Sunday, July 12, 2020

How Do We Change the Leadership of our Quasi-Sovereign Big Tech Neofeudal Nobility?

You better bow low and pay up, peasant, or your voice in the digital world will disappear just as quickly as your democracy's control over Big Tech.
Who's the junior partner in global hegemony, Big Tech or the U.S. government? The question would have been laughable just a few years ago, but now it's a viable debate when we ask questions like: which one plays a larger role in your daily life, Big Tech platforms or the government? If controlling the flow of data is now the primary means of production, then who owns control of data flows? As we all know, the answer is Big Tech platforms: Google, Facebook, Apple, Microsoft, Amazon, Twitter, Netflix et al.
As Mark, Jesse and I discuss in our latest salon, The Rise and Fall of the Neo-Feudal Network State, these platforms have become defacto sovereign states with global hegemony over surveillance, censorship, data collection and behavioral influence--what Jesse calls network states.
Since the leadership of these private-sector sovereign entities is effectively monarchical, it is also effectively neofeudal: these platforms are private, closed source systems, managed by black-box algorithms hidden from users and regulators. This is the acme of neofeudalism: there is no democratic control at all by users or citizens.
Whether Facebook will ever hit upon a more coherent approach to protecting the free expression of the powerless as well as the powerful depends on whether it ever comes to grip with its own role as the largest censor in the history of the world. (emphasis added by CHS)
"Facebook is governing human expression more than any government does or ever has," said Susan Benesch, a faculty associate at Harvard University's Berkman Klein Center for Internet & Society. "They have taken on the task of defining hate speech and other unacceptable speech, which is a quasi-sovereign power... and we the public have no opportunity to contribute to the decision-making, as would be the case if the decisions were being made by a government."
Indeed, despite company executives' paying lip service to the concept of democracy from time to time, Facebook is structurally monarchical.
To the University of Virginia media studies professor Siva Vaidhyanathan, campaigners against Facebook need to come to grips with the global nature of its threat.
"The US got off easy in 2016-- the same year that Rodrigo Duterte took over the Philippines by riding Facebook to victory, and two years after Narendra Modi took over India by riding Facebook to victory. Much of the world suffers from all of the Facebook maladies much worse than the US."
Vaidhyanathan argued that solutions to Facebook's ills cannot be achieved with oversight from above but will require a more fundamental shift from below. "The root of Facebook is the fact that it is a global intrusive surveillance system that leverages all that behavioral data to target both ads and non-ad content at us."
In other words, the lords of Big Tech control the digital means of production, and the peasants and serfs are powerless. That is the perfection of neofeudalism. As Mark and Jesse posit, this has effectively flipped the central states (governments) into the junior partners of the privately owned network state/central state global hegemony.
In response, governments now view the quasi-sovereign Big Tech platforms domiciled in their borders as key allies in the struggle for global hegemony. Hence we are witnessing pushback against Chinese social-media giant TikTok, which as Jesse points out, is indeed a global platform for propaganda just like Facebook, Google, et al.
Recall that propaganda isn't just what you're allowed to see, it's also what you're not allowed to see and also what's being promoted on Page One in your feed and what's been buried on Page 23 (to use an old-media analogy).
Meanwhile, these privately owned quasi-sovereign networks are immensely profitable, as they sell the data they collect to advertisers and marketers, including political campaigns. Apple, Google, Amazon, Facebook etc. wield more political power and influence than traditional political advocacy groups because their cash hoards are so stupendous.
The feedback loop is ominous: as government regulators are throttled or marginalized by political pressure bought by privately owned quasi-sovereign Big Tech platforms, the platforms are in effect protected from any democratic control exerted by the citizenry in their nominal "home nation," not to mention the citizenry they influence in other nations.
Unlike the old monopolies like Standard Oil, the quasi-sovereign Big Tech platforms are the media, so there's nothing left to balance their skyrocketing power. As we discuss in the podcast, their control is (in Jesse's term) molecular, so they've effectively dismantled the legacy social-political structures such as working class, middle class, etc.
With mass media replaced by Big Tech's data-flow / behavioral-control molecular media, political coherence has been lost, and so divide-and conquer control mechanisms are now essentially infinite: any group, no matter how coherent, can be splintered into warring fragments by the Big Tech Neofeudal Nobility.
After all, they have the data and they can use it however they want, with no limits or controls by users, citizens or nominally democratic governments.
How do we change the leadership of our Neofeudal Nobility, the privately owned, quasi-sovereign Big Tech platforms? The short answer is: we don't. There is no mechanism left for influencing anything in the monarchies of Facebook, Google, Apple, Amazon, etc al.
Meet the new boss, worse than the old boss. You better bow low and pay up, peasant, or your voice in the digital world will disappear just as quickly as your democracy's control over Big Tech.
Recent Podcasts:
My COVID-19 Pandemic Posts


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.

