Category Archives: economy

China: Looking to the Future

Amid world tensions, are there good news stories?

== China’s Syndrome? ==

transformation-bustInvestment maven John Mauldin’s Thoughts from the Frontline: Ttransformation or Bust looks at China’s economy: “…there are no cases in modern history where an economy has managed to avoid an outright bust after experiencing rapid lending growth anywhere in the neighborhood of China’s ongoing credit boom.”

Mauldin continues: “The more I dig into the data, the more convinced I become that Xi Jinping and his colleagues in Beijing are facing an impossible challenge. After fueling one of the single greatest credit booms in modern history, the People’s Republic is left with a mountain of bad debt backing a number of overleveraged industries that are simply not viable without the state’s continued favor.” And: “While China does boast substantial buffers that can – at least in theory – allow it to paper over bad loans for another few years or resist the pressure of foreign capital outflows for a time, those buffers cannot protect China indefinitely. The longer the People’s Republic continues down the path of low-quality credit growth and widespread misallocation, the bigger the bubble will become. China may suffer one of the defining economic crises of our lifetimes.”

China-economyDoes this mean to be bearish on China? Of course not. In the 32 years since Deng Xiao Peng initiated the reforms that led to a spectacular development boom, more human beings have been lifted out of poverty than ever before. China’s new infrastructure is spectacular, especially in comparison to the decaying and underfunded, penny-wise neglect of America’s once-proud capital base. China’s education levels are skyrocketing and – the most encouraging development of all – science fiction is starting to take some real hold over there.

Two factors that receive far too little notice… that it was willing U.S. policy to allow three decades of trade deficits to enrich China — foreign aid through WalMart. See: How the U.S. saved the world by buying vast amounts of stuff. Probably the most generously helpful policy ever enacted by a great power, in the history of our species…

Intellectual-Property…that, plus turning a mostly blind eye to the hand-over-fist grab-theft of nearly all the crown jewels of American industrial Intellectual Property. (We need to recall that we were IP thieves, during our own early development; but still, this flagrant raid must stop. It kills the goose that lays the golden eggs that China relies upon.)

==Fighting Corruption==

So what are the prospects? Under President Xi Jinping, the Chinese Communist Party appears to be engaged in a major anti-corruption drive, using the “Central Commission for Discipline Inspection” to perform stings on bribed or shady party officials and then hand them over to state authorities. If this effort is sincere and vigorous, that is all very well and laudable…

fighting-corruption…and it has no bearing on the real way to eliminate corruption, which is liberating people to competitively apply transparency — reciprocal accountability — both laterally and from below.

Yes, yes, it is obvious why Xi and his cohorts — who are human, after all — will do what human rulers almost always do, and that is “solve” problems by top-down command. Indeed, sometimes it works. But then what? Something has always happened, after every Lorenzo di Medici, or Marcus Aurelius, or the first Tang or first Ming Emperors. After that initial burst of reform, top down systems always become spectacularly corrupt again.

east-westSome time ago, it looked as if the Chinese leadership was determined to leverage the ‘best possible’ combination of western and eastern methods, retaining hierarchical command control in the top tiers of governance, while allowing western methods of transparency and citizen-based accountability to root out inefficiencies and corruption down at the local and city and provincial level, where it does its worst harm to both average citizens and the economy.

I saw hints of this approach and squinted into the future, hoping I would hear Chinese leaders say something that is far from ideal (from a moral or righteous perspective) but that is at least smart and practical:

“We must retain single party control for at least another generation, in order to preserve stability during an era of rapid change. (Subtext: and also to preserve our grip on top-power in a traditional Chinese pyramid; we are, after all, human.)

citizenship-accountability“BUT, in order to maximize progress, efficiency and happiness, we will unleash citizen accountability upon all officials at the city and corporate level. People may record their interactions with officials. Moreover, the press is encouraged to publish exposés…

“… so long as the light STOPS at the district level. We will take it from there.

 “Only… district officials are warned. In ten years citizen accountability will rise to that level, so get ready! And ten years after that, this rule of openness will rise to the provincial level. So start preparing now, and stay clean enough to survive, when that happens.”

China-globalWould this create a dicey situation… the people may get that confrontational habit and try to pick up the pace! But the benefits — eliminating 90% of all corruption and waste — would be worth taking the risk.

That is what a Marcus Aurelius or Tang Emperor would have done, if they were truly wise. But wisdom, among human leaders, is as scarce as walking, talking dinosaurs.

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On Government, Morality and Competition

== The age-old enemies of competition ==

As part of my eclectic and contrarian approach to life, I subscribe to a number of conservative and libertarian newsletters and sites… and some rather lefty ones, too. While I am skeptical of all prescriptive-simplistic dogmas, I do keep searching for that germ or core concept are variation that might be worthwhile. As a result, and despite my well-known views about the noxious New Confederacy, I nurse some concepts and notions that shock my left-leaning friends.  Indeed, what follows is sure not to please dogmatists of any stripe. Still, you might learn something.

government-moralOne of the more hard-hitting, Rothbardian-Libertarian sites is Casey Research, headed the brash but smart and sorry-but-I-can’t-help-liking-him master-provocatuer Doug Casey. One of Doug’s Fellows, Mr. Paul Rosenberg, just issued a manifesto assailing the core morality of “government”… a central catechism of the Rand-Rothbard-Cato wing that has taken over libertarianism, for more than a generation. You should read this missive; it will give you a better understanding of the incantations that transfix many of your neighbors. (Hey, you have your own glib and oversimplifying incantations – are you honest enough to admit it?)

I generally shrug off the polemics while sifting for pearls in manure. In this case, however, I felt I simply had to respond. Go have a look… then come back here.

== Hatred of all government – enabling an older enemy of freedom ==

Alas, amid his blanket denunciations of “government” as inimical to liberty, Mr. Rosenberg ignores the elephant in the room — the failure mode that destroyed freedom and competitive markets and enterprise in 99% of human cultures, across the last 6000 years.  Feudal lordships in which owner-oligarchs crushed the hopes of the great masses of peasants below, while quashing any advances that might destabilize their family grip on power.  Steep pyramids of power, in which a few bullies with swords owned everything and used hired priesthoods to declare “it is GOOD that our sons will own your sons!”

Compare the horrific “morality” of any feudal oligarchy to the flawed but often progressively positive morality of a modern, western state.  This is not a comparison that Mr. Rosenberg’s jeremiad can survive… so he evades the contrast, altogether.

Mr. Rosenberg knows darned well that owner-oligarchy is the great failure mode.  The one denounced by Adam Smith as the relentless market destroyer.  The calamity against which our American founders rebelled.  Yet, he is part of the campaign to yell “squirrel!” and point our attention elsewhere.

CompetitionTo be clear, competition is the greatest creative force in the cosmos.  Adam Smith focused on the positive outcomes when competition can be engendered in the best ways.  Competition made us! But in nature it is vicious and inefficient, working slowly, atop mountains of corpses.

It is seldom much better in human affairs. Look across the centuries; we see almost every renaissance of competitive creativity (e.g. in markets) is almost always quickly suborned and ruined by cheaters.  By conniving men with swords or deeds of ownership over everything.  The rentier caste that Adam Smith denounced.  Competition has only survived more than one generation  – anywhere – when it was regulated to minimize cheating. Exactly as Smith recommended.

In fact, that success, getting the good, positive outcomes from creative competition for more than two generations in a row, while excluding the nearly automatic cheating modes that always ruined it in the past, has truly only happened once in all of the history of Homo sapiens… during this marvelous western renaissance we are living in.

COMPETITION-1You’ll notice that my portrayal of the situation fits into neither the simplistic model of the Left nor that of the Right!  One side’s lunacy is to ignore the fantastic fecundity of competition at generating such vast amounts of wealth that we can then afford to do progressive things.  The insanity of the right is to ignore those 6000 years and pretend that the fecundity and productivity can happen amid the usual, festering swarm of opportunist-cheaters!

== Prevention of cheating requires… regulation! ==

sports-regulationThe exact parallel is professional sports, one of the tightest-regulated realms of human experience.  Yes, most of the regulations are decided by cabals of team owners. But I never said regulation has to be “governmental.”  What is key is that most of the regulations in a sporting league are intended to level the playing field and eliminate cheating.  Because if cheating reigns, then the system fails to deliver the desired product… excited fans, eager to buy tickets.  (Do you deny that individual players and teams would cheat, if they could get away with it? Or that the sports franchises become valueless, when the customers notice rampant cheating?)

AdamSmithREgulationAdam Smith knew all of this and recommended state endeavors to balance out the inevitable rise of cheaters and to do what F. Hayek later demanded… to maximize the number of skilled competitors!

You liberals, forget your cliches about Smith!  Actually read and rediscover the founder of your movement.

