|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||Peak Cheap Energy and Oil Price Slump||Regulatory Capture & Corruption of regulators||Neocolonialism as Financial Imperialism|
|Ayn Rand and Objectivism Cult||Energy returned on energy invested (EROEI)||The Systemic Instability of Financial Institutions||In Goldman Sachs we trust||Number racket||GDP as a false measure of a country economic output||Neoliberalism as a Cause of Structural Unemployment in the USA|
|Neoliberalism and rising inequality||Secular Stagnation||Efficient Market Hypothesis||Redistribution of wealth up as the essence of neoliberalism||Supply side Voodoo||Rational expectations scam||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|
|Pseudo Theories and Crooked and Bought Theorists||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|
|Sine ira et studio|
|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 concept of Quite Coup
Stages of transformation
Casino Capitalism as a result of stagnation of industrial manufacturing
Casino Capitalism and Financial Instability
The Ideology of Casino Capitalism
Early Researchers of Casino Capitalism
Conclusions: From Animal Farm To Animal House
“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.
The term itself 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 "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.
Casino capitalism can probably be more properly called 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) and trade unions, 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.
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. 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:
A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative 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 "end of history" where capitalism was supposed to reign supreme followed. 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. It looks like in 2009 the USA arrived to the 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 our system and way of life.
The shift from speculative toward Ponzi finance was speed up by increased corruption of major players.
"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 Strange the speed at which computerized financial markets work combined with new much larger size and their now, near-universal pervasiveness is an important qualitative change. 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 per cent 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 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 his prediction did not materialize in view of sliding to corporatism it may well be that the renewed support of unions right efforts to organize could make a big contribution to a revised, post subprime/derivatives/shadow_banking crisis stage of capitalism.
His critique of Milton Freedman pseudoscience 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 as government is always an agent of dominant class it always mixed with politics. Krugman and 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). BTW it is interesting that in 1996 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 George Soros (1998), who highlights the potential for disequilibrium in the financial system, and the inability of non-market sectors to regulate markets.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. They are incapable of distinguishing
between private corporate interests and broader public interests. But that changed with the global
dominance of corporatism.
"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 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 are 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. 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?
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Jan 18, 2017 | economistsview.typepad.comFred C. Dobbs : January 15, 2017 at 08:37 AM , 2017 at 08:37 AMThe Biggest Changes Obamacare Made, and Those ThatFred C. Dobbs -> Fred C. Dobbs... , January 15, 2017 at 08:42 AM
May Disappear https://nyti.ms/2itydsr via @UpshotNYT
NYT - Margot Sanger-Katz - January 13, 2017
It looks like the beginning of the end for Obamacare as we know it.
After years of vowing to repeal the Affordable Care Act, as it is formally known, Republican lawmakers in both chambers of Congress have now passed a bill that will make it easier to gut the law.
Because they are using a special budget process, Republicans won't be able to repeal all provisions of the health law. But it seems like a good time to look at the major changes Obamacare brought to health care, which of those changes may now disappear, and what might replace them.
An important note: We still don't know the details of a repeal bill, and passage is not guaranteed. But Republicans passed a similar package in 2015, vetoed by President Obama, that provides a rough template. Republicans have also said they hope to make further changes through additional legislation. We'll provide updates when new legislative language arrives, expected in several weeks.
1) Obamacare insured millions through new insurance markets.
The health law reduced the number of uninsured Americans by an estimated 20 million people from 2010 to 2016. One of the primary ways it did so was by creating online markets where people who didn't get insurance through work or the government could shop for a health plan from a private insurer. The law offered subsidies for Americans with lower incomes to help pay their premiums and deductibles.
What would happen? The Republican bill is expected to eliminate the subsidies. This would make insurance unaffordable for millions of Americans and sharply reduce the number who buy their own health coverage.
With many fewer people buying coverage, the insurance markets are likely to become increasingly unstable. Many insurers will stop offering policies, and the remaining customers are likely to be sicker than current Obamacare buyers, a reality that will drive up the cost of insurance for everyone who buys it, and force more people out of the markets. The Urban Institute estimates that the change would cause a total of 22.5 million people to lose their health insurance.
What might replace it? Separate legislation may include some new form of subsidy to help people afford insurance. Plans from House Speaker Paul Ryan and the budget committee chairman Tom Price, President-elect Donald J. Trump's pick to lead the Department of Health and Human Services, would both offer a flat tax credit to help buy insurance that varies by age. A proposal from the House Republican Study Committee would give all Americans a standard tax deduction to buy insurance.
2) Obamacare insured millions more by expanding Medicaid.
The health law provided federal funds for states to offer Medicaid coverage to anyone earning less than about $16,000 for a single person or $33,000 for a family of four. Not every state chose to expand, but most did.
What would happen? The Republican plan is expected to eliminate federal funding for the expansion. An estimated 12.9 million people would lose Medicaid coverage, according to the Urban Institute's projections.
What might replace it? Republican leaders have discussed reforming the remaining Medicaid program to give states more autonomy and to reduce future federal investment.
3) Obamacare established consumer protections for health insurance.
One of the law's signature features prevents insurance companies from denying coverage or charging a higher price to someone with a pre-existing health problem. The law included a host of other protections for all health plans: a ban on setting a lifetime limit on how much an insurer has to pay to cover someone; a requirement that insurers offer a minimum package of benefits; a guarantee that preventive health services be covered without a co-payment; a cap on insurance company profits; and limits on how much more insurers can charge older people than younger people. The law also required insurance plans to allow adult children to stay on their parents' policies until age 26.
What would happen? These rules can't be changed using the special budget process, so they would stay in place for now. But eliminating some of the other provisions, like the subsidies, and leaving the insurance rules could create turmoil in the insurance markets, since sick customers would have a much stronger incentive to stay covered when premiums rise. .
What might replace it? Mr. Trump has said that he'd like to keep the law's policies on pre-existing conditions and family coverage for young adults, but Senate Republicans recently voted against nonbinding resolutions to preserve those measures, suggesting they may be less committed. Some of the other provisions would probably be on the table if there were new legislation. Republicans in Congress would probably eliminate rules that require a minimum package of benefits for all insurance plans and allow states to determine what insurers would have to include. Mr. Trump has said he'd like to encourage the sale of insurance across state lines, a policy likely to make coverage more skimpy but less expensive for many customers. Republicans would also like to expand tax incentives for people to save money for health expenses.
Many of the Republican proposals would also establish so-called high-risk pools, which would provide subsidized insurance options for people with chronic health problems who wouldn't be able to buy insurance without rules forcing insurers to sell them coverage.
4) Obamacare required individuals to have health insurance and companies to offer it to their workers.
To ensure that enough healthy people entered insurance markets, the law included mandates to encourage broader coverage. Large employers that failed to offer affordable coverage, or individuals who failed to obtain insurance, could be charged a tax penalty.
What would happen? The bill is expected to eliminate the mandates. Some experts think that eliminating the individual mandate, in particular, could destabilize insurance markets by reducing incentives for healthy people to buy coverage. The mandate had less of an impact on the employers, which had already been offering coverage.
What might replace it? Some Republican plans would allow insurers to charge much higher rates to customers who allow their coverage to lapse than to those who renew their policies every year. Such a system might provide a different financial incentive for healthy people to stay insured.
5) Obamacare raised taxes related to high incomes, prescription drugs, medical devices and health insurance.
To help pay for the law's coverage expansion, it raised taxes on several players in the health industry and on high-income earners.
What would happen? The G.O.P. package may roll back those tax increases, though there is some disagreement among Republican lawmakers about the deficit impact of such changes.
What might replace it? Republicans have not discussed raising new taxes to replace those in the Affordable Care Act. But some of their plans would limit the tax benefits offered to people who get their health insurance through work. That change would increase tax revenues, but would increase the cost of health insurance for many people who get it through work.
6) Obamacare made major reforms to Medicare payments.
The law cut the annual pay raises Medicare gives hospitals and reduced the fees Medicare pays private insurance companies. It created new incentives for hospitals and doctors to improve quality. It also set up a special office to run experiments in how Medicare pays doctors and hospitals for health care services. Those experiments are now widespread and have begun changing the way medicine is practiced in some places.
What would happen? The new legislation is expected to leave these changes alone, even though many have come under criticism by Republicans in Congress over the years, including from Mr. Price, an orthopedic surgeon. Many of the experiments could be reshaped or eliminated through regulation or through a future budget process.
What might replace it? Republicans in Congress have long talked about even more ambitious changes to Medicare, intended to move more beneficiaries into private insurance coverage. Mr. Trump has said that he does not want to make major changes to Medicare, so it is unclear if such a proposal would move forward.
7) Obamacare made many smaller changes that will probably last.
Obamacare had a range of policies meant to improve health and health care, including requirements that drug companies report payments made to physicians, a provision written by the Iowa senator Chuck Grassley, a Republican; a requirement that chain restaurants publish calorie counts on their menus; and a rule that large employers must provide a space for women to express breast milk.
What would happen? When Republicans talk about repealing Obamacare, they tend to focus on the parts of the law that expanded insurance coverage and regulated health insurance products, not these ancillary parts. That means that portions of the Affordable Care Act that people don't associate with the word "Obamacare" are likely to endure.
Perhaps the most horrendous lossim1dc -> Fred C. Dobbs... , January 15, 2017 at 11:32 AM
(to Big Healthcare) will be if ~20M
people lose coverage, even if it is
high-deductible 'catastrophic' coverage,
hospitals will lose billions in insurance
reimbursements for 'free care', which had
*much* to do with why/how Massachusetts
got the ball rolling in the first place.
Every time I read an article about the Republicans 'Repeal of Obamacare' I remind myself that Trump has not said he would sign Repeal only.DeDude -> im1dc... , January 15, 2017 at 12:49 PM
Rather, he repeatedly has said and recently reiterated that he wants Repeal to coincide with Replace, hours, days, not weeks, months, or years.
That sets up an Executive Branch vs Legislative Branch conflict.
One of the party's pledges will have to give to the others, either Trump or the Speaker Ryan House Republican majority and or the Majority Leader McConnell's Republican majority Senate.
Today I'm guessing Trump gets his wish.
But that leads me to ask what are the Republicans going to substitute for PACA/Obamacare that is 'cheaper and provides more and better health care' that Donald Trump promised, repeatedly.
If it is exciting to watch a train wreck then it is exciting to watch this budding and self-inflicted catastrophe develop in Republican controlled D.C., although I would rather not."what are the Republicans going to substitute for PACA/Obamacare that is 'cheaper and provides more and better health care' that Donald Trump promised"DeDude -> Fred C. Dobbs... , January 15, 2017 at 01:02 PM
Yes my guess is that TrumpCare will not be bigger and better. More likely it will be small - like his handsShe missed the biggest and most important part. ACA reduced the size of the doughnut hole in Medicare part D. Indeed ObamaCare was going to make the doughnut hole go completely away by 2020. So if we go back to the old Bush part D there will suddenly be a $4000 gap of no coverage for prescription drugs for our seniors. What are the GOPsters going to do about that?Fred C. Dobbs -> DeDude... , January 15, 2017 at 01:19 PMGet rich(er), I'd guess.
Jan 18, 2017 | economistsview.typepad.comreason : , January 16, 2017 at 02:03 AMI know I will completely offside with my view on this, but I think the behavioural/rational expectations debate is rather besides the point. The much bigger issues are uncertainty and disequilibrium.pgl -> reason ... , January 16, 2017 at 02:06 AM
Not offside. Spot on.reason -> reason ... , January 16, 2017 at 02:09 AMThe fundamental problem is in trying to model an evolutionary system as though it was a quasi stationary system (with exactly proportional growth).New Deal democrat -> reason ... , January 16, 2017 at 05:31 AMAs I noted the other day, and Johnnny Bakho refers to below, the essence of this problem is that the thing being observed, observes back and adapts.reason -> New Deal democrat... , January 16, 2017 at 07:14 AM
The only kind of model that might work in the long run, is a model that works even after everybody becomes aware of it and adapts their behavior to it.
As to the issue of uncertainty, if we assume that most people operate with formal or informal budgets, anything that causes them to think that their budget is about to increase or decrease is going to change their consumption. And since people *hate* to sustain and realise losses, the change is going to be disproportionately intense if the uncertainty include an possible increase to the downside.No that isn't enough. Sure people might change their behavior as their understanding changes. But other things are changing as well as the behavior. In particular, technology and available resources change.New Deal democrat -> reason ... , January 16, 2017 at 07:38 AM
As I said the system is evolutionary (which means an adaptive system - which includes behavior changes), and evolution is never easy to anticipate, which implies uncertainty. And the existence of uncertainty leads to persistent disequilibrium (as people adopt defensive contingent strategies to cope with uncertainty). The big errors in macro are all associated with the general equilibrium paradigm and the assumptions that come with it.Point taken re technology and resources, although behavioral adaptation is a big part of why models fail.reason -> New Deal democrat... , January 16, 2017 at 08:40 AM
I had a big long response worked out re the biggest endemic problem with "the assumptions that come with" macro's paradigm. Then my iPad decided to randomly pop up a keyboard screen and when I touched to get rid of it, deleted the entire comment!
