Wednesday, October 30, 2013

Nicole Foss in Milwaukee

Monday night I had the privilege of seeing Nicole Foss speak for the second time, this time with her new speaking companion Lawrence Boomert (BOW-mert) from New Zealand. Of course, this is highly recommended, and you can see their travelling and speaking schedule on The Automatic Earth. I was offered an opportunity to hang out and drink some wine with the guests, which I’m sort of regretting passing up. How often do you get to hang out with people knowledgeable about our coming situation in person? It might be arrogant of me to assert that I know more about these underlying issues than most people in attendance, but Nicole and TAE was a big influence on me, and 800+ posts gives me some claim to expertise, so I would have loved to have a more in-depth conversation with them and to pick their brains a bit. But, alas, it was 10:00 PM and a Tuesday work day loomed on the horizon. Oh well…

The topic centered around what communities can do given the ongoing breakdowns in government, finance, and the economy in general. Nicole gave a concise explanation of the economic situation we face that’s probably familiar to most of you. Since the last time she spoke, events such as Cyprus seizing creditors’ deposits to make the banks whole (rather than printing money via keystrokes as in the U.S) and Detroit’s bankruptcy have occurred, and she integrated them into her analysis. Then Lawrence spoke primarily about topics such as localized economies, grass-roots movements, guerrilla gardening, Permaculture, local currencies, time banking, community co-ops, the sharing economy (e.g. Couchsurfing) and the like, with examples from Australia, New Zealand and elsewhere..

It’s always difficult to come up with a timely and contextual question in the all-too-brief Q&A session after. I did get in the last question, which was, to paraphrase, whether the fact that large-scale institutions such as state and national governance are increasingly taken over by the wealthy and powerful and run for their benefit makes them useless, and whether we should just abandon any hope of trying to fix or reform these institutions. Her answer (again, paraphrasing) was that yes, in essence, the social inertia embedded in these institutions makes them irreformable, and they are a way to siphon off people’s efforts into useless activities rather than what they should be doing – specifically building grass-roots solutions in their own communities. She felt that government would be unable to respond adequately to the rapid challenges facing communities in the future because of their size and distance. As she put it, “rather than trying to run with the dinosaurs, become a mammal.”

I think Nicole’s answer was a good one, but my concern is that these institutions still have an awful lot of power in our society today – the power to tax, the power to spend, the power to regulate, the power to incarcerate, the power to create money, and the power to drop bombs and fly drones. I think that ignoring these powers seems a bit dangerous to me. Ultimately what backs currencies is the power to tax, which is why community currencies seem more like a feel-good sideshow to me rather than a real alternative solution. The ultimate problem with our money is that most people don’t have enough of it, and printing easily-counterfitable pieces of paper isn’t going to fix that.

More broadly, I fear that this feeds into the “divide and rule” tactic deployed by the elites to maintain their control over us. By abandoning the field to a small cadre of highly disciplined malignant plutocrats, well-funded political mandarins and ignorant zealots, you enable the effective, uncontested, political takeover over these institutions. And they can do a lot of damage. For example, if you were opposed to the Nazis during their rise to power, you could certainly abandon politics, retreat to an Alpine village, and try to build an alternative. But that probably would not have saved you nor the millions who perished after the fanatics and authoritarians took control of the levers of power (especially if you were Jewish).

For intelligent, well-meaning people to abandon our political institutions just assures that control will be even more heavily concentrated among the right-wing plutocrats and oligarchs, who can now not worry about any concentrated opposition to their power forming as it did during the Progressive Era. That era was marked by a slow emergence of honest civil servants who believed in using America’s institutions to do good and promote a more healthy society. A lot of things we take for granted today came out of that era, from sidewalks, streetlights and clean drinking water to Social Security, Consumer protection and Unemployment Insurance. Must these be abandoned? And, it should be noted, local economies were much more healthy and thriving back then than they are today. I must note that both Nicole’s and Lawrence’s native countries have managed to implement socialized universal health insurance, something unimaginable in the United States. Why?

There’s a lot of talk about us “pulling together” but that’s what stopping reform at every level – divide and rule can be deployed it just as effectively to stop community solutions as it can to prevent governmental reform. How many people, fed a steady diet of right-wing media, are convinced that such measures promoted by Nicole and Lawrence are “communism” and need to be stamped out by any means necessary (including violent ones)?

This tendency on the Left to withdraw, to ignore the wider society, is a dangerous one, and I think it feeds in to the Right’s ultimate goal – to make the people so disgusted by government, afraid of it, and demoralized for any hope of reform that it can remain in their hands forever, and they can use its power to choke off any opposition, from outlawing community currencies, to regulating small businesses out of existence, to auctioning off essential public services to Wall Street, to throwing protestors in jail*. As the famous line goes, “the best lack all conviction, while the worst are full of passionate intensity.” If that isn’t the best one-line summation of modern-day America, I don’t know what is.

So I don’t mean to poo-poo community solutions because I believe they are important and necessary. But I worry that such measures are necessary but not sufficient. I don’t know what to do, nor what the answer is. But I think people are clinging to these ideas out of starry-eyed hope and ignoring solutions that will really fix our problems at a deeper, more fundamental level because they are just too difficult. And that’s exactly what they want us to do.

Anyway, I’m sure that opinion is controversial. Feel free to weigh in with any thoughts or ideas.

* This isn’t theoretical. Just today I received an email from AirBnb about New York City’s efforts to shut it down and by issuing a subpoena for all Airbnb hosts. This is surely to defend the hotel industry from competition. Go sign their petition if you'd like.

Greed, Revolution, and Governance (Naked Capitalism) See especially the last two paragraphs.

Tuesday, October 29, 2013

Paying through the nose

"Americans pay so much because they don't have a choice," says Susan Crawford, a former special assistant to President Barack Obama on science, technology and innovation policy. Although there are several national companies, local markets tend to be dominated by just one or two main providers.

"We deregulated high-speed internet access 10 years ago and since then we've seen enormous consolidation and monopolies, so left to their own devices, companies that supply internet access will charge high prices, because they face neither competition nor oversight." Two-thirds get their broadband via their television cables, she says, because the DSL (digital subscriber line) service provided by phone companies over copper lines can't compete with cable speeds, while wireless and satellite services are subject to low usage caps.

For Susan Crawford, author of Captive Audience, higher prices have created a digital divide which excludes poor Americans from quality internet access. And there are economic implications too. "The 2008 banking crisis demonstrated what happens when we allow banks to act out of pure self interest. The communications crisis in America is less visible but also destructive of America's ability to function on the global stage." Like electricity, she says, internet access should be available equally to all at reasonable prices so that every other sector of US industry and society can flourish.

Rick Karr, who made a PBS documentary in which he travelled to the UK to find out why prices were lower, says that the critical moment came when the British regulator Ofcom forced British Telecom to allow other companies to use its copper telephone wires going to and from homes.

But US regulators took a different approach. Rather than encouraging competition between operators using the same network, the US encouraged competition between different infrastructure owners - big companies that could afford to build their own networks.
Why is broadband more expensive in the US? (BBC)

Health care, higher education,  broadband service, cellphone service, why do Americans pay so much more than the rest of the world for nearly everything(except gas)? Clearly the answer lies in the collusion between government and corporations. How much longer can the sheep be fleeced by the wolves?

And continuing on from our last post about Neofeudalism in the U.S., here's the latest episode of Congressional Dish:

Now that the government is back up and running and the American public has looked away, the House of Representatives got back to work privatizing our government. H.R. 3080 takes the first steps towards privatization of water projects typically done by the Army Corps of Engineers, using entirely fixable budget issues as the justification.

The Corps of Engineers is in charge of the nation's infrastructure. Selling that off is game over as far as I'm concerned. Note also that the funding for their work has not increased since the 1980's and they refuse to raise taxes on the users to an adequate level to pay for the upkeep. Finally, note how they're eliminating redress through the court system (um, is that a Libertarian principle?) Listen and weep.

Finally: California’s New Feudalism Benefits a Few at the Expense of the Multitude (Daily Beast):
As late as the 80s, California was democratic in a fundamental sense, a place for outsiders and, increasingly, immigrants—roughly 60 percent of the population was considered middle class. Now, instead of a land of opportunity, California has become increasingly feudal. According to recent census estimates,  the state suffers some of the highest levels of inequality in the country. By some estimates, the state’s level of inequality compares with that of such global models as  the Dominican Republic, Gambia, and the Republic of the Congo.

