By Sell on News, a macro equities analyst. Cross posted from MacroBusiness
The Euro crisis appears to be developing into something similar to the 1980s Latin American debt crisis when the idea that, to quote Walter Wriston, who ran First National City/ Citibank from the 1960s into the 1980s it was assumed that: “countries don’t go out of business.” The Latin American leadership demonstrated that they, in effect, could, by defaulting. As a number of bloggers at MacroBusiness have pointed out, government finances are not like household finances, although they are often seen that way. That much is well understood in the financial community, although perhaps not as well in the wider public.
What is not acknowledged in the financial community is the assumption implicit in Wriston’s comment: that governments can be seen like a business. It is the conflation of the two that is at the heart of the growing problems in the financial system, and it is driven mainly by political prejudice. The political right, ever since Ronald Reagan, has identified government as the “problem”. A slippery piece of rhetoric because surely it is “bad government that is the problem.” But it became a carefully crafted and heavily funded message that has eventually become ubiquitous — its reductio ad absurdum is the Tea Party movement. Business good, government bad. Ergo, government should become more like business. The centre left, especially fools like Tony Blair, enthusiastically embraced the idea that government should become more like business, ending up with current day absurdities such as seeing students in the education system as “customers” (absurd because these customers, by definition, do not know what value is, unlike normal business transactions).
That is the nonsense we now live in and it is the key to why governments have abrogated their responsibility to govern in the financial system. Financial deregulation was really the ceding of governments’ responsibility to set the rules, handing it over to traders, who set their own rules. “Greedism” as Paul Krugman puts it, took over.
So, to return to the Euro crisis, viewed through a longer lens the current instability is related to this conflation of government and business, the emergence of what Phillip Bobbitt in “The Shield of Achilles” calls the “market state”. The Economist described the Euro’s travails thus:
An alternative diagnosis explains the continuing chaos by pointing out that an implicit assumption behind Europe’s financial integration—that sovereign debt was risk-free—has been overturned, and no one knows what to assume instead.
The euro project was founded on a rule that there would be “no bail-outs” of governments’ debt. But, as an analysis by Peter Boone and Simon Johnson of the Peterson Institute points out, its financial plumbing developed in a way that suggested the opposite. Initially the ECB treated all sovereign bonds equally. Even when it decided to take credit ratings into account, the ECB’s practices discouraged banks from clear distinctions between sovereign bonds.
Yes, we are back with Wriston’s “governments don’t go out of business”. But of course, they are not in business, ever. And they can become insolvent.
My suspicion is that we are at a turning point in this long period of a priori demonisation of government. It is true that the anti-government argument was not without its merits, especially when seen in historical context of high levels of state control. Having no government is often better than bad government. Legislation and regulation is frequently counter productive. Incentives in private organisations are often clearer than in public organisations, lending the former a certain efficiency, at least some of the time (although, as we have seen, these private incentive methods can be easily corrupted).
The problem was the exaggeration. Business is not essentially “good”, nor government “bad”. For one thing, businesses routinely fail to last. Governments must last. In an area like infrastructure, which needs to last many decades, using businesses, most of which will fail in under ten years, is asking for trouble.
The malign effects of the exaggeration become most obvious in the financial system, where governments must govern. Finance is rules, governments must rule. But the rulers have left the building and those who should be ruled, the private players, have been allowed to set their own rules. Krugman and Robin Wells, in a review of a book “Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, by Jeff Madrick” (Knopf) describe how Milton Friedman popularised the anti-government mantra:
In Friedman’s worldview, free markets were the solution to practically every problem – health care, product safety, bank regulation, financial speculation and so on. And Friedman squarely blamed government for the Great Depression, a view that is at odds with the data. (Although it is almost certainly true that mistakes by the Fed made the situation worse.) As Madrick quotes him, “The Great Depression, like most other periods of severe unemployment, was produced by government management rather than by inherent instability of the private economy.” Replace “Great Depression” with “the financial crisis and its aftermath,” and it could be US house of representatives speaker, John Boehner, today, rather than Friedman in 1962, speaking these words. Like Reagan, Friedman proclaimed a creed of greedism (our term) – that unchecked self-interest furthers the common good.
That is the problem, Krugman and Wells ask why it was allowed to occur:
There are a lot of villains in this story – so many that by the end of the book we were, frankly, suffering from a bit of outrage fatigue. But why have villains triumphed so repeatedly?