The screaming at crapified Apple has passed now. I am zen again.P.S. Rational expectations IS an attempt to build in behavioral adaptation. It is just that it turns out not very useful (it is empirically a complete flop).JohnH -> New Deal democrat... , January 16, 2017 at 07:36 AMI thought we were in a time of uncertainty right now due to Trump.New Deal democrat -> JohnH... , January 16, 2017 at 07:39 AM
Anybody see any slowing of the economy? Markets are up.Well-to-do GOPers foreseeing unfettered capitalist nirvana. It will pass.JohnH -> New Deal democrat... , January 16, 2017 at 08:11 AMSo there is 'uncertainty' and 'uncertainty.' Which kind of uncertainty leads to a slower economy? Why wouldn't unknown after-shocks from repealing Obamacare have current economic repercussions?reason -> JohnH... , January 16, 2017 at 08:45 AM
Republicans used to claim that the roll-out of Obamacare was causing economic uncertainty and hurting the economy.
Seems to me that the whole foundation of 'economic uncertainty' is rather shaky, particularly if the promised, disruptive actions of Trump don't cause economic repercussions.Uncertainty (as for instance PK pointed out) can work in different ways in the short and long terms. In the short term it can result in hedging behavior which might actually promote some investment. In the longer term it will push up risk margins which will probably push growth rates down.ilsm -> reason ... , January 16, 2017 at 04:39 AMfootballjonny bakho -> reason ... , January 16, 2017 at 04:49 AMHumans evolved as social animals.point -> reason ... , January 16, 2017 at 06:07 AM
If rational expectations focuses on the individual and ignores that humans act as members of groups, not individuals, then it will not accurately predict human behavior or outcomes.Perhaps your comment is similar to supposing that perhaps "equilibrium" is a not always useful concept when the modeled surface may have multiple local maxima, minima and saddles.reason -> point... , January 16, 2017 at 07:18 AMNope. I think we are trying to model a system converging to an equilibrium that is changing faster than the system can possibly adapt. We should forget all about equilibrium in macro-economics. It only misdirects.libezkova -> reason ... , -1
I once tried to explain this with an analogy to flying a plane - the plane is always sinking and rising and net path the outcome of the sum of different (constantly varying) forces. This is quite distinct for instance, from the way that a boat floats on the ocean (which is much closer to how we are trying to model things today). The stochastic shocks in economic models are like waves on the sea - where the net effect in the end is that the average position remains the same. I don't think the economy is like that.The idea of equilibrium is a neoclassical fallacy. financial sector introduced in the system systemic instability, the positive feedback loop.
Cassidy called it "Utopian economics".
As you wrote in 2015
The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero!
Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job.
"The Virtues and Vices of Equilibrium, and the Future of Financial Economics"
J. Doyne Farmer and John Geanakoplos (2008)
Jan 18, 2017 | economistsview.typepad.comJulio -> Peter K.... The main argument I've heard/read against UBI is that getting money without working is immoral and it should be "to everyone according to his work".
Aside from the obvious contradictions here (we accept heirs getting money without working; and how do you measure anyone's work anyway?), I think this makes an assumption that everything we have is what we produce.
The fact is that most of what we have is inherited collectively. Even the most successful "job creator" types like Steve Jobs inherit a gigantic cart that they move a few inches forward.
This is not just concrete material wealth, but institutional wealth also, which we all contribute to continually. Every person that wakes up in the morning and accepts that problems with his neighbor should be resolved in court and not with a gun, is contributing to maintaining that inheritance.
From this perspective, a UBI that reflects your country's wealth is an inherited right.
This unstated assumption underlies many of our current debates. E.g. why does an American worker have the right to a Us-standard wage?Reply Monday, January 16, 2017 at 11:15 AM RC AKA Darryl, Ron said in reply to Julio ... , January 16, 2017 at 12:01 PMWell said.anne -> Julio ... , January 16, 2017 at 12:26 PMNicely presented.
Jan 18, 2017 | economistsview.typepad.comim1dc : January 15, 2017 at 06:05 PM , 2017 at 06:05 PMEveryone will want to read this:
"Trump's (and Putin's) Plan to Dissolve the EU and NATO."
"Trump's (and Putin's) Plan to Dissolve the EU and NATO."
By Josh Marshall...January 15, 2017...8:12 PM EDT
"Most people in this country, certainly most members of the political class and especially its expression in Washington, don't realize what Donald Trump is trying to do in Europe and Russia. Back in December I explained that Trump has a plan to break up the European Union. Trump and his key advisor Steve Bannon (former Breitbart chief) believe they can promise an advantageous trade agreement with the United Kingdom, thus strengthening the UK's position in its negotiations over exiting the EU. With such a deal in place with the UK, they believe they can slice apart the EU by offering the same model deal to individual EU states. Steve Bannon discussed all of this at length with Business Week's Josh Green and Josh and I discussed it in great detail in this episode of my podcast from mid-December.
Now we have a rush of new evidence that Trump is moving ahead with these plans.
One point that was clear in Green's discussions with Bannon and Nigel Farage is that Trump wants to empower Farage as its interlocutor with the United Kingdom. Given Farage's fringe status in the UK, on its face that seems crazy. But that is the plan. And it is a sign of how potent Farage's guidance and advice has become for Trump's view of Europe, the EU and Russia.
Two days ago, the United States out-going Ambassador to the EU gave a press conference in which he opened up about Farage's apparently guiding role in the Trump world and what he's hearing from EU Member states.
From the The Financial Times (sub.req.) ...
... Donald Trump's transition team have called EU leaders to ask "what country is to leave next" with a tone suggesting the union "is falling apart" this year, according to the outgoing US ambassador to the bloc.
... In a pugnacious parting press conference, Anthony Gardner warned of "fringe" voices such as Nigel Farage, the former UK Independence party leader, holding influence in Washington over Mr Trump's team.
... Speaking days before leaving office, Mr Gardner said it would be "lunacy" and "the height of folly" for the US to ditch half a century of foreign policy in order to support further EU fragmentation or become a "Brexit cheerleader" in Brussels.
... "I was struck in various calls that were going on between the incoming administration and the EU that the first question is: what country is about to leave next after the UK?" he said.
... "The perceived sense is that 2017 is the year in which the EU is going to fall apart. And I hope that Nigel Farage is not the only voice being listened to because that is a fringe voice."
Today in a new interview with the Germany's Bild and the Times of London Trump expanded on these goals dramatically. Trump leveled a series of attacks on German Chancellor Angela Merkel, suggesting he'd like to see her defeated for reelection and saying she'd hurt Germany by letting "all these illegals" into the country. Trump also called NATO "obsolete", predicted other countries would soon leave the EU, and characterized the EU itself as "basically a vehicle for Germany."
Trump and Bannon are extremely hostile to Merkel and eager to see her lose. But what is increasingly clear is that Trump will make the break up of the EU a central administration policy and appears to want the same for NATO.
My own view is that Trump and Bannon greatly overestimate America's relative economic power in the world. Their view appears to be that no European country will feel it is able to be locked out of trade with a US-UK trade pact. An America eager to break up the EU seems more likely to inject new life into the union. However that may be, Trump and Bannon clearly want to create a nativist world order based on the US, Russia and states that want to align with them. The EU and NATO are only obstacles to that goal."
Jan 18, 2017 | economistsview.typepad.comjonny bakho -> reason ... Do allies refuse to share intel with the US due to Trump-Russia
The Great Game has turned. Reply Monday, January 16, 2017 at 08:02 AM ilsm -> jonny bakho... , January 16, 2017 at 09:46 AMUS could do with a little better assessments and a lot less from many "allies".Chris G -> jonny bakho... , -1
Do you mistrust US allies?
Like I do!$20 says "Yes."
And what happens if Trump and co decide to purge intelligence agencies of individuals they consider undesirable? I have no idea but I'm guessing they won't go flip burgers at McDonalds. (See also disbanding the Iraqi army ca. 2003.) Will they exhibit an entrepreneurial spirit? If so then what form will it take?
Jan 18, 2017 | economistsview.typepad.comIt is MLK weekend....
A Boy Named Sue : , January 15, 2017 at 12:22 AMIt is MLK weekend....ilsm -> A Boy Named Sue... , January 15, 2017 at 05:12 AM
https://www.youtube.com/watch?v=rynxqdNMry4Freedom is in the soul.RC AKA Darryl, Ron -> ilsm... , January 15, 2017 at 05:17 AM
Let us 'ally' with all the world, let us protect civilians, let us impose 'just peace', let us squander the environment. No plan is too bloody, no price too steep to prevent another 9/11. The evening news still needs bodies of "those people". Non violence is un American.
I am not surprised the neoliberals do not post Dr King's Vietnam Speech:
Here it is:
War is a ... "destructive suction tube. And you may not know it, my friends, but it is estimated that we spend $500,000 to kill each enemy soldier, while we spend only fifty-three dollars for each person classified as poor, and much of that fifty-three dollars goes for salaries to people that are not poor."
Ike said the same thing in 1953 and 1961.
Poverty is violence.
I was informed by MLK's awareness of the truth on the ground in 1967. That is why I protested the war in Viet Nam when protests began early in 1968 in Richmond VA, but not the draft. In April 1969 I had to decide whether to go to Canada and maybe never see my family again and take my wife far from her family as well, go to prison, or go to Viet Nam. MLK had already been murdered and I had already lost hope in the truth and social justice. So, I went to Viet Nam. I figured Doctor King would understand.ilsm -> RC AKA Darryl, Ron... , January 15, 2017 at 05:34 AMI have a buddy who refused to take the step. Repeatedly until the SS board sent him to the 'judge'.RC AKA Darryl, Ron -> ilsm... , January 15, 2017 at 06:08 AM
He got 3 years in Public Health Service...... it was late '70 maybe they got kinder or maybe it was his area of NYS.
I took the ROTC route, became a cold warrior by accident.
Thank God! I never had to do any of my jobs!
Humans rarely see."...maybe it was his area of NYS..."RC AKA Darryl, Ron -> ilsm... , January 15, 2017 at 05:19 AM
[I'd go with probably.]BTW, that is an awesome great MLK speech. THANKS for dragging it out.
Jan 18, 2017 | economistsview.typepad.comanne : , January 15, 2017 at 09:43 AMhttps://www.nytimes.com/2017/01/15/world/europe/uk-set-to-choose-sharp-break-from-european-union.htmlFred C. Dobbs -> anne... , January 15, 2017 at 10:04 AM
January 15, 2017
U.K. Set to Choose Sharp Break From European Union
By STEVEN ERLANGER
Prime Minister Theresa May is said to be opting for a "hard Brexit," taking Britain out of the European single market and the customs union.
[ This prospect makes no sense to me at all. How can the United Kingdom possibly gain economically from completely leaving the European Union? ]'Hard Brexit greatest job-killing act in Welsh history'Fred C. Dobbs -> Fred C. Dobbs... , January 15, 2017 at 10:07 AM
BBC News - January 15
Taking the UK out of the EU single market would be "the greatest job-killing act in Welsh economic history", Plaid Cymru has said.
Several of Sunday's newspapers claim Prime Minister Theresa May will signal the move in a speech on Tuesday.
Plaid's treasury spokesman Jonathan Edwards told the BBC's Sunday Politics Wales programme the impact on Wales would be "devastating".
Downing Street has described the reports as "speculation".
The Carmarthen East and Dinefwr MP said pulling out of the single market and customs union would have a "huge impact on jobs and wages in Wales".
"The reality of what we're going to hear from [Theresa May] on Tuesday, it's going to be the greatest job-killing act in Welsh economic history, probably in British economic history," he added. ...
(Previously: EU referendum: Welsh voters back Brexit
BBC News - June 24)
Nine things you need to know about a 'Hard Brexit'
https://www.bloomberg.com/news/articles/2016-10-17/what-makes-a-hard-brexit-harder-than-a-soft-one-quicktake-q-a via @Bloomberg - October 17
1. What's a 'hard Brexit?'
It's a shorthand reference to one possible outcome of negotiations between the U.K. and the EU -- the U.K. giving up its membership in Europe's single market for goods and services in return for gaining full control over its own budget, its own law-making, and most importantly, its own immigration. If that happens, British leaders will be under pressure to quickly land a new trade pact or individual industry-by-industry deals with the EU. Otherwise, companies will be subjected to standard World Trade Organization rules, which would impose tariffs on them. Banks would lose the easy access they now enjoy to the bloc.
