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Guest Post: The Widening Chasm
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
An independent, critical account of the American economy would soon raise questions about the structural causes of inequality.
That some sectors of the economy will be doing better than others is natural. If you're a landlord or mobile-apps coding genius in San Francisco, the economy is excellent. Those working in the vast North American oil-patch are experiencing a boom economy. Realtors in resurgent markets such as Miami are having their best year since the top of the bubble in 2007.
This can be viewed through any number of lens, one of which is the inherent inequality of capitalism: capital and labor flow to what is most profitable at this point in time, and capital and labor left stranded in low-yield, declining sectors suffer poor returns and lower wages.
This inequality can be seen as the systemic cost of a dynamic economy in which capital and labor are free to move to better opportunities.
It can even be argued that the more dynamic and fast-changing the system, the greater the inequality, as those who move fast enough to take advantage of new opportunities reap most of the gain (The Pareto Distribution of 80/20 is often visible in these sorts of distributions).
Economic systems that can be gamed by bribery or purchased political influence are also inherently unequal, as those with power are more equal than those without power. This is the classic feudal society or crony-capitalist kleptocracy.
Those benefitting within the crony-capitalist kleptocracy will of course claim that the society is a meritocracy and their advantages are the result of their own hard work and brilliance (and perhaps luck if they are honest enough to admit to being lucky).
As a result, it is difficult to tease apart the capitalist functions of the U.S. economy from the cartel-state, crony-capitalist kleptocracy that I call neofeudalism.
What we do know is that the top 1/10th of 1% is reaping most of the income gains.
We also know that household debt has far outstripped the growth rate of the economy as measured by GDP, evidence that much of the prosperity is based not on wealth creation or savings but on expanding credit:
And we know that real income (adjusted for inflation) has declined. Since this is the median household income, we can project that the bottom 90% are actually doing much less well than shown here, as income gains mostly flow to the top 10%.
Individuals are not powerless to change their circumstance. This is the basis of the American Dream (and also the Chinese Dream, Mexican Dream, Iraqi Dream, etc.) The question then becomes: how is the system "wired," i.e. what are the obstacles, incentives and disincentives presented to individuals who are trying to better their circumstance?
It's important to ask this question, and to be honest in our assessment of victimhood, oppression and individual responsibility.
The widening chasm refers to both the income chasm between the financier class (1/10th of 1%) and the 99.9%, and the chasm between the real economy and the official narrative of the economy. The essence of propaganda is to substitute an officially conjured narrative for independent critical thinking.
In the American propaganda narrative, the central state and bank are admirably supporting a "recovery" that though uneven in places is soundly on the path to widespread prosperity.
The primary support of this narrative is ginned-up statistics (bogus unemployment rate, etc.) and asset bubbles inflated by easy credit to the masses and unprecedented low-cost credit to the financier class. These are the basic tools of propaganda: choose a metric that you can control or game, and make that the measure of success.
In the Vietnam War, the body-count of enemy combatants was the metric chosen by the propaganda machine to measure success. Unsurprisingly, stacks of dead civilians were duly counted to boost morale and to mask the failure of the war's managers.
Nowadays the unemployment rate is the new body-count: a metric that can be gamed to reflect an illusory success. Just erase tens of millions of people from the workforce, count every 4-hour a week job and dead-reckon a few million jobs were created outside the statistical universe (the Birth-Death Model of small business creation) and voila, the unemployment rate magically declines even as the economy and the job market stagnate.
The other metric of choice is the stock market, which has been inflated by central bank policies and identified as the gauge of recovery by a political class anxious to deflect inquiries into its systemic corruption and monumental policy failures.
The official narrative carefully leaves the kleptocracy, crony-capitalism and cartel rentier arrangements firmly in place. As noted above, those benefitting from the cartel-state neofeudalism defend their perquisites as "natural," i.e. the result of meritocracy. This adds another layer of propaganda persuasion to the official narrative.
An independent, critical account of the American economy would soon raise questions about the structural causes of inequality by asking cui bono, to whose benefit is the system arranged?
If we can honestly say that the system's primary source of inequality is a dynamic economy that rewards the top 10% who are best able to deploy skills and capital, then that suggests one set of potential remediations.
If however we find the system is unequal largely as a result of its cartel-state structure, then that suggests a political and financial reset is needed to clear the deadwood of corruption, malinvestment and state/central bank manipulation of statistics, finance and credit.
We had to destroy the economy to save it. Indeed.
New video with CHS and Gordon Long: Peak Consumption
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Reset, bitchez
Get over it Charles, it ain't gonna happen....move on to your love letter book
llusion of Democracy today.
