like Friedman. ..."
"... Is the American public, trained/indoctrinated to think of the USG budget in terms of a household budget analogy, ready for MMT? ..."
"... To me, too many of the supposed (and actual) intellectuals and high level advisers were experts in rationalizing and explaining the chosen party views, but still employed the Cato Institute suggestion to use "Leninist" propaganda techniques as put forth in the 1996 Newt Gingrich/Frank Luntz GoPac memo, "Language: A Key Mechanism of Control." ..."
"... Galbraith said casually about the thesis of his new book: This really is the new normal for capitalism – meaning low growth – because there is not much growth left. ..."
PERIES: James, the Council of Economic Advisors, they put out economic forecasts each year. And there has been some wildly
optimistic ones. For example, if you look at the 2010 predictions for 2012 and 2013 they have not quite been attained. And one would
say it was done in the interest of trying to make the administration that they were serving more impressive. But what accounts for
this particular attack on Friedman's projection and other fellow economists?
GALBRAITH: This was a classic case of professional bad manners and rank-pulling. What we had here were four former chairs
of the president's Council of Economic Advisors, and two from President Obama, two from President Clinton, who decided to use their
big names and their titles in order to launch an attack on a professor of economics at the University of Massachusetts who had written
a paper evaluating the Sanders economic program.
It's likely that the four bigwigs thought that Professor Friedman was a Bernie Sanders supporter. In fact, as of that time he
was a Hillary Clinton supporter and a modest donor to her campaign. What he had done was simply to write his evaluation of the economic
effects of the ambitious Sanders reform program. The four former council chairs announced that on the basis of their deep commitment
to rigor and objectivity, they had discovered that this forecast was unrealistic. And what I pointed out was that that claim was
based on no evidence and no analysis whatsoever. And when you pressed down on it you found that it was simply based on the obvious
fact that we haven't seen the kinds of growth rates that Professor Friedman's analysis suggested the Sanders program would produce.
And for a very simple reason: the Sanders program is bigger. It's more ambitious than anything we've seen in recent years, so it's
not surprising that when you put it through a model it generates a higher growth rate.
So that was the basic underlying facts, and these guys, two men and two women, announced that they, that it was a disreputable
study, but failed to present any analysis that suggested they'd actually even read the paper before they denounced it. And that's
what I pointed out in my counter letter, in a number of articles that have appeared since.
PERIES: James, so in your letter, how do you counter them? What methods did you use to come to your conclusions?
GALBRAITH: Well, I, no need to say anything beyond the fact that I had looked in their letter for the rigor that they were
so proud of, for the objectivity and the analysis that they were so proud of, and I'd found that they had not done any. They had
not made any such claim, not done any such work.
So that began to provoke a discussion. It's fair to say ultimately, without apologizing for effectively launching an ad hominem
attack on an independent academic researcher, one of the former chairs, Christina Romer of President Obama's council, and her husband
David Romer, a fellow economist, did produce a paper in which they spelled out their differences with the, with the Friedman paper.
But that, again, raised another set of interesting issues which we've continued to discuss at various, various outlets of the press.
PERIES: Now, James Friedman's claim that the growth rate from Sanders' plan to be around 5.3 percent. And some economists,
including Dean Baker at the Center for Economic Policy and Research, have claimed that this is unrealistic. What do you make of that?
GALBRAITH: Well, the question is whether it is an effect, let's say, a reasonable projection, of putting the Sanders program
into an economic model. And the answer to that question, yes, Professor Friedman did a reasonable job. He spelled out what the underlying
assumptions that he was using were. He spelled out the basic rules of thumb that macroeconomists had used for decades to assess the
effects of an economic program. In this case, an expansionary economic program. And he ran them through his model and reported the
results, a perfectly reasonable thing to do.
Now, one can be skeptical. And I am, and Dean Baker is, lots of people are skeptical that the world would work out quite that
way, because lots of things, in fact, happen which are not accounted for in a model. And we've talked, we've basically put together
a list of things that you think might be problematic. But the exercise here was not to put everything into paper that might happen
in the world. The exercise was to take the kind of bare bones that economists use to assess and to compare the consequences of alternative
programs, and to ask what kind of results do you get out? And that's what, again, what Jerry Friedman did. It was a reasonable exercise,
he came up with a reasonable answer, and he reported it.
PERIES: Now, Friedman seems to think that the rate of full employment in 1999 is attainable. However, many labor economists
seem to think that the larger share of the elderly currently in society compared to 1999 explains some of the lack of labor participation,
which creates a lower full employment ceiling that's contradicting Friedman's report. Your thoughts on that?
GALBRAITH: Well, I think it is a fact that the population is getting older. But as, I think, any economist would tell you,
that when you offer jobs in the labor market, the first thing that happens is the people who are looking for work take those jobs.
The second thing that happens is that people who might look for work when jobs were available start coming back into the labor market.
And if that is not enough to fill the vacancies that you have, it's perfectly open to employers to raise their wages so as to bring
more people in, or to increase the pace at which they innovate and substitute technology for labor so that they don't need the work.
So there's no real crisis involved in the situation if it turns out five years from now we're at 3.5 percent unemployment, and
they were beginning to run short of labor. That's not a reason to, at this stage, say no, we're not going to engage in the exercise
and run a more expansionary, vigorous reform program, a vigorous infrastructure project, a major reform of healthcare, a tuition-free
public education program. All of those things, which were part of what Friedman put into his paper, should be done anyway. The fact
that the labor market forecast might prove to have some different, the labor market might have different characteristics in five
years' time is from our present point of view just a, it's an academic or a theoretical proposition, purely.
PERIES: And Friedman's paper, he looks at a ten-year forecast. Did you feel that when you looked at the specifics of that,
including college, universal healthcare, infrastructure spending and of course, expanding Social Security and so on, that those categories
and his predictions or projections, rather, made sense to you?
GALBRAITH:Well, again, what he was doing was running a program of a certain scale, of a large scale, through a set
of standard macroeconomic assumptions. And that, again, is a reasonable exercise. If you ask me what my personal view is, I've written
a whole book called The End of Normal in which I lay out reasons for my chronic pessimism about the capacity of the world economy
to absorb a great deal more rapid economic growth.
But that's not in the standard models, and it would not be appropriate to layer that on to a forecast of this kind. What Friedman
was criticized for was not for putting his thumb on the scale, but for failing to put his thumb on the scale. In fact, that was the
reasonable thing to do.
On the contrary, and on the other side, when Christina and David Romer did put out their forecast, their own criticism of the
Friedman paper, they concluded by asserting that if this program were tried, inflation would soar. So they there were making an allegation
for which, again, they had no evidence and no plausible model, that in the world in which we presently live would produce that result.
So what we had here was a, what was essentially an academic exercise that produced a result that was highly favorable to the
Sanders position, and showed that if you did an ambitious program you would get a strong growth response. It's reasonable, certainly,
for the first three or four years that that would transpire in practice. And what happened was that people who didn't like that result
politically jumped on it in a way which was, frankly speaking, professionally irresponsible, in my view. It was designed to convey
the impression, which it succeeded in doing for a brief while through the broad media, that this was not a reputable exercise, and
that there were responsible people on one side of the debate, and irresponsible people on the other.
And that was, again, something that–an impression that could be conveyed through the mass media, but would not withstand scrutiny,
and didn't withstand scrutiny, once a few of us stood up and started saying, okay, where's your evidence, on what are you basing
this argument? And revealed the point, which the Romers implicitly conceded, and I give them credit for that, that in order to criticize
a fellow economist you need to do some work.
The true nature of Capitalism has obviously been forgotten over time. Today we think it brings prosperity to all, but that
was certainly never the intention. Today's raw Capitalism is showing its true nature with ever rising inequality. Capitalism is
essentially the same as every other social system since the dawn of civilization. The lower and middle classes do all the work
and the upper, leisure Class, live in the lap of luxury. The lower class does the manual work; the middle class does the administrative
and managerial work and the upper, leisure, class live a life of luxury and leisure.
The nature of the Leisure Class, to which the benefits of every system accrue, was studied over 100 years ago. "The Theory
of the Leisure Class: An Economic Study of Institutions", by Thorstein Veblen. (The Wikipedia entry gives a good insight. It was
written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.)
We still have our leisure class in the UK, the Aristocracy, and they have been doing very little for centuries. The UK's aristocracy
has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work.
Feudalism – exploit the masses through land ownership. Capitalism – exploit the masses through wealth (Capital)
Today this is done through the parasitic, rentier trickle up of Capitalism:
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
All this was much easier to see in Capitalism's earlier days.
Malthus and Ricardo never saw those at the bottom rising out of a bare subsistence living. This was the way it had always been
and always would be, the benefits of the system only accrue to those at the top.
It was very obvious to Adam Smith:
"The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The
Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from
the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every
savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers."
Like most classical economists he differentiated between "earned" and "unearned" wealth and noted how the wealthy maintained
themselves in idleness and luxury via "unearned", rentier income from their land and capital.
We can no longer see the difference between the productive side of the economy and the unproductive, parasitic, rentier side.
This is probably why inequality is rising so fast, the mechanisms by which the system looks after those at the top are now hidden
from us.
In the 19th Century things were still very obvious.
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
3) Slavery
4) Child Labour
Immense wealth at the top with nothing trickling down, just like today.
This is what Capitalism maximized for profit looks like. Labour costs are reduced to the absolute minimum to maximise profit.
The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and
child labour. The function of the system is still laid bare. The lower class does the manual work; the middle class does the administrative
and managerial work and the upper, leisure, class live a life of luxury and leisure. The majority only got a larger slice of the
pie through organised Labour movements.
By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to
purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic
over-supply the Capitalist system could produce. They knew that if wealth concentrated too much there would not be enough demand.
In the 1950s, when Capitalism had healthy competition, it was essential that the Capitalist system could demonstrate that it was
better than the competition. The US was able to demonstrate the superior lifestyle it offered to its average citizens.
Now the competition has gone, the US middle class is being wiped out. The US is going third world, with just rich and poor
and no middle class. Raw Capitalism can only return Capitalism to its true state where there is little demand and those at the
bottom live a life of bare subsistence.
When you realise the true nature of Capitalism, you know why some kind of redistribution is necessary and strong progressive
taxation is the only way a consumer society can ever be kept functioning.
A good quote from John Kenneth Galbraith's book "The Affluent Society", which in turn comes from Marx.
"The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate
survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction"
Marx made some mistakes but he got quite a lot right.
Perhaps, Western civilization had already cultivated and concentrated psychopathic personality traits in its elite before Capitalism
ever begun. Early European history is an endless procession of wars at home and abroad as the elite took their wealth by force
and the masses were kept in check by force whenever necessary.
No peaceful group could ever survive this relentless onslaught of millennia. This psychopathic elite then took their warlike
ways to every corner of the earth. The wealthy elite from this era then became the wealthy elite of the next Capitalist era. Even
today their bloodlust cannot be sated as they look to control a global empire.
Certainly countless hundreds of peaceful, responsible, inclusive, open, empathetic indigenous societies have been co-opted/overthrown
by the western model.