At the same time, the Golden State now suffers the highest level of poverty in the country—23.5 percent compared to 16 percent nationally—worse than long-term hard luck cases like Mississippi. It is also now home to roughly one-third of the nation’s welfare recipients, almost three times its proportion of the nation’s population.

Like medieval serfs, increasing numbers of Californians are downwardly mobile, and doing worse than their parents: native born Latinos actually have shorter lifespans than their parents, according to one recent report. Nor are things expected to get better any time soon. According to a recent Hoover Institution survey, most Californians expect their incomes to stagnate in the coming six months, a sense widely shared among the young, whites, Latinos, females, and the less educated.

The state’s digital oligarchy, surely without intention, is increasingly driving the state’s lurch towards feudalism. Silicon Valley’s wealth reflects the fortunes of a handful of companies that dominate an information economy that itself is increasingly oligopolistic.  In contrast to the traditionally conservative or libertarian ethos of the entrepreneurial class, the oligarchy is increasingly allied with the nominally populist Democratic Party and its regulatory agenda. Along with the public sector, Hollywood, and their media claque, they present California as “the spiritual inspiration” for modern “progressives” across the country.

The gap between the oligarchic class and everyone else seems increasingly permanent. A critical component of assuring class mobility, California’s once widely admired public schools were recently ranked near the absolute bottom in the country. Think about this: despite the state’s huge tech sector, California eighth graders scored 47th out of the 51 states in science testing. No wonder Mark Zuckerberg and other oligarchs are so anxious to import “techno coolies” from abroad.

As in medieval times, land ownership, particularly along the coast, has become increasingly difficult for those not in the upper class. In 2012, four California markets—San Jose, San Francisco, San Diego, and Los Angeles—ranked as the most unaffordable relative to income in the nation. The impact of these prices falls particularly on the poor. According to the Center for Housing Policy and National Housing Conference, 39 percent of working households in the Los Angeles metropolitan area spend more than half their income on housing, as do 35 percent in the San Francisco metro area—both higher than 31 percent in the New York area and well above the national rate of 24 percent. This is likely to get much worse given that California median housing prices rose 31 percent in the year ending May 2013. In the Bay Area the increase was an amazing 43 percent.

Monday, October 28, 2013

More on the coming Neofeudalism

I've seen an uptick in the term "Neofeudalism" recently, which means it's probably time for another blog post on the topic. I started to write a more comprehensive analysis of the topic, but before I do that, I think I'd like to present some primary sources I've encountered as background. While some may say that the term is meaningless, or just an emotionally-charged synonym for "stuff I don't like," I believe that it is a good term to help us understand the emerging economic order (or 'mode of production' to use the Marxist term). In fact, I would go so far as to say that while Marx saw capitalism breaking down and being replaced by some form of communism/socialism, what we are actually seeing in the real world is Neofeudalism as the new emerging economic order. Thus it's important that we try and understand it.

We'll start with this post from Crooked Timber entitled, Neo-Liberalism as Feudalism:
Otherwise put, it’s a good example of Crouch’s critique of neo-liberal efforts to ‘shrink’ government – that in practice it is less about free markets than the handing over of government functions to well connected businesses.

    Outsourcing is … justified on the grounds that private firms bring new expertise, but an examination of the expertise base of the main private contractors shows that the same firms keep appearing in different sectors … The expertise of these corporations, their core business, lies in knowing how to win government contracts, not in the substantive knowledge of the services they provide. … This explains how and why they extend across such a sprawl of activities, the only link among which is the goernment contract-winning process. Typically, these firms will have former politicians and senior civil servants on their boards of directors, and will often be generous funders of political parties. This, too is part of their core business. It is very difficult to see how ultimate service users gain anything from this kind of managed competition.

As Crouch suggests in an aside, we’ve been here before. The cosy relationship between corporations like CGI Federal and Booz Allen and the government bears a strong resemblance to feudalism (which, stripped of the pageantry, was a complex web of relations and privileges between a small and privileged elite of nobles and the state). It bears an even stronger resemblance to Old Corruption, the strangling web of sinecures and emoluments that radicals like William Cobbett inveighed against in the early nineteenth century. Government – even at the best of times – has many clunky and inefficient features (the American version particularly so – many of the worst inflexibilities of the US government have their origins in people’s distrust of it). Yet the replacement of large swathes of government with a plethora of impenetrable subcontracting relationships is arguably even worse – it has neither the efficiencies (sometimes) achieved by markets, nor the accountability (sometimes) achieved by democratic oversight.
Next, here is a post from Naked Capitalism, which uses the term upfront in its opening paragraph describing the debt bondage that young people are now forced into to get an education for the remaining jobs that pay enough to live on:
Readers have often been using the term “neofeudalism” to describe the outlines of the new economic order, in which the uber wealthy and a thin cadre of their advisors, managers, and other elite professionals do well, with a network of less lofty managers helping oversee and orchestrate the provision of services to the broad base of the public, and they struggle to eke out a meager existence.

Debt appears to be the “one ring that rules them all” of this emerging order. And if that is the case, it’s likely to be much more like the old sharecropper system of the post Civil War era, where poor whites and blacks were kept on a debt treadmill that turned them into slaves in all but name.

Even though readers of this blog recognize the individual pieces of the hardships facing young people, I’m not certain older people can readily grasp the totality. For instance, going to college is seen as being for people who grew up with college educated parents as a basic requirement; it’s a marker of accomplishment, a necessary but no longer sufficient condition for entry into the middle class, and at least in some circles, still seen as desirable in and of itself (as in an opportunity to gain knowledge and culture, as quaint as those ideas may be). High school kids face a decision they are not well equipped to make. Most people suffer from optimism bias, and teenagers may feel not going to college is an admission of failure. And it’s not as if they have great prospects if they go into the job market with only a high school degree.

This is a slow road to penury for young adults, save for those who manage to get on the really big ticket career paths or have parents who can pay for college and buy them a house. We can’t pretend to address the problems of the economy unless we include the increasing debt enslavement of the young along with the pauperization of the old. Otherwise, the Petersons and the Druckenmillers of the world will play them off against each other and keep them both under their boot.
Next up, here are excerpts from the most recent Extraenvironmentalist podcast with economist Michael Hudson, who has been one of the most frequent users and definers of the term:
Justin Ritchie: “Let’s say Quantitative Easing 3.0 ends and this wave of privatization goes through. What will life be like on the ground for people in this privatized, debt-deflation stricken America in, say, five or ten years? How will their lives change? What can you really see for individual families?  How will their lives be different?”

Michael Hudson: “Well, try reading books about how England was in the thirteenth century. We’re moving, essentially, [to] Neofeudalism to make a long story short. People are going to find that instead of free government services as before, now they have to pay for them. And if they pay for these essential services--and most public services are essential, that’s why they’re in the public sector to begin with; to keep them out of the hands of monopolies—now all of the sudden the public services that were provided on a subsidized basis or freely are going to be privatized without any price regulation for it, and all of the sudden people are going to have to pay market prices that include interest charges, Wall Street underwriting charges, the cost of dividends, exorbitant management fees, bonuses for management, political contributions, buying off judges, buying off the courts, buying off the politicians to make sure that the people are not able to stop your gouging them. That’s how the system is developing.”

“And it’s not democracy anymore. We’re seeing a transformation from democracy into financial oligarchy. And essentially the word that used to be used for these people were rentiers. People living off their rents. Landlords, and now the monopolists.”

“So we’re seeing what used to be profits or public tax revenues turned into monopoly rents. And that’s going to be the word that’s going to be used more and more to describe the coming decade. Everything is going to be monopolized and people are going to have to pay through the nose for essential services, and many people can’t afford it. There’s not going to be much discretionary income and choice left.”

“So people are going to essentially not have much choice as to what they can use their spare income for, because all their income is having to go to pay for the deficit they’ve taken out, the interest on the credit cards, the taxes, the wage withholding, health insurance, medical costs, transportation, electricity; everything that has been monopolized they’re going to have to pay for, and we’re seeing the end of consumerism and the end of consumer choice.”

JR: “So your new book is called The Bubble and Beyond. What really happens as the financial system fails? We’ve been talking about the feudal dynamic. Does the end of our current global economic system as we know it mean the end of our civilization as we know it? How do you see that shaping up?”

MH: “Well, civilization goes on. The Roman Empire collapsed and brought on a Dark Age for almost a thousand years. Civilization went on, but it became an oligarchy and poorer and poorer and poorer. Ecologists have talked about reaching a limit of global warming and of carbon dioxide and of water levels, but you can think of debt as debt pollution, as somehow polluting the economy, and when all of the economic surplus is going to pay the creditors in the form of interest and amortization and penalty fees, then all of the sudden there’s no money for goods and services anymore, and there’s simply a slow crash. And that’s what we’re in.”

