real economics

Saturday toons 28 JANUARY 12

2012-01-28T01:08:00.000-06:00

Short list of political cartoons today. Two things will sink the Mittster—taxes and vulture capitalism.

SOTU: The horse has left, and the barn burned down

2012-01-27T22:42:00.005-06:00

So, President Obama can still deliver a great speech. There are howls of joy on part of the tubez because the President has established a task force to begin (finally!) to investigate the massive national scandal caused by fake documentation being used to foreclose on millions of people's homes. Matt Taibbi, who I generally adore, writes that "The administration is clearly listening to the Occupy movement."

I just can't get that excited. This is a classic case of too little, too late. The horse has already left, and the barn has burned down. In fact, the whole effing farm has already been blown away in a dust storm.

Back in February 2009, I posted this little fantasy speech of what I think really needs to be done. If it seems politically impossible to you, I'll just repeat what Ian Welsh recently wrote: "You can have widespread prosperity and democracy, or you can have oligarchs. You can’t have both." Oh, and I'll point you to George Soros's eye popping prediction of riots, police state and class war for America.

If I were President...[Ending Wall Street's rule]

The past week, since the news that Merrill Lynch had hurried to pay out billions of dollars in bonuses before the end of the year, provoked a torrent of tirades and rage against Wall Street. Now, progressives are debating each other over the value and efficacy of President Obama’s attempts to attract Republican support for the stimulus program. Many defenders of President Obama demand to know what he might do differently.

Well, here’s my suggestion, in the form of a speech the President can give explaining measures I have concluded are essential to solving the financial and banking crises. Here is what I would do to root out and destroy the root cause of our troubles.

My fellow Americans,

We have reached a historic and dangerous juncture, where the operations and interests of our financial and banking system no longer serve the greater interests of our nation. What we once thought was the great blessing of financial innovation, we now see has led us down a false path to national ruin, individual misery, and increased indebtedness for all.

Banks are supposed to act as intermediaries between people who have saved and wish to invest, and those who need credit. They are expected to evaluate if a borrower is a good credit risk, and are supposed to be the mechanism by which money and credit is allocated and used in our economy. But we have found to our dismay that financial innovation has actually distorted and even destroyed the incentives for banks to play the role they should. Banks have been seeking the highest returns, but have failed to properly assess and manage the associated risk.

As a result, the financial and banking system has been failing to perform the task of allocating money to the entrepreneurs and businesses that use it best. Manufacturing and research and development have been slowly but systematically starved for funding over a period of many years, and the result is that with few exceptions, such as aerospace, all types of U.S. industry have lost their lead as world leaders in innovation, productivity, and efficiency. A January 2008 study of worldwide technological competitiveness by the Georgia Institute of Technology showed that China will soon pass the United States in the critical ability to develop basic science and technology, and turn those developments into marketable products and services.

In short, the banking and financial system was not creating value for the economy, but was destroying it. We are now seeing just how much value has been destroyed.

In a free market economy, one of the most essential functions of the government is the full and fair enforcement of contracts. But it has long been a principle of our legal system that a contract based in whole or in part on fraud or coercion is not a valid contract, and that the government should not enforce it. Indeed, the enforcement of fraudulent contracts can cause much more damage than the original fraudulent contracts, because it destroys the trust and reputation of an entire national economy.

Accordingly, I have ordered that all trading and activity in credit default swaps be frozen immediately. These financial instruments are the broken link in the chain of complex financial instruments that now threaten our economy. Credit default swaps are like insurance, but were carefully designed to avoid regulation as insurance. There were no mandated actuarial tables and no mandated reserves. There were no standards imposed for who could write and sell credit default swaps, and no standards for the calculation of risk and premiums. Many credit default swaps were sold with the explicit condition that they could never be sold on an open traded market, such as the Chicago Board of Trade or the New York Stock Exchange. This prevented regulators from examining these contracts and imposing minimal standards. This also meant that these contracts were illiquid, with no ready market in which they could be traded, and without a market mechanism in which prices could be set and settled in an open way.

In short, credit default swaps are illiquid and designed specifically to avoid regulation, and are based on improper mathematical principles and assumptions of risk. In other words, credit default swaps are fraudulent, and therefore the government has no obligation to enforce the contracts. [See Ian Walsh Cutting the Gordian Knot of Bad Contracts to Save the Economy See also, The Big Banks vs. America: A Roundtable with David Kotok and Josh Rosner.]

A review of the records of the previous administration and of the Federal Reserve indicates that much of the nearly $3 trillion already disbursed in the TARP and the various Federal Reserve programs to prop up the financial system were used to pay off the terms of credit default swaps written and sold by the AIG unit in London. We are currently in discussions with the appropriate authorities in Britain regarding the status and location of these funds. In case these discussions do not proceed satisfactorily, we are also examining and preparing what steps can be taken to prevent and seize all capital transfers to selected institutions in Britain. I have directed the Director of National Intelligence and the National Security Agency to cooperate fully in this effort.

We are also working on measures to prevent and seize all capital transfers to offshore financial centers, and to begin dismantling them. Some observers have called these offshore financial centers "secrecy jurisdictions," which have been purposefully established and structured to allow companies and individuals to escape observation, regulation and taxation by national authorities around the world. We have already seen that an inability to observe and regulate financial excesses will lead to general economic distress, so it makes no sense to allow these offshore financial centers to continue offering low or zero taxes, secrecy, and lax regulation. We also know that these offshore financial centers were often used to fraudulently obtain higher credit ratings for a number of financial operations, by isolating ownership of the financial vehicles from their true owners and controllers.

As an October 2008 article by the Tax Justice Network noted,
A company incorporated in the Isle of Man may belong to a trust in Jersey, hold its bank account in Luxembourg, with all apparently controlled by nominee directors in the Cayman Islands. Even if each haven's claim to be well regulated were true, the regulation of such a company falls between stools: they are, in effect, regulated nowhere, since each jurisdiction only accepts responsibility for what happens in its domain and none for the entity as a whole. This is deliberate.

Regulation cannot function effectively in such a world. The failing banks knew and exploited that. And tax havens will enable many beneficiaries of the years of exuberance to protect their winnings in offshore black boxes, even if law courts wish otherwise.
An indication of how large a problem these offshore financial centers have become is that the Cayman Islands, with 70,000 residents, are the fifth-largest banking centre in the world, with $1.5 trillion in banking liabilities. The Cayman Islands are also the world’s largest center of hedge fund registrations, with over 10,000 hedge fund registrations. Since 2000, the Cayman Islands have been on the “black list” of Non-Cooperative Countries and Territories of the Financial Action Task Force on Money Laundering.

A particularly troubling fact is that over half of these offshore financial centers, like the Cayman Islands, are members of the British commonwealth, and technically fall within the jurisdiction of British authorities. In fact, the International Monetary Fund officially considers the City of London as an offshore financial centers. In our negotiations with British authorities, we are insisting on full and complete disclosure of all bank accounts and all hedge fund registrations in all Commonwealth offshore financial centers, including the City of London.

In international law, there is a legal theory which holds that the national debt incurred by a regime for personal purposes or for committing aggression, is, like fraudulent contracts, not enforceable. Such debts are called odious debt, and are considered by this doctrine to be personal debts of the regime, and not debts of the state the regime controls. This concept is analogous to the invalidity of contracts signed under coercion.

The same legal principle of odious debt may be extended to the millions of mortgages that were sold on false pretenses, serving only to boost the earnings and bonuses of mortgage brokers and bankers. There is a complete circle of fraud here, beginning with home buyers who were often encouraged to lie about their incomes. The banks and brokers committed fraud, not just by encouraging people to lie, but also by failing to perform the due diligence required to estimate the credit worthiness of a home buyer. The companies that bought these mortgages and bundled them together committed fraud by deliberately under-estimating the risk of cascading defaults, and by failing to inform buyers of these sophisticated instruments of their full complexity and credit risk.

Clearly, however, where the greatest tragedy lies is in the suffering and anguish of individual human beings who are forced out of their homes. Almost all these people to some extent placed their trust in the banks and brokers that sold them mortgages to deal fairly and not place them in a situation in which they could not make the payments. This was misplaced trust.

But stopping these individual tragedies may be the easiest thing we can do at this point. I am deputizing as Federal Marshalls all county marshals and other local law enforcement officials responsible for carrying out home foreclosures, and ordering them to immediately cease all foreclosure proceedings on residential properties. I am also instructing them to insist that all creditors that have begun foreclosure proceedings on residential properties must produce clear titles and documentation of liens to the property. If the mortgage holder refuses to work with the court and the home owner to keep the home owner in the residence, I am instructing these new Federal Deputies to seize the residence on behalf of the home owner, to protect the homeowner in that residence, and to oppose all further proceedings against that property. (See Amy Goodman’s article on what Rep. Marcy Kaptur has been telling her constituents: Facing foreclosure? Don't leave. Squat.)

Our banking system is comprised of over 8,000 institutions, but the crises we face is actually the result of the policies and actions of only a handful of the largest institutions. I have directed the Secretary of the Treasury, the Comptroller of the Currency, and the Director of the FDIC to work with the Federal Reserve in taking effective control of the large banks and financial institutions the taxpayers already own. These institutions are: Citigroup, Bank of America, JPMorganChase, Wells Fargo, and to a lesser degree, Goldman Sachs, and Morgan Stanley.
According to information collected by the Comptroller of the Currency, almost 90 percent of financial derivatives activities are concentrated in just these six institutions. We have yet to determine how much of each institution’s financial derivatives activities are fraudulent, as in the case of credit default swaps discussed above, but we will move quickly to identify, and invalidate those contracts.

Effectively immediately, the top officers and boards of directors of these institutions have been relieved of their duties, authority, titles and offices. I have also directed that any amounts greater than $15,000 in their personal savings, checking, and other accounts be frozen, pending the completion of investigations into whether or not the past few years’ of excessive compensation may have involved fraudulent conveyance.

We will move as quickly as possible to break up the actual banking operations of these six firms, and hand them off to the over 8,000 banks and savings and loans which did not participate in the derivatives madness. This means that if you were banking at a Chase or a Bank of America branch in your town, your account will soon be under the management of a carefully screened and selected bank or credit union that has been operating in your community for years. And let me assure you that the FDIC stands behind all accounts up to the amount of $250,000. < To provide immediate economic relief to tens of millions of Americans, these nationalized banks are being directed to lower the interest rates charged to their credit card customers to no more than prime plus five and one half percent, for an effective annual interest rate at this time of six percent.

Further, these nationalized banks are being directed to rapidly scale back the amounts of penalties and fees imposed on their customers. It is estimated that these measures will immediately increase the average household’s income by $25 to $50 a month. And this immediate stimulus will not cost taxpayers a single cent. Finally, I have presented to Congress legislation to impose a securities transaction exchange tax (STET) of one half of one percent on all transactions in our financial markets. An immediate goal is to raise revenues to begin to repair the fiscal damage we have sustained. It is estimated that in the first year, a securities transaction exchange tax will raise nearly $200 billion in new revenues. How can it be unfair for someone buying millions of dollars of stocks, bonds, futures, or derivatives contracts to pay one half of one percent tax, when working people have to pay five percent or more in local and state retail taxes when they buy a loaf of bread or a pair of shoes? But a far more important and far-reaching goal is to restructure the financial markets and force them back into coherence with the real economy. To plan, design, build, and equip an industrial facility or an infrastructure project, requires years of dedicated effort by hundreds or thousands of people.

Yet, one single person can destroy all the effort of all those people in mere seconds by electronically transferring capital from one side of the globe to another. Banking and finance are supposed to serve the needs of the real economy. They no longer do. This must and will change. A securities transaction exchange tax will begin to force out the short-term speculation that is so harmful to long-term industrial and infrastructure projects. For someone who intends to buy a stock or bond for the long term, a securities transaction exchange tax of one half of one percent will hardly be noticeable. But for someone looking to profit quickly by buying a security and then selling it the next day or next hour, this STET tax will be a formidable obstacle. Before I close, let me note that I have directed the Federal Bureau of Investigation, and all financial regulators, to consider any individuals or institutions that oppose these measures as economic terrorists, and to investigate and pursue them according to U.S. laws designed to combat terrorism. I have also directed the National Director of Intelligence and the National Security Agency to immediately begin locating and tracking whatever foreign holdings these economic terrorists have. These measures are tough, but they are not unprecedented.

They will no doubt create panic in certain financial markets. But we have reached the point where we must decide to either save the financial markets, or save the nation. In large part, the financial markets have caused the problems we now confront. So I urge you, over these next few days, to ignore the wild fluctuations of the financial markets. There will be great weeping and gnashing of teeth as financial assets lose billions, even trillions of dollars in price. But to continue to attempt to prop up these prices would be a fatal mistake for our country, and for our future. We cannot allow the financial markets to dictate the terms of survival for our nation.

Once we have restructured our economy, and begun the physical task of building the economic capacities that our children, and their children, and many future generations will use, then the financial markets will return to sanity and normalcy, and will once again be a reliable indicator of the underlying economic health and vitality of the country. Our goal is to preserve the nation from these economic and financial troubles. We must not falter or flinch when the measures needed to do so harm the narrow interests of a privileged few.

Those masters of the universe continue to impress

2012-01-27T00:43:00.003-06:00

If ever a man personifies the expression "Just smart enough to be dangerous" it must certainly be Vikram Pandit of Citicorp. This guy couldn't contribute to the solution of any of the big man-made problems like Peak Oil or climate change with a gun to his head. But since he was clever enough to get the USA government to save his paycheck, they made him one of six co-chairman of the World Economic Forum—the winter meeting in Davos Switzerland, where the folks who have amassed enough financial power gather to destroy lives around the world.

But let's leave the critique of Pandit to those who know him better—the folks from Business Insider and Bloomberg.

Mike Mayo Totally Ripped Vikram Pandit's Star Role At Davos With This Great Quote
Ben Walsh | Jan. 24, 2012

Bloomberg has a article up heralding Vikram Pandit's return to the limelight at Davos.

The headline says it all: "Pandit a Pariah No More as U.S. Bankers Ascend at Davos"

Pandit was understandably on the sidelines in recent years given the questions surrounding the performance of Citi under his leadership as CEO.

Citi memorably took the most government aid of any US bank and it's shares have dropped 93.7% over the last decade, the most of any US bank.

But now, Vikram Pandit is one of six co-chairs of the World Economic Forum's Annual Meeting In Davos.

Per Bloomberg, Pandit will have two key speaking roles, one on January 25th on the topic of "reshaping the global financial system and another on the 29th discussing the "emerging issues of 2012" with his fellow co-chairs.

But Mike Mayo, the outspoken bank analyst at Credit Agricole Securities, is not impressed: "'Asking Vikram Pandit about the crisis in capitalism is like asking Alec Baldwin about airplane etiquette,' Mayo said." more

Pandit Does Davos, 0.1% Gloat, Madness Reigns
By Jonathan Weil Jan 26, 2012

Sometimes a single fact stands out amid all the clutter, offering a flash of insight and clarity. Here is one of them: Citigroup Inc. (C) Chief Executive Officer Vikram Pandit is a co-chairman of the World Economic Forum’s annual meeting this week in Davos, Switzerland.

At first blush, the notion might seem almost ho-hum, a non- event. Upon further consideration, this looks like it can’t possibly be right. Then it turns out, much to our amazement, that the story is accurate, confirming once again that our world is stark mad. You really have to wonder why anyone outside of Citigroup would pick Pandit to lead anything.

It’s one thing for Citigroup to blow itself up so spectacularly that it needs multiple taxpayer bailouts to stay afloat. What seems strange is that an organization like the World Economic Forum would honor the fellow who was Citigroup’s CEO throughout most of the financial crisis, by selecting him as one of its six co-chairmen. If Sheila Bair had gotten her way when she was head of the Federal Deposit Insurance Corp., Pandit would have been fired years ago.

It’s stunning when you think about it: How does Pandit, who owes much of his fortune to the American public’s largess, wind up being showcased as a paragon of leadership and free enterprise, little more than a year after the U.S. Treasury finally sold the last of its Citigroup common stock?

And what message are the rest of us are supposed to take away from this? That his example is to be celebrated?

Maybe the distinction bestowed on Pandit should be of no surprise at all. Founded in 1971, the World Economic Forum describes itself as an international organization of large corporations that is “committed to improving the state of the world” with “no political, partisan or national interests.” But it’s becoming hard not to suspect that the annual gathering in Davos has become a conclave for global elites to promote crony capitalism and state-backed enterprise, ensuring that national coffers remain available to be tapped for private gain.

Pandit joined Citigroup in 2007 after selling it his Old Lane Partners LP hedge fund, which the bank shut the following year. Pandit’s take from his share of the sale was $165 million, the last $80 million of which he received in July.

In February 2008, two months into his job as CEO, Pandit certified in Citigroup’s 2007 annual report that the company’s internal controls were effective. Eight days before he did that, the U.S. Office of the Comptroller of the Currency had sent him a seven-page letter detailing all sorts of ways in which Citigroup’s controls were inadequate.

In November 2008, in spite of the company’s insistent refrain that it had “very strong capital,” Citigroup took a second federal-bailout package. That boosted its proceeds from the Troubled Asset Relief Program to $45 billion, plus $301 billion of asset guarantees. Another rescue came in 2009, when the Treasury Department let Citigroup repay $25 billion of its bailout money in common shares rather than cash.

Then in March 2010, appearing before a congressional oversight panel, Pandit said Citigroup was a healthy institution back in November 2008 when the government saved it from going under. Short sellers (of course!) were to blame for the bank’s problems, he said.

Today Citigroup says it has returned to profitability, although investors remain skeptical. At a recent price of $30.25 a share, down 90 percent since Pandit was named CEO, Citigroup trades for about 50 percent of its common shareholder equity. In other words, the markets believe that about half of the $178 billion book value on Citigroup’s balance sheet is imaginary. The company probably wouldn’t be standing were it not for its implicit guarantee from the U.S. government.

Is this the right man for the World Economic Forum to pick as one of its co-chairmen for this year’s Davos extravaganza? Pandit’s bromides at a press conference this week were the sort of filler any college advertising major could have written.

“Banks have to serve clients, not serve themselves,” Pandit said. (Were they not serving clients before?) Or this: “It’s important for the financial system to acknowledge that there’s a great deal of anger that’s directed at it for the crisis, and trust has been broken,” he said. “We’ve got to start addressing that.” The unwashed protesters at Zuccotti Park had keener insights than this.

Or perhaps the problem here is me, and I’m looking at the situation the wrong way. For all we know, these little rough patches in the financial industry offered just the kind of hands-on experience the forum’s organizers were looking for in a leader, in which case they found their man.

Maybe if Citigroup blows up again someday, they could put Pandit in charge of the whole conference. more

Miss the Cold War?

2012-01-26T04:32:00.002-06:00

It is highly unlikely that anyone who lived through the "duck and cover" days of the Cuban Missile Crises, the building of the Berlin Wall, and the rest of the fear-mongering that went with our perpetual state of war post-1945 will ever have a detached and scholarly view of Marxism. The enemy was communism and the god of communism was Marx. I knew people who quite seriously believed he was a modern incarnation of the devil.

I know I was scared shitless. I had nightmares. I lived in a town settled by Mennonites who had been farming in Russia before being driven out in the 1870s by an evil new Tsar, Alexander II. These people were predisposed to believe that Russians could be wicked—Russians led by atheists was their worst nightmare. One neighbor built a stand-alone fallout shelter connected by a tunnel to his house.

But I got lucky—I got to know some Scandinavian Marxists who mostly demonstrated to me why practicing Marxists were a lot like any other devoutly religious person. As a preacher's kid who was exposed to deeply religious people from earliest childhood, this made them seem pretty normal. Their belief set was filled with noble sentiments and my friends had more than their share of idealistic altruism.

The problem with the Marxists wasn't that they lacked high moral purpose, the problem was that they couldn't run a modern economy. Turns out Marxist thinking may well be suited to organizing education and medicine but screws up agriculture and manufacturing. No Marxist would have dreamed up the iPad in any imaginable timeline. Saddled with Ladas, long lines, and crop failures, the tide of Marxism would start to recede from its economic misconceptions, mistakes, and mismanagement.

Of course, the economists who informed me in the beginning didn't treat Marx as much of an economist anyway. So I became one of those mixed-economy types who believed that Marxism was only useful when the project was large and public—but keep these people AWAY from agriculture and the manufacture of anything complicated.

Anyway, we recently had a demonstration of the preservation of archaic traits. The Republicans had a debate in Florida and the candidates were asked to explain how they would react to the death of Fidel Castro—the last of the Cold War era official enemies. The responses were predictably sub-reptilian. But of course, Fidel is still with us. And he had a response. I must be getting old—this Cold War exchange no longer frightened me but rather inspired a sentimental nostalgia.

So here is a part of the Castro response as told by RT. His description of the Republican candidates is, if anything, overly generous.

Castro calls the GOP race a "competition of idiocy"

Published: 26 January, 2012, 00:33

At Monday’s Republican debate, both Mitt Romney and Newt Gingrich came to an agreement on something: they each wished Fidel Castro would just die already. Days later, the former Cuban president fired back and offered some words of his own for the GOP.

According to Castro, the race on the right is full of idiots.

The Republican frontrunners spent a few minutes on Monday debating how they would react to the hypothetical news that the 85-year-old revolutionary has passed away. Romney was first to answer, saying that his initial reaction would be to “thank heavens.” Next was Speaker Gingrich, who was a bit more harsh with his response, suggesting that the communist commando wouldn’t make the cut at the Pearly Gates and would instead be subjected to an eternity in hell. Never mind what they think, though. To Castro, their opinion is absolutely meaningless.

In an op-ed column published Wednesday, Castro writes, “The selection of a Republican candidate for the presidency of this globalized and expansive empire is — and I mean this seriously — the greatest competition of idiocy and ignorance that has ever been.”

A good rule of thumb is not to question a retired Cuban leader capable of overthrowing a political system and ruling a nation for nearly 50 years. But when Castro says he’s being serious, you best believe that he means business.

Texas Congressman Ron Paul handled the query on Monday by saying, "We propped up Castro for 40-some years because we put up these sanctions and this only used us as the scapegoat, he could say anything wrong is the United States' fault,” adding, "I think it's time to quit this isolationist business of not talking to people." For Castro, that might not be the best idea, either. He adds in his write-up that he is too busy with other matters to get involved with the Republican race for the nomination, so it’s safe to assume that, if any of these “idiots” are elected, Castro will continue to cast his opinions elsewhere.

That isn’t to say that Castro will be endorsing incumbent Barack Obama later this election year either, though. After the current president addressed the United Nations in September 2011, Castro asked in a separate op-ed, “Who understands this gibberish of the President of the United States in front of the General Assembly?”

Earlier this month, Castro remarked that, faced with a choice between Obama, a top-tier Republican rival or a robot, “90 percent of voting Americans, especially Hispanics, blacks and the growing number of the impoverished middle class, would vote for the robot.” more

Heterodox economics, heterodox thinking

2012-01-25T03:35:00.002-06:00

We are often told that the big distinction in learning strategies is between the specialists and the generalists. Academia in USA is so heavily skewed to the production of specialists that it is almost impossible to become a well-trained generalist. And this state of affairs certainly has its advantages. People who devote the majority of their energy to learning one subject are highly useful members of society. We certainly want our heart surgeons and tower crane operators to be more than gifted amateurs.

Unfortunately, the same strategy that produces our gifted specialists is terrible for producing the sort of generalists necessary for the kind of thinking required to make community-wide decisions. So while our computers become more intricate (the output of specialists), our politics (a profession requiring generalists) become more primitive—and thousands of other excellent examples.

The problem is that there aren't many agreed-on paths to becoming a high-level generalist. So even natural generalists blessed with an omnivorous curiosity tend to get funneled into some specialism. Schools have experimented with cross-disciplinary degree programs and the whole idea of liberal arts distribution requirements is to encourage a basic generalism. But in the end, about the only way to produce a high-level generalist is to train curious kids to a specialist level in three or four skill-sets and hope the intellectual sparks created by the process will encourage them to fill in the gaps on their own.

Back when I learned economics, the great practitioners were all generalists. Some of this was the legacy of Thorstein Veblen who was called "the last man to know everything." There really was once a time when with great effort, someone could essentially learn everything humans knew. Of course, now it is almost impossible to know even 1% of those bits of knowledge that are beyond rational debate. So in the 1970s the economics profession essentially threw in the towel and abandoned any sort of generalist approach. The result is that we have had a profession devote 30 years of big computers and big math in an effort to prove the narrow and utterly bogus proposition that markets are infallible. The specialist economists who are dazzling at fast algebra are unfortunately so socially backward and narrowly focused they regularly prescribe disasters.

So it is comforting in a small way to discover that an over-reliance on specialist thinking doesn't work very well in medicine either. The following from Wired Magazine about Pfizer's $21 billion dollar disaster drug torcetrapib is a real economics manifestation of the intellectual problem that reduced economics to its present level of irrelevance.

Trials and Errors: Why Science Is Failing Us
By Jonah Lehrer
December 16, 2011

Every year, nearly $100 billion is invested in biomedical research in the US, all of it aimed at teasing apart the invisible bits of the body.

On November 30, 2006, executives at Pfizer—the largest pharmaceutical company in the world—held a meeting with investors at the firm’s research center in Groton, Connecticut. Jeff Kindler, then CEO of Pfizer, began the presentation with an upbeat assessment of the company’s efforts to bring new drugs to market. He cited “exciting approaches” to the treatment of Alzheimer’s disease, fibromyalgia, and arthritis. But that news was just a warm-up. Kindler was most excited about a new drug called torcetrapib, which had recently entered Phase III clinical trials, the last step before filing for FDA approval. He confidently declared that torcetrapib would be “one of the most important compounds of our generation.”

Kindler’s enthusiasm was understandable: The potential market for the drug was enormous. Like Pfizer’s blockbuster medication, Lipitor—the most widely prescribed branded pharmaceutical in America—torcetrapib was designed to tweak the cholesterol pathway. Although cholesterol is an essential component of cellular membranes, high levels of the compound have been consistently associated with heart disease. The accumulation of the pale yellow substance in arterial walls leads to inflammation. Clusters of white blood cells then gather around these “plaques,” which leads to even more inflammation. The end result is a blood vessel clogged with clumps of fat.

Lipitor works by inhibiting an enzyme that plays a key role in the production of cholesterol in the liver. In particular, the drug lowers the level of low-density lipoprotein (LDL), or so-called bad cholesterol. In recent years, however, scientists have begun to focus on a separate part of the cholesterol pathway, the one that produces high-density lipoproteins. One function of HDL is to transport excess LDL back to the liver, where it is broken down. In essence, HDL is a janitor of fat, cleaning up the greasy mess of the modern diet, which is why it’s often referred to as “good cholesterol.”

And this returns us to torcetrapib. It was designed to block a protein that converts HDL cholesterol into its more sinister sibling, LDL. In theory, this would cure our cholesterol problems, creating a surplus of the good stuff and a shortage of the bad. In his presentation, Kindler noted that torcetrapib had the potential to “redefine cardiovascular treatment.”

There was a vast amount of research behind Kindler’s bold proclamations. The cholesterol pathway is one of the best-understood biological feedback systems in the human body. Since 1913, when Russian pathologist Nikolai Anichkov first experimentally linked cholesterol to the buildup of plaque in arteries, scientists have mapped out the metabolism and transport of these compounds in exquisite detail. They’ve documented the interactions of nearly every molecule, the way hydroxymethylglutaryl-coenzyme A reductase catalyzes the production of mevalonate, which gets phosphorylated and condensed before undergoing a sequence of electron shifts until it becomes lanosterol and then, after another 19 chemical reactions, finally morphs into cholesterol. Furthermore, torcetrapib had already undergone a small clinical trial, which showed that the drug could increase HDL and decrease LDL. Kindler told his investors that, by the second half of 2007, Pfizer would begin applying for approval from the FDA. The success of the drug seemed like a sure thing.

And then, just two days later, on December 2, 2006, Pfizer issued a stunning announcement: The torcetrapib Phase III clinical trial was being terminated. Although the compound was supposed to prevent heart disease, it was actually triggering higher rates of chest pain and heart failure and a 60 percent increase in overall mortality. The drug appeared to be killing people.

That week, Pfizer’s value plummeted by $21 billion.

The story of torcetrapib is a tale of mistaken causation. Pfizer was operating on the assumption that raising levels of HDL cholesterol and lowering LDL would lead to a predictable outcome: Improved cardiovascular health. Less arterial plaque. Cleaner pipes. But that didn’t happen.

Such failures occur all the time in the drug industry. (According to one recent analysis, more than 40 percent of drugs fail Phase III clinical trials.) And yet there is something particularly disturbing about the failure of torcetrapib. After all, a bet on this compound wasn’t supposed to be risky. For Pfizer, torcetrapib was the payoff for decades of research. Little wonder that the company was so confident about its clinical trials, which involved a total of 25,000 volunteers. Pfizer invested more than $1 billion in the development of the drug and $90 million to expand the factory that would manufacture the compound. Because scientists understood the individual steps of the cholesterol pathway at such a precise level, they assumed they also understood how it worked as a whole.

This assumption—that understanding a system’s constituent parts means we also understand the causes within the system—is not limited to the pharmaceutical industry or even to biology. It defines modern science. In general, we believe that the so-called problem of causation can be cured by more information, by our ceaseless accumulation of facts. Scientists refer to this process as reductionism. By breaking down a process, we can see how everything fits together; the complex mystery is distilled into a list of ingredients. And so the question of cholesterol—what is its relationship to heart disease?—becomes a predictable loop of proteins tweaking proteins, acronyms altering one another. Modern medicine is particularly reliant on this approach. Every year, nearly $100 billion is invested in biomedical research in the US, all of it aimed at teasing apart the invisible bits of the body. We assume that these new details will finally reveal the causes of illness, pinning our maladies on small molecules and errant snippets of DNA. Once we find the cause, of course, we can begin working on a cure. more

The education of David Stockman continues

2012-01-24T16:12:00.000-06:00

I have a special interest in a decreasingly tiny sliver of American life—the really smart farm kid. My favorites includes Thorstein Veblen and Henry Ford but there have been thousands of them and much of the industrial midwest was built by them.