Smith wanted free public education, state financed infrastructure and health measures, the breaking up of monopolies and other reforms that would ease the way for bright sons of the peasantry to compete with the sons of owner-lords.  The very first acts of the American Founders, after the Revolution, included seizure of half the land in the former colonies from a few lordly families and redistribution, in order to create a (somewhat more) level playing field.

Indeed, many of the reform movements since then have revolved around spreading that circle of fairness.  Not just because it’s nice, but because it is stupid to waste talent and let cheaters stifle competition by the maximum number.

None of which is part of today’s libertarian doctrine!  All talk of level-flat-fair-open competition and Smithian libertarianism is quashed, replaced by the New Dogma — idolatry of unlimited, lordly accumulations of private ownership… which (let me reiterate) was THE failure mode for 6000 years. Property is now the libertarian god! Competition is shrugged off and never appraised for what it is, an explosively creative force that must be maintained, like an engine, lest the grit of cheating destroy it.

WealthNations== To be clear… ==

While I hold many liberal or progressive views, I also proudly and unabashedly proclaim others that are Smithian-Heinleinian Libertarian, in that I deem healthy suspicion of government over-reach to be fit and proper! But I can turn my head and see such dangers – abuse of power – looming from all directions. (Can you?)

Yes, “government” can be captured by crony oligarchs!  That is why the democrats (and never republicans) de-regulated away and erased captured agencies like the ICC and CAB and broke up AT&T and gave an unregulated Internet to the world. And worth-noting: all of those deregulatory measures were opposed by the GOP at the time.

Keeping a close eye on government, skeptical to all over-reach, is a fine role and it inspired my book: “The Transparent Society: Will Technology Make Us Choose Between Privacy and Freedom?

But assuming we do keep the bureaucrats leashed, then it is proper to recall that they… and the scientists too… are “elites” we can use to counterbalance the inevitable cheaters-from-oligarchy who betrayed freedom and competition in every other era.  Indeed, the war on science and all other castes of “smartypants” expertise is being funded precisely by those who want feudal oligarchy to come roaring back.

== But is capitalism a good thing? ==

market-competitionGuardedly, you bet! In that market competition is the engine of our cornucopia and the wealth that enabled us to then take on progressive causes.  Indeed, healthy market capitalism should be viewed as a top victim of crony-oligarchy. Indeed, You liberals need to admit that the issue of “globalization” is not settled and your reflexes were dead wrong.  Aside from the two billion people rising rapidly in China and India…

…read about potential real progress in three more countries that together contain 1.5 billion people.  Nor are these the only such examples.

Have investments in infrastructure, education, science R&D and public health paid off? According to one of the top (still-sane) conservative economics research houses, that “social capital” of shared investment in the future is responsible for most of our current standard of living.

“The United States and the rest of the post-industrial, developed world owe their epic rise in living standards to the underlying “social capital” that properly incentivized innovation, entrepreneurship, and thus technological transformation over the last two centuries.” – says Worth Wray of Mauldin Economics, a noted conservative investment newsletter:

econmics-solowMIT Professor Robert Solow would agree with us on this front. Solow’s work on the US economy – which has become a textbook economics lesson – explains that innovation has accounted for more than 80% of the long-term growth in US per capita income, with capital investments accounting for only 20% of per capita income growth.” 

So much for supply side (voodoo) economics (SSVE), which proclaims that the only way to engender growth and development is huge tax cuts for the uber-wealthy… even at the cost of cutting back on infrastructure, education, science R&D and public health… exactly the opposite prescription cited by Adam Smith.

Funny thing. Not one prediction ever made by SSVE has ever, ever, ever come true.

Liberals, this is your fault too.  Again… until I am blue in the face — instead of bad-mouthing capitalism, embrace Adam Smith and declare true, healthy, flat-open-fair capitalism to be a top victim of the campaign of crony-cabal grabbing by the New Lords.  Investments in infrastructure, education, science R&D and public health are what feed and engender a thriving market economy.

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Why are the Koch brothers opposing solar energy?

General Stanley McChrystal (ret), in a TED talk, makes his brief but cogent “military case for sharing knowledge,” surprising all with his call for general transparency.

MCCHRYSTAL-TED-sharingOf course there are a million ramifications and complexities that cannot fit into a TED talk. It is a complex world and our Protector Caste has genuine needs for tactical (short term) secrecy. But needs become excuses for bad habits that are self-defeating over the longer term … and that could ultimately lead to Big Brother. There must be an ultimate trend toward an open world, and Gen. McChrystal makes about as strong a case as you could in a ten minute TED.

“I am more scared of the bureaucrat that holds information in a desk drawer or in a safe than of someone who leaks, because ultimately we’ll be better off if we share.”

Oh, for a more in-depth appraisal of this new era, see (of course) The Transparent Society.

== Those who want to shut down both light and enlightenment ==

koch-solarThe Yiddish word “chutzpah” means gall and utterly arrogant nerve. It should be re-spelled to “koch-spah” after this news… that the ever-meddlesome Koch brothers are now funding a major campaign against state efforts to ramp up solar energy.

It would be one thing if they limited their attacks to ending tax rebates and minor subsidies for solar and wind… hypocritical, given how much they have benefited from vastly larger oil-gas-coal subsidies, tax breaks and almost free access to resources on public lands.

No, they are also targeting “net metering” which is the law allowing a homeowner who owns a rooftop solar unit to sell excess power back to the utility.

KOCH-SOLAR-ENERGYPlease read that again. The Koch brothers do not want you selling your excess power to the market. Their beef is with filling energy markets with millions of little-guy producers. Their “institute” proclaims that its aim is to “preserve the public utility power company concept” — a state mandated monopoly system in which single companies control all access to energy. Some enterprise capitalists! Some libertarians!

But let’s dig deeper to the heart of it. WHY are the Kochs (and their Saudi partners) doing this right now? Because solar energy is taking off. Because efficiency and durability of photovoltaics have been skyrocketing, in part because we had the wisdom to use some mild incentives to boost an important new industry, the way the U.S. Postal contracts stimulated air travel, in the 1920s, or public roads spurred the rise of the automobile.

Only with this difference: renewable energy systems are improving far faster than airplanes or automobiles did, in their nascent days. And more spectacular tech advances loom on the horizon, that the Kochs can see coming fast.

citizen-solar-powerDig it well. They would not be doing this if renewables weren’t taking off and a looming threat to the brothers’ bottom line. Millions of autonomous citizens, generating and selling their own power is no longer a sci fi pipe dream. It is coming true fast…

…and parasitic dinosaurs are bellowing.

== focus where it hurts ==

Let’s get down to absolute fundamentals: what must shrink is ability of oligarchy to “capture” and corrupt government. Given how deeply committed the Koch brothers are, to meddling and altering our elections, we might want to show it goes both ways, by becoming aware of which products in your neighborhood store augment their Georgia-Pacific empire:

Koch-ProductsKOCH BRANDS: Brawny, Angel Soft, Quilted Northern, Soft ‘n’ Gentle, Dixie cups/plates/etc, Sparkle/Vanity Fair/Zee napkins.

OTHER BRANDS: Charmin, Cottonelle, Scott, Bounty, Viva, Hefty cups/plates/etc, Kleenex/Bounty/Scott napkins.

Hmmm. Print it out. Keep it next to your shopping list. Make up your own minds.

== Bad Democratic Oligarchs? ==

This article in the Washington Free Beacon, Oligarchy in the 21st Century, pushes the meme — and with some fascinating anecdotal support (!) — that democrats do oligarchy, just as much as republicans do! And indeed, the essay is worth reading, with some informative moments… except a conclusion that is warped and sick and just plain wrong.

Actually, it’s kind of sad, revealing something dark in this writer’s core, that he assumes rich democrats must have the same reasons for donating to liberal causes as wealthy donors on the right.

To him, the only conceivable reason that a rich person would donate money would be self-interest, cheating and greed. But the narrative does not wash when Bill Gates and Warren Buffett publicly proclaim “my class should be paying higher taxes.”

There is another possible motive. Love of a country and civilization and middle-class society that was very good to them.

== Military Matters ==

The US Navy is showing off, announcing the deployment on-ship of a close-defense laser system and the imminent shipboard testing of a railgun system.

140410101202-navy-railgun-story-bodyYou might recall the dramatically exaggerated depiction of a railgun in one of the Transformers flicks. Railguns use electromagnetic energy known as the Lorenz Force to launch a projectile between two conductive rails. The high-power electric pulse generates a magnetic field to fire the projectile with very little recoil. Many sci fi tales have portrayed rail guns used either in space combat or as great big electromagnetic launch systems, hurling cargoes from the Moon or even from Earth. The development of smaller scale guns for the military was an intermediate step, necessary in several ways.

Combine all this with the Navy’s new Zumwalt class destroyer and you can see how advanced a service got that was not crushed and half-ruined by a decade of brutally self-destructive and pointless land wars of attrition in Asia.

Here’s a thought-provoking essay on how empires — mostly spread by military means — do allow (for all their faults) greater safety from violence and opportunities for trade and development. There are feedback loops and ironies. I do not agree in all ways! But interesting.

