Fake News, Mass Hysteria and Induced Insanity

The "fake news" is that we've never been healthier, healthcare costs are under control and our economy has fully "recovered."

We've heard a lot about "fake news" from those whose master narratives are threatened by alternative sources and analyses. We've heard less about the master narratives being threatened: the fomenting of mass hysteria, which turns the populace into an easily manipulated and managed herd, and induced insanity, a longer-term marketing-based narrative that causes the populace to ignore the self-destructive consequences of accepting the fad/ ideology/ mindset being pushed as "good" and "normal."

In terms of "fake news," it's hard to beat the mainstream media and its handlers' attempts to whip up mass hysteria via unsubstantiated claims that Russian hackers working for Putin deprived Hillary of the presidency. The campaign to spark mass hysteria was launched with great precision, unleashing the overwhelming forces of endless repetition (the marketer's favorite tool) and appeals to national security authorities: The C.I.A., F.B.I, and all the other security agencies purportedly concur that Russia "hacked" (whatever that means) the U.S. election.

The intent of the campaign was painfully obvious: by wheeling out the big guns of authority without any actual evidence, the campaign's designers hoped the public would automatically assume the bizarre, outlandish claim must be "true," even though no evidence was submitted to substantiate this fact-free claim, and respond as planned, i.e. willingly join a mass hysteria herd in favor of discrediting the U.S. election results.

Did the "hackers" change the election results issued by voting machines? Did they "hack" the election totals? Wouldn't there be tell-tale forensic evidence of such tampering? How else could "hackers" change the election other than by changing votes and vote totals?

Or was the media campaign to generate mass hysteria based on nothing but purposefully vague and unsubstantiated claims of Russia-inspired "fake news" that undermined the election by questioning the mainstream media's biased coverage of the presidential campaign?

"Fake news" is of course the staple of marketing products that end up killing the unwary consumers who buy the hype. The classic example is the cigarette/ tobacco industry, which ran adverts for decades proclaiming absurdities such as the health benefits of smoking (other than dying a horrible, needless death), the "fact" that doctors preferred one brand of cigarette over the other brands, and so on.

The industry famously went to truly monumental lengths to hide the facts about the destructive consequences of smoking from the public, and aggressively attacked any evidence that smoking was remarkably unhealthy as "unscientific," i.e. beating back the truth with The Big Lie.

That a form of consumption that killed the consumers was unquestionably accepted not just as "normal" but as cool/hip for decades illustrates the staying power of induced insanity. Mass hysteria eventually wears off, as it overloads the emotional circuitry of the target audience; humans soon become desensitized to the triggers used to generate mass hysteria, and it takes heavier and heavier doses of propaganda to maintain the feverishly herd-inducing hysteria.

Eventually, the populace habituates to the stimulus and becomes exhausted by the hysteria.

Induced Insanity, on the other hand, is not an emotional state--it is a state of mind and a state of perception that filters and interprets inputs to produce the desired output-- an acceptance of insanity as "normal" and "good."

For example, eating mountains of food that "tastes good" is positive and normal. Never mind that we're eating/consuming ourselves to death:

Or that our medical costs are so out of control that they're bankrupting households, enterprises and eventually,the entire economy:

Or that much of the money is spent on shuffling paperwork/ claims and counter-claims, complying with thousands of pages of regulations and dealing with the systemic fraud our system invites and rewards:

Induced insanity doesn't just describe our acceptance of ill health and a doomed healthcare system; it also describes our blind acceptance of an economy that's throttling small business:

The "fake news" is that we've never been healthier, healthcare costs are under control and our economy has fully "recovered." These sustained "fake news" campaigns are intended not to induce hysteria, but an enduring acceptance of what is visibly destructive and insane.

Food for thought as we enter 2017. Always start every inquiry with a simple question: cui bono--to whose benefit?


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A Tale of Two Housing Markets: Hot and Not So Hot

If we had to guess which areas will likely experience the smallest declines in prices and recover the soonest, which markets would you bet on?

Though housing statistics such as average sales price are typically lumped into one national number, this is extremely misleading: there are two completely different housing markets in the U.S. One is hot, one is not so hot.

Just as importantly, one may stay relatively hot while the other may stagnate or decline.

All real estate is local, of course; there are thousands of housing markets if we consider neighborhoods, hundreds if we look at counties, cities and towns and dozens if we look at multi-city metro regions.

But consider what happens to average sales prices when million-dollar home sales are lumped in with $100,000 home sales. The average price comes in around $500,000-- a gross distortion of both markets.

Here's a real-world example of what has happened in hot markets over the past 20 years. The house in question is located in a bedroom community suburb in the San Francisco Bay Area metro area. The home was built in 1916 and has 914 square feet, no garage and a small lot.