So I was hopeful when one of those obviously smart farm kids was named to be Ronald Reagan's Budget Director. Of course, he came in spouting supply-side horse shit but I kept hoping that rural reality would show up when it counted. In some ways it did. In 1981, William Greider published an interview in the Atlantic Monthly called The Education of David Stockman where he blew the whistle on the supply-siders. It wasn't a major awakening but it was a start. And Reagan "took him to the woodshed" over it and eventually he lost his job.

Stockman still doesn't understand things very deeply but it is obvious he is still evolving. So when he sat down with Bill Moyers to discuss his take on today's economy, it was a good place to see how far he had evolved. Well, not so much as I had hoped but he does draw a distinction between crony capitalism and the real thing—so there's a start.

Gordon Gekko in Florida

2012-01-24T06:25:00.001-06:00

Mitt Romney is having some more trouble pushing his big lie that Bain Capital was a creator of jobs. This time, it's the Miami Herald that is calling him on his BS. Romney was once leading the Florida Primary by 25% in the polls. That lead is gone. Say what you will about the current Republican Party—it seems more obvious by the day that their voters are not going to back Gordon Gekko.

2012 CAMPAIGN 01.18.12
In Miami, story of profits and layoffs highlights debate over Mitt Romney's tenure at Bain
Mitt Romney’s time at Bain Capital as a turnaround specialist and job creator is the backbone of his presidential run. But his experience with a Miami company paints a different portrait.

BY MARC CAPUTO AND ALEX LEARY
HERALD/TIMES STAFF WRITERS

Off a gritty bend in the Miami River, a few miles from a warehouse where he recently touted his job-creation plans, there’s a complex of buildings that bear witness to a time when Mitt Romney’s private equity firm laid off hundreds of workers, shuttered a profitable factory and made out with hundreds of millions of dollars.

It started in 1995, when Romney’s Bain Capital targeted the company that became Dade Behring, which made blood-testing machines and performed animal research at its Miami campus.

Bain borrowed heavily to buy the company and closed a factory in Puerto Rico to improve the bottom line. About 400 lost jobs there. Then in 1997, Bain shuttered Dade Behring’s Miami operations, costing another 850 jobs and a $30 million payroll in the community.

Before growing debt consumed the company, Bain executed its exit strategy and made $242 million.

“What bothers me most is that Romney’s campaign says he was a creator of jobs,” said Cindy Hewitt, a Miami resident who was a human resources manager at Dade Behring. “I didn’t see that in any way, shape or form. He didn’t create jobs. He slashed and burned jobs.”

Romney’s time at Bain is the backbone of his run for president, the business experience he says is severely lacking in President Barack Obama. He portrays himself as a turnaround specialist, taking poor-performing companies and making them efficient and profitable. He claims to have created 100,000 jobs.

But the Miami experience illustrates the other side of Romney’s line of work, a messier reality that has exposed Romney to attacks from rivals seeking the Republican nomination.

Even comedian Stephen Colbert has gotten in the act, running a South Carolina ad that shows a cartoon Romney feeding Dade Behring into a wood-chipper that spits out money.

Next week, the GOP campaign shifts to Florida and already Romney is on the defensive with a TV ad that touts his Bain successes while condemning attacks on the “free market.” GOP rival Newt Gingrich says Romney “looted” companies like Dade Behring.

“The Bain model,” Gingrich said in a debate Monday night, “is to go in at a very low price, borrow an immense amount of money, pay Bain an immense amount of money and leave. I’ll let you decide if that’s really good capitalism. I think that’s exploitation.” more

More financial corruption of government

2012-01-24T06:07:00.001-06:00

The sheer amount of corruption that surrounds the property financial bubble is quite literally breath-taking. And because the size of the corruption is so vast, it includes nearly everyone including the biggest and most well-know white-shoe law firms in the land.

Insight: Top Justice officials connected to mortgage banks
By Scot J. Paltrow
Fri Jan 20, 2012 9:31am EST

(Reuters) - U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department's criminal division, were partners for years at a Washington law firm that represented a Who's Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.

The firm, Covington & Burling, is one of Washington's biggest white shoe law firms. Law professors and other federal ethics experts said that federal conflict of interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.

Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients. Justice Department spokeswoman Tracy Schmaler said Holder and Breuer had complied fully with conflict of interest regulations, but she declined to say if they had recused themselves from any matters related to the former clients.

Reuters reported in December that under Holder and Breuer, the Justice Department hasn't brought any criminal cases against big banks or other companies involved in mortgage servicing, even though copious evidence has surfaced of apparent criminal violations in foreclosure cases.

The evidence, including records from federal and state courts and local clerks' offices around the country, shows widespread forgery, perjury, obstruction of justice, and illegal foreclosures on the homes of thousands of active-duty military personnel.

In recent weeks the Justice Department has come under renewed pressure from members of Congress, state and local officials and homeowners' lawyers to open a wide-ranging criminal investigation of mortgage servicers, the biggest of which have been Covington clients. So far Justice officials haven't responded publicly to any of the requests.
While Holder and Breuer were partners at Covington, the firm's clients included the four largest U.S. banks - Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co - as well as at least one other bank that is among the 10 largest mortgage servicers. more

Shades of Catherine the Great

2012-01-23T00:50:00.002-06:00

One of the more noticeable things here in the northern corn belt is the prevalence of German surnames. Farming is a LOT harder than it looks and after 150 years of harsh climate, Predatory economics, and assorted other major hazards, a large percentage of the survivors are German. A surprising number of these immigrants, however, came from Russia. This is an interesting story and one I heard from kids in my grade school who spoke German at home but whose grandparents had fled Russia in the 1870s. Here is their story as told by a North Dakota historian in 1910.

Germans from Russia Now Second Largest Immigrant Group
Hard Work Pays Off for Hardy Homesteaders
Bismarck, 1910

Sometimes they are called “the other Germans.” Sometimes they are called the “Ruzlands.” Some come from the lands that border the Black Sea. Others from Mariupol or Dobrudja or the Caucasus country or the Volga Valley. Some are Mennonites; some are Hutterites. Some belong to the Roman Catholic Church; others are Lutheran. These are the German-Russians. They all lived in Russia, but they all were Germans by birth or heritage. Thousands have left Russia for the United States, and about 32,000 have migrated to North Dakota.

What were these Germans doing in Russia? In the 1760s Catherine II, the ruler of Russia, invited Europeans, especially Germans, to settle in Russia. Catherine, who was a German by birth, knew that Germans were excellent farmers and that Russia needed a more stable and plentiful food supply. She promised that immigrants would receive free land, could exercise religious freedom and would be exempt from service in the Russian army. In other words, Germans in Russia could continue in their German ways. Because Germany was going through political turmoil and war, over 50,000 Germans went to Russia by 1870. Alexander I, who became Tsar in 1801, continued to recruit Germans to live in lands that Russia had taken from Turkey along the Black Sea. Thousands more Germans took up land in Russia.

In Russia the Germans remained German. They kept their religion and their language. They did not mingle with the Russians and only a few learned the Russian language. Their elementary schools promoted Germanism, things German, not Russian.

These Germans in Russia earned reputations as hard-working farmers who were able to overcome a hostile environment. They were good farmers. Most eventually prospered.

But things changed for the Germans in Russia when Alexander II became Tsar in 1874. He ended German exemption from service in the Russian army and began a program of Russification — Germans were no longer a special people; they were to become Russians.

Angry over these broken promises, many Germans began to leave Russia. The 160 acres of land that the Homestead Act provided lured most to America, especially the Great Plains states. Now in 1910 about 60,000 Germans from Russia (the immigrants and their American-born children) live in North Dakota. They began arriving through north-central South Dakota in the mid-1880s. more

My childhood classmates were Mennonites and the BIG beef they had with Alexander II's great betrayal was his plans to draft their young men into military service—a huge no-no for a Protestant splinter group that had been devout pacifists since the 1530s. Nothing so provokes traditional leaders like the idea that some folks think themselves too holy to participate in their wars. So even though the Mennonites had been working Russian soil for over 100 years, they were persecuted and essentially tossed out of the country.

Flash forward to today. 23 MILLION hectares of fertile Russian farmland lie fallow—the result of the failed experiment that was Marxist agricultural collectivism. So the Russians have taken a page from their history and have invited German farmers to come and make their prairies bloom again.

Pigs and Protection Money
German Farmers Seek their Fortunes in Russia
By Steffen Winter 01/12/2012

In the 18th century, Catherine the Great invited German farmers to come to Russia and cultivate the land. Over two centuries later, the country is recruiting Teutonic pioneers once again in a bid to put vast tracts of fallow land to use. The land holds great opportunities for agricultural entrepreneurs -- provided they have strong nerves.

The roads are a problem. The dark, frost-damaged asphalt is patched in many places. As the black Toyota Camry bumps along the road, Alexander, the driver, glances quickly into the rear-view mirror and steps on the gas, passing trucks that look like they haven't seen the inside of a repair shop in a long time.

Sitting in the back seat, Stefan Dürr is being thrown back and forth on the bumpy road. As he looks out the window, he sees trees and low shrubs flying by. Beyond them is a vast, shimmering Russian landscape, a region of dark fields and kilometer upon kilometer of black earth -- the Voronezh Oblast. The German points to the signs along the side of the road. On one sign, the words EkoNiva Agro are painted in black on a white background. "It all belongs to us," he says cheerfully.

When Dürr, 47, a former activist with the Bavarian Young Farmers Association, studied agriculture in the northern Bavarian town of Bayreuth, he anticipated leading a comfortable life on his grandfather's farm in the Odenwald region near Heidelberg. Instead, he is now the owner of more than 170,000 hectares (about 420,000 acres) of prime Russian farmland.

With his curly hair, and in his blue wool sweater and gray jeans, Dürr could be mistaken for a tractor driver. But he has achieved breathtaking results as a businessman. He now speaks Russian with almost no accent, and is cultivating fields in the Kursk, Voronezh, Orenburg, Novosibirsk and Kaluga regions. Through his holding company, EkoSem-Agrar, he employs 2,800 people in farming, owns a herd of 28,000 cattle and most recently generated revenues of €80 million ($102 million). In good years, he earned €200 million selling agricultural machinery, a business he has since spun off. According to Dürr, EkoNiva, one of his subsidiaries, is among the top 30 agricultural companies in Russia.

Dürr's success story, and his pioneering achievements as a Western European deep in the heart of Eastern Europe, serve as a model for the Russian government. Almost 250 years after Empress Catherine the Great attracted tens of thousands of German settlers to her realm, Russia is once again courting Western settlers to revive a farming industry that is ailing in some areas.

Dürr has, in fact, attracted imitators. The Westphalian meat baron Clemens Tönnies has just announced a plan to invest millions in Dürr's neighborhood. Together with a Russian partner, Tönnies wants to build 10 new pig farms, which are expected to produce 62,500 tons of meat a year. It is one of the largest projects ever planned in Russia, and it promises an investment of more than €100 million in the Voronezh region.

Eckart Hohmann, a former banker with the German state-owned bank WestLB, is already there. He and a business partner from the northeastern German region of Mecklenburg are farming an area of 29,000 hectares 400 kilometers (250 miles) south of Moscow. His "Rheinland Farm" produces brewers' yeast, seed grain and wheat. "The Russians practically forced the land on us," says Hohmann, adding that the business already achieved profitability some time ago. Not far from his farm, three farmers from Ingolstadt, in Bavaria, are cultivating a total of 4,000 hectares -- and they plan to expand.

Some 23 million hectares of fertile farmland is currently not being used in Russia. Much of this land is in the coveted Black Earth Region. In the early 1990s, after the fall of the Soviet Union, collectives everywhere went bankrupt, and the country was forced to import grain. The Kremlin has since made agriculture a top priority, and it is openly recruiting Western expertise.

Its efforts have been successful. When Bavarian Agriculture Minister Helmut Brunner returned from a tour of Dürr's vast farms, he was so enthusiastic that he practically called upon Bavarian farmers to leave the country. "The Russians have made it clear that they want more Bavarian farmers," Brunner said. more

Citizens United – The Sedition of the Roberts 5

2012-01-21T13:32:00.003-06:00

Two attorneys involved in defending Occupy Wall Street make a very interesting argument that the notorious Citizens United decision does NOT rest on the concept of corporate person-hood, and therefore the effort to get a Constitutional amendment ending corporate person-hood is a waste of time and resources.

While I disagree with their opposition to a movement to declare corporations “not human” (or, even better, “inhumane”), the two attorneys, Rob Hager and James Marc Leas, do force us to find firmer ground on which to combat the pervasive and perverse influence of money in politics. I think that ground can be found by returning to the ideas of the American Revolution concerning the best form of government being a republic, and identifying the money in politics as being the result of new oligarchies having come into being – remembering that oligarchies are always and everywhere hostile and inimical to a republican form of government.

This issue of a republican form of government will come up more and more frequently, as the one percenters move to impose increasingly dictatorial political restraints in their effort to control the or even avert the social explosion being brewed by their continued looting of the economy. Recall that in early December 2011, Representative John Conyers requested U.S. Attorney General Eric Holder to determine whether Michigan's new state law that could place Detroit and four other cities in Michigan under the control of an unelected emergency manager violated violates Article 4, Section 4 of the U.S. Constitution guaranteeing to the states a republican form of government.

Hager and Leas argue that

The incorrect - but widely held - reading of Citizens United is that the corruption of elections arose fundamentally because the Supreme Court adopted a legal doctrine of corporate "personhood" which endowed corporations with First Amendment free speech rights, which, combined with the notion that spending money to promote a candidate is a form of speech, gives corporations the right to spend unlimited amounts of their money in elections….
The Supreme Court did not base its pro-corporate First Amendment decisions on supposed "constitutional rights" of corporations. Instead, it applied novel interpretations of the First Amendment that were independent of the identity of the speaker to open the floodgates of corporate money in elections, thereby turning elections into the high-return investment vehicles they are today.
The novel interpretations of the First Amendment were initiated in two Supreme Court cases decided decades before Citizens United. In its 1976 Buckley v Valeo decision, the Supreme Court equated spending money in politics with First Amendment protected speech and overturned federal limits on expenditures in elections as violating the First Amendment.
Its 1978 decision in First National Bank of Boston v. Bellotti was the first case in which the Supreme Court overturned a law that restricted corporate money in politics.

Now, if you have gotten over your shock at the idea that the problem with Citizens United is really NOT corporate person-hood, the passage above, citing two Supreme Court decisions from over thirty years ago, serves the extremely useful purpose of forcing us to deal with the fact that we are confronting a decades-long process of devolution in which our political system has been captured by special interests generally identified with the corporate form of economic organization. What is important to understand here is that corporations are merely a symptom of the problem, not the problem itself.

To see my point, consider this: If we do manage to end corporate personhood, then what shall we do about the problem of Peter Peterson or David Koch or Charles Koch giving tens of millions of dollars to their preferred candidates or political organizations as individual citizens? What of Michael Bloomberg or Rahm Emanuel, as an individual citizens, giving their own political campaigns millions or billions of dollars? These people think and act like oligarchs, and as such, they are by their nature enemies of our republican form of government. Another conundrum proving the point: What if these oligarchs develop some other formal organization, and call it something else besides a “corporation”? – intending to circumvent the law the way Dubya Bush did by refusing to use the term “prisoners of war” and using the term “enemy combatants” instead?

Only by insisting on a return to the understanding of the nature of a republic, and the dangers posed by an oligarchy, do we truly solve the problem.

So, you ask, just what is a republic? There are two books I turned to last year to answer that question. Both are classics from the late 1960s: Bernard Bailyn’s The Ideological Origins of the American Revolution, and Gordon Wood’s The Creation of the American Republic, 1776-1787. I think John F. Kasson presents an excellent summary of these two tomes in his own 1999 book, Civilizing the Machine: Technology and Republican Values in America, 1776-1900. In fact, it was the footnote to this passage that pointed me to Bailyn and Wood:

The roots of republican ideology extended deep into English politics and the English libertarian tradition, Puritanism, Enlightenment rationalism, ancient history and philosophy, and common law – and those roots were strengthened rather than severed by being transplanted into the fertile soil of America. The notion of republicanism began with a conception of the relationships among power, liberty, and virtue. The balance among these elements, Americans’ reading and experience taught them, remained delicate and uneasy at best. Power, as they conceived it, whether wielded by an executive or by the people, was essentially aggressive, forever in danger of menacing its natural prey, liberty or right. To safeguard the boundaries between the two stood the fundamental principles and protections, the “constitution” of government. Yet this entire equilibrium depended upon the strictest rectitude both within government and among the people at large. To the eighteenth century mind republicanism denoted a political and moral condition of rare purity, one that had never been sustained by any major nation. It demanded extraordinary social restraint, what the age called “public virtue,” by which each individual would repress his personal desires for the greater good of the whole. Public virtue, in turn, flowed from men’s private virtues, so that each individual vice represented a potential threat to the republican order. Republicanism, like Puritanism before it, preached the importance of social service, industry, frugality, and restraint. Their opposing vices—selfishness, idleness, luxury, and licentiousness—were inimical to the public good, and if left unchecked, would lead to disorder, corruption, and ultimately tyranny. The foundation of a just republic consisted of a virtuous and harmonious society, whose members were bound together by mutual responsibility.

What the Roberts Court does, in its Citizens United and other pro-corporatist decisions, is remove any burden of public virtue from those people most driven by selfishness and love of luxury. In fact, the Roberts 5 coheres with the typical wrong-wing view that in a market economy, the rich become rich by their industry and frugality – ignoring the historical evidence that many of the wealthy today are wealthy by accident of birth, or by the depredations of financial capitalism, rather than the socially useful functions of industrial capitalism. Reading Roberts’ majority decision, its invocation of “the market” and fawning concern for corporations is quite jarring when compared to many other famous decisions rendered before the Roberts Court arrived on the scene to foul our republican heritage. From pages 38-39 of Roberts’ Citizens United ruling:

Austin interferes with the “open marketplace” of ideas protected by the First Amendment… (ideas “may compete” in this marketplace “without government interference”); McConnell, supra, at 274 (opinion of THOMAS, J.). It permits the Government to ban the political speech of millions of associations of citizens. See Statistics of Income 2 (5.8 million for-profit corporations filed 2006 tax returns). Most of these are small corporations without large amounts of wealth. See Supp. Brief for Chamber of Commerce of the United States of America as Amicus Curiae 1, 3 (96% of the 3 million businesses that belong to the U. S. Chamber of Commerce have fewer than 100 employees)… (more than 75% of corporations whose income is taxed under federal law, see 26 U. S. C. §301, have less than $1 million in receipts per year)…. The Government has “muffle[d] the voices that best represent the most significant segments of the economy.” By suppressing the speech of manifold corporations, both for-profit and non-profit, the Government prevents their voices and view-points from reaching the public and advising voters on which persons or entities are hostile to their interests. Factions will necessarily form in our Republic, but the remedy of “destroying the liberty” of some factions is “worse than the disease.” The Federalist No. 10, p. 130 (B.Wright ed. 1961) (J. Madison). Factions should be checked by permitting them all to speak, see ibid., and by entrusting the people to judge what is true and what is false.”

Roberts’ enlisting of James Madison is particularly galling, because it is precisely in The Federalist No. 10, that Madison warns that factions most often arise based on economic interests. In preparation for the Constitutional Convention, Madison made notes of the defects of the Articles of Confederation. Vices of the Political System of the United States These short notes amplify and clarify Madison’s thinking on the formation of a new government. Here is a section dealing with the problem of emerging oligarchies:

6. Want of Guaranty to the States of their Constitutions & Laws against Internal Violence.

According to republican theory, right and power being both vested in the majority, are held to be synonymous. According to fact and experience, a minority may in an appeal to force, be an overmatch for the majority: 1. If the minority happen to include all such as possess the skill and habits of military life, & such as possess the great pecuniary resources, one third only may conquer the remaining two thirds."

I added emphasis to show that one scenario Madison feared was that accumulated wealth would achieve so much political power that republican rule would be subverted or obstructed. It was a historical cycle the Madison and other Founders had identified from their close study of the rise and fall of other republics, especially Athens and Rome: political power in a republic begins to be amassed by an oligarchy that has the wealth to buy and political favor; this oligarchy eventually subverts and corrupts the republic, causing a dissolution of order and rise in chaos; leading the imposition of tyranny to restore order. In fact, a key tenet of political belief at the beginning of our republic was that a general equality in income and wealth was essential to the maintenance of republican government. In October 1787, Noah Webster (who two decades later would publish his famous dictionary) issued a pamphlet entitled, Examination of the Leading Principles of the Federal Constitution, which was probably the second most influential tract, after the Federalist Papers, arguing in favor of ratifying the Constitution.

Wherever we cast our eyes, we see this truth, that property is the basis of power; and this, being established as a cardinal point, directs us to the means of preserving our freedom. Make laws, irrevocable laws in every state, destroying and barring entailments; leave real estates to revolve from hand to hand, as time and accident may direct; and no family influence can be acquired and established for a series of generations--no man can obtain dominion over a large territory--the laborious and saving, who are generally the best citizens, will possess each his share of property and power, and thus the balance of wealth and power will continue where it is, in the body of the people.

A general and tolerably equal distribution of landed property is the whole basis of national freedom: The system of the great Montesquieu will ever be erroneous, till the words property or lands in fee simple are substituted for virtue, throughout his Spirit of Laws.

Virtue, patriotism, or love of country, never was and never will be, till mens' natures are changed, a fixed, permanent principle and support of government: An equality of property, with a necessity of alienation, constantly operating to destroy combinations of powerful families, is the very soul of a republic--While this continues, the people will inevitably possess both power and freedom; when this is lost, power departs, liberty expires, and a commonwealth will inevitably assume some other form.

The Citizen's United decision overturns Madison's conception of, and concern about, factions. It entirely ignores the problem Madison took note of in his preparations for the Constitutional Convention: a relatively small faction of the rich and wealthy can destroy the republic by imposing their will on the majority through their purchase of political power and favor.

Hager and Leas argue that the Roberts 5 did not rely on or even invoke the concept of corporate personhood. Neither does Justice Stevens in his booming dissent. On pages 34 through 41, Justice Stevens reviews the historical record as to how corporations were viewed by the Founders, making quite clear that corporations were never considered on the same level as individual human citizens.

In the context of election to public office, the distinction between corporate and human speakers is significant. Although they make enormous contributions to our society, corporations are not actually members of it. They cannot vote or run for office. Because they may be managed and controlled by nonresidents, their interests may conflict in fundamental respects with the interests of eligible voters. The financial resources, legal structure, and instrumental orientation of corporations raise legitimate concerns about their role in the electoral process. Our lawmakers have a compelling constitutional basis, if not also a democratic duty, to take measures designed to guard against the potentially deleterious effects of corporate spending in local and national races.

Stevens gives us a parade of citations and quotes showing that there is a far-reaching, important, and vital American tradition of this inherently suspicious view of corporations, including the great classic quote from Chief Justice John Marshall’s 1819 decision in Trustees of Dartmouth College v. Woodward: , “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it” Stevens proceeds to elaborate this traditional view of corporations:

Those few corporations that existed at the founding were authorized by grant of a special legislative charter. Corporate sponsors would petition the legislature, and the legislature, if amenable, would issue a charter that specified the corporation’s powers and purposes and “authoritatively fixed the scope and content of corporate organization,” including “the internal structure of the corporation.” J. Hurst, The Legitimacy of the Business Corporation in the Law of the United States 1780–1970, pp. 15–16 (1970) (reprint 2004). Corporations were created, supervised, and conceptualized as quasi-public entities, “designed to serve a social function for the state.” Handlin & Handlin, Origin of the American Business Corporation, 5 J. Econ. Hist. 1, 22 (1945). It was “assumed that [they] were legally privileged organizations that had to be closely scrutinized by the legislature because their purposes had to be made consistent with public welfare.”R. Seavoy, Origins of the American Business Corporation, 1784–1855, p. 5 (1982). The individualized charter mode of incorporation reflected the “cloud of disfavor under which corporations labored” in the early years of this Nation. 1 W. Fletcher, Cyclopedia of the Law of Corporations §2, p. 8 (rev. ed. 2006); see also Louis K. Liggett Co. v. Lee, 288 U. S. 517, 548–549 (1933) (Brandeis, J., dissenting) (discussing fears of the “evils” of business corporations); L. Friedman, A History of American Law 194 (2d ed. 1985) (“The word ‘soulless’ constantly recurs in debates over corporations. . . . Corporations, it was feared, could concentrate the worst urges of whole groups of men” ). Thomas Jefferson famously fretted that corporations would subvert the Republic.

….The Framers thus took it as a given that corporations could be comprehensively regulated in the service of the public welfare. Unlike our colleagues, they had little trouble distinguishing corporations from human beings, and when they constitutionalized the right to free speech in the First Amendment, it was the free speech of individual Americans that they had in mind.55 While individuals might join together to exercise their speech rights, business corporations, at least, were plainly not seen as facilitating such associational or expressive ends. Even “the notion that business corporations could invoke the First Amendment would probably have been quite a novelty,” given that “at the time, ). the legitimacy of every corporate activity was thought to rest entirely in a concession of the sovereign.).” (Emphasis mine.)

That the Roberts 5 were consciously and seditiously using their positions to rewrite the laws to further facilitate the consolidation of power by corporatist oligarchs, is seen by the highly irregular and unusual method by which the Roberts 5 brought the Citizens United case before them for decision. Justice Stevens’ scorn and derision is literally palpable on page 4 of his dissent:

Our colleagues’ suggestion that “we are asked to reconsider Austin and, in effect, McConnell,” ante, at 1, would be more accurate if rephrased to state that “we have asked ourselves” to reconsider those cases.

Hager and Leas pointed to an August 10, 2009 opinion piece by Adam Cohen in the New York Times which ably summarized the shocking machinations of the Court’s corporatists in bringing this case before them:

The court has gone to extraordinary lengths to hear the case…. It took a case, Citizens United v. Federal Election Commission, in which the ban on corporate contributions was not a central issue; told the parties to prepare legal briefs on the ban’s constitutionality; and rushed to put oral arguments on the calendar in September before the new term even starts….

If the conservative justices strike down the ban, they would be doing many things they disavow. They would be substituting their own views for the will of the people, expressed through Congress. They would be reading rights into the Constitution that are not expressly there, since the Constitution never mentions corporations or their right to speak. And they would be overturning the court’s own precedents.

Constitutional law scholar Laurence H. Tribe, who argued and lost Bush v. Gore wrote that the Citizens United ruling by the Roberts 5

marks a major upheaval in First Amendment law and signals the end of whatever legitimate claim could otherwise have been made by the Roberts Court to an incremental and minimalist approach to constitutional adjudication, to a modest view of the judicial role vis-à-vis the political branches, or to a genuine concern with adherence to precedent…

That the Roberts 5 are consciously and seditiously acting as one percenters in service to the narrow interests of one percenters is further indicated by the decisions handed down since Citizens United. Hager and Leas, again:

The relatively ignored 2011 Arizona Free Enterprise v. Bennett decision, which overturned an Arizona public campaign funding law adopted by referendum, is probably more important than Citizens United. This is because it struck down a way of using public funding to effectively compete with private interest money in elections. The Roberts 5 thus showed they would brook no workarounds of their decisions that have the effect of mandating corrupt elections.

(For more on Arizona Free Enterprise v. Bennett Seneca Doane's reclisted diary here, and this devastating and comprehensive analysis by a DailyKos front pager.)

Hager and Leas write that

The Citizens United decision is constitutionally flawed for two reasons that have nothing to do with corporate personhood. Each of these flaws provides adequate grounds for Congress to overturn not just one, but all of the Supreme Court decisions relating to private money in politics since 1976.
….First, the Roberts 5 stepped outside the court's constitutional authority by taking up and deciding cases concerning election integrity. Maintaining the integrity of elections was a political question of such importance to the founding fathers who wrote the Constitution that in Article I, Sections 4 and 5, they specifically consigned to the elected Congress both regulation and judging of the manner of holding elections. The founders rightly understood that Congress would be far more subject to popular pressure to maintain election integrity than would the appointed-for-life members of the court. Taking up a case and overturning a law that provides for election integrity infringes a power specifically assigned to Congress, thereby undermining the separation of powers. This also violates the court's own well-established precedent of refusing jurisdiction concerning political questions. The court followed this traditional rule defining the boundary between judicial and legislative issues from the 1803 decision in Marbury v. Madison until the Buckley decision in 1976. Every decision widening the gates to money in politics since Buckley, including Citizens United, has violated the same constitutional principle prohibiting court jurisdiction over such political questions.

Second, even if the court had constitutional authority to take up an issue of election integrity, which it does not, the court overruled a fully supported legislative finding that private money in elections causes sufficient harm to justify its regulation, even accepting the distorted view that money in the form of electioneering expenditures is the kind of speech the First Amendment was intended to protect.
By contrast, the public has a far more profound and compelling interest in preventing the death of representative democracy by allowing continued auction of its elections and laws to wealthy corporations. Corporations profit from the government policies and government contracts they receive in exchange for their payoffs to and for politicians. For example, a study done by Raquel Alexander, Susan Scholz, and Stephen Mazza of the University of Kansas found a financial return on investment of $220 for every dollar spent on lobbying, including election-cycle lobbying. This and other evidence of corruption was found to be unimportant by the pro-corporate Roberts 5 in Citizens United. The court instead willfully misinterpreted the language of the First Amendment as providing such absolute right to an abstract listener to hear corporate advertisements as to overshadow the public's greater interest in preventing private money from corrupting elections and government, disenfranchising the many by the money, and causing elected politicians to divert federal and state money toward their corporate benefactors.

The typical conservative view of the purpose of a corporation is to “maximize shareholder value” and “to make a profit.” Yet here we have the conservatives on the Supreme Court amending that view to include “being a vehicle for the expression of First Amendment rights.” Uniting these two views puts the Citizens United ruling in a stunningly utilitarian light that shows once again how the Roberts Court has perverted the original intent of the Constitution. The astounding return on investment of $220 for every dollar spent on lobbying is possible because it is economic rent at work in its worst manifestations. No actual investment in the real economy has ever or will ever give such a stupendous rate of return.

Clearly, a corporation thus unleashed within the political process is the purest concentration of economic faction Madison warned about in Federalist Paper Number 10. So, once again, we are brought back to the Founders’ intent of erecting a system of checks and balances designed to preserve and protect a republican form of government, and the inevitable threat concentrated economic power poses to the Founders’ design.

