F Financial Sector Induced Systemic Instability of Economy

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Financial Sector Induced Systemic Instability of Economy

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that  growth of financial sector represents a direct threat to the stability of the society. Positive feedback loops creates one financial crisis after another with the increasing magnitude leading up to a collapse of financial system like happened in 1927 and 2008.

News Casino Capitalism Recommended Links  Stability is destabilizing: The idea of Minsky moment Corruption of Regulators Quiet coup
Neoliberalism as a New Form of Corporatism Principal-agent problem Numbers racket Criminal negligence in financial regulation Corruption of FED Invisible Hand Hypothesis
The “Too Big To Fail” Problem In Goldman Sachs we trust Citi - The bank that couldn’t shoot straight JPMorgan AIG collapse Lehman
Free Markets Newspeak as Opium for regulators Derivatives Lobby Corrupts Congress Lobbying and the Financial Crisis Control Fraud
(crisis of corporate governance)
Stock Market with buybacks as a Ponzi scheme Derivatives
Small government smoke screen Financial Bonuses as Money Laundering Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime Corporatism   Financial obesity
Webliography of heterodox economists HFT Aleynikov vs. Goldman Sachs Casino Capitalism Dictionary Financial Humor Etc
  "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera

The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to the point where the accumulation of wealth and power hurts people — eventually even those at the top of the food chain. ”

Uncle Billy Cunctator
In comment to Economic Donkeys

 
  Banks are a clear case of market failure and their employees at the senior level have basically become the biggest bank robbers of all time. As for basing pay on current revenues and not profits over extended periods of time, then that is a clear case of market failure --  
  The banksters have been able to sell the “talent” myth to justify their outsized pay because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be gone.  
  Unfortunately, many countries go broke pursuing war, if not financially, then morally (are the two different? – this post suggests otherwise).

I occurs to me that the U.S. is also in that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure. Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era, succinctly describes aspects of our situation today) fated also to the trash heap, despite the best efforts of the Man of the hour, Ben Bernanke?

 

Introduction

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that growth of financial sector represents a direct threat to the stability of the society (Keynesianism and the Great Recession )

Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession—a big one—in the real economy.

Neoliberal revolution, or, as Simon Johnson called it after "quite coup" (Atlantic), brought political power to the financial oligarchy deposed after the New Deal. Deregulation naturally followed, with especially big role played by corrupt Clinton administration.  Positive feedback loops creates one financial crisis after another with the increasing magnitude. "Saving and loans" crisis followed by dot-com crisis of  2000, which in turn followed by the collapse of financial system in 2008, which looks somewhat similar to what happened in 1927.  No prominent financial honcho, who was instrumental in creating "subprime crisis" was jailed.  Most remained filthy rich.

Unless the society puts severe limits on their actions like was done during New Deal,  financial firms successfully subvert the regulation mechanisms and take the society hostage.  But periodic purges with relocation of the most active promoters of "freedom for banks" (aka free market fundamentalism) under the smoke screen of "free market" promotion does not solve the problem of positive feedback loops that banks create by mere existence. That's difficult to do while neoliberal ideology and related neoclassical economy dominates the society thinking (via brainwashing), with universities playing especially negative role -- most of economics departments are captured by neoliberals who censor any heretics. So year after year brainwashing students enter the society without understanding real dangers that neoliberalism brought for them.  Including lack of meaningful employment opportunities.

Of course, most of high level officers of leading finance institutions which caused the crisis of 2008-2009 as a psychological type are as close to  gangsters as one can get. But there is something in their actions that does not depend on individual traits (although many of them definitely can be classified as psychopaths), and is more related to their social position.  This situation is somewhat similar to Bolsheviks coup d'état of 1917 which resulted in capturing Russia by this ideological sect.  And in this sense quite coupe of 1980 is also irreversible in the same sense as Bolsheviks revolution was irreversible:  the "occupation" of the country by a fanatical sect lasts until the population rejects the ideology with its (now apparent) utopian claims.

Bolshevism which lasted 75 years, spend in such zombie state the last two decades (if we assume 1991 as the year of death of Bolshevism, its ideology was dead much earlier -- the grave flaws in it were visible from late 60th, if not after the WWII).  But only  when their ideology was destroyed both by inability to raise the standard of living of the population and by the growing neoliberal ideology as an alternative (and a new, more powerful then Marxism high-demand cult) Bolsheviks started to lose the grip on their power in the country. As a result Bolsheviks lost the power only in 1991, or more correctly switched camps and privatized the country. If not inaptness of their last General Secretary, they probably could last more. In any case after the ideology collapsed, the USSR disintegrated (or more correctly turn by national elites, each of which wanted their peace of the pie).

The sad truth is that the mere growth of financial sector creates additional positive feedback loops and increases structural instability within both the financial sector itself and the society at large. Dynamic systems with strong positive feedback loops not compensated by negative feedback loops are unstable. As a result banks and other financial institution periodically generate a deep, devastating crisis. This is the meaning of famous Hyman Minsky phrase "stability is destabilizing".

In other words, financial apparatchiks (or Financial Nomenklatura, a term from the Soviet era, which succinctly describes aspects of our situation today) drive the country off the cliff because they do not have any countervailing forces, by the strength of their political influence and unsaturable greed. Although the following analogy in weaker then analogy with dynamic systems with positive feedback loops, outsized financial sector can be viewed in  biological terms as cancer.

Cancer, known medically as a malignant neoplasm, is a broad group of diseases involving unregulated cell growth. In cancer, cells divide and grow uncontrollably, forming malignant tumors, and invading nearby parts of the body. The cancer may also spread to more distant parts of the body through the lymphatic system or bloodstream. Not all tumors are cancerous; benign tumors do not invade neighboring tissues and do not spread throughout the body. There are over 200 different known cancers that affect humans.[1]

Like certain types of cancer they depend of weakening "tumor suppressor genes"  (via "Quiet coup" mechanism of acquiring dominant political power) which allow then to engage in uncontrolled growth, destroying healthy cells (and first of all local manufacturing).   

The other suspicion is the unchecked financialization always goes too far and the last N percent of financial activity absorbs much more resources (especially intellectual resources) and creates more potential instability than its additional efficiency-benefits (often zero or negative) can justify. It is hard to imagine that a Hedge Fund Operator of the Year does anything that is even remotely socially useful to justify his enormous (and lightly taxed) compensation. It is pure wealth redistribution up based on political domination of financial oligarchy.  Significant vulnerabilities  within the shadow banking system and derivatives are plain vanilla socially destructive. Yet they persist due to inevitable political power grab by financial oligarchy  (Quiet coup).

Again, I would like to stress that this problem of the oversized financial sector which produces one devastating crisis after another   is closely related to the problem of a positive feedback loops. And the society in which banks are given free hand inevitably degrades into "socialism for banks"  or "casino capitalism" -- a type of neoliberalism with huge inequality and huge criminality of top banking officers.  

Whether we can do without private banks is unclear, but there is sound evidence that unlike growth of manufacturing, private financial sector growth is dangerous for the society health and perverts society goals.  Like cult groups the financial world does a terrific job of "shunning" the principled individuals and suppressing dissent (by capturing and cultivating neoliberal stooges in all major university departments and press),  so self-destructing tendencies after they arise can't be stopped within the framework of neoliberalism. In a way financial firm is like sociopath inevitable produces its  trail of victims (and sociopaths might be useful in battles exactly due to the qualities such as ability to remain cool in dangerous situation, that make them dangerous in the normal course of events).

This tendency of society with unregulated or lightly regulated financial sector toward self-destruction was first formulated as "Minsky instability hypothesis" -- and outstanding intellectual achievement of American economic Hyman Minsky (September 23, 1919 – October 24, 1996). Who BTW was pretty much underappreciated (if not suppressed) during his lifetime because his views were different from  orthodox (and false) neoclassic economic theory which dominates US universities, Like flat Earth theory was enforce by Catholic church before, it is fiercely enforced by an army of well paid neoliberal economics, those Jesuits of modern era. Who prosecute heretics who question flat Earth theory even more efficiently then their medieval counterparts; the only difference is that they do not burn the literally, only figuratively ;-)

Minsky financial instability hypothesis

Former Washington University in St. Louis economics professor Hyman P. Minsky had predicted the Great Recession decades before it happened.  Hyman Minsky was a real student of the Great Depression, while Bernanke who widely is viewed as a scholar who studied the Great Depression, in reality was a charlatan, who just tried to explain the Great Depression from the positions of neo-classical economy. That's a big difference.

Minsky instability hypothesis ("stability is destabilizing" under capitalism) that emerged from his analysis of the Great Depression was based on intellectual heritage of three great thinkers in economics (my presentation is partially based on an outstanding lecture by Steve Keen Lecture 6 on Minsky, Financial Instability, the Great Depression & the Global Financial Crisis). We can talk about three source of influence, there authors writing of which touched the same subject from similar positions and were the base of Hyman Minsky great advance in understanding of mechanics of development of financial crisis under capitalism and the critical role of financial system in it (neoclassical economics ignores the existence of financial system in its analysis): 

  1. Karl Marx influence
  2. Irving Fisher influence
  3. Joseph Schumpeter influence

Karl Marx influence

Minsky didn't follow the conventional version of Marxism  . And it was dangerous for him to do so due to McCarthysm. Even mentioning of Marx might lead to strakism fromthe academy those years.  McCarthy and his followers in academy did not understand the difference between Marx great analysis of capitalism and his utopian vision of the future. Impliedly this witch hunt helped to establish hegemony of neoclassical economy in economic departments in the USA.

While Minsky did not cited Marx in his writings and did use Marx's Labor Theory of Value his thinking was definitely influenced by Marx’s critique of  finance. We now know that he read and admired the Capital. And that not accidental due to the fact that his parents were Mensheviks -- a suppressed after Bolshevik revolution more moderate wing of Russian Social Democratic Party that rejected the idea of launching the socialist revolution in Russia --  in their opinion Russia needed first to became a capitalist country and get rid of remnants of feudalism. They escaped from Soviet Russia when Mensheviks started to be prosecuted by Bolsheviks.

And probably the main influence on Minsky was not Marx's discussion  of finance in Volume I of Capital with a "commodity" model of money, but critical remarks scattered in   Volumes II & III (which were not edited by Marx by compiled posthumously by Engels), where he was really critical of big banks as well as Marx's earlier works (Grundrisse, Theories of Surplus Value) where Marx was scathing about finance:

"A high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pocket* (whereby, however, they help to determine the rate of interest  for all) and meanwhile they live in grand style on anticipated profits. 

Irving Fisher influence

The second source on which Minsky based his insights was Irving Fisher. Irving Fisher’s reputation destroyed by wrong predictions on stock market prices. In aftermath, developed theory to explain the crash and published it in his book  "The Debt Deflation Theory of Great Depressions". His main points are:

According to Fisher two key disequilibrium forces that push economic into the next economic crisis are debt and subsequent deflation

Joseph Schumpeter influence

Joseph Schumpeter was Joseph Schumpeter has more positive view of capitalism than the other two. He authored the theory of creative destruction as a path by which capitalism achieves higher and higher productivity. He capitalism as necessarily unstable, but for him this was a positive feature -- instability of capitalism the source of its creativity. His view of capitalism was highly dynamic and somewhat resembles the view of Marx (who also thought that capitalism destroys all previous order and create a new one):

Unlike Marx, who thought that the periodic crisis of overproduction  is the source of instability (as well as  gradual absolute impoverishment of workers), Minsky assumed that the key source of that instability of capitalist system is connected with the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing leading to high leverage and overproduction and thus to eventual debt crisis (The Alternative To Neoliberalism ):

Minsky on capitalism:

The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists do not want to talk about the fact that increasing confidence breeds increased leverage. So financial stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise, ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and push it beyond reasonable boundaries.  In other words, marker players are no rational and assume that it would be foolish not to maximize leverage in a market which is going up. So the fractional reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent crisis and the market's destruction. Stability breed instability.

That means that fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. And first of all because  fractional reserve banking is debt based. In order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy are substantial because this way the credit boom bubble is inflated which eventually burst. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

Blissex said...

«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

Steve Keen is probably the most well know researcher who tried to creates model of capitalist economy based on Minsky work (  http://www.debtdeflation.com/blogs/manifesto/ )

John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial sector hypothesis: 

The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The first phase was the emerging market defaults of the 1990s. The second was the new economy boom and bust at the turn of the century. The third was the collapse of markets for structured debt products, which had grown so rapidly in the five years up to 2007.

The manifestation of the problem in each phase was different – first emerging markets, then stock markets, then debt. But the mechanics were essentially the same. Financial institutions identified a genuine economic change – the assimilation of some poor countries into the global economy, the opportunities offered to business by new information technology, and the development of opportunities to manage risk and maturity mismatch more effectively through markets. Competition to sell products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits, of which a substantial fraction was paid to employees.

Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable – funding the financial systems of emerging economies, promoting start-up internet businesses, trading in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to make write-offs, most of the new economy stocks proved valueless and many structured products became unmarketable. Governments, and particularly the US government, reacted on each occasion by pumping money into the financial system in the hope of staving off wider collapse, with some degree of success. At the end of each phase, regulators and financial institutions declared that lessons had been learnt. While measures were implemented which, if they had been introduced five years earlier, might have prevented the most recent crisis from taking the particular form it did, these responses addressed the particular problem that had just occurred, rather than the underlying generic problems of skewed incentives and dysfunctional institutional structures.

The public support of markets provided on each occasion the fuel needed to stoke the next crisis. Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern is one of cycles of increasing amplitude.

I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.

The citizens of that most placid of countries, Iceland, now backed by their president, have found a characteristically polite and restrained way of disputing an obligation to stump up large sums of cash to pay for the arrogance and greed of other people. They are right. We should listen to them before the same message is conveyed in much more violent form, in another place and at another time. But it seems unlikely that we will.

We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.

While Hyman Minsky was the first clearly formulate the financial instability hypothesis, Keynes also understood this dynamic pretty well. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment products creates instability both in terms of output and prices. In other words it automatically tends to generate credit and asset bubbles.  The key driver is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:

This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much more polemic way long ago:

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken. In other words it naturally tend to slide to the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode of operation while an opportunities last.  The only way to counter this is to throw sand into the wheels of financial mechanism:  enforce strict regulations, limit money supplies and periodically jail too enthusiastic bankers. The latter is as important or even more important as the other two because bankers tend to abuse "limited liability" status like no other sector.

Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior of dynamic system with strong positive feedback loop.  Such behavior does not depends of personalities of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main driving force here was deregulation. So its important that new regulation has safety feature which make removal of it more complicated and requiring bigger majority like is the case with constitutional issues.

Another fact was the fact that due to perverted incentives, accounting in the banks was fraudulent from the very beginning and it was fraudulent on purpose.  Essentially accounting in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt healthy institutions but help to ensure that the most fraudulent institution lose these bank charter before affecting the whole system.  With the anti-regulatory zeal of Bush II administration the level of auditing became too superficial, almost non-existent. I remember perverted dances with Sarbanes–Oxley when it was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.

Deregulation also increases systemic risk by influencing the real goals of financial organizations. At some point of deregulation process the goal of higher remuneration for the top brass becomes self-sustainable trend  and replaces all other goals of the financial organization. This is the essence of  Martin Taylor’s, the former chief executive of Barclays,  article FT.com - Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth reading in its entirety:

City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.

Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth?

In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

In the next phase instability is amplified by the way governments and central banks respond to crises caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and crash become a dress rehearsal for the next.

Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback loop behave and   cannot be explained by neo-classical macroeconomic models. Like with electronic devices the financial institution in this mode are unable to provide the services that are needed.

As Minsky noted long ago (sited from Stephen Mihm  Why capitalism fails Boston Globe):

Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

...our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

And he understood the roots of the current credit bubble much better that neoclassical economists like Bernanke: 
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further.

As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Minsky’s financial instability hypothesis suggests that when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise returns by increasing leverage and switching to financing via short-term—sometimes overnight— borrowing (Too late to learn?):

In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:

The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors.
Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".

According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar to a state  a sand pile.  All this pile of  stocks, debt instruments, derivatives, credit default swaps and God know corresponds to a  pile of sand that is on the verse of losing stability. Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer such situation continues the more likely and violent an "avalanche".

The late Hunt Taylor wrote, in 2006:

"Let us start with what we know. First, these markets look nothing like anything I've ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters.

"... I've had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it."

This is a gold age for bankers as Simon Johnson wrote in New Republic (The Next Financial Crisis ):

Banking was once a dangerous profession. In Britain, for instance, bankers faced “unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. It wasn’t until the second half of the nineteenth century that Britain established limited liability for bank owners. From that point on, British bankers no longer assumed much financial risk themselves.

In the United States, there was great experimentation with banking during the 1800s, but those involved in the enterprise typically made a substantial commitment of their own capital. For example, there was a well-established tradition of “double liability,” in which stockholders were responsible for twice the original value of their shares in a bank. This encouraged stockholders to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on those who managed banks. If they fared poorly, they typically faced personal and professional ruin. The idea that a bank executive would retain wealth and social status in the event of a self-induced calamity would have struck everyone--including bank executives themselves--as ludicrous.

Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in 1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich in an influential 1909 speech, “without being convinced that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and by the adoption of wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich and a small group of top financiers met on an isolated island off the coast of Georgia. There, they hammered out a draft plan to create a strong central bank that would be owned by banks themselves.

What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative crashes -- something more durable than J.P. Morgan, who saved the day in the Panic of 1907 but couldn’t be counted on to live forever. While they sought informal government backing and substantial government financial support for their new venture, the bankers also wanted it to remain free of government interference, oversight, or control.

Another destabilizing fact is so called myth of invisible hand which is closely related to the myth about market self-regulation. The misunderstood argument of Adam Smith [1776], the founder of modern economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. About "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com.

The concept of Minsky moment

The moment in the financial system when the quantity of debt turns into quality and produces yet another financial crisis is called Minsky moment. In other words the “Minsky moment” is the time when an unsustainable financial boom turns into uncontrollable collapse of financial markets (aka financial crash). The existence of Minsky moments is one of the most important counterargument against financial market self-regulation.  It also expose free market fundamentalists such as "former Maestro" Greenspan as charlatans. Greenspan actually implicitly admitted that he is and that it was he, who was the "machinist"  who helped to bring the USA economic train off the rails in 2008 via deregulation  and dismantling the New Deal installed safeguards. 

Here how it is explained by Stephen Mihm in Boston Globe in 2009 in the after math of 2008 financial crisis:

“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade ago.  He predicted almost exactly the kind of meltdown that recently hammered the global economy. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

Minsky theory was not well received due to powerful orthodoxy, born in the years after World War II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”

So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”

Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.

In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”

Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.

Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.

By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.

“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”

Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”

Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”

But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”

Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007). © Copyright 2009 Globe Newspaper Company.

 

Some important albeit random (and overlapping) points about instability of financial system

The first thing to understand is that attempt to weaken positive feedback looks via regulation, approach that can be called  “regulation as a Swiss knife” does not work without law enforcement and criminal liability for bankers, as there is an obvious problem of corruption of regulators. In this sense the mechanism of purges might be the only one that realistically can work.

In other words it’s unclear who and how can prevents the capture of regulators as financial sector by definition has means to undermine any such efforts. One way this influence work is via lobbing for appointment of pro-financial sector people in key positions. If such "finance-sector-selected" Fed chairman does not like part of Fed mandate related to regulation it can simply ignore it as long as he is sure that he will be reappointed. That happened with Greenspan.  After such process started it became irreversible and only after a significant, dramatic shock to the system any meaningful changes can be instituted and as soon as the lessons are forgotten work on undermining them resumes.

In essence, the Fed is a political organization and Fed Chairman is as close to a real vice-president of the USA as one can get.  As such Fed Chairman serves the elite which rules that country, whether you call them financial oligarchy or some other name. Actually Fed Chairman is the most powerful unelected official in the USA. If you compare this position to the role of the Chairman of the Politburo  in the USSR you’ll might find some interesting similarities.

In other words it is impossible to prevent appointment of another Greenspan by another Reagan without changes in political power balance.  And the transition to banana republic that follows such appointment is irreversible even if the next administration water boards former Fed Chairman to help him to write his memoirs.  That means that you need to far-reaching reform of political system to be able to regulate financial industry and you need to understand that the measures adopted need vigilant protection as soon as the current crisis is a distant history.

