A CAPITALIST'S DILEMMA! EFFICIENCY Vs. JOBS

I've talked about this before. How Automation and Cyber world has changed our Economic dynamics. Why we will have a stagnant high unemployment and stagnation of mean family income.



Wayne Radinsky Yesterday at 12:43pm near Denver, CO ·

A Capitalist's Dilemma, whoever wins on tuesday. Clayton M. Christensen, author of The Innovator's Dilemma (where companies fail even though they do the "right" thing because of disruptive innovations) describes an analogous "Capitalist's Dilemma" affecting the whole economy. He breaks innovation into 3 categories: "empowering", "sustaining", and "efficiency", where "empowering" innovations create new industries and lots of jobs, "sustaining" innovations incrementally improve existing products and neither create nor destroy very many jobs, and "efficiency" innovations make industry vastly more efficient and wipe out lots of jobs, and surmises that the problem with the world today is that all the innovation is on the "efficiency" side. He never makes the connection between "efficiency" innovations and AI and robotics and Moore's Law and advancing computation power, and how we're headed to an eventual future where machines do all the jobs (which won't happen in our lifetimes and certainly not in Clayton Christensen's, since he is 60 years old), and makes policy recommendations to "fix" the problem that are unlikely to actually fix it: change the metrics used to measure "profit", change the capital-gains tax rates (so that there are zero and negative capital gains taxes for long-term investments), and change the politics -- get rid of the idea of taxing the 1% and "wealth redistribution" and instead give the wealthy a reason to invest (by which he means we have too high capital gains taxes and need his idea of zero and negative capital gains on long-term investments).

http://www.nytimes.com/2012/11/04/business/a-capitalists-dilemma-whoever-becomes-president.html?pagewanted=all

Wayne Radinsky Higher returns on capital than labor is what you would expect when machine intelligence advances well enough to compete economically against human intelligence; see http://www.youtube.com/watch?v=GPaf9YGz6Es


Another talk about stagnant jobs production.

3 conservatives who deserve blame for the Republican destruction of the economy

By:  ROBERT SOBEL | MAY 28, 2012 | Examiner.com

Alan Greenspan, Federal Reserve Chairman

When the economy crashed in 2008, the markets on Wall Street went into panic. Big banks and investment companies started pulling their hair out, not knowing what the next day would bring. Despite backlash, President George W. Bush signed a bailout of the banks on wall street for over $700 billion, paid for by the taxpayers. The economy across the board, from the auto industry to the housing market, was in disarray. The question needed to be asked: What caused this mess?

The blame game came fast and furious. Democrats were quick to point their finger at President George W. Bush, blaming massive unpaid tax cuts, deregulation on businesses and two wars for the bad economy. Republicans blamed the Democrats in congress for not cooperating with them and pushing too much regulation on business. There are three men who need to be identified for the economic downfall and to find these men, you have to go back over three decades, to election night in November of 1980.

1. Ronald Reagan - It happened on November 4th, 1980. The United States was at a crossroads, with high oil prices hurting the economy and the Iran hostage crisis making the front page of all the newspapers, Ronald Reagan defeated incumbent president, Jimmy Carter, in a landslide. Reagan was sworn into office on January 20th, 1981 and the "Reagan Revolution" was under way. Reagan implemented supply side economics, or Reaganomics, which was the idea of drastically lowering the tax rates, primarily on the wealthy, so they could have extra money to create jobs. In theory, the wealth would "trickle down," but the reality was much different. As Reagan lowered the top tax rate from 70% when he entered office, to 28% by the time he left eight years later, Reagan had tripled the national debt because of the lack of revenue brought in by the government. In order to make up for massive losses, Reagan raised taxes eleven times, but the taxes that were raised hit the middle class the hardest.

In 1982, Reagan implemented a five cent per gallon gasoline tax and also increased taxes on the trucking industry. The following year in 1983, Reagan increased the tax on Social Security, which was designed to keep the program solvent for many years to come as the baby boomer generation entered their retirement years. The issue that the program ran into was that when the 1983 Social Security tax plan was passed, it was designed to hit close to 90% of all wage and salary incomes, but as the richer became richer and low and middle class Americans began to struggle, the amount of taxable income lowered. By the time the economy crashed in 2008, only 83% of wages and income were eligible to be taxed for Social Security. The tax hike hit the middle class hard, as the wealthy ran all the way to the bank.

Of all the pieces of legislation that Ronald Reagan desecrated during his time in office, the Sherman Antitrust Act might be the most important. The Sherman Antitrust Act was passed in 1890 and prevented businesses from reducing competition in the marketplace and even required the federal government to investigate companies that were in violation of the law. Ronald Reagan decided to stop enforcing the Sherman Act and within a few years, local businesses started to dry up and big companies began to take over. Local convenient and hardware stores were disappearing while Walmart and Target stores began popping up more frequently. Ronald Reagan's policies catered towards the wealthy and put the economic weight on the shoulders of the middle class and the poor.

2. Alan Greenspan - While Reagan's policies were disastrous, it was the men who were around him and in his ear that are just as much to blame. In 1987, Ronald Reagan named Alan Greenspan as the chairman of the Federal Reserve, but Greenspan's influence has been felt within the Republican party for years. Greenspan was the chairman and president of a major economic consulting firm in New York City, Townsend-Greenspan & Co. Inc, but between the years of 1974 and 1977, Greenspan was the chairman of the Council of Economic Advisers for President Gerald Ford.