The proximate answer, clearly, is the abdication of regulatory oversight. From junk bonds to derivatives to sub-prime mortgages, regulators either turned a blind eye or were impeded by business interests and politicians – Democrat as well as Republican. Undoubtedly the most outrageous act – and the most economically damaging to the country – was Greenspan’s refusal to use regulatory powers at his disposal to rein in the exploding subprime market, despite being warned repeatedly that a catastrophe was brewing. Like Reagan and Friedman, Greenspan firmly believed in greedism; in his view, the financial markets could do no wrong.
Yet if the problem was lack of oversight, that leads to another question: Why did the regulators abdicate – and keep abdicating despite repeated financial disasters? This is perhaps the most frustrating aspect of Madrick’s otherwise excellent book: we get a lot of the what, but not much of the why. Madrick’s character-centred narrative makes it seem as if the triumph of greed was the result of a series of contingent events: the inflation of the 1970s, the exploitation of that inflation by Reagan and Friedman, the wheeling and dealing of the likes of Sandy Weill, and the diffidence of Jimmy Carter and Bill Clinton. Yet surely there must have been deeper forces at work.
Krugman and Wells go for a political explanation, for which there may be some merit, although one senses it is a bit irrelevant:
We have argued elsewhere (and are not unique in doing so) that white backlash – especially Southern white backlash – against the civil rights movement transformed American politics, creating the opportunity for a major push to undermine the New Deal. Also, it’s hard to make sense of the growing ability of bankers to get the rules rewritten in their favour without talking about the role of money in politics, and how that role has metastasised over the past 30 years. There’s another book to be written here – perhaps less personality-centred and hence less entertaining than Madrick’s, but one that gets at the forces that made the reign of financial villains possible.
Whatever the deeper story, however, Madrick’s subtitle gets it right: what we have experienced is, in a very real sense, the triumph of Wall Street and the decline of America. Despite what some academics (primarily in business schools) claimed, the vast sums of money channelled through Wall Street did not improve America’s productive capacity by “efficiently allocating capital to its best use”. Instead, it diminished the country’s productivity by directing capital on the basis of financial chicanery, outrageous compensation packages and bubble-infected stock price valuations.
My suspicion is that it has mainly been intellectual fashion, fanned with the backing of any number of corporate backed think tanks spewing out “research” that was anything but real research; rather pro-business propaganda. A sort of flat earthism, helped by some unsavoury support from those who benefit the most. But in the end its supreme illogic is catching up with it. When the contradictions of greedism only affected peripheral economies, such as Latin America and Asia, then those “other countries” could safely be blamed. But now it is affecting the major developed economies of Europe and the US, and it is becoming harder to avoid the obvious conclusion. It is not a choice between no government or bad government. It is a choice between bad government or good government.
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Doesn’t this tie back to the whole requirement for funds like Calpers to invest only in AAA rated investments, and that the AAA has to come from a NRSRO? If the investors were required to pay for their analysis, as opposed to getting the ones created by the agencies on behalf of the bonds/futures issuers, this might be less of an issue?
That’s one big mistake of many. Governments, usually (maybe “always” in the last 30 years) at the behest of established financial interests, introduced either one design error or removed one firewall at a time. Hardly anyone in power was interested in reviewing the system holistically. Last time that happened was in the early 1930’s.
“fools like Tony Blair” four tiny words I’d like to sprinkle like pepper and salt over all my readings.
Hear, hear! I always prefer it spelt “Tony Bliar.
Tony Blair might be a lot of things, a dreadful knave for one, but he is no fool:
http://www.guardian.co.uk/politics/2011/sep/24/tony-blair-mark-labovitch-resignation
I agree. Four better words might be “Criminals like Tony Blair.”
good government not possible without campaign contribution reform
and lobby reform
Lobby reform is a great idea. Im amazed that Congressmen who supposedly work for “us”, routinely ignore us. They choose who gets their ear, and those tend to be the ones that contribute to their election campaigns at best, and raise the anti with sweet heart investment deals or outright bribes at worst. They take poor advise from corporate lobbyists not only because the lobbyist deliver campaign funds, but also because most congressmen haven’t a clue about economics.
Interestingly, most businessmen don’t have a clue about economics either. They only know whats “economically” good for their own industries. We teach Economics in one school and Business in another for a reason.