It sold in 1996 for $135,000. This was a bit under neighborhood prices due to the lack of garage and small size, but nearby larger homes sold in the $145,000 to $160,000 range.

The house was sold in 2004 for $542,000, and again in 2008 for $575,000. It is currently valued at $720,000. The neighborhood average is $900,000.

According to the Bureau of Labor Statistics inflation calculator, inflation since 1997 has added 50% to the cost of living: $1 in 1997 equals $1.50 in 2016.

Adjusted for inflation of 2.5% annually, calculated cumulatively, the home would be worth a shade over $220,000 today. Long-term studies have found that housing tends to rise about 1% above inflation annually, so if we add 1% annual appreciation (3.5% calculated cumulatively over the 20 years), the home would have appreciated about $47,000 above and beyond inflation, bringing its value to $268,000--almost double the purchase price.

But being in a hot market, this little house appreciated a gargantuan $450,000 above and beyond inflation and long-term appreciation of 1% annually.

Those who bought in hot markets are $500,000 richer than those who bought in not-so-hot markets.

Another house I know in a hot metro market sold for $438,000 in 1997 and is currently valued at $1.4 million. The owners picked up substantially more than $500,000 in bonus appreciation.

Or how about a home that sold for $607,000 in 2010 and is now valued at $960,000? (Note that I have picked neighborhoods and metro areas I have known for decades, so I can verify the current valuations are indeed in the real-world ballpark.)

Inflation alone added about $60,000 to the value since 2010; the $300,000 appreciation above and beyond inflation is pure gravy for the owners.

It's easy to dismiss these soaring valuations as credit-driven bubbles that will eventually pop, but that narrative misses the enormous differences in regional incomes and GDP expansion. The little 900 square foot house that's barely worth $100,000 in most of the country may well fetch $700,000 in hot markets for far longer than we might expect if it is in a metro area with strong GDP and wage growth.

To understand why, look at these three maps of the U.S. The first reflects the GDP generated within each county; the second shows real growth in GDP by region, and the third displays the wages of the so-called "creative class"--those with high-demand skillsets, education and experience.

The spikes reflect enormous concentrations of GDP. This concentrated creation of goods and services generates jobs and wealth, and that attracts capital and talent. These are self-reinforcing, as capital and talent drive wealth/value creation and thus GDP.

Unsurprisingly, there is significant overlap between regions with high GDP and strong GDP expansion. The engines of growth attract capital and talent.

Creative class wages are highest in the regions with strong GDP expansion and concentrations of GDP, capital and talent. Attracting the most productive workers requires hefty premiums in pay and benefits, as well as interesting work and opportunities for advancement.

That people will make sacrifices to live in these areas should not surprise us--including paying high housing costs. This willingness to pay high housing costs attracts institutional and overseas investors, a flood of capital seeking high returns that further pushes up the cost of housing.

The rising cost of money will impact all housing. So will recession. But if we had to guess which areas will likely experience the smallest declines in prices and recover the soonest, which markets would you bet on?

Markets that are "cheap" because wages are low and opportunities scarce, or high-cost areas with high wages and concentrations of the factors that drive growth and innovation?

The point is that hot housing markets are hot for reasons beyond low interest rates for mortgages. These islands of concentrated capital, GDP growth and talent are magnets that attract global capital and talent, even as prices notch higher.


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Grab-Bag of Resolutions for 2017

I resolve to acquire skills, not credentials.

Here's a grab-bag of resolutions with something for just about every persuasion.

1. I resolve to never utter or write the word "Trump" in 2017. (Good luck with that...)

2. Having watched bitcoin rise from $250 (or perhaps from $25 or even 25 cents) to $900+, I resolve to finally buy some bitcoin before it soars over $1,000. (Please file under "this is intended as bemused commentary, not financial advice.")

3. I resolve to lose the weight I should lose by changing my entire mindset and way of life rather than by following a diet.

4. I resolve to accept the reality that the two political parties are devoid of productive ideas and solutions, because real solutions would hinder the parties' primary purpose, which is vacuuming up contributions to fund their eternal grab for power.

5. I resolve to stop watching network and local TV "news." (If it bleeds, it leads.)

6. I resolve to cancel my subscription to the Washington Post and every other newspaper and magazine that hyped the fact-free, evidence-free claim that Putin was responsible for the Democrats losing the election.

7. I resolve to adopt an exercise/fitness plan I can actually follow: one sit-up a week, one jumping jack a week, etc.

8. I resolve to accept that living in my parents' basement playing videogames all day is not a trajectory into responsible adulthood.

