Thursday, April 28, 2011
Some video from last year's gathering.
Posts will resume next week.
Wednesday, April 27, 2011
Wages now account for the lowest percentage (51%) of total personal income since the government first began keeping the statistics. Since the crash of 2008, the amount of total personal income coming from direct government transfer payments has zoomed from a historical average of 12.5% to 18.3%.
. . . 70% of the increase in personal income was simply money borrowed by the Federal government (recall the $1.6 trillion annual Federal deficit) and distributed to the citizenry. In other words, people aren't making more money--the Central State is simply borrowing more and it's being counted as "income" when it's distributed.This amply shows the utter bankruptcy of present U.S. policies. Rather than borrowing money to keep millions of Americans barely living at the edge of subsistence, our government could be using its sovereign powers to create money, and use it to pay millions of Americans put back to work repairing America's broken infrastructure (the American Society of Civil Engineers calculates $2.2 trillion is required just to get our already existing infrastructure back into fully usable condition. No money borrowed, and the new money created is going directly into creating new wealth for the country.
So here's the reality: over one-fourth of all households are at or below the poverty line: 28 million.Read the entire article.
The top 10%--10.5 million households--own the vast majority of the financial assets ($45 trillion)(the total owned by non-profits is not broken out).
The next 10% own 10% of this wealth, or about $4 trillion. So the top 21 million households own 93% of all financial wealth.
The Great Middle Class between those in poverty and the top 20%--56 million households-- owns about $2.7 trillion in financial wealth, and the millions with mortgages own an additional $1 trillion in home equity. That comes to $3.7 trillion, or about 6.5% of the total household net worth.
Two points I want to make: first, Konczal's short summary provides a good idea of how devilishly complex modern finance has become. Whether the FDIC report mentions it or not, this means that it is extremely important that financial regulators be highly trained to be able to deal with these complexities, and highly paid to diminish as much as possible the temptation to slide through the revolving door to a lucrative position with the industry they were previously regulating. I think a senior financial regulator should be pulling down at least $1 million a year, while being subject to extremely strict, almost onerous, ethical codes and security checks. Why? Because we are going to be depending on these regulators to attack and dismantle the most powerful oligarchical faction that now (mis)rules America, and the rest of the world.
Second, the disastrous results of the (mis)rule by the financial oligarchy can be seen by merely scanning the headlines immediately below on the developing world food crisis, which is almost entirely caused by global misallocations of credit and money to predatory financial activities instead of to productive economic investments in industry, agriculture, mining, transportation, infrastructure, and social programs such as education and welfare. What is singularly missing from Konczal's summary, and I assume the FDIC report, is an understanding that a world past the brink of peak oil and global climate change can no longer afford to have six or seven trillion dollars in hot money every day sloshing around the globe in a search of the "highest investment return." Credit and money are creations of society through the agency of government - even if created by private companies, those companies are created and exist at the sufferance of societies and their governments. If credit and money are being misused, then the physical capacity of society to sustain and support human life eventually erodes until the crisis point of widespread penury and starvation is reached, as evidenced in the stories below. If we took just one day of the world's hot money flows - six or seven trillion dollars - what wonders could be created and deployed to make the world's agriculture not only fully adequate, but entirely sustainable?
Until we get to the point where we apply the normative judgment "Does this help society be more economically productive and fair?" rigorously and ruthlessly to every aspect of our monetary and financial affairs, recurring economic crises are inevitable. We don't need trillions of dollars a day in what are essentially gambling bets on interest rates or currency fluctuations. We need trillions of dollars a day flowing through the hands of scientists, engineers, and producers seeking to solve our urgent real problems such as sustainable energy and food production and distribution.
The New FDIC Paper on the Resolution of Lehman Brothers
On April 18th, the FDIC released a paper, The Orderly Liquidation of Lehman Brothers Holdings under the Dodd-Frank Act, which explains how it could have used the resolution authority in Title II of Dodd-Frank to taken down Lehman Brothers with no losses to taxpayers and without collapsing the financial system.
It’s always good to remind ourselves what we want our law to do in terms of failure. Failure is a legal concept, and our laws reflect our values on how we want failure to proceed. We want those who benefit the most from risks to take the largest losses. We want to preserve the ongoing value of the firm if there is any. We want to coordinate the behavior of creditors – so value is based on legal rights, not the speed of action – and ameliorate the hardships caused to debtors and provide a fresh start to the entity.
