Ontology of Our Kleptocracy

There is a persistent version of how representative government decays that claims electorates elect representatives who best bribe them for their votes. Despite being an even more perfect inversion of the present observable reality, this trope enjoys the same well funded repetition as the barter myth for the origins of money. In fact our representative government has decayed as its entrenched winners discovered the prestige of their wealth allows them to get away with bribing elected officials to eliminate whatever historical laws once constrained them. In this way they further entrench their existing advantages, advantages that yielded up the funds for bribery to begin with. It is a recurring process of decay that ends representative government and, along with it in our case, capitalism. Historically this evolution has lead to popular tyrannies where members of the kleptocratic elite endorse broad populist programs and usurp power from the corrupted institutions of the erstwhile representative system. We may not be so lucky this time as the innovations of modern capitalism have changed the meaning of money and information technology has exponentially increased private control of information flows.

The modern era, by which I mean the period since the industrial revolution, has seen both explosions in human population and in dependence on monetary economics. Both are huge changes but only the former garners popular attention. By and large, agriculture was the economy until quite recently. Folks who would like to see a hard money system, self proclaimed capitalists tend to be fond of this notion, need to explain how they intend to ensure the distribution of money that makes modern post agrarian life possible for most of humanity. Because we now live in urbanized market based economic systems where the great preponderance of the population has no access to the fruits of the land, this issue of the distribution of money is paramount to the survival of people, almost everyone. Without money the expression of demand in markets is impossible: if money is a finite thing, as it was on the gold standard, and if it is subject to the concentrations and even hoardings capitalism periodically conjures, how does one insure the distribution of money necessary for general survival? Economic or otherwise?

The New Deal was a coordinated infrastructure of political economy built to serve this purpose. Interestingly it functioned equally well both on and off of a gold standard. This is because the system was built around the needs of the real economy by people who understood the deep operations of monetary systems well enough to build real constraints on finance adequate to preventing open and concentrated expressions of money power. In addition, the system focused intensely on the distribution of money. You can not have a capitalist market system in the absence of demand, and in a market economy the only mechanism for the expression of demand is the spending of money to make purchases. The New Deal saw to it that the people who worked and through their increasing productivity increased the standard of living of society at large captured an equitable percentage of what productivity gains they brought to the businesses of their employers, and thus had money to spend to express demand.

Beginning about 40 years ago, our corporate elite, as advised by the Powell Memo embarked on a program to restructure the political economy for the benefit of the owners of capital. The memo outlined a broad program with plans for addressing academia, television, other media, journals, journalism and publishing, advertising, politics, the courts, shareholders and anti labor ideology. The collective action problem the New Deal had after fifty some odd years of progressive politics finally tailored institutions to solve came systematically under fire from the concentrated interests of businessmen who had no particular interest in the collective good, who in fact saw that as a constraint on their own interests. The concentrated interests of the wealthy then took each of the points Powell had struck and built new institutions aimed at attacking each of the New Deal structures built around them. It began as an ideological attack on liberalism and has resulted now in a market based political system where only money can express political demands.

This has not been a process of the masses living irresponsibly and voting for public officials to bail them out: quite the opposite it has been a process of elites living increasingly extravagantly irresponsible lives, both in their finance and politics and then paying for the campaigns of public officials who have  bailed them out equally extravagantly. While we hear political insiders like Michael Kinsley talk of sinners who must suffer, they certainly don't mean the financiers, capitalists and their political and judicial cronies who have caused a return to pre New Deal wealth distributions and the associated overall miserable economic performance. They mean the "masses" who in their minds have somehow earned the poverty to which the irresponsible  behavior of finance has consigned them while their anti labor ideology has deprived these victims of income and even the opportunity for it. It has been a deliberate effort elaborately funded by the likes of Peter Peterson, the Koch brothers and most all of the lords of finance. A narrow and dwindling elite has purchased our political system and destroyed therewith our economy and want us to believe it our own fault and that we, not they, have lived irresponsibly.