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Saturday, July 11, 2020

The Sinking Titanic's Great Pumps Finally Fail

The greater fools still partying in the first-class lounge are in denial that even the greatest, most technologically advanced ship can sink.
On April 14, 1912, the liner Titanic, considered unsinkable due to its watertight compartments and other features, struck a glancing blow against a massive iceberg on that moonless, weirdly calm night. In the early hours of April 15, the great ship broke in half and sank, ending the lives of the majority of its passengers and crew.
The usual analogy drawn between the Titanic and our financial meltdown stems from the initial complacency of the passengers after the collision. Some passengers went on deck to play with the ice scraped off the berg, while most returned to the festivities still working their magic as midnight approached.
The class structure of Edwardian Britain soon came into play, however; as the situation grew visibly threatening, the First Class passengers were herded into the few lifeboats while the steerage/Third Class passengers--many of them immigrants--were mostly kept below decks, sealing their doom.
But there are even more compelling analogies than initial complacency turning to panic. Consider this diagram of the great ship:
The large black rectangles on the lower deck represent the coal bunkers; they were located adjacent to the boilers which powered the engines. Though the ship only scraped against the iceberg, as Titanic explorer Robert Ballard explains, that was enough to pop rivets and open hull plates:
The glancing blow that ruptured the Titanic's hull over a distance of roughly 250 feet (out of a full length of 882 feet) and admitted water into six of her compartments sealed her fate.
Considerable hullabaloo attended the attempt in the summer of 1996 to raise a piece of the hull from the debris field, but far more interesting was the ultrasound investigation of the area of the bow damaged by the iceberg. These images revealed six small tears or openings affecting the first six compartments. Just as we had surmised in 1986, the great gash was a myth and the actual openings into the ship seem to have been the result of rivets popping and hull plates separating.
This offers a very powerful analogy to the fatal damage inflicted on our financial system by an apparently "glancing blow" with the pandemic shutdown. Just as the Titanic was mortally wounded not by great tears in its hull but by the buckling of steel hull plates, so the U.S. (and thus global) financial system is sinking from similarly "glancing" blows.
The actual damage could have been contained--do you sense another analogy about to surface?-- had the fifth watertight bulwark--shall we call it "the bulwark against systemic failure"?-- extended a few decks higher. But inexplicably, this watertight barrier did not extend as high as the other watertight bulkheads.
Though the water gushing through a three-foot gash in the forward engine room was held back by the ship's great pumps, as the bow sank lower then water seeped over the fifth watertight bulkhead and gushed into the boiler room, extinguishing the fires that powered the pumps.
This generated a feedback loop: the higher the water rose, the more boilers were extinguished and the less power was available to the pumps.
And so against all "rational odds," the ship's apparently minor structural design flaw led to its inevitable loss as the mighty pumps lost their battle against the rising water.
To all the "experts," the risk of collision with an iceberg were considered low, while the risk of catastrophic damage were considered essentially zero. Hmm, does that remind you of our financial system circa September 2019, just as the great U.S. economy's hull was buckling?
Now we have the Great Pumps of Federal Reserve money-printing and Stimulus, which in a close analogy are pumping trillions of dollars into the sinking U.S. economy. But just as the engines of the Titanic lost power as the water extinguished the boilers supplying steam to the engines, so the stimulus is only keeping the rising water temporarily at bay-- it is not actually saving the "engines" of the economy from sputtering.
And what are those engines?
1. Debt, which must increase to fuel spending, income and thus taxes
2. Rising assets, which provide the basis for ever-more borrowing
3. Government borrowing, which enables government spending to keep rising without regard to actual tax revenues or the health of those being taxed
4. Rising employment as vast borrowing and spending creates new jobs
The ice-cold water is splashing into each of these engines. As assets fall then there is simply no foundation (collateral) to support more borrowing. As debt is paid down rather than expanded, then spending falls. As spending falls, so do revenues, profits and employment, all of which crimp tax revenues.
The last engine is government borrowing. To those still standing on the sloping deck, cheering the "good news" of Big Tech's meteoric ascent to the heavens of bubble overvaluation, this seems like the engine which can never be extinguished. Through thick and thin the Federal government and the state and local governments (via muni bonds) have been able to borrow and spend stupendous sums seemingly without consequence.
The demise of this last great engine will surprise as many as the sinking of the Titanic did, but it is as inevitable as the sinking of the great ship. The pumps can only hold the water back for a while, but the Stimulus magic will expire sooner than anyone imagines.
As the government scrambles to find buyers for endless trillions in new U.S. bonds (and trillions more in new corporate debt, new mortgages, new consumer debt, student loans, new muni debt, etc.) then interest rates will rise and the great engine of ever-greater debt will hiss and sigh as the water rises and then go silent and cold.
The first-class passengers have already been ushered to their lifeboats. They've sold to the euphoric passengers buying Big Tech's parabolic ascent and the greater fools still partying in the first-class lounge who are in denial that even the greatest, most technologically advanced ship can sink, taking everyone in denial down with it.
The sinking is not a possibility, it is an inevitability.
Recent Podcasts:
My COVID-19 Pandemic Posts


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.

