By Sell on News, a global macro equities analyst. Cross-posted from Macrobusiness.
In the movie Margin Call, which is broadly about the financial crisis and the insidiousness of the financial sector, one of the characters laments about how he used to be an engineer who did useful things like build bridges (he calculates that one he built saved people thousands of years of travel time). But of course the money was better in finance. An angst about people who do useful things and financial people who just feed off everyone else, runs through the whole film. It is a neat reflection of a serious problem at the heart of the post-industrial, globalised system we are creating, which is causing serious imbalances between capital and labour and weakening middle classes in the developed world.
A recent article in The Economist noted that past four years have been bad for workers and savers but good for the corporate sector. Profit margins in America are higher than at any time in the past 65 years, which it said partly explains why the equity market has rebounded so strongly despite a lacklustre economy. The question is why aren’t cashed up corporations investing, especially in putting on workers?
The answer, or at least one answer, is that an implicit compact between capital and labour has been broken in developed economies; a compact that said we have to pay our workers a decent wage so that they buy our stuff. The globalisation of labour means that firms can choose not to pay middle class wages at least for some parts of their operations — so of course that is what they choose to do.
But the systemic cost is that demand in developed economies weakens and the incomes of those in developing economies are not high enough to take up the slack. Witness the attempts to make Chinese consumers consume more. It hasn’t worked, partly because they need to save for health and education, but also because they simply do not have the discretionary income to afford it. This is the hidden cost of the race to the bottom on wages. The Economist article describes a somewhat dangerous balance of capital and labour (cheap wages are the reason margins have risen):
Margins have been boosted by firms’ tight control of labour costs and by a reduction in interest expenses caused by the policies of central banks throughout the rich world. Whether such margins can be sustained is important for equities. Most stockmarket bulls build their case on the trailing price-earnings ratio for the S&P 500, which stands at 16. But there is a warning sign in the cyclically-adjusted p/e (which averages profits over ten years). At 22, this ratio is well above the historic mean, making the market look a lot less attractive.
The balance between capital and labour is typically seen as a contest between a thing (capital) and an act (labour). If one follows the metaphors, the thing (capital) is seen as more substantial and invariant. The act (labour) is seen as negotiable, movable — and dispensable.
The impression created by this language is false. Money is a social artifice, the outcome of what people (bankers, financiers) do. What is important about labour is what it leads to. What people (managers, workers) do. Their industrial output. Thus both capital and labour are, in the end, acts.
What has happened with the financialisation of developed economies is to say that one type of act: the creation of financial transactions, is intrinsically superior and worth more than other types of acts, the various forms of industrial output. Such as building bridges, for instance. Now why is one type of act seen as so much more worthwhile and valuable? As the billionaire in Margin Call, played by a rather sinister Jeremy Irons, says: “We are just salesmen.” It is true, that is what most financial players are. Usually they are selling the notion that they have some sort of superior insight when of course they cannot. They just are selling the appearance that they understand a system that in truth no-one understands, not least because the system is itself made up of the various opinions people have about it. It is a disappearing point. Financial gurus tend to be charlatans when they claim to have anything more than common sense.
So what does this imbalance between capital and labour say about us? One conclusion is that we have let the rules we have created rule us. The machinery we have created now runs us.
Finance is just rules. We have let those who exploit those rules become the rulers, partly because governments have decided to stop governing in the financial arena. It leaves us with this question. Why do people who play with numbers on a screen in an endless game of manipulation get so much greater rewards than people who do useful things like build bridges, or teach or care for the sick? It is a value system that reveals a dispiriting passivity, especially when it is obvious that if you give up your destiny to the logic of a system that you have created, you risk something worse than what happened in the GFC.
NOTE Lambert here. Sell on New’s “finance is just rules,” reminds me of David Graeber’s “debt is just a promise.”
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and by a reduction in interest expenses caused by the policies of central banks The Economist
Let’s call it what it is – more stolen purchasing power for the so-called “credit-worthy”.
..noticeably GS corporate metaphor in “Margin Call” did NOT
utilize CDS to “hedge”…they just “sold off” all bad assets, decision coming on one night..(slashing own wrists).
Not really what was being perpetrated, but our 18 year old made sense of things he couldn’t prior…
If we take a ditch digger and over the course of 20 years train him to the point where he can run a steam shovel we don’t give him a cut of all the ore he produces.
But if we take a business student and over the course of 20 years train him to be a CEO, we give him a cut of the profits of the entire organization.
Correct which is why companies should be denied access to counterfeit money – so-called “credit” – so they are forced by economic necessity to pay their workers with common stock or to at least pay honest interest rates for their workers’ savings.
It all goes back to the counterfeiting cartel, the banking system.
The implicit social contract is that the so-called “credit-worthy” would be allowed the use of the population’s purchasing power for the benefit of all. How’s that working lately?
To counterfeit…. means to illegally imitate something. Counterfeit products are often produced with the intent to take advantage of the superior value of the imitated product.
Counterfeit money is currency that is produced without the legal sanction of the state or government to resemble some official form of currency closely enough that it may be confused for genuine currency. Producing or using counterfeit money is a form of fraud or forgery.
Skippy… please stop making up your own definitions, someone might think your being deceptive.
Credit spends just as well or better than fiat and it is issued by private entities, the banks. That makes credit counterfeit money.
Now if there was not a government enforced private money monopoly so that people could escape the price inflation in credit then one could argue that credit is NOT counterfeit money. However, that is not the case so credit is effectively counterfeit money.
What the heck do you think bubbles are blown with? Credit is new, temporary, counterfeit money. Until it is abolished (along with large scale usury) we will never be rid of the boom-bust cycle. That’s why I emphasize common stock as money; it is spent, not lent into existence so it 1) does not require usury and 2) does not have to be repaid.
Also, common stock “shares” wealth and power. It should be a smash hit with populists but perhaps you are an elitist, not a populist?
Boom bust cycles have been with humanity from the beginning, its called environmental conditions. We have just created a climate like system of trade, methinks.
Credit is future earnings and – or added liquidity / access of illiquid hard assets, not counterfeiting. Stop making things up.
Skippy… nice slur at the end, personal touch, attempt to diminish me, paint everyone that questions your ideals as a bad person.
Unlike MLTPB I shall reciprocate. Talking too you, is like engaging in interactive thesis by Hayek and Rothbard…. after a few Sunday school classes.