How about a new requirement that for every minute they spend with a paid lobbyist, they be required to spend 5 minutes with Joe Bloe? In the end, the problem with Congress is the same problem we have with industry. They write their own rules directly or via proxy.
Lobbying for cash (bribery) should be outlawed outright, but good luck in getting them to cut off their own gravy train. That is why WE THE PEOPLE need to have general strikes.
My personal choice would be 24×7 live stream of all congresscritters ala The Truman Show.
And reform of the usage of “reform”
I agree that government’s role should be identified differently than a business, but also has responsibilities. If regulators were not doing their job then what we were paying them for? It’s not just greed, its the rule of law which was not followed. Like in previous articles, debt has run its course and we have to settle into what is affordable for all. Debt jubilee for all not just business but all, and start from a new beginning. Yes bondholders and investors take a haircut but then so does everyone. Greed is just one component not the only one.
Certainly one cause of the current problems in the United States is the breathtaking abandonment of the rule of law that has taken place in the last 30 years. Not for everybody, of course. After all, we have more of our people in prison than any other country in the world, over three million. But for the wealthy, or for government officials, the laws have simply been suspended, ignored. The original FISA Act provided a five year imprisonment as punishment for violations. Is Bush in prison? The head of NSA? Thomas Paine pointed out that laws without punishments are simply recommendations or preferences. We know there was massive fraud throughout the run-up to the financial crisis. The FBI reported to Congress in 2004 that there was an “epidemic” of fraud, so it started well before then. Has any executive of a bank been prosecuted, much less convicted? Think Angelo Mozillo. Angelo has friends.
If Europe’s travails were the result of “too little government”, then the tedious Milton Friedman/Tea-Party blather in this post might make sense.
But the problems in Europe are NOT the result of “too little government”. And there’s no way you can make that claim with any shred of credibility.
It’s not the fault of Friedman and Tea-Partiers that the Central Government of Europe deluded itself into thinking that it could simultaneously expand its sphere, while becoming more “business-like”.
Libertarians have never argued that “Business is Good; Government is Bad. Thus, if Government morphs into business…this will be good.”
“Sell-On-News” is the one doing the distorting.
The stupidity of central governments pretending to be businesses–while growing in size, scope and influence– is not the fault of either pro-business interests or Libertarians. It’s the sole and exclusive fault of The Government.
If you don’t want The Central Government engaging in such idiocy then shrink the Stupid Central Government.
A smaller Central Government, then, will not have to justify itself. It won’t have to demand more and more tax money under the auspices that it “really is an efficient corporate-like enterprise.”
A smaller Central Government–with a tight focus–can actually have regulators that regulate. It can actually build and maintain the infrastructure. It can actually have a Defense Department that exists for one purpose: To Defend.
Obviously, a smaller government will not solve all our problems. But at least it won’t have to pretend that it will.
>> Libertarians have never argued that “Business is Good; Government is Bad.”
Really? I hear this all the time.
>> is not the fault of either pro-business interests or Libertarians. It’s the sole and exclusive fault of The Government.
Do you mean industry lobbyists haven’t paid government to pass legislation favorable to them? The Koch brothers don’t contribute to “libertarian” think tanks that convince “useful idiots” to fight government regulation in the name of liberty? Wow. What drugs must I be on to make me hallucinate and see relationships you don’t??!
…
Dan, as our observations differ, then our “reasoning” and conclusions most certainly will as well.
Face it, Dan, libertarians live in a ‘what if’ world that simply can’t be reconciled with reality. If govt is shrunk to the size of a bathtub, what prevents the preditors from being all that’s left in the tub? I have never seen an iota of data from any libertarian that “smaller government” will reduce the criminality in govt.
This is completely wrong. You believe in some sort of fantasy Europe. Europe has its anti-government libertarian types, like the German FDP that is part of the current ruling coalition. Europe famously has weaker financial regulations than the US — before the crisis people used to argue this was one of the US’s competitive advantages. Europe has bigger, more out of control banks. France’s banks, for example, are essentially completely unregulated.
I dunno, last I checked even the European version of a libertarian is a lot more moderated than the average frustrated American version.
For instance, no serious German politician is calling for the dismantling of German State Health Ministry. That would be political suicide.
In part this is because of the demographics of German voters, but also because while German state instiutions may be expensive, cumbersome, all-powerful, bureaucratic and inflexible, Germans like their government that way, and German state institutions do generally perform as advertised.