The bailouts shredded these values – those who took the biggest risks also got huge upsides. Creditors were rewarded in all kinds of ways that were unfair. The firms weren’t stripped down to the core ongoing value but instead left with all kinds of bad zombie debts that needed to be recapitalized through earnings and squeezing consumers. We need better laws capable of handling failures of things we hadn’t traditionally expected to fail in a spectacular way, and the FDIC is arguing that Dodd-Frank gets us a lot of the way there. How does it do that?
If Food Prices Keep Surging, These Economies Will Be The Next To Crumble
Mamta Badkar | Apr. 26, 2011, 12:07 PM
Global food prices jumped 30% year-on-year in February. Food inflation has been pushed by a drop in global food reserves, brought on by severe weather conditions in Russia, China and Australia.
If prices continue to rise by 30% this year, another 193 million people will be forced into poverty, according to a new report from the Asian Development Bank.
We've compiled a list of countries that would be hit the hardest by a 30% rise in food prices and the measures they have taken to ease the burden. Some of these countries with deeper structural problems have a harder road ahead of them. more
Tuesday, April 26, 2011
I posted about food shortages in late February. As the spring planting season comes around again, it looks like the food problem is getting even more severe. Even if you do not agree with all 20 on this list, one or two of these indicators is probably enough.
Monday, April 25, 2011
Second, note that these breakthroughs come out of the public sector - the Department of Energy, and Case Reserve University. This entirely coheres with how the U.S. economy has historically developed: with the government playing a crucial role in developing and incubating new technologies until they are ready for wide-spread commercial use which allows private profitability: a partnership between the public and private sectors to promote the general welfare through technological improvements which feed economic growth.
Sunday, April 24, 2011
There are no primitive solutions to the technological problems that already exist. There are no back-to-nature solutions—do you think our forebears worried about their waste products? or using up all the premium resources? or? Well we have to worry about these things and romantic dreaming will never produce more than 1% of a solution for living gracefully in our crowded biosphere. The rest is just organized hard work.
Saturday, April 23, 2011
There have been many reasons offered for why the economics business wandered off into the tall grass including the notions that economists are just guys with little dicks who hate the rest of the world, or that they have been hopelessly corrupted by their patrons in the FIRE (finance, insurance, and real estate) businesses. I have several dozen institutional reasons including the fact that to get ahead in USA economics, one simply MUST do a tour of duty with a Federal Reserve Bank or another central bank internationally--don't want anyone wandering off THAT reservation, ya know.
But if I had to point to the main intellectual flaw in economics as it is currently practiced, I would have to say it is the arrogant assumption that human behavior can be mathematically modeled. The primary reason I believe this is so is because I was there when it became hip to be a math nerd in the economics departments.
Friday, April 22, 2011
Medical Tourism, separating facts from fiction
One of the greatest myths that I hear on a somewhat regular basis, centers around the belief that the US must have one of the greatest health systems in the world, because everyone comes here for their care. Well, let’s examine that shall we?
As with many things, reality is a little different from the mythology.
According to the Deloitte Center for Health Solutions and Health-tourism.com, there will be roughly 561,000 inbound medical tourists to the United States by 2017….Conversely, 750,000 Americans traveled to foreign countries in 2007, and this grew to between 1.1 and 1.3 million outbound tourists in 2008. Spending on healthcare in foreign countries was estimated to be 20 billion dollars in 2008.
Estimates for growth demonstrate a consistent 35% growth in outbound medical tourism annually. Projections indicate that roughly 1.6-2.5 million Americans will travel abroad in 2012, and spending could reach 100 billion dollars. That’s right, 100 billion US dollars being spent in foreign countries for healthcare such as elective surgeries, complicated dental surgery, plastic surgery, and even coronary bypass surgery.
Thursday, April 21, 2011
Michael Mandel, the chief economist for BusinessWeek, was recently doing some research for a textbook he’s revising when he stumbled upon a surprising entry in the Federal Registry. On March 21, the U.S. Air Force waived the “Buy American” provision of the American Recovery and Reinvestment Act of 2009 for a construction project at Eielson Air Force Base in Alaska. As workers tried to build a few stimulus-backed housing units, it became apparent that a number of simple domestic items couldn’t be procured from American manufacturers – namely, ceiling fans, shower rods, towel racks, toilet-paper holders, and all manner of screws and fixtures.
