Saturday, December 3, 2011

Where We Are (2 of 3)

Read Part 1 first 

The cash piles and mountains of Treasuries sitting idly or nearly so on Western investors' balance sheets are the mirror image of a demand collapse: they are two ways of seeing the same thing.  If I recall correctly it was A. C. Pigou who said "economics is the art of making simple things complicated".  With regard to Macro-Economics, the efforts of the last two generations of PHDs has proven his point by their almost universal failure to predict the implosion of the illusory Great Moderation in a monumental financial collapse.  The so called Moderation has been revealed as the Class-Cold War it actually was. In this war, pure propaganda against all the available evidence of real outcomes, well funded by corporate managements and corporate media, has cloud and debased popular understanding in a miasma of obfuscatory complexity. While Americans have an accurate sense that the US Government no longer works for them, they have been deliberately deceived as to who it does in fact work for while for forty years it lined corporate bottom lines with productivity gains diverted from working Americans.

During the Carter Administration, while Milton Friedman and Alan Greenspan were whispering in the Presidents ear, the Supreme Court determined in Buckley vs Valeo that paying politicians bribes was a Constitutionally protected form of political speech.  This metonymy began the process of converting what had been a corrupt political forum into a spotlessly efficient political marketplace. While successive court cases have codified the structure of regulation in this market in detail, this efficiency has come at the cost of divorcing politically viable ideas from popular needs. As the upward wealth redistribution of Neo-Liberalism advanced, the political marketplace, like all market places, lost touch with poverty and real human need to focus ever more efficiently on ideas that could be exchanged for cash: it went where the money is.

The distributional magic of markets works where wage income from production is pushed outward to the broadest possible base. It is the expression of demand by the spending of this distributed income that conjures into being production for real needs expressed in the freely made spending decisions of earners. As the base narrows through unemployment, or freedom narrows through downward wage and rising cost pressure, the expressions of demand narrow with it. In a slave society there is market demand only for those things that masters want because they are the only ones with money to spend, the only signal that gets sent to the market.  So it is with the political market place. Wage earners who's productivity gains have been diverted to those same wealthy interests against whom they must now bid for representation can not compete: as the Neo-Liberal project advances and wealthy interests spend more and more on political representation it has become increasingly difficult to get the political demands of wage earners to register at all in the market-place our politics have become. If you don't have cash to beat another's bid, you have no purchase in a market. 

Markets exchange things for money. In modern industrial economies, money is the only mechanism available to individuals to command real resources. Where populations don't have money to express demand for sustenance, famine occurs. Wherever government has used its power to prevent concentration of economic power from capturing all income at the top, markets have protected societies from famine. The continuous feedback provided by representative government has been the most effective tool to sustain this government regulation of economic power across generations. By annexing government to markets, the political marketplace conjured by Buckely vs Valeo has subordinated government to market power, the will of the people to that of  rich individuals and their financial interests. These individuals have used market power to bend the government into appropriating an ever larger share of national income to themselves, and as a consequence have drained the broad base of the society of income and with it the economy of the demand that income could have expressed. Citizens denied access to money are citizens denied the freedom to participate in a modern industrial economy. Poverty prevents the market from receiving any signal from the growing body of the population subjected to it.

As the political market has become more and more responsive to ideas that can attract monetary investments in politics it has lost sight of any and all obligations to citizens, who themselves have been reduced to the status of consumers, market pawns who's only choice is from which monopoly to purchase what. As consumers the majority of Americans have been priced out of the market for politics where they must compete in expenditure for political goods with corporations now enshrined with rights greater than those of any living thing: not just all the legal rights of a citizen, but limited liability and, if well managed, an immortality no product of God's creation can match. Voting is the only right now granted to humans that remains barred to corporations. But if you can't fund the campaign you can't select the candidate. The choice you make with your vote is simply between executioners if that's what the concentrated wealth of those who fund campaigns deems the appropriate choice to be. (If this seems an extreme statement, look at what happened when Greece tried to have a referendum on its "loan package" from the ECB: chunks of the erstwhile middle class are living in homeless shelters while the Troika encourages them to immigrate. To where? This is one political decision away from a famine).

Managements of contemporary corporations, the individuals who set the corporate political spending agenda and thus the direction of the political marketplace, are employed under an incentive structure that requires them to look at the world through a lens into the future that can only focus three months out. This incentive structure causes the people accustomed to it, however decent they may be personally, to see all restraint on their decisions and all levies against the corporate income within that period in purely negative terms.  Even more destructive, as the three month ethos has been validated by the astonishing profitability of the recent years of bubble economics, rewards out of all proportion to actual performance have encouraged executives to actually consume the capital bases of their companies by leveraging future earnings into the present and paying themselves bonuses for the brilliance of the feat.

As they dismantle the productive aspects of their businesses, offshoring, downsizing or financializing them, they unload costs onto the larger economy that their ideology tells them is not theirs to bear: because they appear to be creating wealth for themselves, and to some for extent shareholders, which is mythologized as Shumpeterian "Creative Destruction", whatever destruction they wreak is by definition creative: a force for good. Money is confused for wealth. This ideology makes no distinction between wealth extraction and wealth creation since from the three month perspective there is no distinction that can be made.  This narrow and short view of both wealth creation and the civilization in which it occurs blinds these people, again however decent they may individually be, to the reality that they are liquidating real productive capacity, bankrupting their society's future through debt, or at a minimum depriving their  civilization of real capacity by moving it overseas.

