|May the source be with you, but remember the KISS principle ;-)|
|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
John Maynard Keynes
PseudoScience > Who Rules America > Neoliberalism
|News||Neoliberalism||Recommended Links||Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy||The Systemic Instability of Financial Institutions||Regulatory Capture & Corruption of regulators||Neoliberalism as a Cause of Structural Unemployment in the USA|
|GDP as a false measure of a country economic output||Number racket||Efficient Market Hypothesis||Invisible Hand Hypothesys: The Theory of Self-regulation of the Markets||Supply side Voodoo||In Goldman Sachs we trust||Neocolonialism as Financial Imperialism|
|Economism and abuse of economic theory in American politics||Secular Stagnation||Peak Cheap Energy and Oil Price Slump||Energy returned on energy invested (EROEI)||Rational expectations scam||Ayn Rand and Objectivism Cult||Monetarism fiasco|
|Twelve apostles of deregulation||Summers||Greenspan||Rubin||Reagan||Helicopter Ben: Arsonist Turned into Firefighter||Bush II|
|Chicago school of deification of market||Free Market Fundamentalism||Free Market Newspeak as opium for regulators||The Idea of Dynamic Stochastic General Equilibrium||CDS -- weapons of mass financial destruction||Phil Gramm||Clinton|
|Zombie state of neoliberalism||Insider Trading||SEC corruption||Fed corruption||Systemic Fraud under Clinton-Bush Regime||Wall Street Propaganda Machine||American Exceptionalism|
|Redistribution of wealth up as the essence of neoliberalism||Glass-Steagall repeal||Pope Francis on danger of neoliberalism||Fiat money, gold and petrodollar||Neoliberalism as a Cause of Structural Unemployment in the USA||Buyout Kleptocrats||Republican Economic Policy|
|Principal-agent problem||Quiet coup||Pecora commission||History of Casino Capitalism||Casino Capitalism Dictionary :-)||Humor||Etc|
Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic systems at both the macro and micro levels.
Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector, (2) transfer income from the real sector to the financial sector, and (3) increase income inequality and contribute to wage stagnation. Additionally, there are reasons to believe that financialization may put the economy at risk of debt deflation and prolonged recession.
Financialization operates through three different conduits: changes in the structure and operation of financial markets, changes in the behavior of nonfinancial corporations, and changes in economic policy.
Countering financialization calls for a multifaceted agenda that (1) restores policy control over financial markets, (2) challenges the neoliberal economic policy paradigm encouraged by financialization, (3) makes corporations responsive to interests of stakeholders other than just financial markets, and (4) reforms the political process so as to diminish the influence of corporations and wealthy elites.
Thomas Palley, See http://www.levyinstitute.org/pubs/wp_525.pdf
|Speculation and gambling were always a part of Wall Street but since the 1930’s
they were just a side-show, now they are the show.
Comment to Matt Taibbi article Fannie, Freddie, and the New Red and Blue t
“The sense of responsibility in the financial community
for the community as a whole is not small. It is nearly nil.”
-- John Kenneth Galbraith, The Great Crash of 1929
The term Casino Capitalism as a specific phase of neoliberal transformation of capitalism. Politically it was slow motion corporate coup d'état, which started in 70th and is now accomplished in the USA and other Western countries which buries social-democratic (New Deal style) model of capitalism. It hypertrophied police functions of state (in the form of national-security state) while completely avoiding economic sphere in ways other then enforcement of laws (with a notable exclusion from this top 1% -- Masters of the Universe). In this sense it is the opposite of communism (i.e. an entirely state-planned economy) and presupposed a deregulated economy (in a sense of the "law of jungle" as a business environment) , but with extremely strong militarized state, suppressing all the attempts to challenge the new "nomenklatura" (much like was the case in the USSR). It is also called economic liberalism or neoliberalism
“Liberalism” can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right wing. Economic liberalism is different. Conservative politicians who say they hate “liberals” — meaning the political type — have no real problem with economic liberalism, including neoliberalism.
In other words this is a variant of neoliberal model of corporatism used in wealthy Western countries during the period of "cheap hydrocarbons". The period that is probably near the end and which by some estimate can last only another 50 years or so. The major crisis of casino capitalism in 2008 was connected both with financial excesses (caused by moving to semi-criminal ways of extracting return on capital, typical for casino capitalism), but also with the rise of the price of oil and decrease of Energy returned on energy invested (EROEI). In this sense the current low oil price period that started in late 2014 can be viewed as the "last hurrah" of the casino capitalism.
In understanding neoliberal transformation of the society since early 80th it is important to understanding of the key role of financialization in this process. When major services are privatized (education, healthcare, pension plans) financial institution insert themselves as intermediaries in this arrangement and make it the main source of their profits. Also contrary to neoliberal propaganda this process is aided and abetted by state. State is used by neoliberalism as a tool of enforcing market relations even where they are not useless or even harmful (education). All this talk about irresolvable controversy between market and state is for gullible fools. In reality, being Trotskyism for rich, neoliberalism uses power of the state to enforce market relations by force on reluctant population even in areas where this can do no good. That make really it close to Soviet Communism. As Marx noted "History repeats itself, first as tragedy, second as farce."
A very good discussion of the role of Financialisation in entrenchment of neoliberalism in modern societies can be found in the book by Costas Lapavitsas. Some highlights are provided inhis Guardian article Finance's hold on our everyday life must be broken
This extraordinary public largesse towards private banks was matched by austerity and wage reductions for workers and households. As for restructuring finance, nothing fundamental has taken place. The behemoths that continue to dominate the global financial system operate in the knowledge that they enjoy an unspoken public guarantee. The unpalatable reality is that financialisation will persist, despite its costs for society.
Financialisation represents a historic and deep-seated transformation of mature capitalism. Big businesses have become "financialised" as they have ample profits to finance investment, rely less on banks for loans and play financial games with available funds. Big banks, in turn, have become more distant from big businesses, turning to profits from trading in open financial markets and from lending to households. Households have become "financialised" too, as public provision in housing, education, health, pensions and other vital areas has been partly replaced by private provision, access to which is mediated by the financial system. Not surprisingly, households have accumulated a tremendous volume of financial assets and liabilities over the past four decades.
The penetration of finance into the everyday life of households has not only created a range of dependencies on financial services, but also changed the outlook, mentality and even morality of daily life. Financial calculation evaluates everything in pennies and pounds, transforming the most basic goods – above all, housing – into "investments". Its logic has affected even the young, who have traditionally been idealistic and scornful of pecuniary calculation. Fertile ground has been created for neoliberal ideology to preach the putative merits of the market.
Financialisation has also created new forms of profit associated with financial markets and transactions. Financial profit can be made out of any income, or any sum of money that comes into contact with the financial sphere. Households, for example, generate profits for finance as debtors (mostly by paying interest on mortgages) but also as creditors (mostly by paying fees and charges on pension funds and insurance). Finance is not particular about how and where it makes its profits, and certainly does not limit itself to the sphere of production. It ranges far and wide, transforming every aspect of social life into a profit-making opportunity.
The traditional image of the person earning financial profits is the "rentier", the individual who invests funds in secure financial assets. In the contemporary financialised universe, however, those who earn vast returns are very different. They are often located within a financial institution, presumably work to provide financial services, and receive vast sums in the form of wages, or more often bonuses. Modern financial elites are prominent at the top of the income distribution, set trends in conspicuous consumption, shape the expensive end of the housing market, and transform the core of urban centres according to their own tastes.
Financialised capitalism is, thus, a deeply unequal system, prone to bubbles and crises – none greater than that of 2007-09. What can be done about it? The most important point in this respect is that financialisation does not represent an advance for humanity, and very little of it ought to be preserved. Financial markets are, for instance, able to mobilise advanced technology employing some of the best-trained physicists in the world to rebalance prices across the globe in milliseconds. This "progress" allows financiers to earn vast profits; but where is the commensurate benefit to society from committing such expensive resources to these tasks?
The term "casino capitalism" was coined by Susan Strange who used it as a title of her book Casino Capitalism published in 1986. She was one of the first who realized that
According to Susan Strange transformation of industrial capitalism into neoliberal capitalism ("casino capitalism") involved five trends. All of them increased the systemic instability of the system and the level of political corruption:
Now it is pretty much established fact that the conversion from "industrial capitalism" to neoliberal, completely financialialized "casino capitalism" is the natural logic of development of capitalism. In early and incomplete matter this trend was noticed at early 1990th by many thinkers. This is just the second iteration of the same trend which was interrupted by the Great Depression and subsequent WWII. So, in a way, replacement of industrial capitalism with financial capitalism in a natural tendency within the capitalism itself and corruption was contributing, but not decisive factor. The same is true about globalization, especially about globalization of financial flows, typical for casino capitalism.
Also this conversion did not happen due to lack of oversight or as a folly. It was a couscous choice made by the US and GB elite, both of which faced deterioration of rates of return on capital. Also unlike "industrial capitalism" which was more-or-less stable system, able to outcompete the neo-theocratic system of the USSR, the financial capitalism is unstable in the same sense as radioactive elements are unstable. And this instability tend to increase with time. So there is probably natural half-life period for neoliberalism as a social system. It might be already reached in 2008. In we assume that global victory of neoliberalism happened in 1990. It is just 18 years. If we think that it happened in late 60th, then it is closer to 50 years.
The global crisis of neoliberal capitalism which started from bursting the USA subprime housing bubble in 2008 undermined ideological legitimacy of its central claim that "free markets" lead to faster and more uniform economic development of all countries. While the peak of its "ideological" power might be over (much like the peak of attractiveness of "command socialism" was over after WWII), it will exist in a zombie state for a long time due to economic and military power of the USA and G7. And as we know from Hollywood films, zombies can be especially bloodthirsty. It probably will remain the dominant force for at least the next two decades pursuing the same policy of "forceful" opening of energy rich and resource countries for western multinationals intact using color revolutions and local wars. But as Napoleon quipped "You can do anything with bayonets, you just can't sit on them".
Conversion to neoliberal capitalism was a reaction on stagnation of industrial production and as such it was nurtured and encouraged by a series of government decisions for the last 50 years. Stagnation of industrial production made expansion of financial sector of paramount importance for the ruling elite and by extension for Congress which represents this elite. House vote 377:4 for Commodity Futures Modernization Act of 2000 is pretty telling in this respect.
There were also at least two important parallel developments.
"Appetite comes with eating" and banks which initially rise as an alternative to usury gradually became indistinguishable from them, the new usury (vampire squid as Matt Taibbi called GS).
Financial institutions brass became dominant political force partially displacing (or more correctly complementing) media-military-industrial complex and oil-energy complex... Sen. Dick Durbin, on a local Chicago radio station blurted out an obvious truth about Congress which, despite being quite obvious, is rarely spoken "press scorps" :
“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
In other words the US political system is a brand of corporatism with financial capital standing on the top stop on interval to Washington, DC corporate hierarchy and holding the most of political power.
Most respectable authors like Henry Giroux in his article in Counterpunch generally consider the term "casino capitalism" to be an equivalent to the term Neoliberalism. Here is a relevant quote from Henry Giroux's Authoritarian Politics in the Age of Casino Capitalism :
There is more at work here than simply a ramped up version of social Darwinism with its savagely cruel ethic of “reward the rich, penalize the poor, [and] let everyone fend for themselves,” [ii] there is also a full scale attack on the social contract, the welfare state, economic equality, and any viable vestige of moral and social responsibility. The Romney-Ryan appropriation of Ayn Rand’s ode to selfishness and self-interest is of particular importance because it offers a glimpse of a ruthless form of extreme capitalism in which the poor are considered “moochers,” viewed with contempt, and singled out to be punished. But this theocratic economic fundamentalist ideology does more. It destroys any viable notion of the and civic virtue in which the social contract and common good provide the basis for creating meaningful social bonds and instilling in citizens a sense of social and civic responsibility. The idea of public service is viewed with disdain just as the work of individuals, social groups, and institutions that benefit the citizenry at large are held in contempt.
As George Lakoff and Glenn W. Smith point out, casino capitalism creates a culture of cruelty: “its horrific effects on individuals-death, illness, suffering, greater poverty, and loss of opportunity, productive lives, and money.”[iii]
But it does more by crushing any viable notion of the common good and public life by destroying “the bonds that hold us together.”[iv] Under casino capitalism, the spaces, institutions, and values that constitute the public are now surrendered to powerful financial forces and viewed simply as another market to be commodified, privatized and surrendered to the demands of capital. With religious and market-driven zealots in charge, politics becomes an extension of war; greed and self-interest trump any concern for the well-being of others; reason is trumped by emotions rooted in absolutist certainty and militaristic aggression; and skepticism and dissent are viewed as the work of Satan.
If the Republican candidacy race of 2012 is any indication, then political discourse in the United States has not only moved to the right—it has been introducing totalitarian values and ideals into the mainstream of public life. Religious fanaticism, consumer culture, and the warfare state work in tandem with neoliberal economic forces to encourage privatization, corporate tax breaks, growing income and wealth inequality, and the further merging of the financial and military spheres in ways that diminish the authority and power of democratic governance.[v] Neoliberal interests in freeing markets from social constraints, fueling competitiveness, destroying education systems, producing atomized subjects, and loosening individuals from any sense of social responsibility prepare the populace for a slow embrace of social Darwinism, state terrorism, and the mentality of war — not least of all by destroying communal bonds, dehumanizing the other, and pitting individuals against the communities they inhabit.
Totalitarian temptations now saturate the media and larger culture in the language of austerity as political and economic orthodoxy. What we are witnessing in the United States is the normalization of a politics that exterminates not only the welfare state, and the truth, but all those others who bear the sins of the Enlightenment — that is, those who refuse a life free from doubt. Reason and freedom have become enemies not merely to be mocked, but to be destroyed. And this is a war whose totalitarian tendencies are evident in the assault on science, immigrants, women, the elderly, the poor, people of color, and youth.
What too often goes unsaid, particularly with the media’s focus on inflammatory rhetoric, is that those who dominate politics and policymaking, whether Democrats or Republicans, do so largely because of their disproportionate control of the nation’s income and wealth. Increasingly, it appears these political elite choose to act in ways that sustain their dominance through the systemic reproduction of an iniquitous social order. In other words, big money and corporate power rule while electoral politics are rigged. The secrecy of the voting booth becomes the ultimate expression of democracy, reducing politics to an individualized purchase—a crude form of economic action. Any form of politics willing to invest in such ritualistic pageantry only adds to the current dysfunctional nature of our social order, while reinforcing a profound failure of political imagination. The issue should no longer be how to work within the current electoral system, but how to dismantle it and construct a new political landscape that is capable of making a claim on equity, justice, and democracy for all of its inhabitants. Obama’s once inspiring call for hope has degenerated into a flight from responsibility.
The Obama administration has worked to extend the policies of the George W. Bush administration by legitimating a range of foreign and domestic policies that have shredded civil liberties, expanded the permanent warfare state, and increased the domestic reach of the punitive surveillance state. And if Romney and his ideological cohorts, now viewed as the most extremists faction of the Republican Party, come to power, surely the existing totalitarian and anti-democratic tendencies at work in the United States will be dangerously intensified.
Alternatively, we could have spent more time studying the work of Hyman Minsky. We could also
have considered the possibility that, just as Keynes’s ideas were tested to destruction in the
1950s, 1960s and 1970s, Milton Friedman’s ideas might suffer a similar fate in the 1980s, 1990s
and 2000s. All gods fail, if one believes too much. Keynes said, of course, that "practical men
… are usually the slaves of some defunct economist". So, of course, are economists, even if the defunct economists are sometimes still alive.
Casino capitalism is a nickname for nailibelism. Probably more properly nickname would be financial corporatism. While the key idea of corporatism: that political actors are not individual people, but some associations and first of all corporations (which are officially considered to be "persons" and have rights as well as trade unions and some other associations) remains intact, financial corporatism is different from classic corporatism in several major ways:
Historically corporatism in various modifications became dominant social system after WWII and defeated "command socialism" as was implemented in the USSR. Here is an instructive review of corporatism history (The Economic System of Corporatism):
In the last half of the 19th century people of the working class in Europe were beginning to show interest in the ideas of socialism and syndicalism. Some members of the intelligentsia, particularly the Catholic intelligentsia, decided to formulate an alternative to socialism which would emphasize social justice without the radical solution of the abolition of private property. The result was called Corporatism. The name had nothing to do with the notion of a business corporation except that both words are derived from the Latin word for body, corpus.
The basic idea of corporatism is that the society and economy of a country should be organized into major interest groups (sometimes called corporations) and representatives of those interest groups settle any problems through negotiation and joint agreement. In contrast to a market economy which operates through competition a corporate economic works through collective bargaining. The American president Lyndon Johnson had a favorite phrase that reflected the spirit of corporatism. He would gather the parties to some dispute and say, "Let us reason together."
Under corporatism the labor force and management in an industry belong to an industrial organization. The representatives of labor and management settle wage issues through collective negotiation. While this was the theory in practice the corporatist states were largely ruled according to the dictates of the supreme leader.
One early and important theorist of corporatism was Adam Müller, an advisor to Prince Metternich in what is now eastern Germany and Austria. Müller propounded his views as an antidote to the twin dangers of the egalitarianism of the French Revolution and the laissez faire economics of Adam Smith. In Germany and elsewhere there was a distinct aversion among rulers to allow markets to function without direction or control by the state. The general culture heritage of Europe from the medieval era was opposed to individual self-interest and the free operation of markets. Markets and private property were acceptable only as long as social regulation took precedence over such sinful motivations as greed.
Coupled with the anti-market sentiments of the medieval culture there was the notion that the rulers of the state had a vital role in promoting social justice. Thus corporatism was formulated as a system that emphasized the positive role of the state in guaranteeing social justice and suppressing the moral and social chaos of the population pursuing their own individual self-interests. And above all else, as a political economic philosophy corporatism was flexible. It could tolerate private enterprise within limits and justify major projects of the state. Corporatism has sometimes been labeled as a Third Way or a mixed economy, a synthesis of capitalism and socialism, but it is in fact a separate, distinctive political economic system.
Although rulers have probably operated according to the principles of corporatism from time immemorial it was only in the early twentieth century that regimes began to identify themselves as corporatist. The table below gives some of those explicitly corporatist regimes.
|Corporatist Regimes of the Early Twentieth Century|
|National Corporatism||Italy||1922-1945||Benito Mussolini|
|Country, Religion, Monarchy||Spain||1923-1930||Miguel Primo de Rivera|
|National Socialism||Germany||1933-1945||Adolph Hitler|
|National Syndicalism||Spain||1936-1973||Francisco Franco|
|New State||Portugal||1932-1968||Antonio Salazar|
|New State||Brazil||1933-1945||Getulio Vargas|
|New Deal||United States||1933-1945||Franklin Roosevelt|
|Third Hellenic Civilization||Greece||1936-1941||Ioannis Metaxas|
|Justice Party||Argentina||1943-1955||Juan Peron|
In the above table several of the regimes were brutal, totalitarian dictatorships, usually labeled fascist, but not all the regimes that had a corporatist foundation were fascist. In particular, the Roosevelt New Deal despite its many faults could not be described as fascist. But definitely the New Deal was corporatist. The architect for the initial New Deal program was General Hugh Johnson. Johnson had been the administrator of the military mobilization program for the U.S. under Woodrow Wilson during World War I. It was felt that he did a good job of managing the economy during that period and that is why he was given major responsibility for formulating an economic program to deal with the severe problems of the Depression. But between the end of World War I and 1933 Hugh Johnson had become an admirer of Mussolini's National Corporatist system in Italy and he drew upon the Italian experience in formulating the New Deal.
It should be noted that many elements of the early New Deal were later declared unconstitutional and abandoned, but some elements such as the National Labor Relations Act which promoted unionization of the American labor force are still in effect. One part of the New Deal was the development of the Tennessee River Valley under the public corporation called the Tennessee Valley Authority (TVA). Some of the New Dealer saw TVA as more than a public power enterprise. They hoped to make TVA a model for the creation of regional political units which would replace state governments. Their goal was not realized. The model for TVA was the river development schemes carried out in Spain in the 1920's under the government of Miguel Primo de Rivera. Jose Antonio Primo de Rivera, the son of Miguel Primo de Rivera, was the founder of Franco's National Syndicalism.
Corporatist regime typically promote large governmental projects such as TVA on the basis that they are too large to be funded by private enterprise. In Brazil the Vargas regime created many public enterprises such as in iron and steel production which it felt were needed but private enterprise declined to create. It also created an organized labor movement that came to control those public enterprises and turned them into overstaffed, inefficient drains on the public budget.
Although the above locates the origin of corporatism in 19th century France it roots can be traced much further back in time. Sylvia Ann Hewlett in her book, The Cruel Dilemmas of Development: Twentieth Century Brazil, says,Corporatism is based on a body of ideas that can be traced through Aristotle, Roman law, medieval social and legal structures, and into contemporary Catholic social philosophy. These ideas are based on the premise that man's nature can only be fulfilled within a political community.
The central core of the corporatist vision is thus not the individual but the political community whose perfection allows the individual members to fulfill themselves and find happiness.
The state in the corporatist tradition is thus clearly interventionist and powerful.
Corporatism is collectivist; it is a different version of collectivism than socialism but it is definitely collectivist. It places some importance on the fact that private property is not nationalized, but the control through regulation is just as real. It is de facto nationalization without being de jure nationalization.
Although Corporatism is not a familiar concept to the general public, most of the economies of the world are corporatist in nature. The categories of socialist and pure market economy are virtually empty. There are only corporatist economies of various flavors.
These flavors of corporatism include the social democratic regimes of Europe and the Americas, but also the East Asian and Islamic fundamentalist regimes such as Taiwan, Singapore and Iran. The Islamic socialist states such as Syria, Libya and Algeria are more corporatist than socialist, as was Iraq under Saddam Hussain. The formerly communist regimes such as Russia and China are now clearly corporatist in economic philosophy although not in name.
Sine ira et studio
Tacitus, see Wikipedia
The term "Quiet coup" which means the hijacking of the political power in the USA by financial oligarchy was introduced by Simon H. Johnson, a British-American economist, who currently is the Ronald A. Kurtz Professor of Entrepreneurship at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. From March 2007 through the end of August 2008, he was Chief Economist of the International Monetary Fund. The term was introduced in his article in Atlantic magazine, published in May 2009(The Quiet Coup - Simon Johnson - The Atlantic). Which opens with a revealing paragraph:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government
The wealth of financial sector gave it unprecedented opportunities of simply buying the political power iether directly or indirectly (via revolving door mechanism):
Becoming a Banana Republic
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
But these various policies — lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits — such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
The great wealth that the financial sector created and concentrated gave bankers enormous political weight — a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
He further researched this theme in his book 2010 book 13 Bankers The Wall Street Takeover and the Next Financial Meltdown (ISBN 978-0307379054), coauthored with James Kwak. They also founded and regularly contributes to the economics blog The Baseline Scenario. See also History of Casino Capitalism
The net effect of the ideological counter-revolution based on market fundamentalism ideology was that it restored the power of financial oligarchy typical for Gilded Age. As Simon Johnson argues that was partially done by subverting regulators and that oversize institutions always disproportionately influence public policy:
The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.
Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.
Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.
This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the "efficiency costs" of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.
To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation. Laws put in place more than 100years ago to combat industrial monopolies were not designed to address the problem we now face. The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting.
Caps on executive compensation, while redolent of populism, might help restore the political balance of power and deter the emergence of a new oligarchy. Wall Street’s main attraction—to the people who work there and to the government officials who were only too happy to bask in its reflected glory—has been the astounding amount of money that could be made. Limiting that money would reduce the allure of the financial sector and make it more like any other industry.
Still, outright pay caps are clumsy, especially in the long run. And most money is now made in largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated. Regulation and taxation should be part of the solution. Over time, though, the largest part may involve more transparency and competition, which would bring financial-industry fees down. To those who say this would drive financial activities to other countries, we can now safely say: fine.Two Paths
To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.
Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of money—or at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the world’s most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for years—as Japan did during its lost decade—never summoning the courage to do what it needs to do, and never really recovering. A clean break with the past—involving the takeover and cleanup of major banks—hardly looks like a sure thing right now. Certainly no one at the IMF can force it.
In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.
Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?
Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.
The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy "stress scenario" that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.
Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.
The conventional wisdom among the elite is still that the current slump "cannot be as bad as the Great Depression." This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.
It is pretty interesting to see how financial oligarchy filters information provided to the population to fit their biases. For example, the key facts about repeal of Glass-Steagall law (BTW Joe Biden voted for it) mostly hidden from the public:
The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight of conglomerates among government agencies. The Securities and Exchange Commission, for example, would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation. State insurance commissioners would examine the insurance business. But no single agency would have authority over the entire company.
"There was no attention given to how these regulators would interact with one another," said Professor Cox of Duke. "Nobody was looking at the holes of the regulatory structure."
The arrangement was a compromise required to get the law adopted. When the law was signed in November 1999, he proudly declared it "a deregulatory bill," and added, "We have learned government is not the answer."
Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Senator Gramm dominated the Senate debate...
"He was the architect, advocate and the most knowledgeable person in Congress on these topics," Mr. Donovan said. "To me, Phil Gramm is the single most important reason for the current financial crisis."
"The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.," Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.
But you will never find discussion of flaws and adverse consequences Phil Gram (or Greenspan for a change) initiatives in Heritage Foundation and other right-wing think tanks publications.
So what we are experiencing is a the completion of the transformation of one phase of capitalism to another. It happened in stages:
Manufacturing stagnated and can't provide the "decent" rate of growth. Competition from
re-built Europe and Asian markets severely stressed the US manufacturing. due to competition
return of capital dropped and in several industries became negative.
Computers brought innovations into financial markets. They make possible real time trading
of induces like S&P500, complex financial instruments like derivatives, etc. Later they enables superfast
trading (HFT). All those instruments dramatically increased the possibilities of extracting the rent
by financial institutions from the society.
Globalization kicked in due to new opportunities offered by high speed global communications
(Internet). And that is not limited to outsourcing. Due to globalization the sheer size of the
financial markets increased to the extent that they started to represent a different, new transnational
phenomena allowing new types of redistribution of wealth to be practiced. Integration of Russian
elite (oligarchs) is just one example of this process. In case of pro-western oligarchs (fifth
column) West went to significant length to protect them and their racket (Mikhail
Khodorkovsky - Wikipedia,)
Commercial banks turned into investment banks to exploit this opportunity.
Financial sector completely corrupted academic science converting most economists to pay prostitutes
which serve their interests.
Collapse of the USSR provided the financial sector major shoot in the arm and a golden, once
in century opportunity to finance new half-billion consumers and stole for a penny on a dollar huge
industrial assets and natural resources as well as put most of those countries in the debt (Latin-Americanization
of xUSSR space). Harvard Mafia (with some
support from London) did the bidding of western banks in xUSSR space. As more becomes known about
the laundering of Russian money in Western banks, many in the United States will likely try to hide
behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that
country's sorry conditions--with the Harvard Institute for International Development's Russia project
(HIID) playing a major role (Harvard's
'Best and Brightest' Aided Russia's Economic Ruin ). Professor
Jeffery Sacks provided
a bogus idea of "shock therapy" to achieve spectacular for Western banks result. As a result all
xUSSR space became new Latin America with typical for Latin America problems like huge level of inequality,
prostitution, child poverty, and prominent role of organized crime.
Banks became dominant political force on western societies with no real counterbalance from
other parts of the elite. The first president completely subservient to banking elite was elected
in the USA in 1992. Bill Clinton regime lasted eight years and along with
economic rape of xUSSR space in best colonial powers tradition, it removed what was left of financial
regulations after the flurry of deregulation of the early 1980s. And they behaved as an occupying
force not only in xUSSR space but in the USA as well. They deprived workers out of their jobs, they
abolished the US pension system as it impede playing with population money and replaced in with widely
inadequate 401K plans. They deprived municipalities out of their revenues and assets, while municipalities
became just a den of bond traders looking for then next mark which give them the ability to put municipalities
deeper in debt.
Newly acquired political power of financial elite speeded the shift to bank "self-regulation"
created huge shadow banking system which dwarf "official" under the smoke screen of "free-market"
propaganda and PR from a coterie of corrupts academics (Chicago
Scholl, Harvard Mafia, etc) . It engaged
in pursuit of short term profits and self-enrichment of top brass which became new elite by-and-large
displacing not only the old one, but also the newly minted IT elite of dot-com boom. Using newly
acquired power financial elite remove all regulations that hamper their interests.
Glass-Steagall was repealed at the last
days of Clinton presidency, financial derivatives became unregulated.
Deindustrialization kicked in. As financial speculation proved to be much more profitable
to other activities deindustrialization kicked in the USA as the financial center of the world. Outsourcing
which first was limited to manufacturing jobs now extent its reach on IT and decimate previously
profitable sector and its export potential.
Externalities can no longer be suppressed and economics became unstable. Growth of inequality,
job insecurity, as well as frequency of financial crises were natural consequences of financialization
of the economy. They create huge imbalances, like bubble in residential real estate which was blown
with the help and full support of the USA government as a way to overcome dot-com crisis consequences.
Debt crisis strikes. Growth of debt became unsustainable and produces the financial crisis
of enormous proportions. By their reckless policies and greed financial sector caused huge financial
crisis of 2008 and now they are forcing national governments to auction off their cultural heritage
to the highest bidder. Everything must go in fire sales at prices rigged by twenty-something largest
banks, the most corrupt institutions the world has ever known.
Devastating "local" wars became "new normal". Due to financial crisis, the overconsumption in western economies came under threat. Debt expansion which led to overconsumption within the western economies affected (or infected) by financialization. To sustain the current standard of living financial expansion became the necessity. It took the form of a competition for spheres of influence in the area of energy supplies, which we see in post USSR space, Iraq, Libya and elsewhere. And central banks play critical role in financing wars. After all Banks of England was created with this exact purpose.
I think by 2008 when the second major financial crisis hit the USA, the transformation on the USA economy into casino capitalism, which is essentially implementation of neoliberal doctrine (or more correctly the US brand of corporatism) was by-and-large complete.
In short we are living in a new politico-economic system in which financial capital won victory over both labor and industrial capital. We might not like what we got, but financial elite is now a new ruling class and this fact is difficult to dispute. As a result. instead of the robber barons of the early 20th century (some of whom actually created/consolidated new industries), we have the top executives from investment banks, insurers and mortgage industry who represent a new Rentier class, much like old aristocracy.
They are living off parasitic monopolization of access to any (physical, financial, intellectual, etc.) kind of property and gaining significant amount of profit without contribution to society (see Rentier capitalism which is a very fuzzy term for neoliberal model of capitalism).
Stagnation of industrial manufacturing droved up financial speculation as the method to compensate for falling rate on return on capital. This stagnation became prominent during Reagan administration (which started the major shift toward neoliberalism), although signs of it were present from early 60th.
For example Chicago which was a manufacturing center since 1969 lost approximately 400K manufacturing jobs which were replaced mainly by FIRE-related jobs, In 1995 over 22% of those employed by FIRE industries (66K people) were working in executive and managerial positions. Another 17% are in marketing, sales and processional specialty occupations (computer system analysts, PR specialists, writer and editors).
Those changes in the structure of employment had several consequences:
The key to understanding of Casino Capitalism is that it was a series of government decisions (or rather non-decisions) that converted the state into neoliberal model. In other words casino capitalism has distinct "Government property" mark. It was the USA elite, which refused to act responsibly in the face of changing economic conditions resulting from its own actions, and instead chose to try to perpetuate, by whatever means it had at its disposal, the institutional advantages of dollar as a reserve currency which it had vis-à-vis its main economic rivals and grab as large part of the world economic pie as it can. And this power grab was supported first of all by the role of dollar as currency in which oil is traded.
There might be some geo-strategically motives as well as the US elite in late 80th perceived that competitiveness is slipping out of the USA and the danger of deindustrialization is real. Many accuse Reagan with the desire to ride dollar status as a world reserve currency (exorbitant privilege) until the horse is dead. That's what real cowboys do in Hollywood movies... But the collapse of the main rival, the USSR vindicated this strategy and give a strong short in the arm to financialization of the economy. Actually for the next ten years can be called a triumphal ascend of financialization in the USA.
Dominance of FIRE industries clustered up and in recent years reached in the USA quite dramatic proportions. The old Bolsheviks saying "When we say Lenin we mean the Party and when we say the Party we mean Lenin" now can be reworded: "Now it we say US banks, we mean the US government and vise versa if we say US government we mean US banks".
According to the Center for Responsive Politics, the FIRE sector was and is the biggest contributor to federal candidates in Washington. Companies cannot give directly, so they leave it to bundlers to solicit maximum contributions from employees and families. They might have been brought down to earth this year, but they’ve given like Gods: Goldman Sachs, $4.8 million; Citigroup, $3.7 million; J.P. Morgan Chase & Co., $3.6 million; Merrill Lynch, $2.3 million; Lehman Brothers, $2.1 million; Bank of America, $2.1 million. Some think the long-term effect of such contributions to individual candidates was clear in the roll-call votes for the bailout.
Take the controversial first House vote on bailout of major banks on Sept. 29, 2008. According to CRP, the "ayes" had received 53 percent more contributions from FIRE since 1989 than those who voted against the bill, which ultimately failed 228 to 205. The 140 House Democrats who voted for the bill got an average of $188,572 in this election cycle, while the 65 Republicans backing it got an average of $185,461 from FIRE—about 23 percent more than the bill’s opponents received. A tinkered bill was passed four days later, 263 to 171.
According to the article Fire Sale (The American Conservative) half of Obama’s top ten contributors, together giving him nearly $2.2 million, are FIREmen. The $13 million contributed by FIRE executives to Obama campaign is probably an undercount. Democratic committee leaders are also dependent of FIRE contributions. The list includes Sen. Dodd ( please look at Senator Dodd's top donors for 2007-8 on openSecrets.org ) and Sen. Chuck Schumer ($12 million from FIRE since 1989), Rep. Barney Frank ($2.5 million), and Rep. Charlie Rangel ($4 million, the top recipient in the House). All of them have been accused of taking truckloads of contributions while failing to act on the looming mortgage crisis. Dodd finally pushed mortgage reform last year but by then as his hometown paper, The Hartford Courant stated, "the damage was done."
At the same time rise of financial capital dramatically increased instability. An oversized financial sector produces instability due to multiple positive feedback loops. In this sense we can talk about Financial Sector Induced Systemic Instability of Economy. The whole society became "House of cards", "Giant Enron" and "extension of Las Vegas". Reckless management, greed and out-right stupidity in playing derivatives games was natural consequence of the oversized financial sector, not just a human folly. In a way it was dramatic manifestation of the oversized financial sector negative influence of the economy. And in 2008 it did brought out economy to the brink of destruction. Peak oil added to suffocating effect on the economy of reckless gambling (and related debts) of financial sector producing the economic calamity that rivals Great Depression. Also, like Socialism, Casino Capitalism demands too much of its elite. And in reality, the financial elite much like Bolsheviks elite, is having its own interests above the interests of the society.
As Kevin Phillips noted "In the United States, political correctness, religious fundamentalism, and other inhibitions sometimes dumb down national debate". And the same statement is true for financial elite that became the center of power under the Casino Capitalism. Due to avalanche of greed the society became one giant Enron as money that are made from value addition in the form of manufacturing fade in significance to the volume of the money that is made from shuffling money around. In other was the Wall Street's locked USA in the situation from which there is no easy exit.
Self-reinforcing ‘positive’ feedback loops prevalent in Casino Capitalism trigger an accelerating creation of various debt instruments, interest of which at some point overwhelm the system carrying capacity. Ability to lend against good collateral is quickly exhausted. At some point apparently there is no good collateral against which lending freely was possible, even at high rates. This means that each new stage of financial innovation involves scam and fraud, on increasing scale. In other words Ponzi economy of "saving and loans" is replaced with Madoff economy.
Whether you shift the resulting huge private debt to public to increase confidence or not, the net result is of this development of events is a crisis and a huge debt that society needs to take. Actually the debt bubble in 2008 can only be compared to the debt bubble of 1933. The liquidation of Bear Sterns and Lehman was only a start of consolidation of finances and we need to find something that replace financial sector dominance in the national economy. It would be nice is some technological breakthrough happened which would lift the country out of this deep hole.
See Financial Sector Induced Systemic Instability of Economy for more details.
Like Bolshevism was marked by deification of teaching of Marx and Lenin, converting them into pseudo-religious doctrine, the Casino Capitalism has its own deified ideological doctrine. It is the ideology of Neoliberalism. The latter as an ideology and an agenda seeks to topple democratic capitalism and replace it with a de facto unaccountable autocratic government which serves as channel of a wealth transfer from the public to a rentier elite. In a way it is a spectacular example of a successful (in a very negative sense) pseudo-religious doctrine.
Addiction of the societies to disastrous politico-economical doctrines are similar to addictions to alcohol and drugs in individuals. It is not easy to recover and it takes a long, long time and a lot of misery. As dissolution of the USSR aptly demonstrated not all societies can make it. In this case the USSR elite (nomenklatura) simply shed the old ideology as it understood that it will be better off adopting ideology of neoliberal capitalism; so it was revolution from above. this abrupt switch created chaos in economics (which was applauded by Washington which under Clinton administration adopted the stance the Carnage needs to be destroyed and facilitated the process), criminal privatization of major industries, and pushed into object poverty the 99% of population of those countries. For some period under "drunk Yeltsyn" Russia sees to exist as an independent country and became a vassal of Washington.
This also means that "society at large" did not had effective brakes to the assent of financial plutocracy (aka financial oligarchy). I would add to this the computer revolution and internet that made many financial transaction qualitatively different and often dramatically cheaper that in previous history. Computers also enabled creation of new financial players like mutual funds (which created a shadow banking system with their bond funds) , hedge funds, exchange-traded funds (ETFs), as well as high-frequency trading and derivatives.
From the historical view Reaganomics also can be considered to be the US flavor of Lysenkoism with economics instead of genetics as a target. Here is how Reaganomics is defined in Wikipedia
Reaganomics (a portmanteau of "Reagan" and "economics") refers to the economic policies promoted by United States President Ronald Reagan. The four pillars of Reagan's economic policy were to:
- reduce the growth of government spending,
- reduce marginal tax rates on income from labor and capital,
- reduce government regulation of the economy,
- control the money supply to reduce inflation.
In attempting to cut back on domestic spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors.
Reagan became president during a period of high inflation and unemployment (commonly referred to as stagflation), which had largely abated by the time he left office.
Please not that the Number 1 idea ("reduce government spending") was essentially a scam, a smoke screen designed to attract Rednecks as a powerful voting block. In a way this was a trick similar to one played by Bolsheviks in Russia with its "worker and peasants rule" smokescreen which covered brutal dictatorship. In reality all administrations which preached Reagonomics (including Clinton's) expanded the role of state and government spending. The number two was applied by-and-large to top 1%. The number three means deregulation in the interests of financial oligarchy and dismantling all social program that hamper profit of the latter (including privatizing of Social Security). The number fours is a scam, in the same sense as number one. As soon as financial institutions get in trouble, money are printed as if there is no tomorrow.
While the essence of Reagonomics was financial deregulation, the other important element was restoring the Gilded Age level of power of financial oligarchy which influence was diminished by FDR reforms. In this sense we can say that Reagan revolution was essentially a counter-revolution: an attempt to reverse the New Deal restrictions on financial sector and restore its dominance in the society.
Like it was the case in Bolshevism the ideology was developed and forced upon the society by a very small group of players. The key ideas of Casino Capitalism were formulated and implemented by Reagan administration with some contribution by Nixon (the role of rednecks aka "moral majority", "silent majority" as an important part of republican political base, which can be attracted to detrimental to its economic position policies by the smoke screen of false "moral" promises).
It was supported by each president after Reagan (paradoxically with Clinton having the most accomplished record -- he was the best Republican President in a very perverted way). Like in case of Lysenkoism opponents were purged and economic departments of the country were captured by principless careerists ready to tow the party line for personal enrichment. Like in case of Bolshevism, many of those special breed of careerists rotated from Republican Party into Fed and other government structures. A classic example of compulsive careerists that were used by finance sector to promote its interests was Alan Greenspan.
One of the key ideas of Reaganomics was the rejection of the sound approach that there should be a balance between too much government regulation and too little and that government role is important for smooth functioning of the market. In this area Reagan and its followers can be called Anarchists and their idea of 'free market" is a misnomer that masks the idea of "anarchic market" (corporate welfare to be exact -- as it was implemented). Emergence of corporate welfare Queens such as GS, Citi, AIG, are quite natural consequence of Reaganomics.
|Reaganomics was a the US flavor of Lysenkoism with economics instead of generics as a target... It can and should be called Economic Lysenkoism.|
The most interesting part of Reaganomics was that the power of this ideology made it possible to conditioned "working class" and middle class to act against their own economic interests. It helped to ensure the stagnation of wages during the whole 25 years period, which is close to what Soviets managed to achieve with working class of the USSR, but with much more resentment. This makes it in many ways very similar to Bolshevism as a whole, not just Lysenkoism (extremes meet or in less flattering way: "history repeats, first as a tragedy, then as farce).
Along with the term Reaganimics which implicitly stresses the deregulation, the other close term "market fundamentalism" is often used. Here is how market fundamentalism is defined (Longview Institute):
Market Fundamentalism is the exaggerated faith that when markets are left to operate on their own, they can solve all economic and social problems. Market Fundamentalism has dominated public policy debates in the United States since the 1980's, serving to justify huge Federal tax cuts, dramatic reductions in government regulatory activity, and continued efforts to downsize the government’s civilian programs.
Some level of government coercion (explicit or implicit ) is necessary for proper labeling of any pseudo-scientific theory with the term Lysenkoism. This holds true for both Market Fundamentalism (after all Reagan revolution was "revolution from above" by financial oligarchy and for financial oligarchy and hired guns from academia just do what powers that be expected) and, especially, Supply side economic. The political genius of those ideas is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?
In this sense the Republican Party played the role very similar to the Communist Party of the USSR.
For example supply side economics was too bizarre and would never survive without explicit government support. This notion is supported by many influential observers. For example, in the following comment for Krugman article (Was the Great Depression a monetary phenomenon):
Market fundamentalism (neoclassical counter-revolution — to be more academic) was more of a political construct than based on sound economic theory. However, it would take a while before its toxic legacy is purged from the economics departments. Indeed, in some universities this might never happen.
Extreme deregulation and extreme regulation (Brezhnev socialism) logically meets and both represent a variant of extremely corrupt society that cannot be sustained for long (using bayonets as in the case of USSR or using reserve currency and increasing leverage as is the case of the USA). In both cases the societies were economically and ideologically bankrupt at the end.
Actually, elements of market fundamentalism looks more like religious doctrine than political philosophy — and that bonds its even closer to Lysenkoism. In both cases critics were silenced with the help of the state. It is interesting to note that Reaganomics was wiped into frenzy after the dissolution of the USSR, the country which gave birth to the term of Lysenkoism. In a way the last act of the USSR was to stick a knife in the back of the USA. As a side note I would like to stress that contrary to critics the USSR was more of a neo-feudal society with elements of slavery under Stalin. Gulag population were essentially state slaves; paradoxically a somewhat similar status is typical for illegal immigrants in industrialized countries. From this point of view this category of "state slaves" is generally more numerous that gulag inmates. Prison population also can be counted along those lines.
It look like either implicitly or explicitly Reagan's bet was on restoration of gilded Age with its dominance of financial oligarchy, an attempt to convert the USA into new Switzerland on the "exorbitant privilege" of dollar status as the global fiat currency.
Casino Capitalism is characterized by political dominance of FIRE industries (finance, insurance, and real estate) and diminished role of other and first of all manufacturing industries. It was also accompanied by the drastic growth of inequality (New Gilded Age). Its defining feature is "the triumph of the trader in assets over the long-term producer" in Martin Wolf's words.
Attempts of theoretical justification of Economic Lysenkoism fall into several major categories:
Those can be called pillars, cornerstones of Economic Lysenkoism. Each of the deserves as separate article (see links above).
Historically especially important was Chicago school of market fundamentalism promoted pseudo-scientific theories of Milton Freedman (Chicago School) as well as supply side economics.
The huge boost of Casino Capitalism was given by the collapse of the USSR in 1991. That gave a second life to Reagan era. Collapse of the USSR was used as a vindication of market fundamentalism. After it New Deal regulations were systematically destroyed. Dumped down variants of Nietzsche philosophy like bastardatized variant promoted by Russian emigrant became fashionable with an individual "creative" entrepreneur as a new Übermensch, which stands above morality.
"The word Übermensch [designates] a type of supreme achievement, as opposed to 'modern' men, 'good' men, Christians, and other nihilists ... When I whispered into the ears of some people that they were better off looking for a Cesare Borgia than a Parsifal, they did not believe their ears." Safranski argues that the combination of ruthless warrior pride and artistic brilliance that defined the Italian Renaissance embodied the sense of the Übermensch for Nietzsche. According to Safranski, Nietzsche intended the ultra-aristocratic figure of the Übermensch to serve as a Machiavellian bogeyman of the modern Western middle class and its pseudo-Christian egalitarian value system.
The instability and volatility of active markets can devalue the economic base of real lives, or in more macro-scenarios can lead to the collapse of national and regional economies. In a very interesting and grotesque way it also incorporates the key element of Brezhnev Socialism in everyday life: huge manipulation of reality by mass media to the extend that Pravda and the USSR First TV Channel look pretty objective in comparison with Fox news and Fox controlled newspapers. Complete poisoning of public discourse and relying on the most ignorant part of the population as the political base (pretty much reminiscent of how Bolsheviks played "Working Class Dictatorship" anti-intellectualism card; it can be called "Rednecks Dictatorship").
While transformation to casino capitalism was an objective development, there were specific individuals who were instrumental in killing New Deal regulations. We would single out the following twelve figures:
There is no question that Reagan and most of his followers (Greenspan, Rubin, Phil Gramm, etc) were rabid radicals blinded by ideology. But they were radicals of quite different color then FDR with disastrous consequences for society. Here again the analogy with Bolsheviks looms strong. In a way, they can be called financial terrorists inflicting huge damage on the nation and I wonder if RICO can be use to prosecute at least some of them.
In Bailout Nation (Chapter 19) Barry Ritholtz tried to rank major players that led country into the current abyss:
1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18. President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk
Hyman Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt and the fact the financial system represents a positive feedback loop that tend to destabilize the system, creating ossilations in the form of boom and bust cycles. . He identified 3 types of borrowers that contribute to the accumulation of insolvent debt: Hedge Borrowers; Speculative Borrowers; and Ponzi Borrowers. That corresponds to three stages of Casino Capitalism of increasing fragility:
Growth of debt and increased levarate at some point create predocition of the crash. The stage of business cycle at which those preconditions are met is called "Minsky moment":
A Minsky moment is the point in a credit cycle or business cycle when investors are starting to have cash flow problems due to spiraling debt they have incurred in order to finance speculative or Ponzy investments.
At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity.
After the collapse of the USSR there were a lot of chest thumping of the status of America as a hyper power (American exceptionalism) and the "end of history" where neoliberalism that displaced Brazhvev socialism (and wiped out the socialist camp) was supposed to reign supreme forever.
But this triumphal march of neoliberalism was short lived. The system proved to be self-destructive due to strong positive feedback look from the unregulated financial sector.
But in 2000 the first moment to pay the piper arrives. It was postponed by Iraq war and housing bubble, but reappeared in much more menacing form in 2008. In 2009 the USA experienced a classic Minsky moment with high unemployment rate and economy suppressed by (and taken hostage) by Ponzi finance institutions which threaten the very survival of the capitalist system and way of life. Huge injection freom the state halped to save the economy from disintration, but the price was very high. And after 2009 the US economy entered the period prologed stagnation, called the perios of "secular stagnation".
In events preceding 2008 the shift from speculative toward Ponzi finance was speed up by increased corruption of major players. The drive to redistribute wealth up destroyed any remnants of the rule of the law in the USA. It became a neo-feudal two casts society with "Masters of the Universe" as the upper cast (top 1% ) and "despicables" (lower 80%) as the lower cast. With some comprador strata of professional in between (top 20% or so), who generally support the upper cast.
Loweer cast experienced deterioration of the standard of living, loss of well paying jobs to outsourcing and offshoring and in 2016 revolted electing Trump, who defeated Hillary Clinton, who became a real symbol of the corruption of neoliberal system.
"As Minsky observed, capitalism is inherently unstable. As each crisis is successfully contained, it encourages greater speculation and risk taking in borrowing and lending. Financial innovation makes it easier to finance various schemes. To a large extent, borrowers and lenders operate on the basis of trial and error. If a behavior is rewarded, it will be repeated. Thus stable periods naturally lead to optimism, to booms, and to increasing fragility.
A financial crisis can lead to asset price deflation and repudiation of debt. A debt deflation, once started, is very difficult to stop. It may not end until balance sheets are largely purged of bad debts, at great loss in financial wealth to the creditors as well as the economy at large."
For more information see
For Strange the speed at which computerized financial markets work combined with their much larger size and near-universal pervasiveness is an important qualitative change, that changes the social system into what he called "casino capitalism". She actually popularized the term "Casino Capitalism" with her important book Casino Capitalism published in 1997.
One of the side effects of this change is that volatility extends globally. Approximately $1.5 trillion dollars are invested daily as foreign transactions. It is estimated that 98% of these transactions are speculative. In comparison with this casino Las Vegas looks like a aborigine village in comparison with Manhattan.
Susan Strange (June 9, 1923 - October 25, 1998) was a British academic who was influential in the field of international political economy. Her most important publications include
- Casino Capitalism,
- Mad Money,
- States and Markets and The retreat of the State: The Diffusion of Power in the World Economy.
For a quarter of a century, Susan Strange was the most influential figure in British international studies. She held a number of key academic posts in Britain, Italy and Japan. From 1978 to 1988, she was Montague Burton Professor of International Relations at the London School of Economics and Political Science (LSE), the first woman to hold this chair and a professorial position in international relations at the LSE. She was a major figure in the professional associations of both Britain and the US: she was an instrumental founding member and first Treasurer of the British International Studies Association (BISA)  and the first female President of the International Studies Association (ISA) in 1995.
It was predominantly as a creative scholar and a forceful personality that she exercised her influence. She was almost single-handedly responsible for creating ‘international political economy’ and turning it into one of the two or three central fields within international studies in Britain, and she defended her creation with such robustness, and made such strong claims on its behalf, that her influence was felt—albeit not always welcomed—in most other areas of the discipline. She was one of the earliest and most influential campaigners for the closer integration of the study of international politics and international economics in the English language scholarship.
In the later period of her career, alongside the financial analyses offered in Casino Capitalism (the analysis in which she felt was vindicated by the South-East Asian financial crisis) and Mad Money, Strange's contributions to the field include her characterisation of the four different areas (production, security, finance and knowledge) through which power might be exercised in International Relations. This understanding of what she termed "structural power", formed the basis of her argument against the theory of American Hegemonic Decline in the early eighties.
Her analysis particularly in States and Markets focused on what she called the ‘market-authority nexus’, the see-saw of power between the market and political authority. The overall argument of her work suggested that the global market had gained significant power relative to states since the 1970s.
This led her to dub the Westphalia system Westfailure. She argued that a ‘dangerous gap’ was emerging between territorially-bound nation states and weak or partial intergovernmental cooperation in which markets had a free hand which could be constructive or destructive.
Among important early critiques of casino capitalism was John K. Galbraith. He promoted a pretty novel idea that the major economic function of Governments is to strengthen countervailing powers to achieve some kind of balance between capital and labor.