“In order to buy a home, you have to go into a lifetime of debt during your working life to work off the mortgage. In order to get an education you have to pay so much student debt that you’re not able to get married and move out of your parents’ house and start a family, so the result that your finding in –Latvia’s a wonderful example, or Greece or Ireland today-- you’re finding for one thing population rates decline sharply. President Putin said that privatization and Neoliberalism in Russia has killed more Russians than all of World War Two.”

“Financial war is very much like a military war. The population will decline, people will stop having children, stop getting married, and usually there’s emigration. In Latvia in the last ten years, ten percent of the population, mainly of working age, have had to emigrate. For America, there would have to be thirty million people emigrating in order to keep up with the Irish or the Lativan or the Greek rates of emigration, but they’re not teaching enough Chinese in the schools to enable them to move anywhere.”
Finally, we need to define feudalism in order to understand what exactly is similar between it and Neofeudalism. Feudalism is an enormous topic that some scholars have spent their entire careers studying. Despite this, it is a very slippery topic, difficult to define or pin down. Some of the classic works on it are Marc Bloch, Feudal Society, Volumes 1 and 2,  and Fran├žois-Louis Ganshof's What is Feudalism?. In fact, Wikipedia goes so far as to quote one scholar as saying, "there has been ongoing inconclusive discussion among medieval historians as to whether feudalism is a useful construct for understanding medieval society."  Despite these difficulties, I believe Neofeudalism is still a useful term. To this end, Cullen Murphy, in his book Are We Rome (which I can't recommend highly enough), sketches out a brief description of Europe's transformation to feudalism from Classical civilization, with some eerie parallels to today:
In the end, Rome was heading toward something the Romans did not, by definition, have a term for. But we do: it's the Middle Ages. The precise definition of "feudalism" is one of those things on which medievalists can't quite agree -- the field is divided into warring fiefdoms -- but the historian F.L. Ganshof discerned in feudal society one basic quality: "a dispersal of political authority amongst a hierarchy of persons who exercise in their own interest powers normally attributed to the state." In other words, the public interest had become private.
This isn't the place for an extended excursion across a thousand years of Western history. In brief, for many centuries power was wielded in Europe by monarchs and vassals as if it were a from of private property. The levying of taxes, the raising of armies, the meting out of justice -- these things were done in the name of the ruler, and the fruits of his administration were enjoyed by those who acknowledged the ruler's personal lordship. The eventual path away from the Middle Ages was marked by the halting emergence of governments defined by communal interest rather than private prerogative. Power was no longer justified as simply a form of property. Social services and protections, and your rights as a person, became consequences of citizenship, not of a deal between a magnate and his underlings, or between a private entity and his clients.
America came into being toward the tail end of this process; the Mayflower Compact straddles old and new, beginning with a pious nod to the king but then going on to set up a "civill Body Ploitick" effectively without one, which America as a whole would emphatically do a century and a half later. To most modern eyes, the general tendency described here -- away from power as a private property and toward power as a public authority -- has been seen in a positive light: evolution's arrow was pointing the way it should.
But sometime in the late twentieth century the arrow began pointing the opposite direction. It began indicating a deflection of power back into private hands. Privatization today sometimes makes itself felt in ways that would have turned no heads in ancient Rome. It of course still includes influence peddling and bribery and the buying and selling of public office...And as in Rome, privatization still includes turning over government departments to incompetent cronies, empowering private individuals at the expense of public intentions.
But the dominant form of privatization today is something relatively new, at least in its dimensions. Government on its stupendous modern scale -- regulating every industry; redistributing treasure from one sector of society to another; forecasting the weather and engineering the genome; reaching bureaucratically into every intimate cranny of life -- simply did not exist in ancient Rome. Because the extent of government is larger, privatization has more scope. Its most pervasive from is perfectly legal: the hiring of profit-making companies by the thousands to do government jobs, and sometimes the wholesale reflagging of government agencies into private and semiprivate companies. The ostensible motives may be pure, but the effect in every case is to insert an independent agent, with its own interests to consider and protect, into the space between public will and public outcome -- a dynamic that represents a potential "diverting of government force" far more systemic and insidious than outright venality.
Privatization along these lines has occurred most decisively in America and Britain. In 1976 a book was published in the United States called The Shadow Government; its subtitle spoke ominously of "the government's multi-billion-dollar giveaway" of decision-making authority. In tone the book comes across today like a print version of old newsreel footage: a portentous voiceover signals urgency as jackbooted stormtroopers occupy the Ruhr. Government agencies, the authors warned, were farming out various functions to high-priced consultants, secretive think tanks, and corporate vested interests -- accountable to no one! And "outsourcing" was not the only issue. Some parts of the government, they went on, might even be sold off completely -- turned into private businesses! The process was "cloaked in contractual and other formal approvals by the various executive departments," but make no mistake: it amounted to nothing less than a "drive to merge the Government and business power to the advantage of the latter."
A little more than a decade later, the shadow government was out of the shadow. There is a plausible rationale  for privatization -- one that often makes sense in the short run and for specific tasks. Private contractors may be able to operate more efficiently than government agencies do. Marketplace signals may prove to be more direct and powerful than bureaucratic ones. And why shouldn't government hire outside specialists for help with certain chores, the way any household or business does? In the 1980s Ronald Reagan created a presidential commission on privatization to study not how the boundary between public and private might be bolstered but how it could be pushed out of the way even further, to give private interests more opportunity to move in. The same idea surfaces in the "reinventing government" movement taken up by the Clinton administration: "We would do well," one expert advised, "to glory in the blurring of public and private and not keep trying to draw a disappearing line in the water." Since then privatization has affected every aspect of American public life. It has also moved beyond narrowly defined tasks to embrace broad government functions.
Sociologists have a term for what is occurring: they call it the "externalization of state functions." Water and sewage systems are being privatized, and public hospitals and public health programs. Voucher programs and charter schools are a way of shifting education toward the private sector. The protection of nuclear waste is also in private hands. Meat inspection is largely done by the meatpacking companies themselves. Americans were up in arms when they learned that Dubai Ports World, a company in the United Arab Emirates, would soon be in control of the terminals at half a dozen major U.S. seaports -- only to discover that terminal operations at virtually all American ports had long ago been privatized, and that 80 percent of them were already operated by foreign companies, the largest of which is Chinese. Serious proposals to privatize portions of Social Security have been on the table, and they will doubtless appear there again. One effect that privatizing Social Security would surely have is to encourage the affluent  to opt out into private accounts to the greatest degree possible, eroding the communal sense of solidarity (as FDR understood) that has been the program's mainstay. Meanwhile, the new Medicare prescription drug plan effectively puts an enormous government program into the hands of private insurance and drug companies. Those inclined toward dystopian fantasy should consider Bruce Sterling's futuristic novel Holy Fire. It conjures a society in which people are so beholden to private employers for medical benefits that bring increasingly potent health care that they will do anything to avoid losing a job and therefore losing coverage -- leading to a gradual emergence of slavery in fact if not in name.
To Murphy's point above, the massive carceral state that exists under modern governments like the United States is something that has no analogy in Ancient Rome or Medieval times, since these societies did not have the surplus resources or manpower to divert to incarcerating large amounts of the population in prisons. Neither did they have the ability to constantly watch and surveil large parts of the population at all times and in all locations. The turning over of these powers to private for-profit companies is one of the scariest and most insidious things about the coming Neofeudalist order. If jailing people and surveillance is profitable, you can be sure you will get more of it.

Finally, I include a snippet from this Disinfocast interview with Congressional Dish's Jennifer Briney, who reads every single bill coming out of the United States Congress:
Matt Staggs: "So, what about something else? What else have you learned recently that kind of put you on edge; made you worry about our future a little bit?"

Jen Briney: "Um, well, they're trying to privatize our government in every way. I think we need to have a serious conversation in this country about what can be and should be done for a profit and what should not. And it's's across the board. So there was an education bill. You hear a lot about charter schools and school choice. But when you look in the bill itself it's about taking public funds that are going to public schools and shifting them to these charter schools that are managed for a profit. And that doesn't mean that all charter schools are bad or worse than public schools, but it is a diversion of funds to privatize education. And you see it in war, you know, you have these mercenaries, Blackwater, they're making --one of my best friends is a veteran, he was making, I don't know, $50-60,000 a year--then you've got Blackwater guys who are making $120,000. It's all coming from taxpayer funds, but one is going to a profitable industry and one is going to our actual soldiers. And it's every subject, every subject."