Credit is future earnings and skippy
Wrong. It is impossible to borrow from future production. We are limited to what we have produced or what we are currently producing. Thus “credit” is a fraud, a looting mechanism by which some are allowed to steal existing goods and services from others.
or added liquidity / access of illiquid hard assets, not counterfeiting. skippy
Indeed it is counterfeiting when credit is extended in a government enforced monopoly money supply for private debts. If we are to have such a government enforced monopoly money supply for private debts (we shouldn’t) then only government should issue money, not the private sector.
Stop making things up. skippy
I’m not the first person to see through banking, the list is long and honorable.
Skippy… nice slur at the end, personal touch, attempt to diminish me, paint everyone that questions your ideals as a bad person. skippy
Elitism isn’t what we need right now; money is. If the Left doesn’t hand it out soon then I expect the Right will and thus (ironically) prove to be more populist than the Left. I suggest you steal their thunder before they steal yours. And I’m a populist. I’m not anti-elite; I just insist they play fair.
Unlike MLTPB I shall reciprocate. skippy
What’s new?
Talking too you, is like engaging in interactive thesis by Hayek and Rothbard…. after a few Sunday school classes. skippy
Maybe that’s all they were lacking; the Sunday school classes. Both were agnostic at best. It appears that most dangerous economists are either atheist or agnostic. And poor Rothbard! I learned a lot from him about banking but he turned out to be in favor of a gold-standard! That is fascist, not libertarian.
So let’s say I work for a company like Brooklyn Brewery which employs around 200 people. They pay me in common stock. Their common stock is not public. What do I do with my Brooklyn Brewery common stock if I want to buy something other than beer? Let’s also say my savings consists of a big pile of Brooklyn Brewery common stock. What happens to me when, through no fault of my own, a
oops, hit submit too early above:
So let’s say I work for a company like Brooklyn Brewery which employs around 200 people. They pay me in common stock because, in FBeardland, banks cannot lend them credit to finanace payroll. Their common stock is not public. What do I do with my Brooklyn Brewery common stock if I want to buy something other than beer?
Let’s also say my savings consists of a big pile of Brooklyn Brewery common stock. What happens to me when, through no fault of my own, a vat of contaminated beer gets sold to a trial lawyers’ convention and people get sick or die, and BB is sued into bankruptcy. What now?
Or what happens to me when the board of BB votes to issue itself 2x the current amount of stock outstanding, thereby diluting my holdings by 66%? In short, how does this system of yours actually work? If your answer contains quotes from scripture, I will consider it no answer at all.
What do I do with my Brooklyn Brewery common stock if I want to buy something other than beer? James Cole
Sell it to a beer drinker.
Let’s also say my savings consists of a big pile of Brooklyn Brewery common stock. James Cole
One should diversify.
Also, you might insist that some or all of your salary be in fiat for which you could earn honest interest rates since credit creation, the means by which interest rates are suppressed, would be banned.
“Money now is the NOTHING you get for SOMETHING before you can get ANYTHING. To acquire money, its legitimate owner must give up SOMETHING in the here and now – property, personal services, etc –for the NOTHING of money. The money serves as a claim to an equivalent share of real wealth to be produced and consumed sometime in the future. It represents society’s debt for the wealth presumably given up. It is, however, nothing but a token of society’s debt for wealth surrendered for the inherently worthless forms of modern money, hence the NOTHING of money.
Soddy’s views of money and economics are based upon an energy theory of wealth and the laws of thermodynamics. He uses the first law of thermodynamics – law of conservation of energy, extended to matter by Einstein’s theory of relativity – to ridicule the notion that real wealth can be created simply by capitalists’ money or annotations of debt in bank ledgers. The real creator of wealth is energy from the sun.”
Perpetual motion schemes anyone?
http://model-economy.wikispaces.com/The+Economics+of+Frederick+Soddy
If your answer contains quotes from scripture, I will consider it no answer at all. James Cole
My reply is waiting in moderation for no obvious reason. That is happening more and more often. I’m starting to feel unwelcome. :)
But speaking of Scripture, the Bible does advise diversification:
Cast your bread on the surface of the waters, for you will find it after many days. Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth. Ecclesiastes 11:1-2 New American Standard Bible (NASB)
That suggests that one’s holdings should not include over 17% of one asset. So come payday, I would suggest you sell 83% of your beer stock for something else.
But most likely great diversified companies that made a variety of items would have the most popular private money.
I can’t predict how all this would play out, of course. But the current system is wicked. It must be reformed (wisely, of course). Steve Keen’s universal bailout is a vital component but we must prevent the problem from recurring too. Professor Keen suggests restrictions on credit creation; I advocate credit itself be abolished.
Or what happens to me when the board of BB votes to issue itself 2x the current amount of stock outstanding, thereby diluting my holdings by 66%? James Cole
That sound illegal or at least should be. Even if the Board owned 51% of the shares that should give them no right to increase their percentage to 84%.
That suggests that one’s holdings should not include over 17% of one asset. FB
Correction: 14% not 17%.
Q: What do I do with my Brooklyn Brewery common stock if I want to buy something other than beer? -James Cole
A: Sell it to a beer drinker.-FB
JC: At what price? How does a potential purchaser of BB common stock know how to value it? BB is a private company, are you going nonetheless to force it to disclose financial information?
Q: Let’s also say my savings consists of a big pile of Brooklyn Brewery common stock. James Cole
A: One should diversify.
JC: Same question, how does one determine a price for illiquid common stock of small-cap privately-owned companies that you insist workers be paid in?
A2: Also, you might insist that some or all of your salary be in fiat for which you could earn honest interest rates since credit creation, the means by which interest rates are suppressed, would be banned.
JC: Well that’s what I’m arguing, that people need to be paid in money not common stock, so I’ll consider that to be your concession of the point. But, since you raised it, what’s an “honest interest rate” and, if credit is banned, how is there any interest at all? It’s all dividends since there would be no debt.
Maybe the scripture you should be quoting from is the Quran not the NASB, since debt is banned in Islamic law.
I don’t mean that to be dismissive or as a criticism; Islamic contract & finance law, at least as originally conceived, is clearly the product of a people who had experienced debt-driven boom-bust cycles, and is actually a very ethical system and seems to be pretty much what you are advocating.