Defend civilization, especially the ways in which ours has been unlike any others.

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A Looming Gilded Age: Capital, Affluence & Influence

piketty-capital-coverIf books could kill, the attempted oligarchic takeover of America would be dead this week and Wall Street would be flushed clean of villains, leaving a healthy and vibrantly flat-competitive capitalism, in its wake. The best seller lists swarm with fact-filled appraisals that should sway any portion of the population (that reads) into action.

For example, Thomas Piketty’s Capital in the 21st Century became a Number 1 bestseller at Amazon, around the same time that Senator Elizabeth Warren released her book A Fighting Chance — about how Washington works, and fails to work.

Another hot book is Flash Boys: A Wall Street Revolt, the latest from Michael Lewis on the most recent form of mass-scamming on Wall Street. (I’ve written about this important book, elsewhere, pointing out how even Lewis missed the worst implication of High Speed Trading, that it might – in a weird way – lead to no less than human extinction!)

Affluence-InfluenceAnd now — Martin Gilens’s Affluence and Influence: Economic Inequality and Political Power in America was an award-winner in political science last year. His new tome “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,” conclusively proves that elites get their way in public policy, far more readily than the People do.

Duh, you say? So you shrug that it is obvious? Alas, your complacency is death to democracy.

Picketty’s may be the most important of these books, zeroing in – supported by clear statistics – on how America’s seventy year, post WWII vacation from class war has clearly come to an end. That long, prosperous truce — the most productive and liberating and egalitarian time in all of human history — can only be re-established if we first have to guts to recognize why it finally failed.

It is still possible to reform with moderate measures, like those one hundred years ago that Teddy Roosevelt used to restore and safeguard the middle class against a looming Gilded Age… or those that half a century later led to the flattest and most socially mobile continental society in history, with a booming middle class and the greatest surge in entrepreneurial growth and startup capitalism, in the wake of that other Roosevelt*…

ClassWarLessonsHistory…or else if such moderate, re-tuning reforms don’t come, as Elizabeth Warren warns in her book, we may tumble back into the normal human mode of 6000 years, a pyramid-shaped society of aristocratic rule in which the only options remaining to oppressed masses will resemble those used by the mobs, in 1789 France.

Truly smart rich folk would see that trend, and thereupon join leaders like Warren Buffett and Bill Gates, fighting to maintain a middle class civilization… where they just happen to be rich, but not lords. The tech moguls and creative types are behind Buffett and Gates.

(I portray some discussions about this taking place among trillionaires, in the 2040s, in EXISTENCE.)

Alas, those who got rich via resource extraction from public lands, or by inheriting it, or through predatory Wall Street manipulations, seem to want to be like Louis XVI lords. Their behaviors and public statements stunningly resemble those of the Bourbon First Estate. Their reactions to Picketty et al, via messengers like Paul Ryan, are not about negotiation or finding moderate reforms. They clamor, in full frontal attack mode, a no-compromise stance of absolute determination.

As my friend the epic producer of Babylon 5, J. Michael Straczynski paraphrased recently (with his flair for drama), in The New Aristocracy, they appear to be saying: “We will be your lords. Feudalism is back. Live with it.”

== What about those reforms? ==

Lessig-PACProfessor Lawrence Lessig — one of the archetype Rooseveltean reformers — has introduced a SuperPAC, Mayday for the Republic, with the stated purpose of destroying SuperPACs. His plan is to raise enough money from small donations to “buy Congress” and destroy the oligarchical donor system from the inside. (The goal is 5 Mayday-aligned House reps in 2014, then raise enough money to “buy Congress” in 2016.)

Terrific. Give your support.

But as you know, I go to an even more basic level — transparency. And so LittleSis.org is a free database of who-knows-who at the heights of business and government… aiming to be the antidote to… Big Brother. get it? Pretty much the epitome of citizen-crowdsources sousveillance. This must grow.

Better yet, fight complacency and do what really counts, by reminding all of those who are tempted to sit out the coming mid-term elections:

“It’s the Supreme Court, stupid.”

== YOUR bill for foreign tax dodges ==

LOOMING-GILDED-AGEU.S. taxpayers would need to pay an average of $1,259 more a year to make up the federal and state taxes lost to corporations and individuals sheltering money in overseas tax havens, according to a report by the U.S. Public Interest Research Group. “…ordinary taxpayers end up picking up the tab, either in the form of higher taxes, cuts to public spending priorities, or increases to the federal debt,” USPIRG said.”

In total, the U.S. loses $150 billion in federal revenue and another $34 billion in state revenue annually because of money parked in tax havens. That’s almost 5 percent of total federal revenue.

Um… can we let that sink in? that’s $1,200 out of YOUR pocket, every year. Is this “transparency thing” still an abstraction to you?

See where I explore this (Money Flows that Might Prevent New World Wars)…though I do it more entertainingly in EARTH!

And tangentially in a recent posting: Future Perspectives: Does the ACLU at last understand surveillance?

== Am I a “liberal? ==

ReclaimAdamSmithSome out there interpret my opposition to an ongoing oligarchic putsch and the new American Gilded Age as evidence that “David Brin is a Liberal” — despite the fact that no one alive mentions (or touts) Adam Smith more than I do.

Yes I do support liberals (though not leftists) nowadays, for the most part. But that is entirely because of the New Confederacy’s blatant abandonment of the old, conservatism of intellects like Buckley and Goldwater and the GOP’s open declaration of its intent to ensure that governance fails.  Their agenda of a return to feudalism and the War on Science. In fact, I yearn for the return of a “smithian” libertarianism that might serve as a foil and intelligent balance to reformist liberalism.

If that sounds a bit obscure, then let’s just keep returning to that oligarchic putsch — the skyrocketing wealth and income disparities that seem to be a natural, toxic byproduct when cheating (an inborn human tendency) starts to spoil and ruin the brilliance of smithian market competition.

If we are returning to that age old failure mode, it makes no sense to feel rage — this is the most natural thing that humans do, when they get power!

We can fix it. Without the insane oversimplifying radicalisms of “all capitalism is evil!” or “all government is evil!” or similar, loony symptoms of “fused political spine disease”… the inability to turn one’s head and see flaws in all directions.

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It’s not the “One Percent”

First, before getting into the “one percent” matter…

9780812978728_custom-a68f3d31cb6007f7534ef6210f0693432759ff3d-s2-c85I have heard few interviews on NPR that were more cogent, intelligent and rich in wisdom and knowledge than this one, with Bruce Levine, a professor of history at the University of Illinois, who is author of The Fall of the House of Dixie: The Civil War and the Social Revolution that Transformed the South and Confederate Emancipation, Professor Levine deals handily with the edifice of completely made-up rationalizations we hear fermenting these days: e.g. that slavery was declining in the South during the lead-up to the U.S. Civil War (phase 1).

Not one of the excuses offered by apologists — like Judge Andrew Napolitano — stand upon anything more substantial than wish-fantasies and fairy dust.

Listen to the audio version. This is a wise and knowledgeable fellow. An example of why those waging war on science had to expand their campaign to encompass history, economics, journalism and every other clade of knowledge in American life.

== It’s not the “One Percent” ==

99-percentOkay, I have a bone to pick with you “progressives” out there. Sometimes you can be as lazy and simple-minded as your opponents.

Stop referring to “the one percent!” It is a trap. Indeed, it may be a polemical trick, foisted on us all by a conniving oligarchy that does not want to face the ire of a united citizenry.

Those chanting “we’re the ninety-nine percent” only thus empower Fox-pundits to respond that “most of the one-percenters are small business owners, or hard-working doctors and dentists who are demonized by the left for their well-earned success, stigmatized for providing valued goods and services.”

And that’s completely true!

Look, you polemical liberals out there, do you really want three MILLION of America’s most productive, innovative and hard-working people to be driven into the arms of the real oligarchs, by tarring them with the same, simplistic brush? Guilt-by-association?

There’s a word for that. It is “stupid.”

one-percentIn fact, according to this article in the Atlantic it is the top 0.01 percent—that’s the uppermost one percent of the top 1 percent—that’s leaving the rest of the top percentile behind, in the dust along with the rest of us. “While nine-tenths of the top percentile hasn’t seen much change at all since 1960, the 0.01 percent has essentially quadrupled its share of the country’s wealth in half a century.”

Alas, what this article leaves out is discussing the one-percent of THAT clade… or the 0.0001%ers. Those are the folks always to scrutinize. Even the father of modern market enterprise capitalism said so!

They aren’t all bad, just because they are rich! Indeed, the Silicon Valley billionaires and other entrepreneurs who developed goods and services by working closely with thousands of skilled and free-thinking engineers – these men and women know that it is a relatively flat, well-educated and open “diamond-shaped” society – dominated by a vibrant and empowered and knowing middle class – that creates the kind of opportunities that let them succeed in a positive-sum way. Getting rich while making us all richer. Guys and gals like that are sensitive to how it all would get ruined – will get ruined – if we follow the age-old human pattern. Into feudal-inherited-oligarchy.