I think the Romans, too would have something to say about turning the army over to mercenaries.

Previously:  Foundations of Neofeudalism

Saturday, October 26, 2013

The coming zero-sum game

Yet another economist has come out saying that the affluent and energy-intensive lifestyles we have taken for granted in the developed world are coming to an end. An economist named Stephen D. King (not to be confused with the author) has written a book entitled, "When the Money Runs Out: The End of Western Affluence." As I explained in recent posts, that's probably not a good title, since we can no longer run out of money than the Red Sox can run out of points on the scoreboard. But what we can run out out of is resources, social trust, competent leadership, a stable climate, and so forth. He might better have entitled it, "when the resources run out," but as we know in the world of economics there are no resources at all, only their abstractions.

King summed up his ideas in a recent op-ed for the New York Times:
We are reaching end times for Western affluence. Between 2000 and 2007, ahead of the Great Recession, the United States economy grew at a meager average of about 2.4 percent a year — a full percentage point below the 3.4 percent average of the 1980s and 1990s. From 2007 to 2012, annual growth amounted to just 0.8 percent. In Europe, as is well known, the situation is even worse. Both sides of the North Atlantic have already succumbed to a Japan-style “lost decade.”

Surely this is only an extended cyclical dip, some policy makers say. Champions of stimulus assert that another huge round of public spending or monetary easing — maybe even a commitment to higher inflation and government borrowing — will jump-start the engine. Proponents of austerity argue that only indiscriminate deficit reduction, accompanied by reforming entitlement programs and slashing regulations, will unleash the “animal spirits” necessary for a private-sector renaissance.

Both sides are wrong. It’s now abundantly clear that forecasters have been too optimistic, boldly projecting rates of growth that have failed to transpire.

 The end of the golden age cannot be explained by some technological reversal. From iPad apps to shale gas, technology continues to advance. The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.

First was the unleashing of global trade, after a period of protectionism and isolationism between the world wars, enabling manufacturing to take off across Western Europe, North America and East Asia. A boom that great is unlikely to be repeated in advanced economies.

Second, financial innovations that first appeared in the 1920s, notably consumer credit, spread in the postwar decades. Post-crisis, the pace of such borrowing is muted, and likely to stay that way.

Third, social safety nets became widespread, reducing the need for households to save for unforeseen emergencies. Those nets are fraying now, meaning that consumers will have to save more for ever longer periods of retirement.

Fourth, reduced discrimination flooded the labor market with the pent-up human capital of women. Women now make up a majority of the American labor force; that proportion can rise only a little bit more, if at all.

Finally, the quality of education improved: in 1950, only 15 percent of American men and 4 percent of American women between ages 20 and 24 were enrolled in college. The proportions for both sexes are now over 30 percent, but with graduates no longer guaranteed substantial wage increases, the costs of education may come to outweigh the benefits.
King then describes in stark terms what happens when growth stops:
 Adam Smith discerned this back in 1776 in his “Wealth of Nations”: “It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state.”

The decades before the French Revolution saw an extraordinary increase in living standards (alongside a huge increase in government debt). But in the late 1780s, bad weather led to failed harvests and much higher food prices. Rising expectations could no longer be met. We all know what happened next.

When the money runs out, a rising state, which Smith described as “cheerful,” gives way to a declining, “melancholy” one: promises can no longer be met, mistrust spreads and markets malfunction. Today, that’s particularly true for societies where income inequality is high and where the current generation has, in effect, borrowed from future ones.
When Wealth Disappears (The New York Times)

I first head about this via this post on the Web site of the right-wing think tank the Cato Institute (via another site). Obviously the Cato institute doesn't buy it, but if you read their page closely, you'll notice that even they acknowledge growth is slowing and harder to come by! For one of the more prominent propaganda mills for Neoliberalism to acknowledge this point is telling, even if they don't completely accept the thesis.

Note that King's fundamental conclusions: that growth is coming to an end, could have been found in books from Das Kapital to The Limits to Growth by the Club of Rome.

What's curious about the op-ed, though, is that King follows this grim assessment not with calls of a steady-state economy, a rethinking of usury as the basis for the global economy or massive asset redistribution, but with the standard laundry list of Neoliberalism - less trade barriers, lower taxes, shrinking government, etc. But of course the emphasis on growth has always been used to ignore any issues of wealth distribution. Without the prospect of growth to distract us from extreme inequality, we may start to ask questions about the extreme distribution of resources in our economy, which as we noted recently is more lopsided than any point in history, despite our wealth being more dependent upon our collective actions than at any point in history. This caused even a staunch Neoliberal like Matt Yglesias to make this point:
I find his argument that this is the case unpersuasive, but what's really unpersuasive is his list of policy remedies. He favors entitlement reform, deficit reduction, openness to trade, and everything else you would expect an intelligent purveyor of the economic conventional wisdom to advocate in 2003 or 1993 or 1983 or 1973.

Something has gone wrong with your analysis if you manage to combine a striking diagnosis of the world situation with such a banal list of policy remedies...the assumption that economic growth will continue undergirds conventional wisdom about economic policy in a really profound way—namely it's the key reason to limit political interest in redistribution of economic resources. There are a lot of metaphors about rising tides lifting all boats and baking a bigger pie instead of arguing about how to divide up a small one, and they're all pointing to the same issue—distributional issues matter, but in the long-term, economic growth matters much much more. Average living standards in the West are much higher in 2013 than they were in 1863 not because we abandoned capitalism and workers seized control of the factories, but because society as a whole is much more prosperous than it was 150 years ago. Thanks to growth, middle-class people can enjoy miraculous opulence—antibiotics, cars, air conditioning—that was far outside the grasp of the rich in the 1860s.

But if growth is over, that whole logic collapses, and politics really should just consist of a bitter zero-sum scramble over the distribution of a fixed pool of resources.
If Growth Is Dead, We Need Radical Redistribution (Slate) And the zero-sum struggle over a fixed pool of resources has been well described in a recent essay by Raul Ilargi Meijer of The Automatic Earth:
The only possible way to improve our societies, so we are told, is through economic growth. In the same vein, we are told that we actually do have economic growth again today, just not enough. That's not really credible either, although some growth faithful might claim that it all depends on which data you use. The S&P hit another record, so all must be well.

It is a choice, and it is an ongoing trend that is far from being finished. Those who do have wealth today are not going to voluntarily take a step back and say I have enough. A few individuals may, but the vast majority will continue to look for more. In the absence of actual growth, and in the presence of increasing debt, they can and will only achieve that by pushing the poor deeper into poverty. That is the real choice, even as faith in eternal growth makes it easy, if not necessary, to deny that such a choice exists.

Or to put it in different words: we continue to live with the idea of recovery, which in our minds equals a return to what we had, plus added growth. For some of us that may come true, but for a very rapidly increasing number amongst us, it will not. Because, and it's high time we acknowledge this, at this point in time, the only way the upper echelons of our societies can achieve some level of growth is to take it away from everyone else. And those upper echelons, mind you, demand exponential growth, which means, in a society that cannot grow, that the numbers of poor people will rise exponentially as well.

The incessant repetition of the "recovery is just around the corner" mantra has a hugely distorting effect on people's behavior in that even those who would be inclined to listen to appeals for redistribution of wealth and income will tend to turn a deaf ear if they are convinced no such redistribution is needed because those who are poor today will soon, any moment now, be made rich(er) by the recovery. This also makes it much easier to label redistribution of wealth as, just to name a term, communist.

And that's a very twisted picture that can exist only because we have such poor memories, especially when it suits us. Because in reality, we are of course already seeing a huge redistribution of wealth today, only this one increases inequality instead of decreasing it. Which means all those dreams about equal access for everyone to the best health care and education available are long gone. If we would only redistribute wealth in such a way that it would see us return to the level of inequality that existed when those dreams were relevant, 60-odd years ago, much of our poverty conundrum would be solved. It is really as simple as that.

This development, this process, is not going to go away by itself, inequality in wealth and income will keep increasing, and ever more people will end up under the bus. It's a choice we make as a society. Even if we do somehow achieve a period of real economic growth, it will make little difference anymore for the poorer: it will be swallowed up whole by the demand for growth embedded in the richer parts of society.