While unions are far from being perfect and tend to slide into corruption due to "iron law of oligarchy" when thier management stop representing interests of thwe worksers and start to reprreesnt interest of thier own narry strate of fat cats, there were the only sizable countewailing power that made the New Seal possible.
His prediction proved to be wrong as government actually represent the capitalist class and is not that interested in creating this balance, which was convincingly demonstrated by Thatcher and Reagan. Both Britain and the USA start sliding into a new form of corporations, called neoliberalism which actually does not allocate any space for uniot at the negotiation table and strive for their complete elimination and "atomization" of work force, when each invididual is up to himself to find employment and group solidarity is suppressed by instilling neoliberal ideology in schools and universitites as well as via MSM (which in the USA surprisingly never were allowed to use the work neoliberlaism, as if it represents some secret Masonic cult)
And it does not look like there is any renewed support of unions right (including important right to organize) at the post subprime/derivatives/shadow_banking crisis stage of neoliberalism, when neoliberal ideology became sufficiently discredited to allow rise of populist politicians such as Trump.
Still John K. Galbraith critique of primitive market fundamentalism of Milton Freedman and the whole pseudoscience of neoclassical economics which like Marxist political economy is one of there pillars of neoliberalism (along with Randism as philosophy and Neoconservatism or "Trotskyism for the rich" in politics), still has its value today. As Joseph Stiglitz noted (CSMonitor, Dec 28, 2006):
...In many ways, Galbraith was a more critical observer of economic reality.
Driven to understand market realities
Galbraith's vivid depictions of the good, bad, and ugly of American capitalism remain a sorely needed reminder that all is not quite as perfect as the perfect market models – with their perfect competition, perfect information, and perfectly rational consumers – upon which so much of Friedman's analysis depended.
Galbraith, who cut his teeth studying agricultural economics, strove to understand the world as it was, with all the problems of unemployment and market power that simplistic models of competitive markets ignore. In those models, unemployment didn't exist. Galbraith knew that made them fatally flawed
... ... ...
In his early research, Galbraith attempted to explain what had brought on the Great Crash of 1929 – including the role of the stock market's speculative greed fed by (what would today be called) irrational exuberance. Friedman ignored speculation and the failure of the labor market as he focused on the failures of the Federal Reserve. To Friedman, government was the problem, not the solution.
What Galbraith understood, and what later researchers (including this author) have proved, is that Adam Smith's "invisible hand" – the notion that the individual pursuit of maximum profit guides capitalist markets to efficiency – is so invisible because, quite often, it's just not there. Unfettered markets often produce too much of some things, such as pollution, and too little of other things, such as basic research. As Bruce Greenwald and I have shown, whenever information is imperfect – that is, always – markets are inefficient; hence the need for government action.
Galbraith reminded us that what made the economy work so well was not an invisible hand but countervailing powers. He had the misfortune of articulating these ideas before the mathematical models of game theory were sufficiently developed to give them expression. The good news is that today, more attention is being devoted to developing models of these bargaining relationships, and to complex, dynamic models of economic fluctuations in which speculation may play a central role.
While Friedman never really appreciated the limitations of the market, he was a forceful critic of government. Yet history shows that in every successful country, the government had played an important role. Yes, governments sometimes fail, but unfettered markets are a certain prescription for failure. Galbraith made this case better than most.
Galbraith knew, too, that people aren't just rational economic actors, but consumers, contending with advertising, political persuasion, and social pressures. It was because of his close touch with reality that he had such influence on economic policymaking, especially during the Kennedy-Johnson years.
Galbraith's penetrating insights into the nature of capitalism – as it is lived, not as it is theorized in simplistic models – has enhanced our understanding of the market economy. He has left an intellectual legacy for generations to come. And he has left a gap in our intellectual life: Who will stand up against the economics establishment to articulate an economic vision that is both in touch with reality and comprehensible to ordinary citizens?
Galbraith was vindicated in his belief that the only economics possible is political economics and that government is always an agent of dominant class. As such it always pursue poklitics favorable to this class, just making marginal efforts to prevent the open revolt of lower classes.
In 2008 neoliberal economist such as Krugman and (to a lesse extent) Stiglitz both have eaten humble pie, because according to neoclassical economics the crises should not have happened. Both should now reread Galbraith's The Great Crash: 1929 (see also extracts). Krugman also need to shred his previous writings with this mathiness execises of using differential equations to justify the dominance of financial oligarchy, and eat them with borsch ;-)
BTW it is interesting that in 1996 neoliberal stooge Paul Krugman criticized limitations of Galbright vision in the following way:
To be both a liberal and a good economist you must have a certain sense of the tragic--that is, you must understand that not all goals can be attained, that life is a matter of painful tradeoffs. You must want to help the poor, but understand that welfare can encourage dependency. You must want to protect those who lose their jobs, but admit that generous unemployment benefits can raise the long-term rate of unemployment. You must be willing to tax the affluent to help those in need, but accept that too high a rate of taxation can discourage investment and innovation.
To the free-market conservative, these are all arguments for government to do nothing, to accept whatever level of poverty and insecurity the market happens to produce. A serious liberal does not reply to such conservatives by denying that there are any trade-offs at all; he insists, rather, that some trade-offs are worth making, that helping the poor and protecting the unlucky may have costs but will ultimately make for a better society.
The revelation one gets from reading John Kenneth Galbraith's The Good Society is that Galbraith--who is one of the world's most celebrated intellectuals, and whom one would expect to have a deeper appreciation of the complexity of the human condition than a mere technical economist would -- lacks this tragic sense. Galbraith's vision of the economy is one without shadows, in which what is good for social justice always turns out to have no unfavorable side effects. If this vision is typical of liberal intellectuals, the ineffectuality of the tribe is not an accident: It stems from a deep-seated unwillingness to face up to uncomfortable reality.
Similar limited understanding of Galbright is demonstrated in London Times (cited from comment to Economist's View blog) :
Some motifs of Galbraith’s work have entered popular consciousness. Galbraith wrote of private opulence amid public squalor, illustrating it with a memorable metaphor of a family that travels by extravagant private car to picnic by a polluted river.
Yet while arguing for increased public expenditure on welfare, Galbraith gave scant attention to the limits of that approach. His writings perpetuate a debilitating weakness of modern liberalism: a reluctance to acknowledge that resources are scarce.
In Galbraith’s scheme, said Herbert Stein, the former chairman of the Council of Economic Advisers: “The American people were only asked whether they wanted cleaner air and water . . . The answers to such questions seemed obvious — but they were not the right questions.”
This idea of "casino capitalism" as a driver of financial instability was developed further in the book The Crisis of Global Capitalism by prominent financial speculator and staunch neoliberal George Soros (1998), who after Minsky highlights the potential for disequilibrium in the financial system, and the inability of non-market sectors to regulate markets.
the latter is a prominant feature of Casino Capitalism, which can be defined as economic system were financial barons run amok.Although the insights of the Soros critique of global capitalism are scarcely new, they were articulated with such candor and accuracy that the book made a significant impact. The following is a sampling of Soros' insights.
Bank lending also contributes to the instability, because the price of real and financial assets is set in part by their collateral value. The higher their market price rises the larger the loans banks are willing to make to their buyers to bid up prices. When the bubble bursts, the value of the assets plummets below the amount of the money borrowed against them. This forces banks to call their loans and cut back on the lending, which depresses asset prices and dries up the money supply. The economy then tanks-until credit worthiness is restored and a new boom phase begins.
When I bought shares in Lockheed and Northrop after the managements were indicted for bribery, I helped sustain the price of their stocks. When I sold sterling short in 1992, the Bank of England was on the other side of my transactions, and I was in effect taking money out of the pockets of British taxpayers. But if I had tried to take social consequences into account, it would have thrown off my risk-reward calculation, and my profits would have been reduced.
Soros argues that if he had not bought Lockheed and Northrop, then somebody else would have, and
Britain would have devalued sterling no matter what he did. "Bringing my social conscience into
the decision-making process would make no difference in the real world; but it may adversely affect
my own results." One can challenge the Soros claim that such behavior is amoral rather than immoral,
but his basic argument is accurate. His understanding that it is futile to look to individual morality
as the solution to the excesses of financial markets is all too accurate.
Publicly owned companies are single-purpose organizations-their purpose is to make money. The tougher the competition, the less they can afford to deviate. Those in charge may be well-intentioned and upright citizens, but their room for maneuver is strictly circumscribed by the position they occupy.
They are duty-bound to uphold the interests of the company. If they think that cigarettes are unhealthy or that fostering civil war to obtain mining concessions is unconscionable, they ought to quit their jobs. Their place will be taken by people who are willing to carry on.
Though not specifically mentioned by Soros, this is why corporations were in the past (at least
partially) excluded from the political processes (although it was never complete and it is well known
fact that Crusades and
Siege of Constantinople
(1204) were financed by Genoese
bankers upset by lack of access to the Byzantium markets). But at least formally other parts of the
society can define their goals and the rules of the marketplace and suppress excessive appetities
of banker, if nessesary by brute force. Financial oligarchy is incapable of distinguishing
between private corporate interests and broader public interests. And that situation became even
worse with the the global dominance of corporatism in the form of neoliberalism.
"Foreign ownership of capital deprives peripheral countries of autonomy and often hinders the development of democratic institutions. The international flow of capital is subject to catastrophic interruptions."
In times of uncertainty financial capital tends to return to its country of origin, thus depriving
countries at the periphery of the financial liquidity necessary to the function of monetized economies.
"The center's most important feature is that it controls its own economic policies and holds in its
hands the economic destinies of periphery countries."
Monetary values [under neoliberalism] have usurped the role of intrinsic values, and markets have come to dominate spheres of existence where they do not properly belong.
Law and medicine, politics, education, science, the arts, even personal relations-achievements or qualities that ought to be valued for their own sake are converted into monetary terms; they are judged by the money they fetch rather than their intrinsic value."
Because financial "capital is free to go where most rewarded, countries vie to attract and retain capital, and if they are to succeed they must give precedence to the requirements of international capital over other social objectives.
One notable later researcher of casino capitalism, especially "free market" fundamentalism propaganda Cambridge University researcher Ha-Joon Chang. In 2011 he published a fascinating book 23 Things They Don't Tell You About Capitalism. Here is a Youtube lecture at LSE (23 Things They Don't Tell You About Capitalism ). We will reproduce two Amazon reviews that shed some light at the key ideas of the book:
William PodmoreLoyd E. Eskildson
Ha-Joon Chang, Reader in the Political Economy of Development at Cambridge University, has written a fascinating book on capitalism's failings. He also wrote the brilliant Bad Samaritans. Martin Wolf of the Financial Times says he is `probably the world's most effective critic of globalization'.
Chang takes on the free-marketers' dogmas and proposes ideas like
- there is no such thing as a free market;
- the washing machine has changed the world more than the internet has --[ I respectfully disagree --NNB];
- we do not live in a post-industrial age;
- globalization isn't making the world richer;
- governments can pick winners;
- some rules are good for business;
- US (and British) CEOs are overpaid;
- more education does not make a country richer;
- and equality of opportunity, on its own, is unfair.
He notes that the USA does not have the world's highest living standard. Norway, Luxemburg, Switzerland, Denmark, Iceland, Ireland, Sweden and the USA, in that order, had the highest incomes per head. On income per hours worked, the USA comes eighth, after Luxemburg, Norway, France, Ireland, Belgium, Austria and the Netherlands. Japan, Switzerland, Singapore, Finland and Sweden have the highest industrial output per person.
Free-market politicians, economists and media have pushed policies of de-regulation and pursuit of short-term profits, causing less growth, more inequality, more job insecurity and more frequent crises. Britain's growth rate in income per person per year was 2.4 per cent in the 1960s-70s and 1.7 per cent 1990-2009. Rich countries grew by 3 per cent in the 1960s-70s and 1.4 per cent 1980-2009. Developing countries grew by 3 per cent in the 1960s-70s and 2.6 per cent 1980-2009. Latin America grew by 3.1 per cent in the 1960s-70s and 1.1 per cent 1980-2009, and Sub-Saharan Africa by 1.6 per cent in the 1960s-70s and 0.2 per cent 1990-2009. The world economy grew by 3.2 per cent in the 1960s-70s and 1.4 per cent 1990-2009.
So, across the world, countries did far better before Thatcher and Reagan's `free-market revolution'. Making the rich richer made the rest of us poorer, cutting economies' growth rates, and investment as a share of national output, in all the G7 countries.
Chang shows how free trade is not the way to grow and points out that the USA was the world's most protectionist country during its phase of ascendancy, from the 1830s to the 1940s, and that Britain was one of world's the most protectionist countries during its rise, from the 1720s to the 1850s.
He shows how immigration controls keep First World wages up; they determine wages more than any other factor. Weakening those controls, as the EU demands, lowers wages.
He challenges the conventional wisdom that we must cut spending to cut the deficit. Instead, we need controls capital, on mergers and acquisitions, and on financial products. We need the welfare state, industrial policy, and huge investment in industry, infrastructure, worker training and R&D.
As Chang points out, "Even though financial investments can drive growth for a while, such growth cannot be sustained, as those investments have to be ultimately backed up by viable long-term investments in real sector activities, as so vividly shown by the 2008 financial crisis."
This book is a commonsense, evidence-based approach to economic life, which we should urge all our friends and colleagues to read.
The 2008 'Great Recession' demands re-examination of prevailing economic thought - the dominant paradigm (post 1970's conservative free-market capitalism) not only failed to predict the crisis, but also said it couldn't occur in today's free markets, thanks to Adam Smith's 'invisible hand.' Ha-Joon Chang provides that re-examination in his "23 Things They Don't Tell You About Capitalism." Turns out that the reason Adam Smith's hand was not visible is that it wasn't there. Chang, economics professor at the University of Cambridge, is no enemy of capitalism, though he contends its current conservative version should be made better. Conventional wisdom tells us that left alone, markets produce the most efficient and just outcomes - 'efficient' because businesses and individuals know best how to utilize their resources, and 'just' because they are rewarded according to their productivity. Following this advice, countries have deregulated businesses, reduced taxes and welfare, and adopted free trade. The results, per Chang, has been the opposite of what was promised - slower growth and rising inequality, often masked by rising credit expansion and increased working hours. Alternatively, developing Asian countries that grew fast did so following a different version of capitalism, though to be fair China's version to-date has also produced much greater inequality. The following summarizes some of Chang's points:
- "There is no such thing as a free market" - we already have hygiene standards in restaurants, ban child labor, pollution, narcotics, bribery, and dangerous workplaces, require licenses for professions such as doctors, lawyers, and brokers, and limit immigration. In 2008, the U.S. used at least $700 billion of taxpayers' money to buy up toxic assets, justified by President Bush on the grounds that it was a necessary state intervention consistent with free-market capitalism. Chang's conclusion - free-marketers contending that a certain regulation should not be introduced because it would restrict market freedom are simply expressing political opinions, not economic facts or laws.
- "Companies should not be run in the interest of their owners." Shareholders are the most mobile of corporate stakeholders, often holding ownership for but a fraction of a second (high-frequency trading represents 70% of today's trading). Shareholders prefer corporate strategies that maximize short-term profits and dividends, usually at the cost of long-term investments. (This often also includes added leverage and risk, and reliance on socializing risk via 'too big to fail' status, and relying on 'the Greenspan put.') Chang adds that corporate limited liability, while a boon to capital accumulation and technological progress, when combined with professional managers instead of entrepreneurs owning a large chunk (e.g.. Ford, Edison, Carnegie) and public shares with smaller voting rights (typically limited to 10%), allows professional managers to maximize their own prestige via sales growth and prestige projects instead of maximizing profits. Another negative long-term outcome driven by shareholders is increased share buybacks (less than 5% of profits until the early 1980s, 90% in 2007, and 280% in 2008) - one economist estimates that had GM not spent $20.4 billion on buybacks between 1986 and 2002 it could have prevented its 2009 bankruptcy. Short-term stockholder perspectives have also brought large-scale layoffs from off-shoring. Governments of other countries encourage longer-term thinking by holding large shares in key enterprises (China Mobile, Renault, Volkswagen), providing greater worker representation (Germany's supervisory boards), and cross-shareholding among friendly companies (Japan's Toyota and its suppliers).
- "Free-market policies rarely make poor countries rich." With a few exceptions, all of today's rich countries, including Britain and the U.S., reached that status through protectionism, subsidies, and other policies that they and their IMF, WTO, and World Bank now advise developing nations not to adopt. Free-market economists usually respond that the U.S. succeeded despite, not because of, protectionism. The problem with that explanation is the number of other nations paralleling the early growth strategy of the U.S. and Britain (Austria, Finland, France, Germany, Japan, Korea, Singapore, Sweden, Taiwan), and the fact that apparent exceptions (Hong Kong, Switzerland, The Netherlands) did so by ignoring foreign patents (a free-market 'no-no'). Chang believes the 'official historians' of capitalism have been very successful re-writing its history, akin to someone trying to 'kick away the ladder' with which they had climbed to the top. He also points out that developing nations that stick to their Ricardian 'comparative advantage,' per the conservatives prescription, condemn themselves to their economic status quo.
- "We do not live in a post-industrial age." Most of the fall in manufacturing's share of total output is not due to a fall in the quantity of manufactured goods, but due to the fall in their prices relative to those for services, caused by their faster productivity growth. A small part of deindustrialization is due to outsourcing of some 'manufacturing' activities that used to be provided in-house - e.g.. catering and cleaning. Those advising the newly developing nations to skip manufacturing and go directly to providing services forget that many services mainly serve manufacturing firms (finance, R&D, design), and that since services are harder to export, such an approach will create balance-of-payment problems. (Chang's preceding points directly contradict David Ricardo's law of comparative advantage - a fundamental free market precept. Chang's example of how Korea built Pohang Steel into a strong economic producer, despite lacking experienced managers and natural resources, is another.)
- "The U.S. does not have the highest living standard in the world." True, the average U.S. citizen has greater command over goods and services than his counterpart in almost any other country, but this is due to higher immigration, poorer employment conditions, and working longer hours for many vs. their foreign counterparts. The U.S. also has poorer health indicators and worse crime statistics. We do have the world's second highest income per capita - Luxemburg's higher, but measured in terms of purchasing power parity (PPP) the U.S. ranks eighth. (The U.S. doesn't have the fastest growing economy either - China is predicted to pass the U.S. in PPP this coming decade.) Chang's point here is that we should stop assuming the U.S. provides the best economic model. (This is already occurring - the World Bank's chief economist, Justin Lin, comes from China.)
- "Governments can pick winners." Chang cites examples of how the Korean government built world-class producers of steel (POSCO), shipbuilding (Hyundai), and electronics (LG), despite lacking raw materials or experience for those sectors. True, major government failures have occurred - Europe's Concorde, Indonesia's aircraft industry, Korea's promotion of aluminum smelting, and Japan's effort to have Nissan take over Honda; industry, however, has also failed - e.g.. the AOL-Time Warner merger, and the Daimler-Chrysler merger. Austria, China, Finland, France, Japan, Norway, Singapore (in numerous other areas), and Taiwan have also done quite well with government-picked winners. Another problem is that business and national interests sometimes clash - e.g.. American firms' massive outsourcing has undermined the national interest of maintaining full employment. (However, greater unbiased U.S. government involvement would be difficult due to the 10,000+ corporate lobbyists and billions in corporate campaign donations - $500 million alone from big oil in 2009-10.) Also interesting to Chang is how conservative free marketing bankers in the U.S. lined up for mammoth low-cost loans from the Federal Reserve at the beginning of the Great Recession. Government planning allows minimizing excess capacity, maximizing learning-curve economies and economies of scale and scope; operational performance is enhanced by also forcing government-owned or supported firms into international competition. Government intervention (loans, tariffs, subsidies, prohibiting exports of needed raw materials, building infrastructure) are necessary for emerging economies to move into more sophisticated sectors.
- "Making rich people richer doesn't make the rest of us richer." 'Trickle-down' economics is based on the belief that the poor maximize current consumption, while the rich, left to themselves, mostly invest. However, the years 1950-1973 saw the highest-ever growth rates in the U.S., Canada, Australia, and New Zealand, despite increased taxation of the rich. Before the 'Golden Age,' per capita income grew at 1-1.5%/year; during the Golden Age it grew at 2-3% in the U.S. Since then, tax cuts for the rich and financial deregulation have allowed greater paychecks for top managers and financiers, and between 1979 and 2006 the top 0.1% increased their share of national income from 3.5% to 11.6%. The result - investment as a ratio of national output has fallen in all rich economies and the pace at which the total economic pie grew decreased.
- "U.S. managers are over-priced." First, relative to their predecessors (about 10X those in the 1960s; now 300-400X the average worker), despite the latter having run companies more successfully, in relative terms. Second, compared to counterparts in other rich countries - up to 20X. (Third, compared to counterparts in developing nations - e.g.. JPMorgan Chase, world's 4th largest bank, paid its CEO $19.6 million in 2008, vs. the CEO of the Industrial and Commercial Bank of China, the world's largest, being paid $234,700. Read more ›
Willem Buiter in his FT article After the Crisis Macro Imbalance, Credibility and Reserve-Currency suggested that after financial crisis of 2008 there might be very long a painful deleveraging period aka secular stagnation. He was right.
In short each financial crisis make recovery longer and longer. That's why the US will most likely face a long period of stagnation: the digestion of huge excessive debt of the private sector might well take a decade:
Since the excess of debt is relative to income and GDP, the lower the rate of growth, the longer the required period of digestion. This explains for the paradox of trying to stimulate consumption when the economy faces a monumental crisis provoked exactly by excessive debt and excessive consumption. A cartoon line best captured the spirit of it: "country addicted to speculative bubbles desperately searches a new bubble to invest in. "
... ... ...
The roots of the crisis are major international macroeconomic imbalances. Despite the fact that the excesses of the financial system were instrumental to lead these imbalances further than otherwise possible, insufficient regulation should not be viewed as the main factor behind the crisis. The expenditure of central countries, spinned by all sort of financial innovations created by a globalized financial system, was the engine of world growth. When debt became clearly excessive in central countries and the debt-financed expenditure cycle came to an end, the ensuing crisis paralyzed the world economy. With the lesson of 1929 well assimilated, American monetary policy became aggressively expansionist. The Fed inundated the economy with money and credit, in the attempt to avoid a deep depression. Even if successful, the economies of the US and the other central countries, given the burden of excessive debt, are likely to remain stagnant under the threat of deflation for the coming years. The assumption of troubled assets by the public sector, in order to avoid the collapse of the financial system, might succeed, but at the cost of a major increase in public debt. Fiscal policy is not efficient to restart the economy when the private sector remains paralyzed by excessive debt. Even if a coordinated effort to increase public expenditure is successful, the central economies will remain stagnant for as long as the excessive indebtedness of the private sector persists. The period of digestion of excess debt will be longer than the usual recessive cycle. Since imports represent a drain in the effort to reanimate domestic demand through public expenditure, while exports, on the contrary, contribute to the recovery of internal demand, the temptation to central economies to also adopt a protectionist stance will be strong.
Willem Buiter also defined ‘cognitive regulatory capture’ which existed during the Greenspan years and when the Fed were just an arm of Wall Street.
This regulatory capture has resulted in an excess sensitivity of the Fed to financial market and financial sector concerns and fears and in an overestimation of the strength of the link between financial market turmoil and financial sector deleveraging and capital losses on the one hand, and the stability and prosperity of the wider economy on the other hand. The paper gives five examples of recent behavior by the Fed that are most readily rationalized with the assumption of regulatory capture. The abstract of the paper follows next. The latest version of the entire enchilada can be found here. Future revisions will also be found there.
No. 1: Reagan Fires Fed Chairman Volcker and Replaces Him With Greenspan in 1987:
Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.
If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you’ll get. A flood of liquidity combined with the failed levees of regulation proved disastrous.
Greenspan presided over not one but two financial bubbles.
I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will create Chinese walls to make sure that the problems of the past do not recur. As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest—toward short-term self-interest, at any rate, rather than Tocqueville’s "self interest rightly understood."
Stiglitz also refers to a 2004 decision by the SEC "to allow big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process."
Once more, it was deregulation run amuck, and few even noticed.
The Bush administration was providing an open invitation to excessive borrowing and lending—not that American consumers needed any more encouragement.
Here he refers to bad accounting, the failure to address problems with stock options, and the incentive structures of ratings agencies like Moodys that led them to give high ratings to toxic assets.
Valuable time was wasted as Paulson pushed his own plan, "cash for trash," buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.
The flawed economic philosophy brought by Reagan, and embraced by so many, brought us to this day. Ideas have consequences, especially when we stop empirically testing them. Republican economics have created great pain to America and harmed our national interest.
The flaw that Greenspan found was always there: self-regulation does not work. As Stiglitz said:
As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest — toward short-term self-interest
Yes, for all their claims to science, the premise conflicts with tendencies of people.
This is the real legacy of Ronald Reagan and Alan Greenspan:
The whole scheme was kick-started under Ronald Reagan. Between his tax cuts for the rich and the Greenspan Commission’s orchestrated Social Security heist, working Americans lost out in a generational wealth transfer shift now exceeding $1 trillion annually from 90 million working class households to for-profit corporations and the richest 1% of the population. It created an unprecedented wealth disparity that continues to grow, shames the nation and is destroying the bedrock middle class without which democracy can’t survive.
Greenspan helped orchestrate it with economist Ravi Batra calling his economics "Greenomics" in his 2005 book "Greenspan’s Fraud." It "turns out to be Greedomics" advocating anti-trust laws, regulations and social services be ended so "nothing....interfere(s) with business greed and the pursuit of profits."
In Orwell's Animal Farm all animals are equal - except that some are more equal than others. All in the spirit of law, order and the proper functioning of society, of course. Fittingly, the animals that have chosen this role by themselves and for themselves, are the pigs.
Cut to US financial markets today. After years of swinish behavior more reminiscent of Animal House than anything else, the pigs are threatening to destroy the entire farm. As if it wasn't enough that they devoured all the "free market" food available and inundated the world with their excreta, they now wish to be put on the public trough. Truly, some businessmen believe they are more equal than others.
But do not blame the pigs; they are expected to act as swine nature dictates. The fault lies entirely with the farmers, those authorities entrusted by the people to oversee the farm because they supposedly knew better. While the pigs were rampaging and tearing the place apart, they were assuring us all that farms function best when animals are free to do as they please, guided solely by invisible hooves. No regulation, no oversight, no common sense. Oh yes, and pigs fly..
So what is to be done now? Two things:
- (a) Let financial markets sort themselves out, but with rock solid backing for bank depositors, pension funds and public institutions. The public purse should not be used to bail out - directly or indirectly - speculators in hedge funds, private equity funds and the like. Those that live by the leverage sword can defend themselves or perish by credit destruction.
- (b) Revamp public policy towards increasing earned income for working people.
In other words, the focus from now on should be on adding value by means of work and savings (capital formation), instead of inflating assets and borrowing.
Furthermore, we should realize that in a world already inhabited by close to 7 billion people and beset by resource depletion and environmental degradation, defending growth for growth's sake is a losing proposition. The wheels are already wobbling on the Permagrowth model; pumping harder on the accelerator is not going to make it go any faster and will likely result in a fatal crash.
Debt, and finance in general, should be left to re-size downwards to a level that better reflects the carrying capacity of our world. The Fed's current actions are shortsighted and "conservative" in the worst interpretation of the words: they are designed to artificially maintain debt at levels that myopically projects growth as far as the eye can see.
What level of resizing may be necessary? I hope not as much as at Bear Stearns, which got itself bought by Morgan at buzz-saw prices: $2 per share represents a 98% discount from its $84 book value. What scares me, though, is the statement by Morgan's CFO, who said the price reflected the risk the firm was taking, even though he was comfortable with the valuation of assets in Bear's books. It "...gives us the flexibility and margin of error that's appropriate given the speed at which the transaction came together", he said.
If it takes a 98% discount and the explicit guarantee of the Fed for a large portion of assets to buy one of the largest investment banks in the world, where should all other financial firms be trading at? ....Hello? Anyone? Is that a great big silence I hear, or the sound of credit imploding into a vacuum?
Dec 14, 2017 | www.nakedcapitalism.com
Yves here. I imagine many readers are acutely aware of the problems outlined in this article, if not beset by them already. By any rational standard, I should move now to a much cheaper country that will have me. I know individuals who live most of the year in third-world and near-third world countries, but they have very cheap ways of still having a toehold in the US and not (yet or maybe ever) getting a long-term residence visa. Ecuador is very accommodating regarding retirement visas, and a Social Security level income goes far there, but yours truly isn't retiring any time soon. And another barrier to an international move (which recall I did once, so I have some appreciation for what it takes), is that one ought to check out possible destinations but if you are already time and money and energy stressed, how do you muster the resources to do that at all, let alone properly?
Aside from the potential to greatly reduce fixed costs, a second impetus for me is Medicare. I know for most people, getting on Medicare is a big plus. I have a very rare good, very old insurance policy. When you include the cost of drug plans, Medicare is no cheaper than what I have now, and considerably narrows my network. Moreover, I expect it to be thoroughly crapified by ten years from now (when I am 70), which argues for getting out of Dodge sooner rather than later.
And that's before you get to another wee problem Lambert points out that I would probably not be happy in a third world or high end second world country. But the only bargain "world city" I know of is Montreal. I'm not sure it would represent enough of an all-in cost saving to justify the hassle of an international move and the attendant tax compliance burdens .and that charitably assumes I could even find a way to get permanent residence. Ugh.
By Alex Henderson, who has written for the L.A. Weekly, Billboard, Spin, Creem, the Pasadena Weekly and many other publications. Follow him on Twitter @alexvhenderson. Originally published at Alternet
Millions can no longer afford to retire, and may never be able when the GOP passes its tax bill.
The news is not good for millions of aging Baby Boomers and Gen Xers in the United States who are moving closer to retirement age. According to the Employee Benefit Research Institute's annual report on retirement preparedness for 2017, only 18 percent of U.S.-based workers feel "very confident" about their ability to retire comfortably ; Craig Copeland, senior research associate for EBRI and the report's co-author, cited "debt, lack of a retirement plan at work, and low savings" as "key factors" in workers' retirement-related anxiety. The Insured Retirement Institute finds a mere 23 percent of Baby Boomers and 24 percent of Gen Xers are confident that their savings will last in retirement. To make matters worse, more than 40 percent of Boomers and over 30 percent of Gen Xers report having no retirement savings whatsoever .
The U.S. has a retirement crisis on its hands, and with the far right controlling the executive branch and both houses of Congress, as well as dozens of state governments, things promise to grow immeasurably worse.
It wasn't supposed to be this way. Past progressive presidents, notably Franklin D. Roosevelt and Lyndon B. Johnson, took important steps to make life more comfortable for aging Americans. FDR signed the Social Security Act of 1935 into law as part of his New Deal, and when LBJ passed Medicare in 1965, he established a universal health care program for those 65 and older. But the country has embraced a neoliberal economic model since the election of Ronald Reagan, and all too often, older Americans have been quick to vote for far-right Republicans antagonistic to the social safety net.
In the 2016 presidential election, 55 percent of voters 50 and older cast their ballots for Donald Trump against just 44 percent for Hillary Clinton. (This was especially true of older white voters; 90 percent of black voters 45 and older, as well as 67 percent of Latino voters in the same age range voted Democratic.)
Sen. Bernie Sanders' (I-VT) economic proposals may have been wildly popular with millennials, but no demographic has a greater incentive to vote progressive than Americans facing retirement. According to research conducted by the American Association of Retired Persons, the three greatest concerns of Americans 50 and older are Social Security, health care costs and caregiving for loved ones -- all areas that have been targeted by Republicans.
House of Representatives Speaker Paul Ryan, a devotee of social Darwinist Ayn Rand , has made no secret of his desire to privatize Social Security and replace traditional Medicare with a voucher program. Had George W. Bush had his way and turned Social Security over to Wall Street, the economic crash of September 2008 might have left millions of senior citizens homeless.
Since then, Ryan has doubled down on his delusion that the banking sector can manage Social Security and Medicare more effectively than the federal government. Republican attacks on Medicare have become a growing concern: according to EBRI, only 38 percent of workers are confident the program will continue to provide the level of benefits it currently does.
The GOP's obsession with abolishing the Affordable Care Act is the most glaring example of its disdain for aging Americans. Yet Obamacare has been a blessing for Boomers and Gen Xers who have preexisting conditions. The ACA's guaranteed issue plans make no distinction between a 52-year-old American with diabetes, heart disease or asthma and a 52-year-old who has never had any of those illnesses. And AARP notes that under the ACA, the uninsured rate for Americans 50 and older decreased from 15 percent in 2013 to 9 percent in 2016.
According to the Congressional Budget Office, the replacement bills Donald Trump hoped to ram through Congress this year would have resulted in staggering premium hikes for Americans over 50. The CBO's analysis of the American Health Care Act, one of the earlier versions of Trumpcare, showed that a 64-year-old American making $26,500 per year could have gone from paying $1,700 annually in premiums to just over $16,000. The CBO also estimated that the GOP's American Health Care Act would have deprived 23 million Americans of health insurance by 2026.
As 2017 winds down, Americans with health problems are still in the GOP's crosshairs -- this time because of so-called tax reform. The Tax Cuts and Jobs Act (both the House and Senate versions) includes provisions that would undermine Obamacare and cause higher health insurance premiums for older Americans. According to AARP, "Older adults ages 50-64 would be at particularly high risk under the proposal, facing average premium increases of up to $1,500 in 2019 as a result of the bill."
The CBO estimates that the bill will cause premiums to spike an average of 10 percent overall, with average premiums increasing $890 per year for a 50-year-old, $1,100 per year for a 55-year-old, $1,350 per year for a 60-year-old and $1,490 per year for a 64-year-old. Premium increases, according to the CBO, would vary from state to state; in Maine, average premiums for a 64-year-old would rise as much as $1,750 per year.
Countless Americans who are unable to afford those steep premiums would lose their insurance. The CBO estimates that the Tax Cuts and Jobs Act would cause the number of uninsured under 65 to increase 4 million by 2019 and 13 million by 2027. The bill would also imperil Americans 65 and over by cutting $25 billion from Medicare .
As morally reprehensible as the GOP's tax legislation may be, it is merely an acceleration of the redistribution of wealth from the bottom to the top that America has undergone since the mid-1970s. (President Richard Nixon may have been a paranoid right-winger with authoritarian tendencies, but he expanded Medicare and supported universal health care.) Between the decline of labor unions, age discrimination, stagnant wages, an ever-rising cost of living, low interest rates, and a shortage of retirement accounts, millions of Gen Xers and Baby Boomers may never be able to retire.
Traditional defined-benefit pensions were once a mainstay of American labor, especially among unionized workers. But according to Pew Charitable Trusts, only 13 percent of Baby Boomers still have them (among millennials, the number falls to 6 percent). In recent decades, 401(k) plans have become much more prominent, yet a majority of American workers don't have them either.
Analyzing W2 tax records in 2012, U.S. Census Bureau researchers Michael Gideon and Joshua Mitchell found that only 14 percent of private-sector employers in the U.S. were offering a 401(k) or similar retirement packages to their workers. That figure was thought to be closer to 40 percent, but Gideon and Mitchell discovered the actual number was considerably lower when smaller businesses were carefully analyzed, and that larger companies were more likely to offer 401(k) plans than smaller ones.
Today, millions of Americans work in the gig economy who don't have full-time jobs or receive W2s, but instead receive 1099s for freelance work. Tax-deferred SEP-IRAs were once a great, low-risk way for freelancers to save for retirement without relying exclusively on Social Security, but times have changed since the 1980s and '90s when interest rates were considerably higher for certificates of deposit and savings accounts. According to Bankrate.com, average rates for one-year CDs dropped from 11.27 percent in 1984 to 8.1 percent in 1990 to 5.22 percent in 1995 to under 1 percent in 2010, where it currently remains.
The combination of stagnant wages and an increasingly high cost of living have been especially hellish for Americans who are trying to save for retirement. The United States' national minimum wage, a mere $7.25 per hour, doesn't begin to cover the cost of housing at a time when rents have soared nationwide. Never mind the astronomical prices in New York City, San Francisco or Washington, D.C. Median rents for one-bedroom apartments are as high as $1,010 per month in Atlanta, $960 per month in Baltimore, $860 per month in Jacksonville and $750 per month in Omaha, according to ApartmentList.com.
That so many older Americans are renting at all is ominous in its own right. FDR made home ownership a primary goal of the New Deal, considering it a key component of a thriving middle class. But last year, the Urban Institute found that 19 million Americans who previously owned a home are now renting, 31 percent between the ages of 36 and 45. Laurie Goodman, one of the study's authors, contends the Great Recession has "permanently raised the number of renters," and that the explosion of foreclosures has hit Gen Xers especially hard.
The severity of the U.S. retirement crisis is further addressed in journalist Jessica Bruder's new book "Nomadland: Surviving America in the 21st Century," which follows Americans in their 50s, 60s and even 70s living in RVs or vans , barely eking out a living doing physically demanding, seasonal temp work from harvesting sugar beets to cleaning toilets at campgrounds. Several had high-paying jobs before their lives were blown apart by the layoffs, foreclosures and corporate downsizing of the Great Recession. Bruder speaks with former college professors and software professionals who now find themselves destitute, teetering on the brink of homelessness and forced to do backbreaking work for next to nothing. Unlike the big banks, they never received a bailout.
These neo-nomads recall the transients of the 1930s, themselves victims of Wall Street's recklessness. But whereas FDR won in a landslide in 1932 and aggressively pursued a program of progressive economic reforms, Republicans in Congress have set out to shred what little remains of the social safety net, giving huge tax breaks to millionaires and billionaires . The older voters who swept Trump into office may have signed their own death warrants.
If aging Americans are going to be saved from this dystopian future, the U.S. will have to forge a new Great Society. Programs like Social Security, Medicare and Medicaid will need to be strengthened, universal health care must become a reality and age discrimination in the workplace will have to be punished as a civil rights violation like racial and gender-based discrimination. If not, millions of Gen Xers and Boomers will spend their golden years scraping for pennies.
Expat , , December 14, 2017 at 6:29 amvidimi , , December 14, 2017 at 6:40 am
I certainly will never go back to the States for these and other reasons. I have a friend, also an American citizen, who travels frequently back to California to visit his son. He is truly worried about getting sick or having an accident when he is there since he knows it might bankrupt him. As he jokes, he would be happy to have another heart attack here in France since it's free!
For those of you who have traveled the world and talked to people, you probably know that most foreigners are perplexed by America's attitude to health care and social services. The richest nation in the world thinks that health and social security (in the larger sense of not being forced into the street) are not rights at all. Europeans scratch their heads at this.
The only solution is education and information, but they are appalling in America. America remains the most ignorant and worst educated of the developed nations and is probably beaten by many developing nations. It is this ignorance and stupidity that gets Americans to vote for the likes of Trump or any of the other rapacious millionaires they send to office every year.
A first step would be for Americans to insist that Congress eliminate its incredibly generous and life-long healthcare plans for elected officials. They should have to do what the rest of Americans do. Of course, since about 95% of Congress are millionaires, it might not be effective. But it's a start.Marco , , December 14, 2017 at 6:46 am
France has its share of problems, but boy do they pale next to the problems in America or even Canada. Life here is overall quite pleasant and I have no desire to go back to N.A.WobblyTelomeres , , December 14, 2017 at 7:47 am
Canada has problems?vidimi , , December 14, 2017 at 8:03 am
Was in Yellowknife a couple of years ago. The First Nations people have a rough life. From what I've read, such extends across the country.JEHR , , December 14, 2017 at 1:46 pm
yeah, Canada has a neoliberal infestation that is somewhere between the US and the UK. France has got one too, but it is less advanced. I'll enjoy my great healthcare, public transportation, and generous paid time off while I can.JEHR , , December 14, 2017 at 1:55 pm
The newest neoliberal effort in Canada was put forward by our Minister of Finance (a millionaire) who is touting a bill that will get rid of defined benefit pension plans given to public employees for so-called target benefit pension plans. The risk for target plans is taken by the recipient. Morneau's former firm promotes target benefit pension plans and the change could benefit Morneau himself as he did not put his assets from his firm in a blind trust. At the very least, he has a conflict of interest and should probably resign.
There is always an insidious group of wealthy people here who would like to re-make the world in their own image. I fear for the future.Dita , , December 14, 2017 at 8:25 am
Yes, I agree. There is an effort to "simplify" the financial system of the EU to take into account the business cycle and the financial cycle .jefemt , , December 14, 2017 at 10:02 am
Europeans may scratch their heads, but they should recall their own histories and the long struggle to the universal benefits now enjoyed. Americans are far too complacent. This mildness is viewed by predators as weakness and the attacks will continue.Scramjett , , December 14, 2017 at 1:43 pm
We really should be able to turn this around, and have an obligation to ourselves and our 'nation state' , IF there were a group of folks running on a fairness, one-for-all, all-for-one platform. That sure isn't the present two-sides-of-the-same-coin Democraps and Republicrunts.
Not sure if many of the readers here watch non-cable national broadcast news, but Pete Peterson and his foundation are as everpresent an advertiser as the pharma industry. Peterson is the strongest, best organized advocate for gutting social services, social security, and sending every last penny out of the tax-mule consumer's pocket toward wall street. The guy needs an equivalent counterpoint enemy.
Check it out, and be vigilant in dispelling his message and mission. Thanks for running this article.
Running away: the almost-haves run to another nation state, the uber-wealthy want to leave the earth, or live in their private Idaho in the Rockies or on the Ocean. What's left for the least among us? Whatever we create?
https://www.pgpf.org/sierra7 , , December 14, 2017 at 8:45 pm
I think pathologically optimistic is a better term than complacent. Every time someone dumps on them, their response is usually along the lines of "Don't worry, it'll get better," "Everything works itself out in the end," "maybe we'll win the lottery," my personal favorite "things will get better, just give it time" (honestly it's been 40 years of this neoliberal bullcrap, how much more time are we supposed to give it?), "this is just a phase" or "we can always bring it back later and better than ever." The last one is most troubling because after 20 years of witnessing things in the public sphere disappearing, I've yet to see a single thing return in any form at all.
I'm not sure where this annoying optimism came from but I sure wish it would go away.Jeremy Grimm , , December 14, 2017 at 4:44 pm
The "optimism" comes from having a lack of historical memory. So many social protections that we have/had is seen as somehow coming out of the ether benevolently given without any social struggles. The lack of historical education on this subject in particular is appalling. Now, most would probably look for an "APP" on their "dumbphones" to solve the problem.
The social advantages that we still enjoy were fought in the streets, and on the "bricks" flowing with the participants blood. 8 hr. day; women's right to vote; ability and right for groups of laborers to organize; worker safety laws ..and so many others. There is no historical memory on how those rights were achieved. We are slowly slipping into an oligarchy greased by the idea that the physical possession of material things is all that matters. Sheeple, yes.Expat , , December 14, 2017 at 6:10 pm
WOW! You must have been outside the U.S. for a long time. Your comment seems to suggest we still have some kind of democracy here. We don't get to pick which rapacious millionaires we get to vote for and it doesn't matter any way since whichever one we pick from the sad offerings ends up with policies dictated from elsewhere.Disturbed Voter , , December 14, 2017 at 6:29 am
Mmm, I think American voters get what they want in the end. They want their politicians because they believe the lies. 19% of Americans believe they are in the top 1% of wealth. A huge percentage of poor people believe they or their kids will (not can, but will) become wealthy. Most Americans can't find France on a map.
So, yes, you DO get to pick your rapacious millionaire. You send the same scumbags back to Washington every year because it's not him, it the other guys who are the problem. One third of Americans support Trump! Really, really support him. They think he is Jesus, MacArthur and Adam Smith all rolled up into one.
I may have been gone for about thirty years, but that has only sharpened my insights into America. It's very hard to see just how flawed America is from the inside but when you step outside and have some perspective, it's frightening.Carolinian , , December 14, 2017 at 8:05 am
The Democrat party isn't a reform party. Thinking it is so, is because of the "No Other Choice" meme. Not saying that the Republican party works in my favor. They don't. Political reform goes deeper than reforming either main party. It means going to a European plurality system (with its own downside). That way growing Third parties will be viable, if they have popular, as opposed to millionaire, support. I don't see this happening, because of Citizens United, but if all you have is hope, then you have to go with that.KYrocky , , December 14, 2017 at 12:05 pm
Had George W. Bush had his way and turned Social Security over to Wall Street, the economic crash of September 2008 might have left millions of senior citizens homeless.
Substitute Bill Clinton for George Bush in that sentence and it works just as well. Neoliberalism is a bipartisan project.
And many of the potential and actual horrors described above arise from the price distortions of the US medical system with Democratic acquiescence in said system making things worse. The above article reads like a DNC press release.
And finally while Washington politicians of both parties have been threatening Social Security for years that doesn't mean its third rail status has been repealed. The populist tremors of the last election -- which have caused our elites to lose their collective mind -- could be a mere prelude to what will happen in the event of a full scale assault on the safety net.rps , , December 14, 2017 at 5:01 pm
Substitute Obama's quest for a Grand Bargain as well.
Our government, beginning with Reagan, turned its back on promoting the general welfare. The wealthy soon learned that their best return on investment was the "purchase" of politicians willing to pass the legislation they put in their hands. Much of their investment included creating the right wing media apparatus.
The Class War is real. It has been going on for 40 years, with the Conservative army facing virtually no resistance. Conservatives welcome Russia's help. Conservatives welcome barriers to people voting. Conservatives welcome a populace that believes lies that benefit them. Conservatives welcome the social and financial decline of the entire middle class and poor as long as it profits the rich financially, and by extension enhances their power politically.
If retirees flee our country that will certainly please the Conservatives as that will be fewer critics (enemies). Also less need or demand for social programs.tegnost , , December 14, 2017 at 8:59 am
"Single acts of tyranny may be ascribed to the accidental opinion of the day, but a series of oppressions, begun at a distinguished period and pursued unalterably through every change of ministers, too plainly prove a deliberate, systematic plan of reducing [a people] to slavery" Thomas Jefferson. Rights of British America, 1774 ME 1:193, Papers 1:125Marco , , December 14, 2017 at 6:55 am
yes, my problem with the post as well, completely ignores democrat complicity the part where someone with a 26k salary will pay 16k in insurance? No they won't, the system would collapse in that case which will be fine with me.OpenThePodBayDoorsHAL , December 14, 2017 at 3:57 pm
"President Richard Nixon may have been a paranoid right-winger with authoritarian tendencies, but he expanded Medicare and supported universal health care."
"Gimme that old time Republican!"
One of the reasons I love NC is that most political economic analysis is often more harsh on the Democrats than the Repubs so I am a bit dismayed how this article is way too easy on Team D. How many little (and not so little) knives in the back from Clinton and Obama? Is a knife in the chest that much worse?tagio , December 14, 2017 at 4:39 pm
This entire thread is simply heartbreaking, Americans have had their money, their freedom, their privacy, their health, and sometimes their very lives taken away from them by the State. But the heartbreaking part is that they feel they are powerless to do anything at all about it so are just trying to leave.
But "People should not fear the government; the government should fear the people"
It's more than a feeling, HAL. https://www.newyorker.com/news/john-cassidy/is-america-an-oligarchy Link to the academic paper embedded in article.
As your quote appears to imply, it's not a problem that can be solved by voting which, let's not forget, is nothing more than expressing an opinion. I am not sticking around just to find out if economically-crushed, opiod-, entertainment-, social media-addled Americans are actually capable of rolling out tumbrils for trips to the guillotines in the city squares. I strongly suspect not.
This is the country where, after the banks crushed the economy in 2008, caused tens of thousands to lose their jobs, and then got huge bailouts, the people couldn't even be bothered to take their money out of the big banks and put it elsewhere. Because, you know, convenience! Expressing an opinion, or mobilizing others to express an opinion, or educating or proselytizing others about what opinion to have, is about the limit of what they are willing, or know how to do.
Dec 14, 2017 | www.nakedcapitalism.com
December 14, 2017 by Yves Smith Yves here. Notice that Costa Rica is served up as an example in this article. Way back in 1997, American Express had designated Costa Rica as one of the countries it identified as sufficiently high income so as to be a target for a local currency card offered via a franchise agreement with a domestic institution (often but not always a bank). 20 years later, the Switzerland of Central America still has limited Internet connectivity, yet is precisely the sort of place that tech titans like Google would like to dominate.
The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers.
By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy
Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation.
n a few weeks' time, trade ministers from 164 countries will gather in Buenos Aires for the 11th World Trade Organization (WTO) Ministerial Conference (MC11). US President Donald Trump in November issued fresh accusations of unfair treatment towards the US by WTO members , making it virtually impossible for trade ministers to leave the table with any agreement in substantial areas.
To avoid a 'failure ministerial," some countries see the solution as pushing governments to open a mandate to start conversations that might lead to a negotiation on binding rules for e-commerce and a declaration of the gathering as the "digital ministerial". Argentina's MC11 chair, Susana Malcorra, is actively pushing for member states to embrace e-commerce at the WTO, claiming that it is necessary to " bridge the gap between the haves and have-nots ".
It is not very clear what kind of gaps Malcorra is trying to bridge. It surely isn't the "connectivity gap" or "digital divide" that is growing between developed and developing countries, seriously impeding digital learning and knowledge in developing countries. In fact, half of humanity is not even connected to the internet, let alone positioned to develop competitive markets or bargain at a multilateral level. Negotiating binding e-commerce rules at the WTO would only widen that gap.
Dangerously, the "South Vision" of digital trade in the global trade arena is being shaped by a recent alliance of governments and well-known tech-sector lobbyists, in a group called 'Friends of E-Commerce for Development' (FED), including Argentina, Chile, Colombia, Costa Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, Uruguay, and, most recently, China. FED claims that e-commerce is a tool to drive growth, narrow the digital divide, and generate digital solutions for developing and least developed countries.
However, none of the countries in the group (apart from China) is leading or even remotely ready to be in a position to negotiate and push for binding rules on digital trade that will be favorable to them, as their economies are still far away from the technology revolution. For instance, it is perplexing that one of the most fervent defenders of FED's position is Costa Rica. The country's economy is based on the export of bananas, coffee, tropical fruits, and low-tech medical instruments, and almost half of its population is offline . Most of the countries in FED are far from being powerful enough to shift negotiations in favor of small players.
U.S.-based tech giants and Chinese Alibaba – so-called GAFA-A – dominate, by far, the future of the digital playing field, including issues such as identification and digital payments, connectivity, and the next generation of logistics solutions. In fact, there is a no-holds-barred ongoing race among these tech giants to consolidate their market share in developing economies, from the race to grow the advertising market to the race to increase online payments.
An e-commerce agenda that claims unprecedented development for the Global South is a Trojan horse move. Beginning negotiations on such topics at this stage – before governments are prepared to understand what is at stake – could lead to devastating results, accelerating liberalization and the consolidation of the power of tech giants to the detriment of local industries, consumers, and citizens. Aware of the increased disparities between North and South, and the data dominance of a tiny group of GAFA-A companies, a group of African nations issued a statement opposing the digital ambitions of the host for MC11. But the political landscape is more complex, with China, the EU, and Russia now supporting the idea of a "digital" mandate .
Repeating the Same Mistakes?
The relationships of most countries with tech companies are as imbalanced as their relationships with Big Pharma, and there are many parallels to note. Not so long ago, the countries of the Global South faced Big Pharma power in pharmaceutical markets in a similar way. Some developing countries had the same enthusiasm when they negotiated intellectual property rules for the protection of innovation and research and development costs. In reality, those countries were nothing more than users and consumers of that innovation, not the owners or creators. The lessons of negotiating trade issues that lie at the core of public interest issues – in that case, access to medicines – were costly. Human lives and fundamental rights of those who use online services should not be forgotten when addressing the increasingly worrying and unequal relationships with tech power.