Interestingly, those open-market-friendly rich men and women are mostly democrats.

ClassWarLessonsHistorySo. Shall we get mad? Chant and wave torches and polish our tumbrels? No, we must recall enough history to remember this is an old, old problem. Those who are meddling in our politics and hiring propagandists to restart the American Civil War, they are acting entirely according to human nature, spanning thousands of years. It is not morally culpable that they are too stupid to rise above basic, pre-sapient instinct. Alas though, it does mean that those obeying ancient-harem-seeking instincts are not as smart as they think.

By doing all of this, they in fact prove a fundamental of nature. That all good things are toxic, when too concentrated. Water, food, oxygen… wealth. It is one thing about which Adam Smith and Karl Marx absolutely agreed.

In order to save and preserve as system in which each of us can get rich — by providing competitive-creative goods and services – even very, very rich (so long as it is fair) – then we may have to put some kind of limit upon the number of verys.

== Obscure… but related ==

Speaking of very… this is very interesting, if too radical for our present world to experiment with… except maybe in a sci fi novel… Geo-libertarians hold that all natural resources – most importantly land – are common assets to which all individuals have an equal right to access; therefore, individuals must pay rent to the community if they claim land as their private property. They simultaneously agree with the libertarian position that each individual has an exclusive right to the fruits of his or her labor as their private property, as opposed to this product being owned collectively by society or the community, and that “one’s labor, wages, and the products of labor” should not be taxed.

This is one example of the many alternatives that used to be discussed by the Greatest Generation… before we Boomers took over and made everything simplistic, reflexive, emotional… and admit it… not one of you has ever read Adam Smith or Karl Marx. If your life depended on it, could you describe accurately what they said? Or even define what “left” and “right” mean?

Really?  Well… this blog does attract the erudite.  But those few of you are very very rare.

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FLASH BOYS versus SKYNET – How Wall Street may be even more dangerous than Michael Lewis thinks

michael-lewis-flash-boysMichael Lewis’s new book, Flash Boys: A Wall Street Revolt, has certainly gathered tons of well-deserved attention. He was on the Daily Show and his interview on NPR is an absolute must-listen podcast in which you’ll painlessly (except for an angry gut reaction) learn an awful lot about how Wall Street is (surprise) cheating the rest of us.

Lewis focuses especially on an area about which I’ve inveighed heavily for two years… the perils of High Frequency Trading.

You don’t have time for books or podcasts? Then if you read or even skim any in-depth article this month, make it this one… an excerpt from FLASH BOYS about how the world of fast-pitched Wall Street trading has become rife with computerized cheating, so pervasive that any justification is impossible through the usual rationalizations of “market forces” and “correct price equilibration.” No little guy can win the full value of his trades. No retirement fund manager can use keen insights to maximally benefit her clients without paying a large “tax” or overhead in stolen value.

Excerpt-Flash-boysThe article appears to have a relatively happy ending, with the creation of a new trading center that corrects some of the grotesque advantages of behemoth banks and super-empowered Hugh Frequency Trading (HFT) operations. And I hope the sunny optimism of the final paragraphs comes true! (Failure to correct the cheating will lead us to French Revolution levels of anger, with tumbrel-riding lords losing much more than their “genius” predatory gains.)

What is more likely is a moderate series of reforms that — like those our ancestors performed under Teddy Roosevelt — restore just enough fairness and flatness and wary trust to keep it all in motion for another generation… and maybe restoring a bit of strength to the beleaguered middle class.

Michael-lewis-stock-riggedIndeed, the hoo-row over this one book appears to be affecting markets! It has prompted a few traders to bet against shares of the Nasdaq OMX Group, the parent of the NASDAQ exchange. One analyst estimates that about 25% of Nasdaq’s revenue, and about 33% of earnings, are attributable to high-frequency trading. The Wall Street Journal offers: The Responsible Way to Rein in Super-Fast Trading.

If HFT is reined in – maybe with timing measures but far better with a tiny Tobin Tax — then this one particular cheating mode will be controlled.

== Would that solve it? ==

But the danger remains… that we might return to the normal patter of 99% of human cultures across 6000 years. And that is the lesson of this article. Those who manipulate and distract us from getting mad and reforming capitalism are not only our enemies… but they are the enemies of the very same flat-fair open capitalism that they claim to admire.

Contradiction-Capital-MarketsRationalization and excuse-making for the predatory depredations of a monopolistic cartel of financial “wizard” parasites.

Alas, the relatively optimistic tone of FLASH BOYS must be viewed with caution. The “solution” of a new, neutral exchange can easily be perverted by the next round of cheating — both Adam Smith and Karl Marx called cheating the ultimate enemy of fair and flat and free competitive and creative markets.

Indeed, so long at the stock exchanges are controlled by closed cartels of conniving “seated members” there will be an inherent incentive for them to trade with each other, commission-free, which is the essential unfairness of HFT… and not the timing factor that Lewis dwells upon.

TransactionFeeTerminateI have also offered another, more science fictional but chillingly plausible reason to fear the many billions of dollars that major trading firms are pouring into the HFT versions of artificial intelligence (AI). It is a failure mode that grown more credible by the day. It could wind up wreaking devastating harm.

And you can find it here: A Transaction Fee Might Save Capital Markets…and Protect us from the Terminator!

See also: The Contradiction of Capital Markets.

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Optimism, Responsibility and… Satire!

Warning all: it’s political this time!

== The optimism debate continues ==

The-Rational-Optimist_220xV“Today,” Matt Ridley writes in his book The Rational Optimist: How Prosperity Evolves, “of Americans officially designated as ‘poor,’ 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 percent air conditioning. Cornelius Vanderbilt had none of these.”

Yes… though Cornelius had tons of servants, and they lacked these things too. But the thing they noticed, above all, was who was servant and who was the master.

But never mind that. John Mauldin cued me over to Morgan Housel over at the Motley Fool who has written a piece called “50 Reasons We’re Living Through the Greatest Period in World History.”  Oh, I fumed at about a dozen of the statistics, sputtering “but… but that ignores….”  And you should avoid complacency too!  There’s still a world to be saved.  Still, the flood of tentative good news suggests that we have some basis for confidence that we can save it….

… or can we, after all?  Why California’s drought may be the worst in 500 years. Denialism is not confidence.  It is being a sap.

== Putting interesting spins on things ==

One of the best pieces of political-social satire I’ve seen stabs right at the heart of how our enlightenment process of flat-open competition is undermined by… Krony-ism!  Collect all five Krony action figures! Ready to take on any competitive threat to their power!  (Note: while this is clearly inspired by the better (Smithian) wing of libertarianism, one might call it ever so slightly rightward-tilted. And I don’t mind! 

(Still, it will be better when they come out with the needed SIXTH action figure…  The Oligarch-Puppeteer, the one made of money bags who actually controls Big G. And a seventh… The Hypnotizer… who waves a bible and has the head of a … Fox.)

PersonalINcomeTaxIn a similar vein but turning a bit more specific… One of the sharpest “Smithian libertarians” out there is Brin-blogmunity member Carl Milstead who has long struggled to help shift libertarianism back to sensible emphasis on competition, and less on the Cult of Selfishness.  Carl has a very interesting tax simplification plan that offers attractive common ground – or at least basis for negotiation – between liberals and libertarians.  It might be too big s shift to achieve in today’s American political climate.

But one way to get there incrementally would be my own proposal called “no-losers,” which would let us simplify in stages that are politically achievable.

== If only this were satire, too ==

It’s stunning how lockstep conservative columnists are in denouncing the bipartisan voting commission’s recommendations for more early voting, allowing citizens to go to city poll stations up to a week before election day. Along with many other tactics to cheat… I mean limit citizen access to franchise… states of a certain color are moving fast to limit early voting, which helps working men and women to fit this civic duty among their many other chores.

This is not Goldwater-Buckley conservatism.  It is something else.  Why not admit it?

Capital-twenty-first-centuryEconomist Thomas Piketty’s new book, “Capital in the Twenty-First Century,” argues  that the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.  His fatalism disturbingly opines that capitalism cannot continue – each generation – performing a miracle… using democracy to correct its contradictions.  Especially the biggest one — that winners in the competition then try to cheat in order not to have to compete anymore, as happened across all cultures for 6000 years.

I agree that that is the inherent tendency of capitalism.  But (1) Marx explained all this ages ago, and earlier so did Adam Smith. (2) The fact that western democracies did keep refreshing and renewing a relatively flat and competitive version of capitalism, always enticing activity to get rich, but somehow preventing the toxicity of oligarchic wealth concentrations, suggests  this is a process that could continue.