According to the registry entry, a contracting officialhas determined that the above items of manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality. The domestic nonavailability determination for these products is based on extensive market research and thorough investigation of the domestic manufacturing landscape. This research identified that these products are manufactured almost exclusively in China.In fiscal year 2009, more than 44,000 waivers of federal “Buy American” provisions were granted, worth nearly $14 billion.
Since we are mostly on our own when it comes to education and our learning depends on our own initiative, it becomes critically important to understand why anyone wants an education in the first place. This is especially true for those of us who reject the notion than a degree should be an indicator of status. So here's what I have learned is important to know.
Reading is still the biggie. It's the ultimate intellectual shortcut--in a few hours you can read a book that may have taken the author a lifetime of learning to write and when you are done, you know roughly as much about the subject as the author. If you can extract good information from books (and now the internet) it doesn't make a bit of difference how poor you were or how crappy your schools because you can still find out the important stuff on your own. Even better, reading is self-reinforcing--the more you read the better you get at it.
Writing is still important but these days, other methods for getting an idea from your head to another's should be learned as well. These include illustrations, charts, schematics, and video production.
Knowing basic math is essential to understanding your surroundings. This does NOT mean you are a failure if you never quite understand calculus. But you should know the difference between a million, a billion, and a trillion, how to calculate and understand percentages, how statistical sampling works, and the rest of the skills one must have to extract meaning from news, government documents, and campaign literature.
Knowing history is critical. If you don't know history, you must think that that world was mostly complete (transportation, buildings, governments, etc.) the day you were born. This is the perfect prescription for infantile thinking. Worse, if you don't know how the world got the way it did, it is impossible to understand your point in human development. If you don't know where you come from, you cannot know who you are--and if you don't know who you are, you cannot know where you are going. Historical illiteracy leads to personal aimlessness--every time.
There is a Predator lie that claims that "educated" people don't have to understand tools. And while everyone doesn't have to operate tools on a daily basis to understand the lessons that technological gracefulness teach, it is also true that people who never learn to use tools and in fact, look down with disdain on those who do, are usually confused about very basic issues. Not surprisingly, technological illiterates cannot contribute much to a discussion of technology-based issues like Peak Oil or climate change.
In the following clips, Max Kaiser views the wreckage caused by neoliberal madness in Ireland. It isn't pretty but the descriptions of the problems seem especially accurate and poignant coming from those Irish who have seen the future of their country destroyed by incompetence and naked greed.
Wednesday, April 20, 2011
The fact that a right-wing populist threatens to upset Finland's cozy relationship to the Euro is probably very upsetting to the educated and respectable Finns. Timo Soini and his Real Finns are a real embarrassment to them. (BTW, my sources in Finland say "True Finns" is a bad translation. They say Real Finns is much closer to the original meaning. So I will use Real Finns even though others may still use True Finns.) And they have reason to worry. Soini has the potential to do serious damage to the whole idea of the Euro. From Helsingin Sanomat
Tuesday, April 19, 2011
- Only the market can determine value
- Effective society-wide planning is impossible because it impinges on the freedoms of those perfect markets
- It is possible to have compound growth in a finite biosphere
Sunday, April 17, 2011
Not wanting to discourage such people but at the same time, wanting them to have a better way to evaluate such a claim, I have over the years figured out the following response. "No," I will say, "I have never heard of the product you are describing, but I have a rule for evaluating claims for new technologies. I will only take such products and claims seriously when I can buy one down at Home Depot."
So it is with some amount of joy that I saw the other day that you can now buy solar panels at Costco.
Saturday, April 16, 2011
- All wars tend to all look alike after a while. The details of this one are not very interesting because the Civil War changed so little for such a short time. The differences between slavery and Jim Crow, for example, are not great.
- The world we live in and the one we must fix is the industrial outcome of the discovery of oil. While the Civil War didn't change all that much, the age of petroleum changed EVERYTHING. I find myself spending 99.9% of my energy trying to understand the world created by liquid fuels and as little time as possible trying to judge whether Pennsylvania was more enlightened and virtuous than Virginia.
