The Coming Great Depression: Leaving Fantasyland
Wall Street Journal commentator Peggy Noonan is undoubtedly not alone is seeing no evidence of Depression in America--yet: Turbulence Ahead:
"One of the weirdest, most perceptually jarring things about the economic crisis is that everything looks the same. We are told every day and in every news venue that we are in Great Depression II, that we are in a crisis, a cataclysm, a meltdown, the credit crunch from hell, that we will lose millions of jobs, and that the great abundance is over and may never return. Three great investment banks have fallen while a fourth totters, and the Dow Jones Industrial Average has fallen 31% in six months. And yet when you free yourself from media and go outside for a walk, everything looks . . . the same.
Everyone is dressed the same. Everyone looks as comfortable as they did three years ago, at the height of prosperity. The mall is still there, and people are still walking into the stores and daydreaming with half-full carts in aisle 3. Everyone's still overweight.
But the point is: Nothing looks different.
In the Depression people sold apples on the street. They sold pencils. Angels with dirty faces wore coats too thin and short and shivered in line at the government surplus warehouse."
Peg would be well-served by reading up a bit on the Depression's timeline. As noted here last week, (The Coming Great Depression: Scapegoats and Exploitation) the Dow Jones Industrial Average actually recovered in early 1930 to early-1929 levels. (Look for the same this time around, too--DJIA 12,600 is in the cards a few months out, despite all the structural damage to the market and economy.)
Breadlines didn't form in November 1929--the structural damage took years to play out then, and it will take years to play out now. So don't rush things, Peggy--we'll get to a visible Depression soon enough.
Great Depression: (Wikipedia)
The Great Depression was not a sudden, total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.
In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. We can already anticipate "ample credit at low rates" in 2009, just as we can also anticipate wages holding steady for awhile even as sales fall. The wheels will fall off later in 2009 and deteriorate further in 2010, 2011 and 2012.
Here are the structural realities which have yet to play out:
1. You can't force households or businesses to borrow more money and spend it. Japan's central bank has flooded that nation with liquidity and low interest money for 19 years to little effect.
2. U.S. consumers and corporations are already burdened with staggering debt. Not only can't you force people to borrow more, you also can't force lenders to loan more money to insolvent households and businesses.
3. Whatever money people get their hands on is going to paying down debt and savings. Studies of the first "stimulus package" checks which went out to taxpayers in 2008 revealed that 2/3 of the money was not spent but used to service debt or saved. Future "stimulus checks" will also fail to boost spending; people already have more stuff than they know what to do with.
4. The FIRE economy is dead. Finance, insurance and real estate (FIRE) all prospered for one reason: the velocity of transactions and debt instruments. With the volume of transactions off by 2/3 (real estate) or 99% (home equity loans), the FIRE economy is shrinking fast, with no barriers to further declines. With lending standards rising even as real estate values plummet, there is nothing to stop transaction and debt velocity from falling much further.
5. Governments and corporations alike are living with Fantasyland expectations of revenue. I recently pored over the 2009 fiscal year budget of my town of 120,000 people (general fund spending is $135 million, which doesn't include capital projects or bond-funded spending) and was dumbstruck by the insanely unrealistic revenue expectations.
The city expects to reap the same amount of easy money from real estate transfer taxes (1% of any real estate transaction goes to the city) in 2009 as it did in 2007 and 2008: about $11 million.
Huh? As transaction volumes decline by 2/3 and the sales prices plummet, then how can you possibly expect to rake in the same transfer tax revenues?
The downtown shopping district was eerily quiet on Black Friday; empty storefronts are everywhere, and sales are falling even at the town's sales-tax heavyweights, the Toyota and Honda auto dealerships. Yet the city expects to haul in the same sales tax revenue as in 2008. Based on what?
The entire nation is in the grip of massive, total denial that revenues will drop in a recession. Companies are trimming travel costs, as are consumers; San Francisco International Airport was virtually empty on Wednesday, once one of the busiest travel days of the year. Airports almost empty day before Thanksgiving.
"The dreaded Day before Thanksgiving was not so dreadful after all. Bay Area airports were eerily empty for much of what traditionally has been among the busiest travel days of the year.
"There's nobody here," said Deborah Vainieri, who was waiting at San Francisco International Airport with her husband, Humberto, for a flight to Portland. In a plot to beat the crowds, the Vainieris had arrived at the airport four hours early. They walked right up to the check-in machine and were done in less than a minute."
6. If lenders make risky loans, they will go under--and most U.S. households and businesses are no longer creditworthy risks. So there you have it: This conflict cannot be resolved. Lenders who foolishly extend credit to over-indebted, risk-laden borrowers will be paid back with losses and insolvency, yet as lending standards tighten and assets plummet in value, the number of creditworthy borrowers in the U.S. has shrunk.
As noted here many times: many of those who qualify for loans are deadset against debt. That's why they're creditworthy--they've refused to take on huge debt for cultural or fiscal-prudence reasons. They have zero interest in taking on debt, even at zero interest.
You can't force people to borrow money, especially when they're already overloaded with debt, and you can't force prudent people to borrow when they have no need for more property, nor can you force people to buy real estate even as the values continue falling.
7. The U.S. already has too much of everything: too many hotels, malls, office towers, homes, condos, strip-malls, lamps, furniture, CDs, TVs, clothing, etc. As 50 million storage lockers filled to capacity with consumer crap are emptied in a desperate move to reduce expenses and raise cash, the value of literally everything ever manufactured will fall to near-zero.
As noted here many times before, the entire U.S. housing market was held aloft by two anomalies: speculators hoping to "flip" for huge profits, and a "one dwelling for every person" mentality that confused rising population with a rising number of households.
We are already seeing how population can continue rising slowly even as the number of households declines. It's called moving back home, doubling up, renting out a room, etc. There are at least 20 million surplus dwellings in the U.S. right now; there is no need for 700,000 more a year to be built, or even 70,000 more.
The FIRE economy based on transaction and debt volume/velocity: gone, over, toast. Housing market based on speculative flipping and one-person households: over, gone, toast. Loose lending by delusional lenders to risky, over-indebted borrowers: gone, over, toast. Borrowing based on rising real estate values: gone, over, toast.
The notion that we "need" more of anything: gone, over, toast. The idea that you can force lenders to lend to uncreditworthy borrowers: gone, over, toast. The idea you can force people drowning in debt to borrow more: gone, over, toast.
Thank you, Bruce M. ($25) for your most-welcome generous donation to this site. I am greatly honored by your support and readership. All contributors are listed below in acknowledgement of my gratitude.
Saturday, November 29, 2008
The Coming Great Depression: Leaving Fantasyland
Friday, November 28, 2008
The Coming Great Depression: Gaming the System
The Elites who own and operate the nation have always gamed the system most effectively. Why else hire an army of 41,000 lobbyists except to get tax breaks designed for a single corporation? (Here's but one of hundreds or perhaps thousands of examples: Gallo winery's "Cranston" and "Dole" tax breaks.)
And speaking of taxes, not only do the top 1% of citizenry who own some 2/3 of the productive wealth of the nation get tender loving legislative help, they also have access to another army of well-paid gamers: tax attorneys and the investment banks who profit from "sheltering" billions in income from the tax bite we mere debt-serfs pay. More Law Firms Touched by Tax-Shelter Investigation.
Untold billions are "sheltered" in offshore Caribbean banks linked to money-center banks in the U.S., and various arcane and not-quite-illegal-but-not-legal-either loopholes are designed with infinite care to help the poor Elites escape actually contributing to the government of the nation they own.
The 9% just below the top 1% of wealth-owners owns most of the rest of the nation's productive assets (i.e. an owner-occupied house is not a productive asset, a dwelling which is rented out for a net profit and which provides a tax shelter is a productive asset). They benefit from legal loopholes which game the system in favor of capital such as estate trusts, etc.
Try sheltering income earned from labor: you can deduct horrendously costly medical care (at least before the expenses drive you into bankruptcy) and the interest you pay on debt-serf assets (the mortgage you "own"), and precious little else.
But if you're sheltering income earned from capital, a cornucopia of options awaits you, starting with corporate tax breaks, "small business" benefits like SEP IRAs, special depreciation rules for oil production partnerships, and on and on and on.
This is why the tax code is tens of thousands of pages long. There are lots of forms of capital to protect and nurture.
Regular folks have also actively gamed the system, too. Public employees have learned how to manipulate overtime: you call in sick so your pal gets huge overtime pay in his/her last year of service, effectively raising his/her pension payments by hundreds of thousands over the lifetime of retirement payments.
This game is now driving municipalities into bankruptcy. The poster child of egregious overtime/retirement gaming is Vallejo, California, where the public unions are fighting the city's bankrupcty in court, claiming that millions of dollars are hidden somewhere and by golly, the firefighters and police officers who gamed OT to boost their pay to $200K each are not going to be bamboozled.
A closer look at Vallejo's woes:
"Vallejo's base pay for firefighters is more than $80,000 a year. Last year, 21 of them topped $200,000 in salary and overtime, according to city payroll records.
City Manager Tanner himself has faced criticism for making a city-best $316,688 salary last year - $71,881 more than San Francisco Mayor Gavin Newsom. "
(Vallejo's population is 117,000, while San Francisco has about 800,000 residents.)
Hardball in Vallejo (Mish). At the bottom of this post you'll find links to the database of vallejo's employees, revealing how many made $299,000, $250,000, and those who reaped a mere $150,000 or so.
Shall we be honest and confess that the public union employees gamed the system in Vallejo to the breaking point?
Next up, Medicare. The opportunities to game Medicare for fun and profit would fill volumes, but let's start with those gamers who have figured out how to draw a $1,500 monthly stipend for caring for their own mothers. Yes, it can be done and is done--if you know how to game the system.
