Friday, May 07, 2021

Hey Fed, Explain Again How Making Billionaires Richer Creates Jobs

Despite their hollow bleatings about 'doing all we can to achieve full employment', the Fed's policies has been Kryptonite to employment, labor and the bottom 90%--and most especially to the bottom 50%, the working poor that one might imagine most deserve a leg up.

As wealth and income inequality soar to new heights thanks to the Federal Reserve's policies of zero interest rates, money-printing and financial stimulus, the Fed says its goal is to create more jobs. Really? OK, let's look at how the Fed's doing with that.

I've assembled a chart deck to display the consequences of Fed policies on debt, wealth inequality and employment. Recall what Fed policies actually do:

1. Zero interest rate policy (ZIRP) destroyed the low-risk return on savings and money market funds, stripping everyone not in the Fed-privileged rentier-speculator-financier class of safe, real returns on capital.

2. Zero interest rate policy (ZIRP) lowered the cost of speculation by financiers and corporations but left the interest rates paid by the working poor for credit cards, auto loans and student loans at extortionate rates.

3. QE--quantitative easing--creates trillions of dollars out of thin air to buy U.S. Treasury bonds, enabling no skin in the game federal spending and funneling trillions of dollars of nearly free money into the soft greedy hands of the rentier-speculator-financier class, not into the real economy.

4. Both ZIRP and QE incentivized borrowing low-cost billions to speculate in assets, inflating unprecedented debt-leverage-driven assets bubbles which have now infected every asset class: The Everything Bubble.

Here is the Fed policy in a nutshell: working, saving and prudent investing--you get nothing. You're already rich, borrow huge sums and leverage up speculative bets--you win big. Recall that the rentier-speculator-financier class has no skin in the game because the Fed and other agencies rush in to bail out all their losing bets, while the bottom 99.9% are left to twist in the wind should they foolishly follow the billionaires into risky bets.

In the world the Fed has created, work is for chumps, the way to get rich is borrow, leverage and speculate.

Note that this chart deck is from the Federal Reserve database except for one chart from the Washington Post.

So what are the consequences of Fed policies on debt, wealth inequality and employment? Let's have a look.

The Fed balance sheet, i.e. money it creates out of thin air: a near-vertical line up.



Federal debt, i.e. money borrowed by selling Treasury bonds: a near-vertical line up.



Total debt, i.e. what the Fed encourages everyone to do--borrow more!: a near-vertical line up.



Net worth of the top 1% and top 90% to 99%: massive increases since 2009 and more recently, a moonshot higher. The bottom 50%, meanwhile, is flatlined near zero.



Thanks to the Fed, the top 0.1% own more wealth than the bottom 80%. Thanks to the Fed. the rentier-speculator-financier class has done very well, the top 90-99% have ridden the Fed's coattails nicely, but the bottom 80% have been left in the dust. Good job, Fed!



While the Fed printed and distributed trillions to the rentier-speculator-financier class, labor's share of the economy has been in a free-fall. Working is for chumps, gambling with Fed money is for winners. And if you lose, the Fed bails you out. The Fed casino is the place to be for guaranteed winnings--if you're already rich, of course.



The Fed's policies are all based on the trickle-down theory that when billionaires get richer, some magic pixie-dust miraculously drifts down to the bottom 50%. Oops. The bottom 50% lost ground while the billionaires reaped billions. Gosh, I wonder why the financial media bows down and worships the Fed as living gods.



Since the Fed is doing all this wealth creation in the top 0.1% to create jobs, let's look at the labor participation rate, the percentage of the labor force which is employed in some fashion. Hmm, that topped out in 1999 and has been in a freel-fall since.



The percentage of the population that's employed has a very similar pattern, topping out in 1999 and then dropping to new lows every time the Fed's speculative bubbles pop.



Despite their hollow bleatings about doing all we can to achieve full employment, the Fed's policies has been Kryptonite to employment, labor and the bottom 90%--and most especially to the bottom 50%, the working poor that one might imagine most deserve a leg up.

So Fed governors, lackeys and apologists, please explain again how making billionaires richer creates jobs, fosters employment and benefits the bottom 90%. If the Fed was actually attempting to bolster the income and wealth of the laboring class, it has failed miserably by every meaningful metric. If, on the other hand, Fed policy was always aimed at further enriching the top 0.1%, top 1% and corporations, then the Fed has reached the pinnacle of success.




