Wednesday, July 08, 2020

The American Economy in Four Words: Neofeudal Extortion, Decline, Collapse

Our society has a legal structure of self-rule and ownership of capital, but in reality it is a Neofeudal Oligarchy.
Now that the pandemic is over and the economy is roaring again--so the stock market says--we're heading straight back up into the good old days of 2019. Nothing to worry about, we've recovered the trajectory of higher and higher, better every day in every way.
Everything's great except the fatal rot at the heart of the U.S. economy hasn't even been acknowledged, much less addressed: every sector of the economy is nothing but one form of neofeudal extortion or another.
Let's spin the time machine back to the late Middle Ages, at the height of feudalism, and imagine we're trying to get a boatload of goods to the nearest city to sell. As we drift down the river, we're constantly being stopped and charged a fee for transiting one small fiefdom after another. When we finally reach the city, there's an entry fee for bringing our goods to market.
Note that none of these fees were payments for improvements to transport or for services rendered; they were simply extortion. This was the economic structure of feudalism: petty fiefdoms levied extortionate fees that funded the lifestyles of nobility.
This is why I have long called America's economy neofeudal: we pay ever higher fees for services that are degrading, not improving. This is the essence of extortion: we don't get any improvement in goods and services for the extra money we're forced to pay.
Consider higher education: costs are soaring while the value of the "product"--a college diploma--declines. What extra value are students receiving for the doubling of tuition and fees? The short answer is "none." College diplomas are in over-supply, and studies have found that a majority of students learn remarkably little of value in college.
As I explain in my book The Nearly Free University and the Emerging Economy, the solution is to accredit the student, not the institution. If the student learned very little, he/she doesn't get credentialed.
Were students to have access to the best classroom lectures online (nearly free), and on-the-job apprenticeships in the workplace, (nearly free or perhaps even paid), learning would be significantly improved and costs reduced by 80% to 90%.
In this structure, there's no need for costly campuses or administration; the entire structure of higher education could be largely automated with software, except for the workplace apprenticeships which focus on case studies and real-world projects that are creating value in the here and now.
Consider healthcare: has the quality of healthcare doubled along with costs? Are Americans significantly healthier as the costs of healthcare have tripled? The aggregate health of Americans has arguably declined, while the stresses placed on frontline care providers by the ever-heavier burdens of compliance and paperwork have increased.
What about the $200 hammers and $300 million F-35 aircraft of the defense industry? Once again, as costs have soared, the quality and effectiveness of the products being supplied has arguable declined.
How about state and local government services? Are they improving as taxes and junk fees rise? Once again, government services are often declining in quality as taxes and fees increase by leaps and bounds.
In sector after sector, the quality of the goods and services has declined while costs have soared. This is the acme of neofeudalism: insiders and the New Nobility are skimming fortunes as prices skyrocket and the quality of the goods and services provided plummet.
Look at the cost increases in higher education, healthcare and childcare and ask yourself if the quality of those services have risen in lockstep with price increases.
This is nothing but neofeudal extortion. The cartels raise prices and we're forced to pay them, just as feudal commoners were forced to pay.
But extortion isn't the only feature of neofeudalism that is leading to collapse. Just as important is the slow erosion of commoners' self-rule and ownership of meaningful, productive capital.
This dynamic is explored in depth in The Inheritance of Rome: Illuminating the Dark Ages 400-1000.
This gradual, almost imperceptible erosion is the essence of neofeudalism, a process of transferring political and economic power from commoners to a new Financial Aristocracy/Nobility.
If we examine the "wealth" of the middle class/working class (however you define them, the defining characteristic of both is the reliance on labor for income, as opposed to living off the income earned by capital), we find the primary capital asset is the family home, which as I have explained many times, is unproductive--in essence, a form of consumption rather than a source of income.
In a globalized, financialized economy, the only capital worth owning is mobile capital, capital that can be shifted by a keystroke to avoid devaluation or earn a a higher return.
Housing and pensions are "stranded capital," forms of capital that are not mobile unless they are liquidated before crises or expropriations occur.
I am also struck by the ever-rising barriers to starting or even operating small businesses, a core form of capital, as enterprises generate income and (potentially) capital gains. (The pandemic has only increased barriers that were already high.)
The capital and managerial expertise required to launch and grow a legal enterprise is significant, which is at least partly why a nation of self-employed farmers, shopkeepers, artisans and traders is now a nation of employees of government and large corporations.
What sort of capital can be acquired by the average commoner now? Enough to match the wealth and political power of financial Nobility?
As for political influence: a recent study found that voters had very little power in the U.S., which is effectively an oligarchy: Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.
Summary: "The U.S. government does not represent the interests of the majority of the country's citizens, but is instead ruled by those of the rich and powerful, a new study from Princeton and Northwestern universities has concluded."
Neofeudalism is not a re-run of feudalism. It's a new and improved, state-corporate version of indentured servitude. The process of devolving to feudalism required the erosion of peasants' rights to own productive assets, which in an agrarian economy meant ownership of land.
Ownership of land was replaced with various obligations to the local feudal lord or monastery-- free labor for time periods ranging from a few days to months; a share of one's grain harvest, and so on.
The other key dynamic of feudalism was the removal of the peasantry from the public sphere. In the pre-feudal era (for example, the reign of Charlemagne), peasants could still attend public councils and make their voices heard, and there was a rough system of justice in which peasants could petition authorities for redress.
From the capitalist perspective, feudalism restricted serfs' access to cash markets where they could sell their labor or harvests. The key feature of capitalism isn't just markets-- it's unrestricted ownership of productive assets--land, tools, workshops, and the social capital of skills, networks, trading associations, guilds, etc.
Our system is Neofeudal because the non-elites have no real voice in the public sphere, and ownership of productive capital is indirectly suppressed by the state-corporate duopoly.
Our society has a legal structure of self-rule and ownership of capital, but in reality it is a Neofeudal Oligarchy. The decline is visible, and so is the trajectory to collapse.
I discuss these dynamics in greater depth in my books:
We got your neofeudal wealth inequality right here:
Recent Podcasts:
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, Christopher D. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Randall G ($50), for your monstrously generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Monday, July 06, 2020