Additional reading

Several other source of financial instability were pointed out by others:

There are some outstanding lectures and presentation on YouTube on this topic. Among them:

See an expended list at Webliography of heterodox economists

Dr. Nikolai Bezroukov


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[In casino capitalism] financial institutions make a living screwing over their customers so their biggest concern is how to avoid losing lawsuits when they get sued

Why Wall Street Ignores Real Risk
And Why History Will Repeat Itself

[Dec 15, 2017] Rise and Decline of the Welfare State, by James Petras

Highly recommended!
Petras did not mention that it was Carter who started neoliberalization of the USA. The subsequent election of Reagan signified the victory of neoliberalism in this country or "quite coup". The death of New Deal from this point was just a matter of time. Labor relations drastically changes and war on union and atomization of workforce are a norm.
Welfare state still exists but only for corporation and MIC. Otherwise the New Deal society is almost completely dismanted.
It is true that "The ' New Deal' was, at best, a de facto ' historical compromise' between the capitalist class and the labor unions, mediated by the Democratic Party elite. It was a temporary pact in which the unions secured legal recognition while the capitalists retained their executive prerogatives." But the key factor in this compromise was the existence of the USSR as a threat to the power of capitalists in the USA. when the USSR disappeared cannibalistic instincts of the US elite prevailed over caution.
Notable quotes:
"... The earlier welfare 'reforms' and the current anti-welfare legislation and austerity practices have been accompanied by a series of endless imperial wars, especially in the Middle East. ..."
"... In the 1940's through the 1960's, world and regional wars (Korea and Indo-China) were combined with significant welfare program – a form of ' social imperialism' , which 'buy off' the working class while expanding the empire. However, recent decades are characterized by multiple regional wars and the reduction or elimination of welfare programs – and a massive growth in poverty, domestic insecurity and poor health. ..."
"... modern welfare state' ..."
"... Labor unions were organized as working class strikes and progressive legislation facilitated trade union organization, elections, collective bargaining rights and a steady increase in union membership. Improved work conditions, rising wages, pension plans and benefits, employer or union-provided health care and protective legislation improved the standard of living for the working class and provided for 2 generations of upward mobility. ..."
"... Social Security legislation was approved along with workers' compensation and the forty-hour workweek. Jobs were created through federal programs (WPA, CCC, etc.). Protectionist legislation facilitated the growth of domestic markets for US manufacturers. Workplace shop steward councils organized 'on the spot' job action to protect safe working conditions. ..."
"... World War II led to full employment and increases in union membership, as well as legislation restricting workers' collective bargaining rights and enforcing wage freezes. Hundreds of thousands of Americans found jobs in the war economy but a huge number were also killed or wounded in the war. ..."
"... So-called ' right to work' ..."
"... Trade union officials signed pacts with capital: higher pay for the workers and greater control of the workplace for the bosses. Trade union officials joined management in repressing rank and file movements seeking to control technological changes by reducing hours (" thirty hours work for forty hours pay ..."
"... Trade union activists, community organizers for rent control and other grassroots movements lost both the capacity and the will to advance toward large-scale structural changes of US capitalism. Living standards improved for a few decades but the capitalist class consolidated strategic control over labor relations. While unionized workers' incomes, increased, inequalities, especially in the non-union sectors began to grow. With the end of the GI bill, veterans' access to high-quality subsidized education declined ..."
"... With the election of President Carter, social welfare in the US began its long decline. The next series of regional wars were accompanied by even greater attacks on welfare via the " Volker Plan " – freezing workers' wages as a means to combat inflation. ..."
"... Guns without butter' became the legislative policy of the Carter and Reagan Administrations. The welfare programs were based on politically fragile foundations. ..."
"... The anti-labor offensive from the ' Oval Office' intensified under President Reagan with his direct intervention firing tens of thousands of striking air controllers and arresting union leaders. Under Presidents Carter, Reagan, George H.W. Bush and William Clinton cost of living adjustments failed to keep up with prices of vital goods and services. Health care inflation was astronomical. Financial deregulation led to the subordination of American industry to finance and the Wall Street banks. De-industrialization, capital flight and massive tax evasion reduced labor's share of national income. ..."
"... The capitalist class followed a trajectory of decline, recovery and ascendance. Moreover, during the earlier world depression, at the height of labor mobilization and organization, the capitalist class never faced any significant political threat over its control of the commanding heights of the economy ..."
"... Hand in bloody glove' with the US Empire, the American trade unions planted the seeds of their own destruction at home. The local capitalists in newly emerging independent nations established industries and supply chains in cooperation with US manufacturers. Attracted to these sources of low-wage, violently repressed workers, US capitalists subsequently relocated their factories overseas and turned their backs on labor at home. ..."
"... President 'Bill' Clinton ravaged Russia, Yugoslavia, Iraq and Somalia and liberated Wall Street. His regime gave birth to the prototype billionaire swindlers: Michael Milken and Bernard 'Bernie' Madoff. ..."
"... Clinton converted welfare into cheap labor 'workfare', exploiting the poorest and most vulnerable and condemning the next generations to grinding poverty. Under Clinton the prison population of mostly African Americans expanded and the breakup of families ravaged the urban communities. ..."
"... President Obama transferred 2 trillion dollars to the ten biggest bankers and swindlers on Wall Street, and another trillion to the Pentagon to pursue the Democrats version of foreign policy: from Bush's two overseas wars to Obama's seven. ..."
"... Obama was elected to two terms. His liberal Democratic Party supporters swooned over his peace and justice rhetoric while swallowing his militarist escalation into seven overseas wars as well as the foreclosure of two million American householders. Obama completely failed to honor his campaign promise to reduce wage inequality between black and white wage earners while he continued to moralize to black families about ' values' . ..."
"... Obama's war against Libya led to the killing and displacement of millions of black Libyans and workers from Sub-Saharan Africa. The smiling Nobel Peace Prize President created more desperate refugees than any previous US head of state – including millions of Africans flooding Europe. ..."
"... Forty-years of anti welfare legislation and pro-business regimes paved the golden road for the election of Donald Trump ..."
"... Trump and the Republicans are focusing on the tattered remnants of the social welfare system: Medicare, Medicaid, Social Security. The remains of FDR's New Deal and LBJ's Great Society -- are on the chopping block. ..."
"... The moribund (but well-paid) labor leadership has been notable by its absence in the ensuing collapse of the social welfare state. The liberal left Democrats embraced the platitudinous Obama/Clinton team as the 'Great Society's' gravediggers, while wailing at Trump's allies for shoving the corpse of welfare state into its grave. ..."
"... Over the past forty years the working class and the rump of what was once referred to as the ' labor movement' has contributed to the dismantling of the social welfare state, voting for ' strike-breaker' Reagan, ' workfare' Clinton, ' Wall Street crash' Bush, ' Wall Street savior' Obama and ' Trickle-down' Trump. ..."
"... Gone are the days when social welfare and profitable wars raised US living standards and transformed American trade unions into an appendage of the Democratic Party and a handmaiden of Empire. The Democratic Party rescued capitalism from its collapse in the Great Depression, incorporated labor into the war economy and the post- colonial global empire, and resurrected Wall Street from the 'Great Financial Meltdown' of the 21 st century. ..."
"... The war economy no longer fuels social welfare. The military-industrial complex has found new partners on Wall Street and among the globalized multi-national corporations. Profits rise while wages fall. Low paying compulsive labor (workfare) lopped off state transfers to the poor. Technology – IT, robotics, artificial intelligence and electronic gadgets – has created the most class polarized social system in history ..."
"... "The collaboration of liberals and unions in promoting endless wars opened the door to Trump's mirage of a stateless, tax-less, ruling class." ..."
"... Corporations [now] are welfare recipients and the bigger they are, the more handouts they suck up ..."
"... Corporations not only continuously seek monopolies (with the aid and sanction of the state) but they steadily fine tune the welfare state for their benefit. In fact, in reality, welfare for prols and peasants wouldn't exist if it didn't act as a money conduit and ultimate profit center for the big money grubbers. ..."
"... The article is dismal reading, and evidence of the failings of the "unregulated" society, where the anything goes as long as you are wealthy. ..."
"... Like the Pentagon. Americans still don't readily call this welfare, but they will eventually. Defense profiteers are unions in a sense, you're either in their club Or you're in the service industry that surrounds it. ..."
Dec 13, 2017 | www.unz.com

Introduction

The American welfare state was created in 1935 and continued to develop through 1973. Since then, over a prolonged period, the capitalist class has been steadily dismantling the entire welfare state.

Between the mid 1970's to the present (2017) labor laws, welfare rights and benefits and the construction of and subsidies for affordable housing have been gutted. ' Workfare' (under President 'Bill' Clinton) ended welfare for the poor and displaced workers. Meanwhile the shift to regressive taxation and the steadily declining real wages have increased corporate profits to an astronomical degree.

What started as incremental reversals during the 1990's under Clinton has snowballed over the last two decades decimating welfare legislation and institutions.

The earlier welfare 'reforms' and the current anti-welfare legislation and austerity practices have been accompanied by a series of endless imperial wars, especially in the Middle East.

In the 1940's through the 1960's, world and regional wars (Korea and Indo-China) were combined with significant welfare program – a form of ' social imperialism' , which 'buy off' the working class while expanding the empire. However, recent decades are characterized by multiple regional wars and the reduction or elimination of welfare programs – and a massive growth in poverty, domestic insecurity and poor health.

New Deals and Big Wars

The 1930's witnessed the advent of social legislation and action, which laid the foundations of what is called the ' modern welfare state' .

Labor unions were organized as working class strikes and progressive legislation facilitated trade union organization, elections, collective bargaining rights and a steady increase in union membership. Improved work conditions, rising wages, pension plans and benefits, employer or union-provided health care and protective legislation improved the standard of living for the working class and provided for 2 generations of upward mobility.

Social Security legislation was approved along with workers' compensation and the forty-hour workweek. Jobs were created through federal programs (WPA, CCC, etc.). Protectionist legislation facilitated the growth of domestic markets for US manufacturers. Workplace shop steward councils organized 'on the spot' job action to protect safe working conditions.

World War II led to full employment and increases in union membership, as well as legislation restricting workers' collective bargaining rights and enforcing wage freezes. Hundreds of thousands of Americans found jobs in the war economy but a huge number were also killed or wounded in the war.

The post-war period witnessed a contradictory process: wages and salaries increased while legislation curtailed union rights via the Taft Hartley Act and the McCarthyist purge of leftwing trade union activists. So-called ' right to work' laws effectively outlawed unionization mostly in southern states, which drove industries to relocate to the anti-union states.

Welfare reforms, in the form of the GI bill, provided educational opportunities for working class and rural veterans, while federal-subsidized low interest mortgages encourage home-ownership, especially for veterans.

The New Deal created concrete improvements but did not consolidate labor influence at any level. Capitalists and management still retained control over capital, the workplace and plant location of production.

Trade union officials signed pacts with capital: higher pay for the workers and greater control of the workplace for the bosses. Trade union officials joined management in repressing rank and file movements seeking to control technological changes by reducing hours (" thirty hours work for forty hours pay "). Dissident local unions were seized and gutted by the trade union bosses – sometimes through violence.

Trade union activists, community organizers for rent control and other grassroots movements lost both the capacity and the will to advance toward large-scale structural changes of US capitalism. Living standards improved for a few decades but the capitalist class consolidated strategic control over labor relations. While unionized workers' incomes, increased, inequalities, especially in the non-union sectors began to grow. With the end of the GI bill, veterans' access to high-quality subsidized education declined.

While a new wave of social welfare legislation and programs began in the 1960's and early 1970's it was no longer a result of a mass trade union or workers' "class struggle". Moreover, trade union collaboration with the capitalist regional war policies led to the killing and maiming of hundreds of thousands of workers in two wars – the Korean and Vietnamese wars.

Much of social legislation resulted from the civil and welfare rights movements. While specific programs were helpful, none of them addressed structural racism and poverty.

The Last Wave of Social Welfarism

The 1960'a witnessed the greatest racial war in modern US history: Mass movements in the South and North rocked state and federal governments, while advancing the cause of civil, social and political rights. Millions of black citizens, joined by white activists and, in many cases, led by African American Viet Nam War veterans, confronted the state. At the same time, millions of students and young workers, threatened by military conscription, challenged the military and social order.

Energized by mass movements, a new wave of social welfare legislation was launched by the federal government to pacify mass opposition among blacks, students, community organizers and middle class Americans. Despite this mass popular movement, the union bosses at the AFL-CIO openly supported the war, police repression and the military, or at best, were passive impotent spectators of the drama unfolding in the nation's streets. Dissident union members and activists were the exception, as many had multiple identities to represent: African American, Hispanic, draft resisters, etc.

Under Presidents Lyndon Johnson and Richard Nixon, Medicare, Medicaid, OSHA, the EPA and multiple poverty programs were implemented. A national health program, expanding Medicare for all Americans, was introduced by President Nixon and sabotaged by the Kennedy Democrats and the AFL-CIO. Overall, social and economic inequalities diminished during this period.

The Vietnam War ended in defeat for the American militarist empire. This coincided with the beginning of the end of social welfare as we knew it – as the bill for militarism placed even greater demands on the public treasury.

With the election of President Carter, social welfare in the US began its long decline. The next series of regional wars were accompanied by even greater attacks on welfare via the " Volker Plan " – freezing workers' wages as a means to combat inflation.

Guns without butter' became the legislative policy of the Carter and Reagan Administrations. The welfare programs were based on politically fragile foundations.

The Debacle of Welfarism

Private sector trade union membership declined from a post-world war peak of 30% falling to 12% in the 1990's. Today it has sunk to 7%. Capitalists embarked on a massive program of closing thousands of factories in the unionized North which were then relocated to the non-unionized low wage southern states and then overseas to Mexico and Asia. Millions of stable jobs disappeared.

Following the election of 'Jimmy Carter', neither Democratic nor Republican Presidents felt any need to support labor organizations. On the contrary, they facilitated contracts dictated by management, which reduced wages, job security, benefits and social welfare.

The anti-labor offensive from the ' Oval Office' intensified under President Reagan with his direct intervention firing tens of thousands of striking air controllers and arresting union leaders. Under Presidents Carter, Reagan, George H.W. Bush and William Clinton cost of living adjustments failed to keep up with prices of vital goods and services. Health care inflation was astronomical. Financial deregulation led to the subordination of American industry to finance and the Wall Street banks. De-industrialization, capital flight and massive tax evasion reduced labor's share of national income.

The capitalist class followed a trajectory of decline, recovery and ascendance. Moreover, during the earlier world depression, at the height of labor mobilization and organization, the capitalist class never faced any significant political threat over its control of the commanding heights of the economy.

The ' New Deal' was, at best, a de facto ' historical compromise' between the capitalist class and the labor unions, mediated by the Democratic Party elite. It was a temporary pact in which the unions secured legal recognition while the capitalists retained their executive prerogatives.

The Second World War secured the economic recovery for capital and subordinated labor through a federally mandated no strike production agreement. There were a few notable exceptions: The coal miners' union organized strikes in strategic sectors and some leftist leaders and organizers encouraged slow-downs, work to rule and other in-plant actions when employers ran roughshod with special brutality over the workers. The recovery of capital was the prelude to a post-war offensive against independent labor-based political organizations. The quality of labor organization declined even as the quantity of trade union membership increased.

Labor union officials consolidated internal control in collaboration with the capitalist elite. Capitalist class-labor official collaboration was extended overseas with strategic consequences.

The post-war corporate alliance between the state and capital led to a global offensive – the replacement of European-Japanese colonial control and exploitation by US business and bankers. Imperialism was later 're-branded' as ' globalization' . It pried open markets, secured cheap docile labor and pillaged resources for US manufacturers and importers.

US labor unions played a major role by sabotaging militant unions abroad in cooperation with the US security apparatus: They worked to coopt and bribe nationalist and leftist labor leaders and supported police-state regime repression and assassination of recalcitrant militants.

' Hand in bloody glove' with the US Empire, the American trade unions planted the seeds of their own destruction at home. The local capitalists in newly emerging independent nations established industries and supply chains in cooperation with US manufacturers. Attracted to these sources of low-wage, violently repressed workers, US capitalists subsequently relocated their factories overseas and turned their backs on labor at home.

Labor union officials had laid the groundwork for the demise of stable jobs and social benefits for American workers. Their collaboration increased the rate of capitalist profit and overall power in the political system. Their complicity in the brutal purges of militants, activists and leftist union members and leaders at home and abroad put an end to labor's capacity to sustain and expand the welfare state.

Trade unions in the US did not use their collaboration with empire in its bloody regional wars to win social benefits for the rank and file workers. The time of social-imperialism, where workers within the empire benefited from imperialism's pillage, was over. Gains in social welfare henceforth could result only from mass struggles led by the urban poor, especially Afro-Americans, community-based working poor and militant youth organizers.

The last significant social welfare reforms were implemented in the early 1970's – coinciding with the end of the Vietnam War (and victory for the Vietnamese people) and ended with the absorption of the urban and anti-war movements into the Democratic Party.

Henceforward the US corporate state advanced through the overseas expansion of the multi-national corporations and via large-scale, non-unionized production at home.

The technological changes of this period did not benefit labor. The belief, common in the 1950's, that science and technology would increase leisure, decrease work and improve living standards for the working class, was shattered. Instead technological changes displaced well-paid industrial labor while increasing the number of mind-numbing, poorly paid, and politically impotent jobs in the so-called 'service sector' – a rapidly growing section of unorganized and vulnerable workers – especially including women and minorities.

Labor union membership declined precipitously. The demise of the USSR and China's turn to capitalism had a dual effect: It eliminated collectivist (socialist) pressure for social welfare and opened their labor markets with cheap, disciplined workers for foreign manufacturers. Labor as a political force disappeared on every count. The US Federal Reserve and President 'Bill' Clinton deregulated financial capital leading to a frenzy of speculation. Congress wrote laws, which permitted overseas tax evasion – especially in Caribbean tax havens. Regional free-trade agreements, like NAFTA, spurred the relocation of jobs abroad. De-industrialization accompanied the decline of wages, living standards and social benefits for millions of American workers.

The New Abolitionists: Trillionaires

The New Deal, the Great Society, trade unions, and the anti-war and urban movements were in retreat and primed for abolition.

Wars without welfare (or guns without butter) replaced earlier 'social imperialism' with a huge growth of poverty and homelessness. Domestic labor was now exploited to finance overseas wars not vice versa. The fruits of imperial plunder were not shared.

As the working and middle classes drifted downward, they were used up, abandoned and deceived on all sides – especially by the Democratic Party. They elected militarists and demagogues as their new presidents.

President 'Bill' Clinton ravaged Russia, Yugoslavia, Iraq and Somalia and liberated Wall Street. His regime gave birth to the prototype billionaire swindlers: Michael Milken and Bernard 'Bernie' Madoff.

Clinton converted welfare into cheap labor 'workfare', exploiting the poorest and most vulnerable and condemning the next generations to grinding poverty. Under Clinton the prison population of mostly African Americans expanded and the breakup of families ravaged the urban communities.

Provoked by an act of terrorism (9/11) President G.W. Bush Jr. launched the 'endless' wars in Afghanistan and Iraq and deepened the police state (Patriot Act). Wages for American workers and profits for American capitalist moved in opposite directions.

The Great Financial Crash of 2008-2011 shook the paper economy to its roots and led to the greatest shakedown of any national treasury in history directed by the First Black American President. Trillions of public wealth were funneled into the criminal banks on Wall Street – which were ' just too big to fail .' Millions of American workers and homeowners, however, were ' just too small to matter' .

The Age of Demagogues

President Obama transferred 2 trillion dollars to the ten biggest bankers and swindlers on Wall Street, and another trillion to the Pentagon to pursue the Democrats version of foreign policy: from Bush's two overseas wars to Obama's seven.

Obama's electoral 'donor-owners' stashed away two trillion dollars in overseas tax havens and looked forward to global free trade pacts – pushed by the eloquent African American President.

Obama was elected to two terms. His liberal Democratic Party supporters swooned over his peace and justice rhetoric while swallowing his militarist escalation into seven overseas wars as well as the foreclosure of two million American householders. Obama completely failed to honor his campaign promise to reduce wage inequality between black and white wage earners while he continued to moralize to black families about ' values' .

Obama's war against Libya led to the killing and displacement of millions of black Libyans and workers from Sub-Saharan Africa. The smiling Nobel Peace Prize President created more desperate refugees than any previous US head of state – including millions of Africans flooding Europe.

'Obamacare' , his imitation of an earlier Republican governor's health plan, was formulated by the private corporate health industry (private insurance, Big Pharma and the for-profit hospitals), to mandate enrollment and ensure triple digit profits with double digit increases in premiums. By the 2016 Presidential elections, ' Obama-care' was opposed by a 45%-43% margin of the American people. Obama's propagandists could not show any improvement of life expectancy or decrease in infant and maternal mortality as a result of his 'health care reform'. Indeed the opposite occurred among the marginalized working class in the old 'rust belt' and in the rural areas. This failure to show any significant health improvement for the masses of Americans is in stark contrast to LBJ's Medicare program of the 1960's, which continues to receive massive popular support.

Forty-years of anti welfare legislation and pro-business regimes paved the golden road for the election of Donald Trump

Trump and the Republicans are focusing on the tattered remnants of the social welfare system: Medicare, Medicaid, Social Security. The remains of FDR's New Deal and LBJ's Great Society -- are on the chopping block.

The moribund (but well-paid) labor leadership has been notable by its absence in the ensuing collapse of the social welfare state. The liberal left Democrats embraced the platitudinous Obama/Clinton team as the 'Great Society's' gravediggers, while wailing at Trump's allies for shoving the corpse of welfare state into its grave.

Conclusion

Over the past forty years the working class and the rump of what was once referred to as the ' labor movement' has contributed to the dismantling of the social welfare state, voting for ' strike-breaker' Reagan, ' workfare' Clinton, ' Wall Street crash' Bush, ' Wall Street savior' Obama and ' Trickle-down' Trump.

Gone are the days when social welfare and profitable wars raised US living standards and transformed American trade unions into an appendage of the Democratic Party and a handmaiden of Empire. The Democratic Party rescued capitalism from its collapse in the Great Depression, incorporated labor into the war economy and the post- colonial global empire, and resurrected Wall Street from the 'Great Financial Meltdown' of the 21 st century.

The war economy no longer fuels social welfare. The military-industrial complex has found new partners on Wall Street and among the globalized multi-national corporations. Profits rise while wages fall. Low paying compulsive labor (workfare) lopped off state transfers to the poor. Technology – IT, robotics, artificial intelligence and electronic gadgets – has created the most class polarized social system in history. The first trillionaire and multi-billionaire tax evaders rose on the backs of a miserable standing army of tens of millions of low-wage workers, stripped of rights and representation. State subsidies eliminate virtually all risk to capital. The end of social welfare coerced labor (including young mother with children) to seek insecure low-income employment while slashing education and health – cementing the feet of generations into poverty. Regional wars abroad have depleted the Treasury and robbed the country of productive investment. Economic imperialism exports profits, reversing the historic relation of the past.

Labor is left without compass or direction; it flails in all directions and falls deeper in the web of deception and demagogy. To escape from Reagan and the strike breakers, labor embraced the cheap-labor predator Clinton; black and white workers united to elect Obama who expelled millions of immigrant workers, pursued 7 wars, abandoned black workers and enriched the already filthy rich. Deception and demagogy of the labor-

Issac , December 11, 2017 at 11:01 pm GMT

"The military-industrial complex has found new partners on Wall Street and among the globalized multi-national corporations."

"The collaboration of liberals and unions in promoting endless wars opened the door to Trump's mirage of a stateless, tax-less, ruling class."

A mirage so real, it even has you convinced.

whyamihere , December 12, 2017 at 4:24 am GMT
If the welfare state in America was abolished, major American cities would burn to the ground. Anarchy would ensue, it would be magnitudes bigger than anything that happened in Ferguson or Baltimore. It would likely be simultaneous.

I think that's one of the only situations where preppers would actually live out what they've been prepping for (except for a natural disaster).

I've been thinking about this a little over the past few years after seeing the race riots. What exactly is the line between our society being civilized and breaking out into chaos. It's probably a lot thinner than most people think.

I don't know who said it but someone long ago said something along the lines of, "Democracy can only work until the people figure out they can vote for themselves generous benefits from the public treasury." We are definitely in this situation today. I wonder how long it can last.

Disordered , December 13, 2017 at 8:41 am GMT
While I agree with Petras's intent (notwithstanding several exaggerations and unnecessary conflations with, for example, racism), I don't agree so much with the method he proposes. I don't mind welfare and unions to a certain extent, but they are not going to save us unless there is full employment and large corporations that can afford to pay an all-union workforce. That happened during WW2, as only wartime demand and those pesky wage freezes solved the Depression, regardless of all the public works programs; while the postwar era benefited from the US becoming the world's creditor, meaning that capital could expand while labor participation did as well.

From then on, it is quite hard to achieve the same success after outsourcing and mechanization have happened all over the world. Both of these phenomena not only create displaced workers, but also displaced industries, meaning that it makes more sense to develop individual workfare (and even then, do it well, not the shoddy way it is done now) rather than giving away checks that probably will not be cashed for entrepreneurial purposes, and rather than giving away money to corrupt unions who depend on trusts to be able to pay for their benefits, while raising the cost of hiring that only encourages more outsourcing.

The amount of welfare given is not necessarily the main problem, the problem is doing it right for the people who truly need it, and efficiently – that is, with the least amount of waste lost between the chain of distribution, which should reach intended targets and not moochers.

Which inevitably means a sound tax system that targets unearned wealth and (to a lesser degree) foreign competition instead of national production, coupled with strict, yet devolved and simple government processes that benefit both business and individuals tired of bureaucracy, while keeping budgets balanced. Best of both worlds, and no military-industrial complex needed to drive up demand.

Wally , Website December 13, 2017 at 8:57 am GMT
"President Obama transferred 2 trillion dollars to the ten biggest bankers and swindlers on Wall Street " That's twice the amount that Bush gave them.
jacques sheete , December 13, 2017 at 10:52 am GMT

The American welfare state was created in 1935 and continued to develop through 1973. Since then, over a prolonged period, the capitalist class has been steadily dismantling the entire welfare state.