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Podcasts:

Salon #43: History shows again and again how nature points out the folly of men...

Covid Has Triggered The Next Great Financial Crisis (34:46)

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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



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Tuesday, May 04, 2021

Covid Has Triggered The Next Great Financial Crisis

What's left are the 'fatal synergies' of soaring debt and leverage, diminishing returns on stimulus, the substitution of credit for savings and the coming deflationary tsunami that pops all the speculative bubbles.

Imagine a once modest but sturdy home built near a cliff to maximize the vistas. Over the decades, the foundation slowly degraded and the house moved imperceptibly closer to the unstable edge of the cliff. Those who observed the slippage and the potential for eventual disaster were either derided as alarmists or ignored.

Given the enviable location and views, the home rose in value and a series of increasingly gaudy additions were added, completely obscuring the once-modest exterior with cheap imitations of long-lasting, time-tested materials (plastic trim and brittle fake-marble veneers). The foundations of these ostentatious additions were slapdash, shallow and poorly made, as the goal was not durability but appearance.

The low-quality additions accelerated the slide to the unstable cliff edge, and in 2019 the viewing deck broke away and crashed into the canyon below. The repairs were hasty and the residents were assured all was well--in fact, better than ever.

In 2020, the weak foundation of the gaudiest, lowest-quality addition crumbled. The response of the owners was to fill the widening crack in the decaying structure and spray on a new coat of paint. There--good as new, the residents were told.

But this was not true. The house is now teetering on the precariously unstable cliff edge. Ironically, the vast majority of the residents have moved to the game room, which is now cantilevered over thin air. The slightest movement will tip the entire decayed structure over the cliff.

That decayed, precariously unstable structure is the U.S. economy, and Covid was the catalyst that nudged the economy right to the edge. Gordon Long and I discuss the causes and consequences in our new video program, Covid Has Triggered The Next Great Financial Crisis (34:46).

Chief among the many causes is a very basic one that's easy to understand: America has consumed more than it has produced for decades, and filled the gap with imports purchased with borrowed money and currency created out of thin air.

As Gordon and I explain, this is a very well-worn path to instability and collapse: governments (which now include nominally independent central banks) have always responded to declines in productivity and affordable energy/materials, the expansion of a parasitic elite and excessive spending with the same bag of financial tricks:

1. They borrow more money, eventually borrowing more to pay interest on existing debts, greasing the slide to default and insolvency.

2. They defraud the users of their currency by devaluing the currency. In the old days, this was accomplished by substituting base metals for silver or gold in the minting of coinage. Eventually the coins contained only a trace of silver. Users soon caught on and the result was the coinage lost purchasing power, a.k.a. inflation destroyed the value of the officially issued money.

In today's fiat currency regime, central banks create trillions of new units of "money" with a few keystrokes, effectively diluting the value of all existing currency.

3. Desperate for revenues, governments raise taxes, which despite all claims to the contrary by political leaders, fall most heavily on the productive middle class. Since the parasitic elite will never accept any consequential reduction of their wealth or power, the higher taxes and economic stagnation that result from these three policies crush the middle class, which was the engine of productivity and demand that enabled the parasitic elite to live large.

These are key dynamics in what Gordon calls the killing of the golden goose, the productive synergies that generate widespread prosperity and opportunity.

What's left are the fatal synergies of soaring debt and leverage, diminishing returns on stimulus, the substitution of credit for savings and the coming deflationary tsunami (53 min) that pops all the speculative bubbles, setting up the destabilization and cliff-dive of the entire decayed, flimsy structure--The Next Great Financial Crisis that cannot be papered over with more central bank legerdemain.

There's more in our 34-minute video program:




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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Podcasts:

Covid Has Triggered The Next Great Financial Crisis

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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



Become 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.

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Sunday, May 02, 2021

Insights into Risk: Taleb and Tyson

Events that devastate the majority financially greatly enrich the few who bet on non-linear dynamics.

I see the same question in forums, threads, articles and emails: what can I do to protect myself and my family from whatever lies ahead?

Given the uncertainties and extremes that are so evident, recognizing risk is a useful first step, a recognition that is very much out of fashion. If we glance at the charts of margin debt (loans taken against one's stock portfolio) which is at record highs, and short interest (bets that stocks will drop) which is at record lows, it seems the primary risk on investors' minds is FOMO (fear of missing out) of all the fat, juicy guaranteed gains just ahead.

