Tuesday, November 12, 2019

Stock Market Cheerleading: Why Do We Celebrate the Super-Rich Getting Richer?

It's not too difficult to predict a political rebellion against the machinery of soaring wealth and income inequality.
The one constant across the media-political spectrum is an unblinking focus on the stock market as a barometer of the national economy: every major media outlet from the New York Times to Fox News prominently displays stock market action, and TV news anchors' expressions reflect the media's emotional promotion of the market as the end all to be all: if stocks rose, the anchors are smiling and chirpy, and if the market fell then their expressions are downcast and dour.
This cheerleading of the stock market is based on an implicit assumption that the rising stock market raises all boats: a rising market is assumed to reflect an expansion of sales and profits that trickle down to the masses in higher wages, more jobs and rising 401K retirement accounts.
The reality is starkly different: the vast majority of the gains generated by a rising stock market flow to the top 10% households who own 93% of all financial assets, and the gains within the top 10% are highly concentrated in the top .01% of financiers, super-wealthy families and corporate managers who have reaped the vast majority of the past decade of stock market gains.
As my friend Adam T. recently observed: when we cheer the rising stock market, we're celebrating the super-rich getting even richer. Why are we celebrating an unprecedented widening of wealth inequality that erodes democracy (because the super-wealthy buy political influence) and the social contract (as the vast majority of wealth and power flow to the top .01%)?
Soaring wealth inequality is extremely destabilizing politically, socially and economically: much of the social unrest breaking out around the world can be traced to the political, social and financial disenfranchisement of the masses by super-wealthy elites.
Economically, soaring inequality concentrates and capital and power in the hands of the few, creating fertile ground for cartels and monopolies which raise costs without generating better services or more jobs. This dynamic is easily visible in the U.S.:
The U.S. Only Pretends to Have Free Markets: From plane tickets to cellphone bills, monopoly power costs American consumers billions of dollars a year.
Politically, the 90% who are losing ground seek political redress, generating tension in a political system dominated by the super-wealthy. Since the political machinery is controlled by the elite, the bottom 90%'s efforts to gain political redress will fail: Medicare for All (to take one example of many) is just an expansion of rapacious sickcare cartels that further concentrate wealth and power in the hands of the few at the expense of the many.
(Recall that 40% of Medicare spending is billing fraud, worthless or harmful meds and procedures and paper-pushing. All Medicare for All will accomplish is sickcare CEOs skimming $80 million a year in stock options will skim $160 million.)
In cheering advances in the stock market that benefit the financial and political elite, we're cheering the destabilization of our economy and society. Is that really something worth cheering?
At some point, people will awaken to the fact that the soaring stock market is the primary engine of soaring inequality, the erosion of democracy and the destabilization of the social order.
It's not too difficult to predict a political rebellion against the machinery of soaring wealth and income inequality, which will eventually lead to a severe reduction in the power of the Federal Reserve and its greed-driven dependent, Wall Street.
It's not just wealth that's concentrated in the hands of the top .01%--virtually all the income gains of the past decade of "recovery" have flowed to the top .01%: and the super-wealthy's response? Let them eat brioche, a response so disconnected from reality that it would be humorous were it not a reflection of a completely corrupt and rotten status quo.



