Time to Change Course, Rebuild Finance and Debate 'What is The Good Life'

Jamie Galbraith is one of my favorites: He speaks clearly and holds nothing back. Elsewhere he has called for the destruction of the Financial System and a clean rebuilding of it. Makes sense, since in its current form it serves us not, and instead extracts the value of our labor and output. Finance should be a utility: Moving money from where it is to where it is needed. However, the reality is that Finance instead preys upon the majority, stripping the value from our assets (via loans and speculation), pocketing money they create akin to Counterfeiting.

As Finance grows and extracts all they can from a particular market, it continually moves on. Currently its intended prey is our public institutions: Social Security, Medicaid, Medicare, and even perhaps our public lands. Through its tools in the House and Senate, they pretend that it is the only way.

But there is a another reasonable way of viewing the current situation. Finance promised us jobs and prosperity if we cut taxes on Capital and High Incomes. We did so in 2003, with dismal job growth and stagnate gains since. It was a loan that didn't pay off. It is time to call it in: If we have learned anything over the past 20 years is that leaving money in the hands of the Finance industry and the excessively wealthy does society no good - and there is no credible argument that the majority of society need to give anything up to pay for the misdeeds of the members of the Finance Industry.

Galbraith here explains the global state of affairs very nicely, and reveals in commonsense terms how what is happening in America is not distinct or separable from what is happening in Europe - that Finance is currently in the advanced stages of destruction of the World Economy. Although speaking to a European Audience, he reveals many things about the global economy, the US Economy, and exactly how and why there are different current outcomes, but that all is not stable...

Galbraith: Change of Direction

2012 Election - Work Will Remain After The Voting

When a friend asked if I would like to provide an essay for her blog about the election, I quickly agreed. It didn't seem like it would be too difficult: I have strong opinions, I've written about them for some time: How hard could it be?

It turned out to be much harder than I anticipated. This election is presenting me with some challenges that I just don't recall any previous election presenting. I know who I am going to vote for, but it seems woefully inadequate, woefully irrelevant. Let me explain:

I find the big social issues to be a continued source of disbelief: You mean, after the Civil War, Woman's suffrage, the passage of the 14^th Amendment (with its Equal Protection Clause) and the 15^th amendment on voting, we STILL insist on attempting to segregate people from general equality based upon some aspect of their lives? We STILL insist on attempting to force conformity to one particular set of religious beliefs, even as those beliefs are undergoing internal revision themselves and don't speak for all of us? Bah.

So, it has been easy for me to vote against the party that continually comes down on the discriminatory side of things – that somehow eschews calls for equality and advocates against women frequently, against a gender-blind definition of marriage. Add to that their almost fanatical support for increasing the means to inflict violence, and its a no-brain-er.

2008 was exciting. Here we had an articulate black man who voiced concern for those who don't get a fair shake; concern for those who face injustice and inequality; and who, more than anything else for me, was willing to advocate for a restructuring of our out-moded and poor system of health care that costs all of us too much and denies coverage to many, specifically many who need it.

He did exactly that, too. Once President, Barack Obama continued pushing to reform the system of health delivery, striking bargains to make the result palatable to Republicans, Democrats, the Insurance and the Health Care Industries.

Of course, what we got represents all sorts of compromises, and in a spectacular play against the nation and for the furthering of their own interests, members of the Republican Party unanimously voted against it – voted against a remodeling that looked surprisingly like plans put forth by their own party 30 years previously; a plan that strongly resembled a successful State Plan enacted in the previous decade.

In the intervening time since then, President Obama has come out in favor of Gay Marriage, and has allowed the Pentagon to repeal their nefarious 'Don't Ask; Don't Tell' policy.

So, here we are in 2012. There is a new gorilla in the room, but nobody is talking about it. Neither Republican candidate Mitt Romney, nor re-nominated Democratic candidate Barack Obama. Both, in fact, seem bent on side-stepping THE major issue of this election (and perhaps our lifetime and more), turning the whole processes into a frustrating side-show of irrelevancies.

Mr. Romney, following his party (actually, almost re-inventing himself to be crueler and more prejudiced against practically anyone who isn't wealthy and white and male than was evident during his tenure as Governor) has brought up the old, tired drudges about taxes and spending and jobs, as though we won't see through it again. His running mate, true to form, has sponsored a non-sense budget that panders exclusively to those who extract rent from the economy, and imposes austerity on those who work.

The gorilla, of course, is the outsized (over 40% of our economy!), enormously detrimental Financial Sector with its reckless debt creation, speculation, and extractive activities that drove us to the brink of ruin four years ago, and its continued existence in current form which will only repeat the cycle. The financial sector has driven debt creation, both private (which we, as a nation, are wallowing in), and public (as the falsely strong dollar elicits large trade deficits, piling on government debt as foreign traders recycle their American dollars in Bonds).

