29 November 2009

Back to the Future: Uruguay

Those who have read this endeavor from the beginning will recall that I have referred a number of times to what started the "It's the Distribution, Stupid" meme: my thesis on Uruguay in the late 1960's. Well, they're baaaaaaack.

There is no NYT story yet, but there is an AP feed. I urge all to read it, and follow up with the Times in the morning. Deindustrializing is poisonous, and the nature of the poison has a history. We need to pay attention to such history, in order to avoid destroying ourselves. Rapacious capitalists don't care, of course; so we'll have to take matters into our hands.

22 November 2009

Mincing Through the Tulips

I was dozing through This Week, when Robert Reich the token liberal, described China as "authoritarian capitalism". I stopped the doze to listen. It sound an awful lot like Yes Sir, I Understand and Will Comply from a month ago.

While it is gratifying to hear Reich dip a toe in the water of my argument (mixing of metaphors, but hey, it's my blog), the mincing of words is disturbing. "Communist" China is fascist, pure and simple. Fascism, invented in both word and deed by Mussolini, is government in league with capital for the comfort of capital. Reich went on to question that free market capitalism must necessarily be better at production than fascism, although he chose not to call the spade a spade.

Fascism never works in the long run, simply because it concentrates too much wealth in the hands of too few (and does that sound vaguely au courant?) to be self-sustaining. As I have written often during this endeavor, the BRIC are just the latest entities (our plantation South qualifies) to export poverty, in their case to the US and Europe. Such an effort is motivated by money illusion, and fails when the exporters wake up and realize that currency is not what matters in trade; what matters is goods (services never really matter in trade, despite what bankers will tell you). The Chinese hold US dollars, but what they really need are consumers and raw materials; the latter they are taking out of Afghanistan, for instance, on the lives and expenditures of America. We are such saps.

18 November 2009

I Told You So

Today the papers are all aglow with the bonuses about to be bestowed on the Wall Street Cretins (ooh, I mean Titans). As I said in the inaugural installment of this endeavor, recovery can't work just because recovery means to restore the status quo ante. And it was the status quo ante which caused the problem.

Welcome to the United States of Bananas.

16 November 2009

The Yellow Peril Attacks

Beware the Yellow Peril!!!! That was the message of Hearst in the late 19th and early part of the 20th century, and the subject of a book, "The Yellow Peril; or, Orient vs. Occident" by G.G. Rupert in 1911. According to the Wikipedia article, the tale in the book has Jesus saving us from the Chinese, Japanese, etc. God Bless America. How will we triumph this time, when the war is real? Should we embrace the Christian Right, and simply wait for Jeeeesus???

Fact is, China is waging war against the US, and the West in general. I have been making the case for some time that the issue is the exchange rate manipulations done by China, but without the effort to track down the data. The deduction is just obvious. Today the Times has two op-ed pieces, one by Krugman and a longer, more data oriented one, by Ferguson. I'll skip loading up on quotes, and trust that those interested will go read. Both provide lots of data to make the case that China is engaging in economic terrorism. No question.

The point they both skip is one that I've been yakking about for quite a long time. US capitalists have divested so much of our manufacturing base, that recovery from this Great Recession is effectively impossible, since recovery, by definition, means to return to status quo and then to further growth along the same vector. And this is the problem: the economy running into the Great Recession has so disenfranchised so many, there is no mechanism in place to allow income growth outside that wonderful 1%. They've successfully wall off growth to themselves. There can be no recovery, since the runup was based upon the middle class burning unearned equity in housing, not rising incomes. Median income has fallen during the runup. These folks will not participate in the recovery. The new normal is 12% unemployment, along with charity food.

Which brings us back to the Yellow Peril. Make no mistake, China (as well as India) set out to export its poverty here. Why else choose a much smaller foreign market to exploit, rather than growing within your own much larger one? India has done the same. The only reasons are economic warfare and a disinterest in income equity; China and India are, after all, not especially democratic. As I mentioned a few days ago, the Times knuckleheads had the effrontery to proclaim that the problem is that American workers are just overpaid. Right, let's grow our way out of the Great Recession by making even more citizens poor and the 1% ever more rich.

Where this paradigm fails for the Chinese, Indians, and the rest is because trade is merely barter lubricated by coin. The Chinese are sitting on all those dollars, but what can they buy with them? From us, that is. Well, we make nukular bombs. We make stealth fighters. We make lots of war materiel. What do we make that the median income middle class Chinese wants? Right, nuthin'. This is the problem when a (command directed) economy sets out to pillage another, rather than growing domestically. The British Empire got away with it when the process was called Mercantilism, where the industrial economy gets raw materials from backward countries, and the industrial economy sends some finished goods to the backward countries. By that definition (you can check Wikipedia), the USofA is the backward country. Food exports are our number three export, right behind nukular stuff. Kind of like a banana republic.

How can we wage economic war? Well, without manufacturing, what do we have to sell? Exotic financial instruments? After WWII the US effectively controlled the international exchange rate regime, and we prospered. We no longer have that control, witness China (and India to a lesser extent) fiddling their rates to their advantage.

What kind of war can we wage? The fact is, all that we can do better than our enemies is nuke 'em. Will we? Eventually.

14 November 2009

Blame the Victims

This past week, the Times, in one day, provided two really stupid stories. I wrote a screed, which they've not published (no surprise there), so here's the one for DrKeynes. The background: on the top of page 2 of the Business section is BreakingViews, which that day decided to blame the Great Recession of American wages being too large. What follows is my view of BreakingViews.