But, since you raised it, what’s an “honest interest rate” JC
Honest interest rates are what people will pay to borrow existing money. Credit creation suppresses those.
and, if credit is banned, how is there any interest at all? It’s all dividends since there would be no debt. JC
You are confusing “credit” which is money that is created as it is lent with honest borrowing of existing money.
Not *future production*, but, from – the future it self – (time – space) and all the possibility it holds. Remember profit is stealing from the future too! Although your good with that kind of stealing.
Banks, governments serving big gobs of capital… say it ain’t so. The starting point is the big steaming piles of capital, banks and governments are just the interfaces they use to control the sheeple.
Skippy… Beard… hates banks and government but loves big stinking piles of capital (theft – stealing of peoples toil). Beard… The people man!
Remember profit is stealing from the future too! Although your good with that kind of stealing. skippy
Ah thank you for bringing up profits!
I’ve said this before but perhaps you missed or ignored it. Profit in the Bible is good but profit taking (including usury) isn’t! So that rules out usury and dividends. However with common stock, the profit accrues in the value TIMES the quantity of the stock. There is NO profit taking. Hence common stock allows profit without profit taking.
but loves big stinking piles of capital (theft – stealing of peoples toil). skippy
Now you are confusing money with real capital. Capital consolidation for economies of scale is good but that DOES NOT requires consolidation of wealth and power.
Beard hates gold but wants 100% reserves, whats the difference?
Skippy… hint beard, there is no security, its a fallacy. Jesus found out the hard way, kings and queens too.
Beard hates gold but wants 100% reserves, whats the difference? skippy
Damage to the environment is one thing. Want to see more mercury and cyanide used in the Amazon? Also, with inexpensive fiat, reserves can be increased without having to mine them first. Also, why should the government have to buy an expensive metal in order to create its own money?
I don’t like usury but at least 100% reserve lending is honest.
I think you need to learn who runs the show and how. I also think you need to understand that capital can ascend the physical, to the will of an idea imposed with out consensus. That said wills objective is to consolidate positions and increase its mass, all whilst values and price fluctuate.
People are becoming irrelevant to capital, people are friction to it, capital now asserts its self via black boxes, people are being mined for the last drop of worth to the system, then cast aside. Only those that serve capitals needs will receive some crumbs, the rest imprisoned, ground up in end less war or left to die.
Skippy… 100% reserves, they would love that, artificial scarcity… methinks. Look… until the government is reoccupied by the will of the people… capital will call the shots. Everything else is a punch and judy show.
“Damage to the environment is one thing.”… beard.
Skip here… all human industrial activity’s damage the environment, dust to dust. Mining is one of the most damaging of all. From extraction to processing and the manufacture of what ever is made from it. Then it gets shoved into a tip… toxic landfill.
Skippy… I don’t believe your concerned one bit, save your backyard thingy.
100% reserves, they would love that, artificial scarcity… methinks. skippy
1) A universal bailout would provide plenty of reserves for 100% reserve lending except for the interest.
2) Deficit spending by monetarily sovereign governments could provide the interest.
3) Genuine liberty in private money creation would make it impossible for anyone to corner the market in private money.
Also, common stock “shares” wealth and power. It should be a smash hit with populists but perhaps you are an elitist, not a populist? -F. Beard
Wow! I used to read your comments. Now that I see the kind of intellectually dishonest bullying you engage in when you feel threatened, I can dispense with that courtesy. You may be the greatest obstacle to your ideas’ promotion. Pity, that.
Now that I see the kind of intellectually dishonest bullying you engage in when you feel threatened, Christophe
Actually, I wasn’t threatened and it wasn’t dishonest since Skippy is an elitist, imo, but it was bullying, I’ll concede that.
But hey, it isn’t as if Skippy treats me with kid gloves. He once compared me to a pedophile it you want to hear about bullying. And he regularly implies I have some sinister hidden agenda when all I want is peaceful prosperity for all.
You may be the greatest obstacle to your ideas’ promotion. Pity, that. Christophe
I reckon so. For your sake, I hope someone else will pick up the ideas and run with them.
Bullying? Where have I heard that recently? Oh yeah, here.
Actually you have always tended to express your self as the superior (gawd head thingy) indavidual and assert that you are with out a doubt correct on every thing you say, even when factually rebutted. Its always the NSAB to the rescue or that one thumper science blog you chuck out to validate your spreading sky’s rubbish.
Skippy… the more people get to know you the less many want a bar of it. Your worst enemy is yourself, keep digging.
PS…. Elitist me? Hay I’m the carrying capacity guy, remember?
“You are confusing “credit” which is money that is created as it is lent with honest borrowing of existing money.”
You’re just making up your own definitions of words. “Credit” according to Merriam Webster: : the provision of money, goods, or services with the expectation of future payment.
“Skip here… all human industrial activity’s damage the environment, dust to dust. Mining is one of the most damaging of all. From extraction to processing and the manufacture of what ever is made from it. Then it gets shoved into a tip… toxic landfill.”
Skippy
TPTB are so confidant in themselves they mock us with the truth of what you say. I am old enough to remember when “Human Resources” depts were “Personnel” depts. Back then they at least had to pretend that we were nouns, “Persons”, at least. But with the advent of HR, the facade was stripped – we became adjectives, “human”, of the noun “resource” and we all know how resources are treated – mined, processed, manufactured, sold, used, and discarded.
I remember being offended at being considered a “human resource”, though i suppose i had always been considered that way. Wondered why the change in term – but it has occurred to me that that was when TPTB figured out the populace had become so cowed that it really wouldn’t be that upset by the thought, and it appears they were right …
Actually – now that I think on it a bit more – that was about the time TPTB had brainwashed us with the idea that being a “resource” was a good and valuable thing – but also that our worth to the company, that on which our remuneration was based, was in terms of what value we added, not as a person, but as a “resource”. So we shrugged and drank the toxic kool-aid, incorporated it into our chemistry and accepted the market model of life. Good grief!
Methinks we will know we are shaking it off when we begin to rebel against being “human resources” and the signs say “I am a person! Not a ‘human resource’!”
I like counterfeiting as a way to describe how the Federal Reserve functions. Basically it’s no different than naked short selling of stocks, which is essentially counterfeiting and increasing the float of a stock (debasing it). In the case of the Federal Reserve currency, we’re all naked short sellers: we’re borrowing the dollar into existence and hope to pay it back with cheaper dollars in the future. In both cases, the added liquidity to the markets is extolled as a virtue. As this works in one direction, you get a liquidity pump. But when it goes in reverse (which it will unless we all become TBTF), then watch out, all players who live by the liquidity pump will die by the liquidity pump.