They have usurped the public air waves by abolishing the "Fairness Doctrine", they have destroyed bargaining power of workers by destroying organized labor, they have corrupted the courts by packing the bench with their ideological cronies, they have de-criminalized the broadest possible array of financial frauds under the rubric of "de-regulation" as if regulation were something other than law, they have made available the public treasury to the looting of high finance, they have instituted a reign of permanent war in which the dissent of any who may become effective can be construed as treason, they have implemented an "intellectual property" regime where copyright never lapses and common rights have been abolished, they have made bribery the essential qualification for both policy "expertise" and electoral suitability. This is not a popular program to subsidize a popular degeneracy: it is an elite policy program to subsidize in every conceivable way an elite without even the slightest pretense of public interest or concern. In fact it is an elite both openly hostile to and exploitative of everyone not a part of it, and increasingly the margins of the elite itself.

links

More On The Neoliberal Endgame: Joseph Stieglitz: The Guardian
China Attempts Endrun Around Neoliberalism: Golem XIV
Neoliberal Bad Faith Drops Its Mask: Michael Stephens: Multiplier Effect
Mr Indispensable: The Epicurean Dealmaker
The Answer To Everything: John Baez: Azimuth

Links

The Mother of Invention: Steve Waldman: Interfluidity
Gold That Does Not Glitter: Golem XIV
The Problem With Poor People: Michael Smith: Stop Me Before I Vote Again
The Crumbling Case For Austerity: Paul Krugman: NYROB
UDSA s Subsidiary of Monsanto: David Swanson: RSN
The Thomas Friedman Porn Title Contest Winner: Matt Tiabbi: Rolling Stone

Links

Economics Of Status: Kevin Simler: Ribbonfarm
Insufferable Conceit: Sell On News: MacroBusiness
What Privacy Is For: Julie E. Cohen: Social Science Research Network
David Graeber Interview: Lynn Parramore
Hydroptere: Anna Edwards: DailyMail (check out the video embedded)

Financial Repression: Why Daddy Won't Give You A Porsche

A clever term of art, casting conditions in a light flattering only to the hoarders of money like assets, financial repression is said to occur when fiscally sovereign governments hold interest rates below the rate of inflation making such hoarding a money looser.

Within the edifice of our current economic ideology where acquiring money is prima facie evidence of righteousness, that the avatars who've succeeded in this sacred quest should loose a nickel while they wallow in their hoards is a crime against the arch-virtue of avarice. Not satisfied with wealth as its own reward, these Mammonites want it working for them even when they want no one else to. In fact they currently whine about the iniquity of a government that refuses them rents on their hoards even as they themselves attempt to both steal the last nickel from and dis employ everyone who does not rely on rents for income. It is the plutocracy that claims to be repressed by their inability to extract what little wealth remains outside their present spoils and that there exists, at least for the moment, one channel through which the government will not guarantee them money.

This kind of abuse was instrumental to the communistic growth endured by the United States and the Western world from 1946 to around 1980, in the wake of World War II, when frothing New Dealers cheated the wealthy by insisting their assets be productive in the real economy to preserve what value they could for their legacy of financial claims. In that dystopian past, where spalpeens with grease stained cuticles skimmed half all earnings through the indignities of diaphoresis, repression leached what reservoirs remained from that eclipsed gilded age traduced at its apotheosis by the class traitor Roosevelt. At just the moment when the Righteous finally grasped the financial power to liquidate a seditious rabble who's inattention to the virtues of lucre had manifest as their own debasement, this usurper clove finance from the sinews of the state and set back his class four generations empowering the poltroons, miscreants and dastards of Main Street.