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Thursday, July 09, 2020

You Are Now Leaving FantasyLand: The Losses Will Be Taken By Somebody

As the inverted pyramid collapses, the effects will be non-linear.
Round about late March, we entered a Financial FantasyLand in which all the sins and excesses of rampant financialization were going to be painlessly washed away. Mever mind the entire U.S. economy is an inverted pyramid of balance-sheet "value" and debt resting on a shrinking foundation of collateral; everyone would be made whole in the Federal Reserve's Financial FantasyLand.
You are now leaving FantasyLand: trillions of dollars of phantom value have already vanished, and these catastrophic losses will be taken by somebody. The question is: who will get the concrete overshoes? Whose balance sheets will collapse to negative numbers, erasing all their phantom wealth?
Everyone was delighted to suspend reality and entertain the fantasy that there was a cost-free way to bail out financialization's greed-soaked sinners: The Fed will simply print as many trillions as needed to make everyone whole. Since it doesn't cost the Fed anything to digitally print endless trillions, this "solution" is completely, totally free.
What an amazing moment of grace: all our sins washed away in a rising river of Fed-printed money. With endless trillions available, everyone can get bailed out forever. Collateral, actual earnings and profits, none of that matters. The Fed's grace is godlike in its infinite expansion.
This escape from karma, consequence and divine retribution was as temporal as the ride through FantasyLand. The wheel of karma has turned, The Tao is reversing, the banquet of asymmetric, non-linear consequences has been served and the Fed's godlike powers will be revealed to be as delusional as the "value" and "wealth" that's piled up in the balance sheets of the top 0.1%.
For there actually is a cost to digitally printing trillions to bail out all the predatory parasites of financialization. Put simply, every dollar that's digitally printed that isn't matched by an increase in the productive capacity of the economy, i.e. the means to generate goods and services with less capital and fewer hours of labor, is nothing but a hidden reduction in the purchasing power of every existing dollar.
The idea that the Fed or Treasury can print endless trillions and there will never be any consequence of this fraud is nothing more than a compelling Cargo Cult superstition. Just as South Pacific Cargo Cults painted radio dials on rocks to communicate their desire for the return of Uncle Sam's shiploads of freebies, the "we can print our way out of any problem" cargo cult paints low inflation numbers and arcane equations on rocks and declares the magic will work: the Fed/Treasury can print as many trillions as we need to bail out every greed-soaked sinner, and there will never be any consequences--never ever, because the painted rocks have magical powers.
Now that we're leaving Financial FantasyLand, a very hard lesson about non-linearity is about to be learned. In addition to the "we can wash away every sin with endless trillions" fantasy, there's the fantasy of linearity in non-linear, fragile systems.
The fantasy of linearity holds that a 10% decline in revenues, profits, rents collected, etc. will only cause a 10% decline in isolated parts of the economy. The believers in the fantasy acknowledge that the 10% decline will hurt, but only a bit, and soon Mommy and Daddy (Treasury and Fed) will apply the Band-Aid and it will all go away.
As the inverted pyramid collapses, the effects will be non-linear: a 10% decline may trigger dominoes that end up generating an 90% decline in "value" and "wealth" because the collapse of collateral to a non-fantasy valuation will implode all the phantom valuations piled on steadily more fragile and fantastic layers of phantom "capital."
The fantasy of the Neofeudal Aristocracy is that the losses can be painlessly transferred to the debt-serfs and taxpaying peasantry. Mommy and Daddy (Treasury and Fed) will load future generations of debt-serfs and taxpaying peasantry with the losses and the political-financial Nobility will have their fortunes preserved. Gee, thanks, Mommy and Daddy! You're swell!
The Neofeudal Aristocracy overlooks one terribly inconvenient fact: the debt-serfs and peasantry own next to nothing. The non-linear collapse of phantom capital will have asymmetric consequences: all the "assets" most likely to go to zero are owned not by the peasantry but by the Neofeudal Aristocracy.
Now that we're exiting Financial FantasyLand, reality will intrude. The Fed is not godlike and the sins of predatory, parasitic, exploitive financialization will be paid in full measure. The hubris-drenched punditry and Neofeudal Aristocracy who mock the notion that there was anything beyond the command of their conjured trillions will discover that The way of the Tao is reversal, and their child-like faith in their own perverse powers to shape the world to their liking will be destroyed along with their phantom wealth.
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.

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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.

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