So what happens in a Depression? The stakes for gaming the system get higher, as the deficit-burdened government is finally roused to squeeze off a few of the most egregious (or publicized) games.
The Elites' games require one thing above all else: privacy. Publicity of Elites' shelters works something like sunshine on vampires--yes, the tax breaks get all sparkly and draw undue attention and perhaps a touch of political Kabuki theater to "close the loopholes" temporarily follows.
That is of course no more than a passing annoyance to the Elites. Their armies of lobbyists and tax attorneys are already at work on the next "game": alternative energy credits? We got 'em right here, boss.
But more plebian gamers might find the well has run dry. Public employees will soon be finding the well they've been tapping so effectively leads to bankruptcy court, where they learn the old adage "you can't get blood from a turnip," in this case the turnip being a property tax base in free-fall, a shrinking sales tax base and a small-business tax base which is shrinking so fast government accountants can't subtract millions from estimated tax revenues fast enough.
One way to keep your job is to nail small-time gamers who step over the acceptable lines of the game. Knowledgeable correspondent K.C. recently filed this first-hand report on how Medicaid seems to be tightening up:
"Once again, you are right on with your topic today, the aging babyboomers and evaporating wealth. ( The Baby Boom's Market Order: Sell, Sell, Sell November 20, 2008)
I got to see how this plays out up close and personal not too long ago. My younger brother found himself facing a very displeased judge when he tried to game the system over Medicare/Medicaid for our Mom's nursing home care.
What a lot of folks don't realize is that the government will find you out! The gal who has let her unpaid student loans balloon up from Hyundai-sized to Escalade proportions probably doesn't understand that the government won't waste much time chasing after her now, they will wait and take it out of her social security. Ouch! (Glad I worked my way through college and avoided that trap.)
The point is, the government is relentless. Take the situation of an elderly person who needs nursing home care and applies for Medicaid. She may receive that assistance as the government is not interested in seizing homes from the infirm elderly. The government waits until the person passes away and then collects from the estate. This is what my relative tried to deflect by having our mother declared indigent. (He was chosen by my parents to act as her guardian.)
Perjuring himself on court records was not smart and he found himself facing the court after she passed away and it was time to pay the government piper. I'm oversimplifying a bit but this is the gist of what happened. Her home was sold to pay her bills.
I know of a young friend whose mother had a stroke that put her into a coma, leaving her in need of full-time nursing home care. My friend's Dad was told he had to sign over his house to the nursing home to pay for his wife's care. He is still working but is only allowed to keep a portion of his pay. The rest goes to the nursing home. The family's wealth is gone.
So I'm a little skeptical that average middle-class Baby Boomers are going to be inheriting much. They are in such denial! Most people of our generation have no idea what is in store for them.
My observation is that the middle-class knows very little about wealth preservation, unlike the very rich. Good estate planning can help avoid some tragic consequences, but not all. Life-Changing Events come in too many unexpected variations to prepare for them all. And who is to say the insurance companies will even be around to pay up? Our safety nets are stretched to the breaking point.
When money meets emotions you get turmoil. Both my logic and my intuition tell me we are facing turmoil on a scale we haven't seen here in a long time. This is why I appreciate so much that you discuss these issues in such straightforward style. I do think people are waking up to this new reality, slowly but surely. And every family is different, of course. But the disconnect between how we thought things were going to be and the way they are actually going to be is as big as the Grand Canyon, and this is something we all are experiencing these days.
I think it's great that you write with a calm, level tone, no matter what! It's not just what you say, but how you say it, that makes a difference."
Thank you, K.C. for the report and the kind words. We all know that any rules-based system can be gamed, and any bureaucracy can be corrupted/cheated by those who understand the rules and leverage points.
Nonetheless, for society to maintain a basic level of trust in its institutions, the gaming must be limited via enforcement and punishment to a background level which does not make the honest players just give up in disgust.
I would suggest we are either at that point or well beyond it. Playing the game honestly (i.e. not "gaming the system") earns meager rewards: the honest players receive fewer benefits (if any) and pay the lion's share of the taxes.
One of the most pernicious results of the Republicans' recent reign was the decimation of the government's enforcement efforts, at every level other than the GWOT (global war on terror). The IRS (bad guys when they question you, heroes when they shut down phony for-Elites-only tax shelters that robbed us of billions of dollars) has seen its enforcement division gutted, as have other enforcement agencies.
The result is predictable: gaming the system has increased as the ease of gaming and the rewards of gaming have both risen dramatically. Small-fry gamers justify their lying/cheating/theft via the old "everyone's doing it" line, or "I only steal from the government."
Note to liar/cheat/thief: we are the government. Every dollar you cheat means the rest of us either pony up that dollar or it's borrowed and we have to pay interest on it.
Knowing full well gaming cannot be eradicated but only made more difficult and less rewarding, I would suggest that if President-Elect Obama's team is truly interested in positive change, they should start by boosting enforcement of the various games' rules, and by pursuing tax policies and codes which force the Elites to pay a sum more or less equal to the Social Security (labor) taxes paid for by legitimate players (employers and employees).
That sum is about 35% of all tax revenue--a small enough slice of the wealth the top 1% own and the income from capital they reap.
What are the federal government’s sources of revenue? (Tax Policy Center)
"Individual income taxes and payroll taxes now account for four out of every five federal revenue dollars. Corporate income taxes contribute another 15 percent. Excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts make up the balance.
The composition of tax revenue has changed markedly over the past half century, with payroll taxes contributing an increasing, and corporate income and excise taxes a decreasing share of the total, but the share provided by individual income taxes has remained roughly constant.
In 2007 the federal government collected $2.5 trillion, an amount equal to 18.8 percent of GDP. Federal revenue has ranged from 14.4 to 20.9 percent of GDP over the past five decades, averaging 18.0 percent.
The individual income tax has been the largest single source of federal revenue since 1950, averaging just over 8 percent of GDP. Payroll taxes swelled following the creation of Medicare in 1965. Taxes for Medicare, combined with periodic increases in Social Security taxes, caused payroll tax revenue to grow from 1.6 percent of GDP in 1950 to more than 6 percent since 1990. Payroll taxes also include railroad retirement, unemployment insurance, and federal workers’ pension contributions.
Revenue from the corporate income tax fell from between 5 and 6 percent of GDP in the early 1950s to 2.7 percent of GDP in 2007. "
The coming Depression will increase the pressure on Elites and debt-serfs alike to game the system. If P.E. Obama wants "real change," he should focus on enforcing the rules to protect the honest players and on ending the Elites' tax holiday.
As noted here recently, ideals don't change political power--the existing political/tax structure which favors the Elites (capital) over debt-serfs (labor) can only be replaced by a new power.
The Elites field a private army of several hundred thousand lobbyists, accountants and attorneys to protect their gaming of the system; the only force powerful enough to counter such a vast army of mercenaries is millions of outraged citizens who have decided to focus their outrage on political goals rather than self-destruction/ two-bit gaming on their own.
Thank you, John N. ($90) for your outrageously generous donation to this site. I am greatly honored by your support and readership.
Wednesday, November 26, 2008
The Coming Great Depression: Scapegoats and Exploitation
Correspondent Cheryl A. (who recommended the coming depression as a topic) followed up with a suggestion to define "depression" and "recession" as a baseline/context to the discussion.
Thank you, Cheryl, excellent idea:
A recession is a contraction phase of the business cycle, or "a period of reduced economic activity." The U.S. based National Bureau of Economic Research (NBER) defines a recession more specifically as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment, industrial production, and wholesale-retail sales." A sustained recession may become a depression.
Some business & investment glossaries add to the general definition a rule of thumb that recessions are often indicated by two consecutive quarters of negative growth (or contraction) of gross domestic product (GDP).
A depression is a severe and prolonged downturn in the economy. Prices fall, reducing purchasing power. There tends to be high unemployment, lower productivity, shrinking wages, and general economic pessimism.
Great Depression: (Wikipedia) The Great Depression was not a sudden, total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.
In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas, where commodity prices plunged, and in mining and logging areas, where unemployment was high and there were few other jobs.
The decline in the American economy was the factor that pulled down most other countries at first.. Frantic attempts to shore up the economies of individual nations through protectionist policies, such as the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, exacerbated the collapse in global trade. By late in 1930, a steady decline set in which reached bottom by March 1933. My rough-and-ready definition: any period of stagnating/declining assets, income or purchasing power longer than 8 quarters is a Depression. Then there's the wag's definition: when you lose your job, it's a recession, when I lose mine, it's a Depression. No doubt pundits galore will grasp at some phony 1% "rise in GDP" (Never mind what's happening to incomes or assets) to declare the "end" to the "recession."
So in the Fantasyland of CNBC/MSM Punditry, 3 quarters of declining GDP interrupted by a single quarter of manufactured "rise" in GDP followed by another 4 quarters of declining assets and income (purchasing power) will be labeled "back to back shallow recessions."
The MSM will be anxious to call the Depression "stagflation" or "back to back recessions"--anything but what it really is, a Depression.
Given the excesses and cycles/trends which are intersecting in this timeframe, I would anticipate a sharp Depression of 4-5 years (2012-2013) which appears to end in a "false Spring" and then reverts to a stagnation/decline lasting another 10 years to 2022-23. More on that later.
Today's topic: who/what is responsible for the coming Depression? Put another way: will the American public seek scapegoats, or will it be honest enough to forego scapegoating in favor of a real analysis of exactly who/what caused the Depression?
Correspondent Chris S. made some comments recently which address just this question.