I should add that you are largely correct as regards financial regulation. In part this is because share ownership is seen as something for sophisticated investors; mom-and-pop savers just plunk their money into savings accounts.
For instance, capital requirements are much lower in Europe, and restrictions on rehypothecation of securities laregly absent. Oh, how the mioney center banks screamed about those!
Legislation and regulation is frequently counter productive. Incentives in private organisations are often clearer than in public organisations, lending the former a certain efficiency, at least some of the time (although, as we have seen, these private incentive methods can be easily corrupted). SellonNews
Our problem in the US is that we have attempted to regulate an inherently dishonest business – “fractional reserve” banking. And though usury is not forbidden in the Bible, collecting it from fellow countrymen is.
I agree with the author that government is due for a resurgence. But let’s do it right this time. Instead of “reforming” the government backed banking system, let’s abolish it with extreme prejudice. Let’s call banking what it is – wicked – and shun it except to punish it severely for fraud and insolvency.
Can the free market thrive without a government enforced counterfeiting cartel? Of course it can or it is incompetent in aggregate which we know is not true.
“Can the free market thrive without a government enforced counterfeiting cartel? Of course it can or it is incompetent in aggregate which we know is not true.”
Oh, dear. You know, we have historical records going back at least 5,000 years, although farther back they are less than complete. The earliest written records we have are of business transactions. We can determine that that long ago one of the most important functions of government was to regulate business. The laws of Hammurabi specify weights and measures to be used, and there were inspectors in the markets to make sure people were not using phoney weights and measures. Why? Because it is in the nature of business to try to cheat their customers. Since people knew that at least 5,000 years ago we can be pretty sure they learned it through bitter experience millenia before we have any written records. Why have so many people in the modern age forgotten what the rulers of Ur knew?
We can determine that that long ago one of the most important functions of government was to regulate business. Procopius
Through government, the banks have achieved a monopoly in private money creation – one based on counterfeiting (so-called “credit” creation) and usury. Both are highly problematic both morally and economically.
So how does one regulate theft? “This much thou may steal but no more”?
Because it is in the nature of business to try to cheat their customers. Procopius
It is the nature of competition to maximize customer satisfaction and minimize cheating.
Oddly enough, “This much may thou steal but no more” has worked very well throughout history for maintaining a relative degree of social calm.
I notice a fleeting mention of the word infrastructure here. This is perhaps a subconscious acknowledgment that there is a world of difference between the monetary economy and the physical economy. It is quite true that the acolytes of Greenspan such as Phil Gramm and his rather loutish epigone (if that were possible) Rick Perry like to drone on with their sophistical “horse sense” bilge about the family budget at the dinner table being just like government.
The problem is that unless you start from the recognition that the role of government, exclusive to the constitutional system of the United States, is “to provide for the general welfare” and work your way back from there, your mentality becomes enmired by the taint of the false belief that somehow monetary values are real. This failing perfectly captures the false reasoning of the likes of Mr Krugman that monetary stimulus is the solution.
Currently, we have a mass of illegitimate debt created out of thin air by so called financial houses. In a bygone era, we outlawed the practice known as “bucket shops.” Today, the so-called “shadow economy” of too big to fail speculators is with their quadrillions of derivative products created by autistic “quants” is nothing but a farcical and tragic repeat of those bucket shops.
(Then there is another childish variation of monetarism, hardly worth mentioning, that holds that gold as a physical substance is the source of wealth.)
The plain truth is that if the education system in this great land of ours were to simply instruct our students how Alexander Hamilton established a First National Bank that successfully rescued us from an untenable morass of debt, we would not be engrossed in such dead end “debates.”
Hamilton directly and forcefully refuted Adam Smith’s Wealth of Nations in his Report to Congress on the Subject of Manufactures. Smith’s rehashing of the Physiocratic dogma that the bounty of nature is wealth with the mantra of ‘buy cheap, sell dear” was nothing more than a celebrated apology for the evil of the looting colonial heist known as the East Indies Company.
Where did Hamilton locate in that document the source of wealth? In the ability of mankind to improve upon the “bounty” of nature by applying technological advances to manufacturing useful goods. This was strictly in keeping with Benjamin Franklin’s motivation for the development of the use of paper currency, that was taken up by the use of the Pine Tree Shilling by the Massachusetts Bay Charter. Thus, the role of government is to regulate credit to secure improvements that benefit the physical well being of future generations.