For the few still asking about the source of risk, the general answer takes one of two paths: inflation leading to hyper-inflation or a deflationary collapse of defaults and popping asset bubbles.

It's easy to find pundits arguing for one or the other, but do we have the initial conditions, variables and functions we need to solve this problem and get a clear answer, inflation or deflation?

Consider two variables that are rarely visible in pundits' arguments:

1) What will benefit the banks?

2) What will benefit the nation's place in the geopolitical pecking order?

The inflationary camp holds that the soaring debt, public and private, can only be serviced if incomes inflate so households, companies and governments have enough income to make the payments on their soaring debts.

Since this is a self-reinforcing spiral--more inflation leads to more inflation--central banks will be forced to print their currencies into oblivion, i.e. hyper-inflation.

If they ever stop printing, the house of cards (soaring debt) will collapse.

This logic seems sound enough, but once hyper-inflation takes off and people are earning $250,000 a month and a loaf of bread is $250, how will banks profit from households paying off their once-stupendous mortgage (that required 30 years of monthly payments to pay off) with a single month's pay?

Hyper-inflation will destroy not just the currency but the entire banking sector, which is politically powerful. Will the banks just sit by passively watching their wealth and income being destroyed by high inflation? One suspects they will use their political power to avoid being ground into dust by hyper-inflation.

The banks would much prefer defaults that they can shift to the government (via bailouts) and deflation, where every monthly credit card/mortgage payment has greater purchasing power than the previous month.

Next, consider the consequences of hyper-inflation on the nation's currency: it loses virtually all its value in terms of buying food, oil, semiconductors, autos, etc. from other nations. Nobody will want to trade real goods for worthless dollars. Imports paid with dollars will plummet to zero in hyper-inflation.

In terms of a nation's economic power, its currency is the foundation, because if the currency plummets to near-zero then everything denominated in that currency also loses value on the global stage.

A reserve currency--a national currency that is widely held globally because it it's expected to hold its value, and the market for everything denominated in that currency is extremely large and liquid--is the crown jewel of whatever nation (or entity, in the case of the EU) issues it.

Who would benefit from the destruction of a nation's reserve currency? Virtually no one. The nation would be impoverished. So why is hyper-inflation--the destruction of the currency-- so broadly accepted as inevitable?

It's also widely assumed that the Federal Reserve and other central banks control all the variables in setting bond yields, interest rates and inflation. But what if some variables are outside the Fed's control? What if their claim of controlling all variables is mere PR?

We also don't know what function inflation or deflation might manifest. Will it be arithmatic-- 1 + 1 = 2 + 1 = 3, etc.--or geometric-- 1 + 1 = 2 + 2 = 4 + 4 = 8 + 8 = 16?

This makes an enormous difference: arithmatic inflation is predictable--5% a year, for example-- but geometric increases lead to hyper-inflation and complete destabilization of the economy and society.

Very few pundits reckon the central banks and governments will choose default and deflation because these will be painful--but what could be more painful than wiping out the value of the currency?

If the wealthy elite own precious metals, farmland, manufacturing, government bonds, etc., then the default of zombie households and corporations (zombies defined as entities that have to borrow more to remain among the living), then why would they care? Corporate bondholders and marginal lenders would be destroyed, but again, the wealthy need only avoid owning marginal debt to avoid the debacle of default losses.

The politically powerful elites have their ace in the hole: they can demand politicians (who need their contributions to fund their re-election campaigns) bail out the banks, transferring the losses from defaults from private banks to the public sector, exactly what happened in 2008-09.

But once again, are the elites and government fully in control of all variables, or could they be assuming arithmatic functions when geometric functions might actually manifest? Deflationary defaults can destroy bank assets just as quickly as hyper-inflation, as once buyers vanish (markets go bidless) then the value of assets pledged as collateral plummets to levels no one believes possible.

Entire highrise buildings are sold for the value of the elevator system. Yes, it happened in the Great Depression.

A little inflation or deflation is a good thing, manageable by the government and elite, but geometric inflation or deflation undermines the entire financial system, including the finances of governments and elites.