- My ancestors didn't arrive in USA until the 1880s. My people aren't exactly newcomers but the conflicts they experienced were bankers and land speculators vs. farmers or robber barons vs. steelworkers. The Civil War was not their fight.
If you do not believe that the Southern aristocracy was an evil influence so extreme, it had to be put down in armed conflict consider this: When the USA didn't have to deal with the backwardness of the South after they left the government in 1861, all sorts of good things got accomplished including land-grant colleges (1862) and the beginnings of the transcontinental railroad (1863). Now that our southern brethren are (sort of) back in the fold, they have resumed their role as a cultural drag. From Strom Thurmond and the Dixiecrats to Nixon's "Southern Strategy" to their right-wing Democratic governor-turned-presidents Jimmy Carter and Clinton, to Newt Gingrich and Phil Gramm as "intellectuals", Southern cultural backwardness still defines this country.The most interesting policy innovation that occurred as a result of the Progressive opening that happened during the Civil War has to be Abe Lincoln's Greenbacks--easily the most enlightened monetary policy in the nation's history. When the Greenbacks went out of circulation in 1873, it created an economic catastrophe out here in the heartland. Trust me on this--my forebears WERE interested in this subject.
In the days when folks still foolishly assumed that our new black president would have to represent Northern Progressivism, Ellen Brown wrote this optimistic letter explaining the genius of Lincoln's Greenbacks.
Friday, April 15, 2011
Getting to know a culture through her intelligentsia may not be the best way to understand that culture but it most certainly is a good way. And one I had open to me. And this is what I discovered about Finland.
Finland has certainly been subjected to the neoliberal trends that caused the current global debt crises. Example--a man I knew who was a member of the Communist Party and could defend the teachings of Marx as a university student in the 1970s was writing a book on Adam Smith in 2005. But neoliberal trendiness aside, Finland has a long history of treating debt VERY seriously. Finland has the distinction of being the only country on the planet to pay off her WW I-era debt and when the Soviet Union demanded reparations to remain independent after WW II, the women of the country melted down their wedding rings to help meet the payments. This is NOT a culture predisposed to be frivolous about debt.
The Finns are also incredibly hard-working in a country that has only water, rocks, and trees as natural resources and clings to an existence at the edge of nowhere. For example, when the borders moved at the end of WW II, Finland found itself swamped with at least 400,000 refugees from Soviet Karelia. Because of the economic crises, Finland needed to harvest some of her forests but could not afford chain saws. So many of those Karelian refugees were put to work cutting pulpwood with axes.
So there you have it--a country with the world's best schools and a work ethic that a good Protestant would find positively erotic, harboring a hatred of debt that burns like a 1000 suns and guess what, the Finns do not have the debt problems of a Greece or Spain. But this doesn't get them off the hook because they drank enough of the kool aid to convert to the Euro in 1999. So instead of being forced to reduce their living standards because of debt, they are being forced to lower their living standards to pay for the bailouts of others in debt--mostly because they have accumulated enough wealth to attract the attention of the banksters.
Not surprisingly, folks are PISSED!
Lisa Murhpy of Bloomberg interviewed the chairman of the now defunct FCIC, Phil Angelides to discuss the findings presented yesterday by Carl Levin. The topic was the "greased pig" that is Wall Street. The conclusion is that America now has a dual justice system: "One for ordinary people and then one for people with money and enormous wealth and power." As for crime deterrents, considering that to this day not one person has gone to prison, even an idiot can foresee what Angelides has to say on this issue: "To the extent laws were broken, we need deterrents. If someone robs a 7-11, they took $500 and they were able to settle the next day for $50 and no admission of wrongdoing, they'd knock over that 7-11 again. And we've seen time after time where people and firms have made tens, one hundreds, billions of dollars. They've settled charges for pennies on the dollar. At Citigroup for example they represented that they had $13 billion of subprime mortgage exposure when they really had $55 billion. The penalty to the chief financial officer who made $19 million that year, 2007, was $100,000. Goldman was fined $500 million but the date they settled their stock moved up $2 billion. There's been no real consequence." Too bad there is no acknowledgment that it is people like Angelides who through their corrupt behavior over the years allowed Wall Street to singlehandedly usurp the democratic process and replace it with that of a fascist corporatocracy. But that's irrelevant: at some point, sooner or later, the American peasantry will snap. Maybe not tomorrow, maybe not the day after the Apple borg hypnosis ends, and the fascination with American Idol expires, but at some point thereafter, absolutely. And the primary reason will be the glaring trampling of the tenets contained in both the Declaration of Independence and Constitution, by the kleptocratic "superclass." Then what happens when the billions of ones and zeros held in some bank vault and imparting some ephemeral monetary greatness to these people, finally is exposed for the sham it is, and they have nothing to protect them from the hordes of hungry, angry and very well armed? We can only hope they will be able to bribe their way to the top in that world order as well as they can in the current one. Somehow we doubt it.Read more.
