Hello Greece—Syriza forms a government

The EU now has a member that intends to take aim at the heart of EU power—the control of the continent by the creditor classes.  Big money has run things for a very long time so Greece is taking on an almost impossible task.  And it doesn't seem like Syriza has a coherent strategy.  Here in the American midwest, the major critiques of the "money trusts" came from agriculture and other small business types who typically voted Republican.  Monetary debates are far less passionate on the Left, and Syriza is nothing if not a Left grouping.

But one thing the left is very good at is symbolism and wow, did Tsipras kick off his government in style.  First he visits a memorial to the lefties murdered by the Nazis and then he welcomes the Russian ambassador first.  Apparently, the Greeks are quite angry with Germany these days—to the point of being willing to do something desperate.  And while the power of the creditor classes is based on illusion, their ability to summon the might of armies and intelligent agencies is quite real.  The Creditor / Predators know there are considerable incentives to nip this debt-forgiveness idea in the bud.  After all, if Greece gets off the hook, why not the rest of southern Europe, or for that matter, why not all of Europe, or the rest of the world.

I cheer for the Greeks because without debt restructuring, there is absolutely NO chance of building the necessary upgrades necessary to avoid the climate and related catastrophes.  The banksters are the enemy of civilization—of human life itself.  Anyone who is willing to take on their greed and stupidity should be supported by any sentient being.

The invisible hand of Alan Blinder

Alan Blinder is usually introduced as this highly respected and rather conventional economist from Princeton who says nothing that isn't believed by all "respectable" economists.  Which is probably true and therein lies the problem.  What these respectable folks seem to believe is unfortunately, utter and complete BS that has been thoroughly discredited by events on the ground, over and over, since at least 1873.

Unfortunately, Blinder is a purveyor of a convention "wisdom" of the kind that Tony is attempting to refute in his complex and detailed project outlined just two days ago on this blog.  Of course, because we exist outside of the conventional "wisdom," we have to be correct down to the most minor detail while guys like Blinder are given a free pass to be wrong with almost every breath he takes.  What astonishes me is how willing the Blinders of this world are to being wrong.  He obviously is beyond any feeling of shame.  And why should he feel embarrassed?  After all, he is being paid a comfortable, upper middle class, salary to peddle his absurd craziness.  So when someone, in this case Jeffrey Madrick, starts blowing large holes in his worldview, he is more than willing to defend it—no matter how embarrassing that process might be.

Of course, picking on Blinder IS kind of a cheap stunt.  After all, there are nearly an infinity of Blinders in the economics profession these days (nearly all of them, in fact.)  It is why economics is probably the most irresponsible profession on the planet.

City redesign—the cost and necessity

The other day, I was informed that a housing unit I produced with great effort (pdf version) for less than $55,000 in the late 1970s had just sold for $415,000.  Since incomes have barely risen since then, any explanation for this factoid is necessarily complex and includes a bunch of factors ranging from the increased popularity of the neighborhood to the obvious fact that I did not charge nearly enough for my work.

My project was a restoration in an historical neighborhood that was almost 50% abandoned and boarded up—including ours.  So in addition to the complex problems of rebuilding a vacant building, we got to deal with the sociological problems that had caused the neighborhood to decline so far in the first place (yes, the value of real estate also goes down.)  It's a long story but in short, this was an anti-suburban-sprawl project and though time has proven the essential validity of our efforts, we didn't put even a minor dent in the crazy real estate developments that spread over some of the finest farmland on planet earth during that same time.

Needless to say, I am highly skeptical of plans to produce large amounts of high density housing that do not include plans for how these schemes will appeal to people who seem to need elbow room.  We have heard such plans before.  Urban Planning in USA has never quite recovered from the Pruitt-Igoe public housing fiasco in St. Louis and the global guru of urban planning, Le Corbusier, designed buildings that the unfortunate souls who lived in them grew to loathe.

Even so, the idea that we should spend 90 $trillion to rebuild our cities to get by without cars is certainly interesting.  As my brother, the licensed energy inspector, and I, the guy still recovering from the discovery that I live in an essentially uninsulated house, have concluded—there is VERY little of the existing housing stock worth fixing / saving when it comes to energy efficiency.  So there are obvious reasons to rebuild our cities.  And maybe, just maybe, we could get it right this time around.  But like most things in life, this will be a LOT harder than it looks.

HAWB - Introduction - How America Was Built

We are, we believe (and hope) nearing completion of a historical chronology of government actions and programs to support and develop the economy of the United States. Our intent is to frontally attack the conservative, libertarian, and neo-liberal interpretations of USA economic history, which are so distorted by their focus on "private property" and "free enterprise" and their hostility to "statism" as to constitute a lie. Everyone is probably familiar with these conservative, libertarian, and neo-liberal memes, which are repeated literally everyday in the mass media:

• The only thing government ever does is tax you
• Government is the problem
• Government never created a single job
• Government workers are useless bureaucrats living high on the hog

The actual history of the USA economy shows that these are all rotten lies. It is not that there was no role played by free enterprise and the private sector: they were just as important as the role of government. It is just that the exclusion and derision of the government role has become so extreme that it becomes a lie in effect of application.

Here is just some of the highlights of the chronology:

• 1783 Benjamin Franklin’s Reflections on the Augmentation of Wages, Which Will Be Occasioned in Europe by the American Revolution
• Jefferson’s Land Ordinance of 1785
• The Constitutional Convention - Bourgin's The Myth of Laissez-Faire in the Early Republic
• The Constitutional mandate to promote the general welfare
• Charles Beard did not write what you think he wrote in An Economic Interpretation of the Constitution
• The Tariff and Tonnage Acts of 1789
• Secretary of the Treasury Alexander Hamilton designs the USA economy
• How early corporations were enjoined by their charters to promote the general welfare
• On the question of aesthetics: L’Enfant’s 1791 Report on the Plan Intended for the Permanent Seat of Government and Jefferson's plans for the state capitol in Richmond and the University of Virginia
• 1794-1816 The federal armories lay the foundation of modern industrial mass production
• 1801–1806 Oliver Evans develops the high-pressure steam engine
• The Coast Survey Act of 1807 and the discovery of a deep water channel into the port of New York City
• 1804-1859 The Army Corps of Topographical Engineers explore and map the West
• 1817 The Erie Canal
• 1802-1835 The US Military Academy at West Point and its role in engineering and education
• McCulloch v. Maryland 1819 - Powers are implied, not enumerated
• The General Survey Act of 1824
• The Rivers and Harbors Act of 1824
• 1833 Associate Justice Joseph Story's Commentaries on the Constitution
• 1835-1852 The Illinois-Michigan Canal and the creation of Chicago
• 1838-1842 United States Exploring Expedition of the US Navy
• 1843 Direct funding to Samuel Morse for development of the telegraph
• 1850s Admiral Benjamin Franklin Isherwood and the development of steam power
• Land Grant Act of 1850
• Steamboat Act of 1852 and the power to regulate private property
• 1859 Brig. Gen. Randolph B. Marcy's Prairie Traveler
• Pacific Railroad Acts of 1861 and 1862
• 1862 Morrill Land-Grant Colleges
• 1862 Abraham Lincoln establishes the Department of Agriculture
• 1867-1872 The United States Geological and Geographical Surveys of the plains and the west
• 1870 Weather Bureau of the United States established
• 1879 United States Geological Survey and the development of mining
• Hatch Act of 1887 creates agricultural experiment stations
• 1890s-1920s The Good Roads movement and government pavement of roads
• 1907 U.S. Forest Service establishes Forest Products Laboratory at University of Wisconsin Madison
• The Air Commerce Act of 1926
• 1928 The National Bureau of Standards and the Cooperative Fuel Research engine
• 1911 US Supreme Court breaks Rockefeller's Standard Oil monopoly
• 1912 USDA botanist and plant pathologist Mark Carleton and the improvement of wheat
• Smith–Lever Act of 1914 establishes a system of agricultural cooperative extension services
• 1915 National Advisory Committee for Aeronautics
• 1917-1919 The US Navy and the development of radio
• 1919 Nebraska State Legislature establishes Tractor Test Laboratory at University of Nebraska
• 1919 Bank of North Dakota established by state legislature after Non-Partisan League sweeps state elections
• 1920 USDA scientists Harry A. Allard and W.W. Garner discover photo-periodicity of plants
• 1924 US Army Industrial College lays the foundation for the Arsenal of Democracy in World War 2
• 1930s The Bonneville Power Authority, the Tennessee Valley Authority and rural electrification
• The Norris-La Guardia Act of 1932 promotes organized labor unions
• 1942 US military develops mass production of penicillin
• 1943 National Resources Planning Board publishes plans for post-war demobilization of military personnel and reorientation of industry
• 1943 Petroleum Administration for War sends Everette Lee DeGolyer to assess oil supplies in the Middle East
• 1948-1965 USDA regional research laboratories and the frozen foods industry
• Servicemen's Readjustment Act of 1944 (the GI Bill)
• 1945 Vannevar Bush's report to Truman Science, The Endless Frontier argues the need for continued government support of science and engineering research and development
• 1940s-1950s The origins of computers: Whirlwind and the SAGE air defense system
• 1952-1957 US Air Force funded Boeing 707 brings us the jet age 

Each one of the historical economic landmarks listed above will eventually become a separate blog posting. Each will have the title "HAWB year - blank - How America Was Built" so that people can search for "HAWB" or  "How America Was Built" and find the entire series of posts up to that time. Our intent is that anyone so interested can quickly access this historical record and arm themselves with the truth to counter the landslide of lies propagated by zealots who would rather destroy the government, than allow its powers be used to promote the general welfare over private interests. At the same time, we plan to publish e-books that people may buy so that they can support our research and writing. There will also be PowerPoint presentations available, which we can email to people so that they may present these ideas to local groups.

We will use the year of the event in the title, instead of attempting to sequentially number each post. This will allow us to jump to a certain event in the chronology that may be pertinent to some current event. It will also allow us to include other events we may have overlooked in the first edition of the chronology. We fondly hope that our effort will attract enough attention that readers will begin suggesting other events to include that we have overlooked.

This historical chronology of the role of government in economic development is  the first part of a three-part program that we hope will come to dominate political debate going into the USA 2016 election. The second part reviews the USA economy since Reagan in a series of graphs, which dramatically show how the Reagan presidency was a disastrous turning point: the USA has been financialized, deindustrialized, decapitalized. Emphasis on that last word: decapitalized - with the explosive growth of financial market speculation, usury, and economic rent seeking since Reagan, the USA has become less capitalistic.

The third part presents a $100 trillion program for a rebuilding of the world’s economy to stop, and even reverse climate change.We have the technology, what we need is the political will to smash the usurers and speculators of Wall Street, the Chicago futures pits, and the City of London. Or, as The Onion wryly observed: "At press time, representatives from the world’s leading economies had signaled that they would continue to heavily rely on fossil fuels until they had something more than an overwhelming scientific consensus to go on."


We use the $100 trillion number for three reasons. First, and most importantly, it is what scientists and technology experts have calculated is required. It is their number, not ours. But it will become our number, because we will publicize it far and wide. We will ceaselessly agitate for adoption of a $100 trillion program until we succeed in making it the policy of this republic.

Second, $100 trillion program is an easy number to remember.

Third, it instantly establishes a litmus test with which to judge the ideas and beliefs of others, especially those who aspire to govern us. The 2008 USA stimulus program was $700 billion, and has been shown to be historically inadequate by the painfully slow climb out of the Great Recession. With a $100 trillion standard, the 2008 stimulus would have been immediately and clearly seen to be laughably inadequate. Again, it is our scientists and technology experts who have calculated that $100 trillion is required. Any politician who talks about a few billion or even a few hundred billion dollars in programs is clearly not serious about solving the immense problems we face.

Fourth, the inevitable question is asked: Is this a $100 trillion government program? Is the government going to spend $100 trillion? This question forces an examination of the interaction between government and the private sector in a national economy. No, this is not solely a government program. No, the government is not going to spend $100 trillion. But the government must create a regime of incentives and punishments that makes usury, speculation, and rent seeking behavior unattractive, if not entirely illegal, while making actual investment in the new technologies, new industries, and new companies required to go globally green the surest and easiest way to make a profit. In other words, government must give direction to the economy, then allow private initiative and free enterprise to pursue what ever profit opportunities are to be found in that new direction. This probably means imposing some level of transaction tax on all transactions in the financial markets, swiftly enforced and swiftly punished. It probably also means that requiring companies to conduct activities that promote the general welfare – a desideratum of early American business culture that was so strong that it did not have to be written into law – will have to be codified. At this point in the fight to save Spaceship Earth, any  conservative, libertarian, or neo-liberal who argues against the idea of government (of the people, by the people, for the people) setting a direction for national economic development should be understood and treated as a swinish and seditious enemy of democratic government. The massive scale of the $100 trillion program forces us to ask: How do we do it? Is socialism the best way? Or central planning? Or how does capitalism have to be controlled and regulated in such a way that the efforts of private enterprise are directed toward the general welfare?