On the other hand, if we grant the incentives on Wall Street might be more attractive to poltroons, miscreants, dastards and spalpeens, this begins to suggests perhaps the sweat and dirty fingernails on Main Street may actually be where real wealth is being created. From this we might suppose that the elevated levels of unemployment Wall Street has relished these past four decades may account for some significant proportion of the dysfunction in our economics. In fact from a purely real point of view the repression inherent in unemployment for those who seek work is a great deal more constraining and actually threatening to physical well being than the financial variety ever is, affecting as it does only the accounts of paper wealth. Not to suggest that paper wealth is without worth, but it only has worth to the extent it is deployed in the real world to engage real resources in productive manipulation or exchange.

This is the crux of the matter: money is a social contract and nothing more; it has value to the extent it serves social purposes by making the society that uses it stronger in some way; the primary purpose of state issued money is to pull forth the productive use of real resources within that part of global exchange system from which that government commands real resources; to the extent that private money is allowed through the creation of private debts this is to encourage productive behaviors better performed by markets than government. At present, however, the vast preponderance of private money/debt is not being deployed toward socially useful production, it has been re-deployed as a paper wealth extraction machine. The decriminalization of all manner of fraud under the banner of deregulation has perverted the incentive structure inherent in markets to reward fraud above everything else. What honest business can sustain itself in the face of competition from frauds who benefit from decriminalization? Where indirect theft is a legal business, it is only a matter of time before it is the only business.

Once in a largely decriminalized economy of frauds, what stake does any fraud have in real production and real wealth creation? The fraud business model of the deregulated economy gravitates to pure extraction as that is where it finds the least risk: simply taking previously created wealth through fraud, now legal, is much less risky than actually investing in the uncertain business of trying to make real things better with and for real people in the real world. Having recognized that fraud is now a dominant business model in the American corporate economy, particularly in finance, and that it will not be prosecuted and that as a political issue this is beyond the usufruct of the Fed, the Fed has at the very least said it will not reward the looters at the top of the food chain of fraud to sit upon idle piles of money and receive rents for it from the government.

So daddy is old and feeble now at the Fed. He won't scold you for stealing and he won't ground you for cheating your family and friends. He won't take anything away from you that you already have, but as tired and weak as he is, he bloody well won't give you a Porsche either. So quit your insipid whining about financial repression and get back to the bald face theft your are best at.

Links

There Is No Alternative: Henry Farrell: Aeon
On Being A Banana Republic: Steve Waldman: Interfluidity
Greece Trap: Niamh: Crooked Timber
Can We Face Success?: Stephanie Kelton: NEP
Barking Economists At IMF: Erinc Yelden: TripleCrisis

Links

Money In Africa: Bernhard Warner: BloombergBusinessweek
Give That Cop A Donut: Clark: Popehat
What You Can VS What You Should Extract: Bill Gurley: Above The Crowd
The Hijacking Of Human Rights: Chris Hedges: Truthdig
What Rights, And Why?: Glen Greenwald: The Guardian
Banksters In Action: Yanis Baroufakis

Links

An Aside To My Readers: The Arch Druid Report
A BitCoin Requiem: Randall Wray: Great Leap Forward
Which Sounds More Realistic? You Decide: Slackwire

What Reinhart and Rogoff have to answer for:
Starving In Greece: Liz Alderman: NYT
The Kids Are (Not) Alright: Blow: NYT
Catalonia Stares Down ECB: Reuters: The Guardian
Malign EMU: Ambrose Evan-Pritchard: The Telegraph
ATMs Run Dry In Cyprus: Reuters: The Guardian
Elementary Misuse Of Spreadsheet Leaves Millions Unemployed: Bill Mitchell: Billyblog

Links

Warren And Our Regulators: YouTube
Bitcoin As Fable: Bryan Goldberg: PandoDaily
Bitcoin Ecological Disaster: Mark Gimein: Bloomberg
China's Challenge: Michael Pettis
The Financial Hit On Cyprus: Of Two Minds: Charles Hugh Smith
Creeping Advance Of The Police State: Nick Pinto: Village Voice
Radical Centrism: Macroeconomic Resilience
Notes On Identity, Institutions And Uprisings: Tom Slee: Whimslee