Thursday, April 14, 2011
New Reports Put Financial Regulators in the Hot Seat
By Michael SmallbergRead more.
In case you missed it in our Morning Smoke, we wanted to highlight two must-read stories that came out today on the key causes of the financial crisis and the alarming absence of criminal prosecutions for the major players who drove the economy to the brink of collapse.
The first is a front-page story in today’s New York Times that thoroughly documents the drop in criminal referrals by financial and banking regulators in recent years. Drawing on data compiled by the Transactional Records Access Clearinghouse (TRAC), the article raises troubling and largely unanswered questions about recent changes in the federal government’s approach toward prosecuting white-collar crime (full disclosure: TRAC co-director David Burnham is a POGO board member).
The lack of criminal referrals by our nation’s top regulators, widely observed by financial commentators and legal experts, is thoroughly documented in TRAC’s data:
The university’s Transactional Records Access Clearinghouse indicates that in 1995, bank regulators referred 1,837 cases to the Justice Department. In 2006, that number had fallen to 75. In the four subsequent years, a period encompassing the worst of the crisis, an average of only 72 a year have been referred for criminal prosecution....
Of course, every time someone stands up to the crooks in suits, the clearer it becomes that the banksters, while seeming to have a great amount of power, are actually paper tigers. They can't even foreclose on frightened homeowners without the hired muscle of state power represented by the Shire Reeve (Sheriff).
Wednesday, April 13, 2011
In 1972, I found myself in Leningrad (St. Petersburg) and discovered I was in the company of a fellow space "nut." I found out that (not so surprisingly) a Russian kid my age had been just as thrilled about Gagarin as I had been disappointed. Guy knew a great deal about Soviet-era rocketry and as we talked, I came to the conclusion that what we had in common was FAR more interesting that what separated us--no matter what the Cold War propagandists were trying to make us believe. The Cold War pretty much ended for me that day.
So here's to Gagarin--a VERY brave man.
Everyone got played by the budget deal.
The right wing bloggers may well be angry and so are many on the left.
In a bipartisan flurry in DC all but the top 1% got screwed by shared sacrifice.
The plot so far:
A flurry of "free" money was used to finance every crack pot loan for decades resulted in the rich got richer and the poor got deeper in debt.
When the inevitable defaults began we bailed the rich out with a shot of TARP and a dram of TALF. The interest in the loans were so low you could pay for them by loaning the money back and still walk away with a handsome profit all you needed were some dodgy securities. In other words you had to be wealthy to get your welfare check without even the hint of risk.
The solutions proposed for this extravaganza
Extension of the tax cuts that helped dig the hole in the first place.
A cut in the payroll tax to destabilize social security just a little bit more.
Meanwhile some of the richest corporations pay zero tax.
TALF also assisted offshored and foreign companies and banks.
In other words the greatest heist of the century.
What do we get in return?
Shared sacrifice where any program that helps those that really need it will be cut.
The feeling we have been had.
I think it is time that we all were somewhat pissed off by the deal since most of us are supporting this socialism for the wealthiest. Perhaps we didn't share the pain to the level the right wing wanted; but don't tell me this was a good deal and we won.
Tuesday, April 12, 2011
Of course, my explanation is that once folks become members of the Leisure / Predator classes--or even aspire to become members--all links or solidarity with the Producing Classes are broken. And I still believe this is a pretty good explanation. Now Robert Reich, Clinton's midget Labor Secretary who enthusiastically sold out USA labor by backing NAFTA, offers an even simpler explanation.
Monday, April 11, 2011
Sunday, April 10, 2011
First up--Hudson provides a thumbnail sketch on what happens when you listen to neoliberals--especially the kind that come from the banking business.