The desire for growth has become a sort of auto-immune disease, in which the body, the society, in the absence of external food sources, preys upon itself. We need to consider the potential consequences of this, and ask ourselves if they add up to the kind of society we wish to live in, and we want our children to grow up in. Right now, we're choosing poverty, and we should ask ourselves why we do that.

There are millions of Americans who've been unemployed so long they no longer even count as unemployed. There are millions more working jobs that don't pay the bills. This can and will not simply be undone by a growing economy. Many are scarred for life, and that certainly goes for the huge numbers of children growing up in poverty and now seeing their food stamps cut to boot. Leaving aside whether we see rising inequality as a good or a bad thing, we need to realize that it is a choice we make for ourselves and others: there is no need for 25% of our children to be too poor to function well, there is enough wealth in our societies to provide for them. We would just need to redistribute that wealth, and to limit inequality to the levels we had when our economies were doing better than they ever have, before or since. Would that really be such a bad thing? Are we truly better off creating this fake Darwinian jungle we have today? Just asking.

And then of course there's that last remaining question: "How long do you think such a society can last?"
Winter In America Gets Colder : Why We Choose Poverty (The Automatic Earth)

But America, a country that was founded in the notion of eternal growth, first by the plundering the resources of the New World, then by "taming the frontier," then by the Industrial Revolution, then by the discovery of oil, is unlikely to embrace this new reality. As Ronald Wright put it:

"The Columbian Age [the Age that occurred after Christopher Columbus discovered America] was built on colonial attitudes: on taming the wilderness, civilizing the savage, and the American dream of endless plenty. Now there is nothing left to colonize...Mankind will either share [this planet] or fight over it--a war nobody can win...[The United States of] America...must now examine its own record--the facts, not the myths--and free itself from the potent but potentially fatal mix of forces that created its nation, its empire, and the modern world."

Except it now us --the American people--who will become colonized by the one percent.

Thursday, October 24, 2013


The Leaf House
After talking about money for the last few posts, I'd like to talk about something more, er, concrete. And what could be more concrete than concrete?

There must be a weird bit of serendipity here – I was just about to begin research on some aspects of architecture, and was thinking particularly about lime. Lime is made from limestone, essentially the skeletons of ancient corals, mollusks and foraminifera that have been compressed by geologic time into rock. Because these skeletons consist mainly of calcium, they are privy to a unique chemical reaction with water  that makes a good part of building possible. This discovery was probably as important to the construction aspect of civilization as the discovery of making bread with yeast was to the culinary aspect.

Dig limestone out of the earth, heat it to over 900 degrees in a kiln, pulverize it, mix it with water, and you have the basis for much of human construction throughout the ages and throughout the world. It's the basis for plaster, stucco, mortar and cement (which are still in use today). And, of course, the Romans added sand, aggregates, water, and pozzolan to cement to form concrete, creating the concrete revolution that defined European building during the Roman Empire. Essentially, these are all taking advantage of the chemical properties of limestone (which we did not understand scientifically until relatively recently) – it forms a paste that hardens almost as solid as rock.

So, after contemplating how important and indispensable this ancient pseudo-rock is to our building and construction abilities, the very day I was look more into it, here is what I saw on

Burning the Bones of the Earth: Lime Kilns (Low Tech Magazine)

Here's a short history of concrete from
 Concrete is a compound material made from sand, gravel and cement. The cement is a mixture of various minerals which when mixed with water, hydrate and rapidly become hard binding the sand and gravel into a solid mass. The oldest known surviving concrete is to be found in the former Yugoslavia and was thought to have been laid in 5,600 BC using red lime as the cement.

The first major concrete users were the Egyptians in around 2,500 BC and the Romans from 300 BC, in fact the very word 'concrete' is derived from the Latin concretus, meaning grown together or compounded. Most of the surviving roman structures, from the Colosseum to Hadrian's Wall, were constructed using concrete.

The quality of cementing materials deteriorated and even the use of concrete died out during the Middle Ages as the art of using burning lime and pozzolan (admixture) was lost, but it was later reintroduced in the 1300s. In 1414 the manuscripts of the Roman Pollio Vitruvius were discovered in a Swiss monastery reviving general interest in concrete, however it was not until the 1800s and the emergance of Portland cement that the next developments in concrete took place.

Portland cement was first manufactured in Britain in the early part of the 19th century, and its name is derived from its similarity to Portland stone, a type of building stone that was quarried on the Isle of Portland in Dorset, England. The patent for Portland cement was issued to Joseph Aspdin, a British bricklayer, in 1824.

Concrete is now universally the most commonly used construction material for foundations, reinforced frames for buildings, bridge decks, retaining walls, roof tiles, in-situ and precast floors. Most structural concrete is supplied to site as ready mixed concrete. Many modern concretes contain admixtures, such as plasticisers, and pozzolanic additives, such as pulverised-fuel ash or blast furnace slag to enhance the durability or reduce the cost of the concrete.
 More about concrete:

Concrete Being Remixed With Environment in Mind (New York Times)

Researchers develop "biological concrete" for moss-covered walls (Dezeen)

Gengineered concrete-patching bacteria: BacillaFilla (BoingBoing)

Hemcrete®: Carbon Negative Hemp Walls (Inhabitat)

A new generation of designers brings concrete into the home (Slate)

Of course, nothing lasts forever, not even concrete, as numerous Roman ruins can attest. It's particularly vulnerable to freeze-thaw cycles where even after a few decades, concrete is cracking and spalling off of buildings and freeways. But at least they make dramatic ruins. That makes a good segway to these posts from Energy Skeptic:

How long will concrete last if it isn’t maintained?

A Century from Now Concrete Will be Nothing But Rubble

Why is modern concrete falling apart?