Stan Goff, on money as the “universal solvent”:
“In this essay, Hornborg crystallizes what he said in The Power of the Machine, albeit focusing in a bit on that old question, what is to be done? Whatever it is, says Hornborg, it has to do with money. I believe him when he says that. That is precisely what I mean by the term, “strategic imperative.” The strategic imperative is to get off the money grid.
Hornborg and a lot of other people have studied the impending consequences of our influence-without-control; and the prognosis is not merely disturbing, it’s scary as hell to anyone with a puff of imagination. We are in an epoch of inconceivable unintended consequences, in every dimension of human experience; and if money is the problem, we all inuit in a second how utterly overwhelming the problem is because we understand our own abject dependency on this thing that this man just said is a “sign,” a dangerous chemical — a solvent that attacks human connectivity, a change agent that can be as destructive as a flood of assault rifles into a big city slum.”
http://www.feralscholar.org/blog/index.php/2009/06/24/the-cornucopian-episteme-money/
The Marxian economic idea of Primitive Accumulation of Capital helps explain this. Basically, investors demand ever-increasing profit rates, but this is of course impossible in a finite world. In fact profit should tend to decline as the best and most easily-found resources are used up first. Capitalism’s response is to invent new and ever more exotic investment vehicles, culminating in variants on Ponzi schemes. The end result of Financialization of the economy is either that a new source of wealth is found (for example, in this interpretation the Great Depression was in fact ended primarily by the Oil-based economy; we obviously can’t replicate that advance since we already have it), or the economy collapses (which results in a Revolution of one kind or another).
Why is this on point? The post is about value systems, granted from the point of view of someone in the world of finance. How does your schematic explain them?
Any money-based system will lead to this scenario. Values, ethics, morality, whatever you want to call them, have nothing to do with it. In terms of political economy, they’re irrelevant.
I’m with Ran. I don’t think there has been any fundamental change in values, just a natural evolution toward unsustainability and imbalance as capitalists do what capitalists do. Financial assets are ownerships stakes in the value produced by others, and the greater the wealth and power imbalance between ownership and labor, the more that ownership is able to suck out. Businesses are investing in real production because they can now make more money, in the short term, from buying financial assets and cutting costs, and returning the higher profits to stockholders. It’s not sustainable in the long run, but in the long run we’re all dead. CEOs aren’t compensated for the long run; they are mostly compensated for their skill in looting wealth that already exists and delivering it to their stockholders and themselves.
One problem with a lot of economic analysis these days is the faulty assumption that capitalist economies are naturally stable, so that if things become stable something must have gone wrong. But capitalism is inherently self-destabilizing and self-destructive. The only way it remains stable is to firmly regulate it to prevent it’s natural tendencies from coming to fruition.
Businesses are investing in real production.…
Meant to say:
Businesses aren’t investing in real production…
Hmmm…. You’re arguing that a society built only on C – M – C’, and a society built on M – C – M’, and a society built on M – M’ (financialization) will all have the same sets of values? That seems very, very implausible to me.
I think I understand the points Ran and Dan are making and they sound like good ones. However, I don’t understand your critical response to either. Also, all issues have many many sides and perspectives, and there is rarely only one “correct” viewpoint. Thinking of the 6 blind men and the elephant analogy.
In the end, the current imbalance will collapse as it actually did in 2008. Meanwhile, finance has the cash to rule the system. Labor is too small to stop finance. The old country limits would have hastened the speed of collapse, globalization, however, makes the limits of finance expansion way larger than a national labor can dream of stopping.
Another important factor helping finance rule is countries willingness to borrow almost endlessly and fork over the borrowed money to finance. (See Obama 2009-2010 and the trillions he gave the banks.
Products and services have also lost importance, except mainly in Asia. Finance, as a gambling machine, doesn’t need industry, health care or veggies. Their money is deus ex machina. It’s perpetuum mobile. All proven not to exist, but meanwhile there are way too many takers.
“Finance is just rules. We have let those who exploit those rules become the rulers, partly because governments have decided to stop governing in the financial arena”
Partly right. It is a lot clearer if you look at this in terms of class, an elite class. We have financial elites who have bought the politicians, all the politicians, and not just them but the judges. They own the media and their people fill academia and run the regulatory agencies. What all these groups have in common is they are all elites. Elites justify their privileges, wealth, and position on the basis that we cannot survive without them, that effective governance will not happen. This is wrong for two reasons. First, there is no necessary relation between expertise and privilege. Just because someone fulfills some useful function does not mean they merit what amounts to hereditary privilege. Second, the truth is we cannot survive with our elites. They have given up completely on governance and have instead given themselves over entirely to looting.
Finally, finance is not just rules. As we have seen in the mortgage crisis, rules were ignored from origination to conveyance into trusts to the underwriting of CDOs to eventually the foreclosure process. It is an important point. The 1% do not exploit laws and rules. They ignore them. Laws and rules are something that only applies to the 99%, and with, for example, all the illegal fees banks and servicers charge, these are not applied according to law or rule but are simply used as excuses for banks and servicers to charge whatever they want to charge. Most of the time they are not called out on these crimes, and even when they are they pay fines that are a tiny amount of their gains and all without admitting any wrongdoing.
This is why I keep hammering away upon the superiority of the kleptocratic perspective because it gives the whole picture, not these bits and pieces which always presume that while some parts of finance or the government or the political process or the judiciary or academia or the bureaucracy or the media are dysfunctional, others or the rest of the system is sound. It gets to the underlying criminality, that the system is operating as it is supposed to which is to say that it is there to keep the looting going and the elites in control. Accept the kleptocratic perspective and you can leave behind these pointless debates about whether this one or that is stupid, incompetent, or just mistaken. They are criminals. That is what we all need to keep telling ourselves. Romney is not some clueless plutocrat. Obama is not some smug social climber. They are criminals. That is all you need to know about them. The rest is superfluous. And this does not apply just to them, but you can go throughout our elites, in their tens of thousands, the whole class, and it is the same, big criminals, little criminals, but in the end all criminals. You may not like this. You might revolt at the idea. It might repel you, but do it and the world becomes both clear and predictable. And that should tell you that no matter how distasteful you may find it, it is nevertheless correct.