Does this mean that I am opposed to an amendment explicitly declaring that corporations are not people and there do not have inalienable rights? No. But I do not see such an amendment, and the fight for it, as the ends itself. Rather, I see it as the means to an end – an increasingly popular vehicle by which our fellow citizens will have to relearn the principles of republican government, and be forced to recognize that the American conservative movement and the current incarnation of the Republican Party are wholly owned tools of the new oligarchies of banksters and corporatists, and are thus by their very nature baneful agents of sedition and treason working actively to destroy republican government. And that this sedition and treason is nothing but a repeat of the historical cycle identified by the Founders, of how a republic succumbs to the powers of concentrated wealth, degenerates into an oligarchy, and slouches toward despotism.

Saturday toons 21 JANUARY 12

2012-01-21T07:31:00.002-06:00

The cartoonists have been very good recently because in my mind, the story of this election is the story of Mitt Romney as a vulture capitalist—Gordon Gekko explaining to Bud Fox why he was wrecking Blue Star Airlines in spite of his promises not to, "Because it was wreckable." Can it be possible that the citizens of the USA will vote for a corporate raider—someone who personally destroyed their lives and got extremely rich doing so?

What was so utterly loathsome about the raiders was how casually these sociopaths destroyed vital industries that took sometimes four generations to build. So now the pirates are going to scream "If you are against seizing and destroying assets—you are against holy capitalism!" And the papers and pundits will shuck and jive around this issue. But facing the apologists for this crime spree is an irrefutable fact—there IS a difference between up and down, between building and destroying. I am betting reality wins this one.

Of course, Romney is an example of another persistent scab on the face of the Republican Party—the idiot sons. W. raised the bar but he has plenty of company. George Romney (Mitt's father) made cars—cars so ugly and badly-made American Motors is out of business but at least he made something difficult. Mitt gave us Staples—a big box office supply store—and wrecked a whole lot of other enterprise. The slippage between George and Mitt Romney utterly trivializes the slippage between W. and dad.

So here's to Gordon Gekko—the face of the new Republican Party. I wonder how well this gang of uber-thieves is going to get along with the fundies.

Veblen reminded us that whenever the Leisure Classes feel threatened, they invoke the horrors of bad manners. It defines their in-group status and defines the outsiders as the hopeless rabble. This is an especially well-done spoof on the tut-tutting over the latest "PR disaster" that is Afghanistan.

Citizens United and corporate personhood

2012-01-20T22:31:00.003-06:00

The Problem With Citizens United Is Not Corporate Personhood
Tuesday 17 January 2012
by: Rob Hager and James Marc Leas, Truthout

....a close reading of Citizens United shows that constitutional rights of corporations played no role whatsoever in the Citizens United decision.
The incorrect - but widely held - reading of Citizens United is that the corruption of elections arose fundamentally because the Supreme Court adopted a legal doctrine of corporate "personhood" which endowed corporations with First Amendment free speech rights, which, combined with the notion that spending money to promote a candidate is a form of speech, gives corporations the right to spend unlimited amounts of their money in elections. This incorrect reading of Citizens United is compounded by the further error that a constitutional amendment is necessary and sufficient to remove those corporate constitutional rights and to remove corporate money from elections, or could prevent the pro-corporate majority on the Supreme Court from making further decisions corrupting elections.
Fortunately, the inordinate influence of private money in elections can be fixed, and the fix is far easier to accomplish - and more certain of success if accomplished - than any kind of constitutional amendment, as described in "Constitutional Amendment Not Needed: Congress Already Has a Remedy."
As to corporate rights, what is true is that the legal fiction of corporate personhood was created to apply the 14th Amendment for protecting corporations from certain state regulations and taxes during the first Gilded Age (1870-1900). The 14th Amendment prevents any state from depriving "any person" of property without due process of law or denying "any person" equal protection of the laws.
Under both mass public pressure and pressure from the Roosevelt administration, by 1938 the court generally stopped striking down laws regarding economic regulation on any grounds, and began to elevate protection of personal liberties over property rights. As described in an article about the rise and fall of the corporate personhood doctrine by Carl J. Mayer, "Personalizing the Impersonal: Corporations and the Bill of Rights," 41 Hastings Law Journal 577 (1990), the Supreme Court had fully abandoned the "corporate personhood" doctrine as a means for advancing corporate interests by the 1960s.
SNIP
....Speech that merely facilitates the conduct of transactions, such as fraud, conspiracy, insider trading tips, pimping and so forth may properly be criminalized and regulated without much regard for the fact that the means for carrying out the transactions may be entirely speech. Money in politics falls within the category of transactional speech, and it also causes severe harm to the democratic form of government. It may, therefore, be regulated and criminalized.
Other legal restraints on communicative speech, including judicial gag orders restricting pre-trial publicity and laws prohibiting the publication of the name of a rape victim, similarly are considered to have insufficient value as communication to justify the harm they might do. No one disputes that the clear harms caused by these categories of speech activities may outweigh any communicative value such speech may have.
The Citizens United decision is constitutionally flawed for two reasons that have nothing to do with corporate personhood. Each of these flaws provides adequate grounds for Congress to overturn not just one, but all of the Supreme Court decisions relating to private money in politics since 1976.
First, the Roberts 5 stepped outside the court's constitutional authority by taking up and deciding cases concerning election integrity. Maintaining the integrity of elections was a political question of such importance to the founding fathers who wrote the Constitution that in Article I, Sections 4 and 5, they specifically consigned to the elected Congress both regulation and judging of the manner of holding elections. The founders rightly understood that Congress would be far more subject to popular pressure to maintain election integrity than would the appointed-for-life members of the court. Taking up a case and overturning a law that provides for election integrity infringes a power specifically assigned to Congress, thereby undermining the separation of powers. This also violates the court's own well-established precedent of refusing jurisdiction concerning political questions. The court followed this traditional rule defining the boundary between judicial and legislative issues from the 1803 decision in Marbury v. Madison until the Buckley decision in 1976. Every decision widening the gates to money in politics since Buckley, including Citizens United, has violated the same constitutional principle prohibiting court jurisdiction over such political questions.
Second, even if the court had constitutional authority to take up an issue of election integrity, which it does not, the court overruled a fully supported legislative finding that private money in elections causes sufficient harm to justify its regulation, even accepting the distorted view that money in the form of electioneering expenditures is the kind of speech the First Amendment was intended to protect.
By contrast, the public has a far more profound and compelling interest in preventing the death of representative democracy by allowing continued auction of its elections and laws to wealthy corporations. Corporations profit from the government policies and government contracts they receive in exchange for their payoffs to and for politicians. For example, a study done by Raquel Alexander, Susan Scholz, and Stephen Mazza of the University of Kansas found a financial return on investment of $220 for every dollar spent on lobbying, including election-cycle lobbying. This and other evidence of corruption was found to be unimportant by the pro-corporate Roberts 5 in Citizens United. The court instead willfully misinterpreted the language of the First Amendment as providing such absolute right to an abstract listener to hear corporate advertisements as to overshadow the public's greater interest in preventing private money from corrupting elections and government, disenfranchising the many by the money, and causing elected politicians to divert federal and state money toward their corporate benefactors.
Read the entire article.

The "brilliance" of mainstream economists

2012-01-20T07:20:00.003-06:00

Larry Summers is the perfect example of what an economist looks like these days. This man was once the youngest person to ever get tenure at Harvard. He has not one but two uncles who have won the Riksbank Prize (Nobel) in economics. Not surprisingly, he has been disastrously wrong about just about everything he has ever written about—which might be a problem except that economics these days is a "profession" where the surest route to the top is to have been involved in nearly every crackpot decision made in the past 35 years. That's our Larry.

In a normal world, a guy like Summers would have long since been retired to a home where some poor minimum-wage caregiver has to change his drool buckets every shift. But economics is more than just another fail-upward gig, the occupation has so ruthlessly run off the sane that there are almost no alternatives to the neoliberal mouth-breathers. This means a potential replacement for Summers isn't some brilliant Institutionalist who wrote his Ph.D. thesis on market failures and has done amazing work on the factors contributing to structural underemployment—because those people mostly don't exist anymore. So if you need an economist to run the World Bank and don't pick Larry Summers, you are almost certain to get someone who is just as goofy only without the pedigree or CV. Or the "brilliance."

Surely President Obama Is Joking About This 'Have Larry Summers Run The World Bank' Thing!
Jason Linkins 1/18/12

The hot scoop of the day, where emeritus members of the Committee To Save The World are concerned, is that President Barack Obama is mulling naming former White House economic adviser Larry Summers to head the World Bank, replacing outgoing Robert Zoellick, whose term will end midway through the year. (This cuts against the previous hot World Bank scoop from last year, where Secretary of State Hillary Clinton was rumored to be in the running for the position.)

But, hey! Larry Summers! How does that grab you? And more importantly, does it grab you in a way that threatens to cut off the circulation of blood to your brain?

Everyone agrees that Summers is brilliant ... just brilliant! So much so, that it seems that whenever anyone has to begin a monologue about Larry Summers, the first few cubic milliliters of breath are always expended on behalf of testifying to that brilliance. Once that's out of the way, however, what follows is often several paragraphs explaining how Summers is terribly unpleasant to be around and often inexplicably wrong. Just the sort of person you want helping Third World nations restructure their debt and Europe survive its calamitous fiscal crisis!

In his recent book, Confidence Men: Wall Street, Washington, and the Education of a President, Ron Suskind rather relentlessly depicts Summers as the pre-eminently dysfunctional cog in the Obama White House's financial crisis decision-machine. This is, on one level, not too terribly surprising -- what the Obama administration inherited wasn't so much the aftermath of the previous administration's policies as it was a decades-long litany of financial deregulation and bad decisions that had Summers' fingerprints all over it. As "Inside Job" director Charles Ferguson put it, "I found Summers everywhere I turned."

Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy treasury secretary and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial industry. He also successfully fought attempts by Brooksley Born, chairman of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that caused so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws. more

Hungary—well that was fast

2012-01-19T00:12:00.001-06:00

This is what a 'thoughtful' observer in the mainstream press was saying about Hungary only a week ago. The Prime Minister is called an "authoritarian populist." (Oh horror!) It warned of a default. It warned of a breakdown in talks between the IMF and the government.

I would not be the least surprised that the bondholders are worried. After all, there are almost 200 nations that could default any day now.

Jan. 11, 2012, 12:01 a.m. EST
Hungary won’t be last to make bondholders pay
Commentary: Markets won’t always get what they want

By Matthew Lynn

LONDON (MarketWatch) — Much like Greece, Hungary was one of those small, slightly peripheral countries that most people in the financial markets probably thought they could get through a career without ever worrying about very much.

With a population of slightly less than 10 million, and with a total gross domestic product of less than $200 billion — only half the market value of Apple Inc. — it hardly had much of a claim on the attention of investors.

But right now, Hungary is could be the epicenter of the latest next financial storm.

The country is teetering on the edge of bankruptcy. Its authoritarian populist Prime Minister Viktor Orban is refusing to play ball with the International Monetary Fund. Bond yields are soaring and credit is drying up. The country may, in the next few weeks, become the first major nation of this ongoing sovereign crisis to default — and that could trigger a wave of massive, perhaps even crippling losses across the European and indeed global banking system.

Hungary by itself doesn’t matter very much to the markets. It is neither big enough nor rich enough. But it is a foretaste of things to come. The markets keep demanding more and more austerity. Eventually political leaders are going to kick back against that. It might be the first major country to default on its debts, but it won’t be the last, and that means there is a lot more pain ahead for the markets.

The Hungarian economy is a mess. Pumped up by lots of cheap lending during the credit bubble — and in particular by lots of cheap mortgages denominated either in euros or Swiss francs — it hit a brick wall after the credit crunch. It suffered one of the deepest recessions anywhere in 2008 and has struggled to recover since. A mountain of foreign debt has started to catch up with it. The ratings agencies have steadily cuts its status down to junk, and bond yields have soared. Ten-year yields are now up around 10% and the stock market has been hammered.

It is quite clear what the markets want. After a decade-long debt-fueled bubble, they are looking to the IMF to come in and clear up the mess, and make sure foreign investors don’t suffer any losses. If that means a harsh austerity regime for the ordinary people, so it goes.

The Hungarians, however, have other ideas. The PM Viktor Orban is refusing to play ball with the IMF. Talks over a fresh bailout have repeatedly broken down. The main issue is the independence of the central bank — the government wants to put it under much tighter political control. But this is also about austerity. The country now looks set for a lurch to the authoritarian right and may well default in the process.

Orban is a fairly unpleasant politician, and potentially another Vladimir Putin in the making. That said, it is hard not to have some sympathy with the Hungarian position.

After all, the standard IMF medicine has hardly worked out very well in other countries. The Greek economy is still contracting at more than 5% annually and shows no sign of recovering any time soon. Ireland is slipping back into recession. If that is the price you have to pay for continued support from the IMF and for appeasing the bond markets, it shouldn’t be any great surprise if many Hungarians decide they are better off without it. more

So only one week later, we have that ogre Prime Minister Orban essentially saying it was all just one huge mistake and the Hungary will do everything possible to cooperate. That bankster 'splainin' sure works wonders. Turns out the only leaders who will tell the IMF to get lost on any consistent basis are from Latin America. And Orban is a LONG way from being Nestor Kirchner.

EUROPEAN UNION | 18.01.2012
Hungary's Orban says problems with the EU can be resolved swiftly

Hungarian Prime Minister Viktor Orban has told EU lawmakers he will modify controversial laws that are the subject of legal action against Budapest launched by the European Commission.

EU concerns over Hungary's laws on its central bank and judiciary can be resolved swiftly, Prime Minister Viktor Orban said on Wednesday in an effort to avert legal action by Brussels and win much-needed financial aid from the EU and the International Monetary Fund (IMF).

Orban told the European Parliament in Strasbourg that fixing the issues that led the bloc's executive to launch legal proceedings against his country "will not pose a problem."

The Prime Minister's Fidesz party has faced criticism for tightening control over public institutions including the judiciary, central bank and data protection agency, as well as the media.

Orban urged the EU to take into account that his country is undergoing a "serious transformation" after being on the brink of collapse two years ago.

"What's happening in our country is a very exciting process of renewal," Orban told the Parliament. "It is absolutely understandable that there are debates in conjunction with that." He added he hoped talks next week with EU executive chief Jose Manuel Barroso would yield quick results. more

Slapping the little guys back in line

2012-01-18T00:58:00.002-06:00

After watching the banksters swagger around, looting and pillaging, for over a generation, I have pretty much decided that the most we can hope to achieve in controlling these criminals is serious regulation. I still applaud the wag who suggested that "the regulation of the financial services business should be so comprehensive and strict, the head of Goldman Sachs would have to get a hall pass from Marcy Kaptur to take a dump." But in reality, I would settle for financial services being treated like a regulated utility.

But look what happened to Hungary when she attempted to put some restrictions on the "sacred" independence of the central bank. The EU has stepped in to explain how her government will be allowed to run. Actually, the restrictions Hungary wanted impose are very reasonable—which pretty much means my reform wish list will never happen. (sigh) I especially liked the part where central bankers were required to swear a loyalty oath the the country. Imagine asking a central banker to place the well-being of his country above the institutional needs of the central bank. (the horror) Gotta bring the big guns down on that!

Unlawful Constitution
EU Takes Legal Action Against Hungary
01/17/2012

The European Commission has launched legal proceedings against Hungary, accusing it of breaching EU treaties with laws that undermine the independence of the justice system and central bank. The case could delay the payment of international aid needed to shore up Hungary's economy.

The European Commission said on Tuesday it was launching legal action against Hungary for violating EU laws with new legislation that curbs the independence of the national central bank, the data protection agency and the judiciary.

Legal proceedings against a member state's laws are rare in the EU, and the Commission's move reflects mounting international concern at the authoritarian policies of the right-wing government of Prime Minister Viktor Orbán, and could delay negotiations on an international aid package for Hungary.

"We had hoped that Hungary would have made the necessary changes. This has not been the case so far," said Commission President Jose Manuel Barroso.

Hungary has introduced legislation permitting a cabinet minister to participate in meetings of the central bank's monetary council, requiring the council to send the government the agenda of its meetings in advance, and forcing the central bank governor and council members to take an oath of loyalty to the country.

The government has also lowered the retirement age of judges to 62 from 70, in addition to making other changes to the organization of courts. The move has raised suspicions that the government wants to get rid of troublesome judges and state prosecutors. more

Bankster bashing for good reasons

2012-01-17T00:26:00.002-06:00

The bad guys are worried. After making off with the world's assets and crashing the real economy, the banksters are suddenly concerned that maybe people really ARE pissed at them. This precious little piece from the Economist wants everyone to know that even just sending these pirates to jail would be so over the top. Because banksters are really not simply a gang of ignorant rapacious thugs, they are a responsible group of misunderstood geniuses who go to work every day with a goal of social betterment firmly fixed in their steely gazes. Or words to that effect.

Schumpeter
The dangers of demonology
Hatred of bankers is one of the world’s oldest and most dangerous prejudices
Jan 7th 2012 | from the print edition

HURLING brickbats at bankers is a popular pastime. The “Occupy Wall Street” movement and its various offshoots complain that a malign 1%, many of them bankers, are ripping off the virtuous 99%. Hollywood has vilified financiers in “Wall Street”, “Wall Street 2”, “Too Big to Fail” and “Margin Call”. Mountains of books make the same point without using Michael Douglas.

Anger is understandable. The financial crisis of 2007-08 has produced the deepest recession since the 1930s. Most of the financiers at the heart of it have got off scot-free. The biggest banks are bigger than ever. Bonuses are flowing once again. The old saw about bankers—that they believe in capitalism when it comes to pocketing the profits and socialism when it comes to paying for the losses—is too true for comfort.

But is the backlash in danger of going too far? Could fair criticism warp into ugly prejudice? And could ugly prejudice produce prosperity-destroying policies? A glance at history suggests that we should be nervous.

Scorn for moneymen has a long pedigree. Jesus expelled the moneychangers from the Temple. Timothy tells us that “the love of money is the root of all evil.” Muhammad banned usury. The Jews referred to interest as neshek—a bite. The Catholic church banned it in 1311. Dante consigned moneylenders to the seventh circle of hell—the one also populated by the inhabitants of Sodom and “other practisers of unnatural vice”.

For centuries the hatred of moneylending—of money begetting more money—went hand in hand with a hatred of rootlessness. Cosmopolitan moneylenders were harder to tax than immobile landowners, governments grumbled. In a diatribe against the Rothschilds, Heinrich Heine, a German poet, fumed that money “is more fluid than water and less steady than air.” more

The Dutch have frightened their banksters into acting a least a little bit responsibly.

Dutch bankers' bonuses axed by people power
An online campaign has overturned ING's executive pay policy, and the mood in Amsterdam is getting increasingly militant about bonuses at bailed-out banks

Richard Wachman in Amsterdam
The Observer, Saturday 26 March 2011

Britain has a rival when it comes to bashing bankers. After a furious row over pay packages at Amsterdam-based ING in which thousands of customers threatened to make mass withdrawals, the Netherlands is now vying for the title of Europe's most bonus-hating country.

A growing Dutch political storm could end with a blanket ban on bonuses to financiers who work for institutions bailed out by the taxpayer.

ING customers mobilised on Twitter and other social networks to protest at bonuses paid to bosses at the bank, one of the biggest in the country. The threat of direct action raised the spectre of a partial run on ING, terrifying the Dutch establishment. Fred Polhout, union organiser at the bank, says: "People were outraged. We heard about the bloated sums being paid again in the City and in New York; but suddenly the issue exploded on our own front door."

Compared with the packages awarded to bankers in the US and UK, the Dutch bonuses were small potatoes. Jan Hommen, ING's chief executive, was due to receive a £1m bonus – a pittance when you consider that Stephen Hester, head of state-controlled RBS in the UK, is in line for up to £7.7m, Bob Diamond of Barclays is to collect as much as £6.5m, and some senior bankers at Goldman Sachs and JP Morgan are looking at windfalls of about £40m each.

"Perhaps we are so upset because we are a small country that prefers to set an example, rather than follow others," suggests Polhout.

So severe was the public reaction to Hommen's bonus that within days he had agreed to waive the award and told other ING directors to do the same.

Now the Netherlands is going through a painful period of introspection and soul-searching. Politicians have voted to implement a 100% retrospective tax on all bonuses paid to executives at institutions that received state aid as a result of the financial crisis. In other words, no banker should get a bonus until the debt is cleared, and they should return payments made since 2008. more

And wonder of wonders, the idea that the folks who figured out all those productivity gains should be entitled to have some of it paid out in shorter workweeks—especially if their paychecks are not growing.

Cut the working week to a maximum of 20 hours, urge top economists
Job sharing and increased leisure are the answer to rising unemployment, claims thinktank

Heather Stewart Saturday 7 January 2012

Britain is struggling to shrug off the credit crisis; overworked parents are stricken with guilt about barely seeing their offspring; carbon dioxide is belching into the atmosphere from our power-hungry offices and homes. In London on Wednesday, experts will gather to offer a novel solution to all of these problems at once: a shorter working week.

A thinktank, the New Economics Foundation (NEF), which has organised the event with the Centre for Analysis of Social Exclusion at the London School of Economics, argues that if everyone worked fewer hours – say, 20 or so a week – there would be more jobs to go round, employees could spend more time with their families and energy-hungry excess consumption would be curbed. Anna Coote, of NEF, said: "There's a great disequilibrium between people who have got too much paid work, and those who have got too little or none."

She argued that we need to think again about what constitutes economic success, and whether aiming to boost Britain's GDP growth rate should be the government's first priority: "Are we just living to work, and working to earn, and earning to consume? There's no evidence that if you have shorter working hours as the norm, you have a less successful economy: quite the reverse." She cited Germany and the Netherlands.

Robert Skidelsky, the Keynesian economist, who has written a forthcoming book with his son, Edward, entitled How Much Is Enough?,argued that rapid technological change means that even when the downturn is over there will be fewer jobs to go around in the years ahead. "The civilised answer should be work-sharing. The government should legislate a maximum working week."

Many economists once believed that as technology improved, boosting workers' productivity, people would choose to bank these benefits by working fewer hours and enjoying more leisure. Instead, working hours have got longer in many countries. The UK has the longest working week of any major European economy.

Skidelsky says politicians and economists need to think less about the pursuit of growth. "The real question for welfare today is not the GDP growth rate, but how income is divided." more

And of course, the ultimate in cultural insanity—keeping the most vigorous and energetic people in society out of the job market. If there is any single reason to give as evidence that neoliberalism is foaming, barking, insane—this is it.

The Staggering Cost Of Youth Unemployment Across Europe
Jan. 15, 2012

As countries across Europe race to take on austerity measures and cut their debt burden, its getting harder and harder for people to find jobs. And the under-25 age group is being hit the hardest.

The latest data shows that youth unemployment in the EU is staggeringly high at 22.7% and this is clearly taking a toll on the economy. The total unemployment rate in the EU is a more modest, albeit high, 9.8%.

Now, a report by the European Foundation for the Improvement of Living and Working Conditions (Eurofound), a tripartite body of the Union, has released a new report that shows how much youth without education, employment or training (NEET) costs their respective countries.

The NEET costs to the 21 EU countries included in this report is approximately €2 billion per week, a yearly total of about €100 billion, or 1% of aggregate GDP.

Note: The study has data for 21 countries. Public finance costs include welfare schemes like unemployment benefits child benefits, housing benefits, education-related allowances and others) as well as additional health, welfare and criminal justice expenditure. Public finance costs measures excess transfer - the difference between the total amount of benefits received by the NEET and the benefits received by those in employment. Resource costs include foregone earnings. more

Rising food prices accelerated by speculators

2012-01-16T01:14:00.001-06:00

Cheap food—the ultimate bribe to 99% in USA. It has been official government policy since I can remember. I grew up hearing farmers curse cheap food policies.

But food isn't so cheap as it once was. Could we ever see "first" world food riots? I have no idea but I do know, letting speculators in on this action is going to make things MUCH worse.

11.01.2012
Jumps in food price trigger calls for derivative regulation

Price hikes for staple foods hit poor people in developing countries the hardest. Speculation is part of the reason why food prices are peaking again and leaving nearly a billion people without adequate access to food.

The Berlin-based group World Economy, Ecology and Development (Weed) along with other campaigners is lobbying for better rules against financial speculation on food. Deutsche Welle spoke with Weed's Markus Henn about the causes of recent food price hikes and how additional regulation could improve the situation.

Deutsche Welle: How high are food prices currently, and what does that mean for people in poor countries?

Markus Henn: Currently, prices are high again. There has been an increase again since the slump in 2008 and 2009. However, it is not uniform across all commodities. For example, rice has not peaked as was the case in 2008. But for wheat we hit a new record a few months ago. At the moment the prices are going down a little bit, but it is still, in general, the commodity with a price peak that is the highest on record.

You have campaigned against speculation in food commodities. Weed has started a petition to influence the proposed reform of finance instruments in the European Union. What is the goal of the petition? < The directive covers, amongst other things, the so-called commodity derivatives, which are contracts with which you can speculate on food prices and this directive is now dealing with commodity. At the moment, we think that these derivatives are not sufficiently regulated. We are trying to improve the regulation and influence the process. Would it help if the derivatives were more regulated?

It would help because if you regulate the commodities derivatives. For example, if you have rules that financial speculators cannot take as many contracts or as high of a position as they wish, you can prevent at least part of the bubble which is taking place in the commodity markets at the moment.

In 2008, for example, we of course had some price reasons which were fundamental - a weak harvest. It was not just speculation but the speculation increased difficulties more than if there had not been speculation. If you regulate these markets as derivative markets then speculators cannot exacerbate these price peaks.

How much resistance is there against regulating markets in the way that you propose?

There's a lot. It mainly comes from the financial industry, which makes a lot of money with commodity speculation. Partly by themselves so they speculate on their own account, but also by channeling a lot money from investors and ordinary people into a so-called commodity product. The banks advertise funds that allow people to invest in commodities. This means that the banks buy these commodity derivatives and drive up the prices or strengthen the volatility of the prices and so the main defendant of deregulation is the financial sector.

Why should there be special regulations in place for the food market? Should it have a special status?
I think the food market should definitely have special status. We have seen in the financial crisis what financial speculation and deliberalization of financial markets means and also what catastrophic consequences it could have and I think we should not allow the financial markets to determine our food prices and our food production.

Of course agriculture needs finance and investment. But this kind of speculation is not investment in agriculture. It just brings more money to people who already have money and is not useful to agriculture as a whole. That is why we should try to limit the influence of financial markets on the food markets.

Some economists say food speculation is not the only reason why prices are increasing again. There have also been a lot of natural disasters, climate change, weak harvests, biofuel production. What is the role of financial speculation in food prices in comparison to other factors?

It's very difficult to give an exact number or the percentage of the influence. Some economists have tried that and come to the conclusion that 15 percent is due to speculation others looked at oils and came to 25 percent, some say even it's responsible for the majority of the price increase.

It is more useful to say that speculation is a major reason which does not mean that there are no other reasons. In 2008, there were reasons regarding the harvest. Last year, even though there were some droughts, the markets were not as tight as in 2008. There was still a good harvest. I think especially the wheat price rise is not justified by the fundamentals.

We think that the index investment speculation which is the main money from speculation is a key reason for the price spike and there are other academic studies from the last one to two years that also support this argument. more

Of course, there are real reasons for food shortages. Here's an example we find especially interesting here in Minnesota.

Heat, Humidity and Crop Yields

At the ASSA meetings next month I'm going to present some new research wherein we (Wolfram Schlenker, Jon Eyer and myself), incorporate vapor pressure deficit (VPD) into earlier regressions linking crop yields to weather. Vapor pressure deficit, a close cousin to relative humidity, has a linear relationship with evaporation, and is a key input in many crop models. For this meeting we're only presenting evidence on Illinois, which has been our testing ground for fine-scale data development.

If you haven't been following, I've written a lot about the strong and robust association between extreme heat and crop yields. This puzzles some crop scientists who focus on soil moisture and precipitation as the key impediments to higher yields. But in comparison to any precipitation or soil moisture variable we've constructed, extreme heat, measured as degree days above 29C, is a far better predictor of yield. And the underlying relationship is similar across widely varying climates and whether identified over the cross section (comparing average yields with average climates over locations) or the time series (comparing yields over time in a fixed location with different weather outcomes). Such a robust and pervasive pattern in observational data is extremely rare. more

And one more tale of the movement to tax speculation. Hey, we once hanged speculators—passing a small tax to limit the damage they can do seems so much more civilized. But something must be done about the pirates.

01/11/2012
Taking on the Speculators
What Would a European Tobin Tax Really Mean?
By Stefan Kaiser

Angela Merkel and Nicolas Sarkozy are pressing forward with plans to introduce a financial transaction tax in the EU -- if necessary without Britain, home to Europe's largest financial center. Critics believe it will cause an exodus of the industry from the euro zone. But a closer look at the proposal suggests the worst wouldn't necessarily come true.

The idea is age-old, but its time may soon be coming. A tax on financial transactions could help to stem short-term speculation on the markets. French President Nicolas Sarkozy wants to push the tax through in Europe -- if necessary even without Britian, which has doggedly resisted such measures. Sarkozy picked up a new ally for the plan this week as well: German Chancellor Angela Merkel is also willing to venture going it alone to implement the tax exclusively within the 17 members of the euro zone. It would not directly apply to London, Europe's most important financial center.

Ironically, it was a Briton who first came up with the idea for such a tax. In 1936, economist John Maynard Keynes suggested using the tax in order to curb speculation. In the 1970s, American economist James Tobin's work on the issue brought the proposed tax to the attention of the left and critics of globalization. The so-called "Tobin tax" was a founding demand of the Paris-based, globalization-critical network Attac, whose acronym stands in French for "Association for the Taxation of Financial Transactions and for Citizens' Action."

In the meantime, the idea has also picked up some prominent advocates, including the American Nobel Prize-winning economist Joseph Stiglitz. Last year, Stiglitz told theFrankfurter Allgemeine Sonntagszeitung newspaper: "I am convinced that if Germany, France, Spain and Italy were to implement the financial transaction tax together, it would work." more

The Great Decline (consolidated)

2012-01-15T12:46:00.000-06:00

This past week, I have attempted to briefly summarize why the prosperous USA of my youth no longer exists. This is a HUGE subject so naturally, a lot of things were left out but considering this is a story that most people missed even though they lived though it, it's a pretty good basic primer. So today, I am mushing all six articles together into a single post for the convenience of anyone who wants to pass this history around.