Yes, but it's not just the western model that overthrows peaceful societies. The empires of China, the Japanese monarchies,
the empires of India (together with a cringeworthy caste system), the human sacrificing Aztecs, Mayas, and Incas, all prove that
tyranny is not a western invention.
When a local population becomes too large to be supported by simple egalitarian hunting and gathering, something else is required.
That something is agriculture, and almost inevitably, the organization, specialization, and partial urbanization required by large
scale agricultural society leads to exploitation and tyranny. This is seen in the earliest societies for which we have a written
record, Sumer and Egypt.
Thanks for the explanations of Veblen and Galbraith, which I find enduring basics over more than 100 years of speculation,
real investment, and the best way to keep consumer society healthy.
My unschooled, simple, way to measure the health of an economy is in the Velocity of Money in the real economy of useful products
and services. It appears to be very far below where it was when we did our best, and lower than when we first started measuring
it near the beginning of the Great Depression.
By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required
to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic
over-supply the Capitalist system could produce.
They knew that if wealth concentrated too much there would not be enough demand.
Of course the Capitalists could never find it in themselves to raise wages and it took the New Deal and Keynesian thinking
to usher in the consumer society.
Fiscal conservatism, which champions a balanced budget and expenditure restraints, is often hailed as a politico-economic
philosophy as well as a policy of financial responsibility. In practice, it has been used as an argument against free spending
by governments which can lead to high levels of debt and inflation. It has not been a positive philosophy which advocates the
pro-growth and stability benefits coming from balanced budgets. Rather, it is a negative one – reacting against excessive spending
and its consequences. This is probably why modern examples of fiscal conservatism in the United States and the United Kingdom
have not led to sustainable growth or a significant reduction in public debt. Instead, in the case of the Ronald Reagan era in
the US in the 1980s, public debt soared as fiscal conservatism and other policies were abandoned.
A Monetarily Sovereign government does not need to reduce debt. In the U.S. (which is Monetarily Sovereign) federal so-called
"debt" is actually the total of deposits in T-security accounts at the Federal Reserve Bank. In short, "debt" is bank deposits.
Why anyone would want to reduce the size of deposits at the world's safest bank is a mystery to me - other than the misleading
use of the word "debt."
While all bank accounts are, in fact, debt of banks, most banks boast about the size of their depositors' accounts.
Contrary to popular myth, federal debt (i.e. deposits at the FRB) does not lead to inflation. America's "debt" has grown more
than 9,000% in the past 75 years, and the Fed is struggling to create inflation.
Galbraith is probably my favorite economist, and eminently reasonable here. It makes me think that Sanders should have
used him, or someone like him as an adviser/in house economist, rather than relying on external analyses like Friedman. It
would possibly have given his program more gravitas – first amongst elites, and then more generally. At least it would have had
a chance of changing the broader discussion. Whether you agree with it or not, right now the general MSM reporting on the Sanders
plan is that it doesn't add up.
This is speculative, but since Prof. Kelton is actually the economist for the Minority (the Democrats) of the Senate Banking
committee, there may be reasons of protocol that Sanders isn't using her policy ideas at the moment.
Another possibility is that trying to introduce a new economic paradigm while running for the nomination may be a bridge too
far. If Sanders tried to explain to people that taxes don't fund federal spending, etc., heads would explode.
I'm also not sure how one would use Prof. Kelton's ideas without bringing in a whole bunch of MMT concepts. Maybe if Sanders
wins the nomination he can begin to bring some of these ideas into the conversation.
He won't use her ideas simple because the American voter in not yet amenable to the facts of
Monetary Sovereignty .
Try explaining even to your best friend that:
1. Unlike state and local taxes, Federal taxes do not fund federal spending.
2. Even if FICA were eliminated, Social Security and Medicare benefits dramatically could (and should) be increased. There are
no federal "trust funds."
3. Federal deficits are necessary for economic growth
4. Federal "debt" is nothing more than deposits in T-security accounts at the Federal Reserve Bank.
5. America never has had, and is absolutely in no danger of, hyper-inflation.
Perhaps, if Bernie wins the election, he will be freer to educate the masses, as well as the economics community, but meanwhile
he has to claim the popular myth that federal spending has to be "paid for" by taxes.
Is the American public, trained/indoctrinated to think of the USG budget in terms of a household budget analogy, ready
for MMT? I think it's politically OK to use MMT informed policies–"deficits don't matter"–as the Republicans have, but not
OK to openly acknowledge doing so. MMT runs head on into bedrock beliefs like the protestant moral virtues of thrift and fiscal
responsibility. People cling to this stuff as tightly as they cling to their religion and guns.
MMT is a volatile, explosive doctrine. Tell an ordinary off-the-street taxpayer that Federal taxes don't fund Federal expenditures,
that Federal taxes destroy the money they collect and so keep inflation at desired levels, and ready yourself to answer this:
"If I'm just paying taxes so the money can be burned, why should I pay taxes? What good does paying taxes for that do me,
or people like me?"
And be prepared not to have your answer heard, comprehended, or accepted, after it is given.
It could lead directly and quickly to the end of a system of tax collection based on voluntary compliance. It could ignite
a revolution.
MMT is an unpopular doctrine. Whether it is the true theory, or a truer theory than others, of the state of the world–is not
the point.
She can't. She's his staffer (on the Senate Budget Committee) so she is now allowed to work on the campaign. It would be a
big ethics violation and would produce a scandal. Staffers cannot work on any of their bosses campaigns, including re-elections.
Remember, they are government employees, not on Sanders' personal payroll.
My old party has worked hard to try discredit James Galbraith. I was faced with some ridicule from a Bush era international
negotiator for trying to read "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too" in
an airport waiting area.
To me, too many of the supposed (and actual) intellectuals and high level advisers were experts in rationalizing and explaining
the chosen party views, but still employed the Cato Institute suggestion to use "Leninist" propaganda techniques as put forth
in the 1996 Newt Gingrich/Frank Luntz GoPac memo, "Language: A Key Mechanism of Control."
I don't oppose them (at that level) expressing their well thought out views, even using the "persuasive" techniques described
in the document at http://www.informationclearinghouse.info/article4443.htm
but I do fault them for trying to prevent people from freely exploring far more comprehensive information and views.
We left the party ancestors had founded and stayed loyal to for 5 generations, though, because of the lower level dirty tricksters
("opposition researchers") that wanted us to corrupt the processes as one fund raiser told me, "We have to fight dirtier than
Democrats."
Galbraith is a voice that must be listened to, just as there may be many others that we should be able to listen to (as I assume
we could have under the old "Fairness Doctrine" before the corporate take over of almost all fully accessible media).
stg Galbraith said casually about the thesis of his new book: This really is the new normal for capitalism – meaning low
growth – because there is not much growth left. So maybe we are headed for a no growth world in which stability and sustainability
dictate enterprise which is used to maintain a steady state – so that sounds more socialist than capitalist out of necessity.
I believe this is our future too. And I think I understand Varoufakis' and Galbraith's "modest proposal" in a clearer light because
growth must be used going forward not willy-nilly, but to achieve our ends. And also too – a while back the link that effectively
said we had it backwards when we assume that capitalism supports socialism – because capitalism in reality lives off and is only
possible under sufficient socialism. And it seems the 4 presidential advisors are more out to lunch than their letter showed.
Can't respond to all the nonsense. I just read Wolfer's piece and it seems to miss the point (as with the Romers), as noted
in the following 2 articles. I especially recommend the 2nd one from John Cassidy in the New Yorker.
as usual, i hear a lot "they" failed conservatism, never, Conservatism is just the age old avenue to "scam" the other. Bush
"failed" at conservatism, i.e., it was Bush's fault not the ideology of Conservatism. on and on, this self repeated/reinforced
"idea" that we have just not "found" the correct "application" of the ideal/reality that is Conservatism.
it does get old, too. all the people killed due to Conservatism and its' perpetrators. Greed, in other words, and the age old
scam with "new and improved" tactics. These people have no concept of what "society" is, why we are all interrelated. to scam
one is to scam us all. and these people are definitely not Christian in the "Jesus Christ" i've always heard about. Whatsoever
you do unto the poor, you do unto me!
i just suppose psychopaths use any avenue for their "crimes." as i've heard, too, any great fortune is usually the result of
a great crime.
This is an old article by Jesse, but today it sound even more pertinent then two years ago, before Trump ascendance to power.
"... Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects. "
.
"...would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps for
sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows
abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various
forms of intimidation and reward."
. "...The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control."
. "..."Economic powers continue to justify the current global system where priority tends to be given to speculation and
the pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified
market, which becomes the only rule." Francis I, Laudato Si "
This video below may help one to understand some of the seemingly obtuse demands from the Troika with regard to Greece.
The video is a bit dated, but the debt scheme it describes remains largely unchanged. The primary development has been the creation
of an experiment called the European Union and the character of the targets. One might also look to the wars of 'preventative intervention'
and 'colour revolutions' that raise up puppet regimes for examples of more contemporary economic spoliation. From largely small and
Third World countries, the candidates for debt peonage have become the smaller amongst the developed Western countries, the most
vulnerable on the periphery. And even the domestic populations of the monetary powers, the US, Germany, and the UK, are now feeling
the sting of financialisation, debt imposition through crises, and austerity. What used to only take place in South America and Africa
has now taken place in Jefferson County Alabama. Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive,
grossly overpriced projects.
It would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps
for sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows
abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various
forms of intimidation and reward. It is an old, old story. And then there is the mass looting enable by the most recent financial
crisis and Bank bailouts. If the people will not take on the chains of debt willingly, you impose them indirectly, while giving the
funds to your cronies who will use them against the very people who are bearing the burdens, while lecturing them on moral values
and thrift. It is an exceptionally diabolical con game.
The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control. You might
ask yourself why the House Republicans, who have fought the current President at every turn, blocking nominees and even stages many
mock votes to repeatedly denounce a healthcare plan that originated in their own think tank and first implemented by their own presidential
candidate, are suddenly championing that President's highest profile legislation, and against the opposition of his own party? The
next step, after Greece is subdued, will be to extend that model to other, larger countries. And to redouble the austerity at home
under cover of the next financial crisis by eliminating cash as a safe haven, and to begin the steady stream of digital 'bailing-in.'
This is why these corporatists and statists hate gold and silver, by the way. And why it is at the focal point of a currency war.
It provides a counterweight to their monetary power. It speaks unpleasant truths. It is a safe haven and alternative, along with
other attempts to supplant the IMF and the World Bank, for the rest of the world. So when you say, the Philippines deserved it,
Iceland deserved it, Ireland deserved it, Africa deserves it, Jefferson County deserved it, Detroit deserved it, and now Greece deserves
it, just keep in mind that some day soon they will be saying that you deserve it, because you stood by and did nothing.
Because when they are done with all the others, for whom do you think they come next? If you wish to see injustice stopped,
if you wish to live up to the pledge of 'never again,' then you must stand for your fellows who are vulnerable. The economic hitmen
have honed their skills among the poor and relatively defenseless, and have been coming closer to home in search of new hunting grounds
and fatter spoils.
There is nothing 'new' or 'modern' about this. This is as old as Babylon, and evil as sin. It is the power of darkness of the
world, and of spiritual wickedness in high places. The only difference is that it is not happening in the past or in a book, it is
happening here and now.