Today we must reenact the Glass Steagall regulatory principle of the separation of depository institutions that serve the common good from the marauding investment houses that act to the opposite effect. Next the fictitious derivatives must go the way of the Dodo. Finally, we must use the levers of public credit precisely in the way that Alexander Hamilton did when he almost single-handedly rescued an unique experiment in self government from the brink of ruin. The way forward is to establish government backed credit for multi-generational great projects that will produce such benefits.
Thus, the role of government is to regulate credit to secure improvements that benefit the physical well being of future generations. Thingumbobesquire
Impossible. So-called “credit” is a means by which some, the so-called “credit-worthy”, steal purchasing power from everyone else. Can an economy based on theft truly prosper?
Let the government create, spend and tax its own fiat as desired but it should not be in the money borrowing or lending business or attempt to regulate it except to punish fraud and insolvency.
(Then there is another childish variation of monetarism, hardly worth mentioning, that holds that gold as a physical substance is the source of wealth.)
So you think private money supplies require gold? So our only choices are between crooked or stupid? Common stock, for example, is an ideal, ethical private money form that is typically backed by performing assets.
So-called “credit” is also backed by (hopefully) performing assets but the profits are reserved for the banks and the borrowers (if they are lucky) at the expense of the money users. Credit is thus a thieving form of asset backed money.
Your dislike for credit as a form of robbery is the misguided belief that there is only so much “stuff” in the world to be had. A “zero sum game,” if you will. The expansion both quantitatively and qualitatively of physical wealth via technology is the solution to the wretched “life boat” economics that both Obama and Boehner are engaged in.
Your dislike for credit as a form of robbery is the misguided belief that there is only so much “stuff” in the world to be had. A “zero sum game,” if you will. Thingumbobesquire
Wrong. I realize that the stolen purchasing power has been used to create a form of prosperity. And asset-backed money is a brilliant invention. However there is ethical asset-backed money – common stock – and thieving asset-backed money – so-called “credit”.
Imagine a US where corporations, for lack of a government enforced “credit” cartel to borrow from, had been forced to pay their workers with common stock. Would we have had labor problems? Would unemployment matter so much? Would not the workers profit from outsourcing and automation?
If I understand F. Beard’s position, he is against debt-based money and sees it as an essentially rent-based system. Certain entities (i.e. banks) have the power to conjure money out of nothing by extending credit–then they collect their rent (i.e interest).
He is for asset-backed money, like the gold standard, but this asset should be a productive asset like stock.
Seems to make a lot of sense on the face of it.
He is for asset-backed money, like the gold standard, but this asset should be a productive asset like stock. Sauron
Close. The money would not be backed by common stock (except in the case of a holding company) but would be common stock.
Common stock as money avoids all the ethical problems of “credit” but retains the brilliant concept of asset-backed money.
At the risk of boring via repetition:
1) Common stock as money requires no borrowing or lending. Assets and labor would simply be bought with new stock issue. Thus no PMs, usury, or fractional reserves are required. This is a huge benefit since PMs, usury (see Deuteronomy 23:19-20) and fractional reserves are all problematic.
2) All price inflation is born by the owners of the corporation since every receiver of the new common stock money is by definition a part owner of the corporation. This is an important moral consideration.
3) Without fractional reserves or even lending, then deflation is not a serious threat.
4) Since all money holders are part owners of the corporation then they could vote on how much new money is issued and for what purposes. Thus price inflation is under the control of only those affected by it.
5) The assets of a corporation are typically performing assets though PMs could easily be accommodated too (for dealing with primitives).
6) Common stock as money shares wealth at the same times as it consolidates it for purposes of economies of scale. Labor problems should be non-existent since the workers would be paid in common stock and thus be part owners. The number of those with a stake in capitalism would increase. The need and desire for socialism should decrease.
If we are willing to abandon our fascist money system then we can have the wealth and creativity of a free market without harmful wealth and power concentration.
How do we nullify all of the derivative contracts?
Declare them so.
«How do we nullify all of the derivative contracts?»
One of the critical and little known details of the Brooksley Born/CFC story and derivatives deregulation is that the law passed by Congress exempted derivatives from gambling legislation (and IIRC from insurance legislation too).
One way to get the derivatives is to make them obligations in honor only because they are gambling debts, that is not enforceable in court.
Sounds like a great idea.
“The way forward is to establish government backed credit for multi-generational great projects that will produce such benefits.”
