The Open Dimension

Commentary on social issues; politics; religion and spirituality

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Location: Laguna Hills, California, United States

I am a semi-retired psychotherapist/psychiatric social worker and certified hypnotherapist. Originally a practicing attorney, I changed careers during the 1980's. My interests include history, constitutional law, Hindustani classical music, yoga, meditation and spirituality.

Tuesday, September 23, 2014

September 22, 2014, OpEdNews

US elites beginning to realize there's a problem
By Daily Kos

The elites have noticed that their asset-bubble blowing economic schemes just aren't providing enough prosperity to keep everybody happy. And unless they can find some way to keep us peasants from resorting to the pitchforks, their wet dream of a democratic market economy as the end point of human history is in danger.
Reprinted from by NBBooks

These are important reflections of how top elites in USA are thinking, so we just have to get around to noticing and discussing them.

There were two important articles in Foreign Affairs, the quarterly journal and associated website run by the Council on Foreign Relations. Yeah, yeah, the Council on Foreign Relations and the Trilaterals and all the tin-foil hat stuff notwithstanding, the simple fact is that some very powerful and very influential people have paid some eye-popping amounts of money to be counted as members of the CFR. And Foreign Affairs has a long, and I would even dare say, proud and enviable, history of publishing important articles that signaled major shifts or developments in USA policies, such as George Kennan's July 1947 X article explaining the new policy of "containment" of the Soviet Union.

The first article two weeks ago, "America in Decay," was written by Francis Fukuyama, the neo-conservative economics and political science professor whose 1992 book The End of History and the Last Man provided unceasing thrills and pleasure to USA elites by arguing that the collapse of communism in the Soviet Union and Eastern Europe marked not only America's victory in the Cold War, "but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government." (That's what USA elites want to believe, and they get upset when we the people start showing signs that we're not happy with the new corporatist paradise they've constructed for themselves, and locked us in as their supposedly prosperous and cheerful serfs. That's a big reason why the Democratic Party's support for Occupy was so faltering and feeble.)