"Economic powers continue to justify the current global system where priority tends to be given to speculation and the
pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the
deified market, which becomes the only rule." Francis I, Laudato Si
You may also find some information about the contemporary applications of these methods in The IMF's 'Tough Choices' On Greece
by Jamie Galbraith.
"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search
out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from
the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the
rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."
Tacitus, Agricola Posted by Jesse at 11:46 AM Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest
Category: currency war, debt peonage, debt slavery, neo-colonialism, new world order
"... By David Masciotra, the author of Mellencamp: American Troubadour (University Press of Kentucky). He has also written for Salon, the Atlantic and the Los Angeles Review of Books. For more information visit www.davidmasciotra.com. Originally published at Alternet ..."
"... Robert Reich, in his book Supercapitalism, explains that in the past 30 years the two industries with the most excessive increases in prices are health care and higher education. ..."
"... Using student loan loot and tax subsidies backed by its $3.5 billion endowment, New York University has created a new administrative class of aristocratic compensation. The school not only continues to hire more administrators – many of whom the professors indict as having no visible value in improving the education for students bankrupting themselves to register for classes – but shamelessly increases the salaries of the academic administrative class. The top 21 administrators earn a combined total of $23,590,794 per year. The NYU portfolio includes many multi-million-dollar mansions and luxury condos, where deans and vice presidents live rent-free. ..."
"... As the managerial class grows, in size and salary, so does the full time faculty registry shrink. Use of part time instructors has soared to stratospheric heights at NYU. Adjunct instructors, despite having a minimum of a master's degree and often having a Ph.D., receive only miserly pay-per-course compensation for their work, and do not receive benefits. Many part-time college instructors must transform their lives into daily marathons, running from one school to the next, barely able to breathe between commutes and courses. Adjunct pay varies from school to school, but the average rate is $2,900 per course. ..."
"... New York Times ..."
"... to the people making decisions ..."
"... it's the executives and management generally. Just like Wall Street, many of these top administrators have perfected the art of failing upwards. ..."
"... What is the benefit? What are the risks? ..."
"... Sophomore Noell Conley lives there, too. She shows off the hotel-like room she shares with a roommate . ..."
"... "As you walk in, to the right you see our granite countertops with two sinks, one for each of the residents," she says. A partial wall separates the beds. Rather than trek down the hall to shower, they share a bathroom with the room next door. "That's really nice compared to community bathrooms that I lived in last year," Conley says. To be fair, granite countertops last longer. Tempur-Pedic is a local company - and gave a big discount. The amenities include classrooms and study space that are part of the dorm. Many of the residents are in the university's Honors program. But do student really need Apple TV in the lounges, or a smartphone app that lets them check their laundry status from afar? "Demand has been very high," says the university's Penny Cox, who is overseeing the construction of several new residence halls on campus. Before Central Hall's debut in August, the average dorm was almost half a century old, she says. That made it harder to recruit. " If you visit places like Ohio State, Michigan, Alabama," Cox says, "and you compare what we had with what they have available to offer, we were very far behind." Today colleges are competing for a more discerning consumer. Students grew up with fewer siblings, in larger homes, Cox says. They expect more privacy than previous generations - and more comforts. "These days we seem to be bringing kids up to expect a lot of material plenty," says Jean Twenge, a psychology professor at San Diego State University and author of the book "Generation Me." Those students could be in for some disappointment when they graduate , she says. "When some of these students have all these luxuries and then they get an entry-level job and they can't afford the enormous flat screen and the granite countertops," Twenge says, "then that's going to be a rude awakening." Some on campus also worry about the divide between students who can afford such luxuries and those who can't. The so-called premium dorms cost about $1,000 more per semester. Freshman Josh Johnson, who grew up in a low-income family and lives in one of the university's 1960s-era buildings, says the traditional dorm is good enough for him. ..."
"... "I wouldn't pay more just to live in a luxury dorm," he says. "It seems like I could just pay the flat rate and get the dorm I'm in. It's perfectly fine." In the near future students who want to live on campus won't have a choice. Eventually the university plans to upgrade all of its residence halls. ..."
"... Competition for students who have more sophisticated tastes than in past years is creating the perfect environment for schools to try to outdo each other with ever-more posh on-campus housing. Keeping up in the luxury dorm race is increasingly critical to a school's bottom line: A 2006 study published by the Association of Higher Education Facilities Officers found that "poorly maintained or inadequate residential facilities" was the number-one reason students rejected enrolling at institutions. PHOTO GALLERY: Click Here to See the 10 Schools with Luxury Dorms ..."
"... Private universities get most of the mentions on lists of schools with great dorms, as recent ratings by the Princeton Review, College Prowler, and Campus Splash make clear. But a few state schools that have invested in brand-new facilities are starting to show up on those reviews, too. ..."
"... While many schools offer first dibs on the nicest digs to upperclassmen on campus, as the war for student dollars ratchets up even first-year students at public colleges are living in style. Here are 10 on-campus dormitories at state schools that offer students resort-like amenities. ..."
"... Perhaps some students are afraid to protest for fear of being photographed or videographed and having their face and identity given to every prospective employer throughout America. Perhaps those students are afraid of being blackballed throughout the Great American Workplace if they are caught protesting anything on camera. ..."
"... Mao was perfectly content to promote technical education in the new China. What he deprecated (and fought to suppress) was the typical liberal arts notion of critical thinking. We're witnessing something comparable in the U.S. We're witnessing something comparable in the U.S. ..."
"... Many of the best students feel enormous pressure to succeed and have some inkling that their job prospects are growing narrower, but they almost universally accept this as the natural order of things. Their outlook: if there are 10 or 100 applicants for every available job, well, by golly, I just have to work that much harder and be the exceptional one who gets the job. ..."
"... I read things like this and think about Louis Althusser and his ideas about "Ideological State Apparatuses." While in liberal ideology the education is usually considered to be the space where opportunity to improve one's situation is founded, Althusser reached the complete opposite conclusion. For him, universities are the definitive bourgeois institution, the ideological state apparatus of the modern capitalist state par excellance . The real purpose of the university was not to level the playing field of opportunity but to preserve the advantages of the bourgeoisie and their children, allowing the class system to perpetuate/reproduce itself. ..."
"... My nephew asked me to help him with his college introductory courses in macroeconomics and accounting. I was disappointed to find out what was going on: no lectures by professors, no discussion sessions with teaching assistants; no team projects–just two automated correspondence courses, with automated computer graded problem sets objective tests – either multiple choice, fill in the blank with a number, or fill in the blank with a form answer. This from a public university that is charging tuition for attendance just as though it were really teaching something. All they're really certifying is that the student can perform exercises is correctly reporting what a couple of textbooks said about subjects of marginal relevance to his degree. My nephew understands exactly that this is going on, but still . ..."
"... The reason students accept this has to be the absolutely demobilized political culture of the United States combined with what college represents structurally to students from the middle classes: the only possibility – however remote – of achieving any kind of middle class income. ..."
"... Straight bullshit, but remember our school was just following the national (Neoliberal) model. ..."
Yves here. In May, we wrote up and embedded the report on how NYU exploits students and adjuncts in
"The Art of the Gouge": NYU as a Model for Predatory Higher Education. This article below uses that study as a point of departure
for for its discussion of how higher education has become extractive.
By David Masciotra, the author of Mellencamp: American Troubadour (University Press of Kentucky). He has also written
for Salon, the Atlantic and the Los Angeles Review of Books. For more information visit www.davidmasciotra.com. Originally published
at Alternet
Higher education wears the cloak of liberalism, but in policy and practice, it can be a corrupt and cutthroat system of power
and exploitation. It benefits immensely from right-wing McCarthy wannabes, who in an effort to restrict academic freedom and silence
political dissent, depict universities as left-wing indoctrination centers.
But the reality is that while college administrators might affix "down with the man" stickers on their office doors, many prop
up a system that is severely unfair to American students and professors, a shocking number of whom struggle to make ends meet. Even
the most elementary level of political science instructs that politics is about power. Power, in America, is about money: who has
it? Who does not have it? Who is accumulating it? Who is losing it? Where is it going?
Four hundred faculty members at New York University, one of the nation's most expensive schools, recently released a report on
how their own place of employment, legally a nonprofit institution, has become a predatory business, hardly any different in ethical
practice or economic procedure than a sleazy storefront payday loan operator. Its title succinctly summarizes the new intellectual
discipline deans and regents have learned to master: "The
Art of The Gouge."
The result of their investigation reads as if Charles Dickens and Franz Kafka collaborated on notes for a novel. Administrators
not only continue to raise tuition at staggering rates, but they burden their students with inexplicable fees, high cost burdens
and expensive requirements like mandatory study abroad programs. When students question the basis of their charges, much of them
hidden during the enrollment and registration phases, they find themselves lost in a tornadic swirl of forms, automated answering
services and other bureaucratic debris.
Often the additional fees add up to thousands of dollars, and that comes on top of the already hefty tuition, currently $46,000
per academic year, which is more than double its rate of 2001. Tuition at NYU is higher than most colleges, but a bachelor's degree,
nearly anywhere else, still comes with a punitive price tag. According to the College Board, the average cost of tuition and fees
for the 2014–2015 school year was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state
residents attending public universities.
Robert Reich, in his book Supercapitalism, explains that in the past 30 years the two industries with the most excessive increases
in prices are health care and higher education. Lack of affordable health care is a crime, Reich argues, but at least new medicines,
medical technologies, surgeries, surgery techs, and specialists can partially account for inflation. Higher education can claim no
costly infrastructural or operational developments to defend its sophisticated swindle of American families. It is a high-tech, multifaceted,
but old fashioned transfer of wealth from the poor, working- and middle-classes to the rich.
Using student loan loot and tax subsidies backed by its $3.5 billion endowment, New York University has created a new administrative
class of aristocratic compensation. The school not only continues to hire more administrators – many of whom the professors indict
as having no visible value in improving the education for students bankrupting themselves to register for classes – but shamelessly
increases the salaries of the academic administrative class. The top 21 administrators earn a combined total of $23,590,794 per year.
The NYU portfolio includes many multi-million-dollar mansions and luxury condos, where deans and vice presidents live rent-free.
Meanwhile, NYU has spent billions, over the past 20 years, on largely unnecessary real estate projects, buying property and renovating
buildings throughout New York. The professors' analysis, NYU's US News and World Report Ranking, and student reviews demonstrate
that few of these extravagant projects, aimed mostly at pleasing wealthy donors, attracting media attention, and giving administrators
opulent quarters, had any impact on overall educational quality.
As the managerial class grows, in size and salary, so does the full time faculty registry shrink. Use of part time instructors
has soared to stratospheric heights at NYU. Adjunct instructors, despite having a minimum of a master's degree and often having a
Ph.D., receive only miserly pay-per-course compensation for their work, and do not receive benefits. Many part-time college instructors
must transform their lives into daily marathons, running from one school to the next, barely able to breathe between commutes and
courses. Adjunct pay varies from school to school, but the average rate is $2,900 per course.
