The Equanimist

Part I. "It’s Just Business" (Update 1)

How does a businessperson* (often a salesperson in this capacity) “make” money? In the simplest sense, s/he buys or finances or otherwise brings goods and services (that somebody/-ies designed/engineered/whathaveyou and produced or otherwise will either provide or facilitate – sometimes his or her own goods or services) to market where s/he peddles them to the consumer. To the extent that s/he profits off this ingenuity and productivity or other work s/he makes more or less money.

Of course, design/engineering/whathaveyou/production &c. cost money, and, materials have inherent cost. For the sake of argument, assume that the total cost of the product is its worth irrespective remuneration owed a businessperson (or businesspeople) in his or her (or their) managing/marketing/sales capacity. In a freemarket, to the extent that a businessperson can keep total production or service costs down, convince a consumer to pay a higher price above a product’s worth, and buy more of same s/he makes more money. That is, businesspeople (often paid bonuses/commissions/whathaveyou) are incentivized to devise techniques to sell products and services at increasingly high profit margins above their worth and to do so en masse whenever possible.

By nature, this system cannot make anybody rich if everybody does it so the rules are such that it is very difficult (generally impossible for most people) to pull off. (If, for example, few can understand codified techniques and fewer still can afford the training and fewer still will be able to do both and fewer still will be able to apply the training skillfully, we’ve already narrowed down the population of potential businesspeople a great deal; and, in this way, everybody cannot do it). Nor can it work if people are given to know that the worth of the products that some businessperson is peddling is less than the price that they are being asked to pay.

‘Transparency’ is, thus, the enemy of the businessperson, who is incentivized to misrepresent actual product worth and obfuscate his or her own share in the profits (and that of his or her employer where applicable). If s/he can swindle one percent (or two or even five percent) on a million cheap units at one (or two or even a dozen) times a year then swindling becomes so extremely advantageous that s/he lives like a god.

Language becomes a weapon! Jargon, jargon as far as the eye can see. “First-in, last-out” (sometimes, FILO) accounting, for example, what’s that? Imagine that you have a hundred identical widgets. The first one that you bought only cost you five dollars and the last one that you bought cost you one hundred dollars. Further, for the sake of simplicity, suppose that the cost of each successive widget is always (over some finite period) more than the last. You sell a widget. FILO allows you to claim that though you’ve got a hundred identical widgets in your stock that range in cost from five dollars to one hundred dollars, you kept the cheap widget and sold the most expensive one for a relatively small profit or even a loss. What a concept!

What’s a company’s profit margin? How many widgets at what profit margin does a company sell in a given period? How much does it make? What does it own? What does it owe? What’s it worth? What are you really getting when you buy a share of stock in some company? Financial widgets, shares of stock, for example, take the cake as far as widgets go.

A quick look at the “Financials” section of a stock listing from a free website like Google reveals a list of “Total Revenue”, “Gross Profit”, “Operating Income”, and “Net Income”; the “Balance Sheet” section lists “Total Current Assets”, “Total Assets”, “Total Current Liabilities”, “Total Liabilities”, and “Total Equity”; the “Cash Flow” section lists “Net Income/Starting Line”, “Cash from Operating Activities”, “Cash from Investing Activities”, “Cash from Financing Activities”, and “Net Change in Cash”. Have you got any idea what that means? Probably. But do you really know – to a certainty? Do you, for example, know how they account? Know how they report? Even the P/E varies from site to site.

Delving into a business report reveals a seemingly limitless array of terms each denoting a specific concept and probably connoting another (that even educated businesspeople and financial experts cannot be expected to fully understand) strung together in a sort of word soup. Delving into the fine print on a so-called “financial product” is somewhat less revealing. Are the terms useful? When people who know what they mean talk to each other and interact, sure; to everybody else, they’re worse than useless – not merely incomprehensible but misleading when incorrect meanings are inferred from context clues – misunderstandings that few people have energy, time, intellectual capacity and resources to clear up.