Greenspan had a major influence in 1983 when Reagan decided to alter Social Security. Knowing that Reagan needed to make up the debt he was piling up, Greenspan suggested that money be taken from the Social Security trust fund, and replaced with IOUs. While the 1983 Social Security bill helped the program in the short term, its long term effects were damaging.

Today, Greenspan is best known for the massive deregulation he put on banks and other financial companies and the low interest rates he would enact in the early 2000s. Alan Greenspan's love of low interests was shown in even more detail in the 1980s. According to his book, "Rebooting the American Dream," Thom Hartman points out that over a 25 year period, CEOs saw their compensation rise from 30:1 in 1980 to 500:1 by 2004. The trickle down theory of Reaganomics was proving to be false, the money went to the top and stayed there. As the wealthy saw their pay increase, wages for low and middle class Americans stayed stagnant. Americans could no longer earn a living wage and spend to provide for their family, they instead were given a life line. In order to fill in the "wage gap" created by income inequality and low wages in the 1980s, Greenspan led the charge to open up the credit line to Americans who couldn't really afford it. Instead of working, earning a paycheck and paying for goods, Americans were borrowing, buying and maxing out credit cards they couldn't afford to pay off.

If Greenspan opened the credit lines in the 1980s, he opened the floodgates in the early 2000s by letting Americans use their home equity as their own private bank. Sub prime mortgages were given out, giving people the impression that they could afford a home they really couldn't. When the housing bubble finally burst, Greenspan spoke at a congressional hearing stating that he "made a mistake" in thinking financial firms could regulate themselves.

3. Jude Wanniski - While Reagan and Greenspan are more recognizable, Jude Wanniski was just as instrumental in how the United States moved forward. Wanniski was a conservative commentator and economist who was the associate editor for the Wall Street Journal from 1972 to 1978, until he was caught promoting a Republican candidate for senator which was considered an ethics violation. He gained success as an economic advisor for Ronald Reagan in the 1980s. It was in 1976, however, that Wanniski began toting his "Two Santa Claus" theory to prominent Republicans.

The "Two Santa Claus" theory states that while Democrats are often looked at as a "Santa Claus" for creating such important programs through government spending like Social Security, Medicare and Medicaid, the Republican party needed to find a way to force the Democrats to also be an "Anti-Santa". Forcing Democrats to raise taxes, Republicans could appear to be the party that not only cuts taxes on the American people, but also gives Americans the same benefits, not by the federal government, but instead by the private sector. The theory sounds nice, but in reality, the goal of business is to make a profit, not create jobs or give benefits to Americans, especially those who don't have enough income to increase the profit of the business. Today, the "Two Santa Claus" is alive in well in the Republican party and the American people continue to fight it.

Whether it's President Ronald Reagan, Alan Greenspan, Jude Wanniski or other prominent conservative advisers like Art Laffer, the seed of economic destruction is deeper than just blaming President Bush. George Bush might have knocked the pins down, but the Reagan administration set the pins up and got the ball rolling.

Slavery By Another Name, The Prison Industrial Complex

Slavery By Another Name by Devon DB

Slavery By Another Name: The Convict Lease System

After the Civil War, the 13^th, 14^th, and 15^th Constitutional amendments were passed which aided newly freed slaves in being equally treated under the law, or so the story goes. The fact of the matter is that slavery was- and still is- completely legal in the United States, but it took on a much different form. The institution of slavery changed as instead of having the direct enslavement of blacks with an entire apparatus that had to be created to keep slaves in their condition, elements of the state apparatus were used to enslave blacks, namely the legal and prison systems. Yet, the enslavement itself was changed as black convicts were no longer slaves to individual masters, but rather they were enslaved to the companies which they were leased out to. To create this system there not only had to be the involvement of the Southern judicial system and individual Northern and Southern elites, but also the involvement of the corporation and reinstitution of slavery within a corporate context.  

The 13^th Amendment

To attain a full understanding of the convict lease system, there must first be a reexamination of the 13^th amendment. It has been stated in history books and in classrooms across America that this amendment ended slavery, yet this is quite false. The 13^th Amendment states “neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.” [1] (emphasis added) Thus, slavery is completely and totally legal if it is part (or the whole) of a punishment for someone who was convicted of a crime.

When debating the 13^th amendment, many in Congress were not thinking of slaves, but rather white labor, with Senator Henry Wilson saying “The same influences that go to keep down and crush down the rights of the poor black man bear down and oppress the poor white laboring man.” [2] Senator Richard Yates of Illinois was much blunter, stating that he had “never had the negro on the brain” [3] when discussing the amendment. Such notions are in the absurd! Wilson is correct to an extent when he argues that both slave and white labor are oppressed by the same system; both are oppressed in that they are being manipulated and played off one another by the elite of both the North and South. Still, Wilson ignores the fact that white labor was very much less oppressed than black slave labor as white laborers were seen as human being, deserving of dignity and respect, rather than treated worse than animals. White laborers were free to do as they pleased, not having to worry about ensuring that they consistently had papers on their person as to prove their freedom.

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The passing of the 13^th amendment should be examined within the context of an economic competition between black slave labor and free white labor. The South’s economy was built around slave labor and the ability to have the slaves produce more than they were ‘worth,’ seeing as how slaves were viewed as not just general property but a long-term economic investment which helped the Southern plantation elite. Yet, due to the existence of slavery, white labor suffered as not only did they lose out on the income they were making when slavery was first introduced as well as the potential future income, but also white labor was unable to make advances within the South as slave provided a source of labor that was less expensive in the long-term.