Money and debt

I ran across this post somewhere a long time ago, but the ideas here tie in well to the previous two posts. I hope the original author will not mind me excerpting from it here:
Now the problem is, that neither governments nor the vast majority of people have money. Maybe that sounds like an exaggeration but if we think about it some more, it is the gospel truth. Governments, whether liberal, socialist, conservative, democratic, whatever you may call them, do not have money. They are taxing us to death and yet they are making debts. And most of them are already so deeply in debt that there seems to be hardly a hope to pay off what was borrowed. A sizeable percentage of all taxes collected, different from country to country but in every case considerable, goes towards "debt service" (that is what the government calls the paying of interest on it's debt), before even discussing the "budget", which really is only about how to spend the rest. 
As far as people go, I don’t think you have to look very hard to see families struggling to make ends meet, even though there is no lack of willingness to work. Sometimes both man and wife have a job; family life and children suffer, and in many cases there still is barely enough to pay the bills and take a holiday.You might say that that’s quite normal, it has always been like this, and nothing can really be done about it. — You see? That is exactly what we are programmed to think. 
Start observing economic reality around you. Find out how much money your government spends on "debt service". Find out how much the developing countries have to pay to service their debt. Observe how many people from developing countries are emigrating or rather are immigrating into your country in search of economic "relief". You will be shocked. Without beating around the bush, here is the hot potato: Money is being created not by our governments, but by a private monopoly run by the (private) banking corporations
It would seem natural, that money is created by the State, and in fact most Central Banks seem to be owned by the State and run by it. I say "seem" because, to all intents and purposes, it is an apparency. They are almost constituting a "fourth power" in addition to the three legally constituted and well known "traditional" powers, legislative, executive and judicial. 
When the State needs money, it does not order the Central Bank to credit some money to the treasury’s account. The State has only two ways to obtain money. One is taxation of it's citizens, the other is borrowing from the banks. When the Central Bank issues money, this is done in the form of a loan. The State has to borrow this money, and must promise to repay it, with interest. 
The same is true of course for a private person who needs money borrowing from a commercial bank. The bank is happy to loan, as long as you can show you have security, and promise to repay with interest. 
How can the banks "create" money? That is a good question. Is it not the State's printing office that prints all the banknotes? Banknotes, when they are printed, are considered the property of the Central Bank. They are not given to the State to spend, but are brought into circulation against a corresponding debt. Anyone wanting some of those notes to spend, has to "buy" them by giving up some of their credit. And in any case, most of the money in circulation (more than 90%) is not banknotes but "credit". 
When you go to your bank asking for money, the loan you get is created right there in your bank. The "money" consists of figures on your bank account, and it can be spent writing checks, giving an order to transfer or drawing the cash. Banks only have to have a small percentage of their loaned-out money actually available. The rest can be paid out just by moving some figures from one account to another. The important thing to know: Money is created just by inserting some numbers into a computer. 
In practice, it works like this: For every 10.000 a bank gives out as loans, 1000 or 2000 have to be deposited at the central bank. That means, if a bank collects 100.000 in deposits, it could keep 10.000 for liquid cash, put 90.000 into deposit with the central bank, and it is then allowed to create 900.000 of fresh money just by writing the figures on someone’s accounts! 
In the case of the government needing money to spend, the procedure is slightly different, but the result is the same. The government has to issue papers that promise interest and repayment. Those papers are "bought" by the banks, who "sell" them to their wealthy clients, or who may also keep them, and the government gets credited an equivalent sum of money. 
The irony here is that the government, who should by rights be the issuing authority of the money that circulates in the country, has to borrow the money from privates (through the bank) and that is has to pay interest for this. Now we start to see why the government never has money, and why much of our taxes go "off the top" of the budget, towards debt service. 
What happens, when a debt gets repaid? Now this is interesting. The interest on the debt is of course the property of the bank. The amount that was loaned out and has now been paid back is destroyed. Just as it was "created" it is now "uncreated" or destroyed at the moment of extinction of the loan. So your bank can create money out of substantially nothing, it can cash in the interest, and then it can uncreate that money, having subsequently the possibility of repeating the cycle with another willing customer.If you ever wondered where the banks get the money to buy the best and largest buildings in town, here is the explanation! 
An economy needs money so that goods and services can be exchanged. If there is too little money goods will remain unsold, prices will fall and we call this deflation. If the scarcity of money becomes serious, eventually the economy will go into recession, that is, production comes to a halt, people lose their jobs, misery starts to reign. So it is very important that the amount of money in circulation is at all times sufficient for people to buy the goods and services that are being offered. 
If on the other hand, too much money is available, inflation, which is a general rise in prices that diminishes the "buying power" of money, is the result. Inflation is as undesirable as deflation, and it would be best if money were stable in it's buying power. At this time, government has only indirect means, to assure such stability, because it is the banks who can determine how much credit to create. 
Also with the government unable to create it’s own money, the only way to make sure there is enough money to buy the goods that are on offer, is to continue taking loans! Of course that means to continue to pay interest! That is why governments never have enough money, and why we have to be taxed to the limit of endurance to pay for debt service, in addition to all other government expenditures. Diabolical indeed. A private money issuing monopoly run through Banking corporations: first of all the "central banks" and then, in a chain, all the other banks to follow. It is our banking laws that allow banks to create credit themselves, instead of money being issued by the government, for the people. 
Having found the exact reason for misery and economical hardship, and having described it, a solution becomes immediately visible. 
Banking laws should be changed to exclude the autonomous creation of credit by banks except for the issue of new currency by the Central Bank, to be created as a credit, not a debt. The creation of money must return to the control of the people and must directly benefit each one of us
How to exclude the creation of credit by the banks? Simple. Instead of requiring a 10% or 20% deposit to the Central Bank for every loan given by banks, a 100% deposit should be required. That means, a bank can collect the savings of it’s clients, it can deposit them at the Central Bank and it can then, and only then, give out loans up to the same amount it has deposited. 
Now as to the creation of money having to return to the control of government, or actually to the control of the people, this is an exquisite problem. First and foremost, a mechanism must be available which allows to keep track of prices on a continuous basis. Having such a mechanism, it is now possible for the money issuing institute (the Central Bank) to exactly control the buying power of money, putting inflation and deflation under its direct control. 
In accordance with the principle that the amount of currency in circulation must exactly match the amount of goods and services on offer, we can now eliminate inflation and keep the currency stable, by one simple mechanism. The issuing authority is instructed to stabilise the price index. This is done by decreasing liquidity at the first sign of increasing prices, and by increasing the amount of money in curculation by the issue of new money when prices start to fall.
There is absolutely no need to have price instability! 
It is important to know that inflation is caused by the fact that more money is in circulation than is necessary to buy the goods and services that are available, and deflation is caused by the opposite — too little money in circulation. This has been known for decades, only that with the money issuing authority in the hands of the (private) bankers instead of a (public) central issuing authority, it was very difficult to fine tune the monetary mass to keep pace with the fluctuations of economic activity. 
It is really as simple as that, a centralised money issuing authority that is responsible for keeping prices stable, will be able to do just that by regulating the issue of new currency. (Note: this is the fundamental theory behind functional finance
Today, when money is created, it is created in the form of credit for the banks, and is issued in the form of debit to whoever takes the loan, private citizen or government. Of course the debt must be repaid, the money is considered to be "the bank's money", and of course for that reason we must pay interest. I call that debit money and I have already pointed out that this debit money is the cause of much — if not all — of our economic suffering. 
Credit money, on the other hand, does not have these drawbacks. The money should be issued and be given — yes, given not as a loan, but as a rightful share in the development of the economy, to each and every citizen. When money gets created, it was not the banks that worked for it, but the people, and so quite rightfully, the people should become the owners of the money once it is issued. 
One could call such a system a social credit system. In fact, the term "social credit" was coined by a certain Clifford Hugh Douglas, and has been promoted by a Canadian named Louis Even, who has founded a regular publication to bring the philosophy of social credit into public consciousness. Social credit is probably more than what I am describing here, but credit money would certainly be an important part of it. 
So when money is issued by the central issuing institute, does it not belong rightfully to all of us who have contributed in one way or another in bringing about economic growth? We produce, we consume, we live, we have ideas, we have children, we teach, we learn. All those activities and others make up the country’s economic life and so it would seem quite logical that the benefit from the issuance of money should not go to a few private bankers, but to those who cause the economy to grow in the first place!
Money and Debt (The Josef Hasselberger Page: Physics, Economy and New Energy) I can't vouch for some of the other stuff on his site, but the above page is quite informative and instructive. Note that the issuance of  money as an non-debt-based credit to the government's account is the fundamental idea behind the "platinum coin" option - the government is free to issue its coinage as non debt-based currency in whatever denominations it requires (even a trillion dollars).

Tuesday, October 22, 2013

Mo' money

Continuing on recent themes:

The physics of money (Cassandra's Legacy)
Petty money was not simply a question of low denomination. It was a completely different form of money. The "moneta grossa" had a value corresponding to its weight. The coin was normally just a convenient way to measure this value by counting coins rather than weighing bullion. It was what modern economists call "commodity money". Petty money, instead, was a form of "fiat money", a kind of currency that had a face value unrelated to, and normally much larger, than its value in terms of the component metals.

This fundamental difference stabilized the system: two completely different kinds of currency co-existed for most of ancient times. Indeed, the two currencies had different purposes and different diffusion. Moneta grossa, pure gold or silver coins, were for the rich and were used for important or international transactions. The poor had no use for gold coins and it is likely that most of them wouldn't even see a gold coin during their lifetime. The intrinsic value of these coins made them valuable even at long distances from the places where they were minted. So, we find Roman coins that made their way up to China to buy silk. It didn't matter to the Chinese that these coins had the face of a Roman Emperor on them. They could always be fused and re-minted or the gold used for other purposes.

The opposite was true for petty money. It had value only close to the place where it was minted and this value was created, normally, by the fact that the local king or warlord or chief brigand would accept these coins as payment of taxes. As the local king/warlord/chief brigand controlled the local army, that was the crucial point that guaranteed value for these objects that, otherwise, would have had no value at all. Even today, if our government were to accept squirrel skins as means of payment of taxes, then banks would be soon turned into tanneries and the old men sitting on park benches would carry with them poisoned crumbs.
9 Mind-Blowing Facts About Money (The Big Picture)
1.) China invented every single major form of currency: metal coins, paper money, and fiat currency not backed by precious metals; Seized gold six centuries before Franklin Roosevelt, in order to prop up its fiat currency and prevent runaway inflation.

2.) Debt Forgiveness Is The Basis for Modern Civilization. Indeed, the first recorded word for “freedom” in any human language is the word for freedom from debt.

3.) Everyone was taught that money was invented to replace the messy business of barter. It’s hard work walking my cow all the way to your village to trade for firewood … and then carrying all of that firewood back home. And what if no one wants my cow?

But economist Charles Goodhart – a former member of the Bank of England’s Monetary Policy Committee – anthropologist David Graeber, and other experts on the history of money say that this is a myth. Instead, they say that money was invented to finance war, and to keep score while armies went about pillaging and looting.

4.) The average life expectancy for a fiat currency is less than 40 years.

5.) Big Banks Are Not Really In the Banking Business

Everyone thinks of banks as holding our deposits safe, and extending loans based upon the amount of deposits they hold in their vaults. This is no longer true.