It must.  Socialism never raised out of poverty as many as market economics has, nor innovated so many solutions.  But those markets were not “blind.” Nor did Adam Smith demand that they be!  They succeeded precisely because they have been tuned by sapient populations, societies and institutions who have kept negotiating solutions to steer economies away from the cliffs that ruined markets and freedom for 6000 years.

Capitalism-vs-democracyIt is the pragmatic, non-dogmatic, mixed-economy approach that prevents oligarchic toxicity while retaining Smithian success lures.  That takes new discoveries and new technologies into account, as well as new threats and externalities like pollution. That invests in the species and its youth so that those youths can have the health and education needed in order to be confident competitors in vibrant Smithian markets.  Our ancestors for 250 years used a suite of methods, only some of which were “liberal” or Quasi-socialist…

Forget the Clinton-Bush dynasties… calling for a Roosevelt!  Ideally one like TR… but FDR might do.  We have to believe we can do this again.  Or there will be no Star Trek.

== Who’s Responsible? ==

spending-us How Spending Has Fallen Under Obama: This CNN site backs up my assertion that our cliches about U.S. deficit spending are all wrong.  The all-important Second Derivative of deficit shows whether an administration is serious about fiscal responsibility.  If the 2nd Derivative (2D) is negative, then skyrocketing deficits become successively less steep and gradually turn downward toward the black. If 2D is positive, surpluses become deficits and deficits steepen into hemorrhages. And members of the public have a diametrically wrong impression that Democrats are somehow worse than Republicans on this matter, just because Republicans say so.

In fact, 2D is almost always positive (that’s bad) under GOP administrations (post-Eisenhower) plunging the U.S. into worsening debt.  And 2d is almost always negative (that’s good) across the span of Democratic administrations.  Conservatives invariably squirm when confronted with this huge and nearly uniform fact, that absolutely demolishes every cliche. But if they truly are “conservative” in the older and wiser sense of the word, they must eventually wake up and realize.

No one is asking them to swerve left.  But please… veer away from the monsters who have hijacked your movement.  Steer away from crazy.

== The miscellany stack – political news! ==

PolarIceSee this stunning video showing 25 years of satellite data on dwindling Arctic sea ice. Look at it. Just look at it!  Then rent CHASING ICE. Hold a home viewing party.  Invite your crazy uncle.

Climate change is already hurting American farmers and rural residents, Agriculture Secretary Tom Vilsack warned that the U.S. would regret any failure to adapt and prepare for shifting weather realities. The list of increasingly daunting issues that the Ag Dept is helping farmers deal with is growing larger and more intense yearly.  And still, fools watch Fox.

All told, health care costs have been growing more slowly over the last three years than at any other time period since 1965. More recently, yearly health cost growth slowed from an average rate of 3.9 percent between 2000 and 2007 to 1.3 percent between 2011 and 2013.

This rumination about potential conflict between China and Japan is deeply disturbing.  And it does not mention there is another set of reefs, farther northe, that are equidistant from China, Japan and South Korea, that are under dispute.  And other islands rimming the Philippines and Indonesia and Vietnam.

But the East remains a realm potentially rife with surprises. I had to blink several times when I read the following off-the-cuff thoughts from the deeply insightful Scott Foster, who I see each year at the annual SNS Future in Review Conference.  If any of this comes true, you’ll know where it came from:

[Japanese PM] Abe is reportedly planning to meet Putin in Sochi. A professor of international politics I know here expects them to make a deal over the Southern Kuril Islands (Japan’s “Northern Territories”). Having just visited Yasukuni Shrine, Abe is Nixon enough to get away with it (anyone else would probably be assassinated). That would enable a peace treaty and make it a lot easier to increase economic ties, which could expand several fold. Beijing might s**t a meat axe, to use a phrase I’ve never been able to forget.

 The professor’s take on North Korea is that Kim is purging the pro-China faction and getting ready to do a Myanmar. Japan has reasonably good relations with North Korea, considering the circumstances, and very very knowledgeable journalists and other experts on (and in) the country. Russia and South Korea are talking about a gas pipeline through North Korea. Just when it looked like things in North Korea might never change, they might change.”

Vampire-squid

Wow.

== Calling all Roosevelts! ==

The  bill to remove the 60 year old financial industry regulations, passed in 1999 by the GOP Congress, did more than encourage the insane antics that led to the later Great Meltdown.  It has apparently unleashed the top banks to own and operate every kind of resource manipulation industry.  Read  about this… and try to picture: “why are they doing everything in their power to resurrect Teddy Roosevelt?”  Because that is where we will ultimately turn.  Preferably that, over Robespierre.

== A libertarian “gem” of a flick? ==

alongsidenight_30thcoverJ. Neil Schulman’s hyper-libertarian novel, Alongside Night, was worth reading as a polemic that — though tendentious and spectacularly one-sided — nevertheless raised some very important points about one of many kinds of potential failure modes that could bring us crashing down.  Alongside Night is worth a look for the same reason that I read Ayn Rand and Karl Marx, because: damn if I will let myself become a blinkered dogmatist, worried about only one kind of abusive authority!

Human beings are born with spines that can twist, allowing them to look for threats on all horizons.  So what if polemicists and dogmatists (of left, right and weird) are satisfied to fuse their political vertebrae, insisting that only the authorities THEY hate could ever threaten freedom. I will listen to their rants and sift for rare gems amid the monomania.  I can turn my head.

Can you?  Then you might enjoy a wallow in polemical monomania: Alongside Night: The Motion Picture! Directed by J. Neil Schulman! And starring Kevin Sorbo.  I admit I haven’t seen the film… it’s only available for viewing in a few cities. But here is how to find out where: http://www.tugg.com/titles/Alongside-Night#description

libertariansNeil is one of the more cogent members of the cult of Rothbard-and-Rand that has hijacked libertarianism from its proper, Smithian emphasis on creative competition, down paths of incantation that ignore all of science and history and human nature.  Which is a pity since a more moderate libertarian movement — that remembered Adam Smith — might have helped us marginalize the truly dangerous beast: the undead monster of today’s GOP.

See one alternative: what a pragmatic, Smithian libertarianism might look like, in my article: The Case for a Cheerful Libertarianism.

== and politically redolent… ==

6500 highway bridges in the U.S. in “failing” condition.

Top 1% of U.S. incomes receive 15% of tax breaks and credits.

On Slate, Anne Applebaum asks: “Why Did the NSA Tap Angela Merkel’s Cellphone?Because it could. And that isn’t reason enough.”

RepublicanExtremismA brief section from the Sean Wilentz‘s Rolling Stone overview: Republican Extremism and the Lessons of History: How has a faction consisting of no more than four dozen House members come to exercise so much destructive power? The continuing abandonment of professional responsibilities by the nation’s mainstream news sources – including most of the metropolitan daily newspapers and the television outlets, network and cable – has had a great deal to do with it. At some point over the past 40 years, the bedrock principle of journalistic objectivity became twisted into the craven idea of false equivalency, whereby blatant falsehoods get reported simply as one side of an argument and receive equal weight with the reported argument of the other side.

There is no shortage of explanations for the press’s abdication: intimidation at the rise of Fox News and other propaganda operations; a deep confusion about the difference between hard-won objectivity and a lazy, counterfeit neutrality; and the poisonous effects of the postmodern axiom that truth, especially in politics, is a relative thing, depending on your perspective in a tweet. Whatever the explanation, today’s journalism has trashed the tradition of fearless, factual reporting pioneered by Walter Lippmann, Edward R. Murrow and Anthony Lewis.

Here’s something you don’t often see. An interesting… if somewhat shallow and tendentious riff in defense of communism that ran in Salon. Yipe! If we do not perform Rooseveltean reforms soon, we will see a LOT more of this. We are witnessing an IQ test whether the rich can act in their own self-interest.

The plague of self-righteous indignation that is poisoning America reared its head again in a firestorm of sanctimony over the death  Philip Seymour Hoffman, with some writers venting volcanic fury at others, who considered the actor’s deep and fatal flaws worthy of critical comment. In this cogent discussion of the outrage industry, Sara Stewart offers cogent appraisal.  She also refers to my own work, diagnosing indignation as a noxious modern addiction that is tearing apart especially the United States, undermining our native genius at moderate pragmatism.

And that long stack is just a fraction of what got stored up.  It’s a political year, sigh, get used to it.

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Who benefits from the politics of outrage?

Outrage-industryThe authors of The Outrage Industry: Political Opinion Media and the New Incivility, have offered an interesting and balanced article on Politico appraising why so much of the media has become polemical and angry-immature, here and now in the 21st Century.  In Are Americans Addicted to Outrage? — Jeffrey Berry and Sarah Sobieraj suggest that we the viewers are to blame, by flocking to the hate-waves for our daily doses of sanctimonious thrill.

And, of course, at one level they are right….