Jargon makes it impossible for most people to understand what a widget is actually worth. And, it is generally impossible to uncover what a businessperson is actually “making”. This is by design – even when the intent of the information provider may be to provide good intel. A small few will have a pretty good idea. But why wouldn’t they play it close to the vest? They’re out to make money – especially if they’ve put the time and energy into understanding it all. And, everybody can’t make money because, all else being equal, if everybody made money then there’d be smaller shares for the few, and, they could not live like gods.

Businesspeople know that they thrive at the expense of the many – that somebody actually starves so that they might live in greater luxury. And, that’s why they give meaningless, obtuse and arcane answers to even simple questions: they wield deceit to their advantage at others’ expense. Even otherwise respectable men and women who drive innovation and get it to the marketplace, get rich organizing a salesforce (or otherwise act as such) in order to swindle more money out of consumers’ pockets than “their” goods and services are worth and to persuade “willing” investors to capitalize them.

But, when a businessperson can control the laborforce, too, profit climbs even higher. So, the same logic undergirds many hiring processes and pay packages. The savvy businessman or -woman attempts to hire people at some price below their worth, and so forth, in order to maximize his or her own profits. They despise the unions for this reason.

Academic institutions (businesses themselves, just ask the head coach of a good college football team) furnish a particularly elegant and relatively uniform example with which the author is intimately familiar. Colleges and universities generally offer new hires just a little less than somebody who has already worked at same for some short time, like a year. H.R. people either tell the candidate that they will make some salary toward the bottom of a range because they’re new (inexperienced in some way or an unproven commodity) or they leave it to the candidate to infer. Then, when the time arrives for a raise, it turns out that the institutions give only cost-of-living increases. In other words, new hires don’t make less because they’re ‘junior’ but because they haven’t yet received cost-of-living increases. That is, by their logic and practice, a new hire should get what the oldest hire at the same tier is being paid because the old hire is not getting a cent for performance or experience – just cost-of-living.

Savvy businesspeople get it at both ends: charging exorbitant fees (see the escalating cost of tuition for example) and ‘keeping costs down’. This is the freemarket. “It’s just business.”

Is it too much to expect that businesspeople should understand why a civilized society must curtail their prowess? We don’t let physically superior people run rough shod over their weaker cousins. We don’t let large men, for example, beat smaller women or take from them what they want. We make them conform to the requirements of a civil society. (But we let shrewd crafty people give weaker people the business.) We must curtail even the aptitude of all people who would run rough shod over our civil society and we know this.

For some time businesspeople have either shrugged or otherwise kept our laws off their bodies by convincing people that capitalism is equal to democracy, that patriotism is equal to rabid individualism. But, we know that capitalism and democracy are not part in parcel. And, patriotism is antithetical to rabid individualism. Patriotism is knowing and doing (and, to some extent, feeling) what’s best for your country, your state, your community, your home – because “charity begins at home;” n’est-ce pas?

So, what is the businessperson worth? What’s s/he earned? Now may be one of those rare opportunities when you get to ask and be heard to answer. Let me suggest that we start by asking what we’re worth – what are you worth? – because what you pay him or her will bear directly on the value of what you earn.

Would you pay a businessperson a million dollar salary/”pay package”/whathaveyou – how’s about ten million dollars – or a hundred million dollars – when your make twenty-five or fifty or a hundred thousand? If s/he had to come to you for it, would you authorize it? The answer is probably, “No.”

Even when we assume “freewill” – when we say, “Biology, Chemistry and Physics are crap” – when we say stupid things like “anybody can achieve the American dream” (while we know full-well that many just don’t have the intellectual wherewithal to succeed) – even when we allow that all “men” are “created” equal to mean that everybody is just as capable as everybody else, how much remuneration does a salesperson, a marketer, a swindler deserve? What should we incentivize? Do we want the ‘best and the brightest’ people to go into business?

It’s not just business. It never was.


______________________________________________________


*Definitions

Business (n.): (1) “widgets for money;” an exchange of widgets (final products) and other services accompanied by terms and conditions that adequately (if incomprehensibly) describe same (such as they are) for money (an abstract representation of work – buffer between work and remuneration) (as in, We do business on four continents); (2) organization of the production or provision of same widgets and services (as in, She manages a small business, and, He generates a lot of business for the company); (3) organization of the production or provision of same widgets or services for the purpose of (1, above) (as in, That’s no way to run a business); (4) the hierarchy within which widgets and services are made or otherwise provided and sold (as in, That’s the business); (5) a beating (as in, I gave him the business.)


