The Bleak American Outlook

Here is an article that sums up the ugly state of US politics:

A decade ago Republican George W. Bush took our great nation into a $3 trillion war on lies. Today that party is mindlessly controlled by a cultish anti-tax pledge made to lobbyist Grover Norquist and his Americans for Tax Reform group, who once proclaimed: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

Yes, drown. Kill. Folks, this insane plot line has advanced into a no-compromise, scorched-earth vow to do everything necessary to drown the presidency and reinstall another conservative who will return America to the Wild West policies that sabotaged it in the Bush/Cheney years.

They’ve become a vengeful cult that will never back the president on anything, even their own job-growth policies. Will even destroy the economy to achieve their goals. They do not care about democracy. They want absolute control. And they’re succeeding.
America’s an addict, out-of-control, doesn’t care who gets hurts

Yes folks, I am mad as hell. The America I believed in when I volunteered for the Marine Corps, went to Korea, that America has been hijacked by an irrational, dark force that’s consuming our political system. We saw this coming a few years ago reviewing Jack Bogle’s warnings in “The Battle for the Soul of Capitalism.” Buffett called that one: “There’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning.”

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You know exactly what I’m saying: America is way off track. Our great nation is acting like a drunken self-destructive addict. Could use an intervention. But sadly we’ve drifted so far off our moral compass that only hitting bottom, a total collapse, near-death experience, only another meltdown bigger than 2008 and a depression will do the trick.

You know addictions turn even nice people into monsters. In the end they don’t care who they take down with them. Nothing matters, not families, not nations. Protect your assets folks.

The author is far more pessimistic than me. Also he is riding that old hobby horse of the 1960s: "overpopulation". But that is crazy. Almost all of the developed countries now have birth rates below replacement and the rest of the world, as it gets wealthier, is quickly sliding into the same situation. So "overpopulation" will cure itself.

The problem with the world isn't "overpopulation". It is out-of-control elites who are buying off politicians to let them grab all the money and leaving everybody else slowly sinking in debt. It is a fixable problem: re-establish progressive taxation to stop the rich from scooping up all the wealth and crashing the economy.

CNN Interview of Matt Taibbi

Here is an interview of Matt Taibbi and some simple-minded right wing guy who wants to claim that the reason people are in the street is "envy". They want what the other guy has and they want it now and for free. His argument is ridiculous. People with envy don't go demonstrate in the street. They pout. They throw hissy fits. They steal. But they don't form political demonstrations. That's too hard. You are liable to be beaten up by the police.



The real "class warfare" in the US is the ultra-rich buying the politicians and using the courts & police to force the bottom 99% to put up with a system that is rigged against them.

More details about the interview and the "fight" are available in Matt Taibbi's blog at The Rolling Stone:

Cain said he believed that the protesters are driven by envy of the rich.

"I find the one thing [the protesters] have in common revolves around the human emotions of envy and entitlement," he said. "What you have is more than what I have, and I'm not happy with my situation."

Cain seems like a nice enough guy, but I nearly blew my stack when I heard this. When you take into consideration all the theft and fraud and market manipulation and other evil shit Wall Street bankers have been guilty of in the last ten-fifteen years, you have to have balls like church bells to trot out a propaganda line that says the protesters are just jealous of their hard-earned money.

Think about it: there have always been rich and poor people in America, so if this is about jealousy, why the protests now? The idea that masses of people suddenly discovered a deep-seated animus/envy toward the rich – after keeping it strategically hidden for decades – is crazy.

Where was all that class hatred in the Reagan years, when openly dumping on the poor became fashionable? Where was it in the last two decades, when unions disappeared and CEO pay relative to median incomes started to triple and quadruple?

The answer is, it was never there. If anything, just the opposite has been true. Americans for the most part love the rich, even the obnoxious rich. And in recent years, the harder things got, the more we obsessed over the wealth dream. As unemployment skyrocketed, people tuned in in droves to gawk at Evrémonde-heiresses like Paris Hilton, or watch bullies like Donald Trump fire people on TV.