Wrong wrong wrong.

Corporations [now] are welfare recipients and the bigger they are, the more handouts they suck up, and welfare for them started before 1935. In fact, it started in America before there was a USA. I do not have time to elaborate, but what were the various companies such as the British East India Company and the Dutch West India Companies but state pampered, welfare based entities? ~200 years ago, Herbert Spencer, if memory serves, pointed out that the British East India Company couldn't make a profit even with all the special, government granted favors showered upon it.

Corporations not only continuously seek monopolies (with the aid and sanction of the state) but they steadily fine tune the welfare state for their benefit. In fact, in reality, welfare for prols and peasants wouldn't exist if it didn't act as a money conduit and ultimate profit center for the big money grubbers.

Den Lille Abe , December 13, 2017 at 11:09 am GMT
Well, the author kind of nails it. I remember from my childhood in the 50-60 ties in Scandinavia that the US was the ultimate goal in welfare. The country where you could make a good living with your two hands, get you kids to UNI, have a house, a telly ECT. It was not consumerism, it was the American dream, a chicken in every pot; we chewed imported American gum and dreamed.

In the 70-80 ties Scandinavia had a tremendous social and economic growth, EQUALLY distributed, an immense leap forward. In the middle of the 80 ties we were equal to the US in standards of living.

Since we have not looked at the US, unless in pity, as we have seen the decline of the general income, social wealth fall way behind our own.
The average US workers income has not increased since 90 figures adjusted for inflation. The Scandinavian workers income in the same period has almost quadrupled. And so has our societies.

The article is dismal reading, and evidence of the failings of the "unregulated" society, where the anything goes as long as you are wealthy.

wayfarer , December 13, 2017 at 1:01 pm GMT

Between the mid 1970's to the present (2017) labor laws, welfare rights and benefits and the construction of and subsidies for affordable housing have been gutted. 'Workfare' (under President 'Bill' Clinton) ended welfare for the poor and displaced workers. Meanwhile the shift to regressive taxation and the steadily declining real wages have increased corporate profits to an astronomical degree.

source: http://www.unz.com/jpetras/rise-and-decline-of-the-welfare-state/

What does Hollywood "elite" JAP and wannabe hack-stand-up-comic Sarah Silverman think about the class struggle and problems facing destitute Americans? "Qu'ils mangent de la bagels!", source: https://en.wikipedia.org/wiki/Let_them_eat_cake

... ... ...

Anonymous , Disclaimer December 13, 2017 at 1:40 pm GMT
@Greg Fraser

Like the Pentagon. Americans still don't readily call this welfare, but they will eventually. Defense profiteers are unions in a sense, you're either in their club Or you're in the service industry that surrounds it.

Anonymous , Disclaimer December 13, 2017 at 2:43 pm GMT
As other commenters have pointed out, it's Petras curious choice of words that sometimes don't make too much sense. We can probably blame the maleable English language for that, but here it's too obvious. If you don't define a union, people might assume you're only talking about a bunch of meat cutters at Safeway.

The welfare state is alive and well for corporate America. Unions are still here – but they are defined by access and secrecy, you're either in the club or not.

The war on unions was successful first by co-option but mostly by the media. But what kind of analysis leaves out the role of the media in the American transformation? The success is mind blowing.

America has barely literate (white) middle aged males trained to spout incoherent Calvinistic weirdness: unabased hatred for the poor (or whoever they're told to hate) and a glorification of hedge fund managers as they get laid off, fired and foreclosed on, with a side of opiates.

There is hardly anything more tragic then seeing a web filled with progressives (management consultants) dedicated to disempowering, disabling and deligitimizing victims by claiming they are victims of biology, disease or a lack of an education rather than a system that issues violence while portending (with the best media money can buy) that they claim the higher ground.

animalogic , December 13, 2017 at 2:57 pm GMT
@Wally

""Democracy can only work until the people figure out they can vote for themselves generous benefits from the public treasury." We are definitely in this situation today."

Quite right: the 0.01% have worked it out & US democracy is a Theatre for the masses.

Reg Cæsar , December 13, 2017 at 3:08 pm GMT

They elected militarists and demagogues as their new presidents.

Wilson and FDR were much more militarist and demagogic than those that followed.

Reg Cæsar , December 13, 2017 at 3:20 pm GMT
@whyamihere

I don't know who said it but someone long ago said something along the lines of, "Democracy can only work until the people figure out they can vote for themselves generous benefits from the public treasury."

Some French aristocrat put it as, once the gates to the treasury have been breached, they can only be closed again with gunpowder. Anyone recognize the author?

phil , December 13, 2017 at 4:48 pm GMT
The author doesn't get it. What we have now IS the welfare state in an intensely diverse society. We have more transfer spending than ever before and Obamacare represents another huge entitlement.

Intellectuals continue to fantasize about the US becoming a Big Sweden, but Sweden has only been successful insofar as it has been a modest nation-state populated by ethnic Swedes. Intense diversity in a huge country with only the remnants of federalism results in massive non-consensual decision-making, fragmentation, increased inequality, and corruption.

HallParvey , December 13, 2017 at 4:57 pm GMT
@Anonymous

The welfare state is alive and well for corporate America. Unions are still here – but they are defined by access and secrecy, you're either in the club or not.

They are largely defined as Doctors, Lawyers, and University Professors who teach the first two. Of course they are not called unions. Access is via credentialing and licensing. Good Day

Anonymous , Disclaimer December 13, 2017 at 4:57 pm GMT
@Linda Green

Bernie Sanders, speaking on behalf of the MIC's welfare bird: "It is the airplane of the United States Air Force, Navy, and of NATO."

Elizabeth Warren, referring to Mossad's Estes Rockets: "The Israeli military has the right to attack Palestinian hospitals and schools in self defense"

Barack Obama, yukking it up with pop stars: "Two words for you: predator drones. You will never see it coming."

It's not the agitprop that confuses the sheep, it's whose blowhole it's coming out of (labled D or R for convenience) that gets them to bare their teeth and speak of poo.

Anonymous , Disclaimer December 13, 2017 at 5:54 pm GMT
@HallParvey

What came first, the credentialing or the idea that it is a necessary part of education? It certainly isn't an accurate indication of what people know or their general intelligence – although that myth has flourished. Good afternoon.

Logan , December 13, 2017 at 9:10 pm GMT
@Realist

For an interesting projection of what might happen in total civilizational collapse, I recommend the Dies the Fire series of novels by SM Stirling.

It has a science-fictiony setup in that all high-energy system (gunpowder, electricity, explosives, internal combustion, even high-energy steam engines) suddenly stop working. But I think it does a good job of extrapolating what would happen if suddenly the cities did not have food, water, power, etc.

Spoiler alert: It ain't pretty. Those who dream of a world without guns have not really thought it through.

Logan , December 13, 2017 at 9:19 pm GMT
@phil

It has been pointed out repeatedly that Sweden does very well relative to the USA. It has also been noted that people of Swedish ancestry in the USA do pretty well also. In fact considerably better than Swedes in Sweden

[Dec 15, 2017] Neoliberalism undermines workers health not only via the financial consequences of un/under employment and low wages, but also through chronic exposure to stress due to insecurity

Neoliberalism as "Die-now economics." "Embodiment into lower class" or "the representation as a member the lower class" if often fatal and upper mobility mobility is artificially limited (despite all MSM hype it is lower then in Europe). So just being a member of lower class noticeably and negatively affects your life expectancy and other social metrics. Job insecurity is the hazard reserved for lower and lower middle classes destructivly effect both physical and mental health. Too much stress is not good for humans. Neoliberalism with its manta of competition uber alles and atomization of the workforce is a real killer. also the fact that such article was published and the comments below is a clear sign that the days of neoliberalism are numbered. It should go.
Notable quotes:
"... In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. ..."
"... Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways . ..."
"... Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything. ..."
"... "Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning. ..."
"... Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve." ..."
"... As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I". ..."
"... Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings ..."
"... "we have measurable health outcomes from political choices" So True!!! ..."
Dec 12, 2017 | www.nakedcapitalism.com

...Neoliberal epidemics are particular pathways of embodiment. From Ted Schrecker and Clare Bambra in The Conversation :

In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. They are epidemics because they are observable on such an international scale and have been transmitted so quickly across time and space that if they were biological contagions they would be seen as of epidemic proportions.

(The Case-Deaton study provides an obvious fifth: Deaths of despair. There are doubtless others.) Case in point for one of the unluckier members of the 90%:

On the morning of 25 August 2014 a young New Jersey woman, Maria Fernandes, died from inhaling gasoline fumes as she slept in her 13-year-old car. She often slept in the car while shuttling between her three, low-wage jobs in food service; she kept a can of gasoline in the car because she often slept with the engine running, and was worried about running out of gasoline. Apparently, the can accidentally tipped over and the vapours from spilled gasoline cost her life. Ms Fernandes was one of the more obvious casualties of the zero-hours culture of stress and insecurity that pervades the contemporary labour market under neoliberalism.

And Schrecker and Bambra conclude:

Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways .

... ... ...

Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything.

nonclassical , December 11, 2017 at 8:30 pm

L.S. reminiscent of Ernst Becker's, "The Structure of Evil" – "Escape from Evil"? (..not to indicate good vs. evil dichotomy) A great amount of perspective must be agreed upon to achieve "change" intoned. Divide and conquer are complicit, as noted .otherwise (and as indicated by U.S. economic history) change arrives only when all have lost all and can therefore agree begin again.

There is however, Naomi Klein perspective, "Shock Doctrine", whereby influence contributes to destabilization, plan in hand leading to agenda driven ("neoliberal"=market fundamentalism) outcome, not at all spontaneous in nature:

"Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve."

Amfortas the Hippie , December 11, 2017 at 4:20 pm

Well done, as usual.

On Case-Deason: Sounds like home. I keep the scanner on(local news) ems and fire only since 2006(sheriff got a homeland security grant). The incidence of suicide, overdose and "intoxication psychosis" are markedly increased in the last 10+ years out here in the wilderness(5K folks in whole county, last I looked). Our local economy went into near depression after the late 90's farm bill killed the peanut program then 911 meant no hunting season that year(and it's been noticeably less busy ever since) then drought and the real estate crash(we had 30 some realtors at peak..old family land being sold off, mostly). So the local Bourgeoisie have had less money to spend, which "trickles down" onto the rest of us.:less construction, less eating out even at the cheap places, less buying of gas, and on and on means fewer employees are needed, thus fewer jobs. To boot, there is a habit among many employers out here of not paying attention to labor laws(it is Texas ) the last minwage rise took 2 years to filter out here, and one must scrutinize one's pay stub to ensure that the boss isn't getting squirrelly with overtime and witholding.
Geography plays into all this, too 100 miles to any largish city.

... ... ...

Rosario , December 11, 2017 at 10:55 pm

I'm not well versed in Foucault or Lacan but I've read some of both and in reading between the lines of their writing (the phantom philosophy?) I saw a very different message than that often delivered by post-modern theorists.

As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I".

Considering what both their philosophies claimed, if identity is a lie, and the subject is always generated relative to the other, then how the hell can there be any security or well being in self-actualization? It is like trying to hit a target that does not exist.

All potentially oppressive cultural categorizations are examples of this (black, latino, gay, trans, etc.). If the identity is a moving target, both to the oppressor and the oppressed, then how can it ever be a singular source of political action? You can't hit what isn't there. This is not to say that these groups (in whatever determined category) are not oppressed, just that formulating political action based strictly on the identity (often as an essential category) is impossible because it does not actually exist materially. It is an amalgamation of subjects who's subjectivity is always relative to some other whether ally or oppressor. Only the manifestations of oppression on bodies (as brought up in Lambert's post) can be utilized as metrics for political action.

... ... ...

Lambert Strether Post author , December 11, 2017 at 11:20 pm

I thought of a couple of other advantages of the "embodiment" paradigm:

Better Framing . Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings *) and disempowering (solutions are individual, like therapy or drugs). Embodiment by contrast insists that neoliberalism (the neoliberal labor market (class warfare)) has real, material, physiological effects that can be measured and tracked, as with any epidemic.

... ... ...

oaf , December 12, 2017 at 7:11 am

"we have measurable health outcomes from political choices" So True!!!

Thank you for posting this.

[Dec 14, 2017] Tech Giants Trying to Use WTO to Colonize Emerging Economies

Notable quotes:
"... The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers. ..."
"... By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy ..."
"... Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation. ..."
"... One suspects big money will be thrown at this by the leading tech giants. ..."
"... Out of idle curiosity, how could you accurately deduce my country of origin from my name? ..."
Dec 14, 2017 | www.nakedcapitalism.com

December 14, 2017 by Yves Smith Yves here. Notice that Costa Rica is served up as an example in this article. Way back in 1997, American Express had designated Costa Rica as one of the countries it identified as sufficiently high income so as to be a target for a local currency card offered via a franchise agreement with a domestic institution (often but not always a bank). 20 years later, the Switzerland of Central America still has limited Internet connectivity, yet is precisely the sort of place that tech titans like Google would like to dominate.

The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers.

By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy

Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation.

n a few weeks' time, trade ministers from 164 countries will gather in Buenos Aires for the 11th World Trade Organization (WTO) Ministerial Conference (MC11). US President Donald Trump in November issued fresh accusations of unfair treatment towards the US by WTO members , making it virtually impossible for trade ministers to leave the table with any agreement in substantial areas.

To avoid a 'failure ministerial," some countries see the solution as pushing governments to open a mandate to start conversations that might lead to a negotiation on binding rules for e-commerce and a declaration of the gathering as the "digital ministerial". Argentina's MC11 chair, Susana Malcorra, is actively pushing for member states to embrace e-commerce at the WTO, claiming that it is necessary to " bridge the gap between the haves and have-nots ".

It is not very clear what kind of gaps Malcorra is trying to bridge. It surely isn't the "connectivity gap" or "digital divide" that is growing between developed and developing countries, seriously impeding digital learning and knowledge in developing countries. In fact, half of humanity is not even connected to the internet, let alone positioned to develop competitive markets or bargain at a multilateral level. Negotiating binding e-commerce rules at the WTO would only widen that gap.

Dangerously, the "South Vision" of digital trade in the global trade arena is being shaped by a recent alliance of governments and well-known tech-sector lobbyists, in a group called 'Friends of E-Commerce for Development' (FED), including Argentina, Chile, Colombia, Costa Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, Uruguay, and, most recently, China. FED claims that e-commerce is a tool to drive growth, narrow the digital divide, and generate digital solutions for developing and least developed countries.

However, none of the countries in the group (apart from China) is leading or even remotely ready to be in a position to negotiate and push for binding rules on digital trade that will be favorable to them, as their economies are still far away from the technology revolution. For instance, it is perplexing that one of the most fervent defenders of FED's position is Costa Rica. The country's economy is based on the export of bananas, coffee, tropical fruits, and low-tech medical instruments, and almost half of its population is offline . Most of the countries in FED are far from being powerful enough to shift negotiations in favor of small players.

U.S.-based tech giants and Chinese Alibaba – so-called GAFA-A – dominate, by far, the future of the digital playing field, including issues such as identification and digital payments, connectivity, and the next generation of logistics solutions. In fact, there is a no-holds-barred ongoing race among these tech giants to consolidate their market share in developing economies, from the race to grow the advertising market to the race to increase online payments.

An e-commerce agenda that claims unprecedented development for the Global South is a Trojan horse move. Beginning negotiations on such topics at this stage – before governments are prepared to understand what is at stake – could lead to devastating results, accelerating liberalization and the consolidation of the power of tech giants to the detriment of local industries, consumers, and citizens. Aware of the increased disparities between North and South, and the data dominance of a tiny group of GAFA-A companies, a group of African nations issued a statement opposing the digital ambitions of the host for MC11. But the political landscape is more complex, with China, the EU, and Russia now supporting the idea of a "digital" mandate .

Repeating the Same Mistakes?

The relationships of most countries with tech companies are as imbalanced as their relationships with Big Pharma, and there are many parallels to note. Not so long ago, the countries of the Global South faced Big Pharma power in pharmaceutical markets in a similar way. Some developing countries had the same enthusiasm when they negotiated intellectual property rules for the protection of innovation and research and development costs. In reality, those countries were nothing more than users and consumers of that innovation, not the owners or creators. The lessons of negotiating trade issues that lie at the core of public interest issues – in that case, access to medicines – were costly. Human lives and fundamental rights of those who use online services should not be forgotten when addressing the increasingly worrying and unequal relationships with tech power.

The threat before our eyes is similarly complex and equally harmful to the way our societies will be shaped in the coming years. In the past, the Big Pharma race was for patent exclusivity, to eliminate local generic production and keep drug prices high. Today, the Big Tech race is for data extractivism from those who have yet to be connected in the world, and tech companies will use all the power they hold to achieve a global regime in which small nations cannot regulate either data extraction or data localization.

Big Tech is one of the most concentrated and resourceful industries of all time. The bargaining power of developing countries is minimal. Developing countries will basically be granting the right to cultivate small parcels of a land controlled by data lords -- under their rules, their mandate, and their will -- with practically no public oversight. The stakes are high. At the core of it is the race to conquer the markets of digital payments and the battle to become the platform where data flows, splitting the territory as old empires did in the past. As the Economist claimed on May 6, 2017: "Conflicts over control of oil have scarred the world for decades. No one yet worries that wars will be fought over data. But the data economy has the same potential for confrontation."

If countries from the Global South want to prepare for data wars, they should start thinking about how to reduce the control of Big Tech over -- how we communicate, shop, and learn the news -- , again, over our societies. The solution lies not in making rules for data liberalization, but in devising ways to use the law to reduce Big Tech's power and protect consumers and citizens. Finding the balance would take some time and we are going to take that time to find the right balance, we are not ready to lock the future yet.

Jef , December 14, 2017 at 11:32 am

I thought thats what the WTO is for?

Thuto , December 14, 2017 at 2:14 pm

One suspects big money will be thrown at this by the leading tech giants. To paraphrase from a comment I made recently regarding a similar topic : "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world". With this dynamic in mind, and the "constant growth" mantra humming incessantly in the background, it's easy to see how high stakes a game this is for the tech giants and how no resources will be spared to stymie any efforts at establishing a regulatory oversight framework that will protect the digital rights of citizens in the global south.

Multilateral fora like the WTO are de facto enablers for the marauding frontal attacks of transnational corporations, and it's disheartening to see that some developing nations have already nailed the digital futures of their citizens to the mast of the tech giants by joining this alliance. What's more, this signing away of their liberty will be sold to the citizenry as the best way to usher them into the brightest of all digital futures.

Mark P. , December 14, 2017 at 3:30 pm

One suspects big money will be thrown at this by the leading tech giants.

Vast sums of money are already being thrown at bringing Africa online, for better or worse. Thus, the R&D aimed at providing wireless Internet via giant drones/balloons/satellites by Google, Facebook, etc.

You're African. Possibly South African by your user name, which may explain why you're a little behind the curve, because the action is already happening, but more to the north -- and particularly in East Africa.

The big corporations -- and the tech giants are competing with the banking/credit card giants -- have noted how mobile technology leapt over the dearth of last century's telephony tech, land lines, and in turn enabled the highest adoption rates of cellphone banking in the world. (Particularly in East Africa, as I say.) The payoffs for big corporations are massive -- de facto cashless societies where the corporations control the payment systems –and the politicians are mostly cheap.

In Nigeria, the government has launched a Mastercard-branded national ID card that's also a payment card, in one swoop handing Mastercard more than 170 million potential customers, and their personal and biometric data.

In Kenya, the sums transferred by mobile money operator M-Pesa are more than 25 percent of that country's GDP.

You can see that bringing Africa online is technically a big, decade-long project. But also that the potential payoffs are vast. Though I also suspect China may come out ahead -- they're investing far more in Africa and in some areas their technology -- drones, for instance -- is already superior to what the Europeans and the American companies have.

Thuto , December 14, 2017 at 4:58 pm

Thank you Mark P.

Hoisted from a comment I made here recently: "Here in South Africa and through its Free Basics programme, facebook is jumping into bed with unsuspecting ISPs (I say unsuspecting because fb will soon be muscling in on their territory and becoming an ISP itself by provisioning bandwidth directly from its floating satellites) and circumventing net neutrality "

I'm also keenly aware of the developments in Kenya re: safaricom and Mpesa and how that has led to traditional banking via bank accounts being largely leapfrogged for those moving from being unbanked to active economic citizens requiring money transfer facilities. Given the huge succes of Mpesa, I wouldn't be surprised if a multinational tech behemoth (chinese or american) were to make a play for acquiring safaricom and positioning it as a triple-play ISP, money transfer/banking services and digital content provider (harvesting data about users habits on an unprecedented scale across multiple areas of their lives), first in Kenya then expanded throughout east, central and west africa. I must add that your statement about Nigeria puts Mark Zuckerberg's visit there a few months back into context somewhat, perhaps a reconnaissance mission of sorts.

Out of idle curiosity, how could you accurately deduce my country of origin from my name?

Mark P. , December 14, 2017 at 6:59 pm

Out of idle curiosity, how could you accurately deduce my country of origin from my name?

Though I've lived in California for decades, my mother was South African and I maintain a UK passport, having grown up in London.

Mark P. , December 14, 2017 at 3:34 pm

As you also write: "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world."

Absolutely true. This cannot be stressed enough. The tech giants know this and the race is on.

Mattski , December 14, 2017 at 3:41 pm

Been happening with food for 50 years.

[Dec 13, 2017] Stress of long-term unemployment takes a toll on thousands of Jerseyans who are out of work by Leslie Kwoh

Notable quotes:
"... Leslie Kwoh may be reached at lkwoh@starledger.com or (973) 392-4147. ..."
Jun 13, 2010 | www.nj.com

At 5:30 every morning, Tony Gwiazdowski rolls out of bed, brews a pot of coffee and carefully arranges his laptop, cell phone and notepad like silverware across the kitchen table.

And then he waits.

Gwiazdowski, 57, has been waiting for 16 months. Since losing his job as a transportation sales manager in February 2009, he wakes each morning to the sobering reminder that, yes, he is still unemployed. So he pushes aside the fatigue, throws on some clothes and sends out another flurry of resumes and cheery cover letters.

But most days go by without a single phone call. And around sundown, when he hears his neighbors returning home from work, Gwiazdowski -- the former mayor of Hillsborough -- can't help but allow himself one tiny sigh of resignation.

"You sit there and you wonder, 'What am I doing wrong?'" said Gwiazdowski, who finds companionship in his 2-year-old golden retriever, Charlie, until his wife returns from work.

"The worst moment is at the end of the day when it's 4:30 and you did everything you could, and the phone hasn't rung, the e-mails haven't come through."

Gwiazdowski is one of a growing number of chronically unemployed workers in New Jersey and across the country who are struggling to get through what is becoming one long, jobless nightmare -- even as the rest of the economy has begun to show signs of recovery.

Nationwide, 46 percent of the unemployed -- 6.7 million Americans -- have been without work for at least half a year, by far the highest percentage recorded since the U.S. Labor Department began tracking the data in 1948.