Many schools offer rates far below the average, most especially community colleges paying only $1,000 to $1,500. Even at the best
paying schools, adjuncts, as part time employees, are rarely eligible for health insurance and other benefits. Many universities
place strict limits on how many courses an instructor can teach. According to a recent study, 25 percent of adjuncts
receive government assistance.
The actual scandal of "The Art of the Gouge" is that even if NYU is a particularly egregious offender of basic decency and honesty,
most of the report's indictments could apply equally to nearly any American university. From 2003-2013, college tuition increased
by a crushing
80 percent. That far outpaces all other inflation. The closest competitor was the cost of medical care, which in the same time
period, increased by a rate of 49 percent. On average, tuition in America rises eight percent on an annual basis, placing it far
outside the moral universe. Most European universities
charge only marginal fees for attendance, and many of them are free. Senator Bernie Sanders recently introduced a bill proposing
all public universities offer free education. It received little political support, and almost no media coverage.
In order to obtain an education, students accept the paralytic weight of student debt, the only form of debt not dischargeable
in bankruptcy. Before a young person can even think about buying a car, house or starting a family, she leaves college with thousands
of dollars in debt: an average of $29,400 in 2012. As colleges continue to suck their students dry of every dime, the US government
profits at $41.3 billion per year by
collecting interest
on that debt. Congress recently cut funding for Pell Grants, yet increased the budget for hiring debt collectors to target delinquent
student borrowers.
The university, once an incubator of ideas and entrance into opportunity, has mutated into a tabletop model of America's economic
architecture, where the top one percent of income earners now owns 40 percent of the wealth.
"The One Percent at State U," an Institute for Policy Studies report, found that at the 25 public universities with the highest
paid presidents, student debt and adjunct faculty increased at dramatically higher rates than at the average state university. Marjorie
Wood, the study's co-author, explained told the New York Times that extravagant executive pay is the "tip of a very large
iceberg, with universities that have top-heavy executive spending also having more adjuncts, more tuition increases and more administrative
spending.
Unfortunately, students seem like passive participants in their own liquidation. An American student protest timeline for 2014-'15,
compiled by historian Angus Johnston, reveals that most demonstrations and rallies focused on police violence, and sexism. Those
issues should inspire vigilance and activism, but only 10 out of 160 protests targeted tuition hikes for attack, and only two of
those 10 events took place
outside the state
of California.
Class consciousness and solidarity actually exist in Chile, where in 2011 a student movement began to organize, making demands
for free college. More than mere theater, high school and college students, along with many of their parental allies, engaged the
political system and made specific demands for inexpensive education. The Chilean government announced that in March 2016, it will
eliminate all tuition from public universities. Chile's victory for participatory democracy, equality of opportunity and social justice
should instruct and inspire Americans. Triumph over extortion and embezzlement is possible.
This seems unlikely to happen in a culture, however, where even most poor Americans view themselves, in the words of John Steinbeck,
as "temporarily embarrassed millionaires." The political, educational and economic ruling class of America is comfortable selling
out its progeny. In the words of one student quoted in "The Art of the Gouge," "they see me as nothing more than $200,000."
At a basic level, I think the answer is yes, because on balance, college still provides a lot of privatized value to the individual.
Being an exploited student with the College Credential Seal of Approval remains relatively much better than being an exploited
non student lacking that all important seal. A college degree, for example, is practically a guarantee of avoiding the
more unseemly parts of the US "justice" system.
But I think this is changing. The pressure is building from the bottom as academia loses credibility as an institution capable
of, never mind interested in, serving the public good rather than simply being another profit center for connected workers. It's
actually a pretty exciting time. The kiddos are getting pretty fed up, and the authoritarians at the top of the hierarchy are
running out of money with which to buy off younger technocratic enablers and thought leaders and other Serious People.
P.S., the author in this post demonstrates the very answer to the question. He assumes as true, without any need for support,
that the very act of possessing a college degree makes one worthy of a better place in society. That mindset is why colleges can
prey upon students. They hold a monopoly on access to resources in American society. My bold:
Adjunct instructors, despite having a minimum of a master's degree and often having a Ph.D., receive only
miserly pay-per-course compensation for their work, and do not receive benefits.
What does having a masters degree or PhD have to do with the moral claim of all human beings to a life of dignity and purpose?
There are so many more job seekers per job opening now than, say, 20 or thirty years ago that a degree is used to sort out
applications. Now a job that formerly listed a high school degree as a requirement may now list a college degree as a requirement,
just to cut down on the number of applications.
So, no, a B.A. or B.S. doesn't confer moral worth, but it does open more job doors than a high school diploma, even if the
actual work only requires high school level math, reading, science or technology.
I agree a phd often makes someone no more useful in society. However the behaviour of the kids is rational *because* employers
demand a masters / phd.
Students are then caught in a trap. Employers demand the paper, often from an expensive institution. The credit is abundant
thanks to govt backed loans. They are caught in a situation where as a collective it makes no sense to join in, but as an individual
if they opt out they get hurt also.
Same deal for housing. It's a mad world my masters.
What can we do about this? The weak link in the chain seems to me to be employers. Why are they hurting themselves by selecting
people who want higher pay but may offer little to no extra value? I work as a programmer and I often think " if we could just
'see' the non-graduate diamonds in the rough".
If employers had perfect knowledge of prospective employees *and* if they saw that a degree would make no difference to their
performance universities would crumble overnight.
The state will never stop printing money via student loans. If we can fix recruitment then universities are dead.
Why are they hurting themselves by selecting people who want higher pay but may offer little to no extra value?
Yeah, I have thought a lot about that particular question of organizational behavior. It does make sense, conceptually, that
somebody would disrupt the system and take people based on ability rather than credentials. Yet we are moving in the opposite
direction, toward more rigidity in educational requirements for employment.
For my two cents, I think the bulk of the answer lies in how hiring specifically, and management philosophy more generally,
works in practice. The people who make decisions are themselves also subject to someone else's decisions. This is true all up
and down the hierarchical ladder, from board members and senior executives to the most junior managers and professionals.
It's true that someone without a degree may offer the same (or better) performance to the company. But they do not offer the
same performance to the people making decisions, because those individual people also depend upon their own college degrees
to sell their own labor services. To hire significant numbers of employees without degrees into important roles is to sabotage
their own personal value.
Very few people are willing to be that kind of martyr. And generally speaking, they tend to self-select away from occupations
where they can meaningfully influence decision-making processes in large organizations.
Absolutely, individual business owners can call BS on the whole scam. It is a way that individual people can take action against
systemic oppression. Hire workers based upon their fit for the job, not their educational credentials or criminal background or
skin color or sexual orientation or all of the other tests we have used. But that's not a systemic solution because the incentives
created by public policy are overwhelming at large organizations to restrict who is 'qualified' to fill the good jobs (and increasingly,
even the crappy jobs).
I am not so sure that this is so. So many jobs are now crapified. When I was made redundant in 2009, I could not find many
jobs that fit my level of experience (just experience! I have no college degree), so I applied for anything that fit my skill
set, pretty much regardless of level. I was called Overqualified. I have heard that in the past as well, but never more so during
that stretch of job hunting. Remember that's with no degree. Maybe younger people don't hear it as much. But I also think life
experience has something to do with it, you need to have something to compare it to. How many times did our parents tell us how
different things were when they were kids, how much easier? I didn't take that on board, did y'all?
For various reasons, people seeking work these days, especially younger job applicants, might not possess the habits of mind
and behavior that would make them good employees – i.e., punctuality, the willingness to come to work every day (even when something
more fun or interesting comes up, or when one has partied hard the night before), the ability to meet deadlines rather than make
excuses for not meeting them, the ability to write competently at a basic level, the ability to read instructions, diagrams, charts,
or any other sort of necessary background material, the ability to handle basic computation, the ability to FOLLOW instructions
rather than deciding that one will pick and choose which rules and instructions to follow and which to ignore, trainability, etc.
Even if a job applicant's degree is in a totally unrelated field, the fact that he or she has managed to complete an undergraduate
degree–or, if relevant, a master's or a doctorate – is often accepted by employers as a sign that the applicant has a sense of
personal responsibility, a certain amount of diligence and educability, and a certain level of basic competence in reading, writing,
and math.
By the same token, employers often assume that an applicant who didn't bother going to college or who couldn't complete a college
degree program is probably not someone to be counted on to be a responsible, trainable, competent employee.
Obviously those who don't go to college, or who go but drop out or flunk out, end up disadvantaged when competing for jobs,
which might not be fair at all in individual cases, especially now that college has been priced so far out of the range of so
many bright, diligent students from among the poor and and working classes, and now even those from the middle class.
Nevertheless, in general an individual's ability to complete a college degree is not an unreasonable stand-in as evidence of
that person's suitability for employment.
Students are first caught in a trap of "credentials inflation" needed to obtain jobs, then caught by inflation in education
costs, then stuck with undischargeable debt. And the more of them who get the credentials, the worse the credentials inflation–a
spiral.
It's all fuelled by loose credit. The only beneficiaries are a managerial elite who enjoy palatial facilities.
As for the employers, they're not so bad off. Wages are coming down for credentialled employees due to all the competition.
There is such a huge stock of degreed applicants that they can afford to ignore anyone who isn't. The credentials don't cost the
employer–they're not spending the money, nor are they lending the money.
Modern money makes it possible for the central authorities to keep this racket going all the way up to the point of general
systemic collapse. Why should they stop? Who's going to make them stop?
The only reason the universities can get away with it is easy money. When the time comes that students actually need to pay
tuition with real money, money they or their parents have actually saved, then college tuition rates will crash back down to earth.
Don't blame the universities. This is the natural and inevitable outcome of easy money.
Yes, college education in the US is a classic example of the effects of subsidies. Eliminate the subsidies and the whole education
bubble would rapidly implode.
I'm very curious if anyone will disagree with that assessment.
An obvious commonality across higher education, healthcare, housing, criminal justice, and national security is that we spend
huge quantities of public money yet hold the workers receiving that money to extremely low standards of accountability for what
they do with it.
Correct, it's not the universities, it's the culture that contains the universities, but the universities are training grounds
for the culture so it is the universities just not only the universities Been remembering the song from my college days "my futures
so bright i gotta wear shades". getting rich was the end in itself, and people who didn't make it didn't deserve anything but
a whole lot of student debt,creating perverse incentives. And now we all know what the A in type a stands for at least among those
who self identify as such, so yes it is the universities
I don't understand why the ability to accept guaranteed loan money doesn't come with an obligation by the school to cap tuition
at a certain percentage over maximum loan amount? Would that be so hard to institute?
Student loans are debt issuance. Western states are desperate to issue debt as it's fungible with money and marked down as
growth.
Borrow 120K over 3 years and it all gets paid into university coffers and reappears as "profit" now. Let some other president
deal with low disposable income due to loan repayments. It's in a different electoral cycle – perfect.
You can try to argue, but it will be hard to refute. If you give mortgages at teaser rates to anybody who can fog a mirror,
you get a housing bubble. If you give student loans to any student without regard to the prospects of that student paying back
the loan, you get a higher education bubble. Which will include private equity trying to catch as much of this money as they possibly
can by investing in for profit educational institutions just barely adequate to benefit from federal student loan funds.