The threat before our eyes is similarly complex and equally harmful to the way our societies will be shaped in the coming years. In the past, the Big Pharma race was for patent exclusivity, to eliminate local generic production and keep drug prices high. Today, the Big Tech race is for data extractivism from those who have yet to be connected in the world, and tech companies will use all the power they hold to achieve a global regime in which small nations cannot regulate either data extraction or data localization.
Big Tech is one of the most concentrated and resourceful industries of all time. The bargaining power of developing countries is minimal. Developing countries will basically be granting the right to cultivate small parcels of a land controlled by data lords -- under their rules, their mandate, and their will -- with practically no public oversight. The stakes are high. At the core of it is the race to conquer the markets of digital payments and the battle to become the platform where data flows, splitting the territory as old empires did in the past. As the Economist claimed on May 6, 2017: "Conflicts over control of oil have scarred the world for decades. No one yet worries that wars will be fought over data. But the data economy has the same potential for confrontation."
If countries from the Global South want to prepare for data wars, they should start thinking about how to reduce the control of Big Tech over -- how we communicate, shop, and learn the news -- , again, over our societies. The solution lies not in making rules for data liberalization, but in devising ways to use the law to reduce Big Tech's power and protect consumers and citizens. Finding the balance would take some time and we are going to take that time to find the right balance, we are not ready to lock the future yet.
Jef , December 14, 2017 at 11:32 amThuto , December 14, 2017 at 2:14 pm
I thought thats what the WTO is for?Mark P. , December 14, 2017 at 3:30 pm
One suspects big money will be thrown at this by the leading tech giants. To paraphrase from a comment I made recently regarding a similar topic : "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world". With this dynamic in mind, and the "constant growth" mantra humming incessantly in the background, it's easy to see how high stakes a game this is for the tech giants and how no resources will be spared to stymie any efforts at establishing a regulatory oversight framework that will protect the digital rights of citizens in the global south.
Multilateral fora like the WTO are de facto enablers for the marauding frontal attacks of transnational corporations, and it's disheartening to see that some developing nations have already nailed the digital futures of their citizens to the mast of the tech giants by joining this alliance. What's more, this signing away of their liberty will be sold to the citizenry as the best way to usher them into the brightest of all digital futures.Thuto , December 14, 2017 at 4:58 pm
One suspects big money will be thrown at this by the leading tech giants.
Vast sums of money are already being thrown at bringing Africa online, for better or worse. Thus, the R&D aimed at providing wireless Internet via giant drones/balloons/satellites by Google, Facebook, etc.
You're African. Possibly South African by your user name, which may explain why you're a little behind the curve, because the action is already happening, but more to the north -- and particularly in East Africa.
The big corporations -- and the tech giants are competing with the banking/credit card giants -- have noted how mobile technology leapt over the dearth of last century's telephony tech, land lines, and in turn enabled the highest adoption rates of cellphone banking in the world. (Particularly in East Africa, as I say.) The payoffs for big corporations are massive -- de facto cashless societies where the corporations control the payment systems –and the politicians are mostly cheap.
In Nigeria, the government has launched a Mastercard-branded national ID card that's also a payment card, in one swoop handing Mastercard more than 170 million potential customers, and their personal and biometric data.
In Kenya, the sums transferred by mobile money operator M-Pesa are more than 25 percent of that country's GDP.
You can see that bringing Africa online is technically a big, decade-long project. But also that the potential payoffs are vast. Though I also suspect China may come out ahead -- they're investing far more in Africa and in some areas their technology -- drones, for instance -- is already superior to what the Europeans and the American companies have.Mark P. , December 14, 2017 at 6:59 pm
Thank you Mark P.
Hoisted from a comment I made here recently: "Here in South Africa and through its Free Basics programme, facebook is jumping into bed with unsuspecting ISPs (I say unsuspecting because fb will soon be muscling in on their territory and becoming an ISP itself by provisioning bandwidth directly from its floating satellites) and circumventing net neutrality "
I'm also keenly aware of the developments in Kenya re: safaricom and Mpesa and how that has led to traditional banking via bank accounts being largely leapfrogged for those moving from being unbanked to active economic citizens requiring money transfer facilities. Given the huge succes of Mpesa, I wouldn't be surprised if a multinational tech behemoth (chinese or american) were to make a play for acquiring safaricom and positioning it as a triple-play ISP, money transfer/banking services and digital content provider (harvesting data about users habits on an unprecedented scale across multiple areas of their lives), first in Kenya then expanded throughout east, central and west africa. I must add that your statement about Nigeria puts Mark Zuckerberg's visit there a few months back into context somewhat, perhaps a reconnaissance mission of sorts.
Out of idle curiosity, how could you accurately deduce my country of origin from my name?Mark P. , December 14, 2017 at 3:34 pm
Out of idle curiosity, how could you accurately deduce my country of origin from my name?
Though I've lived in California for decades, my mother was South African and I maintain a UK passport, having grown up in London.Mattski , December 14, 2017 at 3:41 pm
As you also write: "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world."
Absolutely true. This cannot be stressed enough. The tech giants know this and the race is on.
Been happening with food for 50 years.
Dec 14, 2017 | www.unz.com
BigAl , December 13, 2017 at 1:17 pm GMTThe 1970's was in many ways the watershed decade for the radical transformation of the American economy and society, even more than the 1960's (I lived through both as a young man). I have yet to read the definitive social-critical analysis of these years to explain the changes that, looking back, seem to have taken the country of my childhood right out from under me, gone forever, increasingly difficult to remember through the fog of nostalgia that tends to distort as much as to reveal.
Some of the things I do remember about this time include the PATCO (air traffic controllers) strike, very well. What is often not mentioned is that PATCO was attempting to do something that had not been permitted under federal civil service law, that is, bargain for wages as well as working conditions. Wage bargaining, PATCO correctly assessed, was the issue that made or broke unions and had enabled state and local public employees to finally begin to earn a decent, living wage beginning in the 1960's (think the iconic Mike Quill and the NYC TWU).
Reagan correctly (from his point of view) saw that to fail to break PATCO on this issue was to open the floodgates and turn the U.S. civil services into something akin to its European counterpart, with the possibility of general strikes and the rest. And of course to encourage private sector unions in their drive to organize and to change federal and state labor laws to strengthen the right to picket strike and organize.
What I also remember well however, is how little support PATCO was able to garnish from other unionized workers (and in many cases from union leadership as well). It seemed to me at the time that some of the strongest hostility came from rank and file of trade and utilities unions. Of course Reagan, following the Nixon playbook, shrewdly played the patriot-nationalist card, painting PATCO as a threat to national security as well as composed of a bunch of ingrates who should have been happy to have jobs. But by then the segmentation of the American workforce, a tactic that played right into the hands of the corporate-capitalist class was in full swing. The American worker lucky enough to possess a decent paying skilled or semi-skilled union job was being taught to see their situation as morally "deserved" and to see newer aspirants to similar positions, whether recently arrived immigrants or members of racial-ethnic groups previously suppressed by law, custom and prejudice as threats/dangers/enemies of their own recently won status.
I recall too that it was in the 1970's that the threat of "relocation", at that time mainly from the more heavily unionized north and northeastern states to the union-hostile south began to play a major role in the destruction of the power of labor. This was the beginning of the "globalization" factor and of the off-shoring of manufacturing jobs that has been commented on extensively and that took off a decade or so later. What is often not recalled is that unions and other pro-labor groups attempted to lobby Congress to amend the NLRA (National Labor Relations Act) and to appoint labor-friendly members to the NLRB to ensure that plant relocation would be a mandatory subject of bargaining and thus prevent unilateral (by capital ownership) relocation or the threat of relocation as a means to destroy the power of labor. They were, of course, not successful, and factories and business continued to move away from traditional centers of labor power and worker-protections, first to so-called "right-to-work" states and eventually to Asia.
And I remember the beginning of the financialization of the American corporation that I experienced on a "micro" scale, a kid lucky enough to have a summer job while in university at a large resource-extraction corporation's HQ in NYC. I recall white-collar conversations about compensation and about how salaries had steadily risen over the past decade (the company was said to be doing "really well"). And I remember how towards the end of my summer stints more and more conversation was about stock prices and Wall Street favor and about the new executive managerial style brought in by "those young MBA"s", and about (for the first time) worries of a "take-over" by "outsiders" (the company, although public, had had family leadership for many years).
And most of all I remember how gradually the material-economic components to the identity of the blue-collar and middle class worker were written out of existence. The great narrative, the myth that explains to us what it means to be "an American," no longer included any hint of class solidarity, of the kind of work we did, the pay we earned, the common living conditions in the small towns and urban neighborhoods and "cookie-cutter" suburbs of America.
Formerly the struggle of economic and material improvement was seen by most ordinary Americas as a struggle for certain necessary conditions to maintain, strengthen, and perpetuate a way-of-life in which the common core assumptions about the "good life" remained basically stable and unchallenged: family, stable job, residential security, public schools, public places -- neighborhood bars, coffee shops, civic clubs, parks and playgrounds -- where people could meet and interact as social equals.
The financialization of the economy, indeed of social life itself to a great extent, meant the drive for the maximization of private profit and the pursuit of interests and 'efficiencies" conceived entirely apart from any impact of the common good of society as a whole, and should have been seen as a grave threat to the very conditions of material and economic security, only recently achieved, that were the foundation of these other civic and social institutions.
Instead, through a grand and diabolical deceit cynically promulgated by a mostly Republican capitalist class of privilege, but also aided and abetted by a "new Left" that increasingly postured itself as the enemy of this older and more traditional way of life, the enemy was reconceived as the new "elites", the young, urban, hipster "Leftist" who despised the old ways and represented a singular assault on everything good about America.
Meanwhile, steadily, relentlessly, the material conditions and hard-won economic improvements that had gradually made small town, urban-neighborhood, and inner-suburban life decent and livable were being destroyed by a class that paid lip-service to Capra's Bedford Falls while at the same time endlessly working to transform it into Pottersville.
Dec 11, 2017 | stumblingandmumbling.typepad.com
Lucius has been poorly recently, which has required some trips to the vet and therefore a bill of a size that only David Davis could negotiate*. This has made me wonder: is there more to be said for the labour theory of value than we like to think?
For a long time, I've not really cared about this theory one way or the other. This is partly because I've not bothered much with questions of value; partly because, as John Roemer has shown, we don't need (pdf) a labour theory of value to suggest workers are exploited; and partly because the main Marxian charges against capitalism – for example that it entails relationships of domination – hold true (or not!) independently of the theory.
As I approach retirement, however, I've begun to change my mind. I think of major expenses in terms of labour-time because they mean I have to work longer. A trip to the vet is an extra fortnight of work; a good guitar an extra month, a car an extra year, and so on.
When I consider my spending, I ask: what must I give up in order to get that? And the answer is my time and freedom. My labour-time is the measure of value.
This is a reasonable basis for the claim that workers are exploited. To buy a bundle of goods and services, we must work a number of hours a week. But taking all workers together, the hours we work are greater than the hours needed to produce those bundles because we must also work to provide a profit for the capitalist. As Marx put it:
We have seen that the labourer, during one portion of the labour-process, produces only the value of his labour-power, that is, the value of his means of subsistence During the second period of the labour-process, that in which his labour is no longer necessary labour, the workman, it is true, labours, expends labour-power; but his labour, being no longer necessary labour, he creates no value for himself. He creates surplus-value which, for the capitalist, has all the charms of a creation out of nothing. This portion of the working-day, I name surplus labour-time.
For Marx, value was socially-necessary labour time: David Harvey is good on this. From this perspective, exploitation and alienation are linked. Workers are exploited because they must work longer than necessary to get their consumption bundle. And they are alienated because this work is unsatisfying and a source of unfreedom. Now, I'll concede that many people hate the labour theory of value. One reason for this is that many discussions of it quickly become obscurantist – as if "value" is some mystical entity embodied in commodities.
This, though, certainly was not Marx's intention. Quite the opposite. He intended his theory to be a demystification. He wanted to show how what looked like relations between things – the exchange of money for goods or labour-time – were in fact relations between people. And unequal ones at that.
What's more, the charge of obscurantism against Marx is an especially weak one when it comes from orthodox economics. Much of this invokes unobservable concepts such as the natural rate of unemployment, marginal productivity, utility, the marginal product of capital and natural rate of interest – ideas which, in the last two cases, might not even be theoretically coherent.
In fact, the LTV is reasonably successful by the standards of conventional economics: we have empirical evidence to suggest that it does (pdf) a decent (pdf) job of explaining (pdf) relative prices – not that this was how Marx intended it to be used.
You can of course, think of counter-examples to the theory. But so what? in the social sciences, no substantial theory is 100% true.
I suspect that some of the animosity to Marx's use of LTV arises because of a resistance to the inference that Marx drew from it – that workers are exploited. This issue, however, is independent of the validity of not of the LTV. For example, Roemer thinks workers are exploited without believing in the LTV, and Smith believed the LTV without arguing that workers were exploited.
By the (low) standards of economic theories, perhaps the LTV isn't so bad.
* He seems to be recovering now. The vet is also expected to make a full recovery eventually.
December 11, 2017 PermalinkComments
Luis Enrique , December 11, 2017 at 02:09 PMDavid Friedman , December 11, 2017 at 06:14 PM
But the LTV says more than the output of the economy is divided between the workers and the (suppliers and) owners of capital goods, doesn't it? I mean, mainstream econ says that too. And unless ownership of capital inputs to production is distributed equally across society, then some people consume things that other's labour has produced, which means workers must produce more than they consume. But again, that's basic mainstream stuff, not LVT. You end by saying you can believe in exploitation but not LVT, and vice versa, but the main body of this blog seems to be connecting the two. I am confused.
Of course if you have the ability to vary your labour supply, and labour is how you earn your money, then you ask yourself how much you need to work to purchase whatever. But again that's mainstream not LVT.ConfusedNeoLiberal , December 11, 2017 at 08:51 PM
Your version of the labor theory of value is one of Adam Smith's versions. I don't think it is Marx's, but I know Smith better than Marx.
And definitely not Ricardo's.Blissex , December 12, 2017 at 12:23 AM
What about value, in terms of risk among others, that the employers put in starting a new business?Blissex , December 12, 2017 at 12:29 AM
"Smith believed the LTV without arguing that workers were exploited."
The Marxian approach was interested in, as other commenters have said, in the specific capitalist case, where "capitalism" for him means strictly "labour for hire" by workers alienated from the means of production by their ownership by capitalists.
But the labour theory of value, as understood by what Marx called "classicals", applies also to all labour, and he used it in that sense.
My understanding of the classicals and the LTV is reduced to a minimum this:
- By "value" we mean "surplus".
- The "physiocrats" correctly identified "land" (mines, farms, the sea) as a producer of physical surplus: once corn seed produces a whole corn cob. The quantity of physical output appears to be greater than the quantity of physical input, a phenomenon that used to be called "fertility".
- However the "classicals" recognized that there is surplus also when the quantity of output is physically smaller than the quantity of input: a larger quantity of iron ore and coal gets turned into a much smaller quantity of metal called "spoon", and that generates surplus too.
- Since the surplus is not quantitative they called it a surplus of "ofelimity", of usefulness. A spoon is more useful than the physically larger quantity of iron ore and coal used to make it, in most contexts.
- So the question is what creates a surplus of ofelimity even if quantity shrinks drastically.
- The classicals observed that while quantitative surplus may be spontaneous, as in apple trees just produce apples by themselves, all cases involving a surplus of ofelimity involved the application of labour.
- The LTV is simply that observation: that the whole chain of surpluses of ofelimity always goes back to the application of labour, from the first people who chipped obsidian blocks into blades onwards.
- As such the LTV is not really a "theory": it is a generic principle. It would be more properly a theory if there was some kind of "law" that related the quantity of labour embedded in a commodity to the surplus of usefulness it seems to have. But any such law cannot be universal, because usefulness is strictly context dependent. Sraffa wrote some preliminary booklet about that :-).
Further understanding, which evolved after Marx, is that the LTV is just special case of the principle that what produces a surplus of usefulness is not labour per se, but the energy used in the transformation of a larger quantity of something into a smaller quantity of something else, and muscle power is just one way, even if it was the main one for a very long time, to obtain energy to transform a large quantity of less useful commodities into a smaller quantity of more useful commodities.
And this follows into the impression that I have derived from various authors that our high standards of living depend not on the high "productivity" of labour, but on the high "productivity" of fossil fuels, which are the product of the fertility of land.Blissex , December 12, 2017 at 01:14 AM
"value, in terms of risk among others, that the employers put in starting a new business?"
If the business produces a surplus, that is value added, than the surplus is the product of the energy/labour expended by all participants
How it is accounted for is one issue, especially over multiple time periods, and how it is shared out is a social relationship.
As to risk, everybody in the business runs the risk of not getting paid at the end of the month, and the opportunity cost of not doing something else, whichever labour they put in.
How risk and opportunity cost are accounted for, especially over multiple time periods, is another issue, and how they are shared is another social relationship.Luis Enrique , December 12, 2017 at 08:40 AM
"the surplus is the product of the energy/labour expended by all participants"
I'll perhaps further diminish the reputation of my "contributions" this way: perhaps all social relationships of production (at least among males) map closely onto (cursorial) group hunts.
:-)Blissex , December 12, 2017 at 01:50 PM
That's a very long winded way of saying that making stuff requires labour.Rich Clayton , December 12, 2017 at 03:35 PM
"a very long winded way of saying that making stuff requires labour"
Well, that's obvious, but what the classicals thought of as the LTV was not entirely obvious: that "surplus" (rather than "stuff") comes from the fertility of land and the transformation achieved with labour, and that nothing else is needed to achieve "surplus". Because for example capital goods are themselves surplus from fertility or labour, again back to the first blades made from chipping lumps of obsidian.
That's quite a bit more insightful, never mind also controversial, than "making stuff requires labour".Lukas , December 12, 2017 at 03:41 PM
Love this post. But, being a fellow marxist, I can't help but to disagree with this bit: "And they are alienated because this work is unsatisfying and a source of unfreedom." This is a colloquial use of alienation, and its not wrong.
But Marx is getting at something else: the complex process of differentiation in the economy (aka the division of labor) obscures the relationship between the creation of the surplus (work time above that necessary to reproduce consumption bundle) and its utilization by capitalists via investment. Investment is not possible without exploitation of workers, but that relationship is occluded by the mechanics of employment, markets, and property.
That's the sense in which workers are alienated under capitalism. Socialism could still have boring work, but, in so far as the investment function is brought under collective democratic control, workers would not be alienated in the special sense Marx is using.Blissex , December 12, 2017 at 05:36 PM
"Where else could stuff come from?" Well, assuming by "stuff" we mean objects of value, nowhere. But the reasons for which we value them are not dependent upon their natural origins or the labor required for their production. I don't value a computer because it's made of plastic and silicon and so forth, nor because of the labor required to produce it. It's useful because of what it does, not what it is; it's sort of Kant's definition of art versus the general conception of tools.
As for the relationship between production functions and the LTV, that seems (at least prima facie) pretty straightforward. If there is a high olefimity ascribed to the surplus provided by the product created by X, Y, then those production functions will, themselves, be assigned greater value, i.e., be worthy of more labor-time to attain. E.g., even if I'm not very good at fishing, if I really like the flavor of fish over other protein sources, I'll spend more time increasing my labor efficiency (be a better fisherman).Blissex , December 12, 2017 at 05:41 PM
"Everything ultimately derives from nature and the labour of humans. Where else could stuff come from? That's all there is."
Then in theory the cost (not the price) of everything can be measured in terms of physical quantities of primary inputs and of hours of work.
"What's controversial about it?"
What is controversial is that written like that you sound like a Marxist: the alternative approach is to say that *property* creates surplus.
In the standard neoclassical approach "property" is the often forgotten "initial endowments" of the single representative agent.
Anyhow the "narrative" is: as Mr. Moneybags owns the iron mine and the coal mine and the smelter and the ingot roller and spoon press, then he is entitled to the surplus because without his property it is impossible to make spoons. Labour on its own is worthless, wastes away, while property is "valuable" capital.
"And how one gets from a production function (stuff is made from X, Y and Z) to LTV"
Production functions are just not very elaborate scams to pretend that property is the factor of production, rather then the fertility of land and the energy of labour, and land does not exist (after JB Clark "disappeared" it) and labour is just an accessory. Part of the scam is that "X, Y and Z" are denominated in money, not physical quantities.
As I wrote in another answer accounting for the output of land fertility and labour energy and how it is shared are the difficult bits. Welcome to the institutional approach to the political economy. :-)Luis Enrique , December 12, 2017 at 05:43 PM
"the reasons for which we value them are not dependent upon their natural origins or the labor required for their production"
And here be dragons. Your old bearded acquaintance Karl has something to say about this :-).
"It's useful because of what it does, not what it is"
So cleaning floors which is very useful should have a high value, while Leonardo paintings, that are merely scarce, should have a low value :-).
I though that most people reckoned that "value" depends on scarcity: so there is a scarcity of even not very good promoters of torysm, so G Osborne is entitled to £600,000 a year to edit the "Evening Standard", but there is no scarcity of excellent cleaners, so cleaners gets minimum wage if they are lucky.
:-)mulp , December 12, 2017 at 05:46 PM
counting hours of worked is not a measure of cost, it is a tally of hours worked. In mainstream econ, production functions describe a physical production process (to make 1 unit of Y, you combine inputs like so) and are not not denominated in money. e.g. You multiply L by w to get cost.Blissex , December 12, 2017 at 06:01 PM
Economies are zero sum. GDP must be paid for, otherwise it won't be produced. The only source of money comes from labor costs, the money paid to workers to work producing GDP. As conservatives note, all taxes fall on workers by directly taking their pay, or by hiking the prices of what workers buy.
Taxes pay workers, e.g. teachers, and doctors with Medicare and Medicaid, weapons makers and warriors, or pay people to pay workers, Social Security benefits and SNAP.
Capital has value because it is built by paying workers. It gets a cut to repay the payers of workers.
Monopoly rent seeking is unsustainable. If a monoplists takes more from workers than they pay workers, he eventually takes so much money workers can no longer pay for GDP and it falls to zero as workers produce what they consume without buying from the monopolist capital.
As Keynes put it:
"I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.
"Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce."
Economies are zero sum. The value of goods and services must equal the labor costs in the long run. TanstaaaflLuis Enrique , December 12, 2017 at 06:26 PM
"Socialism could still have boring work, but, in so far as the investment function is brought under collective democratic control, workers would not be alienated in the special sense Marx is using."
My impression is that your bearded friend Karl does not use "alienation" in that sense at all, in an economic sense, but in a humanist sense: that by being separated from the means of production proletarians are alienated from the meaning of their work, from work as a human activity, as distinct from an economic activity.
Collective ownership does not change at all that kind of alienation: being a cog in the capitalist machinery is no less alienating than being a cog in the collectivist machinery.
I think that our blogger when he talks about distributing control of the production process to workers is far closer to the marxian ideal than a collectivist approach.
Practically every "Dilbert" strip is about "alienation". This is my favourite:
But these are also good:
http://dilbert.com/strip/2002-08-10Blissex , December 12, 2017 at 06:53 PM
That is not what zero sum meansLuis Enrique , December 12, 2017 at 08:55 PM
"counting hours of worked is not a measure of cost"
For a definition of "cost" that is made-up disregarding P Sraffa's work and in general the classics.
"multiply L by w to get cost."
As J Robinson and others pointed out that "w" depends on the distribution of income, on the interest rate, etc., so is an institutional matter.
As I was saying, accounting for the surplus and how to share it is not so easily handwavable.Luis Enrique , December 12, 2017 at 08:57 PM
sorry, I meant for a money definition of cost that is not just counting inputs, but which is inputs multiplied by their prices.
nobody is hand waving. I think the mainstream view is that 'value' and 'surplus' are not meaningful terms, only prices and profits and subjective value. A production function says nothing about prices, you have to explain them with other stuff, and as you say, institutions and all manner of things could come in the play there.
You can say that that workers produce more in money terms than than they are paid, which is trivial (the wages paid by an employer are less than its gross profits so long as there are non-zero returns to capital, interest on a loan or dividends or whatever) and to my mind it's silly to define that as exploitation because it would apply in situations where the 'capitalist' is getting a small return and workers rewarded handsomely by any standard. Better imo to define exploitation as when capitalists are earning excess returns (and I'd fudge that by differentiating between workers' wages and salaries of top execs). Otherwise you lay yourself open to "the only thing worse than being exploited by capitlists is not beingn exploited by capitalists" which is J Robinson too I believe.B.L. Zebub , December 13, 2017 at 04:02 AM
and i think you only have to look at the income distribution to infer workers are being expoloitedLukas , December 13, 2017 at 04:28 AM
This is a genuine question: what you exposed above is related to or influenced by Steve Keen's ideas, yes? If so, I'd be interested in reading about that in more detail.Luis Enrique , December 13, 2017 at 08:34 AM
I've always thought that defining value by scarcity was an absurd misdirection, in part because there is no reason that the two should correlate at all. At any point in socioeconomic development beyond subsistence, value is to some extent socially defined, not economically defined. Status ends up being the most "useful" resource, as we see among all those who've never had to worry about their material conditions.
Placing a high value on the frivolous and "useless" has always been the hallmark of those most able to decide the value of anything, because they have no use for economic use (so to speak), but rather social signaling. Broad social respect is an extremely expensive thing to buy with money alone.
Ah, but name for me a production process that doesn't take place over time. There's an infinite amount of time for all of us, but for each of us only so much, and those who fail to value it die full of regret. Surely someone somewhere must have something to say about this.Blissex , December 13, 2017 at 11:43 AM
I don't know why I wrote the above. Surplus is also a mainstream term. See wages set by bargaing over a surplus. Presume it's based on prices of outputs compared to inputs or if in model with real quantities not prices, then in subjective values.
Lukas production functions are defined over a period of time.Blissex , December 13, 2017 at 11:51 AM
Ahem, I am trying to explain my understanding of Marx, who wrote both as economist and a philosopher, and a politial theorist.
Alienation, exploitation and inequality are technically distinct concepts, even if in the marxist (view (and that of every business school, that are faithful to marxist political economy) capitalist control of the means of production leads to alienation which leads to exploitation which leads to inequality. In the marxian political economy inequality can exist even with exploitation, for example, and that makes it less objectionable.
"Surplus is also a mainstream term. See wages set by bargaing over a surplus."
Some Economists have not forgotten at least some terminology of political economy and some Departments of Business still have surviving "history of economic thought" courses that some postgrads may still accidentally occasionally wander into and pick up some terms from...
"are not meaningful terms, only prices and profits and subjective value."
But the mainstream focus on prices and profits etc. is the purest handwaving, because it begs the question...
"A production function says nothing about prices"
Ha! This is one of the best examples where mainstream theory handwaves furiously: mainstream production functions switch effortlessly from "capital" as phusical quantities to aggregating "capital" by reckoning it in "numeraire". That is all about prices, and even about future expected prices and future expected rates of discount. Therefore rational expectations, a grand feat of handwaving.Blissex , December 13, 2017 at 12:03 PM
"defining value by scarcity was an absurd misdirection, in part because there is no reason that the two should correlate at all."
Ahhhhhhh but this is a very political point and not quite agreeable because:
One of the conceits of "microfoundations" is to show that there are "laws" of Economics that are precise, so everybody get exactly their just compensation, so for example demand-supply schedules are always presented, cleverly, as lines and static.
The view of political economists is that instead "everything" lies within boundaries of feasibility, which are dynamic, so for example demand-supply schedules are ribbons that change over time and circumstances, and transactions happens not at uniquely determined points of intersections, but in regions of feasibility, the precise point dependent on institutional arrangements.
So the LTV determines one boundary for "price" and desirability another boundary.Luis Enrique , December 13, 2017 at 04:33 PM
"exposed above is related to or influenced by Steve Keen's ideas"
Related and independently derived, but also a bit influenced. I had always suspected that the "classicals" used "labour" as a synonym for "muscle power", but various later readings persuaded me that was indeed the case. Later post will have some hopefully interesting detail. Then I looked into the literature and found that obviously this had been figured out before (centuries ago in some cases, like B de Mandeville).
Anyhow for similar approaches some references:
Blissex if you can come up with a better way of trying to describe total quantities of highly heterogeneous things (i.e. capital) you have a Nobel awaiting. Everybody know that attempts to put a number on the real quantity of capital is always going to be a rough and ready endeavour.
I don't see how working with prices and profits is 'handwaving'. What question does it beg? Much of economics is about trying to explain these things. I would not say economics focuses on prices and profits because many economics models work with real quantities that are high abstract and in theory are made commensurate using subjective value (utility) as the unit of account.
And I don't think this lot
picked up the term surplus by accidentally wandering in to the wrong seminar
Dec 13, 2017 | www.nakedcapitalism.com
Livius Drusus , December 13, 2017 at 2:44 pm
I thought this was an interesting article. Apologies if this has been posted on NC already.
A stunning 33% of job seekers ages 55 and older are long-term unemployed, according to the AARP Public Policy Institute. The average length of unemployment for the roughly 1.2 million people 55+ who are out of work: seven to nine months. "It's emotionally devastating for them," said Carl Van Horn, director of Rutgers University's John J. Heldrich Center for Workforce Development, at a Town Hall his center and the nonprofit WorkingNation held earlier this year in New Brunswick, N.J.
... ... ...
The fight faced by the long-term unemployed
And, recent studies have shown, the longer you're out of work - especially if you're older and out of work - the harder it becomes to get a job offer.
The job-finding rate declines by roughly 50% within eight months of unemployment, according to a 2016 paper by economists Gregor Jarosch of Stanford University and Laura Pilossoph of the Federal Reserve Bank of New York. "Unemployment duration has a strongly negative effect on the likelihood of subsequent employment," wrote researchers from the University of Maryland and the U.S. Census Bureau in another 2016 paper.
"Once upon a time, you could take that first job and it would lead to the next job and the job after that," said Town Hall panelist John Colborn, chief operating officer at the nonprofit JEVS Human Services, of Philadelphia. "The notion of a career ladder offered some hope of getting back into the labor market. The rungs of the ladder are getting harder and harder to find and some of them are broken."
In inner cities, said Kimberly McClain, CEO of The Newark Alliance, "there's an extra layer beyond being older and out of work. There are issues of race and poverty and being defined by your ZIP Code. There's an incredible sense of urgency."
... ... ...
Filling a work gap
If you are over 50, unemployed and have a work gap right now, the Town Hall speakers said, fill it by volunteering, getting an internship, doing project work, job-shadowing someone in a field you want to be in or taking a class to re-skill. These kind of things "make a candidate a lot more attractive," said Colborn. Be sure to note them in your cover letter and résumé.
Town Hall panelist Amanda Mullan, senior vice president and chief human resources officer of the New Jersey Resources Corp. (a utility company based in Wall, N.J.), said that when her company is interviewing someone who has been out of work lately, "we will ask: 'What have you done during that time frame?' If we get 'Nuthin,' that shows something about the individual, from a motivational perspective."
... ... ...
The relief of working again
Finally finding work when you're over 50 and unemployed for a stretch can be a relief for far more than financial reasons.
"Once I landed my job, the thing I most looked forward to was the weekend," said Konopka. "Not to relax, but because I didn't have to think about finding a job anymore. That's 24/7 in your head. You're always thinking on a Saturday: 'If I'm not doing something to find a job, will there be a posting out there?'"
Full article: https://www.marketwatch.com/story/jobs-are-everywhere-just-not-for-people-over-55-2017-12-08
Jun 13, 2010 | www.nj.com
At 5:30 every morning, Tony Gwiazdowski rolls out of bed, brews a pot of coffee and carefully arranges his laptop, cell phone and notepad like silverware across the kitchen table.
And then he waits.
Gwiazdowski, 57, has been waiting for 16 months. Since losing his job as a transportation sales manager in February 2009, he wakes each morning to the sobering reminder that, yes, he is still unemployed. So he pushes aside the fatigue, throws on some clothes and sends out another flurry of resumes and cheery cover letters.
But most days go by without a single phone call. And around sundown, when he hears his neighbors returning home from work, Gwiazdowski -- the former mayor of Hillsborough -- can't help but allow himself one tiny sigh of resignation.
"You sit there and you wonder, 'What am I doing wrong?'" said Gwiazdowski, who finds companionship in his 2-year-old golden retriever, Charlie, until his wife returns from work.
"The worst moment is at the end of the day when it's 4:30 and you did everything you could, and the phone hasn't rung, the e-mails haven't come through."
Gwiazdowski is one of a growing number of chronically unemployed workers in New Jersey and across the country who are struggling to get through what is becoming one long, jobless nightmare -- even as the rest of the economy has begun to show signs of recovery.
Nationwide, 46 percent of the unemployed -- 6.7 million Americans -- have been without work for at least half a year, by far the highest percentage recorded since the U.S. Labor Department began tracking the data in 1948.
In New Jersey, nearly 40 percent of the 416,000 unemployed workers last year fit that profile, up from about 20 percent in previous years, according to the department, which provides only annual breakdowns for individual states. Most of them were unemployed for more than a year.
But the repercussions of chronic unemployment go beyond the loss of a paycheck or the realization that one might never find the same kind of job again. For many, the sinking feeling of joblessness -- with no end in sight -- can take a psychological toll, experts say.
Across the state, mental health crisis units saw a 20 percent increase in demand last year as more residents reported suffering from unemployment-related stress, according to the New Jersey Association of Mental Health Agencies.
"The longer the unemployment continues, the more impact it will have on their personal lives and mental health," said Shauna Moses, the association's associate executive director. "There's stress in the marriage, with the kids, other family members, with friends."
And while a few continue to cling to optimism, even the toughest admit there are moments of despair: Fear of never finding work, envy of employed friends and embarassment at having to tell acquaintances that, nope, still no luck.
"When they say, 'Hi Mayor,' I don't tell a lot of people I'm out of work -- I say I'm semi-retired," said Gwiazdowski, who maxed out on unemployment benefits several months ago.
"They might think, 'Gee, what's wrong with him? Why can't he get a job?' It's a long story and maybe people really don't care and now they want to get away from you."
SECOND TIME AROUND
Lynn Kafalas has been there before, too. After losing her computer training job in 2000, the East Hanover resident took four agonizing years to find new work -- by then, she had refashioned herself into a web designer.
That not-too-distant experience is why Kafalas, 52, who was laid off again eight months ago, grows uneasier with each passing day. Already, some of her old demons have returned, like loneliness, self-doubt and, worst of all, insomnia. At night, her mind races to dissect the latest interview: What went wrong? What else should she be doing? And why won't even Barnes & Noble hire her?
"It's like putting a stopper on my life -- I can't move on," said Kafalas, who has given up karate lessons, vacations and regular outings with friends. "Everything is about the interviews."
And while most of her friends have been supportive, a few have hinted to her that she is doing something wrong, or not doing enough. The remarks always hit Kafalas with a pang.
In a recent study, researchers at Rutgers University found that the chronically unemployed are prone to high levels of stress, anxiety, depression, loneliness and even substance abuse, which take a toll on their self-esteem and personal relationships.
"They're the forgotten group," said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers, and a co-author of the report. "And the longer you are unemployed, the less likely you are to get a job."
Of the 900 unemployed workers first interviewed last August for the study, only one in 10 landed full-time work by March of this year, and only half of those lucky few expressed satisfaction with their new jobs. Another one in 10 simply gave up searching.
Among those who were still unemployed, many struggled to make ends meet by borrowing from friends or family, turning to government food stamps and forgoing health care, according to the study.
More than half said they avoided all social contact, while slightly less than half said they had lost touch with close friends. Six in 10 said they had problems sleeping.
Kafalas says she deals with her chronic insomnia by hitting the gym for two hours almost every evening, lifting weights and pounding the treadmill until she feels tired enough to fall asleep.
"Sometimes I forget what day it is. Is it Tuesday? And then I'll think of what TV show ran the night before," she said. "Waiting is the toughest part."
AGE A FACTOR
Generally, the likelihood of long-term unemployment increases with age, experts say. A report by the National Employment Law Project this month found that nearly half of those who were unemployed for six months or longer were at least 45 years old. Those between 16 and 24 made up just 14 percent.
Tell that to Adam Blank, 24, who has been living with his girlfriend and her parents at their Martinsville home since losing his sales job at Best Buy a year and half ago.
Blank, who graduated from Rutgers with a major in communications, says he feels like a burden sometimes, especially since his girlfriend, Tracy Rosen, 24, works full-time at a local nonprofit. He shows her family gratitude with small chores, like taking out the garbage, washing dishes, sweeping floors and doing laundry.
Still, he often feels inadequate.
"All I'm doing on an almost daily basis is sitting around the house trying to keep myself from going stir-crazy," said Blank, who dreams of starting a social media company.
When he is feeling particularly low, Blank said he turns to a tactic employed by prisoners of war in Vietnam: "They used to build dream houses in their head to help keep their sanity. It's really just imagining a place I can call my own."
Meanwhile, Gwiazdowski, ever the optimist, says unemployment has taught him a few things.
He has learned, for example, how to quickly assess an interviewer's age and play up or down his work experience accordingly -- he doesn't want to appear "threatening" to a potential employer who is younger. He has learned that by occasionally deleting and reuploading his resume to job sites, his entry appears fresh.
"It's almost like a game," he said, laughing. "You are desperate, but you can't show it."
But there are days when he just can't find any humor in his predicament -- like when he finishes a great interview but receives no offer, or when he hears a fellow job seeker finally found work and feels a slight twinge of jealousy.
"That's what I'm missing -- putting on that shirt and tie in the morning and going to work," he said.
The memory of getting dressed for work is still so vivid, Gwiazdowski says, that he has to believe another job is just around the corner.
"You always have to hope that that morning when you get up, it's going to be the day," he said.
"Today is going to be the day that something is going to happen."
Leslie Kwoh may be reached at firstname.lastname@example.org or (973) 392-4147.DrBuzzard Jun 13, 2010
I collect from the state of iowa, was on tier I and when the gov't recessed without passing extension, iowa stopped paying tier I claims that were already open, i was scheduled to be on tier I until july 15th, and its gone now, as a surprise, when i tried to claim my week this week i was notified. SURPRISE, talk about stress.
berganliz Jun 13, 2010
This is terrible....just wait until RIF'd teachers hit the unemployment offices....but then, this is what NJ wanted...fired teachers who are to blame for the worst recession our country has seen in 150 years...thanks GWB.....thanks Donald Rumsfeld......thanks Dick Cheney....thanks Karl "Miss Piggy" Rove...and thank you Mr. Big Boy himself...Gov Krispy Kreame!
rp121 Jun 13, 2010
For readers who care about this nation's unemployed- Call your Senators to pass HR 4213, the "Extenders" bill. Unfortunately, it does not add UI benefits weeks, however it DOES continue the emergency federal tiers of UI. If it does not pass this week many of us are cut off at 26 wks. No tier 1, 2 -nothing.
Dec 13, 2017 | www.cvtips.com
It's almost impossible to describe the various psychological impacts, because there are so many. There are sometimes serious consequences, including suicide, and, some would say worse, chronic depression.
There's not really a single cause and effect. It's a compound effect, and unemployment, by adding stress, affects people, often badly.
The world doesn't need any more untrained psychologists, and we're not pretending to give medical advice. That's for professionals. Everybody is different, and their problems are different. What we can do is give you an outline of the common problems, and what you can do about them.
The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects.
For others, there are a series of issues, and the big three are:
- Anger, and other negative emotions
Stress is Stage One. It's a natural result of the situation. Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system.
Over an extended period, the body's natural hormonal balances are affected, and this can lead to problems. These are actually physical issues, but the effects are mental, and the first obvious effects are, naturally, emotional.
Anger, and other negative emotions
Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises.
If the actual situation was already bad, this mental state makes it a lot worse. Constant aggravation doesn't help people to keep a sense of perspective. Clear thinking isn't easy when under constant stress.
Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem.
One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available.
If you have reservations about seeking help, bear in mind it can't possibly be any worse than the problem.
Depression is universally hated by anyone who's ever had it. This is the next stage, and it's caused by hormonal imbalances which affect serotonin. It's actually a physical problem, but it has mental effects which are sometimes devastating, and potentially life threatening.
The common symptoms are:
- Difficulty in focusing mentally, thoughts all over the place in no logical order
- Fits of crying for no known reason
- Illogical, or irrational patterns of thought and behavior
- Suicidal thinking
It's a disgusting experience. No level of obscenity could possibly describe it. Depression is misery on a level people wouldn't conceive in a nightmare. At this stage the patient needs help, and getting it is actually relatively easy. It's convincing the person they need to do something about it that's difficult. Again, the mental state is working against the person. Even admitting there's a problem is hard for many people in this condition.
Generally speaking, a person who is trusted is the best person to tell anyone experiencing the onset of depression to seek help. Important: If you're experiencing any of those symptoms:
- Get on the phone and make an appointment to see your doctor. It takes half an hour for a diagnosis, and you can be on your way home with a cure in an hour. You don't have to suffer. The sooner you start to get yourself out of depression, the better.
- Avoid any antidepressants with the so-called withdrawal side effects. They're not too popular with patients, and are under some scrutiny. The normal antidepressants work well enough for most people.
Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either.
Alcohol, in particular, makes depression much worse. Alcohol is a depressant, itself, and it's also a nasty chemical mix with all those stress hormones.
If you've ever had alcohol problems, or seen someone with alcohol wrecking their lives, depression makes things about a million times worse.
Just don't do it. Steer clear of any so-called stimulants, because they don't mix with antidepressants, either.
Unemployment and staying healthy
The above is what you need to know about the risks of unemployment to your health and mental well being.
These situations are avoidable.
Your best defense against the mental stresses and strains of unemployment, and their related problems is staying healthy.
We can promise you that is nothing less than the truth. The healthier you are, the better your defenses against stress, and the more strength you have to cope with situations.
Basic health is actually pretty easy to achieve:
Eat real food, not junk, and make sure you're getting enough food. Your body can't work with resources it doesn't have. Good food is a real asset, and you'll find you don't get tired as easily. You need the energy reserves.
Give yourself a good selection of food that you like, that's also worth eating.
The good news is that plain food is also reasonably cheap, and you can eat as much as you need. Basic meals are easy enough to prepare, and as long as you're getting all the protein veg and minerals you need, you're pretty much covered.
You can also use a multivitamin cap, or broad spectrum supplements, to make sure you're getting all your trace elements. Also make sure you're getting the benefits of your food by taking acidophilus or eating yogurt regularly.
You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard.
Don't just sit and suffer
If anything's wrong, check it out when it starts, not six months later. Most medical conditions become serious when they're allowed to get worse.
For unemployed people the added risk is also that they may prevent you getting that job, or going for interviews. If something's causing you problems, get rid of it.
Nobody who's been through the blender of unemployment thinks it's fun.
Anyone who's really done it tough will tell you one thing:
Don't be a victim. Beat the problem, and you'll really appreciate the feeling.
Nov 28, 2014 | theguardian.com
wa8dzp:Nichole Gracely has a master's degree and was one of Amazon's best order pickers. Now, after protesting the company, she's homeless.
I am homeless. My worst days now are better than my best days working at Amazon.
According to Amazon's metrics, I was one of their most productive order pickers -- I was a machine, and my pace would accelerate throughout the course of a shift. What they didn't know was that I stayed fast because if I slowed down for even a minute, I'd collapse from boredom and exhaustion.
During peak season, I trained incoming temps regularly. When that was over, I'd be an ordinary order picker once again, toiling in some remote corner of the warehouse, alone for 10 hours, with my every move being monitored by management on a computer screen.
Superb performance did not guarantee job security. ISS is the temp agency that provides warehouse labor for Amazon and they are at the center of the SCOTUS case Integrity Staffing Solutions vs. Busk. ISS could simply deactivate a worker's badge and they would suddenly be out of work. They treated us like beggars because we needed their jobs. Even worse, more than two years later, all I see is: Jeff Bezos is hiring.
I have never felt more alone than when I was working there. I worked in isolation and lived under constant surveillance. Amazon could mandate overtime and I would have to comply with any schedule change they deemed necessary, and if there was not any work, they would send us home early without pay. I started to fall behind on my bills.
At some point, I lost all fear. I had already been through hell. I protested Amazon. The gag order was lifted and I was free to speak. I spent my last days in a lovely apartment constructing arguments on discussion boards, writing articles and talking to reporters. That was 2012 and Amazon's labor and business practices were only beginning to fall under scrutiny. I walked away from Amazon's warehouse and didn't have any other source of income lined up.
I cashed in on my excellent credit, took out cards, and used them to pay rent and buy food because it would be six months before I could receive my first unemployment compensation check.
I received $200 a week for the following six months and I haven't had any source of regular income since those benefits lapsed. I sold everything in my apartment and left Pennsylvania as fast as I could. I didn't know how to ask for help. I didn't even know that I qualified for food stamps.
I furthered my Amazon protest while homeless in Seattle. When the Hachette dispute flared up I "flew a sign," street parlance for panhandling with a piece of cardboard: "I was an order picker at amazon.com. Earned degrees. Been published. Now, I'm homeless, writing and doing this. Anything helps."
I have made more money per word with my signs than I will probably ever earn writing, and I make more money per hour than I will probably ever be paid for my work. People give me money and offer well wishes and I walk away with a restored faith in humanity.
I flew my protest sign outside Whole Foods while Amazon corporate employees were on lunch break, and they gawked. I went to my usual flying spots around Seattle and made more money per hour protesting Amazon with my sign than I did while I worked with them. And that was in Seattle. One woman asked, "What are you writing?" I told her about the descent from working poor to homeless, income inequality, my personal experience. She mentioned Thomas Piketty's book, we chatted a little, she handed me $10 and wished me luck. Another guy said, "Damn, that's a great story! I'd read it," and handed me a few bucks.
Dec 12, 2017 | www.nakedcapitalism.com
Uber lost $2.5 billion in 2015, probably lost $4 billion in 2016, and is on track to lose $5 billion in 2017.
The top line on the table below shows is total passenger payments, which must be split between Uber corporate and its drivers. Driver gross earnings are substantially higher than actual take home pay, as gross earning must cover all the expenses drivers bear, including fuel, vehicle ownership, insurance and maintenance.
Most of the "profit" data released by Uber over time and discussed in the press is not true GAAP (generally accepted accounting principles) profit comparable to the net income numbers public companies publish but is EBIDTAR contribution. Companies have significant leeway as to how they calculate EBIDTAR (although it would exclude interest, taxes, depreciation, amortization) and the percentage of total costs excluded from EBIDTAR can vary significantly from quarter to quarter, given the impact of one-time expenses such as legal settlements and stock compensation. We only have true GAAP net profit results for 2014, 2015 and the 2nd/3rd quarters of 2017, but have EBIDTAR contribution numbers for all other periods. 
Uber had GAAP net income of negative $2.6 billion in 2015, and a negative profit margin of 132%. This is consistent with the negative $2.0 billion loss and (143%) margin for the year ending September 2015 presented in part one of the NC Uber series over a year ago.
No GAAP profit results for 2016 have been disclosed, but actual losses likely exceed $4 billion given the EBIDTAR contribution of negative $3.2 billion. Uber's GAAP losses for the 2nd and 3rd quarters of 2017 were over $2.5 billion, suggesting annual losses of roughly $5 billion.
While many Silicon Valley funded startups suffered large initial losses, none of them lost anything remotely close to $2.6 billion in their sixth year of operation and then doubled their losses to $5 billion in year eight. Reversing losses of this magnitude would require the greatest corporate financial turnaround in history.
No evidence of significant efficiency/scale gains; 2015 and 2016 margin improvements entirely explained by unilateral cuts in driver compensation, but losses soared when Uber had to reverse these cuts in 2017.
Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%. This was an effective $500 million wealth transfer from drivers to Uber's investors. These driver compensation cuts improved Uber's EBIDTAR margin, but Uber's P&L gains were wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in any improvement in Uber profit margins.
In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing drivers an additional $3 billion.  Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a week.
An independent study of the net earnings of Uber drivers (after accounting for the costs of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range.  Multiple recent news reports have documented how Uber drivers are increasing unable to support themselves from their reduced share of passenger payments. 
A business model where profit improvement is hugely dependent on wage cuts is unsustainable, especially when take home wages fall to (or below) minimum wage levels. Uber's primary focus has always been the rate of growth in gross passenger revenue, as this has been a major justification for its $68 billion valuation. This growth rate came under enormous pressure in 2017 given Uber efforts to raise fares, major increases in driver turnover as wages fell,  and the avalanche of adverse publicity it was facing.
Since mass driver defections would cause passenger volume growth to collapse completely, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017.
MKS , December 12, 2017 at 6:19 amJohnnySacks , December 12, 2017 at 7:34 am
"Uber's business model can never produce sustainable profits"
Two words not in my vocabulary are "Never" and "Always", that is a pretty absolute statement in an non-absolute environment. The same environment that has produced the "Silicon Valley Growth Model", with 15x earnings companies like NVIDA, FB and Tesla (Average earnings/stock price ratio in dot com bubble was 10x) will people pay ridiculous amounts of money for a company with no underlying fundamentals you damn right they will! Please stop with the I know all no body knows anything, especially the psychology and irrationality of markets which are made up of irrational people/investors/traders.SoCal Rhino , December 12, 2017 at 8:30 am
My thoughts exactly. Seems the only possible recovery for the investors is a perfectly engineered legendary pump and dump IPO scheme. Risky, but there's a lot of fools out there and many who would also like to get on board early in the ride in fear of missing out on all the money to be hoovered up from the greater fools. Count me out.tegnost , December 12, 2017 at 9:52 am
The author clearly distinguishes between GAAP profitability and valuations, which is after all rather the point of the series. And he makes a more nuanced point than the half sentence you have quoted without context or with an indication that you omitted a portion. Did you miss the part about how Uber would have a strong incentive to share the evidence of a network effect or other financial story that pointed the way to eventual profit? Otherwise (my words) it is the classic sell at a loss, make it up with volume path to liquidation.allan , December 12, 2017 at 6:52 am
apples and oranges comparison, nvidia has lots and lots of patented tech that produces revenue, facebook has a kajillion admittedly irrational users, but those users drive massive ad sales (as just one example of how that company capitalizes itself) and tesla makes an actual car, using technology that inspires it's buyers (the put your money where your mouth is crowd and it can't be denied that tesla, whatever it's faults are, battery tech is not one of them and that intellectual property is worth a lot, and tesla's investors are in on that real business, profitable or otherwise)
Uber is an iphone app. They lose money and have no path to profitability (unless it's the theory you espouse that people are unintelligent so even unintelligent ideas work to fleece them). This article touches on one of the great things about the time we now inhabit, uber drivers could bail en masse, there are two sides to the low attachment employees who you can get rid of easily. The drivers can delete the uber app as soon as another iphone app comes along that gets them a better returnThuto , December 12, 2017 at 6:55 am
Yet another source (unintended) of subsidies for Uber, Lyft, etc., which might or might not have been mentioned earlier in the series:
Airports Are Losing Money as Ride-Hailing Services Grow [NYT]
For many air travelers, getting to and from the airport has long been part of the whole miserable experience. Do they drive and park in some distant lot? Take mass transit or a taxi? Deal with a rental car?
Ride-hailing services like Uber and Lyft are quickly changing those calculations. That has meant a bit less angst for travelers.
But that's not the case for airports. Travelers' changing habits, in fact, have begun to shake the airports' financial underpinnings. The money they currently collect from ride-hailing services do not compensate for the lower revenues from the other sources.