How do we calculate the probability and potential intensity of destabilizing social disorder? It's widely assumed that the U.S. could never experience the sort of massive, widespread social disorder that occurs in developing-world nations during crises. But humans are humans, and when put under pressure by high inflation / deflation and declining prosperity, people respond in ways that can very quickly escape the control of authorities.

Is a Cultural Revolution Brewing in America?

If the consequential variables and functions are not measurable, then seemingly small disorders can spread throughout the entire society--or supply chain.

Where does all this leave us? We know from studies of human psychology that humans don't feel comfortable with uncertainty and seek a haven of certainty as quickly as possible. They will cling to anchored beliefs in the face of conflicting evidence and strengthen their attachment to beliefs when challenged. We're wired for a decisive commitment to a belief structure.

Sustained indecision and ambiguity is uncomfortable. We want an answer, and if there isn't one, then we'll make one up or commit to an answer proposed by a pundit, even though that person has no better grasp of the initial conditions, variables and functions as anyone else.

Alternatively, if we can't possibly answer the question of what happens next, we have to accept that this era's uncertainties may not be resolvable.

This is an exceedingly valuable insight, as if we embrace this uncertainty, we can avoid defaulting to a rigid, brittle false certitude that can only lead us astray if events don't follow the path we've committed to.

In other words, we all want certainty, but this isn't possible because 1) the variables are invisible 2) the functions are unknown and 3) the "solution" (predicted path) depends entirely on the initial conditions, in which small changes completely change the outcome.

Faced with the knowledge that so-called fat tail risk (i.e. a geometric function replacing an arithmatic function, and small events triggering large consequences, i.e. non-linear dynamics) is real but unpredictable, then we're forced to think through these supposedly low-probability risks and devise a response that we can implement because we already thought it out.

This is the difference between having a pre-planned response and panic.

Mike Tyson's memorable quote offers great insight into risk and uncertainty: "Everyone has a plan until they get punched in the mouth."

The average person considers the odds of getting punched in the face as very low. The martial arts student doesn't follow the line of thinking that because the odds appear low, there is no need to learn self-defense. Rather, being prepared to defend oneself is a permanent state of readiness, perhaps rusty and imperfect, but there nonetheless.

Events that devastate the majority financially greatly enrich the few who bet on non-linear dynamics. This 2002 profile of Nassim Taleb by Malcolm Gladwell offers an enlightening perspective on this approach.

Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy

Very few of us can pursue Taleb's mathematically sophisticated strategies. But that doesn't mean we can't embrace uncertainty and fat-tail risks and think through responses in advance, and plan a hedging strategy that accounts for possibilities from 1) nothing changes to 2) everything changes.

We don't have to respond perfectly to be successful. We simply need to have prepared responses for contingencies from whatever we consider most likely to whatever we consider very unlikely but still possible.

The point here is that embracing uncertainty means we accept that the market might still punch us in the face, and we might make mistakes or fail to perform as we'd hoped, but the process of planning layers of response may well help protect us from irreversible losses and bad decisions made in the chaos of fear and panic.





This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.


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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Podcasts:

Covid Has Triggered The Next Great Financial Crisis

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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



Become 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, Neal L. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your support and readership.

 

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Friday, April 30, 2021

Which Lifeboat Will You Choose?

I'm sure it's no surprise that the next five years will be risky and challenging; to the degree that we will be reliant on those closest to us, we are sharing a virtual lifeboat.

Consider a scenario in which we're on a ship that's sinking, and the lifeboats have been launched. Being some of the last still on board the doomed vessel, we can scan who's in each lifeboat and choose which one we'll clamber into.

It's a consequential decision because the currents and weather are already separating the lifeboats, and so each lifeboat will be on its own. The seas are increasingly treacherous, and the nearby islands are surrounded by reefs which could shred the lifeboat's hulls in seconds.

While we don't know everyone on board, we've met many of the other passengers and crew and made the acquaintance of a fair number of our fellow castaways.

So who do we choose to join? Our knowledge is imperfect: we only have first impressions and intuitions about the people who will potentially impact our life in a very direct and consequential way.

Do we choose to go in the lifeboat with a friend? This is certainly more appealing than a boat full of strangers.

Do we choose a boat with an experienced sailor whose skills in the open ocean would improve our chances of surviving the ordeal ahead?