A lot of background conditions help. It helps to pump a housing bubble if there's nothing else worth investing in (including
saving money at zero interest rates). It helps pump an education bubble if most of the jobs have been outsourced so people are
competing more and more for fewer and fewer.
I don't disagree with the statement that easy money has played the biggest role in jacking up tuition. I do strongly disagree
that we shouldn't "blame" the universities. The universities are exactly where we should place the blame. The universities have
become job training grounds, and yet continue to droll on and on about the importance of noble things like liberal education,
the pursuit of knowledge, the importance of ideas, etc. They cannot have it both ways. Years ago, when tuition rates started escalating
faster than inflation, the universities should have been the loudest critics – pointing out the cultural problems that would accompany
sending the next generation into the future deeply indebted – namely that all the noble ideas learned at the university would
get thrown out the window when financial reality forced recent graduates to chose between noble ideas and survival. If universities
truly believed that a liberal education was important; that the pursuit of knowledge benefitted humanity – they should have led
the charge to hold down tuition.
I took it to mean blame as in what allows the system to function. I heartily agree that highly paid workers at universities
bear blame for what they do (and don't do) at a granular level.
It's just that they couldn't do those things without the system handing them gobs of resources, from tax deductability of charitable
contributions to ignoring anti-competitive behavior in local real estate ownership to research grants and other direct funding
to student loans and other indirect funding.
Regarding blaming "highly paid workers at universities" – If a society creates incentives for dysfunctional behavior such a
society will have a lot of dysfunction. Eliminate the subsidies and see how quicly the educational bubble pops.
You are ignoring the way that the rich bid up the cost of everything. 2% of the population will pay whatever the top dozen
or so schools will charge so that little Billy or Sue can go to Harvard or Stanford. This leads to cost creep as the next tier
ratchet up their prices in lock step with those above them, etc. The same dynamic happens with housing, at least around wealthy
metropolitan areas.
A European perspective on this: yep, that's true on an international perspective. I belong to the ugly list of those readers
of this blog who do not fully share the liberal values of most of you hear. However, may I say that I can agree on a lot of stuff.
US education and health-care are outrageously costly. Every European citizen moving to the states has a question: will he or
she be sick whilst there. Every European parent with kids in higher education is aware that having their kids for one closing
year in the US is the more they can afford (except if are a banquier d'affaires ). Is the value of the US education good? No doubt!
Is is good value for money, of course not. Is the return on the money ok? It will prove disastrous, except if the USD crashed.
The main reason? Easy money. As for any kind of investment. Remember that this is indeed a investment plan
Check the level of revenues of "public sector" teaching staff on both sides of the ponds. The figure for US professionals in
these area are available on the Web. They are indeed much more costly than, say, North-of-Europe counterparts, "public sector"
professionals in those area. Is higher education in the Netherlands sub-par when compared to the US? Of course not.
Yep financing education via the Fed (directly or not) is not only insanely costly. Just insane. The only decent solution: set
up public institutions staffed with service-minded professionals that did not have to pay an insane sum to build up the curriculum
themselves.
Are "public services" less efficient than private ones here in those area, health-care and higher education. Yep, most certainly.
But, sure, having the fed indirectly finance the educational system just destroy any competitive savings made in building a competitive
market-orientated educational system and is one of the worst way to handle your educational system.
Yep, you can do a worst use of the money, subprime or China buildings But that's all about it.
US should forget about exceptionnalism and pay attention to what North of Europe is doing in this area. Mind you, I am Southerner
(of Europe). But of course I understand that trying to run these services on a federal basis is indeed "mission impossible".
Way to big! Hence the indirect Washington-decided Wall-Street-intermediated Fed-and-deficit-driven financing of higher education.
Mind you: we have more and more of this bankers meddling in education in Europe and I do not like what I see.
@washunate – 6/26/15, 11:03 am. I know I'm late to the party, but I disagree. It's not the workers, it's the executives
and management generally. Just like Wall Street, many of these top administrators have perfected the art of failing upwards.
IMNSHO everyone needs to stop blaming labor and/or the labor unions. It's not the front line workers, teachers, retail clerks,
adjunct instructors, all those people who do the actual work rather than managing other people. Those workers have no bargaining
power, and the unions have lost most of theirs, in part due to the horrible labor market, as well as other important reasons.
We have demonized virtually all of the government workers who actually do the work that enables us to even have a government
(all levels) and to provide the services we demand, such as public safety, education, and infrastructure. These people are our
neighbors, relatives and friends; we owe them better than this.
Unionized support staff at Canadian universities have had sub-inflation wage increases for nearly 20 years, while tuition has
been rising at triple the rate of inflation.
So obviously one can't blame the unions for rising education costs.
Omitted from this account: Federal funding for education has declined 55% since 1972. Part of the Powell memo's agenda.
It's understandable too; one can hardly blame legislators for punishing the educational establishment given the protests of
the '60s and early '70s After all, they were one reason Nixon and Reagan rose to power. How dare they propose real democracy!
Harumph!
To add to students' burden, there's the recent revision of bankruptcy law: student loans can no longer be retired by bankruptcy
(Thanks Hillary!) It'll be interesting to see whether Hillary's vote on that bankruptcy revision becomes a campaign issue.
I also wonder whether employers will start to look for people without degrees as an indication they were intelligent enough
to sidestep this extractive scam.
I'd be curious what you count as federal funding. Pell grants, for example, have expanded both in terms of the number of recipients
and the amount of spending over the past 3 – 4 decades.
More generally, federal support for higher ed comes in a variety of forms. The bankruptcy law you mention is itself a form
of federal funding. Tax exemption is another. Tax deductabiliity of contributions is another. So are research grants and exemptions
from anti-competitive laws and so forth. There are a range of individual tax credits and deductions. The federal government also
does not intervene in a lot of state supports, such as licensing practices in law and medicine that make higher ed gatekeepers
to various fiefdoms and allowing universities to take fees for administering (sponsoring) charter schools. The Federal Work-Study
program is probably one of the clearest specific examples of a program that offers both largely meaningless busy work and terrible
wages.
As far as large employers seeking intelligence, I'm not sure that's an issue in the US? Generally speaking, the point of putting
a college credential in a job requirement is precisely to find people participating in the 'scam'. If an employer is genuinely
looking for intelligence, they don't have minimum educational requirements.
Why would tuition rates come down when students need to pay with "real money, money they or their parents have actually saved.
. . " ? Didn't tuition at state universities begin climbing when state governments began boycotting state universities in terms
of embargoing former rates of taxpayer support to them? Leaving the state universities to try making up the difference by raising
tuition? If people want to limit or reduce the tuition charged to in-state students of state universities, people will have to
resume paying former rates of taxes and elect people to state government to re-target those taxes back to state universities the
way they used to do before the reductions in state support to state universities.
Protest against exploitation and risk being black-listed by exploitative employers -> Only employers left are the ones who
actually do want (not pretend to want) ethical people willing to stand up for what they believe in. Not many of those kind of
employers around . What is the benefit? What are the risks?
The author misrepresents the nature and demands of Chile's student movement.
Over the past few decades, university enrollment rates for Chileans expanded dramatically in part due to the creation of many
private universities. In Chile, public universities lead the pack in terms of academic reputation and entrance is determined via
competitive exams. As a result, students from poorer households who attended low-quality secondary schools generally need to look
at private universities to get a degree. And these are the students to which the newly created colleges catered to.
According to Chilean legislation, universities can only function as non-profit entities. However, many of these new institutions
were only nominally non-profit entities (for example, the owners of the university would also set up a real estate company that
would rent the facilities to the college at above market prices) and they were very much lacking in quality. After a series of
high-profile cases of universities that were open and shut within a few years leaving its students in limbo and debt, anger mounted
over for-profit education.
The widespread support of the student movement was due to generalized anger about and education system that is dearly lacking
in quality and to the violation of the spirit of the law regulating education. Once the student movement's demands became more
specific and morphed from opposing for profit institutions to demanding free tuition for everyone, the widespread support waned
quickly.
And while the government announced free tuition in public universities, there is a widespread consensus that this is a pretty
terrible idea as it is regressive and involves large fiscal costs. In particular because most of the students that attend public
universities come from relatively wealthy households that can afford tuition. The students that need the tuition assistance will
not benefit under the new rules.
I personally benefited from the fantastically generous financial aid systems that some private American universities have set
up which award grants and scholarships based on financial need only. And I believe that it is desirable for the State to guarantee
that any qualified student has access to college regardless of his or her wealth I think that by romanticizing the Chilean student
movement the author reveals himself to be either is dishonest or, at best, ignorant.
Students aren't protesting because they don't feel the consequences until they graduate.
One thing that struck me when I applied for a student loan a few years back to help me get through my last year of graduate
school – the living expense allocation was surprisingly high. Not "student sharing an apartment with five random dudes while eating
ramen and riding the bus", but more "living alone in a nice one-bedroom apartment while eating takeout and driving a car". Apocryphal
stories of students using their student loans to buy new cars or take extravagant vacations were not impossible to believe.
The living expense portion of student loans is often so generous that students can live relatively well while going to school,
which makes it that much easier for them to push to the backs of their minds the consequences that will come from so much debt
when they graduate. Consequently, it isn't the students who are complaining – it's the former students. But by the time
they are out of school and the university has their money in its pocket, it's too late for them to try and change the system.
Sophomore Noell Conley lives there, too. She shows off the hotel-like room she shares with a roommate.
"As you walk in, to the right you see our granite countertops with two sinks, one for each of the residents," she says.
A partial wall separates the beds. Rather than trek down the hall to shower, they share a bathroom with the room next door.
"That's really nice compared to community bathrooms that I lived in last year," Conley says.
To be fair, granite countertops last longer. Tempur-Pedic is a local company - and gave a big discount. The amenities include
classrooms and study space that are part of the dorm. Many of the residents are in the university's Honors program. But do student
really need Apple TV in the lounges, or a smartphone app that lets them check their laundry status from afar?
"Demand has been very high," says the university's Penny Cox, who is overseeing the construction of several new residence halls
on campus. Before Central Hall's debut in August, the average dorm was almost half a century old, she says. That made it harder
to recruit.
"If you visit places like Ohio State, Michigan, Alabama," Cox says, "and you compare what we had with what they have
available to offer, we were very far behind."
Today colleges are competing for a more discerning consumer. Students grew up with fewer siblings, in larger homes, Cox says.
They expect more privacy than previous generations - and more comforts.
"These days we seem to be bringing kids up to expect a lot of material plenty," says Jean Twenge, a psychology professor at
San Diego State University and author of the book "Generation Me."
Those students could be in for some disappointment when they graduate, she says.
"When some of these students have all these luxuries and then they get an entry-level job and they can't afford the enormous
flat screen and the granite countertops," Twenge says, "then that's going to be a rude awakening."
Some on campus also worry about the divide between students who can afford such luxuries and those who can't. The so-called
premium dorms cost about $1,000 more per semester. Freshman Josh Johnson, who grew up in a low-income family and lives
in one of the university's 1960s-era buildings, says the traditional dorm is good enough for him.