At the same time, some airports have had to add staff to oversee the operations of the ride-hailing companies, the report said. And with more ride-hailing vehicles on the roads outside terminals,
there's more congestion.
Socialize the losses, privatize the gains, VC-ize the subsidies.Louis Fyne , December 12, 2017 at 8:35 am
The cold hard truth is that Uber is backed into a corner with severely limited abilities to tweak the numbers on either the supply or the demand side: cut driver compensation and they trigger driver churn (as has already been demonstrated), increase fare prices for riders and riders defect to cheaper alternatives. The only question is how long can they keep the show going before the lights go out, slick marketing and propaganda can only take you so far, and one assumes the dumb money has a finite supply of patience and will at some point begin asking the tough questions.Thuto , December 12, 2017 at 11:30 am
The irony is that Uber would have been a perfectly fine, very profitable mid-sized company if Uber stuck with its initial model -- sticking to dense cities with limited parking, limiting driver supply, and charging a premium price for door-to-door delivery, whether by livery or a regular sedan. And then perhaps branching into robo-cars.
But somehow Uber/board/Travis got suckered into the siren call of self-driving cars, triple-digit user growth, and being in the top 100 US cities and on every continent.David Carl Grimes , December 12, 2017 at 6:57 am
I've shared a similar sentiment in one of the previous posts about Uber. But operating profitably in decent sized niche doesn't fit well with ambitions of global domination. For Uber to be "right-sized", an admission of folly would have to be made, its managers and investors would have to transcend the sunk cost fallacy in their strategic decision making, and said investors would have to accept massive hits on their invested capital. The cold, hard reality of being blindsided and kicked to the curb in the smartphone business forced RIM/Blackberry to right-size, and they may yet have a profitable future as an enterprise facing software and services company. Uber would benefit from that form of sober mindedness, but I wouldn't hold my breath.Michael Fiorillo , December 12, 2017 at 9:33 am
The question is: Why did Softbank invest in Uber?JimTan , December 12, 2017 at 10:50 am
I know nothing about Softbank or its management, but I do know that the Japanese were the dumb money rubes in the late '80's, overpaying for trophy real estate they lost billions on.
Until informed otherwise, that's my default assumptionYves Smith Post author , December 12, 2017 at 11:38 am
Softbank possibly looking to buy more Uber shares at a 30% discount is very odd. Uber had a Series G funding round in June 2016 where a $3.5 billion investment from Saudi Arabia's Public Investment Fund resulted in its current $68 billion valuation. Now apparently Softbank wants to lead a new $6 billion funding round to buy the shares of Uber employees and early investors at a 30% discount from this last "valuation". It's odd because Saudi Arabia's Public Investment Fund has pledged $45 billion to SoftBank's Vision Fund , an amount which was supposed to come from the proceeds of its pending Aramco IPO. If the Uber bid is linked to SoftBank's Vision Fund, or KSA money, then its not clear why this investor might be looking to literally 'double down' from $3.5 billion o $6 billion on a declining investment.Robert McGregor , December 12, 2017 at 7:04 am
SoftBank has not yet invested. Its tender is still open. If it does not get enough shares at a price it likes, it won't invest.
As to why, I have no idea.divadab , December 12, 2017 at 7:19 am
"Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype brilliance" was to con the market with "revenue growth" and signs of efficiency, and hopes of greater efficiency, and make most people just overlook the essential fact that Uber is the most unprofitable company of all time!Phil in Kansas City , December 12, 2017 at 7:55 am
What comprises "Uber Expenses"? 2014 – $1.06 billion; 2015 $3.33 billion; 2016 $9.65 billion; forecast 2017 $11.418 billion!!!!!! To me this is the big question – what are they spending $10 billion per year on?
ALso – why did driver share go from 68% in 2016 to 80% in 2017? If you use 68% as in 2016, 2017 Uber revenue is $11.808 billion, which means a bit better than break-even EBITDA, assuming Uber expenses are as stated $11.428 billion.
Perhaps not so bleak as the article presents, although I would not invest in this thing.lyman alpha blob , December 12, 2017 at 2:37 pm
I have the same question: What comprises over 11 billion dollars in expenses in 2017? Could it be they are paying out dividends to the early investors? Which would mean they are cannibalizing their own company for the sake of the VC! How long can this go on before they'll need a new infusion of cash?Vedant Desai , December 12, 2017 at 10:37 am
The Saudis have thrown a few billion Uber's way and they aren't necessarily known as the smart money.
Maybe the pole dancers have started chipping in too as they are for bitcoin .Louis Fyne , December 12, 2017 at 8:44 am
Oh article does answer your 2nd question. Read this paragraph:-
Since mass driver defections would cause passenger volume growth to collapse completely , Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017.
As for the 1st, read this line in the article:-
There are undoubtedly a number of things Uber could do to reduce losses at the margin, but it is difficult to imagine it could suddenly find the $4-5 billion in profit improvement needed merely to reach breakeven.Alfred , December 12, 2017 at 9:49 am
in addition to all the points listed in the article/comments, the absolute biggest flaw with Uber is that Uber HQ conditioned its customers on (a) cheap fares and (b) that a car is available within minutes (1-5 if in a big city).
Those two are not mutually compatible in the long-term.Martin Finnucane , December 12, 2017 at 11:06 am
Thus (a) "We cost less" and (b) "We're more convenient" -- aren't those also the advantages that Walmart claims and feeds as a steady diet to its ever hungry consumers? Often if not always, disruption may repose upon delusion.Altandmain , December 12, 2017 at 11:09 am
Uber's business model could never produce sustainable profits unless it was able to exploit significant anti-competitive market power.
Upon that dependent clause hangs the future of capitalism, and – dare I say it? – its inevitable demise.Jim A. , December 12, 2017 at 12:21 pm
When this Uber madness blows up, I wonder if people will finally begin to discuss the brutal reality of Silicon Valley's so called "disruption".
It is heavily built in around the idea of economic exploitation. Uber drivers are often, especially when the true costs to operate an Uber including the vehicle depreciation are factored in, making not very much per hour driven, especially if they don't get the surge money.
Instacart is another example. They are paying the deliver operators very little.Altandmain , December 12, 2017 at 5:40 pm
At a fundamental level, I think that the Silicon Valley "disruption" model only works for markets (like software) where the marginal cost for production is de minimus and the products can be protected by IP laws. Volume and market power really work in those cases. But out here in meat-space, where actual material and labor are big inputs to each item sold, you can never just sit back on your laurels and rake in the money. Somebody else will always be able to come and and make an equivalent product. If they can do it more cheaply, you are in trouble.Joe Bentzel , December 12, 2017 at 2:19 pm
There aren't that many areas in goods and services where the marginal costs are very low.
Software is actually quite unique in that regard, costing merely the bandwidth and permanent storage space to store.
1. From the article, they cannot go public and have limited ways to raise more money. An IPO with its more stringent disclosure requirements would expose them.
2. They tried lowering driver compensation and found that model unsustainable.
3. There are no benefits to expanding in terms of economies of scale.
From where I am standing, it looks like a lot of industries gave similar barriers. Silicon Valley is not going to be able to disrupt those.
Tesla, another Silicon Valley company seems to be struggling to mass produce its Model 3 and deliver an electric car that breaks even, is reliable, while disrupting the industry in the ways that Elon Musk attempted to hype up.
So that basically leaves services and manufacturing out for Silicon Valley disruption.Phil in KC , December 12, 2017 at 3:20 pm
UBER has become a "too big to fail" startup because of all the different tentacles of capital from various Tier 1 VCs and investment bankers.
VCs have admitted openly that UBER is a subsidized business, meaning it's product is sold below market value, and the losses reflect that subsidization. The whole "2 sided platform" argument is just marketecture to hustle more investors. It's a form of service "dumping" that puts legacy businesses into bankruptcy. Back during the dotcom bubble one popular investment banker (Paul Deninger) characterized this model as "Terrorist Competition", i.e. coffers full of invested cash to commoditize the market and drive out competition.
UBER is an absolute disaster that has forked the startup model in Silicon Valley in order to drive total dependence on venture capital by founders. And its current diversification into "autonomous vehicles", food delivery, et al are simply more evidence that the company will never be profitable due to its whacky "blitzscaling" approach of layering on new "businesses" prior to achieving "fit" in its current one.
It's economic model has also metastasized into a form of startup cancer that is killing Silicon Valley as a "technology" innovator. Now it's all cargo cult marketing BS tied to "strategic capital".
UBER is the victory of venture capital and user subsidized startups over creativity by real entrepreneurs.
It's shadow is long and that's why this company should be ..wait for it UNBUNDLED (the new silicon valley word attached to that other BS religion called "disruption"). Call it a great unbundling and you can break up this monster corp any way you want.
Naked Capitalism is a great website.Phil in KC , December 12, 2017 at 3:10 pm
1. I Agree with your last point.
2. The elevator pitch for Uber: subsidize rides to attract customers, put the competition out of business, and then enjoy an unregulated monopoly, all while exploiting economically ignorant drivers–ahem–"partners."
3. But more than one can play that game, and
4. Cab and livery companies are finding ways to survive!Jan Stickle , December 12, 2017 at 5:00 pm
If subsidizing rides is counted as an expense, (not being an accountant, I would guess it so), then whether the subsidy goes to the driver or the passenger, that would account for the ballooning expenses, to answer my own question. Otherwise, the overhead for operating what Uber describes as a tech company should be minimal: A billion should fund a decent headquarters with staff, plus field offices in, say, 100 U.S. cities. However, their global pretensions are probably burning cash like crazy. On top of that, I wonder what the exec compensation is like?
After reading HH's initial series, I made a crude, back-of-the-envelope calculation that Uber would run out of money sometime in the third fiscal quarter of 2018, but that was based on assuming losses were stabilizing in the range of 3 billion a year. Not so, according to the article. I think crunch time is rapidly approaching. If so, then SoftBank's tender offer may look quite appetizing to VC firms and to any Uber employee able to cash in their options. I think there is a way to make a re-envisioned Uber profitable, and with a more independent board, they may be able to restructure the company to show a pathway to profitability before the IPO. But time is running out.
A not insignificant question is the recruitment and retention of the front line "partners." It would seem to me that at some point, Uber will run out of economically ignorant drivers with good manners and nice cars. I would be very interested to know how many drivers give up Uber and other ride-sharing gigs once the 1099's start flying at the beginning of the year. One of the harsh realities of owning a business or being an contractor is the humble fact that you get paid LAST!
We became instant Uber riders while spending holidays with relatives in San Diego. While their model is indeed unique from a rider perspective, it was the driver pool that fascinates me. These are not professional livery drivers, but rather freebooters of all stripes driving for various reasons. The remuneration they receive cannot possibly generate much income after expenses, never mind the problems associated with IRS filing as independent contractors.
One guy was just cruising listening to music; cooler to get paid for it than just sitting home! A young lady was babbling and gesticulating non stop about nothing coherent and appeared to be on some sort of stimulant. A foreign gentleman, very professional, drove for extra money when not at his regular job. He was the only one who had actually bought a new Prius for this gig, hoping to pay it off in two years.
This is indeed a brave new world. There was a period in Nicaragua just after the Contra war ended when citizens emerged from their homes and hit the streets in large numbers, desperately looking for income. Every car was a taxi and there was a bipedal mini Walmart at every city intersection as individuals sold everything and anything in a sort of euphoric optimism towards the future. Reality just hadn't caught up with them yet .
Dec 12, 2017 | www.mit.edu
Today, September 26, thousands of activists are protesting in Prague, in the Czech Republic, against the policies and institutional structures of the International Monetary Fund (IMF) and the World Bank. These protests are the latest action in a growing movement that is highly critical of the neoliberal economic policies being imposed on people all over the world, including those in western countries. As Robert McChesney concisely describes it, neoliberalism "refers to the policies and processes whereby a relative handful of private interests are permitted to control as much as possible of social life in order to maximize their personal profit." The major beneficiaries of neoliberalism are large trans-national corporations and wealthy investors. The implementation of neoliberal policies came into full force during the eighties under Thatcher and Reagan. Today, the principles of neoliberalism are widely held with near-religious fervor by most major political parties in the US and Britain and are gaining acceptance by those holding power elsewhere.
Although the proponents of neoliberalism extol the virtues of free markets, free trade, private enterprise and consumer choice, the effects of neoliberal policies is quite the opposite. In fact, these policies typically result in very protectionist markets dominated by a few trans-national corporations. Many sectors of the economy - ranging from food processing and distribution to the corporate media to aviation - are oligopolies and can be characterized as highly centralized command economies that are only a shade more competitive than the economy of the former Soviet Union. A major theme of neoliberal policies is deregulation and the removal of government interference in the economy. Consistently, such policies are applied in a one sided way, and always in a manner that benefits large trans-national corporations, the most influential entities in policy making. Hence, within neoliberalism as it is actually applied, capital is allowed to roam the world freely with very few restrictions, yet workers are to remain trapped within the borders of their countries. This serves trans-national corporations well, though for some, not well enough. According to Jack Welsh, CEO of GE, he and GE's shareholders would be best served if factories were on barges so that when workers demand higher wages and better working conditions, the barges could easily be moved to a country with more compliant workers. Another component of neoliberalism is the dismantling of the welfare state. Again, in practice, this policy is applied to the majority of the population, who have to accept cut backs in unemployment benefits and health care, while large corporations continue to receive massive subsidies and tax breaks.
The effects of neoliberal policies on people everywhere has been devastating. During the last two to three decades, wealth disparity has increased many fold within countries as well as between countries. In the US, inflation adjusted median wages are lower today than they were in 1973 (when median wages reached their peak) while the wealth of the top 1% of society has soared. One out of every five children in the US lives in a state of poverty characterized by continual hunger, insecurity and lack of adequate health care. This, after almost ten years of a record breaking economic boom. For the poorest people in the world, the situation has become even more desperate. John Gershman and Alec Irwin state in "Dying for growth":
100 countries have undergone grave economic decline over the past three decades. Per capita income in these 100 countries is now lower than it was 10, 15, 20 or in some cases even 30 years ago. In Africa, the average household consumes 20 percent less today than it did 25 years ago. Worldwide, more than 1 billion people saw their real incomes fall during the period 1980-1993. Meanwhile, according to the United Nations Development Program's 1998 Human Development Report, the 15 richest people in the world enjoy combined assets that exceed the total annual gross domestic product of sub-Saharan Africa. At the end of the 1990's, the wealth of the three richest individuals on earth surpassed the combined annual GDP of the 48 least developed countries.
The Thistle won't waste ink on how the wealthy have fared since the mainstream corporate press does a very commendable job in this respect.
Neoliberalism has been a disaster for the environment as well. Despite the growing awareness in the late eighties that the rate of fossil fuel consumption at that time would cause global warming and many other forms of unpredictable and dangerous environmental changes, energy consumption has continued to increase at an alarming rate. This has been facilitated by neoliberal deregulation of environmental protections championed by corporate puppets such as Newt Gingrich and Tom Delay. In their continued quest for windfall profits, for example, corporations such as Ford and GM aggressively marketed (and continue to do so) highly polluting sports utility vehicles (SUVs) while ignoring cleaner and more efficient technologies. This was made possible by loop holes in environmental laws allowing SUVs to be sold that do not meet the emission standards imposed on passenger cars. Consumer Reports Magazine (Nov. pg. 54) noted in 1997, that "the growing popularity of SUVs, has helped make the 1997 automotive model year the least fuel-efficient in the last 16 years". Due to the subservience of government to large corporations, these loop holes are still in place. Today, the qualitative predictions of a decade ago are starting to manifesting themselves. The average temperature of the world has risen over the last decade and for the first time, water has been observed on the polar caps.
One industry that has benefited significantly from neoliberal policies is the biotech industry, though not without potentially catastrophic costs for the majority of the population. While large biotech corporations such as Monsanto and Dupont are aiming for massive profits, the environment and our food supply is irreversibly being altered in the process, creating a situation where large portions of the population and all future generations are subjected to potentially severe and unpredictable health risks. As a way to promote the nascent biotech industry, the Bush administration in the early nineties adopted a policy which held that regulations should not be created in such a way as to be a burden on the industry. The Clinton administration has continued this policy, and today approximately 60% of our food is genetically modified. This transformation of our food supply has occurred with scant public knowledge or oversight. And although genes from viruses, bacteria or arctic fish with anti-freeze properties are inserted into crops, the federal regulatory agencies, with heavy industry influence, maintain that genetically modified foods are no different from crops obtained with traditional breeding techniques and therefore do not need to be approved (unless the transported genes are known to induce a human allergen). Studies investigating the long term health and environmental effects of genetically modified crops are not required by any federal agency and are rarely performed. In this atmosphere of deregulation and concentrated corporate control, it is only a matter of time before a serious biological catastrophe occurs.
What does the IMF and World Bank have to do with this?
The IMF and World Bank were both created at the end of world war II in a political climate the is very different from that of today. Nevertheless, their roles and modalities have been suitably updated to serve the interests of those that benefit from neoliberalism. The institutional structures of the IMF and World Bank were framed at an international conference in Bretton Woods, New Hampshire. Initially, the primary focus of the IMF was to regulate currency exchange rates to facilitate orderly international trade and to be a lender of last resort when a member country experiences balance of payments difficulties and is unable to borrow money from other sources. The original purpose of the World Bank was to lend money to Western European governments to help them rebuild their countries after the war. In later years, the World Bank shifted its attention towards development loans to third world countries.
Immediately after world war II, most western countries, including the US, had 'New Deal' style social contracts with sufficient welfare provisions to ensure 'stability' between labor and capital. It was understood that restrictions on international capital flow were necessary to protect these social contracts. The postwar 'Bretton Woods' economic system which lasted until the early seventies, was based on the right and obligation of governments to regulate capital flow and was characterized by rapid economic growth. In the early seventies, the Nixon administration unilaterally abandoned the Bretton Woods system by dropping the gold standard and lifting restrictions on capital flows. The ensuing period has been marked by dramatically increased financial speculation and low growth rates.
Although seemingly neutral institutions, in practice, the IMF and World Bank end up serving powerful interests of western countries. At both institutions, the voting power of a given country is not measured by, for example, population, but by how much capital that country contributes to the institutions and by other political factors reflecting the power the country wields in the world. The G7 plays a dominant role in determining policy, with the US, France, Germany, Japan and Great Britain each having their own director on the institution's executive board while 19 other directors are elected by the rest of the approximately 150 member countries. The president of the World Bank is traditionally an American citizen and is chosen with US congressional involvement. The managing director of the IMF is traditionally a European. On the IMF board of governors, comprised of treasury secretaries, the G7 have a combined voting power of 46%.
The power of the IMF becomes clear when a country gets into financial trouble and needs funds to make payments on private loans. Before the IMF grants a loan, it imposes conditions on that country, requiring it to make structural changes in its economy. These conditions are called 'Structural Adjustment Programs' (SAPs) and are designed to increase money flow into the country by promoting exports so that the country can pay off its debts. Not surprisingly, in view of the dominance of the G7 in IMF policy making, the SAPs are highly neoliberal. The effective power of the IMF is often larger than that associated with the size of its loans because private lenders often deem a country credit-worthy based on actions of the IMF.
The World Bank plays a qualitatively different role than the IMF, but works tightly within the stringent SAP framework imposed by the IMF. It focuses on development loans for specific projects, such as the building of dams, roads, harbors etc that are considered necessary for 'economic growth' in a developing country. Since it is a multilateral institution, the World Bank is less likely than unilateral lending institutions such as the Export Import Bank of the US to offer loans for the purpose of promoting and subsidizing particular corporations. Nevertheless, the conceptions of growth and economic well being within the World Bank are very much molded by western corporate values and rarely take account of local cultural concerns. This is clearly exhibited by the modalities of its projects, such as the 'Green Revolution' in agriculture, heavily promoted in the third world by the World Bank in the sixties and seventies. The 'Green Revolution' refers to the massive industrialization of agriculture, involving the replacement of a multitude of indigenous crops with a few high-yielding varieties that require expensive investments of chemicals, fertilizers and machinery. In the third world, the 'Green Revolution' was often imposed on indigenous populations with reasonably sustainable and self sufficient traditions of rural agriculture. The mechanization of food production in third world countries, which have a large surplus labor pool, has led to the marginalization of many people, disconnecting them from the economy and exacerbating wealth disparity in these countries. Furthermore, excessive chemical agriculture has led to soil desertification and erosion, increasing the occurrence of famines. While the 'Green Revolution' was a catastrophe for the poor in third world countries, western chemical corporations such as Monsanto, Dow and Dupont fared very well, cashing in high profits and increasing their control over food production in third world countries.
Today, the World Bank is at it again. This time it is promoting the use of genetically modified seeds in the third world and works with governments to solidify patent laws which would grant biotech corporations like Monsanto unprecedented control over food production. The pattern is clear, whether deliberate or nor, the World Bank serves to set the stage for large trans-national corporations to enter third world countries, extract large profits and then leave with carnage in their wake.
While the World Bank publicly emphasizes that it aims to alleviate poverty in the world, imperialistic attitudes occasionally emerge from its leading figures. In 1991, then chief economist Lawrence Summers (now US Secretary of the Treasury) wrote in an internal memo that was leaked:
Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs [less developed countries]? ... The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that ... Under-populated countries in Africa are vastly under-polluted; their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City .... The concern over an agent that causes a one-in-a-million chance in the odds of prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer than in a country where under-five mortality is 200 per thousand.
And thistle thought that the World Bank tried to extend lives in developing countries, not take advantage of low life expectancy.
How do countries get into financial troubles, the Debt Crisis.
The most devastating program imposed by the IMF and the World Bank on third world countries are the Structural Adjustment Programs. The widespread use of SAPs started in the early eighties after a major debt crisis. The debt crisis arose from a combination of (i) reckless lending by western commercial banks to third world countries, (ii) mismanagement within third world countries and (iii) changes in the international economy.
During the seventies, rising oil prices generated enormous profits for petrochemical corporations. These profits ended up in large commercial banks which then sought to reinvest the capital. Much of this capital was invested in the form of high risk loans to third world countries, many of which were run by corrupt dictators. Instead of investing the capital in productive projects that would benefit the general population, dictators often diverted the funds to personal Swiss bank accounts or used the them to purchase military equipment for domestic repression. This state of affairs persisted for a while, since commodity prices remained stable and interest rates were relatively low enabling third world countries to adequately service their debts. In 1979, the situation changed, however, when Paul Volker, the new Federal Reserve Chairman, raised interest rates. This dramatically increased the cost of debtor countries' loans. At the same time, the US was heading into a recession and world commodity prices dropped, tightening cash flows necessary for debt payment. The possibility that many third world countries would default on their debt payments threatened a major financial crisis that would result in large commercial bank failures. To prevent this, powerful countries from the G7 stepped in and actively used the IMF and World Bank to bail out third world countries. Yet the bail-out packages were contingent upon the third world countries introducing major neoliberal policies (i.e. SAPs) to promote exports.
Examples of SAP prescriptions include:
- an increase in 'labor flexibility' which means caps on minimum wages, and policies to weaken trade unions and worker's bargaining power.
- tax increases combined with cuts in social spending such as education and health care, to free up funds for debt repayment.
- privatization of public sector enterprises, such as utility companies and public transport
- financial liberalization designed to remove restrictions on the flow of international capital in and out of the country coupled with the removal of restrictions on what foreign corporations and banks can buy.
Despite almost two decades of Structural Adjustment Programs, many third world countries have not been able to pull themselves out of massive debt. The SAPs have, however, served corporations superbly, offering them new opportunities to exploit workers and natural resources.
As Prof. Chomsky often says, the debt crisis is an ideological construct. In a true capitalist society, the third world debt would be wiped out. The Banks who made the risky loans would have to accept the losses, and the dictators and their entourage would have to repay the money they embezzled. The power structure in society however, prevents this from happening. In the west tax payers end up assuming the risk while the large banks run off with the high profits often derived from high risk loans. In the third world, the people end up paying the costs while their elites retire in the French Riviera.
It is important to realize that the IMF and World Bank are tools for powerful entities in society such as trans-national corporations and wealthy investors. The Thistle believes that massive world poverty and environmental destruction is the result of the appalling concentration of power in the hands of a small minority whose sights are blinded by dollar signs and whose passions are the aggrandizement of ever more power. The Thistle holds that an equitable and democratic world centered around cooperation and solidarity would be more able to deal with environmental and human crises.
Dec 12, 2017 | billmoyers.com
The notion of the "Deep State" as outlined by Mike Lofgren may be useful in pointing to a new configuration of power in the US in which corporate sovereignty replaces political sovereignty, but it is not enough to simply expose the hidden institutions and structures of power.
... ... ...
Moreover, Lofgren needs to say more about a growing culture of cruelty brought about by the death of concessions in politics -- a politics now governed by the ultra-rich and mega corporations that has no allegiance to local politics and produces a culture infused with a self-righteous coldness that takes delight in the suffering of others. Power is now separated from politics and floats, unchecked and uncaring.This is a revolution in which the welfare state is being liquidated, along with the collective provisions that supported it. It is a revolution in which economics drives politics. Neoliberalism is a new form of hybrid global financial authoritarianism. It is connected to the Deep State and marked by its savage willingness in the name of accumulation, privatization, deregulation, dispossession and power to make disposable a wide range of groups extending from low income youth and poor minorities to elements of the middle class that have lost jobs, social protections and hope.
Then, there is the central question, how does the Deep State function to encourage particular types of individualistic, competitive, acquisitive and entrepreneurial behavior in its citizens?
The biggest problem facing the US may not be its repressive institutions, modes of governance and the militarization of everyday life, but the interiority of neoliberal nihilism, the hatred of democratic relations and the embrace of a culture of cruelty. The role of culture as an educative force, a new and powerful force in politics is central here and is vastly underplayed in the essay (which of course cannot include everything). For instance, in what ways does the Deep State use the major cultural apparatuses to convince people that there is no alternative to existing relations of power, that consumerism is the ultimate mark of citizenship and that making money is the essence of individual and social responsibility?
In other words, there is no theory of cultural domination here, no understanding of how identities, subjectivities and values are shaped in the narrow and selfish image of commerce, how exchange values are the only values. In my estimation, the Deep State is symptomatic of something more ominous, the rise of a new form of authoritarianism, a counter-revolution in which society is being restructured and advanced under what might be called the neoliberal revolution. This is a revolution in which the welfare state is being liquidated, along with the collective provisions that supported it. It is a revolution in which economics drives politics.
... ... ...
Dec 12, 2017 | seanmichaelbutler.wordpress.com
For 25 years following the end of the Second World War, the global economy experienced an unprecedented period of sustained growth. In the industrialized world, millions of people joined the ranks of the middle class, and wealth inequality sunk to historic lows. After decades of strife, labour and capital reached a relative ceasefire, and a mixed economy of governmental macroeconomic guidance combined with private microeconomic initiative emerged. Capital was able to make healthy profits, while much of the rising productivity of labour was passed on in the form of higher wages. Governments made full employment a priority, and increasingly accepted the responsibility of providing for the poor and disadvantaged. By the late 1960s, governments were seriously considering implementing a basic income (also known as a guaranteed annual income) and many policymakers thought that our biggest problem in another 20 years would be what to do with all our free time once the work week had been significantly reduced.
This exuberant economic attitude was arguably reflected in the radical social experimentation and revolution that emanated from universities now accessible to the majority, and in the various movements for liberty and social justice erupting worldwide. For many, all this social and economic optimism had one man to thank: the British political economist John Maynard Keynes, who had emerged from the academic wilderness in the 1930s to play a leading role in the design of the post-war economy at Bretton Woods, and whose focus on the counter-cyclical stimulus of aggregate demand became the lynchpin of governmental economic policy in subsequent decades. "There was a broad body of optimism that the 1950s and 1960s were the product of Keynesian economic engineering. Indeed, there was no reason why the prosperity of the international economy should not continue as long as appropriate Keynesian policies were pursued " In 1971, even the conservative US president Richard Nixon would famously proclaim, "We are all Keynesians now." The triumph of Keynesianism seemed complete.
Yet shortly after Nixon uttered these words, it all fell apart. That same year, Nixon ended the era of dollar to gold convertibility, a move that many see as the beginning of the end for the great post-war compromise between capital and labour.
Three years later, in the face of the first oil embargo and other pressures, the economy nose-dived into the worst recession since the Great Depression, never to rebound to earlier levels. Worse still, the theoretical underpinnings of Keynesianism were called into question by the simultaneous appearance of high inflation and high unemployment – a new phenomenon dubbed "stagflation". While Keynesianism floundered for an explanation, new theories stepped into the breach; monetarism and supply-side economics were the two most popular. While these new theories had distinctive approaches, both shared the belief that big government – namely Keynesianism – was the problem, and that the solution to stagflation was to restrict government intervention in the economy to a strict inflation-fighting monetary policy (in the case of monetarism) or to cut taxes to stimulate private investment (in the case of the supply-siders). This move away from government intervention and the welfare state, and towards more emphasis on an unfettered market, can been summed up by the term "neoliberalism". As the 1970s ran their course, neoliberalism gradually took over from Keynesianism as the reigning economic orthodoxy, to be consummated in the Anglo-Saxon world by the elections of Margaret Thatcher in the UK in 1979, Ronald Reagan in the US in 1980, and Brian Mulroney in Canada in 1984.
The story told by the victors of this ideological battle – the neoliberals – is that Keynesianism, despite its apparent success for 25 years, was in the end responsible for the constellation of economic crises that descended on the industrialized countries during the 1970s, and that neoliberalism was the remedy. The shift from Keynesianism to neoliberalism was, according to this story, the only rational option in the face of stagflation; as Thatcher crisply remarked at the time, "There is no alternative."
I will call into question this story, by first examining the causes of the 1970s economic malaise, and then looking at what interests were behind the promotion of neoliberalism as a solution, how it gained political power, and how it was disseminated around the world. I will fashion an alternate narrative, one in which Keynesianism was not to blame for stagflation, in which the economic crises of the 1970s put the compromise between capital and labour under severe strain and ultimately broke it, in which the capitalist class went on the offensive partly because it feared for its very survival, and in which this class achieved its ends by forming an alliance with social conservatives equally fearful in the face of the 1960s counter-cultural revolution. The protagonist of this story will be the United States; as the capitalist world's superpower, it was largely responsible for the crisis of the 1970s, it suffered the worst from it, and it led the way down the new path of neoliberalism.
THE FALL OF KEYNESIANISM
As one of the principle fathers of neoliberalism, the economist Milton Friedman's indictment of Keynesianism is of special relevance, for it is emblematic of the neoliberal attempt to – quite successfully – pin the blame for chronic recession squarely on Keynesian shoulders. Briefly, Friedman theorized that there was a so-called "natural" rate of unemployment, which persisted in the long-term despite governmental attempts to stimulate demand through spending. Running a budget deficit to pump money into the economy might bring down the unemployment rate in the short term, he thought, but in the long run it would only create inflation, while unemployment would inevitably return to its natural rate – now higher because of the inflation. He essentially argued that fiscal policy was useless – even damaging – and that if governments wanted to bring down the natural rate of unemployment, they should focus on keeping inflation low through monetary policy, while loosening restrictions on markets so that, for instance, wage levels could find their equilibrium point. This explanation for the stagflation encountered in the 1970s proved quite convincing to many searching for answers to the predicament, as well as enormously appealing to those who had always wished for a return to unfettered markets, and played a key role in justifying the switch from Keynesianism to neoliberalism, in its guise of monetarism.
How realistic is this account? Certainly, deficit financing played an important role in the soaring inflation of the 1970s, but was this solely the result of spending on social programs, such as under president Lyndon Johnson's Great Society initiative, or were there other causes for deficit spending? The Vietnam War, combined with Johnson's unwillingness to raise taxes in the face of rising war expenditures, caused the US Federal Reserve to print large amounts of new dollars. Military spending is often seen as the most inflationary form of government spending, because it puts new money into the economy without a corresponding increase in output. The US had some leeway to get away with this rapid increase in the money supply, since the dollar was the international reserve currency, but there was a limit to this, and the explosive inflation of the 1970s was the result.
It must be noted that the US proved a dismal failure in its short-lived role as manager of the world's monetary system. At Bretton Woods, it had been entrusted with the task of maintaining a sound monetary system, through the gold exchange standard, just as Britain had previously. Britain, being a trading nation, had had a strong interest in maintaining a sound international monetary system, and had been effective (some would say too effective) at maintaining it. The United States, on the other hand, traded much less, and consequentially took its responsibilities much less seriously. It is easy to speculate about the justification made by US officials as they printed irresponsible amounts money to pay for their war in Vietnam: they surely saw themselves as defending the free world against the tyranny of communism, a cause for which a little monetary instability, shouldered by the "free world" in general, was a small price to pay.
The first cracks in the system started to show during the series of currency crises that struck in the late 1960s. By the end of the decade, the dollars held outside the US were worth eight times as much as the US had in gold reserves. In 1971, rather than saving the system by devaluing the dollar, and fearing a run on US gold, Nixon ended the gold exchange standard. The US had abused its power of seigniorage (as monarchs before had), but wouldn't escape without paying a price.
The result was more inflation, as the dollar, now cut loose from the Bretton Woods standard of $35 per ounce of gold, shed its inflated value. The lower dollar also raised the cost of imports to the US consumer, further fueling domestic inflation. (The end of dollar convertibility also brought with it more far-reaching consequences. The fixed exchange rates of the 1950s and 60s were incompatible with free flows of capital. Yet taking the dollar off gold led directly to floating exchange rates, which in turn paved the way for freer flows of capital between countries. This development would later aid greatly in the furtherance of the neoliberal agenda.)
As if these developments were not inflationary enough, the Yom Kippur War of October 1973 led OPEC to restrict oil exports to Israel's allies, quadrupling oil prices virtually overnight. Yet this was inflation of a different nature than the kind that had been building up in the 1960s; rather than being linked to excess demand and an overheated economy, it was driven by increases in costs on the supply side and brought with it recessionary pressures. An increase in the price of oil, being fundamental to so much of the economy, is "similar to the imposition of a substantial sales tax. The price of the product goes up and consumers have less income available to spend on other goods and services. The result is a bout of inflation, at least temporarily, and sluggish economic expansion if not recession." This goes a long way towards explaining the supposedly impossible coincidence of high inflation with high unemployment.
Yet there were other factors that also contributed to the so-called "misery index" (inflation rate plus unemployment rate). The most basic of these was that governments tried repeatedly to beat inflation by attacking perceived excess demand through restrictive monetary and fiscal policies; when Nixon tried this strategy in 1970, it resulted in recession. His successor, Gerald Ford, tried the same approach in 1974 – despite the fact that inflation at that point was not being driven by excess demand, but by high costs on the supple side (namely oil). Thus, poor governmental reaction to inflation caused recession and rising unemployment, while failing to master inflation.
Another factor contributing to the slow-down of growth in the US economy was the end of the privileged position it enjoyed as the only power to emerge from the Second World War relatively unscathed. As Germany and Japan laboured to reconstruct their war-ravaged economies, the US faced little competition. Yet by the end of the 1960s, the old Axis powers, now recast as capitalist democracies but still economic powerhouses, were flexing their economic muscles again. This, combined with increasing competition from newly industrialized countries in East Asia and from other developing countries, cut into the robust economic growth the US had enjoyed for two decades previously.
To sum up, inflation caused by first the Vietnam War and later the oil embargo (itself the result of war in the Mideast), coupled with increasing competition to US business internationally, along with the shock of the collapse of the Bretton Woods framework, were the major factors that combined to create the "perfect storm" known as stagflation:
the stage was set for the deepest recession since the 1930s. The long period of post-war expansion had at last come to an end; America and world capitalism entered a new phase of turbulence which, amongst other things, threw economic policy and economics as a theory into a state of flux.
AND THE RISE OF NEOLIBERALISM
In the previous section, I outlined the confluence of factors that led to the crisis of stagflation in the 1970s. In the following section, I will describe the reaction to this crisis – the how and why of neoliberalism's triumph as the new economic orthodoxy.
Different authors ascribe to different points in time when the balance decisively shifted from Keynesianism to neoliberalism – some place the tipping point as early as the latter half of the 1960s, others as late as the ascendancy of Thatcher and Reagan – but the midway year 1974 seems as good as any. It was in this year that Gerald Ford came to the White House with the slogan, "Whip Inflation Now" (WIN), declaring that inflation was public enemy number one and that reduction in government spending was the chief means to that end. It was also in this year that inflation peaked (at 11% – although it would later be surpassed by a second peak of 13.5% in 1980), and that the "perfect storm" that had been building for years, catalyzed by the energy crisis, finally unleashed its full fury on the economy. In declaring war on inflation, Ford broke with the Keynesian bias of giving precedence to full employment; whereas before inflation had been a tool to control unemployment, now unemployment was to be used as a tool to control inflation:
The choice seemed to be stark: accept some inflation as the price of expansion and adapt business and accounting practices accordingly, or pursue a firm deflationary policy even if that meant accepting a higher level of unemployment than had been customary since the Second World War.
In choosing the latter, Ford shattered the fragile compromise between labour and capital and, favouring capital, took America on its first real steps towards neoliberalism.
Yet, as the crisis had gathered steam in the early 1970s, it was by no means clear which way the winds would blow. It was well remembered that the last major economic crisis, in the 1930s, had resulted in the socialist policies of the New Deal, and indeed in the 1970s labour again called for more governmental intervention as the solution to the crisis. Capital, meanwhile, as it suffered from reduced profits due to increased competition abroad and recession at home, also saw the crisis as both an opportunity to advance its interests and as a threat to its interests from an increasingly militant labour. "The upper classes had to move decisively if they were to protect themselves from political and economic annihilation." The ceasefire between labour and capital had held when times were good, but as soon as conditions started to sour, both sides went on the offensive. It was to be one or the other.
Sensing both the opportunity and the threat presented by the crisis, the capitalist class put aside its differences and united against the common enemy of labour. The 1970s marked the beginning of the right-wing think tank, with corporate dollars founding such now well-known beacons of neoliberal thought as the Heritage Foundation, the Hoover Institute, and the American Enterprise Institute. Lobbying efforts, though such umbrella organizations as the American Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable (a group of CEOs founded in 1972), were massively ramped up; business schools at Stanford and Harvard, established through corporation benefaction, " became centres of neoliberal orthodoxy from the very moment they opened" ; and "the supposedly 'progressive' campaign finance laws of 1971 [that] in effect legalized the financial corruption of politics," were followed by a series of Supreme Court decisions that established the right of corporations to make unlimited donations to political parties. "During the 1970s, the political wing of the nation's corporate sector staged one of the most remarkable campaigns in the pursuit of power in recent history."
The ideology adopted by capital during this remarkable drive to win the minds of the political leadership " had long been lurking in the wings of public policy." It emanated largely from the writings of the Austrian economist Friedrich von Hayek, around whom a collection of admirers (including Milton Friedman) called the Mont Pelerin Society had formed in 1947. This group's ideas became known as neoliberalism because of its adherence to such neoclassical economists of the latter half of the 19th Century as Alfred Marshall, William Stanley Jevons, and Leon Walras. Hayek had argued presciently that it might take a generation before they could win the battle of ideas; by the time he won the Nobel Prize for economics in 1974, followed by Friedman two years later, victory was indeed close at hand.
Why did capital " [pluck] from the shadows of relative obscurity [this] particular doctrine that went under the name of 'neoliberalism' "? Was it to save the world from the ravages of Keynesian stagnation and to free people from the heavy hand of bloated government? This was certainly part of the rhetoric used to sell neoliberalism to the public, but one need only look at who benefited from neoliberalism to get a strong sense of whose interests it really served. It was eventually quite successful in lowering inflation rates, and moderately successful in lowering unemployment, but failed to revive economic growth to pre-1970s levels; meanwhile, it resulted in levels of wealth inequality not seen since the 1920s in the US, stagnating real wages, and a decreased quality of life for those reliant on government services. Alan Budd, Thatcher's economic advisor, was candid about the real motives behind the neoliberal rhetoric when he said, "The 1980s policies of attacking inflation by squeezing the economy and public spending were a cover to bash the workers." Neoliberalism was capital's way of disciplining labour through unemployment, creating what Marx called an "industrial reserve army" that would break unions and drag wages down. Reagan facing down the air traffic controller's union, PATCO, during a bitter strike in 1981, paralleled across the Atlantic by Thatcher's similarly tough stance with the National Union of Mineworkers' year-long strike in 1984-85, was emblematic of the new hostile approach to labour reintroduced to state policy by neoliberalism. In short, neoliberalism was driven by class interests; it was the vehicle best suited " to restor[ing] the power of economic elites." The true point of neoliberalism is revealed by the fact that whenever the dictates of neoliberal theory conflicted with the interests of the capitalist class, such as when it came to running massive budgetary deficits to pay for military spending during peacetime, neoliberalism was discarded in favour of the interests of capital.
Before neoliberalism came to roost in the White House, however, there were several experiments conducted in the periphery. It is revealing to note that the first nationwide imposition of neoliberalism occurred under conditions of tyranny: Augusto Pinochet's Chile; it is likewise fitting that neoliberalism drove from Chile its antithesis, the communism of Salvador Allende, and that it was imposed through a US-backed coup. After the coup in 1973, Chile became a field school for graduates from the economics department of the University of Chicago, where disciples of Milton Friedman, who taught there, had formed their own monetarist/neoliberal school of thought. These economists attempted to remake the Chilean economy into the ideal neoliberal state (in the same way that US neoliberals are currently attempting in Iraq), a transformation that likely would not have been possible without the Chilean military ensuring a compliant labour. Despite lackluster economic results (particularly after the 1982 debt crisis in Latin America), Chile served as a model to neoliberals who wanted the rich countries to follow the same path.
There was another coup, of sorts – less known and less violent – that occurred in New York City in 1975. In that year, the city went bankrupt, and the subsequent bailout came with strict conditions attached, including budgetary rules and other institutional restructuring. "This amounted to a coup by the financial institutions against the democratically elected government of New York City, and it was every bit as effective as the military coup that had occurred in Chile." It was "an early, perhaps decisive battle in a new war," the purpose of which was "to show others that what is happening to New York could and in some cases would happen to them." "The management of the New York fiscal crisis pioneered the way for neoliberal practices both domestically under Reagan and internationally through the IMF in the 1980s."
While coups, either military or financial, were possible against developing countries and municipalities, neoliberalism would have to gain dominance in the US federal government through slightly more democratic means. As noted earlier, the intense drive to power through lobbying, think tanks, and academia convinced many in the elite of the virtues of neoliberalism, but ultimately this ideology would have to sway masses of people to actually vote in favour of it. In order to secure the broad base of support necessary to win elections, neoliberals formed an alliance in the 1970s with the religious right (a move that has forever since confused the terms "liberal" and "conservative"). While this significant segment of the American population had previously been largely apolitical, the counter-cultural revolution of the late 1960s and early 1970s provoked many of these "neoconservatives" to enter the political arena to oppose the perceived moral corruption of American society – a movement that came to fruition with preacher Jerry Fallwell's so-called "moral majority" in 1978. While neoliberals and neoconservatives may seem like strange bedfellows, the coalition was likely facilitated by religious fundamentalists' relative indifference towards the material, economic world; according to their extremist Christian worldview, their material interests in this world would be well worth sacrificing to secure the spiritual interests of their nation in the next world. Furthermore, both religious and economic fundamentalists must have found a comforting familiarity in each other's simplistic extremism (the "invisible hand" of the neoliberals' free market is eerily similar to the Christians' God in its omnipotence, omnipresence, and inscrutability).
The Republican Party gathered under its banner these religious reactionaries, as well as those non-religious (largely white, heterosexual, male, and working-class) who simply feared the growing liberation of blacks, gays, and women, and who felt threatened by affirmative action, the emerging welfare state, and the Soviet Union. "Not for the first time, nor, it is to be feared, for the last time in history had a social group been persuaded to vote against its material, economic, and class interests for cultural, nationalist, and religious reasons." It was this alliance of social fear and economic opportunism that swept arch-neoliberal Ronald Reagan to the White House in 1980 – " a turning point in post-war American economic and social history." After a decade-long campaign, the neoliberals had come to Washington.
Of course, the crusade to reshape society along neoliberal ideals was far from won; Reagan faced a Democratic Congress, and was often forced to govern more pragmatically than ideologically when his supply-side policies failed. As Margaret Thatcher said, "Economics are the method, but the object is to change the soul," and it takes time to change people's souls.
There was also still a whole world to convert to the gospel of market liberalization. The crisis of stagflation that had opened the door to neoliberal ideas in the US had also created financial incentives for the dissemination of neoliberalism to other countries. With the impact of the first oil crisis flooding New York investment banks with petrodollars, and a depressed economy at home offering fewer places to spend them, the banks poured the money into developing countries. This created pressure on the US government to pry open new markets for investment, as well as to protect the growing investments overseas – helping to bring US-bred neoliberalism to foreign shores.
Yet these pressures were only a taste of what was to come; after the Iranian revolution in 1979 caused oil prices to suddenly double, inflation in the US returned with a vengeance. This in turn led the US Federal Reserve, under its new neoliberal-minded chairman Paul Volcker, to drastically raise interest rates. This "Volcker shock", resulting in nominal interest rates close to 20% by 1981, coming on the heels of the profligate lending of petrodollars during the 1970s, played a major part in the debt crisis that descended on the developing world during the 1980s. As countries defaulted on their debts, they were driven into the arms of the International Monetary Fund (IMF), which, after what economist Joseph Stiglitz described as a "purge" of Keynesians in 1982, became a center " for the propagation and enforcement of 'free market fundamentalism' and neoliberal orthodoxy." Mexico, after its debt default of 1982-84, became one of the first countries to submit to neoliberal reforms in exchange for debt rescheduling, thus " beginning the long era of structural adjustment."
Many of the IMF economists who designed these Structural Adjustment Programs (SAPs), as well as those who staffed the World Bank and the finance departments of many developing countries, were trained at the top US research universities, which by 1990 were dominated by neoliberal ideas – providing yet another avenue by which neoliberalism spread from the US to other parts of the world. By the mid-1990s, the process of neoliberal market liberalization (under the supervision of the World Trade Organization (WTO)) came to be known as the "Washington Consensus", in recognition of the origins of this ideological revolution.
THE REVOLUTION CONTINUES
Some authors have called neoliberalism the antithesis to Keynesianism , yet its real opposite is communism; Keynesianism represented a compromise between the two – a middle way. Yet this fragile balance did not survive the economic crucible of the 1970s. Neoliberalism's strategic political alliance with neoconservatism can be seen as a natural reaction to the rapid changes that had unfolded during the 1950s and 60s in both the US economy (with the growth of the welfare state) and society (with the rise of the counter-cultural revolution); at the same time, it can also be seen as an opportunist power grab by the capitalist class during a period of uncertainty about the foundations of the old order. The fear of communism – captured succinctly in the title of Hayek's famous work, The Road to Serfdom – drove neoliberals to the opposite extreme: the belief in the superiority of the unfettered marketplace as the guiding principle to human civilization. Neoliberalism, therefore, represents an extremist ideology that, if carried through to its end, will likely end up being as destructive to the societies it touches as extremist socialism was to the former Soviet bloc.
Although the neoliberal revolution is still winning many political battles, such as the growing attack on Medicare in Canada or on Social Security in the United States, evidence of an emerging counter-movement (such as the poorly named "anti-globalization movement" – anti-neoliberalization would be more apt) is growing. As Karl Polanyi described in his classic, The Great Transformation, the industrialization and economic liberalization of the 19th Century resulted in a reaction from society for more governmental intervention to protect people and communities from the destructive effects of unfettered markets. It is highly likely that we are now witnessing the first stages of a similar reaction to the latest round of rapid technological change and market liberalization. Hopefully, this reaction will lead to a society that better balances capitalism's creative destruction with the needs of humans and their communities for continuity and security.
Copyright Sean Butler 2006
Written for an Intro to Political Economy class at Carleton University in 2006
Dec 12, 2017 | www.weforum.org
World Economic ForumA similar trend can be seen at the organizational level. A recent study by Erling Bath, Alex Bryson, James Davis, and Richard Freeman showed that the diffusion of individual pay since the 1970s is associated with pay differences between, not within, companies. The Stanford economists Nicholas Bloom and David Price confirmed this finding, and argue that virtually the entire increase in income inequality in the US is rooted in the growing gap in average wages paid by firms. Such outcomes are the result not just of inevitable structural shifts, but also of decisions about how to handle those shifts. In the late 1970s, as neoliberalism took hold, policymakers became less concerned about big firms converting profits into political influence, and instead worried that governments were protecting uncompetitive companies. With this in mind, policymakers began to dismantle the economic rules and regulations that had been implemented after the Great Depression, and encouraged vertical and horizontal mergers. These decisions played a major role in enabling a new wave of globalization, which increasingly diffused growth and wealth across countries, but also laid the groundwork for the concentration of income and wealth within countries. The growing "platform economy" is a case in point. In China, the e-commerce giant Alibaba is leading a massive effort to connect rural areas to national and global markets, including through its consumer-to-consumer platform Taobao. That effort entails substantial diffusion: in more than 1,000 rural Chinese communities – so-called " Taobao Villages " – over 10% of the population now makes a living by selling products on Taobao. But, as Alibaba helps to build an inclusive economy comprising millions of mini-multinationals, it is also expanding its own market power. Policymakers now need a new approach that resists excessive concentration, which may create efficiency gains, but also allows firms to hoard profits and invest less. Of course, Joseph Schumpeter famously argued that one need not worry too much about monopoly rents, because competition would quickly erase the advantage. But corporate performance in recent decades paints a different picture: 80% of the firms that made a return of 25% or more in 2003 were still doing so ten years later. (In the 1990s, that share stood at about 50% .) Have you read?
Aug 19, 2012 | Corrente
I got to thinking today about how neocon and neoliberal are becoming interchangeable terms. They did not start out that way. My understanding is they are ways of rationalizing breaks with traditional conservatism and liberalism. Standard conservatism was fairly isolationist. Conservatism's embrace of the Cold War put it at odds with this tendency. This was partially resolved by accepting the Cold War as a military necessity despite its international commitments but limiting civilian programs like foreign aid outside this context and rejecting the concept of nation building altogether.
With the end of the Cold War conservative internationalism needed a new rationale, and this was supplied by the neoconservatives. They advocated the adoption of conservatism's Cold War military centered internationalism as the model for America's post-Cold War international relations. After all, why drop a winning strategy? America had won the Cold War against a much more formidable opponent than any left on the planet. What could go wrong?
America's ability not simply to project but its willingness to use military power was equated with its power more generally. If America did not do this, it was weak and in decline. However, the frequent use of military power showed that America was great and remained the world's hegemon. In particular, the neocons focused on the Middle East. This sales pitch gained them the backing of both supporters of Israel (because neoconservatism was unabashedly pro-Israel) and the oil companies. The military industrial complex was also on board because the neocon agenda effectively countered calls to reduce military spending. But neoconservatism was not just confined to these groups. It appealed to both believers in American exceptionalism and backers of humanitarian interventions (of which I once was one).
As neoconservatism developed, that is with Iraq and Afghanistan, the neocons even came to embrace nation building which had always been anathema to traditional conservatism. Neocons sold this primarily by casting nation building in military terms, the creation and training of police and security forces in the target country.
9/11 too was critical. It vastly increased the scope of the neocon project in spawning the Global War on Terror. It increased the stage of neocon operations to the entire planet. It effectively erased the distinction between the use of military force against countries and individuals. Individuals more than countries became targets for military, not police, action. And unlike traditional wars or the Cold War itself, this one would never be over. Neoconservatism now had a permanent raison d'être.