Senator Henry Williams illustrates these points and other problems that white labor had with slavery. He stated that

slavery was evil because it destroyed much of the richest land in the South; it degraded labor and the meaning of labor for poor white working men in the South; it robbed the South of culture by degrading the efforts of laborers; and it allowed southern aristocrats to further insult northern white workers by demeaning their laboring efforts as crabbed and mean. It was the association between labor and slavery in the minds of southern aristocrats that demeaned the efforts of industrious northern laborers. Thus, slavery pulled white workers down in two ways: one, by direct competition with slave labor in the South, and two, by associating all the industrious efforts of workers with those of the degraded slaves. [4] (emphasis added)

Thus, the only way for white labor to triumph in their struggle for rights such as a fair wage and regular working hours was for the abolition of slavery. White labor had a direct interest in the nullification of slavery. Yet, there was a difference of opinion in the minds of Southern elites who wanted to continue slavery, but on different terms.  

Southern Elites

Before discussing the Southern elites, one must first examine it within the context of the Southern economy after the Civil War. It was utterly in shambles, one could make quite the argument that it had been decimated and demolished in virtually every conceivable way. The entire economy of the South was built upon the institution of slavery and agriculture. With the end of the Civil War, not only was the Southern economy damaged by the freeing of black slaves, but also the land was deeply scarred and hurt, thus creating an immediate economic problem. However, among all of this there was an opportunity reorient and reconstruct the economy around a new labor source as cheap labor would be needed to rebuild the region.

The social order must be examined as well. While the slaves were now free and able to do as they pleased, there was still a deeply embedded racism within the minds of Southern whites. Just because blacks had fought in the Civil War did not suddenly mean that the perception of blacks had changed; rather to the Southern elites, they still viewed blacks as inferior and only good for labor, longing to perpetuate the slave system but within a new industrial framework seeing as how the agricultural framework had been destroyed. This new system was to be found in the convict leasing.

The leasing out of state convicts to private hands has its basis in the minds of such people as John T. Milner of Alabama. Milner was no ordinary man, rather he was a Southern elite who “was in the vanguard of that new theory of industrial forced labor,” writing in 1859 that “black labor marshaled into the regimented productivity of factory settings would be the key to the economic development of Alabama and the South.” [5] Milner’s idea of using regimented black labor can be seen in his involvement of a project for the Blue River, a railroad company, in Alabama. In 1859 he issued a plan for the laying of rail in Montgomery, “presenting statistical evidence to demonstrate the potential economic benefit to Montgomery of securing connections with Decatur,” a city north of Montgomery. He argued that the Blue River could build its own track in nearby Jones Valley with the use of slave labor. Yet, in Milner’s mind, this slave labor had to be managed by whites. He stated “A negro who can set a saw, or run a grist mill, or work in a blacksmith shop, can do work as cheaply in a rolling mill, even now, as white men do at the North, provided he has an overseer, a southern man, who knows how to manage negroes." [6] (emphasis added)

After the end of the Civil War, Milner’s plan changed, but he was convinced that “the future of blacks in America rested on how whites chose to manage them.” [7] To this end, in the 1870s, he moved with purpose to acquire the black convict labor that Alabama’s prisons were offering up. He took these convicts and put them to work in coal mines, treating them barbarically.

Records of Milner’s various mines and slave farms in southern Alabama owned by one of his business partners- a cousin to an investor in the Bibb Steam Mill- tell the stories of black women stripped naked and whipped, of hundreds of men starved, changed, and beaten, of workers perpetually lice-ridden and barely clothed. [8] (emphasis added)

Black Americans, many of them former slaves, were essentially re-enslaved but within the context of a corporate structure with an alliance between the state and the corporation. Yet, the judicial system was greatly involved in allowing this to occur, from the laws passed to sheriffs selling of convicts to companies.  

The Judicial System

In order to allow for the convict lease system to exist and for blacks to be reduced to their former state as a labor source, it required that the law limit the rights of blacks and criminalize black life to the point that blacks could be imprisoned on the most frivolous of offenses. Such laws took the form of Black Codes.

To understand the creation of Black Codes, it is necessary to understand the social order that motivated elites to push for such legislation. North Carolina is a prime example. After the war, the elite would have preferred the system to revert back to the status quo that existed under the slave system, yet this was not possible due to the liberation of blacks and free whites caused by the destruction of the slave system. This problem was greatly exacerbated by the fact that “in suppressing the war to dissolve the Union the whites were deprived of arms while many Negroes had easily obtained them,” thus “A general feeling of insecurity on the part of the whites” resulted. [9] Armed blacks were a threat to elite interests as by being able to defend and protect themselves; blacks would be able to ensure that they would not be re-enslaved. Furthermore, it presented a problem to the overall white power structure as having weapons would empower blacks to stand up for themselves and assert their rights not only as Americans but also as human beings and such a situation bought the memories and worries of a slave revolt back to the forefront of the minds of elites.

To put blacks back ‘in their place,’ the elite pushed several laws that were passed in the state legislature such as defining “a Negro as any person of African descent, although one ancestor to the fourth generation might be white.” [10] The fact that racial identity was dependent on the mother rather than the father made the situation all the worse as blacks who had white fathers, whether by marriage or by rape, were now considered to be black and thus would be subject to the worst aspects of living within a white supremacist society.