"I wouldn't pay more just to live in a luxury dorm," he says. "It seems like I could just pay the flat rate and
get the dorm I'm in. It's perfectly fine."
In the near future students who want to live on campus won't have a choice. Eventually the university plans to upgrade all of
its residence halls.
So I wonder who on average will fair better navigating the post-college lifestyle/job market reality check, Noell or Josh?
Personally, I would bet on the Joshes living in the 60's vintage enamel painted ciderblock dorm rooms.
Competition for students who have more sophisticated tastes than in past years is creating the perfect environment for
schools to try to outdo each other with ever-more posh on-campus housing. Keeping up in the luxury dorm race is increasingly critical
to a school's bottom line: A 2006 study published by the Association of Higher Education Facilities Officers found that
"poorly maintained or inadequate residential facilities" was the number-one reason students rejected enrolling at institutions.
PHOTO GALLERY: Click Here to See the 10 Schools with Luxury Dorms
Private universities get most of the mentions on lists of schools with great dorms, as recent ratings by the Princeton Review,
College Prowler, and Campus Splash make clear. But a few state schools that have invested in brand-new facilities are starting
to show up on those reviews, too.
While many schools offer first dibs on the nicest digs to upperclassmen on campus, as the war for student dollars ratchets
up even first-year students at public colleges are living in style. Here are 10 on-campus dormitories at state schools that offer
students resort-like amenities.
Bingo! They don't get really mad until they're in their early thirties and they are still stuck doing some menial job with
no vacation time, no health insurance and a monstrous mountain of debt. Up until that point they're still working hard waiting
for their ship to come in and blaming themselves for any lack of success like Steinbeck's 'embarrassed millionaires.' Then one
day maybe a decade after they graduate they realize they've been conned but they've got bills to pay and other problems to worry
about so they solider on. 18 year-olds are told by their high school guidance councilors, their parents and all of the adults
they trust that college while expensive is a good investment and the only way to succeed. Why should they argue? They don't know
any better yet.
Perhaps some students are afraid to protest for fear of being photographed or videographed and having their face and identity
given to every prospective employer throughout America. Perhaps those students are afraid of being blackballed throughout the
Great American Workplace if they are caught protesting anything on camera.
Today isn't like the sixties when you could drop out in the confidence that you could always drop back in again. Nowadays there
are ten limpets for every scar on the rock.
the average is such a worthless number. The Data we need, and which all these parasitic professional managerial types won't
provide –
x axis would be family income, by $5000 increments.
y axis would be the median debt level
we could get fancy, and also throw in how many kids are in school in each of those income increments.
BTW – this 55 yr. old troglodyte believes that 1 of the roles (note – I did NOT say "The Role") of education is preparing people
to useful to society. 300++ million Americans, 7 billion humans – we ALL need shelter, reliable and safe food, reliable and safe
water, sewage disposal, clothing, transportation, education, sick care, power, leisure, we should ALL have access to family wage
jobs and time for BBQs with our various communities several times a year. I know plenty of techno-dweebs here in Seattle who need
to learn some of the lessons of 1984, The Prince, and Shakespeare. I know plenty of fuzzies who could be a bit more useful with
some rudimentary skills in engineering, or accounting, or finance, or stats, or bio, or chem
I don't know what the current education system is providing, other than some accidental good things for society at large, and
mainly mechanisms for the para$ite cla$$e$ to stay parasites.
Mao was perfectly content to promote technical education in the new China. What he deprecated (and fought to suppress) was
the typical liberal arts notion of critical thinking. We're witnessing something comparable in the U.S.
This suppression in China led to an increase in Mao's authority (obviously), but kept him delusional. For example, because
China relied on Mao's agricultural advice, an estimated 70 million Chinese died during peacetime. But who else was to be relied
upon as an authority?
Back the the U.S.S.A. (the United StateS of America): One Australian says of the American system: "You Yanks don't consult
the wisdom of democracy; you enable mobs."
Mao was perfectly content to promote technical education in the new China. What he deprecated (and fought to suppress)
was the typical liberal arts notion of critical thinking. We're witnessing something comparable in the U.S. We're witnessing
something comparable in the U.S.
Mao liked chaos because he believed in continuous revolution. I would argue what we're experiencing is nothing comparable to
what China experienced. (I hope I've understood you correctly.)
I am pretty sure a tradition of protest to affect political change in the US is a rather rare bird. Most people "protest" by
changing their behavior. As an example, by questioning the value of the 46,000 local private college tuition as opposed the the
15k and 9k tiered state college options. My daughter is entering the freshman class next year, we opted for the cheaper state
option because, in the end, a private school degree adds nothing, unless it is to a high name recognition institution.
I think, like housing, a downstream consequence of "the gouge" is not to question - much less understand - class relations,
but to assess the value of the lifetyle choice once you are stuck with the price of paying for that lifestyle in the form of inflated
debt repayments. Eventually "the folk" figure it out and encourage cheaper alternatives toward the same goal.
There's probably little point in engaging in political protest. Most people maximise their chances of success by focusing on
variables over which they have some degree of control. The ability of most people to have much effect on the overall political-economic
system is slight and any returns from political activity are highly uncertain.
How does anyone even expect to maintain cheap available state options without political activity? By wishful thinking I suppose?
The value of a private school might be graduating sooner, state schools are pretty overcrowded, but that may not at all be
worth the debt (I doubt it almost ever is on a purely economic basis).
Maybe if we just elect the right people with cool posters and a hopey changey slogan, they'll take care of everything for us
and we won't have to be politically active.
Of course refusal to engage politically because the returns to oneself by doing so are small really IS the tragedy of the commons.
Thus one might say it's ethical to engage politically in order to avoid it. Some ethical action focuses on overcoming tragedy
of the commons dilemmas. Of course the U.S. system being what it is I have a hard time blaming anyone for giving up.
The middle class, working class and poor have no voice in politics or policy at all, and they don't know what's going on until
it's too late. They've been pushed by all their high school staff that college is the only acceptable option - and often it is.
What else are they going to do out of high school, work a 30 hour a week minimum wage retail job? The upper middle class and rich,
who entirely monopolize the media, don't have any reason to care about skyrocketing college tuition - their parents are paying
for it anyway. They'd rather write about the hip and trendy issues of the day, like trigger warnings.
Speaking as one of these college students, I think that a large part of the reason that the vast majority of students are just
accepting the tuition rates is because it has become the societal norm. Growing up I can remember people saying "You need to go
to college to find a good job." Because a higher education is seen as a necessity for most people, students think of tuition as
just another form of taxes, acceptable and inevitable, which we will expect to get a refund on later in life.
I teach at a "good" private university. Most of my students don't have a clue as to how they're being exploited. Many of
the best students feel enormous pressure to succeed and have some inkling that their job prospects are growing narrower, but they
almost universally accept this as the natural order of things. Their outlook: if there are 10 or 100 applicants for every available
job, well, by golly, I just have to work that much harder and be the exceptional one who gets the job.
Incoming freshmen were born in the late 90s - they've never known anything but widespread corruption, financial and corporate
oligarchy, i-Pads and the Long Recession.
But as other posters note, the moment of realization usually comes after four years of prolonged adolescence, luxury dorm living
and excessive debt accumulation.
Most Ph.D.'s don't either. I'd argue there have been times they have attempted to debate that exploitation is a good–for their
employer and himself/herself–with linguistic games. Mind numbing . To be fair, they have a job.
I have watched the tuition double–double!–at my alma mater in the last eleven years. During this period, administrators have
set a goal of increasing enrollment by a third, and from what I hear, they've done so. My question is always this: where is the
additional tuition money going? Because as I walk through the campus, I don't really see that many improvements–yes, a new building,
but that was supposedly paid for by donations and endowments. I don't see new offices for these high-priced admin people that
colleges are hiring, and in fact, what I do see is an increase in the number of part-time faculty and adjuncts. The tenured faculty
is not prospering from all this increased revenue, either.
I suspect the tuition is increasing so rapidly simply because the college can get away with it. And that means they are exploiting
the students.
While still a student, I once calculated that it cost me $27.00/hour to be in class. (15 weeks x 20 "contact hours" per week
=
300 hours/semester, $8000/semester divided by 300 hours = $27.00/hour). A crude calculation, certainly, but a starting point.
I did this because I had an instructor who was consistently late to class, and often cancelled class, so much that he wiped out
at least $300.00 worth of instruction. I had the gall to ask for a refund of that amount. I'm full of gall. Of course, I was laughed
at, not just by the administrators, but also by some students.
Just like medical care, education pricing is "soft," that is, the price is what you are willing to pay. Desirable students
get scholarships and stipends, which other students subsidize; similarly, some pre-ACA patients in hospitals were often treated
gratis.
Students AND hospital patients alike seem powerless to affect the contract with the provider. Reform will not likely be forthcoming,
as students, like patients, are "just passing through."
The tuition at most public universities has quadrupled or more over the last 15 to 20 years precisely BECAUSE state government
subsidies have been
slashed in the meantime. I was told around 2005 that quadrupled tuition at the University of Minnesota made up for about half
of the state money that the legislature had slashed from the university budget over the previous 15 years.
It is on top of that situation that university administrators are building themselves little aristocratic empires, very much
modeled on the kingdoms of corporate CEOs
where reducing expenses (cutting faculty) and services to customers (fewer classes, more adjuncts) is seen as the height of responsibility
and accountability, perhaps
even the definition of propriety.
Everyone should read the introductory chapter to David Graeber's " The Utopia of Rules: On Technology, Stupidity and the Secret
Joys of Bureaucracy."
In Chapter One of this book entitled "The Iron law of Liberalism and the Era of Total Bureaucratization" Graeber notes that
the US has become the most rigidly credentialised society in the world where
" in field after field from nurses to art teachers, physical therapists, to foreign policy consultants, careers which used
to be considered an art (best learned through doing) now require formal professional training and a certificate of completion."
Graeber, in that same chapter, makes another extremely important point. when he notes that career advancement in may large
bureaucratic organizations demands a willingness to play along with the fiction that advancement is based on merit, even though
most everyone know that this isn't true.
The structure of modern power in the U.S., in both the merging public and private sectors, is built around the false ideology
of a giant credentialized meritorcracy rather than the reality of arbitrary extraction by predatory bureaucratic networks.
Anecdote: I was speaking to someone who recently started working at as a law school administrator at my alma mater. Enrollment
is actually down at law schools (I believe), because word has spread about the lame legal job market. So, the school administration
is watching its pennies, and the new administrator says the administrators aren't getting to go on so many of the all expense
paid conferences and junkets that they used to back in the heyday. As I hear this, I am thinking about how many of these awesome
conferences in San Diego, New Orleans and New York that I'm paying back. Whatever happened to the metaphorical phrase: "when a
pig becomes a hog, it goes to slaughter"?
Another anecdote: I see my undergrad alma mater has demolished the Cold War era dorms on one part of campus and replaced it
with tons of slick new student housing.
No doubt those Cold War era dorms had outlived their planned life. Time for replacement. Hell, they had probably become inhabitable
and unsafe.