Saturday, April 9, 2011
Friday, April 8, 2011
Here’s my theory about how it all went south since the 90′s: It’s the 401K. Yep. It puts the whole dismal phenomenon in the proper framework. But how could something that appears to be so innocuous bring the country’s scientific and industrial framework to a screeching halt, you ask? Think about it. MBAs and executives are hired by corporations to “increase shareholder value”. Before the rise of the 401K, that meant building a better mousetrap and finding a better aspirin. Now, the only thing that matters is pleasing the finance guys who rate your stock from buy to hold to sell. And those same finance guys have a stake in the outcome. They set their own terms of compensation as well as service large institutional investors and mutual funds that we get to choose from in our 401K plans. Corporations are now driven to serve the finance industry and the shareholders, which are us. They’re not in it for the new products anymore. And once you start hiring executives whose goal it is to optimize the ROI, well, it doesn’t matter where the money comes from anymore. It’s just money, numbers on a spreadsheet. It doesn’t matter if those numbers represent people with families and caloric intake requirements and 10,000 hours of expertise. It doesn’t matter if there are fewer products to sell. Once the patent is dead and the money is gone, the investors will follow the money to the next hot thing. There’s nothing mysterious about this. It’s not personal. It’s just the reward system we have set in place since pensions became too old-fashioned for those up and coming 30 somethings in the 90′s (um, that would be us). We’re like rats pushing a pellet bar for another shot of cocaine. We can’t help ourselves and will keep doing it until we die from the pure pleasure of getting that next teeny bump to our retirement accounts.Read the entire article.
Modern societies, by NECESSITY, operate on honest dealings. Those who lie and cheat are literally nothing less than industrial saboteurs.
Tony on Pecuniary Culture (my favorite of his posts here)
The culture of Predation
Thursday, April 7, 2011
In return for a modification of the storage rules, Minnesota insisted that Xcel Energy promise it would invest in renewables. In Minnesota, renewables means wind power and sure enough, Xcel was soon building windmills. In institutional terms, this meant the Xcel soon had a whole wing of employees who were acquiring wind energy skills. This, in turn, means that next time Minnesota demanded its energy companies do renewables, there was bureaucratic pressure from within the firms themselves to support expanded capacity.
This takes time. It SHOULD take time--energy companies are best run by by-the-book folks who are highly resistant to change. Even so, it's time to get going and even the haughty nuclear engineers must eventually understand--volts is volts!
Wednesday, April 6, 2011
Tuesday, April 5, 2011
Continuous geometric growth in a finite biosphere is impossible
Geometric extrapolation is even worse. It is probably the most commonly practiced form of utter insanity. For how long have we known this is crazy? The Sumerians taught us about the S-curve at least 4000 years ago. The S-curve is based on the historical experience of producing things--whether corn or iPhones.
Michael Hudson on the humans who knew better
Hudson says that – in every country and throughout history – debt always grows exponentially, while the economy always grows as an S-curve.
Moreover, Hudson says that the ancient Sumerians and Babylonians knew that debts had to be periodically forgiven, because the amount of debts will always surpass the size of the real economy.For example, Hudson noted in 2004:
Mesopotamian economic thought c. 2000 BC rested on a more realistic mathematical foundation than does today’s orthodoxy. At least the Babylonians appear to have recognized that over time the debt overhead became more and more intrusive as it tended to exceed the ability to pay, culminating in a concentration of property ownership in the hands of creditors.
Babylonians recognized that while debts grew exponentially, the rest of the economy (what today is called the “real” economy) grows less rapidly. Today’s economists have not come to terms with this problem with such clarity. Instead of a conceptual view that calls for a strong ruler or state to maintain equity and to restore economic balance when it is disturbed, today’s general equilibrium models reflect the play of supply and demand in debt-free economies that do not tend to polarize or to generate other structural problems.And Hudson wrote last year:
Every economist who has looked at the mathematics of compound interest has pointed out that in the end, debts cannot be paid. Every rate of interest can be viewed in terms of the time that it takes for a debt to double. At 5%, a debt doubles in 14½ years; at 7 percent, in 10 years; at 10 percent, in 7 years. As early as 2000 BC in Babylonia, scribal accountants were trained to calculate how loans principal doubled in five years at the then-current equivalent of 20% annually (1/60th per month for 60 months). “How long does it take a debt to multiply 64 times?” a student exercise asked. The answer is, 30 years – 6 doubling times.