Yes, I’ve noticed this small discrepancy between Hamilton and Robert Rubin’s so-called “Hamilton Group,” with regard to investment in the real economy.
So, the pro-financialization speculator Rubin did to Hamilton what (in a nutshell) anti-regulation Friedman did to anti-monopoly Adam Smith? Have we identified a pattern of subterfuge here?
I doubt that there is a choice. Also Krugman’s favorite “abdication of regulatory oversight” stance is simply naive.
In 70th the USA run into serious problems and hypertrofied growth of financial sector was an answer to those problems. As manufacturing started to decline, financial capital came as a new engine of growth. That’s why it was allowed to became dominant force (and this transformation was not without the help of the government; actually it was started by a democrat — Carter). In got in trouble in late 80th, but the dissolution of the USSR prolonged this period for twenty years. Only now chichens start coming home.
As for “abdication of regulatory oversight” stance, it is simply naive as financial capitalism is incompatible with New Deal, so New Deal was abolished and it was abilished with full support of goverment. So there is no any will for regulation as long as we bet on financial capital as the engine of growth.
So this “abdication of responsibility” (aka “giveng banks a free hand”) was only logical. To scream about it as great injustice ignores the sad fact about the bet the country made.
Yes it was and is injustice, but simultaneously it was a logical development, a forced choice due to stagnation/difficulties of manufacturing which in 70th seized to be the engine of growth in view of international competition. Golden age after WWII when main competitors were in ruins ended , countries rebuilt themselves and traditional competitors (Germany and Japan) reappeared as a threats to the USA manufacturing again. Later a new competitors appeared (Korea and China). Also collapse of the USSR had given casino capitalism tremendous boot both ideologically and economically (dollarization of huge, rich region with half-billion people).
It is also important to understand that this “greed is good” smokescreen is part of the ideology of financial capitalism and as such it does not need to be true. It just need to be useful. As long as people can be brainwashed with it, it is useful. I dount that Friedman himself beleaved in this nonsence. He was just a hired gun and wanted money and nothing but money for the services. But as much of Friedman was a corrupt academician at the service of financial oligarchy, he was a talanted writer who managed to contribute substantially to the polishing of this ideology and providing it with some additional punch.
In a way it is similar to classic totalitarian states were brainwashed with the particular governing ideology. Some people call this “inverted totalitarism”.
But again, as soon as finance became more profitable then manufacturing there was a writing on the wall: money start flowing to finance and casino capitalism is coming. Some people understood this in 70th John K. Galbraith, Susan Strange( http://en.wikipedia.org/wiki/Susan_Strange)
So if we assume that the financial capitalism (casino capitalism) is a logical stage of development of capitalism the assessment of the situation changes. In no way better regulation is possible in those cercumstances, as this means its dismounting. Such dismounting is inevitable probably will happen much later. As far as I can tell this stage of capitalism is still close to a zenith (which probably happened in 1991) and might last another dcade or two.
In any case the truth is that the government is now first and foremost is an agency of financial capital in Washington and it is banks who dictates the rules. As senator Durbin quipped “Banks are pretty much owns the place”. This is pretty visible in Obama administration. BTW.
Hopefully it is not the last stage. It would be interesting to see what is coming after it. And it might be something much worse, not better as resource constrains now paly important role in shaping the future. But I suspect that we will not leave that long.
I think you might be cutting us too much slack, Kiev. Actually our economic problems started immediately after WWII. Truman agonized about the recession in 1948 and wanted to get us out of Korea. Eisenhower did his best to keep us out of war. Even so our capitalism could not compete. In 1954, the rumor goes, Fort Knox was empty. We had paid out all our gold on balance of trade settlements. I don’t know how true that is, but I tend to believe it. So what did the Washington elite do besides put commie spies to death? They threw a big party and called it the “Bankruptcy Ball.” And life went on. No, it definitely didn’t start in the 70s. But by then we were well on our way. It is just that nobody ever knew where to.
It’s probably best to look for actual information rather than consider ‘rumors’. The Gold Reserves have never gone to zero and especially not in the 50s that you mention.
http://www.financialgraphart.com/history_of_fed_free.pdf
(bright yellow band [E] in the wrap around time line)
Our situation is we have a pseudo free market that generates a form of prosperity (cheap consumer goods) and a large, inefficient government to deal with the problems that pseudo free market causes.
Most engineers would snort in contempt at such a system were they capable of believing something so dishonest could exist.
