Let Them Eat iPads!

Whether or not Marie Antoinette ever uttered the phrase that modern myth-makers have attributed to the much maligned monarch to help spark the French Revolution, there is less doubt surrounding the harsh realities of a peasant's life in late18th century France. Rising bread prices, unemployment, rising war-related debt, an inefficient financial system leading to difficulties managing said debt exacerbated by the burden of an inadequate system of taxation and a ruling class disconnected and isolated from the realities of the day-to-day life of the population are all cited as causes leading up to the storming of the Bastilles. Fortunately, as North Americans finish their Labor Day holiday (Labour up north, eh), they can enjoy those picnic hotdogs all the more in the knowledge we've come a long way since 1789, as democracy and capitalism have spread and taken hold guaranteeing an equal voice and opportunity for all.

The struggle of man against power is the struggle of memory against forgetting
- Milan Kundera

The trick you see is to help/make a majority of the people ignore the relevant facts by distorting or drowning them out. Let's start with the holiday itself. The first Labor Day celebration in the US was nothing but a parade organized by unions in New York on September 5, 1882, as a celebration of "the strength and spirit of the American worker." Their goals were simple: decent wages, an eight-hour workday and the right to organize. The national holiday wasn't instated until twelve years later in 1894 when President Grover Cleveland needed good publicity cover for, get this, crushing a labour strike by sending in troops during the economic depression known as the Panic of 1893. Politicians and labour leaders were content to keep the holiday in September, far from the growing popularity of May Day. Both the workers and Cleveland turned out to be the losers as Grover lost the Democratic nomination in 1896 and the reforms labour sought did not come about for nearly half a century when the Depression-era fair labour laws that were passed under Franklin D. Roosevelt finally set standards like the eight-hour day and an end to child labour.

Those laws (and the US hegemony of the post-WWII world) set the stage for an era of unparallelled growth and prosperity. All this success inevitably bred the hunger for more, and more now. Satiating today's desires became more important than tomorrow's which were less pressing than next week's. In the business world this was reflected in a culture that rewarded results this quarter through increasing stock prices and executive pay and neglected the necessity for planning for a few years down the road. People worked longer hours, women entered the workforce then they took on two jobs or overtime. When this wasn't enough they simply financed it in an orgy of credit cards, payday loans and even turned their homes into cash machines. Of course all of this was cheered on by corporate America which adapted by shifting the entire economy away from manufacturing towards financing all that debt. General Electric doesn't make their money producing light bulbs, they are now first and foremost a finance company. This seemed great for everyone for awhile, those at the bottom needed money to keep buying more stuff, those at the top needed somewhere to invest all the cash they were making and the financial intermediaries gladly created ever more complex securities to shuffle the money from one to the other.

Well, we know all know how that wound up. Luckily the US today is nothing like France in 1789, you remember - "Rising bread prices, unemployment, rising war-related debt, an inefficient financial system leading to difficulties managing said debt exacerbated by the burden of an inadequate system of taxation and ruling royalty disconnected and isolated from the realities of the day-to-day life of the population". We're told by government statistics that inflation is under control so bread prices can't be a problem; somehow printing trillions to bail out the banks and to lend them at near zero interest rates hasn't affected prices. Oh, that's right, core inflation is what they talk about. Core, meaning the price of everything that we don't need to live, as it excludes the price of food and energy. Lucky those new iPads are tasty and keep us warm at night. Meanwhile, the financial industry has done a great job of using their free cash to bid up the price of food and oil.