Politically, neoconservatism has become the bipartisan foreign policy consensus. Democrats are every bit as neocon in their views as Republicans. Only a few libertarians on the right and progressives on the left reject it.
Neoliberalism, for its part, came about to address the concern of liberals, especially Democrats, that they were too anti-business and too pro-union, and that this was hurting them at the polls. It was sold to the rubiat as pragmatism.
The roots of neoliberalism are the roots of kleptocracy. Both begin under Carter. Neoliberalism also known at various times and places as the Washington Consensus (under Clinton) and the Chicago School is the political expression for public consumption of the kleptocratic economic philosophy, just as libertarian and neoclassical economics (both fresh and salt water varieties) are its academic and governmental face. The central tenets of neoliberalism are deregulation, free markets, and free trade. If neoliberalism had a prophet or a patron saint, it was Milton Friedman.
Again just as neoconservatism and kleptocracy or bipartisan so too is neoliberalism. There really is no daylight between Reaganism/supply side economics/trickledown on the Republican side and Clinton's Washington Consensus or Team Obama on the other.
And just as we saw with neoconservatism, neoliberalism expanded from its core premises and effortlessly transitioned into globalization, which can also be understood as global kleptocracy.
The distinctions between neoconservatism and neoliberalism are being increasingly lost, perhaps because most of our political classes are practitioners of both. But initially at least neoconservatism was focused on foreign policy and neoliberalism on domestic economic policy. As the War on Terror expanded, however, neoconservatism came back home with the creation and expansion of the surveillance state.
At the same time, neoliberalism went from domestic to global, and here I am not just thinking about neoliberal experiments, like Pinochet's Chile or post-Soviet Russia, but the financialization of the world economy and the adoption of kleptocracy as the world economic model.jest on Mon, 08/20/2012 - 5:55amlambert on Mon, 08/20/2012 - 9:18am
I'm now under the opinion that you can't talk about any of the "neo-isms" without talking about the corporate state.
That's really the tie that binds the two things you are speaking of.
With neocons, it manifests itself through the military-industrial complex (Boeing, Raytheon, etc.), and with neolibs it manifests itself through finance and industrial policy.
For example, you need the US gov't to bomb Iraq (Raytheon) in order to secure oil (Halliburton), which is priced & financed in US dollars (Goldman Sachs). It's like a 3-legged stool; if you remove one of these legs, the whole thing comes down. But each leg has two components, a statist component and a corporate component.
The entity that enables all of this is the corporate state.
It also explains why economic/financial interests (neolib) are now considered national security interests (neocon). The viability of the state is now tied to the viability of the corporation.jest on Mon, 08/20/2012 - 1:37pm
Corporate/statist (not sure "corporate" captures the looting/rentier aspect though). We see it everywhere, for example in the revolving door.
I think the stool has more legs and is also more dynamic; more like Ikea furniture. For example, the press is surely critical in organizing the war.
But the yin/yang of neo-lib/neo-con is nice: It's as if the neo-cons handle the kinetic aspects (guns, torture) and the neo-libs handle the mental aspects (money, mindfuckery) but both merge (like Negronponte being on the board of Americans Select) over time as margins fall and decorative aspects like democratic institutions and academic freedom get stripped away. The state and the corporation have always been tied to each other but now the ties are open and visible (for example, fines are just a cost of doing business, a rent on open corruption.)
And then there's the concept of "human resource," that abstracts all aspects of humanity away except those that are exploitable.
First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma GandhiLex on Mon, 08/20/2012 - 8:28am
I like the term much better than Fascist, as it is 1) more accurate, 2) avoids the Godwin's law issue, and 3) makes them sound totalitarianist.
Yes, I would agree that additional legs make sense. The media aspect is essential, as it neutralizes the freedom of the press, without changing the constitution. It dovetails pretty well with the notion of Inverted Totalitarianism.
I think you could also make the argument that Obama is perhaps the most ideal combination of neolib & neocon. The two sides of him flow together so seamlessly, no one seems to notice. But that's in part because he is so corporate.Hugh on Mon, 08/20/2012 - 3:57pm
Actually, neoliberalism is an economic term. An economic liberal in the UK and EU is for open markets, capitalism, etc. You're right that neoliberalism comes heavily from the University of Chicago, but it has little to do with American political liberalism.
A reading of the classical liberal economists puts some breaks on the markets, corporations, etc. Neoliberalism goes to the illogical extremes of market theory and iirc, has some influence from the Austrian school ... which gives up on any pretense of scientific exposition of economics or rationality at the micro level, assuming that irrationality will magically become rational behavior in aggregate.
Therefore, US conservatives post Eisenhower but especially post Reagan are almost certainly economic neoliberals. Since Clinton, liberals/Democrats have been too (at least the elected ones). You nailed neoconservative and both parties are in foreign policy since at least Clinton ... though here lets not forget to go back as far as JFK and his extreme anti-Communism that led to all sorts of covert operations, The Bay of Pigs, Vietnam, and the Cuban Missile Crisis. Remember, the Soviets put the missiles in Cuba because we put missiles in Turkey and they backed down from Cuba because we agreed to remove the missiles from Turkey; Nikita was nice enough not to talk about that so that Kennedy didn't lose face.
"Don't believe them, don't fear them, don't ask anything of them" - Aleksandr SolzhenitsynHugh on Mon, 08/20/2012 - 10:44pm
I agree that neoconservatism and neoliberalism are two facets of corporatism/kleptocracy. I like the kinetic vs. white collar distinction.
The roots of neoliberalism go back to the 1940s and the Austrians, but in the US it really only comes into currency with Clinton as a deliberate shift of the Democratic/liberal platform away from labor and ordinary Americans to make it more accommodating to big business and big money. I had never heard of neoliberalism before Bill Clinton but it is easy to see how those tendencies were at work under Carter, but not under Johnson.
This was a rough and ready sketch. I guess I should also have mentioned PNAC or the Project to Find a New Mission for the MIC.Lex on Mon, 08/20/2012 - 11:49pm
I have never understood this love of Clinton that some Democrats have just as I have never understood the attraction of Reagan for Republicans. There is no Clinton faction. There is no Obama faction. Hillary Clinton is Obama's frigging Secretary of State. Robert Rubin and Larry Summers, both of whom served as Bill Clinton's Treasury Secretary, were Obama's top financial and economic advisors. Timothy Geithner was their protégé. Leon Panetta Obama's Director of the CIA and current Secretary of Defense was Clinton's Director of OMB and then Chief of Staff.
The Democrats as a party are neoconservative and neoliberal as are Obama and the Clintons. As are Republicans.
What does corporations need regulation mean? It is rather like saying that the best way to deal with cancer is to find a cure for it. Sounds nice but there is no content to it. Worse in the real world, the rich own the corporations, the politicians, and the regulators. So even if you come up with good ideas for regulation they aren't going to happen.
What you are suggesting looks a whole lot another iteration of lesser evilism meets Einstein's definition of insanity. How is it any different from any other instance of Democratic tribalism?
Perhaps it should be pointed out that the Clintons became fabulously wealthy just after Bill left office, mostly on the strength of his speaking engagements for the financial sector that he'd just deregulated. Both he and Hillary hew to a pretty damned neoconservative foreign policy ... with that dash of "humanitarian interventionism" that makes war palatable to liberals.
But your deeper point is that there isn't enough of a difference between Obama and Bill Clinton to really draw a distinction, not in terms of ideology. What a theoretical Hillary Clinton presidency would have looked like is irrelevant, because both Bill and Obama talked a lot different than they walked. Any projection of a Hillary Clinton administration is just that and requires arguing that it would have been different than Bill's administration and policies.
The unfortunate fact of the matter is that at that level of politics, the levers of money and power work equally well on both party's nomenklatura. They flock to it like moths to porch light.
That the money chose Obama over Clinton doesn't say all that much, because there's no evidence suggesting that the money didn't like Clinton or that it would have chosen McCain over Clinton. It's not as if Clinton's campaign was driven into the ground by lack of funds.
Regardless, that to be a Democrat i would kind of have to chose between two factions that are utterly distasteful to me just proves that i have no business being a Democrat. And since i wouldn't vote for either of those names, i guess i'll just stick to third parties and exit the political tribalism loop for good.
"Don't believe them, don't fear them, don't ask anything of them" - Aleksandr Solzhenitsyn
Feb 01, 2013 | reason.com
The review of: Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics, by Daniel Stedman Jones, Princeton University Press, 424 pages, $35
Socialist ideas were already floating around the democratic West in the early 1900s, but they gained much greater popularity after the Great Depression, which was widely seen as a failure of capitalism. One part of this shift entailed a greater role for the government in regulating or owning business enterprises. The second part involved a major expansion of social insurance programs.
Beginning in the late 1970s, there was a backlash against excessive government intervention in the economy. This neoliberal revolution involved privatization, deregulation, and cuts in marginal tax rates, but it left most social insurance programs in place.
Daniel Stedman Jones, an independent historian (and barrister) in London, has written a balanced and informative study of neoliberal thinkers such as F.A. Hayek and Milton Friedman, exploring their impact on policy making, particularly during Margaret Thatcher's administration in the United Kingdom and Ronald Reagan's in the United States. Jones suggests a policy revolution that began in the 1970s drew on 30 years of neoliberal research and advocacy, partly financed by businessmen hostile to Franklin Roosevelt's New Deal policies. Although Jones is skeptical of the more radical elements of neoliberalism, he is mostly respectful of the major neoliberal figures, despite the fact that his own politics are clearly left of center.
Jones traces the origins of neoliberalism to the mid-1940s, specifically to the nearly simultaneous publication of Hayek's The Road to Serfdom (1944), Ludwig von Mises' Bureaucracy (1944), and Karl Popper's The Open Society and Its Enemies (1945). The appearance of these highly influential books was followed by the formation of the Mont Pelerin Society, a group of American and European neoliberals who met annually starting in 1947. Even within this group there were important ideological differences, with Popper being much more sympathetic to the democratic left than Mises. Early neoliberals rejected complete laissez faire, which was widely seen as discredited by the depression; they supported economic interventions such as antitrust laws, the regulation of natural monopolies, health and safety regulation, and government provision of education and other social services.
Over time the center of the neoliberal movement shifted from Europe to America, especially the economics departments at the University of Chicago, where Milton Friedman taught, and the University of Virginia, where James Buchanan and Gordon Tullock developed "public choice" theory, which aims to explain why government policies often end up serving special interest groups. At the same time, the ideology drew closer to laissez faire. Neoliberal economists were less likely to endorse interventions such as antitrust and more likely to support a radical program of deregulation.
Beginning in the late 1970s, neoliberal ideas began to have a significant impact on policy in the U.S. and Britain. Under President Jimmy Carter there was significant deregulation of transportation, utilities, and banking, and capital gains taxes were reduced. Deregulation continued in the 1980s under President Reagan, who also slashed the top income tax rate from 70 percent to 28 percent. In Britain the Labour Party began to move away from traditional Keynesian stimulus programs, as these policies were widely blamed for the high rates of inflation during the 1970s. Thatcher sped up that trend after taking office in 1979. Her Tory government privatized state-owned firms and public housing, deregulated the financial industry, weakened labor unions, and sharply reduced the top income tax rate.
... ... ..
Consider Jones' description of neoliberalism's evolution from the late 1940s to the '70s: "The early neoliberals were marked by their desire to move beyond both laissez-faire economics and the New Deal. Later neoliberals, defined by the Chicago emphasis on unregulated markets, were less ambiguous in their opposition to the welfare state and to the need for government intervention in the economy."
In political practice, neoliberalism was not about abandoning the welfare state. It was about deregulation, privatization, freer trade, lower marginal tax rates, and keeping inflation under control. Thatcher's policies were viewed as a big neoliberal success, despite the fact that government spending remained close to 40 percent of GDP. There is far less regulation of investment, trade, market access, and prices in developed countries today than in the 1970s. Many state-owned enterprises have been sold to the private sector, and inflation has been brought down to relatively low levels. Virtually every developed country has sharply cut its top income tax rate from the levels of the 1970s. Yet the welfare state in those countries is roughly as large as it was four decades ago.
Nor was opposition to the welfare state ever a big part of the academic side of neoliberalism. I studied economics at the University of Chicago between 1977 and 1980, when the Chicago school had reached its peak of influence. There was a heavy focus on the failures of Keynesian demand-side macroeconomics as well as the often counterproductive effects of regulation. But if the welfare state ever came up, it was generally brushed aside with the comment that the optimal policy would probably be to just give money to the poor.
Milton Friedman proposed a "negative income tax" that would have replaced many welfare programs with direct cash payments. He also advocated vouchers for education and health care, plus a progressive consumption tax. Jones suggests that Friedman was opposed to both the welfare state and progressive taxes, but that's a bit misleading. What Friedman opposed was paternalism and inefficiency. At times Friedman indicated that his ideal society was a minimal state, but his policy recommendations would have given the government a substantial role in addressing issues such as health care, education, and income inequality. Hayek too supported a basic safety net.
A study by the libertarian political scientist Charles Murray in the mid-1980s did point to the pernicious effect of welfare on incentives, but the issue was not significantly addressed until the mid-1990s, when the welfare system was modified -- under a Democratic president -- to provide smaller benefits to the nonworking poor and more subsidies to the working poor. This wasn't a conservative plot to cut spending. It was an example of modern liberalism being transformed by academic research.
All the other major neoliberal initiatives in America were essentially bipartisan, including free trade agreements, cuts in capital gains taxes, the reduction of the top income tax rate, and the deregulation of transportation, utilities, and banking. Because big social programs such as Medicare and Social Security in America and the National Health Service in the U.K. are highly popular, criticism of the welfare state is often directed at relatively modest efforts aimed at groups not likely to vote for the more conservative party. Even as Mitt Romney complained about people "who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them," he campaigned vigorously against President Barack Obama's Medicare cuts.
Apr 19, 2017 | www.nakedcapitalism.comfresno dan , April 17, 2017 at 7:28 amfresno dan , April 17, 2017 at 8:41 am
This Sunday [Easter], tens of millions of American Christians will celebrate Easter, and thousands of children and their families will descend on the White House to take part in the annual Easter Egg Roll. As the festivities spill over the grounds of 1600 Penn., I wonder if anyone will stop to note the obvious irony: That President Donald J. Trump is very likely the least religious president to occupy the White House since Thomas Jefferson.
I'm not saying Trump is a closeted atheist, but he's no evangelical. As a self-proclaimed Protestant, or Presbyterian, or something he describes as "a wonderful religion," Trump nominally attends the nondenominational Marble Collegiate Church in New York City.
Where evangelicals emphasize asking God for forgiveness, Trump says, "I am not sure I have. I think if I do something wrong, I think, I just try and make it right. I don't bring God into that picture. I don't."
Compare these remarks to the more earnest faith of President George W. Bush, who claimed divine consultation before invading Iraq, or the incessant God-talk of candidates like Ted Cruz, Mike Huckabee, Rick Perry, Rick Santorum, Sarah Palin and Ben Carson.
Since then, it's hard to see what benefit America's strong leaning toward theocracy has had. Comparing 17 first-world prosperous democracies on a number of societal health measures, social scientist Gregory S. Paul found that the most religious country of them all-the United States -- had by far the worse measures on a number of criteria, including the highest rates of homicides, suicides, incarceration, STDs, teen pregnancies, abortions, divorce, alcohol consumption, corruption, poverty and income inequality. Correlation is not causation, of course. But if religion is suppose to be such a powerful force for societal health, then why is America-the most religious nation in the Western world-also the unhealthiest on all of these important social measures?***
I almost posted this yesterday, but I thought that would be churlish. I read Trump's "religious" remarks and find them extremely off putting. Than I read the religious remarks of other repubs, and I find them EVEN MORE off putting .
***Teen pregnancy – so much for the solemn pledges of abstinence made by teenagers .*** ***
*** *** What is it with the US? How can anybody in hypersexualized America really believe American teens are gonna keep it in their pants?RWood , April 17, 2017 at 9:44 am
April 17, 2017 at 7:59 am
"Seems to me Donald has been doing a lot more God talk since taking office, " I agree 1,000% – which just validates my view that Trump is all bullsh*ter. Elmer Gantry comes to mind.
And another point – it strikes me that those saying Trump is a liar misses the point – Trump is more like a parrot in that Trump will say (parrot) whatever he believes is necessary to get the cracker (though I didn't intend "cracker" to mean racists, but merely a reward, I note one can interpret that as one wishes .).NotTimothyGeithner , April 17, 2017 at 10:55 am
Playing to the sanctity of slaughter:
PAUL JAY: Under the protection of God, America, we'll use the Mother of All Bombs and fight without restraint. That's the message Donald wanted to send, and perhaps that's the message this bomb was meant to deliver in Afghanistan.
https://zcomm.org/znetarticle/deadly-propaganda-events/grayslady , April 17, 2017 at 2:14 pm
From my experience with Catholic school and church, I've long since determined "god talk" isn't as relevant as "us v. them" talk. Hillary's "deplorable" statement was just an affirmation of a view many "Christians" believe is held about them.
Pointing out hypocrisy misses the point because it's never been about religious doctrine as much as trying to belong to something and have purpose. Trump can miss every question about angels dancing on heads of pins, and it won't matter. Trump in his own way embraced the evangelicals. In effect, Hillary said she wanted the non-evangelical republicans who are so smart and moderate.
In "The Merchant of Venice" (Act 1, Scene 3), Antonio says, "even the devil can cite scripture for his own use." This is all they need because it's not about scripture and never has been.witters , April 17, 2017 at 7:03 pm
Why were enslaved Africans in the American South so religious?
Actually, they weren't all that religious. The slave owners allowed them time off on Sunday for religious services. The slaves were savvy enough to make sure that "services" were an all-day affair. Even meals and socialization were woven into the Sunday religious celebrations. That practice is the genesis of many AME and AME-Z all day (or most of the day) Sunday services today. (I learned that bit of information in my Black Religion college course many years ago.)
You and Marx: "Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people"
Apr 18, 2017 | www.nakedcapitalism.comAdam Eran, April 17, 2017 at 1:31 pmJagger , April 17, 2017 at 2:32 pm
Sorry, as a church-attending person, I object. Religion has de-legitimized itself with its hypocrisy. One example: Jerry Falwell, a "battler" against abortion actually supported it before his plutocratic masters told him it was a wedge issue.
Positions on the wedge issues (abortion, the gays) are actually difficult to prove with scripture–not that it has the kind of authority it did before 35,000 variations on old manuscripts were discovered in the 17th century. (Marcus Borg is the scholar to consult here).
Meanwhile, the big issues - e.g. covetousness, forbidden very explicitly in one of the 10 commandments - is an *industry* in the U.S.
I'll believe these evangelicals are guided by the bible when I see them picketing Madison Avenue for promoting covetousness, or when I see them lobbying for a debt jubilee.
Michael Hudso says Jesus' first appearance in the Jerusalem temple was to announce just such a Jubilee Boy is that ever ignored!hunkerdown , April 17, 2017 at 5:00 pm
Your correlating the hypocritical actions of the leadership with the ideals of a religion. Corrupt leadership may delegitimize those individuals but does not delegitimize the ideals of the religion. Is the ideal of America totally dependent on the actions of its political leadership? Personally, I think there is far more to America than just the president and congress whether corrupt or not.Jagger , April 17, 2017 at 7:57 pm
Ideals only serve in practice to create primordial debts, buttress power differentials, and enable selective malfeasance. I fail to see the social utility of any of those products and believe humanity would be better off repudiating them and their vectors. Disease is not a public good.JTMcPhee , April 17, 2017 at 5:10 pm
Well I am using this definition of ideal: "a person or thing conceived as embodying such a conception or conforming to such a standard, and taken as a model for imitation". I guess you are welcome to your definition.
I think "America" is maybe a shibboleth of some sort, but there is not a dam' thing left of the stuff I was taught and brought to believe, as a young person, Boy Scout, attendee at the Presbyterian Westminster Fellowship, attentive student of Mrs. Thompson and Mr. Fleming in Civics, Social Studies and US History classes, and all that. I was well enough steeped in that stuff to let "patriotism" overcome better sense, strongly enough to enlist in the Army in 1966.
Maybe you think "The Birth of a Nation" captures the essence of our great country?
What is or are the ideal(s) of "America?" Get rich quick, violence on all fronts, anti-intellectualism, imperial project across the planet? "Democracy?" If you trot that out as a "feature", you better explain what you mean, with some specificity. More to America? If youtube is any guide, try searching it for "syria combat" or "redneck" or "full auto," or all the really sick racist and extreme stuff - a pretty sorry place. But we all recite the Pledge so dutifully, don't we? and feel a thrill as the F-22s swoop over the football stadium?
Dec 10, 2017 | www.facebook.com
The investigation to somehow blame Russia for Donald Trump's election has now merged with another establishment goal of isolating and intimidating whistleblowers and other dissidents, as Dennis J Bernstein describes.
The Russia-gate investigation has reached into the ranks of journalism with the House Intelligence Committee's subpoena of Randy Credico, who produced a series about WikiLeaks founder Julian Assange for Pacifica Radio and apparently is suspected of having passed on early word about leaked Democratic emails to Donald Trump's supporter Roger Stone.
The Credico subpoena, after he declined a request for a "voluntary" interview, underscores how the investigation is moving into areas of "guilt by association" and further isolating whistleblowers who defy the powers-that-be through unauthorized release of information to the public, a point made by National Security Agency whistleblower Thomas Drake in an interview.
Drake knows well what it means to blow the whistle on government misconduct and get prosecuted for it. A former senior NSA executive, Drake complained about a multi-billion-dollar fraud, waste, and widespread violation of the rights of civilians through secret mass surveillance programs. As a result, the Obama administration indicted Drake in 2010, "as the first whistleblower since Daniel Ellsberg charged with espionage," according to the Institute for Public Accuracy.
In 2011, the government's case against him, which carried a potential 35 years in prison, collapsed. Drake went free in a plea deal and was awarded the 2011 Ridenhour Truth Telling Prize.
I interviewed Drake about the significance of Credico's subpoena, which Credico believes resulted from his journalism about the persecution of Julian Assange for releasing information that powerful people would prefer kept hidden from the public. (I had a small role in Credico's 14-part radio series, Julian Assange: Countdown to Freedom . It was broadcast first as part of his Live on the Fly Series, over WBAI and later on KPFA and across the country on community radio.)
Credico got his start as a satirist and became a political candidate for mayor of New York City and later governor of New York, making mainstream politicians deal with issues they would rather not deal with.
I spoke to Thomas Drake by telephone on Nov. 30, 2017.
Dennis Bernstein: How do you look at Russiagate, based on what you know about what has already transpired in terms of the movement of information? How do you see Credico's role in this?
Thomas Drake: Information is the coin of the realm. It is the currency of power. Anyone who questions authority or is perceived as mocking authority -- as hanging out with "State enemies" -- had better be careful. But this latest development is quite troubling, I must say. This is the normalization of everything that has been going on since 9/11. Randy is a sort of 21st century Diogenes who is confronting authority and pointing out corruption. This subpoena sends a chilling message. It's a double whammy for Randy because, in the eyes of the US government, he is a media figure hanging out with the wrong media figure [Julian Assange].
Dennis Bernstein: Could you say a little bit about what your work was and what you tried to do with your expose?
Thomas Drake: My experience was quite telling, in terms of how far the government will go to try to destroy someone's life. The attempt by the government to silence me was extraordinary. They threw everything they had at me, all because I spoke the truth. I spoke up about abuse of power, I spoke up about the mass surveillance regime. My crime was that I made the choice to go to the media. And the government was not just coming after me, they were sending a really chilling message to the media: If you print this, you are also under the gun.
Dennis Bernstein: We have heard the charges again and again, that this was a Russian hack. What was the source? Let's trace it back as best we can.
Thomas Drake: In this hyper-inflated, politicized environment, it is extremely difficult to wade through the massive amount of disinformation on all sides. Hacking is something all modern nation-states engage in, including the United States, including Russia. The challenge here is trying to figure out who the players are, whose ox is being gored, and who is doing the goring.
From all accounts, Trump was duly elected. Now you have the Mueller investigation and the House investigation. Where is this all leading? The US intelligence agency hasn't done itself any favors. The ICA provides no proof either, in terms of allegations that the Russians "hacked" the election. We do have the evidence disclosed by Reality Winner that maybe there was some interference. But the hyper-politicization is making it extraordinarily difficult.
The advantage that intelligence has is that they can hide behind what they are doing. They don't actually have to tell the truth, they can shade it, they can influence it and shape it. This is where information can be politicized and used as a weapon. Randy has found himself caught up in these investigations by virtue of being a media figure and hanging out with "the wrong people."
Dennis Bernstein: It looks like the Russiagaters in Congress are trying to corner Randy. All his life he has spoken truth to power. But what do you think the role of the press should be?
Thomas Drake: The press amplifies just about everything they focus on, especially with today's 24-hour, in-your-face social media. Even the mainstream media is publishing directly to their webpages. You have to get behind the cacophony of all that noise and ask, "Why?" What are the intentions here?
I believe there are still enough independent journalists who are looking further and deeper. But clearly there are those who are hell-bent on making life as difficult as possible for the current president and those who are going to defend him to the hilt. I was not surprised at all that Trump won. A significant percentage of the American electorate were looking for something different.
Dennis Bernstein : Well, if you consider the content of those emails .Certainly, the Clinton folks got rid of Bernie Sanders.
Thomas Drake: That would have been an interesting race, to have Bernie vs. Trump. Sanders was appealing, especially to young audiences. He was raising legitimate issues.
Dennis Bernstein: In Clinton, they had a known quantity who supported the national security state.
Thomas Drake: The national security establishment was far more comfortable having Clinton as president. Someone central to my own case, General Michael Hayden, just a couple days ago went apoplectic because of a tweet from Trump taking on the mainstream media. Hayden got over 100,000 likes on his response. Well, Hayden was central to what we did in deep secrecy at the highest levels of government after 9/11, engaging in widespread surveillance and then justifying it as "raw executive authority."
Now you have this interesting dynamic where the national security establishment is effectively undermining a duly elected president of the United States. I recognize that Trump is vulnerable, but these types of investigations often become highly politicized. I worry that what is really happening is being sacrificed on the altar of entertainment and the stage of political theater.
What is happening to Randy is symptomatic of a larger trend. If you dare speak truth to power, you are going to pay the price. Is Randy that much of a threat, just because he is questioning authority? Are we afraid of the press? Are we afraid of having the uncomfortable conversations, of dealing with the inconvenient truths about ourselves?
Dennis J Bernstein is a host of "Flashpoints" on the Pacifica radio network and the author of Special Ed: Voices from a Hidden Classroom . You can access the audio archives at www.flashpoints.net .
orwellexiled off mainstreet , December 7, 2017 at 4:23 pm
"Raw Executive Authority" means Totalitarianism/Fascism.Jerry Alatalo , December 7, 2017 at 3:34 pm
Yeah, it is definitely a way of describing the concept of fascism without using the word. The present Yankee regime seems to be quite far along that road, and the full-on types seem to be engaged in a coup to eliminate those they fear may not be as much in the fascist deep-state bag.jaycee , December 7, 2017 at 3:56 pm
It is highly encouraging to know that a great many good and decent men and women Americans are 100% supportive of Mr, Randy Credico as he prepares for his testimony before the House Intelligence Committee. Remember all those standing right there beside you, speak what rightly needs to be spoken, and make history Mr. Credico!mike k , December 7, 2017 at 5:49 pm
The intensification of panic/hysteria was obviously triggered by the shock election of Trump. Where this is all heading is on display in Australia, as the government is writing legislation to "criminalise covert and deceptive activities of foreign actors that fall short of espionage but are intended to interfere with our democratic systems and processes or support the intelligence activities of a foreign government." The legislation will apparently be accompanied by new requirements of public registration of those deemed "foreign agents". (see http://www.wsws.org/en/articles/2017/12/07/auch-d07.html ).
This will be an attack on free speech, free thought, and political freedoms, justified by an orchestrated hysteria which ridiculously assumes a "pure" political realm (i.e. the "homeland") under assault by impure foreign agents and their dirty ideas. Yes, that is a fascist construct and the liberal establishment will see it through, not the alt-right blowhards.john wilson , December 8, 2017 at 5:48 am
How disgusting to have to live today in the society so accurately described by Orwell in 1984. It was a nice book to read, but not to live in!fudmier , December 7, 2017 at 4:42 pm
Actually Mike, the book was a prophesy but you aren't seen nothing yet. You me and the rest of the posters here may well find ourselves going for a visit to room 101 yet.Al Pinto , December 7, 2017 at 5:23 pm
Those who govern (527 of them) at the pleasure of the constitution are about to breach the contract that entitles them to govern. Limiting the scope of information allowed to those who are the governed, silencing the voices of those with concerns and serious doubts, policing every word uttered by those who are the governed, as well as abusing the constitutional privilege of force and judicial authority, to deny peaceful protests of the innocents is approaching the final straw.
The governors and their corporate sponsors have imposed on those the governors govern much concern. Exactly the condition that existed prior to July 4, 1776, which elicited the following:
When in the course of human events, it becomes necessary for one people to dissolve the Political bands which connected them with another, and to assume among the Powers of the Earth, the separate and equal Station to which the laws of nature and of Nature's God entitle them, a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to the separation.
I submit the actions and intentions of those who govern that are revealed and discussed in this article https://consortiumnews.com/2017/12/07/russia-gates-reach-into-journalism/ should be among the list of impels that support the next declaration.mike k , December 7, 2017 at 5:53 pm
Those who govern (527 of them and the puppet master oligarch behind them) will make certain that there's no support for the next declaration. There's no respect to the opinions of the mankind, what matters is keeping the current status quo in place and further advance it by silencing the independent media.
Maybe when the next "Mother of all bubbles" come, there's an opportunity for the mankind to be heard, but it's doubtful. What has taken place during the last bubble is that the rich has gotten richer and the poor, well, you know the routine.
https://usawatchdog.com/mother-of-all-bubbles-too-big-to-pop-peter-schiff/john wilson , December 8, 2017 at 5:44 am
Truth is he enemy of coercive power. Lies and secrecy are essential in leading the sheeple to their slaughter.Christene Bartels , December 8, 2017 at 9:57 am
Perhaps the one good thing about Trumps election is that its shows democracy is still just about alive and breathing in the US, because as is pointed out in this article, Trump was never expected to win and those who lost are still in a state of shock and disbelief.
Trump's election has also shown us in vivid technicolour, just what is really going on in the deep state. Absolutely none of this stuff would have come out had Clinton won and anything there was would have been covered up as though under the concrete foundation of a tower block. However, Trump still has four years left and as a British prime minister once said, "a week is a long time in politics". Well four more years of Trump is a hell of a lot longer so who knows what might happen in that time.
One things for sure: the Neocons, the deep state, and all the rest of the skunks that infest Washington will make absolutely sure that future elections will go the way as planned, so perhaps we should celebrate Trump, because he may well be the last manifestation of the democracy in the US.
In the end, what will bring this monstrously lumbering "Russia-gate" dog and pony show crashing down is that stupid, fake Fusion GPS dossier that was commissioned, paid for, and disseminated by Team Hillary and the DNC. Then, as with the sinking of the Titanic, all of the flotsam and jetsam floating within its radius of destruction will go down with it. What will left to pluck from the lifeboats afterwards is anyone's guess. All thanks to Hillary.
Apparently, Santa isn't the only one making a list and checking it twice this year. He's going to have to share the limelight with Karma.
Dec 10, 2017 | off-guardian.org
The decline of the falsely self-described "quality" media outlet The Guardian/Observer into a deranged fake news site pushing anti-Russian hate propaganda continues apace. Take a look at this gem :
The Russian president, Vladimir Putin, has accused prominent British businessman Bill Browder of being a "serial killer" – the latest extraordinary attempt by the Kremlin to frame one of its most high-profile public enemies.
But Putin has not been reported anywhere else as making any recent statement about Browder whatever, and the Observer article makes no further mention of Putin's supposed utterance or the circumstances in which it was supposedly made.
As the rest of the article makes clear, the suspicions against Browder were actually voiced by Russian police investigators and not by Putin at all.
The Observer fabricated a direct quote from the Russian president for their propaganda purposes without any regard to basic journalistic standards. They wanted to blame Putin personally for the suspicions of some Russian investigators, so they just invented an imaginary statement from him so they could conveniently do so.
What is really going on here is the classic trope of demonisation propaganda in which the demonised leader is conflated with all officials of their government and with the targeted country itself, so as to simplify and personalise the narrative of the subsequent Two Minutes Hate to be unleashed against them.
When, as in this case, the required substitution of the demonised leader for their country can't be wrung out of the facts even through the most vigorous twisting, a disreputable fake news site like The Guardian/Observer is free to simply make up new, alternative facts that better fit their disinformative agenda. Because facts aren't at all sacred when the official propaganda line demands lies.
In the same article, the documents from Russian investigators naming Browder as a suspect in certain crimes are first "seen as" a frame-up (by the sympathetic chorus of completely anonymous observers yellow journalism can always call on when an unsupported claim needs a spurious bolstering) and then outright labelled as such (see quote above) as if this alleged frame-up is a proven fact. Which it isn't.
No evidence is required down there in the Guardian/Observer journalistic gutter before unsupported claims against Russian officials can be treated as unquestionable pseudo-facts, just as opponents of Putin can commit no crime for the outlet's hate-befuddled hacks.
The above falsifications were brought to the attention of the Observer's so-called Readers Editor – the official at the Guardian/Observer responsible for "independently" defending the outlet's misdeeds against outraged readers – who did nothing. By now the article has rolled off the site's front page, rendering any possible future correction nugatory in any case.
Later in the same article Magnitsky is described as having been Browder's "tax lawyer" a standard trope of the Western propaganda narrative about the case. Magnitsky was actually an accountant .
A trifecta of fakery in one article! That makes crystal clear what the Guardian meant in this article , published at precisely the same moment as the disinformation cited above, when it said:
"We know what you are doing," Theresa May said of Russia. It's not enough to know. We need to do something about it.
By "doing something about it" they mean they're going to tell one hostile lie about Russia after another.
michaelk says November 26, 2017https://www.theguardian.com/news/2017/nov/26/big-issue-who-will-step-in-after-bullies-have-silenced-dissentersmichaelk says November 26, 2017
From the 'liberal' Guardian/Observer wing of the rightwing bourgeois press, spot the differences with the article in the Mail on Sunday by Nick Robinson?http://www.dailymail.co.uk/debate/article-5117723/Nick-Robinson-Putin-using-fake-news-weaken-West.htmlmichaelk says November 23, 2017
This thing seems to have been cobbled together by a guy called Nick Robinson. The same BBC Nick Robinson that hosts the Today Programme? I dunno, one feels really rather depressed at how low our media has sunk.I think huge swathes of the media, in the eyes of many people, have never really recovered from the ghastly debacle that was their dreadful coverage of the reasons for the illegal attack on Iraq.rtj1211 says November 29, 2017
The journalists want us to forget and move on, but many, many, people still remember. Nothing happened afterwards. There was no tribunal to examine the media's role in that massive international crime against humanity and things actually got worse post Iraq, which the attack on Libya and Syria illustrates.Exactly: in my opinion there should be life sentences banning scribblers who printed lies and bloodthirsty kill, kill, kill articles from ever working again in the media.michaelk says November 23, 2017
Better still, make them go fight right now in Yemen. Amazing how quickly truth will spread if journalists know they have a good chance of dying if they print lies and falsehoods ..At a time when the ruling elite, across virtually the entire western world, is losing it; it being, political legitimacy and the breakdown of any semblance of a social contract between the ruled and the rulers the Guardian lurches even further to the political right . amazing, though not really surprising. The Guardian's role appears to be to 'coral' radical and leftist ideas and opinions and 'groom' the educated middle class into accepting their own subjugation.WeatherEye says November 21, 2017
The Guardian's writers get so much, so wrong, so often it's staggering and nobody gets the boot, except for the people who allude to the incompetence at the heart of the Guardian. They fail dismally on Trump, Brexit and Corbyn and yet carry on as if everything is fine and dandy. Nothing to complain about here, mover along now.
I suppose it's because they are actually media aristocrats living in a world of privilege, and they, as members of the ruling elite, look after one another regardless of how poorly they actually perform. This is typical of an elite that's on the ropes and doomed. They choose to retreat from grubby reality into a parallel world where their own dogmas aren't challenged and they begin to believe their propaganda is real and not an artificial contruct. This is incredibly dangerous for a ruling elite because society becomes brittle and weaker by the day as the ruling dogmas become hollow and ritualized, but without traction in reality and real purpose.
The Guardian is a bit like the Tory government, lost and without any real ideas or ideals. The slow strangulation of the CIF symbolizes the crisis of confidence at the Guardian. A strong and confident ruling class welcomes criticism and is ready to brush it all off with a smile and a shrug. When they start running scared and pretending there is no dissent or opposition, well, this is a sign of decadence and profound weakness. They are losing the battle of ideas and the battle of solutions to our problems. All that really stands between them and a social revolution is a thin veneer of 'authority' and status, and that's really not enough anymore.
All our problems are pathetically and conviniently blamed on the Russians and their Demon King and his vast army of evil Trolls. It's like a political version of the Lord of the Rings.Don't expect the Guardian to cover the biggest military build-up (NATO) on Russia's borders since Hitler's 1941 invasion.rtj1211 says November 29, 2017
John Pilger has described the "respectable" liberal press (Guardian, NYT etc) as the most effective component of the propaganda system, precisely BECAUSE it is respectable and trusted. As to why the Guardian is so insistent in demonising Russia, I would propose that is integrates them further with a Brexit-ridden Tory government. Its Blairite columnists prefer May over Corbyn any day.The Guardian is now owned by Neocon Americans, that is why it is demonising Russia. Simple as that.WeatherEye says November 29, 2017Evidence?Harry Stotle says November 21, 2017The Guardian is trying to rescue citizens from 'dreadful dangers that we cannot see, or do not understand' – in other words they play a central role in 'the power of nightmares' https://www.youtube.com/embed/LlA8KutU2tortj1211 says November 21, 2017So Russians cannot do business in America but Americans must be protected to do business in Russia?michaelk says November 21, 2017
If you look at Ukraine and how US corporations are benefitting from the US-funded coup, you ask what the US did in Russia in the 1990s and the effect it had on US business and ordinary Russian people. Were the two consistent with a common US template of economic imperialism?
In particular, you ask what Bill Browder was doing, his links to US spying organisations etc etc. You ask if he supported the rape of Russian State assets, turned a blind eye to the millions of Russians dying in the 1990s courtesy of catastrophic economic conditions. If he was killing people to stay alive, he would not have been the only one. More important is whether him making $100m+ in Russia needed conditions where tens of millions of Russians were starving .and whether he saw that as acceptable collateral damage ..he made a proactive choice, after all, to go live in Moscow. It is not like he was born there and had no chance to leave ..
I do not know the trurh about Bill Browder, but one thing I do know: very powerful Americans are capable of organising mass genocide to become rich, so there is no possible basis for painting all American businessmen as philanthropists and all Russians as murdering savages ..It's perfectly possible, in fact the norm historically, for people to believe passionately in the existence of invisible threats to their well-being, which, when examined calmly from another era, resemble a form of mass-hysteria or collective madness. For example; the religious faith/dogma that Satan, demons and witches were all around us. An invisible, parallel, world, by the side of our own that really existed and we were 'at war with.' Satan was our adversary, the great trickster and disseminator of 'fake news' opposed to the 'good news' provided by the Gospels.WeatherEye says November 21, 2017
What's remarkable, disturbing and frightening is how closely our media resemble a religious cult or the Catholic Church in the Middle Ages. The journalists have taken on a role that's close to that of a priesthood. They function as a 'filtering' layer between us and the world around us. They are, supposedly, uniquely qualified to understand the difference between truth and lies, or what's right and wrong, real news and propaganda. The Guardian actually likes this role. They our the guardians of the truth in a chaotic world.
This reminds one of the role of the clergy. Their role was to stand between ordinary people and the 'complexities' of the Bible and separate the Truths it contained from wild and 'fake' interpretations, which could easily become dangerous and undermine the social order and fundamental power relationships.
The big challenge to the role of the Church happened when the printing press allowed the ordinary people to access the information themselves and worst still when the texts were translated into the common language and not just Latin. Suddenly people could access the texts, read and begin to interpret and understand for themselves. It's hard to imagine that people were actually burned alive in England for smuggling the Bible in English translation a few centuries ago. That's how dangerous the State regarded such a 'crime.'
One can compare the translation of the Bible and the challenge to the authority of the Church and the clergy as 'guardians of the truth' to what's happeing today with the rise of the Internet and something like Wikileaks, where texts and infromation are made available uncensored and raw and the role of the traditional 'media church' and the journalist priesthood is challenged.
We're seeing a kind of media counter-reformation. That's why the Guardian turned on Assange so disgracefully and what Wikileaks represented.A brilliant historical comparison. They're now on the legal offensive in censoring the internet of course, because in truth the filter system is wholly vulnerable. Alternative media has been operating freely, yet the majority have continued to rely on MSM as if it's their only source of (dis)information, utilizing our vast internet age to the pettiness of social media and prank videos. Marx was right: capitalist society alienates people from their own humanity. We're now aliens, deprived of our original being and floating in a vacuum of Darwinist competition and barbarism. And we wonder why climate change is happening?tutisicecream says November 21, 2017Apparently we are "living in disorientating times" according to Viner, she goes on to say that "championing the public interest is at the heart of the Guardian's mission".tutisicecream says November 21, 2017
Really? How is it possible for her to say that when many of the controversial articles which appear in the Guardian are not open for comment any more. They have adopted now a view that THEIR "opinion" should not be challenged, how is that in the public interest?
In the Observer on Sunday a piece also appeared smearing RT entitled: "MPs defend fees of up to £1,000 an hour to appear on 'Kremlin propaganda' channel." However they allowed comments which make interesting reading. Many commenter's saw through their ruse and although the most vociferous critics of the Graun have been banished, but even the mild mannered ones which remain appear not the buy into the idea that RT is any different than other media outlets. With many expressing support for the news and op-ed outlet for giving voice to those who the MSM ignore – including former Guardian writers from time to time.
Why Viner's words are so poisonous is that the Graun under her stewardship has become a agitprop outlet offering no balance. In the below linked cringe worthy article there is no mention of RT being under attack in the US and having to register itself and staff as foreign agents. NO DEFENCE OF ATTACKS ON FREEDOM OF THE PRESS by the US state is mentioned.
Surely this issue is at the heart of championing public interest?
The fact that it's not shows clearly the fake Guardian/Observer claim and their real agenda.
WE ARE DEFINITELY LIVING IN DISORIENTATION TIMES and the Guardian/Observer are leading the charge.Correction: DISORIENTATING TIMESPeter says November 21, 2017For the political/media/business elites (I suppose you could call them 'the Establishment') in the US and UK, the main problem with RT seems to be that a lot of people are watching it. I wonder how long it will be before access is cut. RT is launching a French-language channel next month. We are already being warned by the French MSM about how RT makes up fake news to further Putin's evil propaganda aims (unlike said MSM, we are told). Basically, elites just don't trust the people (this is certainly a constant in French political life).Jim says November 21, 2017It's not just that they don't allow comments on many of their articles, but even on the articles where CiF is enabled, they ban any accounts that disagree with their narrative. The end result is that Guardianistas get the false impression everyone shares their view and that they are in the majority. The Guardian moderators are like Scientology leaders who banish any outsiders for fear of influencing their cult members.BigB says November 20, 2017Everyone knows that Russia-gate is a feat of mass hypnosis, mesmerized from DNC financed lies. The Trump collusion myth is baseless and becoming dangerously hysterical: but conversely, the Clinton collusion scandal is not so easy to allay. Whilst it may turn out to be the greatest story never told: it looks substantive enough to me. HRC colluded with Russian oligarchy to the tune of $145m of "donations" into her slush fund. In return, Rosatom gained control of Uranium One.jag37777 says November 20, 2017
A curious adjunct to this corruption: HRC opposed the Magnitsky Act in 2012. Given her subsequent rabid Russophobia: you'd have thought that if the Russians (as it has been spun) arrested a brave whistleblowing tax lawyer and murdered him in prison – she would have been quite vocal in her condemnation. No, she wanted to make Russia great again. It's amazing how $145m can focus ones attention away from ones natural instinct.
[Browder and Magnitsky were as corrupt as each other: the story that the Russians took over Browder's hedge fund and implicated them both in a $230m tax fraud and corruption scandal is as fantastical as the "Golden Shower" dossier. However, it seems to me Magnitsky's death was preventable (he died from complications of pancreatitis, for which it seems he was initially refused treatment ) ]
So if we turn the clock back to 2010-2013, it sure looks to me as though we have a Russian collusion scandal: only it's not one the Guardian will ever want to tell. Will it come out when the FBI 's "secret" informant (William D Cambell) testifies to Congress sometime this week? Not in the Guardian, because their precious Hillary Clinton is the real scandal here.Browder is a spook.susannapanevin says November 20, 2017Reblogged this on Susanna Panevin .Eric Blair says November 20, 2017This "tactic" – a bold or outrageous claim made in the headline or in the first few sentences of a piece that is proven false in the very same article – is becoming depressingly common in the legacy media.labrebisgalloise says November 20, 2017
In other words, the so-called respectable media knowingly prints outright lies for propaganda and clickbait purposes.I dropped a line to a friend yesterday saying "only in a parallel universe would a businessman/shady dealer/tax evader such as Browder be described as an "anti-corruption campaigner."" Those not familiar with the history of Browder's grandfather, after whom a whole new "deviation" in leftist thinking was named, should look it up.Eric Blair says November 20, 2017Hey, MbS is also an "anti-corruption" campaigner! If the media says so it must be true!Sav says November 20, 2017Some months ago you saw tweets saying Russophobia had hit ridiculous levels. They hadn't seen anything yet. It's scary how easily people can be brainwashed.A Petherbridge says November 20, 2017
The US are the masters of molesting other nations. It's not even a secret what they've been up to. Look at their budgets or the size of the intelligence buildings. Most journalists know full well of their programs, including those on social media, which they even reported on a few years back. The Guardian run stories by the CIA created and US state funded RFE/RL & then tell us with a straight face that RT is state propaganda which is destroying our democracy.Well said – interesting to know what the Guardian is paid to run these stories funded by this arm of US state propaganda.bevin says November 20, 2017The madness spreads: today The Canary has/had an article 'proving' that the 'Russians' were responsible for Brexit, Trump, etc etc.Admin says November 21, 2017
Then there is the neo-liberal 'President' of the EU charging that the extreme right wing and Russophobic warmongers in the Polish government are in fact, like the President of the USA, in Putin's pocket..
This outbreak is reaching the dimensions of the sort of mass hysteria that gave us St Vitus' dance. Oh and the 'sonic' terrorism practised against US diplomats in Havana, in which crickets working for the evil one (who he?) appear to have been responsible for a breach in diplomatic relations. It couldn't have happened to a nicer empire.The Canary is publishing mainstream russophobia?
Dec 10, 2017 | www.defenddemocracy.press
"It's barbarism. I see it coming masqueraded under lawless alliances and predetermined enslavements. It may not be about Hitler's furnaces, but about the methodical and quasi-scientific subjugation of Man. His absolute humiliation. His disgrace"
Odysseas Elytis, Greek poet, in a press conference on the occasion of receiving the Nobel Prize (1979)
Dec 09, 2017 | www.nakedcapitalism.com
MK , December 8, 2017 at 6:20 amWatt4Bob , December 8, 2017 at 7:36 am
In Buffalo last weekend for a family event. Tried Uber and Lyft around 7 pm Saturday from our hotel in Cheektowaga to get to Town of Tonawanda. Not one single car available on either service. Call to taxi dispatch, taxi at our hotel in less than 10 minutes.
Uber and Lyft absolutely failed in that scenario and left a poor impression for what would have been our first rideshare trip.Thuto , December 8, 2017 at 8:12 am
I drove a taxi for many years, and I now work in IT for a group of auto dealers.
Last week, one of the general sales managers at work explained to me that people are ' selling ' cars to us in order to get out from under the expense of payments. Many of these people are 'up-side-down' in their loans, meaning they owe more than the car is worth. These folks are having to pay us to take the car off their hands, for example one customer paid us $8,000 to ' buy ' his car.
Now understand that this is only part of the potential cost of attempting to make part of a living by driving for Uber or Lyft.
You've wasted a year, making much less money than promised, you put 40K miles on your car instead of the average 20K, and you end up with a car that isn't worth nearly what you owe on it.
So now you've wised up to the fact that this is not a real 'opportunity', you've damaged your financial situation and you're worse off than you were before.
That nice car that was going to help you make a living is now a weight holding you down, it's hard for you to even look at it, and you can't afford to pay someone to 'buy' it from you.
Uber and Lyft are fraudulent schemes based on selling false hope to desperate drivers on one hand, while promising investors the 'opportunity' of getting in on the ground-floor of a new, and 'disruptive technology', sure to become a profitable monopoly, and so make a fortune when it they take it public.
It's not a good job, it's not a good investment, it's not a ' new and disruptive technology ', it's a scam, and anyone trying to sell any portion of it is a fraud.Wukchumni , December 8, 2017 at 8:19 am
Watt4Bob, my sentiments exactly, see my comment below.Martin Finnucane , December 8, 2017 at 10:29 am
I've only taken Uber a few times, and when a Cuban-American fellow in Miami picked us up in his $40k new SUV and told us how Uber was going to be his way out of the rat race, I thought along the same lines as you, this is never going to work.Watt4Bob , December 8, 2017 at 11:40 am
It's not a good job, it's not a good investment, it's not a 'new and disruptive technology', it's a scam, and anyone trying to sell any portion of it is a fraud.
I think it's worse than a scam. It's a scam on the drivers and users, but I suspect that the investors know just what is up: destroy the taxi market, supplant it with Uber/Lyft, and enjoy your monopoly rents forever. Libertarianism indeed! That's the ground floor they're getting in on: entrepreneurial feudalism.
Also, maybe that the way investment tends to work.Anon , December 8, 2017 at 1:32 pm
It's a scam on the drivers and users, but I suspect that the investors know just what is up: destroy the taxi market, supplant it with Uber/Lyft, and enjoy your monopoly rents forever.
Anybody who has been following this discussion here at NC knows that is the play, as it has been sold to investors, however, there is very little evidence that it will work to investors benefit outside of a profitable IPO.
IMHO, that IPO has always been the end game.
As has been pointed out previously, it will be very hard, maybe impossible to drive enough of the taxi industry out of business to create that monopoly, and thus make the IPO look enticing.
My bet would be that Uber and Lyft miss that mark by a wide margin, and go down in history as a foolish misadventure on the part of investors.
As the number of disappointed investors, and ex-drivers mounts up, it will be harder and harder to recruit new 'sub-contractors' and I wouldn't rule out a class-action suit by drivers, investors, or both.Watt4Bob , December 8, 2017 at 3:13 pm
As the number of disappointed investors, and ex-drivers mounts up, it will be harder and harder to recruit new 'sub-contractors' and I wouldn't rule out a class-action suit by drivers, investors, or both.
Probably not from the drivers -- Uber drivers for the last several years (~2013 or so, I think?) have been subject to an arbitration clause with a class action waiver. There is an opt-out provision (most likely in place only to support the ridiculous argument that the class action waiver doesn't violate Section 7 of the NLRA because of the right, under Section 7, to refrain from participating in concerted activity) but no doubt the vast majority of drivers have not opted out and are probably unaware of it. The numerous class actions against Uber have either involved drivers who stopped working for Uber prior to their implementation of arbitration or have tried to attack the enforceability of the arbitration clause. Unfortunately, those arguments haven't been, and the pending ones are unlikely to be, very successful. The argument involving Section 7 of the NLRA is currently pending before SCOTUS, but based on oral arguments, this looks likely to result in another 5-4 partisan split in favor of employers.Anon , December 8, 2017 at 3:50 pm
The argument involving Section 7 of the NLRA is currently pending before SCOTUS, but based on oral arguments, this looks likely to result in another 5-4 partisan split in favor of employers.