No economy ever has been able to keep on doubling on a steady basis. Debts grow by purely mathematical principles, but “real” economies taper off in S-curves. This too was known in Babylonia, whose economic models calculated the growth of herds, which normally taper off. A major reason why national economic growth slows in today’s economies is that more and more income must be paid to carry the debt burden that mounts up. By leaving less revenue available for direct investment in capital formation and to fuel rising living standards, interest payments end up plunging economies into recession. For the past century or so, it usually has taken 18 years for the typical real estate cycle to run its course. more
At this link, you can find 23 different charts showing historic geometric growth of human activity--which is why all of them are destined to crash in the very near future.
The human economic growth story is incredible. Population increased exponentially, as did global wealth, factory output and other measures of development.
But the flip side is the steady exhaustion of resources and destruction of the environment. As growth continues, planetary tensions will increase too. This is why we're running into peak everything.
Monday, April 4, 2011
My reply is that criminal activity is rampant throughout the financial and banking system: snorting cocaine on trading floors: falsifying expense accounts to enable tax fraud and pay for sexual services; failure to follow legal procedures for conveying real estate deeds and trusts; outright falsification and forging of documents in the mortgage foreclosure crisis; the fraud the rating agencies committed in assigning safe ratings to securities based on sub-prime mortgages; the failure to completely explain the risks involved in financial derivatives sold to clients, then turning around and using more financial derivatives to bet against those clients.
And, laundering drug money. Here's a story from Naked Capitalism that has yet to be picked up in the U.S. mainstream news media.
Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related Money Laundering
If this news story does not prove that banks are effectively above the law, I don’t know what does. The Guardian, in an account yet to be picked up anywhere in the US media (per Google News as of this posting, hat tip readers May S and Swedish Lex) reports that Wachovia was at the heart of one of the world’s biggest money laundering operations, moving $378.4 billion into dollar-based accounts from Mexican casas de cambio, which are currency exchange firms. While these transfers took place over a period of years, the article notes that it equals 1/3 of Mexican GDP. And the resolution?Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year’s “deferred prosecution” has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine.Read more.
In 1859, Charles Darwin would publish his seminal work entitled "On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life." This work would set off controversies that resound to this day.
Before Darwin, the generally accepted idea was that the world was the way it was because that is how the Creator wanted it. The majority of intellectual speculation, whether of a scientific, philosophical, or religious nature, assumed that the goal in life was to discover those divine rules that ordered a fixed universe. After Darwin, while folks still sought to discover the natural laws with universal applications, the focus shifted to describing the mechanisms of change.
No wonder Darwin is often considered the most disruptive thinker in history.
Taking Darwin out of the biology context is a hazardous occupation. The ugliest of the non-biological manifestation of Darwin's theories is often called "Social Darwinism." Perhaps the most famous social Darwinist in USA was the 19th century chairman of Political Economy at Yale by the name of William Graham Sumner. His most famous student was a kid from Minnesota named Thorstein Veblen.
Veblen was influenced by Sumner--though not in ways usually expected. Veblen thought Social Darwinism was a monstrous error and devoted much of his life's work to debunking Sumner's teachings. This did not mean Veblen rejected the theories of evolution. Far from it. In 1898, even before his first book was published, Veblen wrote an incredibly important paper entitled “Why is Economics Not an Evolutionary Science”.
Suddenly, the extant economics looked as static and ridged as any holy book. Veblen would go on to write a body of work that would described "economic man" as a dynamic actor with complex motives who was constantly evolving. Veblen is usually considered one of the fathers of a discipline called evolutionary economics. Wikipedia defines this speciality thus:
Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology. It stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena.
Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology.Evolutionary economics is validated by the existence of something that can only be called evolutionary industry. Toyota imported evolutionary concepts into their system of quality control and called it Kaizen (continuous improvement). The results were stunning--Toyota so revolutionized quality control they were able to leverage this reputation into their present status as world's largest automaker.
Why this is important
Evolutionary economics, especially in its heterodox manifestations, is hands down the best ways to understand and describe the complexity of the real world. Typical non-evolutionary economic statements like
The market is always rational
A corporation exists only to maximize the return to the shareholders
Free Trade will bring generalized prosperityare wrong because they are as static and ridged as any theological statement they so resemble. This blog rejects static economics--mostly because dynamic descriptions of economic behavior are far more accurate.