Fifth, the $100 trillion number grabs attention. It jars the sensibilities, because it is so far removed from normal political discourse up to this time. And once a citizen begins to accept it, and the need for it, he or she is inevitably forced to confront a crucial economic issue: How is money and credit created and allocated? This requires a ruthless examination of Wall Street and the financial and banking systems.

Sixth, a $100 trillion program to entirely rebuild the world economy on a sustainable basis forces people to look at the real economy. Can we actually do it? Can we actually manufacture and build what is required? This demands a close look at the state of our manufacturing industries, the skills and aptitudes of our labor force, and how workers and employees are treated, trained, compensated, and cared for.

Seventh, we deliberately pose the $100 trillion program as a means of seizing and controlling the terms of political debate going into the 2016 USA election. We simply cannot afford  a national campaign that is again solely a contest between, on the one hand, a hopelessly anachronistic and pro-usury Republican Party not just blind, but openly hostile, to the need for wide-spread cooperative solutions to wide-spread problems that  affect every last living person, and on the other hand, a Democratic Party dominated by its corporatist rump, willing to mouth populist dissatisfaction but unwilling to confront the economic and financial powers that have transformed the United States from a republic to an oligarchy. Just as there was no hope of ever dissuading the southern slave-holders from their catastrophic policies of the 1850s, there is no hope of dissuading modern Republicans from their catastrophic policies of today. Indeed, too many Republicans, like Rich Perry, are so stupid and so venal as to actively harbor and promote neo-confederate ideas today. They should be understood and treated as swinish and seditious enemies of democratic government. But the possibility to transform the Democratic Party for the better still exists, especially at the local and state level. Which is quite unlike the Republican Party, which more likely to be pushed in an ever more reactionary direction by the Tea Party fanatics and extremists at the local and state level.

This three-part presentation is designed to educate activists, office-seekers, and office-holders. More importantly, it is designed to enable people like you, our readers, to present these ideas to others, to educate them, and to thus help begin to shape the terms of political discussion in this country. In this, we are deliberately setting out to replicate the system of lecturers the populist movement of the 1870s through 1890s used to build and strengthen itself. Many of the economic landmarks listed above came about only because of the political muscle of the populist movement. And never forget that most of the policies adopted during Franklin Roosevelt's New Deal were first developed and elaborated by the populist movement.

The lecturing system of the populists resulted in a painfully slow and laborious gestation of two decades from which populism emerged. We do not have the luxury of two decades time today. But we do have the internet, and we cannot conceive of an instrument more perfectly suited for the rapid dissemination and assimilation of political and economic ideas.

Hawaii’s Solar Push

Deep solar penetration is harder than it looks.

Kauai is the fourth largest of the Hawaiian Islands at 562.3 sq mi (1,456 km2). It lies at 22°N which locates it in the Tropic of Cancer yet is very temperate with averages of 71 °F (22 °C) in winter to 79 °F (26 °C) in summer.  With a population of just slightly less than 70,000 to power, this would seem a perfect site for solar.  The Germans solar engineers must be green with envy.

But even with perfect climatic conditions, true 100% solar is still a highly complex problem and the folks on Kauai are still trying to sort it out. They are not trying anything truly exotic but even a "simple" PV array combined with shipping containers full of lithium batteries is still suffering teething problems.

Here the MIT's Technology Review brings us up to speed on this project.  It is a pretty good reminder of just how difficult a transition to the solar society will be.  Of course, the more such projects succeed, the easier and more reliable other transition efforts will be.  Even so, most of us will live to regret that we didn't get serious about going solar decades ago.

Palast on the Greek elections

One of the more puzzling phenomenon is the enthusiasm for the EU I have witnessed in my highly educated European friends.  Once I carefully explained the damage certain to be caused by the Maastricht monetary agreements to some friends from Finland who looked at me as if I clearly didn't get it.  For them, joining the Euro was a chance to prove to the world that formerly poor, isolated, colonized Finland had arrived in the big time.  I am certain that the same sort of thinking was repeated in many of the other small entrants to the EU from Estonia to Portugal.  This was a point of national pride.  Unfortunately, the neoliberalism of Maastricht was designed to take advantage of the small and weak who were joining a yacht club they could clearly not afford to join.  The fact that income inequality is a global phenomenon pretty much proves how effective these economic policies are in redistributing wealth upward.

Of course, the poster child for all the bad things that can happen to the little fish who joined the EU is Greece.  Now they are about to elect a government that promises to abandon the EU-mandated austerity measures that are crippling their country.  But notice, they still want to stay in the club.  Veblen was right—the desire for status emulation is such a powerful motivation, it is even more powerful at times than the survival instincts.  Example xxxx is Greece's Syriza Party.  Palast mocks this silliness so much better than I could (see below).

Peak everything?

What we have here is a group of diligent researchers putting numbers to a suspicion that many of us already harbor and that is: Whatever the product, it seems like we have bumped up against some resource limitation that causes production to peak.  For example, I live in the Corn Belt of North America.  When I was 10, a good farmer could grow about 35 bushels per acre.  Now the number is nearly 250.  So recent history would suggest this sort of yield improvements are "normal" so long as everyone keeps improving methods.  But 700% in 55 years is unlikely to happen again.  There is a limit to a strategy of planting closer together, corn needs about the same water per plant and there are physical limits to how much water and nutrients the soil can supply, etc.  The farmers can see it.  One told me he saw his biggest yield nine years ago.  "Peak corn?" I asked.  "Hope not," he replied.

According to Michael Hudson, the Sumerians understood peak production over 4000 years ago.  But, argue the technological optimists, we can certainly outproduce the Sumerians so those resource limitations don't seem so fixed, after all.  And over the years, the Producers have done amazing things turning cheap resources into valuable products—sand into microchips, anyone?  But even here, there may be a limit on how many rabbits the Producers can pull out of their hats.  Fortunately, "peak innovations" may prove not to be the same sort of problem as Peak Oil.

The simplest explanation for why there seems so many human endeavors peaking simultaneously, of course, is that because we managed to power so many things with oil, peak oil will become peak something else very easily.