Ah, yes, which brings up another matter;
Q. When is an employer not an employer
A. any time it matters to the 'employed'.Knifecatcher , December 8, 2017 at 11:42 am
Most of the litigation regarding Uber drivers is predicated on proving an employment relationship, contrary to Uber's assertion that the drivers are independent contractors.
You are correct that asserting any rights under the NLRA will require proving a common-law employment relationship, which is unfortunately a more restrictive standard than the FLSA's broad "suffer or permit to work" standard (and used by many state laws).
This is actually being investigated by the NLRB, who has consolidated numerous charges filed by Uber drivers into a single investigation in the San Francisco region .
Unsurprisingly, Uber's response has been to hire Littler and Gibson Dunn to stonewall the investigation by playing games like ignoring NLRB administrative subpoenas, requiring the NLRB to petition a district court for an order enforcing the subpoenas. The order the NLRB sought was eventually granted by the court , but this game managed to delay the proceedings for several months. And with the NLRB now under complete Republican control, both on the GC and Board side, it's hard to have hopes for a positive outcome for the drivers.Louis Fyne , December 8, 2017 at 1:14 pm
And there are even worse possible scenarios than making less money than expected. A friend of mine used a small inheritance ($5k or so) as a down payment to buy a new-ish car, with the idea of driving for Lyft. The hope was that he would at least make enough money to pay the note on his off-hours and have a more modern / reliable / fuel efficient car to get to his other 2-3 jobs. My friend is very much part of the precariat, so this felt like a win from his perspective.
This went on for a couple of months or so and things went more or less according to his meager expectations, so he was happy. Until he got rear ended in his nice new car. The car was totaled, the guy who hit him uninsured. His cut rate insurance company paid off the car at 2k or so less than he owed on it. Of course he had no gap coverage to cover that, and his down payment is long gone. I let him borrow an old pickup until he was able to get the insurance sorted out and arrange another beater so he didn't lose his other job(s).
Damn the "sharing economy" to hell.Norbert Haering , December 8, 2017 at 7:50 am
In addition to the obvious costs (fuel) and abstract costs (depreciation), drivers have a non-zero chance of death, injury, or plain old fender benders. And I'd bet most drivers don't take that into account.
Zero workers comp, zero disability, and Uber's collision insurance has a high deductible that guarantees risk is shifted onto its drivers, but for the long-tail crashes.
Not to mention drivers have only a vague idea what demand is like at any given time, while Uber HQ has 100% perfect information on the level of demand and its algos can make a reasonable guess as to the near-term expected demand.Rosario , December 8, 2017 at 12:40 pm
The biased Research that you take apart here, is part of a wider and worrying phenomenon. Uber Money is dominating economic Research on ride-hauling platforms. Uber is contracting with many top-economists with their close links to prestigous publication channels. Even reputable journals publish the resulting PR as if it was science. Critical Researchers have no chance to compete, because they will not get the exclusive Uber-data, which Uber-loving researchers like Angrist and Levitt can work with.
There is an article in German Business newspaper "Handelsblatt" on this, http://www.handelsblatt.com/my/unternehmen/handel-konsumgueter/von-uber-finanzierte-studien-public-relations-oder-wissenschaft/20364132.html?ticket=ST-1630133-4TdJOLrZkvGWS3rsDDPg-ap
which is translated and slightly extended here:
http://norberthaering.de/en/home/32-english/news/920-uber-researchThuto , December 8, 2017 at 8:09 am
Yep, it already works in politics: https://www.npr.org/sections/money/2012/01/06/144737864/forget-stocks-or-bonds-invest-in-a-lobbyist
From Uber's perspective, why not game academia as well to help build the social values they desire. Further proof that, despite the libertarian truisms, markets are absolutely a product of politics and society rather than a natural phenomenon.Yves Smith Post author , December 8, 2017 at 8:28 am
The embedded assumption for this analysis is that the average uber driver owns their car outright (i.e. no vehicle finance/ lease repayments) and is available to work during peak demand hours. This idealised "be your own boss, set your own hours and make lots of money" myth has been shown up to be marketing fluff to attract gullible drivers who aren't savvy enough to see through the obfuscated numbers uber presents at its driver recruitment seminars. I'd wager that depreciation and dead miles, because they bite ever so silently by piling on hour by hour, mile by mile without seemingly affecting earnings dropping down into drivers "bottom lines", aren't ever mentioned at such seminars. IOW, drivers naively believe that their net earnings are 75%, when they're anything but.
In my neck of the woods the situation is even more dire because uber has partnered with South African banks and car dealerships to offer leases to unsuspecting drivers seduced by the marketing cool aid and exaggerated earnings potential, with lease terms transferring the bulk (read all) of the transaction risk to the driver. This has the effect of immediately exploding the "work part time/set your own hours" myth because said drivers are now tethered to uber (and have their free time rapaciously confiscated) in order to make their monthly repayments to the banks. With obligations to the banks on a monthly basis top of mind, asset down time becomes the bane of most of these drivers tenures with uber, with dead mile upon dead mile driven in the hope of positioning oneself close enough to areas of peak demand (leading to oversupply in such areas), artificially boosting supply for uber while wearing out both asset and driver.
These drivers are overworked, underpaid, deceived, exploited employees of uber all but in name, the independent contractor nonsense is bulls***. Tell me how this is a win for the driver??Thuto , December 8, 2017 at 8:50 am
The assumption goes further than that. If you are depreciating an asset (wearing out your car), that's a cost. Replacing tires more often, paying for a commercial car rider (which Uber riders are supposed to do but Uber does not enforce) are all costs that need to be included even if the driver owns his car outright.lyman alpha blob , December 8, 2017 at 8:23 am
I totally agree, and I should have made it explicitly clear that even if you own your car outright the economics are junk owing to "hidden costs". I was addressing specifically the tacit assumption this analysis hinges on to arrive at its conclusion that uber should be a no brainer in the decision calculus of a driver looking to drive part time. That depreciation and upwardly trending running costs are ommited in the analysis seems to me to be gross incompetence or willful deception by the authors.gk , December 8, 2017 at 8:48 am
So though Uber says you can drive whenever you want, drivers often only work from, say, 7 a.m. to 11 a.m. or from 3 p.m. to 8 p.m., because fares are too low at other times.
That is my buddy in Seattle's experience with Lyft. He got laid off from his tech job and started driving after a lengthy unsuccessful job search but has no illusions about the "gig economy", doing it mostly just to get out of the house. The other day he told be he'd driven over 4 hours for slightly over $50. That's below the Seattle minimum wage and that's before accounting for his expenses.
He rarely even tries to drive during non-peak hours as there's no money in it. Some fares earn him around $3 which is less than what it takes to ride the damn bus. I would never have dreamed of getting in a cab in Seattle and paying less than $5 to get anywhere in Seattle, and that was 25 years ago.
People may like the cheap fares, but that's only because they are heavily subsidized by flushing VC down the toilet and drivers working basically at a loss once expenses are considered.fajensen , December 8, 2017 at 10:49 am
I'm not a frequent Uber user, but when I do I ask the driver what it's like. All say that it's much harder to make money now than it used to be. One driver actually attributed that to the ouster of Kalanick, on the belief that Kalanick had been ousted because he was pro-driver. (I didn't argue). That same driver told me he was getting $8 of my $22 Friday night fare.
I agree with the takedown of this piece, and the points previously made here about the economics of ride-sharing and the implausibility of Uber ever deriving Amazon-like network effects. I do think their app was a huge improvement over pre-Uber taxi dispatching (here in DC, call a phone number, hope someone answers, then hope a taxi shows up). Also, I think that it's at least possible that a demand-based per-ride fare structure would (assuming good faith) better match supply and demand than traditional taxi time and distance-based fares. Operating the system that enables the demand-based fares wouldn't be a ticket to world domination, but it might improve utility for drivers and riders.Kukuzel , December 8, 2017 at 4:41 pm
I do think their app was a huge improvement over pre-Uber taxi dispatching
The bar for "tech-disruption" is set pretty low with Uber. The local taxi companies (Taxi Skåne) all have one, even in backwards Germany, where they might not take any card payments but there is an app for getting a taxi wherever you are.
*Anyone*, literally, doing steady business can afford to have a decent "Rendevous-app" made. Give a bunch of Norwegian teenagers err App Development Company three, six months and about 15-50 kEUR and it is Done.
I can probably even get one to track my retriever on the app-store – but I don't need it since she is a proper retriever, she finds stuff and comes back with it.
So, I think The Point with Uber it that it is mostly a political research project. What those VC investors actually pay for is to test to what extent they can get away with undercutting wages, how agressive and blatant one can cut corners on legal compliance, what the consequences for doing this are in different regions. What are the stakeholders? How should these be managed/manipulated?
The information gathered until Uber craters will be used to better tailor more serious parasitic business ventures. It is an investment in the Next-Thing.UserFriendly , December 9, 2017 at 1:14 am
Great point! They are looking to test the limits of the system for sure in all the wrong ways.Louis Fyne , December 8, 2017 at 9:55 am
Just because they could develop an app doesn't mean they would. Next to none of them did till Uber became a threat. Not that I'm a fan of Uber.fajensen , December 8, 2017 at 10:28 am
People complain about bitcoin energy use? Let's talk about uber deadhead miles/idling. If you're in a city where uber cars must wear trade dress Just stand at a downtown corner and watch all the empty cars drive by.
Certainly not convinced ridehail is a net plus. Uber HQ would have that data and if it is not a talking point, the data must not be goodWukchumni , December 8, 2017 at 10:32 am
What a shame Uber is not a listed company. That is a short-indicator if there ever was one. At least Iceland could afford a real Harward Professor write a paper declaring the robust health of their economy right before it tanked.Wukchumni , December 8, 2017 at 12:16 pm
Mishkin Accomplished!Jim H. , December 8, 2017 at 12:16 pm
Not a Harvard dude, another MIT professor, ha!Basil Pesto , December 8, 2017 at 1:18 pm
The money mustache guy in Longmont, CO recently posted his experience as an "underground" uber guy. Seems to confirm what I've heard around here (Berkeley/SF) about it not being the pot of gold at the end of the rainbow. Certainly has added to the snarled traffic as people use them to avoid walking short distances and as drivers carry on like amateurs. They drive like part timers and stop in the middle of streets, rather than pulling to the side of streets.
http://www.mrmoneymustache.com/2017/11/22/mr-money-mustache-uber-driver/Noni Mausa , December 8, 2017 at 3:01 pm
Recently in Australia I've noticed when my friends have been catching Ubers that they have been subject to surge pricing for little-to-no reason. I couldn't help but wonder if this is a concerted effort by Uber to get their customers more accustomed to paying surge rates, for when Uber can no longer afford to subsidise the rides.Joel , December 8, 2017 at 3:27 pm
It has always seemed to me that the Uber business model could only exist in a transient economic situation -- that is, a time where the economy had done poorly enough to leave many people unemployed, but before then had done well enough that many of those hard up people owned a private car. A business model that depends on transient conditions will yield, of course, transient business.Mista T , December 8, 2017 at 3:40 pm
A small correction:
the Boston market, which has a particularly high level of licensed cabs per capita, nearly twice as high as New York City.
They're talking about the City of Boston, which is only a tiny % of the Combined Statistical Area and has far more people than population during the workday. A better comparison than City of Boston-NYC would be City of Boston-Manhattan. I'm surprised that the City of Boston doesn't have a much higher number of taxis per resident.
Comparing different municipalities in the US rarely makes sense since the size of a municipality is so arbitrary. Combined Statistical Areas is a better focus since they're standardized by social scientists working for the government.artiste-de-decrottage , December 8, 2017 at 5:43 pm
Knowledge is power, and drivers are given NONE.
When a ride is requested the customer knows where they are going and about how much it will cost. Uber and Lyft have the same information. But the driver only gets a customer rating and an estimated time to pick up, and 10-15 seconds to decide if they will accept the ride. They are not allowed to call the customer and ask for the destination. If they cancel the ride, they are punished. When the driver shows up, the customer has up to five minutes to get in the vehicle before the driver can cancel on that person, and five minutes is a horrible waste of time to someone who is compensated pennies per minute for waiting. The driver has no idea how much the customer is actually paying (which is often a violation of state laws requiring full disclosure of fares). Drivers have no information, a very unfair economic reality.
The service is a terrific idea, but the economics of it are not realistic. Currently the discounts are all being subsidized by a combination of VC money and drivers' lack of knowledge.
The companies are praying that elimination of drivers via automated vehicles will solve their financial problems, however I suspect that these companies are going to learn a hard lesson about the true cost of maintaining a fleet of hi tech vehicles.Joel , December 8, 2017 at 6:15 pm
Well, but this takes the cake.
"Rent a car, drive for Uber or Lyft"
"$1000 per week before rental fees"
http://hyrecar.com/Race2Bottom Isreal , December 9, 2017 at 12:02 pm
The question that has always confused me: since Uber offers a nicer "experience" than taxis, why didn't they charge a premium for that from the beginning? Why dedicate yourself to such an extreme burn rate?
Out in San Francisco proper the number of ridehailing vehicles with expired registrations has increased dramatically. Savvy taxi drivers and ridehailing drivers are earning less across the board. Drivers are coming from San Diego to drive in the SF Bay Area. Plateless toll evasion on the toll bridges has skyrocketed since ridehailing came on the scene.
The situation is not sustainable. There are way too many vehicles out there. Generally there are less rides too now. Services like Chariot or Ford Bike share have reduced ridership for taxi/ridehailing. Apps like Tinder/Grinder reduce the need for barhopping. Services like Munchery or Uber Eats eliminate a round trip for going out to eat.
Oddly enough Uber Eats competes against itself, UberX, as every delivery takes away two rides from the livery side of the equation. People that get a ride out to eat need a ride home.
Dec 09, 2017 | bonddad.blogspot.com
So U6 is almost 10% of population. Scary...HEADLINES :
Here are the headlines on wages and the chronic heightened underemployment: Wages and participation rates
- +228,000 jobs added
- U3 unemployment rate unchanged at 4.1%
- U6 underemployment rate rose +0.1% from 7.9% to 8.0%
Holding Trump accountable on manufacturing and mining jobs
- Not in Labor Force, but Want a Job Now: rose +53,000 from 5.175 million to 5.238 million
- Part time for economic reasons: rose +48,000 from 4.753 million to 4.801 million
- Employment/population ratio ages 25-54: rose +0.2% from 78.8% to 79.0%
- Average Weekly Earnings for Production and Nonsupervisory Personnel: rose +$.0.5 from a downwardly revised $22.19 to $22.24, up +2.4% YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Trump specifically campaigned on bringing back manufacturing and mining jobs. Is he keeping this promise?
- Manufacturing jobs rose by +31,000 for an average of +15,000 a month vs. the last seven years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.
- Coal mining jobs fell -400 for an average of -15 a month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
September was revised upward by +20,000. October was revised downward by -17,000, for a net change of +3,000.
- likbez December 9, 2017 7:52 pm
There are now large categories of jobs, both part-time and full time, that can't provide for living and are paying below or close to minimum wage (plantation economy jobs). it looks like under neoliberalism this is the fastest growing category of jobs.
Examples are Uber and Lift jobs (which are as close to predatory scam as one can get) . Many jobs in service industry, especially retail. See for example
They should probably be calculated separately as "distressed employment", or something like that.
Also in view of "seasonal adjustments" the number of created jobs is probably meaningless.
Dec 09, 2017 | www.zerohedge.com
uhland62 , Dec 8, 2017 11:01 PM
Don't panic. Sit back, take a deep breath , and wait out the new developments.
Even though they have only a caretaker government now in Berlin, they have commissioned experts to assess if and where the beautiful Trump tax reforms will violate the German/US friendship treaty from the 1950s. Not a lot is known at the moment but the reduction in corporate tax could be seen as a hostile act, providing an unfair advantage for American companies. And then there is the end of tax deductability for parts bought in Europe. One would have to look at the text of that friendship treaty but it looks all very probable.
What will happen then? Europe will have to say that they must sell their parts, to China or Russia. Sanctions? You cannot blanket us with hostile acts, someone will say. Maybe you should take a hike from Ramstein, if this is how you value our friendship. Sounds all very drastic but has been a longtime coming.
Dec 09, 2017 | www.unz.com
... ... ...
The chaotic free-for-all in the US political economy is manipulated by scandalmongers, conspirators and flight capitalists. Instead of preparing an economic plan to ' make America great again' , they have embraced the political blackmailers and intriguers of Saudi Arabia in a sui-generis global political alliance. Both countries feature purges, resignations and pugnacious politicos who have never been weaned from the destructive bosom of war.
As a point of history, the United States didn't start out as a bloated, speculative state of crony capitalists and parasitical allies: The US was once a powerful industrial country, harnessing finance and overseas investments to securing raw materials for domestic industries and directing profits back into industry for higher productivity.
Fake, or semi-fake, political rivalries and electoral competition counted little as incumbents retained their positions most of the time, and bi-partisan agreements ensured stability through sharing the spoils of office.
Things have changed. Overseas neo-colonies started to offer more than just raw materials: They introduced low-tax manufacturing sites promising free access to cheap, healthy and educated workers. US manufacturers abandoned Old Glory, invested overseas, hoarded profits in tax havens and happily evaded paying taxes to fund a new economy for displaced US workers. Simultaneously, finance reversed its relation to industry: Industrial capital was now harnessed to finance, speculation, real estate, insurance sectors and electronic gadgets/play-by-yourself ' i-phones' promoting isolated ' selfies' and idle chatter.
Wall Street, Silicon Valley and Hollywood replaced Detroit, Pittsburgh, Cleveland and Chicago. Stockbrokers proliferated, while master tool-and-die makers disappeared and workers' children overdosed on 'Oxy'.
In the transition, politicians, who had no connection to domestic industry, found a powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and disseminating domestic spats, intrigues and conspiracies to the voters. Vietnam and Watergate, Afghanistan and Volker, Iran-Contra and Reaganomics , Yugoslavia and Iraq, daily drone strikes and bombings and Bill Clinton's White House sex scandals giving salacious birth to SpecialProsecutors . . .
In this historic transformation, American political culture put on a new face: perpetual wars, Wall Street swindles and Washington scandals. It culminated in the farcical Hillary Clinton – Donald Trump presidential election campaign: the war goddess-cuckquean of chaos versus the crotch-grabbing real-estate conman.
The public heard Secretary of State Clinton's maniacal laugh upon her viewing the 'snuff-film' torture and slaughter of the wounded Libya's President Gadhafi: She crowed: ' We came, we saw and he died' with a sword up his backside. This defined the Clinton doctrine in foreign affairs, while slaughter of the welfare state and the bloated prison industry would define her domestic agenda.
Trump's presidential election campaign went about the country pleasuring the business and finance elite (promises of tax cuts, deregulations, re-contamination and jacking up the earth's temperature with a handful of jobs), and successfully pushed aside the outrage over his crude rump grabbing boasts. Wars, Wall Street, Silicon Valley and Hollywood all gathered to set the parameters of the United States' political economy: The chase was on!
... ... ...
Joe Levantine , December 5, 2017 at 9:13 am GMTThis great article is an elaborate intellectual expansion on what Mr. Gerald Celente of Trendsresearch.com has been proclaiming for years that" while the business of China is business, the business of America is war". Professor Petras is pointing to the moral decline that is behind the social and economic decline of the nation of America that was once a beacon of light to the world.Astuteobservor II , December 6, 2017 at 3:01 am GMT
This analysis leaves the reader with little doubt as to the direction in which the momentum of historic leadership is moving; it is to the East away from the West in a reversal of the dawn of the Renaissance era of Europe. The last hope for the west to stay at the helm of civilisation is to have a leader who can ignite a moral renaissance in the West short of which the 21st century will definitely be China's century. The impetus for such a revival is a shake up of the world of finance that will chase the money changers out of the altar of the Western economy and put he lying scribes of the Western media in labour camp where they will be re educated about the virtues of truth and reality.there are 2 types of elites.jacques sheete , December 9, 2017 at 11:53 am GMT
elites who line their pockets and only their pockets.
elites who line their pockets and also makes sure the rest of the country gets a little too.
guess which one is the american and chinese?
the saudis aren't even in the same category. they are just pets on a leash.jacques sheete , December 9, 2017 at 12:46 pm GMT
Official truth has become a stinking mound of offal.
A good thing about it is that we should know to laugh at it whenever we hear it, and accept the fact that "authority" is lying until proven otherwise.
Were I to indulge my own theory, I should wish [the states] to practise neither commerce nor navigation, but to stand with respect to Europe precisely on the footing of China. We should thus avoid wars
-Thomas Jefferson, letter To G. K. van Hogendorp , Paris, Oct. 13, 1785
Isn't Western "civilization" just peachy? Civilization?@Joe LevantineJoe Hide , December 9, 2017 at 2:54 pm GMT
One has to have had a "naissance" of morals to experience a "re" of them, but yes, chasing the money changers out of the temple and money worship out of our souls would have helped.
Our great mass of workers have labored for the money changers too long.
-Jacob Thorkelson, Rescue the Republic, p 9. 1939
Few listened. We've had a moral abortion.You're right about many things you presented, but you still don't understand the multi-layered gradually administered releases of mis-information, dis-information, and information, designed to awaken and transform our nation, planet, and human consciousness. Given that half the population has below average intelligence, new positive leadership does not merely announce that generations of psychopaths have manipulated them. As a personal example, half the people I communicate with are sub-average intelligence, and I've learned to very gradually wake them up, or they will, in their unreasonable thinking, try to make trouble for me. There's the saying, "Don't throw pearls before swine." I know this too harshly stated, and I should have gradually and gently presented it for half the reader's. Sorry.
P.S. . Unz.com and it's reader's are likely far above average.
Dec 09, 2017 | www.project-syndicate.org
Dec 7, 2017 J. Bradford DeLong
The tax-reform bill that US Republicans are attempting to implement is economically indefensible and blatantly unfair. But the US has a much deeper problem: the Anglo-Saxon model of representative government is in serious trouble, and nobody seems to know how to fix it.
BERKELEY – The tax bill that US Republicans have doggedly pushed through Congress is not as big a deal as many are portraying it to be. It is medium-size news. The big news – the much more weighty and ominous news – lies elsewhere.
Of course, medium-size is not nothing. If the tax bill does clear its final hurdle – a conference committee must reconcile the Senate-approved bill with that of the House of Representatives – and become law, it will complicate the tax system considerably, as it opens many loopholes. It won't have any impact on economic growth – positive or negative – but it would have an impact on the government's finances, causing revenues to decline by the equivalent of about 1% of national income.
The missing resources would most likely be transferred to the top 1% of earners, raising their share of total income from 22% to 23%. The top 0.01% would probably gain the most, with their share of income rising from 5.1% to 5.5%. In this sense, the tax plan would be another brick – not a huge brick, but a medium-size brick – in the increasingly impregnable fortress of American plutocracy.
But the bill may well not become law at all. Consider the Republicans' efforts earlier this year to repeal and replace the Affordable Care Act ("Obamacare") – an effort that, it now seems clear, was pure Dingbat Kabuki.
The Republicans didn't actually want to take responsibility for changing the health-care financing system, much less strip their own constituents of health care. But the party's propaganda arm had worked so hard to convince its base that Obamacare represented a clear and present danger to the country that its leaders had to act as if they were making a serious effort to fulfill their promise to repeal and replace it.
So a majority of Republicans in the House of Representatives voted for the bill, expecting, with reasonable confidence, that it would be blocked in the 100-member Senate, where fewer than 40 of the 52 Republicans actually wanted it to pass. Had any of the three Republican senators who voted against the bill – John McCain of Arizona, Susan Collins of Maine, or Lisa Murkowski of Alaska – made a different choice, there were probably about five more who would have stepped in to nix it.
The same thing may be happening with the tax reform. It depends on whether at least three of the ten Republican senators who have raised objections are serious, or are playing a different game of Dingbat Kabuki: seeking to trick their constituents into thinking that they went the extra mile to try to help them, and are not puppets of Senate Majority Leader Mitch McConnell.
But, regardless of whether the tax bill survives the reconciliation process and becomes law, the big news won't change: the Anglo-Saxon model of representative government is in serious trouble. And there is no solution in sight.
For some 400 years, the Anglo-Saxon governance model – exemplified by the republican semi-principality of the Netherlands, the constitutional monarchy of the United Kingdom, and the constitutional republic of the United States of America – was widely regarded as having hit the sweet spot of liberty, security, and prosperity. The greater the divergence from that model, historical experience seemed to confirm, the higher the likelihood of repression, insecurity, and poverty. So countries were frequently and strongly advised to emulate those institutions.
Nobody would dare offer that same advice today. The UK, having been thrown into devastating austerity by Conservative and Liberal leaders after the global economic crisis, is now being led by the Conservatives toward a messy and damaging Brexit. And, in the US, the election of President Donald Trump heralded the age of "alternative facts" and "governance by tweet," overseen by an erratic and ignorant leader who is clearly in over his head.
When Trump was first elected, some argued that it did not have to be a disaster. After all, the optimists pointed out, President Ronald Reagan had been more a "chief of state" than a "chief executive," as had George W. Bush.
As divisive as Chief of State Trump would be, according to this view, he wouldn't derail policy, because electing a Republican president is more like electing the Republican Party establishment. And that bench was very deep and very competent, despite its weakening in recent years.
The optimists were wrong. After nearly a year in control of both houses of Congress and the White House, the Republicans haven't achieved any of their four policy goals: repeal and replacement of Obamacare, infrastructure development, trade-policy reform, or even tax reform. This points to a broken system of politics and governance, one that Americans seem to have no idea how to fix.
The US remains the world's preeminent superpower. But doubts are intensifying over whether it's still up to the job. In this context, the Republicans' tax reform, however economically indefensible and blatantly unfair it is, is far from America's biggest concern.
Dec 08, 2017 | www.moonofalabama.org
psychohistorian , Dec 8, 2017 6:22:05 PM | 18@ Daniel ending with "This "Clash of Civilizations" type narrative is not encouraging." That is exactly what they want you to focus on as a narrative rather than the simple truth about the demise of private banking. On the previous thread about the Republican: Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species
The link to a 1996 article: Understanding Money by John H. Hotson . The take away quote
"Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine."
Clash of Civilizations is as vapid a meme as the common understanding of the Capitalism myth as that article so clearly states. Spread his word far and wide to wake up the zombies. It is time!
Dec 08, 2017 | www.rt.com
Russia has opened a liquefied natural gas (LNG) plant in the country's northern region of Yamal. The first tanker with LNG was launched on Friday by Russian President Vladimir Putin. The ice-breaking tanker is named after the former CEO of Total Christophe de Margerie who died in a plane crash in Russia. The tanker can carry up to 173,000 cubic meters of LNG. Russia plans to build 15 tankers as big as the 'Christophe de Margerie'.
"Russia must accelerate work on development capacity to produce liquefied natural gas," Putin said at the ceremony.
The controlling stake in the enterprise belongs to Russian energy major Novatek. Twenty percent each is owned by Total, and China's CNPC, and the remaining 9.9 percent belongs to the China-based Silk Road Fund. Costing $27 billion, the plant will have three production lines and a total capacity of 16.5 million tons of LNG per year.
Almost 96 percent of the Yamal LNG plant's production has already been contracted. The main customers will be the countries of the Asia-Pacific region, Novatek reported. Shareholders of the Novatek project - Total and CNPC - will purchase LNG on a long-term basis.
The ceremony was also attended by a member of Saudi Aramco's board of directors. The kingdom is considering taking part in Novatek's new project, Arctic LNG 2, according to Russian Energy Minister Aleksandr Novak.
Read more Russian LNG unfazed by US sanctions
Dec 05, 2017 | www.nakedcapitalism.com
Posted on December 4, 2017 by Jerri-Lynn Scofield By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.
Three Democrats and three Republicans have co-sponsored a resolution, under the Congressional Review Act (CRA), to scuttle the Consumer Financial Protection Bureau's payday lending rule.
CRA's procedures to overturn regulations had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (as I've previously discussed (see here , here , here and here ). Not only does CRA provide expedited procedures to overturn regulations, but once it's used to kill a regulation, the agency that promulgated the rule is prevented from revisiting the issue unless and until Congress provides new statutory authority to do so.
As I wrote in an extended October post, CFPB Issues Payday Lending Rule: Will it Hold, as the Empire Will Strike Back, payday lending is an especially sleazy part of the finance sewer, in which private equity swamp creatures, among others, operate. The industry is huge, according to this New York Times report I quoted in my October post, and it preys on the poorest, most financially-stressed Americans:
The payday-lending industry is vast. There are now more payday loan stores in the United States than there are McDonald's restaurants. The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate.
The CFPB's payday lending rule attempted to shut down this area of lucrative lending– where effective interest rates can spike to hundreds of points per annum, including fees (I refer interested readers to my October post, cited above, which discusses at greater length how sleazy this industry is, and also links to the rule; see also this CFPB fact sheet and press release .)
Tactically, as with the ban on mandatory arbitration clauses in consumer financial contracts– an issue I discussed further in RIP, Mandatory Arbitration Ban , (and in previous posts referenced therein), the CFPB under director Richard Cordray made a major tactical mistake in not completing rule-making sufficiently before the change of power to a new administration- 60 "session days" of Congress, thus making these two rules subject to the CRA.
The House Financial Services Committee press release lauding introduction of CRA resolution to overturn the payday lending rule is a classic of its type, so permit me to quote from it at length:
These short-term, small-dollar loans are already regulated by all 50 states, the District of Columbia and Native American tribes. The CFPB's rule would mark the first time the federal government has gotten involved in the regulation of these loans.
House Financial Services Committee Chairman Jeb Hensarling (R-TX), a supporter of the bipartisan effort, said the CFPB's rule is an example of how "unelected, unaccountable government bureaucracy hurts working people."
"Once again we see powerful Washington elites using the guise of 'consumer protection' to actually harm consumers and make life harder for lower and moderate income Americans who may need a short-term loan to keep their utilities from being cut off or to keep their car on the road so they can get to work," he said. "Americans should be able to choose the checking account they want, the mortgage they want and the short-term loan they want and no unelected Washington bureaucrat should be able to take that away from them."
[Rep Dennis Ross, a Florida Republican House co-sponsor]. said, "More than 1.2 million Floridians per year rely on Florida's carefully regulated small-dollar lending industry to make ends meet. The CFPB's small dollar lending rule isn't reasonable regulation -- it's a de facto ban on what these Floridians need. I and my colleagues in Congress cannot stand by while an unaccountable federal agency deprives our constituents of a lifeline in times of need, all while usurping state authority. Today, we are taking bipartisan action to stop this harmful bureaucratic overreach dead in its tracks."
As CNBC reports in New House bill would kill consumer watchdog payday loan rule , industry representatives continue to denounce the rule, with a straight face:
"The rule would leave millions of Americans in a real bind at exactly the time need a fast loan to cover an urgent expense," said Daniel Press, a policy analyst with the Competitive Enterprise Institute, in a statement after the bill's introduction.
Consumer advocates think otherwise (also from CNBC):
"Payday lenders put cash-strapped Americans in a crippling cycle of 300 percent-interest loan debt," Yana Miles, senior legislative counsel at the Center for Responsible Lending, said in a statement.
Prospects Under CRA
When I wrote about this topic in October, much commentary assumed that prospects for CRA overturn were weak. I emphasized instead the tactical error of failing to insulate the rule from CRA, which could have been done if the CFPB had pushed the rule through well before Trump took office:
If the payday rule had been promulgated in a timely manner during the previous administration it would not have been as vulnerable to a CRA challenge as it is now. Even if Republicans had then passed a CRA resolution of disapproval, a presidential veto would have stymied that. Trump is an enthusiastic proponent of deregulation, who has happily embraced the CRA– a procedure only used once before he became president to roll back a rule.
Now, the Equifax hack may have changed the political dynamics here and made it more difficult for Congressional Republicans– and finance-friendly Democratic fellow travellers– to use CRA procedures to overturn the payday lending rule.
The New York Times certainly seems to think prospects for a CRA challenge remote:
The odds of reversal are "very low," said Isaac Boltansky, the director of policy research at Compass Point Research & Trading.
"There is already C.R.A. fatigue on the Hill," Mr. Boltansky said, using an acronymn for the act, "and moderate Republicans are hesitant to be painted as anti-consumer.
I'm not so sure I would take either side of that bet. [Jerri-Lynn here: my subsequent emphasis.]
A more telling element than CRA-fatigue in my assessment of the rule's survival prospects was my judgment that Democrats wouldn't muster to defend the payday lending industry– although that assumption has not fully held, as this recent American Banker account makes clear:
After the payday rule was finalized in October , it was widely expected that Republicans would attempt to overturn it. It's notable, though, that the effort has attracted bipartisan support in the House.
Passage in the Senate, however, may be a much heavier lift. The chamber's vote to overturn the arbitration rule in late October came down to the wire, forcing Republicans to call in Vice President Mike Pence to cast the tie-breaking vote.
I continue to think that this rule will survive– as the payday lending industry cannot count on a full court press lobbying effort by financial services interests. Yet as I wrote in October, I still hesitate to take either side of the bet on this issue.
Dpfaef , December 4, 2017 at 10:53 amGF , December 4, 2017 at 11:02 am
I think this whole article is totally disingenuous. There is a serious need for many Americans to have access to small amount, short term loans. While, these lenders may appear predatory, they do serve a large sector of society.
Maybe you need to read: The Unbanking of America: How the New Middle Class Survives by Lisa Servon . It might be worth the read.Jerri-Lynn Scofield Post author , December 4, 2017 at 11:11 am
Where's the Post Office Bank when you need it. This overturning of the rule is just an effort to stop the Post Office Bank from gaining traction as the alternative non-predatory source of small loans to the people. Most pay day lender companies are owned by large financial players.Wisdom Seeker , December 4, 2017 at 3:23 pm
I agree that's a far better approach and indeed, I discussed the Post Office bank in my October post– which is linked to in today's post. Permit me to quote from my earlier post:
The payday lending industry preys on the poorest financial consumers. One factor that has allowed it to flourish is current banking system's inability to provide access to basic financial services to a shocking number of Americans. Approximately 38 million households are un or underbanked– roughly 28% of the population.
Now, a sane and humane political system would long ago have responded with direct measures to address that core problem, such as a Post Office Bank (which Yves previously discussed in this post, Mirabile Dictu! Post Office Bank Concept Gets Big Boost and which have long existed in other countries.)
Regular readers are well aware of who benefits from the current US system, and why the lack of institutions that cater to the basic needs of financial consumers rather than focusing on extracting their pound(s) of flesh is not a bug, but a feature.
So, instead, the United States has a wide-ranging payday lending system. Which charges borrowers up to 400% interest rates for short-term loans, many of which are rolled over so that the borrower becomes a prisoner of the debt incurred.lyman alpha blob , December 4, 2017 at 3:30 pm
With phrasing like "unbanked" or "underbanked", I worry that you've bought into the banking-industry framing of this issue, which I'm sure is not your intent.
Ordinary people should not need any bank (not even a government or post office bank) for everyday life, with the possible exception of mortgages. De-financialization of the medium of exchange, and basic payments, is something the public should be fighting for.Wisdom Seeker , December 4, 2017 at 3:44 pm
I would consider myself an ordinary person and I pay in cash when purchasing day to day items the vast majority of the time and yet I'd still prefer to deposit my money in a bank rather than hiding it in my mattress for any number of good reasons.
Banks aren't the problem – their predatory executives are.Cary D Berkelhamer , December 4, 2017 at 4:32 pm
But there are, or at least ought to be, safe and secure ways to store money other than by lending it to banks or stuffing it into mattresses. Or carrying wads of cash.
For instance, a debit card (or possibly cell phone) with a secure identity / password can already act as a cashless wallet. The digital cash could be stored directly on the device, and accounted for through something similar to TreasuryDirect, without any intermediaries. But this would require the Federal Government to get serious about having a modern Digital Dollar of some kind (not bitcoin, shudder)diptherio , December 4, 2017 at 11:08 am
Even better would be State Banks. Every state should have one. I believe the State Bank of North Dakota made money in 2008. While the TBTF Banks came hat in hand to our Reps. Of course OUR Reps handed them a blank check and told them to "Make it go Away". However Post Office Banks would be GREAT!!Vatch , December 4, 2017 at 11:19 am
This is the boilerplate argument that always gets brought up by payday loan defenders, and there is a good bit of truth to it. However, what you are not mentioning is that there are already far superior options available to pretty much any person who needs a small, short term loan. That solution is your friendly neighborhood Credit Union, most of which offer very low interest lines of overdraft coverage. I don't mind saying that it has saved my heiny on more than one occasion. Pay check a little late in arriving? No problem, transfer $200 from your overdraft account into your checking account on-line and you're good to go. Pay it back at your convenience, also on-line, at 7% APR.
Payday lenders are legal loansharks. The problems with their predatory lending model and the damage it does to low-income people are well documented. Simply pointing out that there is a reason that people end up at payday lenders is not a valid justification for the business practices of those lenders, especially when there are much better alternatives readily available.Off The Street , December 4, 2017 at 12:10 pm
Payday lenders are legal loansharks.
Very true! There are several web sites that point out how the fees associated with payday loans raise the effective annual percentage rate into the stratosphere, ranging from 300% to over 600%. Here's one:
http://paydayloansonlineresource.org/average-interest-rates-for-payday-loans/a different chris , December 4, 2017 at 12:57 pm
One frustration that I have with legislation in general, and finance legislation in particular, is that it does not tell the truth, the whole truth and nothing but the truth.
In my Panglossian world, I envision a financial services bill that lays out the following:
Define the problem
Unserviced people: X percent( for discussion, say 10% to make the math easy) of people are un-serviced (or under-, or rapaciously-serviced) by conventional financial companies, whether banks, credit unions or other, whatever other is conventionally.
Unserviced and don't want: Y percent of that X percent (say, 50% of 10%, so 5%) doesn't want services.
Unserviced and want: 1-Y percent of that X percent (say, 50% of 10%, so 5%) wants services but can not get them. That could be due to various factors, ranging from bad credit (how defined?, say FICO < 600?) to geographic remoteness (no branches within miles, no internet, precious little slow mail service, whatever).
Within that deemed unserved 5% of the population, what are the costs to serve and what are the alternatives?
What would an honest service provider need to provide service, accounting for credit risks and the like, and still make a profit sufficient to induce investment?
If I knew how to make and add a nice graphic, I'd include a waterfall chart here to show the costs and components of the interest and fees paid in regular and default mode. Sorry, please bear with me as I make up numbers.
Interest at 30%
Less: cost of funds at, say, 10%
Less: personnel, overhead, everything else at, say, 5%
Pre-tax profit: 15%
Default mode costs:
Interest at 275%
Plus: Fees at 25%
Less: cost of funds 20%
Less: personnel, overhead, etc 5%
Less: added default cost not in personnel etc line, say 25%
Pre-tax profit: 250%
In that little example, who couldn't make money at those rates?
Extending the notion of APR and Truth-In-Lending to include payday lenders and anyone else without a brick-and-mortar branch who wants to do business in the US, how about mandating some type of honest waterfall chart as dreamt of above?
Then cross-reference and publicize the voting on finance legislation with the campaign contributions from payday people and their ilk, and layer in the borrower costs and credit scores and other metrics in those Congressional districts and zip+4 codes and census tracts and whatever other level of granularity will help provide any amount of disinfecting sunlight to help see the scattering cockroaches.lyle , December 4, 2017 at 7:33 pm
The problem I suspect is that your "friendly neighborhood credit union" is actually rarely anywhere near the neighborhoods where people who need these kind of loans live.
They don't have cars and mass transit is non-existent or so slow they couldn't get to the Credit Union during business hours, and back again, anyway. That's the problem with expecting Private Enterprise to be a solution for people at the bottom. They don't set up shop where those people live, or the ones that do are not exactly do-gooders.JTMcPhee , December 4, 2017 at 1:04 pm
I just checked and a lot of credit unions let you apply for a loan online, (earlier you can set up membership online). So the issue of transport and time is lessened assuming folks have some form of net access.Wukchumni , December 4, 2017 at 1:08 pm
One might ask why there are millions of people reduced to having to get ripped off by payday and auto-title lenders, to somehow survive from week to week. Maybe because people can't make a living wage? Can't save any money, however prudent and abstemious they may be? Because inter-citizen cruelty and Calvinism are so very strong a force in this rump of an Empire?
Some of the comments here seem to build on the baseline assumption that's part of the liberal-neoliberal mantra, "You get what's coming to you (or the pittance we can't quite squeeze out of you yet)".
diptherio, I am guessing you may mean that there are models of better alternatives readily available, like paying a living wage, a social safety net for the worst off, a postal bank, national health care, stuff like that. I don't see that there are any alternatives actually available to most real people "on the ground."diptherio , December 4, 2017 at 1:27 pm
There is an alternative to excessive payday loans, but only if you're in the military, where it's capped @ 36%.
Why not 36% for everybody?mpalomar , December 4, 2017 at 1:36 pm
You are, of course, correct in that the underlying problem is that so many people are forced to live on so little that they need payday loans in the first place. Thanks for pointing that out.
My point is simply that in the short-term, as a matter of practicality for those of us who don't always make it until payday before running out of money, a CU overdraft account is a very good option.lyman alpha blob , December 4, 2017 at 1:32 pm
Agree. The AB article from October deadpans a description of the ins and outs governing the hellishness of the company town we're living in.sd , December 4, 2017 at 11:14 am
This is a far superior option and thank you for bringing it up. The only problem is most banks and credit unions will not tell you it exists because they make a lot more money if you just keep bouncing checks.
I only learned about it when I worked for WAMU. We were tasked by management with promoting various new products to customers as a condition of being paid a monthly bonus which was the only thing that made the job pay enough to live on. Funny, they never asked us to promote the overdraft line of credit (aka an ODLOC), ever. I do remember one of my managers tell me that circa 2000 or so, WAMUs operating costs for the entire company for the entire year were offset just by the fees they collected off of bounced checks etc.
The fees or interest you pay for using an ODLOC are a small fraction of what you'd pay for bouncing just one check. IIRC, if I overdrew by $200 or so and paid it back on my next payday, the interest was generally less than $1. My local credit union has since added a $5 fee for accessing the ODLOC on top of the interest, but it's still much less than a bounced check fee or interest on a payday loan. I believe that depending on your credit history, you can get an ODLOC of up to $2500 or so which pretty much negates the need for any payday loans.RepubAnon , December 4, 2017 at 11:55 am
A friend of mine was evicted from her apartment because of a payday loan. She failed to pay it off in full quick enough and it spiraled out of control tripling in a very short time. I really fail to see how usury is beneficial to society.FluffytheObeseCat , December 4, 2017 at 12:25 pm
Yes, there's a need for high-interest loans that bankrupt borrowers:
Mom-and-Pop Loan Sharks Being Driven Out by Big Credit Card Companies
Frank Pistone is part of the dying breed known as the American Loan Shark. Not so long ago, the loan shark flourished, offering short-term, high-interest loans to desperate people with nowhere else to turn. Today, however, Pistone and countless others like him are being squeezed out by the major credit-card companies, which can offer money to the down-and-out at lower rates of interest and without the threat of bodily harmJTMcPhee , December 4, 2017 at 12:35 pm
I read Servon's book. It is not a brief on behalf of the payday loan industry. She worked at a couple of payday lenders and explains how they serve the communities they're in, but a few things need to be noted:
The business she was most sympathetic with was a small, local one with only a couple of storefronts, in an east coast inner city. The owner and his help knew the customer base, often by name. Much of her sympathy came from her respect for the women who were dishing out the loans at the windows, not the owners and not the business model. This local joint operated like the most benign of old time pawnbroker/loansharking operation from the early part of the last century.
Most "Cash America" storefront shops (on shabby, midcentury shopping strips in inner ring scuburbs across the US) aren't this decent. They aren't "part of a community" in any sense. And the rates are usurious any way, for all of them.
Thank you to Ms. Scofield for continuing to cover this and related businesses. The upper, cleaner part of our finance industry derives more filthy lucre from these kinds of loan shops than they ever want you to know (sub-prime lending shops, title loans shops . there are a lot of modalities for fleecing the poor and the near-poor nowadays).ger , December 4, 2017 at 12:42 pm
The NC staff must be pleased that it seems like so many subtle apologists for the looters, predators, "intelligence community," and so forth, appear to be turning up here early in the opening of new site posts. I'm guessing the Elite are not exactly quaking in fear that NC's reporting will catalyze some change that might sweep the political economy in the direction of what the mopery would categorize as "fairness," but stillMatthew Cunningham-Cook , December 4, 2017 at 3:15 pm
Raised the dollar definition of middle class and declared a 'new middle class' or could it be 'new middle class' is actually referring to the 'new middle poor'. The former middle class is desperately trying to avoid a plunge into the pits of the 'poor poor'. Payday Loan predators are greasing the handrails.John , December 4, 2017 at 9:32 pm
"Where will the money-changers change money if not in the Holy Temple? Aren't we starving the priests of much-needed revenue? This Jesus guy is totally disingenuous."sd , December 4, 2017 at 11:11 am
In good neo liberal fashion that Jesus dude got exactly what he deserved. The effrontry of that guy to chase those hard working money lenders out of the temple square. Got exactly what was coming to him.perpetualWAR , December 4, 2017 at 12:21 pm
H.J.Res.122 – Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to "Payday, Vehicle Title, and Certain High-Cost Installment Loans".
December 1, 2017
Sponsor Rep. Ross, Dennis A. [R-FL-15] (Introduced 12/01/2017)
Rep. Hastings, Alcee L. [D-FL-20]
Rep. Graves, Tom [R-GA-14]
Rep. Cuellar, Henry [D-TX-28]
Rep. Stivers, Steve [R-OH-15]
Rep. Peterson, Collin C. [D-MN-7]jawbone , December 4, 2017 at 1:44 pm
Ahhh ..look at this list. TWO Florida lawbreakers introducing this banker bill. And one from Minnesota. Y'all know that Jacksonville, FL and St. Paul, MN are the two places where the forgeries continue to be provided to the financial crooks? So, it goes to figure that the lawbreakers are attempting to protect the financial crooks committing forgery in their prospective states! How appro.Mike R. , December 4, 2017 at 1:19 pm
If any of these House critters are "representing" you, time for lots of calls to them.
And thanks, SD, for listing them. I always wonder why our vaunted free press so seldom lists the sponsors of legislation when it's reported on . Hhmm .
m .nonclassical , December 4, 2017 at 1:46 pm
I have mixed feelings about this specific issue.
The larger issue of a grossly skewed economic system is what needs to be fixed.
There will always be people that lack common sense and brains regarding money. There will always be people that will take advantage of that.
I don't know how or why you would try and legislate that away.
We need to move in the direction of solving the biggest problems and not get wrapped up in the little problems.
The numbers above sound horrendous, but 7 billion in profit on 46 billion loaned is 14% return. Credit card companies are worse. 7 billion in profit off of 12 million people is $600 per person. Alot for poor folks I recognize, but not necessarily life shattering for all.
The "system" loves to wrangle around with issues like this (trivial in my mind) so the handful of big ones go unattended.Wisdom Seeker , December 4, 2017 at 3:37 pm
some have apparently not felt it necessary to bail out family members for aggressive, egregious and immediate interest rates and escalations charged by these scammers
but there certainly appears concerted effort by (likely) shills to perpetuate scams (and to discredit Consumer Financial Protection Agency and Liz Warren )
Warren-Sanders 2020Jerri-Lynn Scofield Post author , December 4, 2017 at 8:07 pm
I think there's an error in the original article, where it says:
CRA's procedures to overturn legislation had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (emphasis added)
My understanding is that CRA gives Congress the power to overturn executive branch regulations , not legislation (which Congress already can overturn anyway). Is that incorrect?
P.S. It's sad that it might not even matter. Nowadays the public can't tell the difference between regulations (written by unaccountable, unelected officials who take the revolving door back to working at the firms they regulated) and legislation (written by unaccountable, only notionally elected politicians who get paid off in various ways by lobbyists for the same firms)John k , December 4, 2017 at 8:26 pm
You're correct– fixed it! Slip of the fingers there that I didn't catch when I proofread the post. As the rest of the paragraph makes clear, CRA procedures are used to overturn regulations.
Thanks for reading my work so carefully and drawing the error to my attention.Taras 77 , December 4, 2017 at 10:40 pm
Trump loves it
Obomber woulda loved it
She who cannot be named woulda loved it, too.
Time for them all to get over that little spat she did it before trump should appoint her to something useful I bet she'd love secdef
Where is the lovely Debbie Wasserman schultz in all of this? She has not surprisingly been a leading cheerleader for these pay day lender sharks. but hey, what the hey, the lobby money is good!
"The prototype of the successful man in modern society is not the scientist, the inventor, the scholar. It is the financier, the gambler and those with social pull. The others share [in the winnings] sometimes, it is true, but their share is modest compared with the oligarchs and tycoons; and they don't usually keep their share for long. They are no match for the commercial prowlers."
A snap-shot of London's Mayfair district, home to the burgeoning hedge-fund phenomenon, in November 2006? Actually, no. The above words were written in 1952 by the Labour politician Aneurin Bevan in his book In Place of Fear. Bevan had a gift - his most passionate supporters would say a genius - for exposing the truth of a situation in language that could be both scintillating and pungent.
Fifty years ago, he criticised the prime minister of the day, Sir Anthony Eden, for his reckless actions during the Suez crisis. "[He] has been pretending that he is now invading Egypt in order to strengthen the United Nations," Bevan said in a famous speech in Trafalgar Square. "Every burglar of course could say the same thing: he could argue that he was entering the house in order to train the police. So, if Sir Anthony Eden is sincere in what he is saying, and he may be . . . then he is too stupid to be a prime minister!" Here was political rhetoric with a touch of prophesy about it.
It was the enduring appeal of speeches such as these that helped draw a good crowd to the fifth annual Bevan memorial lecture in London last week. The lecture was to be given by John Monks, formerly general secretary of the British Trades Union Congress, now the Brussels-based leader of the European trade union confederation.
No one in the audience would have been expecting Bevanite rhetorical fireworks from Mr Monks. That has never been his style. Between 1993 and 2003, he led the British trade union movement with modesty and distinction. He was the moderate's moderate: avoiding confrontation wherever possible and advocating partnership at work between management and employees. Business leaders were happy to do business with him.
They would not have found this lecture so easy to deal with. Confronted by today's turbo-charged capitalism, Mr Monks cast off his former moderation. He even seemed to be on the verge of recanting his commitment to the partnership model. "Partnership with who?" he asked. There has been, he said, a "disintegration of the social nexus between worker and employer - a culture containing broad social rights and obligations. The new capitalism wants none of it."
Mr Monks contrasted businesses' healthy profitability with the ruthless way some have treated their staff recently, whether through large-scale redundancies or the constant threat that jobs may be sent off-shore or outsourced. While median wages have stagnated, record executive salaries are legion.
He admitted that he had possibly been a bit naive in the past. "I did not fully appreciate what was happening on the other side of the table," Mr Monks said. While he sympathised with business leaders for the relentless pressure they find themselves under - "It cannot be easy running a firm . . . when you are up for sale every day and every night of every year" - he was appalled by the increasingly "shameless", short-termist behaviour of overpaid corporate executives. "More and more they resemble the Bourbons - and they should be aware of what eventually happened to the Bourbons."