In New Jersey, nearly 40 percent of the 416,000 unemployed workers last year fit that profile, up from about 20 percent in previous years, according to the department, which provides only annual breakdowns for individual states. Most of them were unemployed for more than a year.

But the repercussions of chronic unemployment go beyond the loss of a paycheck or the realization that one might never find the same kind of job again. For many, the sinking feeling of joblessness -- with no end in sight -- can take a psychological toll, experts say.

Across the state, mental health crisis units saw a 20 percent increase in demand last year as more residents reported suffering from unemployment-related stress, according to the New Jersey Association of Mental Health Agencies.

"The longer the unemployment continues, the more impact it will have on their personal lives and mental health," said Shauna Moses, the association's associate executive director. "There's stress in the marriage, with the kids, other family members, with friends."

And while a few continue to cling to optimism, even the toughest admit there are moments of despair: Fear of never finding work, envy of employed friends and embarassment at having to tell acquaintances that, nope, still no luck.

"When they say, 'Hi Mayor,' I don't tell a lot of people I'm out of work -- I say I'm semi-retired," said Gwiazdowski, who maxed out on unemployment benefits several months ago.

"They might think, 'Gee, what's wrong with him? Why can't he get a job?' It's a long story and maybe people really don't care and now they want to get away from you."


SECOND TIME AROUND

Lynn Kafalas has been there before, too. After losing her computer training job in 2000, the East Hanover resident took four agonizing years to find new work -- by then, she had refashioned herself into a web designer.

That not-too-distant experience is why Kafalas, 52, who was laid off again eight months ago, grows uneasier with each passing day. Already, some of her old demons have returned, like loneliness, self-doubt and, worst of all, insomnia. At night, her mind races to dissect the latest interview: What went wrong? What else should she be doing? And why won't even Barnes & Noble hire her?

"It's like putting a stopper on my life -- I can't move on," said Kafalas, who has given up karate lessons, vacations and regular outings with friends. "Everything is about the interviews."

And while most of her friends have been supportive, a few have hinted to her that she is doing something wrong, or not doing enough. The remarks always hit Kafalas with a pang.

In a recent study, researchers at Rutgers University found that the chronically unemployed are prone to high levels of stress, anxiety, depression, loneliness and even substance abuse, which take a toll on their self-esteem and personal relationships.

"They're the forgotten group," said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers, and a co-author of the report. "And the longer you are unemployed, the less likely you are to get a job."

Of the 900 unemployed workers first interviewed last August for the study, only one in 10 landed full-time work by March of this year, and only half of those lucky few expressed satisfaction with their new jobs. Another one in 10 simply gave up searching.

Among those who were still unemployed, many struggled to make ends meet by borrowing from friends or family, turning to government food stamps and forgoing health care, according to the study.

More than half said they avoided all social contact, while slightly less than half said they had lost touch with close friends. Six in 10 said they had problems sleeping.

Kafalas says she deals with her chronic insomnia by hitting the gym for two hours almost every evening, lifting weights and pounding the treadmill until she feels tired enough to fall asleep.

"Sometimes I forget what day it is. Is it Tuesday? And then I'll think of what TV show ran the night before," she said. "Waiting is the toughest part."


AGE A FACTOR

Generally, the likelihood of long-term unemployment increases with age, experts say. A report by the National Employment Law Project this month found that nearly half of those who were unemployed for six months or longer were at least 45 years old. Those between 16 and 24 made up just 14 percent.

Tell that to Adam Blank, 24, who has been living with his girlfriend and her parents at their Martinsville home since losing his sales job at Best Buy a year and half ago.

Blank, who graduated from Rutgers with a major in communications, says he feels like a burden sometimes, especially since his girlfriend, Tracy Rosen, 24, works full-time at a local nonprofit. He shows her family gratitude with small chores, like taking out the garbage, washing dishes, sweeping floors and doing laundry.

Still, he often feels inadequate.

"All I'm doing on an almost daily basis is sitting around the house trying to keep myself from going stir-crazy," said Blank, who dreams of starting a social media company.

When he is feeling particularly low, Blank said he turns to a tactic employed by prisoners of war in Vietnam: "They used to build dream houses in their head to help keep their sanity. It's really just imagining a place I can call my own."


LESSONS LEARNED

Meanwhile, Gwiazdowski, ever the optimist, says unemployment has taught him a few things.

He has learned, for example, how to quickly assess an interviewer's age and play up or down his work experience accordingly -- he doesn't want to appear "threatening" to a potential employer who is younger. He has learned that by occasionally deleting and reuploading his resume to job sites, his entry appears fresh.

"It's almost like a game," he said, laughing. "You are desperate, but you can't show it."

But there are days when he just can't find any humor in his predicament -- like when he finishes a great interview but receives no offer, or when he hears a fellow job seeker finally found work and feels a slight twinge of jealousy.

"That's what I'm missing -- putting on that shirt and tie in the morning and going to work," he said.

The memory of getting dressed for work is still so vivid, Gwiazdowski says, that he has to believe another job is just around the corner.

"You always have to hope that that morning when you get up, it's going to be the day," he said.

"Today is going to be the day that something is going to happen."

Leslie Kwoh may be reached at lkwoh@starledger.com or (973) 392-4147.

DrBuzzard Jun 13, 2010

I collect from the state of iowa, was on tier I and when the gov't recessed without passing extension, iowa stopped paying tier I claims that were already open, i was scheduled to be on tier I until july 15th, and its gone now, as a surprise, when i tried to claim my week this week i was notified. SURPRISE, talk about stress.

berganliz Jun 13, 2010

This is terrible....just wait until RIF'd teachers hit the unemployment offices....but then, this is what NJ wanted...fired teachers who are to blame for the worst recession our country has seen in 150 years...thanks GWB.....thanks Donald Rumsfeld......thanks Dick Cheney....thanks Karl "Miss Piggy" Rove...and thank you Mr. Big Boy himself...Gov Krispy Kreame!

rp121 Jun 13, 2010

For readers who care about this nation's unemployed- Call your Senators to pass HR 4213, the "Extenders" bill. Unfortunately, it does not add UI benefits weeks, however it DOES continue the emergency federal tiers of UI. If it does not pass this week many of us are cut off at 26 wks. No tier 1, 2 -nothing.

[Dec 13, 2017] Unemployment health hazard and stress

The longer you are unemployed, the more you are effected by those factors.
Notable quotes:
"... The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects. ..."
"... Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system. ..."
"... Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises. ..."
"... Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem. ..."
"... One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available. ..."
"... Depression is universally hated by anyone who's ever had it. ..."
"... Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either. ..."
"... You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard. ..."
Dec 13, 2017 | www.cvtips.com

It's almost impossible to describe the various psychological impacts, because there are so many. There are sometimes serious consequences, including suicide, and, some would say worse, chronic depression.

There's not really a single cause and effect. It's a compound effect, and unemployment, by adding stress, affects people, often badly.

The world doesn't need any more untrained psychologists, and we're not pretending to give medical advice. That's for professionals. Everybody is different, and their problems are different. What we can do is give you an outline of the common problems, and what you can do about them.

The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects.

For others, there are a series of issues, and the big three are:

Stress

Stress is Stage One. It's a natural result of the situation. Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system.

Over an extended period, the body's natural hormonal balances are affected, and this can lead to problems. These are actually physical issues, but the effects are mental, and the first obvious effects are, naturally, emotional.

Anger, and other negative emotions

Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises.

If the actual situation was already bad, this mental state makes it a lot worse. Constant aggravation doesn't help people to keep a sense of perspective. Clear thinking isn't easy when under constant stress.

Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem.

One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available.

If you have reservations about seeking help, bear in mind it can't possibly be any worse than the problem.

Depression

Depression is universally hated by anyone who's ever had it. This is the next stage, and it's caused by hormonal imbalances which affect serotonin. It's actually a physical problem, but it has mental effects which are sometimes devastating, and potentially life threatening.

The common symptoms are:

It's a disgusting experience. No level of obscenity could possibly describe it. Depression is misery on a level people wouldn't conceive in a nightmare. At this stage the patient needs help, and getting it is actually relatively easy. It's convincing the person they need to do something about it that's difficult. Again, the mental state is working against the person. Even admitting there's a problem is hard for many people in this condition.

Generally speaking, a person who is trusted is the best person to tell anyone experiencing the onset of depression to seek help. Important: If you're experiencing any of those symptoms:

Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either.

Alcohol, in particular, makes depression much worse. Alcohol is a depressant, itself, and it's also a nasty chemical mix with all those stress hormones.

If you've ever had alcohol problems, or seen someone with alcohol wrecking their lives, depression makes things about a million times worse.

Just don't do it. Steer clear of any so-called stimulants, because they don't mix with antidepressants, either.

Unemployment and staying healthy

The above is what you need to know about the risks of unemployment to your health and mental well being.

These situations are avoidable.

Your best defense against the mental stresses and strains of unemployment, and their related problems is staying healthy.

We can promise you that is nothing less than the truth. The healthier you are, the better your defenses against stress, and the more strength you have to cope with situations.

Basic health is actually pretty easy to achieve:

Diet

Eat real food, not junk, and make sure you're getting enough food. Your body can't work with resources it doesn't have. Good food is a real asset, and you'll find you don't get tired as easily. You need the energy reserves.

Give yourself a good selection of food that you like, that's also worth eating.

The good news is that plain food is also reasonably cheap, and you can eat as much as you need. Basic meals are easy enough to prepare, and as long as you're getting all the protein veg and minerals you need, you're pretty much covered.

You can also use a multivitamin cap, or broad spectrum supplements, to make sure you're getting all your trace elements. Also make sure you're getting the benefits of your food by taking acidophilus or eating yogurt regularly.

Exercise

You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard.

Don't just sit and suffer

If anything's wrong, check it out when it starts, not six months later. Most medical conditions become serious when they're allowed to get worse.

For unemployed people the added risk is also that they may prevent you getting that job, or going for interviews. If something's causing you problems, get rid of it.

Nobody who's been through the blender of unemployment thinks it's fun.

Anyone who's really done it tough will tell you one thing:

Don't be a victim. Beat the problem, and you'll really appreciate the feeling.

[Dec 12, 2017] Can Uber Ever Deliver Part Eleven Annual Uber Losses Now Approaching $5 Billion

Notable quotes:
"... Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%. This was an effective $500 million wealth transfer from drivers to Uber's investors. ..."
"... Uber's P&L gains were wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in any improvement in Uber profit margins. ..."
"... In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing drivers an additional $3 billion. [6] Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a week. ..."
"... An independent study of the net earnings of Uber drivers (after accounting for the costs of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range. [7] Multiple recent news reports have documented how Uber drivers are increasing unable to support themselves from their reduced share of passenger payments. [8] ..."
"... Since mass driver defections would cause passenger volume growth to collapse completely, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017. ..."
"... Socialize the losses, privatize the gains, VC-ize the subsidies. ..."
"... The cold hard truth is that Uber is backed into a corner with severely limited abilities to tweak the numbers on either the supply or the demand side: cut driver compensation and they trigger driver churn (as has already been demonstrated), increase fare prices for riders and riders defect to cheaper alternatives. ..."
"... "Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype brilliance" was to con the market with "revenue growth" and signs ..."
Dec 12, 2017 | www.nakedcapitalism.com

Uber lost $2.5 billion in 2015, probably lost $4 billion in 2016, and is on track to lose $5 billion in 2017.

The top line on the table below shows is total passenger payments, which must be split between Uber corporate and its drivers. Driver gross earnings are substantially higher than actual take home pay, as gross earning must cover all the expenses drivers bear, including fuel, vehicle ownership, insurance and maintenance.

Most of the "profit" data released by Uber over time and discussed in the press is not true GAAP (generally accepted accounting principles) profit comparable to the net income numbers public companies publish but is EBIDTAR contribution. Companies have significant leeway as to how they calculate EBIDTAR (although it would exclude interest, taxes, depreciation, amortization) and the percentage of total costs excluded from EBIDTAR can vary significantly from quarter to quarter, given the impact of one-time expenses such as legal settlements and stock compensation. We only have true GAAP net profit results for 2014, 2015 and the 2nd/3rd quarters of 2017, but have EBIDTAR contribution numbers for all other periods. [5]

Uber had GAAP net income of negative $2.6 billion in 2015, and a negative profit margin of 132%. This is consistent with the negative $2.0 billion loss and (143%) margin for the year ending September 2015 presented in part one of the NC Uber series over a year ago.

No GAAP profit results for 2016 have been disclosed, but actual losses likely exceed $4 billion given the EBIDTAR contribution of negative $3.2 billion. Uber's GAAP losses for the 2nd and 3rd quarters of 2017 were over $2.5 billion, suggesting annual losses of roughly $5 billion.

While many Silicon Valley funded startups suffered large initial losses, none of them lost anything remotely close to $2.6 billion in their sixth year of operation and then doubled their losses to $5 billion in year eight. Reversing losses of this magnitude would require the greatest corporate financial turnaround in history.

No evidence of significant efficiency/scale gains; 2015 and 2016 margin improvements entirely explained by unilateral cuts in driver compensation, but losses soared when Uber had to reverse these cuts in 2017.

Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%. This was an effective $500 million wealth transfer from drivers to Uber's investors. These driver compensation cuts improved Uber's EBIDTAR margin, but Uber's P&L gains were wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in any improvement in Uber profit margins.

In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing drivers an additional $3 billion. [6] Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a week.

An independent study of the net earnings of Uber drivers (after accounting for the costs of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range. [7] Multiple recent news reports have documented how Uber drivers are increasing unable to support themselves from their reduced share of passenger payments. [8]

A business model where profit improvement is hugely dependent on wage cuts is unsustainable, especially when take home wages fall to (or below) minimum wage levels. Uber's primary focus has always been the rate of growth in gross passenger revenue, as this has been a major justification for its $68 billion valuation. This growth rate came under enormous pressure in 2017 given Uber efforts to raise fares, major increases in driver turnover as wages fell, [9] and the avalanche of adverse publicity it was facing.

Since mass driver defections would cause passenger volume growth to collapse completely, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017.

MKS , December 12, 2017 at 6:19 am

"Uber's business model can never produce sustainable profits"

Two words not in my vocabulary are "Never" and "Always", that is a pretty absolute statement in an non-absolute environment. The same environment that has produced the "Silicon Valley Growth Model", with 15x earnings companies like NVIDA, FB and Tesla (Average earnings/stock price ratio in dot com bubble was 10x) will people pay ridiculous amounts of money for a company with no underlying fundamentals you damn right they will! Please stop with the I know all no body knows anything, especially the psychology and irrationality of markets which are made up of irrational people/investors/traders.

JohnnySacks , December 12, 2017 at 7:34 am

My thoughts exactly. Seems the only possible recovery for the investors is a perfectly engineered legendary pump and dump IPO scheme. Risky, but there's a lot of fools out there and many who would also like to get on board early in the ride in fear of missing out on all the money to be hoovered up from the greater fools. Count me out.

SoCal Rhino , December 12, 2017 at 8:30 am

The author clearly distinguishes between GAAP profitability and valuations, which is after all rather the point of the series. And he makes a more nuanced point than the half sentence you have quoted without context or with an indication that you omitted a portion. Did you miss the part about how Uber would have a strong incentive to share the evidence of a network effect or other financial story that pointed the way to eventual profit? Otherwise (my words) it is the classic sell at a loss, make it up with volume path to liquidation.

tegnost , December 12, 2017 at 9:52 am

apples and oranges comparison, nvidia has lots and lots of patented tech that produces revenue, facebook has a kajillion admittedly irrational users, but those users drive massive ad sales (as just one example of how that company capitalizes itself) and tesla makes an actual car, using technology that inspires it's buyers (the put your money where your mouth is crowd and it can't be denied that tesla, whatever it's faults are, battery tech is not one of them and that intellectual property is worth a lot, and tesla's investors are in on that real business, profitable or otherwise)

Uber is an iphone app. They lose money and have no path to profitability (unless it's the theory you espouse that people are unintelligent so even unintelligent ideas work to fleece them). This article touches on one of the great things about the time we now inhabit, uber drivers could bail en masse, there are two sides to the low attachment employees who you can get rid of easily. The drivers can delete the uber app as soon as another iphone app comes along that gets them a better return

allan , December 12, 2017 at 6:52 am

Yet another source (unintended) of subsidies for Uber, Lyft, etc., which might or might not have been mentioned earlier in the series:

Airports Are Losing Money as Ride-Hailing Services Grow [NYT]

For many air travelers, getting to and from the airport has long been part of the whole miserable experience. Do they drive and park in some distant lot? Take mass transit or a taxi? Deal with a rental car?

Ride-hailing services like Uber and Lyft are quickly changing those calculations. That has meant a bit less angst for travelers.

But that's not the case for airports. Travelers' changing habits, in fact, have begun to shake the airports' financial underpinnings. The money they currently collect from ride-hailing services do not compensate for the lower revenues from the other sources.

At the same time, some airports have had to add staff to oversee the operations of the ride-hailing companies, the report said. And with more ride-hailing vehicles on the roads outside terminals,
there's more congestion.

Socialize the losses, privatize the gains, VC-ize the subsidies.

Thuto , December 12, 2017 at 6:55 am

The cold hard truth is that Uber is backed into a corner with severely limited abilities to tweak the numbers on either the supply or the demand side: cut driver compensation and they trigger driver churn (as has already been demonstrated), increase fare prices for riders and riders defect to cheaper alternatives. The only question is how long can they keep the show going before the lights go out, slick marketing and propaganda can only take you so far, and one assumes the dumb money has a finite supply of patience and will at some point begin asking the tough questions.

Louis Fyne , December 12, 2017 at 8:35 am

The irony is that Uber would have been a perfectly fine, very profitable mid-sized company if Uber stuck with its initial model -- sticking to dense cities with limited parking, limiting driver supply, and charging a premium price for door-to-door delivery, whether by livery or a regular sedan. And then perhaps branching into robo-cars.

But somehow Uber/board/Travis got suckered into the siren call of self-driving cars, triple-digit user growth, and being in the top 100 US cities and on every continent.

Thuto , December 12, 2017 at 11:30 am

I've shared a similar sentiment in one of the previous posts about Uber. But operating profitably in decent sized niche doesn't fit well with ambitions of global domination. For Uber to be "right-sized", an admission of folly would have to be made, its managers and investors would have to transcend the sunk cost fallacy in their strategic decision making, and said investors would have to accept massive hits on their invested capital. The cold, hard reality of being blindsided and kicked to the curb in the smartphone business forced RIM/Blackberry to right-size, and they may yet have a profitable future as an enterprise facing software and services company. Uber would benefit from that form of sober mindedness, but I wouldn't hold my breath.

David Carl Grimes , December 12, 2017 at 6:57 am

The question is: Why did Softbank invest in Uber?

Michael Fiorillo , December 12, 2017 at 9:33 am

I know nothing about Softbank or its management, but I do know that the Japanese were the dumb money rubes in the late '80's, overpaying for trophy real estate they lost billions on.

Until informed otherwise, that's my default assumption

JimTan , December 12, 2017 at 10:50 am

Softbank possibly looking to buy more Uber shares at a 30% discount is very odd. Uber had a Series G funding round in June 2016 where a $3.5 billion investment from Saudi Arabia's Public Investment Fund resulted in its current $68 billion valuation. Now apparently Softbank wants to lead a new $6 billion funding round to buy the shares of Uber employees and early investors at a 30% discount from this last "valuation". It's odd because Saudi Arabia's Public Investment Fund has pledged $45 billion to SoftBank's Vision Fund , an amount which was supposed to come from the proceeds of its pending Aramco IPO. If the Uber bid is linked to SoftBank's Vision Fund, or KSA money, then its not clear why this investor might be looking to literally 'double down' from $3.5 billion o $6 billion on a declining investment.

Yves Smith Post author , December 12, 2017 at 11:38 am

SoftBank has not yet invested. Its tender is still open. If it does not get enough shares at a price it likes, it won't invest.

As to why, I have no idea.

Robert McGregor , December 12, 2017 at 7:04 am

"Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype brilliance" was to con the market with "revenue growth" and signs of efficiency, and hopes of greater efficiency, and make most people just overlook the essential fact that Uber is the most unprofitable company of all time!

divadab , December 12, 2017 at 7:19 am

What comprises "Uber Expenses"? 2014 – $1.06 billion; 2015 $3.33 billion; 2016 $9.65 billion; forecast 2017 $11.418 billion!!!!!! To me this is the big question – what are they spending $10 billion per year on?

ALso – why did driver share go from 68% in 2016 to 80% in 2017? If you use 68% as in 2016, 2017 Uber revenue is $11.808 billion, which means a bit better than break-even EBITDA, assuming Uber expenses are as stated $11.428 billion.

Perhaps not so bleak as the article presents, although I would not invest in this thing.

Phil in Kansas City , December 12, 2017 at 7:55 am

I have the same question: What comprises over 11 billion dollars in expenses in 2017? Could it be they are paying out dividends to the early investors? Which would mean they are cannibalizing their own company for the sake of the VC! How long can this go on before they'll need a new infusion of cash?

lyman alpha blob , December 12, 2017 at 2:37 pm

The Saudis have thrown a few billion Uber's way and they aren't necessarily known as the smart money.

Maybe the pole dancers have started chipping in too as they are for bitcoin .

Vedant Desai , December 12, 2017 at 10:37 am

Oh article does answer your 2nd question. Read this paragraph:-

Since mass driver defections would cause passenger volume growth to collapse completely , Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017.

As for the 1st, read this line in the article:-

There are undoubtedly a number of things Uber could do to reduce losses at the margin, but it is difficult to imagine it could suddenly find the $4-5 billion in profit improvement needed merely to reach breakeven.

Louis Fyne , December 12, 2017 at 8:44 am

in addition to all the points listed in the article/comments, the absolute biggest flaw with Uber is that Uber HQ conditioned its customers on (a) cheap fares and (b) that a car is available within minutes (1-5 if in a big city).

Those two are not mutually compatible in the long-term.

Alfred , December 12, 2017 at 9:49 am

Thus (a) "We cost less" and (b) "We're more convenient" -- aren't those also the advantages that Walmart claims and feeds as a steady diet to its ever hungry consumers? Often if not always, disruption may repose upon delusion.

Martin Finnucane , December 12, 2017 at 11:06 am

Uber's business model could never produce sustainable profits unless it was able to exploit significant anti-competitive market power.

Upon that dependent clause hangs the future of capitalism, and – dare I say it? – its inevitable demise.

Altandmain , December 12, 2017 at 11:09 am

When this Uber madness blows up, I wonder if people will finally begin to discuss the brutal reality of Silicon Valley's so called "disruption".

It is heavily built in around the idea of economic exploitation. Uber drivers are often, especially when the true costs to operate an Uber including the vehicle depreciation are factored in, making not very much per hour driven, especially if they don't get the surge money.

Instacart is another example. They are paying the deliver operators very little.

Jim A. , December 12, 2017 at 12:21 pm

At a fundamental level, I think that the Silicon Valley "disruption" model only works for markets (like software) where the marginal cost for production is de minimus and the products can be protected by IP laws. Volume and market power really work in those cases. But out here in meat-space, where actual material and labor are big inputs to each item sold, you can never just sit back on your laurels and rake in the money. Somebody else will always be able to come and and make an equivalent product. If they can do it more cheaply, you are in trouble.