From this narrow and short sighted perspective, these individuals who are wealthy and growing wealthier see the struggling citizenry as unworthy by virtue of having failed prima facie the test of Neo-Liberal righteousness, their inability to accrue enough wealth to weather the deflation that follows every bubble. This leads these people to believe absurdities such as that the United States can not afford to employ its work force, or even that it can not afford to defend itself. This is the same cupidity induced blindness that led the gold obsessed interwar French oligarchy to believe they could not afford to extend the Maginot Line. It is a confusion of money with the wealth it can call into existence, and obsessions with the former almost always preclude the creation of the latter, they confuse the idea of wealth, among the many things money can embody, with wealth itself.

Money is an IOU.  In the Bretton Woods era it was an IOU from a Treasury somewhere for gold in narrowly specified conditions of foreign trade.  In our latest chartalist experiment, since 1971, money here has become an IOU for nothing more or less than a piece the ongoing productivity of the United States. To those who whine that fiat monies always end in hyper inflation: rarely, it usually takes hundreds of years to get there and the collapse of monetary systems is always a consequence of prior political collapse rather than the other way around.  In any case, hard money always, always ends in collapse, deflation, slavery, war or the shift to fiat money.  People fare better with fiat money. As a consequence their leaders frequently choose it.  This way it is only the money that suffers.  Those who prefer the happiness of their money are telling a pretty clear story about what they think of the rest of us.

In any case, at present Japan, China and Argentina are all showing the different uses fiat money can be put to to address real needs in real productive economies.  Japan has been re-defined as a diseased condition by Neo-Liberals because for the last twenty years it has presided over a gradual increase in both life expectancy and life quality rather than the purely economic growth Neo-Liberals worship in the measures of GDP and profits. Japanese GDP has in fact stagnated despite the qualitative improvements in conditions for most Japanese because with an aging, shrinking population the utility of GDP growth to actual humans has diminished relative to the qualitative improvements the Japanese government has managed without it. Not to say Japan is a model to emulate, our demographics are different, but it has been badly misrepresented in the Neo-Liberal era.

While China's use of fiat money has been compromised by the contradictory motives of a closed and unresponsive political system, at a minimum the bureaucracy's fear of popular insurrection has kept it focused on full employment. With regard to keeping potential militants occupied and with income, it is better to build buildings that fall over, dismantle them and build them again than it is to try to force labor to eat the initial loss through unemployment, the preferred Neo-Liberal solution.  Argentina, since its default, has wrestled with both inflation and state malinvestment, but the recent election there highlights the vast popularity of a chartalist program that pushes wages up at least as fast as inflation and keeps a clear popular majority clamoring for more. It is an echo of the New Deal where we test drove and perfected all these tools eighty years ago.

The tools these nations are using now, outside the borders of the Neo-Liberal empire policed by The World Bank, IMF, NATO and USPACOM, are as available to us as they always have been.  They are the tools used by the US, the UK and Nazi Germany to lift their respective economies out of depression seventy and eighty years ago. They are tools we perfected in the 1950s that we used to grow into the richest nation on earth. As tools they are as available to the wicked as they are to the righteous, they are morally neutral, but the political figures in the position to pull their levers are in the most important sense moral agents: it is their responsibility to their nations to use the tools well.  Whether they do so or not is the measure of their morality both as individuals and as leaders.

As the sovereign issuer of a floating fiat currency with the vast majority of national liabilities denominated in that currency, nations like the US, the UK, Canada, Japan and Argentina all have the tools to put their national economies to full use, to employ all their resources of material and people.  It is a self defeating refusal to create real wealth in order to preserve the relative value of existing money assets that prevents the Neo-Liberal faithful from growing the real wealth and real prosperity of their civilizations: it is a jealousy of or contempt for follow citizens that imagines wealth is made more valuable by its adjacency to poverty.  Real wealth is all to frequently destroyed by conservative attempts to maintain it through the false belief that they can not afford to attend to the needs of those who do not have it.  If the austerity policies of the Euro Zone and the deficit hysterics in Washington are sustained for another several years the deflationary pressures that are already eroding the real economy will accelerate with the potential to destroy the real productive capacity of the West and make our next great historic vector one of collapse.

So this is our moment of change.  This is the pause before the next great vector of history. The Neo-Liberal vision for that next phase, because they so deeply believe in their myth of expansionary contraction that they are certain all destruction is creative, will guarantee collapse. We are already seeing collapse in Greece. Here in the US census figures show one third on the population either in poverty or one dislocation away from it. The healthiest, best educated and longest lived Western populations in history are considering abandoning all that because we have been indoctrinated to believe we can not afford what we already have and that to do nothing now is the best way to afford a better future. How can anyone believe this? The reality is, whatever defects there are to our methods of supporting human needs, we can not afford to give them up cold turkey, it would be lethal on an epic scale, a human disaster. We live in a modern industrial economy: if people remain too long without income they can not sustain themselves through forage or hunting.  Nor is paying increasing numbers to do nothing, as we do now, a solution. We must accurately assess our reality and deal with it, we must shed our ideologies and examine our facts. We must organize ourselves to address the real world as it is right now and make best use of ourselves and all we have access to. 

Part 3 

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