"Good essay The Baby Boom's Market Order: Sell, Sell, Sell (November 20, 2008) and is only a tip of the iceberg at this point that will sink the RMS Boomer. I would suggest another essay regarding who has already taken to the lifeboats, grabbed a seat, and put oar to the water. The WHO is very important. At this point it is more important than the how or where they are going. Many people are stuck below decks and don't even know it still.
Interesting that the automakers fly into DC and get an angry dressing down by the Hill and told to sell their private jets. There was no such pejorative lecture when the global (but US-based) bankers showed up in DC and the Hill trolls were all too eager to sign their blank check and hand over the gold. It is with no small irony that I note physical gold is hard to find.
The automakers employ 3 million people in this country (the ones that weren't outsourced under Clinton and Bush I and II), whereas it appears <30,000 will directly benefit from the banker bailout after the Wall Street lay-offs are over and the remaining big banks have consolidated.
Meanwhile, the American people are already clamoring in the streets screaming "No bail-out for Detroit!" Quite frankly, if I wasn't already so cognizant of the average person's total ignorance about open source current events, it would amaze me how they raised little cry over paying their tax dollars for contrived bundled paper "products" while kicking out against the hard goods and trickle down services that employ many of their common neighbors.
The auto industry, the national resource infrastucture that feeds it and the resulting support services in every US town and city from coast to coast employs and supports 1,000 times more people than the paper "products" banker industry by comparison. But how dare one of the young bulls move to the forefront of the herd while the wolves feast upon this year's calves? I suspect the herd will isolate the young bull and leave it to the wolves as well. There will be no bail out for "Detroit" (or Chicago, Indianapolis, St Louis, Louisville, etc).
As I've written many times before, I've known this was not a sustainable "liefstyle" over the longterm. People far far higher in the hierarchy know this, too, and have already headed for the lifeboats.
The loan to the automakers would have to be paid back, the bail-out to the bankers doesn't. I guess to TPTB (The Powers That Be) it doesn't make a difference what it's called.
The "who" it really is will be different from "who" gets the blame. The last time this happened in the 20th century it didn't turn out very well and it didn't matter which color the arm bands were. Try to tell Average Joe there's no real different between a fascist and a communist in practice and they've been programmed to knee jerk like they were hit with a sledgehammer."
Thank you, Chris. To start the analysis, I propose the "Private Jet Metric:" if you have to lease your private jet, well, you didn't make it into the lifeboat. If you have to beg from Congress, you didn't make it, either. Those in the lifeboat got their hundreds of billions in private meetings; there was no need to sully themselves with abject public contrition or begging in front of cameras.
I have on occasion mentioned the "traffic jam" of private jets bedeviling Kailua-Kona Airport on the Big Island of Hawaii. There just isn't enough tarmac for all the private jets of those visiting their 3rd or 4th or 5th resort home.
If you're in the lifeboat, you don't deal with regulations; you have attorneys and lobbyists for that. (41,000 lobbyists and counting in D.C., and guess how many represent Common Cause or other "we represent the common citizen's interests" groups).
For a deeper analysis, let's turn to correspondent Bruce C. who recommended two historical/analytic approaches:
Social cycle theory of P.R. Sarkar:
The Law of Social Cycles is a theory of Varna, arising out of the Indian episteme. Essentially, there are four different types of people, warriors, intellectuals, acquisitors and labourers, who find basic fulfillment in four different kinds of ways.
According to Batra (1978), the West is currently in the age of acquisitors, also known as Capitalism. This age followed then age of intellectuals, which gave birth to the Enlightenment and the British parliamentary system. Before that the West went through the age of warriors and the age of discovery. Feudalism, an earlier age of acquisitors, reigned before that. It had replaced the age of intellectuals, with restrictions on religious thought and also gave birth to the Renaissance period. Before that, Rome ruled the West under the aegis of warriors.
Exploitation and Breakdown
To Sarkar, each age would run its course, with the social motivity going too far, causing much grief to the majority of people (Sarkar, 1967). The situation could unchecked go on for a long time, before things got so bad that a spontaneous revolution and overthrow of the system took place. In fact, as this was the reason for social change, it was clear that no single class of people could remain dominant indefinitely. Power was destined to pass from one class to next in the prescribed order, or cycle.
The Decline of the West (By Oswald Spengler): (This is a long excerpt but worth the time/effort)
The Decline of the West (German: Der Untergang des Abendlandes) is a two-volume work by Oswald Spengler, the first volume of which was published in the summer of 1918. Spengler revised this volume in 1922 and published the second volume, subtitled Perspectives of World History, in 1923.
Spengler sees "Blood" as the only power strong enough to overthrow "Money," currently the dominant power of our age. Blood is commonly understood to mean race-feeling, and this is partially true but misleading. Spengler's idea of race has nothing to do with ethnic identity, indeed he was hostile to racists in that sense.
The book talks about a population becoming a race when its united in outlook, possibly diverse ethnic origins are not a concern. Crucially Spengler talks about the final struggle with money also being a battle between Capitalism and Socialism, but again Socialism in a special sense: "the will to call into life a mighty politico-economic order that transcends all class interests, a system of lofty thoughtfulness and duty sense".
He also writes "A power can be overthrown only by another power, not by a principle, and only one power that can confront money is left. Money is overthrown and abolished by blood." Therefore if we wanted to replace Blood by a single word it would be more correct to use life-force rather than race-feeling.
Caesarism is essentially the death of the spirit that originally animated a nation and its institutions. It is marked by a government which is formless irrespective of its de jure constitutional structure. The antique forms are dead, despite the careful maintenance of the institutions; those institutions now have no meaning or weight. The only aspect of governance is the personal power exercised by the Caesar. This is the beginning of the Imperial Age.
Despite having fought wars for democracy and rights during the period of Contending States, the populace can no longer be moved to use those rights. People cease to take part in elections, and the most qualified people remove themselves from the political process. This is the end of great politics. Only private history, private politics, and private ambitions rule at this point.
Spengler asserts that democracy is simply the political weapon of money, and the media is the means through which money operates a democratic political system.
Democracy and plutocracy are equivalent in Spengler's argument. The "tragic comedy of the world-improvers and freedom-teachers" is that they are simply assisting money to be more effective. The principles of equality, natural rights, universal suffrage, and freedom of the press are all disguises for class war (the bourgeois against the aristocracy).
In reality, freedom of the press requires money, and entails ownership, thus serving money at the end. Suffrage involves electioneering, in which the donations rule the day. The ideologies espoused by candidates, whether Socialism or Liberalism, are set in motion by, and ultimately serve, only money. "Free" press does not spread free opinion--it generates opinion, Spengler maintains.
Spengler notes that the greater the concentration of wealth in individuals, the more the fight for political power revolved around questions of money. One cannot even call this corruption or degeneracy, because this is in fact the necessary end of mature democratic systems.
Through the media, money is turned into force--the more spent, the more intense its influence."
So what can we distill from this analysis?
1. The Mainstream Media cannot be trusted to "identify the culprits" as they have actively promoted and abetted the obfuscation and diversions which have deflected any questions or analysis which got close to the truth, i.e. that a tiny privileged class gained immensely from the phony debt-based "prosperity" while the majority lost purchasing power.
And now this same elite benefits as easily-predicted stupendous losses are socialized (bail-outs paid for by taxpayers far less wealthy than those being bailed out) while profits were left safely private. Hedge fund managers got special tax breaks, as did all those multi-millionaires using offshore tax havens and squads of high-priced tax attorneys to forge and manipulate tax loopholes.
So expect the MSM to create red herrings, dodges, excuses, foreign scapegoats, etc. and to lead the gullible public down a path of "alternative explanations" which leave the elites untouched. For instance, lack of regulation: nice, but who lobbied to have the regulations relaxed? What pressure was applied, and by whom?
2. "Money" will continue to exploit/dominate until "Blood" rises up to displace that power with its own power.
In the U.S., I interpret Blood to mean a democratic (small "c": the Democrats sold us down the river as fast if not faster than the "never met a tax cut and resulting deficit we didn't love" Republicans) social movement which forces the political class to betray Money via the only threat Blood can raise: you will lose an election and hence lose power and wealth.
Or, Blood will storm the state capital or launch a Tax Rebellion in which the taxpayer debt-serfs simply stop paying taxes. Once "Money" no longer has unlimited access to tax revenues, the worm will have turned against Money and their political lapdogs in both parties.
3. The ideological banner of "free enterprise" is a wonderful cloak for the reality of exploitation. Ditto "democracy." If we're so "democratic," how come 97% of all elected officials "win" re-election, regardless of the disasters they have fomented/aided?
4. When the exploitation reaches unsustainable extremes, then the exploited finally rise up. I would guess the exploitation ($7 trillion stolen from taxpayers and given to the ruling elites) has reached a financial extreme; the poltical extreme is probably years away. The suffering will have to become far greater and more widespread for people to start questioning if all this was just an inevitable "business cycle" like the waxing and waning of the moon, or if it was calculated exploitation of the "system" by a few who benefitted to an extraordinary degree at the expense of the many who now pay the price of their blindless/apathy.
In a similar vein, correspondent Maclean recommended this provocative piece:
Congress Confronts Its Contradictions (By George Monbiot)
According to Senator Jim Bunning, the proposal to purchase $700bn of dodgy debt by the US government “is financial socialism, it is un-American”. The economics professor Nouriel Roubini calls George Bush, Henry Paulson and Ben Bernanke “a troika of Bolsheviks who turned the USA into the United Socialist State Republic of America”. Bill Perkins, the venture capitalist who took out an advertisement in the New York Times attacking the deal, calls it “trickle-down communism”.