The big banks currently do very little traditional banking. Most of their business is from financial speculation (which, sadly, metastasizes into manipulation and criminal behavior). For example, less than 10% of Bank of America’s assets come from traditional banking deposits.

6.) Inequality Today In America Is Worse than In Ancient Slave-Owning Societies

Inequality is much worse than you think …Indeed, inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America.

7.) Quantitative Easing Hurts the Economy

81.5% of all money created through quantitative easing is sitting there gathering dust … instead of helping the economy.

8.) Yes, The U.S. Has Defaulted

It is widely stated that the U.S. government has never defaulted.  In reality, the U.S. has partially or fully defaulted on numerous occasions.

9.) How Money Is Really Created

Banks create money out of thin air, without regard to whether or not they have deposits on hand. This sounds like an outrageous statement … but the Federal Reserve has said as much.
A brief history of banking: the link between money and society (The Guardian)
Do you know what happens to your money when you put it in the bank? If you are like the majority of the population, including, it would seem, the majority of politicians, then you believe that your money is kept safe in the bank. In fact, quite a number of the people who still use branches are older people coming in to visit their money and check it is all still there.

However, the word bank (with all its connotations of solidity and stability) is in fact rooted in the latin meaning "bench" and refers to the seating in any Roman forum where money lenders used to hang out. Money lenders who could be bankrupted (literally their bench was broken so they couldn't sit there) if their loans went bad. Bankers ancient and modern relied on the confidence of the public to trust in their ability to pick good credit risks from the bad and deposit money with them in return for interest. The ensuing credit crunches which are the result in the collapse of that trust and confidence are as ancient as credit itself.

So where did your money go? Well, in theory, the bank has turned your money from a liability on one side of its balance sheet (an IOU to you as the depositor) into a credit on the other side, such as a loan or bond to a business. This loan or bond, despite it representing money owed to the bank, is counted as an asset and is given a real value on the balance sheet based on an assessment of the risk that it won't be paid back; the higher the risk, the lower the 'book' value of the asset. The loan also provides new money to the bank in the form of interest, a small portion of which is paid to the depositors as reward for their trust in the bank. The rest is profit after the wages of the bankers are taken into account.

This is important because what the bank does with your money really does affect the world around you. It is money that produces the activities and companies (such as those engaged in fracking) whose actions we might fundamentally disagree with. However, you don't need to feel powerless in the face of the big banks and their current dominance over how money works for us in the economy.
'Money reduces trust' in small groups, study shows (BBC)
"Subjects basically latched on to monetary exchange, and stopped helping unless they received immediate compensation in a form of an intrinsically worthless object [a token].

"Using money does help large societies to achieve larger levels of co-operation than smaller societies, but it does so at a cost of displacing normal of voluntary help that is the bread and butter of smaller societies, in which everyone knows each other," said Prof Camera.

But he said that this negative result was not found in larger anonymous groups of 32, instead co-operation increased with the use of tokens.

"This is exciting because we introduced something that adds nothing to the economy, but it helped participants converge on a behaviour that is more trustworthy."

He added that the study reflected monetary exchange in daily life: "Global interaction expands the set of trade opportunities, but it dilutes the level of information about others' past behaviour. In this sense, one can view tokens in our experiment as a parable for global monetary exchange."

Monday, October 21, 2013

We're not out of money

“We could have saved [the Earth] but we were too damned cheap.”
― Kurt Vonnegut

The dead man does not know the value of his coffin.
African Proverb

Continuing on the theme from the last post, as Matt Yglesias pointed out, no one ever lost a war because of a lack of money. They lost because they lacked resources, or rather they lost enough resources that could no longer fight on. Resources were mobilized directly by the Central State. However- and this is critical, the means of production were still privately owned.

This post from New Economic Perspectives by fellow architect J.D. Alt explains how this was done. He first describes the conventional wisdom: that the money to mobilize for war was caused by raising the money from the citizenry by selling war bonds; that is, the government “got” the money from the citizens because it needed it. In other words, the money was “out there” in the private sector, and the government sucked it all in to fund a war. But the money was not “out there;” this was during the Great Depression! People didn’t have any money, so how could they “give” it to the government? If all that money was “out there” in the private sector, hiding under mattresses and in bank accounts, then why was there a depression in the first place? Not to mention the money to redeem the bonds had to come from somewhere, so the citizenry would eventually have to be taxed to redeem their own war bonds!

This story seems a little fishy. Alt then describes the alternative version: that the money was spent into the economy by the mobilization effort itself. The money came from production, not the other way around. War bonds were designed to remove money from circulation because all that extra money being spent into the economy would be chasing too few goods and services, because those were all dedicated to the war effort rather than consumer demand. To redeem the bonds, the government “printed” money to redeem them, which was not inflationary since the rapidly expanding post-war economy was easily able to absorb the additional dollars.
When the mobilization began, the U.S. was still struggling to emerge from the Great Depression. Most households had scant savings to spend on War Bonds, and could hardly afford the burden of higher taxes, so the idea of taxing and borrowing their money to pay for the building of a great war machine was not even a viable option. Nor was it necessary. Instead, the sovereign government simply issued the U.S. dollars, by fiat, as it needed them to buy materials and pay wages: It declared the dollars into existence—and then it paid those dollars to the American people to build the ships and planes and guns. In the historical narrative by professor Klein, we never encounter someone saying, “Sorry, Mr. Roosevelt, we need to sell another billion dollars in War Bonds before we can build that new aircraft carrier.” That conversation just doesn’t come up. By the time 1941 rolls around—and especially in the months after the Pearl Harbor attack—mobilization has pushed the economy to virtually full employment: Millions of previously unemployed people (including women who’d never before been in the workforce) were suddenly pulling paychecks as engineers, technicians and machine operators.

These, now, were the well-paid workers who were able to buy the War Bonds—using dollars the sovereign government had already paid them. But why, if the sovereign could simply continue issuing dollars by fiat, did it sell War Bonds—and by so doing, appear to be eliciting the financial help of the people in the war effort? And why, if the sovereign could simply continue issuing dollars by fiat, did Roosevelt feel compelled to force Congress to impose the large tax increases? In a pivotal chapter in the middle of his book, professor Klein gives a very clear answer to these questions—and it’s an answer that is a text-book illustration of the basic principles of Modern Money Theory.

Between 1941 and 1942 the cost of living in the U.S. rose over 16%. Labor was threatening to strike for wage gains matching the rise in living expenses—putting the mobilization effort at risk. A looming inflationary spiral threatened to undermine America’s ability to accomplish what it so desperately needed to do: continue to pay itself whatever dollars were necessary to build the machinery required to defeat Hitler and Hirohito. The cause of the inflationary pressure was clear to everyone: The U.S. was at—or even beyond—full employment. American workers were pulling in more paychecks every week than they’d ever seen before, and were flush with cash to go on spending sprees. At the same time, however, virtually everything there was to buy had been diverted to the war effort: gasoline, tires, sugar, nylon, shoes, clothing, canned foods and automobiles. (Production of new automobiles was halted in February 1942, and all the auto-plants converted to war production.) There was suddenly very little to buy, and the excess money in the private economy began quickly driving up prices for what was available.

In the face of this crisis, the Roosevelt administration had to do everything it could think of to take spending money out of the hands of the people. In other words, it had to destroy money in the private sector to create the “space” that would allow it to continue to pay those same people to produce the war machinery that would still be required to defeat the Axis powers. The War Bonds and the Revenue Act creating the personal income tax, then, were specifically created not for the purpose of “collecting” money so the government could have it to spend—but rather for the purpose of destroying money so the government could then issue and spend even more dollars without feeding an uncontrolled inflationary spiral.

The most astonishing thing is what the unprecedented sovereign spending of the U.S. war mobilization accomplished. The people had paid themselves—through the fiat monetary actions of their sovereign government—to build a monumental war machine that defeated the Axis powers. But more than that, they had also paid themselves to invent an array of new technologies and apparatuses originally conceived for waging war, but which now were clearly seen to have useful applications to peaceful life as well—and they had paid themselves to build a great many factories, research and production facilities capable of adapting and producing these useful things to civilian life—and they had paid themselves to train a very large workforce of engineers, technicians and skilled workers who knew how to make it all work. This was a powerful economic brew—and it was spiced by the fact that the returning G.I.s were getting paid to go to college to explore how to make the whole thing run even better. America never looked back (until now.)