And yet, we should note that this cynical payoff is not homogeneous or uniform:

(1) MSNBC’s profits are a fifth those of Fox.  Moreover, as Berry and Sobieraj point out “talk radio, which is more than 90 percent conservative, offered only a modest selection of liberal programs, all with much smaller audiences; as a result, only two of the 10 radio programs we studied are oriented toward liberal audiences.

(2)  The liberal stations favor a return to “fairness rules,” even though those doctrines, if once again enforced, would compel them to change their business practices, inviting top opponents to offer rebuttals onscreen. In contrast, Fox and Clear Channel and the outrage industry of the right act as if they are utterly terrified of the prospect that their audiences might hear one minute of rebuttal for every 20 minutes of biased ranting. That is a fundamental difference, not one of just amount.

politics-outrge(3) Who does it all serve?  Follow the beneficiaries. There are reasons that Fox is co-owned by the Sa’udi Royal House and that coal and other carbon barons finance the right’s propaganda machine.

And yes, Big Labor influences the left.  Granted. Only ask yourselves this.  Which power center is growing, and which has become… pathetic… during the last generation? Is there, even theoretically, any level that the labor movement can decline to, when you’d admit “Okay, I’m not afraid of them, anymore… and maybe there are other, rising centers of influence that are a bit more worrisome”?

== The beneficiaries of broken politics ==

It isn’t all about carbon barons though.  Much discussion has recently focused on the skyrocketing disparities in both wealth and income between the very richest 0.01% and the hard-pressed U.S. middle class.  While the ratio between a company’s average employee wage and that of its CEO was in the teens and twenties in the glory-days of American capitalist entrepreneurship… the 1950s, 60s etc.

CEO--pay-ratioAmerica now has by far the biggest disparities. Major U.S. execs now pull in, on average, over 350 times the pay of America’s rank-and-file workers. Even the most successful Japanese firms, by contrast, don’t exceed ratios of seventy to one. See a global comparison of CEO to Worker Pay Ratios.

This will get clearer, soon. “The federal Securities and Exchange Commission, after four years of delay, will likely release this year new regulations that require America’s top corporations to annually reveal the ratio between their CEO and median worker compensation, a disclosure that the 2010 Dodd-Frank Act mandates.”

The aspect to all of this that I find most surprising — as I illustrated in the year 2040, in EXISTENCE — is the notion among today’s conservatives that this trend might simply go on and on, without reaching an inflection or tipping point. Without eventually raising the kind of radicalism and push-back that has not been seen in American life since the 1930s.

== Push back begins ==

In Massachusetts, nurses have collected over 100,000 signatures for an initiative that would levy fines against any hospital in the state, profit or nonprofit, that compensates its CEO over 100 times the hospital’s lowest-paid worker.  In Switzerland last year, young activists ran a referendum campaign to cap Swiss CEO pay at 12 times worker wages. This pay cap proposition was running even in the polls until an ad blitz sent the measure to defeat.

percentage-signCould 2014 be Year One of the Pay Ratio Era? A vigorous article at Truthout –– while of course partisan — nevertheless makes a strong case that these measures portend a rebellion brewing, against what I’ve called the Oligarchic Putsch — the transformation of America from a diamond-shaped society, dominated by an empowered middle class, more toward the classic pyramid of privileged (and largely inherited) power that dominated 99% of human cultures across 6000 years.

In fact, though, let me briefly give voice to my libertarian side: I do not see this disparity being solved by simple-minded ratio laws.  Socialist decrees and price-setting are not a long-term or even desirable solution.

What is needed is a return to the principles of Teddy Roosevelt – that market economics is best when it is competitive,  This would require, especially, the breaking up of a cartel of cheaters, restoring the natural synergies and feedback mechanisms of capitalism!  Think about it —

== If you truly believe in market forces… ==

By capitalist theory, high rates of compensation in a particular field of human endeavor should attract talented people from other professions, drawing them to compete with these top-CEO guys, thus swelling the pool of managerial talent until prices… go… down!

Essential-man-CEONothing could be more fundamental.  It is basic market forces 101. It is the sine qua non, and the whole justification for competitive enterprise. Supply rising to meet high demand. No matter what the field of endeavor, whether it be the availability and pricing of local plumbers or the allocation of fields to next year’s wheat or soybean crops, or hedge betting on interest rates – markets are supposed to self-correct great imbalances.

Failure of this to happen is prima facie evidence for collusion and cheating.

This is so basic that it bears reiterating in other words: If capitalism works, then these high CEO wages should be attracting brilliant talent from elsewhere, till demand meets supply and the wages fall.  How can supposed defenders of capitalism proclaim their fealty to a system that they, themselves manipulate to fail in its core process?

1-  On the rare occasion when a member of this caste comments on this contradiction, here is their excuse. At the very highest managerial level, they are irreplaceable!  They are in effect calling themselves “mutant geniuses” like NBA basketball players — worth any price. And hence, market forces do not apply to their own compensation. (See: The Syndrome of the Essential Man.)

Only, this comparison fails.  For top NBA players are fiercely measured by statistics. Explicit performance parameters, not only in scoring but in ticket sales. But not one study has ever verified a clear correlation of CEO compensation with long range company success.  In fact, fudging and obscuring any such metrics would appear to be a top priority of the cartel.

2- The cartel is maintained by a system that was supposed to be banished more than 100 years ago.  Interlocking directorships, in which companies that are purportedly in competition with each other feature amazing overlap in their boards. Oh, there are efforts to keep these relationships “once-removed,” substituting partners and family members, or appointing each other onto the boards of companies that aren’t in direct competition… Gerbers and Boeing, for example, thus evading any enforcement of  the creaky, (needful of tuning) anti-trust laws. It still amounts to “vote to raise my compensation and I’ll vote to raise yours.”

Can stockholders fight this?  Many have tried, but systems of shell corporation ownership enable contrivances where a few men can control major enterprises with very small boiled-down minority share ownership. And most small stock-holders (let’s be frank) never exert their proxies. If corporations truly are our future form of governance, then “owner democracy” is going to have to be refreshed with more fairness, or (again) people will start to radicalize.

GuidedAllocation3- Critics of socialism cite Friedrich Hayek and proclaim that any control over an economy by the state — by civil servants — will fail. Because, no matter how smart a set of top-down allocators are, they will be foolish simply because their numbers are few.  Because of limited diversity of knowledge and insight and perspective.

In-groups are delusional. It wasn’t just Hayek who said this.  So did Adam Smith. And so testifies the horrifically bad statecraft of 99% of oligarchy-led human cultures.

Indeed, history does show that narrow castes of “allocators” do inevitably perform poorly, over the long run.  State-capitalist mercantilist trade empires like Japan and China have done well in stretching out their successful phase. But we know the inevitable end-game, as complexity and chaos inevitably prove the limits of in-group hubris.

So sure, I don’t want the government “picking winners and losers” … that is, unless there is a clear and proved need to lay extra weight on certain market forces, for the sake of our kids — e.g. to encourage the development of efficient and sustainable technologies, for example.  And national defense.  And vital infrastructure. And fulfilling Adam Smith’s goal of maximizing the fraction of kids ready to compete… and…

But still, beyond that sort of thing, I know that state -controlled “allocation” can be clumsy, inefficient and wrongheaded, compared to the wisdom of mass markets!  Let us always remember that there is a core essence to libertarianism and conservatism that (despite recent craziness) should have a place at the table.

hayek-road-serfdomOnly in that case…  how is a secretive cartel of 10,000 or so conniving, back-room-dealing, circle-jerking, self-interested golf buddies intrinsically better allocators than say 500,000 skilled, educated, closely-watched and reciprocally competitive civil servants?  Both groups suffer from delusional in-group-think, Hayek had a good point.  But the smaller clade – more secretive and inward-looking, uncriticized and motivated solely by conniving greed – is inherently more likely to fail.

Again, 6000 years of history testify to that.

== What’s needed? ==

We need fierce measures to stop interlocking directorships and the in-group mutual stroking of 10,000 golf buddies — a criminal conspiracy that not only has stolen billions but runs diametrically opposite to the entire notion of competitive enterprise.

We need to demand that hypocrites either stop pretending to believe in market forces, or else show us those market forces at work, correcting a blatant campaign of theft from citizens and stockholders.

We need to break up the worst cartel of all, the “seated members” of the great stock, securities and commodities exchanges, an archaic arrangement that serves no benefit to people or capitalism — especially in the new era of electronic trading — and one that amounts to pure, vampiric parasitism.  All seats should be converted into ten, tomorrow, with nine of them to be sold off to the widest diversity of bidders. Or else, let Google handle all trades for 0.001%. You think they can’t?

TransactionFeeTerminateFinally, tomorrow, for the sake of our children, we must inpose what more advanced nations in Europe and Asia have imposed — a tiny High Frequency Trading (HFT) transaction fee.  Just 0.1% or one thousandth per trade would push these fellows back into earning their livings by helping real humans to find value differences or gradients that are useful to genuine investers or sellers. See my article: A Transaction Fee Might Save Capital Markets…and Protect us from the Terminator?  This is urgent, in some very surprising ways.