Black on monetary policy

“It is well enough that the people of the nation do not understand our banking and monetary system for, if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford

Black asks what would happen if the public really understood money.  It is obviously a question I find fascinating because I have been drawn to it from my early teenage years.  It is a question that has fascinated some of greatest political minds since well before the Declaration of Independence.

Part of the fascination comes from the fact that as Ken Galbraith put it "The process by which banks create money is so simple that the mind is repelled."  Compared to a subject that is really difficult like say, the structural analysis of a skyscraper, money really IS ridiculously simple.  But that doesn't mean that convincing folks to make political decisions about money is easy.  That's because it is even easier to believe the lies the moneychangers tell us.

This time, however, it really matters if the country gets the thinking about money straight.  It matters because if we do not create money to pay for better infrastructure, life as we know it on planet earth is most certainly doomed.

Peter Cooper on bankers in government

For many years, I have used Peter Cooper as an example of someone who knew a whole lot more about the nature of money and monetary policy than almost anyone who ever broached the subject—and that most especially includes the mediocrities that have run the various central banks in the last 40 years.

Unfortunately, what I knew of Cooper came second-hand.  I knew he was the guy who sold the idea of Greenbacks to Lincoln when it became obvious that conventional banking sources were not about to fund the Civil War.  I also knew that he was the oldest man to have ever run for President at 85 as the standard-bearer of the Greenback Party in 1876.  I also knew that that virtually all of the monetary ideas supported by the People's Party could be traced back to him.  But in all honesty, I really had not read his writings.  Well, it turns out that he was a prolific writer who wrote clearly and beautifully.  In 1883, the year of his death, a collection of his writings appeared under the clunky title of Ideas For a Science of Good Government: In Addresses, Letters and Articles on a Strictly National Currency, Tariff and Civil Service.  In 2009, this collection was reissued thanks to the benevolence of the Microsoft Foundation.  You can buy it for $25 from Amazon but far more interestingly, you can download it for free at Archive.org.

Cooper was certainly one of the USA's more interesting nation-builders.  In 1830, he built the first steam locomotive in North American called Tom Thumb. Among his other achievements were his supervision of laying the first trans-Atlantic cable in 1858, and the founding of the Cooper Union in 1859, a first rate school of design and engineering that is still with us.

Now that I have a digitized copy of Science of Good Government: I intend to publish interesting excerpts once a week for the foreseeable future.  And because the biggest problem facing the USA government these days is the pernicious influence of Wall Street and those it hires to corrupt our public affairs, here is Cooper on how the founding fathers felt about allowing moneychangers into the temple of democracy.

WASHINGTON AND ADAMS OPPOSED HAVING BANK OFFICIALS OCCUPY SEATS IN CONGRESS

On page 20 of the Journal of the United States Senate, first session of the Third Congress, commenced at Philadelphia, Pennsylvania, December 2, 1793, can be found the following resolution, offered on the 23d of December the same year, and passed by the United States Senate with but two dissenting votes, and signed by George Washington, President, and John Adams, Yice-President : "ANY PERSON, HOLDING ANY OFFICE OR ANY STOCK IN ANY INSTITUTION IN THE NATURE OF A BANK FOR ISSUING OR DISCOUNTING BILLS OR NOTES PAYABLE TO BEARER ON ORDER, CANNOT BE A MEMBER OF THE HOUSE WHILST HE HOLDS SUCH OFFICE OR STOCK."

Yet, a late Congress was composed of one hundred and twenty bankers, ninety-nine lawyers, fourteen merchants, thirteen manufacturers, seven doctors, four mechanics, and not a single farmer or day laborer. This is agreeable to a statement made by Moses W. Field, " I think this law was invoked to prevent A. T. Stewart, the largest importer of foreign goods, from becoming Secretary of the Treasury."

Why should it not be enforced now to oust speculators from our Congress, where they are making laws in their own favor and against the interest of the people? The wise men, who achieved the Independence, drafted the Constitution and established our Government, well knew that it was unsafe to trust the governmental law-making to bankers, usurers, or any one interested in such business. They knew it was morally impossible for persons, interested in money-lending, not to attempt to legislate in their own favor and against the good of the people.

I ever did and ever shall advocate a purely national currency, as long as I live, as the only remedy against periodic stagnation, caused by special legislation, suggested and voted by banking representatives and speculators in the seats of our Congress.

Creating Money Out of Thin Air and Trained Incapacity

Two days ago, I posted on DailyKos a summary of the very important article on money creation that Jon had featured. Jon asked me to also post my DailyKos summary here, which I am happy to do.

But I also want to draw your attention to some of the comments my DailyKos posting attracted, because they are a wonderful example of the "trained incapacity" Veblen analyzed in in his 1914 book, The Instinct of Workmanship and the Industrial Arts. As regular readers of this blog know, Jon and I have had more than one occasion to invoke "trained incapacity" in trying to understand the absurdity and inanity of political and economic positions, ideas, and arguments of people who otherwise appear to be smart. Jon has a number of posts on the subject of trained incapacity here - just scroll down until you see the phrase on the left.

There were at least three commenters to my DailyKos post who simply refused to accept the fact that banks create money out of nothing. They insisted that the banks would later have to meet reserve requirements, or that the borrower was the actual source of the money created because the borrower signs a pledge to pay back the money. One pointed to the Basel requirements regarding banks' T1 capital, a strong sign that that person is professionally involved in banking and finance. Yet another objected that it is the property pledged as security for the loan that is actually the money which I mistakenly believe (according to them) was created out of thin air. Another snidely argued that if banks can create money out of nothing, no bank would ever go bankrupt, so why "not lend to everyone under the sun, without expectation of repayment?" Then added, trying to dismiss the idea that banks create money out of nothing as the fantasy of some wild-eyed radical, "That may be in fact be what the diarist is driving at: what a wonderful world that would be to live in!" This person either did not see or deliberately failed to mention Jon's observation, which I quoted near the beginning of my posting, "don't create money will-nilly—only create money to pay for things that make the society richer."

When I asked a couple commenters, "Then please explain how the amount of money (measured as M2) grew from $1.28 billion in 1867, to $11,654.3 billion now. Where did the $11.653 trillion come from? Which accounts was it withdrawn from? Who created $11.653 trillion in money, and how, over the past 148 years?" one of my interlocutors could only reply, "economic growth." 