I want a champion who will go to Washington and take on the FIRE (Finance, Insurance, Real Estate) sector without concern for re-election, without concern for the opposition by the malefactors who daily steal the real productivity of the masses. I want a hero who will advocate a return to a true, classical economy, where debt is used to finance manufacturing expansion, where the unearned, 'free lunch' asset appreciation gains (Capital Gains) don't drive the economy nor contribute to outlandish awards to some.

I want a Neil Barofsky, or an Elizabeth Warren, or a Bill Black to go. Each has shown the fortitude to stand tall on this issue; each has worked in their way to raise awareness or to gain a foothold to battle it. Each has clearly demonstrated that they understand both what is happening, which of many possible solutions might give the best outcome, and the urgency with which this is needed.

Alas, outside of Warren who is running for the Senate, the others are not on the ballot. So, that leaves:

Mr. Romney, of course, who earned his fabulous wealth through this very means, borrowing and then saddling others to pay it off, while extracting a fortune from that very same debt. It is inconceivable that a Romney administration would promote the dismantling of the outsized banks and a return to a stable economy based upon real labor, real production, where real people perform real tasks to earn a real living.

President Obama, who has shown only a superficial awareness of this issue, and has so far backed away from any real attempts to address it or even communicate that he is considering it.

Hence, the lackluster feelings I have for this election. I will cast my vote for Obama, recognizing that my political participation will have only just begun at that point. That in order for us to gain any leverage, for us to stave off the austerity measures that the financial elite are cooking up for us, we will have to continue to participate, continue to advocate, continue to Occupy the public spaces.

The Irony of Ryan's Entrancement with Rand

I did the college thing of reading several of Ayn Rand's works. What struck me most was how much the landscape she was describing resembled nothing like the world I know. However, it seemed pretty obvious that she was working against the landscape she knew: Soviet Russia. Her descriptions of the difficulties for entrepreneurs, of mindless bureaucrats standing in the way, of the waste and inefficiency of a command economy all fit when you realize that is the world she is describing. And, like a school girl caught up in her first crush, Ms. Rand gushes blindly about the wonderfulness of the structure of her chosen country, America.

Although her creed, that acting out of selfishness results in the best outcomes, is neither a description of how we actually act and has been discredited as a proscription for how we should act, she does draw a clear and useful distinction between those who work and produce, and those whose actions are extractive. The bureaucrats of her old world produced nothing of use, worked to expand mini-empires with the command economy, and they were the ones who ended up with the summer homes, the cars, the better life-style, while many faced hardship enduring goods shortages (the images of the breadlines come readily to mind.)

These parasites, the one's who so steadfastly stood in the way of entrepreneurs like John Galt (from Atlas Shrugged), who condemned the working man or woman to a lifetime of ill-spent productivity by their miss-allocation of production (creating both vast waste and shortages as they ill-anticipated the needs and desires of the population); These mindless wasters of both the labor capital and intellectual capital of their countrymen: About them Ayn Rand heaped her derision. Galt's 50+ page speech in Atlas Shrugged is simply a condemnation of a command Economy and its flaws, interspersed with unchecked praise for an American-style Capitalist Economy.

The more we learn about the inner workings of the American Economy, however, places things in a new perspective. Reports about the influences and outcomes of the financial sector; reports about the actual results of applying Private Equity, keep enforcing the idea that we have built a purely extractive layer upon our vaunted production (ideas, manufacturing, services). What the entrepreneurs and laborers of America put in, our financial services (and corporate elite) take out for personal use, trading lobbying power for actual production.

American Capitalism has degenerated into a quasi-Command Economy: The Banking members of the Federal Reserve set the dollar and maintain it high to benefit those who lend (extracting great wealth for themselves along the way); Congress interests itself with passing laws that maintain wealth or provide easy avenues for those with wealth to build more; The massive corporations use their market position and power to squelch new ideas and new innovations (or buy them up and squelch them internally or, after the initial pay-out to the entrepreneur, hoard the future income from the idea for themselves, along with accounting control fraud to extract more from the economy than the production of the idea or product places in.)

Just as this parasitic behavior was detrimental to the well-being and expansion of old Russia, so, too, this parasitic behavior has profound negative consequences for America's future. As labor is squashed, less demand is created for the production of the entrepreneur, curtailing the advancements that can and will be realized. As the benefits of the productive classes flow more and more to the parasitic classes, the velocity of money slows, reducing the opportunities for new ideas to enter the market; as the money available to educate all decreases, the number of fertile minds (and hence the number of innovations) decreases, leaving America a second-(or worse!) class producer and member of the world stage.

The irony arises, then, because all of these self identified acolytes of Rand are members of this parasitic class: From Greenspan to Geithner, from Cantor to Bernanke, from Romney to Ryan: Each is a member of the extractive classes, producing nothing, but extracting greatly. None of them would be heroes in a Rand novel, but rather would be the derided antagonists, standing in the way (and ultimately failing) the onslaught of a true producing giant. I think that Galt would smite them with a snort!