Businessperson (n.): (1) somebody who does, generates or conducts (runs) exchanges of widgets and other services accompanied by terms and conditions that adequately describe same for money; (2) a facilitator of same (e.g., a regulator or policy maker); (3) a gangster (as in, I’m a businessman).

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Foray into the post-787-Billion-Dollar-Stimulus-Plan World

Posted in Economy, National Security, Socioeconomy by equanimist on February 14, 2009

In 2007 “people” (increasingly) stopped making mortgage payments, and, by the end of the year, the economy was entering recession. So, before the US had lost 3.6 million jobs, there wasn’t enough money cycling through the economy to drive it. Thus, it stands to reason, the US need not only replace 3.6 million jobs lost but do more (the status quo wasn’t working).

Beyond the obvious (i.e., the US must jumpstart its economy – to overcome inertia) the US must create jobs that pay better than those lost (income was insufficient even to support the economy). Will the $787,000,000,000US plan do that? Does it replace with “money-cycling-through-the-economy” all of the money that would be cycling through the economy had not those jobs been lost plus “more-money” that was clearly necessary but not being provided?

US GDP is presently contracting at about 4% per annum (or more; the Philly Fed recently predicted 5.2% contraction in the first quarter of 2009). If we assume that every single penny in the package will add to GDP (and, by definition, that does not appear to be the case) then, $787 billion USD kicking in over three years is about $262 billion USD per annum – less than 2% of US GDP. (US GDP is approx. equal to $14 trillion USD). Right now, the US needs an annualized rate of GDP-subsidy equivalent to approx. $560 billion USD (or more); that is, baring further losses, losses sustained in Q4 2008 and expected in Q1 2009 should require about $280 billion US. This bill does not provide that sum in all of 2009 much less immediately. So, less than providing enough money to overcome inertia, this package does not even seem to meet the failed status quo.

In the near term, this bill may stop the US socioeconomy from falling off a cliff – keeping people from starving, for example. But, it should not be expected to stimulate (jumpstart) the economy.

If you took my advice and bought gold at the end of October 2008 (≤$750US/oz.), you’ve made money on your investment by now. You might sell it or you might not. Can the price of gold continue to go up? That depends upon factors some of which are shrouded in mystery.

Gold is – obviously – something that an individual or organization can sell to raise cash, so, I expected that the price would come down for a while longer before it rebounded. That notwithstanding (and I do think that there should be a dip) there is good reason to suspect that the price of gold will continue to rise: (1) gold has been a very good investment at almost every time in the last 10 years; (2) gold has held its value even over the last year; (3) in inflation-adjusted terms gold is still very cheap relative to its peak in the early 1980s; and (4) it is either a very misleading advertisement or the US mint is hawking gold – suggesting that the price could go to $2000 per ounce.

More importantly, brace for the worst… The US is not magic. The US is not great because it is the US. Rather, the US has been great because US citizens made it so. Should the topmost tier fail to recognize the error of its ways and make restitution then two strong possibilities present, either (1) the US people will calmly and coolly accept dramatically diminished status and standard of living, or, (2) US citizens will not rest and, as is the wont expressed by immigrants hereunto, will re-wrest power. The US government is preparing for the latter.

Dropping Money from Helicopters and Other Hard Choices (Update 1)

Posted in Economics, Economy, Political Economy, Political Philosophy, Public Policy, Socioeconomy by equanimist on December 18, 2008

 

i.

Hardly conservative, over-consolidation of wealth at the expense of the US middle class is a reckless game. High productivity and rapidly cycling currency fuel high living standards and rapid growth. Therefore, no long-term solution to the financial crisis is likely to exist apart from (1) upward wage pressure on the bottom 95% of US Americans (2) re-regulation to include incentivization of productivity and innovation and (3) re-inculcation of some sense of civic duty. Near term recapitalization of the US middle class should be the single most effective measure to stave off the ugly prospect of a deflationary spiral.