Why shouldn’t looting be rule-governed? At some level, it has to be, to be efficient. Are you sure you’re not conflating rules with legislation?
Efficient for whom?
I am Looter Predominous, and I loot best when I’m governed least.
Theoretically, of course, without constraints, in the –not so?– long run, if I and my predatory looter mates are good at what we do, we will eventually run out of looting possibilities.
Having looted all there is to loot, we looters will have no choice but to loot each other. That’s what our Marxist enemies call, the Final Looter/Loot Stage.
But who looks that far ahead? Certainly not I, Looter Predominous, or my buddy, Looterous Rex. We are, after all, just dumb hungry animals, looking only so far ahead, as our next meal.
Efficient for the looter. A professional criminal is a professional, after all. They’ll have a modus operandi, that is, rules.
Lambert, I think you are having trouble understanding Hugh’s point, possibly because you can’t imagine a world in which all ‘government is an ongoing criminal enterprise’. Beginning with the first historians of antiquity on down to the most recent, a major philosphical question has been how to distinguish govt from criminal enterprise. Sometimes the answer is obvious – often not due to obfuscation and propaganda. But assuming that it IS a criminal enterprise should always be your default position – you’ll be right just about every time.
okie farmer: I do understand his point. What will happen (“primitive accumulation”) is that the kleptocracy will mutate into an aristocracy over time.
Yes Lambert, my thoughts as well. There are overt rules: legislation, regulations, etc.; and then there are meta-rules that dictate how the overt rules are applied. These meta-rules are generally not written down, but that doesn’t mean they don’t exist.
Take the example of a rigged poker game. The marks are aware only of the overt rules, and determine their play on the basis of those. However, the dealer and the crooked player have their own set of rules for fleecing the marks, like, for instance, how do divvy up the ill-gotten gains. One needs to understand both the rules and the meta-rules to really get a handle on what’s going on.
I wrote an article for our local indy media site awhile back that attempts to break down this difference a little, in practical terms.
Business Ethics and Cost-Benefit Analysis:
http://www.rockymt.org/?q=node/288
I agree that we need to focus on the owners of capital.
The one tenth of one percent that have ruled “Western Democracies” for centuries now need to be removed from power to ruin our world any further….if it is not too Fukushima late already…..
The class system, inheritance, accumulated ownership of property and patriarchy are what we need to examine and change or we will just keep spinning our wheels as slaves to the global inherited rich.
When you look deeply into the rules you discover they are written to encourage looting. For example, the idea that director stooges chosen by management for cosmetic appeal determine the compensation, bonuses, stock giveaways of the executives who choose them, is complete nonsense yet enshrined in corporate law. That bribes paid to politicians are legal campaign contributions is another example. That banks are entitled to interest on reserves at the Fed at a level 300% of the interest obtainable by any private saver insisting on liquidity is still another. Our entire legal and economic system is a network of rules rigging the game in favor of the rich and powerful. Meanwhile, economics is superstitious nonsense. Anyone doubting this need only read a little Steve Keen, although keeping awake through twenty or thirty pages is nearly impossible. Of course this is not Steve’s fault. He’s a genius, his work unassailable. Just stop reading economics from anybody else. It’s a waste of time.
As Obama himself so guilelessly said: “Immoral but not illegal.”
I read an article in, I believe, EE Times the other week and it asked why Germany is doing as well as it is.
It has a strong social safety net, great public education, strong labor unions, etc… basically everything that America doesn’t have and claims are anti-competitve.
Germany also has a relatively low unemployment rate, and has throughout the crisis. The article mainly focused on this one thing in particular, and it asked how Germany could do it. How can they keep people working in the face of a deep downturn.
One German manager said, “Easy. Our workers are assets, not overhead.”
I agree with the “Finance is just rules” quote.
We are controlled by the global inherited rich that have created finance and economics to their liking. All competition and no sharing to feed their greed.
If we had public money instead of private we would have different finance rules, wouldn’t we?
The global inherited rich are the puppet masters of finance and economics….and have been for how long?
How come no one talks about the folks that currently and for how long, have controlled ALL capital? And are currently forcing the countries of the world to race to the bottom of the “RULES OF FINANCE” set by the global inherited rich.
Us slaves could decide that we are as important as the global inherited rich and take their capital from them to solve our problems.
It is not possible to “take their capital from them”. They have little or no capital.
When the governments bailed out the financiers, the governments did not give the financiers our capital. The governments “borrowed” from the financiers vast sums of imaginary “money”, created for the occasion by the financiers. The governments gave this imaginary “money” to the financiers. The governments also promised to “repay” the “loan” by turning over to the financiers our capital (the surplus of our labour to needs) for the next two generations or so.
I almost made the mistake of writing “our governments”… Does “our goverment” mean “the government which we control”, or “the government which controls us”?
The governments will take our surplus (and more) labour and turn it over to the financiers for as long as, and only as long as, we permit.
This is why I think State-level public banks (and later, perhaps) state currencies could offer us some solutions. Take control of the issuance of credit/money and you can undercut the power of the financial elites.
http://publicbankinginstitute.org
http://rockymt.org/?q=node/409
A plurality of the slaves, at least, have been conditioned to believe that under the current system they ARE free, and that the only entities that endanger their freedom are the “gubmnt”, and Al Queda. There’s simply no outrage against the mortgage servicers where I live, just railing against Obama, not for doing too little, but too much. He’s regarded as some kind of Marxist/socialist plant, rather than a banker’s. Methinks we have a ways to go.
Eric Holder, come on down!
“An administration whose claws are far from sharpened shouldn’t really surprise us: Obama was
Wall Street’s preferred candidate in terms of campaign contributions. His SEC chair, Mary Schapiro,
ran FINRA, the Street’s self-regulatory private agency. Gary Gensler, chair of the Commodity
Futures Trading Commission, actually worked a decade ago to exempt credit default swaps and other
derivatives from regulation.
More importantly, the nation’s new top prosecutor, Attorney General Eric Holder, has a history of
preferring that deviant corporations be held to no more than a “voluntary cooperation” system in
which they investigate themselves privately.
Under the “Holder Memo,” which he wrote in 1999 as deputy AG in the Clinton administration, badboy executives and their corporations who turn over evidence to the government qualify for lenient
sentences and fines and, sometimes, for settlements without even indictments. The consequences of
their crimes often amount to only the cost of doing business.