People sponsored by the rich, make false promises to the masses to get elected. Distribute national wealth amongst themselves and their sponsors (Industrialists) and when that is not enough borrow money from rest of the world and continue the distribution process. The borrowed money has to be paid back by taxing the masses keeping in mind that tax rules are made such that the politicians and their sponsors pay minimum or no taxes.
End of political tenure, rinse and repeat till the whole system breaks down and the world wealth is cornered by a miniscule of the population.
http://www.marketoracle.co.uk/Article35345.html
www.letstalkmoney2012.in
The widening chasm is this guy writing something and me wanting to read it.
Thank you Captain Fucking Obvious.
There are a lot of people still out there who need it spelled out for them, possibly even more obviously than its done here.
A lot. And they can use all the help they can get, since they have been lied to about everything, their entire life.
Being Lied To;
GDP and how its measured is useless. At best, it will give you a ballpark glimps, as to what any particular economy is doing. Its a lagging indicator at that. To lump an entire economy into a formula and expect it to accurately reflect that economy is nothing but, unaldulterated bullshit!
The Fed, Bernanke, and therefore the banks have to western world snookered at the moment. They have convinced the left and the MSM that printing money is the way out with minimal pain. Of course the Left and an industry that profits from "feeling" and "perception" will always choose the painless illusion rather than the harsh reality.
The Fed's message is:
"So, what are ya going to do? Return to a balanced Federal Gov't budget and let interest rates rise because of Fed printing / buying of debt....? You want your wealth as represented by real estate and equity market take a 20 to 50% dive?
Of course you don't....so just listen to us, we will frame the message and frame the economy the way we know how to....we will make you wealthier, we will make a better, more equal world...we know how to do this...do not fight us...".
Whattaya going to do ?
If wealth inequality is only because those who deserve money are getting it, why would the majority of the people put up with it? If you are one of the talented, you may just say it's fair. But the talented cannot waive a magic wand and say politics go away.
And if politics goes away, how are the talented people going to enjoy their wealth? Employ a private security force?
The inherent inequality of capitalism??? Now you're just whining.
In a functioning, capitalist system (one doesn't exist today), capital is mobile and moves to pursue higher returns. That doesn't guarantee equal distribution of income or wealth, but variation of those things is a natural and healthy outcome.
"Natural and healthy." WTF does that mean? The concept of "fair" is like an asshole, and most personal concepts allow for quite a bit of inequality. But when the top sliver get 99% of income gains, you have a problem. Unless you want to bury yourself in your ideology.
You must be really slow. You're talking about results that do not come about from a structure of capitalism. You have an oligarchy that is intervening on risk-pricing, foreclosing on information access, etc. etc. etc. The idea of capitalism has been corrupted - as it always does because it is "too fair" to be compatible with the insecure people of the world.
If you have a truly free and open market, with equal access to information, resources etc., you are going to get DIFFERENT results, Jethro. Believe it or not, it is functional to have some level of disparity in outcomes. Only a pure socialist would think otherwise.
What we have in the world is not a reflection of the idea of capitalism prevailing. If you believe that to be the case, my only offer of help is to send you what leftover meds I have from my last SSRI prescription. But thanks for playing along.
The idea of capitalism isn't inherently unfair - that is the main reason it is not allowed to survive.
Nonsense... more capitalism worship.
The underlying mechanisms in all societies, past, present, and future, are all straight from the law of the jungle. The description that we give to an economic system of a nation state is merely a pinpoint in time... just a simple determination, like a snapshot photo. The truth is that the economic system is always changing... an ebb and flow... a sifting mechanism that, eventually, ends in consolidated wealth/power as certain persons are declared king(s) of the jungle.
We can try to change the natural way of things... by imposing laws... regulators... and ensuring there is a "neutral" referee in the process... but it ends the same.
Arguing about which economic theory (system) is correct is practically the same as arguing whether democrats or republicans are better... in the largest part, it's simply a misdiagnosis of the problem, which leads to a misdirection of thought/energy.
A pure meritocracy will disproportionately benefit the top 10% too.
I’m not saying that the system now isn’t completely rife with cronyism, bad incentives and government supported misallocation of capital but I cringe when unequal outcomes are described as an evil in and of themselves.
+1 ...and would not need remediation. Non-uniform income and wealth outcomes is not in and of itself a problem; controlled access to opportunities that create income and wealth is.
The richest, smartest and most connected are in the best position to benefit the most in a crony-capitalist environment but they are also in the best position to benefit the most in pretty much any other environment too.
But the government shouldn't be giving them a leg up on top of all that - even (especially) in the name of enlightened central planning.