My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Monday, November 11, 2019

Now That We've Incentivized Sociopaths--Guess What Happens Next

As long as central banks create and distribute trillions in conscience-free credit to conscience-free financiers and corporations, the incentives for sociopathy only increase.
"Sociopath" is a word we now encounter regularly in the mainstream media, but what does it mean? Here is a list of 16 traits, many of which are visible in lionized corporate and political leaders and entrepreneurs.
One key trait is a lack of moral responsibility or conscience; the sociopath feels no remorse if he/she takes advantage of people or exploits them.
Sociopaths are masters of superficial charm, intelligence and confidence, and adept at massaging or misrepresenting reality up to and including outright lying to persuade others or get their way.
Like all psychological syndromes (manic depression, autism, bipolar disorder, etc.), there is a wide spectrum of sociopathological traits, some of which may offer some adaptive benefits (and hence their continued presence in the human genome). In other words, an individual can have a few of the traits in greater or lesser proportions.
Thus the modern BBC Sherlock Holmes (played by Benedict Cumberbatch) describes himself as a "high-functioning sociopath" (though many contest this diagnosis of the original Holmes in Arthur Conan Doyle's stories).
Anyone who has read Walter Isaacson's biography of Steve Jobs can readily see manifestations of sociopathy in Jobs: his famous "reality distortion field," his refusal to accept that he'd fathered a daughter, his lack of empathy, his wild emotional swings (from verbal abuse to weeping), his dietary extremes, his charm, so quickly turned on or off, his uneven parenting, and so on. His obsessive-compulsive behavior was also on full display. Yet Jobs is lauded and even worshiped as a genius and unparalleled entrepreneur. Was this the result of his sociopathological traits, or something that arose despite them?
The ledger of costs and benefits of Jobs' output is weighted by the global benefits of the products he shepherded to market and the hundreds of billions of dollars in sales and net worth he generated for investors while the head of Apple. Though narcissistic in many ways (with the resulting negative effects on many of his intimates), Jobs was clearly focused on creating "insanely great" products that would benefit customers and users. Despite his sociopathological traits, there is no evidence he set out to deceive anyone with the objective of exploiting their good will or belief in his vision to skim billions of dollars from unwary investors.
But the ledgers of others manifesting sociopathy are far less beneficial, as the billions of dollars they generated were in essence a form of fraud.
The rise and fall of WeWork is a recent textbook example of sociopathy reaping enormous financial gains for the sociopaths without creating any actual value. There are plenty of media accounts of the founders' excesses (including the goal of becoming the world's first trillionaire), some of which we might have expected to raise flags in venture capitalists, board members, etc., but these traits were overlooked in the rush for all involved to garner billions of dollars in fees and net worth when WeWork went public.
This example (among many) illustrates that sociopathy is incentivized in our socio-political-economic system, and sociopathic "winners" are lionized as epitomes of ambitious success. (The entire charade of the stock market rising due to Federal Reserve-enabled stock buybacks is an institutionalized example of sociopathy.)
Correspondent Tom D. recently summarized the core dynamic and consequence of this systemic incentivization of sociopathy:
I've been a successful business owner, but I'm not a sociopath--I deliver value to my customers, my investors, and I don't move forward if I see anyone being substantially hurt by my actions.
My peers and I look at organizations such as WeWorks, see the rewards reaped by the sociopathic leaders, and realize we are at a constitutional disadvantage working within such a system.
I could never conceive of taking a $700-900m payday at the expense of investors for whom I've generated no value whatsoever.
I simply could not do it.
If 'out-sociopathing' the sociopaths is what it takes to 'succeed' in todays business climate-- I'll fail.
So I don't try.
From the sociopath's standpoint, that's probably a feature not a bug--one that helps keep effective competition out of the marketplace.
I wonder how much of civilizational decline is simply due to good people accepting their lot and opting out.