They are wrong. The banking subsidies are as American as apple pie and obesity. The sums demanded by Bush and Paulson might be unprecedented, but there is nothing new about the principle: corporate welfare is a consistent feature of advanced capitalism. Only one thing has changed: Congress has been forced to confront its contradictions.
One of the best studies of corporate welfare in the United States is published by my old enemies at the Cato Institute. Its report, by Stephen Slivinski, estimates that in 2006 the federal government spent $92bn subsidising business. Much of it went to major corporations like Boeing, IBM and General Electric.
The biggest money crop - $21bn - is harvested by Big Farmer. Slivinski shows that the richest 10% of subsidised farmers took 66% of the pay-outs."
Book Notes: My "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
"Charles Hugh Smith's Weblogs & New Media: Marketing in Crisis is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades...."
Thank you, Pedro M. ($20) for your exceedingly generous donation to this site. I am greatly honored by your support and readership.
Tuesday, November 25, 2008
The Coming Great Depression: Intersecting/Reinforcing Trends
Longtime readers are already familiar with this chart taken from my book Weblogs & New Media: Marketing in Crisis which depicts four intersecting/reinforcing longterm trends: (see chart below)
1. Peak oil, or the depletion cycle/end-game of the global economy's complete dependence on inexpensive, readily available petroleum/fossil fuels.
2. The cycle of credit expansion and contraction (approximately 60-70 years), which is now beginning the transition from unsustainable credit expansion (bubble) to renunciation of debt (credit collapse) and global depression.
3. The generational cycle (4 generations or approximately 80 years) of American history which leads to nation-changing social, political and economic upheaval. (The American Revolution: 1781 +80 years = Civil War, 1861 +80 years = 1941, World War II + 80 years = 2021)
4. The 100+ year cycle of price inflation and stagnation of wages' purchasing-power which began around 1901 is now reaching the final stage of widespread turmoil, shortages, famine, war, conflict and crisis.
Here are some good source books on each trend:
Beyond Oil: The View from Hubbert's Peak
The Party's Over: Oil, War and the Fate of Industrial Societies
The End of Oil: On the Edge of a Perilous New World
Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
The Fourth Turning
The Great Wave: Price Revolutions and the Rhythm of History
Two fine books which integrate various trends:
The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century by James Howard Kunstler
Financial Armageddon: Protecting Your Future from Four Impending Catastrophes by Michael Panzner
Bottom line: the coming Depression is not like the Great Depression of the 1930s-- it's much worse because the crisis is not only financial in nature. To take but one example: as Jim Kunstler points out, in 1929 the U.S. was the Saudi Arabia of the world, sitting on vast easy-to-pump reserves of oil. Now the U.S. imports 2/3 of its petroleum.
Several other negative trends must be added to the above list:
5. Demographics + Stupendous government entitlements = fiscal implosion. There really is no secret here: the entire edifice of government entitlements for the elderly is still based on the demographics and longevity statistics of 1932: high birth rates and a small percentage of the overall population who were over 65 years of age (i.e. few retirees).
The nation's demographics are astoundingly different now--and as a result, completely unaffordable. The elderly (defined as those who qualify for government entitlements) are not 2 or 3% of the populace but 12-15%. Where there were ten workers to support every retiree in the 1940s, now there is 2.5 workers per retiree, and that ratio-- already a demographic impossibility--could fall to 2/1 as Baby Boomers retire in their tens of millions and as the Depression decimates the job market.
When Social Security began, the pension amounts were very modest; now, 1/3 of the program's immense benefits don't even go to retirees but to offspring, (death benefits), disabled workers and benefits paid to mentally ill citizens--coverage which extends far beyond the program's original scope.
Medicare began in the late 1960s as a small $2 billion program and has ballooned into a program which will soon exceed the Pentagon in money disbursed.
Once they leave office, every politican of both parties admits that this entitlement train wreck really needs to be addressed soon--blah blah blah.
(A good book on the topic: While America Aged: the Next Financial Crisis)
Bottom line: unlike the 1930s Depression, all levels of government are now facing the fiscal impossibility of paying benefits based on unrealistic/dated demographic models.
Which brings us to
6. Mission creep: entitlement programs have expanded far beyond their initial scope and estimated cost structure. In addition to Medicare and Social Security "mission creep," consider the veteran's Department. In 1930, the U.S. Armed Forces were considerably smaller and Veteran's benefits far more meager than today's forces and benefits. No one anticipated a world war or a Cold War which would require millions in uniform for 50+ years. Put 3 million citizens in uniform for decades and guess what, you get rapidly rising veteran's benefits.
The move to a volunteer armed forces also ramped up costs considerably; draftees were far cheaper (one side benefit of involuntary servitude to the government).
The politics of "mission creep" are straightforward: everybody loves getting more at no extra cost in taxes. Politicos know that giving voters more benefits without raising taxes is a sure vote-getting strategy, and in a growing economy juiced with deficit spending, the day of reckoning was easily put off--until now.
Astute reader Dan K. disagreed with my expectation of a Coming Depression; he foresees another attempt at reflating the economy. here is an excerpt from his cogent comments:
"However, I fear 'change' may slowly get trampled by the minions. In which case we will not get Depression (though no matter what path they all take we will continue to get asset Deflation), but a long bout of ever increasing stag-flation and most probably hyper-inflation.
If you think about it in the broader context, any government would rather inflate it's way out of debt than deflate. Certainly under deflation taxes cannot be raised and penance to the governmental coffers will surely decrease. So we must at least TRY to get inflation back again. Even if it is only 1-2%. Even if we all know it is truly unattainable for the knight, the Fed, the round table or anyone else to control the printed money once it makes it into the broader economy.
That is the war we will eventually lose -- the inability to control the inflationary spiral we will create to win the current battle. The Hindenberg Fed will hit the tower at some point, and all will come crashing down. And the knight will hope that happens some 8 years from now when the next knight comes to rule the territory and he moves on to warmer and more hospitable climates."
Here is Dan's entire essay: A Knight's Tale in 3 Acts.
Thank you, Dan, for making the case for renewed inflation as a temporary "solution" to the downspiral of the global economy.
From the point of view of yesterday's entry, This Week's Theme: The Coming Great Depression, I would say that the tremendous appeal of printing "funny money" and inflation is based on the deeper problem which is wealth is not actually increasing in the U.S., it is declining.
Rather than face the need to reduce unproductive spending and consumption, we have chosen (not necessarily consciously, but chosen nonetheless) to fill the widening gap between our production of goods and services and what we consume with "funny money" which has created an illusion of "growth" via layers of inflation and currency depreciation.
Thus in my view, the starting point is not the manipulation of money supply and leverage, but the fundamental disparity between production and consumption. If we were actually increasing our wealth via reduced spending and growing productivity of goods and services, then there would be no pressure to create an illusion of "growth" and "wealth creation" via the legerdemain of currency, money supply and leverage manipulation.
Here are a few other titles a propos to the topic:
Collapse: How Societies Choose to Fail or Succeed
While America Aged: the Next Financial Crisis
The Dollar Crisis: Causes, Consequences, Cures
Tragedy & Hope: A History of the World in Our Time
The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities
And did I pitch my own book yet? Weblogs & New Media: Marketing in Crisis
Thank you, John B. ($20) for your much-appreciated generous donation to this site. I am greatly honored by your support and readership.
Monday, November 24, 2008
This Week's Theme: The Coming Great Depression
I have been asked to address the coming Great Depression which is slowly but surely enveloping the globe. The irony of doing so in Thanksgiving week is not lost on me, and I want to preface my commentaries by saying that I do not tackle the subject cavelierly. There will be great suffering, on many levels, and the entire point of analysing the situation is to lay the groundwork for alleviating the suffering by getting to the root causes of the financial, social and environmental disasters which are unfolding globally.
Let's start with the view of the U.S. from orbit. The first thing you notice from actual orbit (as opposed to "the long view" metaphor) at night is all the bright lights. In the daytime, you would see thousands of contrails from all the commercial airliners in the air.
The one key fact about all this energy useage is that about half comes from overseas; it is purchased from other nations and shipped great distances. This energy comes in the form of liquid petroleum, a highly energetic and easily transportable form of energy of which the "cheap and easy to get" kinds are now in permanent decline.
To those who don't believe in "Peak Oil," please note that regardless of all other conditions, estimates, theories, etc., the cheap-and-easy-to-get oil will soon be consumed. Every other form of fossil fuel will be costly to extract and refine.
Switching to a metaphorical "view from orbit," we see the primary fact of the U.S. economy is that it no longer produces a surplus. The nation consumes more than it produces, and has borrowed the difference for the past 27 years--more or less the time period of "The Great Bull Market" from 1982 through 2007.
These two facts are not unrelated; it was not mere coincidence that borrowing at every level of the U.S. economy increased in that time frame until it reached unimaginable quantities (and velocities) in the 2002-2007 timeframe.
From time immemorial, civilization has required a surplus to be earned from the labor and harvest of a tribe or people. If you consume the entire fruits of your collective labor, you have no surplus to trade with other peoples, no surplus to invest in roads, ships, additional fields, waterworks, armies, permanent structures (religious, communal or private), no "savings" for lean times, and certainly no surplus to pay anyone in the tribe to practice art or music.
An economy which creates no surplus cannot save any surplus to invest ("money" is nothing but a means of exchange and a store of surplus labor/energy). That economy is doomed to eating its seed corn, after which it collapses. Throughout history, ecological/environmental changes (unremitting years of poor rainfall and harvests) and/or regional conflict (unending wars which consume whatever surplus remained) have led to the downfall of great civilizations.