Moreover, the worse the economy got, the more being a millionaire or a billionaire became a qualification for high office, as people flocked to voting booths to support politicians with names like Bloomberg and Rockefeller and Corzine, names that to voters symbolized success and expertise at a time when few people seemed to have answers. At last count, there were 245 millionaires in congress, including 66 in the Senate.

And we hate the rich? Come on. Success is the national religion, and almost everyone is a believer. Americans love winners. But that's just the problem. These guys on Wall Street are not winning – they're cheating. And as much as we love the self-made success story, we hate the cheater that much more.

From my perspective, guys like Will Cain are part of an under-the-table buying of "journalists" and "opinion makers" to muddy the waters and help get the Occupy Wall Street issues out of the news.

As Matt Taibbi points out, here's the reality behind the Occupy Wall Street protests that the media ignores and that never gets discussed. Instead the media babbles on about "envy". The reality is that there is a big problem with fairness and justice in the US:

One thing we can still be proud of is that America hasn't yet managed to achieve the highest incarceration rate in history -- that honor still goes to the Soviets in the Stalin/Gulag era. But we do still have about 2.3 million people in jail in America.

Virtually all 2.3 million of those prisoners come from "the 99%." Here is the number of bankers who have gone to jail for crimes related to the financial crisis: 0.

Millions of people have been foreclosed upon in the last three years. In most all of those foreclosures, a regional law enforcement office -- typically a sheriff's office -- was awarded fees by the court as part of the foreclosure settlement, settlements which of course were often rubber-stamped by a judge despite mountains of perjurious robosigned evidence.

That means that every single time a bank kicked someone out of his home, a local police department got a cut. Local sheriff's offices also get cuts of almost all credit card judgments, and other bank settlements. If you're wondering how it is that so many regional police departments have the money for fancy new vehicles and SWAT teams and other accoutrements, this is one of your answers.

What this amounts to is the banks having, as allies, a massive armed police force who are always on call, ready to help them evict homeowners and safeguard the repossession of property. But just see what happens when you try to call the police to prevent an improper foreclosure. Then, suddenly, the police will not get involved. It will be a "civil matter" and they won't intervene.

The point being: if you miss a few home payments, you have a very high likelihood of colliding with an armed police officer in the near future. But if you defraud a pair of European banks out of a billion dollars -- that's a billion, with a b -- you will never be arrested, never see a policeman, never see the inside of a jail cell.

Your settlement will be worked out not with armed police, but with regulators in suits who used to work for your company or one like it. And you'll have, defending you, a former head of that regulator's agency. In the end, a fine will be paid to the government, but it won't come out of your pocket personally; it will be paid by your company's shareholders. And there will be no admission of criminal wrongdoing.

The Abacus case, in which Goldman helped a hedge fund guy named John Paulson beat a pair of European banks for a billion dollars, tells you everything you need to know about the difference between our two criminal justice systems. The settlement was $550 million -- less than half of the damage.

Can anyone imagine a common thief being caught by police and sentenced to pay back half of what he took? And no individual in that case was charged, no individual had to reach into his pocket to help cover the fine. The settlement Goldman paid to to the government was about 1/24th of what Goldman received from the government just in the AIG bailout. And that was the toughest "punishment" the government dished out to a bank in the wake of 2008.

The point being: we have a massive police force in America that prosecutes crime and imprisons citizens with factory-level efficiency, eclipsing the incarceration rates of most of history's more notorious police states and communist countries.

But the bankers on Wall Street don't live in that police state. There are maybe 1000 SEC agents policing that sector of the economy, plus a handful of FBI agents. There are nearly that many police officers stationed around the polite crowd at Zucotti park.

These inequities are what drive the OWS protests. People don't want handouts. It's not a class uprising and they don't want civil war -- they want just the opposite. They want everyone to live in the same country, and live by the same rules. It's amazing that some people think that that's asking a lot.

A Trip Down Memory Lane

Here is a bit from an interesting article in the NY Magazine. It looks at the march of the "bonus army" in 1932 and compares with with the Occupy Wall Street demonstrations today.