What Will Be the Most Desirable Status Symbols in the Greater Depression?

Virtue-signaling texts from your $100 million yacht no longer impress, they enrage.
For the past five decades, celebrities and other wealthy folks have sought conventional status signifiers / symbols: a couple hundred thousand acres of ranchland, a luxe bug-out bunker in New Zealand, a private islet in the Caribbean, a winery, a mega-million dollar yacht, a hip bistro in Manhattan or Santa Monica, a sprawling mansion, and so on.
The more civic-minded mega-millionaires donated enough dough to a university to get a building named after them (modesty is my middle name, etc.), funded a children's hospital or donated some of their couple hundred thousand acres of land to the Nature Conservancy or equivalent mainstream environmental group.
Now that the bogus "prosperity" of past 20 years has imploded, the nation is slip-sliding into the Greater Depression, and one consequence is that all these signifiers of obscene narcissism and ahem, privilege, will increasingly be viewed with extreme prejudice. (Look it up, along with the film Apocalypse Now.)
Put another way, all these signifiers of obscene narcissism will be, at a minimum, declasse, veering perilously close to gauche embarrassment.
Those $100 plates at the celeb's bistro and $90 bottles of wine at the celeb's winery may be chump-change to the top-5-percenter customers anxious to be seen in your establishment, but they're a whole day's pay or more to those with real jobs in the real American economy.
In the Great Depression, fantasy films about debonair, witty millionaires were viewed as escapist fare. (For example, The Thin Man who-dunnits). In the far more brittle and polarized Greater Depression we're entering, extremes of wealth and privilege will be more likely to spark outrage.
Once the tone-deaf celebs and super-wealthy awaken to this change in the zeitgeist, they will stage a land-rush into socially approved signifiers that will be designed to win the praise of social-media influencers while subtly distancing the celebs and super-wealthy from merely wealthy wannabe's. (Creating that class distinction is of course the entire point of status symbols: only the truly wealthy can afford it.
Merely donating cash or land and showing up once a year to fake participation will no longer cut it. Celebs and the wealthy who want to score status points are going to have to actually get involved, not to run the world or generate philanthro-capitalist propaganda, but actually do something real that locals appreciate as genuine.
In other words, ditch the winery, private island and the named campus building and start running a homeless hotel, upscale soup kitchen, etc., where regular people will see you doing something useful, not once a year but regularly and with sincerity.
The ante will go up to set oneself apart from the run-of-the-mill narcissistic wealthy. Virtue-signaling texts from your $100 million yacht no longer impress, they enrage.
Recent Podcasts:
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, Alan H. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Robert S. ($5/month), for your monstrously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Sunday, July 05, 2020

What Makes You Think the Stock Market Will Even Exist in 2024?