Now an empire has certain advantages over a tribe or city-state or even a nation. Through its power, both "hard" (military) and "soft" (financial, cultural influence, diplomacy, threats, etc.), the empire can coerce vassal states to sell their surplus goods and services at immense discounts to the empire, which then consumes the goods or re-sells them at enormous profits.
The empire can also create and sustain markets in vassal states for its goods and services, which it sells at a premium either directly or via the legerdemain of currency manipulation/control.
But when the empire consumes more than it gathers in surplus, then it too declines. It can mask the decline by stripping assets and surpluses from vassal states for a time, but eventually this exploitation reaches extremes which power revolutions and rebellions. With its surpluses gone and its populace weakened by decades or centuries of living off the fat of the land, the empire loses its military grip over the vassal states.
Once it has lost its ability to extract resources and goods at a discount and its markets for its own overpriced goods, the empire declines to mere nationhood or implodes into various political pieces (nation-states, client states, federations, etc.)
At home, the empire's populace has grown accustomed to consuming the surpluses of others. Creating surplus has been replaced with an obsession with consuming surplus, in ever more extreme and outlandish fashions. Both the refinement and brutality of human nature reach apogees in this blow-off of others' surplus; violent bloodsport games are enacted (in stadiums or via computer screens), absurd costuming and spectacles become commonplace, rare and exquisite foodstuffs are imported, prepared and squandered, and every excess in religion, art and sport is surpassed by an ever more outrageous waste of surplus.
Borrowing, either outright loans or via the legerdemain of depreciating currency, grows to the point where everyone is indebted to someone somewhere. Entire governments balance precariously on the high taxes extracted from the few remaining productive enterprises in the home empire, and on funds borrowed to pay the interest due on previous gargantuan loans. (See French and Spanish empires for examples.)
"Rights" abound in the empire doomed to implosion/decline: not just the right to free speech and the right not to be unduly harrassed by authority, but the "right" to bread, shelter, entertainment, etc. When the bread runs short, the ugly mobs demand their "rights;" ironically, when bread becomes a "right" (a.k.a. an unearned entitlement), then it suddenly becomes scarce.
And when it becomes scarce, then the quality plummets, and those demanding their "rights to decent bread" ate issued weevil-riddled biscuits. And since there is no surplus, and no incentive to create surplus (whatever surplus is created is quickly appropriated by the debt-burdened government), then those lined up for their "rights" have to take the weevil-riddled bread and like it. Or not.
And then the mobs have to be controlled with a "whiff of grapeshot" (Napoleon) or they consume the crumbling bones of the empire piece by piece until nothing remains except resentments, unanswered demands, and eventually, either ruin or nostalgia.
That's how you get a global Depression.
Two totalitarian empires were attempted in the 20th century, both based on an unparalleled propaganda machine, unparalleled state control of every aspect of the economy and society, and the coercion offered by great military and secret-police organizations.
Both empires failed. Complete expropriation of rights and property is exploitation to such an extreme degree that it sparked resistance, and the old model of empire, i.e. one built on and sustained by wealth creation via trade and "soft power", had a great defender (the U.S.) Blessed with immense resources, a large and active populace and popular political principles, the U.S. created a "win-win" alliance which destroyed the Nazi empire militarily, and ground down the Soviet empire, which was doomed from the moment it failed to create any surplus on its own.
Now the U.S. empire faces unprecedented challenges, just at the point in time it has succumbed to all the temptations of debt and consumption of others' surpluses which brought down previous empires. The home populace of the empire is restive with demands for "rights" even as its own productivity (as measured by the surplus of production over consumption) has declined into deficits which require stupendous borrowing just to sustain current spending on "bread and circuses."
Even worse, an illusion of "growth" and "wealth" has been created by the FIRE economy (finance, insurance and real estate) in which shuffling paper and bits of data pass for actual productive activities when in fact they created nothing.
The cost structures of the unproductive parts of the economy (government, medical care, etc.) have skyrocketed at rates double or even triple the growth of the economy as a whole; the total tax burden (property taxes, payroll taxes, junk fees, permits, income taxes, business taxes, phone taxes, fuel taxes, sales taxes, etc.) have outraced both income and the overall economy, channeling whatever surpluses have been created into unproductive bureaucracies consumed with papershuffling.
Like the frog being boiled alive, we do not seem to be aware of the heat rising. To take but one example: it now costs at least four year's pay to go to a hospital in the U.S. and have a medium-scale operation. The numbers are less important than the ratio, but those of you "in the business" know that if we take the median wage in the U.S. as $40,000, then a few days in the hospital is one year's pay (not intensive care, mind you, just a "regular" stay), the operation a year or two's pay, and another year for post-op care and medications.
Intensive operations cost ten year's pay, of course, if not more.
Did an operation and a few days in a hospital cost 4 year's pay in 1970 (the last gasp of the 25-year postwar Bull market)? No.
Now that we all have the "right" to operations which cost 4 to 5 or even 10 years' pay, where are all those decades of pay going to come from? the math is painfully simple. If we all get to have medical care which consumes (costs) 5 year's pay, then collectively we each need to save $200,000 or pay "medical care" taxes equivalent to $200,000 in order to pay for that consumption.
And if we also have the "right" to consume medications which cost another year's pay or two, then we better make it $300,000 each, or maybe $500,000 because we also have the "right" to unlimited MRI tests, etc.
But we as an empire have chosen the "easy way out" just as previous empires did: borrow the surpluses of others to consume, either directly via selling Treasury bonds, state and local government bonds, mortgage-backed securities, etc., or the appropriation of their wealth via management of our currency which they are forced to use.
Ironically (or not), once this care becomes a "right" (i.e. nearly "free" to consumers) it suddenly becomes scarce (expensive) and the quality goes down. Any system set up on this model eventually implodes under its own weight: cost structures with essentially no limit (no worker can be fired, no test denied payment, etc.) skyrocket, demands for "rights" increase, and the system collapses when there is no longer enough surplus wealth appropriated from abroad to pay the rising costs.
That collapse of high cost structures no longer supported by surplus wealth appropriated from trading partners is the essential cause of the coming Great Depression. Once the U.S. has to face its vast deficit between its saved/invested productive labor and its consumption, then the high cost structures will topple one after the other: first the auto makers, and eventually the entire Medicare/Medicaid industry.
The math is painfully simple: no cost structure can grow at two or three times the rate of the overall economy forever. We're about to experience the breaking point, and whether we in the home empire state like it or not, consumption will have to realign to match production minus savings for investment. Borrowing to fill the difference has worked for a long time, but it never works forever.
Thank you, Jack R. ($20) for your very generous donation to this site. I am greatly honored by your support and readership.
Friday, November 21, 2008
This Week's Theme: Trends That Will Stick
Happiness Remains Possible
Today's "trend that will stick": happiness remains possible. I know, I know, spare me the load of New Age crap spouted by wealthy gurus like Kapok Dopra. OK, done. But nonetheless happiness is possible for just about everyone not on their deathbed, or suffering from a severe untreated mental illness, or in the sharp terrible grip of grief (loss of a loved one) or in pain only morphine can ease.
That leaves most of us.
The word happiness, like the word love, is inadequate to the task assigned it. These words encompass too much to describe much of anything. Perhaps an analogy would be if we only had the one word "taste" and no words for salty, pungent, sour, bitter, sweet, savory, meaty, rancid, etc.
All questions about taste would be reduced to "yes" or "no" answers which essentially say nothing about the various flavors of food. The word "happiness" carries the same limitations and the same reduction to nonsense.
One aspect of language which has always fascinated me is words which are unique to specific languages. Ideally, a word is a symbol or "shorthand" representing an object or an idea which is at heart a complex of thought and/or emotion we grasp without much explanation.
Some languages contrived words to express complex emotions which are universal to humanity, while others find that linguistic cupboard bare. For example, the Japanese word aware (ah-wa-ray) has no English analog--not even close, though "nostalgia" is in the general direction. Since I am not a native speaker of Japanese, I don't fully trust my own sense of the word, which is something like a bittersweet awareness of the passage of time. I think it a very Japanese word in the sense that this feeling, while universal to humanity, is keenly felt in Japanese culture.
In English, we are left groping for this special sense of the tinge of sadness inherent in the passage of time; nostalgia veers too close to mauldin "ah, the good old days" smoothing of memory. And so a complex of ideas and emotions which are captured in one single word in Japanese requires a paragraph of words in English.
Which brings us to schadenfreude, the happiness felt in the losses or defeat of one's rivals or enemies. It's not a warm and fuzzy happiness (as in, "happiness is a warm puppy"), but it is nonetheless an instinctual, universal slice of happiness.
Who says happiness isn't possible when rivals and enemies are suffering stupendous losses every day? (Take that, Kapok Dopra! Yes indeed, happiness is not only possible, it's enjoyable.)
I hope you detected that this is written with tongue firmly in cheek. (Such a great phrase, and so entirely meaningless when literally translated.) The point is that happiness comes in many flavors, however you slice and dice it:
"Psychologist Paul Ekman divides happiness into 16 emotions, including personality traits such as optimism and cheerfulness, the state of mania, moods of euphoria and contentment, sensory pleasures such as visual, gustatory and auditory (his personal favorite) and three states of mind with no English translation - schadenfreude (German for feeling good about the pain of your enemies), nachas (Yiddish for joy at an offspring's accomplishments) and fiero (Italian for what you feel when you've met a challenge).
"I believe we can understand life a lot better if we make distinctions, not by just saying, 'I'm not happy,' " he said. "If it was up to me, I'd abolish the term happiness and use these terms so we'd know what we're talking about. You could have organized the meeting so you'd have a panel on each kind of happiness."