During the death throes of Herbert Hoover’s presidency in June 1932, desperate bands of men traveled to Washington and set up camp within view of the Capitol. The first contingent journeyed all the way from Portland, Oregon, but others soon converged from all over—alone, in groups, with families—until their main Hooverville on the Anacostia River’s fetid mudflats swelled to a population as high as 20,000. The men, World War I veterans who could not find jobs, became known as the Bonus Army—for the modest government bonus they were owed for their service. Under a law passed in 1924, they had been awarded roughly $1,000 each, to be collected in 1945 or at death, whichever came first. But they didn’t want to wait any longer for their pre–New Deal entitlement—especially given that Congress had bailed out big business with the creation of a Reconstruction Finance Corporation earlier in its session. Father Charles Coughlin, the populist “Radio Priest” who became a phenomenon for railing against “greedy bankers and financiers,” framed Washington’s double standard this way: “If the government can pay $2 billion to the bankers and the railroads, why cannot it pay the $2 billion to the soldiers?”

The echoes of our own Great Recession do not end there. Both parties were alarmed by this motley assemblage and its political rallies; the Secret Service infiltrated its ranks to root out radicals. But a good Communist was hard to find. The men were mostly middle-class, patriotic Americans. They kept their improvised hovels clean and maintained small gardens. Even so, good behavior by the Bonus Army did not prevent the U.S. Army’s hotheaded chief of staff, General Douglas MacArthur, from summoning an overwhelming force to evict it from Pennsylvania Avenue late that July. After assaulting the veterans and thousands of onlookers with tear gas, ­MacArthur’s troops crossed the bridge and burned down the encampment. The general had acted against Hoover’s wishes, but the president expressed satisfaction afterward that the government had dispatched “a mob”—albeit at the cost of killing two of the demonstrators. The public had another take. When graphic newsreels of the riotous mêlée fanned out to the nation’s movie theaters, audiences booed MacArthur and his troops, not the men down on their luck. Even the mining heiress Evalyn Walsh McLean, the owner of the Hope diamond and wife of the proprietor of the Washington Post, professed solidarity with the “mob” that had occupied the nation’s capital.

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These efforts to domesticate and contain the protests are unlikely to succeed. It is not frustration that’s roiling America but anger, the anger of a full-fledged class war. Try as polite company keeps trying to ignore it, that war has been building in this country and abroad for much of this decade and has been waged in earnest in America since the fall of 2008. But the crisp agenda demanded of Occupy Wall Street will not be forthcoming. The inchoateness of our particular class war is central to its meaning. America is not Tahrir Square or the riot-scarred precincts of North London, where everyone knows at birth who is in which class and why. We pride ourselves on being a “classless” democracy. We abhor ideology. When Americans left and right, young and old, express anger at an overclass, they don’t necessarily agree about who’s on which side of that class divide. The often confusing fluidity of class definitions, especially in an America as polarized as ours is now, may make our home­grown class war more volatile, not less.

The tea-party right finds the hippie-scented movement in lower Manhattan repellent, but it and Occupy Wall Street are two sides of the same coin. “Take Back America,” the initial tea-party battle cry, would work for those in Zuccotti Park as well. The disagreement is about which America needs to be taken back, and from whom.

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But while Romney is a class enemy liberals and conservatives can unite against, perhaps nothing has revealed how much the class warriors of the right and left of our time have in common than the national outpouring after Steve Jobs’s death. Indeed, the near-universal over-the-top emotional response—more commensurate with a saintly religious or civic leader, not a sometimes bullying captain of industry—brought Americans of all stripes together as few events have in recent memory.

Some on the right were baffled that the ostensible Marxists demonstrating in lower Manhattan would observe a moment of silence and assemble makeshift shrines for a top one-percenter like Jobs, whose expensive products were engineered for near-­instant obsolescence and produced by Chinese laborers in factories with substandard health-and-safety records. For heaven’s sake, the guy didn’t even join Warren Buffett and Bill Gates in their Giving Pledge. “There is perhaps no greater image of irony,” wrote the conservative blogger Michelle Malkin, “than that of anti-capitalist, anti-corporate, anti-materialist extremists of the Occupy Wall Street movement paying tribute to Steve Jobs.”