After leaving government, Holder followed the mandates of his own memo and made a lucrative living
by conducting internal probes for companies and negotiating outstanding results for white-collar
clients. He was public about it: Holder’s 2002 op-ed “Don’t Indict WorldCom” in The
Wall Street Journal argued on behalf of the corporate perpetrator of one of the sleaziest frauds of the
past decade.
Holder takes a hard line on social issues, but not on financial issues: He favors re-dedicating the DOJ to
civil rights, and he has vowed to investigate Bush-era torture. But when asked if he plans to prosecute
the financial mayhem that erupted under Bush, Holder has said that he isn’t inclined to engage in what
he calls “witch hunts.”
http://www.villagevoice.com/content/printVersion/1451059/
“Money is a social artifice, the outcome of what people (bankers, financiers) do.”
Money is a contract, not a commodity. It’s commodified trust, not an actual store of value. The value is in the faith in the system and it is the bankers themselves destroying that value. Finance is the economic circulatory system, much as government is the social central nervous system. Eventually we will have to do to private banking what has been done to private government over the last three centuries.
You can have private monetary systems, as long as they are not fundamentally monopolistic.
http://www.exterminatingangel.com/index.php?option=com_content&task=view&id=826&Itemid=662
Values do not change, circumstances do. Values are just adaptive, they change with circumstances.
So the question is: How have circumstances changed so a “new value system” (not really) is now the dominant paradigm? Why have we ended in a ponzi-like system? There are two main answers to this IMO: diminishing incomes AND purchasing power; diminishing rate of profits in standard industries.
Capitalism can only work with constant or increasing rate of profits and household incomes (to push demand), and hence ‘enough’ growth (and real growth, because a drop in real growth even if nominally is higher means diminishing purchasing power and disposable income).
There is also an other problem: productivity gains have been not shared with most of the population, we work harder and more for less, the most limited commodity of all is TIME, labour not having more quality time to spend on services (because physical consumption is limited) and hurts the growth potential (if there is any left with diminishing incomes or purchasing power, here headline cost-push inflation may be an other problem).
Financialization is just as consequence of circumstances, being the main problems: incomes/financial costs (leverage by households) and purchasing power (inflation) + falling rate of profits for corporations. The second problem was ‘more or less’ fixed by big deficits ending mostly in corporate pockets (per Kalecki equation), so we have a problem of income distribution. Then comes the 2nd big problem yet to solve: inflation; rising purchasing power and incomes will trigger inflation, so while we may nominally solve the income/leverage problem for households we may not be able to fix effectively the inflation problem.
So what do we need?
– Governments can help with the distribution & falling rate of profits problem when effectively taking control of the financial & monetary system (limitation of credit and coordination between credit & monetary injections via public spending, print and consume is in fact less inflationary than borrow and consume). So you may conclude similarly to the OP, but for different reasons.
– A BIG worldwide program which helps with the cost-push inflation problem, literally this would demand the mobilization (or creation) of trillions of dollars, euros, etc. Start with energy effiency (heating/cooling), grid infrastructure, etc. then follow on logistical and transportation model for industrial economies, changing transport vectors (more trains, more non-oil road transport), then onto energy creation/consumption (grid optimization and stuff like that), etc. This program should NEVER be closed and should be an ‘on progress’ fixed program with partnership between private and public sectors and if possible coordined between different governments.
With all this in place we may avoid a world war in the future, and we can stabilize the problem of capital accumulation and falling rates of profits without hurting households in the process or creating depressions.
The big driver to capital accumulation is the assumption it is a commodity. This creates a system where all value is reduced to its lowest common denominator, ie. capital. Not only does it enable those controlling the currency the wherewithal to tax the rest of the economy and hijack government, but it creates a belief system where everyone else has to accede to this system in order to function in society. Some time ago NC had a story where economists had searched out aboriginal societies that used primitive forms of currency, but couldn’t find any. That is because money is a contract. It is an agreement. Primitive societies don’t need currencies, because their societies function on organic trust and when that breaks down, they don’t get lawyers and bankers to patch the system together, they break into different groups and fight it out. To quote my essay:
” To the extent the financial system is the circulatory system of society, money is the blood flowing through it. Its effectiveness is dependent on its fungibility. We no more own the money in our pocket, than we own the road we are driving on. Yes, we are in sole possession of any one spot on that road at any one time, but its value is due to the connectivity with all other roads. We own our cars, houses, businesses, etc, but not the roads connecting them and no one cries socialism over that. We have to think of money in the same way.
If people understand that money is a form of public utility and not actually private property, then they will naturally be far more careful what value they take out of social relations and environmental resources to put in a bank account. This would serve to make people’s own self interest a mechanism to put value back into the community and the environment and allow more organic systems of economic connectivity and reciprocity to grow, as well as reduce the power of large financial and governmental systems over our lives.”
Just because money is a public utility, doesn’t meman it not a commodity. Capital accumulation is testimony to exactly that. If you’re a small businessman, or a farmer, who requires capital to operate, money is a commodity. If you’re a wage earner, not so much. When I’m working on my balance sheet and trying to figure out my business plan, the price of money is no different than the price of fertilizer, or tractor fuel, or replacement cows, or any of the other commodity inputs I have to purchase. As long as money is TREATED as a commodity, it will be one. As Wittgenstein pointed out long ago, USE determines meaning.
so what is the answer? violent revolution and socialist redistribution of
wealth? the “1%” charged and jailed? some exemplary executions? hasn’t all
that been tried?
Only a massive transformative shift in consciousness that allows people to discover what is sacred, and how cooperative efforts are born from a realization of the common good, imo.
http://my.firedoglake.com/wendydavis/2012/04/13/occupy-as-the-butterfly-of-transformational-evolution/
@ Wendy “Only a massive transformative shift in consciousness that allows people to discover what is sacred, and how cooperative efforts are born from a realization of the common good,..”
Yes! I highly recommend “Sacred Economics” by Charles Eisenstein. Once we rid ourselves of usury and the subsequent artificial scarcity, a whole new world will open up.
http://sacred-economics.com/
Many thanks; I loved the film tickler. Might post it at my.fdl with some sick new info, like ‘TBTF banks bigger’ (such a surprise, lol!). ;o)
In one of those tantalizingly propitious moments of synchronicity, I just discovered a new message from Adbusters anticipating Spiritual Insurrection. ;o)
http://www.adbusters.org/magazine/100/spiritual-insurrection.html
And/Or, you could attend the Public Banking in America conference in Philadelphia April 27-28 and learn how we can do things differently. http://www.publicbankinginstitute.org
thank you!