Now, you may say to yourself, there isn’t a war on. There isn’t a threat on the horizon like Nazi Germany or Imperial Japan to worry about. But of course there is, a greater threat than any human army: climate change. Yet we are not mobilizing to meet this enemy. To convert to a post-carbon economy is a massive undertaking on the scale of a war that requires large-scale nation-wide coordination. And most of the technology needed to convert to a post-carbon economy has already been invented or is sitting on the drawing board! These include things like solar panels, wind farms, hydrogen fuel cells, high-speed rail lines, energy efficiency measures, smart meters, nuclear reactors (although this is highly controversial), ethanol (that actually uses less energy to make than it provides), an alternative infrastructure for cars (hydrogen or electric, pick one already!), better batteries, and could include things like Permaculture farms, composting programs, and environmental restoration. As Dan Kervick writes:
This is not a pitch for re-militarization and a re-commitment to the US war machine. The point of the above historical lesson is that the United States and its people were mobilized by the war, and by the Cold War imperatives that followed. And the result was stunningly rapid economic development and progress in the areas of life that people of that time regarded as most important to the nation’s mission and ambitions. Those years were full of teamwork, can-do spirit and powerful government engagement. But they were also terrible times of global war, fear, the growth of secrecy and the security state, and the omnipresent threat of nuclear annihilation. But why must national mobilization take a military shape? Progress in the 21st century will not look like progress in the 20th century, and the most urgent imperatives of our time are not the imperatives of a past world doing battle with Nazi expansion and then entering into Cold War struggle. In the 21st century our mission is to transform the ways in which we obtain energy resources and utilize them to live on the Earth in a sustainable way, and to reform our society, material infrastructure and politics in ways that allow us to live harmoniously and sustainably as equals.
Market Myths and the Real Drivers of American Progress (New Deal 2.0)

The conventional wisdom is that this will “cost too much.” But as we saw above, cost is not an issue, resources are. And at the moment, we have more than enough resources at our disposal (especially labor), and the technology is already there and will only become better over time. And these would create jobs in fields we want, rather than what we don’t want. And since we know that taxation is not used to raise revenue but to withdraw excess money from the system, we can tax the things we don’t want more of. A tax on carbon has been proposed as as an obvious choice. We want carbon based fuel to be more expensive. We want things that have “externalities” like pollution to more expensive – in such cases we are merely correcting the lack of the full accounting of costs to the wider society (taxing “bads” instead of “goods”).

Advocacy of the “free market” just means the status quo; the free market has never accomplished anything in history. It certainly hasn't won any wars lately. The fossil fuel industry has been heavily subsidized since day one; the automobile and suburbia were government projects to stimulate the economy (roads weren't privately built), and even the “fracking” revolution came about because of generous government subsidies. The fact is, “free markets” are entirely created and sustained by governments.

This is the “Green New Deal” idea often advocated by progressives. Lester Brown contrasts the mobilization of the country against the Axis powers with the passivity against climate change today:
   In his State of the Union address on January 6, 1942, one month after the bombing of Pearl Harbor, President Franklin D. Roosevelt announced the country's arms production goals. The United States, he said, was planning to produce 45,000 tanks, 60,000 planes, and several thousand ships. He added, "Let no man say it cannot be done."

    No one had ever seen such huge arms production numbers. Public skepticism abounded. But Roosevelt and his colleagues realized that the world's largest concentration of industrial power was in the U.S. automobile industry. Even during the Depression, the United States was producing 3 million or more cars a year.

    After his State of the Union address, Roosevelt met with auto industry leaders, indicating that the country would rely heavily on them to reach these arms production goals. Initially they expected to continue making cars and simply add on the production of armaments. What they did not yet know was that the sale of new cars would soon be banned. From early February 1942 through the end of 1944, nearly three years, essentially no cars were produced in the United States.

    In addition to a ban on the sale of new cars, residential and highway construction was halted, and driving for pleasure was banned. Suddenly people were recycling and planting victory gardens. Strategic goods—including tires, gasoline, fuel oil, and sugar—were rationed beginning in 1942. Yet 1942 witnessed the greatest expansion of industrial output in the nation's history—all for military use. Wartime aircraft needs were enormous. They included not only fighters, bombers, and reconnaissance planes, but also the troop and cargo transports needed to fight a war on distant fronts. From the beginning of 1942 through 1944, the United States far exceeded the initial goal of 60,000 planes, turning out a staggering 229,600 aircraft, a fleet so vast it is hard even today to visualize it. Equally impressive, by the end of the war more than 5,000 ships were added to the 1,000 or so that made up the American Merchant Fleet in 1939.

    In her book No Ordinary Time, Doris Kearns Goodwin describes how various firms converted. A sparkplug factory switched to the production of machine guns. A manufacturer of stoves produced lifeboats. A merry-go-round factory made gun mounts; a toy company turned out compasses; a corset manufacturer produced grenade belts; and a pinball machine plant made armor-piercing shells.

    In retrospect, the speed of this conversion from a peacetime to a wartime economy is stunning. The harnessing of U.S. industrial power tipped the scales decisively toward the Allied Forces, reversing the tide of war. Germany and Japan, already fully extended, could not counter this effort. British Prime Minister Winston Churchill often quoted his foreign secretary, Sir Edward Grey: "The United States is like a giant boiler. Once the fire is lighted under it, there is no limit to the power it can generate."
    The point is that it did not take decades to restructure the U.S. industrial economy. It did not take years. It was done in a matter of months. If we could restructure the U.S. industrial economy in months, then we can restructure the world energy economy during this decade.
Reorienting the Economy is a Challenge That can be Overcome (Treehugger)

And as for the unsustainable debts this would cause, it’s funny how you didn’t hear any of that when the government bailed out the banks or the auto companies, or anything that the wealthy oligarchy needed. The fact is, we already run the economy this way for the rich, not just for anyone else. So the promises to bankers were made whole by money printing with no ill-effects like hyperinflation, but promises made to workers and retirees can be reneged on at any time with no consequences? Why do we believe this?
Recently divulged information reveals that the Federal Reserve secretly loaned trillions of dollars to major corporations between 2008 and 2009, and that Harley-Davidson received a total of $2.3 billion to help cover operating expenses during the economic crisis.

Harley wasn't alone. The Fed's Commercial Paper Funding Facility also disbursed $26.8 billion to Ford, Toyota, and BMW. Large corporations including General Electric, McDonald's, and Verizon also received assistance, as well as financial institutions like Citigroup, Barclays, and Goldman Sachs. The total amount loaned? $3.3 trillion.
Federal Reserve Reveals $2.3 Billion Was Secretly Loaned to Harley Davidson (

As for the cost issue, here’s some perspective from Barry Ritholtz:
In doing the research for the "Bailout Nation" book, I needed a way to put the dollar amounts into proper historical perspective.

If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars.

People have a hard time conceptualizing very large numbers, so let’s give this some context. The current Credit Crisis bailout is now the largest outlay In American history.

Crunching the inflation adjusted numbers, we find the bailout has cost more than all of these big budget government expenditures – combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion
And here’s George Monbiot making a similar point:
  They bailed out the banks in days. But even deciding to bail out the planet is taking decades.

    Lord Stern estimated that capping climate change would cost around 1% of global GDP, while sitting back and letting it hit us would cost between 5 and 20%. One per cent of GDP is, at the moment, $630bn. By March 2009, Bloomberg has revealed, the US Federal Reserve had committed $7.77 trillion to the banks. That is just one government’s contribution: yet it amounts to 12 times the annual global climate change bill. Add the bailouts in other countries, and it rises by several more multiples. This support was issued on demand: as soon as the banks said they wanted help, they got it. On just one day the Federal Reserve made $1.2tn available – more than the world has committed to tackling climate change in 20 years. Much of this was done both unconditionally and secretly: it took journalists two years to winkle out the detail. The banks shouted “help” and the government just opened its wallet. This all took place, remember, under George W Bush, whose administration claimed to be fiscally conservative.

    But getting the US government to commit to any form of bailout for the planet – even a couple of billion – is like pulling teeth. “Unaffordable!” the Republicans (and many of the Democrats) shriek. It will wreck the economy! We’ll go back to living in caves! I’m often struck by the wildly inflated rhetoric of those who accuse environmentalists of scaremongering. “If those scaremongers have their way they’ll destroy the entire economy” is the kind of claim uttered almost daily, without any apparent irony.

    No legislator, as far as I know, has yet been able to explain why making $7.7tn available to the banks is affordable, while investing far smaller sums in new technologies and energy saving is not.
We’re “broke”? Really?