Altandmain , December 12, 2017 at 5:40 pm

There aren't that many areas in goods and services where the marginal costs are very low.

Software is actually quite unique in that regard, costing merely the bandwidth and permanent storage space to store.

Let's see:

1. From the article, they cannot go public and have limited ways to raise more money. An IPO with its more stringent disclosure requirements would expose them.

2. They tried lowering driver compensation and found that model unsustainable.

3. There are no benefits to expanding in terms of economies of scale.

From where I am standing, it looks like a lot of industries gave similar barriers. Silicon Valley is not going to be able to disrupt those.

Tesla, another Silicon Valley company seems to be struggling to mass produce its Model 3 and deliver an electric car that breaks even, is reliable, while disrupting the industry in the ways that Elon Musk attempted to hype up.

So that basically leaves services and manufacturing out for Silicon Valley disruption.

Joe Bentzel , December 12, 2017 at 2:19 pm

UBER has become a "too big to fail" startup because of all the different tentacles of capital from various Tier 1 VCs and investment bankers.

VCs have admitted openly that UBER is a subsidized business, meaning it's product is sold below market value, and the losses reflect that subsidization. The whole "2 sided platform" argument is just marketecture to hustle more investors. It's a form of service "dumping" that puts legacy businesses into bankruptcy. Back during the dotcom bubble one popular investment banker (Paul Deninger) characterized this model as "Terrorist Competition", i.e. coffers full of invested cash to commoditize the market and drive out competition.

UBER is an absolute disaster that has forked the startup model in Silicon Valley in order to drive total dependence on venture capital by founders. And its current diversification into "autonomous vehicles", food delivery, et al are simply more evidence that the company will never be profitable due to its whacky "blitzscaling" approach of layering on new "businesses" prior to achieving "fit" in its current one.

It's economic model has also metastasized into a form of startup cancer that is killing Silicon Valley as a "technology" innovator. Now it's all cargo cult marketing BS tied to "strategic capital".

UBER is the victory of venture capital and user subsidized startups over creativity by real entrepreneurs.

It's shadow is long and that's why this company should be ..wait for it UNBUNDLED (the new silicon valley word attached to that other BS religion called "disruption"). Call it a great unbundling and you can break up this monster corp any way you want.

Naked Capitalism is a great website.

Phil in KC , December 12, 2017 at 3:20 pm

1. I Agree with your last point.

2. The elevator pitch for Uber: subsidize rides to attract customers, put the competition out of business, and then enjoy an unregulated monopoly, all while exploiting economically ignorant drivers–ahem–"partners."

3. But more than one can play that game, and

4. Cab and livery companies are finding ways to survive!

Phil in KC , December 12, 2017 at 3:10 pm

If subsidizing rides is counted as an expense, (not being an accountant, I would guess it so), then whether the subsidy goes to the driver or the passenger, that would account for the ballooning expenses, to answer my own question. Otherwise, the overhead for operating what Uber describes as a tech company should be minimal: A billion should fund a decent headquarters with staff, plus field offices in, say, 100 U.S. cities. However, their global pretensions are probably burning cash like crazy. On top of that, I wonder what the exec compensation is like?

After reading HH's initial series, I made a crude, back-of-the-envelope calculation that Uber would run out of money sometime in the third fiscal quarter of 2018, but that was based on assuming losses were stabilizing in the range of 3 billion a year. Not so, according to the article. I think crunch time is rapidly approaching. If so, then SoftBank's tender offer may look quite appetizing to VC firms and to any Uber employee able to cash in their options. I think there is a way to make a re-envisioned Uber profitable, and with a more independent board, they may be able to restructure the company to show a pathway to profitability before the IPO. But time is running out.

A not insignificant question is the recruitment and retention of the front line "partners." It would seem to me that at some point, Uber will run out of economically ignorant drivers with good manners and nice cars. I would be very interested to know how many drivers give up Uber and other ride-sharing gigs once the 1099's start flying at the beginning of the year. One of the harsh realities of owning a business or being an contractor is the humble fact that you get paid LAST!

Jan Stickle , December 12, 2017 at 5:00 pm

We became instant Uber riders while spending holidays with relatives in San Diego. While their model is indeed unique from a rider perspective, it was the driver pool that fascinates me. These are not professional livery drivers, but rather freebooters of all stripes driving for various reasons. The remuneration they receive cannot possibly generate much income after expenses, never mind the problems associated with IRS filing as independent contractors.

One guy was just cruising listening to music; cooler to get paid for it than just sitting home! A young lady was babbling and gesticulating non stop about nothing coherent and appeared to be on some sort of stimulant. A foreign gentleman, very professional, drove for extra money when not at his regular job. He was the only one who had actually bought a new Prius for this gig, hoping to pay it off in two years.

This is indeed a brave new world. There was a period in Nicaragua just after the Contra war ended when citizens emerged from their homes and hit the streets in large numbers, desperately looking for income. Every car was a taxi and there was a bipedal mini Walmart at every city intersection as individuals sold everything and anything in a sort of euphoric optimism towards the future. Reality just hadn't caught up with them yet .

[Dec 11, 2017] Jihad vs. McWorld

This was a pretty profitc book, if you think that it was publishe in 1995. At the same time neoliberalm is not atolerant isther and we can talk about "neoliberal jihad"
Notable quotes:
"... As neoliberal economic theory -- not to be confused with social liberalism -- is the force behind globalization, this critique is relevant on a much larger scale. ..."
"... Barber argues that there are several imperatives that make up the McWorld, or the globalization of politics : a market imperative, a resource imperative, an information-technology imperative, and an ecological imperative. Due to globalization, our market has expanded and is vulnerable to the transnational markets where free trade, easy access to banking and exchange of currency are available. ..."
"... Barber sees Jihad as offering solidarity and protecting identities, but at the potential cost of tolerance and stability. ..."
Dec 11, 2017 | en.wikipedia.org
Jihad vs. McWorld: How Globalism and Tribalism Are Reshaping the World is a 1995 book by American political scientist Benjamin Barber , in which he puts forth a theory that describes the struggle between "McWorld" ( globalization and the corporate control of the political process) and " Jihad " (Arabic term for "struggle", here modified to mean tradition and traditional values , in the form of extreme nationalism or religious orthodoxy and theocracy ). Benjamin Barber similarly questions the impact of economic globalization as well as its problems for democracy.

The book was based on a March 1992 article by Barber first published in The Atlantic Monthly . [1] The book employs the basic critique of neoliberalism seen in Barber's earlier, seminal work Strong Democracy . As neoliberal economic theory -- not to be confused with social liberalism -- is the force behind globalization, this critique is relevant on a much larger scale. Unregulated market forces encounter parochial (which he calls tribal ) forces.

These tribal forces come in many varieties: religious, cultural, ethnic, regional, local, etc. As globalization imposes a culture of its own on a population, the tribal forces feel threatened and react. More than just economic, the crises that arise from these confrontations often take on a sacred quality to the tribal elements; thus Barber's use of the term "Jihad" (although in the second edition, he expresses regret at having used that term). [ why? ]

Barber's prognosis in Jihad vs McWorld is generally negative -- he concludes that neither global corporations nor traditional cultures are supportive of democracy . He further posits that McWorld could ultimately win the "struggle". He also proposes a model for small, local democratic institutions and civic engagement as the hope for an alternative to these two forces.

Problems for democracy edit

Barber states that neither Jihad nor McWorld needs or promotes democracy. [2]

McWorld edit

Barber argues that there are several imperatives that make up the McWorld, or the globalization of politics : a market imperative, a resource imperative, an information-technology imperative, and an ecological imperative. Due to globalization, our market has expanded and is vulnerable to the transnational markets where free trade, easy access to banking and exchange of currency are available. With the emergence of our markets, we have come up with international laws and treaties in order to maintain stability and efficiency in the interconnected economy. Resources are also an imperative aspect in the McWorld, where autarky seems insufficient and inefficient in presence of globalization. The information-technology of globalization has opened up communications to people all over the world, allowing us to exchange information. Also, technology is now systematically integrated into everyone's lives to the point where it "gives every person on earth access to every other person". [3] Globalization of ecology may seem cliche; Barber argues that whatever a nation does to their own ecology, it affects everyone on earth. For instance, cutting down a jungle will upset the overall oxygen balance, which affects our "global lungs". McWorld may promote peace and prosperity, but Barber sees this as being done at the cost of independence and identity , and notes that no more social justice or equality than necessary are needed to promote efficient economic production and consumption.

Jihad edit

Barber sees Jihad as offering solidarity and protecting identities, but at the potential cost of tolerance and stability. Barber describes the solidarity needed within the concept of Jihad as being secured through exclusion and war against outsiders. As a result, he argues, different forms of anti-democratization can arise through anti-democratic one-party dictatorships, military juntas, or theocratic fundamentalism. Barber also describes through modern day examples what these 'players' are. "they are cultures, not countries; parts, not wholes; sects, not religions, rebellious factions and dissenting minorities at war not just with globalism but with the traditional nation-state. Kurds, Basques, Puerto Ricans, Ossetians, East Timoreans, Quebecois, the Catholics of Northern Ireland, Catalans, Tamils, and of course, Palestinians- people with countries, inhabiting nations not their own, seeking smaller worlds within borders that will seal them off from modernity." [4]

Confederal option edit

Barber writes democracy can be spread and secured through the world satisfying the needs of both the McWorld and Jihad. "With its concern for accountability, the protection of minorities, and the universal rule of law, a confederalized representative system would serve the political needs of McWorld as well as oligarchic bureaucratism or meritocratic elitism is currently doing." [4] Some can accept democracy faster than others. Every case is different, however "Democracy grows from the bottom up and cannot be imposed from the top down. Civil society has to be built from the inside out." [1] He goes on to further explain exactly what the confederal option means and how it will help. "It certainly seems possible that the most attractive democratic ideal in the face of the brutal realities of Jihad and the dull realities of McWorld will be a confederal union of semi autonomous communities smaller than nation-states, tied together into regional economic associations and markets larger than nation-states -- participatory and self-determining in local matters at the bottom, representative and accountable at the top. The nation-state would play a diminished role, and sovereignty would lose some of its political potency." [4]

[Dec 11, 2017] Jihad vs. McWorld - Wikipedia

Dec 11, 2017 | en.wikipedia.org

Jihad vs. McWorld From Wikipedia, the free encyclopedia Jump to: navigation , search

Jihad vs. McWorld
Jihad vs McWorld.jpg Cover to the paperback edition
Author Benjamin Barber
Country United States
Language English
Genre Political science
Publisher Times Books
Publication date 1995
Media type Print ( Hardcover )
Pages 381
ISBN 978-0-812-92350-6
OCLC 31969451
Dewey Decimal 909.82/9 21
LC Class HM201 .B37 1996

Jihad vs. McWorld: How Globalism and Tribalism Are Reshaping the World is a 1995 book by American political scientist Benjamin Barber , in which he puts forth a theory that describes the struggle between "McWorld" ( globalization and the corporate control of the political process) and " Jihad " (Arabic term for "struggle", here modified to mean tradition and traditional values , in the form of extreme nationalism or religious orthodoxy and theocracy ). Benjamin Barber similarly questions the impact of economic globalization as well as its problems for democracy.

The book was based on a March 1992 article by Barber first published in The Atlantic Monthly . [1] The book employs the basic critique of neoliberalism seen in Barber's earlier, seminal work Strong Democracy . As neoliberal economic theory -- not to be confused with social liberalism -- is the force behind globalization, this critique is relevant on a much larger scale. Unregulated market forces encounter parochial (which he calls tribal ) forces.

These tribal forces come in many varieties: religious, cultural, ethnic, regional, local, etc. As globalization imposes a culture of its own on a population, the tribal forces feel threatened and react. More than just economic, the crises that arise from these confrontations often take on a sacred quality to the tribal elements; thus Barber's use of the term "Jihad" (although in the second edition, he expresses regret at having used that term). [ why? ]

Barber's prognosis in Jihad vs McWorld is generally negative -- he concludes that neither global corporations nor traditional cultures are supportive of democracy . He further posits that McWorld could ultimately win the "struggle". He also proposes a model for small, local democratic institutions and civic engagement as the hope for an alternative to these two forces.

Contents [ hide ] Problems for democracy edit

Barber states that neither Jihad nor McWorld needs or promotes democracy. [2]

McWorld edit

Barber argues that there are several imperatives that make up the McWorld, or the globalization of politics : a market imperative, a resource imperative, an information-technology imperative, and an ecological imperative. Due to globalization, our market has expanded and is vulnerable to the transnational markets where free trade, easy access to banking and exchange of currency are available. With the emergence of our markets, we have come up with international laws and treaties in order to maintain stability and efficiency in the interconnected economy. Resources are also an imperative aspect in the McWorld, where autarky seems insufficient and inefficient in presence of globalization. The information-technology of globalization has opened up communications to people all over the world, allowing us to exchange information. Also, technology is now systematically integrated into everyone's lives to the point where it "gives every person on earth access to every other person". [3] Globalization of ecology may seem cliche; Barber argues that whatever a nation does to their own ecology, it affects everyone on earth. For instance, cutting down a jungle will upset the overall oxygen balance, which affects our "global lungs". McWorld may promote peace and prosperity, but Barber sees this as being done at the cost of independence and identity , and notes that no more social justice or equality than necessary are needed to promote efficient economic production and consumption.

Jihad edit

Barber sees Jihad as offering solidarity and protecting identities, but at the potential cost of tolerance and stability. Barber describes the solidarity needed within the concept of Jihad as being secured through exclusion and war against outsiders. As a result, he argues, different forms of anti-democratization can arise through anti-democratic one-party dictatorships, military juntas, or theocratic fundamentalism. Barber also describes through modern day examples what these 'players' are. "they are cultures, not countries; parts, not wholes; sects, not religions, rebellious factions and dissenting minorities at war not just with globalism but with the traditional nation-state. Kurds, Basques, Puerto Ricans, Ossetians, East Timoreans, Quebecois, the Catholics of Northern Ireland, Catalans, Tamils, and of course, Palestinians- people with countries, inhabiting nations not their own, seeking smaller worlds within borders that will seal them off from modernity." [4]

Confederal option edit

Barber writes democracy can be spread and secured through the world satisfying the needs of both the McWorld and Jihad. "With its concern for accountability, the protection of minorities, and the universal rule of law, a confederalized representative system would serve the political needs of McWorld as well as oligarchic bureaucratism or meritocratic elitism is currently doing." [4] Some can accept democracy faster than others. Every case is different, however "Democracy grows from the bottom up and cannot be imposed from the top down. Civil society has to be built from the inside out." [1] He goes on to further explain exactly what the confederal option means and how it will help. "It certainly seems possible that the most attractive democratic ideal in the face of the brutal realities of Jihad and the dull realities of McWorld will be a confederal union of semi autonomous communities smaller than nation-states, tied together into regional economic associations and markets larger than nation-states -- participatory and self-determining in local matters at the bottom, representative and accountable at the top. The nation-state would play a diminished role, and sovereignty would lose some of its political potency." [4]

[Dec 09, 2017] China, Saudi Arabia, and the US by James Petras

Financialization of the economy and the lust for war goes hand in hand. That means that "casino capitalism" is an aggressive capitalism.
" In the transition, politicians, who had no connection to domestic industry, found a powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and disseminating domestic spats, intrigues and conspiracies to the voters." -- this is an astute observation.
Notable quotes:
"... Simultaneously, finance reversed its relation to industry: Industrial capital was now harnessed to finance, speculation, real estate, insurance sectors and electronic gadgets/play-by-yourself ' i-phones' promoting isolated ' selfies' and idle chatter. ..."
"... Wall Street, Silicon Valley and Hollywood replaced Detroit, Pittsburgh, Cleveland and Chicago. Stockbrokers proliferated, while master tool-and-die makers disappeared and workers' children overdosed on 'Oxy'. ..."
"... In the transition, politicians, who had no connection to domestic industry, found a powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and disseminating domestic spats, intrigues and conspiracies to the voters. ..."
"... In this historic transformation, American political culture put on a new face: perpetual wars, Wall Street swindles and Washington scandals. It culminated in the farcical Hillary Clinton – Donald Trump presidential election campaign: the war goddess-cuckquean of chaos versus the crotch-grabbing real-estate conman. ..."
"... Trump's presidential election campaign went about the country pleasuring the business and finance elite (promises of tax cuts, deregulations, re-contamination and jacking up the earth's temperature with a handful of jobs), and successfully pushed aside the outrage over his crude rump grabbing boasts. Wars, Wall Street, Silicon Valley and Hollywood all gathered to set the parameters of the United States' political economy: The chase was on! ..."
Dec 09, 2017 | www.unz.com

... ... ...

The chaotic free-for-all in the US political economy is manipulated by scandalmongers, conspirators and flight capitalists. Instead of preparing an economic plan to ' make America great again' , they have embraced the political blackmailers and intriguers of Saudi Arabia in a sui-generis global political alliance. Both countries feature purges, resignations and pugnacious politicos who have never been weaned from the destructive bosom of war.

As a point of history, the United States didn't start out as a bloated, speculative state of crony capitalists and parasitical allies: The US was once a powerful industrial country, harnessing finance and overseas investments to securing raw materials for domestic industries and directing profits back into industry for higher productivity.

Fake, or semi-fake, political rivalries and electoral competition counted little as incumbents retained their positions most of the time, and bi-partisan agreements ensured stability through sharing the spoils of office.

Things have changed. Overseas neo-colonies started to offer more than just raw materials: They introduced low-tax manufacturing sites promising free access to cheap, healthy and educated workers. US manufacturers abandoned Old Glory, invested overseas, hoarded profits in tax havens and happily evaded paying taxes to fund a new economy for displaced US workers. Simultaneously, finance reversed its relation to industry: Industrial capital was now harnessed to finance, speculation, real estate, insurance sectors and electronic gadgets/play-by-yourself ' i-phones' promoting isolated ' selfies' and idle chatter.

Wall Street, Silicon Valley and Hollywood replaced Detroit, Pittsburgh, Cleveland and Chicago. Stockbrokers proliferated, while master tool-and-die makers disappeared and workers' children overdosed on 'Oxy'.

In the transition, politicians, who had no connection to domestic industry, found a powerful niche promoting overseas wars for allies , like Saudi Arabia and Israel, and disseminating domestic spats, intrigues and conspiracies to the voters. Vietnam and Watergate, Afghanistan and Volker, Iran-Contra and Reaganomics , Yugoslavia and Iraq, daily drone strikes and bombings and Bill Clinton's White House sex scandals giving salacious birth to SpecialProsecutors . . .

In this historic transformation, American political culture put on a new face: perpetual wars, Wall Street swindles and Washington scandals. It culminated in the farcical Hillary Clinton – Donald Trump presidential election campaign: the war goddess-cuckquean of chaos versus the crotch-grabbing real-estate conman.

The public heard Secretary of State Clinton's maniacal laugh upon her viewing the 'snuff-film' torture and slaughter of the wounded Libya's President Gadhafi: She crowed: ' We came, we saw and he died' with a sword up his backside. This defined the Clinton doctrine in foreign affairs, while slaughter of the welfare state and the bloated prison industry would define her domestic agenda.

Trump's presidential election campaign went about the country pleasuring the business and finance elite (promises of tax cuts, deregulations, re-contamination and jacking up the earth's temperature with a handful of jobs), and successfully pushed aside the outrage over his crude rump grabbing boasts. Wars, Wall Street, Silicon Valley and Hollywood all gathered to set the parameters of the United States' political economy: The chase was on!

... ... ...

Joe Levantine , December 5, 2017 at 9:13 am GMT

This great article is an elaborate intellectual expansion on what Mr. Gerald Celente of Trendsresearch.com has been proclaiming for years that" while the business of China is business, the business of America is war". Professor Petras is pointing to the moral decline that is behind the social and economic decline of the nation of America that was once a beacon of light to the world.
This analysis leaves the reader with little doubt as to the direction in which the momentum of historic leadership is moving; it is to the East away from the West in a reversal of the dawn of the Renaissance era of Europe. The last hope for the west to stay at the helm of civilisation is to have a leader who can ignite a moral renaissance in the West short of which the 21st century will definitely be China's century. The impetus for such a revival is a shake up of the world of finance that will chase the money changers out of the altar of the Western economy and put he lying scribes of the Western media in labour camp where they will be re educated about the virtues of truth and reality.
Astuteobservor II , December 6, 2017 at 3:01 am GMT
there are 2 types of elites.

elites who line their pockets and only their pockets.

elites who line their pockets and also makes sure the rest of the country gets a little too.

guess which one is the american and chinese?

the saudis aren't even in the same category. they are just pets on a leash.

jacques sheete , December 9, 2017 at 11:53 am GMT

Official truth has become a stinking mound of offal.

Has become?

A good thing about it is that we should know to laugh at it whenever we hear it, and accept the fact that "authority" is lying until proven otherwise.

Were I to indulge my own theory, I should wish [the states] to practise neither commerce nor navigation, but to stand with respect to Europe precisely on the footing of China. We should thus avoid wars

-Thomas Jefferson, letter To G. K. van Hogendorp , Paris, Oct. 13, 1785

Isn't Western "civilization" just peachy? Civilization?

jacques sheete , December 9, 2017 at 12:46 pm GMT
@Joe Levantine

moral renaissance

One has to have had a "naissance" of morals to experience a "re" of them, but yes, chasing the money changers out of the temple and money worship out of our souls would have helped.

Would have.

Our great mass of workers have labored for the money changers too long.

-Jacob Thorkelson, Rescue the Republic, p 9. 1939

Few listened. We've had a moral abortion.

Joe Hide , December 9, 2017 at 2:54 pm GMT
You're right about many things you presented, but you still don't understand the multi-layered gradually administered releases of mis-information, dis-information, and information, designed to awaken and transform our nation, planet, and human consciousness. Given that half the population has below average intelligence, new positive leadership does not merely announce that generations of psychopaths have manipulated them. As a personal example, half the people I communicate with are sub-average intelligence, and I've learned to very gradually wake them up, or they will, in their unreasonable thinking, try to make trouble for me. There's the saying, "Don't throw pearls before swine." I know this too harshly stated, and I should have gradually and gently presented it for half the reader's. Sorry.
P.S. . Unz.com and it's reader's are likely far above average.

[Dec 09, 2017] The Globalization of Our Discontent by Joseph E. Stiglitz - Project Syndicate

Notable quotes:
"... Globalization and Its Discontents, ..."
"... as it has been managed for the past quarter-century ..."
"... Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump ..."
Dec 05, 2017 | www.project-syndicate.org

Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US in recent years has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

NEW YORK – Fifteen years ago, I published Globalization and Its Discontents, a book that sought to explain why there was so much dissatisfaction with globalization within the developing countries. Quite simply, many believed that the system was "rigged" against them, and global trade agreements were singled out for being particularly unfair.

The Year Ahead 2018 The world's leading thinkers and policymakers examine what's come apart in the past year, and anticipate what will define the year ahead.

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Now discontent with globalization has fueled a wave of populism in the United States and other advanced economies, led by politicians who claim that the system is unfair to their countries. In the US, President Donald Trump insists that America's trade negotiators were snookered by those from Mexico and China.