Or do we choose a boat which is already under the control of a natural leader? If we understand that dithering and unresolvable conflicts can lead to disaster by default, then having someone in charge might be worth the risk that their leadership will lead to a catastrophically bad decision.

If we feel we have the experience to take charge and bring a lifeboat to safety, then perhaps we look for the disorganized, leaderless boat.

Alternatively, we can weed out those boats we'll avoid as potentially dangerous because of the presence of domineering individuals with traits that have poor survival outcomes.

When The Little Prince hopscotches to various planets on his way to Earth, he encounters the King who desires a subject, a conceited man, a tippler (addict), a businessman who claims all the stars as his possessions and a lamplighter busy lighting and extinguishing the lamp every minute. These are parodies of human types, of course; The Little Prince found some modest favor in the lamplighter because he was the only one who was not self-obsessed / self-absorbed.

The boats I would avoid are those with wealthy, powerful people who confuse their position and wealth with competence, when actually there is no connection to competence beyond whatever specialized niche they used to acquire wealth and power. Their assumption (a form of privilege beneath the surface) that their specialized competence grants them universal competence is disastrously wrong-headed.

These are the types who will steer the lifeboat onto a reef despite the warnings of the less wealthy/powerful because their confidence in their judgment exceeds their grasp of risk/reality and their general life competence. They fail to understand the extreme narrowness of their experience and competence and have an overly high opinion of themselves due to their success in a narrow niche.

I would also avoid boats with individuals who triggered my BS detector, our intuitive animal assessment of the trustworthiness and self-absorption of individuals. For those who don't automatically filter out their negative assessments as "bad" and therefore "not allowed," this assessment is remarkably rapid and remarkably accurate.

Boats filled with self-important, self-absorbed people I would avoid as death traps. I would also avoid boats with do-gooders / would-be saints whose motivation (above self-preservation, until it's too late) is to defend the rights of the weak as the most important principle, even in life-and-death circumstances. These types are especially dangerous because their life experience is that Somebody Will Rescue Us. They thus conclude we can devote asymmetric resources to the weakest because Somebody Will Rescue Us.

They are incapable of recognizing the difference between making the vulnerable/dependent as comfortable as possible given the resources available and devoting the primary effort to saving everyone but if this can't be done, then saving as many people as possible. They are unable to recognize the need for difficult decisions that may well have asymmetric outcomes for the individuals on the boat. In demanding equal outcomes, they will lose everyone's lives--an outcome that is certainly equal but foolish.

Choosing a boat with an experienced open-ocean sailor is an obvious choice, as the sailor has experiential skills that apply specifically to the challenge at hand. But let's say that obvious choice means that boat is already filled to capacity.

So if the obvious best choice is not available, then what boat do we cast our lot with?

I would look for a boat with low-key individuals with high situational awareness and experience in responding to crises and danger. Combat veterans come to mind, but there are many others with training and experience (or natural abilities) that aids their situational awareness, risk assessment and responses to rapidly evolving threats. The OODA loop (Observe, Orient, Decide, Act) is an example of this process.

I would also look for a boat with the increasingly rare individuals who do what they say they're going to do, and do it without self-obsessed drama/trauma or childish excuses. These individuals have a healthy awareness of their own limits and the limits of human nature. They don't overpromise to make themselves larger than they really are and they won't burden the rest of the boat with their self-absorbed histrionics or adolescent excuses.

Since I'm not qualified to lead as a sailor, and the only boat with an open-ocean sailor is full, I would look for a boat with a balance between hierarchy and self-expression / advocacy. The ideal situation is a boat in which every individual's advocacy of a particular action or strategy is carefully considered but the consensus reaches a decision and grants leadership to those with the best qualifications and most persuasive argument for their decision.

Once the decision of a strategy has been made, then the boat unites behind pursuing this strategy.

It's instructive to consider the greatest open-ocean, open-boat voyages that have been recorded. Some had existing military hierarchies (for example, Captain Bligh's epic 4,000 mile voyage in a severely overloaded open launch) while others were castaways lacking a strict hierarchy.

Whether the united effort of cooperation is imposed or agreed upon, this cooperation is key, as is a strategy based on the realities and risks.

Going it alone is a high-risk strategy. So is becoming dependent on self-important, self-absorbed people who are incapable of viewing reality as anything other than It's All About Me.