Forget unequal, I am only worried about unjust.
We ALWAYS ALWAYS talk about the billionaires in the billionaires club as if they earned that money.
Nothing could be further from the truth, if you break down their fortunes, one by one. Lots of inheritance, lots of use of leverage early on (imply access to massive financing), lots of 'luck'/timely insider information, triumph in the court system, despite the odds, or even the evidence...
The best example is probably a guy like Khodorkovsky, because he obviously tried to take too much power for himself, and wasn't listening 100% to his paymasters, and why not, he thought he was one of the richest men in the world. Overnight it transpired that his shares passed to Jacob Rothschild...
Hmmm....
Out of the fucking park bud... I think you might have even beaned a hot dog salesman.
The same traits that lead to successful people are often times INHERITED, not by virtue of monies, land, or tiles, but by virtue of genes... Machiavelian aptitude, ability to self monitor, gift of gab, ability to correctly synthesize large swaths of data, ability to properly stereotype and know when to apply it, raw intellectual horsepower... you name it... genes are the largest determining factor. Some of this can be learned, for sure... but this is simply akin to having to "outwork" someone... which typically ends badly for most folks given the lack of conviction about virtually everything.
You can't change these inherent differences... nor should anyone want to... we can try and tweak incentives, for a short period of time, but we can only do so temporarily before rudimentary social structures ensure that rent seeking flows to its natural conclusions. [the successful people don't care to "fight" the world at every chance... rather, the goal is to get a big enough lead and then rent seek (i.e. collect on the effort thus input)].
In a pure free market, the top 20% will end up owning 80% of the wealth. But we have the top 10% owning 90% of the wealth. That means that our economic policies favor those at the top and crushes those at the bottom. The resulting disproportionate concentration of wealth at the top is undermining the stability of our civilization.
Right now the PTB have us all spinning like a top, but the failure of the top to stay upright is a fact.
Then the wealthy will be subject to the Peoples Courts. :(
I contend that the inequal wealth distribution (even within the United States, i.e. excluding the third world) of our generation is greater than any other period in history. Even feudal times.
At some point it becomes practically impossible to argue with your contention... we're probably already there... how could a historical example, literally, display a larger concentration of wealth? At some point, we needn't even invoke induction to bolster the claim.
[although, given the breadth of your thesis, I'm willing to bet that the caveman with a hut and a harem of 20 women might have had a larger disparity of wealth compared to his other less dominant cavemen, all things considered].
income and wealth inequality, not a problem. Fraud, coersion, theft and conspiracy are the true problems. I get so sick of this constant focus on inequality, which is simply the natural order of life. People are unequal, ok? wealth and income never have and never will follow a statistical "normal" distribution, ok? Put on your big boy pants and deal with it.
Fraud, theft... is how they got the massive amount of wealth.
Justice means, people get the wealth that was stolen from them back, and the perps are punished. The massive unchecked theft has resulted in wealth inequality beyond anything the world has previously known. That wealth inequality has knock-on effects throughout the economy, in that, those with more money than they can spend, can by definition not spend all their money.
Meanwhile, most of the populace is heavily indebted and living pay cheque to pay cheque. Meaning, even though that portion of the populace is in the majority, their lack of wealth means they have a minimal impact on the economy (they can't increase their consumption even though they want to).
It's not that simple... you have to judge each individual on his or her own merits... some cheated and stole to get to the top, others worked smart, hard, or both. Some are little more than rent seekers... others are constant innovators...
I also think it's disengenuous to paint debt as a purely imposed endeavor. It's akin to blaming the drug dealer instead of the drug user. Both have culpability.
spot on, equal opportunity, not equal outcome (the later being what the obummer progressives want). and one of those progressives must have down arrowed you ... wasn't me...
Money and wealth are not natural constructs. They have no real-world analogs. These are human constructions that serve the needs of their creators primarily, just as "laws" usually reflect the needs of the State and promote its growth and maintenance.
Bankers invented money. They taught everyone to use it, and during the course of our use of their money they extracted a fee. They like how this system works for them, they will defend it to the end, and they will tell you anything they think you need to hear to convince you that Their Way is the way of God, it is right and it is best, and it is sacred and you will follow Their Way.
To break the chain you have to first rewire your own thought processes to see this for the illusion it is. Because it is all of it, from top to bottom and throughout, a vast and accomplished deception.
Almost nobody can actually do this, so we go forward in a fog.
Bankers didn't invent money... bankers do not invent anything... they merely cabbage onto the inventions of others.
Money was created because of a NEED... simply put, trade dictates its creation.
