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Polyarchy Bulletin, 2010

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[Dec 20, 2010] Who Rules America The Class-Domination Theory of Power

The Power Elite and Government

Members of the power elite directly involve themselves in the federal government through three basic processes, each of which has a slightly different role in ensuring "access" to the White House, Congress, and specific agencies, departments, and committees in the executive branch. Although some of the same people are involved in all three processes, most leaders specialize in one or two of the three processes. These three processes are:

  1. The special-interest process, through which specific families, corporations, and industrial sectors are able to realize their narrow and short-run interests on taxes, subsidies, and regulation in their dealings with congressional committees, regulatory bodies, and executive departments;
  2. The policy-making process, through which the policies developed in the policy-planning network described earlier are brought to the White House and Congress;
  3. The candidate selection process, through which members of the power elite influence electoral campaigns by means of campaign donations to political candidates.

Power elite domination of the federal government can be seen most directly in the workings of the corporate lobbyists, backroom super-lawyers, and industry-wide trade associations that represent the interests of specific corporations or business sectors. This special-interest process is based in varying combinations of information, gifts, insider dealing, friendship, and, not least, promises of lucrative private jobs in the future for compliant government officials. This is the aspect of business-government relations described by journalists and social scientists in their case studies. While these studies show that the special interests usually get their way, the conflict that sometimes erupts within this process, occasionally pitting one corporate sector against another, reinforces the image of widely shared and fragmented power in America, including the image of a divided corporate community. Moreover, there are some defeats suffered by the corporate rich in the special-interest process. For example, laws that improved auto safety standards were passed over automobile industry objections in the 1970s, as were standards of water cleanliness opposed by the paper and chemical industries.

Policies of concern to the corporate community as a whole are not the province of the special-interest process. Instead, such policies come from the network of foundations, think tanks, and policy-discussion organizations discussed in an earlier section. The plans developed in the organizations of the policy-planning network reach the federal government in a variety of ways. On the most general level, their reports, news releases, and interviews are read by elected officials and their staffs, either in pamphlet form or in summary articles in the Washington Post, New York Times, and Wall Street Journal. Members of the policy-planning network also testify before congressional committees and subcommittees that are writing legislation or preparing budget proposals. More directly, leaders from these organizations are regular members of the dozens of little-known committees that advise specific departments of the executive branch on general policies, making them in effect unpaid temporary members of the government. They are also very prominent on the extremely important presidential commissions that are appointed to make recommendations on a wide range of issues from foreign policy to highway construction. They also serve on the little-known federal advisory committees that are part of just about every department of the executive branch.

Finally, and crucially, they are appointed to government positions with a frequency far beyond what would be expected by chance. Several different studies show that top cabinet positions in both Republican and Democratic administrations are held by members of the upper class and corporate executives who are leaders in policy-discussion organizations.

The general picture that emerges from the findings on the overrepresentation of members of the power elite in appointed governmental positions is that the highest levels of the executive branch are interlocked constantly with the upper class and corporate community through the movement of executives and lawyers in and out of government. Although the same person is not in governmental and corporate positions at the same time, there is enough continuity for the relationship to be described as one of "revolving interlocks." Corporate leaders resign their numerous directorships in profit and nonprofit organizations to serve in government for two or three years, then return to the corporate community or policy-planning network. This system gives them temporary independence from the narrow concerns of their own organizations and allows them to perform the more general roles they have learned in the policy-discussion groups. They then return to the private sector with useful personal contacts and information.

As important as the special-interest and policy-planning processes are for the power elite, they could not operate successfully if there were not sympathetic, business-oriented elected officials in government. That leads us to the third process through which members of the power elite dominate the federal government, the candidate-selection process. It operates through the two major political parties. For reasons to be discussed in a moment, the two parties have very little role in political education or policy formation; they are reduced to the function of filling offices. That is why the American political system can be characterized as a "candidate-selection process."

The main reason the political system focuses on candidate selection to the relative exclusion of political education and policy formulation is that there can be only two main parties due to the structure of the government and the nature of the electoral rules. The fact that Americans select a president instead of a parliament, and elect legislators from "single-member" geographical areas (states for the Senate, districts for the House) leads to a two-party system because in these "winner-take-all" elections a vote for a third party is a vote for the person's least desired choice. A vote for a very liberal party instead of the Democrats, for example, actually helps the Republicans. Under these rules, the most sensible strategy for both the Democrats and Republicans is to blur their policy differences in order to compete for the voters with middle-of-the-road policy views, or no policy views at all.

Contrary to what many believe, then, American political parties are not very responsive to voter preferences. Their candidates are fairly free to say one thing to get elected and to do another once in office. This contributes to confusion and apathy in the electorate. It leads to campaigns where there are no "issues" except "images" and "personalities" even when polls show that voters are extremely concerned about certain policy issues. You don't raise unnecessary issues during a campaign, one successful presidential candidate once said.

It is precisely because the candidate-selection process is so personalized, and therefore dependent on name recognition, images, and emotional symbolism, that it can be in good part dominated by members of the power elite through the relatively simple and direct means of large campaign contributions. Playing the role of donors and money raisers, the same people who direct corporations and take part in the policy-planning network have a crucial place in the careers of most politicians who advance beyond the local level or state legislatures in states with large populations. Their support is especially important in party primaries, where money is an even larger factor than in general elections.

The two-party system therefore results in elected officials who are relatively issueless and willing to go along with the policies advocated by those members of the power elite who work in the special-interest and policy-planning processes. They are motivated by personal ambition far more than they are by political conviction. Still, there are some extremely conservative elected Republicans who often oppose power elite proposals, claiming that such policies are the work of secret communists or pointy-headed intellectuals out to wreck the "free enterprise" system. There also are many Democrats from blue-collar and university districts who consistently oppose power elite policies as members of the liberal-labor coalition. However, both the ultra-conservatives and the liberals are outnumbered by the "moderates" of both parties, especially in key leadership positions in Congress. After many years in Congress the elected liberals decide to "go along to get along." "This place has a way of grinding you down," explained one liberal Congressman of the early 1970s in a classic summary of what happens.

Although members of the power elite are far and away the most important financial backers for both parties, this does not mean that there are no differences between the two parties. The leadership levels have intra-class differences, and the supporters tend to have inter-class differences. The Republican Party is controlled by the wealthiest families of the upper class and corporate community, who are largely Protestant in background. The Democratic Party, on the other hand, is the party of the "fringes" of the upper class and power elite. Although often called "the party of the common person," it was in fact the party of the Southern segment of the upper class until very recently. The power of the Southern Democrats in the party and in Congress was secured in a variety of ways, the most important of which was the seniority system for selecting committee chairs in Congress. (By tradition, the person who has been on the committee longest just about automatically becomes the chair; this avoids conflict among members of the party.) However, the underlying point is that the one-party system in the South and the exclusion of African-Americans from the voting booth until the mid-1960s gave the Southern planters and merchants power at the national level through the Democratic Party out of all proportion to their wealth and numbers. Thus, it is not necessarily the wealthiest people who rule. The nature of the political system also enters into the equation. But the Southern elites are not poor; they are only less rich than many of their Northern counterparts.

The Southerners dominated the Democratic Party in alliance with the "ethnic rich" in the North, meaning wealthy Jews and Catholics who were shunned or mistreated by the rich Protestants. The businesses they owned were often local or smaller than those of the Republican backers, and they usually were excluded from the social institutions of the upper class. These ethnic rich were the primary financial supporters of the infamous "political machines" that dominated Democratic politics in most large northern cities.

The alliance between the Southern segment of the upper class and the Northern ethnic rich usually was able to freeze out the policy initiatives of the party's liberal-labor coalition through its control of congressional committees, although there was a time (1940 to 1975) when labor unions had significant influence on the Democrats. When that alliance broke down on certain issues because the machine Democrats sided with the liberals and labor, then the Southern Democrats joined with Northern Republicans to create the "conservative coalition," AKA "the conservative voting bloc," wherein a majority of Southern Democrats and a majority of Northern Republicans voted together against the Northern Democrats. This conservative coalition most often formed around the issues that reflect class conflict in the legislative arena -- civil rights, union rights, social welfare, and business regulation. Legislation on any of these issues weakens employers in the face of workers and their unions, so it is not surprising that the conservative coalition is based on the shared interests of Northern and Southern employers. This alliance won far more often than it lost in the years between 1937, when it was formed, and the 1990s, when it disappeared for the simple reason that many of the Southerners had become Republicans.

Once the Voting Rights Act of 1965 was in effect, the Democratic Party was slowly changed because African-Americans in the South were able to vote against the worst racists in the party primaries. The gradual industrialization also was causing changes. As a result of these two forces, Southern whites started to move into the Republican Party, which thus became the party of wealthy employers in both the North and South. In that context, the Democratic Party is slowly becoming what many always thought it to be, the party of liberals, minorities, workers, and the poor.

In summary, the special-interest process, policy-planning process, and campaign finance make it possible for the power elite to win far more often than it loses on the policy issues that come before the federal government. The power elite is also greatly over-represented in appointed positions, presidential blue-ribbon commissions, and advisory committees within the government. In terms of both the "who wins" and "who governs" power indicators, the power elite dominates the federal government.

However, this domination does not mean control on each and every issue, or lack of opposition, and it does not rest upon government involvement alone. Involvement in government is only the final and most visible aspect of power elite domination, which has its roots in the class structure, the nature of the economy, and the functioning of the policy-planning network. If government officials did not have to wait on corporate leaders to decide where and when they will invest, and if government officials were not further limited by the acceptance of the current economic arrangements by the large majority of the population, then power elite involvement in elections and government would count for a lot less than it does under present conditions.

Why Business Leaders Feel Powerless

Despite these various kinds of objective evidence that the power elite has great power in relation to the federal government, many corporate leaders feel that they are relatively powerless in the face of government. To hear them tell it, Congress is more responsive to organized labor, environmentalists, and consumers. They also claim to be harassed by willful and arrogant bureaucrats. These negative feelings toward government are not a new development, contrary to those who blame the New Deal and the social programs of the 1960s. A study of businessmen's views in the 19th century found that they believed political leaders to be "stupid" and "empty" people who went into politics only to earn a living, and a study of businessmen's views during what are thought of as their most powerful decade, the 1920s, found the same mistrust of government.

The emotional expressions of business leaders about their lack of power cannot be taken seriously as a power indicator, for that confuses psychological uneasiness with power. Feelings are one thing, the effects of one's actions another. But it is nonetheless interesting to try to understand why businessmen complain about a government they dominate. First, complaining about government is a useful political strategy. It puts government officials on the defensive and forces them to keep proving that they are friendly to business. Second, businessmen complain about government because in fact very few civil servants are part of the upper class and corporate community. The anti-government ideology of the United States tends to restrain members of the upper class from government careers except in the State Department, meaning that the main contacts for members of the power elite within government are at the very top. There is thus uncertainty about how the middle levels will react to new situations, and therefore a feeling that there is a necessity to "ride herd" on or "reign in" the potentially troublesome "bureaucrats."

There also seems to be an ideological level to the business leaders' attitudes toward government. There is a fear of the populist, democratic ideology that underlies American government. Since power is in theory in the hands of all the people, there always is the possibility that someday "the people," in the sense of the majority, will make the government into the reflection of pluralist democracy that it is supposed to be. In a certain very real way, then, the great power of the upper class and corporate community are culturally illegitimate, and the existence of such power is therefore vigorously denied. It is okay to be rich, and even to brag about wealth a little bit, but not to be powerful or, worse, to flaunt that power.

Finally, the expressions of anguish from individual corporate leaders concerning their powerlessness also suggests an explanation in terms of the intersection of social psychology and sociology. It is the upper class and corporate community that have power, not individuals apart from their institutional context. As individuals, they are not always listened to, and they have to convince their peers of the reasonableness of their arguments before anything happens. Moreover, any policy that is adopted is a group decision, and it is sometimes hard for people to identify with group actions to the point where they feel personally powerful. It is therefore not surprising that specific individuals might feel powerless.

The Weaknesses of the Working Class

There are many democratic countries where the working class -- defined as all those white-collar and blue-collar workers who earn a salary or a wage -- has more power than it does in the United States. This power is achieved primarily through labor unions and political parties. It is reflected in more egalitarian wealth and income distributions, a more equitable tax structure, better public health services, subsidized housing, and higher old-age and unemployment benefits.

How is it possible that the American working class could be relatively powerless in a country that prides itself on its long-standing history of pluralism and elections? There are several interacting historical factors. First, the "primary producers" in the United States, those who work with their hands in factories and fields, were more seriously divided among themselves until the 1930s than in most other countries. The deepest and most important of these divisions was between whites and African-Americans. In the beginning, of course, the African-Americans had no social power because of their enslavement, which meant that there was no way to organize workers in the South. But even after African-Americans gained their freedom, prejudices in the white working class kept the two groups apart.

This black/white split in the working class was reinforced by later conflicts between craft workers -- also called "skilled" workers -- and industrial workers -- also called mass-production or "unskilled" workers. Craft workers usually tried to keep their wages high by excluding industrial workers. Their sense of superiority as skilled workers was reinforced by the fact that they were of Northern European, Protestant origins and the industrial workers tended to be Catholics and Jews from Eastern and Southern Europe. Some African-Americans were also found in the ranks of the industrial workers, along with other racial minorities.

It would have been difficult enough to overcome these divisions even if workers had been able to develop their own political party, but they were unable to develop such a party because the electoral system greatly disadvantages third parties. Workers were stuck. They had no place to go but the Republicans or Democrats. In the late 19th and early 20th centuries the craft workers often supported the Democrats, while the recent immigrant industrial workers tended to support the Republicans. Even when craft and industrial workers moved into the Democratic Party en masse in the 1930s, they couldn't control the party because of the power of the wealthy Southern planters and merchants.

Nor did the workers have much luck organizing themselves through unions. The employers were able to call upon the government to crush organizing drives and strikes through both court injunctions and police arrests. This was not only because employers had great influence with politicians then, just as they do now, but because the American tradition of law, based in laissez faire (free market) liberalism, was so fiercely opposed to any "restraint of trade" or "interference" with private property. It was not until the 1930s that the liberal-labor coalition was able to pass legislation guaranteeing workers the right to join unions and engage in collective bargaining. Even this advance was only possible by excluding the Southern workforce -- i.e., agricultural and seasonal labor -- from the purview of the legislation. Further, the passage of the legislation had only limited impact because the industrial unions were defeated almost completely in the South and Southwest. Unions thrived in a few major industries in the North in the years after World War II, but then their power was eroded beginning in the 1970s as the big corporations moved their factories to other countries or lost market share to European and Japanese companies.

Given this history of internal division, political frustration, and union defeat, it is not surprising the American workers continue to accept the highly individualistic ideology that has characterized the United States since its founding. This acceptance in turn makes it even more difficult to organize workers around "bread-and-butter" issues. They often vote instead on the basis of social issues or religious convictions, with those who are deeply religious, opposed to affirmative action, or opposed to gun control voting for the avowedly anti-union Republican Party.

Thus, it is important not to confuse freedom with social power. Between 1962 and the 1990s there was a great expansion in individual rights due to the civil rights, feminist, and lesbian-gay movements, but during that time the ratio of a top business executive's pay to a factory worker's pay increased from 41 to 1 to about 300 to 1. American workers can say what they want and do what they want within very broad limits, and their children can study hard in school so they can go to graduate school and join the well-off professional class as doctors, lawyers, architects, or engineers, but when it comes to social power most Americans have very little of it if they are not a part of the power elite.

Community Power

Not all power is wielded at the national level. For more on local power, click here.


The argument over the structure and distribution of power in the United States has been going on within academia since the 1950s. It has generated a large number of empirical studies, many of which have been drawn upon here. In the final analysis, however, scholars' conclusions about the American power structure depend upon their beliefs concerning power indicators, which are a product of their "philosophy of science." That sounds strange, I realize, but if "who benefits?" and "who sits?" are seen as valid power indicators, on the assumption that "power" is an underlying social trait that can be indexed by a variety of imperfect indicators, then the kind of evidence briefly outlined here will be seen as a very strong case for the dominant role of the power elite in the federal government.

If "who wins?" on a wide range of government decisions is seen as the only valid indicator of power, and if it is expected that the power elite must win every time, which is the stance adopted by pluralist theorists on the basis of a "strict positivist" view of how power must be measured, then the argument presented here, based on a "soft positivism," will be seen as less impressive. That's because those relatively few of us who disagree with the pluralists have not yet had the time and the resources to do enough case studies within the framework of the special-interest and policy-planning processes to show the full range of power elite dominance on policy issues. A good start has been made in this direction, but it will take more to convince the skeptics.

[Nov 18, 2010] Booker Rising Alan Keyes on America's Two-Party System

The conservative activist and America's Independent Party member writes: "Let's ponder for a moment the old management metaphor about the frog and the cooking pot. The American people are the frog, and socialism is the stew. But too many Americans still miss the point that the sham two-party system is the cooking pot. People hoping to preserve America's liberty have time and again hoped that a change of party would end the steady deterioration of democratic, republican self-government. We have all heard, and in the past heeded, the siren song of the GOP partisans who promise that they can change the party from within. What they are really doing is chanting the mesmerizing mantra intoned to help guarantee socialist elite success – 'Stay in the pot! It's all that you've got! Stay in the pot!'"

Mr. Keyes continues his commentary about the two-party system: "I think it's long past time that Americans awaken from this deadly political delusion and remember that we are people, not mindless amphibians. What is more, we are heirs to a political heritage intended to make sure that America's political establishment serves up policies that suit the palates of the people who patronize it. Do we still have a taste for liberty? If so we need to find a better recipe for the preparation of political results than an elitist system that consistently mistakes the resources and liberties of the people for fodder meant to serve their ambitious appetites."