If the system incentivizes conscience-free sociopaths more than it incentivizes those creating real value, the system will eventually fall into the equivalent of Gresham's law ("bad money drives out good money"): the con-men and fraudsters will drive out entrepreneurs with a conscience who create real value for customers, investors and society at large.
If we look at recent IPOs and compare them to the Apple IPO, it seems we've already reached that point. Apple went public as a highly profitable company. Uber, Lyft, Beyond Meat and WeWork (if their IPO fraud hadn't been revealed) are all unprofitable, in some cases losing billions of dollars with little prospect for eventual profits.
Venture capital folks explain this by noting that the flood of central bank credit-money-creation has generated trillions of dollars of liquid capital seeking "the next big thing" that will "disrupt" existing models and therefore generate billions in profits.
This pinpoints one key source of the incentivization of sociopaths: central banks' creation of trillions of dollars of conscience-free capital seeking a quick profit anywhere on the planet, by any means available.
Conscience-free capital is an easy mark for a conscience-free sociopath. It's a marriage made in heaven, a perfect match.
Those with a conscience are essentially squeezed out of the system. The choice is binary: either play and lose or opt out.
I've written about "opting out" since 2009, since it was one of the few options available to commoners in the final decline of the Western Roman Empire. If we feel we're at a systemic disadvantage, i.e. the system is rigged against us, opting out makes much more sense than sacrificing oneself in a fruitless battle to stay alive in a system that incentivizes amoral sociopaths.
If we consider what generates outsized success in our rapidly changing economy, we find a variety of factors supporting "winner take most" asymmetric gains. As economist Michael Spence has observed, those who develop new business models earn outsized gains because new forms of capital and labor that are scarce create the most value.
Many of these new business models disintermediate existing models, obsoleting entire layers of middlemen and management.
Netflix is a good example: the move from mailing CDs to streaming content obsoleted cable companies. Now Disney is disrupting Netflix by launching its own streaming service at $6.99 a month, offering content that cable subscribers had to pay $60+ a month to access via a "premium" cable add-on, most of which they didn't even use.
In contrast, WeWork sold itself as a "tech innovator" when in fact it was simply a commercial real estate packager, leasing large spaces and chopping them up into small spaces with common areas and a few services.
How does our system incentivize sociopathy? By focusing exclusively on short-term gains reaped from IPOs (initial public offerings) and by blindly seeking "the next disruptor that will generate billions," the system is easy prey for charming sociopaths who can tell a good (if not quite truthful) story.
The amoral sociopath with the story attracts amoral sociopaths in venture capital, banking and politics, as these fields are all focused on short-term, outsized, quickly skimmed gains, regardless of the consequences to investors or society at large.
What would change this incentivization of sociopathy? Ending the Federal Reserve's delivery of trillions of dollars in conscience-free capital to sociopaths and limiting the VC-IPO flim-flam machine would be a start, but given Wall Street's dependence on these profits and the millions the Street gives to political campaigns, this is politically unfeasible. Any such regulation that reaches Congress will be watered down or larded with loopholes.
There may be no way to excise the incentives for sociopathy, because the incentives all favor the sociopaths' most fertile ground: the Federal Reserve's money spigot of nearly free money for the most sociopathological financiers and corporations; amoral, conscience-free greed; the worship of short-term gains, regardless of consequences, and the extreme profitability of rigged games and The Big Con PR ("we're only evil when it's profitable, which is, well, all the time".)
As long as central banks create and distribute trillions in conscience-free credit to conscience-free financiers and corporations, the incentives for sociopathy only increase, and the incentives for everyone else to opt out increase proportionately.
What happens next? The dead wood of sociopathy is ignited by a random lightning strike, and the entire financial system (and the economy it feeds) burns to the ground in an uncontrollable conflagration of blowback, consequence and karma.