Now, I also want to point out that these people objecting to the idea that banks create money out of thin air, are supposedly "on our side." These are not knuckle-dragging conservatives or Republicans; they are liberals and progressives who regularly follow and contribute to one of the leading openly partisan Democratic Party websites on the tubez. With friends like these, who needs enemies?!? Are these people serious about addressing the problem of climate change? If they are, then I feel it is their duty to us, and to humanity in general, to explain what solutions they propose, and how to fund them. If they are not serious, I feel they should be candid and forthright, and express their rejection that climate change is the problem almost all scientists contend it is - a problem that threatens the very survival of our existence as a species.

Alternatively, they can be candid and forthright in informing us they are willing to allow the planet be burnt and rendered uninhabitable, rather than accept economic paradigms that are contrary to their beliefs of what reality is.

The other alternative, of course, is they are just being stupid by clinging to their belief of how money is created. In which case, we come back to Veblen's analysis of trained incapacity. As John Kenneth Galbraith once noted, "The process by which banks create money is so simple that the mind is repelled."

The thing to understand is that the real political fight in the USA, and the rest of the world, is not Democrat versus Republican, or liberal versus conservative, or left versus right. As Jon has pointed out numerous times, the real fight is the Producer Class versus the Predator Class (the Leisure Class as Veblen named it). What makes the prospect of a Hillary Clinton presidency so distasteful to many people who conservatives and Republicans stupidly believe are lefties and therefore Hillary's hardcore base? It is the fact that the Clintons sold out to, and became part of, the Predator Class many, many, many years ago, and the policies they support and espouse will do serious material harm to the members of the Producer Class. So go through the comments, and see for yourself the taint of the Predator Class within our own ranks.

As one of the Predator commenters wrote: "The real issue is that a faction here hates banks and wants to undermine the system somehow." That's exactly what we want to do, and that's what the Predator Class is terrified of.

He or she was exposed by another commenter.

Creating money out of thin air

...it can now be said with confidence for the first time – possibly in the 5000 years' history of banking - that it has been empirically demonstrated that each individual bank creates credit and money out of nothing, when it extends what is called a ‘bank loan’. The bank does not loan any existing money, but instead creates new money. The money supply is created as ‘fairy dust’ produced by the banks out of thin air. The implications are far-reaching.

That's the conclusion of a December 2014 article, by Richard A. Werner, in the scholarly journal International Review of Financial Analysis, entitled Can banks individually create money out of nothing? — The theories and the empirical evidence. I don't know what I can write to convince you how important this article is. The implications for economic and financial policies of government the world over are staggering - and in a good way. A very good way. Because anyone who looks at the simple evidence presented in this scholarly paper can reach no other conclusion than

• we really don't need banks,
• we don't need bankers,
• we don't have to borrow money to fund government programs,
• we don't have to cut social programs to balance government budgets,

A big tip of the hat is due to Jon Larson, at Real Economics, for highlighting Dr. Werner's article at RE. This is important material, because the cost of stopping climate change has been pegged by experts at $100 trillion, as I wrote a few weeks ago. And, as Larson explains:

...if guys like Tony and I are going to run around telling folks that their only hope for survival lies in spending $100 trillion for infrastructure upgrades, we owe it to them to explain where all that money will come from.

Actually, the source of that money is blindingly obvious—we will get those funds the same way modern society always gets those funds. We will create them out of thin air. But, scream the monetary Puritans, if you just create money willy-nilly out of thin air, what will stop us from becoming Zimbabwe with runaway inflation? Again the answer is obvious—don't create money will-nilly—only create money to pay for things that make the society richer.

There are three basic hypotheses of money creation that professional economists recognize. First, and probably the most widely accepted among professional economists today, is the financial intermediation theory of banking. This idea is that banks are merely intermediaries between savers and borrowers: the banks take in deposits, then when someone needs a loan, the banks lend them some of the money they have collected as deposits. Thus banks do not really create money, they just aggregate it and distribute it. Moreover, since any other institution can do pretty much the same thing - General Motors Acceptance Corp, for example, or General Electric's GE Capital, or even your local chain of grocery stores, then banks are really not that special, and all those fancy models of how the economy works can pretty safely ignore the existence of banks. Uh huh. Well, that's their theory, and they're sticking to it, even though it has, cough, cough, some difficulty in explaining why what happened in 2007-2008, uh, happened.

The second basic hypothesis is the fractional reserve theory of banking. This was the predominant hypothesis in economics from the 1930s to the late 1960s. In this view, banks are financial intermediaries, just like in the first view, but the banks as an aggregate system can create money by lending out some fraction above and beyond what they actually hold in deposits. For example, say a bank has $100 million in deposits. It can lend out $90 million and hold a reserve of $10 million. The borrower of the $90 million then deposits it in another bank, which in turn can now lend out $81 million while holding a reserve of $9 million. The borrower of the $81 million then deposits it in yet another bank, which, in turn, can now lend out $71.9 million while holding $8.1 million in reserve. And so on and so on, to the final iteration. In this way, the banking system as a whole can create new money, while any one individual bank cannot. Bank regulators can adjust the "reserve requirement" to either increase or decrease the amount of new money the banking system as a whole can create and lend out.

The third basic hypothesis of money creation is the credit creation theory of banking, and it holds that banks create money out of nothing when they grant a loan. The key to understanding why all this arcane banking stuff is so important is to realize that if the credit creation theory of banking is correct, then why does it necessarily have to be banks that do the creating? Why can't it be governments also? Interestingly, most professional economists - including Keynes - dismiss the credit creation theory of banking as the work of a lunatic fringe. But the credit creation theory of banking has been gaining adherents since the financial crashes of 2007-2008, as people like you and me have turned our attention to these matters that were previously the lonely province of professional economists. Or as Dr, Werner puts it:

Since the American and European banking crisis of 2007–8, the role of banks in the economy has increasingly attracted interest within and outside the disciplines of banking, finance and economics.

As the credit creation theory of banking has fought for acceptance, the debate has been rather furious at times: recall the controversy a few years ago over the idea of the U.S. national government erasing its budget deficit by minting a special coin with a face value of $1 trillion, and depositing it with the Federal Reserve. The thing is, as Dr. Werner dryly notes in his paper:

Surprisingly, despite the longstanding controversy, until now no empirical study has tested the theories.

So what Dr. Werner, a German-born economist at the University of Southampton in Britain, and some colleagues set out to do was to borrow a large sum of money from a bank, and track what actually happens in the bank's internal accounting and management systems.