To comment on "America's Two-Party System" post, click here.

[Jul 1, 2010] The Myth of the Rational Voter Why Democracies Choose Bad Policies

Loyd E. Eskildson "Pragmatist" (Phoenix, AZ.) Boring and Adds Nothing to Today's Issues, June 10, 2009

"The greatest obstacle to social economic policy is not entrenched special interests but the popular misconceptions, irrational beliefs and personal biases of ordinary voters." I thought that was a good introduction and eagerly dived in. Then it all fell apart, beginning with page 1 and Caplan's assumption that free trade is unequivocally good for America.

Clearly free trade was good for America just after WWII when we were the only industrial entity of any consequence standing. Want cars, steel, electronics, refrigerators, TVs - whatever, we had it and they probably didn't. So Americans made out like bandits.

Today, its the Chinese, Indians, Koreans, Japanese, etc. who are raking in the benefits. While Americans lose jobs, pensions, health care coverage, and move to lower-paying jobs, economists remain isolated in their 18th century theories of free-trade developed in an era of only minor differences in standards of living, wage levels, and major limitations in communication speed and transportation.

On a macro level, Americans are also losing manufacturing capacity and skills. Shocked to see a senior Mattel executive publicly apologizing to the Chinese over issues leading to the recall of Chinese manufactured toys? Undoubtedly the Chinese have more than a little power over Mattel (and other toy makers), given that at least 75% of toys are now "Made in China" and we would have difficulty quickly substituting our own capabilities for theirs. In WWII the U.S. turned the tide of battle with its ability to mass-produce quality armaments. Today we have difficulty producing IED resistant vehicles and the most effective body armor.

The dollar's purchasing power is already another victim of today's free trade, with potentially far worse declines possible. Suppose we now suddenly decided to "bite the bullet," stop buying most low-cost items from China and reinvigorate our own manufacturing? Would China threaten retaliation by dumping the trillions of dollar IOUs they hold, wrecking our currency? Could we afford that risk?

Perhaps economists (including Caplan) will join the 21st century when Asian economists begin taking their jobs via Internet instruction in American colleges and universities. It is time to update their popular misconceptions, irrational beliefs, and personal biases.

Gaetan Lion 1.0 out of 5 stars The Myth Caplan is rational, July 20, 2010

Caplan's thesis seems sensible. The voters are irrational as they have systematic biases including anti-market bias, anti-foreigner bias, anti-trade (or pro-protectionism) bias, and pro make-work bias. In turn, the voters elect politicians that reflect their biases. And, politicians execute detrimental social policies that reflect the biases of the voters. However, Caplan thesis is wrong on numerous counts.

First, the voters are not irrational. They are ignorant of counter-intuitive economic concepts. Those are two different things. One entails voters are crazy; they are not. The other entails they don't know macroeconomics; and they truly don't.

Second, politicians govern to get reelected. And, their main master is the economy as measured by GDP growth, inflation, and unemployment. Whether they are responsible or not for such indicators, politicians will suffer the blame or get credit for them. The pressure of delivering a strong economic performance easily overcomes any of the biases Caplan mentions.

Third, on economic policy it is often technocrats, not elected by voters, who run the show. Politicians are mainly lawyers not economists. On complex macroeconomic policies technocrats control the agenda. The main two ones are the Secretary of the Treasury and the Chairman of the Federal Reserve. These two pretty much dictate fiscal and monetary policies respectively. They also work jointly in times of crisis. A good example is the recent financial crisis. The various bail outs, fiscal stimulus, TARP plan, etc... were not initiated by George Bush or Obama. They were orchestrated by Henry Paulson, Secretary of the Treasury under Bush, and his successor Timothy Geithner, and Ben Bernanke, Chairman of the Fed. The public's strong anti-bank populist sentiment had no influence whatsoever on the implementation of those bail outs. Thus, recent history represents a devastating blow to Caplan's theory.

Fourth, international trade is another area that trumps Caplan's theories. His favorite theoretical examples address voters bias for protectionism and import tariffs. But, matters of international trade are now almost entirely subordinated to supranational entities such as the WTO. Additionally, you can't find a nation more in favor of free trade than the U.S. The latter has signed bilateral free trade agreements with North America (NAFTA) and many other countries. This is another embarrassing rebuttal to Caplan's theories that voters' biases result into poor economic policies. They don't. Political leaders and technocrats ignore voters' sentiments whenever they have to.

Fifth, Caplan's faith in the markets appears delusional. In his view, because democracy results in poor policies reflecting irrational voters' biases, you need an alternative. And, his alternative is the market. Quoting Caplan: "If people are rational as consumers but irrational as voters, it is a good idea to rely more on markets and less on politics." The timing of his libertarian manifesto could not have been worse. It gets published in 2007 just as we experience two spectacular market failures. The first one had been brewing up for decades: the health care crisis. That's where we found out that an unrestrained for profit health care system does not work. The second market failure was the aftermath of financial deregulation that had taken place over a decade and resulted in the current financial crisis. We should also add the recent market failure of unregulated deep sea oil drilling (the BP incident). So, for Caplan to state we should replace government by markets whenever we can is irrational.

Sixth, another weakness of Caplan's theory is that he uses data that is often over 20 years out of date. Such is the case, when he states that the elderly are less supportive of Social Security than the remainder of the public. He also states that women are less pro-choice than men. Had Caplan used current findings, it is likely that the opposite would be true.

Additionally, Caplan trips himself over basic economic concepts. Just as he goes on that economists are so smart and the rest of us are not; he demonstrates he is himself not so clear on economic concepts. Thus, when he attempts to teach us the basics of labor specialization he immediately contradicts himself. Quoting him on page 17: "If Crusoe's belief is correct, he wisely specializes in agriculture and has Friday do other kinds of work. But, if Crusoe's belief is blind to prejudice, keeping Friday out of agriculture reduces total production and makes both men poorer." As you noticed, whether Crusoe is correct or prejudice, the result is exactly the same.

David Moore wrote a far superior book pretty much on the same subject: The Opinion Makers: An Insider Exposes the Truth Behind the Polls. Moore's main point is that the public is often unqualified to answer polling questions. Meanwhile, such polls are mistaken for the voice of the Nation. But, again ignorance and craziness are not the same thing. Moore understands that. Caplan does not.

Nicole (Chicago)"Don't confuse us with the facts!", June 8, 2007

Many people have noted that democracy seems not to work - policies are implemented that often are not in the best interest of voters, and when voters are surveyed they routinely lack even the most basic civic knowledge. The way people have typically answered this problem is to say that voters are uninformed, and that if they simply had more access to good information, they would use that information to make better choices. But even so, the tiny informed minority will sway elections because the uninformed majority will vote at random.

Here, Caplan directly challenges that view by asserting that voters are not simply ignorant but irrational, and that this is in fact predicted by economic theory. Voting is not like shopping - it is more like making use of a commons, because the costs of a "bad" vote are borne by the public at large, and the chance of an individual casting the deciding vote is tiny. Therefore, people will vote for what makes them feel good without bothering to find out whether it really is good - it simply doesn't matter. Caplan explores four systematic biases voters hold against good economic policy - antimarket bias, antiforeign bias, make-work bias, and pessimistic bias. The fact that systematic bias exists means that the irrational majority does not in fact vote at random, so it's the irrational voters deciding who wins elections rather than the small, informed, rational minority. Voters get what they want, it's just that what they want is actually bad for them - and they don't care!

Caplan makes a persuasive case for viewing the average voter as irrational rather than simply ignorant, though admittedly I am sympathetic to this idea to begin with. I wish he had been able to include more recommendations in his conclusion, but this should be a promising area for further research.

Howie (North by Northwest) 5.0 out of 5 stars A well-researched, well-written book, December 17, 2007

Caplan's take on democracy can by summarized as follows: first, he accepts two arguments FOR democracy by democratic enthusiasts, 1. voters are largely unselfish; 2. politicians usually comply with public opinion. He then adds his point: 3. voters are irrational (they have "systematically biased beliefs", or in layman's terms, they have false beliefs).

Caplan develops a theoretical framework to prove that it is in fact rational for voters to be irrational because the "price" of their irrationality is low in politics.

The book mainly consists of the following themes: 1. the history of people's economic misconceptions; 2. empirical evidence of systematically biased beliefs; 3. the "rational irrationality" framework and why systematically biased beliefs lead to democratic failure; 4. prescription for overcoming democracy's weakness.

I think Caplan succeeds pretty admirably in 1, 2 and 3, but he is relatively terse at 4. But this is understandable: if you take his arguments seriously, then unless every voter (or at least the "median voter") has a Ph.D. in economics (in fact, she needs to be a libertarian economist!), the outcome of democracy will not be efficient. Increasing the electorate's education, etc. level will somewhat mitigate the situation, but as Caplan himself proves, this is hardly enough (education is not sufficient to eradicate all systematically biased beliefs).

As to the book itself, it is quite readable. I knew about his work before reading the book, what surprised me was how he mixed it with the history of economics with his own research, with quotes and all.

It's also interesting to note that (at least according to my observations) mainstream public choice (the economic approach of studying politics) economists tend to downplay Caplan's work, maybe it is because Caplan's work cuts to the core of public choice (the "rational choice" approach)? Or maybe they really think his work is not much different than rational ignorance? Now that his book seems to have gathered a lot of publicity, maybe others will take a second look.

The only weakness of the book is the part that he repudiates the accusation that economists have "market fundamentalism". His point is basically 1. markets, when free of failures, will lead to efficient outcome (first, "positive", premise); 2. Caplan does not say this, but in most economists' thinking, there is also an implicit second, or "normative" premise, which is that efficient outcome is desirable. In fact, most economists tend to shy away from this conclusion and maintain that they only specialize in cost/benefit analysis and do not make such judgment, but from their passionate, enthusiastic and sometimes vehement arguments for free market, it is not too difficult to detect such deep-rooted belief -- that "free market is good". 3. economists do not always assume there are no market failures, therefore they are not "market fundamentalists". But this is typical economists' thinking: in order to argue with them, you must accept their first premise first, and implicitly also accept the second premise, then the debate about "market fundamentalism" naturally reduces to argument about whether there are market failures. But, they are people who do not accept even the first premise, and there are more -- on moral grounds, etc. -- having difficulty accepting the second. I am not saying I agree with these people (but I have not been blinded by the ivory tower yet, so at least I know the existence of such people and such views). It is very typical of economists to not even acknowledge such views, or pretend they do not exist. It is not an easy task to face these people face-to-face, listen to their arguments, then come up with your own arguments to correct their "biased beliefs", but a good economist should not be daunted. However, this is not a big blemish in an otherwise well researched and well written book, so I am still giving it 5 stars.

[Aug 26, 2010] Fears of Regime Change in New York

August 26, 2010 | naked capitalism

Normally, I don't report on anecdotes from my immediate circle, but a set of conversations in less than a 24 hour period suggests that even those comparatively unaffected by the crisis are bracing themselves for the possibility of sudden, large-scale, adverse changes. And that sort of gnawing worry seems to be growing in New York despite being buoyed by TARP funds and covert bank subsidies.

When out on my rounds the day before yesterday, I ran into an old McKinsey colleague, who had subsequently had impressively titled jobs in Big Firms You Heard Of before semi-retiring to manage family money. He and his very accomplished wife were big Bush donors and had been invited to both inaugurations.

He made short order of niceties and got to the point: "We need more fiscal stimulus. Obama did too little and too much of what he spent on was liberal pork. We could and need to spend a lot on infrastructure. This is looking a lot like 1936. I'm afraid it could get really ugly. And I'm particularly worried that the Republicans will win big this fall. They'll cut even deeper, that's the last thing we need right now."

No I am not making this up, and yes, this is one of the last people I would have expected to express this line of thinking.

Next day, I had lunch with a two long standing, keen observers and participants in the New York scene, as in very involved in some of the city's important institutions. Both have witnessed the shift in values over the last thirty years and the rising stratification, particularly at the top end (New York has always been plutocratic, but it formerly had a large upper middle class and a much smaller and much less isolated upper crust).

They started by commenting on my Bill Gross post, which had mentioned the appalling Steve Schwarzman contention that taxing private equity overlords more on their carried interest was like HItler invading Poland. Schwarzman is not only not retreating from his remark, he is convinced that the reason the economy is so lousy is that rich men like him are not getting their way (this is if anything an understatement of their account. Both men expect his head to be the first on a pike).

The conversation turned to whether the US was going towards revolution or fascism. One argued for the a continuation of trends underway: that the continuing weakness of the Obama Administration (and the discrediting of other members of the elite) meant there was a power vacuum. The obvious group to exploit it is the most strident, uncompromising opportunists, an area where the extreme right has a monopoly. The other, who has ben reading up on the French Revolutions. took issue with the conventional idea that a revolution is impossible in America: "In France, the trigger was that people were hungry. We are close to that point than most think." He stressed the desensitization to violence (video games, more and more violence) plus widespread gun ownership. And he pointed to rising and underreported crime in the city, for instance, assaults of cab drivers.

He also noted that he believed that there were a lot of people (and he meant in the upper income strata) who were barely holding on, keeping up appearances, and hoping something would break their way. Some might get lucky, but most will hit the wall financially.

This was an engaging and lively conversation, but it you stepped back, the content was grim. Another thread was the decay in values, that there has been two generations of parents not setting boundaries for their children. One lives next to one of the elite private schools and likes children, but called those in his 'hood as "monsters," describing how a boy was beating up on his nanny and he had to intercede.

These data points don't converge neatly, but they suggest a deep-rooted anxiety that economic and social structures are near a breaking point, and whatever comes next is not likely to be pretty.

And I want to thank you for that.

The rents in the social fabric are getting bigger but IMO the tipping point for revolution (I would be happy with a little evolution)or regime change continues to seems just out of reach. The decline of America's empire will be "interesting" to live through. If we can now think of various sociopath's heads on pikes, think about how people in other countries feel about us.

lambert strether
The Big O had the chance to head all that off, of course, by sending some of the banksters to jail for accounting control fraud. CEOs in orange jumpsuits doing to perp walk would have been a terrific morale booster. Of course, Obama was groomed exactly to avoid that, and so he didn't.

Meanwhile, it's hilarious to watch the elite discovering that they really need an FDR, after having, over the last 30 years, systematically decapitated all the institutions capable of producing one.

I've been relatively sanguine about maintaining my own quite low personal baseline, assuming that the Ds would pump enough blood into the zombies to maintain until after 2012, and that the elites don't panic and turn on each other. It may be that I was too pessimistic on both counts.

Lambert - Agree with you. We should have had some quick trials of a few hundred (or thousand) bankster and put them away for life and taken their assets. That would have put the fear of god in the bankster class and helped take the country back.
koshem Bos
No banksters will be in jail with the supreme court we have.
What's needed is NOT a revolution, but a RESTORATION to the principles that guided and shaped this country and economic system.

Enforcement of the rule of law.

Private, not public, accountability, and consequences or benefits for actions.

A level playing field and markets that do not favor the leaders that would stifle competition, but instead encourage it.


The day that people go hungry and go starving is the day revolution will probably happen. Look at Paris, look at Russia circa 1917.

The French and so called "Russian" revolutions were not spontaneous uprisings of poor and hungry people but quite well prepared and organised covert operations, just like the Rumanian and Serb revolutions some years ago. This can't happen in the US. That is the reason why your oligarchs are so reckless. Their power is not and will not be challenged.
"We need to lop two years off high school, as the president of Bard College has recommended. We cram eight years of study into twelve years, and prolong childhood in order to keep young adults out of the work force."

Neuroscience has shown that the human brain is not fully developed until around age 25. As such, this is not an issue of "prolonging childhood".

Besides, how does such a proposal address the fact that there really aren't any jobs out there?


We are missing a huge opportunity to invest for the future in our infrastructure that would also be real stimulus.

The problem is that infrastructure is hard and the laws are making it harder. Infrastructure takes planning, thought, and committment over several years. Our politicians cannot conceive of this today. Instead, they focus on "shovel ready" projects, so you see some basic beautification efforts like putting a new layer of asphalt down or a paint job on something.

Real infrastructure takes 1 to 5 years of investigation, planning, and design (all work based in North America). It then requires a couple of years or more for the bidding and construction (most equipment, materials, and labor is based in North America, much is local within 25 miles). However, this would require a realization that we are in a decade-length (or more) slump where that type of stimulus is necessary. The current political and financial sector mantra is that prosperity is just around the corner so that it is unnecessary.

We also have the issue that it now takes years of EIS's and plan approvals to accomplish something, so the concept that we can suddenly go out and build a bridge has vanished. We could not emulate Roosevelt's New Deal construction projects if we tried. Our system is still too calcified to allow anything of significance to occur in less than a decade – the WTC site in NYC is a current classic example of that where it has taken almost a decade to build a basement and most of the energy now is locked up in a battle over having a religous institution on private property a couple of blocks away.

At least we are not alone; the NYT had an article about how India has a shortage of civil engineers because the profession doesn't pay enough and so their infrastructure is suffering. At least we have been able to export some of our stupid policies as well as our jobs and cash.

Our infrastructure is decaying at a horeendous rate but people only are noticing when bridges fall into the water. Over the coming decades we will see more problems arising with services assumed to be basic, such as water, sewage, energy, and transportation. Now is the time to start doing something about this. The beauty of it is that there will be a double stimulus because we will have a better infrastructure for future growth as well as re-investing our money in labor, equipment, and materials that is North America based instead of buying TVs and cellphones made in Asia. However, it will require our politicians to think more than 6 months ahead.