2. How would that differ from a softer Brexit?
A softer form would see the U.K. maintain some tariff-free access to the single market of some 450 million consumers. The U.K. would likely still have to contribute to the EU budget, allow some freedom of labor movement and follow some EU rules. That's what Norway does, as a member of the European Economic Area but not of the EU. ...
(And seven more things.)
Plaid Cymru: the Party of Wales, often referred to simply as Plaid) is a social-democratic political party in Wales advocating for Welsh independence from the United Kingdom within the European Union. ... (Wikipedia)anne -> Fred C. Dobbs... , January 15, 2017 at 11:39 AMI appreciate these additions.Fred C. Dobbs -> anne... , January 15, 2017 at 10:30 AM'How can the United Kingdom possibly gain economically from completely leaving theanne -> Fred C. Dobbs... , January 15, 2017 at 10:40 AM
Voters decided that the UK was paying
more to be 'in the EU' than they were
receiving (in subsidies, etc.) for
*being* members. That and they were
expected by Way Too European, welcome
foreign workers, obey crazy regulations
imposed by foreigners, yada yada yada.
(Wales, BTW, gets/got lots of aid from the EU.)
Or, is the key word 'completely'?
It was said months ago by the other major
EU members that they want Britain *out*, so
that alone should be a reason for PM May
to demand a very Soft Brexit.
After these months since the vote to leave the European Union, where the United Kingdom had special privileges to begin with, I still find no coherent rationale to the decision. There is no reason to think the cost of being an EU member was anywhere near the benefits to the UK, and evidence to the contrary that was repeatedly promised has never been produced.anne -> anne... , January 15, 2017 at 10:42 AM
Simon Wren-Lewis has written often on Brexit and seems as puzzled as I am by the seeming toughness as well as the determination of Teresa May on the leaving.
https://mainly macro.blogspot.com/Fred C. Dobbs -> anne... , January 15, 2017 at 12:48 PM
Simon Wren-Lewis, whose excellent blog can only be linked to by separating "mainly" and "macro."It would seem UK voters were bamboozled aboutFred C. Dobbs -> Fred C. Dobbs... , January 15, 2017 at 01:07 PM
the finances. They do pay a lot *in* to be
EU members, as do other large/wealthy
members, but they also got a lot back.
They were told it was costing too much.
expected (to be) Way Too European, welcome
foreign workers, obey crazy regulations
imposed by foreigners, etc.'
Britain has always had mixed feelings
about being 'European' it seems, since
the end of their empire.
'End of Empire'...anne -> Fred C. Dobbs... , January 15, 2017 at 10:58 AM
No worries. There will
still be The Five Eyes,
the 'Special Relationship'.
An exclusive club: The 5 countries that don't spy on each other http://to.pbs.org/2iv8mNk
via @PBS NewsHour - October 25, 2013
It was born out of American and British intelligence collaboration in World War II, a long-private club nicknamed the "Five Eyes." The members are five English-speaking countries who share virtually all intelligence - and pledge not to practice their craft on one another. A former top U.S. counter-terrorism official called it "the inner circle of our very closest allies, who don't need to spy on each other."
This is the club that German chancellor Angela Merkel and French President Francois Hollande say they want to join - or at least, win a similar "no-spying" pact with the U.S. themselves.
It all began with a secret 7-page agreement struck in 1946 between the U.S. and the U.K., the "British-US Communication Agreement," later renamed UKUSA. At first their focus was the Soviet Union and its Eastern European satellites. But after Canada joined in 1948, and Australia and New Zealand in 1956, the "Five Eyes" was born, and it had global reach. They pledged to share intelligence - especially the results of electronic surveillance of communications - and not to conduct such surveillance on each other. Whiffs of the club's existence appeared occasionally in the press, but it wasn't officially acknowledged and declassified until 2010, when Britain's General Communications Headquarters, or GCHQ, released some of the founding documents. The benefits of membership are immense, say intelligence experts. While the U.S. has worldwide satellite surveillance abilities, the club benefits from each member's regional specialty, like Australia and New Zealand's in the Far East. "We practice intelligence burden sharing," said one former U.S. official. "We can say, 'that's hard for us cover, so can you?'" The ease and rapidity of information-sharing among the five "makes it quicker to connect the dots," said another intelligence veteran. "You can't underestimate the importance of the common language, legal system and culture," said another. "Above all, there is total trust." ...
Real per capita Gross Domestic Product for the United States had by 2014 recovered from the international recession to the level of 2007. Recovery for the United Kingdom came in 2015. The recession and recovery obviously were socially difficult and took an extended time.im1dc -> anne... , January 15, 2017 at 11:39 AM
Then too, there had been a time of war from the US and UK extending from 2001.
An extended period of social turmoil that is difficult to grasp or shut out.PM May is in way over her head and does not know what she is doing. Nor does she know what she says has meaning and effects. She's not long for office, imo of course.
Jan 18, 2017 | economistsview.typepad.comanne : , January 16, 2017 at 09:04 AMhttp://cepr.net/blogs/beat-the-press/brexit-the-story-on-tariffs-and-currency-fluctuationsanne -> anne... , -1
January 16, 2017
Brexit: The Story on Tariffs and Currency Fluctuations
The New York Times decided to tout the risks * that higher tariffs could cause serious damage to industry in the UK following Brexit:
For Mr. Magal [the CEO of an engineering company that makes parts for the car industry], the threat of trade tariffs is forcing him to rethink the structure of his business. The company assembles thermostatic control units for car manufacturers, including Jaguar Land Rover in Britain and Daimler in Germany.
"Tariffs could add anything up to 10 percent to the price of some of his products, an increase he can neither afford to absorb nor pass on. 'We don't make 10 percent profit - that's for sure,' he said, adding, 'We won't be able to increase the price, because the customer will say, "We will buy from the competition."' "
The problem with this story, as conveyed by Mr. Magal, is that the British pound has already fallen by close to 10 percent against the euro since Brexit. This means that even if the European Union places a 10 percent tariff on goods from the UK (the highest allowable under the World Trade Organization), his company will be in roughly the same position as it was before Brexit. It is also worth noting that the pound rose by roughly 10 percent against the euro over the course of 2015. This should have seriously hurt Mr. Magal's business in the UK if it is as sensitive to relative prices as he claims.
It is likely that Brexit will be harmful to the UK economy if it does occur, but many of the claims made before the vote were wrong, most notably there was not an immediate recession. It seems many of the claims being made now are also false.
-- Dean Bakerhttps://fred.stlouisfed.org/graph/?g=cov6
January 15, 2017
Real Broad Effective Exchange Rate for United Kingdom, 2000-2016
(Indexed to 2000)
Jan 18, 2017 | economistsview.typepad.comPeter K. : January 15, 2017 at 08:38 AM http://www.eschatonblog.com/2017/01/changing-perspectives.html
SUNDAY, JANUARY 15, 2017
Short blog post means big generalizations, but...
Post-impeachment, post-Bush selection, post-9/11 was a weird time in American politics (I suppose a specific weird time, it's always a weird time). One thing people forget about the impeachment era was that it was basically The Left (sometimes actually The Left like The Nation magazine writers and sometimes people who found themselves being branded The Left because of this) who defended Bill Clinton in the whole Monica Madness era (and before). Mainstream media (hi New York Times!), columnists, cable news personalities, all the respectable prominent "centrist" Democrats, were falling all over themselves to condemn that nasty Bill Clinton and his nasty penis, and Ken Starr was treated as the second coming of Jesus in respectable DC circles. It was a weird time in which the crazy left were actually the biggest defenders of the Democratic party, much bigger defenders of it than the Democratic party itself. It was a time when you wouldn't have been surprised if you woke up one morning and half the party hadn't decided to switch teams and become Republicans. "I was a Democrat before Bill Clinton did nasty things with that woman, but now I don't think rich people should pay taxes anymore..."
And then the selection, and then Iraq, and then Bush's re-election, and the whole Social Security privatization nonsense... It was always the "crazy left" that was trying to make the Democratic party just, you know, be Democrats, and everybody else basically being like "Why can't a Democrat be more like a Republican." Being against the war or against Social Security privatization (the Dems finally woke up on that one, but it took a lot of yelling) wasn't exactly calling for full communism, and plenty of people who thought they were just standard squishy Democrats suddenly found themselves being lumped together with radicals.
So I found myself on the crazy left. I'm genuinely more "lefty" than I was 15 years ago, but even now I'm not exactly calling for full communism. I generally think that usually the best use of my efforts are to pull the party leftward (not that I think I have the superpowers required to do this), not just because I'm more lefty, but because the forces pulling them to the right continue to be powerful and well-funded. Also, if the "crazy" position is a minimum wage of $25 an hour, then $15 an hour doesn't look so crazy anymore (for example). If the best we can ever do is a compromise, then it's best not to start the negotiations with the compromise position.
People get mad about criticizing Democrats these days in a way they never did before. People like Obama associates "the crazy left" with Bernie, blaming him (and therefore the crazy left) for Clinton's election problems. Maybe I'm wrong, but whatever horrors the Trump administration is going to unleash, the important thing is for the Democrats to draw distinctions, and not just hope for team R to step on enough rakes. "Not as evil as the other guys" just doesn't win elections, even when the other guys are really f!@#ing evil.
by Atrios at 09:48
Jan 16, 2017 | www.nakedcapitalism.com
Yves here. Marcy points out how what is considered to be "news" has changed greatly over time, and that the requirement that news be objective is recent and marketing-driven.
This essay covers a great deal of important ground. I'd like to add one topic, which is the role of propaganda. Even though organizations have done all sorts of evangelizing, the use of the media and social networks of the day for that purpose is relatively recent. Alex Carey in his book Taking the Risk Out of Democracy dates it to the early 1900s. One early, successful campaign led by the National Association of Manufacturers, already a leader in campaigning against organized labor, was to counter the backlash against immigration, which was then seen as a threat to American values and communities. One of their initiatives was institutionalizing "Americanization Day," later rebranded as "Independence Day."
As we've discussed before, the first full-bore government-sponsored propaganda campaign took place in World War I. The Creel Committee, an agency of the Federal government officially called the Committee on Public Information used all the communication vehicles of its day, not just newspapers. An overview from Wikipedia:
The committee used newsprint, posters, radio, telegraph, cable and movies to broadcast its message. It recruited about 75,000 "Four Minute Men," volunteers who spoke about the war at social events for an ideal length of four minutes, considering that the average human attention span was judged at the time to be four minutes. They covered the draft, rationing, war bond drives, victory gardens and why America was fighting. It was estimated that by the end of the war, they had made more than 7.5 million speeches to 314 million people in 5,200 communities. They were advised to keep their message positive, always use their own words and avoid "hymns of hate." For ten days in May 1917, the Four Minute Men were expected to promote "Universal Service by Selective Draft" in advance of national draft registration on June 5, 1917.
The CPI staged events designed for specific ethnic groups. For instance, Irish-American tenor John McCormack sang at Mount Vernon before an audience representing Irish-American organizations. The Committee also targeted the American worker and, endorsed by Samuel Gompers, filled factories and offices with posters designed to promote the critical role of American labor in the success of the war effort.
The CPI's activities were so thorough that historians later stated, using the example of a typical midwestern American farm family, that
Every item of war news they saw-in the country weekly, in magazines, or in the city daily picked up occasionally in the general store-was not merely officially approved information but precisely the same kind that millions of their fellow citizens were getting at the same moment. Every war story had been censored somewhere along the line- at the source, in transit, or in the newspaper offices in accordance with 'voluntary' rules established by the CPI.
The Creel Committee was able to turn America from being firmly pacifist to being eager to fight the evil Germans in a mere 18 months. In Serbia, a concerted propaganda campaign was able to turn public polls radically in a mere six weeks.
In other words, the hysteria about fake news appears to be members of the officialdom realizing that their traditional propaganda channels don't work because too many people get information on the Internet, and they can no longer orchestrate a Mighty Wurlitzer of unified opinion. This may seem obvious but surprisingly few people are willing to say that in simple terms. The reflex of government opinion managers and their media allies is to shut down or delegitimate offending outlets. But there are too many, not just in the US but overseas, for them to do that other than by severely curtailing Internet publication. Are they prepared to go the route of the Chinese government in terms of restricting foreign access and censoring domestic writers? That's the end game if they are serious about stopping what TPTB deems to be "fake news".
By Marcy Wheeler, an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including the Guardian, Salon, and the Progressive, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial. Originally published at emptywheel
I've been getting into multiple Twitter fights about the term "fake news" of late, a topic about which I feel strongly but which I don't have time to reargue over and over. So here are the reasons I find the term "fake news" to be counterproductive, even aside from the way Washington Post magnified it with the PropOrNot campaign amidst a series of badly reported articles on Russia that failed WaPo's own standards of "fake news."