Much of what is being written, like this short ‘glossary’ entry at the Guardian, explains that “quantitative easing” is akin to dropping money out of helicopters. But, that does not rightly describe recent actions by the Fed. What the Fed has done is to make borrowing very cheap.

Potential borrowers aren’t any more credit worthy now than they were last week (or last year). Moreover, in the event that there are well capitalized bankers who can be persuaded to make risky loans, additional credit now will only kick the can down the road. We all know the one about the guy who borrowed money from Peter to pay Paul.

The current crisis is in some ways not unlike a balloon that, having developed a tiny pin prick, gets a big hole in it. It deflates and cannot be re-inflated until it’s patched. The balloon need not deflate entirely if something can interrupt the process. Might we not either (a) stop up the hole until it can be permanently patched or (b) balance loss with gain?

Unlike an ordinary balloon, a hot air balloon is at once inflated and constantly hemorrhaging air. In fact, there is a current of air flowing through the balloon. This is kind of what the current economy is like. Right now there is a shortage of air flow (liquidity) and a big hole (a lack of confidence). So to avoid a nasty tumble, supply air (real money) until the hole can be patched.

ii.

For some time now nothing has been worth more than some smaller fraction of the price at which it sold because of shrinking real relative middle-class profit shares. Only over-confidence made possible too-easy credit, which, in turn, made the relatively high US lifestyle possible in the face of excessive wealth consolidation.

As is well documented, real profit shares distributed to the bottom 95% of the US population peaked decades ago and income inequality has since risen sharply. A graph of top decile income shares makes this pretty clear (from Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913-1998,” The Quarterly Journal of Economics, Vol. CXVIII, Feb 2003, issue 1).


At the outset of the Great Depression of the 20th C. income inequality was very high. In years that led up to US involvement in the Second World War, income inequality plummeted, and, it remained relatively low and constant for decades. Disparity in income ramped up throughout the 1970s and exploded in the 1980s (and again in the 2000s; see the International Labor Organization press release cited below) not because productivity and profits began a long decline but because the uppermost decile (later the uppermost 5% and, still later, some smaller fraction thereof) accorded itself increasingly large pieces of the pie (for specific data to augment the above see, for example, Productivity change in the nonfarm business sector, 1947-2006 at the US Dept. of Labor, and Historical Income Tables, Table H-2 and No. HS-26. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Families: 1947 to 2001 at the US Census Bureau). This graph, unfortunately, stops at 1998. The International Labor Organization estimated that “in the United States in 2007, the chief executive officers (CEOs) of the 15 largest companies earned 520 times more than the average worker.

Now fully 80% of US Americans make a real relative pittance unprecedented in the post-war era. That they don’t think they’re poor doesn’t mean they’re not – only that authority figures from the lowliest parent to the Commander-in-Chief have successfully convinced US Americans to compare down and trade down the socioeconomic ladder (to a more or less indentured servitude as debt ballooned).  See, for detailed analysis, the Trade Union Advisory Committee to the OECD summary of “Growing Unequal?” (to which I have linked here).

I reiterate what I have previously written: to attribute the current crisis to a lack of liquidity is to miss the point entirely. The balance of US stewards now promulgate economic visions and institute policies without even a foothold in reality. On the one hand, average US Americans are sold an outsized bill of goods while, on the other, the elite who profit on sales hoard and lobby for deregulation to further consolidate means. When convenient, the US consumer is ‘resilient’ and can be depended upon. S/he won’t ‘let the terrorists win’. S/he’ll ‘go out and spend’. And, ‘The free market will sort itself out.’ When convenient, consumerism is decried and the same beleaguered people are told that it is some fault of the US consumer that s/he cannot manage money and, moreover, that s/he does not need (or deserve) and should not get a bailout!

Credit cannot and will not now change the fact that many among the bottom 95% can no longer afford to pay debts they’ve been encouraged to amass, and, will (if furnished) only run the average US household further into debt (compound the problem per se).

But, the point is moot. Bankers should not be so foolish as to make loans that they know borrowers cannot repay. Potential borrowers, then, should not contract loans. Therefore, home prices should continue to plummet until they are priced so cheaply that these poor citizens can afford them. Likewise, goods and services should be sold ever more cheaply or sit on store shelves because the unreal equity (over-confidence) that fueled US consumerism is vanishing. Businesses, then, should be unable to meet their obligations and, unable to recoup even costs, they should fail putting more people out of work.