So how could something that was supposed to benefit all, in developed and developing countries alike, now be reviled almost everywhere? How can a trade agreement be unfair to all parties?

To those in developing countries, Trump's claims – like Trump himself – are laughable. The US basically wrote the rules and created the institutions of globalization. In some of these institutions – for example, the International Monetary Fund – the US still has veto power, despite America's diminished role in the global economy (a role which Trump seems determined to diminish still further).

To someone like me, who has watched trade negotiations closely for more than a quarter-century, it is clear that US trade negotiators got most of what they wanted. The problem was with what they wanted. Their agenda was set, behind closed doors, by corporations. It was an agenda written by and for large multinational companies, at the expense of workers and ordinary citizens everywhere.

https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/355518752&color=%23ff5500&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&show_teaser=true&visual=true

Indeed, it often seems that workers, who have seen their wages fall and jobs disappear, are just collateral damage – innocent but unavoidable victims in the inexorable march of economic progress. But there is another interpretation of what has happened: one of the objectives of globalization was to weaken workers' bargaining power. What corporations wanted was cheaper labor, however they could get it.

This interpretation helps explain some puzzling aspects of trade agreements. Why is it, for example, that advanced countries gave away one of their biggest advantages, the rule of law? Indeed, provisions embedded in most recent trade agreements give foreign investors more rights than are provided to investors in the US. They are compensated, for example, should the government adopt a regulation that hurts their bottom line, no matter how desirable the regulation or how great the harm caused by the corporation in its absence.

There are three responses to globalized discontent with globalization. The first – call it the Las Vegas strategy – is to double down on the bet on globalization as it has been managed for the past quarter-century . This bet, like all bets on proven policy failures (such as trickle-down economics) is based on the hope that somehow it will succeed in the future.

The second response is Trumpism: cut oneself off from globalization, in the hope that doing so will somehow bring back a bygone world. But protectionism won't work. Globally, manufacturing jobs are on the decline, simply because productivity growth has outpaced growth in demand.

Even if manufacturing were to come back, the jobs won't. Advanced manufacturing technology, including robots, means that the few jobs created will require higher skills and will be placed at different locations than the jobs that were lost. Like doubling down, this approach is doomed to fail, further increasing the discontent felt by those left behind.

Trump will fail even in his proclaimed goal of reducing the trade deficit, which is determined by the disparity between domestic savings and investment. Now that the Republicans have gotten their way and enacted a tax cut for billionaires, national savings will fall and the trade deficit will rise, owing to an increase in the value of the dollar. (Fiscal deficits and trade deficits normally move so closely together that they are called "twin" deficits.) Trump may not like it, but as he is slowly finding out, there are some things that even a person in the most powerful position in the world cannot control.

There is a third approach: social protection without protectionism, the kind of approach that the small Nordic countries took. They knew that as small countries they had to remain open. But they also knew that remaining open would expose workers to risk. Thus, they had to have a social contract that helped workers move from old jobs to new and provide some help in the interim.

The Nordic countries are deeply democratic societies, so they knew that unless most workers regarded globalization as benefiting them, it wouldn't be sustained. And the wealthy in these countries recognized that if globalization worked as it should, there would be enough benefits to go around.

American capitalism in recent years has been marked by unbridled greed – the 2008 financial crisis provides ample confirmation of that. But, as some countries have shown, a market economy can take forms that temper the excesses of both capitalism and globalization, and deliver more sustainable growth and higher standards of living for most citizens.

We can learn from such successes what to do, just as we can learn from past mistakes what not to do. As has become evident, if we do not manage globalization so that it benefits all, the backlash – from the New Discontents in the North and the Old Discontents in the South – is at risk of intensifying.

[Dec 08, 2017] Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since.

Notable quotes:
"... Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species ..."
"... "Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine." ..."
Dec 08, 2017 | www.moonofalabama.org

psychohistorian , Dec 8, 2017 6:22:05 PM | 18

@ Daniel ending with "This "Clash of Civilizations" type narrative is not encouraging." That is exactly what they want you to focus on as a narrative rather than the simple truth about the demise of private banking. On the previous thread about the Republican: Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species

The link to a 1996 article: Understanding Money by John H. Hotson . The take away quote

"Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine."

Clash of Civilizations is as vapid a meme as the common understanding of the Capitalism myth as that article so clearly states. Spread his word far and wide to wake up the zombies. It is time!

[Dec 05, 2017] I think the debt problem is a little overblown. Now people use debt differently sometimes implying "total debt" and sometimes "public debt" and sometimes "central government debt".

Dec 05, 2017 | peakoilbarrel.com

Paulo says: 11/29/2017 at 10:36 am

Up early today and lit the shop woodstove; just waiting for light to get on with my day which always starts (after chores) with my dog and I going for a walk.

Ron, I do not disagree with your post or comments, with the exception of when population will peak and the aspect/timing of social disruption?

On this morning wait for daylight I have been reading various blog sites with CNN ticking over in the background. Maybe it is the speed of the news cycle and my being used to the insanity of what is being reported, but today, after seeing the Trump tweets on Muslim Violence (film clips), the so-called tax plan, sexual misconducts, the recent reports on KSA, Yemen, Syria, and what is ramping up concerning North Korea, I think we are at a crux right now. I think there will be a Market collapse and war; perhaps global in scale. Further to that I don't see any desire or mechanism for defusing tensions or a way to recall the situation.

I am 62 and was a kid during a recent/last big social reset. I had older sibs and parents who moved us north to Canada in '68 because they had had enough. My WW2 veteran parents proclaimed they had seen enough to be afraid, and sold out to start over and build new lives. While I was thinking about it, and your post, I realized that in today's situation there are no simple answers and not really any places to run to. It seems different because of the population numbers and armaments, plus the willingness of people to pretend it's just 'tribal/crooked politics as usual'. Then, I thought about photographs and how a few catapulted us into rapid change last century. Certainly, the haunted faces of the Dust Bowl sparked a move towards reform. Images from the south and the stories of the KKK perhaps Rosa Parks herself helped galvanize the Civil Rights Movement. For me, the image of the young lady holding the dead student at Kent State, (her anguish), the burning Monk and young girl coated with napalm coupled with the lie about the Gulf of Tonkin incident pushed me into cynicism; so much that I was not surprised about the non-existent WMD of Iraq.

Perhaps it won't be an image, or story that we look back to as a turning point. Maybe it will be a tweet. Maybe it will be the Market collapse or a premptive attack on North Korea that sets everything in motion. I just think we are loaded and tamped down like a pipe bomb ready to blow.

I do not think we will continue to grow in population until 2050. I think it could start to unravel pretty fast and any day. I don't see any step back from war(s) in either the ME, or Korea.

From Wiki: (just one event that pales alongside today's triggers)

Kent State

"Just five days after the shootings, 100,000 people demonstrated in Washington, D.C., against the war and the killing of unarmed student protesters. Ray Price, Nixon's chief speechwriter from 1969 to 1974, recalled the Washington demonstrations saying, "The city was an armed camp. The mobs were smashing windows, slashing tires, dragging parked cars into intersections, even throwing bedsprings off overpasses into the traffic down below. This was the quote, student protest. That's not student protest, that's civil war."[10] Not only was Nixon taken to Camp David for two days for his own protection, but Charles Colson (Counsel to President Nixon from 1969 to 1973) stated that the military was called up to protect the administration from the angry students; he recalled that "The 82nd Airborne was in the basement of the executive office building, so I went down just to talk to some of the guys and walk among them, and they're lying on the floor leaning on their packs and their helmets and their cartridge belts and their rifles cocked and you're thinking, 'This can't be the United States of America. This is not the greatest free democracy in the world. This is a nation at war with itself.'"

I apologize if this seems North American centric; and in blinders. I wish to reiterate that our population numbers, plus increasing divide and disparity, proliferation of weapons and intolerance, coupled with environmental degradation and Climate Change, makes this much much worse. It's a gun waiting for a trigger, imho.

Ron Patterson says: 11/29/2017 at 11:10 am
Yes, things are pretty bad. But things were bad during the Kent State/Nixon era. Yet we survived.

It has been my experience, following this biosphere destruction for many years now, that people who see and understand the destruction, almost always expect things to fall apart real soon. They never do.

I once spent several months as a stockbroker. One thing I learned during that period was a truth about insider traders. That is traders who trade the stock of the company they work for. They see things happening inside their company and expect it to cause great trouble or great profit. They are almost always right and almost always way too early with their predictions. Things just never seem to happen as fast as they expected.

We, you and I and a few others, are insiders to this problem that I have described in my above post. We know something terrible is going to happen. But most of us expect it to happen way before it actually will happen.

An example is "The Population Bomb" by Paul Ehrlich. I think he was spot on, but things just did not happen as fast as he expected. I hope to avoid his mistake.

Ghung says: 11/29/2017 at 11:34 am
Yep, Ron, and we need to be careful about saying "this time is different". Perhaps we need a list of things that really are different this time.

One that should be obvious to anyone paying attention is that, in the late 60s, US debt to GDP was in the mid 30% range. It is now over 100% according to a number of sources. As Gail T. is wont to say, unserviceable debt will likely be the trigger that results in a cascading failure of financial systems, and everything else is likely to follow. In short, our financial house of cards has grown three-fold in 50 years, as the global reserve currency is tagged to nothing.

Dennis Coyne says: 11/29/2017 at 1:16 pm
Hi Ghung,

I think the debt problem is a little overblown. Now people use debt differently sometimes implying "total debt" and sometimes "public debt" and sometimes "central government debt". Which one are you talking about? I don't read Tverberg's stuff. Looking at your numbers and the link below

https://fred.stlouisfed.org/series/GFDEGDQ188S

it seems you are talking about total US federal government debt.

Consider Japan

https://fred.stlouisfed.org/series/QJPGAN770A

They have been over 100% debt to GDP since 1999 and have been around 200% since 2014.

If Japan has collapsed, I missed it. Note that I agree with the idea that when the US economy is doing well (which at present is the case), that paying down debt is a better idea than reducing taxes. I would raise taxes if anything ( a carbon tax would be ideal) and reduce the deficit to less than zero and pay down the debt.

Or just balance the budget and let economic growth reduce the debt to GDP ratio.

Ghung says: 11/29/2017 at 1:28 pm
The figures I posted only include US government (National) debt. Total US debt (public+private) is, of course, much higher.

US National debt currently around $20.5 trillion.
http://www.usdebtclock.org/

US GDP for 2016 per the World Bank was $18,569,100.00
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD

As for Japan, most of what they owe is to themselves while they own a lot of that US debt, above. Japan also uses the carry trade to stay afloat.

I only posted this as being one of the things that is different about our situation ~50 years ago. People can make of it what they will. I personally think it is significant since the world runs on credit. No credit, no growth.

Dennis Coyne says: 11/29/2017 at 4:49 pm
Hi Ghung,

Hard to imagine no credit. Also in the 1960s there was less borrowing by the government (so less credit) and higher growth rates (at least in the US) than today. In the old days there was concern the government would "crowd out" private debt, as if there was some fixed amount of debt the system could sustain and the system always remained at this maximum debt level.

Instead it seems the system had room for higher levels of debt as government debt as increased, but there is little evidence of "crowding out". There may be some maximum debt level that an economy can sustain and Japan may be there. Also note that 50 years ago debt was at fairly low levels, but in 1946 Debt to GDP was 118% of GDP, rapid economic growth from 1946 to 1974 reduced this debt to GDP to 31%, by 1992 it was at 61%, and in 2016 it was 105%.

Strange that the Republicans want to raise the debt higher by cutting taxes, this made sense when the economy was doing poorly during the Obama years and the aftermath of the GFC.

I agree debt could become a problem and would be worried if central government debt to GDP was 200% (as in Japan).

I also don't buy into the unfunded liabilities argument, laws change and governments don't always fulfill their promises, that is just a fact of life.

OFM says: 11/30/2017 at 8:17 am
Personally I believe Tverberg is a person who has discovered a niche she can exploit and is making a living out of it. I had the pleasure of seeing her make her canned presentation at a conference once, where all the presentations were repeated several times over for three days so the entire attending crowd could see them all.

If you ask her a real question, she seizes up like a deer in headlights. She knows some elementary level stuff that is worth some thought, in the case of people who know little or nothing about the overall economy and environment.

Her answer in the case of a real question is the same answer you get from a politician who doesn't WANT to answer. She just pretends you asked a DIFFERENT question, and provides a stock answer to THAT question.

She doesn't have anything to say worth listening to , in terms of the level of understanding of the contributing members of this forum.

Hightrekker says: 11/30/2017 at 10:25 am
Being a Cabbage for Christ and a AGW Denier doesn't exactly lend credibility to her work.
Caelan MacIntyre says: 11/30/2017 at 9:06 pm
She denies AGW?
Nathanael says: 11/29/2017 at 4:22 pm
UK government debt to GDP was well over 400% for decades running; it was never a problem. Don't worry about it. Government debt is not really debt, it's actually money.
Dennis Coyne says: 11/29/2017 at 4:54 pm
Hi Nathanael,

When was that?

https://fred.stlouisfed.org/series/DEBTTLGBA188A

Oh I see high debt but not 400%

https://fred.stlouisfed.org/series/PSDOTUKA

It was over 160% from 1925 to 1952, maybe that's what you mean.

Paulo says: 11/29/2017 at 1:39 pm
Good point on the rate. I remember my grade 11 Social Studies teacher talking to me after class in 1972. One of our class texts was The Population Bomb. He expected to see, in his lifetime, a collapse of sorts. When I asked him to expand further he described small scale gardens/farms of no more the 2 acres. The primary machinery used would be walk-behind tractors.

I smiled at the memory when I bought my BCS walk-behind ten years ago. I smile every spring when I till the gardens. I still think he was right, just off on the timing (just like I was when I got out of stocks several years ago and put my money in term deposits.)

The older I get, the less I understand. I take comfort in knowing my Dad wouldn't get it, either.

George Kaplan says: 11/29/2017 at 1:49 pm
I thought Ehrlich's book "The Dominant Animal" was fairly well measured, and generally in line with the post above (I haven't read the population bomb).

[Dec 05, 2017] Germany's Dystopian Plans for Europe From Fantasy to Reality

Notable quotes:
"... In other words, Germany already effectively controls the armies of four countries. And the initiative, Foreign Policy notes, 'is likely to grow'. This is not surprising: if Germany ('the EU') wants to become truly autonomous from the US, it needs to acquire military sovereignty, which it currently lacks. ..."
"... so many people in Europe will see it being necessitated by the growing chaos in the Middle East and in Africa. ..."
"... Never let a crisis go to waste ..."
"... Certainly not those of the inhabitants of the constituent "nations" of the EU (ironic quotation marks fully intended). And now Muti Merkel and the authoritarian scolds of Brussels are trying to force a quota of these migrants upon all of the "nations" – or should we say, the administrative zones – of the EU. Orban, Le Pen, the AfD, and ilk are not stupid, you know. ..."
"... I worked in and with "Brussels" for many years and can say that many, if not most, of the personnel involved with EU institutions are neo-liberals, neo-cons and deluded with the fantasy of an EU imperium, Greece to America's Rome. ..."
"... I think I concur with Mitchell that a Federal EU State is a big no no for Germany, based on the fact fiscal transfers would be out of the German coffers, and this fact is amplified by the exit of the UK, which was a big net EU contributor. The rumour mill has it that Jans Weidmann will be the next ECB Head, which means we can expect more, not less austerity imposed as the EU elite push further EMU, which, is certainly not in the interests of the average Joe across the Euro member states. ..."
"... Anyhow, check Bill Mitchell out, so decent material and nice to see people standing up for the Nation State, rather than supranational entities and corporations. ..."
"... If Germany is trying to build a mini-imperial system straddling all of Europe, then it would seek willing 'elites' in the small European countries to give a slice of pie to in exchange for their cooperation with that agenda. This is standard (neo)colonial policy today, which is best understood as the neocon/neoliberal approach the United States has taken to world domination – aka bad cop/good cop. "Accept our offer of a carpet of gold or we'll deliver a carpet of bombs", is another version of that offer. The one that can't be refused? ..."
"... This is because public debt in the eurozone is used as a political tool – a disciplining tool – to get governments to implement socially harmful policies (and to get citizens to accept these policies by portraying them as inevitable), which explains why Germany continues to refuse to seriously consider any form of debt relief for Greece, despite the various commitments and promises to that end made in recent years: debt is the chain that keeps Greece (and other member states) from straying 'off course'. ..."
"... That would be the neoliberal mechanism of control; notice here how debts assumed by small nations are not like debts assumed by the controlling powers, either. Rather like student loan holders vs. central banks – students can't print money to pay off their debts, that's the difference. ..."
"... So, if it is true in economics that stability creates instability, then the creation of a stable Europe will undo itself in the manner that this article appears to be saying. ..."
"... This corporate super-entity reminds me of "Omnius Prime" in the Dune universe – a computer with nearly total sociopathic control over humanity. The corporate super-entity, whose AI program's only concern is maximizing short term profits by inflating securities and equities, will eat the Earth if we allow it to continue – digesting and purging humans which have been commodified like everything else. ..."
"... Then we see power blocks aligning, the US (and it's proxies), the EU under Germany, Russia, and China. Clearly we are sitting on a powder keg that is the disintegrating neo-liberal world orde. What will serve as the spark that lights the fuse? Trump and North Korea? War for fun and profit in the Middle East? ..."
Dec 05, 2017 | www.nakedcapitalism.com

Synoia , December 5, 2017 at 10:40 am

The basis of this thesis was plain when the ECB was placed in Germany.

The Economic regime is: Germany books the profits, and you lazy (non Germans) book the losses.

Welcome to the neoliberal roots of the next 30 years war. The 30 years war was the imposition of the ruler's denomination, Catholicism, on the people. This next 30 years one is imposing asset stripping (rent extraction) on the people and enriching a few Aristocrats, as a dogma.

Now do you understand Brexit? Do you believe the British could not see this coming?

I'll repeat: This was the obvious outcome when the ECB was placed in Germany. I'm English and discussed this very topic with my family and friends there, and there was general agreement that German ambition would pave the path.

Those who don't know their history are condemned to repeat it.

The Rev Kev , December 5, 2017 at 6:39 pm

Now do you understand Brexit? Do you believe the British could not see this coming?

Exactly. Those average British voters weren't stupid as claimed. If the EU/Germans are trying to do this whose aims are, and I quote:

"to further erode what little sovereignty and autonomy member states have left, particularly in the area of fiscal policy, and to facilitate the imposition of neoliberal 'structural reforms' – flexibilisation of labour markets, reduction of collective bargaining rights, etc. – on reluctant countries." and the year is only 2017, then what would it be like in the EU by the year, say, 2040?

Those British voters knew exactly what was coming down the turnpike and decided to bail and accept a whole lot of present pain. It was not their fault that it turned out that their leadership turned out to be a load of stuff-ups. To reinforce the point, look at the pain and deaths that the American colonies had to endure to get out of the British Empire. Before 1777 that would not have seemed to be the logical thing to do.

George Phillies , December 5, 2017 at 10:47 am

Does this direction become a hazard to the United States? Mr. Putin appears to have an answer, but perhaps does not have ready yet the next step, namely the needed set of trained personnel, trays, software, and printed pieces of paper, so that one way or another a country that wants to jettison the Euro can convert its ATMs very quickly to do so. Being set up to print very large stocks of Euros from the country that is leaving also comes to mind. Readers will recognize other steps.

Unlike some years ago, fast air access from Russia to southern European countries by overflying Mr Putin's friend Turkey is now probably available.

Norm , December 5, 2017 at 11:24 am

A good summary of a situation that is too complex to be neatly summarized – so many political, historical, religious, cultural, etc. issues come into play not only for each nation involved but also on an individual level for hundreds of millions of people. My most immediate reaction to these suggestions that a militarily capable fourth Reich may be emerging is that so many people in Europe will see it being necessitated by the growing chaos in the Middle East and in Africa.

visitor , December 5, 2017 at 12:24 pm

In other words, Germany already effectively controls the armies of four countries. And the initiative, Foreign Policy notes, 'is likely to grow'. This is not surprising: if Germany ('the EU') wants to become truly autonomous from the US, it needs to acquire military sovereignty, which it currently lacks.

The Bundeswehr has been in a sorry state of disrepair for years, which has not improved despite policy changes regarding the military.

And I seriously doubt that Germany really "controls" the armies of four countries.

The fact is that so far Germany's military strategy was conceived only within the NATO framework -- where it could rely upon the heavy-lifting of the USA logistical train, the ground experience and battle-readiness of the French and the British, and the availability of the navies from Spain and Italy. Germany has neither the equipment, nor the personnel, nor the experience to take the lead of a EU military, and other countries will probably strenuously oppose such endeavours which would rob them from their last symbolic and practical vestiges of sovereignty.

On the other hand, as the article explains, Germany is well on its way to assert its complete dominion over the economic and institutional arrangements in the EU.

Mark P. , December 5, 2017 at 3:05 pm

so many people in Europe will see it being necessitated by the growing chaos in the Middle East and in Africa.

True.

JBird , December 5, 2017 at 6:41 pm

Never let a crisis go to waste ?

JerseyJeffersonian , December 5, 2017 at 8:19 pm

Ah, yes, a crisis greatly exacerbated by taking down Libya, a country which had served as a bulwark against much of the tide of migration into Southern Europe from Sub-Saharan Africa, as well as an enemy to Wahabbi/Salafist terror.

Not to mention the EU support for the dismemberment of Syria that launched its own tidal wave of migration into Europe, whilst Syria was also an enemy of Wahabbi/Salafist terror.

In light of that, one must ask, in whose interest were these actions undertaken, and at whose behest? Well?

Certainly not those of the inhabitants of the constituent "nations" of the EU (ironic quotation marks fully intended). And now Muti Merkel and the authoritarian scolds of Brussels are trying to force a quota of these migrants upon all of the "nations" – or should we say, the administrative zones – of the EU. Orban, Le Pen, the AfD, and ilk are not stupid, you know. Europeans, at least those of you who still possess a quantum of self-respect, and who honor your histories and cultures, gather your courage and tell Muti and the Commissars of Brussels that the game is over before they can inflict yet more damage. But – perhaps – you are already too comfortably numb to remember why and how to do this? Well, then, into the veal pen with you.

Colonel Smithers , December 5, 2017 at 11:34 am

Many thanks, Yves.

Further to "France's corporate offensive in Italy", one-sided as France took recent exception to the take over of one its shipbuilders by an Italian rival, I would argue that it's an offensive by the EU's 1%, a strategy of immiseration facilitated by the likes of Guy Verhofstadt as per http://www.sofina.be/board-management/ . Sofina is well-connected with the French establishment by way of Eurazeo and the Italian establishment by way of Banca Leonardo.

I worked in and with "Brussels" for many years and can say that many, if not most, of the personnel involved with EU institutions are neo-liberals, neo-cons and deluded with the fantasy of an EU imperium, Greece to America's Rome. It suits them and their cheerleaders, including in Blighty, to pretend that this is due to the malign influence of Albion perfide or Anglo-Saxons. One should not expect a change of tack after Brexit. The "racaille" are profit(eer)ing too much and are able to get away with it under the cover of more Europe.

