What's a Cubit?

My parents took a simple approach to child rearing: as soon as a child could step, then that child would fetch. I was a juvenile when cigarette smoking was nearly universal and ubiquitous, which meant that smokers were everywhere. Not only that, but nobody paid much attention to who was smoking. Letterman will show the clip of the Asian kid doing a French inhale, as if it's unusual. Not when I was that age.

One of the early tasks I had was fetching packs for Mom and/or Dad when the carton went empty. Down to the corner store, a Mom & Pop White American establishment not part of some conglomerate by the way, to get whatever packs were needed. Mom stuck with Viceroy for years. Pop switched around frequently. Old Gold was one of those on rotation. They're still made, by Lorillard, but are now a "discount" brand.

So, there's old gold and new gold. The nutball monetarists, Ron Paul and such, regular monetarists, Friedman and acolytes, all have a zealot's attraction to the old style, which is to say that yellow metal. The problem is that there's new gold out there, and it's called the American Dollar. And that's a problem.

For those with short attention spans, when the Europeans got wacky (mostly a German gestalt experiment), all that bond hunting money went to dollars.

[The above was written in Dec. 2011 (to be titled "Old Gold, New Gold"), but I let it go, and never finished or posted. The story continues below.]

Today's Nocera column offers up this quote: "... the explosion in executive pay and what he calls 'the financialization of the economy,' which has enriched one small segment of society at the expense of everyone else." He's quoting from a new book, (reviewed, here) 'The Great Divergence', by Timothy Noah and at Amazon. I can prove that I've pressed the financialization button for quite a while. For those who want a longer form discussion, this looks to be the book.

The tie-in with the beginning of the post is my contention, not cited in either Nocera's column or the book review, that the whole point is the financialization (Noah, according to Nocera, doesn't make this the center of his argument; here, I disagree). This is the cause, not the effect. Both Nocera and the reviewer take Noah at his word that the key to fixing the problem is better education. Tell that to the American professionals (IT, particularly) outsourced to India and such. They quite know better. No offense, but Indians aren't smarter or better educated. Just cheaper. The Service Economy is, by definition, non-productive; it's overhead. The problem isn't that we don't have enough smart people, it's that we don't have an accepted mechanism to distribute the fruits of capital in a self-sustaining way. American companies have off-shored smart work to poor countries just as they did with shoes, and textiles, and baseballs. Making a bigger bunch of highly educated Americans with no way to employ them doesn't solve the problem.

Cheaper? And how does that happen? It happens because the Powers That Be (monetarists and goldbugs and Right Wingnuts) want the American Dollar as New Gold. That requires a monetary policy which props up the value of the Dollar, and by simple arithmetic devalues foreign currencies. This devaluation is what entices American corporations to outsource. Nothing personal, just business. Now, international exchange rates are supposed, and alleged, to level the playing field between economies. After WWII, the USofA extracted by extortion a regime of monetarism which favored itself over the former Allies and the Axis Powers; basically the rest of the civilized world. And all was peachy keen until the banjo eyed love affair with Israel blew up with the 1973 oil embargo. Since then, not so much.

The other side of the equation, capital holders, is also to blame. Since capital is simultaneously cash and means of production (plant and equipment, in econ jargon), holders of capital have the option to "bet" on currency or physical production. If holders of capital can control (and they do) the rules of finance, but can't control the economic power of physical investment (they can't), guess what their gambit is? Financialization, of course. Play the game where they can make the rules. It isn't a coincidence that the vehicle of The Great Recession, residential housing, is a non-productive asset (asset viewed broadly, I must say); paying the vig has to come from rising incomes. They weren't, of course, since "investing" in housing doesn't bring new or better product to market.

The Great Recession was, at its root, about capital holders seeking extraordinary returns (blame Greenspan for setting the snowball rolling down the mountain), and getting them; on paper. They seek to enforce these gains through manipulation of contract law. Remember the AIG problem? It boiled down to the enforceability of contracts. Nothing more. AIG wasn't, isn't, a sovereign; just a company. It's one of those many cases of the tail wagging the dog. Spain is just such a victim; it was in surplus before the crash, and the debt was wholly private. The Main Stream Pundits never mention this, content to spout the Right Wingnut line of 'Spain equals Greece'. Baloney.