Bankers merely observed the soft underbelly of money and combined that insight with the known behaviors of mobs... presto, changeo, you got a monetary system. But make no mistake, bankers did not create the concept of money... and this isn't a chicken or egg argument...
"Almost nobody can actually do this."
Yes, humans lack discipline and constantly give in to temptation... naturally we want today in exchange for paying for it tomorrow due to hard coding of our brains regarding resource scarcity in the past... (the getters today survived).
I'm not sure we've really had to grapple with whether humans "can" do it (permanently)... I think it "can" be done, it's just that no one is incentivized to change... every few generations, a generation gets burned badly enough to quit touching the stove... it's possible to temporarily change as a society, but our kids or grandkids don't get the message and we start the charade over again. Thankfully, my generation has been chosen to get burned. Hopefully someone has mercy enough to piss out the fire...
this article is one of the best descriptions of the US economy...
Surely the issue is Leontief's Input-Output analysis and a look at the Capital-Output-Ratios. Just what is it costing in terms of Capital to generate these islands of Plenty ? The whole basis of Modern Capitalism was Resource Allocation by Price Mechanism yet the system is distorted by Political Agencies to servie the interests of key (and covert) constituencies.
Transferring liabilities onto the US taxpayer to enrich a few hundred thousand Insiders is a very short term way to run the US economy. What Christopher Lasch called Revolt Of The Elites is in its Endgame because the numbers do not work.
I wait for states like Texas to cut off interstate pipelines and demand hard currency or barter. At some stage the exogenous shock to the USA from Europe is going to rock the NY and DC based system.
Americans have little idea just how costly energy is in Europe and how hard it is for people to pay for last winter - even before food prices soar after bad harvests. Just watching farmers ration grazing land for cows is a sign that the stuff is not growing fast enough for the herds after a long winter and huge costs of silage.
The issue is bottlenecks and that is where Leontief comes in. His analysis shows how inflation will take off in sectors because the flow of goods and capital is not functioning and that means there are huge inventory build ups and huge illiquidity with favoured areas awash in liquidity but insolvent
Just a reminder. Energy is a global market. Cost + shipping.
The reason retail energy prices are so high in Europe is taxes and 'green' policies.
Free shit ain't really free.
So, the current economic paradigm, which necessarily includes current economic policies favors the rich...ahem the very very rich and screws everyone else. Hey everyone - surprise! Gee, wonder why? We keep seeing the same faces whether its corporate moguls and, of course, f'ing politicians and policymakers...shoot, even celebrities. Quick aside, makes my skin crawl when I hear that, apparently, only hil-dog is the most "qualified" for the next potus?? Same faces, you see. Perhaps its irony. Current economic policies are presided over by a bunch of seemingly "I'm for the little guy" and "tax the rich" or better yet "eat the rich" politicians...really, so, we could safely assume that the broad concept of "trickle down economics", an idea espoused by the other team, would be summarily discarded with prejudice! After all, it empowered the rich!! Yet, with current monetary policy favoring the rich, today, they are effectively betting, you would think, for that idea to work? Well, that's but one contradiction one could think of...naturally, the full picture was described best by George Carlin...it's a big club and you ain't in it. Same club they beat you with BTW.
Until the middle class stops the rape and takes back what was stolen, really, "What Difference Does it Make?"
back to the future .. it looks like we are right back to the roaring twenties ... the time of great Gatsby ... is it coincident that the Gatsby is coming to your nearest theatre? Is WW3 just around the corner?
Invest in the Future! Profit from the coming currency crash!
Set it and forget it! Buy my pigeon traps today!
Crony capitalism I think is a misnomer. Capitalism has it's flaws, but the problem isn't capitalism, it's in our means of exchange, currency, and debt, provenence of the banks. I want simple, and easy to understand explanations. The problem is really criminal in nature, it's counterfeiting and usury. Eliminate those two, and then the legalized theft ends. One dragon slayed, many more to go.
Corporations need to be crippled in their ability to achieve monopoly, the final prize and end game in flawed capitalism. How to fix this flaw is not obvious.
The tangle is deep because synergies between corporations, bankers, and government are deeply entagled, and like a juvenile alien, threaten to strangle the host if you even touch them at this point. The poor proles, the elite are fighting each other to become plantation owners of anonymous debt slaves, an exotic and profitable crop in a strange new world.
I fear we may fall into a deep technology drivern dystopia, and the huge allocation of resources that has been directed to controlling humans may achieve it's goal, and few may control many, or maybe we poison the whole thing. The root of the problem is gutlessness, people afraid of the future. Can we evolve fast enough?