Christopher Dale Rogers , December 5, 2017 at 1:17 pm

CS,

As far as EMU is concerned, monetarist economic thinking has been predominant in much of the Europhiles output on monetary union since the 70s, that is, prior to the UK joining the Community. Bill Mitchell has written concisely on this over the past week & is quite scathing of Mitterrand and Delors for their embrace of what we now term 'neoliberalism', combine this with a desire for an actual military arm & one really does worry about the direction of the EU, with or without the UK.

Further, and within the lecture presented by Sir Ivan Rogers last week concerning Cameron & Brexit, the fact remains both the UK Elite & Euro Elite were keen on pushing TTIP, this despite the fact many believe it was the UK pushing neoliberalism on to Europe.

I think I concur with Mitchell that a Federal EU State is a big no no for Germany, based on the fact fiscal transfers would be out of the German coffers, and this fact is amplified by the exit of the UK, which was a big net EU contributor. The rumour mill has it that Jans Weidmann will be the next ECB Head, which means we can expect more, not less austerity imposed as the EU elite push further EMU, which, is certainly not in the interests of the average Joe across the Euro member states.

Anyhow, check Bill Mitchell out, so decent material and nice to see people standing up for the Nation State, rather than supranational entities and corporations.

norm de plume , December 5, 2017 at 3:30 pm

Bill Mitchell and the author of this piece Thomas Fazi are collaborators .

Eustache De Saint Pierre , December 5, 2017 at 4:09 pm

More on Guy :

https://www.thepressproject.gr/details_en.php?aid=62406

voteforno6 , December 5, 2017 at 12:22 pm

Germany is seeking a hegemonic position in Europe what could go wrong?

Left in Wisconsin , December 5, 2017 at 12:30 pm

I found the first about 1/3 of this post informative. But then the author gets to the main thesis:

The process underway can only be understood through the lens of the geopolitical-economic tensions and conflicts between leading capitalist states and regional blocs, and the conflicting interests between the different financial/industrial capital fractions located in those states , which have always characterised the European economy. In particular, it means looking at Germany's historic struggle for economic hegemony over the European continent.

This suggests that the national battles in Europe are battles between different national "capital fractions," in particular German capital with its everlasting desire for economic hegemony over Europe against (presumably) other European national capitals that are opposed to Germany.

That does not strike me as an accurate description of the current status of Europe or the EU, and nothing in the rest of the piece suggests that this is a (the most?) useful lens for interpreting events. The author even admits that elites from smaller Euro countries are happy in the role of compradors to Germany's economically dominant capitalists and that "European elites" are united in their anti-democratic tendencies. Even the German election results show this thesis to be dubious – if "Germany" is well on its way to it's long-cherished goal of European economic hegemony, why on earth would voters be tired of Merkel? They should make her Kaiser!

nonsense factory , December 5, 2017 at 2:49 pm

If Germany is trying to build a mini-imperial system straddling all of Europe, then it would seek willing 'elites' in the small European countries to give a slice of pie to in exchange for their cooperation with that agenda. This is standard (neo)colonial policy today, which is best understood as the neocon/neoliberal approach the United States has taken to world domination – aka bad cop/good cop. "Accept our offer of a carpet of gold or we'll deliver a carpet of bombs", is another version of that offer. The one that can't be refused?

Jump down a few paragraphs from your quote to this:

This is because public debt in the eurozone is used as a political tool – a disciplining tool – to get governments to implement socially harmful policies (and to get citizens to accept these policies by portraying them as inevitable), which explains why Germany continues to refuse to seriously consider any form of debt relief for Greece, despite the various commitments and promises to that end made in recent years: debt is the chain that keeps Greece (and other member states) from straying 'off course'.

That would be the neoliberal mechanism of control; notice here how debts assumed by small nations are not like debts assumed by the controlling powers, either. Rather like student loan holders vs. central banks – students can't print money to pay off their debts, that's the difference.

As far as Germany's voters, well, the reality of Empire is that trickle-down is a myth. Empires always deliver the tribute from foreign holdings to a small circle of politically connected elites – British lords, French aristocrats, Wall Street billionaires, Third World tin-pot dictators, etc. The general public always suffers as a result; you have to fund the foreign military adventures over the domestic infrastructure, health care and education needs. Hence Empires always try to limit and undermine democratic rule; the German voters probably see this as well.

I'd suggest Hannah Arendt's The Origins of Totalitarianism as a good read (or listen) for a discussion of how this could play out.

JEHR , December 5, 2017 at 12:53 pm

So, if it is true in economics that stability creates instability, then the creation of a stable Europe will undo itself in the manner that this article appears to be saying. In order to avoid conflict, the European Union has created a trading zone that has a great deal of inequality in it–not just in trade but inequality in the financial system that will continue to grow as corporations merge and become ever larger and as banks become ever more monolithic. Perhaps, national sovereignty will succumb to financial hegemony rather than becoming the victims of German hegemony.

Summer , December 5, 2017 at 1:42 pm

And what would have been the plans for Britain? Big omission in the article. That was a damned if they do, damned if they don't option.

Isn't a lot of the EU's bill for Britain about making sure they pay for EU officials pensions? While everywhere else it is austerity for Eurozone and EU countries' pensioners

James McFadden , December 5, 2017 at 2:19 pm

Although I found this article helpful in summarizing many of the changes in EU politics, the author is incorrect in his premise that the German government is at the root of the anti-democratic, neoliberal EU movement. The author ignores the dominant role that the interconnected multinational corporations ( https://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world/ ) play in running the global political economy.

69 of the top 100 economies are now corporations ( https://blogs.worldbank.org/publicsphere/world-s-top-100-economies-31-countries-69-corporations ). National politics have become subservient to the interests of the financial economy which can move money quickly and destroy a state's economy when political decisions do not follow the neoliberal script of austerity. The author's premise that "Germany needs to seize control of the most coveted institution of them all – the ECB –, which hitherto has never been under direct German control" is backwards. It is the ECB that has had control of the German political leaders for years. Whether "Merkel now has her eyes on the ECB's presidency" or not does not matter. She is merely a cog in the corporate machine – easily replaced if she fails to follow the neoliberal agenda of austerity.

Of course we must recognize that austerity is only imposed as an attempt to inflate the debt bubble by squeezing those least capable of paying, those considered disposable in the sociopathic and mechanistic corporate hive mind. The "automatic stabilizing mechanisms" that "put the economy on 'autopilot', thus removing any element of democratic discussion and/or decision-making" are really just manifestations of the emergent behavior that this corporate super-organism expresses and imposes on the global economy. ( https://www.counterpunch.org/2017/12/01/ai-has-already-taken-over-its-called-the-corporation/ )

This corporate super-entity reminds me of "Omnius Prime" in the Dune universe – a computer with nearly total sociopathic control over humanity. The corporate super-entity, whose AI program's only concern is maximizing short term profits by inflating securities and equities, will eat the Earth if we allow it to continue – digesting and purging humans which have been commodified like everything else.

This total corporatization is at the root of both existential threats to humanity – nuclear war and climate change. The risk of nuclear war (primarily from some mistake or miscalculation) results from the military-industrial complex's imperial program of globalization to further multinational corporate profits and control, and climate change is a cancer driven by corporate resource exploitation that will surely kill humanity if we don't cut out the corporate tumors and stop smoking that oil.

I'm beginning to think that the only way to save humanity, to save the planet, will be a "Butlerian Jihad" to rid us of the existential threat that corporations represent. I wonder how many people will have to be consumed by this corporate monster before we rise up to kill it. There will be a cost to eliminating corporations, to ending the limited liability of the owners, but that cost will be well worth the price of saving humanity, civilization, and our ecosystem. "There is an evil which ought to be guarded against in the indefinite accumulation of property from the capacity of holding it in perpetuity by corporations. The power of all corporations ought to be limited in this respect. The growing wealth acquired by them never fails to be a source of abuses." James Madison

Yves Smith Post author , December 5, 2017 at 2:23 pm

Argument by assertion doesn't work here. There is no evidence whatsoever that the ECB has influence over German leaders. More generally, German politics are dominated by industrial capital, particularly its automakers, not financial capital. And in fact the Bundesbank has disproportionate influence over the ECB. And Germany has repeatedly checked measures that would provide more support to the banking system and lead to more Eurozone integration to preserve its advantaged position.

In addition, the EU is perfectly willing to take on global corporations, contrary to your claims. Did you miss the massive anti-trust fine it imposed on Microsoft, and the fines it has imposed on Google? The EU competition ruling on Google will force Google to change how it does business in a fundamental manner, and the fines (up to 10% of global revenues for a violation in a single line of business) are high enough to bring Google to heel. The EU also is requiring Apple to pay a ginormous tax bill for its special tax avoidance scheme in Ireland.

If you are going to comment on European politics, you need to know the terrain. You don't, and worse you say things that mislead readers.

John Zelnicker , December 5, 2017 at 3:13 pm

Jeebus! I had no idea that Germany had extended it's claws so far into the affairs of other countries as to be integrating their army units.

I suppose it's a much better strategy than attacking those armies and risking people getting killed. :-/

But, seriously, Germany has moved far beyond it's mercantilist advantages and subjugation of Greece and other periphery nations. It has become beyond obvious to me that they learned from their experience in WWII and decided that economic hegemony was the way to go to achieve de facto political hegemony. I think the Fourth Reich is fitting.

Eustache De Saint Pierre , December 5, 2017 at 3:29 pm

Thank you for a finished painting, of which I had in comparison, only a sketch.

David Swan , December 5, 2017 at 6:13 pm

Thank you for having the courage to put those two words together so chillingly: "Fourth Reich". You are not an alarmist to do so – you are right on the money. This has indeed been a deliberate decades-long campaign to install German hegemony (no "accident"), and the project is well along its way.

From here we can soberly project a future in which Europe *does* finally institute a fiscal compact – wholly on Germany's terms. Is it too outrageous to suggest that there will one day be a new Holy Roman Emperor to wear the crown of Charlemagne? And would it be too forward to make guesses as to the nationality of said emperor?

History is not over. Not by a long shot.

Larry , December 5, 2017 at 10:37 pm

Then we see power blocks aligning, the US (and it's proxies), the EU under Germany, Russia, and China. Clearly we are sitting on a powder keg that is the disintegrating neo-liberal world orde. What will serve as the spark that lights the fuse? Trump and North Korea? War for fun and profit in the Middle East?

[Dec 05, 2017] House Members Tee Up Bipartisan Bill to Kill CFPB Payday Lending Rule

Notable quotes:
"... By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans. ..."
"... The Unbanking of America: How the New Middle Class Survives ..."
Dec 05, 2017 | www.nakedcapitalism.com

Posted on December 4, 2017 by Jerri-Lynn Scofield By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.

Three Democrats and three Republicans have co-sponsored a resolution, under the Congressional Review Act (CRA), to scuttle the Consumer Financial Protection Bureau's payday lending rule.

CRA's procedures to overturn regulations had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (as I've previously discussed (see here , here , here and here ). Not only does CRA provide expedited procedures to overturn regulations, but once it's used to kill a regulation, the agency that promulgated the rule is prevented from revisiting the issue unless and until Congress provides new statutory authority to do so.

Payday Lending

As I wrote in an extended October post, CFPB Issues Payday Lending Rule: Will it Hold, as the Empire Will Strike Back, payday lending is an especially sleazy part of the finance sewer, in which private equity swamp creatures, among others, operate. The industry is huge, according to this New York Times report I quoted in my October post, and it preys on the poorest, most financially-stressed Americans:

The payday-lending industry is vast. There are now more payday loan stores in the United States than there are McDonald's restaurants. The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate.

The CFPB's payday lending rule attempted to shut down this area of lucrative lending– where effective interest rates can spike to hundreds of points per annum, including fees (I refer interested readers to my October post, cited above, which discusses at greater length how sleazy this industry is, and also links to the rule; see also this CFPB fact sheet and press release .)

Tactically, as with the ban on mandatory arbitration clauses in consumer financial contracts– an issue I discussed further in RIP, Mandatory Arbitration Ban , (and in previous posts referenced therein), the CFPB under director Richard Cordray made a major tactical mistake in not completing rule-making sufficiently before the change of power to a new administration- 60 "session days" of Congress, thus making these two rules subject to the CRA.

The House Financial Services Committee press release lauding introduction of CRA resolution to overturn the payday lending rule is a classic of its type, so permit me to quote from it at length:

These short-term, small-dollar loans are already regulated by all 50 states, the District of Columbia and Native American tribes. The CFPB's rule would mark the first time the federal government has gotten involved in the regulation of these loans.

.

House Financial Services Committee Chairman Jeb Hensarling (R-TX), a supporter of the bipartisan effort, said the CFPB's rule is an example of how "unelected, unaccountable government bureaucracy hurts working people."

"Once again we see powerful Washington elites using the guise of 'consumer protection' to actually harm consumers and make life harder for lower and moderate income Americans who may need a short-term loan to keep their utilities from being cut off or to keep their car on the road so they can get to work," he said. "Americans should be able to choose the checking account they want, the mortgage they want and the short-term loan they want and no unelected Washington bureaucrat should be able to take that away from them."

[Rep Dennis Ross, a Florida Republican House co-sponsor]. said, "More than 1.2 million Floridians per year rely on Florida's carefully regulated small-dollar lending industry to make ends meet. The CFPB's small dollar lending rule isn't reasonable regulation -- it's a de facto ban on what these Floridians need. I and my colleagues in Congress cannot stand by while an unaccountable federal agency deprives our constituents of a lifeline in times of need, all while usurping state authority. Today, we are taking bipartisan action to stop this harmful bureaucratic overreach dead in its tracks."

As CNBC reports in New House bill would kill consumer watchdog payday loan rule , industry representatives continue to denounce the rule, with a straight face:

"The rule would leave millions of Americans in a real bind at exactly the time need a fast loan to cover an urgent expense," said Daniel Press, a policy analyst with the Competitive Enterprise Institute, in a statement after the bill's introduction.

Consumer advocates think otherwise (also from CNBC):

"Payday lenders put cash-strapped Americans in a crippling cycle of 300 percent-interest loan debt," Yana Miles, senior legislative counsel at the Center for Responsible Lending, said in a statement.

Prospects Under CRA

When I wrote about this topic in October, much commentary assumed that prospects for CRA overturn were weak. I emphasized instead the tactical error of failing to insulate the rule from CRA, which could have been done if the CFPB had pushed the rule through well before Trump took office:

If the payday rule had been promulgated in a timely manner during the previous administration it would not have been as vulnerable to a CRA challenge as it is now. Even if Republicans had then passed a CRA resolution of disapproval, a presidential veto would have stymied that. Trump is an enthusiastic proponent of deregulation, who has happily embraced the CRA– a procedure only used once before he became president to roll back a rule.

Now, the Equifax hack may have changed the political dynamics here and made it more difficult for Congressional Republicans– and finance-friendly Democratic fellow travellers– to use CRA procedures to overturn the payday lending rule.

The New York Times certainly seems to think prospects for a CRA challenge remote:

The odds of reversal are "very low," said Isaac Boltansky, the director of policy research at Compass Point Research & Trading.

"There is already C.R.A. fatigue on the Hill," Mr. Boltansky said, using an acronymn for the act, "and moderate Republicans are hesitant to be painted as anti-consumer.

I'm not so sure I would take either side of that bet. [Jerri-Lynn here: my subsequent emphasis.]

A more telling element than CRA-fatigue in my assessment of the rule's survival prospects was my judgment that Democrats wouldn't muster to defend the payday lending industry– although that assumption has not fully held, as this recent American Banker account makes clear:

After the payday rule was finalized in October , it was widely expected that Republicans would attempt to overturn it. It's notable, though, that the effort has attracted bipartisan support in the House.

.

Passage in the Senate, however, may be a much heavier lift. The chamber's vote to overturn the arbitration rule in late October came down to the wire, forcing Republicans to call in Vice President Mike Pence to cast the tie-breaking vote.

Bottom Line

I continue to think that this rule will survive– as the payday lending industry cannot count on a full court press lobbying effort by financial services interests. Yet as I wrote in October, I still hesitate to take either side of the bet on this issue.

Dpfaef , December 4, 2017 at 10:53 am

I think this whole article is totally disingenuous. There is a serious need for many Americans to have access to small amount, short term loans. While, these lenders may appear predatory, they do serve a large sector of society.

Maybe you need to read: The Unbanking of America: How the New Middle Class Survives by Lisa Servon . It might be worth the read.

GF , December 4, 2017 at 11:02 am

Where's the Post Office Bank when you need it. This overturning of the rule is just an effort to stop the Post Office Bank from gaining traction as the alternative non-predatory source of small loans to the people. Most pay day lender companies are owned by large financial players.

Jerri-Lynn Scofield Post author , December 4, 2017 at 11:11 am

I agree that's a far better approach and indeed, I discussed the Post Office bank in my October post– which is linked to in today's post. Permit me to quote from my earlier post:

The payday lending industry preys on the poorest financial consumers. One factor that has allowed it to flourish is current banking system's inability to provide access to basic financial services to a shocking number of Americans. Approximately 38 million households are un or underbanked– roughly 28% of the population.

Now, a sane and humane political system would long ago have responded with direct measures to address that core problem, such as a Post Office Bank (which Yves previously discussed in this post, Mirabile Dictu! Post Office Bank Concept Gets Big Boost and which have long existed in other countries.)

Regular readers are well aware of who benefits from the current US system, and why the lack of institutions that cater to the basic needs of financial consumers rather than focusing on extracting their pound(s) of flesh is not a bug, but a feature.

So, instead, the United States has a wide-ranging payday lending system. Which charges borrowers up to 400% interest rates for short-term loans, many of which are rolled over so that the borrower becomes a prisoner of the debt incurred.

Wisdom Seeker , December 4, 2017 at 3:23 pm

With phrasing like "unbanked" or "underbanked", I worry that you've bought into the banking-industry framing of this issue, which I'm sure is not your intent.

Ordinary people should not need any bank (not even a government or post office bank) for everyday life, with the possible exception of mortgages. De-financialization of the medium of exchange, and basic payments, is something the public should be fighting for.

lyman alpha blob , December 4, 2017 at 3:30 pm

I would consider myself an ordinary person and I pay in cash when purchasing day to day items the vast majority of the time and yet I'd still prefer to deposit my money in a bank rather than hiding it in my mattress for any number of good reasons.

Banks aren't the problem – their predatory executives are.

Wisdom Seeker , December 4, 2017 at 3:44 pm

But there are, or at least ought to be, safe and secure ways to store money other than by lending it to banks or stuffing it into mattresses. Or carrying wads of cash.

For instance, a debit card (or possibly cell phone) with a secure identity / password can already act as a cashless wallet. The digital cash could be stored directly on the device, and accounted for through something similar to TreasuryDirect, without any intermediaries. But this would require the Federal Government to get serious about having a modern Digital Dollar of some kind (not bitcoin, shudder)

Cary D Berkelhamer , December 4, 2017 at 4:32 pm

Even better would be State Banks. Every state should have one. I believe the State Bank of North Dakota made money in 2008. While the TBTF Banks came hat in hand to our Reps. Of course OUR Reps handed them a blank check and told them to "Make it go Away". However Post Office Banks would be GREAT!!

diptherio , December 4, 2017 at 11:08 am

This is the boilerplate argument that always gets brought up by payday loan defenders, and there is a good bit of truth to it. However, what you are not mentioning is that there are already far superior options available to pretty much any person who needs a small, short term loan. That solution is your friendly neighborhood Credit Union, most of which offer very low interest lines of overdraft coverage. I don't mind saying that it has saved my heiny on more than one occasion. Pay check a little late in arriving? No problem, transfer $200 from your overdraft account into your checking account on-line and you're good to go. Pay it back at your convenience, also on-line, at 7% APR.

Payday lenders are legal loansharks. The problems with their predatory lending model and the damage it does to low-income people are well documented. Simply pointing out that there is a reason that people end up at payday lenders is not a valid justification for the business practices of those lenders, especially when there are much better alternatives readily available.

Vatch , December 4, 2017 at 11:19 am

Payday lenders are legal loansharks.

Very true! There are several web sites that point out how the fees associated with payday loans raise the effective annual percentage rate into the stratosphere, ranging from 300% to over 600%. Here's one:

http://paydayloansonlineresource.org/average-interest-rates-for-payday-loans/

Off The Street , December 4, 2017 at 12:10 pm

One frustration that I have with legislation in general, and finance legislation in particular, is that it does not tell the truth, the whole truth and nothing but the truth.

In my Panglossian world, I envision a financial services bill that lays out the following:

Define the problem
Unserviced people: X percent( for discussion, say 10% to make the math easy) of people are un-serviced (or under-, or rapaciously-serviced) by conventional financial companies, whether banks, credit unions or other, whatever other is conventionally.
Unserviced and don't want: Y percent of that X percent (say, 50% of 10%, so 5%) doesn't want services.
Unserviced and want: 1-Y percent of that X percent (say, 50% of 10%, so 5%) wants services but can not get them. That could be due to various factors, ranging from bad credit (how defined?, say FICO < 600?) to geographic remoteness (no branches within miles, no internet, precious little slow mail service, whatever).

Within that deemed unserved 5% of the population, what are the costs to serve and what are the alternatives?

What would an honest service provider need to provide service, accounting for credit risks and the like, and still make a profit sufficient to induce investment?

If I knew how to make and add a nice graphic, I'd include a waterfall chart here to show the costs and components of the interest and fees paid in regular and default mode. Sorry, please bear with me as I make up numbers.

Regular costs
Interest at 30%
Less: cost of funds at, say, 10%
Less: personnel, overhead, everything else at, say, 5%
Pre-tax profit: 15%

Default mode costs:
Interest at 275%
Plus: Fees at 25%
Less: cost of funds 20%
Less: personnel, overhead, etc 5%
Less: added default cost not in personnel etc line, say 25%
Pre-tax profit: 250%

In that little example, who couldn't make money at those rates?

Extending the notion of APR and Truth-In-Lending to include payday lenders and anyone else without a brick-and-mortar branch who wants to do business in the US, how about mandating some type of honest waterfall chart as dreamt of above?

Then cross-reference and publicize the voting on finance legislation with the campaign contributions from payday people and their ilk, and layer in the borrower costs and credit scores and other metrics in those Congressional districts and zip+4 codes and census tracts and whatever other level of granularity will help provide any amount of disinfecting sunlight to help see the scattering cockroaches.

a different chris , December 4, 2017 at 12:57 pm

The problem I suspect is that your "friendly neighborhood credit union" is actually rarely anywhere near the neighborhoods where people who need these kind of loans live.

They don't have cars and mass transit is non-existent or so slow they couldn't get to the Credit Union during business hours, and back again, anyway. That's the problem with expecting Private Enterprise to be a solution for people at the bottom. They don't set up shop where those people live, or the ones that do are not exactly do-gooders.

lyle , December 4, 2017 at 7:33 pm

I just checked and a lot of credit unions let you apply for a loan online, (earlier you can set up membership online). So the issue of transport and time is lessened assuming folks have some form of net access.

JTMcPhee , December 4, 2017 at 1:04 pm

One might ask why there are millions of people reduced to having to get ripped off by payday and auto-title lenders, to somehow survive from week to week. Maybe because people can't make a living wage? Can't save any money, however prudent and abstemious they may be? Because inter-citizen cruelty and Calvinism are so very strong a force in this rump of an Empire?