"Wealth is like sea-water; the more we drink, the thirstier we become"
- Arthur Schopenhauer

Incomes have risen to meet the real increased cost of living - if you were already rich to start with at least. Today, he richest 1% of households earn as much each year as the bottom 60% put together taking in a quarter of the nation's income; they possess as much wealth as the bottom 90%; with each passing year, a greater share of the nation’s treasure flows through their hands and into their pockets giving them control of 40% of the nation's riches. In twenty-five years they have more than doubled their share of income while wealth rose from 33% of the total. "Meh", says Joe six-pack, "it's not so much how you divide the pie that matters, it's how big the pie is, besides, one day, I could be part of the 1%." Unbeknownst to him, median incomes declined outright from 1999 to 2009 for those lucky enough to still have a job. For 90 percent of American workers, incomes have stagnated or fallen for the past three decades, while they've ballooned at the top, and exploded at the very tippy-top: By 2008, the wealthiest 0.1% were making 6.4 times as much as they did in 1980 (adjusted for inflation).

Cruelly, the August jobs report released just last week showed that no jobs were created which really represents a net loss as at least 125,000 are needed to keep up with population growth. Since the end of 2007, America’s potential labour force – working-age people who want jobs – has grown by over 7 million but the number of Americans with jobs has shrunk by more than 300,000. We're told the unemployment rate has been over 9% for a couple of years which sounds horrible enough but is nothing when compared to reality. Again, statistics are manipulated to manufacture cold comfort as reported unemployment only measures active job seekers and takes no account of underemployment. Taking into account long-term discouraged workers who were defined out of official existence in 1994 and those forced to work part-time because they cannot find full-time work, the SGS Alternate Unemployment Rate is 22.8%.

Did someone say rising war related debt? Again, if you live in America, about half of you have been convinced that the debt was either created by greedy teachers or is part of President Obama's plan to sell you into indentured servitude to his Muslim Kenyan drunk uncle. Step back, get off the Tea Party, Koch crack. If the Bush-era tax cuts are renewed next year, that policy will by 2019 be the single largest contributor to the nation's public debt -- "the sum of annual budget deficits, minus annual surpluses" -- according to new (well, May) analysis from the non-partisan Center for Budget and Policy Priorities. Graph's on the right. These tax breaks, combined with the cost of fighting wars in Iraq and Afghanistan, will account for nearly half the public debt in 2019, measured as a percentage of economic output.

Oh, it only gets worse war worriers. These figures surely underestimated the costs associated with almost 50% of returning troops eligible to receive some level of disability payment and more than 600,000 treated so far in veterans’ medical facilities. But the social costs, reflected in veteran suicides (which have topped 18 per day in recent years) and family breakups, are incalculable. Am I the only one twisted enough to find it funny that so many people have been convinced to back the union busting way of governors from Wisconsin to Ohio, Michigan and Florida by snake-oil salesmen to cut deficits when in fact it was increased defense spending, together with the Bush tax cuts that were key reason why America went from a fiscal surplus of 2% of GDP when Bush was elected to its parlous deficit and debt position today. That is the real reason wieners like Rep. Eric Cantor say the country needs to find savings elsewhere before helping the people of Vermont after a catastrophe.

Efficient modern financial market have turned out to be nothing but a pipedream as they've turned out to be worse than those in the time of Jean Valjean. We've spent countless trillions propping up a system that is rotten to the core. Without Faux News or lunatics screaming CNBC about subsidizing deadbeat homeowners creating moral hazard we may have done just that, keeping a roof over people's head instead of, you know, creating moral hazard by giving cash to the bank. The muppets keep droning on spouting supposed financial forecasting knowing full well that economists are nothing but people who see something working in practice and try to figure out if it would work in theory. Voila, socialized losses and privatized gains for the banks. The financial system creates NO wealth on its own, its value lies in its ability to efficiently allocate capital, to smoothly transfer money from savers to spenders. The key word is efficiently, there shouldn't be much friction in the system. Yet the µ (Mu) has been rising - the financial industry has increase its share of US domestic corporate profits from 16% in 1985 to over 40% today.