9. I resolve to let go of the costly fantasy that yet another masters degree will yield the high-paying secure career I want.

10. I resolve to acquire skills, not credentials.

11. I resolve to rebel against the consumerist mindset deftly encapsulated by Caroline Caldwell: "In a society that profits from your self-doubt, liking yourself is a rebellious act."

12. I resolve to not let the dessert cart on the Titanic go by.

13. I resolve to rebel against the ugliness around me by seeking beauty in all its manifestations.

14. I resolve to start fixing the world's problems by fixing my own problems first.

15. I resolve to waste less energy, food, time and resources.

16. I resolve to save 50% of my net income to invest in myself and my family. (Only for the toughest of the tough...)

17. I resolve to stop blaming others for my self-generated difficulties.

18. I resolve to focus daily on gratitude and opportunity.

19. I resolve to remember that the jerk who cut me off on the highway may be having a day that's even worse than mine.

20. I resolve to make myself useful to myself and others in some way every day.

21. I resolve to Vote with My Feet.

Lagniappe resolution: I resolve to use words like lagniappe from time to time.

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When Assets (Such as Real Estate) Become Liabilities

It will be the middle class that accepted the notion that "real estate is the foundation of family wealth" that will be stripmined by higher taxes on immobile assets such as real estate.

Correspondent Joel M. submitted an article that struck me as a harbinger of the future: In Greece, Property Is Debt:

"At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. Not necessarily because some feckless uncle left them with a pile of debt at the end of his revels; they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate.

Growing personal debt, declining incomes and ever higher taxes as Greece’s depression grinds on have turned property and the dream of easy money into dread of a catastrophic burden.

After many years in which only very valuable properties were taxed, many Greeks went from paying almost no taxes on real estate to not having enough money to pay.

In 2010, property taxes accounted for 0.26 percent of gross domestic product, while this year they are around 2 percent, according to state budget figures. 'Suddenly, the state treated the Greeks as if they were rich, at the precise moment that they ceased to be rich.'

Among the many disruptions of the past few years, this one shows how traditional conceptions — and a sense of security — can be shattered. With a history full of wars, bankruptcies and rampant inflation, Greeks had always seen land as a haven.

But it is private debt — at 222 billion euros last year — that may prove an even greater danger. This shows in government revenues. With the unified tax, ownership of every kind of property is now subject to taxation.

It will be very difficult for the Greeks to get out from under this mountain of debt. Delinquent loans, which at the end of June made up 31.7 percent of all housing loans, were a mere 5.3 percent of the total in 2008."

The self-reinforcing dynamics in this narrative profoundly reverse time-honored concepts of value: assets that once held or gained value now carry high costs of ownership and lose value.

1. Governments desperate for tax revenues raise property taxes, which add costs that eventually depress sales and future price appreciation.

2. High debt levels and high property taxes trigger foreclosures and forced sales that further depress the market with high inventories of unsold/unrented homes.

3. As sales decline, appreciation can no longer be counted on to enrich owners. Instead, owners fear declines in value and higher taxes. This further depresses sales.

4.  High debt levels become even more burdensome as property values fall.

5. Rather than offer a means of building and protecting wealth, real estate becomes a liability that destroys wealth via payment of taxes and declines in value.

While it can be argued that Greece is a unique situation--a cumbersome, costly bureaucracy of land transfer coupled with soaring taxes--perhaps Greece is simply early to the party.

Governments everywhere are facing fast-rising pension and healthcare costs, and the need for more tax revenues will skyrocket once the global recession trims income, payroll, business and sales taxes.

Additional taxes on assets that can't flee the country--i.e. real estate--become extremely attractive.

Once an asset class shifts from being a means of wealth preservation and appreciation to a financial risk and burden, a self-reinforcing feedback loop reduces demand and increases supply, pushing prices lower--a decline that then causes more people to sell before prices drop further.

The nightmare scenario for recent buyers is a sharp tax increase that crushes the market value of their home, putting them underwater, i.e. their mortgage is greater than the value of their home. Faced with ever-increasing property taxes and further erosion of value, what's the advantage of holding onto the property?

Anecdotally, stories of owners destroying buildings to lower their property tax appraisal emerged in America's Great Depression, as owners desperate to lower their property taxes destroyed their assets (buildings on the land) as the only available means of keeping their property.

Which asset class attracts new taxes will be different from nation to nation, but we can anticipate that governments will go after assets that are currently considered safe and that can't flee to low-tax havens.

Mobile capital can flee to safer, lower tax climes, and the super-wealthy can buy legislative tax breaks on their wealth. It will be the middle class that accepted the notion that "real estate is the foundation of family wealth" that will be stripmined by higher taxes on immobile assets such as real estate.