Given the extremes of the stock market's frauds and even greater extremes of wealth/income inequality it has created, tell me again why the stock market will still exist in 2024?
When I read a financial pundit predicting a bull market in stocks through 2024, blah-blah-blah, I wonder: what makes you think the stock market will even exist in 2024, at least in its current form?
Given the current trajectory of the real economy into the Greatest Depression while the Federal Reserve's entire raison d'etre is to send stocks soaring to the moon forever and ever, what are the odds that this disconnect leads to a political rebellion against the Fed and its wealth inequality machine, the stock market?
Just as Communism was a god that failedfinance capitalism is also a god that failed, an extreme version of crony-capitalism that is nothing more than a mechanism for concentrating wealth and power at the expense of everyone toiling in the real-world economy.
And if we understand this, then we also understand that with its stock buybacks, high-frequency trading and after-hours manipulation, the stock market is nothing more than finance capitalism's mechanism for increasing the concentration of wealth.
Should this awareness move from the few who currently understand the depravity and unsustainability of finance capitalism to the general public, why would they allow the skimming machine of the stock market to continue pillaging the nation?
(The appeal of the stock market as a casino game amateurs can easily win is part of its marketing, but like the casinos in Las Vegas, the number of punters who reap consistent gains and hold onto their newfound wealth for five years or longer is near-zero. That's the plan, of course; win a few bucks today and lose everything over time.)
Once the novelty of toppling symbols of oppression (statues, etc.) wears thin, people might start showing some interest in the actual sources of real-world oppression, which will lead them to the Federal Reserve and finance capitalism's primary skimming machine, the stock market.
Recall that when a corporation spends $10 billion on stock buybacks, it creates zero jobs, zero productive capacity, zero goods and zero services: all it does is supercharge the wealth of those who already own most of the corporation's stock.
This is why stock buybacks were illegal until finance capitalism conquered the political machinery of governance.
People who look into this fraud will discover the $10 billion was printed up by the Federal Reserve and made available to an elite of financiers and corporations. You might have noticed that your share of the $6.2 trillion the Fed has printed and given away as free money for financiers since 2008 is, well, zero. This was not an oversight; this asymmetry is the core feature of American central banking and finance: 100% for us, none for you.
High-frequency trading is another massive crony-capitalist fraud in which financiers, hedge funds and other pay-to-play nabobs of finance capitalism skim billions of dollars by manipulating the flow of stock market trade orders. Since they own the regulators and political class (and paid good money for them, too), this fraud is of course entirely legal.
Should the Fed's baby, the stock market, ever experience a flutter, the Fed's proxy manipulators goose the market higher in after-hours or pre-market trading, where the low volume is tailor-made for manipulation.
All this fraud and manipulation has given the Fed's skimming machine a veneer of omnipotence, as if the Fed is eternal. It isn't. Like the Bastille, the Fed can be torn down once the populace traces their impoverishment and powerlessness to the Fed and its wealth-concentrating skimming mechanisms, starting with the stock market.
While the take-home earnings of the bottom 90% have stagnated for two decades, the wealth and income of the top 0.1% has skyrocketed. The top 5% of speculators, technocrats and insiders have done very well, and the next 5%--the apparatchik/professional class--have been thrown enough crumbs that they labor under the illusion that they're "sharing the wealth"--a very convenient delusion for the top 0.1%.
Given the extremes of the stock market's frauds and even greater extremes of wealth/income inequality this skimming operation has created, tell me again why the stock market will still exist in 2024? The aristocrats in France reckoned the Bastille was eternal as well. It wasn't, and neither is the looting machine known as the stock market.
Recent Podcasts:
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, George R. ($50), for your sumptuously generous contribution to this site -- I am greatly honored by your support and readership.
 