Links

Two Bits About Bitcoin: Lord Keynes
Practical Utopians Guide To The Coming Collapse: David Graeber: The Baffler
Accounting Regulations Can Change: Bill Mitchell: Billy blog
Incentivized To Cheat: Lynn Parramore: Salon
Looting Of America: RT: NEP
Two Hulls: MacKay-Syons Sweetapple Architects

Crushing The Slave Revolt In Cyprus

Until last weekend, Cyprus was seen as a sort of Delaware of the European Union: a state within a larger union with pointedly transparent tax and regulatory advantages. Unlike typical "offshore banking" destinations, say the Cayman Islands (UK), the Isle of Man (UK), the Seychelles or the Bahamas (note the British affiliations here), Cyprus was quite open and legalistically committed to that openness through bilateral tax agreements with most of the nations who's nationals did business or banking on the Island. Like Delaware in the United States, the corporate law in effect in Cyprus made it an advantageous place for companies that did business elsewhere to incorporate.

The bilateral tax treaty in effect with Russia combined with the British based legal system (same one that smiles on all those other islands listed above) to make it particularly attractive to Russians. Sadly for Russians this is because the mafia governing their periodically great nation gives its hard working countrymen every incentive to expatriate earnings, if not themselves, to preserve what wealth or life they can against a blatantly authoritarian and violence prone state. In a sort of Stalinist reprieve, by ceding power for a moment to the "reformer" Medvedev, Putin was able to empower his domestic opposition to expose themselves to the crackdown he is now, back in power, pursuing. So the self stigmatization Russia has embarked on has been pressed into service to stigmatize the Cypriots who afforded some Russians some legal and economic shelter.

I don't doubt that corrupt and crooked Russians did business in Cyprus. They probably won't any more. But then what with the London Whale, LIBOR, robo-signing, rampant foreclosure fraud, MF Global, HSBC money laundering and a near limitless list of like felonies American banks are documented to continuously engage in under the grateful eye of the regulators they pay, and in the future will no doubt employ directly, I find the "Russian money laundry" meme with regard to Cyprus ironic (if not gallingly hypocritical). That anyone continues to buy this rubbish is evidence of the masterful propaganda instrument the C suites of our profit driven media have happily transformed their institutions into. If the Feds are to be cut in on the take in all these crimes, why shouldn't media executives be as well? One must admit the money's been great so far.

So it came as something of a shock to the system when the people's representatives in Cyprus actually represented the people, blocking the bald theft proposed by the Troika and forcing for the first time the disembodied head of the European Union to consider the causal chain that historically led to the present tradition of creditor seniority culminating in deposit insurance. That affront to disembodied power has now been repaid by destroying everything else in the Cypriot economy but insured deposits. The Troika obviously didn't even consider what the consequences of eliminating all commercial liquidity on an island of several million might be, unless they are simply psychopaths and don't care (a real possibility, unfortunately).

So frightened in 1804 was the elected oligarchy (what else can you call the "representative" government of a slave state?) of the United States that when Haiti achieved its independence the American response was to impose on it reparations to France, making Haitians purchase the freedom their friends and families had already fought and died for. This is exactly the kind of "sanctity of contract" our current oligarchs here and abroad insist on when applied to the powerless and quite similar to what the Troika has imposed on Cyprus. So where the American financial system has in these last four years, through forgeries of deeds, titles, allonges, and innumerable other foreclosure documents hopelessly clouded the owner ship of real property, an "achievement" it took Soviet Communism eighty years to accomplish in Eastern Europe, the Troika is attempting to do in Cyprus in months what it took centuries to "accomplish" in Haiti.

May the bastards responsible burn in hell.