There are many reasons why folks missed this major change in the fortunes of a nation. Economics is poorly covered by the mainstream media. Economics is a subject shot through with specialized jargon. The 1% who actually benefitted by these economic changes controlled many of the communications channels so many of the greatest disasters were presented as a necessary improvement. Etc.

Thanks to all who have already commented.

A blueprint for a dump

One of the things that always fascinates me is talking to folks, say, 35 years old and realizing that the USA that I grew up in doesn't even exist as a possibility for them. It hasn't existed at any time during their lives and since the teaching of contemporary history is virtually non-existent in the country, the ONLY possible way that USA could exist in a 35 yo mind is if they got very lucky and read some good books.

My father was poor as only a small-town preacher can be. During much of my childhood, he made $300 a month. There were six of us. We did get to live in a parsonage so housing was free but there wasn't much left over in any month and it was always welcome when a farmer from church slipped some fresh food into the car. But this was not poor by any stretch of the international definition of poor. We children went to well-lit, well-heated mostly new schools that had music, art, and science departments. Our house had central heating and indoor plumbing. We had a telephone. Even though we didn't get television until I was a high-school sophomore, we had radio and a record player. My oldest sister took music lessons on the piano, flute, double bass, and pipe organ becoming proficient in all of them.

When it came time to go to college, I had a big land-grant university waiting for me that charged $125 in tuition and $300 for a dorm room each quarter. Jobs within walking distance of campus paid at least $2.00 an hour and because I knew how to build houses, I could get $4.00 an hour working construction during the summer. Do the math. It was a lot of work but it was possible to self-finance a university education.

And about those jobs. In the fall of 1969, I got a part-time job delivering critical care medical equipment. In the spring of 1970, I got into a hassle with my draft board and would up dropping out of school (long story). In three month of working full time at the medical delivery service, I was able to save up enough money so I could spend the whole summer hitchhiking through Europe—one of my most profoundly significant life experiences and one only the children of the truly wealthy can afford now.

The other astonishing memory was of a house I helped build the summer I graduated from high school. It was a modest affair for the times—three bedrooms, a full bath, kitchen, dining room, living room, central heating, a full basement, and a two-car garage. It would cost the new homeowner $18,400 ready to move in. Here was the interesting part—the guy we were building it for worked on the line at the local shoe factory doing things like pulling lasts and stitching soles. Sometimes he would come by after his shift to watch us build his house. He always looked very tired. I am sure he earned every cent he made at that factory twice over but he was getting a brand-new house that was literally beyond the imagination of some teenaged girl toiling endless hours making shoes for Nike in Indonesia these days.

Today these things seem to me like a fantasy and I lived through them. I grew up in a nation that went to the moon just because we could do it. I was there when the Interstate highway system was new. I remember when the Boeing 727 brought the jet age to small airports and dozens of other aviation triumphs that culminated with the 747 in 1969—still considered the best subsonic transportation plane ever designed. The optimism was so heady, my high school graduation speaker (1967) promised our class that we would be the last humans to walk solely upon planet earth.

Well obviously, that USA doesn't exist any longer and so I have decided, as a new year's project, to explain as best I can the economic, social, political, and cultural changes that destroyed the country of my childhood. None of this is new. All of the events I will describe happened in public. In fact, the only reason this isn't common knowledge is because contemporary history is not taught. I am calling this tale of extended disaster "a blueprint for a dump."

Did economics once work better?

Of all the wrong-wing gibberish, the most annoying is the claim that we Progressives are just dreamers who don't have a track record to run on. Wrong. We have a track record that is the envy of any political movement ever. When it comes to economics, WE are the grown-ups in the room.

In the days to come, I intend to explain how a system that produced significant prosperity was destroyed and the events that destroyed it. This is a pretty big project so today, I post an introduction that outlines the basic historical contours. We will get to the specifics soon enough—starting tomorrow when I intend to discuss the decision to allow free-floating currency exchange rates and the impact of domestic Peak Oil in USA

The foundations are laid for the Great Decline

The Great Prosperity following World War II was product of many forces but was based on the material wealth churned out by the amazing productivity of the American Industrial System. As late as 1962, USA made more things than the rest of the planet combined. As a result, we were a creditor nation and had a massive trade surplus.

But the 1960s saw an explosion of overseas expenses—most notably for wars of imperial aggression. Yup, Vietnam. (I have a friend who believes the decline of USA was the direct result of the "bad karma" we earned invading Vietnam. He has a point.) As the trade balance tipped into negative territory, something very important happened to the real economy. In 1970, domestic oil production peaked. After that, the oil bill would contribute ever larger amounts to the trade deficit.

The logical thing to do would have been to stop our spectacularly unpopular wars and go home to retool the economy to run on something other than oil. But since that did not happen, the trade imbalance would soon trigger events in the financial markets.

By 1971, the agreement that USA gold would be the ultimate backer of the global monetary system was taking on water. The French, who knew something about the costs of making war in Indochina, decided to convert their dollar holdings into gold—and they had enough of those holdings to drain Fort Knox—and then some. So Nixon did the only thing he could do, he closed the Gold Window. For the first time in history, gold had nothing to do with monetary policy. And while this was good news for all of us who detest the Gold Standard and all the misery it brings, the idea of free-floating exchange rates was NOT an improvement. After 1971, there were few barriers to open speculative attacks on a nation's currency—a fact that has led to once economic calamity after another.

Now it took awhile for either of these events to show their ugly consequences. In the case oil production, the peak was only fully understood some years after the fact. It could be argued that it wasn't until the Arab Oil Embargo of 1973 that the idea of Peak USA Oil was known outside a small circle of oil men—and most of them didn't really believe it. As for the end of the gold experiment, that news was greeted by much wailing by the "sound money" boys but in fact, the real opportunities for plunder opened up by floating currencies weren't grasped until the 1980s.

But the Progressive revolution in economics was over. An economy built on cheap oil was going to be very difficult to defend anyway and floating currencies meant there were just fewer defenses against the financial pirates who were waiting for their main chance.

Here is Richard Nixon announcing the end of the redemption of dollars for gold. This is a remarkable YouTube—not the least because the comments show that most modern folks think the big sin was abandoning the gold standard. (sigh)

The new reality

Peak Oil presented the USA model of prosperity with a VERY unwelcome dilemma. In any era where energy supplies are rising and prices are falling, big sprawling projects are possible. Interstate highway system—no problem. Urban sprawl—no problem. A two-ton car for every adult in the land—a goal to be cherished. But when energy prices rise, making big heavy things for a living becomes risky indeed. Anything that was called a "heavy" industry had encountered a major roadblock.

So while major industries like steelmaking staggered under the new reality, the enterprises that made the small and light thrived—most especially those associated with the computer industry. The daily output of an automobile factory required trains to haul away—the daily output of a microchip factory could probably be packed in a van. And then there was software—a vital requirement for computers that was actually weightless.

In short, there was a real economy reason why the steel mills of Reading Pennsylvania were shut down and left to rust while companies like Microsoft became the darlings of the financial press. But these changes were about to be accelerated by that ultimate in weightless enterprise—financial "services."

So what? you say. Out with the old—in with the new. Creative Destruction is a good thing according to various economic gurus and replacing steel mills with traders in the various manifestations of weightless electronic money is probably an environmental benefit. What's not to love? Well two things actually.

Just because there was a more reliable way to make money in the weightless enterprises, nothing had eliminated the need for doing heavy things like growing food and shipping it to cities or manufacturing vehicles to get all those people in sprawled out burbs to work.
Even though financial 'services' might be clean and weightless, they are also pointless unless they can extract wealth from the heavyweight industries. The whole point of lending is to provide 'services' that are worth but a tiny fraction of what is charged. Unfortunately, most of the money spent on finance in this new era became nothing more than another drag on industries already struggling to cope with a new energy environment.

Of course, the biggest problem with a massive shift in economic importance from the heavy industries to moneychanging is that industry had spent most of its history trying to minimize its exposure to the usurers. As a result, the number of real investment opportunities was quite small. So to accommodate the massive influx of people who sought to make their living off finance, whole new categories of new and ever more bizarre financial instrument would have to be invented.

In addition to the very real economic reasons for avoiding debt service, there is a long-standing cultural bias against lending. All the major religions on earth contain teachings against lenders extracting too much wealth from borrowers. So minds would have to be changed. People would have to be convinced that betting on some currency spread was actually more important than how food was grown or how farmers prospered. The economics of moneychanging would have rule economic discourse again. There would have to be a pushback against the Progressive ideas that had come to dominate the economics profession.

Why ideas are important!

One of the most annoying things about a religious upbringing is that you get to meet people who live to split hairs over the most trivial subjects imaginable. Calling such people "unpleasant" is about a charitable as I get. But knowing how passionate people can get over ideas has proved to be a valuable bit of insight over the years. It is especially useful when it comes to describing economics because ideas are the only currency a practicing economist has. Of course, no one will ever top Keynes' classic observation.

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. (Ch. 24 "Concluding Notes" pg.383. more quotes)

Milton Friedman was a general in the new war of ideas. He had been preaching about the evils of the New Deal for most of his adult life and in 1963 published his magnum opus on monetary theory entitled A Monetary History of the United States, 1867–1960. In 1970, I had a distinguished economics professor describe Friedman as an "ignorant crank." John Kenneth Galbraith famously remarked "Milton Friedman’s misfortune is that his economic policies have been tried." Which was true enough. Unfortunately for the likes of Galbraith, being wrong never harmed anyone's reputation when the crackpot ideology is in the service of the moneychangers.

In 1973, Milton Friedman's "brilliance" is taken on a road tour into Chile courtesy of a CIA-engineered coup . Friedman's ideas would be implemented by folks willing to torture their political opponents to death. Under such circumstances, the fact that Friedman's theories were demonstrably insane didn't matter all that much.

Having impressed the world with his economic theories put in place at the end of a gun, Milton Friedman would win the Nobel Prize in economics (1976). The economics prize is in itself a fraud. Even though they give out the prize on the same night as the real Nobel Prizes, it has only been around since 1968 and is award by the Swedish Central Bank (riksbank). It is a little known fact that Sweden has had a central bank for longer than the Bank of England has existed. These guys have been around for a very long time. In a Girl with a Dragon Tattoo, we see a fictionalized account of what the Swedish right wing might have been up to during their years in the wilderness during the 60 year period when the Social Democrats came to dominate political life. But nothing in fiction has been as diabolically clever as a central bank getting to decide what is praiseworthy in economic thought. And Friedman was far from the only crackpot awarded the Riksbank Prize The 1997 winners (who won for some elegant math that purported to be able to accurately price derivatives) founded a hedge fund named Long Term Capital Management that was so inept, it triggered major finacial crises.

By 1980, Friedman's message that "regulations and collective decision-making was responsible for all our ills and that economic decisions should rest solely in the hands of the moneychangers" got him a 10-part series on PBS called Free to Choose. Friedman may have been an ignorant crackpot but he was now an ignorant crackpot with a 10 part series on the supposedly "liberal" PBS. (An interesting footnote to the career of one Milton Friedman. He lived to be a very old man and in his dotage, essentially recanted his major theories. Too bad he could not have done so in 1973.)

During the 1980s, there was spectacular growth in well-funded right-wing think tanks. Perhaps the most important was the Democratic Leadership Council formed in 1985. A guy named Al Frum came up with the idea that he could hit up Wall Street for big contributions and then fund Democratic candidates willing to sell out the economic principles of the New Deal.

Perhaps the biggest victory in the war against Progressive economics came when a right-wing Ayn Rand crackpot named Alan Greenspan became head of the Fed. He would serve from 1987 to 2006. Not surprisingly, the Fed becomes a neoliberal madhouse. This is especially important because anyone who would have a career in economics had to serve a hitch with the Fed.

Once the economics profession was totally on board with the economics of the moneychangers, the next act was to eliminate all dissenting opinion from public discussion. There were many elements of this ideological hegemony but none so important as the 1996 Telecommunications Act. It accomplished a lot of things like legalizing monopolies but the practical side effect was that it made lying legal and fact-checking optional. Not surprisingly, it essentially undid the New Deal-era Communications Act of 1934.

So did the neoliberal economists win the war of ideas? Absolutely! Totally! In a clip at the following link, Bill Black claims there are but four schools left in USA that still teach the economics of the folks who brought this country its greatest prosperity—the prosperity that has been systematically looted and destroyed since 1973.

Bad theory becomes law

The whole point of changing the teaching of economics was to make it acceptable to trash the regulations that had been put in place during the New Deal to prevent another Great Depression. And as would become readily apparent, these regulations had been put in place to address real needs. Well written and administered regulations lead to more scientifically advanced and prosperous societies because regulations protect and permit honest entrepreneurs to thrive. The more complex the society, the more of these honest people it takes to keep all the parts working. Take away the rules and the cheaters will drive out the honest operators. The only historical outcome of "deregulation" is a rise in corruption of all forms and a destruction of industrial potential. Pretty much describes the past 35 years, huh?

Deregulation in all its forms has been an ongoing project. There are literally countless examples. This is just my list. I have also created a separate category for the decriminalization of usury because this involved special levels of cultural warfare.

Deregulation

1978 Airline Deregulation Act. Deregulating the airlines was in some ways low-hanging fruit. Importantly, airlines would still be tightly regulated on safety issues—it was the rate structures that would be deregulated. And the rate structures WERE in need of restructuring. Even so, the New Deal economists claimed that airlines had special requirements that suggested that economically, they should be treated as a regulated utility. So this was a good test case.

The Airline Deregulation Act (Pub.L. 95-504) is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to remove government control over fares, routes and market entry (of new airlines) from commercial aviation. The Civil Aeronautics Board's powers of regulation were to be phased out, eventually allowing passengers to be exposed to market forces in the airline industry. The Act, however, did not remove or diminish the FAA's regulatory powers over all aspects of airline safety. more

Motor Carrier Act of 1980: Deregulating trucking was a bow shot at organized labor. In this case, the Teamsters

The Motor Carrier Regulatory Reform and Modernization Act, more commonly known as the Motor Carrier Act of 1980 (MCA) is a United States federal law which deregulated the trucking industry.[1]Motor carrier deregulation was a part of a sweeping reduction in price controls, entry controls, and collective vendor price setting in United States transportation, begun in 1970-71 with initiatives in the Richard Nixon Administration, carried out through the Gerald Ford and Jimmy Carter Administrations, and continued into the 1980s, collectively seen as a part of deregulation in the United States.

Background

Since the passage of the Interstate Commerce Act of 1887, the federal government had regulated various transportation modes, starting with the railroad industry, and later the trucking and airline industries. Increasing public interest in deregulation led to a series of federal laws beginning in 1976 with the Railroad Revitalization and Regulatory Reform Act. The deregulation of the trucking industry began with the Motor Carrier Act of 1980, which was signed into law by President Carter on July 1, 1980. more

Gramm, Leach, Bliley and Commodities Modernization Act: These two pieces of legislation were passed at the end of the Clinton administration and they accomplished the most desired goal of the deregulators—financial deregulation.

The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. The legislation was signed into law by President Bill Clinton. more

The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.” [1] These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession. more

Usury

1980 The Depository Institutions Deregulation and Monetary Control Act: This act accomplished many things but its most stunning achievement was it repealed usury limits. Usury laws were so entrenched at the time, some states had them written into their constitutions. To make certain this wildly unpopular bill was passed, the various banking interests launched a major P.R. campaign stressing how unfair it was that depositors couldn't get higher interest rates. But just to make certain everyone got the message, there was a well-coordinated "capital strike" and for much of 1979, lending dried up.

Here is a copy of the speech Jimmy Carter gave at the ceremony where he undid one of the cornerstones of Producer economics—usury laws. To this day, I wonder if he actually believed this horse shit.

Depository Institutions Deregulation and Monetary Control Act of 1980

Remarks on Signing H.R. 4986 Into Law.
March 31, 1980

THE PRESIDENT. This morning we are assembled in the White House to take action which will have far-reaching, beneficial effects on our Nation. Not only will it help to control inflation, but it will also strengthen our financial institutions, our thrift institutions and commercial banks, and in addition to that it will help small savers and address more effectively the relationship of the Federal Reserve System with the banks throughout our Nation.

Let me begin with some commendations. I think Bill Miller deserves a great deal of credit for having pursued this effort, even when the prospects for success were very bleak, first of all as Chairman of the Federal Reserve System, and later of course as Secretary of the Treasury. We have had good support in the Congress from Bill Proxmire, from Henry Reuss, from Fred St Germain, who's here this morning with us. And also, to make it nonpartisan, or bipartisan, I'm particularly grateful that Bill Stanton, Jake Garn, and many others have come this morning to commemorate this historic event. As you can well imagine, in legislation of this breadth and importance, many others played a crucial role, and I'm very grateful to all those who had a part. This is a moment of great gratification to me and, in addition, to the feeling of gratitude to persons that I've just described.

Last spring we began to become more and more concerned about the issues that affected our Nation as inflation was beginning to build up and as the rate of savings in our country was constantly dropping. I recommended to the Congress a landmark financial reform bill, which I will be signing in a few minutes into law. This is not only a significant step in reducing inflation, but it's a major victory for savers, and particularly for small savers. It's a progressive step for stronger financial institutions of all kinds. And it's another step in a long but extremely important move toward deregulation by the Federal Government of the private enterprise system of our country.

We've already had remarkable success in deregulation in the airline industry, this in financial institutions; we hope that the Congress will soon pass the regulatory reform act and that we can have success in the deregulation of the rail industry, trucking industry, and the communication industry.

As you know, under existing law, which this bill will change, our banks and savings institutions are hampered by a wide range of outdated, unfair, and unworkable regulations. Especially unfair are interest rate ceilings that prohibit small savers from receiving a fair market return on their deposits. It's a serious inequity that favors rich investors over the average savers. Today's legislation will gradually eliminate these ceilings and allow, through competition, higher rates for savers. It provides an orderly transition for institutions to develop new investment powers.

Most significant of all, perhaps, it can help improve our Nation's very low savings rate. Now not much more than 3 percent of earnings go into savings, perhaps the lowest rate in the last 30 years. And of course, this small savings rate has been a major factor in increased inflation. This encouragement of savings is important not only to consumers but also to financial institutions in the breadth of our financial system.

The new law will permit institutions to prevent or to overcome the previous wide cyclical changes and swings and to develop a more stable deposit base. This can help ensure steadier flow of credit for productive uses, especially housing. It can keep down financing costs and, again, help defuse the pressing burden of inflation. more

Of course, once usury had been decriminalized, the Fed's Paul Volcker ran up interest rates to 21% prime. The whole globe staggered. In fact, there are some very good arguments that suggest that large populations world-wide have never really recovered from the 1982 recession that was deliberately triggered for ideological reasons.

The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited recession relatively early, but high unemployment would continue to affect otherOECD nations through at least 1985.[1] Long term effects of the recession contributed to the Latin American debt crisis, the savings and loan crisis in the United States, and a general adoption of neoliberal economic policies throughout the 1980s and 1990s. more

The 1982 Recession

During his 1980 campaign, Ronald Reagan promised to end the economic and hostage crises that had plagued Jimmy Carter's administration. The hostage crisis was solved for him when, only hours after he was sworn in, Iran's Ayatollah Khomeini released the captive Americans. With one victory under his belt, Reagan dedicated himself to making good on his other promise. The American people trusted him to do so.

In February 1981 Reagan presented the Economic Tax Recovery Act to Congress, calling for massive personal and corporate tax cuts, reductions in government spending, and a balanced budget. The program was based on supply side economics: Tax cuts, the theory went, would allow people either to spend more on goods and services, thus giving the economy a boost, or to invest in businesses, thus leading to economic growth. The economic expansion, supply side theorists argued, would generate enough revenue to cover the shortfall resulting from the initial cut in tax rates.

In an effort to balance the budget, Reagan "propose[d] budget cuts in virtually every department of government." While he cut back social programs, including school-lunch programs and payments for people with disabilities, he refused to touch Social Security and Medicare. He also advocated deregulation of certain industries in an effort to reduce the government's role in the economy, and proposed such a massive military buildup that Pentagon spending would reach $34 million an hour during his administration.

At first some Republicans were skeptical and most Democrats were hostile toward the Recovery Act. To overcome opposition, Reagan lobbied hard in Congress and used his skills as the "Great Communicator" to persuade the country. One after another, Congressmen began to line up behind Reagan’s program. Feeling for Reagan swelled after John Hinckley, Jr.'s, assassination attempt on March 30, 1981. Perhaps his rapid, dramatic recovery was seen as emblematic of what the country could achieve under his leadership. By July 1981, Reagan’s economic program won the support of two-thirds of the American public and was approved by enough Democrats to get it through Congress.

When, in August 1981, Reagan signed his Recovery Act into law at Rancho del Cielo, his Santa Barbara ranch, he promised to find additional cuts to balance the budget, which had a projected deficit of $80 billion -- the largest, to that date, in U.S. history. That fall, the economy took a turn for the worse. To fight inflation, running at a rate of 14 percent per year, the Federal Reserve Board had increased interest rates. Recession was the inevitable result. Blue-collar workers who had largely supported Reagan were hard hit, as many lost their jobs.

The United States was experiencing its worst recession since the Depression, with conditions frighteningly reminiscent of those 50 years earlier. By November 1982, unemployment reached, nine million, the highest rate since the Depression; 17,000 businesses failed, the second highest number since 1933; farmers lost their land; and many sick, elderly, and poor became homeless. more

1982 Garn-St. Germain Depository Institutions Act: This one was a honey because it deregulated the savings and loan institutions. When Volcker raised interest rates to loan shark levels, the S&Ls found themselves in a world of hurt. Their assets were a bunch of 5% mortgages and their cost for money was 20%. So the "solution" was to let the safe and staid home mortgage business come to the casino.

The Garn–St. Germain Depository Institutions Act of 1982 (Pub.L. 97-320, H.R. 6267, enacted October 15, 1982) is an Act of Congress that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans. It is disputed whether the act was a mitigating or contributing factor in the savings and loan crisis of the late 1980s.

The bill, whose full title was "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans," was a Reagan Administration initiative.

The bill is named after its sponsors, Congressman Fernand St. Germain, Democrat of Rhode Island, and Senator Jake Garn, Republican of Utah. The bill had broad support in Congress, with co-sponsors including Charles Schumer and Steny Hoyer. The bill passed overwhelmingly, by a margin of 272-91 in the House. more

Krugman argues that we are still paying the bills for Garn-St. Germain.

Reagan Did It
By PAUL KRUGMAN Published: May 31, 2009

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression. more

2005 Grassley Bankruptcy Abuse Prevention and Consumer Protection Act: The credit card industries weren't abusing anyone by charging 25% interest rates, of course, but it was never too early to prevent "abuse" by the borrowers. So the banksters passed this vile little act whose worst feature was that students could never discharge their loans through bankruptcy. The greatest single output of the USA educational system is debt peons.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) (Pub.L. 109-8, 119 Stat. 23, enacted April 20, 2005), is a legislative act that made several significant changes to theUnited States Bankruptcy Code. Referred to colloquially as the "New Bankruptcy Law", the Act of Congress attempts to, among other things, make it more difficult for some consumers to file bankruptcy underChapter 7; some of these consumers may instead utilize Chapter 13. Voting record of S. 256

It was passed by the 109th United States Congress on April 14, 2005 and signed into law by President George W. Bush on April 20, 2005. Most provisions of the act apply to cases filed on or after October 17, 2005. It was hailed at the time as the banking lobby's greatest all-time victory.

It was widely claimed by advocates of BAPCPA that its passage would reduce losses to creditors such as credit card companies, and that those creditors would then pass on the savings to other borrowers in the form of lower interest rates. These claims turned out to be false. After BAPCPA passed, although credit card company losses decreased, prices charged to customers increased, and credit card company profits soared. more

The war on Producers

The whole point of deregulation was to make it possible to organize massive plunder and not go to jail. All other reasons proffered are just so many distractions. At the start of the Reagan administration, there were still a lot of heavy assets to loot. There have been books written about this era—some of them very good—and there will be a lot more. The reason is simple—the era of neoliberal plunder of real assets and the deindustrialization that followed represented a historical reversal of a national pro-industrial development strategy that goes back to those inventor founding fathers such as Jefferson, Franklin, and Tom Paine.

During the madness, it mattered little how well an industrial concern was managed. Loyal customers, good products, great research teams, whatever—didn't matter to a raider. In fact, suppose a company had set aside a nice nest egg to pay for the development of new products. In the world of Producers, this made such a company a shining example of industrial capitalism. In the mind of a raider, this nest egg was what he intended to grab during the hostile takeover. The idea that the "restructuring" specialists only destroyed the weak and deserving is utter nonsense. Lots of fine companies were destroyed. Not merely stolen—destroyed!

It was during this era that USA lost its economic muscle. I am not going to try to summarize the destruction or highlight some especially bad actors because in truth, EVERYONE got sucked into the madness. Union pension funds were used to destroy the very industries that would pay future pension costs. Environmental NGOs invested their endowments in currency swaps. City administrators bought junk bonds because the higher return meant raises down at city hall without raising taxes.

But there is an interesting new chapter to this story. In a Republican Primary where a field of political whack-jobs struggle to pander to the party's looniest members, we saw that on Wednesday, a superpac associated with Gnoot released a documentary called When Mitt Romney Came to Town detailing some of the sleazier aspects of Romney's career as head of vulture-fund Bain Capital. It is well produced, shot, and edited—28 minutes of very professional documentary making. Something like this required a minimum of three months to make.

It is almost impossible to imagine anything even remotely like this coming from the Obama people. The Democrats have two problems:

They are terrified of offending their new friends on Wall Street,
The critics of capitalism that still remain in the party tend to lump all private enterprise into this big ball of evil—to them, there is no difference between a Steve Jobs who built a roaring success from a handful of good ideas and a vulture like Mitt Romney who stole everything not nailed down.

Well, leave it to some conservatives to understand the difference between industrial and finance capitalism—or as Rick Perry puts it, the difference between venture and vulture capitalism. Actually I am shocked, puzzled, and delighted by this development. Here is the documentary (in full) that catalogues some of the destruction caused by the war on Producers.

There are literally thousands of variations to this story. I could easily spend my life writing about nothing else. But here are some of the highlights.

Firing of PATCO workers. In August of 1981, 13,000 air traffic controllers went out on strike for better wages and working conditions. Reagan fired them all. And the unions did almost nothing to support their brothers. Labor has not been the same in USA since.

P9 Strike. In August 1985, the meatpackers at Hormel's plant in Austin Minnesota went out to protest job cuts, pay cuts, and insanely dangerous working conditions. This fight would be fought to the bitter end—local P-9 never gave up. The Minnesota governor who was a member of the Democratic Farmer Labor Party would eventually call in the National Guard to crush the strike—proving that even in "liberal" Minnesota, the DFL had sold out.

The North American Free Trade agreement (NAFTA) initially agreed to by GHW Bush but signed into law by Bill Clinton in 1993, would accelerate the destruction of manufacturing jobs in USA. A lot has been written about this but the main lesson was that the Democrats had already sold their shriveled souls to the neoliberal agenda.

SPEEA Strike (2000). SPEEA Union (Society of Professional Engineering Employees in Aerospace) is quite literally a union of rocket scientists. One of the reasons unionization is so weak in USA is because most people believe that if their profession is prestigious enough and they are good enough, they don't need union protections. This was the strike where arguably the MOST prestigious profession found out they needed unions as much as truck drivers. In fact, without the assistance of the Teamsters, this strike would have been another failure.

Fighting Back

Beyond some spectacularly unsuccessful strikes, the struggle against the new economic order has had few actions of note. The most notable exception came when protestors shut down WTO meeting in Seattle. There would be attempt to close down further gathering of bankster planning sessions. None would succeed.

#OWS. Ah yes, the latest manifestation of opposition to raw Predation. We have no idea how this will turn out, but the fact that people are still screaming about the bankster agenda probably means something—we just do not know what...yet.

Saturday toons 14 JANUARY 12

2012-01-14T06:30:00.003-06:00

Today we see the cartoonists take on the interesting topic—will USA elect as President a man who has made his pile as a vulture capitalist?

The war on Producers

2012-01-13T11:56:00.003-06:00

The whole point of deregulation was to make it possible to organize massive plunder and not go to jail. All other reasons proffered are just so many distractions. At the start of the Reagan administration, there were still a lot of heavy assets to loot. There have been books written about this era—some of them very good—and there will be a lot more. The reason is simple—the era of neoliberal plunder of real assets and the deindustrialization that followed represented a historical reversal of a national pro-industrial development strategy that goes back to those inventor founding fathers such as Jefferson, Franklin, and Tom Paine.

During the madness, it mattered little how well an industrial concern was managed. Loyal customers, good products, great research teams, whatever—didn't matter to a raider. In fact, suppose a company had set aside a nice nest egg to pay for the development of new products. In the world of Producers, this made such a company a shining example of industrial capitalism. In the mind of a raider, this nest egg was what he intended to grab during the hostile takeover. The idea that the "restructuring" specialists only destroyed the weak and deserving is utter nonsense. Lots of fine companies were destroyed. Not merely stolen—destroyed!

It was during this era that USA lost its economic muscle. I am not going to try to summarize the destruction or highlight some especially bad actors because in truth, EVERYONE got sucked into the madness. Union pension funds were used to destroy the very industries that would pay future pension costs. Environmental NGOs invested their endowments in currency swaps. City administrators bought junk bonds because the higher return meant raises down at city hall without raising taxes.

But there is an interesting new chapter to this story. In a Republican Primary where a field of political whack-jobs struggle to pander to the party's looniest members, we saw that on Wednesday, a superpac associated with Gnoot released a documentary called When Mitt Romney Came to Town detailing some of the sleazier aspects of Romney's career as head of vulture-fund Bain Capital. It is well produced, shot, and edited—28 minutes of very professional documentary making. Something like this required a minimum of three months to make.