These guys spewed the sort of lies I expect from Fox and WSJ. Reading history, Depressions and our current Great Recession are caused by labor receiving ever *smaller* parts of national income. Before Reagan, the top 1% took 8%, just before our current collapse, 23%. Same numbers preceded the Great Depression, the 1907 Panic, and all other events from our Civil War on. Your reporters really shouldn't lie so much. It is also worth mentioning that all those low wage foreigners aren't consumers of the goods they make, just because their wages are too poor. Making American workers just as poor will only destroy capital, along with labor. Henry Ford, no bleeding heart liberal, raised his workers wages because he understood that was how he could sell more cars. I expect better of The Times, well other than Judy, Judy, Judy.

11 November 2009

Wich Fat Guy Stamps His Wittle Foot

Today's report that Benmosche, the current and third CEO of AIG in the past twelve months is having another hissy fit: he can't pay his star performers what he says they deserve. Boo Hoo.

Let's be straight about this situation; it was the so-called "innovation" of these knuckleheads that has put not only the US economy, but that of the entire planet in peril. It is a Good Thing if reducing, and dis-incentivizing, such behaviour becomes the order of the day. That Benmosche must be the implementer of this Tough Love is just too bad for him.

He's getting about $10 million for this, by the way. Making money manipulation less lucrative is a Good Thing. Doing so makes real, productive use of capital and labor more attractive, and that is a Good Thing. Recall the tale of the Yenta, recounted previously in this endeavor: financial services is a zero-sum game, with the companies that do this merely extracting their profit from the money stream betwixt Savers and Borrowers. That this activity should be low tech, low pay, low innovation is a Good Thing.

It ought not to be the case that merely moving money from one hand to the other be the highest paid labor in the economy. When that happens, as I have described from history in this endeavor, chaos ensues. We do not need that. Benmosche should either shut up, and do what he's told, or get the hell out. He does, after all, not provide much added value.

06 November 2009

She Who Must Be Obeyed

She Who Must Be Obeyed got a wild hair up her butt. Said hair involves the Washington Post, which is running a Pundit for a Month contest (the name is something like that, anyway). One had to submit a 400 word piece and a 100 word bio. There was only one round, the 10 finalists get to write some number of pieces. The winner gets paid a few bucks to write a few pieces. The particulars are at the paper. The following is what I submitted, but didn't make the final 10. The reason it matters follows the text:

For want of a plague, the planet was lost. It is a much ignored factoid of history that the Black Death, Great Plague, Black Plague beginning in the 14th century, when it reached its height at inception, led to the middle class nirvana which we may well be exiting. Such exit will be whether we like it or not and whether we control it or not. The estimate of the number of people killed in the initial Great Plagues of the 1300's varies from 30% to 60% of Europeans. At the time, Europe was divided neatly between Haves and Havenots, with the Havenots doing the work of supporting the Haves.

With the plagues killing off so many Havenots, the wages of the survivors increased substantially. Not to Trumpian levels, of course. The result was also the beginning of guilding, which worked to regularize and protect the livelihoods of skilled peasants, who in a few generations progressed beyond peasantry. What we need today is a new plague. The nub however, is that OutSourcing was not an option in 14th century Europe. The internet hadn't been invented yet, and most work was physical by nature. The duke couldn't reasonably hire an Indian in Bangalore to birth a calf, much less do the fife's sums, you know.

Another couple of oft ignored factoids: in the year Before Reagan (BR) in the US, the top 1% took 8% of income, while now it is 23%; and the US, in toto, consumes about 24% of the world's resources.

Putting these three factoids together yields the following conclusion. If one were to nuke Africa, South America, and Asia, thereby eliminating about 4.5 billion humans only one of our predicaments (disappearing middle class) might be averted. With no more place to OutSource, the 1% would be forced to re-create a middle class and its current remnants wouldn't be forced to expire. That nasty part is done by others. The environmental catastrophe would be barely dented, since the per capita resource consumption of those 4.5 billion humans scarcely registers. There still isn't enough stuff on the planet to keep the US going for very long. A sub-Sharan village consumes less than an overweight, pre-diabetic, text addled teenager in Chantilly.

To save the planet, we must sacrifice upper middle class suburbs.

I submitted that around 18 October. I got my rejection about 1 November. A few days later, it was reported that world wide wages had declined. Where's a vigorous plague when you need it?

The reference to that teenager in Chantilly is an inside joke. Chantilly is/was a very affluent suburban area in Northern Virginia, which wouldn't vote for that downstate Cracker the Democrats nominated, a fact which was not yet revealed when I wrote.

Economics: As Simple as Can Be

Economists, some anyway, love models (not the willowy kind in chiffon). Most of the Right Wingnuts always call up the US of 1776 as a model of how the contemporary economic world should be shaped. They also tend to want the laws of the land to revert to what existed then. That's not the sort of model that makes much sense in today's world; not the least because there isn't an endless supply of land a few miles away to be stolen from the indigenous peoples (if we can manage to kill enough of them).

No, the kinds of models that economists prefer are those which simplify the numbers: population, distances, dollar amounts, and the like.

So, here's a model which explains where the Right Wingnuts have taken us since Reagan.

The US is not 330,000,000 but a village of 100. Our millions of goods and services are just bread and water. In this village, each week, is produced 100 loaves of bread and 100 gallons of water. In this village, 1 person takes 23 loaves of bread and 23 gallons of water. The remaining 99 have to divide 77 loaves of bread and gallons of water amongst themselves. It doesn't take much consideration to see that such a village wouldn't last very long. That 1 person would be killed, and the bread and water distributed.

That is our present and our future.