My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, James K. ($5/month), for your monstrously generous pledge to this site-- I am greatly honored by your support and readership.
 

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Friday, November 08, 2019

No Recession Ever Again? The Yellowstone Analogy

Just as forestry management's policy of suppressing forest fires insured uncontrollable conflagrations, so central banks' attempts to eliminate recessions insure a financial conflagration that will burn down the entire global financial system.
The first task of those at the levers of neoliberal global capitalism is to deny that global capitalism is in crisis. One manifestation of this is the no recession ever again policy that is the implicit goal of central banks and governments globally.
Any hint of global slowdown draws an immediate and overwhelming deluge of credit and currency as central banks slash interest rates, buy bonds and stocks to push markets higher and unleash a tsunami of fresh credit so corporations can buy back billions of dollars of their own shares and consumers can continue to buy vehicles, houses and other goodies.
Neoliberal global capitalism has one unstated law: credit must always expand or the system dies. The rate of credit expansion can increase or decrease but it must continue expanding forever.
This is the foundation of the no recession ever again policy: as long as governments, consumers and corporations continue to borrow more, nothing else matters.
But as the Yellowstone Analogy illustrates, something else does matter: the financial dead wood of mal-investment, bad debt and excessive speculation is piling up, creating the ideal conditions for a financial conflagration that will consume the entire system.
Let's start with neoliberal global capitalism.
Neoliberal global capitalism has two elements: one is the ideological quasi-religion that everyone prospers when everything is turned into a global marketplace of freely flowing capital, labor and buyers-sellers.
The second element is the model of State-managed capitalism which has been in vogue since the Great Depression and the Keynesian revolution: when capitalism's business cycle veers into recession (unemployment, slowing sales and borrowing, etc.) then the government suppresses recession with monetary policy (quantitative easing and injections of liquidity) and fiscal policy (debt-funded stimulus programs, etc.)
Sounds good, but the Yellowstone Analogy reveals the fatal flaw in this recession-suppression strategy. "Free market private sector capitalism's" normal business cycle of over-investment and excessive risk-taking is naturally followed by a reduction in debt, the liquidation of bad loans and excess inventory, a trend to reduced risk, etc.--in other words, a fast-burning forest fire which incinerates all the dead wood, clearing space for the next generation of growth.
For decades, the operative theory of forestry management was that limited controlled burns-- mild reductions of dead underbrush and debris--would essentially reduce the possibility of a major fire to near-zero.
But the practice actually allowed a buildup of dead wood which then fueled the devastating forest fire which swept Yellowstone National Park in 1988. Recessions are like low-level naturally occurring forest fires that cleanse the system of the dead wood of bad debt, mal-investment and excessive speculation.
The global financial system has been busy piling up dead wood since the brief fire in 2008-09 threatened to burn down the entire system. All the derivatives originated and sold prior to 2009 were supposed to, along with "self-regulating markets" (heh), limit the risks in the financial systems to near-zero.
In other words, even as dead branches piled ever higher, various complex hedges would insure no fire in global financial system would ever spread.
Meanwhile, the Federal Reserve made sure the slightest whiff of debt reduction or other signs of recession were instantly snuffed with unprecedented low interest rates and abundant government stimulus.
But this private and public risk suppression not only failed to eradicate risk--it enabled risk to grow to unprecedented levels.
The recession-suppression technique being pursued by governments everywhere are simple: borrow and print staggering sums of money to bail out the private-sector banks which sparked the crisis, and then borrow and print even more money and throw it into the economy as monetary and fiscal stimulus.
Unfortunately, all this credit-stimulus is adding more dead wood to an already vast pile which is choking what's left of the economy's living forest. Rather than close down failed banks and businesses, various games are being played to negate the fires of creative destruction which real capitalism needs to thrive; without a write-off of bad debts and risky failed gambles and a closure of overcapacity then the new business cycle cannot take root.
Instead of letting the dead wood burn, the system props up zombie corporations and banks that would be destroyed if credit wasn't "free." The zombie banks and businesses--the equivalent of dead but still-standing trees--are the perfect tinder for a fast-spreading conflagration that burns everything to cinders.
Isn't it obvious that by trying to make forest fires a thing of the past then you're actually killing the forest? The same mechanism is at work in the multi-trillion dollar attempts to make financial cycles of over-indebtedness and excessive risk a thing of the past: the no recession ever again policy.
You can't make people and enterprises with little real collateral creditworthy. To shove more debt into the system is to pile more dead wood onto the already-dense pile of dry debris awaiting a lightning strike.
The big conceit here is that borrowing trillions of dollars is risk-free as long as the government is doing the borrowing. That is an illusion: there is always risk when you borrow or print or backstop/guarantee trillions of dollars of risky debt; the risk has simply been transferred to taxpayers, who will soon suffer the consequences.
For the crisis in capitalism is not just debt-based--it's also resource and demographic-based. Back when the Social Security system was designed, it was assumed there would always be 10 workers to "pay as you go" to support 1 retiree. The Baby Boom in the 1950s made that projection reassuringly long-term--or so it seemed.
Now that we're approaching a worker-retiree ratio of 2.5-to-1, the system cannot possibly pay the benefits promised without borrowing trillions of dollars each and every year--and from whom?
Neoliberal capitalism is in crisis for one fundamental reason: the central bank and state have played "the fixer" with monetary and fiscal policy in the belief that risk could be suppressed or even massaged away by spreading it over the entire system.
But the excesses of credit, risk, bubbles and overcapacity are now gutting the very middle class which the State relies on to pay most of the taxes. And as tax revenues stagnate, the State and the "private sector capitalism" which depended on passing off its risks and gambles-gone-awry to the State will find the firestorm was not suppressed-- the dead wood was only piled higher, so the only possible outcome is an uncontrollable conflagration that consumes the entire neoliberal global system.
The no recession ever again policy is exactly like suppressing forest fires: just as suppressing naturally occurring fires that keep the forest healthy insures a raging conflagration that burns down the entire forest, so too does the no recession ever again policy insure an uncontrollable financial conflagration.
Shouting that "we owe it to ourselves" will not stop the conflagration, and neither will any other form of magical thinking.