Evolutionary industry is important because if we ever produce one, the green sustainable society will happen one tiny little improvement at a time. And the folks MOST likely to create those new green bits and pieces are those most industrially evolved already.
Links to other posts at real economics on this subject
Sunday, April 3, 2011
When it comes to discussions of the economy in the early 21st century, the need for distilled debating points is especially critical because the understanding of economic issues has been so muddled by various neoliberal right-wing ideologies. Being overwhelmed by rightwing bullshit would be bad enough if it actually had produced anything other than economic catastrophe, but now it has seriously impaired our abilities to function as a society.
A few days ago, I got into a debate with a guy who lives in Northwest Washington DC. A veteran of Reagan's Office of Management and Budget, among other accomplishments as a senior public employee, he is Washington conventional wisdom personified and these days, he simply cannot understand why folks cannot come up with a working austerity budget.
While his economics are historically extremely right wing, he isn't a teabagger. For example, he understands the thinking behind Peak Oil. The fact that every oil well ever put into production has a similar production curve appeals to his statistical side--which occasionally trumps his George Mason-approved ideology. I had sent him my link to the Kunstler videos on Peak Oil and he had watched them. Trying to inject a few notes of realism and urgency into the very probable idea that we have in fact already reached global Peak Oil, I wrote:
If we have really reached peak oil, it means that we have at most twenty years to replace the technostructure powered with oil. This is at minimum a 50-year job! And thanks to the sociopathic greedheads on Wall Street and their water-carriers in Washington, we have destroyed our ability to even respond. God, I am glad I don't have kids. This will be a catastrophe.But since he had brought up the "dire" need for an austerity budget, I decided to give a quick thumbnail of what I consider necessary for a return to social and fiscal sanity.
Here is the minimum necessary for survival.
1. Immediately place a 2% tax on financial transactions. Not only will this raise a ton of cash--it will slow down the hot money. Absolutely essential!
2. Stop trying to be an empire. We are TERRIBLE at it! Cut Defense spending by 90%. Cut intelligence budgets by 99%--we can replace the whole apparatus with interns watching Al Jazeera and quintuple the effectiveness of actual intelligence gathering.
3. Send the war criminals who lied us into Iraq to jail and ban any journalist who was caught cheerleading this effort from ever writing for a national media outlet. (If Thomas Friedman wants to bestow on us his ignorance, he can blog like the rest of us.) We need leaders who understand the value of facing up to facts--NOT figuring out the most graceful lies to hide them.
4. We simply must stop listening to neoliberals. They have produced this economic catastrophe--they should be forever discredited. Ever publish a neoliberal paper?--you can flip burgers from now on.
5. Someone must stand up to the Hatfields and McCoys in education who spend their bizarre lives trying to figure out better strategies for making our children stupid--from prayer in schools to post-modernism. We need a workforce that can quickly execute difficult strategies for rebuilding a nation--not make more absurd arguments over whether presidential blowjobs rise to the level of high crimes.
6. Finance MUST serve the needs of the real economy. If folks want to turn finance into a casino, fine. Just do it on your own and away from the taxpayer's dime. The fact that speculators even have the ability to crash the real economy is beyond criminal and enters the world of pure madness. If the denizens of Wall Street cannot come up with ways to provide the real economy with $2-3 TRILLION per year for infrastructure upgrades, we cannot build what needs to be built. This makes them useless (at best) and so should be regulated like prostitution and other vices. You know, banking is by far the easiest way to make money wearing a tie--we can certainly replace those plunderers on Wall Street with public servants with civil service pay grades.
I have some more, but you get the point. NONE of these things has a prayer of happening--at least not in the time frame necessary. Our very survival is threatened because the folks doing the long term planning for USA are monsters like the Koch brothers.
As you can see, beyond being overly theatrical, this quick list is incomplete. So this exchange has spurred my resolve to finish a little project I have been working on for some months. Over the next few weeks, I intend to distill the economics necessary to implement a strategy to deal with the implications of calamities like Peak Oil.
It will be the ideas contained in Elegant Technology reduced to elevator speeches (or when I am feeling lofty and pretentious, First Principles.) I should have done this long ago. I hope I can do it even now.