We tend to think of happiness as some point-in-time sensation or celebration, but some sorts of happiness are more akin to well-being; others are a priori shared with others:
"Dacher Keltner, a psychology professor at UC Berkeley who heads the university's Greater Good Science Center, discusses evidence that compassion and kindness are traits biologically programmed into humans.
"I think we have a deep and rich legacy in Western thought that suggests we are competitive and aggressive and only out for No. 1," said Keltner. "But all the research I do in my lab (shows) that we are designed to care and play and be concerned about the welfare of others."
(From the S.F. Chronicle article Happiness and Its Causes: It would be hard to find a better time to talk about happiness, something you can't buy even if you still have good credit.)
So let's work Ekman's insight a bit. How many happinesses can you count? Just riffing off Ekman's list:
1. The happiness of fullness of belly.
2. The happiness of listening to a favorite song once again.
3. The happiness of overcoming sloth and/or procrastination.
4. The happiness of mastering a new tune, skill, trick, etc.
5. The happiness of removing a rock beneath your sleeping bag.
6. The happiness of rigorous exercise completed.
7. The happiness of coasting downhill on a bicycle.
8. The happiness of helping a child or teen finish their homework, but without actually doing it for them.
9. The happiness of a child or teen asking you to accompany them.
10. The happiness of not needlessly worrying your aged parents with your own difficulties.
11. The happiness of changing the oil in your vehicle without losing the oil plug or skinning your knuckles.
12. The happiness of finding you're not too badly injured after a wipeout/accident.
13. The happiness of a new recipe turning out even better than expected.
14. The happiness of feeding hungry kids something healthy and tasty.
15. The happiness of hopskotch.
16. The happiness of an improvisation that works/flows to your satisfaction.
17. The happiness of opening a book you've wanted to read for some time.
18. The happiness of realizing the pain in your back is a little less today.
19. The happiness of new shoots rising from the seeds you planted.
20. The happiness of acquiring a new object of ownership.
I do not begrudge the happiness of #20, as it is the sole foundation of a consumer economy: the happiness of acquiring some new object or purchased "experience." But I also listed 19 other happinesses which required no acquisition of new material objects or shopping per se, though there needs to be healthy food in the house to feed the kids, and a bicycle to ride down hill, etc.
But used bicycles cost less than a month's cable TV charges, and food is far less costly than it is in other countries. And there's food stamps if you're in dire straits.
A reader (Lari) on sfgate.com (S.F. Chronicle site) left this message which should resonate with anyone pondering the various flavors and sources of "happiness":
"There's a Carlos Castaneda quote I read once that has become my touchstone during bad times: "Death is the only wise adviser that we have. Whenever you feel that everything is going wrong and you're about to be annihilated, turn to your death and ask if that is so. Your death will tell you that you're wrong, that nothing really matters outside his touch. Your death will tell you, 'I haven't touched you yet'."
I learned this lesson particularly after 9-11. As a native New Yorker, the twin towers represented so much to me - including the location of my first job. Two friends died in those towers that day and two cousins barely escaped alive. Not a day goes by that I don't think about people who died that day - I could be standing in a long line, worried about bills, my job, but then I just stop and breathe in, so grateful that I can still do so.
One last small happiness:
21. Finding a phrase that makes a new kind of sense.
For instance: Where there is ruin, there is hope for treasures. (Rumi)
Thank you, James D. ($30) for your much-appreciated generous donation to this site. I am greatly honored by your support and readership.
Thursday, November 20, 2008
This Week's Theme: Trends That Will Stick
The Baby Boom's Market Order: Sell, Sell, Sell
Today's "trend that will stick": a demographic trend which cannot be reversed is the ageing and retirement of the Baby Boom. Some 60 million people will be hoping/trying to scale back/quit their livelihood, and if they have any assets, they will be selling them to raise money to live on.
This is not difficult to anticipate; the topic has been addressed many times (see this site's archives 2005-2006); I have long recommended these two books on the subject:
Fewer: How the New Demography of Depopulation Will Shape Our Future
The Coming Generational Storm: What You Need to Know about America's Economic Future
This has two major consequences:
1. Medicare expenses will rise far more quickly than the tax revenues which support the program
2. Boomers will be selling houses, real estate, stocks, bonds, collectables, etc. to fund their retirement.
This is the natural course of events as we age. My mother sold her house a few years ago in order to pay for her assisted-care apartment. My father and stepmother recently sold off their nestegg property for similar reasons.
That's what people do when they retire: sell assets to raise cash.
So the first Boomers (born 1946) are retiring at 62 this year. (Military personnel and anyone who was disabled were able to retire even earlier.) Since waves of Boomers will be retiring for the next 15 years (roughly those born in the years 1946-1961), it is straightforward to anticipate waves of assets being sold.
The Boomers will of course be inheriting a store of wealth from their parents as the World War II generation passes on, and this will provide the Boomers with assets to sell.
The Boomers (yes, I am one) as a whole have not exactly showed much restraint in their spending or much long-term planning in their savings strategies, and thus we can anticipate a bias toward selling assets and spending the proceeds for the next 15 years.
Who will be buying all these assets as they're being dumped on the market? Unfortunately, the younger generations are not quite as numerous as the Baby Boomers, and until such time as Medicare collapses under its own weight /is declared insolvent, they will also be paying more taxes to fund the Boomer's skyrocketing Medicare expenses.
That will leave them less money to invest in assets the Boomers are selling.
Then there's the global depression which we are just now entering. That will also limit who has the capital to buy assets and how much the assets will fetch on the open market.
If the generation now maturing to join the workforce enters a global economy perking along in a new alternative-energy-powered boom in 4-5 years, then that wealth creation might create a pool of buyers for all the assets the Boomers are selling. That is the positive scenario.
If no such global boom ignites in a few years, then the scenario of Boomer-owned assets being dumped into a marketplace with few buyers does not bode well for the price of those assets.
Thank you, Larry W. ($100) for your outreageously generous donation to this site. I am greatly honored by your support and readership.
Wednesday, November 19, 2008
This Week's Theme: Trends That Will Stick
Oil Supply Is Limited, Demand Is Unlimited
Today's "trend that will stick": despite the current "head fake" of $2/gallon gasoline, petroleum supplies are still limited/in decline even as 2 billion new consumers gear up for their share of the energy-intensive Western lifestyle of autos, heat, air conditioning, malls, office towers, etc.
Today's entry will be brief because oil analyst Matt Simmons has stated the above case better than I could in a quick PDF slideshow which was recommended to me by longtime contributor U. Doran:
Understanding Energy Risk and Crisis.
Mr. Doran also recommended this detailed analysis from theoildrum.com website: The 2008 IEA WEO - Production Decline Rates. As always, there is a lot of cogent commentary by well-informed industry participants. The basic discussion is on just how fast production is declining.
Simmons effectively dismantles the optimists' arguments that oil will continue declining in price due to the global recession, and he also takes apart the optimistic view that there's nearly unlimited petroleum reserves in the form of tar sands, etc.
Even if you know all about Peak Oil or are a complete skeptic, I highly recommend this easy-to-read (lots of self-explanatory charts) 48-slide presentation by one of the industry's most astute and respected analysts. Bottom line: don't count too heavily on $2/gasoline when planning your future investments and actions.
Since we're on the subject, here's my "head fake" chart yet again:
And here is my original entry from May 2008 calling for the head fake: Oil: One Last Head-Fake? (May 9, 2008)
More comments on "Joshua Bell plays the subway." Readers found interesting things to say about A Ringing Bell: More Than Music at Play (The Politics of Experience) (November 15, 2008). (The original entry was Crowds Ignore World Renowned Violinist: What Does This Say? (November 13, 2008).
An interesting essay on Josh Bell in the subway. I wonder, though: how many of those people didn't stop because they (at least in their own minds) didn't have a choice? The time chosen for the experiment was the morning "rush hour;" in the calculus of "should I stop to hear this beautiful music only to get chewed out for getting to work late?," I think many are going to be restrained from following their desires.
Among other things, I'm a recording engineer, specializing in classical music. Had Mr. Bell been playing in New York Penn Station when I passed through on my way to record a show, I'd probably have wung (okay, winged) a dollar coin into his case and kept going. Apprciating the music would have had little to do with it; fulfilling my responsibilities to my client would have had much."
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Tuesday, November 18, 2008
Housing Writedowns Resisted
Today's "trend that will stick": writing down housing values and mortgages to reality will be resisted by lenders, homeowners and government every step of the way, lengthening the recession.
Why will this resistance lengthen the recession/depression? For what happens when writing down bad debt (uncollectable debt, debt based on impaired assets, etc.) is resisted, we need only look at Japan 1989-2002 for an example: hiding bad debt and acting as if assets will rebound to bubble heights someday leads to decades of stagnation.
Since borrowers are still on the hook for the "zombie loans" (loans which are not being paid down but which are kept on the lenders' books at full value), then borrowers can't clear the debt and interest payments off of their ledgers and start rebuilding their capital. The lenders are similarly hobbled; no one trusts them, knowing full well that assets worth 30 cents on the dollar are still being valued at a full dollar on their balance sheets.
The broader economy and government tax receipts both suffer as velocity of lending, borrowing, investing and spending all shrivel in this atmosphere of false numbers, false hopes and false values.
It is difficult to measure this trend, as everyone involved has a keen interest in playing for time, hoping against hope that a resurgence of bubble-era valuations saves them from writedowns, insolvency and bankruptcy.
Unfortunately, popped bubbles no longer hold air. You can blow and blow and blow and they never reinflate.
Let's examine how each player resists admitting to this painfully obvious reality: the assets are no longer worth anything close to their original value.
1. Homeowners. Those with negative equity and insufficient income to pay their mortgages are bailing out because they have no choice, but many others cling on to the hope that their house will some day return to its bubble-era valuation and they can sell out--maybe even for a modest profit.