Another example of the law being used to punish blacks was those laws concerning vagrancy. In North Carolina there was a problem concerning labor as after the Civil War, blacks and whites were working on their own fields, yet

Many others less energetic, white and black, were flooding the towns and refusing work of any sort, for in the days of bondage, master and slave had been taught that to labor with the hands was undignified: consequently, freedom to many Negroes meant a deliverance from hard labor. [11]

These workers proved a problem to North Carolinian industrialists and agriculturalists as few could afford to pay workers a wage until the crop had been grown, not to mention that neither employee nor employer were familiar with a wage system. A solution was found in creating vagrancy laws. Of the workers who refused to do any labor, vagrancy laws were passed that stated that a person who had no means of survival or refused to work would be regarded a vagrant and sent to court, however, a payment could be offered which would be conditional upon the good behavior of the vagrant for one year and thus would allow the person to get off scot free. Yet if the person was unable to make such a payment, they would be convicted a vagrant and fined, imprisoned, or both. When concerning now freed slaves, the laws was much harsher as many of them, once convicted, were apprenticed to their former owners under a contract or being leased to a corporation. In the contract, the owner was to feed, clothe, and instruct the freed slave in reading, writing, and arithmetic and, upon the end of the apprenticeship, they were to be given money, a new set of clothes, and a new Bible as payment for the work done. However, such repayment rarely occurred or was enforced by the state government.

Overall in the South, vagrancy laws were so vaguely defined that any free black that was not under the protection of a white person could be arrested. Such laws allowed for police to “round up idle blacks in times of labor scarcity and also gave employers a coercive tool that might be used to keep workers on the job.” [12]

With the judicial system having established a means to ensure a continuous supply of cheap labor, the leasing could now begin.  

Convict Leasing

The act of leasing out convicts isn’t anything new as in states such as Alabama, where the government had no interest in caring for convicts; prisoners were leased out to companies. While this may have helped prisons get convicts off their hands, they made no extra revenue from it. After the Civil War, such leasing began to pick up steam as corporations had access to almost free labor.

Labor scarcity between states was a major problem and thus concerted efforts were made by each state to keep black prison labor within their borders. This was done be waging war on emigrant agents, people who specialized in moving labor from where it was abundant to where it was scarce. They had done this when slavery was still existent and it continued under the newly freed slaves. Such agents were viewed as a threat to white farmers as by moving black labor here and there, it threatened the establishment of a stable labor source. Though in the early months emigrant agents were ignored, many states established anti-emigrant agent laws due to their need to keep in black labor. One example is in 1876 when Georgia, “Hard hit by black movement to the West,” passed legislation that “levied an annual tax of $100 for each county in which a recruiter sought labor. A year later she raised the amount to $500.” [13]

Convict leasing, interestingly enough, resulted in power being taken from the state level and given to those on the local level to the point that sheriffs became quite powerful soon after the Civil War ended as “County sheriffs and judges had dabbled with leasing black convicts out to local famers, or to contractors under hire to repair roads and bridges, beginning almost immediately after the Civil War.” [14] This economic empowerment of sheriffs created an incentive for them to convict and lock up as many freedmen as possible and keep a steady supply of labor. An entire economy eventually formed around the convict lease system, including a speculative trade system in convict contracts developed.

The witnesses and public officials who were owed portions of the lease payments earned by convicts received paper receipts- usually called scrips- from the county that could be redeemed only after the convict had generated enough money to pay them off. Rather than wait for the full amount, holders of scrips would sell their notes for cash to speculators at a lower than face amount. In return, the buyers were to receive the full lease payments- profiting handsomely from on those convicts who survived, losing money on the short-lived. [15]

While there was much profit to be made in the convict lease system, not everyone was happy with it, namely, white labor.  

Labor’s Reaction to Convict Leasing

Just as how white labor was against slavery due to it undermining their struggle for better working conditions, they were also against the convict lease system for the very same reasons. Never did they stop to consider the fact that both workers and freedmen were being manipulated by the very same systems that governed them.

Labor’s anti-convict leasing sentiments were felt long before the Civil War began. In 1823 in New York City, journey men cabinet makers conducted a mass meeting to discuss prison-made good being introduced to the market and how it threatened their trade. In that same year, also in New York City, mechanics petitioned the state legislature to end the use of prison labor. [16]

During the Civil War, labor unions were opposed to the use of convict labor, arguing that it “tended to lower the wages of thousands of laborers, and in some instances has virtually driven certain kinds of labor out of the field” and that "the contractor is seeking cheap labor and cares nothing for the welfare of the prisoner.” [17] However it should be noted that unions were not opposed to all convict labor, as they stated that they were fine with prisoners building a state prison. Thus, the labor unions didn’t truly care about the brutal, inhumane treatment of convicts, but whether or not the convicts were encroaching on their area of employment.

Yet this should not be examined as a separate battle between free labor and convict labor, but rather a continuation of the struggle between the two groups. Once again, the only way white labor’s goals could be achieved was with the destruction of most of the convict lease system to protect their own industries.

While the convict leasing may have been profitable for a select few and a thorn in the side to many, eventually the system would have to end.  

The End of Convict Leasing

Due to a mixture of the changes in economic and social landscape, convict leasing would eventually die out. However, it is important to first note that the economic and social justifications for such a system reinforced each other as not only was it “an expedient by which Southern states with depleted treasuries could avoid costly expenditures; it was also one of the greatest single sources of personal wealth to some of the South's leading businessmen and politicians.” [18] The Southern elites benefited greatly from the system and thus put all their efforts into perpetuating the system for as long as possible.