The simplest possible test design is to examine a bank's internal accounting during the process of granting a bank loan. When all the necessary bank credit procedures have been undertaken (starting from ‘know-your-customer’ and anti-money laundering regulations to credit analysis, risk rating to the negotiation of the details of the loan contract) and signatures are exchanged on the bank loan, the borrower's current account will be credited with the amount of the loan. The key question is whether as a prerequisite of this accounting operation of booking the borrower's loan principal into their bank account the bank actually withdraws this amount from another account, resulting in a reduction of equal value in the balance of another entity — either drawing down reserves (as the fractional reserve theory maintains) or other funds (as the financial intermediation theory maintains). Should it be found that the bank is able to credit the borrower's account with the loan principal without having withdrawn money from any other internal or external account, or without transferring the money from any other source internally or externally, this would constitute prima facie evidence that the bank was able to create the loan principal out of nothing. In that case, the credit creation theory would be supported and the theory that the individual bank acts as an intermediary that needs to obtain savings or funds first, before being able to extend credit (whether in conformity with the fractional reserve theory or the financial intermediation theory), would be rejected.

Dr. Werner and his colleagues approached a number of banks in Europe, but all the big banks they asked declined to be involved in the experiment. All the big banks gave two basic reasons for their refusal: they were unwilling to risk compromising their internal management and IT systems, and the amount of money the team wanted to borrow - 200,000 Euros - was too small. I quote: "... the transactions volumes of the banks were so large that the planned test would be very difficult to conduct..." OK, then.

It was therefore decided to approach smaller banks, of which there are many in Germany (there are approximately 1700 local, mostly small banks in Germany). Each owns a full banking license and engages in universal banking, offering all major banking services, including stock trading and currencies, to the general public. A local bank with a balance sheet of approximately €3 billion was approached, as well as a bank with a balance sheet of about €700 million. Both declined on the same grounds as the larger banks, but one suggested that a much smaller bank might be able to oblige, pointing out the advantage that there would be fewer transactions booked during the day, allowing a clearer identification of the empirical test transaction. At the same time the empirical information value would not diminish with bank size, since all banks in the EU conform to identical European bank regulations.

Thus an introduction to Raiffeisenbank Wildenberg e.G., located in a small town in the district of Lower Bavaria was made....

It was agreed that the researcher would personally borrow €200,000 from the bank. The transaction was undertaken on 7 August 2013 in the offices of the bank in Wildenberg in Bavaria. Apart from the two (sole) directors, also the head (and sole staff) of the credit department, Mr. Ludwig Keil was present. The directors were bystanders not engaging in any action. Mr. Keil was the only bank representative involved in processing the loan from the start of the customer documentation, to the signing of the loan contract and finally paying out the loan into the borrower's account. The entire transaction, including the manual entries made by Mr. Keil, was filmed. The screens of the bank's internal IT terminal were also photographed. Moreover, a team from the BBC was present and filmed the central part of the empirical bank credit experiment (Reporter Alistair Fee and a cameraman).

Dr. Werner presents the full results in his article, including

• a numbered sequence of the steps the bank took in reviewing and granting the loan, then crediting the loan amount to the researcher's account;
• the bank's balance sheet the day before the loan was made, and the balance sheet the day after the loan;
• the key asset positions of the bank the day before the loan, and the key asset positions the day after;
• the key liability positions for the same periods;
• the account summary table for the new account of the borrower;
• a standard T-account of the transaction from the borrower's perspective.

The critical question is: where did Raiffeisenbank Wildenberg e.G. obtain the funds from that the borrower (researcher) was credited with?

Well, you can probably guess the result of this very, very interesting experiment. It turns out that the bank neither took the €200,000 from the funds it already had as deposits, nor did it obtain €200,000 from a regional or national banking authority, or from the European Central Bank. The €200,000 was simply credited to the borrower's account. Period. The €200,000, in other words, was, created out of thin air. I will close by quoting from the U.S. Constitution.

Article I, Section 8, Clause 5: The Congress shall have Power…To coin Money, [and] regulate the Value thereof...

Aargh... if only the Framers had used the word "create" instead of "coin"! Then it would be much more difficult for the oligarchs who now control the creation and allocation of money and credit, to convince the chowderheads on the right that "government has to live within its means" is our big problem, instead of what our big problem really is: the creation and allocation of money and credit is being misused and abused by oligarchs who speculate and arbitrage with that new money and credit, instead of using it for something economically productive.

Stephanie Kelton goes to Washington

One of the main reasons I don't take Marxists very seriously is that I believe them to be very weak on the subject of monetary policy.  I can cite dozens of examples but my current favorite concerns José Manuel Durão Barroso, the former Prime Minister of Portugal who was until 31OCT2014, the President of the European Commission.  Not surprisingly, he is a reliable (fanatical?) neoliberal.  Slightly more surprising, in his university days, he was one of the leaders of the underground Maoist MRPP (Reorganising Movement of the Proletariat Party, later PCTP/MRPP, Communist Party of the Portuguese Workers/Revolutionary Movement of the Portuguese Proletariat).  It seems the journey from Maoist to neoliberal is both short and easy.

Enter Bernie Sanders, the only USA Senator who calls himself a Socialist.  Now normally that would make me nervous but recently, he named Stephanie Kelton of UMKC as his chief economist.  Because that school can legitimately lay claim to being the only place in USA where one can learn such heterodox economic theories as Institutionalism, I think we can safely assume that Sanders will be getting better economic advice than any USA President since Jimmy Carter.  Whether he listens to her and makes the economics she teaches central to his political campaign is another question but for once on the lifetime of the vast majority of Americans, there will be something more enlightened than neoliberalism to choose from.

All I can say is, it's about damn time!

Bernie Sanders opens a new front in the battle for the future of the Democratic Party

Dylan Matthews on January 10, 2015

President Obama's biggest problem in the Senate is obviously its new Republican majority, but opposition from the left wing of the Democratic caucus appears to be growing too. Most prominently, Sen. Elizabeth Warren (D-MA) has clashed with the White House on a key Treasury Department position and the CRomnibus spending package. But new budget committee ranking member Sen. Bernie Sanders (I-VT) is poised to break dramatically from traditional Democratic views on budgeting, from Obama to Clinton to Walter Mondale and beyond.

His big move: naming University of Missouri - Kansas City professor Stephanie Kelton as his chief economist. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign.