Links

Noah Becomes A Keen'sian?: Noahpinion
The Voice Of Reason: Warren Mosler: Center Of The Universe
Technologies That Might Change Everything: Contrary Brin
Modify Your Dissent: Peter Frase: Jacobin
Laura Ellen Bacon: Contemporist

Links

It Only Becomes a Solvency Crisis Once Banks Have Covered Their Losses With Your Money: Michael Pettis
Plunderball, or How The Banks Intend To Take Your Money Next Time: Golem XVI
Eric Holder Makes It Official, Crime Is The Economic Model: Randall Wray: Great Leap Forward
A Crack In Krugman's Defense Of The Left Flank Of "Responsibility: Randall Wray: Great Leap Forward

Links

Our Fiscal Anorexia: J D Alt: Naked Capitalism
Welcome To The Police State, Part 1: David Kravets: Wired
Welcome To The Police State, Part 2: Jon Swain: The Telegraph
The Myth Of Debt: Chris Cook: Herald Scottland
The Animal Promise: Rick Bookstaber

How Money Became the Root of All Evil

When agricultural civilization first crystallized, those at its center imposing order on the newly concentrated population needed tools to organize the distribution of the fruits of the newly intensive agriculture, itself the necessary antecedent to the population concentration, to civilization itself. The benefit of concentration was emergent in the numerous technologies the now concentrated population invented in time freed from the burdens of agriculture. While a fairly thin slice of society overall, the urban cores became diverse, creative and protean. This is not because that is what they set out to do, but the result of the opportunities density afforded unplanned. This protean creativity yielded up disparate and unanticipated new artifacts and operations that the central administrators of the harvest had to figure out how to manage to coordinate benefits ensuring sustainability of the whole. Money was invented to solve this coordination problem. By setting a measure of value, initially based on a survival ration of the harvest, a standard unit of value was agreed against which other economic values could be measured.

This innovation, the invention of the system we call "money", allowed the central authorities to monitor and regulate the distribution of grain while at the same time establishing the relative value of other economic activity against the yardstick of the survival ration. So long as the survival ration remained at the center of the system the essential and primary distributive function of a money system was manifestly obvious: lack of money was in a fact of life identical to lack of food and starvation. For central authorities to allow this was an obvious breech of trust within society at large: where money was food the moral obligation of distribution was impossible to ignore. Power to plan that distribution, essential to the survival of both individuals and society was the legitimizing activity of central authorities and failure on this count was morally obvious and equally obviously destructive to the interests of society at large. Money is a central tool of power and properly used the legitimizing force behind concentrated power. But the further we have moved from this initial civilized application of the system the easier it has become to loose sight of the essential distributive function that legitimizes the power and attendant coercions that come with the system.

So long as the unit of grain is itself the "money thing" around which the money system revolves a certain clarity of values is self evident. Once a gold shekel displaces a shekel of wheat metonymy sets in and the represented value in the gold displaces from consciousness the actual value in grain and money quickly becomes an end in itself. This value shift occludes behind sparkling metal the humane and legitimizing distributive function the system was invented for and tempts power to the now abstracted value of money as an idea divorced from morality or the legitimacy of centralized power. By the time this happened centralized power was established enough it could without fear default on its distributive function by enslaving those deprived of money simply by forcing them to labor for food, otherwise unobtainable once the monetary unit no longer contained it and central stockpiling of grain was replaced by the stockpiling of gold. It is much easier to justify impaling someone stealing your precious metal than someone stealing food from a stockpile who's existence is starving them. This is the moment when the love of money became, as Jesus said, the root of all evil.

Make no mistake, money is a system, no mere thing. It is a very powerfull system that can be used to concentrate coercive power or distribute economic benefits depending on the motives of those who control the system. It is their choices that give our abstract money what moral meaning it has and with their decisions those who control it can do great good or harm. At the moment in the Western world they choose to do great harm and their love of money lives up to its New Testament billing.