Thanks RD for this important point. It makes one wonder how many other potential solutions are nullified by systemic, structural obstacles that could only be overcome through a kind of leadership not likely to arise.
John L

I agree 100% that the funding on infrastructure has been too little and too tied down with red tape and attached strings to do much good. Here in NC we're spending as much of the stimulus money that goes to infrastructure, but as usual, the money is being spent on "quick fix" projects rather than the needed bridge replacement or pavement rehab projects.

I disagree with your comment about needing an EIS any time infrastructure needs replacement. There are three categories of environmental documents; CE (categorical exclusion), EA (environmental assessment) and EIS. The EIS is used only on projects that have major environmental impacts, such as new location construction. EA's are typically used to determine if a project requires an EIS, and are used for widening projects most of the time. CE's are used when the impacts are minor, such as on a bridge replacement project.

The problem is, even a CE can take 9 months to a year to complete, and if right of way needs to be purchased, nothing can begin until that document is finished. With the administration insisting on projects using stimulus money being ready within 3 months, that eliminated every project not already begun. States should be given the money without the timeline strings and let them fund projects already in the pipeline.

Stelios Theoharidis
I am quite tired of this infrastructure "meme". Yes we need to fix highway infrastructure that is a danger to the public.

But, it is well documented that we have reached diminishing returns to investment with most highway expenditure. Most expansions of highways only reduce drive times by minutes and within a few years related sprawl and increased use of highway infrastructure removes that benefit. It does not add efficiency to our economy or time savings for individuals utilizing it. Furthermore they increase our reliance on automobile dependent transport, foreign sources of fuel, and raises our trade deficit.

We need to talk about the merits of types of infrastructure spending and forget thinking about it as a unequivocal good. I would support all types of water and energy efficiency funding mechanisms, smart grid technologies, public transport systems, but further highway spending just feeds our already problematic addiction.

Highway spending also may not significantly reduce our unemployment levels (fueled by collapse in home construction), there is not a rapid movement from home construction to highway construction, these industries are fragmented and there are specific highway infrastructure development engineering companies that have direct access to state and local governments.

Doug Terpstra
Agreed. We need NEW infrastructure, not more of the same. Current "leadership" clearly lacks the imagination to visioneer a new paradigm. All it can do is dig deeper holes, subsidize obsolete slum-divisions and bridges to nowhere, and pave over status-quo stink holes. Regime change can't come soon enough. A merciful death is preferable to prolonged torture.

The US transportation system, including the world's largest public works project ever, the interstate network, is the greatest planet-wide misallocation of resources in the history of mankind. It is a Cold War artifact of nuclear-target population dispersion that gobbled vast swaths of land with massive sprawl and created a homogenized, placeless culture of alienation, utterly dependent on profligate consumption of "cheap" oil-rackets like BP and middle east conquest and occupation.

Agree totally! Historical infrastructure is a waste of money. Look at all the space in airports which is currently not being used. LAX has much less traffic, SEA- TAC seems empty, Nashville has big sections not being used, OKC built a big new addition to its airport and it is empty.

High speed trains are a waste. Let's first just get train service working between places like LA and San Fran that have functioning bathrooms and a good dining car.

John L
Let's see; trains are a waste, the interstate system (one of the great wonders of the modern world, btw) is considered a disaster, and airports are underused.

I guess you and the others prefer the US to go back to horse and buggy transportation, since you just eliminated all the other modes. If you denigrate all of these, what's your suggestion? Forcing everyone into mega cities and mass transit isn't an answer, btw.

Really the interstate commerce system was built to move the military after Eisenhower had seen how effective the autobahn was used by the nazi's.

First we must start with the understanding that 70% of the nation's crude oil. Unless the US can start exporting enough to pay for the crude, the sellors of crude will become disillusioned with taking toilet paper for their oil. As Stein law says, if something can not go on forever it will not.

To move large quantity of goods, the rail system is far more energy efficient. In addition, a lot of this consumer junk will be determined to be useless and will not need to be translated. When incomes decrease and traveling costs increase drastically I could see travel also dropping off drastically (also technology has made a lot of business travel unnecessary).

People in many areas justify the present with what was justified in the past. Things change!

Doug Terpstra
John L,

Acutally, IMO, rail is a highly efficient transportation and freight system, a huge opportunity for wealth-creating investment. Europe and Asia are way ahead of US there, with an economic advantage that will be enormous if/when peak oil hits. We can't start soon enough, IMO, with serious investment in modern rail, transit, and alternate transport modes.

And yes the interstate system is real marvel, one we are wedded to for the foreseeable future that may be an asset for readaptive reuse or retrofit, perhaps including rail or intermodal systems. My point was that it was a product of old-school thinking that spawned and metastasized many tumorous side-effects, which we should not allow to keep us rutted in obsolete, cancerous development patterns.

"the most strident, uncompromising opportunists, an area where the extreme right has a monopoly…"

Not really. You perhaps need to have lived in Europe to have seen that neither extreme left nor extreme right have any monopoly on this, and that neither are significantly morally different when they get to power.

I agree with you on an intuitive level about one thing, its basically a feeling that the other shoe is about to drop, and many of us do share it.

You make a very curious opposition: "The conversation turned to whether the US was going towards revolution or fascism…." Why are these either alternatives, or the alternatives? It is a two by two matrix (like most things), we could either have revolutionary or moderate incremental change, and it could be right wing or left wing.

If its right or left wing revolution, it will not much matter which, it will end as always in programs of mass murder in the name of some ideal or other. But it does not seem very likely, and certainly, some kind of mass uprising seems very remote.

Remember that revolutions are not the consequence of mass uprisings, whatever the left wing myth. They happen because of disaffection within the ruling elite, where the reforming faction wins the argument, and starts on a process of radical (by the standards of the day) reform. If this process coincides with great popular misery, then the crazies may take the opportunity to mobilize that and seize power, as they did in the French and Russian revolutions.

It is however radical reform by the ruling establishment as a consequence of a loss of a feeling that their institutions are effective and legitimate that starts the process. This is the sign to watch for. I don't think you are seeing that at the moment. And Republican gains in the coming elections will not lead to it.

Still, its interesting that these kinds of people are having these kinds of conversations. They do mean something, even if they do not mean imminent revolution.

Yves Smith

I didn't make this opposition, my two lunch companions chose to debate it, and then asked for my view. I though we are more likely to see a lot more random violence, I have my doubts re organized uprisings.

East Coast Cynic
Speaking of more random violence, I recall listening to a talk radio show close to a year ago where a Detroit Public Defender called in and said that the economic downturn had resulted in a dramatic increase domestic violence and DUI charges. Yep, I think the White Panthers, as well as the 1.0 Black ones, are a thing of the past.
Another possibility is that the Federal Government might be driven to the conclusion that it was necessary to take on the finance sector.

That the risk of doing this was less than the risk of continuing to placate them. Governments have done things like this in the West in the 20c. One thinks of Thatcher and the UK unions.

Sectional interests do not realize how much of a minority they are in, until it happens. Think of the legislation of the thirties in the wake of the Great Crash for a US precedent. Yes, its not happening yet, but we could get there.


Somehow I suspect that the majority of readers of this blog live in fairly low-crime areas. As such, they are likely removed from the large sections of their cities torn up by gang warfare, where most underprivileged members of society have had to live for decades now.


As a member of the left (the angry left, mind you), let me say that most of us fully realize what it takes to conduct a revolution. In somewhat modern terms those are: money, organizational ability, a flair for leadership, and most importantly, a FAT ROLODEX (maybe a long mailing list these days). That's why even the left isn't talking about black unemployment, that 1 in 9 black men see the inside of prisons – far, far higher than any other group, or the plight of the poor these days. We're talking about the middle class who are about to join the ranks of the poor. Anyone with any background in history (yours, truly) realizes fully well that the middle class is "the great revolutionary class" (h/t John Fowles), whether they were Renaissance merchants, French lecteurs, or the colonial American merchant and professional classes.

As a purely historical observation, social instability most often arises out the middle (whether as revolutionaries or warmongers like the German professional and managerial classes at the dawn of the 20th century). If Yves' lunch companions are nervous, then they should really take a very hard look at the condition of the American middle class, and consider the role unions played in its creation. They might want to start with what Elizabeth Warren has to say on this. We often speak of the middle class as an inevitable American institution, the product of our "classless" society growing inexorably from the country's inception. We like to think of the middle class as "secure". Nothing could be further from the truth. That notion of security is only about 40 years old. Prior to this, professional, white collar workers would come home everyday and work with their families at some menial task like collecting paper scraps that they would sell for the few extra pennies they needed to survive. Prior to this, Chautauqua (out of which American Progressivism was born) was as much a self-help and entrepreneurial movement as a religious one. We traded that away, and now we wait for "convergance". Maybe her companions should feel nervous, but as a class, they've nobody to blame but themselves.

"that 1 in 9 black men see the inside of prisons – far, far higher than any other group"

Yeah, sure, sure, there are 3+ million Americans behind bars, many on trivial charges. But now just think about how hugely profitable stock in the new and growing "private prison" business (CRN, CXW, GEO) has been to fine Wall Street investment banks everywhere…


Not sure I'd call either of these anecdotes "data points," but interesting nonetheless. While there may be un(der)reported crime in NYC, its hardly the wild west. I don't think I've ever seen anything about violent crime show up in my Facebook feed which is heavily-skewed with NYC-based friends. Surely, things are far worse than the MSM is reporting (do you hear me NYT, CNBC?!!?!), but I don't think we're close to revolution, although if there is anything even remotely close to it, I fear it will be for mostly the wrong reasons, as The Public is largely ignorant of reality, alas…
Yves Smith
Violent beatings of taxi drivers are apparently way up, which is an economically motivated crime. And both were confident that Bloomberg is under-reporting crime in the outer boroughs.
As crime increases and becomes more depraved in nature, our internal "fence" for what is important and reportable also goes up. This has been going on for 100 years of course, as societal norms have veered toward acceptance of violence (ref: sports and entertainment). My general observation today is that unless there are guns involved, it goes unreported. In fact, unless guns are involved the police might not even show up.
The rich have always been notable for their paranoia, their fear, and their delusions of grandeur. I'm firmly planted in the lower end of the middle class (by NYC standards) and there is certainly no talk of revolution in my circles; I'd even wager the lower rungs of the economic strata are more attached to our form of government than the rich are.

"And he pointed to rising and underreported crime in the city" – where did he get any evidence crime is suddenly being underreported? Crimestats says murder is up 15%, and that should surprise since we just got through one of the hottest summers on record (not to mention the previous years were record lows so it's unsurprising it would go up a bit eventually).

"The rich have always been notable for their paranoia, their fear, and their delusions of grandeur."

add "entitlement".

Edmund in South Gloucestershire
The fundamental problem with the Ponzi-Debt, fossil-fueled, endless growth economy model is that everyone except fantasists knows that it must eventually hit the buffers.

We cannot see the future, so every time the scheme hits an obstruction we hope and pray that it's just blockage we can break through. Then we can keep the scheme going long enough to enjoy the benefits to the max and die a natural death before industrial civilisation reaches the end of the cul-de-sac it's been heading down since Spindletop, Texas, 1901.

As Yves' correspondents are closer to the real knowledge centres than most of us (i.e. they're talking to people who see into the immediate future through a relatively transparent gauze), it's indeed worrying to hear that they appear to believe that the thing against which their fingernails are scraping is not a short-lived rough patch but the bottom of the oil-growth-debt barrel itself.

As I read it, by your definition, most residents of G7 economies are fantasists. Correct?
If you want a second opinion: absolutely.

The G7 countries are poster children for unsustainable fantasy, and have been for 30 years on the inside, maybe 80 years all said. The last 10 years have been pure speculative fluff, a complete fiction.

Ignim Brites
Re: "…whether the US was going towards revolution or fascism". This meme has its roots in the Marxist superstition of a materialist dialectic. Fascism also was a revolutionary ideology. It was light years more intelligent than Marxism (or Nazism) and, in fact, remains the only quasi serious contender in the ancient cult of revolution. But the new name for revolution is secession. And this is the far more likely course of regime dissolution in the West in the conventional sense of political action. But what is really emerging on the horizon is narco-anarchism as the challenge to the Federal government in Mexico illustrates. Whether this can make serious headway in the US remains to be seen. We will get something of an answer if California decides to compete for the cartels' business by legalizing pot.
"Fascism also was a revolutionary ideology. It was light years more intelligent than Marxism (or Nazism) and, in fact, remains the only quasi serious contender in the ancient cult of revolution."

Sure, if you consider feudlism revolution.

The aim of Marxism is to increase the franchise, the true legacy of the enlightenment and the history of all progressivism in the US from the freeing of the slaves to votes for women to the New Deal to the civil rights movement. Not that all these expansions of the franchise were either explicitly or implicitly Marxist but their modern basis was in the enlightenment.

Progressive Ed
Wasn't Marx's vision to eliminate private property, money, and all markets? And historically, isn't Progressive the American term for Fascist (i.e. the individual exists as only an extension of the will of the State)?
I am pretty pessimistic about the current situation. There are some tectonic forces at work and politicians can do only so much to try to prevent an earthquake.

One aspect of the problem is that the society became way too complex.

Tainter in his book suggested that as societies become more complex, the costs of meeting new challenges increase, until there comes a point where extra resources devoted to meeting new challenges produce diminishing and then negative returns.

The USA has an interesting twist in this regard which make some form of drastic change more plausible: Republican Party. The current Republican Party (aka wrecking crew) is a textbook demonstration of the forces that prevent any meaningful reform.

The amount of resources diverted to military industrial complex and financial companies probably serve as another severe limitation on what can be done to prevent new crisis.

And with 40% of population believing that Saddam was instrumental in 9/11 the chances of political change are slim. Looks like country is pretty evenly divided and multi-year brainwashing can't be reverted until the current generation pass away.

Rampant unemployment and absence of meaningful jobs creation are two features that make the current situation unsustainable.

Simple solutions like some form of fascism are definitely becoming more attractive in this atmosphere. So we can be sure that attempts to explore this opportunity will be made. Clerical fascism is one possibility.

High unemployment is a powerful catalyst of mass support of any radical ideology.

Actually the beginning of this century looks in many ways similar to the beginning of the previous century. And we know how things developed in the previous century.

We just do not know the form "change we can believe in" will take.

excellent points

obviously you hit only the highlights we have evolved a long way towards a defacto military dictatorship -- Obama is a "captive" of the Pentagon, the paramiltaries and their corporate allies.

No president in this country under present circumstances has real power over these guys.

So look for the corporate/military to further consolidate control as the situation worsens. The outcome? Who knows… probably a series of ever more severe "crises" that justify further consolidation of control…

Eisenhower laid it all out in his famous farewell address. Democracy is not consistent with the existence of a huge standing army.

Interesting comments.

In a nutshell, I would say that we are far from any organized movement on the ground. We have a lot of inchoate rage and a great deal of anxiety (bordering on paranoia), but they are layered over a substantial base (let's say about half the country) that has not been directly impacted by this crisis and are hoping it all blows over before it reaches them.

Contrary to the class-based analytics some have offered here, I see the "contented half" as spread pretty evenly across the country and across class lines. Simply put, if you have a job and your old salary and neither need nor desire to sell your house then it is easy to sit back and hope for the best. Unfortunately, this "contented half" is also the source of many attacks on the new "welfare queens" (e.g. the long term unemployed, foreclosees and bankrupts).

They pity but do not identify with friends and family members who have fallen into the discontented half.

Tsk tsk, but they bought too much house/got too greedy/didn't time the market right, etc. They do not understand that this is a musical chairs depression–it is not skill but luck and timing that determine who loses out.

On a philosophical level what is happening is that the more thoughtful members of the citizenry are reconsidering their consent for the ruling establishment. This can be a positive change with a good outcome. I have been very active in local government these past few years and saw up close how badly run it can be, how much taxpayer money is squandered because few bothered to question spending priorities Bell, CA was a wake up call. Some will learn from it. The question is whether they will turn the ship round in time.

Citizens are now waking up. There is a brief window in which the governing classes can appease them. Not necessarily by throwing money at them, but by demonstrating that there is a recognition of the problem and a PLAN to fix it.

The danger is that neither Obama and CO. nor the Republicrats seem to understand the need to do this quickly. Is it because they personally are doing fine? Yes. DC is a prosperous island in a sea of pain. Versailles, anyone?

Finally, the two most interesting suggestions made above (IMHO) are that we could be on the brink of secessionist movements (with which I definitely concur) and that there is a distinct danger of fascism rearing its head, to which I would just add, beware the growing power of top secret government. This is a state within a state and it controls a segment of the economy that is robust and rapacious, despite the crisis that has undermined most everything else. Fear the power of the banksters and oligopolists, yes. But fear these invisible power brokers at least as much. They are the unknown unknown that lurks in the bowels of DC. Even the pro-government Washington Post fears this beast. It is the most dangerous force in the world right now (and I feel quite certain that I have added to some watch list merely by writing these words). What a sinking feeling.

Agreed. It is easy for many to "sit back and hope for the best." I've seen this first hand, and up close. I've been unemployed for six months, yet when I sit with parents at kid parties, this goes right over their heads. They are employed, still making payments, and yes, there may have been a downturn, but it hasn't hit them yet, so it just isn't real. Even when it is sitting right across from them.

You make a lot of good points. This is one of those threads that is bracing to read, but still scares the pants off me.

"fear these invisible power brokers … (and I feel quite certain that I have added to some watch list merely by writing these words). What a sinking feeling."

Well, I don't know about that. They're probably too busy worrying their jobs.


Jim Haygood
You started out with the 'complexity' bit - how can a country of 300 million be governed democratically, with meaningful citizen input? Obviously, it can't - it devolves to elitist, corporatist rule, as we've seen.

But to blame it on one faction of an entrenched, corrupt duopoly? How tiresome, how anachronistic.