We need another Roosevelt. Those of us who are old enough to have talked to our elders who lived those time 80 years ago, come away with absolute love they had for this President who saved the country by standing up to corporate power.
They elected him four times for Christ’s sakes! And here we are today, back in the same place where all the crap began and with no around who can stand up and take on the thieves and liars and put them in their place. Oh, and by the way, Roosevelt fought a huge war and hated every minute of it. Today, war is one of the cornerstones of our economy. Man, are we screwed and tattooed.
Here is a good historical analysis of the development of finance capitalism over the last many decades.
http://monthlyreview.org/2007/04/01/the-financialization-of-capitalism
Financialization and the expansion of debt developed in response to economic stagnation, itself best understood within the context of the contradictions of capital accumulation.
Don,
Yes this is a better summary then my post with all its spelling errors. Here is a relevant quote:
Stagnation and enormous financial speculation emerged as symbiotic aspects of the same deep-seated, irreversible economic impasse.
This symbiosis had three crucial aspects:
(1) The stagnation of the underlying economy meant that capitalists were increasingly dependent on the growth of finance to preserve and enlarge their money capital.
(2) The financial superstructure of the capitalist economy could not expand entirely independently of its base in the underlying productive economy—hence the bursting of speculative bubbles was a recurrent and growing problem.15
(3) Financialization, no matter how far it extended, could never overcome stagnation within production.
While “financialization has become a permanent structural necessity of the stagnation-prone economy” an important point is that financiazation “could never overcome the stagnation with production” and thus is a temporary (althouth long lasting) phenomena.
As “rapid increases in inequality have become built-in necessities of the monopoly-finance capital phase of the system” the future does not look too bright. Politico-economic conditions might became even more unfavorable for labor. Repressive apparatus and ideolocal brainwashing are too strong to mount effective resistance.
Thanks for the link!
The reverse is also true. We need to distinguish between bad private sector behaviour (speculation, rent-seeking) and good. All private sector economic activity is not created equal.
It’s almost like policy makers might have to think pragmatically, rather than relying on ideology. Radical stuff, I know.
Government as the monopoly of power, in Western Civilization has been overturned by the private business interests of capitalism. The market is so unregulated, that it has grown to assume enough political power to challenge the state’s capacity to regulate it and the networks and organizations of people benefiting from the wealth creation machine of the market. The market does not serve the state, the social order which created it, or the majority of the people who labor for it. And now, it is remaking the state as an ancillary stream of profits, unfettered by any other mandate than higher returns on investment.
In China, by contrast, historically, as too much power developed as a result of the wealth accumulation of the merchants, and trading, and financing networks, the state, restricted further accumulation of power by restricting trade and regulating the market. China has had hundreds and even thousands of years of dealing with the market. It knows what it can produce and instead of letting it go off on its own to its logical conclusion, it holds onto the monopoly of power and puts the market in the service of the state, to support the whole social order, not just selective privileged segments of society.
Everyone with eyes can see that the greed of the select few is concentration wealth and power to the detriment of the whole of society and may even bring down our economy and position in the world by undermining the platform of power, the prosperity of the people of America as an affluent middle class society. Just as other nations are turning around from abject poverty and moving boldly to enrich their whole society, we are creating a domestic crucible of political unrest that will end badly for us all.
Good government, bad government, or no government is not the question – The question is, Can business replace government by business governing through political fiat?
Obviously and tragically no, but, once unfettered self-interest greed disguised as Free Market Capitalism takes control, there is no peaceful political resolution.
A protective fascist like defense system has metastasized and encapsulated itself with corporate controlled media managing perceptions, and Frankenstein think tanks intellectually justifying misdeeds, while politics mandates obedience.
The situation today does not bode well for the future of the majority of sleepwalkers or those few malcontents sensitive to social injustice.
“governments don’t go out of business”
Yes and no.
Governments can be put out of business and other governments put in their place. That wretched period called “The Banana Wars” in Central America was to protect the House of Morgan as much as any other “American interest.” In its essence, the US Military was used to enforce financial agreements on local populations.
US Marine Gen Smedley Butler’s summation of his career?
http://en.wikipedia.org/wiki/War_is_a_Racket
Perhaps Europe needs a Roosevelt as well, to declare a Good Neighbor Policy for the continent.