Go read the whole article. There is a lot to be learned from this article by Frank Rich. It is well worth your time.

The New Sing-Along: Too Big to Fail

Here is Merle Hazard back with another instant classic:



Here's the accompanying blurb about the song from Merle Hazard's web site:

“The Ballad of Diamond Jim” is out! It’s a twangy western number about banking regulation. Thanks to Paul Solman of the PBS NewsHour for his awesome interview with MIT’s Simon Johnson about this song, and for writing about it.

Saving Your Honour by Committing Suicide

The Europeans have painted themselves into a corner. They have created a European bank that has no tools to deal with the current mess. Worse, the elite of Europe refuse to admit the mess they are in. They refuse to think creatively about a solution. It is as if the crew over a sinking ship is fighting for control of the pilot's wheel. But steering isn't the problem. The ship has a big hole and is taking water and now quickly sinking. But the crew is too busy trying to "take charge" of the situation of "piloting" to bother with "sinking".

Here are key bits from a NY Times op-ed by Paul Krugman:

If it weren’t so tragic, the current European crisis would be funny, in a gallows-humor sort of way. For as one rescue plan after another falls flat, Europe’s Very Serious People — who are, if such a thing is possible, even more pompous and self-regarding than their American counterparts — just keep looking more and more ridiculous.

...

Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies. If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.

Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.

But such action, we keep being told, is off the table. The statutes under which the central bank was established supposedly prohibit this kind of thing, although one suspects that clever lawyers could find a way to make it happen. The broader problem, however, is that the whole euro system was designed to fight the last economic war. It’s a Maginot Line built to prevent a replay of the 1970s, which is worse than useless when the real danger is a replay of the 1930s.

And this turn of events is, as I said, tragic.

The story of postwar Europe is deeply inspiring. Out of the ruins of war, Europeans built a system of peace and democracy, constructing along the way societies that, while imperfect — what society isn’t? — are arguably the most decent in human history.

Yet that achievement is under threat because the European elite, in its arrogance, locked the Continent into a monetary system that recreated the rigidities of the gold standard, and — like the gold standard in the 1930s — has turned into a deadly trap.

Now maybe European leaders will come up with a truly credible rescue plan. I hope so, but I don’t expect it.

The bitter truth is that it’s looking more and more as if the euro system is doomed. And the even more bitter truth is that given the way that system has been performing, Europe might be better off if it collapses sooner rather than later.

This is the kind of blindness you get from ideology. An ideologue doesn't look outside to see if it is sunny. He consults his horoscope because he "knows" that the horoscope captures everything essential about his future. You can't convince the fool that the horoscope was written days or weeks ago, that an astrologer has no knowledge of the future, and that the easiest way to check the weather is to look out the window. Europe is going down and it will take the whole world just like the US took the world down when it refused to rescue the Lehman investment house in September 2008. What an incredibly stupid world.

I foolishly thought that humanity was slowly getting "smarter" as we got wealthier and better educated. I failed to realize that if you can't fix the idiocy of ideology, then the craziness of people who "know" things because their ideology tells them it is so will destroy the world. I've always puzzled how powerful civilization in the past could commit suicide. I now realize it comes about by the elite of those societies getting deeply committed to their ideology and refuse to peek out the window to see whether the sun is shining or not. Incredible!

Sadly nobody will win this prize:

“Lord Wolfson, a prominent eurosceptic . . . is offering £250,000 to the person who comes up with the best plan for winding up the euro in an orderly way. The Wolfson Economics Prize . . . will be the second-largest cash prize for an academic economics after the Nobel Prize.” – Financial Times, October 19

Why? Because the ideologues in Europe refuse to accept that there is a problem with the euro, with deficits, and with the European bank. Sure they will admit to "problems" but not enough to actually address the oncoming catastrophe. This big prize won't be won because you can't "solve" a problem when the problem is stupid people blind to their own stupidy and refusing to even listen to the voice of reason!