Now please take careful note: not one of my proposals is leftist or anti-capitalist. Adam Smith would have no trouble with any of it.  Every single item that I raised would have the effect of invigorating markets by re-establishing actual competition.

These measures are inevitable, as the boomer generation’s delusions start to fade and we become aware – again – of humanity’s perpetual problem of class.   problem that seemed to vanish – in America – for an entire human lifespan, because of rooseveltean reforms and the burgeoned middle class.  As that era passes, and we face our duty to renew and restore the social contract, proposals like the ones I offered (above) will come to the table. When these reforms start looming the best course for the rich and members of the cartel would be to negotiate, since the first wave of reforms will aim to — as FDR did — actually save capitalism from the otherwise inevitable volcanic fury of the sinking classes.

Competition

Alas, as happened when the First Estate fought all-or-nothing for their privileges, in 1789, that negotiation will not happen. (See Class War and the Lessons of History.)  Instead, we’ll hear howls of outrage by a rising oligarchy and their media shills. But don’t be fooled. That is noise rising from the ancient enemies of market enterprise.  Not socialism, but feudalism. And they have no idea that modern versions of tumbrels are being fashioned, by their own hands.

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The Chief Threat to our Great Experiment: Can we reduce disparity without killing market enterprise?

The difficulty of maintaining a civilization of empowered citizenship — the “diamond-shaped social structure” about which I often speak — was well described by the famous historians  Will and Ariel Durant, in The Lessons of History.  

durant-lessons_of_history“…the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or by revolution distributing poverty.”  

Consider the efficiency with which the Durants convey multiple ideas there! First, that an open, citizen-based system that I call “diamond-like” may have many of the advantages that Adam Smith wrote about — e.g. vigorous competitive-creativity and the rapid delivery of positive-sum outputs. But such enlightenment systems as markets and democracy and science are inherently unstable. Unless carefully tuned and maintained, competitive systems inevitably get suborned by cheaters.  Those who may have gained power or position through legitimate competition, but who then connive and use that power to warp all further competition in their favor.

It’s called human nature and it is what Adam Smith and the American Framers tried new methods to prevent under moderate regulation, so that mild-creative-competition might continue.

Durant and Smith knew the natural outcome of such cheating, which happened so often in human history that it is the default — that flat diamonds of egalitarian-competitive citizenship collapse into traditional pyramids of inherited power — e.g. feudalism — as happened in  99% of human societies across 6000 years..

Reform-RevolutionDurant went on to say, however, that the people themselves can choose to resist!  When they see this slump taking place, they can either choose calm deliberation or simplistic anger. Reform or revolution.

History shows far more cases of the latter.  And the vast majority of emotional, violent revolutions do not turn out well for Smithian Enlightenment.  Dogmatists rage and raise the ante of ideological fervor, stoking heat instead of light.  The French, Russian, Chinese and most African revolutions followed this pattern, killing the oppressor oligarchs, only to establish new ones, and one result was to spread misery for benighted generations.

Those who are pushing hard to smash our Smithian diamond into a feudal pyramid should take note, and consider that they are not as smart as they think they are, if they are blithely ignoring the possibility of tumbrels.

The alternative that Durant cites would be the relatively rare examples of calm reform that can occur when mature deliberation takes hold, as when Cleisthenes (508/7 BC) led in the creation of the Athenian democracy, or when Themistocles and Pericles kept that democracy laser-focused on the greater good.  Or when the American Framers performed acts of severe ‘leveling,’ seizing and redistributing a third of the land in the former colonies, so that the new republic would be born in a spirit of lively egalitarianism, instead of cloned-European lordship.  Or when the slave-o-crat plantations of the South were likewise redistributed, in ways that did not undermine the competitive spirit.  Or the far more modest diamond-building activities propelled by Franklin Roosevelt, that left the U.S. both rather-flat and spectacularly entrepreneurial, at the same time.

We face Durant’s choice, as that flat social structure — emphasizing a dominant-empowered middle class — is now under harsh pressure and threat from all directions. When the pressure becomes unbearable, will Americans respond as their ancestors did?  By calmly performing the next necessary tweaks and fine-tunings… while keeping faith with the framers and with Adam Smith? Encouraging the cornucopia that spills from open, joyful competition?

When disparities get much worse, the other option, of vengeful radicalism, will rear its head, especially among those masses on today’s right who Rupert Murdoch believes (naively) he has under tight rein and permanent control. He should know better… but human nature is what it is.

It’s not too soon to be working hard on those moderate, rational reforms.

== Stormclouds ==

Global-wealth-taxIn a harbinger of things to come, an op-ed piece in the Wall Street Journal, by Roman Hatchuel, describes growing calls — even among the world’s financial elite — for a re-adjustment of taxes to demand more from the very rich.

Very few intelligent people any more assert the never-right and always-wrong nostrums of Supply Side “economics” – asserting that mega tax largesse for the top 0.01% will translate into high velocity investments in new goods, services and productive capacity. All sane economists can see that the supply side experiment (sometimes misleadingly called “trickle down”) has miserably failed. Spectacularly failed, contributing the western nations’ fast-rising indebtedness — now at an average of 110% of GDP.

Some, such as billionaire investor Bill Gross, have been calling for marginal, top-earner income tax rates to return to levels that existed when the economy did best, when entrepreneurship peaked and when the middle class was growing healthier yearly — not quite the levels of Franklin Roosevelt, but in that range.  A partial measure would be to accept the end of special, fat-cat tax breaks which Democrats in Congress have asked-for in exchange for the GOP’s demanded entitlement reforms.  (The demmies are willing to horse-trade, but the goppers are intransigently defending their sponsors, knowing that infamous resource-extraction tax-breaks would be first on the block.)

Some degree of consumption or VAT tax may be an important part of the mix, though this not only affects the already-hurting middle class and poor, but also has the unfortunate effect of reducing the velocity of money.

Much more helpful would be to go after the lowest velocity money of all.  Not so much high incomes as existing and passive pools of staggering wealth.

In October the International Monetary Fund or IMF – not exactly a center of socialism – floated a bold idea that didn’t get the attention it deserved: lowering sovereign debt levels through a one-off tax on private wealth. As applied to the euro zone, the IMF claims that a 10% levy on households’ positive net worth would bring public debt levels back to pre-financial crisis levels. Indeed, this notion was broached in the US by several billionaires including — shockingly — Donald Trump.

The reason to go along is simple. Your billions become worthless if the society that helped you win them collapses. Of course, this is one of the chief determinants as to whether a billionaire votes for and supports Democrats (Gates and Buffett, for example) or actually believes that all the goodies will still flow, once democracy has been stifled into a feudal social order.

== A transparency alternative ==

The wealth tax is interesting, though my own suggestion is a bit different. Instead of seizing assets (which the American Founders did) or raising rates dramatically (per Franklin Roosevelt), let’s try something uniquely modern, with-it and in tune with transparency.  It must be done worldwide, but it would not be considered quite as radical as asset taxation.  Indeed, it is blatantly the fairest reform possible. 

Simply pass a universal world treaty declaring:

ownershipIf you own something, you must openly avow and say that you own it. 

That’s it. Any property that has not been claimed by a human being, family, or clearly tracked group of humans within three years will revert to the state and be re-sold to pay down the public debt.

Think about it.  What does “ownership” mean, if you are unwilling to state, openly, “I own that”?  So many problems in the world can be attributed to murky title, from peasants abused by a nearby lord to an oil tanker that befouled beaches in Brittany with no owner ever held accountable, because of deeply nested shell companies.

Indeed, no act could ever benefit small stockholders and market capitalism more than for shell corporations to be banned if they are more than three layers deep, forcing hidden puppeteers to come into the open. In other words, no object or land on Earth should be considered owned unless — just three or less layers down — you find real, accountable human beings.

Naturally, this reform-treaty would have immediate effects:

1) A whole lot of property would simply be abandoned by owners with murky, illicit or coerced title, or by those who acquired it inappropriately. Like drug lords. The immediate effect would be that one-time pay down of debts.  Indeed, by some estimates the pay down would be so great that tax rates could go down rather than up.  In other words, legitimate property owners should love this plan!

2) The second beneficiary would be many of the world’s poor, who would suddenly find themselves vested in land and goods that local lords did not want to publicly claim (for a wide variety of reasons.) Sure, there would be backhanded deals and many of those poor men and women would remain beholden under some degree of informal fealty-compulsion. Still, despite all the nods and winks and collusions, the fact remains; a whole lot of poor people will be better off than before. Especially if many nations respond by enacting reforms like those promoted by the great Hernando de Soto.

Transparent-Ownership-Treaty3) Okay okay. The third beneficiary group is obvious.  Lawyers.  Just openly declaring “I own that,” will result in plenty of other humans declaring “Oh no you don’t; that’s mine!”  The treaty would have to carry an accompanying onus for all nations to set up fair methods for arbitration of a tsunami of disputes.