Thank you, Clark T. ($10), for your most generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Friday, July 03, 2020

How We Got Here: the Global Economy's 75-Year Stumble to the Precipice

Not only will there not be a recovery, but there can't be a recovery, as those brittle extremes have been lost for good.
How did the global economy end up teetering on a precarious financial precipice? To formulate a cogent answer, let's take a whirlwind tour of the history of the global economy 1946-2020.
Before we start the tour, I want to return briefly to my first Musings of the year, which was posted on January 4, 2020, before Covid-19 was officially announced on January 23, 2020. (The Musings Reports are sent weekly to patrons and subscribers at the $5/month or higher level.)
Instability Rising: Why 2020 Will Be Different:
"Economically, the 11 years since the Global Financial Crisis of 2008-09 have been one relatively coherent era of modest growth, rising wealth/income inequality and coordinated central bank stimulus every time a crisis threatened to disrupt the domestic or global economy.
This era will draw to a close in 2020 and a new era of destabilization and uncertainty begins."
The long-term trends set up a row of dominoes that the pandemic has toppled. But any puff of air that toppled the first domino would have toppled all the dominoes of fragility, instability and unsustainable extremes that characterize the global economy.
The whirlwind tour of the global economy's history must include these essential dynamics: energy, currencies, globalization, debt and financialization, which broadly speaking refers to everything that renders finance (borrowing, leverage, speculation) more profitable than actually generating goods and services.
The "glorious thirty" (Les Trente Glorieuses) years from 1946 to 1975 were decades of rising prosperity in the developed world (Europe, Japan, North America) and rapid development in the first tier of developing countries in Southeast Asia and elsewhere. (Decolonized nations and China struggled with political, social and economic turmoil.)
Costs were low for fuel, housing, food, healthcare, education, etc. as rebuilt industrial bases produced lower cost goods and oil/natural gas were cheap. The global currency market was stable as the U.S. dollar was pre-eminent, enabling Japan and Western Europe to sell their goods to America at discounted prices due to the strong dollar. This policy was explicitly designed to strengthen the economies of allies faced with the threat of the Soviet Union's global ambitions.
The "glorious thirty" were also decades of rising wages and affordable, modestly growing credit and low inflation as the money supply expanded more or less in tandem with the expansion of goods and services and credit.
The wheels fell off in the 1970s as the oil-exporting nations muscled energy prices higher to gain a share of the profits, the gold-backed US dollar regime fell to pieces and inflation skyrocketed, generating a previously unknown economic malaise known as stagflation: high inflation plus stagnant growth.
At this same juncture, the external costs of industrial pollution finally came due, and global competition from lower-cost nations (helped by currencies that traded at deep discounts to the US dollar) crushed inefficient industries in the U.S. and Europe.
The 1980s saw a resurgence of growth, but with a different mix of sources. Demographically, the global postwar Baby Boom generation entered their highest productivity and spending years, boosting global demand, the supermassive new oil fields discovered in the early 1970s finally came online (Alaska, North Sea, West Africa), dramatically lowered the price of oil while soaring interest rates crushed inflation and wrung bad debt out of the developed economies, Developing nations that had struggled in the 1970s finally found their footing (India, China, South America, etc.)
The steep investment in reducing pollution began paying off and the first wave of financialization boosted mergers, buyouts and asset prices.
The 1980s was capped by the decline and fall of the Soviet Union, eliminating the costly military rivalry of the Cold War, and the collapse of Japan's massive credit/asset bubble in 1989-90--a warning sign that was ignored as a one-off.
The 1990s continued the trend of global growth, aided by low inflation, cheap energy, expanding globalization and the mass commercialization of the Internet and computing, as technologies that were once expensive and difficult to use became affordable and accessible.
The Neoliberal ideology --that the way to solve virtually any problem, from poverty on up, is to turn everything into a global market of freely traded labor, capital, goods and services-- became the default global economic faith, with some variations (a market economy with Chinese characteristics, etc.)
The 1990s was capped by the emergence of China as the manufacturing hub of the global economy, a role that was institutionalized by China's acceptance into the WTO, and the bursting of the Dot-Com bubble in March 2000.