The gist of Fukuyama's article is that it has turned out that Western liberal democracy is not the end point of human political development, and there seems to be more history in the offing, because it has been replaced by - holy unforeseen development, Batman! - oligarchy andplutocracy. Of course, Fukuyama does not use these words, but the idea is clear enough: his subtitle is "The Sources of Political Dysfunction." His online readers certainly understood, and had no qualms about using the words oligarchy and oligarchs repeatedly.
What Fukuyama does writes, for example:
But Madisonian democracy frequently fails to perform as advertised. Elite insiders typically have superior access to power and information, which they use to protect their interests. Ordinary voters will not get angry at a corrupt politician if they don't know that money is being stolen in the first place. Cognitive rigidities or beliefs may also prevent social groups from mobilizing in their own interests. For example, in the United States, many working-class voters support candidates promising to lower taxes on the wealthy, despite the fact that such tax cuts will arguably deprive them of important government services.
And here's the important thing, as far as Fukuyama and elites are concerned:
...liberal democracy is almost universally associated with market economies, which tend to produce winners and losers and amplify what James Madison termed the "different and unequal faculties of acquiring property." This type of economic inequality is not in itself a bad thing, insofar as it stimulates innovation and growth and occurs under conditions of equal access to the economic system. It becomes highly problematic, however, when the economic winners seek to convert their wealth into unequal political influence. They can do so by bribing a legislator or a bureaucrat, that is, on a transactional basis, or, what is more damaging, by changing the institutional rules to favor themselves -- for example, by closing off competition in markets they already dominate, tilting the playing field ever more steeply in their favor.
In other words, the elites have noticed that their asset-bubble blowing economic schemes just aren't providing enough prosperity to keep everybody happy. And unless they can find some way to keep us peasants from resorting to the pitchforks, their wet dream of a democratic market economy as the end point of human history is in danger.
But it gets even more interesting, because at the same time, another article appeared in Foreign Affairs, entitled Print Less but Transfer More. This one was written by Mark Blyth, a professor of international political economy at Brown University and author of Austerity: The History of a Dangerous Idea; and Eric Lonergan, a hedge fund manager living in London and the author of - what else? - Money. The gist of their article is pretty well captured by their subtitle - and no, I am not making this up - "Why Central Banks Should Give Money Directly to the People."
...Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries' tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.
Well, it's hard not to like the idea. Trying to stop the financial crash of 2007-2008, the US Treasury and the Federal Reserve gave $12.6 trillion in direct aid to Wall Street and the banks. That's just under $40,000 for every man, woman, and child in the United States. I don't know about you, but if I had $40,000 more in my bank account right now, there would be a lot of life's petty details I could stop worrying about. What would have happened if the Fed had given each of us $40,000 a few years ago, instead of giving $12.6 trillion to the banksters? Hmm, Goldman Sachs and Citi Group and all the other Too Big to Fail or Jail banks would have been flushed down the toilet bowl of financial history, while a few million of us probably would have moved to Canada or Costa Rica.
Of course, you will discover, as you read the remainder of the article, that this idea of throwing coins, albeit lots of coins, to the plebes is not really pure, unalloyed munificence.
To reduce the gap between rich and poor, the French economist Thomas Piketty and others have proposed a global tax on wealth. But such a policy would be impractical.There is another way: instead of trying to drag down the top, governments could boost the bottom. Central banks could issue debt and use the proceeds to invest in a global equity index, a bundle of diverse investments with a value that rises and falls with the market, which they could hold in sovereign wealth funds. The Bank of England, the European Central Bank, and the Federal Reserve already own assets in excess of 20 percent of their countries' GDPs, so there is no reason why they could not invest those assets in global equities on behalf of their citizens. After around 15 years, the funds could distribute their equity holdings to the lowest-earning 80 percent of taxpayers.
Well, of course! We dare not even think of dragging down the top! Then note what a nice little scheme they propose: the central banks are not really going to mail you or me a check for $40,000 or whatever sum (which I'm sure will be much less than $40,000), but they're going to "invest ... assets in global equities" supposedly "on behalf of their citizens." I'm sure there are plenty of stock brokers and traders whose hearts are all a'flutter at the idea that the central banks of the world are about to start handing them trillions of dollars that are supposed to be invested "on behalf of their citizens." After a decade and a half, more or less, then these "equity holdings" could be distributed. The problem, of course, is the same as privatizing Social Security: there's every likelihood that most of "your" money is going to be gobbled up by management fees and commissions, if not lost to outright fraud and cheating.
And then, what are people going to do with that money? Do they actually buy a new car or repair their house? Some will, of course. But how many will immediately book a flight to Vegas, or hustle down to the local convenience store and by arms full of lottery tickets? And even if we could somehow ensure that the money handed out by central banks to citizens was actually used in economically useful and productive ways, there's this big problem the US economy has, called "imports." We don't make our own shoes or our own clothes, or our own furniture anymore. Hell, even when you buy a car that is supposedly "American-made" nearly half its content components have actually been imported. So, much of the economic boost imparted by the "central bank to lowly citizen" transfer scheme is going to be felt by China and Vietnam and whatever other cheap labor hell-hole USA corporate management has found to rip-off and exploit.

And why do the central banks have to issue debt to do this? Why not just create money out of thin air? That's what central banks do. That's what they're supposed to do. That's pretty much where much of the $12.6 trillion came from.

This is why any talk about how we need to return to Keynes and Keynesianism makes me start to pull my hair out. While Keynes' idea that government has to step in to take up the slack in aggregate demand during a depression or recession is mostly correct, the fact is, other people had the idea before him. Most notably the Mormon banker Marriner Eccles, who Franklin Roosevelt appointed as chairman of the Federal Reserve system.

But the really bad thing about Keynes is that he does not argue that the programs and projects the government funds must contribute to the general welfare. We do NOT want to simply hire people to dig holes and fill them back up again. Nor do we want to just hand everybody 40,000 bucks and wish them luck at the slots or lottery machines. Keynes does not understand or appreciate the importance of republicanism as an organizing principle of political economy. So far as Keynes is concerned, it does not matter whether or not the American Revolution ever occurred. (Much the same critique is applicable to Adam Smith, also). For Keynes, a country ruled by the people, has no intrinsic value over a country ruled by oligarchs. But there are profound implications for economic policy making here: Are you trying to sustain, uplift, and better a country of citizens? Or are you trying to buy off and placate a rabble?

This failure of Keynes is a reflection of his being a British economist, and his natural inclination to oppose and/or ignore the nineteenth century American System of political economy, in whichthe general welfare is the standard by which economic policies and results are measured.
Thus it was that in the 1960s and 1970s, the economists running things failed utterly to discern and oppose the huge flows of dirty money from organized crime that funded the mergers and acquisitions and leverage buy out booms. This was the beginning of the dismantling and looting of the US industrial base. Perhaps even more dangerous, this was this beginning of the process by which USA elites began to acquire and internalize the thinking and morals of criminals and petty tyrants. What happens when a formerly clean, legitimate company making, say, seat belt buckles, is bought out by new owners whose source of wealth was narcotics trafficking, illegal gambling, prostitution, and even arms smuggling?

What happens when 10,000 or 20,000 companies a year are bought out by dirty money, year after year, after year?

And here's another thing Keynesians blew in the 1960s and 1970s: They never understood and comprehended the technological development of a new industrial and transportation base over the previous half century, and what it all meant. From the beginning of the 1900s to the 1950s, the US economy accomplished an amazing shift from animal power, water power, and steam power, to burning fossil fuels and using internal combustion engines and electricity. Keynesians simply accepted these developments as a given, and never tried to understand them as one specific epoch in the industrial and economic development of humanity. They never attempted to ask some important questions:

How long will this technological shift last?

What could possibly disrupt this technological mode?

What new science and technologies are coming along that might possibly offer better alternatives to burning fossil fuels and using internal combustion engines?

Are there frontiers of science and technology that can be effectively promoted and encouraged?
You see, true leadership in a republic - statecraft, if you will - demands that political leaders be familiar with the cutting edges of science and technology, so as to be able to steer economic development in such a way as to assure society does not bump up against environmental and resource limitations (the limitations which Jared Diamond explains so well in his book Collapse). Part of the cutting edges of science and technology are always the attempts to identify and demarcate the environmental and resource limitations in which society's economy must operate.

In other words, Keynesians were totally unprepared to deal with the 1970s oil shocks specifically, and peak oil generally.

Which brings us back to the articles in Foreign Affairs. Last week, Jon Larson had a blog post on his website showing how poorly insulation was installed in his Minnesota house when it was built in the 1950s, and mentioning that correcting the installation and bring the house up to the highest efficiency standards would cost about $40,000. (Hmm, where have we seen that number before?)
There are 85 million single family homes in the US, and just over 30 million apartment and condo units. $40,000 multiplied by 115 million is $4.6 trillion. Sounds like a lot of money? That is just one third of what the Treasury and the Federal Reserve used to save the useless predators of Wall Street and the banking system over the past six years - and what have we got to show for that?

The Scandinavians build houses that are so well engineered and so carefully constructed that they are beyond efficient. A new Scandinavian house can keep its occupants warm from just their body heat and the heat thrown off by a pc, a few appliances, and the light bulbs in use. That's pretty damn impressive, for being only a couple hundred miles from the Arctic Circle. But they don't build such structures using the cheapest labor they can illegally import. As Larson points out:
There are reasons for shoddy insulation. Installing it can be very unpleasant. The job is usually given to the lowest guy on the totem pole. It becomes just another task to finish as quickly as possible. Worse, [USA] architects take 50 times as much time selecting the bathroom tile than designing insulation systems and rarely design sufficient space for them.
And let's be truthful here - if you were to actually make your house as efficient as possible, meeting the highest USA standards, you would have accomplished more to reduce your carbon footprint than attending a dozen marches demanding action from our corporatist overlords. What are people demanding now to stop global climate change? Cap and trade? Carbon offsets? How about a $4.6 trillion program over the next five or ten years to radically rebuild and upgrade every single damn house and apartment building in America?
I want to end by pointing back to something Ian Welsh wrote back in late March:
Political decisions are important: in 1929 Hoover, the Fed, and later FDR did not bail out the rich. They were allowed to lose their money, and thus much of their power. That was a decision: another decision could have been made, and in 2008 it was made: the rich were bailed out. It was made differently in 2008 because the rich have spent the last 80 odd years obsessing over what went wrong in 1929 that allowed FDR, the New Deal and everything which flowed from it. Ben Bernanke's entire career was "how do we make sure the rich don't lose their money so that FDR doesn't happen." He was chosen to be the Fed Chairman precisely to ensure that the next Great Crash, which everyone who wasn't an idiot knew was coming, wouldn't wipe out the rich.
Make no mistake: the articles in Foreign Affairs are clear signs that USA elites are starting to worry that more and more of us are beginning to demand solutions that will, inevitably, have to either take away the wealth of the rich, or take away the power of the rich to create and allocate new money and credit.

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