Mounting job losses, then, should force more homeowners into foreclosure or disadvantageous home sales… More importantly, US productivity and means of production along with the service sector should contract sharply as the supply of goods and services races to catch up with rapidly contracting markets. But, in the event that this is the new economy of extraordinary income inequality, the world furnishes way too many material goods and services – that is, precisely, in a new low-income world too many people are currently employed.

iii.

Congress must act now

The housing market cannot be expected to resolve itself any time soon. As clearly illustrated in the following graph (excerpted from, “‘Pay option’ mortgages could swell foreclosures,” MSNBC.com) foreclosures should be expected to accelerate through the first half of 2009 and only briefly stabilize in the second half before the bottom likely falls out on the housing market in 2010.


In the meantime, socioeconomic stability and quality of life, in addition to productivity and innovation, should continue to deteriorate. Poor, hungry, homeless, shiftless people are not conducive to democracy and should be expected to undermine national security and public safety. [Even wayward adolescents know what Libertarians and Republicans reject – that poor, hungry, homeless, shiftless people are easily “turned”. (Why do we feel allegiance? To whom and to what institutions do we feel it?)]

Still, these are only risks (however probable).

The fastest, surest way to avert these risks is to revalue goods and services by proxy relative to the bottom 95%. The more dollars there are chasing some constant goods-and-services the more expensive they will be. If hoarders cannot be persuaded to recapitalize the US middle class (i.e., furnish dollars to prop up their own way of life) then it falls to legislative bodies and appointees to make the hard choice. Give real money to those who will spend it and more to those who are more likely to spend it than to those who won’t. (Heaven forbid, right? Redistribution is only “right” when money moves up the socioeconomic ladder.)

Still, no long-term solution should be complete that does not effect upward wage pressure. That is, if the US middle class does not have continued support when government programs wind down, all else being equal, things will just revert. So, for example, though enough money might stabilize property values over the short- to medium-term, property values will again fall right away as government money is withdrawn. Bring income inequality back down to more optimal levels (approximately what it was throughout the 1950s, for example).

Short of legislation of pay scales, radical upward wage pressure will only be effected by either increasing the number of jobs out of all proportion to the worker pool or decreasing the number of workers to fill those positions that exist. To that end, I reiterate, it seems most reasonable to impose controls over outsourcing and insourcing as same controls are in the interest of national security.

Giving banks money does nothing to any of the aforementioned ends. Stop doing it. As ought be clear, this cannot and will not jumpstart the US economy and, it would be achieved just as well if the US middle class were recapitalized – dropping money from helicopters.

Profligate Banks Use "Emergency" Loans to Dodge Accountability

Posted in Economics, Economy, Political Economy, Public Policy by equanimist on November 11, 2008

By August, 2007, it had become clear to some (namely, me, and I wrote about it here) that (among developing crises) US middle-class profit shares might be insufficient to continue to drive the US economy – that US middle-class profit shares were too small to continue to effect general prosperity.

The so-called “credit crisis” unfolded throughout 2008. Rates of default rose. Home prices plummeted. Banks failed. Credit froze. Markets tanked. One million jobs were lost. And so on.

Ad hoc bailouts came and went but no comprehensive plan of action was proposed until September, 2008, when it appeared that the economy might be on the verge of total collapse and Bush lackey, Henry “Hank” Paulson, swept in with “the Paulson Plan”.

A bloated modified version of the Paulson Plan (a.k.a. “Emergency Economic Stabilization Act of 2008” including the “Troubled Asset Relief Program” or TARP) was approved after “sweeteners” were added to bribe individual members of Congress.

In short order, Hank found a way to use money allocated by the TARP to purchase troubled assets in a manner at once consistent with the broad purview granted him by Congress and inconsistent with explicit intentions to buy mortgage backed securities in reverse auctions.

As of this writing, no TARP money has gone to buy mortgage backed securities or keep homeowners in their homes. And, no further stimulus has gone to the US middle class. But, Bloomberg reports that the Federal Reserve has loaned nearly $2,000,000,000,000US (that’s two trillion US dollars) to unnamed institutions for unspecified collateral (about $6,500 for every legal US citizen). Earlier bailouts coming to about $3,000 per person, that brings the running total cost of bailouts to about $9,500 per person.

If home prices continue to fall and jobs continue to disappear and middle-class wages continue to shrink and credit remains tight, where will these troubled institutions get money to make payments? And what will their collateral be worth?

These loan recipients are beneath contempt and the Fed is acting foolishly. US equity affords the possibility of public oversight and control over pay packages (including salaries, bonuses, perks and etcetera). Federal Reserve loans, on the other hand, shield these so-called “fat cats” – these prodigal bums who bled the US dry – from public scrutiny and sanction. When even bailout recipients continue to engage in profligate excesses despite mounting pressure to reform, it must be inferred that loan recipients intend to continue bad business practices behind doors marked “Private”.

These so-called “emergency” loans must stop. Consolidation of power in the hands of too few has gone on for too long and US democracy is imperiled. The federal government must appropriate money as needed; reinstitute a truly progressive tax code; effect upward middle-class wage pressure and, further, issue progressive “tax credits” to recapitalize the middle class and dilute the outsized profit shares that a tiny sliver of a slice has accorded itself. Until such time credit will remain tight, jobs will continue to vanish and the US middle class and all of its dependents will suffer by every measure.

A Note on Innovation

Posted in Economy, Philosophy, Political Philosophy by equanimist on November 8, 2008

It is oft observed that it’d be great to assemble a sort of “Manhattan Project” to tackle energy requirements within a context of changing climate. This, however, is unrealistic in the present environment.

As incentive, capitalism offers pay. Pay is, presently, a function of the value of profit shares – not performance based except insofar as performance increases profitability.

When pay is proportional to some finite profit, it pays to keep the profit-sharing coterie small because as the number of individuals with whom finite profits must be shared goes up, individual profits go down. That is, pay is inversely proportional to the number of individuals with whom profit is shared.

Collaboration, which must entail profit sharing, is at odds with maximally valuable profit shares.

The same can be observed of coteries acting in collaboration. Developing and maintaining proprietary technology locks up a stranglehold on a particular segment of the market place and further increases profitability, which, in turn, increases the value of profit shares (pay).

However, profit shares are most valuable (and pay in turn is maximal) when the profit-sharing coterie is small, some maximal market share is garnered, and the cost of providing a product or service is minimal relative to the price at which same can be sold. That is, it pays to keep costs down.

Research and development are expensive. Ergo, it may be advantageous to the individual (whose pay is proportional to the value of his/her profit shares) to dispense with research and development altogether! Certainly, pay increases as research and development decrease.

In this way, capitalism rewards dealers in cheap antiquated goods and services who can manage to sell same at some price above their worth. Collaboration, research and development are dis-incentivized. And, innovation suffers as a direct result.

Heresy!

Posted in Economics, Economy, Public Policy by equanimist on November 3, 2008

Imagine that! Giving money to people/municipalities/states who/that need it (the same who/that are most likely to spend it) and funding projects to improve our failing infrastructure may have the added benefit of increased liquidity. Indeed, as Mr. Nicolaci da Costa of Reuters has it, All stimulus plans are not created equal. Moreover, the affects of making the Bush tax cuts permanent and further corporate tax cuts (many corporations don’t pay taxes, by the way) will be minimal or regressive according to the EPI. So much for Voodoo economics.

Retrenchment Justified

Posted in Economy, Political Economy by equanimist on October 22, 2008

A few weeks ago, Jim Cramer, in whom I don’t usually put a lot of stock, screamed, “Deflation!” or some such thing.

“What the hell are you talking about,” I hollered back. It took about ten seconds to realize: While though we had continued to see extraordinary year-on-year inflation, we had, in fact, already seen huge price-drops on a month-to-month basis.

This is deflation. Gold is down (uhm… buy it???) Oil is down. Stocks are down. “Everything” is down (or on a downward trajectory). And the VIX is bouncing back and forth between stratospherically and ungodly high.