Some of the comments here seem to build on the baseline assumption that's part of the liberal-neoliberal mantra, "You get what's coming to you (or the pittance we can't quite squeeze out of you yet)".

diptherio, I am guessing you may mean that there are models of better alternatives readily available, like paying a living wage, a social safety net for the worst off, a postal bank, national health care, stuff like that. I don't see that there are any alternatives actually available to most real people "on the ground."

Wukchumni , December 4, 2017 at 1:08 pm

There is an alternative to excessive payday loans, but only if you're in the military, where it's capped @ 36%.

Why not 36% for everybody?

diptherio , December 4, 2017 at 1:27 pm

You are, of course, correct in that the underlying problem is that so many people are forced to live on so little that they need payday loans in the first place. Thanks for pointing that out.

My point is simply that in the short-term, as a matter of practicality for those of us who don't always make it until payday before running out of money, a CU overdraft account is a very good option.

mpalomar , December 4, 2017 at 1:36 pm

Agree. The AB article from October deadpans a description of the ins and outs governing the hellishness of the company town we're living in.

lyman alpha blob , December 4, 2017 at 1:32 pm

This is a far superior option and thank you for bringing it up. The only problem is most banks and credit unions will not tell you it exists because they make a lot more money if you just keep bouncing checks.

I only learned about it when I worked for WAMU. We were tasked by management with promoting various new products to customers as a condition of being paid a monthly bonus which was the only thing that made the job pay enough to live on. Funny, they never asked us to promote the overdraft line of credit (aka an ODLOC), ever. I do remember one of my managers tell me that circa 2000 or so, WAMUs operating costs for the entire company for the entire year were offset just by the fees they collected off of bounced checks etc.

The fees or interest you pay for using an ODLOC are a small fraction of what you'd pay for bouncing just one check. IIRC, if I overdrew by $200 or so and paid it back on my next payday, the interest was generally less than $1. My local credit union has since added a $5 fee for accessing the ODLOC on top of the interest, but it's still much less than a bounced check fee or interest on a payday loan. I believe that depending on your credit history, you can get an ODLOC of up to $2500 or so which pretty much negates the need for any payday loans.

sd , December 4, 2017 at 11:14 am

A friend of mine was evicted from her apartment because of a payday loan. She failed to pay it off in full quick enough and it spiraled out of control tripling in a very short time. I really fail to see how usury is beneficial to society.

RepubAnon , December 4, 2017 at 11:55 am

Yes, there's a need for high-interest loans that bankrupt borrowers:

Mom-and-Pop Loan Sharks Being Driven Out by Big Credit Card Companies

Frank Pistone is part of the dying breed known as the American Loan Shark. Not so long ago, the loan shark flourished, offering short-term, high-interest loans to desperate people with nowhere else to turn. Today, however, Pistone and countless others like him are being squeezed out by the major credit-card companies, which can offer money to the down-and-out at lower rates of interest and without the threat of bodily harm

FluffytheObeseCat , December 4, 2017 at 12:25 pm

I read Servon's book. It is not a brief on behalf of the payday loan industry. She worked at a couple of payday lenders and explains how they serve the communities they're in, but a few things need to be noted:

The business she was most sympathetic with was a small, local one with only a couple of storefronts, in an east coast inner city. The owner and his help knew the customer base, often by name. Much of her sympathy came from her respect for the women who were dishing out the loans at the windows, not the owners and not the business model. This local joint operated like the most benign of old time pawnbroker/loansharking operation from the early part of the last century.

Most "Cash America" storefront shops (on shabby, midcentury shopping strips in inner ring scuburbs across the US) aren't this decent. They aren't "part of a community" in any sense. And the rates are usurious any way, for all of them.

Thank you to Ms. Scofield for continuing to cover this and related businesses. The upper, cleaner part of our finance industry derives more filthy lucre from these kinds of loan shops than they ever want you to know (sub-prime lending shops, title loans shops . there are a lot of modalities for fleecing the poor and the near-poor nowadays).

JTMcPhee , December 4, 2017 at 12:35 pm

The NC staff must be pleased that it seems like so many subtle apologists for the looters, predators, "intelligence community," and so forth, appear to be turning up here early in the opening of new site posts. I'm guessing the Elite are not exactly quaking in fear that NC's reporting will catalyze some change that might sweep the political economy in the direction of what the mopery would categorize as "fairness," but still

ger , December 4, 2017 at 12:42 pm

Raised the dollar definition of middle class and declared a 'new middle class' or could it be 'new middle class' is actually referring to the 'new middle poor'. The former middle class is desperately trying to avoid a plunge into the pits of the 'poor poor'. Payday Loan predators are greasing the handrails.

Matthew Cunningham-Cook , December 4, 2017 at 3:15 pm

"Where will the money-changers change money if not in the Holy Temple? Aren't we starving the priests of much-needed revenue? This Jesus guy is totally disingenuous."

John , December 4, 2017 at 9:32 pm

In good neo liberal fashion that Jesus dude got exactly what he deserved. The effrontry of that guy to chase those hard working money lenders out of the temple square. Got exactly what was coming to him.

sd , December 4, 2017 at 11:11 am

H.J.Res.122 – Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to "Payday, Vehicle Title, and Certain High-Cost Installment Loans".

December 1, 2017

Sponsor Rep. Ross, Dennis A. [R-FL-15] (Introduced 12/01/2017)
Rep. Hastings, Alcee L. [D-FL-20]
Rep. Graves, Tom [R-GA-14]
Rep. Cuellar, Henry [D-TX-28]
Rep. Stivers, Steve [R-OH-15]
Rep. Peterson, Collin C. [D-MN-7]

perpetualWAR , December 4, 2017 at 12:21 pm

Ahhh ..look at this list. TWO Florida lawbreakers introducing this banker bill. And one from Minnesota. Y'all know that Jacksonville, FL and St. Paul, MN are the two places where the forgeries continue to be provided to the financial crooks? So, it goes to figure that the lawbreakers are attempting to protect the financial crooks committing forgery in their prospective states! How appro.

jawbone , December 4, 2017 at 1:44 pm

If any of these House critters are "representing" you, time for lots of calls to them.

And thanks, SD, for listing them. I always wonder why our vaunted free press so seldom lists the sponsors of legislation when it's reported on . Hhmm .
m .

Mike R. , December 4, 2017 at 1:19 pm

I have mixed feelings about this specific issue.
The larger issue of a grossly skewed economic system is what needs to be fixed.
There will always be people that lack common sense and brains regarding money. There will always be people that will take advantage of that.
I don't know how or why you would try and legislate that away.
We need to move in the direction of solving the biggest problems and not get wrapped up in the little problems.
The numbers above sound horrendous, but 7 billion in profit on 46 billion loaned is 14% return. Credit card companies are worse. 7 billion in profit off of 12 million people is $600 per person. Alot for poor folks I recognize, but not necessarily life shattering for all.

The "system" loves to wrangle around with issues like this (trivial in my mind) so the handful of big ones go unattended.

nonclassical , December 4, 2017 at 1:46 pm

some have apparently not felt it necessary to bail out family members for aggressive, egregious and immediate interest rates and escalations charged by these scammers

but there certainly appears concerted effort by (likely) shills to perpetuate scams (and to discredit Consumer Financial Protection Agency and Liz Warren )

Warren-Sanders 2020

Wisdom Seeker , December 4, 2017 at 3:37 pm

I think there's an error in the original article, where it says:

CRA's procedures to overturn legislation had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (emphasis added)

My understanding is that CRA gives Congress the power to overturn executive branch regulations , not legislation (which Congress already can overturn anyway). Is that incorrect?

P.S. It's sad that it might not even matter. Nowadays the public can't tell the difference between regulations (written by unaccountable, unelected officials who take the revolving door back to working at the firms they regulated) and legislation (written by unaccountable, only notionally elected politicians who get paid off in various ways by lobbyists for the same firms)

Jerri-Lynn Scofield Post author , December 4, 2017 at 8:07 pm

You're correct– fixed it! Slip of the fingers there that I didn't catch when I proofread the post. As the rest of the paragraph makes clear, CRA procedures are used to overturn regulations.

Thanks for reading my work so carefully and drawing the error to my attention.

John k , December 4, 2017 at 8:26 pm

Finally bipartisan!
Trump loves it
Obomber woulda loved it
She who cannot be named woulda loved it, too.
Time for them all to get over that little spat she did it before trump should appoint her to something useful I bet she'd love secdef

Taras 77 , December 4, 2017 at 10:40 pm

Where is the lovely Debbie Wasserman schultz in all of this? She has not surprisingly been a leading cheerleader for these pay day lender sharks. but hey, what the hey, the lobby money is good!

[Dec 05, 2017] Rise of casino capitalism by Stefan Stern

This was written a decade ago. neoliberalism is a stable social system but nothing changed, although fault lines of the system became more evident.
Notable quotes:
"... "The prototype of the successful man in modern society is not the scientist, the inventor, the scholar. It is the financier, the gambler and those with social pull. The others share [in the winnings] sometimes, it is true, but their share is modest compared with the oligarchs and tycoons; and they don't usually keep their share for long. They are no match for the commercial prowlers." ..."
"... Mr Monks contrasted businesses' healthy profitability with the ruthless way some have treated their staff recently, whether through large-scale redundancies or the constant threat that jobs may be sent off-shore or outsourced. While median wages have stagnated, record executive salaries are legion. ..."
"... he was appalled by the increasingly "shameless", short-termist behaviour of overpaid corporate executives. "More and more they resemble the Bourbons - and they should be aware of what eventually happened to the Bourbons." ..."
"... "All this is too important to be left to the practitioners who have a vested interest in obscuring what they do from the rest of us," he said. And, with bonus season fast approaching, he took one final, sweeping aim at the high rollers of "casino capitalism". Their actions are "dangerous to economic stability, traditional industry and jobs", he said. "I would like to see the City pages of the press more challenging and less respectful on these matters . . . Our future - the world's future - is too important to place in the hands of the new capitalists." ..."
"... Half a century ago, Nye Bevan expressed a similar concern. In In Place of Fear he wrote: "There is a sense of injustice in modern society, and this induces a feeling of instability even in normal circumstances. The rewards are not in keeping with social worth, and the consciousness of this, both among the successful and the unsuccessful, will simmer and bubble, blowing up into geysers of political and social disturbance in times of economic stress." ..."
www.warc.ch

"The prototype of the successful man in modern society is not the scientist, the inventor, the scholar. It is the financier, the gambler and those with social pull. The others share [in the winnings] sometimes, it is true, but their share is modest compared with the oligarchs and tycoons; and they don't usually keep their share for long. They are no match for the commercial prowlers."

A snap-shot of London's Mayfair district, home to the burgeoning hedge-fund phenomenon, in November 2006? Actually, no. The above words were written in 1952 by the Labour politician Aneurin Bevan in his book In Place of Fear. Bevan had a gift - his most passionate supporters would say a genius - for exposing the truth of a situation in language that could be both scintillating and pungent.

Fifty years ago, he criticised the prime minister of the day, Sir Anthony Eden, for his reckless actions during the Suez crisis. "[He] has been pretending that he is now invading Egypt in order to strengthen the United Nations," Bevan said in a famous speech in Trafalgar Square. "Every burglar of course could say the same thing: he could argue that he was entering the house in order to train the police. So, if Sir Anthony Eden is sincere in what he is saying, and he may be . . . then he is too stupid to be a prime minister!" Here was political rhetoric with a touch of prophesy about it.

It was the enduring appeal of speeches such as these that helped draw a good crowd to the fifth annual Bevan memorial lecture in London last week. The lecture was to be given by John Monks, formerly general secretary of the British Trades Union Congress, now the Brussels-based leader of the European trade union confederation.

No one in the audience would have been expecting Bevanite rhetorical fireworks from Mr Monks. That has never been his style. Between 1993 and 2003, he led the British trade union movement with modesty and distinction. He was the moderate's moderate: avoiding confrontation wherever possible and advocating partnership at work between management and employees. Business leaders were happy to do business with him.

They would not have found this lecture so easy to deal with. Confronted by today's turbo-charged capitalism, Mr Monks cast off his former moderation. He even seemed to be on the verge of recanting his commitment to the partnership model. "Partnership with who?" he asked. There has been, he said, a "disintegration of the social nexus between worker and employer - a culture containing broad social rights and obligations. The new capitalism wants none of it."

Mr Monks contrasted businesses' healthy profitability with the ruthless way some have treated their staff recently, whether through large-scale redundancies or the constant threat that jobs may be sent off-shore or outsourced. While median wages have stagnated, record executive salaries are legion.

He admitted that he had possibly been a bit naive in the past. "I did not fully appreciate what was happening on the other side of the table," Mr Monks said. While he sympathised with business leaders for the relentless pressure they find themselves under - "It cannot be easy running a firm . . . when you are up for sale every day and every night of every year" - he was appalled by the increasingly "shameless", short-termist behaviour of overpaid corporate executives. "More and more they resemble the Bourbons - and they should be aware of what eventually happened to the Bourbons."

For someone like me, who has sat through 10 years of reasonableness from John Monks, this speech was remarkable, devastating stuff. Maybe there is something in the Brussels water. Perhaps the ghost of Nye Bevan was speaking through him. Or was it just anxiety over the career choice of his daughter's boyfriend? He is now working for - you guessed it - a hedge fund. Whatever its cause, a challenge was being thrown down.

"All this is too important to be left to the practitioners who have a vested interest in obscuring what they do from the rest of us," he said. And, with bonus season fast approaching, he took one final, sweeping aim at the high rollers of "casino capitalism". Their actions are "dangerous to economic stability, traditional industry and jobs", he said. "I would like to see the City pages of the press more challenging and less respectful on these matters . . . Our future - the world's future - is too important to place in the hands of the new capitalists."

Will corporate leaders - those that have read this far anyway - simply shrug their shoulders and get back to their slashing and burning ways? Is Mr Monks merely offering a wholly predictable, knee-jerk, lefty rant? I do not think so. This general secretary just does not do lefty rants. So business people should take note. When the John Monkses of this world say enough is enough, that the capitalist system itself is sick, you can be sure that elsewhere in the world there is deep-seated, lingering resentment and unhappiness.

Half a century ago, Nye Bevan expressed a similar concern. In In Place of Fear he wrote: "There is a sense of injustice in modern society, and this induces a feeling of instability even in normal circumstances. The rewards are not in keeping with social worth, and the consciousness of this, both among the successful and the unsuccessful, will simmer and bubble, blowing up into geysers of political and social disturbance in times of economic stress."

Reading these words, you can see why so many people were prepared to come out on a dark Tuesday night...

[Dec 05, 2017] Controlling speculation in world financial markets Progressive Christians Uniting by Gordon K Douglass

Highly recommended!
Nov 09, 2002 | www.prospect-magazine.co.uk

Financial markets 101
Early history
The Bretton Woods system
The power of financial actors
Consequences of global financial flows
Policy options
Theological and ethical considerations
A new financial architecture
What Christians can do
Want to know more?
Questions For Discussion


"During my whole career at Goldman Sachs - 1967 to 1991 - I never owned a foreign stock or emerging market bonds. Now I have hundreds of millions of dollars in Russia, Brazil, Argentina and Chile, and I worry constantly about the dollar-yen rate. Every night before I go to bed I call in for the dollar-yen quote, and to find out what the Nikkei is doing and what the Hang Seng Index is doing. We have bets in all these markets. Right now Paul [one of my traders] is long [on] the Canadian dollar. We have bets all over the place. I would not have worried about any of these twenty years ago. Now I have to worry about all of them."

Leon Coopermann, hedge fund manager1


Economic globalization is probably the most fundamental transformation of the world's political and economic arrangements since the Industrial Revolution. Decisions made in one part of the world more and more affect people and communities elsewhere in the world. Sometimes the consequences of globalization are positive, liberating inventive and entrepreneurial talents and accelerating the pace of sustainable development. But at other times they are negative, as when many people, especially in less-developed countries, are left behind without a social safety net. Globalization undermines the ability of the nation to tax and to regulate its own economy. This weakens the power of sovereign nations relative to that of large transnational corporations and distorts how social and economic priorities are chosen.

Economic globalization is most often associated with rapid growth in the flow of goods and services across international borders. Indeed, the economic "openness" of a nation is often measured by the value of its exports, imports, or their sum when compared to the size of its economy. Economic globalization also involves large investments from outside each nation, often by transnational corporations. These corporations often combine technology and know-how with their investments that enhance the productive capacity of a nation. Previous position papers of the Mobilization, contained in Speaking of Religion & Politics: The Progressive Church Tackles Hot Topics2, have dealt with globalization primarily in these terms.

But international trade and investment are only part of the openness that has come to be called globalization. Another part, and arguably the most important, is the quickening flow of financial assets internationally. While a small portion of this flow is directly associated with the "real" economy of production and exchange, its vast majority is composed of trades in the "paper" economy of short-term financial markets. This paper economy is enormous: The value of global financial securities greatly exceeds the value of annual world output of goods and services. Moreover, the paper economy often contributes to crises in the real economy. Thus it is important to the well being of humanity and the planet as a whole, yet it is little understood by most people. This essay undertakes to provide a basic understanding of this paper economy, especially as its more speculative features have multiplied during the last two or three decades, so that Christians and others concerned about what is happening in our world can join in an intelligent discussion of how the harmful consequences of financial markets can be controlled.


Financial markets 101

To better understand this paper economy, one first needs to know something about foreign exchange markets, international money markets, and "external" financial markets.

In an open economy, domestic residents often engage in international transactions. American car dealers, for example, buy Japanese Toyotas and Datsuns, while German computer companies sell electronic notebooks to Mexican businessmen. Similarly, Australian mutual funds invest in the shares of companies all over the world, while the treasurer of a Canadian transnational corporation parks idle cash in 90-day Bank of England notes. Most of these transactions require one or more participants to acquire a foreign currency. If an American buys a Toyota and pays the Japanese Toyota dealer in dollars, for example, the latter will have to exchange the dollars for yens in order to have the local currency with which to pay his workers and local suppliers.

The foreign exchange market is the market in which national currencies are traded. As in any market, a price must exist at which trade can occur. An exchange rate is the price of a unit of domestic currency in terms of a foreign currency. Thus, if the exchange rate of the dollar in terms of the Japanese yen increases, we say the dollar has depreciated and the yen has appreciated. Similarly, a decrease in the dollar/yen exchange rate would imply an appreciation of the dollar and a depreciation of the yen.

Foreign exchange markets can be classified as spot markets and forward markets. In spot markets currencies are bought and sold for immediate delivery and payment. In forward markets, currencies are bought or sold for future delivery and payment. A U.S. music company, say, enters into a contract to buy British records for delivery in 30 days. To guard against the possibility of the dollar/pound exchange rate increasing in the meantime, the company buys pounds forward, for delivery in 30 days, at the corresponding forward exchange rate quoted today. This is called hedging.

Of course, there has to be a counterpart to the music company's forward purchase of pounds. Who is the seller of those pounds? The immediate seller would be a commercial bank, as in the spot market. But the bank only acts as an intermediary. The ultimate seller of forward pounds may be another hedger, like the music company, but with a position just its opposite. Suppose, for example, that an American firm or individual has invested in 30-day British securities that it wants to convert back into dollars after the end of 30 days. The investor may decide to sell the pound proceeds forward in order to assure itself of the rate at which the pounds are to be converted back into dollars after 30 days.

Another type of investor may be providing the forward contract bought by the music company. This is the speculator, who attempts to profit from changes in exchange rates. Depending on their expectations, speculators may enter the forward market either as sellers or as buyers of forward exchange. In this particular case, the speculator may have reason to believe that the dollar/pound exchange rate will decrease in the next 30 days, permitting him to obtain the promised pounds at a lower price in the spot market 30 days hence.

The main instruments of foreign exchange transactions include electronic bank deposit transfers and bank drafts, bills of exchange, and a whole array of other short-term instruments expressed in terms of foreign currency. Thus, foreign exchange transactions do not generally involve a physical exchange of currencies across borders. They generally involve only changes in debits and credits at different banks in different countries. Very large banks in the main financial centers such as New York, London, Brussels and Zurich, account for most foreign exchange transactions. Local banks can provide foreign exchange by purchasing it in turn from major banks.

Although the foreign exchange market is dispersed in many cities and countries, it is unified by keen competition among the highly sophisticated market participants. A powerful force keeping exchange rate quotations in different places in line with each other is the search on the part of market participants for foreign exchange arbitrage opportunities. Arbitrage is the simultaneous purchase and sale of a commodity or financial asset in different markets with the purpose of obtaining a profit from the differential between the buying and selling price.

When foreign exchange is acquired in order to engage in international transactions involving the purchase or sale of goods and services, it is said that international trade has taken place in the real economy. When international transactions involve the purchase or sale of financial assets, they are referred to as international financial transactions. They constitute the paper economy.

Financial markets are commonly classified as capital markets or money markets. Capital markets deal in financial claims that reach more than one year into the future. Such claims include shares of stock, bonds, and long-term loans, among others. Money markets, on the other hand, deal in short-term claims, with maturities of less than one year. These include marketable government securities (like Treasury bills), large-denomination certificates of deposit issued by banks, commercial paper (representing short-term corporate debt), money market funds, and many other kinds of short-term, highly liquid (easily transferable) financial instruments. It is these short-term money market securities that account for most of the instability in the global paper economy.

Buying or selling a money market security internationally involves the same kind of foreign exchange risk that plagues buyers or sellers of merchandise internationally. If one wishes to guard against the possibility of an increase or decrease in the foreign exchange rate, one can insure against such fluctuations by "covering" in the forward market. By the same token, the decision about whether to own domestic or foreign money market securities is not simply a comparison of the rates of interest paid on otherwise comparable securities, because one must also take into account the gain (or loss) from purchasing foreign currency spot and selling it forward. Thus, choosing the security with the highest return does not necessarily imply the one with the highest interest rate.

People who trade in international money markets, moreover, need to take into account many other variables, including the costs of gathering and processing information, transaction costs, the possibility of government intervention and regulation, other forms of political risk, and the inability to make direct comparisons of alternative assets. Speculating in international money markets is a risky proposition.

International money markets involve assets denominated in different currencies. External financial markets involve assets denominated in the same currency but issued in different political jurisdictions. Eurodollars, for example, are dollar deposits held outside the United States (offshore), such as dollar deposits in London, Zurich, or even Singapore banks. The deposits may be in banks owned locally or in the offshore banking subsidiaries of U.S. banks. Deutsche mark deposits in London banks or pound sterling deposits in Amsterdam banks also are examples of external deposits. They are referred to as eurocurrency deposits. (The advent of a new common currency in the European Community - the Euro - will require the development of new nomenclature for external financial markets)

External banking activities are a segment of the wholesale international money market. The vast majority of eurocurrency transactions fall in the above $1 million value range, frequently reaching the hundreds of millions (or even billion) dollar value. Accordingly, the customers of eurobanks are almost exclusively large organizations, including multinational corporations, government entities, hedge funds, and international organizations, as well as eurobanks themselves. Like domestic banks, eurobanks that have excess reserves may make loans denominated in eurocurrencies, expanding the supply of eurocurrency deposits. The eurocurrency market funnels funds from lending countries to borrowing countries. Thus, it performs an