The Problem with "The Invisible Hand" of Right Wing Economics/Politics

Here is a bit from a post by Tim Harford in his blog:

[Robert] Frank has a particular Darwinian insight in mind: the idea that contra Smith’s “invisible hand”, individuals competing can produce results that are bad for society as a whole.

Consider the vast antlers of the north American bull elk: they’re the result of sexual selection balanced by other selective pressures. Elks with big antlers win fights with other elks, and mate with multiple females. However, they also get hunted down and killed by packs of wolves. Elks as a whole would be better off if they could all agree to shrink their antlers by a factor of four or five: the males with the biggest antlers would still get the girls, while only the wolves could object to faster, more agile bull elks. Sadly for the elks and happily for the wolves, that’s not how sexual selection works.

In a new book, The Darwin Economy, Robert Frank sees elk antlers everywhere he looks in modern society. For example, when parents bid up the price of houses near good schools, they’re engaging in a wasteful arms race: children as a whole will be no better educated as a result, but vast sums are devoted to the quest for the right school district. My flashy car makes you less satisfied with your own; if I take ladies out to the opera and Michelin-starred restaurants, other men will no longer succeed by offering scampi and chips at the Romford dog track. In short, says Frank, my spending harms you as surely as I would harm others by standing up at a concert and forcing everybody behind me to stand up in turn.

Sometimes this dynamic is the result of envy; at other times it is genuine competition for scarce resources, such as beautiful partners or elite university places.

Elks cannot reach an agreement to trim their antlers, but humans can, and Professor Frank advocates a steeply progressive consumption tax to serve this purpose. In effect, the tax would be an income tax with an exemption for savings, encouraging investment but discouraging spending sprees. Frank argues that it should be progressive because the wasteful economic arms races are at their most grotesque at high consumption levels.

Harford goes on the quibble with Frank, but this is a very easy-to-understand critique of the political right's "cut taxes, cut taxes, cut taxes" agenda in support of their billionaire overlords.

The Relative Value of Money

Here is an excellent bit by Charles Stross on what $100 means to you from the eyes of somebody living at the bottom and from somebody living at the top of the economic heap:

A valuable conceptual tool for reasoning about wealth from the outside (I assume that you, like me, are part of the 99%) is the law of diminishing marginal utility.

Loosely put: if you are homeless and destitute in the USA and somebody hands you a $100 bill, that money can change your life. It's enough to feed you for a couple of weeks to a month, to get you a new set of clothes, to buy time in a net cafe to search for a job online, to find shelter for a handful of nights during terrible weather.

But if you're Warren Buffett and you spot a $100 bill lying on the ground while you're out for your constitutional, it's barely worth the time it takes to stoop to pick it up; the annual income of the fund Mr Buffett administers can be approximated to $1Bn, which works out at $31.70 per second. Of course, being Warren Buffett, I'd expect him to pick up the banknote; he didn't get to be where he is today by ignoring free money. But it's hardly going to change his life.

The diminishing marginal utility law dictates that the more money we have, the less utility we get from any additional incremental gain. And this bites the top 1% very hard indeed.

Examine the world around us from the point of view of someone with a net income of $5M/year ...

Food is essentially free; you can afford to spend $1000 per meal, three meals a day, in the most expensive restaurants in London or Tokyo or Manhattan, and not make a dent in your income. (Oddly, even the hyper-rich don't typically spend $1000 on lunch every day: a more realistic expectation might be to dine out expensively twice a week, for $100K/year, and have the best of everything in-house the rest of the time, with a live-in chef, for another $100K/year.)

Clothing is essentially free; want a different $5000 suit for every day of the week? That's going to set you back only $35K! Spouse wants a dozen designer evening gowns a year? That's still going to be on the low side of $200K.