If one only looks on the surface at the abolition of convict leasing, they may assume that its demise was due to the public indignation that arose against the system yet this is not the case- far from it, rather it involved a combination of race, politics, and economics depending on the state. For example, in Louisiana, convict leasing was abolished due to it being “part of a reform package which had as its purpose the complete triumph of white supremacy in political affairs” whereas in Tennessee, its leaders decided that the demands of fiscal responsibility dictated abolition when the expense of maintaining the militia at convict stockades-a cost incurred by an armed rebellion on the part of free miners who were displaced by convict gangs-proved greater than the income from the leasing contract. [19]

In this system was embedded racism, politics, and economics, but it was also just as much embedded in violence and brutality. Men and women were beaten, bloodied, bruised, and valued only so long as they were able to do labor. They were reduced to nothing more than human resources, human tools to do the bidding of and enrich white industrialists and agriculturalists from the North and the South. From the Civil War to World War Two, black Americans were re-enslaved under a new system that was no better than the first.  

Endnotes

1: Legal Information Institute, 13^th Amendment of the US Constitution, http://www.law.cornell.edu/constitution/amendmentxiii

2: Lea S. VanderVelde, “The Labor Vision of the Thirteenth Amendment,” University of Pennsylvania Law Review 138:2 (1989), pg 440

3: VanderVelde, pg 446

4: VanderVelde, pg 466

5: Douglas A. Blackmon, Slavery by Another Name: The Re-enslavement of Black Americans from the Civil War to World War 2 (New York, New York: Anchor Books, 2008) pg 51

6: W. David Lewis, “The Emergence of Birmingham as a Case Study of Continuity between the Antebellum Planter Class and Industrialization in the ‘New South’,” Agricultural History 68:2 (1994), pg 67

7: Blackmon, pg 51

8: Blackmon, pg 52

9: James B. Browning, “The North Carolina Black Code,” The Journal of Negro History 15:4 (1930) pg 462

10: Browning, pg 464

11: Browning, pg 466

12: William Cohen, “Negro Involuntary Servitude in the South, 1865-1940: A Preliminary Analysis,” The Journal of Southern History 42:1 (1976) pg 34

13: Cohen, pg 39

14: Blackmon, pg 64

15: Blackmon, pg 65

16: Henry Theodore Jackson, “Prison Labor,” Journal of the American Institute of Criminal Law and Criminology 18:2 (1927) pgs 244, 245

17: Theodore Jackson, pg 246

18: Matthew J. Mancini, “Race, Economics, and The Abandonment of Convict Leasing,” The Journal of Negro History 63:4 (1978) pg 339

19: Mancini, pg 340


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My Thoughts:


This was rather revealing about a part of history that I was not familiar with, having grown up in the far West.


Even though the convict leasing of that style has been abolished. A form of that enslavement and leasing continues today. The overwhelming number of black American incarcerated for sometimes minor crimes is astounding. In come cases, these convicts are not leased and transferred to some company, but are leased out and perform their work within the prison. Even doing call center work which allows them access to customers credit card information.


There are programs to manufacture products in the prisons, some directly competing with private businesses, thus driving down the price in the market.


Now I do agree that convicts should learn a trade while confined so they have a greater rate of success in staying out of prison. But as we are learning, so many have been wrongly convicted in the first place.


It makes you wonder if the War on Drugs is part of the process to ensure enough cheap labor is available for in-prison contracts by corporations? Could this be an modification of the original model? On the surface it appears to be. But this time, the corporations don't care if the cheap labor is white, Hispanic or black, just as long as it's cheap.

I'm very afraid, something I'm not normally afraid of..

By: Bob Murri  5/17/2012

We are in the 2012 presidential election cycle to determine who will govern the USA the next four years. I can say with all certainty that I’m a nervous wreck. I’m so anxious that I can hardly concentrate on anything but what his happening in our politics and around the world.

I’m not one to normally be so pessimistic about the future, but I’m terrified of what appears to be our future, especially the next generations.

I’ve posted to nauseam my feelings about my political position, so that is no secret to anyone who knows me. I know I get long winded in my writings, but I feel that a good understanding of were I'm coming from helps understand my sometimes disjointed arguments and comments. I hope you take the time to read it through and comment on it.

Another anxiety is living in a red state that has so demonized anyone who is something other than a raw meat tea party conservative. Most of the members of the Mormon faith are compelled to accept this political position because their faith indirectly dictates this. Many of the Mormon leadership have stated that if you are anything but an ultra-conservative, you cannot be a worthy Mormon. Yet their public statements comport with IRS laws to encourage political involvement, regardless of party.

As I see what is happening is that the USA has lost most of its democratic structure to several cabals that have secured power here and are moving quickly to do the same in all democratic nations. Why would these cabals do such a thing? Well that is a very easy one to answer. Money and power are strong bed fellows and the breeder reactor we call Wall Street has created a new investment psychosis of extreme greed.

This has been the economic and power cycle since humans created economic models and civilizations. As civilization rose with some limited form of democracy or at least aristocratic democracy that created some level of the middle-class, there became great civilizations that prospered. But after some time and generations have passed, the upper class always moves into the greed behavior and starts to manipulate the process to shift the wealth of the civilization into the hands of just a few. In that, they create a secondary economic model that is like a breeder reactor that can sustain itself without the common person being part of the equation. But that only will occur for a limited period of time, until the monetary foundation of the middle-class crumbles because there is no actual worth to support the monetary system. When the middle-class is degraded, the underpinning of the economy is also degraded, much like a crumbling bridge or building. The upper surface may look great, but underneath it is ready to topple.

This cycle has played out time and time again. The last time was in the Roaring Twenties that ultimately led to the Great Depression. Now we had bad depressions in the century prior, but as a country, we were still very small and our economy was still very agrarian as the mighty industrial revolution had not kick in to become the larger percentage of the GDP. But by the end of the 19^th century and the early 20^th century with lower cost steel and iron combined with steam, electricity and fossil fuel power, it exploded.  The middle class rose and people enjoyed life, but then the spread between the 1% upper income and the middle class grew farther apart. Banks and companies started creating new types of investment instruments, beside the ownership of stock of a company. This increased risk, just as it does when gambling in Las Vegas, and these high risks ultimately failed and the markets and banks failed. There was not enough money to cover the middle-class deposits they gave the banks to keep secure for them.