Meanwhile, has your undergraduate school replaced any of its lecture courses with courses presented same model as on-line traffic
school? I have a pending comment below about how my nephew's public university "taught" him introductory courses in accounting
and macroeconomics that way. Please be assured that the content of those courses was on a par with best practices in the on-line
traffic school industry. It would be hilarious if it weren't so desperately sad.
I read things like this and think about Louis Althusser and his ideas about "Ideological State Apparatuses." While in liberal
ideology the education is usually considered to be the space where opportunity to improve one's situation is founded, Althusser
reached the complete opposite conclusion. For him, universities are the definitive bourgeois institution, the ideological state
apparatus of the modern capitalist state par excellance. The real purpose of the university was not to level the playing
field of opportunity but to preserve the advantages of the bourgeoisie and their children, allowing the class system to perpetuate/reproduce
itself.
It certainly would explain a lot. It would explain why trying to send everyone to college won't solve this, because not everyone
can have a bourgeois job. Some people actually have to do the work. The whole point of the university as an institution was to
act as a sorting/distribution hub for human beings, placing them at certain points within the division of labor. A college degree
used to mean more because getting it was like a golden ticket, guaranteeing someone who got it at least a petit-bourgeois lifestyle.
The thing is, there are only so many slots in corporate America for this kind of employment. That number is getting smaller too.
You could hand every man, woman, and child in America a BS and it wouldn't change this in the slightest.
What has happened instead, for college to preserve its role as the sorting mechanism/preservation of class advantage is what
I like to call degree inflation and/or an elite formed within degrees themselves. Now a BS or BA isn't enough, one needs an Master's
or PhD to really be distinguished. Now a degree from just any institution won't do, it has to be an Ivy or a Tier 1 school. Until
we learn to think realistically about what higher education is as an institution little or nothing will change.
Any credential is worthless if everybody has it. All information depends on contrast. It's impossible for everybody to "stand
out" from the masses. The more people have college degrees the less value a college degree has.
When I was half-grown, I heard it said that religion is no longer the opiate of the masses, in that no one believes in God
anymore, at least not enough for it to change actual behavior.
Instead, buying on credit is the opiate of the masses.
My nephew asked me to help him with his college introductory courses in macroeconomics and accounting. I was disappointed
to find out what was going on: no lectures by professors, no discussion sessions with teaching assistants; no team projects–just
two automated correspondence courses, with automated computer graded problem sets objective tests – either multiple choice, fill
in the blank with a number, or fill in the blank with a form answer. This from a public university that is charging tuition for
attendance just as though it were really teaching something. All they're really certifying is that the student can perform exercises
is correctly reporting what a couple of textbooks said about subjects of marginal relevance to his degree. My nephew understands
exactly that this is going on, but still .
This is how 21st century America treats its young people: it takes people who are poor, in the sense that they have no assets,
and makes them poorer, loading them up with student debt, which they incur in order to finance a falsely-so-called course of university
study that can't be a good deal, even for the best students among them.
I am not suggesting the correspondence courses have no worth at all. But they do not have the worth that is being charged for
them in this bait-and-switch exercise by Ed Business.
After further thought, I'd compare my nephew's two courses to on-line traffic school: Mechanized "learning" – forget it all
as soon as the test is over – Critical thinking not required. Except for the kind of "test preparation" critical thinking that
teaches one to spot and eliminate the obviously wrong choices in objective answers–that kind of thinking saves time and so is
very helpful.
Not only is he paying full tuition to receive this treatment, but his family and mine are paying taxes to support it, too.
Very useful preparation for later life, where we can all expect to attend traffic school a few times. But no preparation for
any activity of conceivable use or benefit to any other person.
I read recently that the business establishment viewed the most important contribution of colleges was that they warehoused
young people for four years to allow maturing.
Where are the young people in all this? Is anyone going to start organizing to change things? Any ideas? Any interest? Are
we going to have some frustrated, emotional person attempt to kill a university president once every ten years? Then education
can appeal for support from the government to beef up security. Meanwhile the same old practices will prevail and the rich get
richer and the rest of us get screwed.
The reason students accept this has to be the absolutely demobilized political culture of the United States combined with
what college represents structurally to students from the middle classes: the only possibility – however remote – of achieving
any kind of middle class income.
Really your choices in the United States are, in terms of jobs, to go into the military (and this is really for working class
kids, Southern families with a military history and college-educated officer-class material) or to go to college.
The rest, who have no interest in the military, attend college, much like those who wanted to achieve despite of their class
background went into the priesthood in the medieval period. There hasn't been a revolt due to the lack of any idea it could function
differently and that American families are still somehow willing to pay the exorbitant rates to give their children a piece of
paper that still enables them to claim middle class status though fewer and fewer find jobs. $100k in debt seems preferable to
no job prospects at all.
Colleges have become a way for the ruling class to launder money into supposed non-profits and use endowments to purchase stocks,
bonds, and real estate. College administrators and their lackeys (the extended school bureaucracy) are propping up another part
of the financial sector – just take a look at Harvard's $30+ billion endowment, or Yale's $17 billion – these are just the top
of a very large heap. They're all deep into the financial sector. Professors and students are simply there as an excuse for the
alumni money machine and real estate scams to keep running, but there's less and less of a reason for them to employ professors,
and I say this as a PhD with ten years of teaching experience who has seen the market dry up even more than it was when I entered
grad school in the early 2000s.
"Colleges have become a way for the ruling class to launder money into supposed non-profits and use endowments to purchase
stocks, bonds, and real estate. "
Unorthodoxmarxist, I thought I was the only person who was coming to that conclusion. I think there's data out there that could
support our thesis that college tuition inflation may be affecting real estate prices. After all, justification a college grad
gave to someone who was questioning the value of a college degree was that by obtaining a "a degree" and a professional job, an
adult could afford to buy a home in major metropolitan hubs. I'm not sure if he was that ignorant, (business majors, despite the
math requirement are highly ideological people. They're no where near as objective as they like to portray themselves as) or if
he hasn't been in contact with anyone with a degree trying to buy a home in a metropolitan area.
Anyways, if our thesis is true, then if home prices declined in 2009, then college tuition should have declined as well, but
it didn't at most trustworthy schools. Prospective students kept lining up to pay more for education that many insiders believe
is "getting worse" because of widespread propaganda and a lack of alternatives, especially for "middle class" women.
It's hard to say, but there ought to be a power keg of students here primed to blow. And Bernie Sanders' proposal for free
college could be the fuse.
But first he'd have the light the fuse, and maybe he can. He's getting huge audiences and a lot of interest these days. And
here's a timely issue. What would happen if Sanders toured colleges and called for an angry, mass and extended student strike
across the country to launch on a certain date this fall or next spring to protest these obscene tuitions and maybe call for something
else concrete, like a maximum ratio of administrators to faculty for colleges to receive accreditation?
It could ignite not only a long-overdue movement on campuses but also give a big boost to his campaign. He'd have millions
of motivated and even furious students on his side as well as a lot of motivated and furious parents of students (my wife and
I would be among them) - and these are just the types of people likely to get out and vote in the primaries and general election.
Sanders' consistent message about the middle class is a strong one. But here's a solid, specific but very wide-ranging issue
that could bring that message into very sharp relief and really get a broad class of politically engaged people fired up.
I'm not one of those who think Sanders can't win but applaud his candidacy because it will nudge Hillary Clinton. I don't give
a fig about Clinton. I think there's a real chance Sanders can win not just the nomination but also the presidency. This country
is primed for a sharp political turn. Sanders could well be the right man in the right place and time. And this glaring and ongoing
tuition ripoff that EVERYONE agrees on could be the single issue that puts him front-and-center rather than on the sidelines.
I finished graduate school about three years ago. During the pre-graduate terms that I paid out of pocket (2005-2009) I saw
a near 70 percent increase in tuition (look up KY college tuition 1987-2009 for proof).
Straight bullshit, but remember our school was just following the national (Neoliberal) model.
Though, realize that I was 19-23 years old. Very immature (still immature) and feeling forces beyond my control. I did not
protest out of a) fear [?] (I don't know, maybe, just threw that in there) b) the sheepskin be the path to salvation (include
social/cultural pressures from parent, etc.).
I was more affected by b). This is the incredible power of our current Capitalist culture. It trains us well. We are always
speaking its language, as if a Classic. Appraising its world through its values.
I wished to protest (i.e. Occupy, etc.) but to which master? All of its targets are post modern, all of it, to me, nonsense,
and, because of this undead (unable to be destroyed). This coming from a young man, as I said, still immature, though I fear this
misdirection, and alienation is affecting us all.
"... "In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is
the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse
between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man
who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) ..."
"... At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country's business
and banks. ..."
"... This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions [trillions!] of dollars. It
also varies in size with the business cycle. ..."
"... In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many
people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases
rapidly. ..."
"... In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be
dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The
bezzle shrinks ..."
John Kenneth Galbraith, from "The Great Crash 1929":
"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement
is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years
may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his
gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)
At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country's
business and banks.
This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions [trillions!] of dollars.
It also varies in size with the business cycle.
In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always
many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the
bezzle increases rapidly.
In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed
to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously
improved. The bezzle shrinks."
For nearly a half a century, from 1947 to 1996, real GDP and real Net Worth of Households and Non-profit Organizations (in
2009 dollars) both increased at a compound annual rate of a bit over 3.5%. GDP growth, in fact, was just a smidgen faster -- 0.016%
-- than growth of Net Household Worth.
From 1996 to 2015, GDP grew at a compound annual rate of 2.3% while Net Worth increased at the rate of 3.6%....
The real home price index extends from 1890. From 1890 to 1996, the index increased slightly faster than inflation so that
the index was 100 in 1890 and 113 in 1996. However from 1996 the index advanced to levels far beyond any previously experienced,
reaching a high above 194 in 2006. Previously the index high had been just above 130.
Though the index fell from 2006, the level in 2016 is above 161, a level only reached when the housing bubble had formed in
late 2003-early 2004.
The Shiller 10-year price-earnings ratio is currently 29.34, so the inverse or the earnings rate is 3.41%. The dividend yield
is 1.93. So an expected yearly return over the coming 10 years would be 3.41 + 1.93 or 5.34% provided the price-earnings ratio
stays the same and before investment costs.
Against the 5.34% yearly expected return on stock over the coming 10 years, the current 10-year Treasury bond yield is 2.32%.
The risk premium for stocks is 5.34 - 2.32 or 3.02%:
What the robot-productivity paradox is puzzles me, other than since 2005 for all the focus on the productivity of robots and
on robots replacing labor there has been a dramatic, broad-spread slowing in productivity growth.
However what the changing relationship between the growth of GDP and net worth since 1996 show, is that asset valuations have
been increasing relative to GDP. Valuations of stocks and homes are at sustained levels that are higher than at any time in the
last 120 years. Bear markets in stocks and home prices have still left asset valuations at historically high levels. I have no
idea why this should be.
The paradox is that productivity statistics can't tell us anything about the effects of robots on employment because both the
numerator and the denominator are distorted by the effects of colossal Ponzi bubbles.
John Kenneth Galbraith used to call it "the bezzle." It is "that increment to wealth that occurs during the magic interval
when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost
it." The current size of the gross national bezzle (GNB) is approximately $24 trillion.