For years, the main disagreement between Democratic and Republican budget negotiators was about how to balance the budget — what to cut, what to tax, how fast to implement it — but notwhether to balance it. Even most liberal economists agree that, in the medium-run, it's better to have less government debt rather than more. Kelton denies that premise. She thinks that, in many cases, government surpluses are actively destructive and balancing the budget is very dangerous. For example, Kelton thinks the Clinton surpluses are nothing to brag about and they actually inflicted economic damage lasting over a decade.

A drastic theoretical break

Usually, when Democrats hire economists, they hire nice, respectable Keynesians, who use mainstream economic models and often agree with conservative economists on a lot of theoretical matters while drawing different policy conclusions from them. For example, Greg Mankiw, who served as George W. Bush's top economic advisor, and Christina Romer, who served as Obama's, were both influential in developing New Keynesianism, a macroeconomic theory that emerged in the 1980s and arguably dominates the field today. What really set Romer and Mankiw apart was policy, not economic theory.

Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

MMT emphasizes the fact that countries that print their own money can never really "run out of money." They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government's preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I.

The main takeaway from this is that you really don't need to balance the budget over any time horizon, and attempts to do so will hurt the economy. That's what Kelton argues happened after the Clinton surpluses of the late 1990s / early 2000s. Any dollar of government surplus must show up as private debt, she reasons. And the private sectors just can't run up debt like that indefinitely. "Eventually, something will give," Kelton once wrote to Business Insider. "And when it does, the private sector will retrench, the economy will contract, and the government's budget will move back into deficit."

A minority view

Plenty of people criticize Obama's economic policies (or Clinton's) from the left, but this is very much a minority view in economics — even among liberals. Paul Krugman, for example, has argued that MMT gets this all wrong. You still need people to buy government bonds, and if the interest rates on those get too high, then paying for it all might be hard to do without triggering runaway inflation. "Once we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation," Krugman writes. Joe Gagnon, an economist at the Peterson Institute, also notes that Australia and Canada ran surpluses for years without suffering economically as a consequence. (You can see MMT responses to these points here and here.)

Before recently, mainstream economists and policymakers could comfortably ignore MMT. Galbraith told me that when, on a panel for an April 2000 event at the White House, he argued that the US's new budget surplus would harm the economy, the hundreds of economists in attendance laughed in his face. That's all changed. The financial crisis created a huge appetite for new economic thinking, and MMT helped meet it. Now, people like Krugman are expected to at least grapple with its claims. Kelton's elevation to the budget committee is another important step in mainstreaming the theory, and making it safe for left-wing Democrats to embrace.

If you want to learn more about MMT, I wrote a long profile of the movement back in 2012 that explains the basics. But theory aside, in concrete political terms this is a sign that Sanders is likely to reject the consensus-oriented approach of his predecessor, Patty Murray, and produce big spending budget frameworks that many members of his own caucus — as well as the White House economic team — would reject. That's going to be a headache for an administration that would like to count on a unified group of Democrats as it heads into inevitable battles with the Republicans. more

Wray on MMT

Modern Monetary Theory is a concept that makes me a tad nervous because I find that most monetary ideas have been around for at least a century and likely more.  In fact, it is pretty damn hard to top the monetary ideas of Lincoln and his Greenbacks, or for that matter, Peter Cooper and the Greenback Party of the 1870s.

But since MMT seems to be the preferred description of the current monetary position of progressives, I am trying to get myself up to speed.  First up is a positive explanation of MMT by L. Randall Wray of U Missouri Kansas City followed by a really thoughtful discussion of progressive monetary ideas by Bill Mitchell.  All I can say is that if this is what they are calling MMT, it is certainly something that would have made old Peter Cooper happy.

Creating money out of thin air

This week, I intend to cover the subject of money creation.  It is not like I haven't covered this subject pretty thoroughly before.  In fact, I made it the subject of Chapter Six of Elegant Technology.  The reason is pretty obvious—if guys like Tony and me are going to run around telling folks that their only hope for survival lies in spending $100trillion for infrastructure upgrades, we owe it to them to explain where all that money will come from.

Actually, the source of that money is blindingly obvious—we will get those funds the same way modern society always gets those funds.  We will create them out of thin air.  But, scream the monetary Puritans, if you just create money willy-nilly out of thin air, what will stop us from becoming Zimbabwe with runaway inflation?  Again the answer is obvious—don't create money will-nilly—only create money to pay for things that make the society richer.

What the monetary Puritans forget is that while money can be made valuable by specifying convertibility to rare metals like gold, the really important value of money is the ability to convert it into necessary items of survival—food, shelter, energy, water, etc.  Fiat money derives its value from funding the clever use of resources.  Producers make money valuable!  And so long a money is created to fund Producer projects—and converting the world into a giant solar-powered fire-free zone would most definitely qualify as a Producer project—new money brings actual prosperity and NOT inflation.

Besides, creating money out of thin air is what bankers do!  It is the rest of us who make that money valuable.  They create a new mortgage with a few keystrokes and folks like us work like slaves for 30 years to pay it off.  It is our hard work that makes that money valuable.  Starving the society of funds necessary for the creation and maintenance of our infrastructure is easily sin #1 of the bankster classes.  Because of this madness, we are not only destroying the only inhabitable biosphere for light-years in any direction, we are going broke doing it.

Toyota opens up their fuel-cell patents

As regular readers know, I have been following the fuel-cell story so carefully I actually attracted the attention of Toyota.  And while I consider a working fuel-cell car to be a remarkable triumph of very sophisticated engineering, I also believe that without a LOT more infrastructure, no one will buy a car that requires hydrogen to start.  I could see a cab company with a central garage and fueling station buying such a problem-fueled vehicle, and maybe if Toyota were to build a super-clever taxi around their fuel cells, they might gain some market share.  But for the general public, the infrastructure problem is probably fatal.

That doesn't mean that Toyota will go down without a good fight.  This is an age where open-source is still considered a valid development strategy.  Besides, hardly anyone—especially in Asia—is terribly concerned about enforcing patents anyway.  And so we see that Toyota has announced that they are willing to share their fuel-cell-car inventions.  Making fuel-cell technology open-source is a nice move but I seriously doubt it is enough to counter the infrastructure elephant in the room.