There was no government FDIC agency to insure the deposits, so most people lost everything they had saved. We were in the worst depression the world had ever seen to that date. With the increase of global trading, our depression moved quickly to the rest of the world, especially those who were also in their industrial revolutions. The end result of that depression was the rise of Hitler and Mussolini and World War II, which was also the biggest pubic works program with tax dollars ever, the cost of the war. All that demand for good pulled us out of the depression by the end of the war and were were the last major industrial nation still standing until the 1970s.

I give this short history lesson to lay the bases for my fears. We are in the midst of another global economic tight rope. The legislation put in place in 1933, the Glass-Steagall Act, was to prevent another Great Depression separated the various functions of the financial institutions and it worked for 50 years.  No one bank or entity could become too large to fail again.

Retail banking or also called commercial banking was prevented from using depositor’s money or even their own money to invest in the speculative markets. These retail banks also could only be local banks, national banks were prohibited. Which did make things more difficult when traveling, thus the invention of the credit card for those who could afford to travel, and it was a way to do monetary transaction across borders though a single financial institution. Diners Club was one of the first ones. These small retail banks had to use their assets for strictly loans to consumers, home owners or businesses. 

Investment banks could only operate in the higher risk of stocks, bonds, and other financial paper, such as corporate junk bonds, they were the brokerage houses such as Merrill Lynch, Lyman Brothers, etc..  These banks were also prohibited from investing their own money in the markets to shield their client’s money from stock manipulations that would benefit the brokerage firm and bank.

The commodities exchanges were separate and traded only in commodities such as grain, oil, and other variable natural resources. Oil and mineral could only be traded in large quantities by entities that used large quantities of the material to prevent price manipulation of natural resources vital to our economy.

At the time there was no default swaps or other insurance models on your investments, you just had to take the risk based on your best guess and hope things turn out the way you wanted it.

Insurance companies were also separate and created as “Mutuals” which means that the policy holder owns the company. Any gains or losses are passed onto the policy holders. The same as today's credit unions.

Starting in the 1980s, the conservative Republicans started a movement to change this. Even though capitalism was working rather well, we had huge post WWII growth, mainly because our competitors were bombed into nothing, all their industries had been destroyed, so we were the supplier of all new products to the world. The middle class rose to such a large segment of the population and controlled over 50% of the nation’s wealth. But greed started to take over.

During the Reagan years many financial and insurance laws were repealed and amendments to Glass-Steagall started to allow these institutions to take on greater risk, use depositors money in risky investment, i.e. the collapse of the Savings and Loan market that were small retail banks designed strictly for low risk savings and the place to get lower cost home mortgages, they operated much the same as your Credit Union today and most were owned by the depositors. They were required to hold a majority of the loans and they could "sell" a minority to other investment groups, such as insurance companies or other consumer credit entities. Your mortgage was not bundled and handled by some processing company, you dealt with the company owning your mortgage directly. 

But then Reagan and the Republican deregulated S&Ls, so they scrambled to became publicly traded companies and started taking your deposits and investing them in stocks and commodities which had much higher risk that led to corruption and the ultimate failure of them. They also deregulated insurance companies and they scrambled to become publicly traded companies also. Your insurance rates started to climb, especially medial malpractice and product safety insurance rose so fast that physicians and companies couldn't afford the premiums.

Industrial banks were created. These banks were formed by corporations that had enough cash and assets to cover the required reserve to issue direct consumer credit from the company and not using a third party bank. Most of the major auto companies formed these banks to finance the purchase or lease of their cars, truck and heavy equipment. Other followed and by the mid 2000s racked up huge debt loads that was pushing their reserves and in many cases exceeding them. This placed these companies at risk should the consumer market decline, forcing people to default on their consumer debt. These types of banks were used to create more and more credit cards like Discover that was created by Sears Corp and some other small ones that didn't survive the shake out. Again in the mid 2000s they started having huge defaults on credit card debt by consumers and putting stress on the credit market.

In the late 1990, I think it was Chase Manhattan Bank that was lobbying Congress and President Clinton that they were losing business to offshore banks because these offshore banks provide retail banking, as well as investment banking so that the customer can move their money between the two needs as they desire without the hassle and cost of wire transfers between the different types of banks in the US. After much lobbying, the repeal of Glass-Steagall was completed in 1999. Chase purchased Travelers Insurance and J. P. Morgan investment bank in 2000 as a result and becoming the largest bank in the country.

Immediately you saw major mergers and acquisitions of small local banks, combining with investment banks and also the merging of insurance companies into one entity.  Most of us thought it was about time, the world was getting smaller and our banking needs extended beyond our home turf. National banking chains such as Interstate Bank, Bank of America, Wells Fargo, Chase, and many others became the norm. You could travel to most any US city and have a branch of your bank available, as well as the every growing presence of ATM machines. Credit Cards and Debit card were flowing like water to any name on any list, whether alive, dead or infant.