As globalization and financialization became dominant forces (the natural result of Neoliberalism), instabilities appeared in currency markets (the Thai baht / Asian contagion of the late 1990s) and asset markets (the Dot-Com stock market bubble). Japan's recovery from the credit bubble collapse faltered, ushering in 30+ years of stagnation, leading to an overlooked social decay with extraordinary demographic and economic consequences that are still playing out.
As the global economy reeled from these instabilities in 1998-2000, central banks flooded asset markets with newly created currency, the goal being to stave off a recession, which burns off bad debt, marginal investments and companies, reducing credit expansion and consumption.
Rather than accept the risks of a conventional business-cycle recession, central banks pushed financialization to new heights--heights which quickly distorted markets.
As a result, the growth of the 2000s was different: in effect, central banks had created a credit/asset-bubble dependent economy, with growth coming not from lowering costs, improving productivity and rising wages, but from speculations in financialized markets.
This was simply the logical extension of Neoliberalism: if existing markets weren't profitable enough, then create new markets for new exotic financial instruments and lower the cost of borrowing to spur consumption and investment.
The benefits of these financial instruments were asymmetric: those originating these instruments made billions, while the borrowers taking on the subprime mortgages, etc. were accepting risks they didn't understand. This dynamic fueled soaring wealth/income inequality.
Apparently unbeknownst to central bankers, super-low interest rates and abundant liquidity didn't spur investments in increasing productivity, it incentivized highly leveraged speculative bets. This manifested in subprime mortgages funding house-flipping by the masses and the origination of exotic financial instruments such as CDOs and CLOs.
Ultimately, the central banks' no-holds-barred Neoliberalism led to the Global Financial Crisis (GFC) of 2008-09, as the risks that were supposedly hedged blew up and the markets froze up (i.e. markets became illiquid as buyers vanished).
As former Fed Chair Alan Greenspan admitted, the central banks failed to see that markets are not as self-regulating as the Neoliberal faithful believed: when bubbles pop, buyers vanish and markets go bidless/illiquid: sellers are desperate to sell but there are no buyers at any price.
This was the inevitable end-game of financialized, globalized Neoliberalism, and rather than face that reality, central banks and policy-makers double-downed on the same policies that created the 2008 bubble that was destined to pop with horrific consequences to everyone who had a stake in any of the casino's games.
We now come to the 2010s, in which financialization and globalization essentially conquered the global economy, leading to the brittle fragilities that are now unraveling.
With the cost of living rising and wages stagnating, the "solution" was to borrow $10 to get $1 of growth. Since global markets were saturated with debt and risk, lenders cannibalized domestic markets, loading college students with $2 trillion in student loans and enabling a fracking "miracle" that was less an energy miracle and more a financial miracle as companies that lost billions continued to get cheap loans and sell bonds.
The global economy is now teetering on a precipice in every sector: energy extraction costs have risen, requiring higher prices for oil, but consumers whose wages have stagnated for 20 years can no longer afford higher prices for oil or anything else.
Globalization has optimized profits at the expense of everything else: ecological sustainability, the security of food and energy sources, etc., while financialization has gutted the real economy in an extraction process that concentrates all the gains into the hands of the few at the top of the financialization/globalization pyramid: a winners-take-most economy that has corrupted and distorted the political and social orders.
All the critical dynamics--energy, currencies, globalization, debt and financialization--have reached extremes that made destabilization--i.e. a tumble into collapse--inevitable.
What happens when the naive hope that the brittle, fragile extremes of the global economy could be completely restored to mid-2019 levels dissipates and is replaced by the sober realization there not only will there not be a recovery, but there can't be a recovery, as those brittle extremes have been lost for good?
Since the authorities have no Plan B, uncertainty, risk and volatility could reach extremes few anticipate as Plan A--push extremes to even riskier extremes--generates increasingly consequential unintended consequences.
The unstable, brittle edge of the precipice is giving way, and there is nothing but air below.
Recent Podcasts:
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, Robert E. ($500), for your beyond-outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
Thank you, William S. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act


This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Do Not Sell My Personal Information


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP