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The Bondsman's "Fear of Death"?
I
spent the afternoon reading a fascinating paper by Shimshon Bichler and
Jonathan Nitzan, Systemic Fear, Modern Finance and the Future of
Capitalism (PDF file is available here). The introduction sets out the intent of their research:
The
specific focus of the article is two historical ruptures of modern
finance – the periods of 1929-1939 and 2000-2010. During both periods,
capitalists abandoned the conventional forward-looking ritual of
capitalization, resorting instead to the backward-looking posture of
pre-modern finance. In our view, these rare episodes are of great
importance for understanding the nature of capitalist confidence and the
capitalists’ ability to rule – as well as the possibility that this
system of rule will collapse. Our inquiry seeks, first, to characterize
key features of these episodes; second, to speculate on their causes;
and third, to assess, however speculatively, what they might imply for
the future of capitalism.
While I recommend you carefully read the entire article,
I want to focus on a few passages that are particularly interesting to
financial market observers and pertinent to my post. First, let's begin
with the takeoff:
The capitalist class is finally seeing
light at the end of the tunnel. For many months now, its analysts,
statisticians and public officials have been spotting “green shoots”
everywhere they look. The snowballing global recession, they say, seems
to have slowed down and perhaps even ended. Managers the world over are
purchasing more inputs after a period of buying much less; the factories
of Asian exporters are running at full steam; raw material prices have
rebounded strongly; bank lending is reviving and home owners are
starting to refinance their mortgages at lower rates; and in the United
States, the world’s biggest producer-consumer, initial unemployment
claims seem to have peaked, while consumers are beginning to loosen
their purse strings. But the most important sign that the worst of the
crisis is over comes from the equity market: stock prices are the
ultimate barometer of capitalist health, and they have been soaring.The
market takeoff is evident in Figure 1 (above). The chart traces the
U.S. dollar price of three key indices – all world equities, U.S.
equities, and the equities of the U.S. FIRE sector (finance, insurance
and real estate). All three indices show a sharp, synchronized rise. In
slightly more than a year, from February 2009 to April 2010, the world
index gained 67%, the U.S. index 62%, and the U.S. FIRE index –
previously the most battered of the three – a whopping 93%.Suddenly,
the bulls are everywhere. The greatest returns are usually earned
during the initial part of a rally, and no respectable fund manager
likes being beaten by a rising average. With the economy apparently
bottoming out and with the stock market having been in a major bear
phase for nearly a decade, investors are no longer afraid of losing
money; their fear now is not making enough of it. And so arises the
specter of “panic buying,” a frenzied attempt to jump on the bandwagon
before the really large gains are gone.Of course, not everyone
buys this rosy scenario. Many observers continue to feel that the recent
stock market rally is no more than a dead-cat bounce. In the eyes of
the pessimists, investors are knee-jerking to a false start. The
economic recovery, they say, will be W-shaped, and the market will
re-collapse before any real boom can begin. This recession, they warn,
is nasty and likely to linger for years.
Bichler and Nitzan then discuss why this debate is fundamentally wrong:
Regardless
of who is right, though, there is something fundamentally wrong with
the debate itself. The current news may be good or bad, revealing or
misleading – but, then, investors aren’t supposed to take their cue from
the current news in the first place.To
trade assets on the basis of today’s statistics is to be backward
looking. It is to be retrospective rather than predictive, to react
rather than initiate, to trail rather than lead. It puts investors at
the tail end of social dynamics.Needless to say, such
behavior is entirely improper. According to the sacred annals of modern
finance, formalized a century ago by Irving Fisher (1907) and
popularized during the Great Depression by Benjamin Graham and David
Dodd (1934), asset prices are forward looking: “The value of a common
stock,” dictate Graham and Dodd in their immortal doorstopper, “depends
entirely upon what it will earn in the future” (p. 309).
The authors then explore why investors depart from this conventional forward-looking practice:
In
our view, the reason is systemic fear. Systemic fear is a class of its
own. It has little to do with the periodic downswings that make
capitalists cautious, and it has no connection to the dread and
apprehension that regularly puncture their habitual greed. “Business as
usual” is always uncertain, and with capitalism constantly in flux,
investors are forever fearful about profit and wary about risk: they are
concerned that earnings may not rise as quickly as they hope, or that
they might fall; that volatility will increase; that interest rates will
rise; and so on.But these fears, no matter how intense, are
self-contained. They pertain to the level and pattern of profit, not to
its existence. They do not impinge on the normality of profit – i.e., on
the belief that assets have a “natural” tendency to grow and that
capitalists have the power and right to enforce and appropriate such
expansion. And most crucially, they reflect the belief that expected
profits, whether high or low,could always be priced to their present
value. Regardless of the market’s ups and downs, the underlying
assumption is that the capitalization process itself – the ritual that
creorders modern capitalism and anchors its dominant ideology – will
remain intact.Occasionally,
though, there arises a very different and far deeper type of fear: the
terrifying thought that the entity of profit – and, worse still, the
very institution of capitalization on which the entire capitalist
megamachine stands – might cease to exist. This latter fear is
associated with systemic crisis – that is, with periods during which the
very future of capitalism is put into question. It is what Hegel meant
when he spoke of the bondsman’s “fear of death”:
For
this consciousness [of the capitalist bound to the steering wheel of a
megamachine gone wild] was not in peril and fear for this element or
that [such as falling profit or rising volatility], nor for this or that
moment of time [like a sharp market correction or a declaration of
war], it was afraid for its entire being; it felt the fear of death, the
sovereign master [the ultimate wrath of the ruled]. It has been in that
experience melted to its inmost soul, has trem-bled throughout its
every fibre, and all that was fixed and steadfast has quaked within it
[will capitalism survive?]. (Hegel 1807: 237)The
first time capitalists were gripped by such systemic terror was during
the Great Depression of the 1930s. The second time is during the present
crisis, a protracted turbulence that started in the early 2000s and is
still ongoing.
Looking at the current crisis, Bichler and Nitzan write:
And
then there are those, like financial commentator Gideon Rachman, for
whom the problem is largely temporary. The economists, Rachman suggests,
have actually made great strides in understanding how the economy
works. But from time to time the delicate machine gets infected by a
“new type of economic virus,” and we need to be a bit patient until the
economists discover the cure (Rachman 2009).By 2010, though, it
seems that the virus continues to elude the pundits. The threat of
default has spread from business enterprise to sovereign governments,
with countries like Iceland, Dubai, Greece and who-knows-who-is-next
flirting with bankruptcy. Participants at a special conference hosted
by Soros’ Institute for New Economic Thinking at Kings College,
including five Nobel-winning economists, expressed grave concern that
“many investors now find it hard to judge the ‘real’ riskiness of
sovereign debt.” Gillian Tett conveys the atmosphere of theoretical
bewilderment and ideological anxiety:
Three years ago, it
seemed inconceivable that a country such as Greece would be allowed to
default, or exit the eurozone. But back then it seemed equally hard to
imagine that Lehman Brothers might fail. Now that Lehman has gone, who
knows what the worst-case scenario might be? Could the eurozone break
up? Could Greece default? What might happen to other debt-laden nations,
such as the US, if the worst case scenario occurred? The one thing that
is clear is that the answers to those questions now depend as much on
culture and politics as on macro-economics. . . . In this new world of
sovereign risk, what really matters is a set of issues that cannot be
plugged into a spreadsheet. The old compass no longer works. (Tett 2010)The
predicament is so serious that even the know-all the
collective brain of the capitalist class – has become disoriented.
According to Martin Wolf, chief economics commentator at the Financial
Times, "the markets don't know what to fear: will it end up in
deflation, default, inflation, financial shocks, or all of these?' "Markets are unpredictable, he informs his son, like children. . . ."
And when the youngster asks: So what's going to happen next? the elder,
who is usually able to answer questions that most people cannot even
ask, replies: "If I knew that, I wouldn't be a mere economic journalist..."
(Wolf 2010)
Finally, Bichler and Nitzan ask whether capitalism is heading for systemic collapse:
The
decade-long breakdown of capitalization is no fluke. The fact that for
ten years now capitalists have been pricing equities based on past
profit betrays deep distress. Their fear now is not only that the level
of capitalization may be bumping into a glass ceiling; it is also that
the very ritual of capitalization – the universal crystal ball through
which they have been seeing the future for nearly a century may be
giving them awfully wrong signals. And
when the future looks bleak, and the dominant ideology appears opaque if
not misleading, there arises the specter of systemic fear.Given the foregoing, the obvious question to ask is: does systemic fear signal the imminent collapse of capitalism?
They conclude with these thoughts:
In
order to see that something is systemically wrong, we need to think not
positively, but negatively. Specifically, we need to look for market
patterns that are inherently inconsistent with forward-looking
capitalization. The manifestation of such patterns would then prove, by
negation, that the ritual is broken. The specific pattern emphasized in
this paper is one in which stock prices, instead of looking into the
deep future, nervously trace the ups and downs of current and past
earnings. This backward-looking pattern goes against the very gist of
forward-looking finance. And when it emerges – as it did during the
crisis of the 1930s and again in 2000 – we can be fairly certain that
capitalization has broken down and that the ruling class has lost its
confidence in obedience.A shrewd academic might have leveraged
this apparent anomaly into a full-blown mechanized model, complete with a
universal taxonomy of “fear-of-death” eras, a sliding scale of
price-profit correlations alerting investors when to switch and reswitch
between forward- and backward-looking postures, and an easy-to-follow
list of “how to profit” from both. And judging by what is on sale in the
analysis market, this model could end up having plenty of paying
followers.We prefer to forego this investment opportunity and
instead keep our speculations tentative and free. Capitalism may survive
this systemic crisis, as it survived that of the 1930s. As before, this
survival may require a significant transformation – one that
restructures the entire architecture of power, including its material
technology and dominant ideology – and such transformation is certainly
possible.But there is also a
very real possibility that the current crisis will prove too much for
the capitalist class to handle. “The history of all hitherto existing
society,” write Marx and Engels in the opening paragraphs of the
Communist Manifesto, “is the history of class struggles.” And that
struggle can end “either in a revolutionary reconstitution of so-ciety
at large, or in the common ruin of the contending classes (Marx and
Engels 1884: 57-58).So far, the capitalists’ loss of
confidence in obedience hasn’t elicited significance opposition – but
that can change quickly. However, if the opposition fails to establish
an effective and hopefully progressive alternative – an alternative that
so far seems absent – it is not impossible for the reverberations of
the clash, amplified by the high complexity of capitalism, to culminate
in systemic collapse and collective ruin.
Tomorrow, I will
go over some leading indicators that are being misinterpreted and show you why
I'm more optimistic that the economic recovery will continue. As for the
stock market, it is in the best interest of the financial oligarchy to
reflate risk assets, and inflate their way out this mounting debt problem.
Debt deflation will ultimately lead to systemic collapse and
"collective ruin".
»
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There is NO recovery without debt deflation.This what happened in the '30s.
U.S. TOTAL (private+public) debt deflated from 245% in 1930 to 25% in 1945. Now the ratio is around 285%, and WWII equivalent is not on sight....yet.
If you accept the simple but crucial bit that aggregate demand in capitalism is GDP+or-debt growth, you realise quickly that private debt deflation can NEVER be countered by public debt inflation, being of two different orders of magnitude.we skipped through it in the '70 with stagflation because back then we had REAL inflation, i'e. assets AND salaries were inflated. If you try to reflate ONLY asset prices, you are doomed to loose.
Some good economic science here:
http://www.debtdeflation.com/blogs/2010/07/07/naked-capitalism-and-my-sc...
worth reading.
Leo, interesting article. I'll be interested to see your perspective on the economic 'recovery'. I hope you also address how much the government is currently subsidizing virtually every aspect of our economy, whether this is sustainable, and if not, how the handoff will go. For instance, with the government guaranteeing or purchasing 95% of all mortgages, will there ever be a private mortgage market again? If the government is subsidizing housing prices, can it ever leave the market if the result would be lower housing prices? So, doesn't it have to not only be active but also increase it's participation over time in order to keep the prices above their 'natural' prices? Given all of that, can you actually call that a 'recovery'? Is there a different end-game to the government bubble than a pricking of prices? Can it be different this time?
"the dominant ideology appears opaque if not misleading...".
The reality is FRAUD... just say it...
Well Leo, it is nice you look at the topic of the power structure and political organization... the big picture if you will...
However, with fallacy ridden statements like:
"The capitalist class is finally seeing light at the end of the tunnel. For many months now, its analysts, statisticians and public officials have been spotting “green shoots” everywhere they look."
“Green Shoots,” In What Universe Is:
1."The snowballing global recession, they say, seems to have slowed down and perhaps even ended."
2. "The factories of Asian exporters are running at full steam."
3. "Bank lending is reviving."
4."Home owners are starting to refinance their mortgages at lower rates;
The United States, the world's biggest producer-consumer:
5. "Initial unemployment claims seem to have peaked."
6. "While consumers are beginning to loosen their purse strings."
What Planet Are These Guys From?
1. Bank lending is not reviving.
2. Mortgage and refinance applications are nose diving like an Obummer job approval poll.
3. The only thing stabilizing unemployment numbers is continued BLS statistical manipulation.
4. Unemployment is rising and will surge as states and municipalities fire workers to close deficits.
5. US citizens have shrinking income due to wage stagnation and deliberate Fed devaluing of the dollar.
6. US citizens are retrenching and economizing.
7. US retailers know they are in trouble and continued and accelerating retraction is imminent.
8. John Williams' analysis shows consumer prices are highly understated by the BLS.
9. Therefore GDP is OVER stated since much of the increase in GDP was price inflation.
So if I believe these guys...
I am sure they have a $700k house in BC to sell me at 17 times median household income, right?
(Note: Median HH Income BC = $41,680, Median Home Price BC = $638,000)...
Can you say viva Las Vegas? Can you say Phoenix?
Can you say Riverside Ca.?
But I like the topic... thanks Leo.
For many months now, its analysts, statisticians and public officials have been spotting “green shoots” everywhere they look."
I thought he was saying this tongue-in-cheek.
He was, the previous poster didn't read the comment carefully.
"For twenty-five years, I have studied the problems of human failure, of falling short of the promise, and of the decay and collapse of great empires. This phenomenon has existed throughout the five thousand years that man has been recording the history of his efforts.
During the first twenty years that I devoted to this study, I amassed huge files of information about the various civilizations. I compared these facts in order to find common denominators which might lead to a solution. I also took into consideration such factors as man’s environment, his nature, and the persistence of certain patterns in his behaviour...."
http://snippits-and-slappits.blogspot.com/2009/06/biological-jew-pt-1-by...
What is Capitalism?
The fact is that a functioning market needs a medium of exchange and whomever controls that medium ultimately controls all aspects of the market. Capitalism is just rule by the bankers.
Originally political power was a function of private entrepreneurs. They were what we would call warlords today. Eventually the rough edges wore off and they became monarchies. So we have a choice between power as private function, or public contract. Maybe we should consider making banking a public contract.
What the Federal Reserve did was to make maintaining the value of the currency a public responsibility, while retaining the profits for a private banking system. I think the proper response will be to make banking a public function. Then the profits become public income.
Most people wouldn't want the police, courts or military to be private, why do we want the market medium to be a private function?
As for money, it's NOT fiat. It's debt based. The creation isn't dependent on just the printing press, but the willingness to borrow. Three hundred years ago, this was a pretty smart idea, as there were no economic statistics to decide how much money needed to be in circulation and debt grew along with production. The problem is that production must grow to pay the debt and debt must grow to finance the production. Now that feedback loop has spun out of control. As money is drawing rights to productivity, we need to develop a production based currency.
Money works as both store of value and medium of exchange. As value, it is a form of property, but as medium, it is a form of utility. The conflict is that we try to accumulate as much of this property, but an excess of currency over production devalues the value of the money. What if we were to accept it as entirely a form of utility? Like roads. We own our houses, cars and businesses, but not the roads connecting them and no one cries socialism over that.
The fact is that is isn't really private property anyway. Just try printing some up, if you think otherwise. The reality is that the banks, government and the rich like everyone to think of it as private property because everyone uses it for every transaction and that makes all such relations taxable. As well as validating the right to own enormous quantities of it.
If it was a form of public utility, such rights would be much more limited. The fact exists is that the normal saver cannot invest in productive enterprise, because there is such a surplus of capital chasing down every possible return. They can only speculate on where the next liquidity bubble will blow up.
Right now, the Fed controls the excess of currency, inflation, by selling debt it is holding. The inherent, but unmentioned logic here is that an excess of currency is in the hands of those with an excess of wealth. Paying interest out of public funds to remove this money from circulation only serves to compound the problem in the long run.
If people understood money as a form of public commons, they would be much more careful what value they extract from relations and resources to convert into currency. A smaller money supply would reduce the power of those controlling it, be it governments or banks. We all like having roads, but there is little desire to pave any more than necessary.
Another problem is that the current system of government funding is designed not to be economical. Large spending bills require enough votes to be bought with pork barrel projects to get enough votes and then the president can only pass or veto them in full. This isn't budgeting. To budget is to prioritize and then set limits at what can be afforded. The current method seems specifically designed to over spend in order to create the government debt that is the foundation of our debt based currency.
A possible method would be to break the bills down into their individual items and have each legislator assign a percentage value to each one. Then reassemble it in order of preference and then the president draws the line at what gets funded. "The buck stops here." This divides responsibility, with the legislature prioritizing and the president setting the level of funding.