The other major change was the defined pension plan that most companies had, which was a secured plan that the company sponsored and paid into regularly. Your growth was guaranteed, you knew how much money you would have upon retirement. But companies didn’t like this model and it was costly, given the changing paradigm of competition in the markets as Europe and Asia recovered from the war destruction and was competing with goods in the global economies.  This led to a great slow down and a recession in the 1970s and into the 90s. Reagan changed the model and established the well-known 401(k) model that is a plan that the employee owns the investment account that trades in stocks, bonds and anything else it wants to invest in, and the employer can participate or not in the plan, buy given some level of money to the employee in their 401(k), but they are not required to do so. This infused 2 trillion dollars of new capital into the stock and commodes markets, as well as the new founded Mutual Funds designed for a mixed portfolio for these new 401(k)s. Wall Street went nuts with all this money. They actually had more money than stock or other investment vehicles to invest in. They were sitting on use sums of money in just simple low yield money markets.

This then led to approval by the SEC for speculative derivatives and to hedge their risk, hedge funds and default swaps were created to lessen the down side of these very high risk investments. With this guarantee now, the banks started to take on more and more high risk by providing huge money warehouses for mortgage brokers. There was so much money coming in from 401(k), IRAs, RothIRAs, and other new savings models for the middle class that they would loan out the money for mortgages to high risk buyers with just “verbal stated income” without documentation to prove they could afford the payments.

Now this was bad enough, but they started to take these mortgages and bundle them into another form of investment instrument called the mortgage back derivative. The investment rating companies were paid by the banks to rate them as AAA, meaning low risk very good investments, but they were not, most had very high risk loans for homes that were too large and expensive for the level of income of the buyer. These had low upfront costs and escalating payments to a large balloon at the end. Some were interest only for 5 or more years, then a big, big balloon payment.

But wages have been stagnant and actually have gone down, so this plan didn't work, as the monthly payment increased, their salary did not. Unemployment was creeping up as more and more companies became multinational and moved their labor to offshore workers in India, China and other parts of Asia. The loss of employment forced more people to default on their mortgages and foreclosures started to escalate.

As foreclosures occurred in neighborhoods the adjoining properties would fall in value, this would place these mortgages in jeopardy because the house is now worth less than the balance on the mortgage, even thought the owner has been making payments on time, every time. A good risk buyer, but now they have negative equity. Lenders don't like holding a note that has a face value and was purchase for more money that the asset securing the note. So they went after these homes also foreclosing on them, throwing people into a bad credit rating with it wasn't their fault. 

The perfect storm hit in 2008 when the confidence by the holders of these derivatives fell and started to call the notes and question the value of them and their rating regarding risk. Too many home owners were defaulting on their mortgages. This caused the snowball effect as the smaller banks who purchased some of these derivatives as well as international banks and governments, started to see their value dropping like a ball of lead in a vacuum. Money dried up, credit was frozen, companies that normally work with a line of credit to cover the cycles of their cash flow couldn’t make payroll, even though they would have money coming in from receivables. This led to firing the employees, thus creating greater unemployment and the downward cycle starts to move even faster. It was a free fall to the abyss.

It took tax dollars to pull it out of the tail spin, but the way they did it, and they being Pres. Bush and Paulsen, stopped the fall but there was no strings attached to the billions of dollars. Many of these companies knew they could survive, but with the free money from the government and the help of the Treasury department, these larger banks started to take over all the small banks still standing and those who got in trouble because of these bad derivatives they purchased. Now we are down to 8 large banks that are all too large to fail even more so than in 2008.

The financial sector is now 25% of our national GDP, up from less than 10% before deregulation. History has shown that when the financial sector climbs to over 15% of GDP, the value of labor declines to near zero and that is where we are today.  Also these 8 banks hold more than 9 trillion dollars in USA net worth and cash. That is way too much being held by such few banks, they can't fail again, and they know it. Add to that our current technological revolution is eliminating thousands of jobs each month through computers and automation of production. The productivity of the country is at an all-time high. How can that be with over 8% unemployment and more workers coming into the market place? The simple reason is automation.

Now we have the big problem of Europe and the Euro. Unlike our Fed, their central bank has a limited power to set monetary policy because each member nation sets its own monetary policy. That does not work with a single currency. Secondly many of these multinational banks had convinced many of the European nations to mix their bonds with these derivatives and re-package them in Europe and Asia. This left Greece, Italy, Ireland, and Spain holding the bag when these derivatives exploded.

Then Germany and the Central bank forcing the member nations into austerity models that has caused huge layoff of government workers, which in turn has reduced demand for goods and services, which then the private sector responds by reducing its labor force, so unemployment in Ireland is 15% and climbing, in Spain its over 24% and put Spain in an actual depression, England is right behind with over 12% and climbing. Even now Germany who was fairing very well during the global recession is now seeing reduction on private sector jobs.  This means they no longer can prop up the other nations with bail outs. Their system is ready to fall into that abyss.

If that happens, the USA and China will be right behind. With our current dead-locked Congress and a political movement bent on eliminating as much government as possible, they see the opportunity to also use Austerity to eliminate it as a way to stimulate the economy. But as has been proven in Europe, it doesn’t work. But this movement doesn’t really care about the economy and the 99% of the population, they are so ideologically bent on anarchy that they are seeing their goal come true.

The recent report that J. P. Morgan Chase lost 2 billion dollars, of their own money, in very risky hedge fund speculative investment is an indicator that they know they are too large to fail and will be bailed out by governments again. So they are taking more and more very high risk ventures without care or concern. That is very dangerous in a very weak economic global market.

The real engine that drives the economy is demand for goods and services. To have high demand, you have to have a strong middle-class that has enough disposable income to purchase all the gadgets and services any company can dream up. When you have low demand for goods and services, there is no need for employees to make things or to provide service, except for fast food and other local service that can't be outsourced. Austerity kills demand, low wages kills demand and we have both right now in Europe and increasingly here in the USA. The is pushing us into the abyss even faster.