Thanks, Carla!
Switch to a new monetary system. Replace our current dollars with “New Dollars” and distribute those NDs equally to every citizen of the country. Have a jubilee for all debts denominated in the old currency and implement MMT suggestions for future gov’t expenditure and for a JG.
Might sound implausible, but no more so than thinking that any kind of just system will result from violent overthrow of the current one.
Margin Call… there was a pretty spot-on soliloqy by the brit/aussie sales manager, as he tooled down the street in his convertible… worth a re-look–gist being if it weren’t for the debt, much if not all of the modern convenient material lifestyle in a first world nation would exist. Look around… how much is paid for in cash, how much created and paid with leverage over time? It worked when we were actually servicing and retiring the debt. Now we roll the turd down the street. It used to be a frozen turd, its thawing, and it will be a long hot summer.
http://www.youtube.com/watch?v=JvaTjJpoQlg
Sheila Bair is fed up. No pun intended. She has written a facetious-sounding article for the WaPo wherein she says all bets are off so why don’t we just give every household 10m on zero-interest Fed credit and let everyone play the other interest rates. It is only fair since this is what we have done for the financial community with the tax payer as the guarantee. It wouldn’t amount to more than 1,200 trillion. Just another drop in the bucket. And then we wouldn’t have to pretend that things like education mattered, or equity in governance, or any of those totally debunked ideals we strive for. And I like the idea because if the actual world of production becomes merely symbolic, it will save the environment from further “development.”
The starkness of, “Finance is just rules. We have let those who exploit those rules become the rulers, partly because governments have decided to stop governing in the financial arena,” reminds me of your previous post, “Code is law”.
We have private shell corporations taking the place of equitable government services simply because they can (e.g. MERS). The ongoing criminal activity stripping property owners of their homes through deliberately false documentation and piling on of debt is unconscionable.
The government no longer regulates corporates (duh), corporations toy with the government. The NY Times has a front/home page article on Google, which refuses to cooperate with government mandates to stop collecting data from everyone’s wifi networks, part of the hidden benefit of its souped-up Streetview enterprise.
http://www.nytimes.com/2012/04/15/technology/google-is-fined-for-impeding-us-inquiry-on-data-collection.html?_r=1&hp
Google’s attitude is, we make the rules. If you don’t like it, tough:
“When the [FCC] asked Google to identify those responsible for the program, Google “unilaterally determined that to do so would ‘serve no useful purpose,’ ” according to the F.C.C. report.”
Nation of laws, be damned. Even the precious Constitution is enlisted in the march of corporate law-making via Citizens United. Private cash-rich powers that take over a field (e.g. mortgage and note transaction recording) have cart blanche.
Feasting on carrion (sorry, I meant predatory capitalism) will continue under a President Romney with no compunctions to prevent the privatization of all public ownership.
We are a nation of the American Legislative Exchange Council (ALEC). They write the legal templates that pass through the bodies of their political lackeys.
Bankster representatives occupy the EU, whose countries are merely the conduit for transfer of funds from the ECB to creditors. No pause for the people, just extraction and dereliction.
Why are the principles of ALEC not held for treason? A domestic foreign power.
error: not “principles” but “principals”
If we did not have the hypertrophied finance and investment industry that we currently have but all other rules of our political economy were the roughly same (i.e. global free capital), we would have a few corporate offices in NY and Silicon Valley containing the global executive staff of companies such as Apple, Intel, Cisco, ITT, Martin Marietta, Caterpillar, administering and reaping the profits from the globally-labor-cost-arbitraged production networks of such companies, and everyone in the US other than the minimum legal and accounting staff necessary to service the immediate needs of the Corporate HQ would either be cleaning those office buildings or on some sort of government employment or support. That is, until the labor cost and standard of living of US labor is eventually reduced to the global mean, at which point some capital might return to re-engage local labor for actual physical production.
In other words, finance is the method by which the global inherited rich, as psychohistorian calls them, share some wealth with a segment of those who are bright and/or well-connected enough to get “certified” via elite law, business & accounting “professional” trade schools so as to be trusted to play with some of the accumulated wealth of the elite, and siphon a little off for themselves. “Golden crumbs,” as Sherman McCoy thought of it in Bonfire of the Vanities, or, if you prefer, the trickle down of the .1% to the 1%.
and everyone in the US other than the minimum legal and accounting staff necessary to service the immediate needs of the Corporate HQ would either be cleaning those office buildings or on some sort of government employment or support. James Cole
Wrong. Without the counterfeiting cartel, the general population would be co-owners of the large corporations as companies discovered that they had to “share” wealth and power in order to create it.
It’s not just me that condemns banking. Do a Goggle on “banking quotes” and learn from some of the greatest men in history and from those who understood banking quite well themselves, bankers and central bankers.
Instead, you’ll blame free trade and deny the poor of this world the right to climb the equity ladder so Americans can do the dull labor they once did?
“Wrong. Without the counterfeiting cartel, the general population would be co-owners of the large corporations as companies discovered that they had to “share” wealth and power in order to create it.”-FBeard
What here compels the owners of large corporations to share the wealth in the form of an ownership share rather (common stock) than just higher pay, a la Henry Ford, just so long as they remain employed? In any event, are we not in the midst of a vast experiment whereby our oligarchs are trying to figure out exactly how much wealth can be extracted from the global labor pool without crashing the system? This is exactly the brinkmanship going on in the Euro periphery right now.
“It’s not just me that condemns banking. Do a Goggle on “banking quotes” and learn from some of the greatest men in history and from those who understood banking quite well themselves, bankers and central bankers.”-FBeard
I’m not defending banking, I’m describing its rather miniscule role in the global labor market, and, by the way, doing so from what used to be called a “marxian” perspective.
“Instead, you’ll blame free trade and deny the poor of this world the right to climb the equity ladder so Americans can do the dull labor they once did?” -FBeard
The poor of this world have no “right” to climb the equity
ladder (in what court or forum do they go to enforce this “right”?) but I agree that it would be nice if they could.
I don’t blame free trade for anything, because it exists nowhere. I blame “free trade” ideology and its manifestation as the combination of free capital and captive labor that currently exists.