I'm sure it's no surprise that the next five years will be risky and challenging; to the degree that we will be reliant on those closest to us, we are sharing a virtual lifeboat.

Choose your boatmates carefully.



This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.


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.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Podcasts:

AxisOfEasy Salon 42: Is System Change Likely, Possible or Inevitable? (58 min)

Charles Hugh Smith on the Terminally Ill Economy (49 min)

Keiser Report | Bilking Grandma is the Business Model
In the second half, Max interviews Charles Hugh Smith of OfTwoMinds.com about the 'fatal synergies' and the 'sealed pressure cooker' resulting when the system refuses to offer a solution to those denied a voice or access to resources. They also discuss the oversupply of elites and the chaos this ultimately brings to society.

My COVID-19 Pandemic Posts


My recent books:

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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



Become 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, Eudoxie D. ($25), for your most generous contribution to this site -- I am greatly honored by your support and readership.

 

Thank you, L.M. ($25), for your very generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Thursday, April 29, 2021

America Is Exceptionally...Kleptocratic: Wealth/Power Inequality and the Slide Into Disorder

The sheer weight of this outlandish asymmetry of wealth and power is pulling the nation into disorder.

The U.S. Constitution doesn't address a small elite owning most of the nation's private wealth and using a sliver of that wealth to influence the federal government so their wealth and political power increase in a self-reinforcing feedback: as a result of their campaign contributions and lobbying, the elites' wealth continues expanding, enhancing their political power to further expand their wealth, and so on.

This financial and political dominance is thus perfectly legal. As Bastiat's famous quote puts it: :When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it."

This legalized looting has now reached such absurd extremes that kleptocracy no longer does justice as a descriptor of the U.S. Consider this excerpt from Monopoly Versus Democracy (Foreign Affairs):

Like their forebears in the early twentieth century, today's Americans have experienced decades of growing inequality and increasing concentrations of wealth and power. The last decade alone witnessed nearly 500,000 corporate mergers worldwide. Ten percent of Americans now control 97 percent of all capital income in the country. Nearly half of the new income generated since the global financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens. The richest three Americans collectively have more wealth than the poorest 160 million Americans. (emphasis added.)

If you read that three kleptocrats held more wealth than half the residents of Lower Slobovia, that the top 0.1% own more wealth than the bottom 80% and that a near-zero 3% of all income flowing from capital trickled down to the bottom 90%, what would you think about wealth/power asymmetry in Lower Slobovia?

We now know what American Exceptionalism really means: exceptionally kleptocratic. Even as private wealth soared to unprecedented heights in the past decade of Federal Reserve largesse (endless trillions for financiers and too-big-to-jail speculators), the percentage of stocks owned by the fortunate class of the 90% to 99% fell from 39% to 35% and the percentage owned by the bottom 50% slipped to 0.6%. (Data from the Federal Reserve's FRED database)

Now there are rumblings in Washington D.C. about closing tax loopholes for corporations, which scoop 15% of the nation's GDP as profits. This is certainly very pretty political theater, but please let me know when you and I can rent a post office box in Ireland and pay no federal income taxes, while corporations are paying the total federal tax rates we pay (40+%) with 15.3% self-employment tax, 3.9% supplemental Medicare tax, etc.

The sheer weight of this outlandish asymmetry of wealth and power is pulling the nation into disorder. There are no legal or political limits on private wealth and political power, and the politicians that depend on the wealthy to fund their re-election campaigns have demonstrably little interest in harming the geese that lay their golden eggs.

The super-wealthy and Corporate America reckon that they can suppress any resistance to their dominance with virtue-signaling and political suppression, but they must have flunked history: when the bottom 90% own effectively zero income-producing capital and no political voice, and even the top 9.9% don't really have any real political power, then disorder of the uncontrollable variety arises to rebalance the extreme asymmetry.












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Recent Podcasts:

AxisOfEasy Salon 42: Is System Change Likely, Possible or Inevitable? (58 min)

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Keiser Report | Bilking Grandma is the Business Model
In the second half, Max interviews Charles Hugh Smith of OfTwoMinds.com about the 'fatal synergies' and the 'sealed pressure cooker' resulting when the system refuses to offer a solution to those denied a voice or access to resources. They also discuss the oversupply of elites and the chaos this ultimately brings to society.

My COVID-19 Pandemic Posts


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Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

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