As this would reduce local funding, a system of local public banks would fill this need.
These local banks would be loaning out money saved by the community, back into the community and using the profits to pay for community projects. There would be layers of banks, much as there are layers of government, local, state and federal, but it would put more of the economic and political power back into the local and state functions and away from the federal level.
Structures tend to build up until they get too top heavy and fall over. What is necessary is to maintain a strong base and keep the structure to a size this base can support.
Warlords? As far as I can tell from your discussion, capitalism started sometime between 5000BC and say the 19th century.
I offer my labor in exchange for something. Whatever label we apply to that something, it belongs to me. It is private, not public. Because of this, I don't think your idea of money being considered public rather than private will gain much traction. Re-cast your argument in terms of money = purchasing power and I think you will see the point.
Richard,
I don't think it will gain much traction, but that doesn't change the fact that it already is essentially the property of whatever entity guarantees its value in the first place. They don't even have to tax you to take value from it, just lower rates and issue more. So long as they can keep people brainwashed into thinking it's their own, they have that hook set deep and they can pull the strings whenever they want. The question is, can you see my point?
My purchasing power is my own. I earned it. But I can only exercise my purchasing power by using "money" whose value is determined by someone else. That creates a problem unless I spend the money as soon as I earn it. Yeah. I see your point.
Unless you convert all surplus funds into money whose value cannot be arbitrarily diluted by anyone else.
Hmm, I think I recall something like that. A rare metallic element, perhaps?
The reason the 'pundits' don't understand it is because they aren't using the correct paradigm.
Systems design would recognize the current state as the result of a tightly-coupled system which evolved out of a concern for security and opacity. All that's been done over the last three years is to couple it ever more tightly, now with the SPoF (single point of failure) as the sovereign rather than the individual enterprise.
"Virus" is a somewhat appropriate metaphor. I prefer to think of it as a heritable trait instead. The indebtedness trait will continue to express itself until it is fundamentally addressed or else kills its host.
The design path the central bankers and oligarchs have set us on predict that the world's economies will eventually be tightly-coupled with the US, with the US Fed/Treasury as the SPoF.
What should have been done, and what ultimately will have to be done, at exponential cost, is to rebuild the industry as a transparent, distributed, loosely-coupled system with no SPoF.
... transparent, distributed, loosely-coupled system with no SPoF.
And that is what we had more of in an earlier age, when producer and consumer were more closely connected. In my studies, I was exposed to the idea that less efficiency might be more desireable, if more efficiency results in a system with a single point of failure that will bring it all down. Same basic idea that ZackAttack is addressing. Unfortunately, if capitalism drives itself to be more and more efficient, to the point of being overly-complex and then failing, some outside force has to be the one to say we want less efficieny, not more, in order to increase the likelihood of survivability. That was the inital idea that the concept of enlightened government regulation was based on. Unfortunately, government regulators are just as fallible as speculators.
Well done...here is 1000+ internets for you
***** "In this way, capitaliza-tion crystallizes the power of capitalists to shape their world, as well as the resistance of those that oppose this power. It gauges the capitalists’ success in directing produc-tion and consumption, in shaping ideology and culture, in affecting the law, public policy, conflict, war and even the environment." *****
Here in lies the problem, Corporate Culture has gone the way of Cannibalism… via a stop in self destruction for profit… Wall Street does NOT! care for Production, Wall Street has NO! need for Production; Wall Street needs only the ability to appear Productive Numerically to insure that the Bonuses never stop flowing… What once was a carrot on a stick has become only a carrot that is easily attainable for those willing to ignore all other things, common sense is included in all other things… for the sake of attaining bonus monies the Corporate Culture will do anything including kill the goose that lays the golden egg… there will be blood? Golden Gooses everywhere slaughtered based on the idea we cannot wait for tomorrow for the Goose to lay another egg we need it today… we can take the golden egg that we cut from the goose to buy another 2 gooses based on participation… and so on. Patience? Or Common Sense? Wringing every last dollar from whatever carcass that needed to be sacrificed to the bonus Gods? Which is all Magic Math, all the Magic Math in the World used for securing Bonus Monies.
This self serving Corporate Culture Controls the Beltway / Country thru Lobby Monies, those Contributing the Lobby Monies have the Loudest and Clearest say and that say is Polite Self Serving Destruction for the sake of seeming Numerically Productive enough to hit the mark for Bonus monies to flow.
Our Global views of the Past, to be inclusive of all for the betterment of all will be biting us as a Country in the ass going forward for some time. Our foothold in China is being legislated away…
We are not a Country concerned with Producing the Most and / or the Best… we are a leveraged society of morons… cows, dumb cows being herded to and fro… only here to consume so that the few may enjoy a better life.
Austerity? You mean the quality of life that has been stripped from the middle should be stripped some more? Since the 1950’s the quality of life in this Country has declined, fact. Now the media has the entire Country concerned with all the Couch Potatoes milking the system and the 18% un-employment rate that costs the Country 2 billion dollars a month to float? Austerity! Hurry before it’s to, too late… please, hate and feed on each other while Wall Street robs the Country blind! Idiots! You deserve what you are going to get, your ignorance or outright stupidity begs to be exploited.
What horseshit.... this type of paper is an example of how banksters are being allowed to control the terms of the discussion.
To say it simply: Allowing the markets to operate without intervention, and possibly having corporate and sovereign debtholders take haircuts, in no way implies that the world will go all Mad Max. You have to spin a truly dystopian yarn to make that leap of imagination.
The American experiment with "democracy" has failed.
The elite are now putting into place a global empire structure governed by a de facto military dictatorship, complete with ersatz "elections"...the Soviet empire collapsed..the new American Empire is constructed in its image.
Is it a coincidence the Army Rangers patrol NYC?..
The Patriotic generals such as G.Washington and D. Eisenhower warned against the domestic use of the military...
perhaps to G. Washington Obama and Bush would be analogous to King George III.
It is ironic that some Marxists debate the future of the capitalist system and fail to notice the obvious fact that that the elite have abandoned capitalism in favor of the Soviet-fascist model.
I am not a Marxist-Leninist, and never will be one. George Orwell's Animal Farm convinced me of the futility of communism as a political/economic system years ago. Having said this, what we have now is corporate welfarism, and there are no rules governing modern day capitalism. CEOs should have significant skin in the game, so when shareholders lose big, they lose a huge percentage of their net wealth (Buffett is dead right about that). And I believe in a more humane capitalism, where we take care of our weak and disenfranchised. Who is taking care of the poor, the unemployed, the disabled, the elderly, and other minorities which are vulnerable to the vagaries of Casino capitalism? Our collective attitude is "let them starve".
Gee, I would have thought you read "Das Kapital" or something. Which animal did you like the most? I kind of identified with Boxer myself. He was hard working, devoted, certainly didn't deserve his fate. I had actually read 1984 first. Funny how books that attempt to describe the future are always too early in their predictions. Kind of like the film 2001. They always think technology advances at some lightening pace. Nevertheless, I continue to love that film. You know, when the hominid throws the bone in the air. Kubrik really captured something there, don't you think?
George Orwell's Animal Farm convinced me ...
Ahh, the power of the well-thought-out, written word.
***Feedback****
Warren D. Matthei of NYU sent me these comments:
"Interesting to me that a Marxist perspective is creeping into the mainstream financial press."
That's pretty much where I was when the power went out and I couldn't post...LOL.
We do not have capitalism. For there to be true capitalism things must be allowed to fail as it punishes malinvestment.
Destruction is just as much a part of capitalism as is creation, it weeds out unprofitable ventures and bogus idea's if left alone.
For example, as soon as you subsidize an activity, solar company's perhaps...LOL...you have interferred with market pricing by artificially raising it's value. GSE's same same.
Now, one can make an argument for or against the merits or lack thereof, of subsidizing any industry for the good of society. But it is not capitalism when profits are made by the few who placed limited capital at risk and any losses realized are borne by those who invested nothing...knowingly.
So while an interesting post, it's premise is wrong in my view as we are not looking at true capitalism. We are looking at crony capitalism or facism or some variant between the two.
Capitalism: what we have before the monopolists take over the state. At that point, capitalism transforms into socialism.
Capitalism good, socialism bad.
... as soon as you subsidize an activity, solar company's perhaps...LOL...you have interferred with market pricing by artificially raising it's value.
Substitute the word roads for solar companies in that sentence and you can see that this idea needs some finessing. Subsidizing the building of roads did not artifically raise their value. It simply overcame the barriers to entry that were keeping roads from being built and maintained. Once enough roads were built, great economies of scale drove down the price of maintaining them. Same thing with the original telphone company. Government subsidy did not artificially raise the value of conducting business by phone (voice, fax, internet). It simply overcame the barriers to entry, and got the industry to where great economies of scale resulted in a much cheaper price for the consumer/taxpayer.
Hi Richard,
Roads have always been built to connect one point with another. Whether by Roman government or Americans improving on Indian trails which were already blazed, then taken over by government. Once in place, taxes are what is supposed to maintain them not subsidies.
Your telecom analogy may be closer. But, it was a capitalist venture, who's creation was un-subsidized. It wasn't until much later that it pushed further out into the hinterlands and subsidized by government for doing so under the REA.
So in one example (roads) are a just function of government just the same as securing borders from invasion and the citizen is taxed for it. In the other (telephone) government did not subsidize it's creation.
True capitalism does not care whether you are rich or poor, good or evil, it only seeks it's principle back with a profit. When something is subsidized you get more of it just like when something is taxed you get less of it.
We'd better be damn sure of the return before subsidizing anything with taxpayer dollars.
Were not FNM, FRE, C, BAC, AIG, GM et al subsidized? Isn't the stock market being subsidized right now through Ben?
No my friend, this is not capitalism.
Damn NSA intra nets double post...
"We do not have capitalism."
+1111 Ding! Ding!
" it weeds out unprofitable ventures and bogus idea's if left alone."
If left alone. That is why it used to be "Political Economy" academically.
Because it is never left alone. Oligarchy and elite wealth will always use their power and money to corrupt political institutions in their favor. That is where Republic ends and Kleptocracy begins...
But now the oligarchy decrees by propaganda and bought and sold politicians and academics that we no longer discuss the elite political influence on the corrupting of economic markets...
Unfortunately, uncontrolled capitalism does not seek the most efficient
prices and solutions.
while government interference is one pollutant, monopolistic behavior is the other.
Witness the concerted effort by everybody involved in the manufacture, distribution and repairing of automobiles for the last 100 years.
They have all managed to conceal a most obvious "secret" from the general public.
Even though everyone has always known that electric cars were just out of reach,
how many people understand that electric cars last about as long as houses?
they do not have to be replaced every 3 or 7 years,
because they do not have 6000 little explosions per minute going on under the hood,
and there is simply no way to design a machine to withstand the heat, vibration
and other deterioration indefinitely.
That's why electic cars have been systematically repressed by som many people for so many years. Ask yourself, who benefitted?
"how many people understand that electric cars last about as long as houses?"
The battery in an electric car is expected to last around 7yrs...I built my house in 2002 and outside of needing a pressure washing it's doing fine.
My truck is a 1998 Chevy with a 188,000 miles on it.
Of course, your results may vary...LOL.
It is my belief that wealth or lack of it has nothing to do with ethics and morality.
I've met both wealthy and poor people in my life (I'm not wealthy or poor by any standard as a point of reference) and most were quite normal with a few exceptions.
The wealthy with undo influence should be rooted out just like the poor with undo influence.
Legally mandated Kleptocracy. Sounds like a political party we should all start.
Marxism or Keynesian, both require near unlimited resources to expand and develop their political/economic machinery. It's not only people in power reaching in desperation towards more control, it's also the general populace scrambling in fear to locate a new economic system (ha, Marxism...whatever) that can be used because of some faint understanding it was an option once. Regardless of the intent, both the political/economic stances and the general population are in for a bit of a shock. When to continue the society that has been built needs to shed around 70% of it's human population to be workable.
The challenge isn't the quality of the political and economic architecture, it has evolved into the best we as humans could develop. iThe problem is the sheer quantity for hands going into mouths devouring everything in site. While on the top side it appears "money" is the issue, it's not, the underlying basic mechanics of all world economies are being hoovered into the mouths of the 6.7 billion walking around the planet. By basic, I'm talking about water, food, ariable land (see the ricefarmer.blogspot.com). All we've achieved recently is the worst in show regarding economic and political motivations to cause even more panicking and severe population annoyance. The cost of everything is increasing in relation to salaries which are falling, then on top of that the government is increasing taxes across the board only using it as a pension safety net (see Mish on that one) or flat out theft. This doesn't inspire populations to do anything but erect gallows and sharpen axes.
I don't share your optimism on recovery, I do agree with the change in economic definitions and their inputs. I just don't see how an elderly top heavy society can switch to any sort of production with the lack of will both politically and from the economic sector. At this point in time, if you are looking for a job, wiping old asses, handing out meds and burying people is a bull market. The "first world" has been cored out and there's nothing left to build on. Unless you are counting the legions of basement deweling 13-25 year olds on WoW, checking facebook and eating themselves to an obese/morbidly obese lifestyle (seriously it's now a lifestyle btw...people are so stupid).
Best thing to do is let it crash hard and fast, instead of the slow panic direction. It's not like the economic and political systems right now are functioning. And pretending the outcome is going to be different is hubris.
"Best thing to do is let it crash hard and fast, instead of the slow panic direction."
Have you stopped to think about the social, economic and politcal implications of such a course of action? I agree with you that most people are stupid, checking their Facebook and eating themselves into all sorts of diseases, but I for one prefer this than Hobbes' state of nature.
The fact is artifical life support systems is all we have created. Humans excel at that given there are resources to work with. We go to the moon, under water, sit next to volcanoes, make people mobile with machines, extend the lifespan with machines, distribute water to deserts to grow food shipped 1000's of miles away. We do a lot of engineering to expand our species foot print practically everywhere. There literally is not a single place on our planet that a person can not recieve a radio signal of some sort so we can relay information on artifical systems that keep food, clothing, news, whatever. You or I could be in the Amazon and still find a radio signal. Humans are very good at building tools.
Tools though require resources and a population skilled at crafting them so...does it really matter if there was a population crash? Honestly. If we lose humans that have smoked themselves to cancerous state, or eating to the point of weighting half a metric tonne. Or the mobs of people sitting in hospitals that are old, and should have been dead on arrival are instead kept alive for years on tubes and pills because zero arrangements were made regarding DNR*.
(*Do not recussitate, wife is an RN, out of 40 beds right now, 23 are people over 70 that are very sick and the only thing keeping them alive are machines. Since doctors are obliged to keep everyone alive, the entire emergency unit is kept busy all day recussitating people that should be dead after living a long productive life. Long story short, if you end up having a stroke/heart attack it's a crap shoot if you end up with care. Health care in Canada is very fucked up right now, my understanding it's the same everywhere with socialized medicine according to the wife from meeting with peers at conferences)
Anycase, derailing my train of thought there. Impermance is a function of society and the human condition. It wasn't going to last regardless of the pundits of the political pulpit. Do you seriously think there is something to the systems we have overdeveloped that disappearing tommorrow would hinder you in anyway if they were vapourized tommorrow. I don't see it. The mechanic, doctor, techie, engineer, fix-it guy, farmers, carpenters, plumbers, electricians, writers, artists, etc will still be there. Basically anyone with the ability to create something of value to others. If someone isn't working with your hands daily, it's a really good indicator of what the future holds for that person.
Occassionally shit happens no matter the amount of planning and tactical engineering of the situation can't fix it. I don't think it will happen in the fashion a matheusian would hope for though. Food production isn't an issue, it's clustered population density. Huge mega cities that demolish the surrounding area. A great example is NYC being the leech off of NY state, always has been, the money and resources move into that city like a sinkhole. In that situation, the lack of rural success in NY state is now starting to weight heavily on how well NYC functions. Same goes for any metro larger than 500,000 people.
There is no lack of human creativity, or the ability to channel it. There is certainly a lack of will to change because people LIKE to eat themselves to death, smoke two packs of cigarettes, stare at a TV for 20-40 hours a week. Let them be stupid and let it crash. Meanwhile just make sure you know where you stand in the world and the illusion of security is only what you can invest into it personally. That security comes from family and friends. So, who cares what the idiot sticks do, let them do it and stay out of the way.
Here's another question? Why do we assume a rising population is a good thing? When all of us understand a subtle balance is more a powerful stance than over doing something. As humans we learn it after our first over attempts at anything (hang over for drinking, choking on too big of a bite, bloated and sick with food).
Thanks, it's nice to hear from an articulate person, regardless of viewpoint. Your allegory of New York is that of a parasite. A smart one keeps the host alive for as long as possible, to the extent that it is weak but not dead. That's a precarious balance.
Those who are reasonably self-sufficient will agree with you. Those whose sustenance is based upon the current system will not. All replies to your views should be gauged in view of that fact. "Consider the source" is a useful tool.
Watching Steve Forbes right now on CNN. What a one-trick pony. Lowering taxes and demeaning the working class are the only tools in his armory. His living is made by convincing people that they system can be saved if his ideas are implemented. If his ideas were implemented he'd have to change his views or be out of a job. I have this sordid mental image of him screaming, "Oh God, taxes, taxes, baby-oh-baby, taxes..." while he makes love to his wife (or whomever).
I know, in the area I live I honestly don't see the government impact of "change" nor the multinationals working towards maintaining a base of production. All anyone of us see here is tax, tax, more tax then fixed commodities pricing.