Most people who use the term "fake news" seem to be fetishizing something they call "news." By that, they usually mean the pursuit of "the truth" within an editor-and-reporter system of "professional" news reporting. Even in 2017, they treat that term "news" as if it escapes all biases, with some still endorsing the idea that "objectivity" is the best route to "truth," even in spite of the way "objectivity" has increasingly imposed a kind of both-sides false equivalence that the right has used to move the Overton window in recent years.
I've got news (heh) for you America. What we call "news" is one temporally and geographically contingent genre of what gets packaged as "news." Much of the world doesn't produce the kind of news we do, and for good parts of our own history, we didn't either. Objectivity was invented as a marketing ploy. It is true that during a period of elite consensus, news that we treated as objective succeeded in creating a unifying national narrative of what most white people believed to be true, and that narrative was tremendously valuable to ensure the working of our democracy. But even there, "objectivity" had a way of enforcing centrism. It excluded most women and people of color and often excluded working class people. It excluded the "truth" of what the US did overseas. It thrived in a world of limited broadcast news outlets. In that sense, the golden age of objective news depended on a great deal of limits to the marketplace of ideas, largely chosen by the gatekeeping function of white male elitism.
And, probably starting at the moment Walter Cronkite figured out the Vietnam War was a big myth, that elite narrative started developing cracks.
But several things have disrupted what we fetishize as news since them. Importantly, news outlets started demanding major profits, which changed both the emphasis on reporting and the measure of success. Cable news, starting especially with Fox but definitely extending to MSNBC, aspired to achieve buzz, and even explicitly political outcomes, bringing US news much closer to what a lot of advanced democracies have - politicized news.
And all that's before 2002, what I regard as a key year in this history. Not only was traditional news struggling in the face of heightened profit expectations even as the Internet undercut the press' traditional revenue model. But at a time of crisis in the financial model of the "news," the press catastrophically blew the Iraq War, and did so at a time when people like me were able to write "news" outside of the strictures of the reporter-and-editor arrangement.
I actually think, in an earlier era, the government would have been able to get away with its Iraq War lies, because there wouldn't be outlets documenting the errors, and there wouldn't have been ready alternatives to a model that proved susceptible to manipulation. There might eventually have been a Cronkite moment in the Iraq War, too, but it would have been about the conduct of the war, not also about the gaming of the "news" process to create the war. But because there was competition, we saw the Iraq War as a journalistic failure when we didn't see earlier journalistic complicity in American foreign policy as such.
Since then, of course, the underlying market has continued to change. Optimistically, new outlets have arisen. Some of them - perhaps most notably HuffPo and BuzzFeed and Gawker before Peter Thiel killed it - have catered to the financial opportunities of the Internet, paying for real journalism in part with clickbait stories that draw traffic (which is just a different kind of subsidy than the family-owned project that traditional newspapers often relied on, and these outlets also rely on other subsidies). I'm pretty excited by some of the journalism BuzzFeed is doing right now, but it's worth reflecting their very name nods to clickbait.
More importantly, the "center" of our national - indeed, global - discourse shifted from elite reporter-and-editor newspapers to social media, and various companies - almost entirely American - came to occupy dominant positions in that economy. That comes with the good and the bad. It permits the formulation of broader networks; it permits crisis on the other side of the globe to become news over here, in some but not all spaces, it permits women and people of color to engage on an equal footing with people previously deemed the elite (though very urgent digital divide issues still leave billions outside this discussion). It allows our spooks to access information that Russia needs to hack to get with a few clicks of a button. It also means the former elite narrative has to compete with other bubbles, most of which are not healthy and many of which are downright destructive. It fosters abuse.
But the really important thing is that the elite reporter-and-editor oligopoly was replaced with a marketplace driven by a perverse marriage of our human psychology and data manipulation (and often, secret algorithms). Even assuming net neutrality, most existing discourse exists in that marketplace. That reality has negative effects on everything, from financially strapped reporter-and-editor outlets increasingly chasing clicks to Macedonian teenagers inventing stories to make money to attention spans that no longer get trained for long reads and critical thinking.
The other thing to remember about this historical narrative is that there have always been stories pretending to present the real world that were not in fact the real world. Always. Always always always. Indeed, there are academic arguments that our concept of "fiction" actually arises out of a necessary legal classification for what gets published in the newspaper. "Facts" were insults of the king you could go to prison for. "Fiction" was stories about kings that weren't true and therefore wouldn't get you prison time (obviously, really authoritarian regimes don't honor this distinction, which is an important lesson in their contingency). I have been told that fact/fiction moment didn't happen in all countries, and it happened at different times in different countries (roughly tied, in my opinion, to the moment when the government had to sustain legitimacy via the press).
But even after that fact/fiction moment, you would always see factual stories intermingling with stuff so sensational that we would never regard it as true. But such sensational not-true stories definitely helped to sell newspapers. Most people don't know this because we generally learn a story via which our fetishized objective news is the end result of a process of earlier news, but news outlets - at least in the absence of heavy state censorship - have always been very heterogeneous.
As many of you know, a big part of my dissertation covered actual fiction in newspapers. The Count of Monte-Cristo , for example, was published in France's then equivalent of the WSJ. It wasn't the only story about an all powerful figure with ties to Napoleon Bonaparte that delivered justice that appeared in newspapers of the day. Every newspaper offered competing versions, and those sold newspapers at a moment of increasing industrialization of the press in France. But even at a time when the "news" section of the newspaper presented largely curations of parliamentary debates, everything else ran the gamut from "fiction," to sensational stuff (often reporting on technology or colonies), to columns to advertisements pretending to be news.
After 1848 and 1851, the literary establishment put out alarmed calls to discipline the literary sphere, which led to changes that made such narratives less accessible to the kind of people who might overthrow a king. That was the "fictional narrative" panic of the time, one justified by events of 1848.
Anyway, if you don't believe me that there has always been fake news, just go to a checkout line and read the National Enquirer, which sometimes does cover people like Hillary Clinton or Angela Merkel. "But people know that's fake news!" people say. Not all, and not all care. It turns out, some people like to consume fictional narratives (I have actually yet to see analysis of how many people don't realize or care that today's Internet fake news is not true). In fact, everyone likes to consume fictional narratives - it's a fundamental part of what makes us human - but some of us believe there are norms about whether fictional narratives should be allowed to influence how we engage in politics.
Not that that has ever stopped people from letting religion - a largely fictional narrative - dictate political decisions.
So to sum up this part of my argument: First, the history of journalism is about the history of certain market conditions, conditions which always get at least influenced by the state, but which in so-called capitalist countries also tend to produce bottle necks of power. In the 50s, it was the elite. Now it's Silicon Valley. And that's true not just here! The bottle-neck of power for much of the world is Silicon Valley. To understand what dictates the kinds of stories you get from a particular media environment, you need to understand where the bottle-necks are. Today's bottle-neck has created both what people like to call "fake news" and a whole bunch of other toxins.
But also, there has never been a time in media where not-true stories didn't comingle with true stories, and at many times in history the lines between them were not clear to many consumers. Plus, not-true stories, of a variety of types, can often have a more powerful influence than true ones (think about how much our national security state likes series like 24). Humans are wired for narrative, not for true or false narrative.
Which brings us to what some people are calling "fake news" - as if both "fake" and "news" aren't just contingent terms across the span of media - and insisting it has never existed before. These people suggest the advent of deliberately false narratives, produced both by partisans, entrepreneurs gaming ad networks, as well as state actors trying to influence our politics, narratives that feed on human proclivity for sensationalism (though stories from this year showed Trump supporters had more of this than Hillary supporters) served via the Internet, are a new and unique threat, and possibly the biggest threat in our media environment right now.
Let me make clear: I do think it's a threat, especially in an era where local trusted news is largely defunct. I think it is especially concerning because powers of the far right are using it to great effect. But I think pretending this is a unique moment in history - aside from the characteristics of the marketplace - obscures the areas (aside from funding basic education and otherwise fostering critical thinking) that can most effectively combat it. I especially encourage doing what we can to disrupt the bottle-neck - one that happens to be in Silicon Valley - that plays on human nature. Google, Facebook, and Germany have all taken initial steps which may limit the toxins that get spread via a very American bottle-neck.
I'm actually more worried about the manipulation of which stories get fed by big data. Trump claims to have used it to drive down turnout; and the first he worked with is part of a larger information management company. The far right is probably achieving more with these tailored messages than Vladimir Putin is with his paid trolls.
The thing is: the antidote to both of these problems are to fix the bottle-neck.
But I also think that the most damaging non-true news story of the year was Bret Baier's claim that Hillary was going to be indicted, as even after it was retracted it magnified the damage of Jim Comey's interventions. I always raise that in Twitter debates, and people tell me oh that's just bad journalism not fake news. It was a deliberate manipulation of the news delivery system (presumably by FBI Agents) in the same way the manipulation of Facebooks algorithms feeds so-called fake news. But it had more impact because more people saw it and people may retain news delivered as news more. It remains a cinch to manipulate the reporter-and-editor news process (particularly in an era driven by clicks and sensationalism and scoops), and that is at least as major a threat to democracy as non-elites consuming made up stories about the Pope.
I'll add that there are special categories of non-factual news that deserve notice. Much stock reporting, especially in the age of financialization, is just made up hocus pocus designed to keep the schlubs whom the elite profit off of in the market. And much reporting on our secret foreign policy deliberately reports stuff the reporter knows not to be true. David Sanger's recent amnesia of his own reporting on StuxNet is a hilarious example of this, as is all the Syria reporting that pretends we haven't intervened there. Frankly, even aside from the more famous failures, a lot of Russian coverage obscures reality, which discredits reports on what is a serious issue. I raise these special categories because they are the kind of non-true news that elites endorse, and as such don't raise the alarm that Macedonian teenagers making a buck do.
The latest panic about "fake news" - Trump's labeling of CNN and Buzzfeed as such for disseminating the dossier that media outlets chose not to disseminate during the election - suffers from some of the same characteristics, largely because parts of it remain shrouded in clandestine networks (and because the provenance remains unclear). If American power relies (as it increasingly does) on secrets and even outright lies, who's to blame the proles for inventing their own narratives, just like the elite do?
Two final points.
First, underlying most of this argument is an argument about what happens when you subject the telling of true stories to certain conditions of capitalism. There is often a tension in this process, as capitalism may make "news" (and therefore full participation in democracy) available to more people, but to popularize that news, businesses do things that taint the elite's idealized notion of what true story telling in a democracy should be. Furthermore, at no moment in history I'm aware of has there been a true "open" market for news. It is always limited by the scarcity of outlets and bandwidth, by laws, by media ownership patterns, and by the historically contingent bottle-necks that dictate what kind of news may be delivered most profitably. One reason I loathe the term "fake news" is because its users think the answer lies in non-elite consumers or in producers and not in the marketplace itself, a marketplace created in and largely still benefitting the US. If "fake news" is a problem, then it's a condemnation of the marketplace of ideas largely created by the US and elites in the US need to attend to that.
Finally, one reason there is such a panic about "fake news" is because the western ideology of neoliberalism has failed. It has led to increased authoritarianism, decreased qualify of life in developed countries (but not parts of Africa and other developing nations), and it has led to serial destabilizing wars along with the refugee crises that further destabilize Europe. It has failed in the same way that communism failed before it, but the elites backing it haven't figured this out yet. I'll write more on this (Ian Walsh has been doing good work here ). All details of the media environment aside, this has disrupted the value-laden system in which "truth" exists, creating a great deal of panic and confusion among the elite that expects itself to lead the way out of this morass. Part of what we're seeing in "fake news" panic stems from that, as well as a continued disinterest in accountability for the underlying policies - the Iraq War and the Wall Street crash and aftermath especially - enabled by failures in our elite media environment. But our media environment is likely to be contested until such time as a viable ideology forms to replace failed neoliberalism. Sadly, that ideology will be Trumpism unless the elite starts making the world a better place for average folks. Instead, the elite is policing discourse-making by claiming other things - the bad true and false narratives it, itself, doesn't propagate - as illegitimate.
"Fake news" is a problem. But it is a minor problem compared to our other discursive problems.0 0 8 1 0 This entry was posted in Banana republic , Guest Post , Media watch , New McCarthyism , Politics , Social values , Surveillance state on January 16, 2017 by Yves Smith .
Subscribe to Post Comments 19 comments epynonymous , January 16, 2017 at 6:51 am
Trade now with TradeStation – Highest rated for frequent tradersepynonymous , January 16, 2017 at 6:53 am
Saw some fake TV today.
Episode 2 of the new gameshow "The Wall", which features up to ~$12 Million in possible prizes, they cheat the very first question.
Confirm it for yourself. The 'couple' (the game is for 'couples) is a military family. The hot-shot helo-pilot doesn't know who won the tortise and the hare.
He screams, the hare! And presses the button in plain sight.
Never-the-less he is rewarded a win. His wife later cannot tell the nicknames of the F-16 and the F-18 apart for 100% sure.
Also, a link which I can only guess details spammers who spam and then offer a solution to their spamming.epynonymous , January 16, 2017 at 7:51 am
Once upon a time, the search string "I have a secret fake" in Google would return lone string of a book where a lone voice in the wilderness put in print that the whole show was 'managed.'
A sophisticated re-viewing shows it to have been 'faked' this is all back in the 50's. It's coming back, but two years after my last research on this, the same search string only gave me the above link to . what?JTMcPhee , January 16, 2017 at 10:50 am
The tortise wins. Correction: The show's later episodes (just watched) reveal that answers in transit can be changed. So this is no repeat of 'Card Sharks' (Time magazine complicity included.)
It's awkward when nobody quite knows what exactly the rules are and the prize is so high.
It's going to be a weird week.epynonymous , January 16, 2017 at 7:06 am
Let us remember Charles "The Genius Of All Time" Van Doren, and his skyrocket fame (what's the end point of a skyrocket's trajectory, again?) in the Great Quiz Show Manipulation of the '50s and early '60s, this story link from the NYT in 2008 kind of lifts some of the corners of the curtain that the Bernaysian manipulators hide behind, "After 49 years, Charles Van Doren talks," http://www.nytimes.com/2008/07/21/opinion/21iht-edbeam.1.14660467.html
"For evil to triumph, all that is required is for a few good people to remain silent," or some such sh!t.
And there's this, on another YUUUGE cultural phenom, "The $64,000 Question," which was one of those "quiz" game shows my parents and us kids sat mesmerized watching, with visions of "free money" dancing in our peabrains, and which "program" (what a wonderful meme-name for what "media" does to us mopes) pure deceit and buzz-building on a par with state Lotteries: "The American Experience: The $64,000 Question," http://www.pbs.org/wgbh/amex/quizshow/peopleevents/pande06.html (note that this was from PBS, in 1999, before the Reagan Rot had really gained a full head of steam).
Once again, the popular interpretation and infusion and internalization of "information" displaying and relating, "those who have eyes, let them see," the unhappy sicknesses of a pleasure-and-greed-driven human infestation gets it all wrong, finds no wisdom leading out of the cave, turns possible insights into just more grist for the Bernaysian mills to roll out
"Jerr-Y! Jerr-Y! Jerr-Y!" "And in the room the women come and go, talking of Michelangelo "jabawocky , January 16, 2017 at 7:49 am
Just because I'm really on a tear, has anyone seen the Late Show where Colbert spends 12 minutes on Trump 'Golden Shower' rumors?
The piece even runs mainstream TV headlines about a "rift" between Trump and the intelligence agencies while never explaining a thing.
The inside angle on such 'rumors' (Russian rumors, I presume looking at you DNC ) is fit to be reported as fact in this case.Clive , January 16, 2017 at 8:44 am
'In other words, the hysteria about fake news appears to be members of the officialdom realizing that their traditional propaganda channels don't work because too many people get information on the Internet, and they can no longer orchestrate a Mighty Wurlitzer of unified opinion.'
Bang on Yves. And I would add that if you run a propaganda machine, and are a little paranoid, any 'unauthorised' story on the web looks like someone else's propaganda.
Its wrong to put all this down to internet news however. Adam Curtis' 'Bitter Lake' is a must-see on this topic. Just like in 1980s Soviet Union where the stories of Russian greatness were so obviously contradicted by the experience of ordinary Russians of a failing state, the fakery of the war on terror propaganda has worn away our trust in the Mighty Wurlitzer. Curtis linked the cultural collapse of the Soviet Union intrinsically to the failure of the war in Afghanistan and the mirror it held up to the supposed values of Soviet Society, as trumpeted by their version of the Mighty Wurlitzer. And maybe he's right.
1933 Germany, 1989 Sovient Union, 2016 USA. All three stemmed from failures of the Mighty Wurlitzer. The big question is whether we will long for it back.lyman alpha blob , January 16, 2017 at 8:23 am
One for Curtis hardcore fans only (he really stretched his already tenuous hold on the conventions of documentary making in this one) but his latest, HyperNormalisation , takes the themes you refer to in your comment above and expands on them to explain how we got to Fake News.
Well worth a watch, if you can access it.equote , January 16, 2017 at 8:38 am
Same as it ever was.
To go a little farther back, this book Infamous Scribblers about what passed as journalism back in the 18th century is a good read.NotTimothyGeithner , January 16, 2017 at 9:14 am
This doesn't read like fake news, but I would like to read nakedcapitalism's views on the trend, if it exists, and the implications for society etc.David , January 16, 2017 at 8:54 am
The last CEO of the company, a publicly traded company, where my dad worked before the sale to GE told my dad that in the future companies can't go public if they don't want to work for Wall Street wolves. This was around '95. Dad still goes to company reunions. Those weirdos liked their jobs.
Of course, the longer trend is business formation related. The Internet and social media booms are over, and those were the new IPOs of the last 20 years. The ends of growth are the real issues.Vatch , January 16, 2017 at 9:37 am
I don't think anybody is "fetishizing news," but whilst its true that there's a far greater variety of information sources today, and many of them are not subject to the pressures of conventional media, the implication that somehow the overall level of "truth" has gone up is not sustainable. If anything it's probably gone down. Those of us of a certain age remember a time when there were far more newspapers than today, when ownership was spread much more widely, and where newspapers had a lot more staff and were under a lot less commercial pressure than is the case now. You could, and did, allow for political bias, and it was possible, though not common, for blatant untruths to be published. But that was more difficult than it is today, because the barriers to entry were much higher, and the total media space was much smaller.
I also think its unfair to blame the problem solely on the effects of neoliberalism, damaging as those have been. Journalists themselves have to bear some of the blame. In the 1990s, it became fashionable to deride objectivity (mere "objectivity, a white, patriarchal western concept) as an objective of journalism. Because total objectivity was impossible, it was said, you shouldn't even try. And as a number of journalists at the time argued "you can't be objective between good and evil." The same people who lied about WMD in Iraq in 2002 had already lied about Bosnia a decade before, were to lie about Darfur a few years later and are busy lying about Syria, the Ukraine and "free trade" today. In each case, the argument is the same: the service of a higher moral principle. I've even heard it argued that Trump is such a terrible human being that journalists have not only a right but an actual duty to print anything that might cause him harm. To the extent that you abandon the demand that journalists should do their professional best to be as accurate as possible, and you see "news" itself as a contested, contingent term, it's hard to rationally criticise the actors in any of these episodes.dontknowitall , January 16, 2017 at 9:41 am
What were the lies about Bosnia and Darfur?susan the other , January 16, 2017 at 9:42 am
Interesting essay I am not mollified by reading that Google, Facebook and Germany are uniting to defeat 'fake news' and then remembering the recent rumors (fake news?) that Mark Zuckerberg, of Facebook, is considering running for President so what happens when the bottle-neck king also runs the nation, or is even just thinking of it (Zuckerberg finding God recently comes to mind), when most voters are getting their news from their Facebook news feeds ? Would something mildly critical of Mark Zuckerberg survive 'fake' news review ?
Also, just because China has a walled garden doesn't save them from a torrent of local fake news. In the US the current business model of the internet news is actually a greater danger to democracy and that is the automated binning of consumers into narrow categories (right, left, techie etc) from which they find it hard to stray, if they even think of it, and so it makes it hard for a reader to see in his newsfeed countervailing news or analysis, people thus get polarized. The effort to find different/opposing opinions is not painless and quite by design. This trap has to be broken.
Quality education of the population and freer access to information are greater defenses of democracy and freedom the any Facebook designed filter.Disturbed Voter , January 16, 2017 at 9:54 am
great essay. Makes me think there is some bedrock reality beneath all the noise that keeps us rational enough to survive. All forms of life display good judgment; practicality. So do we. So I'm not very concerned that we might be pants-less without an ideology to shroud all the embarrassing craziness. I'm encouraged by that prospect.Altandmain , January 16, 2017 at 10:11 am
Sheep get slaughtered I choose not to be a sheep. I had no choice in the 60s, when I had three oligopoly networks to choose from. With the Internet, I am my own reporter. This is more like how the printing press destroyed the Catholic Church. I make my own narrative, I don't let anyone else do it for me. Facts are few and far between, but they are just signposts on my own superhighway which I build myself. Are my beliefs factual? Are they for anyone? That was a rhetorical question. People who think their beliefs are The Truth are maniacs.Altandmain , January 16, 2017 at 10:56 am
This whole "fake news" business is all about suppressing dissent, as others have noted.
The media tried to coronate Clinton. With falling advertising revenues in some cases, and decreasing trust in the mainstream media, they have begun to panic. They know that the people realize that they are the Pravda of plutocracy.
At the same time, the alternative media has grown with the Internet. It has reached growing members and allowed people to see the truth.
Counterpunch had a good article on this one:
The reason why propaganda like "fake news" exists is to create a false narrative that can be repeated that people can believe in. The other of course is to force people to comply or face professional and financial consequences.
The thing is, I think that we've reached the limits of propaganda. Inequality has reached an extent that the myth that America is a meritocracy has failed, while efforts to force the American people to accept war have been faced with opposition.John Wright , January 16, 2017 at 10:12 am
One more point I should repeat. Perhaps a blatant example: Fox News has been making fake news for years and yet nobody called it out.
That's because it served the interests of the very rich. That's what this is all about.Jamie , January 16, 2017 at 10:20 am
What is unsurprising is that the media does signal what the insiders want/plan to do.
I was in a library that had some old bound Life Magazines and decided to see what the Life covered just prior to the December 7, 1941 attack on Pearl Harbor.
There was an article about a Midwest congressmen who was visiting his district, who knew his constituents did not want to go to war, but seemed to see the US entry into war likely.
Even Hollywood got into the act, as the Sergeant York (American WWI hero) 1941 movie was released on July 2, 1941, well before Pearl Harbor.
There seems to be little penalty for journalists getting it wrong, for example Tom Friedman, Nicholas Kristof, and Michael Gordon of the Times still have jobs after their "let's promote the Iraq War effort".
Judith Miller was the lone sacrificial lamb.
Some of them even re-write history, as sanctimonious Nicholas Kristof, while recently pimping for the USA's involvement in Syria (on humanitarian grounds, of course), pushed a "trust me on Syria" story by asserting his prior wisdom in his alleged strong opposition to the Iraq war.
Yet I archived an August 27, 2002 column in which he wrote:
"Iraq may well be different. President Bush has convinced me that there is no philosophical reason we should not overthrow the Iraqi government, given that Iraqis themselves would be better off, along with the rest of the world. But Mr. Bush has not overcome some practical concerns about an invasion."
What about ethical concerns, Kristof?
I believe it was Chomsky who said that the print media has content and filler, the content is the advertising and the filler is everything else.
As advertising revenues have gone down, the print media may be looking for a new operating funds, maybe from wealthy owners (Bezos, Carlos Slim) paying for their views to be featured, maybe from US government hidden funding to "counter fake news" that is contrary to the story the elite wants told.
If there is a feedback loop in the mainstream media, it is very slow and does not correct errors to result in lasting reform.
The Times promoted the Iraq war and then had the Bill Keller retrospective "we got it wrong" years later.
Then the Times moved onto promoting military action in Libya, the Ukraine and Syria.
The Times recently had an "Obama regrets Libya" retrospective, what other "we got it wrong" retrospectives will occur in the future?
In the third paragraph Marcy begins talking about objectivity and then shifts to denigrating "objectivity" without a word about what the scare quotes mean to her. Now I understand that the language used by an oppressive system can itself be oppressive. But if "objectivity" omitted women and people of color, well, clearly that's bad, but what does that have to do with objectivity?
Maybe I'm just too old and out of touch to get the post modern project to dismantle objectivity and replace it with self-centered wishful thinking. But without objectivity, we would never have seen the civil rights movement or the rise of feminism in the sixties.
I was still very young during the civil rights movement so I won't talk about what I don't really know first hand, but the rise of feminism took place in the prime of my passionate youth. What many middle class women were experiencing in the '50s was a complete isolation in the suburbs and a feeling (due largely to rampant blaming the victim) that all the problems of their lives were their own personal problems. It was not until politically active women began to share their experiences in consciousness raising groups that they discovered that they were not alone in their experiences i.e. that many of their so-called personal problems were objectively imposed upon the entire group of women by the oppressive society. That is, these were not personal problems at all, they were socially constructed problems that effected all women to some degree. Without objectivity there could be no oppression theory, consciousness raising groups are transformed into support groups, oppression theory becomes psychology, and the oppression of women is dissolved into nothing more than the personal problems of individual women. Don't throw out the baby with the bath water.
Jan 17, 2017 | economistsview.typepad.comRC AKA Darryl, Ron : January 17, 2017 at 03:53 AMRE: Trump and Gorbachevreason -> RC AKA Darryl, Ron... , January 17, 2017 at 05:28 AM
"...Many people (myself included) have regretted that the Clinton administration has failed to seize the moment at the end of the Cold War to create a more just international order that would be based on the rules of law, would not be dichotomic or even Manichean one with its origin in the Cold War, and would include Russia rather than leave it out in the cold..."
[Was "Clinton administration has failed" a typo or a subtle semantic choice? Whereas "Clinton administration HAD failed" would have past perfect tense, "has failed" is present perfect tense, suggesting the subject "Clinton administration" is the continuum of compassionate conservatism beginning with Bill Clinton and ending with Barrack Obama. Semantics is why spelling is important. It is also why reading is important.]I personally have no idea what Branko Milanovic is going on about there. As far as I can tell Russia chose to be "out in the cold", it wasn't excluded.RC AKA Darryl, Ron -> reason ... , January 17, 2017 at 06:21 AM[Not exactly. Sherman, set the wayback machine for 1998, near the end of the Bill Clinton administration's second term.]ilsm -> RC AKA Darryl, Ron... , January 17, 2017 at 02:00 PM
Aid to Russia
When the Soviet Union abruptly ceased to exist on December 25, 1991, it seemed that the West, particularly the U.S., finally had what it had always wanted–the opportunity to introduce quick, all-encompassing economic reform that would remake Russia in the West's own image.
By Janine Wedel, September 1, 1998.
- Since 1992, the U.S. and other donors have provided Russia billions of dollars in aid for radical economic "reforms," largely defined as privatization of state-owned assets.
- The chief beneficiary of these reforms has been a small clique of political and economic powerbrokers.
- The Chubais clique typically instituted reforms through top-down presidential decree and a network of aid-funded "private" organizations which has circumvented Russia's legislature.
When the Soviet Union abruptly ceased to exist on December 25, 1991, it seemed that the West, particularly the U.S., finally had what it had always wanted–the opportunity to introduce quick, all-encompassing economic reform that would remake Russia in the West's own image. To this end, the U.S., over the past seven years, has embarked upon a fairly consistent course of economic relations with Russia. Three interrelated policies characterize this course: 1) the urging of radical economic "reforms," defined largely as the privatization of state-owned assets, to restructure the economy; 2) the backing of a particular political-economic group, or "clan," to do so; and 3) the provision of billions of dollars in U.S. and other Western aid, subsidized loans, and rescheduled debt.
The United States has consistently supported President Boris Yeltsin and a Russian cadre of self-styled economic "reformers" to conduct Western aid-funded economic reforms and negotiate economic relations with the West. U.S. support for Anatoly Chubais, Yegor Gaidar, and the so-called "Chubais Clan" (a group of savvy operators dominated by a clique from St. Petersburg) has bolstered the Clan's standing as Russia's chief brokers with the West and the international financial institutions. This support continues to the present. And, the Chubais Clan–not the Russian economy as a whole–has been the chief beneficiary of economic restructuring funding from the U.S. Agency for International Development (USAID).
Throughout the 1990s, Chubais has been a useful figure for Russian president Boris Yeltsin: beginning in November 1991 as head of Russia's new privatization agency, the State Property Committee (GKI), then additionally as first deputy prime minister in January 1994, and later as the lightning rod for complaints about economic policies after the communists won the Russian parliament (Duma) election in December 1995. Chubais made a comeback in 1996 as head of Yeltsin's successful reelection campaign and was named chief of staff for the president. In March 1997, Western support and political maneuvering catapulted him to first deputy prime minister and minister of finance. Although fired by Yeltsin in March 1998, Chubais was reappointed in June 1998 to be Yeltsin's special envoy in charge of Russia's relations with international lending institutions.
Working closely with Harvard University's Institute for International Development (HIID), the Chubais Clan controlled, directly and indirectly, millions of dollars in U.S. aid through a variety of institutions and organizations set up to perform privatization, economic-restructuring, and related activities. Between 1992 and 1997, HIID received $40.4 million from USAID in noncompetitive grants for work in Russia and was slated to receive another $17.4 million until USAID suspended HIID's funding in May 1997, citing evidence that HIID principals were engaged in "activities for personal gain." In addition to receiving millions in direct funding, HIID and the Clan helped steer and coordinate USAID's $300 million economic reform portfolio, which encompassed privatization, legal reform, development of capital markets, and the creation of a Russian securities and exchange commission.
The preferred method of economic reform was top-down presidential decree orchestrated by Chubais. Shortly after Yeltsin became the elected president of the Russian Federation in June 1991, the Federation's Supreme Soviet passed a law mandating privatization. After several schemes were floated, the Supreme Soviet passed a program in 1992 intended to prevent corruption, but the one Chubais eventually implemented contained none of the safeguards and was designed to encourage the accumulation of property in a few hands. This program opened the door to widespread corruption and was so controversial that Chubais ultimately had to rely largely on presidential decrees, not parliamentary approval, for implementation.
Instead of encouraging market reform, this rule by decree frustrated many market reforms as well as democratic decisionmaking. Some reforms, such as lifting price controls, could be achieved by decree. But many other reforms advocated by USAID, the World Bank, and the International Monetary Fund (IMF), including privatization and economic restructuring, depended on changes in law, public administration, or mindsets, and required working with the full spectrum of legislative and market participants-not just one group. The "reformers" set up still other means of bypassing democratic processes, including a network of aid-funded "private" organizations controlled by the Chubais Clan and HIID. These organizations enabled reformers to bypass legitimate bodies of government, such as ministries and branch ministries, and to circumvent the Duma.
Problems with Current U.S. Policy
- U.S. officials and a team of Harvard advisers have embraced the "reformers'" dictatorial political methods, arguing they alone are capable of instituting swift privatization and other economic restructurings.
- While professing to support simply economic reform, U.S. policies have consolidated political and economic power in the hands of one clique.
- The $11.2 billion IMF bailout in July 1998 will intensify these abuses and has failed to stem Russia's financial crisis.
The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth.
Despite evidence of corruption and lack of popular support, many Western investors and U.S. officials embraced the "reformers" dictatorial modus operandi and viewed Chubais as the only man capable of keeping the nation heading along the troublesome road to economic reform. As Walter Coles, a senior adviser in USAID's Office of Privatization and Economic Restructuring program, said, "If we needed a decree, Chubais didn't have to go through the bureaucracy," adding, "There was no way that reformers could go to the Duma for large amounts of money to move along reform."
While this approach sounds good in principle, it is less convincing in practice because it is an inherently political decision disguised as a technical matter. As Chubais Clan member Maxim Boycko himself acknowledged in a 1995 co-authored book on privatization, "Aid can change the political equilibrium by explicitly helping free-market reformers to defeat their opponents . Aid helps reform not because it directly helps the economy–it is simply too small for that–but because it helps the reformers in their political battles."
In a 1997 interview, U.S. aid coordinator to the former Soviet Union, Ambassador Richard L. Morningstar, stood by this approach: "If we hadn't been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you're talking about a few hundred million dollars, you're not going to change the country, but you can provide targeted assistance to help Chubais."
U.S. assistance to Chubais continued even after he was dismissed by Yeltsin as First Deputy Prime Minister in January 1996. Chubais was placed on the HIID payroll, a show of loyalty that USAID Assistant Administrator Thomas A. Dine said he supported.
Much of this feels familiar to Russians raised in the Communist practice of political control over economic decisions–the quintessence of the discredited Communist system. While professing simply to support reform, U.S. policies afforded one group a comparative advantage and allowed much aid to be used as the tool of this group. Ironically, far from helping to separate the political and economic spheres, U.S. economic aid has instead reinforced the interdependency of these spheres. Indeed, the activities of HIID in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance, and on the entire policy of support for a single Russian group of so-called reformers.
The July 1998 IMF bailout of Russia represents an intensification of the very policies that have produced such abuses. The $11.2 billion aid package for 1998, (with another $7.8 billion funds over three years pledged if Russia "stays on track"), is supposed to put an end to Russia's financial crisis. Yet only a very few certain political-economic players–not the population at large, including workers who have gone without wages for months–stand to reap any benefits.
Among those who spoke out against the bailout was Veniamin Sokolov, head of the Chamber of Accounts of the Russian Federation, Russia's equivalent of the U.S. General Accounting Office. Sokolov, who has investigated the destination of some previous monies from international lending institutions and aid organizations, argued, "All loans made to Russia go to speculative financial markets and have no effect whatsoever on the national economy." And it is the Russian people who are responsible for repaying those loans.
The very call for an IMF bailout is a commentary on the failure of previous economic aid to Russia: If aid had been effective, why were billions in IMF loans needed to prevent the country from falling into crisis? The IMF loan and accompanying hype were intended to revive confidence in Russia's plummeting markets and give the government time to get its financial markets under control. However, just weeks after the IMF deal was approved, investor confidence hit a new low and the Russian government was forced to devalue the ruble.
For its part, USAID, which provided Russia with $95.7 million in economic aid in 1997 and another $129.1 million estimated for 1998, is requesting from Congress $225.4 million in economic aid for Russia in 1999.
Toward a New Foreign Policy
- In order to support its stated objectives of fostering sound economic development and democratic institutions, the U.S. needs to reverse its current policies and practices in Russia.
- The United States must accept that the future shape of Russia must and will be determined by the Russian people and adhere to its basic principles such as participatory democracy and the rule of law.
- Washington should recognize that a healthy banking and financial system depends on a revival of production and distribution within Russia and should use its considerable influence with the World Bank and IMF to promote policies that address these fundamental problems.
Given the continuing socioeconomic deterioration of Russia, what should the United States do? If the U.S. government wants to adhere to its own declared objectives and help promote in Russia sound economic development and equitable growth as well as viable and transparent democratic institutions, it has no option than to reverse its current policies and practices.
The U.S. role in creating a system of tycoon capitalism and the current economic meltdown, coupled with military policies such as NATO expansion, have fueled anti-American sentiment in Russia. The first thing we should do, as Joseph Stiglitz, a leading World Bank economist, correctly suggests, is to adopt "a greater degree of humility . (and) acknowledgement of the fact that we do not have all of the answers." Washington must also accept that the future shape of Russia society will and must be determined by the Russian people. U.S. policy should at least try to adhere to some of the principles that it preaches, such as participatory democracy and the rule of law or even "no taxation without representation." In line this with, the U.S. must stop its policy of support-at-all-costs for Yeltsin and the Chubais Clan, not only in USAID targets but also in U.S. influence in IMF and World Bank lending.
Second, the U.S. government should recognize that a healthy banking and financial system cannot arise without a revival of production and distribution in the "real" economy. Measures which emphasize increases in tax collections and reductions in government expenditures under the current extremely depressed conditions simply guarantee accelerated decline of the real economy and social-political chaos. The United States should use its great influence on the IMF andWorld Bank to reduce their pressure on Russia to pursue such suicidal policies. Not only did the IMF bailout fail to restore confidence, but the business of international aid has been fundamentally ill-conceived. As Veniamin Sokolov warned: "Giving more loans to the Yeltsin government is comparable to giving a drug addict a fresh supply of narcotics. Any new loans will only go to the realm of financial speculation and to prop up support for Boris Yeltsin. Russia does not need any further such lending." In sum, further aid will go to the same corrupt niches and is likely to make the situation worse, not better.
Third, the U.S. should embark on a broad-based policy to encourage governance and the rule of law. It is essential that the United States discontinue support of non-inclusive organizations and the bypassing of democratic process through decree. Some U.S. aid funds have gone for "democracy building," including strengthening and revamping the judiciary. However, these efforts have been a low priority and have been compromised and undermined by the practice of U.S. economic advisers encouraging the Chubais Clan to enact swift economic reforms without approval of the Duma, Russia's popularly elected legislature.
The U.S. needs to adopt a pro-democracy stance that encourages institution-building and as broad a range of democratic positions as possible. We must cease to select specific groups or individuals as the recipients of uncritical support, which both corrupts our "favorites" and delegitimizes them in the eyes of their fellow citizens.
Fourth, President Clinton himself, other U.S. officials, and economic advisers need to establish contact and ties with a wide cross-section of the Russian leadership–politicians, economists, and social and political activists–and not only with Yeltsin and his allies. How Russian elites perceive the efficacy of U.S. aid programs and policies should be a source of concern, especially because many Russians have questioned American intentions. Although a reversal of policy will require a long and resolute process of diplomacy, Clinton administration officials can take steps by, for example, making efforts to meet with members of the Duma and a diversity of Russian elites.
[What the US largely did at that point was disengage aid to Russia and set them adrift.]
This is a jr high social studies homework assignment from a pro neocon teacher.ilsm -> ilsm... , January 17, 2017 at 02:02 PM
Bill Clinton was all out after Russia, Talbot and his neocon advisors!
The look the other way when the united Germany sent a brigade size armored set to Croatia to do Serbs.
In Jul 1997 Poland, Hungary and Czech republic were entered in to NATO.
Several undeclared wars against Serbia under Clinton. The Russians looked on helpless to aid the historic Tsarist protectorate.
The Crimean War in 1857 was fought over the same issues.
End of cold war was back to the historic west Europe versus Russia.
Milanovic is out of his element.Then there was Harvard's economic advisors' pillaging Russian evolution.RC AKA Darryl, Ron -> ilsm... , January 17, 2017 at 02:37 PM
Documented by David Warsh.It is not clear what Milanovic was trying to get at, but what Janine Wedel wrote about was how I came to understand the story. Your writing makes Milanovic seem cogent. I am talking about your organization of ideas and your semantics, as well as his. Neither of you get much across for the effort. Wedel can actually write. Whether she is right or not, I cannot say, but it is how I have heard the story told from the beginning.ilsm -> RC AKA Darryl, Ron... , January 17, 2017 at 03:29 PMI typed too much!libezkova -> ilsm... , January 17, 2017 at 05:55 PM
no more six word linesHere is a web page about Harvard mafia did Russia in 90thlibezkova -> libezkova... , January 17, 2017 at 06:43 PM
http://www.softpanorama.org/Skeptics/Pseudoscience/harvard_mafia.shtmlLooks like there was a desire to completely destroy Russian economics and turn Russia into vassal state by the USA ruling elite. So the policy was not to help, but help to destroy.Chris G -> RC AKA Darryl, Ron... , January 17, 2017 at 02:15 PM
Huge profits were made by devouring Russia and all xUSSR region and plunging the population into abject poverty. But eventually it backfired.Yeah, hard to argue that the U.S. did the Russian people a solid after the Soviet Union collapsed.RC AKA Darryl, Ron said in reply to Chris G ... , January 17, 2017 at 02:38 PM
Yep. The US is good about intervening, screwing it up, and then leaving the scene of the crime.JohnH -> RC AKA Darryl, Ron... , January 17, 2017 at 07:31 AMRegarding Russia, Clinton was more interested in domination that development...a consistent theme in US history since its beginning.pgl -> JohnH... , January 17, 2017 at 08:04 AM
Instead of promoting democracy, the US rigged the 1996 election in favor of the drunkard Yeltsin.
To hear the all the whining of Democrats and of the security state, the chickens may have come home to roost.Wow - Anne is not going to like this suggestion that Yeltsin was a drunkard. Of course you missed the real problem - his regime of crony capitalism was incredibly corrupt. Stiglitz covered the damage that was done in a chapter entitled "Who Lost Russia". Something else you never bothered to read.pgl -> pgl... , January 17, 2017 at 08:05 AMChapter 5 of Globalization and its Discontents (2002)JohnH -> pgl... , January 17, 2017 at 09:54 AM
https://www.princeton.edu/wwac/academic-review/files/561/8.3c_StiglitzCh5.docYeltsin's "regime of crony capitalism was incredibly corrupt"...Clinton's regime on a grander scale...which was why Clinton wanted to rig the Russian election for Yeltsin?ilsm -> RC AKA Darryl, Ron... , January 17, 2017 at 02:16 PMHaving been is Strategic Air Command, as well as a long time in the technical side of NORAD's mission I find Milanovic's concluding statement utterly misguided.ilsm -> RC AKA Darryl, Ron... , -1
"But note that the Cold War had one good feature: it was "Cold".
"Civilization"* could have ended in less than the time to watch an NFL football game.
My experiences in the cold war were really great!! The nuclear forces I supported were on 'immediate' launch alert, several rumors abide about close calls from 'sensor errors and communication black out". Any of SAC's bomb wings could have its alert Buffs in the air in single digit minutes!
It is safer to move NATO right up to Moscow! Neocon hyperbole from Milanovic selling the US military industrial complex' marketing plans. Look how secure and prosperous the 'west' has been under the umbrella of $28T in US war spending.
It don't cause any concerns that NATO has organized former Warsaw pact against Russia.
It will be deceptively "Cold" until it goes thermonuclear over that brigade level trip wire.Obama on cornering Russia is an extension of Wm Clinton.
Jan 17, 2017 | www.marketwatch.com
n case you needed one more way - or reason - to buy things from Amazon, here it is. The retailer AMZN, +0.43% on Wednesday announced its new Amazon Prime Rewards Visa Signature credit card, which will offer 5% back to customers who are members of Amazon Prime, which itself costs $99 per year to join. It also offers 2% back at restaurants, gas stations and drugstores and 1% back on all other purchases. There is no cap on the amount of rewards cardholders can earn. It is a Visa card V, -0.25% issued through Chase JPM, +0.53% The card has no annual fee and does not charge foreign transaction fees, and charges 14.74% to 22.74% annual percentage rate on unpaid balances versus the average credit
When new cardholders sign up, they will receive a $70 Amazon gift card . (Amazon did not respond to request for comment.)
That said, other credit cards on the market offer higher rewards. American Express's Blue Cash Preferred card, for example, offers 6% cash back at U.S. supermarkets (up to $6,000 per year and 1% after that), 3% at gas stations and some department stores and 1% back on other purchases.
... ... ...
American households with credit card debt on average owe more than $16,000.
Amazon makes it easier to impulse buy
And a card with sweetened rewards isn't the only way the massive retailer has pulled customers even further into the Amazon ecosystem. Amazon debuted "Alexa," its digital personal assistant and mobile operating system, in November 2014. Since then, the company has allowed Alexa to be integrated not only with Amazon's hands-free voice-controlled Echo and Echo Dot but with appliances including smart refrigerators, making purchases (on Amazon or otherwise) easy .
There are advantages for Amazon releasing such a card too. Creating a branded credit card - as many airlines, hotel chains and department stores have done - can boost a shopper's loyalty to that brand. When consumers physically see a retailer's name in their wallet on a regular basis, they may be more likely to shop there, said Rob Markey, a partner at Bain & Company, who is the head of the company's customer strategy and marketing practice.
For banks, such as Chase in this case, it's beneficial to attract high-spending , low-risk customers who will not only sign up for cards but continue to use them responsibly and not put the bank at risk for having to track down outstanding balances, Markey said.
Jan 17, 2017 | economistsview.typepad.comanne : , January 17, 2017 at 05:56 AMhttp://cepr.net/blogs/beat-the-press/the-housing-bubble-was-not-hard-to-see-except-for-economistsRC AKA Darryl, Ron -> anne... , January 17, 2017 at 06:43 AM
January 17, 2017
The Housing Bubble Was Not Hard to See (Except for Economists)
Max Ehrenfreund features * a rather silly debate among economists about explanations for the housing bubble (wrongly described as the "financial crisis) in a Washington Post piece. The debate is over whether subprime mortgages were central to the bubble. Of course subprime played an important role, but the focus of the piece is on new research showing that most of the bad debt was on prime mortgages taken out by people with good credit records.
I sort of thought everyone knew this, but whatever. The more important point is that economists continue to treat the housing bubble as something that snuck up on us in the dark and only someone with an incredibly keen sense of the housing market would have seen it. (I focus on the bubble and not the financial crisis, because the latter was very much secondary and really a distraction. By 2011 our financial system had been pretty much fully mended, yet the weak economy persisted. This was due to the fact that we had no source of demand in the economy to replace the demand generated by the housing bubble.)
Anyhow, there was nothing mysterious about the housing bubble. We had an unprecedented run-up in real house prices with no remotely plausible explanation in the fundamentals of the housing market. This could be clearly seen by the fact that rents were just following in step with the overall rate of inflation, as they have generally for as long as we have data. (This is nationwide, rents have outpaced inflation in many local markets, as have house prices.) The bubble should also have been apparent as we had record vacancy rates as early as 2002. The vacancy rate eventually rose much higher by the peak of the market in 2006.
It should also have been clear that the collapse of the bubble would be bad news for the economy. Residential construction reached a peak of 6.5 percent of GDP, about 2.5 percentage points more than normal. (When the bubble burst it fell to less than 2.0 percent of GDP due to massive overbuilding.) Also, the housing wealth effect led to an enormous consumption boom as people spent based on $8 trillion in ephemeral housing wealth.
In short, there was really no excuse for economists missing the bubble or not recognizing the fact that its collapse would lead to a severe recession. The signs were very visible to any competent observer.
-- Dean BakerPrecisely. THANKS!Chris Lowery -> anne... , January 17, 2017 at 07:29 AMMortgage payments as a percentage of personal disposable income --Stan Dupcomic -> anne... , January 17, 2017 at 08:00 AM
Median home price versus median family income --
https://fred.stlouisfed.org/graph/fredgraph.png?g=cp0Wunprecedented run-up in real house prices with no remotely plausible explanation in the fundamentals of the housing market. This could be clearly seen by the fact that rentsilsm -> anne... , January 17, 2017 at 03:24 PM
During that run-up would have been the perfect time to shift into full reserve banking thus cutting off the deluge of cash looking for a home, looking for homes to buy, flip, and inflate.
Now it's too
Res Re getting bubbly up here in parts of the Boston MRSA.
Jan 17, 2017 | economistsview.typepad.comAll those notions like "full employment" (when employment metrics are completely screwed) are very questionable indeed. And role of federal reserve in enforcing neoliberal policies is often underestimated. Greenspan was a neoliberal stooge. A servant of Wall Street.
Peter K. : , January 17, 2017 at 08:02 AMJW Mason remembers a famous episode that the progressive neoliberals would have us forget:
What Does Crowding Out Even Mean?
by J.W. Mason
Posted on January 16, 2017
Paul Krugman is taking some guff for this column where he argues that the US economy is now at potential, or full employment, so any shift in the federal budget toward deficit will just crowd out private demand.
...In the more sophisticated textbooks, this becomes a central bank reaction function - the central bank's actions change from being policy choices, to a fundamental law of the economic universe. The master parable for this story is the 1990s, when the Clinton administration came in with big plans for stimulus, only to be slapped down by Alan Greenspan, who warned that any increase in public spending would be offset by a contractionary shift by the federal reserve. But once Clinton made the walk to Canossa and embraced deficit reduction, Greenspan's fed rewarded him with low rates, substituting private investment in equal measure for the foregone public spending. In the current contest, this means: Any increase in federal borrowing will be offset one for one by a fall in private investment - because the Fed will raise rates enough to make it happen."
Jan 17, 2017 | economistsview.typepad.comDan Kervick : January 16, 2017 at 07:08 PM
Whether Trump is seen by most of the public in the end as a "legitimate" president will be determined primarily by perceptions of his job performance.
Chris G -> Dan Kervick... , January 16, 2017 at 07:28 PMHe's got a lot of options for catastrophic failure - potential conflict with China coming to the forefront over the past week or so.* If he decides to have a go with them that will have an adverse effect on people's ability to buy cheap shit at WalMart.libezkova -> Dan Kervick... , -1
It could well adversely affect their ability to feed themselves. If that happens then I predict it will adversely affect his popularity.
Trump is a narcissist. Popularity is of foremost importance to him. That noted, I'm skeptical that he's self-aware enough to recognize what actions he might take that people - as in essentially all of us, not just the ones who didn't vote for him - would hate him for. If given enough rope will he hang himself? Perhaps more significantly, how many of us will hang first?
*Next week it'll be something new. Iran's probably due for a turn in the headlines before the winter is out. Perhaps a dust up with Putin in the spring?Dan,Jas11 -> libezkova... , January 16, 2017 at 08:40 PM
"Whether Trump is seen by most of the public in the end as a "legitimate" president will be determined primarily by perceptions of his job performance."
I am not so sure. People fought to block Hillary not to elect Trump. Hillary was the chosen candidate of the deep-state and international finance capital. They actually don't care if politician belong to 'D' or 'R' branch of the establishment party. They are only concerned how well they will serve the US led global neoliberal empire.
That means that Trump deserves the "Benefit of the Doubt" in evaluation of his performance -- most people understand that he will be fighting on two fronts, with the deep state being one.The market reaction to Trumps surprise win pretty clearly indicates that Hillary was not the finance industries choice.libezkova -> Jas11... , January 16, 2017 at 09:08 PM
If your that far off on this one, I'd bet your just as far off on the 'deep state', whatever that means.I agree that it is strange that we have "Trump rally" and that this rally somewhat contradicts my hypothesis (although not much if we analyze S&P 500 by sector, for example oil industry definitely should rally, no question about it).Ben Groves -> libezkova... , January 16, 2017 at 09:35 PM
You forgot a very important nuance that S&P500 as a whole did much better that financial industry ETFs.