It is almost impossible to imagine anything even remotely like this coming from the Obama people. The Democrats have two problems: 1) They are terrified of offending their new friends on Wall Street, and 2) The critics of capitalism that still remain in the party tend to lump all private enterprise into this big ball of evil—to them, there is no difference between a Steve Jobs who built a roaring success from a handful of good ideas and a vulture like Mitt Romney who stole everything not nailed down.

Well, leave it to some conservatives to understand the difference between industrial and finance capitalism—or as Rick Perry puts it, the difference between venture and vulture capitalism. Actually I am shocked, puzzled, and delighted by this development. Here is the documentary (in full) that catalogues some of the destruction caused by the war on Producers.

There are literally thousands of variations to this story. I could easily spend my life writing about nothing else. But here are some of the highlights.

Firing of PATCO workers. In August of 1981, 13,000 air traffic controllers went out on strike for better wages and working conditions. Reagan fired them all. And the unions did almost nothing to support their brothers. Labor has not been the same in USA since.

P9 Strike. In August 1985, the meatpackers at Hormel's plant in Austin Minnesota went out to protest job cuts, pay cuts, and insanely dangerous working conditions. This fight would be fought to the bitter end—local P-9 never gave up. The Minnesota governor who was a member of the Democratic Farmer Labor Party would eventually call in the National Guard to crush the strike—proving that even in "liberal" Minnesota, the DFL had sold out.

The North American Free Trade agreement (NAFTA) initially agreed to by GHW Bush but signed into law by Bill Clinton in 1993, would accelerate the destruction of manufacturing jobs in USA. A lot has been written about this but the main lesson was that the Democrats had already sold their shriveled souls to the neoliberal agenda.

SPEEA Strike (2000). SPEEA Union (Society of Professional Engineering Employees in Aerospace) is quite literally a union of rocket scientists. One of the reasons unionization is so weak in USA is because most people believe that if their profession is prestigious enough and they are good enough, they don't need union protections. This was the strike where arguably the MOST prestigious profession found out they needed unions as much as truck drivers. In fact, without the assistance of the Teamsters, this strike would have been another failure.

Fighting Back

Beyond some spectacularly unsuccessful strikes, the struggle against the new economic order has had few actions of note. The most notable exception came when protestors shut down WTO meeting in Seattle. There would be attempt to close down further gathering of bankster planning sessions. None would succeed.

#OWS. Ah yes, the latest manifestation of opposition to raw Predation. We have no idea how this will turn out, but the fact that people are still screaming about the bankster agenda probably means something—we just do not know what...yet.

Bad theory becomes law

2012-01-12T00:53:00.001-06:00

The whole point of changing the teaching of economics was to make it acceptable to trash the regulations that had been put in place during the New Deal to prevent another Great Depression. And as would become readily apparent, these regulations had been put in place to address real needs. Well written and administered regulations lead to more scientifically advanced and prosperous societies because regulations protect and permit honest entrepreneurs to thrive. The more complex the society, the more of these honest people it takes to keep all the parts working. Take away the rules and the cheaters will drive out the honest operators. The only historical outcome of "deregulation" is a rise in corruption of all forms and a destruction of industrial potential. Pretty much describes the past 35 years, huh?

Deregulation in all its forms has been an ongoing project. There are literally countless examples. This is just my list. I have also created a separate category for the decriminalization of usury because this involved special levels of cultural warfare.

Deregulation

1978 Airline Deregulation Act. Deregulating the airlines was in some ways low-hanging fruit. Importantly, airlines would still be tightly regulated on safety issues—it was the rate structures that would be deregulated. And the rate structures WERE in need of restructuring. Even so, the New Deal economists claimed that airlines had special requirements that suggested that economically, they should be treated as a regulated utility. So this was a good test case.

The Airline Deregulation Act (Pub.L. 95-504) is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to remove government control over fares, routes and market entry (of new airlines) from commercial aviation. The Civil Aeronautics Board's powers of regulation were to be phased out, eventually allowing passengers to be exposed to market forces in the airline industry. The Act, however, did not remove or diminish the FAA's regulatory powers over all aspects of airline safety. more

Motor Carrier Act of 1980: Deregulating trucking was a bow shot at organized labor. In this case, the Teamsters

The Motor Carrier Regulatory Reform and Modernization Act, more commonly known as the Motor Carrier Act of 1980 (MCA) is a United States federal law which deregulated the trucking industry.[1]Motor carrier deregulation was a part of a sweeping reduction in price controls, entry controls, and collective vendor price setting in United States transportation, begun in 1970-71 with initiatives in the Richard Nixon Administration, carried out through the Gerald Ford and Jimmy Carter Administrations, and continued into the 1980s, collectively seen as a part of deregulation in the United States.

Background

Since the passage of the Interstate Commerce Act of 1887, the federal government had regulated various transportation modes, starting with the railroad industry, and later the trucking and airline industries. Increasing public interest in deregulation led to a series of federal laws beginning in 1976 with the Railroad Revitalization and Regulatory Reform Act. The deregulation of the trucking industry began with the Motor Carrier Act of 1980, which was signed into law by President Carter on July 1, 1980. more

The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. The legislation was signed into law by President Bill Clinton. more

The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.” [1] These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession. more

Depository Institutions Deregulation and Monetary Control Act of 1980

Remarks on Signing H.R. 4986 Into Law.
March 31, 1980

THE PRESIDENT. This morning we are assembled in the White House to take action which will have far-reaching, beneficial effects on our Nation. Not only will it help to control inflation, but it will also strengthen our financial institutions, our thrift institutions and commercial banks, and in addition to that it will help small savers and address more effectively the relationship of the Federal Reserve System with the banks throughout our Nation.

Let me begin with some commendations. I think Bill Miller deserves a great deal of credit for having pursued this effort, even when the prospects for success were very bleak, first of all as Chairman of the Federal Reserve System, and later of course as Secretary of the Treasury. We have had good support in the Congress from Bill Proxmire, from Henry Reuss, from Fred St Germain, who's here this morning with us. And also, to make it nonpartisan, or bipartisan, I'm particularly grateful that Bill Stanton, Jake Garn, and many others have come this morning to commemorate this historic event. As you can well imagine, in legislation of this breadth and importance, many others played a crucial role, and I'm very grateful to all those who had a part. This is a moment of great gratification to me and, in addition, to the feeling of gratitude to persons that I've just described.

Last spring we began to become more and more concerned about the issues that affected our Nation as inflation was beginning to build up and as the rate of savings in our country was constantly dropping. I recommended to the Congress a landmark financial reform bill, which I will be signing in a few minutes into law. This is not only a significant step in reducing inflation, but it's a major victory for savers, and particularly for small savers. It's a progressive step for stronger financial institutions of all kinds. And it's another step in a long but extremely important move toward deregulation by the Federal Government of the private enterprise system of our country.

We've already had remarkable success in deregulation in the airline industry, this in financial institutions; we hope that the Congress will soon pass the regulatory reform act and that we can have success in the deregulation of the rail industry, trucking industry, and the communication industry.

As you know, under existing law, which this bill will change, our banks and savings institutions are hampered by a wide range of outdated, unfair, and unworkable regulations. Especially unfair are interest rate ceilings that prohibit small savers from receiving a fair market return on their deposits. It's a serious inequity that favors rich investors over the average savers. Today's legislation will gradually eliminate these ceilings and allow, through competition, higher rates for savers. It provides an orderly transition for institutions to develop new investment powers.

Most significant of all, perhaps, it can help improve our Nation's very low savings rate. Now not much more than 3 percent of earnings go into savings, perhaps the lowest rate in the last 30 years. And of course, this small savings rate has been a major factor in increased inflation. This encouragement of savings is important not only to consumers but also to financial institutions in the breadth of our financial system.

The new law will permit institutions to prevent or to overcome the previous wide cyclical changes and swings and to develop a more stable deposit base. This can help ensure steadier flow of credit for productive uses, especially housing. It can keep down financing costs and, again, help defuse the pressing burden of inflation. more

The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited recession relatively early, but high unemployment would continue to affect otherOECD nations through at least 1985.[1] Long term effects of the recession contributed to the Latin American debt crisis, the savings and loan crisis in the United States, and a general adoption of neoliberal economic policies throughout the 1980s and 1990s. more

The 1982 Recession

During his 1980 campaign, Ronald Reagan promised to end the economic and hostage crises that had plagued Jimmy Carter's administration. The hostage crisis was solved for him when, only hours after he was sworn in, Iran's Ayatollah Khomeini released the captive Americans. With one victory under his belt, Reagan dedicated himself to making good on his other promise. The American people trusted him to do so.

In February 1981 Reagan presented the Economic Tax Recovery Act to Congress, calling for massive personal and corporate tax cuts, reductions in government spending, and a balanced budget. The program was based on supply side economics: Tax cuts, the theory went, would allow people either to spend more on goods and services, thus giving the economy a boost, or to invest in businesses, thus leading to economic growth. The economic expansion, supply side theorists argued, would generate enough revenue to cover the shortfall resulting from the initial cut in tax rates.

In an effort to balance the budget, Reagan "propose[d] budget cuts in virtually every department of government." While he cut back social programs, including school-lunch programs and payments for people with disabilities, he refused to touch Social Security and Medicare. He also advocated deregulation of certain industries in an effort to reduce the government's role in the economy, and proposed such a massive military buildup that Pentagon spending would reach $34 million an hour during his administration.

At first some Republicans were skeptical and most Democrats were hostile toward the Recovery Act. To overcome opposition, Reagan lobbied hard in Congress and used his skills as the "Great Communicator" to persuade the country. One after another, Congressmen began to line up behind Reagan’s program. Feeling for Reagan swelled after John Hinckley, Jr.'s, assassination attempt on March 30, 1981. Perhaps his rapid, dramatic recovery was seen as emblematic of what the country could achieve under his leadership. By July 1981, Reagan’s economic program won the support of two-thirds of the American public and was approved by enough Democrats to get it through Congress.

When, in August 1981, Reagan signed his Recovery Act into law at Rancho del Cielo, his Santa Barbara ranch, he promised to find additional cuts to balance the budget, which had a projected deficit of $80 billion -- the largest, to that date, in U.S. history. That fall, the economy took a turn for the worse. To fight inflation, running at a rate of 14 percent per year, the Federal Reserve Board had increased interest rates. Recession was the inevitable result. Blue-collar workers who had largely supported Reagan were hard hit, as many lost their jobs.

The United States was experiencing its worst recession since the Depression, with conditions frighteningly reminiscent of those 50 years earlier. By November 1982, unemployment reached, nine million, the highest rate since the Depression; 17,000 businesses failed, the second highest number since 1933; farmers lost their land; and many sick, elderly, and poor became homeless. more

The Garn–St. Germain Depository Institutions Act of 1982 (Pub.L. 97-320, H.R. 6267, enacted October 15, 1982) is an Act of Congress that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans. It is disputed whether the act was a mitigating or contributing factor in the savings and loan crisis of the late 1980s.

The bill, whose full title was "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans," was a Reagan Administration initiative.

The bill is named after its sponsors, Congressman Fernand St. Germain, Democrat of Rhode Island, and Senator Jake Garn, Republican of Utah. The bill had broad support in Congress, with co-sponsors including Charles Schumer and Steny Hoyer. The bill passed overwhelmingly, by a margin of 272-91 in the House. more

Krugman argues that we are still paying the bills for Garn-St. Germain.

Reagan Did It
By PAUL KRUGMAN Published: May 31, 2009

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression. more

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) (Pub.L. 109-8, 119 Stat. 23, enacted April 20, 2005), is a legislative act that made several significant changes to theUnited States Bankruptcy Code. Referred to colloquially as the "New Bankruptcy Law", the Act of Congress attempts to, among other things, make it more difficult for some consumers to file bankruptcy underChapter 7; some of these consumers may instead utilize Chapter 13. Voting record of S. 256

It was passed by the 109th United States Congress on April 14, 2005 and signed into law by President George W. Bush on April 20, 2005. Most provisions of the act apply to cases filed on or after October 17, 2005. It was hailed at the time as the banking lobby's greatest all-time victory.

It was widely claimed by advocates of BAPCPA that its passage would reduce losses to creditors such as credit card companies, and that those creditors would then pass on the savings to other borrowers in the form of lower interest rates. These claims turned out to be false. After BAPCPA passed, although credit card company losses decreased, prices charged to customers increased, and credit card company profits soared. more

The new reality

2012-01-11T00:50:00.005-06:00

Peak Oil presented the USA model of prosperity with a VERY unwelcome dilemma. In any era where energy supplies are rising and prices are falling, big sprawling projects are possible. Interstate highway system—no problem. Urban sprawl—no problem. A two-ton car for every adult in the land—a goal to be cherished. But when energy prices rise, making big heavy things for a living becomes risky indeed. Anything that was called a "heavy" industry had encountered a major roadblock.

So while major industries like steelmaking staggered under the new reality, the enterprises that made the small and light thrived—most especially those associated with the computer industry. The daily output of an automobile factory required trains to haul away—the daily output of a microchip factory could probably be packed in a van. And then there was software—a vital requirement for computers that was actually weightless.

In short, there was a real economy reason why the steel mills of Reading Pennsylvania were shut down and left to rust while companies like Microsoft became the darlings of the financial press. But these changes were about to be accelerated by that ultimate in weightless enterprise—financial "services."

So what? you say. Out with the old—in with the new. Creative Destruction is a good thing according to various economic gurus and replacing steel mills with traders in the various manifestations of weightless electronic money is probably an environmental benefit. What's not to love? Well two things actually.

Just because there was a more reliable way to make money in the weightless enterprises, nothing had eliminated the need for doing heavy things like growing food and shipping it to cities or manufacturing vehicles to get all those people in sprawled out burbs to work.
Even though financial 'services' might be clean and weightless, they are also pointless unless they can extract wealth from the heavyweight industries. The whole point of lending is to provide 'services' that are worth but a tiny fraction of what is charged. Unfortunately, most of the money spent on finance in this new era became nothing more than another drag on industries already struggling to cope with a new energy environment.

In addition to the very real economic reasons for avoiding debt service, there is a long-standing cultural bias against lending. All the major religions on earth contain teachings against lenders extracting too much wealth from borrowers. So minds would have to be changed. People would have to be convinced that betting on some currency spread was actually more important than how food was grown or how farmers prospered. The economics of moneychanging would have rule economic discourse again. There would have to be a pushback against the Progressive ideas that had come to dominate the economics profession.

Why ideas are important!

One of the most annoying things about a religious upbringing is that you get to meet people who live to split hairs over the most trivial subjects imaginable. Calling such people "unpleasant" is about a charitable as I get. But knowing how passionate people can get over ideas has proved to be a valuable bit of insight over the years. It is especially useful when it comes to describing economics because ideas are the only currency a practicing economist has. Of course, no one will ever top Keynes' classic observation.

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. (Ch. 24 "Concluding Notes" pg.383. more quotes)

Having impressed the world with his economic theories put in place at the end of a gun, Milton Friedman would win the Nobel Prize in economics (1976). The economics prize is in itself a fraud. Even though they give out the prize on the same night as the real Nobel Prizes, it has only been around since 1968 and is award by the Swedish Central Bank (riksbank). It is a little known fact that Sweden has had a central bank for longer than the Bank of England has existed. These guys have been around for a very long time. In a Girl with a Dragon Tattoo, we see a fictionalized account of what the Swedish right wing might have been up to during their years in the wilderness during the 60 year period when the Social Democrats came to dominate political life. But nothing in fiction has been as diabolically clever as a central bank getting to decide what is praiseworthy in economic thought. And Friedman was far from the only crackpot awarded the Riksbank Prize The 1997 winners (who won for some elegant math that purported to be able to accurately price derivatives) founded a hedge fund named Long Term Capital Management that was so inept, it triggered major finacial crises.

By 1980, Friedman's message that "regulations and collective decision-making was responsible for all our ills and that economic decisions should rest solely in the hands of the moneychangers" got him a 10-part series on PBS called Free to Choose. Friedman may have been an ignorant crackpot but he was now an ignorant crackpot with a 10 part series on the supposedly "liberal" PBS. (An interesting footnote to the career of one Milton Friedman. He lived to be a very old man and in his dotage, essentially recanted his major theories. Too bad he could not have done so in 1973.)

During the 1980s, there was spectacular growth in well-funded right-wing think tanks. Perhaps the most important was the Democratic Leadership Council formed in 1985. A guy named Al Frum came up with the idea that he could hit up Wall Street for big contributions and then fund Democratic candidates willing to sell out the economic principles of the New Deal.

Perhaps the biggest victory in the war against Progressive economics came when a right-wing Ayn Rand crackpot named Alan Greenspan became head of the Fed. He would serve from 1987 to 2006. Not surprisingly, the Fed becomes a neoliberal madhouse. This is especially important because anyone who would have a career in economics had to serve a hitch with the Fed.

Once the economics profession was totally on board with the economics of the moneychangers, the next act was to eliminate all dissenting opinion from public discussion. There were many elements of this ideological hegemony but none so important as the 1996 Telecommunications Act. It accomplished a lot of things like legalizing monopolies but the practical side effect was that it made lying legal and fact-checking optional. Not surprisingly, it essentially undid the New Deal-era Communications Act of 1934.

So did the neoliberal economists win the war of ideas? Absolutely! Totally! In a clip at the following link, Bill Black claims there are but four schools left in USA that still teach the economics of the folks who brought this country its greatest prosperity—the prosperity that has been systematically looted and destroyed since 1973.

The foundations are laid for the Great Decline

2012-01-10T00:14:00.003-06:00

The Great Prosperity following World War II was product of many forces but was based on the material wealth churned out by the amazing productivity of the American Industrial System. As late as 1962, USA made more things than the rest of the planet combined. As a result, we were a creditor nation and had a massive trade surplus.

But the 1960s saw an explosion of overseas expenses—most notably for wars of imperial aggression. Yup, Vietnam. (I have a friend who believes the decline of USA was the direct result of the "bad karma" we earned invading Vietnam. He has a point.) As the trade balance tipped into negative territory, something very important happened to the real economy. In 1970, domestic oil production peaked. After that, the oil bill would contribute ever larger amounts to the trade deficit.

The logical thing to do would have been to stop our spectacularly unpopular wars and go home to retool the economy to run on something other than oil. But since that did not happen, the trade imbalance would soon trigger events in the financial markets.

By 1971, the agreement that USA gold would be the ultimate backer of the global monetary system was taking on water. The French, who knew something about the costs of making war in Indochina, decided to convert their dollar holdings into gold—and they had enough of those holdings to drain Fort Knox—and then some. So Nixon did the only thing he could do, he closed the Gold Window. For the first time in history, gold had nothing to do with monetary policy. And while this was good news for all of us who detest the Gold Standard and all the misery it brings, the idea of free-floating exchange rates was NOT an improvement. After 1971, there were few barriers to open speculative attacks on a nation's currency—a fact that has led to once economic calamity after another.

Now it took awhile for either of these events to show their ugly consequences. In the case oil production, the peak was only fully understood some years after the fact. It could be argued that it wasn't until the Arab Oil Embargo of 1973 that the idea of Peak USA Oil was known outside a small circle of oil men—and most of them didn't really believe it. As for the end of the gold experiment, that news was greeted by much wailing by the "sound money" boys but in fact, the real opportunities for plunder opened up by floating currencies weren't grasped until the 1980s.

But the Progressive revolution in economics was over. An economy built on cheap oil was going to be very difficult to defend anyway and floating currencies meant there were just fewer defenses against the financial pirates who were waiting for their main chance.

Here is Richard Nixon announcing the end of the redemption of dollars for gold. This is a remarkable YouTube—not the least because the comments show that most modern folks think the big sin was abandoning the gold standard. (sigh)

Did economics once work better?

2012-01-09T00:13:00.001-06:00

Of all the wrong-wing gibberish, the most annoying is the claim that we Progressives are just dreamers who don't have a track record to run on. Wrong. We have a track record that is the envy of any political movement ever. When it comes to economics, WE are the grown-ups in the room.

In the days to come, I intend to explain how a system that produced significant prosperity was destroyed and the events that destroyed it. This is a pretty big project so today, I post an introduction that outlines the basic historical contours. We will get to the specifics soon enough—starting tomorrow when I intend to discuss the decision to allow free-floating currency exchange rates and the impact of domestic Peak Oil in USA

A blueprint for a dump

2012-01-08T02:12:00.000-06:00

One of the things that always fascinates me is talking to folks, say, 35 years old and realizing that the USA that I grew up in doesn't even exist as a possibility for them. It hasn't existed at any time during their lives and since the teaching of contemporary history is virtually non-existent in the country, the ONLY possible way that USA could exist in a 35 yo mind is if they got very lucky and read some good books.

My father was poor as only a small-town preacher can be. During much of my childhood, he made $300 a month. There were six of us. We did get to live in a parsonage so housing was free but there wasn't much left over in any month and it was always welcome when a farmer from church slipped some fresh food into the car. But this was not poor by any stretch of the international definition of poor. We children went to well-lit, well-heated mostly new schools that had music, art, and science departments. Our house had central heating and indoor plumbing. We had a telephone. Even though we didn't get television until I was a high-school sophomore, we had radio and a record player. My oldest sister took music lessons on the piano, flute, double bass, and pipe organ becoming proficient in all of them.

When it came time to go to college, I had a big land-grant university waiting for me that charged $125 in tuition and $300 for a dorm room each quarter. Jobs within walking distance of campus paid at least $2.00 an hour and because I knew how to build houses, I could get $4.00 an hour working construction during the summer. Do the math. It was a lot of work but it was possible to self-finance a university education.

And about those jobs. In the fall of 1969, I got a part-time job delivering critical care medical equipment. In the spring of 1970, I got into a hassle with my draft board and would up dropping out of school (long story). In three month of working full time at the medical delivery service, I was able to save up enough money so I could spend the whole summer hitchhiking through Europe—one of my most profoundly significant life experiences and one only the children of the truly wealthy can afford now.

The other astonishing memory was of a house I helped build the summer I graduated from high school. It was a modest affair for the times—three bedrooms, a full bath, kitchen, dining room, living room, central heating, a full basement, and a two-car garage. It would cost the new homeowner $18,400 ready to move in. Here was the interesting part—the guy we were building it for worked on the line at the local shoe factory doing things like pulling lasts and stitching soles. Sometimes he would come by after his shift to watch us build his house. He always looked very tired. I am sure he earned every cent he made at that factory twice over but he was getting a brand-new house that was literally beyond the imagination of some teenaged girl toiling endless hours making shoes for Nike in Indonesia these days.

Today these things seem to me like a fantasy and I lived through them. I grew up in a nation that went to the moon just because we could do it. I was there when the Interstate highway system was new. I remember when the Boeing 727 brought the jet age to small airports and dozens of other aviation triumphs that culminated with the 747 in 1969—still considered the best subsonic transportation plane ever designed. The optimism was so heady, my high school graduation speaker (1967) promised our class that we would be the last humans to walk solely upon planet earth.

Well obviously, that USA doesn't exist any longer and so I have decided, as a new year's project, to explain as best I can the economic, social, political, and cultural changes that destroyed the country of my childhood. None of this is new. All of the events I will describe happened in public. In fact, the only reason this isn't common knowledge is because contemporary history is not taught. I am calling this tale of extended disaster "a blueprint for a dump."

Saturday toons 07 JANUARY 12

2012-01-07T05:17:00.002-06:00

As the New Year staggers in, we may have become slightly more aware of our condition but not much else has changed. Note that one of these toons is from 2004. And yes, the Brits still hate the French and the Germans—imagine that.

Peak oil and climate change hits food prices

2012-01-06T00:56:00.001-06:00

Yesterday, temperatures shattered all high-temp records for January here in Minnesota. In Rochester, the record was broken by 15° F. That's not merely breaking a record—that's demolishing it. It has been said that the further you are from the oceans, the equator, and sea level, the more noticeable the effects of climate change are likely to be. We don't have a lot of elevation but we are in the middle of a large continent and are half-way to the north pole. 15° F!

None of this would matter so much except that we grow a LOT of food around here. 15° F hotter than usual is amusing in January. In July, it would cause a catastrophic crop failure. Last year, we had a difficult growing season. Spring was cold and wet. Some planting didn't get done until June. Then heavy rains washed out many low spots. Finally, by the end of July when the corn began to pollinate, the weather turned very hot. It turns out corn does not pollinate when the temps are above 90° F. So when the sweet corn came on the market in August, you could see the damage cause by that "minor" heat wave—the ears were not filled out with about 2" of the tip un-pollinated. Three days of excessive heat and the corn yield suffered by 10-20%. It turns out we don't actually need enough climate change to turn Minnesota into the Sahara. Just a small change is enough to cause tremendous problems. This also applies when a 2" rainfall becomes a 5" flash flood or when a 30 mph windstorm becomes a 60 mph blow.

And you watch—even with these looming catastrophes, neither Peak Oil nor climate change will rate even a passing mention in this fall's elections.

A Punch to the Mouth – Food Price Volatility Hits the World
Perfect Storms 05 JAN 12

2011 was an abysmal year for the global insurance industry, which had to cover yet another enormous increase in damages from natural disasters. Unknown to most casual observers is the fact that during the past few decades the frequency of weather-related disasters (floods, fires, storms) has been growing at a much faster pace than geological disasters (such as earthquakes). This spread between the two types of insurable losses has moved so strongly that it prompted Munich Re to note in a late 2010 letter that weather-related disasters due to wind have doubled and flooding events have tripled in frequency since 1980. The world now has to contend with a much higher degree of risk from weather and climate volatility, and this has broad-reaching implications.

And critically, it has a particular impact on food.

Many factors seen over the past decade have produced higher food prices: population growth, urbanization, the decline of arable land per person, and the upgrading of diets for example. But more damaging than food inflation has been the pushing of global food prices out of their long, quiet envelope of stability. From the recently released UN Report on the World Food Situation:

The FAO Index (Food and Agriculture Organization of the U.N) shows that, while prices are once again down from a peak, a troublesome volatility started to affect food prices this decade. These are the very prices that caused social instability in countries like Mexico in 2007-2008 (pressure on corn prices, owing in part to US corn ethanol mandates) and more recently in northern Africa (Arab Spring).

Commodity observers will note the rough correspondence with oil prices, and of course that’s no mistake. Inputs to food production are heavily composed of fossil fuels. In the same way that both high (and highly volatile) oil prices play havoc with economies, food prices and marginal speculation in food have done the same.

2011 also saw the highest average oil prices since 2008, at $94.81 per barrel. That is not far below the average high of 2008, at $99.67. In between was a crash in oil prices — and most commodities — which unfolded at a rate almost as rapid as the original run-ups from 2006-2008. What happens next?

The USDA has just released its Food CPI readings for 2011, along with their forecast for 2012.
With 11 months of data recorded, the outlook for the 2011 Consumer Price Index (CPI) and food price inflation has become clear. The CPI for all food is projected to increase 3.25 to 3.75 percent. Food-at-home (grocery store) prices are forecast to rise 4.25 to 4.75 percent, while food-away-from-home (restaurant) prices are forecast to increase 2 to 2.5 percent. Although food price inflation was relatively weak for most of 2009 and 2010, cost pressures on wholesale and retail food prices due to higher food commodity and energy prices, along with strengthening global food demand, have pushed inflation projections upward for 2011.

For 2012, food price inflation is expected to abate from 2011 levels but is projected to be slightly above the historical average for the past two decades. The all-food CPI is projected to increase 2.5 to 3.5 percent over 2011 levels, with food-at-home prices increasing 3 to 4 percent…
With non-existent wage growth and a dearth of investment opportunities, these price advances in food costs have much more impact than it appears. What asset classes are keeping pace with the year-over-year increases in food? Certainly not stocks, as the S&P 500 has gone nowhere in a decade. Moreover, a 3.5% increase in Food CPI this year, with more to come next year, falls on top of a deeply under-utilized US economy in which tens of millions derive income from government transfer payments, most of which are not sufficiently ratcheting higher from “inflation-adjustments.” Food Stamp recipients, for example, are not seeing food inflation adjustments in their benefit checks that would compensate for the price increases. Not even close.

As you may have heard, milk was the top commodity performer in 2011, up 40% on the year in the futures market. A question: do you think milk is a central staple in American family diets? There’s more. On a year-over-year basis through November, according to USDA, beef prices are up 9.8%, egg prices are up 10.25%, and potato prices are up 12%. (This partly explains why junk-type grocery foods make up an ever-larger portion of food-stamp purchasers’ shopping carts. Sadly, people are buying caloric content, not nutrition). more

Oh those job creators

2012-01-05T00:39:00.005-06:00

Of all the annoying Frank Lunz memes, the idea the that uber-rich in USA are somehow associated with creating jobs is truly the most vile. Once up a time, there were rich guys who DID create a lot of jobs. But that was back in the days of industrial capitalism. Now the vast majority of the 1% have actively destroyed employment—especially in the category of good jobs.

The Big Lie
Wall Street has destroyed the wonder that was America
Dec 26, 2011

[snip]

And that was back when Wall Street was basically honest, brought into line thanks in part to Ferdinand Pecora’s 1933 humiliation of the great bankers of the Jazz Age and even more so because of the communitarian exigencies forced on the nation by war. From Pearl Harbor to V-J Day, greed was definitely not good, and that proscriptive spirit lingered on right up to 1970, when everything started to change, and the traders began their long march through our great houses of finance, with the inevitable consequence that the Street’s moral bookkeeping grew more and more contorted, its corruptions more elaborate, its self-interest less and less governable. What someone has called the “Greed Wars” began.

But now, I think, the game is at long last over.

As 2011 slithers to its end, none of the major problems that led to the crisis point three years ago have really been solved. Bank balance sheets still reek. Europe day by day becomes a financial black hole, with matter from the periphery being sucked toward the center until the vortex itself collapses. The Street and its ministries of propaganda have fallen back on a Big Lie as old as capitalism itself: that all that has gone wrong has been government’s fault. This time, however, I don’t think the argument that “Washington ate my homework” is going to work. This time, a firestorm is going to explode about the Street’s head—and about time, too.