My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Dan F. ($50), for your superbly generous contribution to this site-- I am greatly honored by your steadfast support and readership.
 

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Monday, November 04, 2019

The Middle Class Is Now The Muddle Class

The net result is the muddle class has the signifiers but not the wealth, power, capital or agency that once defined the middle class.
The first use of the phrase The Muddle Class appears to be The rise of the muddle classes (Becky Pugh, telegraph.co.uk) in January 2007. The "muddle" described the complex nature of defining "the middle class," which includes education, class origins, accents, and many other financial, social and cultural signifiers.
Comedian Jason Manford claimed to have coined the term in June 2013"I've invented a new term; 'Muddle Class'. When you find yourself being working class AND middle class at the same time."
I'm using the term to describe the economic class that has the social signifiers of middle class status but little to no ownership of meaningful capital or control of their own financial security. In other words, this class "muddles through" the erosion of their purchasing power and economic security, claiming the social status of "middle class" while their financial status is impoverished when compared to the security of previous generations of "middle class."
Social status signifiers include: college diplomas, advanced degrees, overseas travel, aspirational dining and consumer goods, home ownership, etc. But where previous generations were building meaningful capital and assets that could be passed down to their offspring, the assets of the "muddle class" are either negligible or highly contingent on the speculative bubble du jour (stocks, bonds, housing).
The more meaningful economic metrics for middle class status are:
1. Household indebtedness, i.e. how much of the income is devoted to debt service, and
2. How much of the household spending is funded by debt.
If debt overwhelms assets, this financial fragility is not "middle class."
3. The ability of the household to set aside substantial savings / capital investment.
If the household is unable to save enough to weather financial crises, this financial fragility is not "middle class."
4. The security of the households' employment.
5. The dependence of the household wealth on speculative asset bubbles inflated by central bank policies.
If owner's net equity in a house is 10% to 20% of the value (the rest being mortgage debt), a modest deflation of the housing bubble will wipe out all their equity and leave them underwater, i.e. owing more than the house is worth. This financial fragility is not "middle class."
6. The percentage of the household income that is unearned, i.e. derived not from labor but from productive assets.
If all the household income is earned and there is no accumulation of income from capital (assets), then this is the definition of the working class.
7. The exposure of the households' employment to automation, AI or offshoring.
8. How much of the household income is government transfers: benefits, subsidies, etc.
Households that depend on government transfers to get by are not "middle class."
The muddle class is losing ground not just in financial security and agency (control of capital), but in intangible capital, a topic I explore in my new book Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World: the intangible capital of social mobility, positive social roles, employment stability, political power and a host of other forms of capital that define "middle class" as much as a college diploma or home ownership.
The middle class has been transformed into the muddle class by a number of forces:
1. Neoliberal globalization and ideology has eroded employment security by offloading risk onto workers while fragmenting the family structure via turning everything into a global market.
2. The 4th Industrial Revolution (software, robotics, digital technologies) is disrupting previously stable employment, making earned income contingent and prone to disruption.
3. The destruction of interest earned on savings and the rise of central-bank fueled speculation has forced households to either lose ground by holding cash or gamble in the rigged casino of global markets--a gamble most will lose by design.
4. The ceaseless rise of non-discretionary costs has eroded the purchasing power of wages, while the winner take most speculative economy has reduced labor's share of the economy (see chart below).
The net result is the muddle class has the signifiers but not the wealth, power, capital or agency that once defined the middle class. Signifiers may have social value, but not the sort of financial value that can be handed down or converted into tangible capital.



My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Dan F. ($50), for your superbly generous contribution to this site-- I am greatly honored by your steadfast support and readership.
 

Read more...

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