The Real Meaning of the Deficit

I think there is a lot of confusion about the real meaning of the deficit. There is a lot of talk about the need to balance the budget, the need to pay down the deficit, to make the 'hard choices' – but no-one really talks about the why. There is some ambiguous talk about deficit vis a vis the future, but no specifics at what is at stake.

In simple terms, as long as others are willing to purchase and hold U.S. Dollars, thereby funding the deficit (or holding it in terms of bonds), the dollar remains strong, e.g., its purchasing power remains great. However, if conditions were to change, if others' confidence starts to falter, and U.S. Bonds are not seen as the low risk instruments that they are today, it would signal a weakening of the U.S. Dollar, and the purchasing power of the dollar would likewise fall.

A falling dollar translates, here at home, to inflation, as the amount of goods or services that can be purchased with a given amount drops. Everything starts to cost more, from food to clothing, services to labor.

Inflation isn't necessarily good, although it impacts different people differently. To truly understand the demagoguery surrounding the deficit, one needs to ask the question: Who will be most impacted by inflation?

The answer, of course, is lenders. Bankers. Wall Street tycoons. Anyone who lends money and derives their income from the resultant payments sees their income fall. And, if their money is tied up in a long-term, fixed rate instrument (think a 30-year fixed rate loan at 4%), there is a huge risk that such an instrument's yield will drop to near (or possibly, below) zero if inflation climbs high enough – that the payment flow is actually negative.

Now, a debtor or borrower is in almost the opposite position. While there was likely some initial pain as their income dropped relative to the goods and services they wished to purchase, since labor (i.e., wages) are a form of service and hence increase their cost along with inflation, labor typically sees their income keep pace with inflation, and the resultant pain is from the fact that there is no growth in their wages. Conversely, as inflation takes hold, the amount relative to their pay that their long term debts require is dropping, laborers are seeing an actual increase in their standard of living as a greater amount is free to purchase other goods and services!

So, who really cares about the deficit? Not likely you or I. In fact, it has been suggested that one of the best ways forward would be for America to gradually inflate her way out of the problem of a high deficit, and that the consequences are orthogonal to the current horror stories told about a high deficit.

So, the next time someone tells you it is imperative that we balance the budget and begin serious efforts to reduce the deficit, ask them “Why?”

And if the answer isn't because they have substantial money tied up lending to others at low interest rates and a future inflation risk may lower their income, they either have no clue or are lying to you.

And in either case, they have no credibility. So why listen to them?

The Devil Is In The Details

Job Creator? Nope. More like pension looter, debt adder, layoff enjoyer.
Nicholas Shaxson gets the credit for this interesting Vanity Fair article looking into the finances (and perhaps moralities) of the man who would be president.

The Bigotry Of Bankers

Last week I labored. I didn't do my normal, sit-in-my-chair job of programming, but instead really worked. I framed my basement. Twelve hour days, late dinners, tired muscles. And, I realized just how much a life of leisure I live. I sit for eight hours, take my lunch at the proscribed time, make up activities just to get a little physical exertion. Sure, lifting and bicycling get my heart-rate up, but in the end, I have nothing to show for the effort: The world has not been changed, other than some extra calories burned.

But physically building, assembling something – making a structure where none stood before: That is real work. As I labored, I thought about how those who have forgotten what it means to work with their hands often look down on those who still remember: The economists for whom a day laborer is just an interchangeable unit of output, unable to command a higher salary due to the low level of education required; The Banker who believes his or her output is somehow superior due to the extra education attained and money's fungible nature.

But during the last decade, when the financiers of Wall Street paid themselves ever greater salaries and bonuses as they repackaged ever more mortgage backed securities, justifying it on the grounds that they were making large contributions to the economy, who was it that was really providing the wealth of the nation? Why, it was the laborers who were building the houses that were being securitized: The framers, the drywallers, the electricians and plumbers, the surveyors and roofers and concrete workers. Wall Street extracted its profits on the backs of those who do the work – and to add insult, the unscrupulous mortgage brokers who had nothing to lose by writing liar's loans, often saddled those same laborers with houses they couldn't afford.

When Wall Street's house of cards came tumbling down, who has paid a disproportionate share of the cost through extended and high unemployment? Why, it is those same individuals who created the wealth that Wall Street pilfered.

Yet, an unrepentant Financial Industry has beaten back attempts to write regulations and increase taxes that would move some of their ill-gotten wealth back to those who did the actual creating. Crying foul, they continue to justify what they do as something vitally important: That without them and their expertise, the economy couldn't run.

However, they are only partially correct: Money and finance are necessary components of our world, but not sufficient. In order for money to have any value, in order for a loan to return a profit, there must by some underlying worker who is actually creating something of use; building, modifying, molding. Wealth comes from the bottom up.

Bankers are experts in obfuscating this simple fact by the language they use, their allusions to (unproven) economic principles, their appeals to politicians who receive their money.

Fortunately for us, however, by pretending that they aren't riding on the backs of all of the workers of society, by claiming theirs is a privileged position that must be paid 20, 30, 100+ times what a laborer makes, their bigotry is plainly visible for all to see.