For someone like me, who has sat through 10 years of reasonableness from John Monks, this speech was remarkable, devastating stuff. Maybe there is something in the Brussels water. Perhaps the ghost of Nye Bevan was speaking through him. Or was it just anxiety over the career choice of his daughter's boyfriend? He is now working for - you guessed it - a hedge fund. Whatever its cause, a challenge was being thrown down.
"All this is too important to be left to the practitioners who have a vested interest in obscuring what they do from the rest of us," he said. And, with bonus season fast approaching, he took one final, sweeping aim at the high rollers of "casino capitalism". Their actions are "dangerous to economic stability, traditional industry and jobs", he said. "I would like to see the City pages of the press more challenging and less respectful on these matters . . . Our future - the world's future - is too important to place in the hands of the new capitalists."
Will corporate leaders - those that have read this far anyway - simply shrug their shoulders and get back to their slashing and burning ways? Is Mr Monks merely offering a wholly predictable, knee-jerk, lefty rant? I do not think so. This general secretary just does not do lefty rants. So business people should take note. When the John Monkses of this world say enough is enough, that the capitalist system itself is sick, you can be sure that elsewhere in the world there is deep-seated, lingering resentment and unhappiness.
Half a century ago, Nye Bevan expressed a similar concern. In In Place of Fear he wrote: "There is a sense of injustice in modern society, and this induces a feeling of instability even in normal circumstances. The rewards are not in keeping with social worth, and the consciousness of this, both among the successful and the unsuccessful, will simmer and bubble, blowing up into geysers of political and social disturbance in times of economic stress."
Reading these words, you can see why so many people were prepared to come out on a dark Tuesday night...
Nov 09, 2002 | www.prospect-magazine.co.uk
Financial markets 101
The Bretton Woods system
The power of financial actors
Consequences of global financial flows
Theological and ethical considerations
A new financial architecture
What Christians can do
Want to know more?
Questions For Discussion
"During my whole career at Goldman Sachs - 1967 to 1991 - I never owned a foreign stock or emerging market bonds. Now I have hundreds of millions of dollars in Russia, Brazil, Argentina and Chile, and I worry constantly about the dollar-yen rate. Every night before I go to bed I call in for the dollar-yen quote, and to find out what the Nikkei is doing and what the Hang Seng Index is doing. We have bets in all these markets. Right now Paul [one of my traders] is long [on] the Canadian dollar. We have bets all over the place. I would not have worried about any of these twenty years ago. Now I have to worry about all of them."
Leon Coopermann, hedge fund manager1
Economic globalization is probably the most fundamental transformation of the world's political and economic arrangements since the Industrial Revolution. Decisions made in one part of the world more and more affect people and communities elsewhere in the world. Sometimes the consequences of globalization are positive, liberating inventive and entrepreneurial talents and accelerating the pace of sustainable development. But at other times they are negative, as when many people, especially in less-developed countries, are left behind without a social safety net. Globalization undermines the ability of the nation to tax and to regulate its own economy. This weakens the power of sovereign nations relative to that of large transnational corporations and distorts how social and economic priorities are chosen.
Economic globalization is most often associated with rapid growth in the flow of goods and services across international borders. Indeed, the economic "openness" of a nation is often measured by the value of its exports, imports, or their sum when compared to the size of its economy. Economic globalization also involves large investments from outside each nation, often by transnational corporations. These corporations often combine technology and know-how with their investments that enhance the productive capacity of a nation. Previous position papers of the Mobilization, contained in Speaking of Religion & Politics: The Progressive Church Tackles Hot Topics2, have dealt with globalization primarily in these terms.
But international trade and investment are only part of the openness that has come to be called globalization. Another part, and arguably the most important, is the quickening flow of financial assets internationally. While a small portion of this flow is directly associated with the "real" economy of production and exchange, its vast majority is composed of trades in the "paper" economy of short-term financial markets. This paper economy is enormous: The value of global financial securities greatly exceeds the value of annual world output of goods and services. Moreover, the paper economy often contributes to crises in the real economy. Thus it is important to the well being of humanity and the planet as a whole, yet it is little understood by most people. This essay undertakes to provide a basic understanding of this paper economy, especially as its more speculative features have multiplied during the last two or three decades, so that Christians and others concerned about what is happening in our world can join in an intelligent discussion of how the harmful consequences of financial markets can be controlled.
Financial markets 101
To better understand this paper economy, one first needs to know something about foreign exchange markets, international money markets, and "external" financial markets.
In an open economy, domestic residents often engage in international transactions. American car dealers, for example, buy Japanese Toyotas and Datsuns, while German computer companies sell electronic notebooks to Mexican businessmen. Similarly, Australian mutual funds invest in the shares of companies all over the world, while the treasurer of a Canadian transnational corporation parks idle cash in 90-day Bank of England notes. Most of these transactions require one or more participants to acquire a foreign currency. If an American buys a Toyota and pays the Japanese Toyota dealer in dollars, for example, the latter will have to exchange the dollars for yens in order to have the local currency with which to pay his workers and local suppliers.
The foreign exchange market is the market in which national currencies are traded. As in any market, a price must exist at which trade can occur. An exchange rate is the price of a unit of domestic currency in terms of a foreign currency. Thus, if the exchange rate of the dollar in terms of the Japanese yen increases, we say the dollar has depreciated and the yen has appreciated. Similarly, a decrease in the dollar/yen exchange rate would imply an appreciation of the dollar and a depreciation of the yen.
Foreign exchange markets can be classified as spot markets and forward markets. In spot markets currencies are bought and sold for immediate delivery and payment. In forward markets, currencies are bought or sold for future delivery and payment. A U.S. music company, say, enters into a contract to buy British records for delivery in 30 days. To guard against the possibility of the dollar/pound exchange rate increasing in the meantime, the company buys pounds forward, for delivery in 30 days, at the corresponding forward exchange rate quoted today. This is called hedging.
Of course, there has to be a counterpart to the music company's forward purchase of pounds. Who is the seller of those pounds? The immediate seller would be a commercial bank, as in the spot market. But the bank only acts as an intermediary. The ultimate seller of forward pounds may be another hedger, like the music company, but with a position just its opposite. Suppose, for example, that an American firm or individual has invested in 30-day British securities that it wants to convert back into dollars after the end of 30 days. The investor may decide to sell the pound proceeds forward in order to assure itself of the rate at which the pounds are to be converted back into dollars after 30 days.
Another type of investor may be providing the forward contract bought by the music company. This is the speculator, who attempts to profit from changes in exchange rates. Depending on their expectations, speculators may enter the forward market either as sellers or as buyers of forward exchange. In this particular case, the speculator may have reason to believe that the dollar/pound exchange rate will decrease in the next 30 days, permitting him to obtain the promised pounds at a lower price in the spot market 30 days hence.
The main instruments of foreign exchange transactions include electronic bank deposit transfers and bank drafts, bills of exchange, and a whole array of other short-term instruments expressed in terms of foreign currency. Thus, foreign exchange transactions do not generally involve a physical exchange of currencies across borders. They generally involve only changes in debits and credits at different banks in different countries. Very large banks in the main financial centers such as New York, London, Brussels and Zurich, account for most foreign exchange transactions. Local banks can provide foreign exchange by purchasing it in turn from major banks.
Although the foreign exchange market is dispersed in many cities and countries, it is unified by keen competition among the highly sophisticated market participants. A powerful force keeping exchange rate quotations in different places in line with each other is the search on the part of market participants for foreign exchange arbitrage opportunities. Arbitrage is the simultaneous purchase and sale of a commodity or financial asset in different markets with the purpose of obtaining a profit from the differential between the buying and selling price.
When foreign exchange is acquired in order to engage in international transactions involving the purchase or sale of goods and services, it is said that international trade has taken place in the real economy. When international transactions involve the purchase or sale of financial assets, they are referred to as international financial transactions. They constitute the paper economy.
Financial markets are commonly classified as capital markets or money markets. Capital markets deal in financial claims that reach more than one year into the future. Such claims include shares of stock, bonds, and long-term loans, among others. Money markets, on the other hand, deal in short-term claims, with maturities of less than one year. These include marketable government securities (like Treasury bills), large-denomination certificates of deposit issued by banks, commercial paper (representing short-term corporate debt), money market funds, and many other kinds of short-term, highly liquid (easily transferable) financial instruments. It is these short-term money market securities that account for most of the instability in the global paper economy.
Buying or selling a money market security internationally involves the same kind of foreign exchange risk that plagues buyers or sellers of merchandise internationally. If one wishes to guard against the possibility of an increase or decrease in the foreign exchange rate, one can insure against such fluctuations by "covering" in the forward market. By the same token, the decision about whether to own domestic or foreign money market securities is not simply a comparison of the rates of interest paid on otherwise comparable securities, because one must also take into account the gain (or loss) from purchasing foreign currency spot and selling it forward. Thus, choosing the security with the highest return does not necessarily imply the one with the highest interest rate.
People who trade in international money markets, moreover, need to take into account many other variables, including the costs of gathering and processing information, transaction costs, the possibility of government intervention and regulation, other forms of political risk, and the inability to make direct comparisons of alternative assets. Speculating in international money markets is a risky proposition.
International money markets involve assets denominated in different currencies. External financial markets involve assets denominated in the same currency but issued in different political jurisdictions. Eurodollars, for example, are dollar deposits held outside the United States (offshore), such as dollar deposits in London, Zurich, or even Singapore banks. The deposits may be in banks owned locally or in the offshore banking subsidiaries of U.S. banks. Deutsche mark deposits in London banks or pound sterling deposits in Amsterdam banks also are examples of external deposits. They are referred to as eurocurrency deposits. (The advent of a new common currency in the European Community - the Euro - will require the development of new nomenclature for external financial markets)
External banking activities are a segment of the wholesale international money market. The vast majority of eurocurrency transactions fall in the above $1 million value range, frequently reaching the hundreds of millions (or even billion) dollar value. Accordingly, the customers of eurobanks are almost exclusively large organizations, including multinational corporations, government entities, hedge funds, and international organizations, as well as eurobanks themselves. Like domestic banks, eurobanks that have excess reserves may make loans denominated in eurocurrencies, expanding the supply of eurocurrency deposits. The eurocurrency market funnels funds from lending countries to borrowing countries. Thus, it performs an important function as global financial intermediator.
The origins of what Karl Polanyi3 called haute finance can be traced to Renaissance Italy, where as early as 1422 there were seventy-two bankers or bill-brokers in or near the Mecato Vecchio of Florence.4 Many combined trade with purely financial business. By the middle of the fifteenth century, the Medici of Florence had opened branches in Bruges, London and Avignon, both as a means of financing international trade and as a way of marketing new kinds of financial assets. Many banking terms and practices still in use today originated in the burgeoning financial centers of Renaissance Europe.
By the early seventeenth century, the Dutch and East India Companies began issuing shares to the public in order to fund imperial enterprises closely linked to Holland and Britain. Their shares were made freely transferable, permitting development of a secondary financial market for claims to future income. Amsterdam opened a stock exchange in 1611, and shortly thereafter, the British government began issuing lottery tickets, an early form of government bonds, to finance colonial expansion, wars and other major areas of state expenditure. A lively secondary market in these financial instruments also emerged.5
Throughout these early years, financial markets were anything but riskless and stable. Consider the famous Dutch tulip mania of 1630, for example. This speculative bubble saw prices of tulip bulbs reach what seemed like absurd levels, yet "the rage among the Dutch to possess them [tulips] was so great that the ordinary industry of the country was neglected." Some investors in Britain and France shared this "irrational exuberance," though it was centered mostly in Holland. Then, not unlike speculative bubbles of more recent vintage, prices crashed6, pushing the economy into a depression and leaving many investors angry and confused.
Paris developed into an early financial center in the eighteenth century, but the Revolution of 1789 dissipated its power. The New York Stock Exchange was formally organized in 1792 and the official London Stock Exchange opened in 1802. The expansion westward of the railroads in the U.S. offered the financial community opportunity to sell railway shares and bonds that quickly became dominant in the financial markets. Indeed, the bond markets of London, Paris, Berlin, and Amsterdam were vehicles for collecting massive amounts of European savings and transferring it at higher returns to the emerging markets of the U.S., Canada, Australia, Latin America and Russia in the century preceding World War I.
Forward markets soon developed, especially in the U.S., in order to counter the impact of long distances and unpredictable weather. As capital and money markets expanded, other new financial instruments came into use. Joint stock companies were formed, enabled by legislation that clarified the distinction between the owners and managers of corporations. This, in turn, helped stimulate the growth of the American stock market in the late nineteenth century. To be sure, financial markets did not grow continuously in the nineteenth century. Lending to the emerging markets was interrupted by defaults in the 1820s, 1850s, 1870s and 1890s, but each wave of default was confined to a relatively small number of countries, permitting growth of financial flows to resume.7
In the four decades leading up to World War I, a truly worldwide economy was forged for the first time, extending from the core of Western Europe and the U.S. to latecomers in Eastern Europe and Latin America and even to the countries supplying raw materials on the periphery. Central to this expansion of trade and investment was an expanding system of finance that girded the globe. The amount was enormous: between 1870 and 1914 something like $30 billion,8 the equivalent in 2002 dollars of $550 billion, was transferred to recipient countries, in a world economy perhaps one-twelfth as large as today's.
During this "Gilded Age" of haute finance, the risks of participating in international trade and investment were generously shared with governments and the banking system. The reason is that foreign exchange rates were kept reasonably stable by the commitment of most governments to the "high" gold standard. In this way, businesses and individuals engaging in international transactions were reasonably certain that the value of their contracts was not going to change before they matured. Their exchange risk was shared with government by its willingness to buy or sell gold in order to keep the exchange rate constant. Because of this assurance, financial flows were reasonably free of regulation.
They were not immune from crises, however. When the sources of financial capital temporarily dried up, capital-importing countries occasionally found they could not expand export earnings sufficiently to avoid suspending interest payments on their debts or abandoning gold parity. On two occasions, the United States faced this possibility. The first was in 1893, when it switched in a sharp economic downturn to bimetallism (which caused William Jennings Bryan to denounce the "cross of gold"), and the second was in 1907, which led to the creation of the Federal Reserve System, handing to the government the function of lender of last resort previously carried out by Wall Street banks under the tutelage of J. Pierpont Morgan.
In his magisterial book The Great Transformation, Karl Polanyi reflected on the pervasive influence of haute finance on the policies of nations even in this "Gilded Age." The globalising financial markets and the gold standard, according to Polanyi, left very little room for states, especially smaller ones, to adopt monetary and fiscal policies independent of the new international order. "Loans, and the renewal of loans, hinged upon credit, and credit upon good behavior. Since, under constitutional government ..., behavior is reflected in the budget and the external value of the currency cannot be detached from the appreciation of the budget, debtor governments were well advised to watch their exchanges carefully and to avoid policies which might reflect upon the soundness of budget positions." Thus, even one hundred years ago the then-dominant world power, Great Britain, speaking as it did so often through the voice of the City of London, "prevailed by the timely pull of a thread in the international monetary network.9
Following World War I, the United States emerged not merely as a creditor country but as the primary source of new international financial flows. At first, the principal borrowers were the national governments of the stronger countries, but as the boom in security underwriting developed in the U.S, numerous obscure provinces, departments and municipalities found it possible to sell their bonds to American investors.10 Just as domestic construction, land, and equity markets went through speculative rises in the 1920s, so too did the U.S. experience a speculative surge in foreign investment. In the aftermath of successive defaults by foreign debtors in 1932, the Senate Committee on Banking and Currency concluded:
The record of the activities of investment bankers in the flotation of foreign securities is one of the most scandalous chapters in the history of American investment banking. The sale of these foreign issues was characterized by practices and abuses that violated the most elementary principles of business ethics.11
Speculation in the stock markets leading up to 1929 offers still another window on the instability of short-term financial flows. A speculative market can be defined as one in which prices move in response to the balance of opinion regarding the future movement of prices rather than responding normally to changes in the demand for and supply of whatever is priced. Helped by the willingness of Wall Street to allow people to buy stocks on margin, people were only too ready to bet prices would rise as long as others thought so too. Day after day and month after month the price of stocks went up in 1927. The gains by later standards were not large, but they had an aspect of great reliability. Then in 1928, the nature of the boom changed. "The mass escape into make-believe, so much a part of the true speculative orgy, started in earnest.12
Following World War I, the gold standard itself took on new form. Nations were allowed to hold their international reserves in either gold or foreign exchange. This worked for a while in the 1920s, but as speculation mounted and balances of payments disequilibria grew, fears of devaluation led central banks to try to replace their foreign-exchange holdings with specie in a "scramble for gold." The worldwide result of these shifts in central bank portfolios was an overall contraction of the supply of money and credit that sapped aggregate demand and forced prices to fall and output levels to shrink. Thus, it can be argued - persuasively in our view - that the Great Depression of the 1930s was as much, if not more, the result of mismanagement of money and credit as it was the result of protectionist policies. Protectionist policies were more likely the result of slowed growth and stalled trade. Countries that broke with the gold-exchange standard early, such as Britain in 1931, and pursued more expansionary monetary policies fared somewhat better.
The Bretton Woods system
During the darkest days of World War II, a radically new economic architecture was designed for the postwar world at a New Hampshire ski resort called Bretton Woods. With the competitive devaluation and protectionist policies of the 1930s still fresh in their minds, the mostly British and American delegates to the conference wanted most of all to design a system with fixed exchange rates that did not rely on national gold hoards to keep exchange rates stable. They decided to depend instead on strict controls of international financial movements. In this way, they hoped to allow countries to pursue full-employment policies through appropriate monetary (money and credit) and fiscal (tax and spending) policies without some of the anxieties associated with open financial markets. The role of monetary and financial stabilizer was given to the International Monetary Fund (IMF), which was provided with modest funds to assist nations to adjust imbalances in their external payments obligations. The International Bank for Reconstruction and Development (IBRD, later the World Bank) assumed the task of helping to finance post-war reconstruction.13
The IMF as it emerged from Bretton Woods had inadequate reserves to advance money for the long periods that many countries require for "soft-landings" from big current-account deficits. It would make only short-term loans. To make sure that borrowing nations were constrained, "conditionality" attached to IMF loans became standard practice, even in the early years of the Fund's operation. Policy limitations and "performance targets" tied to credit lines advanced under "standby agreements" began in the middle 1950s and were universal by the 1960s, long before the notions of "stabilization" and "structural adjustment" came into common parlance.
The Bretton Woods agreement also imposed a foreign exchange standard by which exchange rates between major currencies were fixed in terms of the dollar, and the value of the dollar was tied to gold at a U.S. guaranteed price of thirty-five dollars per ounce. By devising a system that controlled financial movements and assisted with the adjustment of countries' balances of payments, the new system succeeded in keeping exchange rates remarkably stable. They were changed only very occasionally, e.g., as when the value of sterling relative to the dollar was reduced in 1949 and again in 1966. This meant that companies doing business abroad did not need to worry constantly about the risk of exchanging one currency for another.
Among the reasons for this remarkable stability was the willingness of the central banks of other countries to hold an increasing proportion of their official reserves in the form of U.S. dollars. It was an essential part of the system that the dollars held by other countries would be seen as IOUs backed by the U.S. offer to exchange them for gold at a fixed pre-war price. But as the balance-of-payments of the U.S. moved more deeply into deficits in the 1960s, there were more and more U.S. dollars held by other countries, and this so-called "dollar overhang" became disturbingly large.15 General de Gaulle called it "the exorbitant privilege," meaning that the Americans were paying their bills - for defense spending to fight the Vietnam War among other things - with IOUs instead of real resources in the form of exports of goods and services.
Strict control over financial movements began to weaken as early as the 1950s, when the first eurodollar (later eurocurrency) deposits were made in London. At first a trickle, limited originally to Europe, these offshore banking operations soon expanded worldwide. The American "Interest Equalization Tax" (IET) instituted in 1963 raised the costs to banks of lending offshore from their domestic branches.16 The higher external rates led dollar depositors such as foreign corporations to switch their funds from onshore U.S. institutions to eurobanks. Thus, the real effect of the IET was to encourage the dollar to follow the foreigners abroad, rather than the other way around. Eurobanks paid higher interest rates on deposits and loaned eurocurrencies at lower rates than U.S. banks could at home. Still another large inflow of eurodeposits occurred in 1973-74 as the Organization of Petroleum Exporting Countries (OPEC) began "recycling" their surplus dollar earnings through eurobanks. Because of their existence, a country such as Brazil could arrange within a reasonably regulation-free environment to obtain multimillion-dollar loans from a consortium of offshore American, German and Japanese banks and thereby finance its oil imports. Net eurocurrency deposit liabilities that amounted to around $10 billion in the mid-1960s, grew to $500 billion by 1980.
These eurocurrency transactions taught the players in financial markets how to shift their deposits, loans, and investments from one currency to another whenever exchange rates or interest rates were thought to be ready to change. Even the ability of central banks to regulate the supply of money and credit was undermined by the readiness of commercial banks to borrow and lend offshore. Hence, the effectiveness of regulatory mechanisms that had been put in place to implement the Bretton Woods agreement - interest rate ceilings, lending limits, portfolio restrictions, reserve and liquidity requirements - gradually eroded as offshore transactions started to balloon.
The world economy developed at unprecedented rates during the roughly twenty-five years immediately following World War II. Growth and employment rates during these years were at historic highs in most countries. Productivity also advanced rapidly in most developing countries as well as in the technological leaders. These facts suggest that the system devised at Bretton Woods worked reasonably well, despite occasional adjustments. To be sure, it helped to sow the seeds of its own destruction by failing to retain operational control of international financial flows. But the twenty-five years of its survival leading up to August 15, 1971, when President Nixon closed the gold window, have nonetheless come to be called by some economic historians the "Golden Years."
Controlling private risk
Fixed exchange rates did not last long after the U.S. stopped exchanging gold for claims on the dollar held by foreign central banks. The pound sterling was allowed to float against the dollar in July, 1972. Japan set the yen free to float in February, 1973, and most European currencies followed suit shortly thereafter. The Bretton Woods gold-dollar system was doomed.
The fact that exchange rates no longer were fixed meant that companies doing business in different countries had to cope with the day-to-day shifts in the dollar's rate of exchange with other currencies. The risks of unexpected changes in the value of international contracts suddenly had shifted from the public to the private sector. Corporate finance officers now had to hedge against possible exchange losses by buying a currency forward and investing the equivalent in the short-term money market, or by investing in the eurocurrency market. The corporations' banks, in turn, tried to match each foreign currency transaction with another contrary transaction in order not to leave each of the banks exposed to foreign exchange risk overnight. Since no single bank was likely to balance its foreign exchange positions exactly, the need arose to swap deposits in different currencies in order to match corporate hedging transactions and to square the bank's books.
The price of this forward cover on inter-bank transactions - that is to say, the premium or discount on a currency's spot value - has tended to accord with the differences between interest-rates offered for eurocurrency deposits in different currencies. This is the connection between the foreign exchange market and the short-term credit markets, between exchange rates and interest rates. Whenever exchange rates move up or down, therefore, their influence is immediately transmitted through the eurocurrency markets to the credit markets.
It is this scramble to avoid private risk that accounted for the dramatic rise in international financial movements following the demise of the Bretton Woods system. By 1973, daily foreign exchange trading around the world varied between $10 and $20 billion per day. This amount was approximately twice the value of world trade at the time. Bank of International Settlements data suggests that the daily average of foreign exchange trading had climbed by 1980 to about $80 billion, and that the ratio between foreign exchange trading and international trade was more nearly ten to one. The data for 1992 was $880 billion and fifty to one, respectively; for 1995, $l,260 billion and seventy to one; and for 2000, almost $1,800 and ninety to one.
There is very little doubt, therefore, that the lion's share of international financial flows is relatively short-run. Indeed, about eighty percent of foreign exchange transactions are reversed in less than seven business days. Only a very small proportion is used to finance international trade and direct foreign investment. The vast majority must be used with the expectation of gain or to avoid losses that may result from changes in the value of financial assets. In general terms, they are speculative, made in hope of capital gain or to hedge against potential capital loss, or to seek the gains of arbitrage based on slight differences in rates of return in different financial centers.
The power of financial actors17
Foreign exchange markets and markets for money and credit seem remote and abstract to most people. This section introduces the real institutions that operate these markets and assesses the nature of their power.
- Commercial banks They take deposits, lend money, and create credit to the extent their capitalization allows. In Europe, they tend to combine commercial and investment banking services, but in the U.S. and Japan they are still kept at least partially separate by regulation. The foreign exchange trading facilities of the largest commercial banks, e.g. Citibank and J.P.Morgan/Chase in the U.S., tend to dominate the market. The banking industry as a whole represents the largest pool of world financial capital.
- Investment banks They facilitate international payments, manage new issues of stocks and bonds, advise on mergers and acquisitions in all industries, and engage in securities and foreign exchange trading as allowed by law. Investment banks (previously called merchant banks in the U.K.) have specialized in particular kinds of derivative products. Derivatives are financial contracts whose value is based upon the value of other underlying financial assets such as stocks, bonds, mortgages or foreign exchange.
- Brokerage houses They handle the bulk of stock exchange transactions and a major part of foreign exchange transactions. Investment banks recently have acquired several of the main brokerage houses in the U.S. The development of investor-friendly methods of buying and selling securities, e.g., over-the-counter markets and electronic brokerage, also have diminished the role of independent brokerage houses.
- Mutual funds They are pools of funds provided by clients that are run by professional investment managers. These collective investments are held in portfolios with various mixes of money-market instruments, bonds and equities. Mutual funds account for the second largest pool of global financial capital.
- Hedge funds They resemble mutual funds, but they are much less restricted in investment activities and techniques. Their customers are high net-worth individuals and large institutional investors. They specialize in complex financial instruments and tend to take significant speculative positions, especially on expected future changes in macroeconomic conditions. They exploit arbitrage opportunities embedded in the relative prices of related securities. They frequent offshore centers and tax havens.
- Tax havens Offshore centers and tax havens shelter perhaps $10 trillion of wealth from capital and income taxation. The British Virgin Islands, the Bahamas, Bermuda, the Cayman Islands, Dublin and Luxembourg are among the most important. Many hedge funds are registered there.
- Wealthy individuals They are an important source of funds, as many of them invest their liquid funds in financial markets. They account for about eighty percent of hedge fund investors.
- Private pension funds They function like annuities, receiving funds today in return for a promise to pay future benefits. With large pools of funds to invest, they tend to depend on investment banks, mutual funds or hedge funds to supervise placement of their assets in global financial markets.
- Insurance companies They pool risks by selling protection against the loss of property, income, or life. Since the risks they insure have various durations, they call for varied investment strategies. A portion of their funds is invested in short-term financial instruments, often through mutual and hedge funds.
- Transnational corporations They produce and sell goods and services in a number of countries. Their finance departments seek the best ways to raise and transfer funds across borders, and administer the transfer prices18 of international trade conducted within the corporation. Some even have in-house corporate banks.
According to recent work by political scientists, the power of these financial actors is based in part on a complicated "process of multiplication" of loans, assets and transactions. Many investors in financial markets buy financial instruments on very thin margins, based on loans obtained by pledging the assets as collateral. This is called "leverage" in the jargon of financial markets. In turn, the borrowed funds are invested in other financial assets, multiplying the demand for credit and financial assets. As demand rises, more sophisticated financial assets are invented, including many forms of financial derivatives. A major portion of the accumulated debt remains serviceable only as long as the prices of most assets will rise or at least remain relatively stable. If prices turn down, they easily can lead to a chain-reaction. If investors respond instinctively like a herd, they will bring a far-reaching collapse that constitutes a crisis.
As the flow of financial assets climbs, some bankers, brokers, and managers of financial institutions become prominent players in the competition for investor dollars. Some become known for picking profitable places to invest and for promoting their selections successfully. This can influence markets if people have confidence in their advice. A notorious example of the influence of prominent players was the attack on British sterling in 1992 by George Soros' Quantum Fund. Believing that sterling was overvalued, the Fund quietly established credit lines that allowed it to borrow $15 billion worth of sterling and sell it for dollars at the then "overvalued" price. Its purpose, of course, was to pay back the loan with cheaper pounds after they had depreciated. Having gone long on dollars and short on sterling, Soros decided to speak up noisily. He publicized his short-selling and made statements in newspapers that the pound would soon be devalued. It wasn't long before sterling was devalued; he made $1 billion in profit.
The point can be made more generally: financial markets are subject to manipulation because they have become socially structured. Market leaders and financial gurus are admired and followed (at least until very recently). The heavyweights thus dominate the business. An obvious consequence of this is that there is a strong tendency in financial markets for further concentration of resources.
Another source of the power of financial actors is their obvious affinity for the rampant free-market philosophy of neo-liberalism. The freedom with which they move financial capital around depends, of course, on the market-friendly policies of the so-called Washington Consensus.19 As long as they are seen as part of the governing coalition, they derive special powers to regulate themselves rather than be controlled by an independent government agency or civil society. Their power also is reinforced by the activities of several collective associations of financial actors,20 which lobby on their behalf.
One more source of power for the financial actors is their knowledge that if they are big enough and sufficiently interlaced with other financial actors, then the "system" will keep them from failing. Consider the case of Long-term Capital Management, a hedge fund partnership started in 1994. It was able to borrow from various banks the equivalent of forty times its capitalization in order to make bets on changes in the relative prices of bonds in the U.S. and abroad. When the Russian government announced a devaluation and debt moratorium in August, 1998, it produced losses that the fund could not sustain. Nor could some of the banks that had loaned large amounts to the fund. Accordingly, the Federal Reserve Bank of New York, fearful that the risk to the entire system was too high, orchestrated a private rescue operation by fourteen banks and other financial institutions, which re-capitalized the company for $3.5 billion.
Financial actors also have the power indirectly to influence non-financial actors such as firms or states. By providing economic incentives to gamble and speculate on financial instruments, global financial markets divert funds from long-term productive investments. In all probability, they also encourage banks and financial institutions to maintain a regime of higher real interest rates that reduce the ability of productive enterprises to obtain credit. The volatility of global financial markets, moreover, brings uncertainty and volatility in interest rates and exchange rates that are harmful to various sectors of the real economy, particularly international trade.
The above stories about George Soros and Long-term Capital Management are good illustrations of the consequences for non-financial actors of actions by financial actors. Both episodes are examples of games that are basically zero-sum, at least in the short-run. Nothing new was produced; no new values were created. In the 1992 case about speculating against sterling, the Quantum Fund's profits were at the expense of the British government, especially the Bank of England, and British taxpayers. In 1998, the losses suffered by Long-term Capital Management came out of the pockets of the stockholders of the banks that bailed it out, as the stock-market value of their shares depreciated. Hence, the financial system tends to feed itself by drawing more resources from other sectors of the economy, undermining the vitality of the real economy.
Consequences of global financial flows
The dominant economic ideology of the last twenty-five years has been embodied in the so-called Washington Consensus. It is a "market-friendly" ideology that traces its roots to longstanding policies of the IMF that encourage macroeconomic "stabilization;" to adoption by the World Bank of ideas in vogue in Washington early in the Reagan period concerning deregulation and supply-side economics; to the zeal of the Thatcher government in England for privatizing public enterprises; and perhaps most of all to the neo-liberal tendencies of the business community and the economics profession in the U.S. The implementation of these policies of economic "reform," by first "stabilizing" the macro-economy and then "adjusting" the market so that it can perform more efficiently, are supposed to pay off in the form of faster output growth and rising real incomes
Among these policy prescriptions is financial liberalization in both the developed and the developing countries. Domestically it is achieved by weakening or removing controls on interest and credit and by diluting the differences between banks, insurance and finance companies. International financial liberation, on the other hand, demands removal of controls and regulations on both the inflows and outflows of financial instruments that move through foreign exchange markets. It is the implementation of these reforms that is perhaps the single most important cause of the surge in global financial flows. To be sure, the influence of technological advances has broken the natural barriers of space and time for financial markets as twenty-four hour electronic trading has grown. The fact that throughout most of the 1980s and 1990s the developed countries suffered from over-capacity and overproduction in manufacturing may also have led the owners of financial capital to look for alternative profit opportunities.
It now is time to ask whether the implementation of all these reforms, on balance, has produced good or bad results. The focus of this section will be mostly on the consequences of large and expanding international financial flows. After all, they are the main concern of this essay. But first, we should ask whether or not the policies of growth and rising real incomes promoted by the Washington Consensus have borne fruit.
Growth and income
There is little doubt that the introduction of the Washington Consensus' policy mix expanded the volume of international trade. As a result, trade in goods and services has grown at more than twice the rate of global gross domestic product (GDP), and developing countries' share of trade has risen from 23 to 29 percent. Increasing numbers of firms from developing countries, like their industrial-country counterparts, engage in transnational production and adopt a global perspective in structuring their operations. The flow of foreign direct investments and foreign portfolio investments has multiplied even more rapidly than trade, despite the financial instability experienced in Asia, Brazil, Russia, and elsewhere in recent years.
The effects of liberalization have not been uniformly favorable, however. After at least ten full years of experience with the Washington Consensus, several recent studies have begun to assess the consequences for developing countries of this experiment in more open markets.21 Except for the years of crisis in a number of the countries studied, most developing countries achieved moderate growth rates of gross domestic product in the 1990s - considerably higher than in the l980s in Africa and Latin America during the debt crisis, but remarkably unchanged in most other regions. Moreover, average annual growth in the 1990s was slightly lower than in the twenty-five years preceding the debt crisis when a strategy of substituting domestic production for imports was in fullest use. When population growth rates are taken into consideration, the growth rate of per capita income in the developing countries studied during the 1990s also was somewhat lower than in the 1960s and 1970s. Toward the end of the 1990s, growth tapered off in many countries due to emerging domestic financial crises or external events. There is little evidence in these figures, therefore, to suggest the strategy of liberalization boosted growth rates appreciably.
Nor did the distribution of income improve in most developing countries in the 1990s. On the contrary, virtually without exception the wage differentials between skilled and unskilled workers rose with liberalization. The reasons for this varied widely among countries, but one of the most important reasons was the fact that the number of relatively well-paid jobs in sectors of the economy involved with international trade, though growing, was insufficient to absorb available workers, forcing many workers into more precarious and poorly paid employment in the non-traded, informal trade, and service sectors or where traditional agriculture served as a sponge for the labor market. Between the mid-1960s and the late-1990s, the poorest 20 percent of the world population saw its share of income fall from 2.3 to 1.4 percent. Meanwhile, the share of the wealthiest quintile increased from 70 to 85 percent.22
Risk and reward
While all markets are imperfect and subject to failure, financial markets are more prone than others to fail because they are plagued with three particular shortcomings: asymmetric information, herd behavior and self-fulfilling panics. Asymmetric information is a problem whenever one party to an economic transaction has insufficient information to make rational and consistent decisions. In most financial markets where borrowing and lending take place, borrowers usually have better information about the potential returns and risks associated with the investments to be financed by the loans than do the lenders. This becomes especially true as financial transactions disperse across the globe, often between borrowers and lenders of widely different cultures.
Asymmetric information leads to adverse selection and moral hazard. Adverse selection occurs when, say, lenders have too little information to choose from among potential borrowers those who are most likely to use the loans wisely. The lenders' gullibility, therefore, attracts more unworthy borrowers. Moral hazard occurs when borrowers engage in excessively risky activities that were unanticipated by lenders and lead to significant losses for the lender. Yet another form of moral hazard occurs when lenders indulge in lending indiscriminately because they assume that the government or an international institution will bail them out if the loans go awry.
A good illustration of asymmetric information is the story of bank lending following OPEC's large increase in oil prices following 1973. Awash in cash, the oil exporters deposited large amounts in commercial banks that then perfected the Euro-currency loan for developing countries. Eager to put excess reserves to use, the banks spent little time discriminating among potential borrowers, in part because they believed host governments or international agencies would guarantee the loans. At the same time, developing countries found they could readily borrow not only to import oil, but also to increase other kinds of expenditures. This meant they could use borrowed funds to maintain domestic spending rather than be forced to adjust to the new realities of higher prices for necessary imports. There is considerable evidence that moral hazard also was present in the Mexican crises in 1982 and 1994, and in the Southeast Asian crises in 1997-8.
Yet another illustration of asymmetric information is the tendency of financial firms, especially on Wall Street and in the City of London, to invent ever more complex derivatives to shift risk around the financial system. The market for these products is growing rapidly, both on futures and options exchanges (two of the several places where derivatives are traded). A financial engineer, for example, can take the risk in, say, a bond and break it down into a series of smaller risks, such as that inflation will reduce its real value or that the borrower will default. These smaller risks can then be priced and sold, using derivatives, so that the bondholder keeps only those risks he wishes to bear. But this is not a simple task, particularly when it involves assets with risk exposures far into the future and which are traded so rarely that there is no good market benchmark for setting the price. Enron, for instance, sold a lot of these sorts of derivatives, booking profits on them immediately even though there was a serious doubt about their long-term profitability. Stories of huge losses incurred in derivative trading are legion. The real challenge before central banks and regulatory bodies is to curb speculative behavior and bring discipline in derivative markets.
A second source of risk in financial markets is the tendency of borrowers and lenders alike to engage in herd behavior. John Maynard Keynes, writing in the 1930s, suggested that financial markets are like "beauty contests." His analogy was to a game in the British Sunday newspapers that asked readers to rank pictures of women according to their guess about the average choice by other respondents. The winner, therefore, does not express his own preferences, but rather anticipates "what average opinion expects average opinion to be." Accordingly, Keynes thought that anyone who obtained information or signals that pointed to swings in average opinion and to how it would react to changing events had the basis for substantial gain. Objective information about economic data was not enough. Rather, simple slogans "like public expenditure is bad," "lower unemployment leads to inflation," "larger deficits lead to higher interest rates," were then the more likely sources of changes in public opinion. What mattered was that average opinion believed them to be true, and that advance knowledge of, say, more public spending, lower unemployment, or larger deficits, respectively, offered the speculator a special advantage.
A financial market that operates as a beauty contest is likely to be highly unstable and prone to severe changes. One reason for this is that people trading in financial assets, even today, know very little about them. People who hold stock know little about the companies that issued them. Investors in mutual funds know little about the stocks their funds are invested in. Bondholders know little about the companies or governments that issued the bonds. Even knowledgeable professionals are often more concerned with judging how swings in conventional opinion might change market values rather than with the long-term returns on investments. Indeed, since careful analysis of risks and rewards is costly and time consuming, it often makes sense for fund managers and traders to follow the herd. If they decide rationally not to follow the herd, their competence may be seriously questioned. On the other hand, if fund managers follow the herd and the herd suffers losses, few will question their competence because others too suffered losses. When financial markets are operated like a beauty contest, everyone wants to sell at the same time and nobody wants to buy.
The financial markets behaved as predicted shortly after several industrial countries, including the U.S. and Germany, abolished all restrictions on international capital movements in 1973. The new system proved to be highly volatile, with exchange rates, interest rates, and financial asset-prices subject to large short-term fluctuations. The markets also were susceptible to contagion when financial tremors spread from their epicenter to other countries and markets that seemingly had little connection with the initial problem. In less than five years, it already was clear that both the surpluses and the deficits on the major countries' balance of payments were getting larger, not smaller, despite significant changes in the exchange rates.
In some cases, a financial crisis can be self-fulfilling. A rumor can trigger a self-fulfilling speculative attack, e.g. on a currency, that may be baseless and far removed from the economic fundamentals (unlike the Soros story above). This can cause a sudden shift in the herd's intentions and lead to unanticipated market movements that create severe financial crises. Consider, for example, the succession of major financial crises that have pock-marked the recent history of international financial markets, including Latin America's Southern Cone crisis of 1979-81, the developing-country debt crisis of 1982, the Mexican crisis of 1994-95, the Asian crisis of 1997-98, the Russian crisis of 1998, the Brazilian crisis of 1999, and the Argentine crisis of 2001-02.
Perhaps the Asian crisis of 1997-98 is the most interesting in this regard, for there were relatively few signals beforehand of impending crisis. All the main East Asian economies displayed in 1994-96 low inflation, fiscal surpluses or balanced budgets, limited public debt, high savings and investment rates, substantial foreign exchange reserves and no signs of deterioration before the crisis. This background has led many analysts to suppose that the crisis was a mere product of the global financial system. But what could have triggered the herd to stampede out of Asian currencies? No doubt several factors were at work. Before the crisis that started in the summer of 1997, there was a rise in short-term lending to Asians by Western and Japanese banks with little or no premiums, a fact that the Bank for International Settlement raised questions about. Alert investors, especially hedge funds, also noticed that substantial portions of East and Southeast Asian borrowings were going into non-productive assets and real estate that often were linked to political connections. In fact, some of the funds pouring into non-productive assets were coming out of the productive sector, mortgaging the longer-term viability of some real economies. Information about the structure and policies of financial sectors was opaque. Thus, opinions began to change among key lenders about the regulation of financial sectors in several Asian countries and their destabilizing lack of transparency. Suddenly, several important hedge funds reduced their exposure by shorting currency futures, followed quickly by Western mutual funds. The calling of loans led quickly to deep depression in several Asian countries. It has been estimated that the Asian crisis and its global repercussions cut global output by $2 trillion in 1998-2000.
Loss of government autonomy
Both economic theory and the experience of managing the external financial affairs of nations tell us that it is virtually impossible to maintain (1) full financial mobility, (2) a fixed exchange rate, and (3) freedom to seek macro-economic balance (full employment with little inflation) with appropriate monetary and fiscal policies. Only two of these policy objectives can be consistently maintained. If the authorities try to pursue all three, they will sooner or later be punished by destabilizing financial flows, as in the run up to the Great Depression around 1930 and in the months before sterling's collapse 1992. If a government tries to stimulate its economy with lax monetary policy, for example, and players with significant market power like George Soros sense that at a fixed exchange rate, foreigners will be unwilling to lend enough to finance the country's current account deficit, they will begin to flee the home currency in order to avoid the capital losses they will suffer if and when there is a devaluation. If reserve losses accelerate and more players follow suit, crisis ensues. The authorities are forced to devalue, interest rates soar, and the successful attackers sit back to count their profits.
For nations wishing to retain reasonably independent monetary and fiscal authority in order to cater to domestic needs, the solution is to allow the exchange rate to move up or down as conditions in the foreign exchange markets dictate, or to establish some sort of control over the movement of financial instruments in and out of the country, or to devise some combination of these two adjustment mechanisms. The debate over whether fixed or flexible exchange rates is the wiser policy continues to rage in academic quarters and in finance ministries all over the world. For the most part, the international business community prefers reasonably fixed exchange rates in order to minimize their costs of hedging foreign currency positions. Thus instituting some form of control over speculative financial movements may be an appropriate solution to the "trilemma."
The capacity of a nation to levy enough taxes to finance needed public expenditures is another important reason to retain independent authority. A central function of government has been to insulate domestic groups from excessive market risks, particularly those originating in international transactions. This is the way governments have maintained domestic political support for liberalizing trade and finance throughout the postwar period. Yet many governments are less able today to help citizens that are injured by freer markets with unemployment compensation, severance payments, and adjustment assistance because the slightest hint of raising taxes to pay for these vital public services leads to capital flight in a world of heightened financial mobility.
This is a dilemma. Increased integration into the world economy has raised the need of governments to redistribute tax revenues or implement generous social programs in order to protect the vast majority of the population that remains internationally immobile. At the same time, governments find themselves less able to maintain the safety nets needed to preserve social stability. It seems reasonable to suppose, therefore, that doing things that will bolster the ability of governments to levy sufficient taxes - curbing tax avoidance by transnational corporations, controlling offshore tax havens, regulating capital flight - would help make globalization slightly more democratic.
Winners and losers
The people who benefit from speculative financial movements are, for the most part, better educated and wealthier than the vast majority of fellow citizens. They are the elites, whatever the country. As noted above, they have fewer connections to the real economy of production and exchange than most people. And their purpose in trading financial assets, again for the most part, is to make a profit quickly rather than wait for an investment project to mature.
People who do not participate directly in the buying and selling of short-term financial instruments are nonetheless influenced indirectly by the macroeconomic instability and contagion that often accompany interruptions in financial market flows. This is true for people both in developed and developing countries. In developed countries, the voracious appetite of financial markets for more and more resources saps the vitality of the real economy - the economy that most people depend upon for their livelihood. It has been shown that real interest rates rise as a result of the expansion of speculative financial markets. This rise in real interest rates, in turn, dampens real investment and economic growth while serving to concentrate wealth and political power within a growing worldwide rentier class (people who depend for their income on interest, dividends, and rents).23 Rather, the long-term health of the economy depends upon directing investable funds into productive investments rather than into speculation.
In developing countries, attracting global investors' attention is a mixed blessing. Capital market inflows provide important support for building infrastructure and harnessing natural and human resources. At the same time, surges in money market inflows may distort relative prices, exacerbate weakness in a nation's financial sector, and feed bubbles. As the 1997 Asian crisis attests, financial capital may just as easily flow out of as into a country. Unstable financial flows often lead to one of three kinds of crises:
- Fiscal crises. The government abruptly loses the ability to roll over foreign debts and attract new foreign loans, possibly forcing the government into rescheduling or default of its obligations.
- Exchange crises. Market participants abruptly shift their demands from domestic currency assets to foreign currency assets, depleting the foreign exchange reserves of the central bank in the context of a pegged exchange rate system.
- Banking crises. Commercial banks abruptly lose the ability to roll over market instruments (i.e., certificates-of-deposit) or meet a sudden withdrawal of funds from sight deposits, thereby making the banks illiquid and possibly insolvent.
Although these three types of crises sometimes appear singly, they more often arrive in combination because external shocks or changed market expectations are likely to occur simultaneously in the market for government bonds, the foreign exchange market, and the markets for bank assets. Approximately sixty developing countries have experienced extreme financial crises in the past decade.24
The vast majority of people in the developing world suffer from these convulsive changes. They are tired of adjusting to changes over which they exercise absolutely no control. Most people in these countries view Western capitalism as a private club, a discriminatory system that benefits only the West and the elites who live inside "the bell jars" of poor countries. Even as they consume the consumer goods of the West, they are quite aware that they still linger at the periphery of the capitalist game. They have no stake in it, and they believe that they suffer its consequences. As Hernando deSoto puts it, "Globalization should not be just about interconnecting the bell jars of the privileged few."25
Karl Polanyi in The Great Transformation sought to explain how the "liberal creed" contributed to the catastrophes of war and depression associated with the first half of the twentieth century. Polanyi's central argument, which in fact can be traced back to Adam Smith, is that markets do indeed promote efficiency and change, but that they achieve this through undermining social coherence and solidarity. Markets must therefore be embedded within social institutions that mitigate their negative consequences.
The evidence of more recent times suggests that the global spread of free-market policies has been accompanied by the decline of countervailing institutions of social solidarity. Indeed, a main feature of the introduction of market-friendly policies has been to weaken local institutions of social solidarity. Consider, for example, the top-down policy prescriptions of the IMF and World Bank during the developing world's debt crisis in the 1980s. These policies evolved into an intricate web of expected behaviors by developing countries. In order for developing countries to expect private businesses and financial interests to invest funds within their borders and to boost the growth potential of domestic economies, they needed to drop the "outdated and inefficient" policies that dominated development strategies for most of the postwar period and adopt in their place policies that are designed to encourage foreign trade and freer financial markets. Without significant adjustments in the ways economies were managed, it was suggested, nations soon would be left behind.
The list of Washington Consensus requirements was long and daunting:
- Make the private sector the primary engine of economic growth
- Maintain a low rate of inflation and price stability
- Shrink the size of the state bureaucracy
- Maintain as close to a balanced budget as possible, if not a surplus
- Eliminate or lower tariffs on imported goods
- Remove restrictions on foreign investment
- Get rid of quotas and domestic monopolies
- Increase exports
- Privatize state-owned industries and utilities
- Deregulate capital markets
- Make currency convertible
- Open industries, stock, and bond markets to direct foreign ownership
- Deregulate the economy to promote domestic competition
- Eliminate government corruption, subsidies and kickbacks
- Open the banking and telecommunications systems to private ownership and competition
- Allow citizens to choose from an array of competing pension options and foreign-run pension and mutual funds.
In a provocative article, Ute Pieper and Lance Taylor point out that market outcomes often conflict with other valuable social institutions. In addition, they emphasize that markets function effectively only when they are "embedded" in society. The authors then look carefully at the experience of a number of developing countries as they struggled to comply with the policy prescriptions of the IMF and the Fund. In almost every case, they demonstrate conclusively that the impact of these efforts was to make society an "adjunct to the market."26
An appropriate balance is not being struck between the economic and non-economic aspirations of human beings and their communities. Indeed, the evidence is mounting that globalization's trajectory can easily lead to social disintegration - to the splitting apart of nations along lines of economic status, mobility, region, or social norms. Globalization not only highlights and exacerbates tensions among groups; it also reduces the willingness of internationally mobile groups to cooperate with others in resolving disagreements and conflicts.
History confirms that free-markets are inherently volatile institutions, prone to speculative booms and busts. Overshooting, especially in financial markets, is their normal condition. To work well, free markets need not only regulation, but active management. During the first half of the post-war era, world markets were kept reasonably stable by national governments and by a regime of international cooperation. Only lately has a much earlier idea been revived and made an orthodoxy - the idea adopted by the Washington Consensus that, provided there are clear and well-enforced rules-of-the-game, free markets can be self-regulating because they embody the rational expectations that participants form about the future.
On the contrary, since markets are themselves shaped by human expectations, their behavior cannot be rationally predicted. The forces that drive markets are not mechanical processes of cause and effect, as assumed in most of economic theory. They are what George Soros has termed "reflexive interactions."27 Because markets are governed by highly combustible interactions among beliefs, they cannot be self-regulating.
The question before us then, is what could be done to better regulate financial markets and to bring active management back into the task of "embedding" markets in society, rather than the other way around? Monetary authorities such as the Federal Reserve System in the U.S. and the central banks of other countries were formed long ago in order to dampen the inherent instabilities of financial market in their home countries. But the evolution of an international regulatory framework has not kept pace with the globalization of financial markets. The International Monetary Fund was not designed to cope with the volume and instability of recent financial trends.
Given the problems outlined above about short-term speculative financial transactions, one might wonder why national policy-makers have not insulated their financial markets by imposing some sort of control over financial capital. The answer, of course, is that some have continued trying to do so despite discouragement from the IMF. For example, some have put limitations on the quantity, conditions, or destinations of financial flows. Others have tried to impose a tax on short-term borrowing by national firms from foreign banks. This is said to be "market-based" because it operates by altering the cost of foreign funds. If such transactions were absolutely prohibited, they would be called "non-market" interventions.
A more extreme form of financial capital controls, one that controls movement of foreign exchange across international borders, also has been tried in a number of countries. This form of control requires that some if not all foreign currency inflows be surrendered to the central bank or a government agency, often at a fixed price that differs from that which would be set in free market. The receiving agency then determines the uses of foreign exchange. The absence of exchange controls means that currencies are "convertible."
The neo-liberal argument opposing financial capital controls asserts that their removal will enhance economic efficiency and reduce corruption. It is based on two basic propositions in economic theory that depend for their proof on perfectly competitive markets in the real economy and perfectly efficient gatherers and transmitters of information in financial markets. Neither assumption is realistic in today's world. Indeed, a number of empirical studies have reported the effectiveness of capital controls in controlling capital flight, curbing volatile capital flows and protecting the domestic economy from negative external developments.