On the other hand, building the world's most perfect taxi would be an incredible marketing campaign.  Cities with smog problems could specify a zero emission taxi fleet that could be fulfilled with fuel-celled cars.  Passengers would get a demonstration of how quiet and agile electric cars can be.  And folks would gain experience in building and supplying hydrogen fueling stations.  From there, the infrastructure could be built out.  I mean, an all-electric fleet of personal transportation is imperative or there will be no personal transportation.  So the question becomes, will hydrogen fuel cells be a better choice than storage batteries?

Germany losing its nerve over energy?

Even as far away from Germany as the center of North America, you can feel their enthusiasm for a solar-powered future just leaking away.  I have no inside information for why this is happening or why now, but Institutional Analysis provides us with informed guesses.

• In spite of some serious costs and great effort, Germany's transition to a solar society has basically grabbed the low-hanging fruit.  Even solar's biggest boosters have to acknowledge that they have only climbed the foothills and the big mountains still lie ahead.  Not surprisingly, many are losing their nerve.
• Transmission lines.  Even those who love the sight of big graceful wind turbines turning slowly on the horizon are appalled by the prospects of transmission lines all over the country.  Yet because there are long distances between good wind sites and the large consumers, transmission is inevitable.
• Europe's ongoing economic crises is beginning to frighten the sane.  Yes neoliberalism has been pretty good for Germany but the ultimate reward for their diligence and aggressive business practices may be that they are left holding the bag when all this crazy debt defaults.
• Asia has already gotten their hands on the green technologies the Germans struggled to perfect.  So even after paying the price of being first, Germany is discovering there isn't even a likely payoff.
• No one is following Germany's lead.  Poland builds more ways to burn brown coal while France believes HER nukes are just fine because they are run by people with elite France skills and training.  But mostly, no one can follow the Germans because it is quite obvious that even they cannot pay to finish their big plans.

Of course, right after destroying the baleful influence of the neoliberals scattered throughout the German economy, she must figure out a way to get back in the good graces of Russia.  If the Germans, of all people, don't understand the madness of provoking hostilities with Russia, they are obviously not teaching their history very well.  To piss away years of solid work over a political "crises" that has you lining up on the side of the bad guys who foment violent coups is literally beyond crazy.  I most certainly hope that 2015 is the year we see the return of the sane German.

A course adjustment for real-economics

It's a new year.  Tony and I have been kicking around some ideas we want to try.  It's not that we are unhappy with our little blog, it's just that we believe we must rise above a continuous critique of the current approaches to economics, politics, and especially environmental and resource management.  I'll let Tony explain his thinking but for me, I believe those of us who have been given insights into the methods of community and nation-building should devote our energies into promoting a much more constructive agenda.

Both of us have some interesting opportunities in the near future to promote a builder's agenda.  Tony will pitch his vision to a gathering of progressive activists in North Carolina while I will address one of the volunteer "think-tanks" of Minnesota liberalism.  While Tony will stress political organizing and grass-roots activism, I intend to appeal to theoretical roots of economic thought—a battle that must also be won.

Tony has already produced a rough draft of his Powerpoint presentation.  As you can imagine, it is replete with examples of how USA became an industrial powerhouse with a middle class that was the envy of most of the world—before the deindustrialization disasters since the mid 1970s.  Anyone who believes that USA became powerful using the notions of Free Trade will be in for a long evening.  This is good stuff!

My approach will start with an examination for why 45 years after Earth Day One, the planet is in dramatically worse shape.  Mostly it will explain why a Leisure Class approach will NEVER solve problems based in physics and the consumption of energy.  Those who have read Elegant Technology will know what I am going to say.

What we both will have in common is the price tag—$100 trillion.  We intend to introduce some serious sticker shock.  Both of us agree that the problems we are facing are so enormous, it is blatantly dishonest to suggest that there are any more ways to fix them on the cheap.  After all, the first step to the solution for any problem is a clear and honest assessment of its nature and size.

So I can devote more energy to this and other projects like it, I will be cutting back my posts to four per week—Mon-Thu.  This blog will also serve as a home base for our new "positive" agenda.  I hope we don't come off as too "commercial" but we have an agenda to promote.  This is a ridiculously ambitious task (suggesting that there is a way to save human existence on planet earth and further suggesting that we have discovered what that is) and I wouldn't come near to trying except for one extremely important fact—neither Tony nor I have to invent one damn thing.  Everything we are suggesting is based on historical experiments that turned out great.  Humans HAVE made progress since we lived in caves.  We probably still have a lot of progress left in us.

The role of the police

Not long after the students had been gunned down in cold blood during a harmless protest march at Kent State Ohio May 4, 1970, someone at U Minnesota organized a teach-in about the role of police and national guards in the suppression of dissent.  UM still had a month left of spring quarter but finishing the school year was hopeless.  The campus was essentially shut down because everyone had come to the conclusion that there were more important things than classes so finding a meeting place was pretty easy.

I don't remember much about the details.  The folks I knew were in shock.  We all knew the USA had become crazy violent with political assassinations, open riots in the "ghettoes", the Vietnam War, the killing of civil rights workers in the South, the police riot at the Chicago Convention, and other situations too numerous to remember.  But somehow, we really didn't think they would come shooting at people like US.  Weren't Universities supposed to be places that encouraged dissent?  Is our government really willing to shoot the very children who have successfully navigated the mazes laid out to test them?  So it was a primitive response.  It amazing how much more folks pay attention to folks like themselves getting shot.

One of my political science profs got up and scolded us for our hopeless naiveté.  "What do you think the police are for?  They aren't the crime fighters of TV and fiction.  Hell, for the first 100 years of their existence, the police existed mainly to bust the heads of anyone who wanted to organize a union.  Certainly, they have branched out into lucrative sidelines such as the casual extortion from automobile owners and the the kickbacks from the various vice trades, but mostly they exist to keep the lower orders in line.  The National Guardsmen shot those students at Kent State because that was their job.  Keeping groups like those at Kent from forming is in fact their only real mission.  They are armed with weapons and live ammunition because the people that hire them want occasional bloodbaths."

That little speech was easily the most enlightened insight I learned in all my days at UM.  So now as we see the police in New York in open rebellion against the very idea of civilian standards and oversight, it is well that we review just how we got into this mess.  The police are clearly out of control and not just in New York.  And we haven't even begun to speculate on what might happen when all these "crime-fighters" stop busting pot smokers and have to get real jobs.  People armed with a sense of entitlement, high-powered weapons, and the status-panic of losing a middle-class job are remarkably dangerous.

(Another excellent source of info on the origins of the police.)