This essay was drawn from Musings Report 45. The Musings Reports are sent exclusively to major patrons and contributors ($5/month or $50 annually) every weekend.


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Why I'm Hopeful

Why am I hopeful? the Status Quo is devolving, and a better way of living lies just beyond the corrupt, wasteful, ruinous consumerist debt/financial tyranny we now inhabit.

Readers often ask me to post something hopeful, and I understand why: doom-and-gloom gets tiresome. Human beings need hope just as they need oxygen, and the destruction of the Status Quo via over-reach and internal contradictions doesn't leave much to be happy about.

The most hopeful thing in my mind is that the Status Quo is devolving from its internal contradictions and excesses. It is a perverse, intensely destructive system with horrific incentives for predation, exploitation, fraud and complicity and few disincentives.

A more human world lies just beyond the edge of the Status Quo.

I know many smart, well-informed people expect the worst once the Status Quo (the Savior State and its corporatocracy partners) devolves, and there is abundant evidence of the ugliness of human nature under duress.

But we should temper this Id ugliness with the stronger impulses of community and compassion. If greed and rapaciousness were the dominant forces within human nature, then the species would have either died out at its own hand or been limited to small savage populations kept in check by the predation of neighboring groups, none of which could expand much because inner conflict would limit their ability to grow.

The remarkable success of humanity as a species is not simply the result of a big brain, opposable thumbs, year-round sex, innovation or even language; it is also the result of social and cultural associations that act as a "network" for storing knowledge and good will--what we call technical and social capital.

I have devoted significant portions of my books to an explanation of how community and self-reliance have atrophied under the relentless expansion of the dominant Savior State.

The social capital and "return on investment" earned from investing time and energy in community and other social networks has been replaced by a check from the Savior State--a transfer payment that surely beats the troublesome work of investing in community in terms of risk and return.

The net result of the Savior State dominating society and the economy is the rise of a pathological mindset of entitlement and resentment--the two are simply two sides of the same coin. You cannot separate them.

Once self-reliance has been lost, so too has self-confidence been lost, and the Savior State dependent--individual and corporation alike--soon distrusts their ability to function in an open market.

This is a truly sad, self-destructive state of affairs, and deeply, tragically ironic. The calls for "help" quickly lead to dependence on the Savior State, and that dependence quickly breeds complicity and silence in the face of repression and predation by the State and its corporate partners.

In a very real sense, citizens relinquish their citizenship along with their self-reliance and self-worth once they accept dependence on the State.

I often mention that the U.S. has much to learn from so-called Third World countries that are poorer in resources and credit. In many of these countries, the government is the police, the school and the infrastructure of roadways and energy. Many of these countries are systemically corrupt, and the State is the engine of enforcing that corruption.

Rather than something to be embraced and lobbied, involvement with the State is something to be avoided as a risk. In everyday life, people rarely encounter the government except in law enforcement or schooling.

As a result, people depend on their social capital and community for sustenance, support, work and connections.

This is not altruism, it is mutually beneficial.

Once a community dissolves into atomized individuals who each get a payment from the Central State, then they no longer need each other. Rather, other dependents on the State are viewed as competitors for the State's resources.

These atomized, isolated individuals have a perverse relationship with the State and what remains of the community around them: lacking the self-worth earned from work or engagement/investment in a community, then their only outlet for self-identity is consumption: what they wear, eat, drink, etc. as consumers.

This dependence on the State also serves the State's goal, which is a passive, compliant populace of dependents, and distracted, passive workers who pay their taxes. Thus dependence on the State and a hollow consumerism are ontologically bound: one feeds the other.

The era of debt-based consumption as the engine of "growth" and "prosperity" is coming to an end. Adding debt via credit no longer creates growth; it actually takes away from the economy by expanding debt service (interest payments).

The vast majority of developed-world people have had the basics of life since the late 1960s -- transport, food, shelter and utilities. The "growth" since then depended on cheap, abundant oil and a consumerist mentality in which one constantly re-defines and renews one's identity not from social investments in others or the shared community but from consumption.

Not coincidentally, this dominance of consumption as the only metric for "growth" (as opposed to, say, productive activity) has been paralleled by the dominance of the Central State.

The end of credit-based consumption will be a very positive development, as will the devolution of the Savior State. The Savior State is like oil--both are at their peaks and are starting their inevitable slide down the S-curve. The world they created was not as positive for human fulfillment and happiness as we have been told.

Indeed, study after study has found that people with the basics for life, a higher purpose that requires sacrifice and a tight-knit community are far and away happier than isolated, atomized, insecure consumers, regardless of their wealth and consumption.

This potential to re-humanize our economy is why I am hopeful.


Join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

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