Would the Greek Police and army collaborate with NATO if they declared a Greek default aggression against Europe? Stranger things have happened, and people with a little position do like to be on the winning side. The Irish government has already become a colony to the ECB, and has turned to picking on the Catholic Church to cover it up.
http://en.wikipedia.org/wiki/Banana_wars
Just to correct what you said about Ireland, the Catholic Church committed appalling and systematic abuse of children in Ireland for over 100 years continuing to the present day. The government (under *all* administrations) actually helped them cover it up, too, but so many damning reports have come out that they’re frantically trying to distance themselves now.
It’s not a distraction, it’s just a separate and simultaneous crisis of legitimacy. I think the Irish can deal with two things at once.
“”Undoubtedly the most outrageous act – and the most economically damaging to the country – was Greenspan’s refusal to use regulatory powers at his disposal to rein in the exploding subprime market, […]””
Surely the subprime market was the chief thing keeping the consumer economy afloat by that time. Reining it in would have made America face the raw truth 10 or 20 years sooner — and who wants that?
“the vast sums of money channelled through Wall Street did not improve America’s productive capacity by “efficiently allocating capital to its best use”. Instead, it diminished the country’s productivity by directing capital on the basis of financial chicanery, outrageous compensation packages and bubble-infected stock price valuations.”
That was made plain to me when I read _Chainsaw_, by John A. Byrne. It chronicled how the Sunbeam Corporation was taken out of business not because it wasn’t innovative, or because it wasn’t profitable, but because some people on Long Island wanted to goose the ROI.
“America; What Went Wrong?” by Bartlett and Steele (1992) is an excellent study of the 1980s and the Barbarians at the Gate who took over companies, stripped them of their assets and ran off leaving misery behind. They are Philly newspaper reporters who won a Pulitizer.
Wasn’t it that lovely Al ‘Chainsaw’ Dunlap who ran Sunbeam into the ground? One of those rugged user-pays gubmint-hating individualists who had been educated on the government dime?
His Wiki page has an interesting tidbit in light of a recent post here on the successful psycopaths who rule us:
‘On May 27, 2011 Dunlap was featured in a segment on Public Radio International’s radio show This American Life as part of a study on psychopathy. The journalist Jon Ronson, author of the book The Psychopath Test, recounted an interview he did with Dunlap where he asked Dunlap whether he fit the characteristics of a psychopath. According to Ronson, Dunlap freely admitted to possessing many of the traits of a psychopath, but he re-cast these as positive traits such as leadership and decisiveness’
Yes indeed. Al Dunlap it was. IIRC the book makes a brief mention of the people who set him up there.
I read lately the test for psychopathy: if the people are accomplishing things, they’re working for a leader. If everybody except the boss is continually screwing up, they’re working for a psychopath.
When searching for the origins/emergence of the market-state it seems necessary to focus on a much earlier historical period than the 1970s.
Bobbit does a nice job in distinguishing the market-state from the princely state, the kingly state, and the nation-state but,to me, he fails to account for the impact of the “disembedded” market on state formation.
Rudolf Hilferding in “Finance Capital: A Study of the Late Phase of Capitalist Development,” and the writings of Polyani and Braudel tend to show how a fusion of markets and state intervention transformed a more competitive capitalism into a more monopolic and cartelized “finance capitalism” in Germany and in the Austro-Hungarian empire and elsewhere in the West by the mid-19th century.
These three writers show fairly graphically how traditional economies(composed of agriculture, local manufacturing and industry) had regional, national and global layers built on top(with a disembodied global finance seeking returns everywhere). The financial crises of the 1870s and the subsequent Great Depression of 1873-1896 underscore the dependency a major streams of economic activity on global finance already at the end of the 19th century.
I would argue that the second half of the 19th century cemented the growing convergence of politics and economics which then led to the emergence of the market-state(see especially British Victorian politics which expanded the frontiers of both the central state and the “free market)
Today we face a situation where the logic of both the market and the state rein over what is left of community life.
Dear Dan D,
Oops, I’ll try again. Dan D, the problems in the European banking system come from them getting involved in the nonsense that led to the GFC (sub prime etc). As I suggest, such “financial innovation” was really traders and private firms making up their own rules. Then, when everything went wrong, as was inevitable, they went to governments to bail them out (i.e they expect government to reimpose rules on their behalf because their own rule making has run into a wall). Now what we are seeing is bad, or ineffective, government from the European authorities. It seems like the same no-government/bad-government dichotomy to me, even if its origins weren’t mainly European.