“Dull labor”? What percentage of people are thrilled with what they must do to feed and shelter themselves? The fact is that there is undeniably far more available labor on the planet than is needed to generate global gross product (“GGP”?), so capital has the advantage for the foreseeable future and hence will continue to seek the lowest cost of production. Governments do not seem willing or able to put up any serious resistance although it does try to blunt the impact here and there. So, for the poor of the US at least it’s the “dull labor” they once did, or nothing, I’m afraid. Not saying this is the way it ought to be but it’s the way it is, unless and until the revolution.
“They just are selling the appearance that they understand a system that in truth no-one understands, not least because the system is itself made up of the various opinions people have about it. It is a disappearing point.” — http://www.nakedcapitalism.com/2012/04/the-rule-of-capital.html
“ … we have let the rules we have created rule us. The machinery we have created now runs us.” — http://www.nakedcapitalism.com/2012/04/the-rule-of-capital.html
“Finance is just rules. We have let those who exploit those rules become the rulers, partly because governments have decided to stop governing in the financial arena. It leaves us with this question. Why do people who play with numbers on a screen in an endless game of manipulation get so much greater rewards than people who do useful things like build bridges, or teach or care for the sick? It is a value system that reveals a dispiriting passivity, especially when it is obvious that if you give up your destiny to the logic of a system that you have created, you risk something worse than what happened in the GFC.” — http://www.nakedcapitalism.com/2012/04/the-rule-of-capital.html
“The system is itself made up of the various opinions people have about it.” He is getting close to understanding what “the system” really is. The system is information. Or: The system is defined by information. Or: The system operates according to information. What information? All the information in all the people’s minds who are part of the system plus all the information in all our machines, our computers, and communications networks. This includes all the various opinions, beliefs, knowledge, facts people have and use in running their lives. This includes laws, customs, conventions, habits that people follow in communicating and working with one another. The system extends beyond what we usually think of as economic and political stuff. It is our whole society, our whole culture. The system was built (evolved) by people. Therefore it can be changed.
“The machinery we have created now runs us.” We pretend that the system we have created is a thing in itself, independent of us, that cannot, must not be changed — “a dispiriting passivity”. Yet we are changing it all the time. TPTB change it now (either by passing new laws or by simply ignoring laws that get in their way) so as to promote their looting of it, so as to increase wealth inequality. The machinery created by all of us and all of our ancestors — and now increasingly controlled and modified by TPTB (the 1%) — must be changed so that the production of this machine (goods and human services) are distributed fairly to all of humanity. All of humanity (living and dead) created it. And every human deserves a fair share of it.
“Finance is just rules. …” In the case of finance it is much more obvious that it is just information, just rules. And nobody can understand how any set of rules plays out in the future. People try. They think they can predict how a given rule (or rule change or ignoring of a rule) will work out, but the GFC proves how utterly ignorant the bankers, the financiers, the government officials actually are. Yet it is so absurd to talk of having no rules. The whole system depends on following some rules. The bankers and speculators need rules for when a CDS is to be paid off. There is a committee of private individuals to apply or adjudicate the rules for this independent of any government or court. Or look at the impossible web of rules for bankruptcy. Or CDO’s. Those who want no rules had better be careful they don’t further trash and crash their (and our) system, the system that feeds us, etc.
Yet another good article to show why Neo-Liberalism (Neo-Conservatism) is on the wane. Suddenly everybody is recognising the Invisible Hand appears to be coupled with an Invidious Hand whereby deviant and predatory capitalists undermine the social harmony of developed countries by seeking short-termist price point via outsoucing.
I took David Graeber’s idea of debt to be a little stronger than a mere promise, more an obligation, since failure to scratch the back that scratched your back quickly leads to a deviancy label for failing to support social harmony. Having a deviancy label isn’t too good for your well-being. This is why Graeber takes the MMT view of money as a social relation or relationship. See Geoffrey Ingham “Money is a Social Relation”:-
http://www.fsw.uzh.ch/page/cms/uploads/platt_sitz/02_03_2010_4_InghamMoneyisaSocialRelation.pdf
Personally I can’t see a lot of difference between the Ponzi scheme Bernie Madoff was running and the banks blowing a house price bubble with NINJA loans. The difference I do see is the former is in jail and the CEO’s of the latter aren’t.
When WordPress swallows my comment, it becomes a kind of challenge to see if I can get around it. Here is the first part of my response to Jeb Rebholz:
Rules are for the 99%. For the rich, they are merely pretexts to be used if convenient for looting, otherwise, ignored with little or no penalty.
Nor is there any honor among kleptocrats. They will loot each other whenever they can. Think how Goldman let John Paulson choose crap for CDOs and then let him bet against them with the synthetic CDOs they sold him. Or Goldman’s whole attitude to its “muppet” clients.
You might ask how such a system could be stable if even the kleptocrats distrust each other. Why doesn’t it all fall apart?
In fact, such systems can be surprisingly stable. Hannah Arendt remarked in The Origins of Totalitarianism that purges were part of the St*linist system. It was how career advancement occurred. So even those in the party or the secret police who knew they would likely someday be purged were still invested in the idea of purging.
And the second part minus a quote from Hannah Arendt which for some reasons the reactionary troglodytes at WordPress censor. The quote basically says that the 99% are committed to seeing normalcy and so will disbelieve their lying eyes even in the face of monstrous crimes simply because those crimes do not accord with this comforting normalcy.
I then end with the following:
The 99% belong to the normal world. They can’t, even most here can’t, wrap their heads around the idea that are elites are deeply criminal, that their actions are in no way inadvertent or well-intentioned, that they result each year in the deaths of tens of thousands, the ruination of tens of millions, and the increased impoverishment of the 99%. The appeal to normalcy is the greatest protection our kleptocratic elites have. Obama, Romney, the Democrats, the Republicans, Jamie Dimon, Lloyd Blankfein, the Koch brothers can’t really be monsters, could they? There is no place for monsters in a normal world. Certainly, not as its lords and masters. So people choose to disbelieve their lying eyes for the comfort of a fictitious “normal”. The real m*nsters among us not only trade on this our weakness. They depend upon it.
OTOH, many here defend usury and money-from-thin-air (“credit”), the source of the bankers’ and Wall Street’s power.
for answers, see Steve Keen’s presentation and paper for INET Berlin 2012.
If you change elites to… cocks on top of steaming piles of capital. I agree.
Skippy… they do attract dung beetles… eh.