Ten countries of 30 million would be more governable than one of 300 million. And when it's popularly understood that the US fedgov is INSOLVENT, there will be huge incentive for states and regions to repudiate federal debt, and start with a clean slate (including a clean slate of political parties - no Demonrats or Repukes with compromising ties to the failed ancien regime).

Who would have thought that 'Bernie Madoff accounting' would take down the 'world's only superpower'? We coulda been a contendah ….

Sufferin' Succotash
Somehow the notion of a disciplined and centralized political movement taking over the US doesn't seem very convincing. The country's too big and undisciplined for that. A revolutionary situation is more likely to develop by means of secession movements which are by no means limited to the South or to the political Right(see Alaska, Minnesota, NYC). Nor would secessions necessarily be violent. One could visualize states and localities (especially those which send more tax dollars to Washington than they get back) "requisitioning" Federal revenues for their own purposes. A dithering and irresolute response from Inside the Beltway could easily lead to en masse secessions resembling the USSR in late 1991. As long as the seceders didn't do something stupid like, say, opening fire on a Federal military installation the USA could be in pieces before you could say James Buchanan. Speaking of Buchanan and his more illustrious successor, consider a headline in the New York Times just after Lincoln took office and just before the attack on Ft. Sumter: "Wanted–A Policy." Abe & Co. were widely perceived as weak and indecisive until the Confederates resolved matters by shooting first.
interesting hypothesis.
I don't see it so much as an hypothesis as a dynamic. Sit down at a poker table sometime (or a chess board for that matter) and you'll see it all the time. Someone's nerve will break. Whether we've reached the point where breaking nerve is enough of a factor, due to one kind of desperation or another is another question. Are there signs? Well, perhaps. I've lived in the metro Boston area all my life, and I've never seen people begging before this downturn. Now I see it daily. White people, black people, both men and women. Late 20's to what looks like around 50 years old. Obviously people who have always worked, and want to again. They're holding signs: "2 CHILDREN. WILL WORK FOR FOOD." (I first saw that one a few years back, and I'll never forget the chill it gave me. It could easily have been me – I've been laid off before.) My first reaction to Yves' piece is to think, "yeah, it happens. You'll survive." Then I remember just what an ugly experience that can be. Then I remember that sometimes, it doesn't matter how much game you've got, if people aren't buying what you have to sell.
And for secession see Vermont too. It's not just for the right, although the right hops on the bandwagon wherever it comes up. The South can now make a case under customary international law that they have recourse to rebellion because the state has deprived Gulf peoples of their marine livelihood and well-being. There's an incremental option there, UK-style devolution. It doesn't strike at military/industrial parasitism but it might permit regions to better control banks and other oligopolies.
The 'State' has deprived them? You seem confused, the entity that deprived the Gulf of their Marine life is a Private 'foreign' Corporation.
A private foreign corporation in lockstep collusion with the state (e.g. NOAA, USCG, EPA, DOI, and legislators at the state and federal levels.) This is not a blanket antigovernment rant, this pertains to a state that risks failure from pervasive corruption and trading in influence.
Ring of truth, right there.

That comment (well this whole thread) is going to become part of my Book of Shadows.

Except there is nothing to show that a country of 30 million won't create its own divisions. And then you break it down to 3 million,etc etc

Events are moving in the opposite direction.

The world is more cohesive and integrated than at anytime in human history. I can communicate for free, by video and audio, right now with anyone in the world.

"right now" are important qualifiers

google and verizon have made proposals to end net neutrality

once all communication is web-dependent and controlled my monopoly, centralised control of access and censorship become quite easy matters.

Indeed. This is a little understood, but quite ominous, problem.

You are speaking to my industry, which I know top to bottom. And what you perceive is illusory at least. The entire structure could be collapsed (or worse, subverted) with one well-placed Presidential order. Or more easily, a somewhat broader interpretation of a few lines in the (you have to wonder about who names these things and the extent of their criminal genius) Patriot Act.

Jim - Very good thoughts. Originally, as the 13 states were set up we had a large number of seperate experiments going on regarding how to govern. If one state was doing better than another then good ideas could be taken from that state. The people would have demanded it.

Since 1865 we have had a movements towards more and more centralization forcing bad ideas down upon the population from the top even though the people were against it.

Kievite says - sayd "Clerical fascism is one possibility."

That is an interesting choice of words. I have sometimes wondered if the future instead of being like the French Revolution instead being more like the English Civil War, when the protestant conservatives became disgusted with the English monarchy. Of course it only took a generation of the Lord Protector's puritan rule for the English to get their fill of that.

Kevin Smith
The grossest error in the stimulus package was to waste money on clunkers and homes, when the US and its allies allies in desperate need of resources to maintain its basic infrastructure.

I realize there are lead time issues [and in the US, the certainty that projects will be bogged down in litigation].

It would be criminal ["hostis generis humanis"] if the various wars were being used as "stimulus".

Schwartzman has become a drunkard and needs to go to rehab.

his position is dangerously close to

"If you say anything bad about a banker you're a Nazi"

There is no doubt in my mind that all your interlocutors make excellent points. While it's debatable that stimulus funds are too few they certainly seem to have been misdirected. Witness, for example, the non-stop traffic jams and deteriorating air quality in the LA basin and tell me that investment in a proper commuter rail system doesn't make sense from the employment and positive long run externality angle.

The main problem seems to be an increasingly decadent national mentality demanding instant self-gratification without concern for long term challenges and collateral damage. This urge seems to have gone parabolic over the past generation and can explain lots of phenomena from the increase in income inequality to terrorist toddlers. Suppose this is par for the course for an empire in (relative) decline. The time to fear revolution is when the new age lumpen proletariat cubicle dwellers, worked to the bone to fatten corporate profit margins but facing deteriorating standards of living themselves, figure out that their futures have been mortgaged by the politicians and the corporations who control them.

Jim Haygood
This chart shows an index compiled by the Consumer Metrics Institute, which is drawn directly from online consumer durables purchases and therefore leads GDP reports by several months. The rate of change in the smoothed index has plunged back to its crisis level of autumn 2008:

Article link:

So I tend to believe Roubini's claim that 3Q GDP prints sub 1%. And for my own part, I suspect that 4Q goes negative, as we end a third year of recession in December 2010 and enter the fourth. As an aside, Depression I (1929-1933) lasted 43 months.

Yep, it's pretty ugly out there. On Monday, somebody stole a log splitter from my rural farm in broad daylight - our first problem with theft in a long time. Lots of desperate folks out there, urban and rural.

I agree, Yves. We will see more QE, probably in Q3, and, ultimately (absence another Internet miracle), we will be forced into a huge jobs bill. We cannot have 15 million people falling off unemployment benefits and hungry.

But since the first stimulus was largely wasted giveaways to the states and to the Dem voter base, the bar for the next bill has been set higher - which means we will need to endure more pain (i.e., cover) for DC to act. A big Republican victory in November just raises that bar more. The end game for everyone is political stability.

Kevin de Bruxelles
Very interesting post. I've been thinking a lot about this lately. Inspired by both Barrington Moore's Social Origins of Dictatorship and Democracy and a recent post Attempter had up about among other things Marxism. I have been trying to break down American society into classes and to understand the power relations between the classes. From what I can see there is no revolution on the horizon, but who knows maybe things will change?

In feudal times the class structure was easy. You had the peasants who produced the wealth and the aristocratic/priestly class who were parasitical and extracted as much wealth as possible from the peasants. In return the aristocrats provided military protection and occasional tickets to the afterlife. The key to stability was convincing hte peasants that their overlords rendered essential services.

In modern America you basically have four classes; two parasitical and two productive. The highest is the parasitical Rentier class which basically hovers over productive society seeking opportunities to extract rent in all its various forms. At the bottom you have the parasitical Lumpenproletariat (gang bangers, meth heads, crack ho's and the like) who suck the life blood out of society through criminal activity and/or lives on welfare or in the penitentiary. The two productive classes are the Peasants; who are uneducated to somewhat educated people who basically follow the law and most of the time have jobs. On top of these you have the Bourgeoisie who are white-collar workers with educations and with more cultural refinement than the Peasants.

Politically both parties are under the thumb of the Rentier class. Democrats tend to be more culturally and occasionally economically aligned with the Bourgeoisie and they tend to be quite protective of the Lumpenproletariat. Republicans are economically tied to the Rentier and occasionally to the Bourgeoisie class but make strong emotional appeals to the Peasants and are quite hostile to the Lumpenproletariat and some elements of the Bourgeoisie.

The key to a strong and stable society is to diminish the two parasitical classes to the minimum. The only way a just welfare state is possible is if producers and the parasites tend to be the same people, with their status depending on their age or particular circumstances. The key to avoiding conflict is if the line between parasite and producer passes through the same person. A worker who is a parasite when young and old and occasionally when unemployed will support a welfare state while he is a producer as well. But when a Peasant sees a corrupt and greedy Rentier class combined with a huge and rapacious Lumpenproletariat sucking the life blood out of his society, he will not support for the continuation of the looting welfare state.

For there to be a productive revolution in America the Peasants and the Bourgeoisie would need to combine against the two parasitical classes. But the culture wars being driven by the media elites ensure that these two groups will stay at each other's throats for the foreseeable future. IN some ways the Peasants would love to go after the Lumpens and many elements of the Bourgeoisie would go after the Rentiers but the key is that this will only work if both productive classes combine. A revolution led by the Bourgeoisie alone would be pretty hopeless. If the Peasants really started to rise alone (and not the current Rentier-class led Tea Party movement) their anger would be directed towards the Lumpenproletariat and away from the Rentiers and lead to a hopeless and bloody stalemate.

So it seems the current trends look good for the Rentier class. Profits and labor are more and more being outsourced. The ever-growing Lumpenproletariat not only provides live training for America's security forces to train for future overseas duties, it also ensures that tensions between parasites and producers means that what remains of the US welfare state will continue to be dismantled. The Bourgeoisie will take a hit but they have no real options besides expatriation since they refuse to combine with the Peasants against both parasitical classes.

And of course I have not explained (nor thought as much about) what it means to actually attack a social class. My first thoughts would be that to attack the Lumpenproletariat would not only mean making sure jobs were available for those who actually did want to pass to the Peasant class, it would also mean to attack the very dysfunctional culture at its root and that means with the raising of children.. Most Lumpen adults are hopeless after a childhood of Lumpen deprivation. Attacking the Rentier class would be more straightforward, the question is acquiring the power to actually carry out attacks.

Thanks for the link, Kevin.

Going with this terminology, if we eradicated the rentier parasites, then the lumpenproles and the bourgeoisie would soon cease to exist, and we'd have only producers.

Since all unemployment is the result of artificial scarcity of one or another input, engineered in order to create extraction opportunities for elite parasites, then once rent-seeking was abolished there'd no longer be unemployment, since everyone would have the opportunity to work. To give one obvious example, post-oil localized food production will be a growth industry, and there's no lack of land for such proprietors, except where land is hoarded by banksters. Eradicate the rentier land monopoly (which in fact never emerged from feudalism at all; to render it "capitalist" in a truly Lockean sense would constitute a modernization which never occured previously), and you generate sufficient economic capacity for full employment.

Meanwhile the bourgeosie, the "white collar worker", a hanger-on of the rentier class, would be forced by circumstance to stop leeching and commence working for a living. So it too would fade out.

We'd be left only with a sustainable, steady-state, full-employment economy, which would also for the first time in history maximize human fulfillment.

That's one option for the post-oil world. The other is total refeudalization, but in a far more vicious way than prior medieval feudalism. That'll be because we'll lack the organic sense of family, town, countryside, religion, culture, while the overlords will also lack the restraints of the chivalry ideology (honored more in the breach historically, but they did exist). Instead they'll operate according to the precepts of instrumental reason, "libertarianism", greed fundamentalism, and totalitarianism. The result will be infinitely worse than the original feudalism.

So there's our choice – freedom and a new vision of prosperity, or total enslavement and death.

Even more simply, without private property there would be no homelessness.

Privatizing everything creates scarcity and rent-seekers,, and of course 'self-interest'.

Progressive Ed
Great point. Let's check out the Marxist cultures around the world (both now and historically) and model the USA on the one that delivers the most equality and least exploitation of the workers. My nomination is Cambodia of the 1970's, though perhaps N. Korea or Cuba is more realistic. Viva La Raza!
Even more simply, without private property there would be no homelessness. ------------– Purple, I believe you have a typo. I think you meant, "without private property there would be no homes."

There, fixed it.

Kevin de Bruxelles

I find your idealized agrarian society very appealing; I am a bit of a foodie and my dream is to someday own some land and grow my own food (I may change my mind when I actually start doing that of course). And I'm sure many of the answers to today's problems lie in moving in that direction. What I don't see addressed is the human, no biological, propensity towards cheating. After all the human parasitical classes are no different than brood parasites like the cuckoo bird, which leaves its eggs in the nests of other species. Usually the cuckoo chick hatches first, grows quickly, and eventually evicts the true offspring of its "parent". Other birds must then develop defences against this parasitical behaviour while not going so far as to destroy themselves in paranoia.

So in an idealized agrarian society there will be bandits roaming the land. I'm thinking of Kurosawa's "Seven Samurai" where a village must defend itself against the imminent attack by a well-organized band of thieves who will attack at harvest time. Of course the resultant creation of a soldierly class eventually leads to both private property and in order to enforce these property rights, a strong centralized government. And this government very quickly becomes the executive committee of the ruling class. And then the ruling class eventually gets dominated by the parasitical Rentier class. And then we are right back to where we started!

I'd be interesting in your ideas of how to deal with Hobbes' three problems of man's selfishness, diffidence (demand for security), and need for glory. Obviously alongside these instincts are man's ability toward cooperation and altruism. Any successful society must diminish the former (without resorting to totalitarianism) while encouraging the latter.

Well, I'm no hippie pacifist. My idealization would include a militia of able-bodied adults, like the Minutemen. So bandits, at least, would be no problem.

As for greed and stratification trying to arise again within, I'm not sure. I think in terms of a far better educational system including the right humanistic anti-sociopath moral curriculum, along with something like the ancient Athenian custom of ostracism for incorrigible Randian scumbags. That's just a sketch; I haven't thought it all out yet. Unfortunately, it looks like we have time….

How's the food in Bruxelles? Plenty of sprouts I presume. I don't envy you.

Why are the peasants so obsessed with the lumpen? I'm pretty sure the amount of resources they take up parasitically is negligible compared to those stolen by the rentiers. It must be like a rounding error in the vast sums diverted by the rentiers. The rentiers just do it more stealthily. That's why it's more urgent to deal with the rentiers.

I don't have any special sympathy for the lumpen but I know they can't bankrupt us. The rentiers can, already have maybe. It's so obvious. Why can't the peasants understand that?

"We'd be left only with a sustainable, steady-state, full-employment economy, which would also for the first time in history maximize human fulfillment."

That reminds me of one of the original Star Trek episodes, where highly intellectual and scientific societies chose to live in what appeared to be simple peasant societies, with no machinery or technology in sight. The only thing though, is that those "people" had a few million years of evolution over us.


Some of the most interesting empirical work discounts class

stratification to focus on a ruling network at the top. But the normative stuff they come up with is oddly conservative: the Dems are your only hope, etc.

Kevin de Bruxelles
Thanks for the link, the articles look very interesting. In fact I have a copy of "The Power Elite" sitting on my desk but I haven't read it yet, but I will soon.

And I will keep in mind the "your only hope is the Dems" warning!

On the other hand, I can relate to their idea that the key to reform is to crosscut partisan opposition with an non-exclusive ideological test – they suggest human rights. That was the secret of the civil-rights movement, after all: it tore both parties apart.
I appreciate your helicopter view on the classes of America, Kevin. One point of criticism, if they guys and gals from the Lumpenproletariat would cease to exist. There would be an awful lot of institutions such as the police/penitentiairy system, the DEA and FBI facing dramatic job losses. We MUST maintain the status-quo. We can't afford to lose another couple of million middle-class jobs. Therefore, we have to find ways of providing the crack whores and gangsters with cheap heroine, cocaine and crack from Afghanistan, Colombia and of course Mexico.
Kevin de Bruxelles
Thanks, and yeah, I bet the new stimulus will in fact just be turning 10% more of the population into Lumpenproles by shipping even more Peasant jobs overseas so that we can create even more of those security-type positions.
You left out the government worker class, which likely belongs on the parasitic side. Already there is a tension over private sector workers having to contribute taxes toward the generous pensions of government workers and forgo saving for their own retirement. Though it professes to be committed to empowerment of the little people/change, the government worker class benefits most from the status quo (control over the means of taxation/appropriation).
Kevin de Bruxelles
Good points. If government is but a tool of the Rentier class, deployed to extract wealth from the productive Peasants and Bourgeoisie, then its workers could certainly be considered parasitical. On the other hand, if a government works in the interest of the productive classes, then its workers should be counted as productive.

What is interesting about the government vs. private sector worker compensation debate is that the private sector worker is put in the ambiguous position of being somewhat on the management side of the issue when considering public sector compensation since if we look at it as zero-sum (and some may argue it is not) then the government worker's high pensions and salaries come at the expense of the private sector worker in the form of higher taxes. In a healthy society the private sector worker has to be convinced the government worker is providing society a useful service in return for his salary.

Um 4 categories…now where have I read that before ummm.

Slave, Freeman, Citizen, Nobleman.

Ohhh I would love some journo to give Obama a HAIL CEASER after a answered a question.

Skippy…Togas and gladius for all, really I mean it, it sure would clear up the visual aspect of this illusion.

Many people early on wanted to compare Obama to FDR. That comparison could never work out because FDR came to power after the country had veered off the cliff and already crashed and burned. People were ready for major change including many of the elite. While things are rough now, the country hasn't come apart at the seams, yet. I'm pretty pessimistic and expect it to sooner or later. The interesting part will be who ends up with the controls at that point, the new FDR, Churchill, Hitler, or Mao?
Jim Haygood
Frank Roosevelt had a clean federal balance sheet, thanks to Coolidge's fiscal surpluses in the 1920s. He had enormous unused borrowing capacity, and a budget devoid of 'entitlements' tapeworms.

O'Bomba wasted what little borrowing capacity he had on corrupt TARP II bailouts, and expanding the Af/Pak quagmire. Stoopid! One Term Obama richly deserves his approaching obscurity.

'One Term Obama richly deserves his approaching obscurity.' You really think the first African-American elected to the presidency will fade into obscurity? Really?
"It doesn't matter if the cat is black or white as long as it catches the mice."

The same is true if the cat doesn't catch the mice.

Paul Tioxon
The most relevant recent analysis on social revolution, would the African-American Civil Rights Movement in the 20th century. The problem with the people here is that they are so socially isolated they have no idea what goes on, what is fabricated astro turf media manipulation and what kind of powder keg could ignite. The damage to the well educated middle class, the middle managers and the higher up corporate HQ types will be the death knell of our placid social order. It is a well maintained thesis, that rising expectations among African American, who had achieved a measure of success, money, education, responsibility and confidence from their WWII experiences in Europe and after at home, decided to push to a conclusive victory over Jim Crow, 2nd class citizenship in the North and overall acceptance into all of the venues of the mainstream of America. Of course they had many courageous allies outside of their community. But the key point here is the rising expectations and the domestic Berlin Wall they were smashed up against while coming home to America. Che was a doctor, Arafat a civil engineer. You get my point. Right now there is a lady in Philadelphia selling cupcakes from a truck. She use to be a lawyer. Her truck was confiscated by the local business licensing inspectors of the city. It did not make people love government more. As we have seen with the character assassination against the strategic defaulters, usually, the wiser, better educated, less sentimental parts of the middle class that do not have the social ties that bind as much as the corporate mindset that made them successful, they are not being spared the welfare queen treatment to stoke the passions of resentment. Those that remain employed, housed, toting their children off to college undisturbed, need to feel that their neighbor is the slacking enemy, not the oligarchs of Wall St. If too many more well educated, healthy minded, confident middle class types find themselves involuntarily ruined, their anger will not all be inner directed. They will not feel guilty or ashamed and their anger may well be directed outward towards the real culprits. The people who spent a lifetime pursuing success in a discipline manner while deferring gratification know all too well that revenge is a dish served cold. Economic recovery delayed is economic recovery denied. And desperate people do desperate things, especially after they have nothing left to lose. Let's hope and pray that Obama sees the crisis for what it is, not nearly over and crushes the economy with liquidity to get people back to work and not have time on their hands to listen to demagogues that will tear apart what tolerance and patience we still have left.
Crunch time will probably come when we cannot afford to both: the military and 2. bail out the banks.
And desperate people do desperate things, especially after they have nothing left to lose. Let's hope and pray that Obama sees the crisis for what it is, not nearly over and crushes the economy with liquidity to get people back to work and not have time on their hands to listen to demagogues that will tear apart what tolerance and patience we still have left.


To say things like the extreme right has a "monopoly" on strident, uncompromising opportunists fundamentally discredits this contribution. It simply isn't true, either currently or historically. If thinking about what is written is unimportant, then the reader has every reason to wonder what other parts of this post and other posts on this site are simply typing for typing's sake on the part of the author. You treat what you write more seriously, I'll read what you write with a great deal more interest.
So who is your anti-Palin, then?
In the meantime, it's immediately apparent your flaccid plea for equivalence renders your comment entirely useless.
A batshit-crazy leftie movement that hogged th evening news wouldbe a nice counterpoint to Yves' assessment. Since there is none, her point stands, unflaccid.
To say things like the extreme right has a "monopoly" on strident, uncompromising opportunists is to simply state the obvious.

Perhaps you are wondering how such a lop-sided situation could arise in a country where everyone has free access to media.

It is a myth that everyone has free access to media. In gaining access to media it helps if one is a strident, uncompromising opportunist as this sort of behavior suits the agenda of the media moguls, who as a class are strident, uncompromising opportunist.

See? It all makes sense.

Bruce P.
About 15 years ago, a colleague and friend told me, "Pretty soon, there will be three groups of people in America: the super-rich, everybody else and the armed guards that keep them apart." Now, this observation came from a battle-hardened, ex-Marine who had been up near the DMZ in Viet Nam, someone who later had become a Quaker. So, he saw both sides of the war/peace calculation, and he came to choose peace.

I somewhat agreed with my friend's prediction but thought it would take years for this to evolve. Wrong! I believe it's happening more quickly. Witness the barriers and police presence that keep the G-20 types and the Davos crew cocooned away from the protesters.

As your link to the New Yorker article on the covert operations of the Koch tycoons illustrates, the super-rich effectively exploit wedge issues to drive divisions among the population so that any organized resistance to the elite agenda is neutralized.

The Brits successfully used the divide and conquer strategy in its occupation of Kenya. They were afraid that the three main tribal groups would join together to oppose their rule. Some Kenyan authors assert that British authorities eventually favored the Kikuyus to split them off from the other major tribal groups. It created a legacy of internal rivalry and division that was tragically reflected in the horrendous aftermath of the 2007 election, when ethic rivalry resulted in more than a thousand dead.

Hopefully, the recent constitutional vote in Kenya will reflect a new era of ethnic harmony; hopefully, too, the bulk of the American people will awake from their "lotos-eaters" daze and recognize that our emperors have no clothes. Then, maybe we, too, can move toward a period of mutual and peaceful collaboration.

Selfish young people?! What about retirees who demand unlimited medical benefits? They don't want government interference in "their" medicare, and no one but them gets subsidized medical care. This includes especially the Tea Partiers, who wanted limited government spending on everyone else.
Amos Newcombe
This reminds me of the monkey trap, where the hole is big enough for the monkey's open hand to go in, but too small to allow him to remove his fist clenched around the goodies inside. Are they really monkeys? Will they realize in time that the way to escape is to unclench that fist and stop looting the rest of the country? Maybe this time will be different.
Perhaps you hadn't realized we are actually evolved from monkeys.
The elites haven't quite got a grasp on the anger out in the streets.

Sure, the Tea Party/Right is angry. So is the left.

Obama said that he didn't run for President so he could bailout a bunch of fat cat bankers. But that's what he did. People voted for him because they wanted change. That change did not happen. The health care bill is seen from the left as a giveaway to the insurance industry. The financial reform bill is seen as wallpapering over the problem… another win for predatory banks.

No one believes the government that all the gulf seafood they say is safe is really safe to eat.

With all due respect, if you read Yves' book EConned, you may develop a better sense of how complex the mess actually was that Obama stepped into.

I do not say this to excuse Obama, nor anyone in D.C. As Lambert Strether pointed out @8:29 am, the failure to send some banksters to jail for accounting control fraud, the lack of perp walks has disastrous implications.

But the accounting fraud and the bad policy decisions are all based on set of how the economy works that are currently about as relevant as the sailing ship, the carriage coach, and using leeches as the main means of medical intervention.

The social disintegration alluded to in this post reflect a world in which economic notions of 'free market capitalism' have enabled people to act in ways that, while 'good for the bottom line' are socially destructive.

Some of that destructiveness took the shape of extraordinarily complex 'derivatives', whose purpose was arguably to be so convoluted as to be extremely difficult to decipher or unravel. But as long as those derivatives could be leveraged to 'return on investment', then our current economic models viewed them as very successful. Until they weren't.

Blaming Obama doesn't address the underlying problems.

'Free market' economic beliefs enable amoral conduct, in the sense that looking out primarily for one's limited interest - at the expense of shared resources, or social stability - has been lauded as economically virtuous. This worked in a world of cheap resources; that's probably no longer a wise assumption going forward. Consequently, the old economic models are less and less able to keep things together and the unraveling appears to gain velocity.

Blame Obama all you want; he badly needs new economic advisors IMVHO. But what he needs even more - like other global leaders - are new economic models that are far better suited to our current era (rather than harkening back to 1776, or 1928, or even 1952). The old model of 'free market capitalism' assumes that 'all individuals acting selfishly will produce the greatest good for the greatest number'. It turns out that sometimes, it translates to criminal conduct (including beating up cabbies).

Society could descend into fascism, or revolution; both are risks. Or, it could see some kind of 'economic Reformation' in which fundamental beliefs about economic activities realign in ways that produce social stability and richer social ties.

Locked into 'free market' fundamentalist beliefs, there's probably going to be more social unrest. We're in urgent need of new economic models, IMVHO. That's probably our best way of avoiding utter chaos.

Let's be clear here… I'm an Obama supporter. I don't blame him for the cause of the crisis at all.

I do have some issues with policy decisions he (or by proxy his Administration) made.

1) The size of the stimulus. At the time he proposed it, it was criticized by many as way too small. (Krugman for example pushed hard for a larger stimulus.)

2) TARP. While Bush/Paulson were responsiable for the creation of TARP, AIG, AIG, AIG, and the Citibank backstop, Obama/Geithner backstopped BAC and allowed the TARP banks to buy back warrents before any deep investigation into the cause and with minimal impact to the banks. Moral hazard was not addressed.

OTOH, Obama's use of TARP to provide DIP financing for GM/Chrysler will probably go down as his biggest success.

3) Financial reform was not nearly strong enough to avoid a similar collapse in the future. CDS look like they will not require collateral. The prop trading rules look like a sham. Fundamental safeguards around securitization were not put in place to allow that market to recover.

4) HAMP. They spent 50-60 billion and only [temporally?] saved 500,000 homeowners? We as taxpayers spent $100,000 on each 'saved' case. (When people figure this out… watch out!)

My point was that Obama was elected with an overwelming mandate of 'change'. What we've seen is mostly a tweaking of the existing systems which have already failed.

The failure to act more swiftly is either a faulure of Obama… or Simon Johnson was right in his article 'The Quiet Coup':


"Another thread was the decay in values….'

Materialistic values completely permeate our culture and have driven those values not oriented to material gain from the field.

The dominant form of Christianity in the nation sees no problem with a gospel of prosperity, with megachurches catering to a pampered bourgeois, and with supporting a warrior mentality. The virtues of the Sermon on the Mount are completely absent from this doctrine.

Image really is everything in our culture. The cars we drive, the clothes we wear, the schools we attend–the signals of our class aspirations–are oriented to appearance rather than non-monetary qualities. Veblen's analysis applies to all cultures, but it has become absurd in ours (sweet sixteen parties and million dollar bar mitvahs).

Rising violence should surprise no one, where market values are ascendant, and where corporations have the same or greater rights than humans.

Chester Genghis
The gospel of prosperity is not Christianity. It is heresy; antithetical to Christianity.

The fact that so many "Christians" accept it underscores your point though.

Doug Terpstra
"When fascism comes to America it will be wrapped in the flag and carrying a cross." (Sinclair Lewis, in "It Can't Happen Here")

Although aided by the manifest schizophrenia of Old and New Testaments, only diabolical brilliance could so completely transmogrify the healer of the sick and defender of the poor, naked, prisoners, children, tax-men, lambs etc., into a patriotic warmongerer, lord of moneychangers and defender of xenophobic, homophobic, Islamophobic high priests and Pharisees.

Two books chronicle this perverse and dangerous mutation of Christianity (Churchianity) quite well:

Chris Hedges, "American Fascists: the Christian Right and the War on America"

Kevin Phillips, "American Theocracy: the Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century"

Progressive Ed
A third book is "Liberal Fascism" by J. Goldberg. It well complements the other two mentioned above.
Anastasia Beaverhausen
This Jonah Goldberg?

I'll take my hyperbole with a lot less crazy, thank you.

"with megachurches catering to a pampered bourgeois"

Indeed. If you haven't already done it, check out the parking lot of your neighborhood's megachurch. You'll be amazed at the high density of Lexuses, Mercedeses, and BMWs.

Ain't that a blessin'!


John Ronaldo
aaah…the elites of McKinsey talking about the demise of the elites and anger of the common man. Will you get over this whole for-profit doomsaying? it's getting quite tired. Either get off your ass and get involved in the actual policymaking world rather than complaining all day long. You seriously reside on the bottom rung of society. Worse than the Tea Partiers and Glenn Beck.
Do you have a specific criticism of the analysis?
Progressive Ed
I would find it helpful if you could explain who Glen Beck is and what his ideas are. I haven't watched TV for a number of years.
Bravo Yves.

Just as there is a level of taxation above which the country suffers, so there is a level below which it doesn't function.

Have any studies been done on whether the spending habits of the rich support industries which promote a vigorous economy?

For example, production of food is more important than production of yachts. Do high cost/high margin products skew an economy in less than optimal ways?

I have written repeatedly of the pathology of the pigmen that will compel them obsessively to repeat their white collar crimes until something, or someone, stops them.

In the absence of government action they will continue until something else stops them. This is history.

In dictatorships it's the wealthy who lose the most – at least in terms of money. For instance. Marcos in the Philippines liquidated the holdings of his rivals during his dictatorship.

The founder understood this well and that is the reason for our so-called checks and balances.

Yes, there is a deep power vacuum – and if the US goes down the entire world goes with us because we won't go quietly.

Purple - your comment that the whole world will go with us is interesting. I am currently reading "Inside Hitler's Bunker" which is the source for the movie "Downfall." Interesting Hitler and many of the Nazi's from the 30's on repeatedly said that if they go they will take the whole world (or at least Europe/Germany) with them. I guess I would say it did not happen there and tend to think it will not happen in the US either.
Pavel Chichikov
"Materialistic values completely permeate our culture and have driven those values not oriented to material gain from the field."

The victory of materialism is not complete, but those not in thrall to materialism are necessarily less visible. They are admittedly small in number, but their non-materialistic values will endure as materialism disperses in a cloud of mortal dust.

I say this as a Catholic, who sees his faith most perfectly preserved in small closed religious communities dedicated to work, prayer and personal material poverty.

The values of the marketplace have turned greed from a sin to a virtue.

Similarly, freedom has become a virtue for the selfish. This happened when individual liberty was taken out of the context of freedom within a community (the original right to bear arms in the Virginia Constitution was a right to bear arms on ONE'S own property–not conceal and carry, etc.).

Something like three or four people have angrily remonstrated against the assertion that the extreme right has a monopoly on strident, uncompromising opportunism.

Well, them's the facts. While an equivalence may have existed between the extreme right and extreme left in 1935, one doesn't any more.

The extreme left both inside and outside the US is a pathetic joke. Oh, I'm sure that they are vocal at times.

But they are *powerless* – something the extreme right is decidedly not.

Goin' South
My recent experience would confirm that, at least in my locale.

I've recently arrived in a Great Lakes city, intent on becoming involved in radical Leftist politics.

I've tried the anarchists/libcoms with whom I have the greatest ideological affinity, but they fail to show up for meetings half the time and can do little but argue about personalities when they do.

I was invited to a CPUSA meeting. The good news was that it made me feel young again even though I'm mid-50s. The bad news was that the whole meeting was devoted to electioneering for Democrats, even the most ConservaDem and corrupt of the local breed. When a book was mentioned that predicted the fall of Capitalism, one participant said, "I hope not before the election!!!"

I attended another large meeting full of political activists and labor reps. It consisted mostly of the paid operatives pushing canvassing for Dems while the rest of the room grumbled about the good-for-nothing politicians of both parties. The paid bureaucrats were frantic that no one was interested in phone banking, etc. this year.

Maybe there's some other radical Left or even activist Left, but what I've seen here is indeed pitiful.

And in my view, that's tragic, because a vibrant Left is desperately needed in this country.

Thanks for the good laugh. A radical left is needed in this country. Harharhar. May I ask what for! You should change your label from Goin' South to Lost in Your Shorts.

How many times do radical left ideas have to fail in practice until we do not have to hear any more of this! To paraphrase Henry II, "Will not someone rid me of this idea."

i on the ball patriot
Interesting post, some thoughts …

What jumps out here for me is the scamericancentric viewpoints expressed when this is in reality an intentionally orchestrated global crisis created by a wealthy ruling global elite who have no allegiance to any nation state and who have hijacked governments through control of the global central banks.

With that government control they have allowed corporations to become in effect mini nation states (many with revenues exceeding the GDP of real nation states) accountable only to the bottom line, that roam the planet, extract profit, and exert control.

The wealthy ruling elite global plan of Full Spectrum Dominance includes controlling the nation state militaries, and the big guy, Mr. Global Propaganda. It is Mr. Global Propaganda who really controls Mr. Market and is also responsible for intentionally coarsening the GLOBAL culture over the past forty years creating intentional divisiveness as a prelude to creation of perpetual conflict in the masses. The plans end game is a global two tier structure of ruler and ruled with the ruled in a perpetual conflict with each other. Its a herd thinning and resource control operation, ironically by the same scum bag folks who orchestrated the misdirection and over consumption of the planets resources.

Mr. Propaganda works to a global formula around the globe and makes possible in each nation state; blowing the debt bubbles, deregulating the nation states financial laws, importing foreign nationals, massive rural to city migrations, fomenting hate between those dislocated groups, encouraging right wing reactionaries to come out of the wood work, selling austerity programs, etc., all of which further fuel the divisiveness, create intentional chaos, and intensify the global perpetual conflict in the masses.

Its time to broaden the viewpoint. Read some other nation state blogs, especially UK blogs, you will feel right at home and more readily see the top down Mr. Global Propaganda orchestration formula.

Soooooo … scamericancentric viewpoints meet global problem.

The other shoe dropping feeling is a global feeling. It exists in most all other nation states. Recognize the global scope of the problem and address it, or, get used to the feeling of sinking slowly into a well orchestrated series of increasing crime ridden plateaus and ever deep valleys of despair as the global herd is intentionally thinned. Recapturing your own government is step one, and as formidable as that is, step two is even more difficult. The rogue global control of the super wealthy must be dealt with and eliminated. This is a class war. The lines become more clearly drawn as each day passes. I believe Roubini is right on - less than one percent growth. By design!

This is a unique and out of the ordinary problem. it will require unique and out of the ordinary solutions. Unless folks can reach out to each other globally and set aside the intentionally instilled divisiveness we are all screwed. A big part of forming that new alliance will be recognizing the unfair advantages of the past, as individuals and as nation states, and compensating for them.

[Interesting aside; many scamericans who were on board with the Full Spectrum Dominance plan, or supported it through 'party affiliation', failed to read the small print - the domestic population of scamerica is included for dominance.]

Deception is the strongest political force on the planet.

I generally don't agree with your comments. This time, however, your are quite relevant and expressive of the nature of the sea change that is occuring.

The deception comment, however, is unnecessary and tends to impune earlier thoughts that had merit.

i on the ball patriot
Thanks Siggy, I generally agree with many of your comments.

Yes, the deception comment can be off-putting and muddy the waters, but it speaks to our cannibalistic nature, something many are in denial about, and which ultimately has to be recognized so as to rise above it. Its an everything up front all at once approach. Time is short and it is also meant to promote skepticism. We are all way too trusting and have to be much more involved in, and vigilant about, our political alliances.

Deception is the strongest political force on the planet.

UK blog recommendations please!
i on the ball patriot
Great 'gateway to the UK' web site here, "Lenin's Tomb" - if you can handle the Marx base - with many links to other solid web sites and publications (scroll down to the bottom right for links). Again, note the nation state focus, similar limited political choices, and all of the other 'formula' problems that they are dealing with that have been created by Mr. Global Propaganda.

Deception is the strongest political force on the planet.

i on the ball patriot
Sorry, here's the link …

PoP the ProP
hammer hit nail straight on the head and again and again and again keep swinging partner lurkers are listening
I'm extremely optimistic about the Republicans winning big in November. Unlike the Democrats, the Republicans have a real-live opposition willing to take scalps and stand up to the party machine. The Tea Party rank and file are as hostile to the banks and Wall St. as anyone on this board.

I agree completely with the need for larger stimulus. My own solution which I've advanced before is simple. No bailout money for banks or homeowners. No extension of UI benefits.

Direct government hire of all unemployed to paint schools etc.

Partner failing US auto companies with Japanese, German, or Korean companies. Flush corporate and union managers.

Go nuclear. Every state that wants federal help takes at least one new facility and one waste site. Only then do they get funds for high-speed rail and green jobs, etc.

Sadly, none of that happened or will happen with the current crop of Dems in power. I think Republicans are going to be very protectionist and pro-business. I'd much prefer to see something close to my own approach, but the bottom line is people have got to go back to work before anything improves.

I see the Republicans as much more ambitious and willing to take chances than Dems. And by Republicans I mean Scott Brown and Sarah Palin type Republicans.

Inflate My Grades and his pals Tim, Larry, and Ben are not going to take from Goldman Sachs to create jobs for those in need.

If Republicans take power we're in real trouble. How can you be optimistic when they have so many ideological extremists in their midst? Jesus!
Mate, you really don't get where the GOP gets their moneys, do ya?

They get it from Corporate America and Wall Street.

And the party gets its marching orders from guys who say that opposing Wall Street bonuses and taxing PE guys are the functional equivalent to the worst excesses of the Soviet Union.

You are *sincerely* deluded if you think the GOP will be any better than the Democrats on this. Were you in a coma from 1995 to 2007?

The sad fact is that Obama was elected because people wanted an FDR, but they held the election in, essentially 1929 instead of 1932. Herbert Hoover did not become "Herbert Hoover" until after failing spectacularly. The country – and FDR – were willing to make enormous leaps of faith in 1933 only because of the disaster of the preceding four years.

The GOP gets most of it's money from the same class of people Dems do. So I do, actually, 'get it.' I also get that the Tea Party has about a billion times the backbone "progressive" Dems do. I watched Dennis sell-out the public option for a ride in Air Force One President Got the Fat Cats' Backs. Remember the politics of fear the WH played? If you don't give the Health Insurance industry 32 million new customers, Obama's Presidency Will Be Destroyed!!TM.

I stated clearly my preferred choice. That isn't going to happen. People need jobs and if the GOP doesn't deliver quick, then there's going to be real talk of a third party.

I wouldn't be surprised to see a major trade war break-out, with a large number of Americans refusing to purchase any Chinese products, etc. Something has to kick start employment and manufacturing.

Patriotism, protectionism, and pro small business.

Chester Genghis
"Republicans are going to be very protectionist and pro-business." Huh?

That's an incongruous statement. I realize there are many aspects to protectionism, but if anything pro-business interests have engaged in relentless scare-mongering of protectionism.

Republicans will use protectionist or anti-protectionist rhetoric to suit the needs (and the audience) of the moment. But their policies will be decidedly anti-protectionist.

Certainly Republican corporate politicians have been and will. But that approach may not sell this time round. The Joe Miller candidacy in Alaska is based, in part, in turning down federal pork, of the Stevens kind.

My belief is that consumer confidence will improve once Dems no longer control the House/and or the Senate. Both the WH and the Republicans will try to take credit for what I predict will be a modest drop in unemployment and a slightly rosier view of the future. That's barring the wheels coming off in Afghanistan or Iran.

Think xenophobia and people demanding to buy "made in America" products. You can see the Tea Party getting behind that philosophy can't you? Because if you can't then you really don't get what they're about.

Chester Genghis
Don't think so. GOP will use Tea Partiers as they've used the religious right in the past. They'll give them lip service and continue to do the bidding of their corporate masters. (When in doubt, follow the money…)
Yves - Let us first look where you are talking to people at. New York City! Where are the big blood sucking squids located - New York City. Quess what happened, the people of this country have woke up and realized that NYC only survives by sucking the blood out of every where else in this country. If you do not believe this then look what one of the top objectives of the Federal Reserve is - to keep the center of banking in NYC.

I split my time between LA and Oklahoma-Texas-New Mexico. LA seems to be slowly sinking because it and California were built on Financial Services and Real Estate. Much of the shadow banking system was located in So Cal. On the other hand, Oklahoma (especially), Texas and New Mexico are doing pretty well supported by oil, nat gas and other commodities.

With that said, I was back in Oklahoma a few weeks ago during the primaries and I have never heard such hatred of Democrats and bankers. I believe there could be real divides in this country and the south, mid-west and west are really getting tired of being sucked dry.

As far as guns, so what. I think everyone should carry a gun and be taught to shot one. I have had guns since I was 8 and most people I know in Oklahoma and Texas have one. The only real problem now days is ammunition. Ever since Obama was elected there is not enough ammo and that is especially true about 380's for small little carry hand guns.

I think in the end, the sucking will stop and NYC, Chicago and LA will probably go through financial crises and get much smaller.

Pavel Chichikov
11:08 AM writes:

"Direct government hire of all unemployed to paint schools etc."

"Partner failing US auto companies with Japanese, German, or Korean companies. Flush corporate and union managers."

"Go nuclear. Every state that wants federal help takes at least one new facility and one waste site. Only then do they get funds for high-speed rail and green jobs, etc."

You say you look forward to a big Republican win? Your suggestions require a *very* big and aggressive government.

True. That didn't happen. I've lived in right-wing small government economies. Those who can't or won't work get screwed. As I noted, up-thread. Obama was and is a creature of corporate America. Progressive Dems sold out the poor and the unemployed. I can live with small government Republicans as long as people have work.

Right now they don't.

Progressive Ed
"Obama was and is a creature of corporate America. Progressive Dems sold out the poor and the unemployed". No. The Movement and the President understands that the shifting of America from a capitalist state base on relatively free markets to a Progressive state based on the reduction of small businesses (the home of individual liberty)and the central control of the economy using one or two large corporations in each sector of the economy takes time. It's evolutionary, not revolutionary. Have patience!
Bob Morris
As for Obama's 'weakness', I encourage all to read Peter Camejo's 'Avocado Declaration' written in 2004 where he explains how an important function of the Democratic Party has been to siphon real protest into itself where it is then rendered impotent.

I do not believe in the one person one vote system. If you are a free rider then you should not be allowed to vote. I would only give the write to vote to those people who pay net income taxes above a certain moving average over a 5 year period. That would get rid of the system which we now have where large blocks of people vote for those who will give them the most.

The mega wealthy throw out little crumbs to lower income people paid for on the backs of the middle class.

There is so much wrong with that suggestion that I don't even know where to start.

Here's one… You do realize that Congress can legislate tax rates don't you?

Maude - Are you addressing me. Of couse I understand Congress can set the tax rates. That is why I say only those that pay taxes should have the right to determine the rates. Why should someone who pays no money in have the right to determine how it is spend. That makes no sense.

Right now we have a larger group of people who are net receivers from the government than we have of net payers. This is another one of those unsustainable trends in this country. Personally, I believe the taking of money from one person to give money to another is a form of enslaving. What else can it be?

My comment has been the norm through out history far more than the current system. Probably one of the big reasons this country is so screwed up. The free riders have too much say.

saint grottlesex
Affluent people aren't afraid of taxes. The petit bourgeois can't tolerate them, though. It's the status anxiety, isn't it? Don't worry, if you can't afford civilized-country taxes, there's plenty of people richer than you who can.
Ishmael. I think our country is being sucked dry by both the bankers in New York, and the extracters in Texas and Oklahoma, neither of whom make money on anything creative. The idea that Obama has done anything to raise the price of ammo is delusional. I would only give the right to vote to people who don't confuse the right with write!
Dameocrat - You must have a poor comprehensive reading skills. I never said the price of ammo went up I said that it is hard to find. Two seperate things. Also, if you do not believe gun sales went up due to Obama's election you must not read newspapers.
Dameocrat demonstrates the belief of most what is currently rebranded Progressives (even though most of their policies are regressive). The people in Oklahoma and Texas are hard working people (I have ran into them in oil fields and mines all over the world) who invest their sweat and capital to make a living, but Dame hear belittles their efforts as not being "Creative." Maybe she should look around and look what oil brings you - everything from transportation, through plastics, petrochemicals as well pharmacuticals.

Progressives first look down their nose at hard working people and then retreat to their self righteous statements about American Indians, slaves and women (see below). Her statements demonstrates the Progressive so called intellectual elitism which if it wasn't so sad I would find kind of humorous.

They hide behind the shield of doing for the People but deep down they really dislike working people because they are not "Creative."

IMHO the biggest problem facing America is it's citizens think they know way, way more than they actually do.
This is what "infrastructure" spending looks like today:

I wish I was more than 10% kidding. This press release release is more interesting for what it doesn't say. The existing MERS system typically drops loans that have been fully foreclosed, so either these are loans that haven't been foreclosed, but where the owner has abandoned, or they are fully foreclosed loans where the "owner" probably prefers not to be immediately determinable (for example, Deutsche Bank Natl Trust Co. frequently takes possession, even though BOA is what shows in the MERS system. My understanding and experience is that DBNTC's ultimate interest would not show in the MERS system). Local government is looking for somebody to pay taxes and do maintenance. I'm thinking MERS's member may not be that happy about this.

I would also like to point out Ishmael's tax plan would allow the bankers to vote and all the people who lost their jobs as a result of what they did would lose it. Also the oil men that got us into the war that caused the mess we're in today would have it too. Bleck.
Dameorcat - you really show no understanding of numbers. First I said a moving average so if you lose your job for a while you would still have the right to vote. Secondly, the number of middle class and upper middle class people as well as tax paying blue collar workers out number the so called banksters by about 100 times.

Really got you worked up that you might lose the votes you purchase with OTM (Other People's Money)!

When this country was founded the Founding Fathers understood what I am saying and only gave the right to vote to land holders.

The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money. Alexis de Tocqueville

Oh and those big bad oil men. I guess you believe oil which lies under a persons ground should be given to the state. Why don't you go get in your car and drive out into the country so you can cool off.

Uppps, OPM not OTM. Showing my ignorance there. I flunked spelling!
yeah the founders gave the right to vote to guys that parasited off of indian land, the work of slaves, and women.
Dameocrat since I have blood of several indian tribes in me and my great great grandmother lost her life on the Trail of Tears after their property was taken from them in Tenn, I think I should be more bitter about that then you. Personally, if you are saying give all the land back to the American Indians that it was taken from I say let's do it!
I would discount the comments about a decay of values. Older adults have been whining about the decay of values among young people since before Homer was a pup. Yeah, yeah – "Those youngins are out of control – sure is different than when we was kids." – Thanks for the insight, gramps!
With regard to "infrastructure spending" it is difficult for me to understand the continual demand for this. First all we need to do is look at Japan to see what an enormous misallocation of resources government infrastructure spending is. If the purpose of infrastructure spending is to get money moving then why doesn't the government just have a 3 year tax refund with a maximum and minimum of let's say $50,000 and $500,000 with of course those who paid no taxes getting NOTHING! This would enable the middle class who are under water to get their head above water, those in the middle class who were prudent would have money to spend or invest (asset allocation of those with a profit motive is far superior to those just spending OPM) and ensuring the uber class will not have an enormous windfall.
John L
No, the purpose of infrastructure spending is to fix the infrastructure. Any economic stimulus it may create, welcome it may be, is secondary.

Otherwise, the money could be spent to hire people to dig holes, and hire others to fill those holes back in, and it would be as effective.

The need to overhaul the infrastructure is undeniable. Many interstate bridges, for example, were built 50 years ago and have reached the end of their expected lifespans. How many more bridge collapses are we willing to accept?

I'll grant you that teenagers have always been a wild bunch… but a 1930s teenager was able to work with their hands if they needed to.
Anon-scientist - Quite true. Even up through the 70's many teenagers were out working, at least in the Midwest. I knew guys who went on harvest at 16 (maybe younger), worked on cars, delivered papers, sacked groceries (still see some of that when I visit Oklahoma), mow lawns and etc.

One of the reasons that the US forces advanced so rapidly during WW2 is because every man was mechanical. If a vehicle broke down every guy knew how to fix it.

With that said, I many times work with young college grads and find many of them right on the ball. I had lunch with a young lady yesterday who is far sharper and on target than I (not that I am any reference) than I was at her age. On one consulting project she was my supervisor and on others I have been hers (she is mid-level at a consulting firm).

Yves Smith
You don't live in NYC, and this is children MUCH younger than teenagers. The kid who was beating up on his small frail nanny in the story was a very large roughly 5 year old. Current parenting style are producing narcissists on a mass basis. For instance, I saw a kid, no older than 10, probably closer to 8, on a bike nearly knock an old woman over, right in front of me. I said something to him. The nanny interceded and defended the kid! This is pervasive, you can't say a negative word to children, they are simply not disciplined by parents or their surrogates. This is not a mere "the kids are rowdy" this is a breakdown in transmission of behaviors needed for society to function.
Yup, plenty of those generated by the Santa Monica and Malibu school system.
Some realities our bias want to dispute: 1) China's command economy has kicked our quarter to quarter governance for decades.

2) The same qtr to qtr gov. has resulted in an inability to plan whether it's R&D on the business level or political governance.

3) Globalization has killed the goose that laid the golden egg (an upwardly mobile middle class). It will go down in history as a massive failure. Balance of trade is way way way more important than year to year deficits.

We have other problems but what I've come to realize is that the so-called smart folks (whether Wall Street or politicos in Washington) are dumber than posts except when it comes to individual short term greed. They've got that down pat.

The rich are paranoid. I think there will be tea party inspired militia type violence in southern and mountain and high plains states, but it will be here and there not widespread and it will sputter out once their financial backers such as koch industries get scared of them and stop the money flow. Most of those states right wingers are cop worshippers, and will not ultimately side with law enforcement rather than anarchist right. They can't piss off their body guards.

The left will probably move to the green party and the green party will become ascendant. Moderate republicans will move to the democrats to support Obummer, who is definitely their guy. The palinists will be confined to the low population and southern states. The bankers and the extractors will be taxed not killed.

"semi-retiring to manage family money."

The guy is anxious because he is finally realizing there is not enough renter streams to pay all the paper claims of the rentier class.

Whoops, shouldn't have written all those McKinsey reports touting the benefits of job outsourcing…

Bill Gross

Tell your pals to head out West, our underclass is much more docile!



Progressive Ed
Make sure they brush up on their Spanish if they decide to come West. Viva La Raza!
Basically, I believe we are in a slow motion de-evolution of the economy. We are moving away from centralization in NYC and Washington and moving back to local. I agree with the comments about pro-protectionism at least for products out of asia (I never buy cheap Chinese crap anyway - it is not worth the money). Return to localization of the economy with credit being decentralized again.

Right now we have a large layer of state government and another layer of Federal govt supposedly doing the same thing, but nothing is happening. We need to delayer.

We also need to demiltarize and stop being the policemen of the world unless countries pay for it.

Credit will contract and that will require business and govt to both contract. The current system in unstainable.

He also noted that he believed that there were a lot of people (and he meant in the upper income strata) who were barely holding on, keeping up appearances, and hoping something would break their way. Some might get lucky, but most will hit the wall financially.

So, Yves:

As one of hoi polloi who is unaccustomed to hobnobbing with our feudal overlords, I'm kind of curious about exactly what constitutes "barely holding on" and/or "hitting the wall financially" in these exalted circles? Might these poor unfortunates have to do without full-time "help", or will they actually have to dip into principal to make ends meet?

Anastasia Beaverhausen
Well, it's no different then when the rabble live beyond their means, except the upper crust exhaust their credit cards and home ATM's on Maybachs and Louboutins instead of Lexuses and Juicy Couture.
One further data point:

On a recent business trip to California, I noted that the Rolls-Royce dealership in Newport Beach had gone out of business. The Ferrari dealership still seemed to be going strong, though.

Frankly, I agree with your pals that violence is a real possibility. I can't understand why TPTB aren't more concerned, unless they intend it as an excuse to clamp down and consolidate control.


Thank you for this excellent post. As a professional observer of human beings, I agree with everything you wrote, and I too have been saying this for years (largely to deaf ears, it seems). The anger and frustration levels in the US are reaching a breaking point, and the social fabric of this country is under tremendous strain.

Perhaps it would be difficult to envision a true revolution in today's police state America, but it is easy to see the nation descend into chaos, if it hasn't already (a situation which I am sure Wall Street will somehow find a way to profit from).

Just today a friend from New York told me how more and more people from other parts of the country are showing up in Manhattan en masse, looking for work. I wonder if, after failing to find a job to feed their families, they may choose to head to lower Manhattan and try to engage in friendly communication with various rich people selling stocks and bonds for a living… :)


What stands out to me is that your upper-crust friends are blaming others for the problems facing our nation: "monster" children, "decaying values" (other's, not their own) and of course "liberal pork". I didn't read anything indicating they realize the problems in our nation are largely the result of corruption in their own social stratum.

Though you mention they expect an out spoken plutocrat to be the first with his head on a pike, you never mention whether they think he would deserve such a fate.

El Snarko
All cultures are conservative, but if Americans were that conservative there would be far less cable tv and video gaming. We are capable of assimilating advantageous change. Rather than the moldy quip about a "center right nation" I think it is long time we realize that we are essentially a nation of "takers" of available benefits when we find them.There has been so much paper success in the last three decades that a majority have too high an expectation of what is concretely achievable. This results in tension and avarice.In truth moving forward we will have less, but there is zero leadership from the big money boys and political "elites". No one is taking a voluntary hit, and that is delaying the inevitable involuntary one.Your friends, while smart and perceptive are far too parochial in their concerns.

Here is what I see from Ohio. The status quo ante ( as Yeves calls it) was th best and most seductive in history. What most all people really want is that to return in a form that is "reality based", somewhat regulated, and available to them. Realistically being aced out of the goodies is creating defacto aristocrat/peasant dichotomies that are instinctively repugnant. The perfect analogy is the stadium seating at football games. From what I hear the world view from the "lodges" at the top of the stadium is much mucdifferent than that from the cheap seats. There, once the rooms are full an entirely game is played and watched. The cheap seats want to play as well.

greg b
I dont see anything happening til after CFB season. So that gets us thorugh early January.

Yes, some of you will laugh but here in the south CFB rules. They will do nothing that will mean possibly having to be away from a TV or tailgate party on a Saturday afternoon. I actually think this is great for our country. A lot of peoples livelihoods depend on this institution staying in place and not missing a beat. Hell, after 9/11 people down here were furious that games were postponed. They all though it was giving in to the terrorists.

These seasonal riuals have a strong stabilizing affect on our social fabric and I dont think they can be underestimated. No one is going to get too many southern tea partiers to do anyhting too disruptive during CFB season. If something might cause a game to be cancelled they wont do it.


Being from Oklahoma I totally understand. A couple of years ago I was in a conference room in Century City and they asked where I was from. When I said Oklahoma they said, "Well I guess you are going to watch the Rose Bowl." I asked why and they told me that OU and USC were going to play for the national championship. I am like huhh, by the way I am here for business - let's get to it. They could not believe I paid that little attention to football.

Bread and circuses dude!

greg b
Bread and circuses, exactly.

What we need is a CFB season that runs from mid August to mid February. That'll take these secessionist out of commission for 6 months.

greb b -

There is a reason that OU has one of the best cardiac care units in the state at Owens Stadium. A large number of overweight football fans with OU engraved in their teeth have coronaries while attending the game. Rather sad really.

Once football season gets underway, folks will calm down.

It's always hard right now, waiting for the big show to start and the cool skies of autumn. Nobody will riot or rebel as long as the NFL is on the tube and the beer is flowing. Really, think about it. Then it's Christmas and rioting is out of the question.

I actually saw Orion in the eastern sky at 4 am last night. It was like a prophet of tranquility, the reassuring return of an old friend, majestic and eternal. This is what the Greeks had in mind, with all those statues, that balance and poise. As soon as the leaves go, everything will be OK. Even if the market dives.

I worry more about Mexico. Pretty soon they'll all be here and there won't be anyone left there because they'll all be either dead or gone. And when they get here, they're usually on their best behavior. Most of them, anyway. Nobody really wants to be a communist. It's just a compromise like going on a diet.

I have no doubt you are correct about Orion bringing much relief to the Greeks after a summer of chaos.

Having lived through the Mexican economic crises of 1994 I can say their solution and our solution look very similar. It might be because they have one of the same principal architects, Larry Summer.

The 1994 crises consolidated wealth into a small number of hands, especially Carlos Slims, but collapsed the authority of the central government… mostly because of unemployment.

Although there hasn't been an open revolution in Mexico, regional forces are now more powerful than the central government..

Anyway, I think if you want a good preview of the United States in a few years you need only look at Mexico's history. Remember the Zetas, the infamous evil drug lords were once prized special forces operatives. Trained here in good 'ol USA. If the crisis continues I don't see a 'revolution' per se.. but a collapse of central government authority and the rise of opportunists: Pendergasts, Rockefellers, and probably a General Jack D. Ripper mumbling aimlessly about precious bodily fluids…

But cheers! For now, Orion is upon us and we can slumber 'till the ides of March.

Craazyman, speaking of the NFL, bread and circuses, do you know if a gladiator ever became a Roman emperor? Or they were simply happy to be the emperors' lovers?
I think many were gladiators given the way they did politics in those days.

Some out of necessity after they became emporer, and others to get there.

But I think Commodus actually performed as one on many occasions, after he was emporer, if I remember my Gibbon. There were probably a few others. They all seem completely nuts to me. But then, so do most people, even now. LOL.

Two things

1) Do not fear pain (for you fearmongers and debt-fetish-ists) – no more short-cuts. If China could undergo a chaotic Cultural Revolution in the 60's, and today still own America, America can handle anything.

2) Make sure pain is shared equally – if you can do this, people will buy the former without having to resort to calling others deficit-terrorists.

I look forward to a real leader to tell us that, instead of issuing more debt.

I know this question has not been asked in at least 2 generations, but the time is fast approaching:

Are we willing to sacrifice ourselves (I am talking about pain sharing) today so future geerations can have a fair chance to compete with other nations?

This means stop worrying about a second dip and start thinking about the fundamental problems that a crisis like this affords us to an opportunity to correct but we have so far not done.

So, forget about more infrastructure projects, more debt, etc.

I was just writing yesterday that yes, it could happen here, that revolution has been in the air many times in US history. As I have also said many, many times, the system is unsustainable and our elites are so given over to looting that they are incapable of reform, even to save themselves. And I have pointed to 2011 as the time when we are most likely to hit the wall. We will have another collapse and when that happens the odds of revolution will be higher than at any time since the 1770s. I cannot over emphasize just how corrupt and committed to corruption our leadership is. Our economic conditions are pretty bad but it is the complete corruption of the political system that takes this and renders the situation catastrophic and revolutionary.
Let me get this straight, since Americans are not buying a new car with the tow package for the boat and ATV every 3 years combined with numerous remodeling projects on the house and of course landscaping for the new 2nd vacation home, we should now expect a revolution in fact an armed take over by the left or right!
This is the modern version of "Let them eat cake," right? What your probing analysis fails to take into account is 15 million unemployed, 25 million un- or under employed, and several million beyond these that the BLS no longer even bothers to count. Total un and under employment in the economy is probably close to 30 million or 20%. Add in the tens of millions of homeowners holding underwater mortgages and millions who are either in or will be going into foreclosure. Recognize that most of these are families, not single individuals. Look too at the levels of personal debts of all kinds. Then consider our nation's crumbling infrastructure and deteriorating education system. And let us not forget that 1% own a 1/3 of the country or that the top 10% own 2/3 of it. Or that our elites nearly drove the whole economy off the cliff in 2007 and 2008. Or that they only avoided this by massively bailing themselves out at everyone else's expense. Or that they then proceeded to pay themselves out of this largesse huge bonuses like nothing had happened.

Yeah, it must all be about those 2nd vacation homes. Your mentality is precisely what makes revolutions inevitable.

i on the ball patriot
Ronald, there is NO "new car with the tow package for the boat and ATV every 3 years combined with numerous remodeling projects on the house and of course landscaping for the new 2nd vacation home" going on here …

[Jun 23, 2010] Sham democracy how the media and two-party system stymie competition from independent and third party candidates CAIVN

by Damon Eris

Wed, Jun 23rd 2010

Ideological polarization has created an environment in which Democrats and Republicans are virtually incapable of coming to any sort of agreement. However, they almost never disagree when it comes to barring third party and independent candidates from joining in forums and debates, and even from participating in the electoral process by means of highly restrictive ballot access laws.

The reason for this is not difficult to discern. Independent and third party politics represents a threat to the ruling political establishment and the cozy duopoly that forms the basis of the two-party state.

The corporate media are complicit in maintaining and reproducing this state of affairs. Last week, the Florida Press Association and Florida Society of Newspaper Editors held their annual convention, where they hosted a forum for the Sunshine State's candidates for US Senate. Four candidates were invited, Republican-turned-Independent Charlie Crist, Republican Marco Rubio, and two Democrats, Kendrick Meek and Jeff Greene. One would not know it from this line-up, but there are more than seven declared third party and independent candidates for the office, including Libertarian Alex Snitker and Constitution Party candidate Bernie DeCastro, both of whom have qualified for ballot access.

Much to his credit, Snitker attended the forum to protest his exclusion from the event. According to a press release, the Libertarian stepped up to the floor microphone and asked to be included in the forum, but the request was denied by FPA President Dean Ridings who called for security to escort Snitker from the room.

The organization's justification for excluding Snitker from the event reveals how the media actively support the ruling political establishment in the guise of impartial objectivity. Only candidates who had received 10% support in a major poll were invited to participate in the forum. This sounds reasonable enough at first. However, a moment's thought reminds us that third party and independent candidates are rarely, if ever, included in any major polls! The majority of such polls, many of them commissioned by major media outlets themselves, allow respondents to choose between Democrats and Republicans by name, but only offer the choice of "some other candidate" as an alternative.

The Florida Senate race is admittedly something of an exception. Crist's independent candidacy simply cannot be ignored since he is the state's governor. Nonetheless, if inclusion in a forum is conditional upon demonstration of support in major polls, but candidates are excluded by name from those very polls, then this seemingly "objective" criterion of support is nothing more than a fraud by means of which independent and third party candidates are barred from consideration as viable or legitimate alternatives to their Democratic and Republican counterparts.

Unfortunately, in the United States, this is the rule rather than the exception. In April, an independent candidate for governor of Vermont was arrested for interrupting a debate from which he had been excluded. Media reports justified his exclusion by stating that the forum was intended only for candidates who would be participating in the Democratic primary; however, it was later revealed that the Republican candidate was also invited to the event but declined to attend.

In March, a religious 501(C)(3) organization reportedly canceled a scheduled election forum rather than include third party, California gubernatorial candidate Chelene Nightingale in the event. In October 2009, no third party candidates for mayor of New York City were included in debates hosted by major media organizations, and a number were ejected from the venues for protesting their exclusion.

During the 2000 presidential election, Ralph Nader was not only excluded from participating in the debates organized by the Commission on Presidential Debates, he was also physically prevented from entering the venues by private security. The Commission – which is nothing more than a front group for the Democratic and Republican parties, led by former heads of the Democratic and Republican National Committees – excludes all candidates who have not demonstrated 15% support in at least five national polls. Sound familiar?

How much longer will we pretend that the only viable candidates for public office are those forced upon us by the party machines in collusion with the corporate media?

* Editor's note: Having proved instrumental in drafting the recently passed nonpartisan, top two open primary (Prop 14), CAIVP has also publicly challenged the California legislature to remove the onerous ballot signature barriers for Decline to State candidates. If the legislature does not comply by July 2, CAIVP is prepared to file a lawsuit. Read more here.

America Plays Into The 'Two Party' Sham Yet Again By Kathy Fisher


We missed the boat when voters insisted on playing the two party system scam again.

The citizens say they want to keep more of their hard-earned money in their pockets, they want health care reform, they want their jobs to stop pouring out of the country. But that can't and won't happen until we settle the Israel/Palestinian problem. 14 in one family were killed today by the Israeli army. It won't happen until we stop the tens of billions of dollars going into the Bush fraud 'war on terror.' We need complete electorial reform and there needs to be a criminal investigation for fraud and treason while the Bush junta is still in power.
Remember how Pelosi said she would have supoena power...and then did a complete turn around and said: "there will be no impeachment under her rule"? Remember?
So, what makes you think it will be easy and honest now with the Democrats in control of the House? Did you forget how they have voted FOR the Bush/Cheney illegal, outrageous, treasonous anti-Constitution, anti-Bill Of Rights 'Patriot Act' legislation...and how they support Bush's butcherous, hideous Iraq war? And how most of them continue to give the most racist, dangerous nation on Earth billions and billions of our tax dollars to continue building its thermonuclear arsenal while carrying out the genocide of the Palestinian people...not to mention paying for the recent slaughter in Southern Lebanon?
What tiny piece of the pie of change will you be satisfied to the expense of the meat and potatoes we'll all starve for?
Labor law reform? Unions leaders need to get busy getting their act together, too. Remember the last time we had 'Democratic control' in power and how we were promised labor reform? They didn't deliver that either.
Insiders and power brokers, blackmailers, AIPAC, JINSA, ADL and mega corporate money and incfluence run BOTH parties. When will Americans get a grip on that reality? Pelosi is a LIAR. End of story. She will continue to sit down with the village idiot at luncheons and dinners and decide whether she'll have chicken or poached salmon.
She said in her election day speech that the Democrats must get the PAC money and the corporate interest out of politics. Same old rhetoric. Same old BS. And don't forget how she has virtually pledged her soul as an Israeli First Lady. So, you can count on our tax dollars continuing to pour into that festering pocket of deceit and anguish-causing country non-stop. The 'Democrats' will vote to continue to kill for Israel directly and indirectly every step of the way. Nothing will change.
Next, the dumb Dems will begin to push the Hillary ticket for 2008, claiming it will make all the difference in the world when the Democrats take complete control of Washington. Hillary is not a labor friendly candidate, either. Her prodigiuos, egregious record of gross hypocrisy and opportunism speaks for itself. And yet she may well end up being the next democrat Presidential choice.
And one more time: the Pro Patriot Act/Pro War Dems are supported by their own group of corrupt corporate lords and masters, and scores of special interest groups
If you rejoice in this insignificant amount of change in Washington, then you, my friends, are very easy to please (read: deceive), indeed.
What a frigging joke.
Is there hope? Gee...three independents were voted in.
Good luck.

[Oct 27, 2007] Implications of Plutonomy by Girish Mishra

ZNet South Asia

Almost two years ago, Ajay Kapur, a prominent global strategist of the Citigroup and his two associates, Niall Macleod and Narendra Singh, came out with a paper "Plutonomy: Buying Luxury, Explaining Global Imbalances." If the formulations contained in this paper are correct, they will have far reaching implications, upsetting long-standing understandings of economists all over the world.

Ajay Kapur and his associates assert that world is getting divided into two blocs, namely, the Plutonomy and the rest. The term 'Plutonomy' is derived from, Plutus, the Greek god of wealth. America, Britain and Canada are the key Plutonomies, powered mainly by the wealthy. In Plutonomies, the rich dominate the economy as they account for most of the consumption expenditures, savings, current account deficits, etc. Obviously, in the Plutonomies, economic growth is powered by the wealthy. The rest of the population does not have much of a role in the economy.

Kapur and his associates claim: "Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Ages and Roaring Twenties in the U.S." Common drivers of Plutonomy in each case have been "Disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions." These conditions benefit the rich and educated of the time because only they are in a position to exploit them. Income inequality has been a prominent feature of Plutonomy. In the present day world Plutonomies are given birth to and sustained by revolution in information and communications technology, financialization, globalization and friendly governments and their policies.

In a Plutonomy, consumers do not have their nationality. Thus there is no U.S. consumer or British consumer. Globalization has converted the entire world into a single integrated market. "There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the "non-rich", the multitudinous many, but only accounting for surprisingly small bites of the national pie. Consensus analyses that not tease out the profound plutonomy on spending power, debt loads, savings rates (and hence current account deficits), oil price impacts etc., i.e., focus on the "average" consumer flawed from the start… Since consumption accounts for 65% of the world economy, and consumer staples and discretionary sectors for the MSCIAC World Index, understanding how the plutonomy impacts consumer is key for equity market participants."

Kapur & Co. assert that Plutonomy is not going to go away but will get stronger and stronger, "its membership swelling from globalized enclaves in the emerging world, we think a "plutonomy basket" of stocks should continue to do well These toys for the wealthy have pricing power, and staying power."

The share of the wealthy in the national income has been increasing. The top 1% of households in America, i.e., about one million households accounted for around 20% of overall U.S. income in 2000, slightly lower than the share of income of the bottom 60% of households put together. In other words, about one million households on the top and the bottom 60% households had almost equal share in the national pie. The top one per cent of households accounted for 40 per cent of financial net worth, more than the bottom 95 per cent of households put together.