It’s funny; the Big Lie has a long pedigree. A year or so ago, I was leafing through Ron Chernow’s indispensable history of the Morgan financial interests, and found this interesting exchange between FDR and Russell Leffingwell, a Morgan partner and Washington fixer, a sort of Robert Strauss of his day. It dates from the summer of 1932, with FDR not yet in office:

“You and I know,” wrote Leffingwell, “that we cannot cure the present deflation and depression by punishing the villains, real or imaginary, of the first post war decade, and that when it comes down to the day of reckoning nobody gets very far with all this prohibition and regulation stuff.” To which FDR replied: “I wish we could get from the bankers themselves an admission that in the 1927 to 1929 period there were grave abuses and that the bankers themselves now support wholeheartedly methods to prevent recurrence thereof. Can’t bankers see their own advantage in such a course?” And then Leffingwell again: “The bankers were not in fact responsible for 1927–29 and the politicians were. Why then should the bankers make a false confession?”

This time, I fear, the public anger will not be deflected. Confessions, not false, will be exacted. Occupy Wall Street has set the snowball rolling; you may not think much of OWS—I have my own reservations, although none are philosophical or moral—but it has made America aware of a sinister, usurious process by which wealth has systematically been funneled into fewer and fewer hands. A process in which Washington played a useful supporting role, but no more than that.

Over the next year, I expect the “what” will give way to the “how” in the broad electorate’s comprehension of the financial situation. The 99 percent must learn to differentiate the bloodsuckers and rent-extractors from those in the 1 percent who make the world a better, more just place to live. Once people realize how Wall Street made its pile, understand how financiers get rich, what it is that they actually do, the time will become ripe for someone to gather the spreading ripples of anger and perplexity into a focused tsunami of retribution. To make the bastards pay, properly, for the grief and woe they have caused. Perhaps not to the extent proposed by H. L. Mencken, who wrote that when a bank fails, the first order of business should be to hang its board of directors, but in a manner in which the pain is proportionate to the collateral damage. Possibly an excess-profits tax retroactive to 2007, or some form of “Tobin tax” on transactions, or a wealth tax. The era of money for nothing will be over.

But it won’t just end with taxes. When the great day comes, Wall Street will pray for another Pecora, because compared with the rough beast now beginning to strain at the leash, Pecora will look like Phil Gramm. Humiliation and ridicule, even financial penalties, will be the least of the Street’s tribulations. There will be prosecutions and show trials. There will be violence, mark my words. Houses burnt, property defaced. I just hope that this time the mob targets the right people in Wall Street and in Washington. (How does a right-thinking Christian go about asking Santa for Mitch McConnell’s head under the Christmas tree?) There will be kleptocrats who threaten to take themselves elsewhere if their demands on jurisdictions and tax breaks aren’t met, and I say let ’em go! more

I am not a big fan of psychobabble so I am not especially attracted to the idea that the various calamities that Wall Street has visited on the real economy are the products of especially evil people. I am more of the opinion that these outcomes were pretty much baked into any system that allows important economic decisions to be made by people who have no idea what they are doing (the "Father forgive them for they know not what they do" concept from Christianity.) But for those who think psychological reasons are important, here is a argument for why the Wall Street bandits are actually crazy.

Did Psychopaths Take Over Wall Street Asylum?
By William D. Cohan Jan 2, 2012 6:01 PM CT

It took a relatively obscure former British academic to propagate a theory of the financial crisis that would confirm what many people suspected all along: The “corporate psychopaths” at the helm of our financial institutions are to blame.

Clive R. Boddy, most recently a professor at the Nottingham Business School at Nottingham Trent University, says psychopaths are the 1 percent of “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.”

As a result, Boddy argues in a recent issue of the Journal of Business Ethics, such people are “extraordinarily cold, much more calculating and ruthless towards others than most people are and therefore a menace to the companies they work for and to society.”

How do people with such obvious personality flaws make it to the top of seemingly successful corporations? Boddy says psychopaths take advantage of the “relative chaotic nature of the modern corporation,” including “rapid change, constant renewal” and high turnover of “key personnel.” Such circumstances allow them to ascend through a combination of “charm” and “charisma,” which makes “their behaviour invisible” and “makes them appear normal and even to be ideal leaders.”

Until the last third of the 20th century, he writes, companies were mostly stable and slow to change. Lifetime employment was a reasonable expectation and people rose through the ranks.

This stable environment meant corporate psychopaths “would be noticeable and identifiable as undesirable managers because of their selfish egotistical personalities and other ethical defects.”

For Wall Street — a rapidly changing and highly dynamic corporate environment if there ever was one, especially when the firms transformed themselves from private partnerships into public companies with quarterly reporting requirements — the trouble started when these charmers made their way to corner offices of important financial institutions.

Then, according to Boddy’s “Corporate Psychopaths Theory of the Global Financial Crisis,” these men were “able to influence the moral climate of the whole organization” to wield “considerable power.”

They “largely caused the crisis” because their “single- minded pursuit of their own self-enrichment and self- aggrandizement to the exclusion of all other considerations has led to an abandonment of the old-fashioned concept of noblesse oblige, equality, fairness, or of any real notion of corporate social responsibility.” more

The biggest problem with the financial community is not so much evil or madness but the simple fact that whatever "services" these people provide, they are WAY too expensive. For example, even though the world had gotten along without Credit Default Swaps for most of human history, there are those who will maintain that there are real economic reasons for them to exist. The trouble is, the useful swaps are just a TINY fraction of all the swaps issued. The rest are just churn. This means by simply adding a transaction tax, the useful swaps would still exist but the churn would be taxed out existence. There is probably no better reason for a transaction tax than this.

A Financial Transaction Tax Could Weed Out All The Pointless Trading
Dave Crisanti | Jan. 4, 2012

In an editorial published in the Wall Street Journal (“Taxing Stock Trades Will Hurt Main Street”, by Yakov Amihud and Haim Mendelson, Nov 11, 2011) the authors inadvertently make the case for imposing a stock trade tax rather than opposing it.

Their argument against a tax boils down to the claim that a fee of 0.25% on each trade (which is the amount a bill going through the Senate would levy) would depress stock prices 10%, which in turn would have a cataclysmic effect on our economy. But based on their own evidence the tax would not depress stock prices, and in my opinion would provide large indirect benefits.

I have made a living since 1986 in high frequency trading and a tax of .25% would drive me out of business as I know it. However I have long recognized the potential benefits of such a tax, my own personal situation notwithstanding. To wit, a tax would reduce superfluous trading volume, volume which in and of itself does little for our nation’s prosperity.

Dime store economists will argue that volume provides liquidity for securities markets, which I agree is an undeniable good for an economy. But at some point the marginal gain in volume doesn’t provide increased liquidity or any other benefit—it’s just churn.

It’s difficult to say where trading volumes begin to have zero marginal value, but some numbers might help give context: from 1948 to 1983 our banking sector was responsible for between 5% and 17% of our national corporate profits, while from 1998 to 2007 the range was 27% to an astounding 40%.

Meanwhile NYSE trading volume grew from 34mm shares a day in 1979, to 900mm shares a day at the peak of the dotcom bubble in 1999, to 2.5bb a day in 2007 (which is still the average in 2011). Yet between 2001 and 2011 our economy has had its worst decade by many economic measures including job creation, stock market performance, and GDP growth.

By what mechanism has all this additional trading volume hurt our economy? One way is by using valuable resources that could have been used elsewhere, taking scientists and engineers and other talented quants (not to mention history majors) out of the lab and on to trading desks. I know this because I’ve hired some of them myself. And what does that extra volume provide if not liquidity? Trades in and of themselves do not create wealth for an economy since trading is a zero sum game. The total wealth gained or lost in any market is only equal to the amount the market moves. more

Leading the way

2012-01-04T01:09:00.003-06:00

It's nice to have someone else sort out the problems of renewables. It's even nicer when that someone is German. Why? Because no tribe on earth is as practiced at making even bad ideas work well. For example, there is probably no idea that is more unworkable than to build a high-powered sports car with the engine mounted behind the rear axel. Objects in motion tend to be far more stable when the weight is concentrated in the nose—as with an arrow. If the weight is concentrated in the tail, the tail keeps trying to pass the nose. To even try to make such a configuration work seems an act of lunacy yet the Germans managed to build such a car and make it one of the most desirable vehicles ever built—the Porsche 911. And they made it work through dogged persistence and a willingness to fuss over a thousand details.

Replacing nuclear power with wind will probably make the 911 problems look very elementary. But if humanity is really going to power itself with renewables, SOMEONE has to solve these problems. In this article, we read of Germans complaining how hard it is—thank goodness they are the world champions at producing the essential elements of infrastructure.

Stress on the High Seas
Germany's Wind Power Revolution in the Doldrums
By Frank Dohmen and Alexander Jung 12/30/2011

The construction of offshore wind parks in the North Sea has hit a snag with a vital link to the onshore power grid hopelessly behind schedule. The delays have some reconsidering the ability of wind power to propel Germany into the post-nuclear era.

The generation of electricity from wind is usually a completely odorless affair. After all, the avoidance of emissions is one of the unique charms of this particular energy source.

But when work is completed on the Nordsee Ost wind farm, some 30 kilometers (19 miles) north of the island of Helgoland in the North Sea, the sea air will be filled with a strong smell of fumes: diesel fumes.

The reason is as simple as it is surprising. The wind farm operator, German utility RWE, has to keep the sensitive equipment -- the drives, hubs and rotor blades -- in constant motion, and for now that requires diesel-powered generators. Because although the wind farm will soon be ready to generate electricity, it won't be able to start doing so because of a lack of infrastructure to transport the electricity to the mainland and feed it into the grid. The necessary connections and cabling won't be ready on time and the delay could last up to a year.

In other words, before Germany can launch itself into the renewable energy era Environment Minister Norbert Röttgen so frequently hails, the country must first burn massive amounts of fossil fuels out in the middle of the North Sea -- a paradox as the country embarks on its energy revolution.

One of the central projects of Chancellor Angela Merkel's center-right coalition government, the scrapping of atomic energy and the switch to renewable energy, has hit a major obstacle. Nine months after the disaster at the Fukushima nuclear power plant in Japan, Berlin's multi-billion-euro project is facing increasing difficulties. And the expansion of the country's offshore wind farms in particular, which Minister Röttgen considers of paramount importance, is constantly beset by new problems.

Extremely Difficult Position

On December 6 he received an urgent message from Leonhard Birnbaum, RWE's chief commercial officer, and Fritz Vahrenholt, who heads up the company's renewables division. The two men expressed their serious concern that "the timely realization of grid links" for offshore wind farms had become "dramatically problematic," thus seriously jeopardizing the expansion of the sector and therefore also the government's plans. "This development puts us in an extremely difficult position," the two RWE managers wrote.

The energy industry is currently under more stress than almost any other sector of the German economy. The country's utilities are being forced to completely change their focus: away from nuclear power; away from their centralized structure; and away from their accustomed business models. The quartet of E.on, RWE, EnBW and Vattenfall, which for so long have been spoilt by enormous profits, has had to implement tough cost-cutting measures, and countless jobs have been sacrificed. E.on alone is shedding up to 11,000 of its workers, and the industry as a whole could ax more than 20,000 jobs in all.

At the same time, the sector is forging aggressively into the business of regenerative sources of energy -- or at least that was the plan. Now it's becoming increasingly clear that the promised expansion will not progress as hoped due to a lack of the necessary conditions for its success. more

Mitt Romney—job creator

2012-01-03T09:33:00.002-06:00

The vulture capitalists who made their money by destroying jobs, companies, lives, and communities now seem to find the unmitigated chutzpah to call themselves "job creators." Mitt Romney, the son of an automobile executive whose career was at the execrable American Motors, decided it would be more "profitable" to wreck rather than make things. He was probably right. No wonder the Republican establishment wants this clown to lead their ticket. It will be interesting to see how the great Republican unwashed react to his appeal at the Iowa caucuses tonight. Let the freakshow begin in earnest!

The Republicans' Farcical Candidates
A Club of Liars, Demagogues and Ignoramuses
A Commentary by Marc Pitzke 12/01/2011
The US Republican race is dominated by ignorance, lies and scandals. The current crop of candidates have shown such a basic lack of knowledge that they make George W. Bush look like Einstein. The Grand Old Party is ruining the entire country's reputation.

Africa is a country. In Libya, the Taliban reigns. Muslims are terrorists; most immigrants are criminal; all Occupy protesters are dirty. And women who feel sexually harassed -- well, they shouldn't make such a big deal about it.

Welcome to the wonderful world of the US Republicans. Or rather, to the twisted world of what they call their presidential campaigns. For months now, they've been traipsing around the country with their traveling circus, from one debate to the next, one scandal to another, putting themselves forward for what's still the most powerful job in the world.

As it turns out, there are no limits to how far they will stoop.
It's true that on the road to the White House all sorts of things can happen, and usually do. No campaign can avoid its share of slip-ups, blunders and embarrassments. Yet this time around, it's just not that funny anymore. In fact, it's utterly horrifying.

It's horrifying because these eight so-called, would-be candidates are eagerly ruining not only their own reputations and that of their party, the party of Lincoln lore. Worse: They're ruining the reputation of the United States.

'Freakshow'

They lie. They cheat. They exaggerate. They bluster. They say one idiotic, ignorant, outrageous thing after another. They've shown such stark lack of knowledge -- political, economic, geographic, historical -- that they make George W. Bush look like Einstein and even cause their fellow Republicans to cringe.

"When did the GOP lose touch with reality?" wonders Bush's former speechwriter David Frum in New York Magazine. In the New York Times, Kenneth Duberstein, Ronald Reagan's former chief-of-staff, called this campaign season a "reality show," while Wall Street Journal columnist and former Reagan confidante Peggy Noonan even spoke of a "freakshow."

That may be the most appropriate description.

Tough times demand tough and smart minds. But all these dopes have to offer are ramblings that insult the intelligence of all Americans -- no matter if they are Democrats, Republicans or neither of the above. Yet just like any freakshow, this one would be unthinkable without a stage (in this case, the media, strangling itself with all its misunderstood "political correctness" and "objectivity") and an audience (the party base, which this year seems to have suffered a political lobotomy). more

From "The Making of Mitt Romney,"
Boston Globe, June 26, 2007

In 1992, Bain Capital acquired American Pad & Paper, or Ampad, from Mead Corp., embarking on a ''roll-up strategy'' in which a firm buys up similar companies in the same industry in order to expand revenues and cut costs.

Through Ampad, Bain bought several other office supply makers, borrowing heavily each time. By 1999, Ampad's debt reached nearly $400 million, up from $11 million in 1993, according to government filings.

Sales grew, too - for a while. But by the late 1990s, foreign competition and increased buying power by superstores like Bain-funded Staples sliced Ampad's revenues.

The result: Ampad couldn't pay its debts and plunged into bankruptcy. Workers lost jobs and stockholders were left with worthless shares.

Bain Capital, however, made money - and lots of it. The firm put just $5 million into the deal, but realized big returns in short order. In 1995, several months after shuttering a plant in Indiana and firing roughly 200 workers, Bain Capital borrowed more money to have Ampad buy yet another company, and pay Bain and its investors more than $60 million - in addition to fees for arranging the deal.

Bain Capital took millions more out of Ampad by charging it $2 million a year in management fees, plus additional fees for each Ampad acquisition. In 1995 alone, Ampad paid Bain at least $7 million. The next year, when Ampad began selling shares on public stock exchanges, Bain Capital grabbed another $2 million fee for arranging the initial public offering - on top of the $45 million to $50 million Bain reaped by selling some of its shares.

Bain Capital didn't escape Ampad's eventual bankruptcy unscathed. It held about one-third of Ampad's shares, which became worthless. But while as many as 185 workers near Buffalo lost jobs in a 1999 plant closing, Bain Capital and its investors ultimately made more than $100 million on the deal.

Ampad: A controversial deal

Bain Capital put $5 million into its purchase of American Pad & Paper and quickly began charging management and other fees. It also made payments to investors. In all, Bain and its investors reaped more than $100 million even though Ampad went into bankruptcy, workers lost jobs, and stockholders were left with worthless shares. [And creditors got less than 50 cents on the dollar.] A look at the deal:

1992: Bain buys American Pad & Paper from Mead Corp. They invest $5 million.
1993: After Bain takes control, Ampad pays advisory fees to Bain under a management agreement.
1994: Bain acquires plant in Marion, Ind. Workers strike over layoffs and wage benefit cuts. The events become a campaign issue in Romney's challenge to Senator Edward M. Kennedy.
1995: Bain shuts down the Marion, Ind., plant. Roughly 200 lose jobs. Bain gets at least $2 million in annual fees, plus additional fees for each acquisition Ampad makes. Ampad borrows more to acquire an envelope and stationery maker and uses some of the proceeds, about $60 million, to pay Bain investors.
1996: Ampad completes an initial public offering. Bain sells about 3 million shares, reaping about $45 million to $50 million for investors and itself. It also takes $2 million in fees for arranging the IPO, plus other fees.
1998: With Ampad struggling, Bain agrees to cut the annual fee $1.5 million a year. It also agrees to start forgoing payment until the company turns around.
1999: Revenues continue to slide. Ampad closes a plant near Buffalo, with up to 185 losing jobs.
2000: Creditors force Ampad into Chapter 11 bankruptcy to reorganize.
2001: Judge puts Ampad into Chapter 7 to liquidate assets and pay creditors. Senior secured lenders get less than 50 cents on the dollar.
STOCK PRICE
July 2, 1996: $15.13 - IPO Price
Jan. 27, 1997: $26.00 - Peak
Sep 16, 1997: $13.13 - Stock loses 42% of its value
Nov 1, 1999: 35 cents - Ampad looks to sell assets to reduce debt
Jan 14, 2000: 15 cents - Ampad forced into bankruptcy

Predictions for 2012

2012-01-01T22:36:00.001-06:00

Institutional Analysis has the side benefit of being able to make pretty accurate projections. Of course, since the basic assumptions of IA include the idea that institutions act the way they do because it is the most efficient way to promote their own economic interests, you can sum up most IA predictions by saying that things will not change much—bankers will continue to act as bankers, etc.

But even when the default setting for IA is that things won't change much, there is still an incredible amount of understanding that can be derived from this basic idea—especially at a time when the great institutions are in serious trouble and populations around the world are clamoring for change. So the question becomes, how much change can those angry populations reasonably expect? This is actually a very important and interesting question.

For example, Barack Obama ran on a platform of change. People believed he meant what he said and expected that a black community organizer would go to Washington and change things. Some of them worked very hard and gave money to get him elected. So now they are extremely disappointed because on issue after issue, Obama not only did not change much, he has actually extended his predecessor's most hated policies.

But really, did the Obama backers have any reasonable expectation that he would govern all that differently than W. Bush? The IA answer is, probably not. Why? Because the permanent institutions of government—the people who were there before he got to the White House and will be there when he leaves—have just too much power and inertia. Moreover, the permanent government has been dealing with Presidents who they could ignore since at least the Alzheimer administration of Ronald Reagan. RR wasn't allowed within 10 miles of an important decision and my guess is that neither is Obama. The permanent institutions of government do not care one whit whether the President is a Republican or Democrat or by how many votes he was elected. Obama has been clued to the power of permanent government and it is clear he wants to please them MUCH more than he wants to represent some volunteer who slept in a church basement to get him elected. Of course, this was hardly a secret. The fact that Obama was already in the pocket of Wall Street long before he was even considering a run for the presidency should have tipped folks off, but it didn't.

So the first prediction of 2012 is that for all the sound and fury, the elections won't mean much. The big issues like how this country will rebuild its economy, how the financial institutions should be reformed and how debt should be restructured, how we deal with Peak Oil or climate change, etc. will be buried under an amazing pile of irrelevance like Gnoot Gingrich's sex life. Thoughtful voters will turn away in disgust. Correct that—everyone will be disgusted by the mental image of Gnoot having sex.

The economy will continue to stagger from one disaster to another because the powerful players have such narrowly defined interests. The big actors consist of the creditor classes and the only thing they are really interested in is will they get their money back with interest (rents). Anything that threatens their income stream is by definition bad—no matter how socially useful it would be. So they will patch up their defective monetary video games with naked grabs for any wealth not nailed down—and even some that is. The idea that the creditor classes should invest in the real economy is hopelessly beyond their ability to even imagine.

The powerless will resort to the only options they have—public protest, strikes, boycotts or whatever—and the authorities will respond with outsized and disproportionate displays of violence. People will probably get killed in the process. Under other historical circumstances, this could lead to revolutions but since the powerless are also agenda-less, this probably won't happen. In all fairness, the question should be asked—if the powerful cannot come up with anything that reasonably resembles a solution to the big problems, why should the powerless? Even so, if the powerless cannot even get something as basic as a foreclosure moratorium and mortgage restructuring done, they really are camping out in the cold for nothing.

The for-profit media will continue to avoid covering anything important and their market share will continue to slide towards zero. The trend in "reporters" will continue in the direction of CNN's Wolf Blitzer—someone so stupid no serious person would listen to his advice on how to vacuum their carpets. Fortunately, there are plenty of information alternatives like the Internet. Unfortunately, all this information can only confuse those without a decent education that includes a lot of historical context. Anyone actually see citizens of USA getting such an education? Yeah, me neither.

The USA will still retain its "lone superpower" status but its global influence will continue to diminish as people discover that the ability to blow things up doesn't mean all that much. In economics, the USA will NOT lead the green revolution—that train has already left the station. And its cultural influence will continue slide as the idea that "American Culture" is an oxymoron spreads beyond the world's intellectual classes. Somewhere it is probably possible to make a bet whether the Swedish or USA version of The Girl with the Dragon Tattoo will have the bigger box office take. The bets are probably on the Swedish version. Cultural dominance has become WAY more important than aircraft carriers in any scheme of empire. And while Three Stooges fans prove that there will always be a market for stupid, the culture of empire cannot live by stupid alone.

Turns out the biggest problem is that we as a nation have forgotten how to make positive change. Sure we still know how to change—backwards. Any fool can drag us back to the dark ages and anyone who has seen the republican clowns running for president can argue we have already arrived. I mean, Ron Paul actually wants to put us back on the gold standard—and he's the enlightened one. Gnoot won't let a lifetime of profoundly regressive ideas that ended in disaster dent his self-evaluation that he is an intellectual. The rest barely communicate above the level of grunting. But on this, the Democrats are barely better. After all, Al Gore's Cap-and-Trade plans to combat climate change are little more than a Wall Street scheme to make a quick buck.

I mean, can anyone seriously believe that a bunch of banksters who have few skills beyond snorting lines from a hooker's thighs are going to organize the phase-out of fire. Positive change can only happen when serious people work hard for years to perfect a solution. On Wall street, long range planning means tomorrow's lunch. Since such people cannot think long-term, they are not qualified to make positive change. And as anyone who has dabbled in Institutional Analysis can tell you, any change is difficult but positive change is nearly impossible.

(See also: The most interesting events of 2011)

Most interesting events of 2011

2011-12-31T06:32:00.003-06:00

Michael Moore in Madison

The political legacy of the great Wisconsin Progressive Robert LaFollette meets the Flint sit-down strike in the person of an Oscar-winning documentarian on the steps of the state capital. On a winter afternoon—March 5. And there are those who say the Midwest has no culture.

Angela Merkel as an SS Guard

During World War I in 1915, Thorstein Veblen wrote a towering monument to Institutional Analysis called Imperial Germany and the Industrial Revolution. In it he argued that Germany had developed the way it had because it was the product of two conflicting forces—there was industrial Germany of cutting edge achievement and there was archaic Germany of Prussian militarism. This nasty combination produced the Guns of August and, Veblen would argue, would remain a driving social force no matter the outcome of the War. These days, Prussian militarism has been replaced by the Predatory bankers of Frankfurt but otherwise the dynamic is largely unchanged. And when Frau Merkel sides with the banksters, other folks will notice the similarity to past German conquests. Here is a stunning photoshopped version of Merkel as S.S. done by the Greeks who are having their lives destroyed.

I have created many posts on the story of Eurodammerung and a possible rollback of Predatory globalism during the year. This picture is the best visual representation of this story so far.

Japan suffers tsunami / nuclear meltdown—Germany chooses a non-nuclear future.

Just when people were starting to consider nuclear power as legitimate solution to the overloading of atmospheric carbon, we have the worst nuclear disaster in history.

Fukushima disaster fallout spreads to the whole nuclear power industry

Possibly the most conservative government in Europe--Angela Merkel's Christian Democratic Union in Germany--has decided to phase out nuclear power by 2022. Folks, that is barely ten years from now.

Not surprisingly, the power guys are furious. They thought they had a deal to extend the life of their reactors are now they are being told the end is near. Besides, most of the proponents of nuclear power believed that with the necessary adjustments in the atmospheric carbon load to address climate change, they were the future. Even ultra-sensible Finland had bought into this argument and started building a new nuclear installation (scheduled to go online 2013).

Chris Hedges at Harvard

It took him until he was a grandfather to understand the reality of Harvard-yard liberalism, but now Chris Hedges gets it. This clip is also included in one of our most popular posts written by Tony.

#OWS is joined by vets

Governments and other institutions of power tend to get wobbly when the Productive classes team up with guys in the military who think they are getting hosed.

Shutting down the Oakland container port (for 24 hours)

I am not sure the occupy folks actually understand the importance of those west-coast container ports to the neoliberal agenda. My guess is if some popular demonstration closes any of the big ports for over, say, 36 hours, we will see serious action by a heavily militarized police. Because the rich understand—no container ships from Asia and domestic car production ceases and Wal-Mart runs out of things to sell.

Death of Steve Jobs

The passing of Steve Jobs is not so important as what happened the next few days. Monuments sprouted spontaneously in front of Apple stores. Lots of reasons why this happened but one stands out. Jobs made it his mission to get serious computing power into the hands of people who don't understand computers and never will. He understood why people wanted in the computer-users club without needing to belong to the computer builders / fixers / programmers club.

As someone who has labored long and hard to convince people that the most interesting class distinction is between Producers and Predators, I take joy whenever there is an event to that perfectly illustrates that class theory.

Because his efforts made him insanely rich, both the defenders of Capitalism and Marxism like to hold him up as an example. And they miss the point. While Jobs might actually be a pretty good example of Industrial Capitalism, there haven't been many of those folks in this era of Finance Capitalism. While most ambitious young people head to Wall Street these days to see if they can get rich through scams, Jobs was a throwback to old-fashioned type of industrialist who actually believed he was supposed to build a better product. As a result, there was an outpouring of grief for a really rich man at a time when most rich folks are so hated, there is talk of guillotines. This is a fascinating contrast.

Regular readers understand why I capitalize Producer and Predator—it's a theme of this blog. And for a good reason. Unlike most descriptions about society, I believe this one describes and predicts more about human behavior than any other. In fact, I have spent a considerable fraction of my adult life attempting to describe the difference between these approaches to life. In Elegant Technology, I devote chapters to the history of the conflict between the Producers and Predators, a cultural inventory of distinguishing characteristics, and a class theory.

The reason I bring this up is because we have recently had a striking demonstration of how folks react to the differences between Producer and Predator capitalism. Briefly, Producer Capitalism is a strategy where the goal is to become prosperous by creating something very difficult, very well. Predator Capitalism is the strategy of seizing through force and fraud the prosperity created by Producers. Steve Jobs was an almost perfect example of Producer Capitalism. When he died recently, people spontaneously erected little shrines to him around the world. Wall Street, on the other hand, is the perfect representation of Predator Capitalism and the rest of us are so angry at them, some are actually mentioning the guillotine. Turns out folks don't hate capitalism so much as they hate liars, thieves, cheats, and vandals—you know, Predators.

Steve Jobs was an almost perfect example of a Producer Class hero. He had all the Producer virtues in spades—he spent every day trying to make his product better, he understood the economic value of aesthetics, and he defined his mission in life as making it easier for creative types to do their work better. He even instinctively understood one of Veblen's more obscure concepts—The Instinct of Idle Curiosity. This from Wired.

(Jobs) once recalled for me some of the long summers of his youth. I’m a big believer in boredom,” he told me. Boredom allows one to indulge in curiosity, he explained, and “out of curiosity comes everything.” The man who popularized personal computers and smartphones — machines that would draw our attention like a flame attracts gnats — worried about the future of boredom. “All the [technology] stuff is wonderful, but having nothing to do can be wonderful, too.”

To illustrate the difference, see below. It is part of my class analysis that was such a large part of Elegant Technology. See the blue cone that represents the Producers? Jobs would occupy the space at the very topmost point of that cone.

Anyway, here is the long-lost video of Jobs introducing the Macintosh to the world. It's like a rock concert—only this time the audience is reacting to the new possibilities of a computer for non-nerds. Jobs was treating his audience to a whiz-bang show that touted the virtues of Apple as a company that Produced something really cool. I'll be using Jobs as an example of embodied Producer Class virtue for a long time.

The real lesson of Martin Luther

2011-12-29T01:33:00.007-06:00

When you spend the first 18 years of your life spending nearly every waking minute involved in some facet of religious practice, you spend the rest of your life recovering. Religion was the family business. Preachers regularly got fired from their congregations because their children misbehaved—a fact that was brought up often in our house. So even though I was pretty much the perfect little choir boy, I had 200 "mothers" in church who would instantly remind me of my failings. The reasons most people have tales of the preachers kids being the wildest ones around include exaggerations based on higher standards, and because often kids in that situation will rebel spectacularly.

So while I pretty much behaved myself, I HATED the experience. I tolerated the "God and the church ladies are always watching" pressure. I endured the utter tedium of sitting though the 26th Bible study lesson on Psalm 1. But what really infuriated me was the idea that if you didn't believe the unbelievable, you were really on your way to eternal damnation. Listening to your parents pray for your soul because you have concluded that Noah's Ark didn't happen is highly troubling. Unfortunately, there was no way to finesse this issue because even if you agreed that Jonah's whale was a fiction that ignorant people told each other to make a larger point, there was still the problem that the two most important beliefs of Christianity were God made man and the resurrection of the dead—Christmas and Easter—and neither were especially believable as told.

So while I grew up in something of a golden age of science in teaching and public policy that happened when the Sputnik scare had provided world-class science texts to even the smallest and poorest school districts in the nation, I found my love for scientific rationality in direct conflict with the family business. In fairness to my father, even though he preached the miracles of Christ from the pulpit, he also bought me an expensive set of encyclopedias when I started to ask how airplanes fly, took us children outside on some seriously cold nights to observe astronomical events—especially those having to do with the artifacts of the space race, and took his sons to the library once a week to reload the household supply of the popular science publications. So maybe his religious persona was largely influenced by his need to please the Jesus-wants-you-to-be-an-idiot crowd that seemed to attend his churches. That is not to say he wasn't a true believer—it's just that he also understood that scientific investigation is an honest pursuit of the truth and if his son was a science geek, he might as well encourage the behavior.

So the unfortunate reality of my childhood is that I had to deal with a lot of absolutely artificial issues like "can I love my parents if I want to believe that no one ever converted water into wine by magic?" Worse, these artificial dilemmas ate up an astonishing amount of time and energy. So when I could get away from this absurd religious repression I was absolutely determined that I would never again be in a situation where someone could emotionally blackmail me into pretending to believe something unbelievable.

Beyond that, I had to deal with the bitterness over all the intellectual investment (memorizing Bible verses) and the sheer amount of time I had been required to spend learning about something I thought was hokum. So since then, I have sought to mine something of worth from that investment. And what I have discovered is that stripped of the mumbo-jumbo, religion is actually an incredibly important subject that affects everything from artistic expression to economic development. I actually had a head start in my religion-is-just-another-manifestation-of-culture analysis courtesy of something my father did to celebrate Reformation Sunday on several occasions. He would rent this movie that told the story of Martin Luther's role in the great division of western Christian practice. He would set up the 16mm projector in the church sanctuary and we would watch brave / devout Martin fight the corruption, sin, and evil of the Roman church. I remember being terrified the first time I saw the portrayal of the gang on horseback who took Luther off to the Castle of Frederick the Wise in Wartburg. But then the lights would come up and my father would give a little sermon highlighting the movie's portrayal of Roman corruption or Luther's struggle to define God's love.

But one of the more fascinating scenes for me were those where the 95 thesis were printed. I believe the film-makers had used historically authentic printing presses which showed their dedication to demonstrating the link between Luther and his printer-admirers. As my father explained to me, without those printers, Luther would have been just another man of conscience burned at the stake for heresy—like Jan Hus.

Luther's close relationship to the emerging German printing industry was not especially surprising since Luther was a prolific author who churned out best-sellers including a German translation of the Bible that is still used to this day. Even better for the printers, Luther made literacy a demonstration of devotion and having a family Bible a sign of a good Christian home. This was an excellent basis for a relationship, actually—the printers saved Luther's life and he helped them prosper.

I soon discovered that a deep understanding for why and how religious people were motivated explained a very great deal indeed about the economic development of Northern Europe. For example. Lutherans made music their preferred artistic expression. As a result, Lutheran churches of even modest means bought pipe organs. Pipe organs cannot work unless built to incredibly fine tolerances. Therefore, the requirement of music in Lutheran churches led to a large market for precision manufacture. So today we find that wherever there have been Lutherans, there is also widespread precision industry.

Beyond the practical examples, there is this little matter that the study of economics itself is rooted in the discipline of moral philosophy. At some point, it dawned on me that compared to how the vast majority of youth is wasted, my dreary religious upbringing had at least provided me with some valuable insights. I just wish that I hadn't had to extract them from these enormous piles of purest ignorance. Oh well, we don't choose our childhoods—we just try to make the best of them.

Anyway, I offer this long explanation for why I am about to do something I have not done before on this blog and may never do again—post an extract of something written in The Economist. I tend to look on that rag with contempt because it is a smug, arrogant Brit-twit version of neoliberal thinking published in London—the global epicenter of financial corruption. But I make this exception because they are writing about my longest-term intellectual passion—the relationship between Luther, the printers, and the Reformation.

One of my favorite intellectual pastimes goes like this—if printing led to the Protestant Reformation, and it did, what will be the social outcomes of other revolutions in communications? I remember how excited I became the first night I got Final Cut Pro 1.0.1 to run on an Apple G3 and capture footage from a Sony VX2000 over Firewire. The idea that television was no longer exclusively in the hands of the insanely rich and their warped worldviews had me literally dancing with joy. Of course, I thought the resulting social change would happen overnight. I forgot that it took 78 years from Gutenberg's press until the 95 Thesis got printed. Well, about that much time has passed since they really got television to work and for most of that time, it has done little more than industrialize envy and virtually eliminate literate discourse from the marketplace of ideas. But now that millions of people can capture and edit high-quality video on their cellphones, a Reformation-sized change seems almost inevitable. And all of this goes triple for the Internet so in combination with people-powered video, humanity is getting a vastly more interesting view of themselves and their institutions.

Social media in the 16th Century
How Luther went viral

Five centuries before Facebook and the Arab spring, social media helped bring about the Reformation
Dec 17th 2011

IT IS a familiar-sounding tale: after decades of simmering discontent a new form of media gives opponents of an authoritarian regime a way to express their views, register their solidarity and co-ordinate their actions. The protesters’ message spreads virally through social networks, making it impossible to suppress and highlighting the extent of public support for revolution. The combination of improved publishing technology and social networks is a catalyst for social change where previous efforts had failed.

That’s what happened in the Arab spring. It’s also what happened during the Reformation, nearly 500 years ago, when Martin Luther and his allies took the new media of their day—pamphlets, ballads and woodcuts—and circulated them through social networks to promote their message of religious reform.

Scholars have long debated the relative importance of printed media, oral transmission and images in rallying popular support for the Reformation. Some have championed the central role of printing, a relatively new technology at the time. Opponents of this view emphasise the importance of preaching and other forms of oral transmission. More recently historians have highlighted the role of media as a means of social signalling and co-ordinating public opinion in the Reformation.

Now the internet offers a new perspective on this long-running debate, namely that the important factor was not the printing press itself (which had been around since the 1450s), but the wider system of media sharing along social networks—what is called “social media” today. Luther, like the Arab revolutionaries, grasped the dynamics of this new media environment very quickly, and saw how it could spread his message. more

About that mini-mill in South Carolina

2011-12-26T12:06:00.002-06:00

Last Tuesday, I embedded a video clip that shows a mini-mill in Georgetown South Carolina cranking out giant spools of wire as an example of Producer achievement. Well it is certainly that but like everything that touches the steel industry, there is a lot of interesting complexity to this story.

Steel is insanely difficult to make. It is derived from iron which itself is difficult to make because it requires such high temperatures to extract from ore. Steel is produced when tiny amounts of impurities are introduced into pure (wrought) iron. Add .5% to 1.5% carbon to iron and the result is steel. Pure iron is soft while iron containing too much carbon is brittle. Getting that recipe right happened so rarely that for much of history, the little steel that was produced wound up in the manufacture of swords.

By the 19th century, folks were beginning to figure out how to make quality steel in large batches. The mass-production of steel changed everything. This once extremely precious metal that was used to arm the nobility now could be used to make rails and ships and building structures. Tough-guy politicians like Stalin took to calling themselves "men of steel." Leaders who preached egalitarianism like Mao Zedong promised a steel mill for every village (a suggestion so technologically insane it helped discredit Marxism forever). USA tycoons who grabbed control of the steel-making machinery like Andrew Carnegie became some of the richest men in history. Countries that mass-produced steel tended to win wars—at least until they met each other in battle.

By the 1960s, so many men of steel in so many countries had gotten into steel production, the profit margins of the older plants began to collapse—especially when competing with steel from countries where development strategies made profits unnecessary. In places like USA, new plants with lower cost structures became necessary and the mini-mill, which only needed recycled steel for its raw material, became a preferred strategy.

While making steel from ore is extremely difficult and energy-intensive, recycling waste steel is a LOT easier. Basically, all you do is melt the scrap, rake off the impurities, and reform the molten steel into something new. While this process rarely produces the high-quality steel needed for automobiles or surgical instruments, there are thousands of applications where this recycled steel works just fine. This is especially true in the construction industry where millions of tons of steel are used every year to reinforce poured concrete. And given the fact that abandoned automobiles have become a blight on the landscape, the raw material for mini-mills seems almost limitless.

In 1969, a German steelmaker and engineer named Willy Korf (pg 157) opened one of those low-cost mini-mills in Georgetown South Carolina. It used electric arc furnaces built by Danieli of Italy and rolling machinery from Sund Birsta of Sweden. While the plant worked just fine, the financial storms battering the steel industry in USA raged on. Korf overextended himself so the Georgetown facility always had debt problems. In 1984, the government of Kuwait purchased an ownership position and in 1995, it was purchased by none other than Bain Capital—the vulture firm associated with Mitt Romney. It is now owned by ArcelorMittal, the giant steelmaker headquartered in Luxembourg. They shut the place down in 2009 but have reopened it as of Jan 2011. (This is a demonstration of another of a mini-mill's advantages—blast furnaces that make steel from ore can never be shut down and restarted.)

There's a lot of history embedded in that mini-mill and it's only 42 years old. The Producer story is especially interesting—Danieli has been in the steel business since 1927 while the Swedes have been making steel since Gustavus Vasa and seriously since the 19th century. Korf was a genius. On the other hand, the Predators have been making things extremely difficult for anyone who makes things since the late 1970s so the fact that Georgetown is even open is something of a miracle.

Merry Christmas

2011-12-23T04:44:00.001-06:00

Posting will be very light until the New Year. In the meantime, here's a little gem for Christmas. It is the opening of the Bach Christmas Oratorio done by the Thomanerchor in Leipzig. The Thomaskirche was JS Bach's employer from 1723-1750—most of his major works were written while there.

The Economic Impact of USA's Failure to Invest in Infrastructure

2011-12-22T12:19:00.003-06:00

Last week, Financial Armageddon posted an article that included hard numbers on the decline in spending on infrastructure as a percentage of GDP.

Total public spending on transport and water infrastructure has fallen steadily since the 1960s and now stands at 2.4% of GDP. Europe, by contrast, invests 5% of GDP in its infrastructure, while China is racing into the future at 9%. America’s spending as a share of GDP has not come close to European levels for over 50 years. Over that time funds for both capital investments and operations and maintenance have steadily dropped.

Even more interesting, a brief summary of a new report by the American Society of Civil Engineers, "Failure to Act: The Economic Impact of Current Investment Trends in Water & Wastewater Treatment Infrastructure" This is the first time I can remember that someone has ventured a projection of the negative impacts of our failure to invest adequately in our infrastructure.

By 2020, the predicted deficit for sustaining water delivery and wastewater treatment infrastructure will be $84 billion. This may lead to $206 billion in increased costs for businesses and households between now and 2020. In a worst case scenario, the U.S. will lose nearly 700,000 jobs by 2020. Unless the infrastructure deficit is addressed by 2040, 1.4 million jobs will be at risk in addition to what is otherwise anticipated for that year.
The impacts of these infrastructure-related job losses will be spread throughout the economy in low-wage, middle-wage and high-wage jobs. In 2020, almost 500,000 jobs will be threatened in sectors that have been traditional employers of people without extensive formal educations or entry-level workers.23 Conversely, in generally accepted high-end sectors of the economy, 184,000 jobs will be at risk.24 Unless the infrastructure gap is addressed, by 2040 its impacts will put at risk almost 1.2 million jobs within basic sectors, while a relatively stable net amount of 192,000 jobs in knowledge-based industries may be jeopardized. In this latter grouping, approximately 415,000 jobs will be threatened; however, medical services are expected to grow between 2020 and 2040 due to increasing outlays to fight water-borne illnesses.

The impacts on jobs are a result of costs to businesses and households managing unreliable water delivery and wastewater treatment services. Between now and 2020, the cumulative loss in business sales will be $734 billion and the cumulative loss to the nation’s economy will be $416 billion in GDP (Table 3). Impacts are expected to continue to worsen. In the year 2040 alone, the impact will be $481 billion in lost business sales and $252 billion in lost GDP.26 Moreover, the situation is expected to worsen as the gap between needs and investment continues to grow over time. Average annual losses in GDP are estimated to be $42 billion from 2011 to 2020 and $185 million from 2021 to 2040.

More music fun

2011-12-22T06:11:00.001-06:00

Yeah, I know. Most of you probably could not care less about my brush with music. But these days, only the interaction with the wondrous gift that is music-making keeps me reasonably centered while I observe and write about the various disasters facing my civilization. Unfortunately for me, subjects like the deindustrialization of USA involves victims I know, am related to, or live lives very much like mine. So not surprisingly, I take this subject personally—perhaps even more than I should.

Adding to this problem is my hard-won awareness of the ever growing gap that exists between what is possible and what is being accomplished. I have moments when I imagine a world with a financial system that instead of being devoted to fraud and ripping people off, was instead meeting with the Productive members of society saying, "You folks find the solutions to the problems threatening our very survival and we will provide you with the money you need to get the job done. Don't worry about what something costs, just worry about finding an effective outcome."

You know, if we did THAT, I would stop being such a grump and shut up.

Anyway back to the tunes. 2012 marks the 100th anniversary of the founding of the St. Olaf Choir by a young Norwegian immigrant named F. Melius Christiansen. The Norwegians have been extremely poor for most of their history and so he brought with him the tradition of a cappella singing—mostly because it was the least expensive music-making possible. And because he was a Lutheran, he had a long tradition to draw on. It also made him deadly serious about the quality of music he intended to make. He was the sort of person who believed that music was only really fun if you did it well.

When I was a child, his superb singing group was spoken of in hushed tones. My mother had once sung in some mass choir directed by F. Melius and had decided right then that this was how choral music should be done. There were many in Minnesota and the surrounding states who obviously agreed with her. By the time I came along, dozens of Minnesota high schools had choir directors who were graduates of St. Olaf. I had one my senior year.

In 1943, F. Melius' oldest son Olaf took over the helm at the St. Olaf and was there until the 1968. Here is the choir singing his "Light Everlasting" in a 2005 concert at Norway's Trondheim Cathedral. The choir starting touring in its second year and has not let up since.

F. Melius had younger son Paul who in 1937 got a choral gig at another Lutheran College named Concordia in Moorhead Minnesota. He was there for 50 years. In many ways, the Concordia Choir would become a truer representation of F. Melius' sound than St. Olaf. Here we see an example as they perform the F. Melius arrangement of Bach's great Advent Hymn, Wake Awake.

Nine (well, eight) Reasons that Progressive Policies Deliver Prosperity and Freedom

2011-12-21T12:21:00.005-06:00

Steve Roth is a rare oddity - a conservative who actually looks at the evidence and changes his thinking accordingly. These days, that is an accomplishment worthy of note. DailyKos's Hunter had an excellent article on Sunday about the overwhelming evidence that austerity economics has failed and is failing, but the wrong-wing ideologues and political hacks who believe in it remain steadfast in their obdurate stupidity:

This speaks to the very core of conservative distrust of science. A fundamental of science is that once something has been conclusively disproved, you ought to stop believing in it, and certainly ought to think twice about using it as the foundation for building your own supposedly "scientific" notions. You can believe that if you feed a horse a penny, it will poop out a dime, but once the experiment has been tried and has failed you probably should cancel your plans for a horse-based retirement fund.

This is roughly what has happened in Europe, as every nation that has attempted contractionary polices has found itself faced with, glory be, contraction. Austerity has resulted in austerity and has not magically morphed into expansion via the power of Told You So. We should probably stop expecting the horse to crap out dimes, at this point. We should also probably reflect on what this means for our own "austerity" policies here in this country, but that would require several hundred politicians, thousands of lobbyists, and a hundred thousand ideologues to cop to being proved wrong on something, which will never, ever happen. The mere suggestion is always met with fury. The point is not what reality proves or disproves, the point is the ideology, and if the reality conflicts with the ideology then it is reality that can go to hell.

That is a populist diatribe against orthodox economic thinking, so for you folks who are more into the nerdy, brainy sort of hard-core economics theorizing, Naked Capitalism has been serializing a paper by economist Philip Mirowski that is both ruthless and funny (for example, after describing how leading economists had enjoyed a decade of self-congratulatory boasting of how they had finally defeated the boom and bust business cycle during the, as they called it, "Great Moderation" of the 1990s and 20-aughts, Mirowski starts his next paragraph, discussing how the financial crash embarrassed these orthodox economists, with the title "The Great Mortification."

Mirowski is also a rare oddity - an economist familiar with not only actual economic history, but also philosophy. This gives him wonderful insight into the myopia of most economists today, who are thus far very unwilling to abandon their pet nostrums despite the complete hash they made of the economy by failing to foresee and warn of the financial collapse.

The father of ‘cognitive dissonance theory’ was the social psychologist Leon Festinger. In his premier work on the subject, he addressed the canonical problem situation which captures the predicament of the contemporary economics profession:

Suppose an individual believes something with his whole heart…suppose that he is then presented with unequivocal and undeniable evidence that his belief is wrong: what will happen? The individual will frequently emerge, not only unshaken, but even more convinced of the truth of his beliefs than ever before. Indeed, he may even show a new fervour about convincing and converting people. (Festinger et al., 1956, p. 3)

Part 1 of Mirowski is here, Part 2 is here, and Part 3 is here.

So, finally, getting back to Steve Roth. Last week, he began posting on the Angry Bear economics blog, and his first post was Nine Reasons that Progressive Policies Deliver Prosperity and Freedom. Though I strongly disagree with his seventh point, which is based on the usual conservative "neo-liberal" Shock Doctrine economics idea that labor unions are always bad because they labor markets "less efficient," Roth presents some hearty food for thought. All I would add in the way of evidence is that every grand experiment in the conservative "neo-liberal" idea of cutting top marginal income tax rates - in the 1920s, the 1990s, and 20-aughts - has been followed by a financial crash. Though he is not directly addressing the issue of taxation, Roth provides a few more very plausible macro-economic reasons for why wrong-wing tax cutting sets up the financial system and the economy for a fall. Best of all, Roth's is a point-by-point refutation of the economic thinking that dominates policy making today, which is rather obviously incapable of addressing our worsening economic and ecological woes.

For my inaugural post, I'm going to break with my tradition and rather than inflicting data on you, I'm instead going to frame much of what I write in some big-picture ideology and theory.

I think this thinking does much to explain what Mike Kimel in particular has made so clear here over many years (with occasional help from moi): that based on the long-term historical record, by pretty much any economic measure it's progressive policies that deliver superior growth, prosperity, fiscal responsibility, opportunity, individual liberty, and a vibrant, robust economy and society.

How can that be? Aren't Republicans "the party of growth"?

That question cuts straight to the reason I started blogging back in 2004. Back then I generally and rather unthinkingly accepted (at least provisionally) the dominant meme of Reaganomics -- that larger government hurts economic growth. But I've always been a curious fellow (yes, in both senses...), so I started pulling data and crunching it to see for myself. (I am from Missouri, after all.)

I was pretty astounded at the time to find that the dominant meme just wasn't true. Run the numbers various ways yourself, or do a review of the professional literature, and you get the same results: in prosperous countries, government size has basically no correlation with long-term economic growth (even though government sizes vary hugely -- from well under 30% of GDP up to 50%+). Go figger.

And that means that all the rhetoric, ideology, and theory supporting that meme has a problem. The more I thought about it, the more I realized that it was in fact wrong by a 180 degrees.

That's how I came to what I'm giving you here -- a reprise, revision, and reworking of thinking I wrote up a couple of years ago:

Alternate Title:
The Nine Habits of Highly Efficient Economies

Republican economic policies are widely perceived (especially by Republicans) as being pro-growth and pro-prosperity, even though All. The. Evidence. Demonstrates. The. Opposite. Even the rich get richer under Democrats (except for the very rich) -- though not at the expense of the poor and the middle class.

Progressives deliver more prosperity. They deliver it to more people. And they do it without busting the budget.

How do they achieve all that? Through the miracles of economic efficiency -- policies that make the markets actually work -- and work better -- for the greater prosperity of all.

Wisdom of the Crowds. Democrats' dispersed government spending -- education, health care, infrastructure, and social support -- puts money (hence power) in the hands of individuals, instead of delivering concentrated streams to big entities like finance, defense, and business. Those individuals' free choices on where to spend the money allocate resources where they're needed -- to truly productive industries that deliver goods people actually want.

The return of the light

2011-12-21T08:10:00.004-06:00

December 21 was always interesting around our house when I was growing up. It was my parents' wedding anniversary and the family joke was that they had selected that date because it was the longest night of the year. (That was a pretty racy joke for a parsonage.) The promise of the light's return always meant a lot to those of us who grew up where winter is a serious matter. Living in Minnesota, we knew that there was still a LOT of snow and cold ahead of us but at least the days were getting longer.

These days, there isn't a lot of light shining in any meaningful sense. Our economics have been hijacked by the criminally insane, our politics are in the hands of folks who have zero respect for the concept of representative democracy, and our schools are run by people who do not care that children need useful information to survive. LOTS of darkness out there. And while we know the sun's light will start its return today in the Northern Hemisphere, there isn't much realistic hope that the light will return to the human spirit anytime soon.

In the meantime, we can still enjoy the cultural artifacts that have grown up around the light's return. For me, one of the best is the singing of Handel's Messiah. By the time I had become a freshman at the University of Minnesota in 1967, both of my parents and my two older sisters had sung it so I was delighted that the U chorus was going to perform it that fall with the Minnesota Orchestra. I had been admitted into the chorus with the understanding that I would only be allowed to stay if I could pass the mid-quarter exam—which was being able to sing the bass line from For Unto Us a Child is Born. This was no small hurdle because this is about as difficult as bass parts get.

Here we see Robert Shaw lead the Atlanta Symphony in a performance of that bass-killer. Since I first heard his Messiah, there have been many performances deemed superior to his, but in those days, he was widely admired and we freshmen had his recording we used to help us learn that insanely difficult part.

Here's to the return of the light!

Producers vs Predators

2011-12-20T06:43:00.002-06:00

Writing about the banking crises, or the Republican primary, or any other manifestations of Predators at work is a depressing experience. There are many reasons why this is true but one stands out—outside of animal cunning, these are profoundly stupid people doing and saying dangerously stupid things.

There is no future with such folks. They have no solutions to the problems of climate change because they cannot even understand the eight-grade science that explains why it is happening. They have no solutions for the economy because the only thing they can imagine is some new version of usury, feudalism, human slavery, and the other manifestations the barbaric traits. If you try to talk politics with them, they will argue that any necessary innovations to ensure the survival of the human race cannot even be contemplated because the founding fathers could not imagine such problems in the 18th century.

So enjoy this amazing video. It is of a steel mill. It runs on electricity so in theory, it could be powered by windmills or PV cells. Its main raw material is scrap so it is an important cog in any necessary recycling infrastructure. All of this is in addition to the awe-inspiring human genius that is the mass production of steel.

And no, Michele Bachmann nor Newt Gingrich nor any of their brain-dead comrades running for president did not—nor could not—figure this out. In fact, they cannot even comprehend such infrastructure when they are looking right at it. And ultimately that is the point—it will not be possible to solve the large problems facing humanity until the Predators shut up and get out of the way.

Two choices

2011-12-19T06:53:00.002-06:00

The world's economies will not survive much longer in their present form. No one actually knows what will give way first—the collapse of the Euro, the collapse of the absurd Chinese economic contradictions, another crash of the Anglo-American banks, whatever. The point is that the way the financial business is currently being run, there is no chance for anyone (with the POSSIBLE exception of the .01%) prospering in any meaningful sense.

So either the financial system must reform itself or it must be reformed from the outside. Personally, I seriously doubt the banksters are going to have some come-to-Jesus moment and decide they would rather be the vanguard of change to finance the peoples of the planet to build the sort of societies that can power themselves on the solar capital they can collect. The banksters I see in public are absurd, narrow-minded greedheads who think that progress is charging 33% interest on credit cards or selling children into debt slavery in the name of "education." Nevertheless, it would be MUCH preferable if the banksters could reform the system themselves—they know how things can work and besides, reforms from the outside in the form of revolutions are so messy, they take a lot of time, and rarely accomplish much of importance.

Just to prove that the Chinese learned nothing from the housing bubble in USA, here is a picture of China's biggest ghost city: Zhengzhou New District. Roads without cars or bicycles—houses without people. Proof that no matter where in the world, if lenders lend, builders build. China has hundreds of such developments. By some estimates there may be up to 64 million vacant homes. The mind reels at the notion that a country that put itself through decades of revolutionary upheaval would wind up copying probably the worst ideas of bankster "capitalism." So now in a country with millions of people badly housed, there are millions of brand-new empty houses.

It wasn't like Keynes was a 19th free-silver USA farmer with his back to the wall. He was a very establishment (wealthy) Brit investment banker. And yet he saw with utter clarity the problems caused by retarded economics and now another generation will have to learn his insights after 35 years of neoliberal madness. Of course, he predicted that too in perhaps his most famous quote.

" The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than it is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves quite exempt from any intellectual influences, are usually slaves of some defunct economist."

Well, It Sure Seems Like Keynes Was Right
Henry Blodget | Dec. 17, 2011

After the experience of the past five years, it certainly seems like John Maynard Keynes was right, doesn't it?

It seems hard to conclude anything else.

I'm not an economist, and I'm not born of a particular economic school that I've bet my life's work on, so I have observed the global economic events of the past five years with a fairly open mind.

I've listened to Keynesians like Paul Krugman argue that the way to fix the mess is to open the government spending spigot and invest like crazy.

And I've listened to Austerians like Niall Ferguson argue that the way to fix the mess is to cut spending radically, balance government budgets, and unleash the private sector.

And I've also looked back at history--namely, Reinhart and Rogoff's analysis of prior financial crises, the Great Depression, Japan, Germany after Weimar, and so forth.

And I have to say, the conclusion I keep coming back to is that Keynes was right.

In the aftermath of a massive debt binge like the one we went on from 1980-2007, when the private sector collapses and then retreats to lick its wounds and deleverage, the best way to help the economy work its way out of its hole is for the government to spend like crazy.

Or, rather, if not the "best way," at least the least-worst way.

Because, obviously, piling up even bigger mountains of debt is not a happy side-effect of such spending.

But let's face it: Austerity doesn't work. more

After a whole generation of economists trained to believe that inflation was purely a monetary and that pumping more money into the system was the most certain way to trigger an inflationary outbreak, we now have evidence that it is possible to inject two years worth of GDP of new money into the system and still barely make a dent in DEflation. Krugman call the the true believers in monetary causes for inflation "inflationistas." He is being kind.

MARK DOW: Finally, People Are Beginning To Understand That All This Money-Printing Isn't Causing Inflation
Henry Blodget | Dec. 13, 2011

Mark Dow of Pharo Management forwarded us the chart below, which shows the amazing impact Ben Bernanke's post-crisis money-printing has had on inflation and the value of the dollar.

Which is to say: No impact.

The chart shows the trade-weighted value of the dollar (blue) compared to the level of "base money" (red). As you can see clearly, the dollar declined steadily in the years leading up to the financial crisis, and has basically been rock-solid ever since.

How can that be? Isn't Ben Bernanke "printing money" until the cows come home?

Well, sort of.

What Ben Bernanke is really "printing" is bank credit. All that printing has made banks' "excess reserves" explode, which means they have a ton of lending capacity if they want it.

But they don't want it.

This is in part because the banks' customers don't want it: With consumers strapped and reducing their debts, few companies are borrowing money to invest in future growth.

And it is in part because the banks themselves need to deleverage: They need to build up their capital levels relative to their asset (loan) levels. And making new loans won't help them do that.

In other words, most of the money Ben Bernanke is printing is sitting in bank accounts at the Fed, not finding its way into the economy. And because it's not finding its way into the economy, it's not destroying the value of the dollars that are already in circulation.

Will all that money the Fed has printed ever find its way into the economy? Will it ever cause the hyper-inflation everyone dreads so much?

It might.

When the economy finally really cranks up again, the Fed will have to start "un-printing" some of that base money, or lending could explode and inflation really could get out of hand.

But the economy does not appear to be about to crank up fully again.

And consumers — the main drivers of spending in the economy — still have debt coming out of their ears.

And Japan shows us just how long a government can print base money without triggering inflation: The value of the Yen has been appreciating for twenty years. more

One of the more interesting remark Chris Hedges made concerning protests taking over from more normal election activities is that no one has a way in USA to vote out the party of Goldman Sachs. Well, outsiders are beginning to believe that the Socialists in France are going to offer up an alternative agenda to the neoliberal banksters. Personally, I'll believe it when I see it actually happen because the rest of Europe's Socialists are some of the worst neoliberal Kool-Aid drinkers. But here it is—Hope and Change French style.

Here's What Happens If Nicolas Sarkozy Can't Win Re-Election
Wolf Richter, Testosterone Pit | Dec. 18, 2011

Nicolas Sarkozy will be the only French president since World War II with two recessions under his watch, if the forecast by the National Institute of Statistics and Economics (Insee) turns out to be correct.

Recessions are rare in France: between the end of the war and the beginning of the financial crisis, there were two. Then came the four negative quarters of 2008/2009. Now, Insee forecasts another contraction: -0.2% in the fourth quarter of 2011 and -0.1% in the first quarter of 2012.

After an uptick over the summer, economic indicators have gone south. Business confidence has declined. Corporate demand is slowing. Unemployment has risen to 9.3%. Insee expects it to rise to 9.6% through the first half of 2012.

Purchasing power will decline by -0.1% in the first quarter of 2012, the sixth quarter of declines since the crisis. But even when Insee’s purchasing power indicators were rising, the French complained that their actual purchasing power was declining. The bitter irony: Sarkozy, who’d made purchasing power part of his platform during the last election, is now haunted by his old slogans. France will likely loose its AAA rating, which Sarkozy’s most prominent opponent, socialist François Hollande, sees as "a terrible admission of failure."

This is the backdrop to Sarkozy’s reelection campaign. New polls, released on December 16, show just how tough it will be. According to Ifop, during the first round on April 22, Hollande would lead the pack with 27.5% of the vote. Sarkozy would get 24%, Marine Le Pen, president of the right-wing National Front, 20%, and François Bayrou 11%. Everyone else would score in the low single digits. If Hollande faces Sarkozy in the second round, he’d win with 56% of the vote against Sarkozy’s 44%. But as president, Hollande would not follow in Sarkozy’s footsteps regarding the debt crisis and the Eurozone.

"Another Way for Europe," is the headline of Hollande’s editorial in Le Monde on December 16. In it, he outlined his dissatisfaction with the Brussels agreement, which he considered “narrow, vague, and punitive” and vowed to "renegotiate it in order to rebalance and add to the future treaty."

German Chancellor Angela Merkel and Sarkozy are pushing hard to get the text finalized and agreed to by March—before the French election. But it won’t be binding at that stage, and Hollande could do what he vowed in writing he’d do.