If anything this area (Ottawa Valley) is a "test site". Lots of companies move in, setup a manufacturing businesses (current theme is the production of ethanol from corn), operate for five to ten years then ship it all overseas after the break even point. In software development terms, this is the Ottawa Valley Beta site.
Looking across the river to friends that pop over for a pint, more than recently most of the folks with go across the river to help our friends keep afloat. It's depressing really. Want to see the future, look at a border town. Only people left in them are the makers and builders, sure they have McDonalds but that's highways traffic and cheap operating costs.
One thing that has picked up around here on both sides of the river between NY and Ontario is basic survival skills that kids around here grow up knowing by 10. So on top of the regular production stuff that needs to happen in town, people are starting to take an interest in taking part in their own lives by learning useable skills.
A couple of examples, the farmers in the area are taking the opportunity to have people pay them to chuck hay and tend to the cows/pig/chicken (fuck pigs stink), I laugh about that one couldn't pay me enough to do that again. Back breaking work, good when you are kid and puts muscle on a boy's frame so chicks drool at the six pack. The Indian elders on the reserve down the way are pretty busy teaching people wilderness skills and bow work. The old broads in town that are still moving around and have their marbles are teaching basics; simple shit like "making bread", "growing a garden" and "sew a button on a shirt".
Personally I'm thinking of quitting being an Engineer and becoming a brewer and teaching courses like "how to use a hammer", "The nail: pointy end down". I wish I were kidding, but the weekends in the border towns are pretty busy right now. But as usual, the tax man is floating around looking for it's undeserved pound of flesh.
The problem we have is labour. Not enough hands willing enough to pick food so the government gets involved and flys in seasonal labour from Mexico. Yes, the government of Canada flys in labour so people can have food to eat. Still doesn't help though, spoilage is around 20-30%. The reason is because wheat and corn harvesting is easily done by machine, 95% of what's in the produce section in the super market still need people to
pick it and it needs to be picked in a certain time frame.
What should be interestingin this situation is when oil hits peak properly instead of the currently mismanaged nonsense. Probably be seeing less people from Ottawa slinking around begging for tax money. as it stands right now, everyone is in full homesteader mode around here and over in northern new york. Stockpiling food, cash is being turned into silver and gold and hand powered tools are becoming popular. I just finished building a hand powered lathe and was offered $1500 for it. Told the guy that why would a sell it if I made it to use it. Needless to say he's paying me $400 bucks to show him how and I've given him a list of materials to gather.
That is the state of the world at this moment in time. It's strange nobody in suburbia has woken up yet. I'm just going to go with they are dumb as a bag of hair.
Actually, your comment has been refreshing and I see it as a good sign. If/when people are actually willing to do something with their skills and subsist on it, all will work out. Not the way the politicians and bankers would like, of course. As you say, they cannot tax it so it's evil!
I don't think the city folk are dumb, they are just being provided for so there is no incentive to change. Nothing unusual about that. When they get disgruntled and start to move out of the city into your neck of the woods the investment in seeds and lead will pay off.
I couldn't put a bullet in another person's head, I build as an engineer to make things safe for people to use. Sworn oath, have a ring and everything. In Canada you are married to being an engineering and keeping people safe. It makes it hard to find work sometimes in the offerings but what is found is well paid and allows me sleep at night and has allowed me to semi retire in my 40's because I'm a cheap bastard.
(Don't tell Leo, but as an Engineer on many solar and wind projects in the past, it's all Bre-X type investment baby, even in China. It's all horseshit. I can bad mouth, but no specifics due to contractual arrangements of shutting my mouth. Since it's a "proprietary tech", no investor will ever get an engineer to investigate on behalf of the investors without losing their shares. Actually instead of Bre-X, think Nortel, lots of bad voodoo following those assholes on "invented" - cough freely available production designs- tech.)
The idea of mobs overrunning the place by hungry mouths that would eat the leather on the shoes in my closet if they made it this far with next to no food, or energy for transportation. My neighbours and I have talked about this scenario. To be honest what can we do. More than likely though, people will be rounded up like cattle and put in pens to avoid disruption to food production.
That's the nice thing about cities, there are very limited means to escape one once you are in one, a city, with distributed city planning. LA, NYC, Toronto, Hong Kong...any citizen in a mega city really has only two to seven paths of escape that are easily controlled through civic engineering.
The planning is done to slow people down on purpose coming and going. It's the reason you can live in any major city of over 500k of people and hear the same news of turnpike X is slow, the lane split of X is slow. It's literally done on purpose to limit the traffic accidents, again people people as a herd are incredibly dumb. Work starts at 9, must get there by X time so I can get a cup of coffee then hit a stack of paperwork, billions do this routine everyday. It is the repeat record of every city dwellers life and it is all engineered, the reason traffic jams happen though is too little resources (space) and too many bodies trying to squeeze through the eye of a needle.
And I'm being an ass when I carte blanche issue the statement they are dumb as a box of hair. As individuals they are smart and have their own stuff to deal with. As a herd, we are dumb and dangerous. But there are systems that can be used to control and limit city populations. Trick is just not getting caught in the city.
Historically to determine the path of limiting movement of the population is first to limit and tax the goods available to trade. I understand stateside they are pushing to force any transaction over $600 reportable to the IRS. What's $600 bucks? That's a used car, a good used mitre saw, one tonne of hops. It's not much. What is happening is panic about how money works on the top end. The government doesn't have much to say about anything is trade is done in seeds, lead and silver. (gold is still pretty expensive for people to pick up, but it's still determinate as cash).
I have to freely admit this, but a year ago I thought people vesting themselves into gold was point blank stupid. Now I see it as a useful measure of exchange, but there are alot of other things people can be looking into while cash actually means something. Land, silver, equipment, gas if you can the ability to safely store it out of sight and out of mind. Hell, even a horse. Basic concept, mobility. Nothing is lost in the idea of riding off into the sunset, well unless one of the majority of teens overwieght and sitting in a parents basement somewhere acting as a parasite.
Everything is interconnected in so many previously unimagined ways. Small events have the ability to snowball instantaneously. It is one thing to try to deal with the ensuing potential for systemic turbulence if you are objective and willing to take the necessary corrective steps irrespective of whether the privileged class is harmed.
Unfortunately, history is repeating itself. The agenda of our leaders is solely to protect the privileged class. Decisions are not being made to solve problems.
In this environment, those who understand the game, have no interest in forward looking prospects. They are obsessed with protecting what they already have.
This will be a long drawn out process. But the end result will be the same.
It is the modern tragedy of the commons.
"The agenda of our leaders is solely to protect the privileged class. Decisions are not being made to solve problems."
Then they'd be stupid, or evil, or both, and I don't buy that. They all know how protecting the interests of the priviledged class at the expense of the rest eventually ends. Chaos, revolutions or civil wars.
No, it's simpler than this, our leaders and those who advise them have no fucking clue how to deal with a deflating debt bubble of this magnitude. No fucking clue because they are using useless economic models and instruments that do not work when the system becomes instable (all their neoclassical models assume equilibrium, therefore financial stability, and Minsky has shown that in a deflationary period all these assumptions are completely wrong). So they are blind, completely blind, like captains on a ship in murky waters with broken instruments who still don't understand the instruments are broken, whatever decision they take is bound to have dramatic consequences.
Not stupid, not evil, just blind. And they don't even realise it yet.
Doesn't matter if we believe there are ethics involved or being blindsided at this point. The point of no return was around 20 years ago.
Nothing being mentioned now is new news. Not one scrap of it. Any one that has read a newspaper in the last 30 years knew i was coming, let alone university understood. Usually in passive stance that this was coming. Most just glossed over, shook it off then bought themselves something to re-enforce that things were ok.
What is pissing people off, is it's happening to them. So between understanding it was coming 30 years ago and how completely unsustainable it was and now trying to spit on a gaping shotgun wound in terms of the economic/political problems. It will not, and cannot be done. The math behind it, just in terms of interest alone has swamped the ability of government to function. Not just here, but very soon EVERYWHERE. Most of the third world are still receiving "foreign aid" mainly to pay debt interest.
This won't be solved on a blog, or a feel good rally, or a court case. Who it will cost is you and me and everyone else in this thread. For the sake of arguement. You are starving to death in, say, two years. You've lost a couple of people in your life already. how fast will it take you to just obey. Now two years in the future you are looking back and thinking, shit we had the ability to actually organise a resistance, why didn't we?
I'm pretty sure the same rationale was given as King Edward "The Long Shanks" tore Scotland in half and offered rape on the first night of marriage. The Thatcher admin pushed armies into family areas in Dublin. Jews were being turned into lampshades. Kurds were being used for target practice by both the Turks and the Iraqis. Palestinian's homeland was being taken from them after world war two by the Brits. I would go on, but pretending things aren't organised to put people in an early grave is a bit naive. People historically have been nothing but mean to each other. Individually we're awesome, as a herd. We suck.
The agenda of our leaders is solely to protect the privileged class. Decisions are not being made to solve problems.
I agree mostly with what chrisina said, with these two exceptions. I think the first sentence quoted here is true always. Historically, it is the privledged class, not the unpriviledged class, that puts leaders in power and keeps them there. The leaders are good to those who made their leadership possible. It's a simbiotic relationship. Regarding chrisina's belief that our leaders are blind and don't know it - I think Bernanke and company do realize they don't have the answers. I think they have realized it since the beginning - when they were, for the first time ever, confronted with the reality that a bank run could happen in seconds. I think that none of what Bernanke had studied about the Great Depression prepared him for that moment (surely you can't have bank runs without people lined up around the block). They are making it up as they go along, trying to discover what the answer is. That is a normal function of leadership. For thousands of years, leaders have been confronted with problems they did not know the answers to. Those who could figure out good-enough answers survived. Those who couldn't, didn't. I think we don't know yet whether the current crop of answers coming from the western governments are good-enough.
"I think we don't know yet whether the current crop of answers coming from the western governments are good-enough."
yes we do.
they aren't.
Many of the contributors here are dancing around the central issue,
which is that the whole system of capitalism assumes a general expectation of growth.
But today we all have, instead, "on a long-enough time line, the survival rate ...."
Our leaders are vaguely aware that we have already run off the proverbial cartoon cliff
and everybody is spinning their legs as fast as they can.
Our leaders are doing their damnedest to keep everybody from looking down.
There's only one way this movie can end ...
Our leaders are doing their damnedest to keep everybody from looking down.
I'll buy that. Good explanation.
+100
Debt deflation will ultimately lead to systemic collapse and "collective ruin".
this statement is the one I dsiagree with. Both ways lead to collective ruin, but of different types. One works best for different classes of people. deflation for good old savers who have lived their life the way they should works best for me, inflation for those who lent out too much money in bad loans works best for them.
Having spent a lot of time looking into delflation I am convinced much of what is written about it is wrong. I don't think humna behavior acts the way economists think (I'll just keep waiting to buy as things drop). the periods of deflation haven't been so many one can really make much of analysis.
DOW updated chart ...
http://stockmarket618.wordpress.com
"the ruling class has lost its confidence in obedience."
Yes, that quote grinded on me. The natural reaction is: "by what right does a ruling class expect to be a ruling class and how do THEY deserve it?" By blood (don't make me laugh), by education (there are only minor differences now), by inertia (most likey), by right of care ... meaning that they are good leaders that take care of and attract followers.
People who are good at "taking" money from others generally make very bad leaders. Because they make very bad leaders people in general feel that they have no right to rule. There are so many parts to this problem, but I think once piece at the heart is that leadership has been given to those who are adept at taking money and because they are bad leaders they resort to trickery and subterfuge to do what they do best which is take more money from others. They think they are deserving of obedience, but have never earned loyalty. Authority without responsibility never lasts very long.