And yes, libertarians and conservatives would be right to fear that — in some nations — a spirit of radical leveling might take advantage of this sudden transparency of ownership.  To which I respond… so?  Those who try to handle it smoothly and fairly will experience a burst in active market enterprise, as happened in Peru, when de Soto’s property vesting reforms took hold.

Those who cater to socialist mobs will experience a few years of recession… then human market forces will re-assert.  BFD.

4) We all would win, however, as capitalism starts to work much better!  As state taxation regimes that are based upon open and publicly accountable knowledge take over from murky cheating.  As Swiss-style banking secrecy is shattered and developing nations get back trillions stolen by kleptocrats.  As the theories of Smith and Hayek finally see fruition in an open system in which all of the players know most of what they need to know, in order to make good decisions.

Of course, any wealth tax would need a reform such as this to happen first, in order to work at all!  The irony being that, once this “I own that!” treaty was in play, the wealth tax would probably prove unnecessary at all.

== One more absolutely necessary tax ==

TransactionFeeTerminateOh… I’d also institute worldwide a very tiny, 0.1% financial instruments transaction fee.  It could save the human species from extinction and do more for our children than any other levy!

And you can read the reasons here.

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Optimists Rise Up!

Here is yet more news that shatters the cynical incantations and pat nostrums of  both the right and the left.  In April, the Development Committee of the World Bank set the goal of ending extreme poverty worldwide by the year 2030. Does that sound naive and delusionally utopian? Jeffrey Sachs in the New York Times shows a strong case that this goal can (roughly) be met and indeed is being met.

Optimists“According to the World Bank’s scorecard, the proportion of households in developing countries below the extreme-poverty line (now measured as $1.25 per person per day at international prices) has declined sharply, from 52 percent in 1980, to 43 percent in 1990, 34 percent in 1999, and 21 percent in 2010. Even sub-Saharan Africa, the region with the most recalcitrant poverty, is finally experiencing a notable decline, from 58 percent in 1999 to 49 percent in 2010.”

Sachs shows that “…anti-market sentiment is no friend of poverty reduction. But neither is free-market fundamentalism. Economic growth and poverty reduction can’t be achieved by free markets alone. Disease control, public education, infrastructure creation and protection, anti-monopoly market protection, the promotion of new science and technology, and protection of the natural environment are all public functions that must align with private market forces.”

Read this.  It supplements Steven Pinker’s work on the incredible decline in worldwide per-capita violence since 1945.  It shows what we might still accomplish, if vigorous, pragmatic and non-dogmatic ambition and goodwill take hold…

… and especially if we thwart the grouches and cynics of both right and left whose dyspeptic and demoralizing grumbles make them by far the worst enemies of humanity and Planet Earth.

Kennedy-Problems-of-the-worldAs President John F. Kennedy said: “The problems of the world cannot possibly be solved by skeptics or cynics, whose horizons are limited by the obvious realities. We need men who can dream of things that never were and ask, why not?”

To whom might I — and Kennedy — be referring?  Read a fascinating rumination about how “southern white notables”… the local white aristocracy across the U.S. South… is not only still fighting the Civil War, but has had winning strategies for most of the last 150 years — with a result that their region still lags bitterly in every metric of economic, social and personal health.

While combatting the current madness in that direction, remember. There were (and may again be) other enemies of the future like communists. Staring venomously in just one direction is blinkered and deliberate blindness. Sanity and adulthood — both wary and hopeful in all directions — are our hopes.

==The vanishing U.S. trade imbalance: what does it mean? ==

Want more optimism?

My friend the brilliant and popular economics-investment pundit John Mauldin publishes economics insights from what might be called an “Eisenhower Republican” perspective — rock-ribbed and skeptical of debt, but also well-distanced from the Murdochian Madness that has hijacked today’s GOP.  John’s latest report appraises how a combination of resurgent oil and gas production in the U.S., Obama Administration policies and a rapid return of high-tech manufacturing to U.S. shores, is already having huge effects upon the American balance of trade, a lingering deficit that has spanned a human lifetime.

HowAmericansSpentThemselvesA deficit that – by the way – I call deliberate, and one of the most important contributions of Pax Americana to world history. A deficit that propelled export driven growth across the world, uplifting generations first in war-torn Europe and Japan, then Taiwan, Korea, Singapore… and so on until U.S. trade is now the chief force lifting China and India at the same time.

Mauldin shows how the trade imbalance appears to be going away more rapidly than anyone expected: With the US current account deficit continuing its fall, we need to be alert for the next crisis abroad. It is very difficult to predict exactly when, where, and how markets will panic, but taking US dollars out of the trading system is akin to losing a chair in a game of musical chairs. Someone is going to be left out. It could be Europe or Japan –  but more likely it will be emerging-market countries loaded with a lot of external debt denominated in US dollars who struggle to keep a seat at the table.”

Another outcome. When the US is no longer shipping tsunamis of dollars overseas, the countries of Asia will need another currency to trade with each other.  China is already preparing to set up its renmimbi (yuan) as a new reserve currency to stand next to the dollar.  This will be accelerated, so long as China does not collapse because America is buying fewer Chinese goods.  It can get complicated. For example the impact any China slow-down is going to have on commodities like metals, on countries like Canada, on countries like Australia.

It probably is time for the development teat of U.S. trade deficits to start shutting down. It was fun, buying trillions of dollars worth of crap we never needed, so that manufacturing jobs would cycle through the planet leaving new middle classes rising in their wake. (Foreign aid via Walmart.)

But America needs to attend to finishing the latest outbreak of its ongoing (and psychotic) civil war — a task of self-purging and healing that’s going to take a while, before we can go back to helping move the world forward.

== Making optimism general and ongoing ==

SocialPyramidHow has our rare and unique Enlightenment – with its vibrant, win-win markets and democracy and science – managed to stay in business, given that human nature routinely seeks to destroy it? Across 99% of human history, the classic social pattern was a pyramid of power with a narrow owner-elite controlling teeming masses below them.  The classic Power Pyramid is clearly a stable system since it dominated everywhere that humans developed both farms and metals.  We are descended from the harems of guys who managed to pull off that trick. Human males are good at it and it should come as no surprise that they are always conspiring to bring it back.

Problem is: while the Power Pyramid may be “natural” to humans it also sucks at governance, at statecraft, at delivering peace, wealth, happiness, freedom, science or progress. We have six millennia of violent, horrifically stupid history that testifies to that pure and proved fact.

Our diamond-shaped society, with a dominant and confident Middle Class, is rare and (alas) not inherently stable, which is why earlier experiments failed.  It is, however, fabulously successful at creativity, wealth-generation, and fostering the spectacular positive sum games of democracy, science and competitive-open markets. No combination of human societies ever accomplished a fraction of what we have, with enlightenment methods, in just 200 years.  But in order to keep the experiment going, careful design and management and relentless fine-tuning have been required.

Adam_Smith_Wealth_of_NationsNumber one among those methods – as prescribed by Adam Smith and the American Founders – was divided power.  You sic the mighty against each other!  Break up monopolies and insist that companies fight it out in the market place with new goods and services, for example. That’s hard! So naturally, their CEOs try to collude and connive while strolling the golf course.  So we sic regulators on them, and lo!  They turn and use a myriad methods to “capture” the regulators… as happened when the railroads turned the old Interstate Commerce Commission into their own private brothel.

(Ironically, it was democrats who disbanded the ICC and the horrid old Civil Aeronautics Board (CAB) and who did every other major DE-regulation of the last century except in one industry.  Finance.  Republicans led the charge deregulating that area, for the simple reason that regulation of finance is desperately necessary to prevent massive raids on our economy.  And sure enough, major raids on the economy happened right after each of those GOP-led “deregulations.”

Which brings us to: Meet the Flexians: A new professional class of movers and shakers—people who serve overlapping roles in government, business, and media with smiling finesse—is controlling the flow of power and money in America.” See the article by Lisa Margonelli in Pacific Standard.

PredatorsParasitesScary huh?  To which I can only respond with “Um…. duh?”  Predators and parasites and oligarchs will use monumental cleverness to game any system – whether it is feudal or mercantilist or “communist” – and help pound the diamond into a pyramid of power and control.

We should not despair that clever people learn to game whatever system we create.  It is a good thing that our species creates clever individuals who are able to spot opportunities, form teams and compete well!  We must merely stop them from doing the toxic thing that such teams always did across six thousand years of wretched feudalism, conniving to CHEAT and prevent the competition from continuing!

“No, that is not how we will let you succeed,” we must tell them. “Go and innovate new goods and services. Compete with each other to manage creative enterprises without unfair advantages. You may not win by conniving our systems.”

Let’s take our example from professional sports.  Praise this year’s champions. Reward them with riches.  And break up concentrations of excess power so that the game continues to be interesting. Vibrant and fun.

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