Growth is his mantra. Not austerity. While he considers reducing deficits an imperative, “nothing serious will be possible without growth; it's the big missing element in the agreement.”

Democracy is “the other big missing element." Going around the European Parliament as well as national parliaments and granting the European Court of Justice final say over national budgets, as the agreement calls for, "would be unacceptable."

And this: “The Eurozone must arm itself with a veritable financial force de frappe"—the term for France’s land-, sea-, and air-based nuclear strike force. Out: the bazooka. In: maximum force. Specifically, he wants effective means to impact the financial markets:
A much more aggressive ECB (while “respecting its independence”).
Much more powerful bailout funds to “discourage speculation.”
Eurobonds to spread the risk "of at least part of our debt."
Interventions by the European Investment Bank (owned by member states, it lends out €50 billion a year to support weaker regions and various projects).
A larger European budget with new sources of revenues, particularly a financial transaction tax, to drive industrial policy.
Practically every point of his plan (except for the financial transactions tax) violates Merkel’s dictate. Barring a miracle, Germany is unlikely to fall in line with his desires. A handful of other countries might side with Germany and form a bloc. more

Amazing Tchaikovsky

2011-12-18T04:04:00.002-06:00

A new way to dance with the sugar plum fairies.

OccupyWallStreet sharpens the message by de-foreclosing

2011-12-17T17:58:00.004-06:00

Hat tip to Naked Capitalism for including the following Village Voice article in its round-up of links. This past Tuesday, Occupy Wall Street marched into Brooklyn and "de-foreclosed" a house that has been vacant and unkempt for the past three years, after the residing family was evicted by Countrywide Financial. The house was carefully chosen by researchers going through city records. Occupy is calling on homeless families to come take up residence in the houses Occupy de-forecloses. I'm going to start the quote in the middle of the article, instead of the beginning.

This new strategy presents a much tighter fit between tactics and message than was seen in OWS 1.0. When Occupy Wall Street was in Zuccotti Park, the media seized on the drum circles and sleeping-bag lifestyle to paint a picture of aimlessness and chaos—Woodstock tipping over into Altamont. But the occupied homes present a much clearer narrative: previously homeless families and young children, put into homes that the bankers' broken system had left vacant and rotting for years.
"The foreclosure crisis is where the rubber hits the road with the financial sector and the real economy, the 1 percent and the 99 percent," says Mike Konczal, a finance-reform expert at the Roosevelt Institute who attended the East New York occupation. "If you really want to challenge the banks' power and the way they're stripping wealth out of communities, leaving wreckage behind, foreclosures are a key point to go to."

Read the entire article (it's short).

Saturday toons 17 DECEMBER 11

2011-12-17T08:01:00.002-06:00

Watching the mainstream pretending to comprehend why folks are protesting is still funny.

Bernanke’s 29 Trillion Dollar Fog of Deceit

2011-12-16T09:51:00.004-06:00

Bill Totten's weblog carries the most recent article from University of Missouri at Kansas City (UMKC) economist L. Randall Wray, one of the handful of economists worth taking the time to listen to. Two graduate students at UMKC have completed an analysis of the documents pried out of the Federal Reserve's grasp by the Bloomburg Freedom of Information Act request, and found that the actual total amount of emergency lending and other assistance the Fed is actually four times larger than the already staggering figure of $7.77 trillion Bloomburg wrote about two weeks ago.

$29 trillion, if you're wondering. Twenty nine trillion, with a "tee" not a "bee" dollars. That's the entire USA gross domestic product for nearly two entire years.

Wray explains the chain of discovery that began with Sen. Bernie Sander's legislation that forced an audit on the Fed. Of course the Fed tried to provide as little information as possible in that audit. But there was enough information to give Bloomburg financial reporter Mark Pittman the specifics needed to file an FOIA request. (Pittman died soon after of "heart problems" at the age of 52). The Fed tried to make the information in its FOIA release as complicated and as incomprehensible as possible, but, as Wray writes, "Bloomberg helped enormously by putting the data into a usable format." That, in turn, allowed the two UMKC PhD students, Nicola Matthews and James Felkerson, to unzip the Fed's bag of secrets and look inside. Voila! $29 trillion!

About two thirds of the way into the article, Wray begins to address the people who have been defending the Fed by arguing that a cumulative total of Fed emergency lending to the banksters is misleading. One even questions Wray's competence because Wray never worked for - wait for it - the Fed or a Wall Street bankster! That is like arguing you can never understand drug money laundering until you've worked for a drug lord. It is really sweet to read Wray shred these jerks, especially one who stoops to calling the Fed's critics a "rabble" - a good insight into exactly how the one percent and their evil minions view us lowly peasants in the ninety-nine percent. It is useful to keep in mind that the Federal Reserve system has successfully corrupted almost the entire economics profession. That's one big reason why there's only a handful of economists worth listening to.

Last week, Fed chairman Ben Bernanke issued a statement attacking the Bloomburg findings, but did not sign it. That leads Wray to recall the time that former Fed chairman Alan Greenspan outright lied to House Banking Committee chairman Henry Gonzalez about whether or not the Fed's Open Market Committee (FOMC) meetings were tape recorded. They were, but Greenspan said they weren't.

Realizing that it is not a good idea to lie to Congress, he went back to the office, convened a conference phone call of Fed officials and warned them that they likely all would be called before Gonzalez’s committee. He said it would be up to them to decide to tell the truth, or to continue the charade.

You see, the Fed did tape every meeting and had been doing so since the days of Watergate; but the tapes were transcribed and then (supposedly) erased and used for subsequent recordings. In the end, the Fed decided to tell Congress the truth, and agreed to release edited transcripts within five years. So on some generous interpretation, Greenspan’s fib was not a lie.

You can now read them on-line. See the FOMC transcripts the period from October 1993 to May 1994 for discussions surrounding the wisdom of operating with greater openness – and for fascinating internal discussions about how to deal with Gonzalez and Congress; see also my article {3}.

However – and this is a real scandal – the Fed is routinely shredding all the original transcripts (only the edited versions are available). You see, the Fed claims that because it is “independent”, it is not subject to normal sunshine laws {4} that require maintaining government records. And its meetings that discuss monetary policy and bank supervision are also exempt from sunshine, according to the Fed.

It is worth reading the entirety of Wray's article, but I'll close here with Wray's wonderfully apt analogy he uses to dismiss the Fed defenders who argue it's misleading to look at the cumulative amount of loot used to save the banksters.

Say you’ve got six drunk bankers at the bar (named Goldman, Morgan, Stanley, Fargo, Citi, and BoA, for example). Each has a shot glass that Ben the bartender keeps filled. Bernanke would say that Ben the bar-keep has only provided six ounces of booze since there is never more than six full glasses at any point in time. Ben fills the glasses, oh, 29 trillion times over the course of three years. Still, Bernanke claims Ben never contributed to the drunkenness of bankers since he never provided more than six ounces of booze at a time.

Read the entire article: Bernanke’s 29 Trillion Dollar Fog of Deceit

Europe's debt crises staggers on

2011-12-16T06:52:00.003-06:00

Debts that cannot be repaid, will not be repaid. But that doesn't keep the grabbing classes from trying to collect from someone, anyone. And trampling democratic governments is just the tip of what the banksters will try to collect on debts that were mostly incurred playing videogames with money.

Incompetence in the Eurozone
Wrecking the World Economy
by DEAN BAKER DECEMBER 06, 2011

The world is eagerly waiting to see if the European Central Bank (ECB) will take the steps needed to save the euro. Specifically, is the ECB prepared to act as a central bank and guarantee the sovereign debt of the countries in the eurozone as the lender of last resort ordinarily does in a crisis?

If not, there is little doubt what the outcome will be. The austerity being imposed on country after country will slow GDP growth and throw workers out of jobs. Higher unemployment will worsen deficits, since it means less tax revenue coming in and more unemployment benefits and other transfers being paid out. Higher deficits will cause investors to worry about the solvency of the government, leading interest rates to rise.

This gives us the famous downward spiral that already sank Greece’s economy and government. It will soon sink Italy and Spain if the ECB doesn’t start acting like a central bank. The fallout from disorderly defaults from these two countries will cause banks throughout the eurozone to become insolvent, leading to another Lehman-type freeze-up of the financial system.

The end result will be a second recession and another sharp spike in unemployment, not just in the eurozone, but almost certainly across the globe. The finances and the economies of the eurozone are too intertwined with the rest of the world to envision a meltdown that doesn’t also push the rest of the world into recession. At the end of this story, the euro itself is likely to be placed in the dustbin of history, another failed monetary experiment.

This story is especially painful since this crisis is the outcome of one set of failed policies layered on top of another set of failed policies. The original downturn came about because the ECB, like the Fed and the Bank of England, chose to ignore the buildup of enormous housing bubbles and the resulting economic imbalances.

It was 100 percent predictable that the collapse of these bubbles would lead to a serious recession. The financial crises that accompanied this collapse was also a predictable outcome of the rapid disappearance of trillions of dollars of wealth. Yet the central bankers at ECB and elsewhere were completely caught by surprise.

At least the Fed and Bank of England have been reasonably aggressive in trying to correct the damage they caused. They have both pushed their overnight lending rates to near zero and have engaged in large-scale purchases of long-term debt to try to directly lower long-term interest rates.

By contrast, the ECB never lowered its short-term rate below 1.0 percent and actually raised it to 1.5 percent last spring in order to dampen inflation. While other central banks were trying to boost their economies, the ECB was actually trying to reduce growth in the eurozone.

The question at the moment is whether the ECB will be allowed to continue this course to disaster or whether it will be persuaded by a combination of internal and external forces to change course. The joint action last week by the Fed and five other major central banks is encouraging in this respect. Their plan to extend lines of credit to eurozone banks in other currencies in effect meant that these central banks would supply the necessary liquidity to keep the eurozone economy moving forward if the ECB failed in this task. more

------------------

Welcome to a new era of polarization as financial oligarchy replaces democratic government and reduces populations to debt peonage
Europe’s Deadly Transition From Social Democracy to Oligarchy
by MICHAEL HUDSON DECEMBER 9-11, 2011

The easiest way to understand Europe’s financial crisis is to look at the solutions being proposed to resolve it. They are a banker’s dream, a grab bag of giveaways that few voters would be likely to approve in a democratic referendum. Bank strategists learned not to risk submitting their plans to democratic vote after Icelanders twice refused in 2010-11 to approve their government’s capitulation to pay Britain and the Netherlands for losses run up by badly regulated Icelandic banks operating abroad. Lacking such a referendum, mass demonstrations were the only way for Greek voters to register their opposition to the €50 billion in privatization sell-offs demanded by the European Central Bank (ECB) in autumn 2011.

The problem is that Greece lacks the ready money to redeem its debts and pay the interest charges. The ECB is demanding that it sell off public assets – land, water and sewer systems, ports and other assets in the public domain, and also cut back pensions and other payments to its population. The bottom 99% understandably are angry to be informed that the wealthiest layer of the population is largely responsible for the budget shortfall by stashing away a reported €45 billion of funds stashed away in Swiss banks alone. The idea of normal wage-earners being obliged to forfeit their pensions to pay for tax evaders – and for the general un-taxing of wealth since the regime of the colonels – makes most people understandably angry. For the ECB, EU and IMF “troika” to say that whatever the wealthy take, steal or evade paying must be made up by the population at large is not a politically neutral position. It comes down hard on the side of wealth that has been unfairly taken.

A democratic tax policy would reinstate progressive taxation on income and property, and would enforce its collection – with penalties for evasion. Ever since the 19th century, democratic reformers have sought to free economies from waste, corruption and “unearned income.” But the ECB troika is imposing a regressive tax – one that can be imposed only by turning government policy-making over to a set of unelected technocrats.

To call the administrators of so anti-democratic a policy “technocrats” seems to be a cynical scientific-sounding euphemism for financial lobbyists or bureaucrats deemed suitably tunnel-visioned to act as useful idiots on behalf of their sponsors. Their ideology is the same austerity philosophy that the IMF imposed on Third World debtors from the 1960s through the 1980s. Claiming to stabilize the balance of payments while introducing free markets, these officials sold off export sectors and basic infrastructure to creditor-nation buyers. The effect was to drive austerity-ridden economies even deeper into debt – to foreign bankers and their own domestic oligarchies. more

No surprisingly, there are those who are not happy about the current set of proposals. The angry include those in serious debt who are beginning to talk as if a debtors cartel is possible.

Talk of 'nuclear default' sums up Left's anger at EU dictates

Tempers are fraying in austerity-racked Portugal. A top socialist politician was taped at a party dinner calling for diplomatic warfare against the EU's northern powers and issuing threats of debt default.
By Ambrose Evans-Pritchard, International business editor
9:39PM GMT 15 Dec 2011

"We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won't pay," said Pedro Nuno Santos, vice-president of the Socialist Party in the parliament.

"Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (EU-IMF Troika) accord. We should make the legs of the German bankers tremble," he said.

The comments came as Portugal slides deeper into recession, with the economy expected to contract by 3pc next year. Protesters marched through Lisbon on Thursday denouncing plans by the new conservative government to raise the working week to 42 hours. Wages are being cut 16pc for higher paid, and 8pc for lower paid public workers.

The parliament passed a fresh austerity budget earlier this month under the terms of its €78bn loan package from the EU and the International Monetary Fund.

Mr Nuno Santos said Europe's southern states should join forces to resist the austerity dictates and contractionary policies being imposed by the core powers. "It is incomprehensible that the peripheral countries don't do what the French president and the German Chancellor do. They should unite," he said. more

And then there is Finland which is being put on the hook for debts it didn't incur. Not surprisingly, the Finnish voters are not happy with this arrangement. Of course, there IS a difference—the EU rules say that there must be unanimous agreement among the members at affect change. Finland uses the Euro and is clearly a full-blown member of the EU. One can only imagine the pressures that will be brought to bear on tiny Finland to go along with whatever the banksters cook up. The banksters probably think that Finland will just collapse when the big guns are wheeled out. They forget that Finland has a remarkable history of standing up to big bad guys.

'Hell Will Freeze Over' Before Finland Signs This Treaty
Mike "Mish" Shedlock, Global Economic Trend Analysis | Dec. 12, 2011

Reader Janne from Finland claims "hell will freeze over" before Finland signs the Merkozy deal as it is structured right now. Janne also claims Finland will "loan" money to the IMF and it will not be in the budget.
From Janne ....

Hello Mish

My collection and translation of news shows this new treaty is in serious trouble.

Finance minister Jutta Urpilainen (social democrats/SDP) says Finland has only two options after the EU-summit: Either unanimity is required in ESM decisions as agreed before or Finland will drop out of ESM.

She does NOT see any other options based on the statement by Finnish Parliaments Constitutional Committee.

Loan Not Gift

Prime Minister Jyrki Katainen says that Finnish contribution to strengthening the IMF is 3.8 billion euros and this money will be a loan from the Bank of Finland to IMF so this will NOT be part of the Finnish budget.

Timo Soini, leader of the main opposition party The Finns party(PerusSuomalaiset) is very worried about the decisions made in Brussels and thinks particularly bad is the plan to remove unanimity and move to majority decisions regarding ESM.

85% Rule Against Finnish Constitution

Soini says that majority decisions in ESM are against the Finnish Constitution as confirmed recently by Finnish Parliaments Constitutional Committee. There was a clear mandate from Finnish Parliament that majority decisions in ESM are against Finnish Constitution and this EU-agreement should have never been agreed to.

If this goes through Finland will become responsible for others debts in way where we can NOT influence it or stop it. Soini thinks especially worrying is that large euro-countries may themselves withdraw from responsibility.

Germany, France and Italy can each stop the use of ESM if they so choose. This is unbelievable when smaller countries right to decide has been taken away.

Soini thinks much discussed and fiercely demanded investor responsibility(PSI) in ESM is completely watered down.

These instruments are created to remove investor responsibility and make taxpayers pay profits to gamblers.

Limiting so-called private-sector involvement to the terms accepted in International Monetary Fund bailouts was part of a package agreed upon in Brussels early today as leaders met to forge tighter economic bonds to stem the crisis according to Bloomberg and other news sources.

Reporting is different in Finland where Prime Minister Katainen said Finland got what it wanted when it comes to investor responsibility and that Private Sector Involvement will be fulfilled. more

Peak oil and food

2011-12-15T06:14:00.002-06:00

One of the stories that has happened during my lifetime is the widespread substitution of oil and other energy inputs for human and animal muscle in the production of food. The food you buy in a supermarket contains a LOT of embedded energy these days.

Here's The Only Food Pyramid That Matters In A Peak Oil Future
Andrew Shen and Gus Lubin | Dec. 8, 2011

Food crises will become more common over the next century, according to a new report from the UN Food and Agriculture Organization.

It's easy to see why.

The report cites predictions that global food demand will increase 50% by 2030. Meanwhile global demand for energy and water will increase 40%. As you may remember from 2008, an oil crisis quickly leads to a food crisis, as 30% of global energy consumption goes into food.

In a peak oil future, savvy consumers will rely on grain, fruit and vegetables, which have a smaller energy input. Here's the food pyramid that really matters: more

And here's where the energy goes.

Of course, the first people to notice the impact of rising energy costs on farm production will be the farmers. Here's what they are saying to each other in Iowa.

Narrowing margins: Rising input costs threaten to shrink grain profitability
By MATTHEW WILDE, matt.wilde@wcfcourier.com | Posted: Sunday, December 11, 2011 9:00 pm

OSAGE, Iowa --- It appears grain farmers had better buy a big piggy bank.

Producers got some good and bad news Wednesday, Dec. 7, at the AG Expo in Osage. Agriculture experts forecast another financial windfall next year raising corn and soybeans, but profitability beyond 2012 is in serious doubt as input costs eventually overtake grain prices.

Chad Hart, Iowa State University Extension grain economist, told more than 100 producers and ag business officials at the Cedar River Complex Events Center that the cyclical nature of grain profitability will most likely catch up to producers in 2013. Landowners renting or selling ground and companies selling fertilizer, equipment, seed and other crop inputs have watched farmers rake in excellent profits in recent years and they want a bigger share of the pie.

Hart warned farmers that tough economic times lie ahead. Representatives of businesses at the expo didn't necessarily disagree.

"In 2013 you will be happy that you have money socked away," Hart told a producer at the expo. "Farming is competitive. I expect costs to catch up with prices."

Corn and soybean values have about doubled since 2006. Production expenses haven't escalated as much, but that's about to change. more

Understanding the failure of imagination at Durban

2011-12-14T09:20:00.002-06:00

Anyone interested in why the Germans lead the world in every meaningful Green category should read this absolutely brilliant essay by Christian Schwägerl in Monday's Spiegel Online about the lessons that could be learned from the fiasco that was Durban. I encourage everyone to read the whole essay but for me, this is the money quote:

Climate Policy Delirium

For the past 17 years, negotiations have led to little else than record CO2 emissions in 2010. Thousands of people are crammed together in rooms with deficient lighting and air. They are fed soggy sandwiches and subjected to sleep deprivation given the length of the marathon negotiations. In the end, decisions are made in what could be described as a kind of climate policy delirium. And those are only the obvious symptoms of an illness that resides deeper in the UN system.

The entire UN negotiating process has two major flaws in its design. (1) It doesn't assess the real causes of CO2 emissions, and it presents the goal of CO2 reductions in an entirely negative light. Since the very beginning of the negotiations in Berlin in 1995, the phenomenon of climate change has been viewed through the prism of emissions that stream out of chimneys, exhaust pipes, smokestacks and forest fires. (2) The very language of the UN convention describes climate protection as a "burden" and international measures of CO2 reduction as "burden sharing". Both end-of-pipe and burden thinking have created the wrong environment at these summits. Little is spoken of positive goals, and there is virtually no discussion of the economic opportunities that emissions reductions present. The only countries considered to be winners in the negotiations are those that succeed in forcing the other nations to agree to greater emissions reductions rather than taking action themselves. It should be the other way around: The winners should be those nations that endeavor to adopt the most progressive policies.

YESSSS! I am reminded of the breakthrough that Toyota made in quality control when they decided that inspectors are almost irrelevant to the making of a high quality product. What they realized was that while an inspector could find a production error, the real problems caused by making those errors were not solved. And so they set out to create a whole new strategy that would eliminate the problems in the first place by designing processes that would make those errors impossible to make. They called the process kaizen and it worked so well, that Toyota would come to dominate the automobile world simply on their reputation for build excellence.

In the world of controlling climate changing emissions, the only way to really address these problems is to design them out of the system—NOT try to control them once they had been produced (see #1 above). On course, the Germans have been thinking along these lines since at least the 1980s when they began to implement a strategy called Design for Disassembly (DFD). In the 1990s, I had a canned speech that explained the reasoning behind DFD and why it worked so well.

DFD is a subset of the emerging environmental redesign movement which assumes that:
a) humans cause pollution (apes and dolphins may be bright but they have never caused a toxic waste dump)
b) humans are conscious beings (for those who disagree and have examples—insert you own joke here)
c) pollution is caused by the conscious acts of these humans
d) the more difficult the act of humans, the more planning it takes
e) the truly difficult pollution problems are caused by acts of significant planning and design.

Therefore: Pollution is a function of design!

In the United States, the notion that design has anything to do with pollution is not immediately obvious. For Americans, design is associated with fancy stitching on blue jeans or overdone dwellings for the idle rich. Industrial design is thought of as the business of turning kitchen appliances into objects of yuppie admiration.

But think about it for a minute! Nuclear power and the resulting waste problems were brought to us by the creative genius of scientists, inventors, and design engineers. Global warming is the product of planning by geologists, mining engineers, shippers, civil engineers, automotive designers, and the clever folks who solved the problems of mass production. The ozone hole is courtesy of organic chemists who were merely trying to give the world a safe way to preserve food and medical products with refrigeration. In fact, virtually every thing that can be considered pollution is the product of intense planning and design—down to the last bubble-pack and plastic milk carton clogging our waste dumps. Remember, EVERYTHING that is called 'disposable' was DESIGNED from day one to be garbage—as its PRIMARY and overriding design consideration. more

I also used this thinking to discuss the various strategies for increasing energy efficiency.

Ultimately, energy efficiency is a function of DESIGN

Design is often confused with decoration because the word is often misused in just that way. This is also the word engineers who in are the business of specifying a heating system for new building must use to describe what they do.

In between the decorators and the engineers are the industrial designers who argue that while good design is aesthetically pleasing, it must incorporate a deep human understanding to increase functionality. The focus on design when the question is energy efficiency has one overwhelmingly important reason--it is almost impossible to change the energy efficiency of anything that requires energy to operate ONCE IT HAS BEEN BUILT.

Think about a television set. It requires x watts to run and probably a few watts when shut off. The ONLY way lower energy consumption is to watch it less and unplug it when shut off--you cannot change how many watts it requires when running. Since energy efficiency is a measure of how many watts it takes to operate, you cannot, by definition, change the energy efficiency of a television once it has been manufactured. Unfortunately, this principle also applies to bigger consumers of energy as well.

That big ugly SUV your neighbor bought when gasoline was 99 cents a gallon will continue to get 8 miles per gallon until it is ground up for scrap.

Houses can be retrofitted for better energy consumption but such a project is very expensive, requiring costly parts like triple-glazed windows and fussy, labor-intensive efforts like re-insulation. Because such projects are so expensive, they almost never pay for themselves in energy cost savings. And so they don’t get done very often and those who would do this sort of work, never get the chance to improve their skills.

Probably the most significant contributor to increased energy consumption in USA over the past 50 years is urban sprawl. This is a problem that no drive to increase energy-efficiency is likely to solve because the only way to increase the energy efficiency of a city once it has been built would be to move buildings around.

In fact, about the only category that can change its once manufactured energy efficiency are light fixtures--and then only some of them. This special case is made possible because the part that actually consumes the energy--the bulb itself--is a part that is designed for routine replacement. However, even here, MANY fixtures will only accept a bulb identical to the one originally installed.

Energy efficiency talking points

1) The bigger the energy user, the more important the need for social constraints. It is more important to regulate the energy consumption of cars than of TV sets, houses than cars, or cityscapes than houses. Good city planning is by far the most important element of any drive for higher energy efficiency.
2) There are no magic bullets. Increased energy efficiency will result from thousands of little changes--NOT from some grand idea.
3) Energy efficiency is determined by the laws of nature. Anyone who claims efficiency improvements that cannot be explained using basic physics should be ignored like any other charlatan.
4) Since the laws of nature cannot be altered through human legislation, the social desire for greater energy efficiency can only be assisted through legislation that provides for design and research funding, mandates minimum standards based on what is physically possible, or addresses social issues like land use planning.
5) Design and planning is extremely important. Just remember, once something has been built, it is very difficult, if not impossible, to change the amount of energy it consumes. For example, while it may be possible to mitigate the some of the consequences of sprawling a city over precious surrounding farmland such as with telecommuting, it would be MUCH wiser to avoid such disastrous decisions in the first place. more

But back to Christian Schwägerl's essay. He makes the point that unless we tackle climate change as a opportunity rather than a burden, no one will get very excited about the resulting "solutions" that are little more than a suggestion that we put a cork in the world's tailpipes. Obviously deeper thinking is needed.

That makes it all the more crucial that the UN move to fundamentally alter the way its conferences are structured in the future. The most important thing is that the gatherings also delve into the deeper causes of CO2 emissions. This includes taking a critical look at:

The energy-hungry American Way of Life that is becoming ever more popular despite the environmental problems it creates and the fact that it is pushing back more environmentally friendly ways of living.
The fact that the "Green Economy" hasn't worked so far because environmental services have no economic value and because, globally, subsidies paid out for oil, coal and natural gas are more than six times higher than for renewable energy.
The fact that the International Energy Agency reports that around €90 billion per year in research investment is lacking that is needed to develop new and environmentally friendly energy technologies.
The fact many of the world's 2.5 billion people who are under 20 years of age aren't sufficiently educated about environmental issues.
How too little attention is being paid to the fact that, in addition to the environment, climate change also represents a threat to material wealth and peace in many regions of the world.

Perhaps the most interesting thing that happened in Durban was the emergence of China as the possible new "good guy" in these matters. The Germans are excited because it means the Chinese are beginning to see environmental problems as they do.

The Geopolitics of Climate Change
Will China Become the Green Superpower?
12/09/2011

At the UN climate summit in Durban, China has signalled for the first time that it could sign up to a binding global agreement on CO2 emissions. Indeed, fighting climate change will be impossible without the future superpower on board. Taking a green approach to economic development could bring China massive benefits -- if Beijing decides to go down that road.

China's rise to superpower status seems unstoppable. But what course will it take over the coming decades? Let's take a look at two very different scenarios for the China of 2025:

Under the first scenario, China has become the largest economy in the world, due to a close trans-Pacific alliance with the US. The People's Republic mainly generates its wealth by providing its American neighbor in the Far East with cheap money and cheap consumer goods. But the toll for this strategy is high: Chinese CO2 emissions are now higher than the emissions of all other nations combined. Per capita emissions have soared even above the levels of the United States. As droughts, floods and food shortages increasingly ravage the planet, billions of people perceive Beijing as the main culprit behind climate change. More than 100 nations, including the EU, have formed an official alliance against "Chimerica," as the two superpowers threaten to destroy the biosphere. There are warnings of an impending "climate war."

Under the second scenario, China has become the largest economy in the world, due to a close Eurasian partnership with the EU and India. The People's Republic mainly generates its wealth by developing and exporting green technologies. In collaboration with the EU, Beijing has put in place rules against excessive indebtedness, which apply both to financial and "ecological" debts. The cost to the environment is now integrated into how Eurasian nations calculate their gross domestic product. CO2 emissions are beginning to decline around the world, except in the United States. The former superpower is culturally incapable of modernizing itself ecologically and is losing its power due to its addiction to cheap oil. Eurasia has become the new superpower, with China as the dominant force.

These two scenarios are at the core of the United Nations Climate Summit in Durban. Will the world climate of the future be heated by Chimerica or cooled by Eurasia? In a way, the talks in South Africa are all about whether China will choose the first or second option. At first glance, the climate negotiations may appear to be gatherings of technocrats who are supposed to deal with the consequences of the pollution caused by our prosperous industrial society. But that is only true at first glance. In reality, the summits are about a much larger question: the role China will play as the new superpower in the coming years and decades. more

Even the Brits are coming around (a little.) This from The Guardian where they cheer the possibility that a mega-project may just help the world's population douse some of those carbon-fueled fires.

Could the desert sun power the world?
Green electricity generated by Sahara solar panels is being hailed as a solution to the climate change crisis
Leo Hickman guardian.co.uk, Sunday 11 December 2011

During the summer of 1913, in a field just south of Cairo on the eastern bank of the Nile, an American engineer called Frank Shuman stood before a gathering of Egypt's colonial elite, including the British consul-general Lord Kitchener, and switched on his new invention. Gallons of water soon spilled from a pump, saturating the soil by his feet. Behind him stood row upon row of curved mirrors held aloft on metal cradles, each directed towards the fierce sun overhead. As the sun's rays hit the mirrors, they were reflected towards a thin glass pipe containing water. The now super-heated water turned to steam, resulting in enough pressure to drive the pumps used to irrigate the surrounding fields where Egypt's lucrative cotton crop was grown. It was an invention, claimed Shuman, which could help Egypt become far less reliant on the coal being imported at great expense from Britain's mines.

"The human race must finally utilise direct sun power or revert to barbarism," wrote Shuman in a letter to Scientific American magazine the following year. But the outbreak of the first world war just a few months later abruptly ended his dream and his solar troughs were soon broken up for scrap, with the metal being used for the war effort. Barbarism, it seemed, had prevailed. more

Dec. 13—St. Lucia day

2011-12-13T07:27:00.001-06:00

Perhaps one of the more confused celebrations of the people of the north—Swedes celebrating a Sicilian Catholic saint from the pre-Reformation days. However, the celebration is about light and food so it fits right into the Christmas / Advent traditions. It is also a wonderful excuse to teach children how to sing.

From a 2009 St. Lucia concert at the Storkyrkan (the big royal cathedral in Stockholm) a performance of the Advent hymn Veni Veni Emmanuel.

Jul Jul Strålande Jul (sometimes thought of as the Swedish Silent Night) is sung at this Lucia concert at the Globe Theater of Stockholm. Notice they left they ice in.

The days start getting longer any day now—the light will return! Reason enough for those of us from the North to celebrate.