Developing countries have only recently abandoned, or still maintain, a variety of control regimes. Latin American countries traditionally have used market-based controls, putting taxes and surcharges on selected financial capital movements or tying them up in escrow accounts. Non-market based restrictions were more common in Asia until the early 1990s. Many commentators believe that their sudden removal in the early 1990s was a contributing cause to the Asian financial crises in 1997-8. The experience of two countries, Malaysia and Chile, with capital controls is especially instructive.
Malaysia, unlike its Asian neighbors, was reluctant to remove its restrictions on external borrowing by national firms unless they could show how they could earn enough foreign exchange to service their debts. Then when the Asian crises hit, its government imposed exchange controls, in effect making its local currency that was held outside the country inconvertible into foreign exchange. After the ringget was devalued, exporters were required to surrender foreign currency earnings to the central bank in exchange for local currency at the new pegged rate. The government also limited the amount of cash nationals could take abroad, and it prohibited the repatriation of earnings on foreign investments that had been held for less than one year. Thus, Malaysia's capital controls were focused mostly on controlling the outflow of short-term financial transactions. Happily, the authorities were able to stabilize the currency and reduce interest rates, leading to a degree of domestic recovery.28
Chile, on the other hand, tried to limit the inflow of short-term financial transactions. It did so by imposing a costly reserve requirement on foreign-owned capital held in the country for less than one year. Despite attempts to stimulate foreign direct investment of the funds, most of the reserve deposits were absorbed in the form of increased reserves at the central bank. In turn, this created a potential for expanding the money supply, which the government feared would lead to inflation. Rather than allow this to happen, the government "sterilized" the inflows by selling government bonds from its portfolio. But this pushed down the prices of bonds and pushed up the interest rates on them, discouraging business investment. Finally, when prices of copper (Chile's primary export) fell sharply in 1998, the control regime was scrapped.29
The tobin tax
A global tax on international currency movements was first proposed by James Tobin, a Yale University economist, in 1972.30 He suggested that a tax of one-quarter to one percent be levied on the value of all currency transactions that cross national borders. He reasoned that such a tax on all spot transactions would fall most heavily on transactions that involve very short round-trips across borders. In other words, it would be speculators with very short time-horizons that the tax would deter, rather than longer-term investors who can amortize the costs of the tax over many years. For example, the yearly cost of a 0.2 percent round trip tax would amount to 48 percent of the value of the traded amount if the round trip were daily, 10 percent if weekly and 2.4 percent if monthly. Since at least eighty percent of spot transactions in the foreign exchange markets are reversed in seven business days or less, the tax could have a profound effect on the costs of short-term speculators.
Of course, for those who believe in the efficiency of markets and the rationality of expectations, a transactions tax would only hinder market efficiency. They argue that speculative sales and purchases of foreign exchange are mostly the result of "wrong" national monetary and fiscal policies. While we readily admit that national policies sometimes do not accord with desired objectives, they nonetheless have little relevance for speculators focused on the next few seconds, minutes or hours.
Tobin did not intend for his proposal to involve a supranational taxation authority. Rather, governments would levy the tax nationally. In order to make the tax rate uniform across countries, however, an international agreement would have to be entered into by at least the principal financial centers. The revenue obtained from the tax could be designated for each country's foreign exchange reserve for use during periods of instability, or it could be directed into a common global fund for uses like aid to the poorest nations. In the latter case, the feasibility of the tax also would depend on an international political agreement. The revenue potential is sizeable, and could run as high as $500 billion annually.
There are two other advantages often cited by proponents of the Tobin tax. Tobin's original rationale for a foreign exchange transactions tax was to enhance policy autonomy in a world of high financial capital mobility. He argued that currency fluctuations often have very significant economic and political costs, especially for producers and consumers of traded goods. A Tobin tax, by breaking the condition that domestic interest rates may differ from foreign interest rates only to the extent that the exchange rate is expected to change (see p. 10), would allow authorities to pursue different policies than those prevailing abroad without exposing them to large exchange rate movements. More recent research suggests that this is only a very modest advantage.31
An additional advantage of the tax is that it could facilitate the monitoring of international financial flows. The world needs a centralized data-base on all kinds of financial flows. Neither the Bank for International Settlements nor the IMF has succeeded in providing enough information to monitor them all. This information should be regularly shared among countries and international institutions in order to collectively respond to emerging issues.
The feasibility issues raised by the Tobin tax are more political than technical. One of the issues is about the likelihood of evasion. All taxes suffer some evasion, but that has rarely been a reason for avoiding them. Ideally all jurisdictions should be a party to any agreement about a common transactions tax, since the temptation to trade through non-participating jurisdictions would be high. Failing that, one could levy a penalty on transactions with "Tobin tax havens" of, say, double the normal tax rate. Moreover, one could limit the problem of substituting untaxed assets for taxed assets by applying the tax to forwards, swaps and possibly other contracts.
Tobin and many others have assumed that the task of managing the tax should be assigned to the IMF. Others argue that the design of the tax is incompatible with the structure of the IMF and that the tax should be managed by a new supranational body. Which view will prevail depends upon the resolution of other outstanding issues. The Tobin tax is an idea that deserves careful consideration. It should not be dismissed as too idealistic or too impractical. It addresses with precision the problems of excessive instability in the foreign exchange markets, and it yields the additional advantage of providing a means to assist those in greater need.
Reforming the IMF
The IMF was established in 1944 to provide temporary financing for member governments to help them maintain pegged exchange rates during a period of internal adjustment. With the collapse of the pegged exchange rate regime in 1971, that responsibility has been eclipsed by its role as central arbiter of financial crises in developing countries. As noted above (p. 20), these crises may be of three different kinds: fiscal crises, foreign exchange crises, and banking crises.
Under current institutional arrangements, a nation suffering a serious fiscal crisis that could easily lead to default must seek temporary relief from its debts from three different (but interrelated) institutions: the IMF, which is sometimes willing to renegotiate loans in return for promises to adopt more stringent policies (see above); the so-called Paris Club that sometimes grants relief on bilateral (country to country) credits; and the London Club that sometimes gives relief on bank credits. This is an extremely cumbersome process that fails to provide debtor countries with standstill protection from creditors, with adequate working capital while debts are being renegotiated, or with ways to ensure an expeditious overall settlement. The existing process often takes several years to complete.
There is a growing consensus that this problem is best resolved with creation of a new international legal framework that provides for de facto sovereign bankruptcy. This could take the form of an International Bankruptcy Code with an international bankruptcy court, or it could involve a less formal functional equivalent to its mechanisms: automatic standstills, priority lending, and comprehensive reorganization plans supported by rules that do not require unanimous consent. Jeffrey Sachs recommends, for example, that the IMF issue a clear statement of operating principles covering all stages of a debtor's progression through "bankruptcy" to solvency. A new system of emergency priority lending from private capital markets could be developed, he suggests, under IMF supervision. He also feels that the IMF and member governments should develop model covenants for inclusion in future sovereign lending instruments that allow for priority lending and speedy renegotiation of debt claims.32
At the Joint Meeting of the IMF and the World Bank in September, 2002, the policy committee directed the IMF staff to develop by April, 2003, a "concrete proposal" for establishing an internationally recognized legal process for restructuring the debts of governments in default. It also endorsed efforts to include "collective action" clauses in future government bond issues to prevent one or two holdout creditors from blocking a debt-restructuring plan approved by a majority of creditors. The objective of both proposals is to resolve future debt crises quickly and before they threaten to destabilize large regions, as happened in Southeast Asia in 1997-98.
Member countries rarely receive support from the IMF any longer to maintain a particular nominal exchange rate. Because financial capital is so mobile now, pegged exchange rates probably are unsupportable. But there are special times when the IMF still might give such support during a foreign exchange crisis. International lending to support a given exchange rate is legitimate if the government is trying to establish confidence in a new national currency, or if its currency is recovering from a severe bout of hyperinflation. Ordinarily the foreign exchange should be provided from an international stabilization fund supervised by the IMF.
National central banks usually supervise and regulate the domestic banking sector. Thus, banking crises normally are handled by domestic institutions. This may not be possible, however, if the nation's banks hold large short-term liabilities denominated in foreign currencies. If the nation's central bank has insufficient reserves of foreign currencies to fund a large outflow of foreign currencies, there may be circumstances when the IMF or other lenders may wish to act as lenders-of-last-resort to a central bank under siege. Nations like Argentina that have engaged in "dollarization" are learning about the downside risks of holding large liabilities denominated in foreign currencies. The best way to avoid this problem is for governments and central banks to restrict the use of foreign currency deposits or other kinds of short-term foreign liabilities at domestic banks.
Overall, what is most needed is the availability of more capital in developing countries and much quicker responses, amply funded, to emerging financial crises.. George Soros has argued powerfully that the IMF needs to establish a better balance between crisis prevention and intervention.33 The IMF has made some progress in prevention by introducing Contingency Credit Lines (CCLs). The CCL rewards countries that follow sound policies by giving them access to IMF credit lines before rather than after a crisis erupts. But CCL terms were set too high and there have been no takers. Soros also has recommended the issuance of Special Drawing Rights (SDRs) that developed-countries would donate for the purpose of providing international assistance. Its proceeds would be used to finance "the provision of public goods on a global scale as well as to foster economic, social, and political progress in individual countries."34
A growing number of civil society institutions, however, oppose giving more money to the IMF unless it is basically reformed. They point out that it is a committed part of the Washington Consensus, the application of whose policies have made societies adjuncts of the market. They see the IMF as an instrument of the U.S. government and its corporate allies. The conditions it attaches to loans for troubled countries often do more to protect the interests of first world investors than to promote the long-term health of the developing countries. The needed chastening of speculative investors does not occur under these circumstances. There is evidence that in several major crises, IMF requirements for assisting nations have in fact worsened the situation and protracted the crises. The IMF opposed the policies that enabled Malaysia to weather the crisis in Southeast Asia, for example, while it urged the failed policies of other Southeast Asian nations. The vast literature cited by Pieper and Taylor (p. 22) is a convincing chronicle of earlier missteps. For such reasons as these, some civil society institutions argue that, unless IMF policies are changed, giving the institution more money will do more harm than good.
Fortunately, the IMF's policies are beginning to change, partly as a result of criticisms by civil society institutions, but more through recognition of the seriousness of the problems with the present system. In the wake of recent financial crises, leaders in the IMF as well as the World Bank are looking for ways to reform the international financial architecture. Arguably, their emphasis is shifting away from slavish devotion to the prescriptions of the Washington Consensus and toward more state intervention in financial markets. Joseph Stiglitz, the Nobel Laureate who has been particularly critical of the IMF, nonetheless acknowledges that its policy stances are improving.35
The IMF has begun to recognize the importance of at least functional public interventions in markets and the need to provide more supporting revenues. It has realized that controls on external financial movements and prudent regulation can help contain financial crises. It has abandoned the doctrine, long the backbone of structural adjustment policies, that raising the local interest rate will stimulate saving and thereby growth. Both the IMF and the World Bank have rolled over or forgiven the bulk of official debt owed by the poorest economies.
Whether these and other promising changes in IMF thinking and policy formation are sufficient to assure that its future responses to crises will be benign still is not clear. While celebrating what they view as belated improvements, many critics of the IMF among civil society institutions are not convinced that they are sufficiently basic. Even if the IMF avoids repeating some of its more egregious mistakes, some believe that it is likely to continue to function chiefly for the benefit of the international financial community rather than the masses of people. Rather, they believe that, at least in the long term, it would be much better for control over international finance to reside in new institutions under a restructured United Nations. They favor the U.N. because it has a broader mandate, is more open and democratic, and, in its practice, has given much greater weight to human, social, and environmental priorities.
Many civil society institutions want the primary focus of reform to be on taming speculation, restoring the control of their economies to nations, and embedding economies in the wider society. They believe that if these policies are adopted there will be less need for large funding to deal with financial crises. There remains, however, the fact that such crises are occurring and will continue to occur for some time. The IMF is the only institution positioned to respond to these crises. Hence, even for those who sympathize with the goals of the civil society institutions, there is a strong argument for more financing for the IMF.
A world financial authority
A variety of public and private citizens and institutions have recently proposed the establishment of a World Financial Authority (WFA) to perform in the domain of world financial markets what national regulators do in domestic markets. Some believe it should be built upon the foundation of global financial surveillance and regulation that have already been laid by the Bank for International Settlements in Basel, Switzerland. Others regard it as a natural extension of the activities of the IMF. Still others are less interested in the precise institutional form it would take than in the clear delineation of the tasks that need to be done by someone.
Its first task probably should be to provide sufficient and timely financial assistance during crises to avert contagion and defaults. This requires a lender-of-last-resort with sufficient resources and authority to disperse rescue money quickly. Perhaps the best example to date is the bailout loan to Mexico by the U.S. Treasury and the IMF at the end of 1994. It supplied sufficient liquidity for Mexico to make the transition back to stability and to pay back the loans ahead of time. The management of the Asian crises in 1997-8, on the other hand, was badly handled. The bailout packages offered by the IMF were not only significantly smaller than in the Mexico case; they also were constrained with so many conditions that a year later only twenty percent of the funds had been disbursed. This slow response to the crisis probably worsened the contagion. Surprisingly, the error was repeated in the Russian crisis in 1998 and the Brazilian crisis in 1999.
A World Financial Authority also should provide the necessary regulatory framework within which the IMF or a successor institution can develop as a lender-of-last-resort. As long as domestic regulatory procedures function properly, there will be no need for a world authority to be involved, any more than to certify that domestic regulatory procedures are effective. In countries where domestic financial regulation is unsatisfactory, the WFA would assist with regulatory reform. In this way, the WFA could aid financial reconstruction, reduce the likelihood of moral hazard, and give confidence to backers of the operation.
There is little appetite today, especially in Washington, to create a new international bureaucracy. This fact gives support to the idea of building the WFA from the existing infrastructure of the Bank for International Settlements (BIS). The BIS is a meeting place for national central bankers who have constructed an increasingly complicated set of norms, rules and decision-making procedures for handling and preventing future crises. Its committees and cooperative cross-border regulatory framework enjoy the confidence of governments and of the financial community. It may well be the best place to govern an international regulatory authority at the present time.
Theological and ethical considerations
While Christian theology cannot provide us with detailed recommendations on how to correct the adverse consequences of speculative financial movements, it can provide us with an empowering perspective or worldview. Our theological expressions of the faith describe the source of our spiritual energy and hope. They betray our ultimate values and the source of our ethical norms. They shape how we perceive and judge the "signs of the times."
God's world and human responsibilities
Nothing in creation is independent of God. "The earth is the Lord's and all that is in it, the world, and all those who live in it." (Ps. 24:1 NRSV) Thus, no part of the creation - whether human beings, other species, the elements of soil and water, even human-made things - is our property to use as we wish. All is to be treated in accord with the values and ground rules of a loving God, their ultimate owner, who is concerned for the good of the whole creation. All of God's creation therefore deserves to be treated with appropriate care and concern, no matter how remote from one's daily consciousness or existence.
The doctrine of creation reminds us that our ultimate allegiance is not to the nationalistic and human-centered values of our culture, but rather to the values of the loving Maker of heaven and earth. When we seek plenty obsessively, consume goods excessively, compete against others compulsively, or commit ourselves to Economic Fate, we are worshiping false gods. Modern idolatries are often encountered in economic forms, just as in the New Testament's warnings about the spiritual perils of prosperity in the parables of the rich, hoarding fool (Luke 12:15-21) and the rich youth (Matt. 19:16-24 and Luke 18:18-25).
The fact that so much of financial speculation is divorced from the real economy of production and exchange suggests that its paper transactions are more like bets in a casino than an essential component of God's real economy, which seeks the good of all creation. It is wrong to subject people to the effects of wholesale gambling. The fact that the practice of financial speculation is secretive, compulsively competitive, and frequented by lone rangers, moreover, hints at a cult of false idols. Its practitioners, including especially day-traders, seem interested only in exceedingly short-term personal financial advantage, unconcerned about the long-term consequences of their actions or their impact on others. This also indicates a degree of idolatry that contradicts the doctrine of creation.
Image of God
The conviction that human beings have a God-given dignity and worth (Gen. 1:26-28) unites humanity in a universal covenant of rights and responsibilities - the family of God. All humans are entitled to the essential conditions for expressing their human dignity and for participation in defining and shaping the common good. These rights include satisfaction of basic biophysical needs, environmental safety, full participation in political and economic life, and the assurance of fair treatment and equal protection of the laws. These rights define our responsibilities in justice to one another, locally, nationally and - because they are human rights - internationally.
Financial speculation often leads to unmanageable floods of funds into and out of host societies, creating unwanted bubbles and panics. Financial speculators normally ignore the human consequences of their activities on the rights of people in host societies, where economic adjustments are shared widely and painfully. Their primary interest is short-term personal financial gain. The absence of a sense of covenantal unity with their brothers and sisters of the developing world is a sad commentary on the governing ethic of speculators in the capital markets. Their arrogance calls for some form of control over foreign exchange and financial capital markets.
Justice in covenant
The rights and responsibilities associated with the image of God are inextricably tied to the stress on justice in Scripture and tradition. We render to others their due because of our loving respect for their God-given dignity and value. The God portrayed in Scripture is the "lover of justice" (Ps. 99:4, 33:5, 37:28, 11:7; Isa. 30:18, 61:8; Jer. 9:24). Justice is at the ethical core of the biblical message. Faithfulness to covenant relationships, moreover, demands a justice that recognizes special obligations, "a preferential option" to widows, orphans, the poor, and aliens, which is to say the economically vulnerable and politically oppressed. Hence, the idea of the Jubilee Year (Lev. 25) was meant to prevent unjust concentrations of power and poverty. Jesus' ministry embodies concern for the rights and needs of the poor; He befriended and defended the dispossessed and the outcasts.
The fact that the liberalization of trade and finance has failed to improve the distribution of incomes, indeed, that it has widened the gap between rich and poor in virtually every country, is not a sign of distributive justice but of its opposite. The standard of living for the least skilled, least mobile, and poorest citizens of many developing countries has declined absolutely. This, too, is an unjust result of a broken system. The fact that governments that wish to assist the vulnerable and weak of their societies are less able to do so, in part because they no longer can levy sufficient taxes on foreign interests, is a violation of justice in community.
Sin and judgment
Sin is a declaration of autonomy from God, a rebellion against the sovereign source of our being. It makes the self and its values the center of one's existence, in defiance of God's care for all. Sin tempts us to value things over people, measuring our worth by the size of our wealth and the quantity of goods we consume, rather than by the quality of our relationships with God and with others. Sin involves injustice because its self-centeredness defies God's covenant of justice, grasping more than one's due and depriving others of their due.
Sin is manifested not only in individuals, but also in social institutions and cultural patterns. These structural injustices are culturally acceptable ways of giving some individuals and groups of people advantage over others. Because they are pervasive and generally invisible, they compel our participation. They benefit some and harm many others. Whether or not we deserve blame as individuals and churches for these social sins depends in part on whether we defend or resist them, tolerate or reject them.
The fact that the freeing of financial markets has permitted financial speculators to engage in high-risk gambles without regard to the consequences for others is abundant evidence of both individual and institutional sin. The policies of the Washington Consensus frequently lead to adverse consequences for the poor and the environment, even as its proponents gain advantages from the implementation of such policies. They are another serious expression of social sin in our time. These policies inevitably increase the concentration of economic power in fewer hands. The fact that the global spread of free-market policies has led to the decline of countervailing institutions of
social solidarity means that it is easier for the centers of economic power to corrupt governments, control markets, alienate neighbors, manipulate public opinion, and contribute to a sense of political impotency in the public.
The Church's mission and hope
The church is called to be an effective expression of the Reign of God, which Jesus embodied and proclaimed. This ultimate hope is a judgment on our deficiencies
and a challenge to faithful service. God's goal of a just and reconciled world is not simply our final destiny but an agenda for our earthly responsibilities. We are called to be a sign of the Reign of God, on earth as it is in heaven, to reflect the coming consummation of God's new covenant of shalom to the fullest extent possible.
A new financial architecture
In her path-breaking book, Casino Capitalism,36 Susan Strange likens the Western financial system to a vast casino. As in a casino,
"the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done - the foreign-exchange market and all its variations; or in bonds, government securities or shares. In all these markets you may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial inventions. Some of the players - banks especially - play with very large stakes. There are also many quite small operators. There are tipsters, too, selling advice, and peddlers of systems to the gullible. And the croupiers in this global finance casino are the big bankers and brokers. They play, as it were, "for the house.' It is they, in the long run, who make the best living."
She goes on to observe that the big difference between ordinary kinds of gambling and speculation in financial markets is that one can choose not to gamble at roulette or poker, whereas everyone is affected by "casino capitalism." What goes on in the back offices of banks and hedge funds "is apt to have sudden, unpredictable and unavoidable consequences for individual lives."
It is this volatility, this instability in financial markets that has given rise to recurring financial crises. They must be tamed. In the wake of recent financial crises, people are beginning to look for ways to reform the international financial architecture. Although it is difficult to move from general theological convictions to specific proposals, we offer the following suggestions for consideration by Christians and other persons of good will.
- Capital controls should be an integral part of national strategies to tame the financial system. They can be made an effective and meaningful tool to protect and insulate the domestic economy from volatile capital flows and other negative external developments.
- Regulatory and supervisory measures should supplement capital controls when appropriate. They should include regulation of financial derivatives and hedge funds. Regulation is a necessary complement to domestic capital controls. Nations influenced by hedge funds and their complex financial instruments should seek international cooperation, including the governments of host countries, to regulate their practices.
- A new international legal framework should be created, which provides for de facto sovereign bankruptcy. The existing international system for dealing with insolvent governments is woefully inadequate. Provision must be made for automatic standstills, priority lending, and planned reorganizations.
- An international transactions tax (like the Tobin tax) should be designed and implemented to discourage short-term speculative capital movements. It is neither "too idealistic" nor "too impractical." It would reduce short-term trading and strengthen the defensibility of the exchange rate regime.
- International cooperation should be sought to curb dubious activities of offshore financial centers. Strict international regulation and supervision of offshore centers is essential to curb tax and regulatory evasions. They also are a primary conduit for money laundering and various criminal activities.
- The IMF's responsibilities as a lender-of-last-resort should be enhanced, expanding its authority and resources to make possible quick action to avert financial crises. The IMF must have effective and swift mechanisms to increase the Fund's access to official monies in times of crisis, including authority to borrow directly from financial markets under those circumstances.
- A World Financial Authority based on the cross-border regulatory framework of the Bank for International Settlements should be developed. It should provide the necessary regulatory framework within which the IMF or a successor organization can develop as a lender-of-last-resort.
Of these recommendations, perhaps the most controversial is that more funds be given to the IMF. We noted above that much of the criticism of the IMF is justified. We also acknowledged that the IMF is improving its policies. We hope that these improvements will continue. Meanwhile, there is no other viable candidate to serve as lender-of-last-resort - an absolutely essential feature of any new financial architecture.
The major reason some civil society institutions resist funding the IMF further is its history of misguided structural adjustment policies, policies that are now widely recognized to have caused widespread suffering. We hope that recent changes will improve this situation as well and enable the IMF to perform the important role we recommend for it.
Along with the World Bank, it is beginning to contextualize its performance criteria and conditionalities, taking much more seriously the unique circumstances of particular economies. It is listening more and nitpicking less. To be sure, the IMF is not likely to abandon its policy of making its loans conditional on the adoption by borrowing countries of mutually agreed economic policies. Even so, there is considerable evidence that when it has had more resources on hand, conditionality has been correspondingly wiser and less draconian.
The IMF now recognizes that it can leave more decisions to developing countries partly because these have better informed and more sophisticated employees than was once the case. Certainly in Latin America and Asia and increasingly in Africa, country economic teams are better qualified technically than the lower rung Ph.D.s from American and European universities to whom the IMF and World Bank entrust their missions. Local economists can do financial programming and standard macroeconomic modeling as well as or better than the people from Washington can; they also know how to do investment project analysis. To be sure, decisions about financial and project plans must include input from many other elements of a society.
We can encourage the IMF (and World Bank) to reverse the typical procedure in setting conditions for multilateral loans. Instead of waiting for it to specify the policies that must be followed to justify additional financing, country economic teams, in consultation with other agencies of their government, should be allowed to propose economic programs to the IMF. Disagreements between Washington staff assessments and the local teams could be resolved directly or by third-party arbitration. The scope of economic conditionality could also be restricted, for example, just to a balance-of-payments target, while the country could pursue its own agenda regarding inflation, income distribution, and growth.
What Christians can do
A primary part of the "principalities and powers" referred to in the Bible is composed of the political-economic institutions and processes that govern how people relate economically to each other and to God's whole creation. The church has a stake in their design. Yet many church members feel powerless to change basic political-economic reality. They think either that the economic conditions of society result "naturally" from the forces of markets that are only marginally within the power of human control, or that economic conditions result from powerful interests that are beyond the reach of ordinary citizens. Thus, there's nothing that can be done about it, or there's nothing we can do about it.
On the contrary, Mobilization for the Human Family believes that the political economy is shaped by deliberate social policy decisions; that conditions at any given time are the result of those decisions; that conditions can be changed by human decisions; and that the will of a nation's and the world's citizens about what the commitments and purposes of the nation and the world should be can be expressed in the political economy through the framework of democratic process provided in our national and transnational polity. Accordingly, we offer below some suggestions for action that may be taken by individual Christians and by our churches and their denominations to correct some correctable flaws of financial globalization.
Actions by individual Christian
- Pray for persons working in governments, international organizations, institutions, and non-governmental organizations who are trying to work toward a better world, including especially a world financial architecture that better assures fairness in capital markets.
- In the management of personal and family investments, seek fuller understanding of the uses to which the banks, companies, mutual funds, and investment counselors are putting your money. Avoid speculative investments that are likely to be made without regard to their consequences for others.
- Reflect upon decisions about work and career choices that are consistent with a Christ-like commitment to economic justice for all.
- Organize Bible study in your local congregation, where possible together with people of other backgrounds and life-styles, to learn and identify with God's continuing struggle to seek economic justice in the world.
- Commit oneself to some voluntary organization that is trying to promote greater economic justice in the local and/or global economy.
- Become involved politically in your area or nation, seeking political and economic change in the direction of economic justice.
Actions by churches and denominations
- Concern for economic justice must be fully reflected in the prayer life, worship, and educational programs and mission outreach of all congregations.
- Seek assistance from members who work for banks, brokerage houses, and mutual funds to help mould an educational program that will assist members of the congregation to become more socially responsible investors.
- Seek collaborative programs among clusters of congregations, perhaps with the aid of local Councils of Churches, to provide educational opportunities where Christians and other faith groups can come to understand some of the complex economic issues amidst which they live and work. Since virtually nothing is now available to explain the problems of financial speculation, this paper could be used to assist study of this phenomenon.
- Over and beyond educational programs, local churches - again perhaps best working together in the same neighborhood or town - can enter into a deliberate dialogue or partnership with one or more voluntary bodies in the civic society, so as to put their energies into the health of the wider society. Engagement with the International Forum on Globalization (l009 General Kennedy Avenue #2, San Francisco, CA 94129) is a good way to explore the means of influencing the debate on the globalization of trade and finance.
- At the denominational level, churches should review their investment criteria to reassure themselves that social responsibility is a primary goal of their financial management.
- Also at the denominational level, agencies responsible for the formation of social witness policies need to monitor global economic indicators on a continuing basis in order to assist its programmatic agencies to form effective and timely social witness regarding the local and national consequences of the globalization of trade and finance.
Want to know more?
Globalization is a vast topic. For a general introduction, see Sarah Anderson and John Cavanagh, Field Guide to the Global Economy (New York: New Press, 2000) and Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Farrar Straus Giroux, 1999). A classic introduction to the financial side of globalization is Susan Strange, Casino Capitalism, (New York: Mnchester University Press, 1986). See also Kavaljit Singh, The Globalisation of Finance: A Citizen's Guide (London: Zed Books, 1999) and John Eatwell and Lance Taylor, Global Finance at Risk: The Case for International Regulation (New York: The New Press, 2000). The best introduction to the Tobin Tax is Mahbub ul Haq et al (eds), The Tobin Tax: Coping with Financial Volatility (New York: Oxford University Press, 1996). For how church people might react, see Pamela Brubaker, Globalization at What Price? (Cleveland: Pilgrim Press, 2001).
Questions For Discussion
- How have the linkages and interconnections of international finance impacted your life? On balance, do you regard them as advantages or disadvantages for a healthy Christian life?
- The frequency and severity of recent financial crises have fueled calls for a radical redesign of the rules of global finance. If you were the advisor to an international commission asked to design "A New International Financial Architecture," what would you recommend?
- Do you favor allowing sovereign nations to declare bankruptcy? What Christian traditions might be invoked to support or deny such an action?
- A growing number of civil society institutions oppose giving more money to the IMF. They point out that it is part of the Washington Consensus, the application of whose policies have made societies adjuncts of the market. Yet this paper suggests that the IMF needs more money. As a committed Christian, which view do you favor?
- Is it too late to expect justice in a globalizing world? Since much of the direction the global economy has taken is irreversible, how can a balance between market and society be negotiated? How might Christians play a role in those negotiations?
Dec 01, 1998 | Prospect Magazine
The dominant image of the financial markets is that of a giant casino. Brash young men in red braces, driven by insatiable greed, gamble with huge sums every day. When the bets go wrong the innocent suffer. Reckless financial markets pose an immediate threat to the future prosperity of humanity.
Susan Strange, who died just after the publication of her latest book, was one of the most compelling academic advocates of the view that the global casino is out of control. Although she is not a household name, she played an important role in developing the intellectual framework to support the casino thesis. Her Casino Capitalism (1986) is a Keynesian account of the damage inflicted on the world as a result of financial deregulation which was taken up by many better known writers such as William Greider in the US and Will Hutton in Britain.
With the onset of the Asian financial crisis Strange's account of financial markets has become almost mainstream. Her ideas inform many of the discussions about a "new international financial architecture." Economists who would once have scorned her views now agree with her that deregulation has gone too far and that new forms of regulation are needed. The British government has floated the idea of a world financial authority to regulate global finance.
The IMF, once a bastion of free market economics, has conceded that capital controls may be necessary under some circumstances.
Mad Money, the sequel to Casino Capitalism, takes into account the impact of information technology and the rise of financial crime. It also places new emphasis on the role of international institutions. For example, she backs George Soros's plan for an international credit insurance corporation as a complement to the IMF.
... ... ...
Inside Casino Capitalism Barbarians at the Gate: The Fall of RJR Nabisco
By Bryan Burrough and John Helyar
Harper & Row. 528 pp. $22.95
In 1898, Adolphus Green, chairman of the National Biscuit Company, found himself faced with the task of choosing a trademark for his newly formed baking concern. Green was a progressive businessman. He refused to employ child labor, even though it was then a common practice, and he offered his bakery employees the option to buy stock at a discount. Green therefore thought that his trademark should symbolize Nabisco's fundamental business values, "not merely to make dividends for the stockholders of his company, but to enhance the general prosperity and the moral sentiment of the United States." Eventually he decided that a cross with two bars and an oval – a medieval symbol representing the triumph of the moral and spiritual over the base and material – should grace the package of every Nabisco product.
If they had wracked their brains for months, Bryan Burrough and John Helyar could not have come up with a more ironic metaphor for their book. The fall of Nabisco, and its corporate partner R.J. Reynolds, is nothing less than the exact opposite of Green's business credo, a compelling tale of corporate and Wall Street greed featuring RJR Nabisco officers who first steal shareholders blind and then justify their epic displays of avarice by claiming to maximize shareholder value.
The event which made the RJR Nabisco story worth telling was the 1988 leveraged buyout (LBO) of the mammoth tobacco and food conglomerate, then the 19th-largest industrial corporation in America. Battles for corporate control were common during the loosely regulated 1980s, and the LBO was just one method for capturing the equity of a corporation. (In a typical LBO, a small group of top management and investment bankers put 10 percent down and finance the rest of their purchase through high-interest loans or bonds. If the leveraged, privately-owned corporation survives, the investors, which they can re-sell public shares, reach the so-called "pot of gold"; but if the corporation cannot service its debt, everything is at risk, because the collateral is the corporation itself.
The sheer size of RJR Nabisco and the furious bidding war that erupted guaranteed unusual public scrutiny of this particular piece of financial engineering. F. Ross Johnson, the conglomerate's flamboyant, free-spending CEO (RJR had its own corporate airline), put his own company into play with a $75-a-share bid in October. Experienced buyout artists on Wall Street, however, immediately realized that Johnson was trying to play two incompatible games. LBOs typically put corporations such as RJR Nabisco through a ringer in order to pay the mammoth debt incurred after a buyout. But Johnson, desiring to keep corporate perquisites intact, "low-balled" his offer. Other buyout investors stepped forward with competing bids, and after a six-week-long auction the buyout boutique of Kohlberg, Kravis, Roberts & Company (KKR) emerged on top with a $109-a-share bid. The $25-billion buyout took its place as one of the defining business events of the 1980s
Burrough and Helyar, who covered the story for The Wall Street Journal, supply a breezy, colorful, blow-by-blow account of the "deal from hell" (as one businessman characterized a leveraged buyout). The language of Wall Street, full of incongruous "Rambo" jargon from the Vietnam War, is itself arresting. Buyout artists, who presumably never came within 10,000 miles of wartime Saigon, talk about "napalming" corporate perquisites or liken their strategy to "charging through the rice paddies, not stopping for anything and taking no prisoners."
At the time, F. Ross Johnson was widely pilloried in the press as the embodiment of excess; his conflict of interest was obvious. Yet Burrough and Helyar show that Johnson, for all his free-spending ways, was way over his head in the major leagues of greed, otherwise known as Wall Street in the 1980s. What, after all, is more rapacious: the roughly $100 million Johnson stood to gain if his deal worked out over five years, or the $45 million in expenses KKR demanded for waiting 60 minutes while Ross Johnson prepared a final competing bid?
Barbarians is, in the parlance of the publishing world, a good read. At the same time, unfortunately, a disclaimer issued by the authors proves only too true. Anyone looking for a definitive judgment of LBOs will be disappointed. Burrough and Helyar do at least ask the pertinent question: What does all this activity have to do with building and sustaining a business? But authors should not only pose questions; they should answer them, or at least try.
Admittedly, the single most important answer to the RJR puzzle could not be provided by Burrough and Helyar because it is not yet known. The major test of any financial engineering is its effect on the long-term vitality of the leveraged corporation, as measured by such key indicators as market share (and not just whether the corporation survives its debt, as the authors imply). However, a highly-leveraged RJR Nabisco is already selling off numerous profitable parts of its business because they are no longer a "strategic fit": Wall Street code signifying a need for cash in order to service debts and avoid bankruptcy.
If the authors were unable to predict the ultimate outcome, they still had a rare opportunity to explain how and why an LBO is engineered. Unfortunately, their fixation on re-creating events and dialogue – which admittedly produces a fast-moving book – forced them to accept the issues as defined by the participants themselves. There is no other way to explain the book's uncritical stance. When, for example, the RJR Nabisco board of directors tried to decide which bid to accept, Burrough and Helyar report that several directors sided with KKR's offer because the LBO boutique "knew the value of keeping [employees] happy." It is impossible to tell from the book whether the directors knew this to be true or took KKR's word. Even a cursory investigation would have revealed that KKR is notorious for showing no concern for employees below senior management after a leveraged buyout.
The triumph of gossip over substance is manifest in many other ways. Wall Street's deft manipulation of the business press is barely touched upon, and the laissez-faire environment procured by buyout artists via their political contributions is scarcely mentioned, crucial though it is. Nowhere are the authors' priorities more obvious than in the number of words devoted to Henry Kravis's conspicuous consumption compared to those devoted to the details of the RJR deal. In testimony before Congress last year, no less an authority than Treasury Secretary Nicholas Brady – himself an old Wall Street hand – noted that the substitution of tax-deductible debt for taxable income is "the mill in which the grist of takeover premiums is ground."
In the case of RJR Nabisco, 81 percent of the $9.9 billion premium paid to shareholders was derived from tax breaks achievable after the buyout. This singularly important fact cannot be found in the book, however; nor will a reader learn that after the buyout the U.S. Treasury was obligated to refund RJR as much as $1 billion because of its post-buyout debt burden. In Barbarians, more time is spent describing Kravis's ostentatious gifts to his fashion-designer wife than to the tax considerations that make or break these deals.
Fulminations about the socially corrosive effects of greed aside, the buyout phenomenon may represent one of the biggest changes in the way American business is conducted since the rise of the public corporation, nothing less than a transformation of managerial into financial capitalism. The ferocious market for corporate control that emerged during the 1980s has few parallels in business history, but there are two: the trusts that formed early in this century and the conglomerate mania that swept corporate America during the 1960s. Both waves resulted in large social and economic costs, and there is little assurance that the corporate infatuation with debt will not exact a similarly heavy toll.
As the economist Henry Kaufman has written, the high levels of debt associated with buyouts and other forms of corporate restructuring create fragility in business structures and vulnerability to economic cycles. Inexorably, the shift away from equity invites the close, even intrusive involvement of institutional investors (banks, pension funds, and insurance companies) that provide the financing. Superficially, this moves America closer to the system that prevails in Germany and Japan, where historically the relationship between the suppliers and users of capital is close. But Germany and Japan incur higher levels of debt for expansion and investment, whereas equivalent American indebtedness is linked to the recent market for corporate control. That creates a brittle structure, one that threatens to turn the U.S. government into something of an ultimate guarantor if and when things do fall about. It is too easy to construct a scenario in which corporate indebtedness forces the federal government into the business of business. The savings-and-loan bailout is a painfully obvious harbinger of such a development.
The many ramifications of the buyout mania deserve thoughtful treatment. Basic issues of corporate governance and accountability ought to be openly debated and resolved if the American economy is to deliver the maximum benefit to society and not just unconscionable rewards to a handful of bankers, all out of proportion to their social productivity. It is disappointing, but a sign of the times, that the best book about the deal of deals fails to educate as well as it entertains.
Sep 14, 2015 | The Guardian
The waning clout stems from the lobby siding with the revanchist Israeli Prime Minister Binyamin Netanyahu, whose Iran strategy since the 2012 US presidential campaign has been to unabashedly side with Republican hawks. AIPAC's alignment with the position effectively caused the group to marginalize itself; the GOP is now the only place where AIPAC can today find lockstep support. The tens of millions AIPAC spent lobbying against the deal were unable to obscure this dynamic.
We may not look back at this as a sea change – some Senate Democrats who held firm against opposition to the deal are working with AIPAC to pass subsequent legislation that contains poison pills designed to kill it – but rather as a rising tide eroding the once sturdy bipartisan pro-Israeli government consensus on Capitol Hill. Some relationships have been frayed; previously stalwart allies of the Israel's interests, such as Vice President Joe Biden, have reportedly said the Iran deal fight soured them on AIPAC.
Even with the boundaries of its abilities on display, however, AIPAC will continue its efforts. "We urge those who have blocked a vote today to reconsider," the group said in a spin-heavy statement casting a pretty objective defeat as victory with the headline, "Bipartisan Senate Majority Rejects Iran Nuclear Deal." The group's allies in the Senate Republican Party have already promised to rehash the procedural vote next week, and its lobbyists are still rallying for support in the House. But the Senate's refusal to halt US support for the deal means that Senate Democrats are unlikely to reconsider, especially after witnessing Thursday's Republican hijinx in the House. These ploys look like little more than efforts to embarrass Obama into needing to cast a veto.
If Republicans' rhetoric leading up to to their flop in the Senate – Senator Lindsey Graham of South Carolina took to the floor during the debate and pulled out an old trick from the run-up to the Iraq war: blaming Iran for 9/11 and saying a failure to act would result in a worse attack – is any indication, even Democrats like the pro-Israel hawk Chuck Schumer will find it untenable to sidle up to AIPAC and the Republicans.
Opponents of the deal want to say the Democrats played politics instead of evaluating the deal honestly. That charge is ironic, to say the least, since most experts agree the nuclear deal is sound and the best agreement diplomacy could achieve. But there were politics at play: rather than siding with Obama, Congressional Democrats lined up against the Republican/Netanyahu alliance. The adamance of AIPAC ended up working against its stated interests.
Groups like AIPAC will go on touting their bipartisan bona fides without considering that their adoption of Netanyahu's own partisanship doomed them to a partisan result. Meanwhile, the ensuing fight, which will no doubt bring more of the legislative chaos we saw this week, won't be a cakewalk, so to speak, but will put the lie to AIPAC's claims it has a bipartisan consensus behind it. Despite their best efforts, Obama won't be the one embarrassed by the scrambling on the horizon.TiredOldDog 13 Sep 2015 21:47
a foreign country whose still hell bent on committing war crimes
I guess this may mean Israel. If it does, how about we compare Assad's Syria, Iran and Israel. How many war crimes per day in the last 4 years and, maybe, some forecasts. Otherwise it's the usual gratuitous use of bad words at Israel. It has a purpose. To denigrate and dehumanize Israel or, at least, Zionism.
ID7612455 13 Sep 2015 18:04
The problem with the right in the USA is that they offer no alternatives, nothing, nada and zilch they have become the opposition party of opposition. They rely on talking point memes and fear, and it has become the party of extremism and simplicity offering low hanging fruit and red meat this was on perfect display at their anti Iran deal rally, palin, trump, beck and phil robinson who commands ducks apparently.
winemaster2 13 Sep 2015 17:01
Put a Brush Mustache on the control freak, greed creed, Nentanhayu the SOB not only looks like but has the same mentality as Hitler and his Nazism crap.
Martin Hutton -> mantishrimp 12 Sep 2015 23:50
I wondered when someone was going to bring up that "forgotten" fact. Is it any wonder the Iranians don't trust the US. After the US's spying exploits during the Iraqi WMD inspections, why are you surprised that Iran asks for 24 days notice of inspection (enough time to clear out conventional weapons development but not enough to remove evidence of nuclear weapons development).
mantishrimp 12 Sep 2015 20:51
Most Americans don't know the CIA overthrew the Iranian government in 1953 and installed the Shaw. Most Republicans know that most Americans will believe what Fox news tells them. Republicans live in an alternate universe where there is no climate change, mammon is worshiped and wisdom is rejected hatred is accepted negotiation is replaced by perpetual warfare. Now most Americans are tired of stupid leadership and the Republicans are in big trouble.
ByThePeople -> Sieggy 12 Sep 2015 20:27
Is pitiful how for months and months, certain individuals blathered on and on and on when it was fairly clear from the get go that this was a done deal and no one was about cater to the war criminal. I suppose it was good for them, sucking every last dime they could out of the AICPA & Co. while they acted like there was 'a chance'. Nope, only chance is that at the end of the day, a politician is a politician and he'll suck you dry as long as you let 'em.
What a pleasure it is to see the United States Congress finally not pimp themselves out completely to a foreign country whose still hell bent on committing war crimes. A once off I suppose, but it's one small step for Americans.
ByThePeople 12 Sep 2015 20:15
AIPAC - Eventually everything is seen for what is truly is.
ambushinthenight -> Greg Zeglen 12 Sep 2015 18:18
Seems that it makes a lot of sense to most everyone else in the world, it is now at the point where it really makes no difference whether the U.S. ratifies the deal or not. Israel is opposed because they wish to maintain their nuclear weapons monopoly in the region. Politicians here object for one of two reasons. They are Israeli first and foremost not American or for political expediency and a chance to try undo another of this President's achievements. Been a futile effort so far I'd say.
hello1678 -> BrianGriffin 12 Sep 2015 16:42
With the threat you describe from Israel it seems only sensible for Iran to develop nuclear weapons - if my was country (Scotland) was in Iran's place and what you said is true i would only support politicians who promised fast and large scale production of atomic weapons to counter the clear threat to my nation.
nardone -> Bruce Bahmani 12 Sep 2015 14:12
Netanyahu loves to play the victim, but he is the primary cause that Jews worldwide, but especially in the United States, are rethinking the idea of "Israel." I know very few people who willingly identify with a strident right wing government comprised of rabid nationalists, religious fundamentalists, and a violent, almost apocalyptic settler community.
The Israeli electorate has indicated which path it wishes to travel, but that does not obligate Jews throughout the world to support a government whose policies they find odious.
Greg Zeglen -> Glenn Gang 12 Sep 2015 13:51
good point which is found almost nowhere else...it is still necessary to understand that the whole line of diplomacy regarding the west on the part of Iran has been for generations one of deceit...and people are intensely jealous of what they hold dear - especially safety and liberty with in their country....
EarthyByNature -> Bruce Bahmani 12 Sep 2015 13:45
I do trust your on salary with a decent benefits package with the Israeli government or one of it's slavish US lobbyists. Let's face it, got to be hard work pouring out such hateful drivel.
BrianGriffin -> imipak 12 Sep 2015 12:53
The USA took about six years to build a bomb from scratch. The UK took almost six years to build a bomb. Russia was able to build a bomb in only four years (1945-1949). France took four years to build a bomb. https://en.wikipedia.org/wiki/France_and_weapons_of_mass_destruction
The Chinese only took four years. http://www.china.org.cn/english/congress/228244.htm
steelhead 12 Sep 2015 12:48
As part of this deal the US and allies should guarantee Iran protection against Israeli aggression. Otherwise, considering Israel's threats, Iran is well justified in seeking a nuclear deterrent.
BrianGriffin -> HauptmannGurski 12 Sep 2015 12:35
"Europe needs business desperately."
Sieggy 12 Sep 2015 12:32
In other words, once again, Obama out-played and out-thought both the GOP and AIPAC. He was playing multidimensional chess while they were playing checkers. The democrats kept their party discipline while the republicans ran around like a schoolyard full of sugared-up children. This is what happens when you have grownups competing with adolescents. The republican party, to put it very bluntly, can't get it together long enough to whistle 'Yankee Doodle Dandy' in unison.
They lost. Again. And worse than being losers, they're sore, whining, sniveling, blubbering losers. Even when they've been spanked - hard - they swear it's not over and they're gonna get even, just you wait and see! Get over it. They lost - badly - and the simple fact that their party is coming apart at the seams before our very eyes means they're going to be losing a lot more, too.
AIPAC's defeat shows that their grip on the testicles of congress has been broken. All the way around, a glorious victory for Obama, and an ignominious defeat for the republicans. And most especially, Israel. Their primary goal was to keep Iran isolated and economically weak. They knew full well that the Iranians hadn't had a nuclear program since 2003, but Netanhayu needed an existential threat to Israel in order to justify his grip on power. All of this charade has bee at the instigation of and directed by Israel. And they lost They were beaten by that hated schwartze and the liberals that Israel normally counts on for unthinking support.
Their worst loss, however, was losing the support of the American jews. Older, orthodox jews are Israel-firsters. The younger, less observant jews are Americans first. Netanhayu's behavior has driven a wedge between the US and Israel that is only going to deepen over time. And on top of that, Iran is re-entering the community of nations, and soon their economy will dominate the region. Bibi overplayed his hand very, very stupidly, and the real price that Israel will pay for his bungling will unfold over the next few decades.
BrianGriffin -> TiredOldDog 12 Sep 2015 12:18
"The Constitution provides that the president 'shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two-thirds of the Senators present concur'"
Hardly a done deal. If Obama releases funds to Iran he probably would be committing an impeachable crime under US law. Even many Democrats would vote to impeach Obama for providing billions to a sworn enemy of Israel.
Glenn Gang -> Bruce Bahmani 12 Sep 2015 12:07
"...institutionally Iranclad(sic) HATRED towards the west..." Since you like all-caps so much, try this: "B.S."
The American propel(sic) actually figured out something else---that hardline haters like yourself are desperate to keep the cycle of Islamophobic mistrust and suspicion alive, and blind themselves to the fact that the rest of us have left you behind.
FACT: More than half of the population of Iran today was NOT EVEN BORN when radical students captured the U.S. Embassy in Teheran in 1979.
People like you, Bruce, conveniently ignore the fact that Ahmedinejad and his hardline followers were voted out of power in 2013, and that Supreme Leader Ali Khamenei further marginalized them by allowing the election of new President Hassan Rouhani to stand, though he was and is an outspoken reformer advocating rapprochement with the west. While his outward rhetoric still has stern warnings about anticipated treachery by the 'Great Satan', Khamenei has allowed the Vienna agreement to go forward, and shows no sign of interfering with its implementation.
He is an old man, but he is neither stupid nor senile, and has clearly seen the crippling effects the international sanctions have had on his country and his people. Haters like you, Bruce, will insist that he ALWAYS has evil motives, just as Iranian hardliners (like Ahmedinejad) will ALWAYS believe that the U.S. has sinister motives and cannot EVER be trusted to uphold our end of any agreement. You ascribe HATRED in all caps to Iran, the whole country, while not acknowledging your own simmering hatred.
People like you will always find a 'boogeyman,' someone else to blame for your problems, real or imagined. You should get some help.
beenheretoolong 12 Sep 2015 10:57
No doubt Netanyahu will raise the level of his anger; he just can't accept that a United States president would do anything on which Israel hadn't stamped its imprimatur. It gets tiresome listening to him.
geneob 12 Sep 2015 10:12
It is this deal that feeds the military industrial complex. We've already heard Kerry give Israel and Saudi Arabia assurances of more weapons. And that $150 billion released to Iran? A healthy portion will be spent for arms..American, Russian, Chinese. Most of the commenters have this completely backwards. This deal means a bonanza for the arms industry.
Jack Hughes 12 Sep 2015 08:38
The Iran nuclear agreement accomplishes the US policy goal of preventing the creation of the fissionable material required for an Iranian nuclear weapons program.
What the agreement does not do is eliminate Iran as a regional military and economic power, as the Israelis and Saudis -- who have invested hundreds of millions of dollars to lobby American politicians and brainwash American TV viewers -- would prefer.
To reject the agreement is to accept the status quo, which is unacceptable, leaving an immediate and unprovoked American-led bombing campaign as the only other option.
Rejection equals war. It's not surprising that the same crowd most stridently demanding rejection of the agreement advocated the disastrous invasion and occupation of Iraq. These homicidal fools never learn, or don't care as long as it's not their lives at risk.
American politicians opposed to the agreement are serving their short-term partisan political interests and, under America's system of legalized bribery, their Israeli and Saudi paymasters -- not America's long-term policy interests.
ID293404 -> Jeremiah2000 12 Sep 2015 05:01
And how did the Republicans' foreign policy work out? Reagan created and financed Al Qaeda. Then Bush II invades Iraq with promises the Iraqis will welcome us with flowers (!), the war will be over in a few weeks and pay for itself, and the middle east will have a nascent democracy (Iraq) that will be a grateful US ally.
He then has pictures taken of himself in a jet pilot's uniform on a US aircraft carrier with a huge sign saying Mission Accomplished. He attacks Afghanistan to capture Osama, lets him get away, and then attacks Iraq instead, which had nothing to do with 9/11 and no ties with Al Qaeda.
So then we have two interminable wars going on, thanks to brilliant Republican foreign policy, and spend gazillions of dollars while creating a mess that may never be straightened out. Never mind all the friends we won in the middle east and the enhanced reputation of our country through torture, the use of mercenaries, and the deaths and displacement of hundreds of thousands of civilians. Yeah, we really need those bright Republicans running the show over in the Middle East!
HauptmannGurski -> lazman 12 Sep 2015 02:31
That is a very difficult point to understand, just look at this sentence "not understanding the fact in international affairs that to disrespect an American president is to disrespect Americans" ... too much emperor thinking for me. We have this conversation with regard to Putin everywhere now, so we disrespect all 143 million Russians? There's not a lot of disrespect around for Japanese PM Abe and Chinese Xi - does this now mean we