Ponzilocks and the Twenty-Four Trillion Dollar Question
Twenty-three and a half trillion, actually. But what's a few hundred billion? Here today, gone tomorrow, as they say.
At the beginning of 2007, net worth of households and non-profit organizations exceeded its 1947-1996 historical average, relative
to GDP, by some $16 trillion. It took 24 months to wipe out eighty percent, or $13 trillion, of that colossal but ephemeral slush
fund. In mid-2016, net worth stood at a multiple of 4.83 times GDP, compared with the multiple of 4.72 on the eve of the Great
Unworthing.
When I look at the ragged end of the chart I posted yesterday, it screams "Ponzi!" "Ponzi!" "Ponz..."
To make a long story short, let's think of wealth as capital. The value of capital is determined by the present value of an
expected future income stream. The value of capital fluctuates with changing expectations but when the nominal value of capital
diverges persistently and significantly from net revenues, something's got to give. Either economic growth is going to suddenly
gush forth "like nobody has ever seen before" or net worth is going to have to come back down to earth.
Somewhere between 20 and 30 TRILLION dollars of net worth will evaporate within the span of perhaps two years.
When will that happen? Who knows? There is one notable regularity in the data, though -- the one that screams "Ponzi!"
When the net worth bubble stops going up...
...it goes down.
"... So should Mr Azar be confirmed as Secretary of DHHS, the fox guarding the hen house appears to be a reasonable analogy. ..."
"... In this post, I'd like to add two additional factors to our consideration of Azar. The first: Democrat credentialism makes it hard for them to oppose Azar. The second: The real ..."
Clearly, Alex Azar, nominated yesterday for the position of Secretary of Health and Human Services by the Trump Administration,
exemplifies the case of the "revolving door," through which
Flexians slither on their way to (or from) positions of public trust. Roy Poses (
cross-posted at NC ) wrote, when Azar was only Acting Secretary:
Last week we noted that Mr Trump famously promised to “drain the swamp” in Washington. Last week, despite his previous
pledges to not appoint lobbyists to powerful positions, he appointed a lobbyist to be acting DHHS Secretary. This week he is apparently
strongly considering Mr Alex Azar, a pharmaceutical executive to be permanent DHHS Secretary, even though the FDA, part of DHHS,
has direct regulatory authority over the pharmaceutical industry, and many other DHHS policies strongly affect the pharmaceutical
industry. (By the way, Mr Azar was also in charge of one lobbying effort.)
So should Mr Azar be confirmed as Secretary of DHHS, the fox guarding the hen house appears to be a reasonable analogy.
Moreover, several serious legal cases involving bad behavior by his company, and multiple other instances of apparently unethical
behavior occurred on Mr Azar’s watch at Eli Lilly. So the fox might be not the most reputable member of the species.
The literature makes clear that the revolving door process is a source of valuable political connections for private firms.
But it generates corruption risks and has strong distortionary effects on the economy , especially when this power is
concentrated within a few firms.
The ongoing parade of people transiting the revolving door from industry to the Trump administration once again suggests how
the revolving door may enable certain of those with private vested interests to have excess influence, way beyond that of ordinary
citizens, on how the government works, and that the country is still increasingly being run by a cozy group of insiders with ties
to both government and industry. This has been termed crony capitalism.
In this post, I'd like to add two additional factors to our consideration of Azar.
The first: Democrat credentialism makes it hard for them to oppose Azar. The second: The real damage Azar could do is on
the regulatory side.[1]
"I am glad to hear that you have worked hard, and brought fair-minded legal analysis to the department," Democratic
Sen. Max Baucus said at Azar's last confirmation hearing.
And:
Andy Slavitt, who ran the Affordable Care Act and the Centers for Medicare & Medicaid Services during the Obama administration,
said he has reason to hope Azar would be a good secretary.
"He is familiar with the high quality of the HHS staff, has real-world experience enough to be pragmatic, and will hopefully
avoid repeating the mistakes of his predecessor," Slavitt said.
So, if Democrats are saying Azar is "fair-minded" and "pragmatic" -- and heaven forfend that the word "corruption"[2] even be
mentioned -- how do they oppose him, even he's viscerally opposed to everything Democrats supposedly stand for? (Democrats do this
with judicial nominations, too.) Azar may be a fox, alright, but the chickens he's supposedly guarding are all clucking about how
impeccable his qualifications are!
Second, let's briefly look at Azar's bio. Let me excerpt salient detail from
USA Today :
1. Azar clerked for Supreme Court Justice Antonin Scalia .
2. Azar went to work for his mentor, Ken Starr , who was heading the independent counsel investigation into Bill
and Hillary Clinton's Whitewater land deal.
3. Azar had a significant role in another major political controversy when the outcome of the 2000 presidential election
hinged on a recount in Florida . Azar was on the Bush team of lawyers whose side ultimately prevailed [3]
For any Democrat with a memory, that bio provokes one of those "You shall know them by the trail of the dead" moments. And then
there's this:
When Leavitt replaced Thompson in 2005 and Azar became his deputy, Leavitt delegated a lot of the rule-making process to Azar.
So, a liberal Democrat might classify Azar as a smooth-talking reactionary thug with a terrible record and the most vile mentors
imaginable, and on top of it all, he's an effective bureaucratic fixer. What could the Trump Administration possibly see in such
a person? Former (Republican) HHS Secretary Mike Leavitt explains:
"Understanding the administrative rule process in the circumstance we're in today could be extraordinarily important because
a lot of the change in the health care system, given the fact that they've not succeeded legislatively, could come administratively."
1) Administratively, send ObamaCare into a death spiral by sabotaging it
2) Legislatively, gut Medicaid as part of the "tax refom" package in Congress
3) Through executive order, eliminate "essential health benefits" through "association health plans"
As a sidebar, it's interesting to see that although this do-list is strategically and ideologically coherent -- basically,
your ability to access health care will be directly dependent on your ability to pay -- it's institutionally incoherent, a bizarre
contraption screwed together out of legislation, regulations, and an Executive order. Of course, this incoherence mirrors to Rube
Goldberg structure of ObamaCare itself, itself a bizarre contraption, especially when compared to the simple, rugged, and proven
single payer system. ( Everything Obama did with regulations and executive orders, Trump can undo, with new regulations and
new executive orders . We might compare ObamaCare to a child born with no immune system, that could only have survived within
the liberal bubble within which it was created; in the real world, it's not surprising that it's succumbing to opportunistic infections.[2])
On #1, The administration has, despite its best efforts, not achieved a controlled flight into terrain with ObamaCare; enrollment
is up. On #2, the administration and its Congressional allies are still dickering with tax reform. And on #3 . That looks looks like
a job for Alex Azar, since both essential health benefits and association health plans are significantly affected by regulation.
So, yes, there are worse scenarios than the revolving door; it's what you leave behind you as the door revolves that matters.
It would be lovely if there were a good old-fashioned confirmation battle over Azar, but, as I've pointed out, the Democrats have
tied their own hands. Ideally, the Democrats would junk the Rube Goldberg device that is ObamaCare, rendering all of Azar's regulatory
expertise null and void, but that doesn't seem likely, given that they seem to be doing everything possible to avoid serious discussion
of policy in 2018 and 2020.
NOTES
[1] I'm leaving aside what will no doubt be the 2018 or even 2020 issue of drug prices, since for me that's subsumed under the
issue of single payer. If we look only at Azar's history in business, real price decreases seem unlikely.
Business Insider :
Over the 10-year period when Azar was at Lilly, the price of insulin notched a three-fold increase. It wasn't just Lilly's
insulin product, called Humalog. The price of a rival made by Novo Nordisk has also climbed, with the two rising in such lockstep
that you can barely see both trend lines below.
The gains came despite the fact that the insulin, which as a medication has an almost-century-long history, hasn't really changed
since it was first approved.
Nice business to be in, eh? Here's that chart:
It's almost like Lilly (Azar's firm) and Novo Nordisk are working together, isn't it?
[2] Anyhow,
as of the 2016 Clinton campaign , the Democrat standard -- not that of Poses,
nor
mine -- is that if there's no quid pro quo, there's no corruption.
[3] And, curiously, "[HHS head Tommy] Thompson said HHS was in the eye of the storm after the 2001 terrorist attacks, and Azar
had an important role in responding to the resulting public health challenges, as well as the subsequent anthrax attacks "
Oh please, stop quoting Andy Slavitt, the United Healthcare Ingenix algo man. That guy is the biggest crook that made his money
early on with RX discounts with his company that he and Senator Warren's daughter, Amelia sold to United Healthcare. He's out
there trying to do his own reputation restore routine. Go back to 2009 and read about the short paying of MDs by Ingenix, which
is now Optum Insights, he was the CEO and remember it was just around 3 years ago or so he sat there quarterly with United CEO
Hemsley at those quarterly meetings. Look him up, wants 40k to speak and he puts the perception out there he does this for free,
not so.
I think you're missing the context. Lambert is quoting him by way of showing that the sleazy establishment types are just fine
with him. Thanks for the extra background on that particular swamp-dweller, though.
Alex Azar is a Dartmouth grad (Gov't & Economics '88) just like Jeff Immelt (Applied Math & Economics '78). So much damage
to society from such a small department!
Since 2014, Ross has been the vice-chairman of the board of Bank of Cyprus PCL, the largest bank in Cyprus.
He served under U.S. President Bill Clinton on the board of the U.S.-Russia Investment Fund. Later, under New York City Mayor
Rudy Giuliani, Ross served as the Mayor's privatization advisor.
I don't believe that the President's "swamp" ever consisted of crooked officials, lobbyists, and cronies I think it has always
consisted of those regulators who tried sincerely to defend public interests.
It was in the sticky work of those good bureaucrats
that the projects of capitalists and speculators bogged down. It is against their efforts that the pickup-driving cohort of Trump_vs_deep_state
(with their Gadsden flag decals) relentlessly rails.
Trump has made much progress in draining the regulatory swamp (if indeed
that is the right way to identify it), and no doubt will make considerably more as time wears on, leaving America high and dry.
The kind of prevaricator Trump is may simply be the one who fails to define his terms.
I think we've moved past the revolving door. We hear members of the United States Senate publicly voice their concerns about
what will happen if they fail to do their employers' bidding (and I'm not talking about "the public" here). In the bureaucracy,
political appointees keep accruing more and more power even as they make it clearer and clearer that they work for "the donors"
and not the people. Nowhere is this more true than the locus through which passes most of the money: the Pentagon. The fact that
these beribboned heroes are, in fact, setting war policy on their own makes the knowledge that they serve Raytheon and Exxon rather
than Americans very, very troubling.
I suspect Azar's perception is that he is just moving from one post to another within the same company.
Big pharma indeed has so much defense from the supposed left. It combines their faith in technological progress, elite institutions,
and tugs on the heart strings with technology that can save people from a fate of ill health or premature death. Of course, the
aspect of the laws being written to line the pockets of corrupt executives is glossed over. While drug prices and medical costs
spiral ever higher, our overall longevity and national health in the US declines. That speaks volumes about what Democrats really
care about.
Cover to the paperback edition
The world's leading thinkers and policymakers examine what's come apart in the past year, and anticipate what will define the year ahead.