I referenced this fantasy world of hope in "Housing a Buy:" Where Is the "Real Bottom"? (November 12, 2008) with this excerpt from a recent New York Times article A Town Drowns in Debt as Home Values Plunge:
Kenny Rogers, a data security specialist, moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater.
The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time.
But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it. "
Even when faced with the cold reality of an impossibly gargantuan monthly payment, Mr. Martinez basically shrugged it off; he's staying put and hoping for the best.
"This must be the bottom" investors/speculators like Mr. Rogers also have strong motivations to hang and hope for a resurgence of valuations. "Catching the falling knife" (i.e. buying an asset on the way down) is painful, and human nature is such that bottom-fishers are loathe to admit they got in too soon. Rather than bail out as losses mount, they tend to hang tight and "hope for the best."
Anecdotally, almost everyone involved in real estate (owners, realtors, lenders, etc.) is exhibiting a strong preference for denial as an operating strategy.
It reminds me of the bubble top in 2006 in many ways. Every time I warned a friend that the market was poised for a huge decline and now might be a good time to sell, the response was the same: property here in X won't go down, it has longterm value.
Now when I tell friends to prepare for a 4-5 year depression in which incomes and asset valuations will continue sliding, they nod their heads much as they did in 2006, as if to say, that doom-and-gloom stuff is always overdone; everything will pick back up next year.
A prime reason for this resistance is the alternative--financial ruin awaits--is just too painful to contemplate. Those of us who have lost a bundle in a declining stock market know the drill all too well: we are loathe to take a 20% loss, which then becomes a 50% loss, which just depresses us further, and so we sit by frozen until it becomes a 90% loss. Now it's too late to preserve the capital that still remained when the loss was only 20%.
A great number of people are heavily invested in the idea that their homes and investment properties will bounce back for this reason: their real estate comprises the overwhelming majority of their assets. If housing doesn't pop back up, they will literally have no assets. For Baby Boomers, this possibility is often too terrifying to contemplate.
Another reason people resist accepting their house can decline in value is that they're devoting 50% or more of their earnings to their mortgage and property taxes. The commitment they're making to support their housing asset is crippling; when over 50% of your earnings going into your house, the possibility that you're forgoing everything else in life to pay the mortgage and taxes is wrenching.
As bubble-era house prices shot up, many buyers willingly accepted mortgages which ate up 50% of their take-home pay. This chart of California communities indicates that up to 25% of households are spending 50% or more on housing:
Low-income households often have to pay 50% or more to rent homes in high-cost areas such as coastal California, but the reality is that many homeowners also devote 50% or more of their earnings to housing.
Are the sacrifices this requires worth it? To say "no" is to accept a terrible blow to one's hopes for financial success and perhaps also to one's ego.
2. Lenders. There's no mystery why lenders are anxious not to accept realistic valuations on the mortgages they hold: if they did, most would instantly be declared insolvent.
Japanese banks played the same games during their 15-year long "Lost Decade." Some even loaned money to defaulted borrowers so they could make nominal interest payments on the original debt, thereby enabling the bank to maintain the fiction that the loan was in good standing.
We see the same sorts of legerdemain being played by U.S. lenders: for instance, rewriting mortgages at 3% interest only so the borrower can "afford" to make payments. The lender can then maintain the balance sheet fantasy that the mortgage is still worth its original valuation.
Those financial entities which own mortgage-backed securities are equally resistant to accepting writedowns, as this article outlines: Investment groups resist mortgage changes:
At the center of today's economic and credit crisis is the rising tide of home foreclosures, which government agencies and some large banks are trying to address by allowing borrowers to modify their mortgages.
But their efforts are likely to fall short because those entities don't control most of the nation's worst-performing loans. Instead, investment groups worldwide do, and representatives of some of them have been resistant to making such changes because it could crimp returns.
All of this is an unfortunate legacy of the trend in recent years of banks selling most of the mortgages they originated, rather than keeping them in their loan portfolios. The buyers, including Fannie Mae, Freddie Mac and Wall Street firms, would then repackage them into securities sold to investors worldwide.
CHS note: "unfortunate" now, but at the time, Wall Street was delighted to sell risky mortages as AAA-rated wonderfulness for billions of dollars in fees. Congress was equally delighted to look the other way, as its hand was in the till.
Today, about 80 percent of the $1.8 trillion in outstanding troubled mortgage loans belong to investors, according to Deutsche Bank. The rest are considered "whole loans," held by banks or government-run mortgage giants Fannie Mae and Freddie Mac.
What's clear is that contract law is preventing the companies from easily or quickly bending on this issue (renegotiating or writing down mortgages), and the government to date hasn't done anything to compel them to act differently."
3. Governments. And why wouldn't government want all the bad debt to be repudiated, written down and settled as quickly as possible? Such a writedown would result in many banks and lenders being declared insolvent, and the government would prefer to maintain the illusion of solvency in the hopes that housing will recover and save the banks from insolvency. That would be less messy than having to confess the politicos and agency chiefs had done nothing to protect the public interest during the bubble, and cheaper than having to bail out the entire banking and mortgages industries.
And let's not forget the windfall of property taxes that the housing bubble generated for local government and its public union workers. This chart only reflects the increases from 2002 to 2004; the leaps to 2006 valuations were much higher:
Here's a snapshot of Florida's ski-jump in assessments:
The stunning rise and ensuing collapse of tax revenues is a subject I've covered over the past 3 years, for instance: Post-Bubble Blues: Derailing the Property Tax Gravy Train (April 6, 2006) and Bubbling Property Taxes (April 13, 2006).
Thus it is no surprise to find government at all levels climbing into the comfy bed of hopeful thinking/denial along with lenders and borrowers, for local government budgets are already running crimson with the post-bubble declines in property and sales taxes and the fall-off in capital gains taxes reaped from all those successful "flippers" who bought and sold on the way up.
There is a terrible irony in the fact that wishful thinking and resistance to writedowns will only make the decline more painful for all involved. By putting off the day of reckoning, participants are only insuring the decline in valuations and assets will be even deeper, as the steady erosion of values will have no discernable end.
If a global writedown of all impaired real estate assets could be forced now, the rebuilding of capital and trust could begin right away. But the trend to resisting writedowns and losses is firmly in place, and there is little evidence that any participants want to reverse this pernicious trend anytime soon.
More comments on "Joshua Bell plays the subway." Readers found interesting things to say about A Ringing Bell: More Than Music at Play (The Politics of Experience) (November 15, 2008). (The original entry was Crowds Ignore World Renowned Violinist: What Does This Say? (November 13, 2008).
I enjoyed the piece. I wanted to tell you that a similar experience was done in Budapest about 35 years ago. I saw it on TV when still in Romania, (we were watching the Hungarian TV). So what they did was to place one of the top classical music students to play the violin on a crowded street corner during the morning rush hour. Filmed him with a hidden camera.
For a while nothing happened few people threw him a coin or two. Then an old man stopped. Asked him questions like: Who are you, the violinist answered I am just a gypsy beggar, where did you learn to play like this? and he says my father taught me... you should know that gypsies (roma) are nomad people that are very good musicians and many of them work as musicians in pubs or at various celebrations like weddings (but never made it to a concert hall). Many gypsies live in that part of Europe.
But back to the story, so the old man is staring an saying: Unbelievable, unbelievable... Meantime other people stop and listen, and soon enough a small crowd gathers. Not necessarily music lovers but curious to see what is it all about. The old man is still trying to figure out how is this possible and keeps asking questions. Then somebody intervenes and tries to question him. Why don't you leave him alone, he is only trying to make a living. Are you a policeman or something?
Then the crowd splits, one half trying to protect the begger the other being on the part of the old man. Soon enough a real policeman appears and asks everybody to move on. They were creating a trafic jam. Then he sees the violonist and tells him to beat it.
The epilogue was that both of them, the old man and the music student were interviewed afterward on TV and everybody had a good laugh. The conclusion was that one way or another quality art finds its way and gets noticed.
Another time, another place.
Thanks for your interesting blogs."
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Monday, November 17, 2008
This Week's Theme: Trends That Will Stick
Even If Credit's Available, Who's Qualified to Take On More Debt?
This week's theme is "trends that will stick"--that is, trends which will not be reversing for quite some time. Why is this important? Simply put: investment and life decisions which are aligned with major trends are more likely to be successful than decisions and investments which run against the current of profound trends.
One cognitive error humanity is especially prone to is assuming a short-term trend can be extrapolated into the future. In the grip of a bubble mentality, we are easy converts to notions such as "real estate only goes up," even when the historical record has demonstrably proven such an extrapolation to be false.
In a similar fashion, low volatility and low interest rates were assumed to be permanent features of the "new" global financial world. Alas, it is now painfully visible that super-low interest rates and super-low volatility/risk were short-term artifacts, not semi-permanent trends.
So how can we tell the difference between a short-term trend and a long one? Start with the fundamentals: supply, demand, demographics, historical averages, etc.
Today's "trend that will stick": regardless of the amount of credit available, few are qualified to add to their existing debt burden. And of those who are qualified, many are allergic to debt; regardless of the blandishments offered to take on debt, they're not interested. Credit card balances, mortgages and auto loans--all are absolute anathema to this slice of citizenry.
It's ironic, isn't it: Credit's Available, But Who's Qualified to Take On More Debt? Only those who don't want to borrow.
Let's run a list of those who, if subjected to an old-fashioned (i.e. from 1999) prudent assessment of creditworthiness, would not qualify:
1. Most banks and lenders. Balance sheets loaded with toxic "assets," off-balance sheet toxic "assets" which if brought over to the balance sheet would immediately render the firm insolvent, "assets" which are still marked to fantasy rather than real-world realities--the list of reasons why banks themselves are poor credit risks is nearly endless.