People made a lot of money based on this recently.
In any case, thank you for pointing this out.Trumps ties to de Rothschild is where you don't get it. Oh, what did Donald do in 2008 that got him in bad trouble..............GS left the Morgans in 2009 and finally that truth is coming out of the closet. My guess when Democrats come back into the WH, GS gets hurt bad bad bad.sanjait -> libezkova... , January 16, 2017 at 11:14 PM"You forgot a very important nuance that S&P500 as a whole did much better that financial industry ETFs."libezkova -> sanjait... , January 17, 2017 at 03:20 AM
This is the exact opposite of what actually happened.
Seriously, go look it up. The finance sector has been *by far* the biggest beneficiary of Trump's election, in terms of stock price movement.
Seriously, go look it up. XLF, for example, vs S&P 500.Yes, from election day I am deeply wrong. For 2017, I am right.Dan Kervick -> libezkova... , January 17, 2017 at 04:59 AMTrump will likely do something bold militarily, very early in his administration, most likely directed against ISIS and related jihadi groups. He will partner with Russia in doing this.Chris G -> Dan Kervick... , -1
If it goes reasonably well, Putin will be our new best buddy in the war on terror. The media herd, responding with the usual America at War televised info-frenzy, will ramble en masse away from it's current obsession with Russian spying and hacking, and will instead be covering the war theater with embedded journalists in flak jackets and helmets. They will be interviewing, among others, Russian pilots and generals, newly discovered to be likable and sturdy vodka-slugging war heroes, and our allies against terrorists, not diabolical villains. They will regale the public with background stories about heroic Russian deeds of the past, including how they stopped Hitler in the snows of western Russia. Nobody will care any more about the details of the 2016 election, and the sad dead-enders who can't let it go.
On the other hand, if it goes poorly, this will give the public even more opportunity to indulge conspiracy theories about false flags, Russian and American "deep state" subversion, crony-capitalist bribery, election meddling and the illegitimacy of the 2016 outcome, Russian state television propaganda, left-wing fifth columnists and traitors, etc.
So that's what I mean when I say that Trump's perceived legitimacy will depend on how things go.That sounds about right.
Jan 17, 2017 | economistsview.typepad.comDan Kervick : , January 16, 2017 at 07:08 PMWhether Trump is seen by most of the public in the end as a "legitimate" president will be determined primarily by perceptions of his job performance.Chris G -> Dan Kervick... , January 16, 2017 at 07:28 PMHe's got a lot of options for catastrophic failure - potential conflict with China coming to the forefront over the past week or so.* If he decides to have a go with them that will have an adverse effect on people's ability to buy cheap shit at WalMart. It could well adversely affect their ability to feed themselves. If that happens then I predict it will adversely affect his popularity.libezkova -> Chris G ... , January 16, 2017 at 08:30 PM
Trump is a narcissist. Popularity is of foremost importance to him. That noted, I'm skeptical that he's self-aware enough to recognize what actions he might take that people - as in essentially all of us, not just the ones who didn't vote for him - would hate him for. If given enough rope will he hang himself? Perhaps more significantly, how many of us will hang first?
*Next week it'll be something new. Iran's probably due for a turn in the headlines before the winter is out. Perhaps a dust up with Putin in the spring?If we assume that Trump is a narcissist, your analysis is all wrong. In this case he might go not after China, but after security parasites who tried to play J. Edgar Hoover on him. And try to destroy this scum.libezkova -> Dan Kervick... , -1Dan,
"Whether Trump is seen by most of the public in the end as a "legitimate" president will be determined primarily by perceptions of his job performance."
I am not so sure. People fought to block Hillary not to elect Trump. Hillary was the chosen candidate of the deep-state and international finance capital. They actually don't care if politician belong to 'D' or 'R' branch of the establishment party. They are only concerned how well they will serve the US led global neoliberal empire.
That means that Trump deserves the "Benefit of the Doubt" in evaluation of his performance -- most people understand that he will be fighting on two fronts, with the deep state being one.
Jan 17, 2017 | economistsview.typepad.comJohnH -> Fred C. Dobbs... From the man who studied Obama before he started rising:
"the early Obama phenomenon (dating back to his campaign for an open U.S. Senate seat in Illinois in 2003-04) was intimately tied in with the United States' corporate and financial ruling class. Obama was rising to power with remarkable backing from Wall Street and K Street election investors who were not in the business of promoting politicians who sought to challenge the nation's dominant domestic and imperial hierarchies and doctrines."
Now 'liberal' commentators are celebrating Obama because he did his job...behaving like a Bush41 Republican and normalizing the damage that Bush43 did. Reply Tuesday, January 17, 2017 at 07:39 AM Peter K. -> Fred C. Dobbs... , January 17, 2017 at 07:53 AM"John F. Kennedy, though popular in retrospect, had his agenda stalled in Congress when he was killed. "Peter K. -> Peter K.... , January 17, 2017 at 08:41 AM
That will tend to stall your agenda.Kennedy's wanted to cut taxes on the rich and corporations and increase inequality.Peter K. -> Peter K.... , January 17, 2017 at 08:42 AM
"President John F. Kennedy brought up the issue of tax reduction in his 1963 State of the Union address. His initial plan called for a $13.5 billion tax cut through a reduction of the top income tax rate from 91% to 65%, reduction of the bottom rate from 20% to 14%, and a reduction in the corporate tax rate from 52% to 47%. The first attempt at passing the tax cuts was rejected by Congress in 1963. Conservatives revolted at giving Kennedy a key legislative victory before the election of 1964."
LBJ helped pass his agenda. Neoliberal!
"The Office of Tax Analysis of the United States Department of the Treasury summarized the tax changes as follows:
reduced top marginal rate (on income over $100,000, roughly $770,000 in 2015 dollars, for individuals; and over $180,000; roughly $1,380,000 in 2015 dollars, for heads of households) from 91% to 70%
reduced corporate tax rate from 52% to 48%
phased-in acceleration of corporate estimated tax payments (through 1970)
created minimum standard deduction of $300 + $100/exemption (total $1,000 max)
starve the beast!
Jan 17, 2017 | www.zerohedge.com
DAVOS MAN : "A soulless man, technocratic, nationless and cultureless, severed from reality. The modern economics that undergirded Davos capitalism is equally soulless, a managerial capitalism that reduces economics to mathematics and separates it from human action and human creativity."
– From the post: "For the Sake of Capitalism, Pepper Spray Davos"
One thing I've been very careful about not doing over the years is self-identifying under any particular political ideology. I articulated my reasoning in the post, Thank You and Welcome New Readers – A Liberty Blitzkrieg Mission Statement :
I am not a Democrat or a Republican. I do not consider myself a libertarian, progressive, socialist, anarchist, conservative, neoconservative or neoliberal. I'm just a 38 year old guy trying to figure it all out. Naturally, this doesn't imply that there aren't things which I hold dear. I have a strong belief system based on key principles. It's just that I don't think it makes sense for me to self-label and become part of a tribe. The moment you self-label, is the moment you stop thinking for yourself. It's also the moment you stop listening. When you think you have all the answers, anyone who doesn't think exactly as you do on all topics is either stupid or "paid opposition." I don't subscribe to this way of thinking.
Despite my refusal to self-identify, I am comfortable stating that I'm a firm supporter of populist movements and appreciate the instrumental role they've played historically in free societies. The reason I like this term is because it carries very little baggage. It doesn't mean you adhere to a specific set of policies or solutions, but that you believe above all else that the concerns of average citizens matter and must be reflected in government policy.
Populism reaches its political potential once such concerns become so acute they translate into popular movements, which in turn influence the levers of power. Populism is not a bug, but is a key feature in any democratic society. It functions as a sort of pressure relief valve for free societies. Indeed, it allows for an adjustment and recalibration of the existing order at the exact point in the cycle when it is needed most. In our current corrupt, unethical and depraved oligarchy, populism is exactly what is needed to restore some balance to society. Irrespective of what you think of Donald Trump or Bernie Sanders, both political movements were undoubtably populist in nature. This doesn't mean that Trump govern as populist once he is sworn into power, but there's little doubt that the energy which propelled him to the Presidency was part of a populist wave.
Trump understands this, and despite having surrounded himself with an endless stream of slimy ex-Goldman Sachs bankers and other assorted billionaires, his campaign took the following position with regard to Davos according to Bloomberg :
Donald Trump won't send an official representative to the annual gathering of the world's economic elite in Davos, taking place next week in the days leading up to his inauguration, although one of the president-elect's advisers is slated to attend.
Former Goldman Sachs President Gary Cohn, a regular attendee in the past, told the group he would skip 2017 after being named in December to head the National Economic Council, said people familiar with the conference. Other top Trump appointees will also pass up the forum.
A senior member of Trump's transition team said the president-elect thought it would betray his populist-fueled movement to have a presence at the high-powered annual gathering in the Swiss Alps. The gathering of millionaires, billionaires, political leaders and celebrities represents the power structure that fueled the populist anger that helped Trump win the election, said the person, who asked for anonymity to discuss the matter.
While all of this sounds great, it's not entirely true. For example:
Hedge fund manager Anthony Scaramucci is planning to travel to Davos, though. The founder of SkyBridge Capital and an early backer of Trump's campaign, Scaramucci was named on Thursday as an assistant to the president.
Not that Scaramucci's presence should surprise anyone, he's the consummate banker apologist, anti-populist. Recall what he said last month :
"I think the cabal against the bankers is over."
This guy shouldn't be allowed within ten feet of any populist President, but Trump unfortunately seems to have a thing for ex-Goldman Sachs bankers.
While we're on then subject, let's discuss Davos for a moment. You know, the idyllic Swiss town where the world's most dastardly politicians, oligarchs and their fawning media servants will gather in a technocratic orgy of panels and cocktail parties to discuss how best to manage the world's affairs in the year ahead. Yes, that Davos.
To get a sense of the maniacal mindset of these people, I want to turn your attention to a couple of Reuters articles published earlier today. First, from Davos Elites Struggle for Answers as Trump Era Dawns :
DAVOS, Switzerland – The global economy is in better shape than it's been in years. Stock markets are booming, oil prices are on the rise again and the risks of a rapid economic slowdown in China, a major source of concern a year ago, have eased.
First report from Davos is in. Everything's fine.
And yet, as political leaders, CEOs and top bankers make their annual trek up the Swiss Alps to the World Economic Forum in Davos, the mood is anything but celebratory.
Last year, the consensus here was that Trump had no chance of being elected. His victory, less than half a year after Britain voted to leave the European Union, was a slap at the principles that elites in Davos have long held dear, from globalization and free trade to multilateralism.
Moises Naim of the Carnegie Endowment for International Peace was even more blunt: "There is a consensus that something huge is going on, global and in many respects unprecedented. But we don't know what the causes are, nor how to deal with it."
Thank you for your invaluable insight, Moises.
The titles of the discussion panels at the WEF, which runs from Jan. 17-20, evoke the unsettling new landscape. Among them are "Squeezed and Angry: How to Fix the Middle Class Crisis" , "Politics of Fear or Rebellion of the Forgotten?", "Tolerance at the Tipping Point?" and "The Post-EU Era".
Ah, a panel on how to fix the middle class. Sounds interesting until you find out who some of the speakers are.
You really can't make this stuff up. Now back to Reuters .
Perhaps the central question in Davos, a four-day affair of panel discussions, lunches and cocktail parties that delve into subjects as diverse as terrorism, artificial intelligence and wellness, is whether leaders can agree on the root causes of public anger and begin to articulate a response.
This has to be a joke. The public has been yelling and screaming about all sorts of issues they care about from both sides of the political spectrum for a while now. Whether people identify as on the "right" or the "left" there's general consensus (at least in U.S. populist movements) of the following: oligarchs must be reined in, rule of law must be restored, unnecessary military adventures overseas must be stopped, and lobbyist written phony "free trade" deals must be scrapped and reversed. There's no secret about how strongly the various domestic populist movements feel on those topics, but the Davos set likes to pretends that these issues don't exist. They'd rather focus on Russia or identify politics, that way they can control the narrative and then propose their own anti-populist, technocratic solutions.
A WEF report on global risks released before Davos highlighted "diminishing public trust in institutions" and noted that rebuilding faith in the political process and leaders would be a "difficult task".
It's not difficult at all, what we need are new leaders with new ideas, but the people at Davos don't want to admit that either. After all, these are the types who unanimously and enthus