These anarcho-capitalist are looking for the aftermath of this destruction as the great rebuilding of the world in an anarchist sort of way, as Ayn Rand and others have voiced.  Freedom to do anything you want. Capitalism will be honest and pure by providing everything a person will want at the price you can afford. Utopia will arrive.

It is that philosophy that is the scariest. It has been around forever, but they never had enough political power to achieve much, but their day has come with the 2010 elections and they are willing to see the country go into armed revolt to get the world they want.

So the bottom line is that we are on the edge of the abyss, teetering oh so carefully. Which way will it move? Slipping all the way and into civil war or will it pull back and regroup for the good of everyone?

For met that is what is keeping me awake at night. For me, it’s not a meteor or some other physical natural event that is going to destroy the world, it is the economic and civility collapse that is so near that will destroy, not completely, but very badly, the civilized world as we know it.

Now I know many will say I'm just paranoid, but here are some observations that you can verify just by Googleing. In 2005 there was a Florida Senate hearing on what appeared to be manipulation of the voting machines in that state and Ohio that gave the election to Bush in 04. A computer programmer testified that he was asked to write some code that would not be detected but would change the outcome of an election. This was asked by the Speaker of the House in Florida who then became a US Senator. This most likely will happen again this year. Why they didn't use it in 2008 is unclear, except that whoever the organization behind this might not of wanted mainly Palin as a potential problem if McCain might die or disabled. So Obama was the better shot.

Second. The US military, except for the National Guard, are prohibited from performing police actions within the border of the US, unless under direct attack from a known enemy. However, for several months now, regular full-time military have been doing exercises in small towns around the nation in how to patrol and clear houses of guns and other threats. Why would the defense department give order to do something this is clear violation of law? Observation would tell me that they expect an armed revolution. I would suggest that the daily security threat report that the NSA does indicates the huge amount of weapons and ammunition that is being stockpiled around the country to an unprecedented level that would make civil stability questionable if several scenarios were to occur, i.e. the assassination of Obama,  or revolt due to his reelection by the tea party wackos or Europe collapses and so do we or a combination of all of these.

If any of these events happen we will be in a depression like no depression has been before, and the 1930s were very, very bad. American’s have a fantasy that all will be good. Not to worry, it has always been good and it always will. "We are blessed."

The American Exceptionalism that so many proclaim is a fantasy. We are no different from any other western democratic country. We are all susceptible to collapse as so many great empires have done before throughout time. We are not protected by some divine God. We are just humans trying to get along with each other and survive during our lifetime; to contribute to the betterment of civilization though our work and efforts so that each succeeding generation will have a better civilization to live in than ours. But that goal has been lost to greed, hate and fear.

I don’t know what I will do if we slip over the edge into the abyss. I’ve contemplated terminating my presence here, for I have lived a long life so far; a good one with Judy who has given me more than I can ever repay in hundreds of lifetimes.  I know that it is something I do have to give some strong consideration to and talk to Judy about her feeling as well.

I suspect that should we enter a depression and fall over the edge, many of my generation will not attempt to survive and simply end it all, with the exception of those who may have very strong family ties with adult children. But for us who have no one, what’s the point…  Only time will tell if my fears are for not or became reality. We will see….

The Worldwide Recession & Austerity has led to Global Unemployment & Civil Unrest

The United States isn't the only nation dealing with chronic unemployment - the rest of the world is too! A new report by the World Bank says that the global economy needs to create 200 million jobs to recover from the worldwide recession and reach full employment. Twenty-seven million jobs were lost around the world when the economy went in the tank in 2008 - and subsequent job growth hasn't been nearly strong enough to keep up with the 40 million new people who enter the workforce every single year.

Austerity measures in several European nations from Greece to Spain to the U.K. have crippled economies and mobilized working people into the streets. Major demonstrations in Denmark and the Czech Republic were held over the week to protest against austerity too. And in France - austerity may just end up costing the President his job.

One way to create jobs is to unleash a green revolution around the world to cut carbon emissions and use energy more efficiently. Now only if we can get the oil barons out of the way to get started.

-Thom

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MY THOUGHTS:

Many economists have stated that austerity measures are the wrong way to recover from the Great Recession.  When you withdraw huge amounts of capital from the public sector, which also trickles into the private sector, and don't infuse more capital into the private sector directly through infrastructure and other employment producing plans, you exacerbate the core problem with the economy, low demand for goods and services.


Secondly, as Thom has pointed out, one can't think about creating legacy jobs we enjoyed in prior decades, those are not available anymore. Automation and robotics have replaced the need for humans in those jobs.  What is needed to generate the demand for human labor, at least initially, are the Green Energy, Green Transportation and Green Building that will require huge amounts of labor to infuse it into the economies and to bring to market products much faster than current pace. 

Such things as solar-cell technologies, electric transportation, more energy efficient products, such as LED lighting, etc. The faster they are brought to market and more competition in the production of them, the lower the cost per unit for the consumer. This in turn increases the acceptance and adaptation of these new technologies.


Continuing to look at fossil fuel extraction as the bases for jobs and economic growth is very short sighted and only drains current limited reserves for any future generation to have access to. What do they do for the molecular components only found in fossil fuels for medicine, plastics, lubrication, special gaseous fuels all needed for industrial output?  If we don't conserve what remains of the reserves, there will be nothing left in a single century for future generations.


The time is now to jump start the Green Revolution and get people back to work and to shift our economies to renewable, lower cost energy and building material. That is the best hope for the present and future.