2. Most consumers. The percentages of "debt owners" whose mortgages exceeds the value of their home is about 25% now, but this was as of September; one wonders what the number will be by next September:
From Lots of homes 'underwater' on mortgages in U.S.:
Over 7.5 million mortgages or 18% of all properties with a mortgage were in a negative equity position as of the end of September 2008. There are an additional 2.1 million mortgages that are approaching negative equity. These are defined as mortgages within 5% of being in a negative equity position. Negative-equity and near-negative equity mortgages combined account for over 23% of all properties with a mortgage."
Mark Zandi pegs the current number at 12 million and next year's total at 14.6 million: from Underwater mortgages inundate US:
About 12 million US homeowners owed more than their homes were worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, Mark Zandi, the chief economist at Moody's Economy.com, said this week.
With home prices now likely to decline on average by another 10 percent, Zandi said there would be 14.6 million homeowners under water by next September."
Even this astounding number sounds optimistic for a number of reasons. Job losses have yet to really kick in, and so the causal connection between forced sales and declining prices has yet to run its course. If 7 million people lose their jobs ( 5% of the total U.S. workforce) and about 65% own homes (the national average), then about 4.5 million may have to sell their house once their income drops and their savings (if any) are depleted.
Then there's the ugly mortgage re-set chart which suggests re-sets of interest-only and adjustable-rate mortgages will continue forcing sales for years to come:
And let's not forget this sobering chart of household liabilities, which have rcoketed to unprecedented levels of indebtedness:
Please go to www.oftwominds.com/blog.html to view the 5 charts.
Most households have few other assets to fall back on. As noted here many times before, the vast majority of productive assets in the U.S. are owned by the top 5% of the populace:
Can we trust the data? Why should we? Who defines who's mortgage is "underwater" or "distressed"? All sorts of shenanigans are being pulled to keep distressed/defaulting mortgages off the "overdue" ledgers. For instance, banks have magically decreased the number of distressed mortgages by raising the trigger from 90 days overdue to 120 days overdue. Is skepticism is order that the "underwater" numbers have been massaged wherever possible to minimize the number? Yes.
What evidence is there that housing is about to reverse and start appreciating in value? Basically, there is none. Basic supply and demand suggests additional steep declines lie ahead for at least the next 4-5 years.
HELOCs? Toast. Equity extraction via refinancing? Toast. How many homeowners still have equity in excess of 20%? How many will still have equity in excess of 20% next year, or in 2010 or 2011? Since the transaction costs of selling a house are about 7% of the sales price, then even 10% equity is in practical terms about 3% net equity after escrow closing, and 20% is really only 13%. Not much to hang your hat on in terms of assets you can borrow against.
And what lender is willing to bet your 30% equity today won't shrink to 20% by next year? That's a risky bet in anyone's book.
Here's the reality: Our economy is awash in debt: mortgages, credit cards, auto loans, home equity lines of credit, you name it. This chart says it all:
That is a trend which is not going to be reversed next month or next year. Simply put, this depicts an economy burdened with crushing debts that will either have to be written off as uncollectable (otherwise known as losses), severely depreciated (sold for 10 cents on the dollar, etc.) or paid down slowly out of earnings.
None are rapid processes which can magically be reversed. Holders of distressed assets will resist taking writedowns with every fiber of their beings, and consumers saddled with astounding debts will have to work through a painfully long bankruptcy process before being freed to borrow stupendous sums of money again.
The debt wagon lost a wheel, folks, and the mule ran off. You can try pulling the load yourself, but the slope gets mighty steep up ahead. Just look at the tremendous rise in the nation's total mortgage burden:
3. Corporations and commercial real estate. If you're wondering why the stock of once-mighty corporations like General Electric has been crushed recently, look no further than their debt load and/or exposure to rapidly depreciating debt of all flavors. Think anyone wants to lend big bucks to develop another empty mall or office tower? Here's a "big picture" snapshot of our economy's debt in relation to our GDP:
Adjectives such as "unprecedented" don't quite do this chart justice. Clearly, an enormous amount of this debt will have to be repudiated/written down or written off, and a large percentage of corporate and consumer income will be allotted to pay down debt for years to come.
4. Nations. By any prudent underwriting standards, entire nations are increasingly as risk of defaulting on their sovereign debt.
So go ahead and crank out trillions of dollars in new Treasury debt, Ben and Hank, and then pump hundreds of billions into the lending machine: by prudent underwriting standards, few who are willing to borrow are qualified to borrow. And many of those few who are qualified have zero interest (bad pun intended) in taking on debt.
That's a trend that will stick for years to come.
More comments on "Joshua Bell plays the subway." Readers found interesting things to say about A Ringing Bell: More Than Music at Play (The Politics of Experience) (November 15, 2008). (The original entry was Crowds Ignore World Renowned Violinist: What Does This Say? (November 13, 2008).
Let me tell you a story. About 8 or 9 years ago, when I lived in Manhattan's Upper East Side, I was waiting for the subway and there was a man playing the violin in the station. The music was BEAUTIFUL, especially with the acoustics of the subway station and tunnel, until the subway came, of course. It really made my morning. But, the Upper East Side stations being what they were, very hot and very crowded and uncomfortable, I didn't want to stay there one extra millisecond, so I got on the 1st train that arrived.
Now, the musician could have been a world class professional, or a student amateur for all I know, because I'm not a classical music connoisseur. If I had been in a more comfortable location during rush hour, I may or may not have stopped depending on whether I was running late for work or was anxious about getting to work, etc.
There was a time when I walked through Rockefeller Center on my way to work around the time the NBC Today show was showcasing their Friday morning summer musical groups. I usually didn't stop to listen because the music was annoying and there were 1000s of crazed tourists screaming for Katie Couric. Once they had the Monkeys playing. I know it's not classical and it's very pop, but there music brings back childhood memories, so I stopped and listened as did many non-tourists, which was unusual.
I enjoyed that post and the very good responses to the Bell experiment post, especially Eric’s response. I don’t like classical music either. It just doesn’t affect me in the way it “should”, I guess. I’d be more apt to stop and watch an alternative rock/pop band like Cake or Cracker or any band with a more upbeat sound. I don’t think it’s an elitist/non-elitist thing. However, I do doubt your premise that “the masses” back in the 1700s all liked what we now call “classical” music. I very much doubt it was ever popular in the way rock n’ roll is now, or perhaps some kind of folk was back then. Classical had the benefit that it was written down. Other music in the same era likely wasn’t written down, or if it was, wasn’t reproduced as effectively for whatever reasons. I’m certainly no historian, but I’m pretty sure that varieties of folk (Celtic, etc) were far more popular and more likely to draw a crowd away from their everyday worries and tedious jobs than was classical. Classical isn’t music geared to be listened to on one’s hectic commute. It takes a more pensive environment to appreciate. Not a subway.
Anyway, it’s a thought-provoking discussion.
An invigorating topic, the Bell experiment. My mind was "spirited away" by Eric's response and your re-response; both absolutely brilliant. You each played notes, chords, yes even a few measures of familiar music; as well as inspiring this composition.
My personal belief is that music, [as the air] is part of all that exists. Through various and sundry forms it elicits responses from deep within the soul. Some play music, some dance it, some write it, some sing it, some paint it, some cry it, others simply listen--and on and on. Everyone is a musician.
Every person was "part of the music" that day, at the train station. They heard the music. It effected them in some way. They just didn't all react in a way the 'experimenter' or the 'observer' anticipated. The results were not measurable.
Just my "tuppence."
I went to the Denver Symphony last week on a school field trip. This was the 5th time, since my kids play the violin. This one just melted my mind. They featured Gustav Holst's the Planets. The movements were other worldly. It was actually the day you put up the piece about how blinded we are to beauty. I came away with such a postive outlook on the human race. It doesn't matter if we nuke most of ourselves to kingdom come. The finest achievements in all of mankind's history are the instruments created during the Middle Ages. Since these were built with hand tools I see hope eternal. To me the Violin and Piano are much greater accomplishments of man than a rocket, Ipod or cell phone. The only thing that comes close is a surfboard :-)
Eric A wrote: "I live in spaces designed by soulless theory and not visceral joy, and every day I interact with the frightened and shell-shocked, who have each chained up their childish joy in a hidden closet for their own protection—which is simply to say, I'm your average American."
I would have liked to see this expanded upon more. I worked in psychology, trauma, emotions, family systems, etc for 15 years *before* I deployed to Iraq and jumped head-first into the combat zone, so I always wonder about the very subjective perceptions and justifications of why each person in a "soulless space" gives up and gives in to their fears.
Why do 95% of people do this especially in my opinion when there is actually VERY little objective basis for their supposedly shell-shock inspired self-justification? Sorry to quote a past expert, but is this simply giving in to one of the seven deadly sins (Sloth) aka "Indifference"? Are people actually helpless in changing the soulless system they live in or really don't care to help change it? Do most even notice there's a problem in the first place with it? My "expert" and "experienced" position is that most do NOT even notice it.
Sadly, it has been my observation that not only do people chain up that "childish joy", but willingly lend a hand in the beating of anyone else who would seek to free it. Keep in mind that the captive person is often not the one actively setting himself "free", but is the subject of such actions by an outside free player who can be the focal point of the herd's attack --including by the captive subject himself. Most people really do like their chains especially when the invisible ones feel far more comfortable than the physical ones of the past did.
BTW, I like celtic music --nothing like the bagpipes to get the scots-irish going when there's a battle to be fought ;-)"
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