Housing is essentially free; $1000/day will rent you a penthouse suite in a five star hotel in Manhattan, while your mortgageable income will let you buy a palace in the $5-20M range. (There are places where you may need to spend more than $20M to buy a house; but not many of them.)

You don't have to do housework, interior decorating, cooking, driving, DIY home improvements, flight booking, or shopping (unless you want to). People can be hired to do any of the above for rates ranging from $15K to $100K per year, depending on the complexity of the job. And you earn $100K per week.

Travel: you have a car, or cars. Any cars you like. And a driver and a mechanic, either full-time employees or time-shared via an agency or a very exclusive garage. When you fly, you either go first class via the express security lane, or (airports are tedious) your driver takes you straight to the steps of the biz jet you hired. You are probably not rich enough to own a jet of your own, without making sacrifices elsewhere, but you can certainly afford to hire one once or twice a week.

Education: you, and/or your children, can afford any education you like, without having to go into debt to fund it. Even if the kids aren't that bright, you can afford to hire tutors to push them in just the right direction. And the high end universities where the children of the rich go to learn how their social class networks usually look kindly on a donation in six digits to their trust.

Law: you can afford the best defense lawyers, period, and meet any reasonable bail conditions. There's no guarantee that you can't be prosecuted and imprisoned if you break the law — especially if you commit high crimes against the 0.5% (Bernie Madoff springs to mind) — but the system can be bent, if not broken, on your behalf.

(Do you notice a pattern developing here? We're climbing Maslow's hierarchy of needs.)

And this:

Finally, there's the point (unpleasant to contemplate for some) that income inequality can't increase beyond the level it has already reached today without massive and unpleasant social consequences, some of which may be non-obvious side-effects of the drive towards a security state strong enough to protect the elite. By some estimates, 20-25% of the labour employed in the USA today is guard labour, work devoted to preventing the poor from expropriating the rich. Widespread application of anti-terrorism statutes to criminal enforcement suggests to me that the War on Terror has proven its utility as a useful pretext for expansion of the guard labour state; in light of which, reversal of Griswold v. Connecticut would pave the way for the deployment of ubiquitous surveillance techniques. (Which suggests a possible reason why the moneyed-elite faction of the Republican party are willing to tolerate the demands of the abortion-and-contraception-hating religious wing of the party.)

Go read the full original post to get the embedded links and/or to look at the broader issues that Charles Stross addresses in his post.

The poor have only one consolation: money can buy power & goodies, but it can't buy the one thing we all have in short supply... life. In the end we all die. The rich can buy some doctors and medicine to delay it a bit, but Michael Jackson's millions and private physician actually helped shorten his life, not lengthen it. And Gadaffi's $200 billion in fact shortened his life because his greed and cruelty provoked his people to revoke his membership in Libyan society.

What I don't understand is the greed of the rich. Money isn't a "possession". Since life is transitory, we "own" stuff for a while then die. There is no reason to impoverish those around you so you can have "more"... because in the end you can't have more. We only have this one world to share. The rich need to realize that the secret to a better life for themselves is to join in and make a better society. Nobody wants to deny those who have created wealth from getting a nice pile of the stuff to enjoy. But when your wealth leads you to corrupting politics to let you squeeze everybody around you to "contribute" to your pile of lucre at the expense of their lives, then you have gone too far. And like Gadaffi, the society around you may just "cancel" your membership in the broader society. That's what Marie Antoinette and her king Louis discovered.

Here is an alternate view of "citizenship". I find this story uplifting and powerful. It is the story of Luma Mufleh:



When some billionaires started founding charities and competing to give away their wealth, I started to become hopeful. But that hasn't stopped the slide into a Gilded Age "us versus them" world where the ultra-rich sucede from the rest of society and wall themselves away while hoarding more and causing the rest of society to crash as they suck all of the money out of the hands of the bottom 99%. Maybe with the Occupy Wall Street movement the rich will get the message (or more likely, political power will be wrested from them and tax laws can be returned to a progressive tax system that keeps the rich from sucking society dry of cash). I just wish more of the elites could see Luma Mufleh as a role model.