I would bet hard currency against cheap pastry (copyright) that prices are going to keep going down for a while (six months? a year?) and that the economy will remain weak for much longer still.
People keep asking me, “How long?” Dunno exactly.
Experts (whose good opinions inspired me on my present journey) seem pretty sure that we will be in “recession” for at least a few quarters. The OECD doesn’t think we’ll get a revolution out of it. So, I guess, the consensus is something between a few bad quarters and something-less-than never.
If we assume that the “critical mass” types will continue to mismanage the response to the current crisis then, perforce, we will remain one step behind the action. The current crisis being self-perpetuating, if we don’t get out ahead of the crisis then it will probably continue to spiral out of control (i.e., reinforce itself in a positive feedback loop). If it continues to spiral out of control then it’s likely to get a lot worse before it starts getting any better. Where does it stop? Further, if we assume that the next bubble will conform to an exponential curve, then, recovery will be slow. I use Japan as a barometer but it’s not really a fair comparison. Suffice it to say it’s going to be a long time (a decade? more?) before we recover. But, though people often ask me how long it might go on, that’s a distant secondary concern.

Only authoritarian stewards can so manage the public as to effectively depress living standards below some minimum acceptable threshold. “Western” stewards don’t have that kind of authority and can’t exert that kind of power on an historically “free” population.  I shan’t belabor the point. (For a detailed discussion of my take on Modern US Democracy written at the outset of the current crisis and published last year see On Stewardship.)
Has a liberal democracy crossed a line that precludes recovery when civil rights are in retreat, effective net worth is low and lowering, the job-market is something less than weak and weakening, and the financial system is in something short of total collapse?
The US socioeconomy maintains course and the logical conclusion of current trends remains either (1) revolution or (2) radical departure from democracy. That is, if the current crisis is, indeed, self-perpectuating then the US socioeconomy will look very different when the dust settles.

You cannot have your cake and eat it too.

Posted in Economy, Political Economy, Public Policy by equanimist on October 4, 2008

Easy credit had a more insidious affect than falling home prices and high personal debt.

Now it seems crystal clear that easy credit within a context of open US border policies (including but not limited to insourcing talent, outsourcing work and hiring illegal immigrants for menial tasks – all  of which depress wages over a broad spectrum) and general US avarice (it seems absurd to talk about entitlement and fail to note that the top four percent have demanded an increasingly bigger piece of the pie for decades prompting the overwhelming question, “How many yachts can you water ski behind?”) must artificially depress wages.

The short of the long of it:

“The other half” (i.e., ninety-six percent or approximately
290 000 000 US Americans) sees how “the rich” live and the former must be wont to compare themselves to the latter – it is human nature or US culture. Advertising (which, more than letting consumers know about products, is designed and intended to persuade people to want/buy goods that they might not have wanted/bought) cannot be discounted. Further, it must be assumed that people would sooner avoid conflict (if it isn’t self-evident from the fact that we’re not big cats). Compliance is generally voluntary.

Organization and protest are hard. Credit, that’s easy. Did US citizens get credit instead of organizing and protesting falling wages?

Now that wages are artificially (extremely) depressed, credit is drying up, home prices are falling and human nature is what it is, what ought we to expect? What do people do when their livelihoods are threatened?

The passage of a bill funding Treasury in its reverse-bids to buy illiquid debt off of banks is all well and good for whomever gets to buy the debt back up on the cheap, but bad for the banks on fire-sale and probably irrelevant to the current crisis, especially when certain provisions make the fire-sale even less appealing (making so-called “price discovery” even less likely while simultaneously doing nothing to increase the likelihood that we will sooner-rather-than-later separate the wheat from the chaff). It’s no wonder that the market closed lower today. It’s a wonder it was up at all.

If President Bush has been right about anything, it is that this is a dire crisis. I reiterate: It didn’t start with easy credit or falling home values and resetting interest rates but began instead with falling wages and downward wage pressure – with which it got worse. It won’t be fixed until we find a new place on the socioeconomic continuum or find a way to effect a fast redistribution of wealth on an historical par.

Posted in Economics, Economy, Political Philosophy, Public Policy, Socioeconomy by equanimist on December 21, 2007