Kapur & Co. assert: "We posit that the drivers of plutonomy in the U.S. (the UK and Canada) are likely to strengthen, entrenching and buttressing plutonomy where it exists. The six drivers of the current plutonomy: (1) an ongoing technology/biotechnology revolution, (2) capitalist friendly governments and tax regimes, (3) globalization that re-arranges global supply chains with mobile well-capitalized elites and immigrants, (4) greater financial complexity and innovation, (5) the rule of law, and (6) patent protection are well ensconced in the U.S., the UK and Canada. They are also gaining strength in the emerging world." Further, "Eastern Europe is embracing many of these attributes, as are China, India, and Russia."

When the top, say one per cent of households in a country see their share of income rise sharply, a Plutonomy emerges. This is witnessed often in times of frenetic technology/financial innovation driven wealth waves, accompanied by asset booms, equity and/or property. Feeling wealthier, the rich decide to consume a part of their capital gains right away. In other words, they save less from their income, the well-known wealth effect.

They claim that the rich have become the dominant drivers of demand in many economies. They have started dominating income, wealth and spending. According to a recent article by George Ip "Income Inequality Gap Widens" (The Wall Street Journal, October 12, 2007): the richest Americans have been cornering greater and greater share of the national income. The wealthiest one per cent of Americans earned 21.2 per cent of national income in 2005 while they earned 19 per cent in 2004 and 20.8 per cent in 2000. On the other hand the bottom 50 per cent earned 12.8 per cent of national income that was less than 13.4 per cent in 2004 and 13 per cent in 2000.

Since the wealthy appropriate most of the national income, the pattern of production is fashioned to meet their demand. It is estimated that America's richest half-per cent consume, on an average, goods and services worth $650 billion a year. In a Plutonomy like America, "the wealthy account for a greater share of national wealth, spending, profits and economic growth … the top 20 per cent of income earners account for as much as 70 per cent of consumption in the United States. Like it or not… spending by the rich was propping up the economy, even as the middle and lower classes were struggling." Further, "In this new plutonomy, with "rich" consumers and "everyone else," companies that serve the rich are prospering. From department stores to hotels to automakers to homebuilders, businesses in every industry was adapting to an increasingly hour-glass-shaped economy, selling to the status-seeking rich, and the penny-pinching middle and lower middle classes."

The Plutonomy thesis presented by Ajay Kapur & Co. implies that there will be no "realization crisis" nor will there be any need for the Keynesian prescription of an active role of the state in augmenting the volume of effective demand. In other words, no public works and welfare activities are to be undertaken wherever Plutonomy is in ascendancy. "New Deal" of Roosevelt has become irrelevant. The same is the fate of William H. Beveridge's recommendations for creating a welfare state. Mahatma Gandhi, Nehru, and Indira Gandhi (with her slogan of 'Garibi Hatao') are to become irrelevant. Present day slogans like 'Congress ka Hath Aam Adami ke Sath' and 'the inclusive growth' are nothing but hollow ones.

Karl Marx was the first to point out that capitalism was bound to face "realization crisis", i.e., capitalists might not realize the value inherent in commodities because they might find the total volume of demand falling short of the volume of supply. Thus capitalists would not be able to sell the entire volume of output. This could be due to anarchy of production and productivity increasing much faster than the wages.

Karl Marx's claim was outright dismissed by the ruling orthodoxy because till 1929 it continued to stick to the dictum "supply creates its own demand," based on the law of markets put forth by the French economist Jean-Baptiste Say (1767-1832) in a book published in France in 1803 (translated into English as "A Treatise on Political Economy, or the production, distribution and consumption of wealth," and published from Philadelphia in 1855).

Say held that there could be no demand without supply. The power to purchase could get augmented only by more and more production. Hence there could be no problem of unsold commodities. If everything was normal and there was no interference by the government, trade unions and other quarters in the functioning of market, it would clear. In other words, economy would be self-regulating, provided all prices, including wages were flexible enough. A free market economy was always supposed to maintain full employment. Hence there would be no glut. This approach collapsed in 1929 when the Great Depression set in. This was the most severe and prolonged General Crisis in the history of capitalism.

Keynes tore this orthodoxy to pieces. Contrary to the assertion of Say's followers there was mass involuntary unemployment because the realization crisis had forced the factories to down their shutters and lay off the workers. This deepened the crisis further. Keynes demonstrated that Say was wrong when he believed that there was only transaction demand for money. In fact, there were precautionary and speculative demands for money. Because of this people might not spend all their earnings on buying goods and services. The greater this leakage, the greater was the impending fear of the phenomenon of unsold commodities. He analyzed the factors behind these two motives.

Keynes suggested an active role for the state in order to augment and maintain the volume of demand to enable the market to clear and ward off the danger of realization crisis. From this arose the strategy of welfare state. In the course of time, state assumed the responsibility of creating employment opportunities and poverty reduction.

This thinking remained prominent, in spite of onslaughts by Mises, Hayek and the Chicago school, led by Milton Friedman, but the process of its burial began with the rise of Thatcher-Reagan line of thinking, the collapse of the Soviet Union and the Washington consensus-based globalization, thrust indiscriminately on the entire world. Now, it appears, the danger of realization crisis emanating from a general crisis of capitalism is almost forgotten. Extolling the virtues of consumerism and 'shop till you fall dead' appear to be the instrument for raising the volume of effective demand. There is, however, a catch, more so in developing countries, where the seeds of plutonomy will take a long time to germinate. The overwhelming mass of people lack employment opportunities and income to survive, but they have the power to unseat the government, notwithstanding all the propaganda about glowing future. Didn't Keynes say, in the long run we all will be dead, so what is relevant is the present and immediate future?


[Oct 11, 2007] Plutonomics 101 - Pittsburgh Tribune-Review By George F. Will

Thursday, October 11, 2007 WASHINGTON

Enough, already, with compassion for society's middle and lower orders. There currently is a sympathy deficit regarding the very rich. Or so the rich might argue because they bear the heavy burden of spending enough to keep today's plutonomy humming.

Furthermore, they are getting diminishing psychological returns on their spending now that luxury brands are becoming democratized. When there are 379 Louis Vuitton and 227 Gucci stores, who cares?

Citigroup's Ajay Kapur applies the term "plutonomy" to, primarily, the United States, although Britain, Canada and Australia also qualify. He notes that America's richest 1 percent of households own more than half the nation's stocks and control more wealth ($16 trillion) than the bottom 90 percent. When the richest 20 percent account for almost 60 percent of consumption, you see why rising oil prices have had so little effect on consumption.

Kapur's theory is that "wealth waves" develop in epochs characterized by, among other things, disruptive technology-driven productivity gains and creative financial innovations that "involve great complexity exploited best by the rich and educated of the time." For the canny, daring and inventive, these are the best of times -- and vast rewards to such people might serve the rapid propulsion of society to greater wealth.

But it is increasingly expensive to be rich. The Forbes CLEW index (the Cost of Living Extremely Well) -- yes, there is such a thing -- has been rising much faster than the banal CPI (consumer price index). At the end of 2006, there were 9.5 million millionaires worldwide, which helps to explain the boom in the "bling indexes" -- stocks such as Christian Dior and Richemont (Cartier and Chloe, among other brands), which are up 247 percent and 337 percent respectively since 2002, according to Fortune magazine. Citicorp's "plutonomy basket" of stocks (Sotheby's, Bulgari, Hermes, etc.) has generated an annualized return of 17.8 percent since 1985.

This is the outer symptom of a fascinating psychological phenomenon: Envy increases while -- and perhaps even faster than -- wealth does. When affluence in the material economy guarantees that a large majority can take for granted things that a few generations ago were luxuries for a small minority (a nice home, nice vacations, a second home, college education, comfortable retirement), the "positional economy" becomes more important.

Positional goods and services are inherently minority enjoyments. These are enjoyments -- "elite" education, "exclusive" vacations or properties -- available only to persons with sufficient wealth to pursue the satisfaction of "positional competition." Time was, certain clothes, luggage, wristwatches, handbags, automobiles, etc., sufficed. But with so much money sloshing around the world, too many people can purchase them. Too many, in the sense that the value of acquiring a "positional good" is linked to the fact that all but a few people cannot acquire it.

That used to be guaranteed because supplies of many positional goods were inelastic -- they were made by a small class of European craftsmen. But when they are mass-produced in developing nations, they cannot long remain such goods. When 40 percent of all Japanese -- and, Fortune reports, 94.3 percent of Japanese women in their 20s -- own a Louis Vuitton item, its positional value vanishes.

James Twitchell, University of Florida professor of English and advertising, writing in the Wilson Quarterly, says this "lux populi" is "the Twinkiefication of deluxe." Now that Ralph Lauren is selling house paint, can Polo radial tires be far behind? When a yacht manufacturer advertises a $20 million craft -- in a newspaper, for Pete's sake; the Financial Times, but still -- cachet is a casualty.

As Adam Smith wrote in "The Wealth of Nations," for most rich people "the chief enjoyment of riches consists in the parade of riches, which in their eye is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves." Hennessy understands the logic of trophy assets: It is selling a limited batch of 100 bottles of cognac for $200,000 a bottle.

There is some good news lurking amid the vulgarity. Americans' saving habits are better than they seem because the very rich, consuming more than their current earnings, have a negative savings rate.

Furthermore, because the merely affluent are diminishing the ability of the very rich to derive pleasure from positional goods, philanthropy might become the final form of positional competition. Perhaps that is why so many colleges and universities (more than 20, according to Twitchell) are currently conducting multi billion-dollar pledge campaigns. When rising consumption of luxuries produces declining enjoyment of vast wealth, giving it away might be the best revenge.

George F. Will is a columnist for The Washington Post and Newsweek. He can be reached at

The Wealth Report - Plutonomics

It's well known that the rich have an outsized influence on the economy.

The nation's top 1% of households own more than half the nation's stocks, according to the Federal Reserve. They also control more than $16 trillion in wealth - more than the bottom 90%.

Yet a new body of research from Citigroup suggests that the rich have other, more-surprising impacts on the economy.

Ajay Kapur, global strategist at Citigroup, and his research team came up with the term "Plutonomy" in 2005 to describe a country that is defined by massive income and wealth inequality. According to their definition, the U.S. is a Plutonomy, along with the U.K., Canada and Australia.

In a series of research notes over the past year, Kapur and his team explained that Plutonomies have three basic characteristics.

1. They are all created by "disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time."

2. There is no "average" consumer in Plutonomies. There is only the rich "and everyone else." The rich account for a disproportionate chunk of the economy, while the non-rich account for "surprisingly small bites of the national pie." Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.

Kapur says that once we understand the Plutonomy, we can solve some of the recent mysteries of the American economy. For instance, some economists have been puzzled (especially last year) about why wild swings in oil prices have had only muted effects on consumer spending.

Kapur's explanation: the Plutonomy. Since the rich don't care about higher oil prices, and they dominate spending, higher oil prices don't matter as much to total consumer spending.

The Plutonomy also could explain larger "imbalances" such as the national debt level. The rich are so comfortably rich, Kapur explains, that they have started spending higher shares of their incomes on luxuries. They borrow much larger amounts than the "average consumer," so they have an exaggerated impact on the nation's debt levels and savings rates. Yet because the rich still have plenty of wealth and healthy balance sheets, their borrowing shouldn't be a cause for concern.

In other words, much of the nation's lower savings rate is due to borrowing by the rich. So we should worry less about the "over-stretched" average consumer.

Finally, the Plutonomy helps explain why companies that serve the rich are posting some of the strongest growth and profits these days.

"The Plutonomy is here, is going to get stronger, its membership swelling" he wrote in one research note. "Toys for the wealthy have pricing power, and staying power."

To prove his point, he created a "Plutonomy Basket" of stocks, filled with companies that sell to the rich. The auction house Sotheby's is on the list, along with fashion houses Bulgari, Burberry and Hermes, hotelier Four Seasons, private-banker Julius Baer and jeweler Tiffany's. Kapur says the basket has risen an average of 17% a year over the past year, outperforming the MSCI World Index.

Of course, Kapur says there are risks to the Plutonomy, including war, inflation, financial crises, the end of the technological revolution and populist political pressure. Yet he maintains that the "the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years."

All of which means that, like it or not, inequality isn't going away and may become even more pronounced in the coming years. The best way for companies and businesspeople to survive in Plutonomies, Kapur implies, is to disregard the "mass" consumer and focus on the increasingly rich market of the rich.

A tough message - but one worth considering.

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For the super-rich it's all give and take - at record levels Business The Guardian

The wealth of the world's super-rich soared last year at the fastest rate for seven years. The rise in riches was accompanied by a surge in charitable giving to $285bn - believed to be a record.

The downside for the super-rich was that the cost of their favourite luxury products and activities rose at nearly twice the average rate for goods and services.

The 11th annual study of 71 countries by investment bank Merrill Lynch and consultancy firm, Capgemini found that buoyant economic growth across the world pushed the riches of "high net worth individuals" (HNWI) up by a hefty 11.4% last year. The dramatic increase took the total prosperity of the world to $37.2 trillion - equivalent to 15 times the annual output of the UK economy.

High-net worth individuals are those with $1m (£500,000) to invest in financial assets excluding first homes. Ultra high-net worth individuals have $30m at their disposal.

Britain had the fourth biggest number of the world's wealthiest, with a total of 484,580 high-net worth individuals, up 8.1% from 2005. Only the US, Japan and Germany have more. Britain is home to 16.7% of Europe's super-rich.

Part of the rise in world wealth last year came from booming stock markets. The Dow Jones world index, for example, increased by a solid 16.4%.

The boost in cash held by the world's millionaires and billionaires gave way to a surge in philanthropy, the report said. Rich individuals donated 7% of their wealth to charity, while the ultra-rich donated more than 10% to these causes. This charitable giving amounted to more than $285bn globally. Warren Buffett, the world's second-richest man, added to the trend last year when he donated 85% of the $45bn earned from his lifetime of investments to a foundation established by Microsoft's Bill Gates and his wife Melinda.

"Philanthropy is central to what wealth managers are having to do; it cannot be ignored," said Nick Tucker, a Merrill Lynch executive director and co-author of the report. "New wealth especially are keen on this."

Environmental and socially responsible investing were no longer niche categories. Nearly half of all British investment firms invest more than 10% of the assets under their management in socially responsible projects, a rise of 20% from 2004.

The report predicted that global wealth was expected to grow by 6.8% each year until 2011, pushing the total amount to $51.6 trillion, though Mr Tucker warned that a slowing world economy may put a brake on the soaring expansion of wealth over the coming years.

"With many central banks tightening monetary policy, the period of high liquidity that has stimulated recent growth may soon come to an end. The growth rates of Asia and Latin America are expected to ease back as global demand slows. The dual risks of rising energy prices and geopolitical conflicts are a continued threat, adding a level of uncertainty to our current forecasts."

Britain in particular was facing slowing growth, and therefore a lower generation of wealth, as a result of higher inflation and low household savings rates this year.

There were 9.5 million HNWIs last year, according to the report - a rise of 8.3% from 2005. Europe saw its wealth increase at the sharpest rate since 2000, with a rise of 7.8% to $10 trillion. The performance of financial markets in eastern Europe in particular was a key driver in this, Mr Tucker said. Ultra-HNWIs also rapidly increased by 11.3% to 94,970 last year.

The largest share of the growth in the world's higher net worth population came from Singapore and India, where numbers rose by 21.2% and 20.5% on the year respectively. This continued the rise of a new elite of super-rich individuals in developing nations as their economies expanded, in the case of India and China at rates more than triple that of the UK.

Many of these emerging economies, which included Russia, were gaining strength from domestic private consumption, competitive services and manufacturing sectors.

Wealth generated in Latin America, the Middle East and Russia was buoyed up by high commodity and oil prices.

"The globalisation of wealth creation has accelerated," said Chris Gant, head of wealth management at Capgemini Financial Services. "If 2005 was characterised by a flow of investment to international funds from HNWIs, 2006 ushered in a new era whereby emerging economies leaped ahead with direct foreign investment, strong domestic demand and hefty stock market gains."

The report found that as the rich got richer, the demand for luxury products increased, making them more expensive. The Cost of Living Extremely Well Index (CLEWI) measured the cost of a basket of 42 luxury goods and services, including designer handbags, tuition at Harvard University and filet mignon.

Last year, this index rose nearly twice as fast as the cost of everyday consumer products. The CLEWI rose at 7% while the consumer price index increased by 4%.

The world's millionaires nevertheless devoted about a quarter of their "investments of passion" to yachts and private jets, dubbed "mobile mansions," and a fifth to art.

polyarchy Participation and Opposition Robert A. Dahl 9780300015652 Books

A. Arnold
Classic of political science that is still relevant today February 10, 2003



Dahl's work, which has been cited by countless political scientists since it was first published, provides a useful framework for the examination of democracy (which is not quite equivalent to what he terms 'polyarchy'; democracy consists of a bit more than a polyarchal system). The book is particularly concerned with the two main variables of political orders: 'competition' (public contestation among various political actors) and 'participation' (defined with regards to the right to participate). Using these variables, these systems can graded based on whether they possess these qualities to a greater or lesser degree. While most modern political systems fall in a 'gray area' (they are neither perfectly competitive nor inclusive), Dahl believes that all should strive towards the ideal type, or polyarchy. Dahl goes on to outline the benefits of a polyarchal system and the various ways in which such a system can be achieved. Yet, Dahl also recognizes that the transition to polyarchy is neither inevitable nor invariably desirable. Certain conditions are needed in order for the full benefits of a polyarchy to be realized. Thus, the minimal nature of Dahl's conception allows flexibility in its application. This is why his notion of democracy, as defined through polyarchy, has been adopted time again by those engaging in the debate over democracy, including such luminaries as Samuel P. Huntington and Larry Diamond.



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