One need look no further than the hostage taking of Dollarmageddon this summer for proof of a nation having difficulties managing its debt. Here we see the malevolent influence of money on the gears of power as the paid lackeys parading as congressmen in Washington do the bidding of their corporate masters, creating a crisis to allow them to implement their agenda. This Kibuki theatre play is worsened by the false-front democracy of a two-party system where one is dumb, greedy, evil and only exists to be re-elected in the next cycle and the other is well, a bit dumber, greedier and more evil hoping to be elected in the next cycle. In fact, faced with a near insurmountable mountain of debt and only two ways to narrow the deficit, lowering spending and raising taxes, not one of the presidential candidates for the dumber, greedier and eviler side would consider the latter. That'll get you a credit downgrade and qualify as a difficulty managing debt.

Bigger? Click.

The final ingredient in the French Revolution, a ruling class disconnected and isolated from the realities of the day-to-day life of the population, is in heavy supply in today's America. Wall Street controls Washington through K Street with no regard to Main Street. It turns out that at a time when austerity for everyone but the rich in order to pay back the banks leaving less money for the economy is the only accepted prescription offered by the ruling class, it's better to have no government like in Belgium. You'd expect some empathy when thanks to the recession, the number of American families no longer earning enough to pass the minimum threshold to pay income tax has risen from 30% to 47%. Never mind that the number of children now living in poverty has risen to 15 million, 21% of all children in the US, that 45 million people rely on food stamps to survive, or that these people pay a myriad of other more regressive taxes such as payroll, sales, state and local - no, the crazier party believes they should pay more. That's right, CEO's who are massively rewarded with higher pay for helping their corporations dodge taxes don't need to pay any taxes (a must read report, infographic on the left), but the poor, well, they need to pay more. Forget that it's those people spending that keeps the economy going - consumer spending accounts for 70% of economic activity - they need to be taxed more. About the only elite who doesn't seem blind to the chaos caused by the chasm between us and them is one of the three richest men in the world, Warren Buffet, who took the the NY Times op-ed page to call for an end to the coddling of the super-rich. What, and have them pay as much as under Clinton? Outrageous!

Our democracy is but a name. We vote. What does that mean? It means that we choose between two bodies of real -- though not avowed -- autocrats. We choose between 'Tweedledum' and 'Tweedledee'.
- Helen Keller

In fact, some elites have become so blinded with rage by the situation somehow caused by the rest, they've decided to pull up stakes and let the poor fend for themselves. Yep, John Galt himself would be proud. Those who in their benevolence choose to stay and help us poor plebs will be sure to fight to ensure that all of their tax advantages stay in place. Of course the politicians in Washington, most of whom are part of the 1% anyway, have every incentive to only listen to the richest voices, they'll need jobs after getting out of office, self-interest and all, you know? Strangely - or more correctly - predictably enough, turns out senators only listen to the rich (PDF of study here). No wonder that slightly more evil party even thinks poor people voting is un-American.



It's all about convincing enough of the people things are fine and lies, such as the one that businesses aren't hiring because of taxes and regulation. The corporate tax rate is supposedly the highest in the world at 35% yet over 100 companies on the S&P 500 paid less than 20%, GE earned billions at home while paying nothing as did at least 15 others. Media, from Hollywood to your iPad has served her corporate masters well as it seems as long as we can buy more stuff, never mind if it's made in China and sold at Wal-Mart, everything is better than before. Amazingly, with all of the propaganda their exposed to, when asked about income distribution, Americans tend to think they live in Sweden, wish they lived in a Socialist utopia but in fact live in Turkmenistan or the Uganda. No offense Turkmen and Ugandans.

American workers' have seen their number of hours worked per week rise along with their productivity which magically seems to grow corporate profits but not median salaries. They put in an average of 122 more hours per year than Brits, 137 hours more than Japanese workers and 378 hours (nearly 10 weeks!) more than Germans. It's the only country besides Papua New Guinea, Sierra Leone, Liberia, Samoa, and Swaziland that doesn't legislate paid time off for new moms and the only country in the OECD where a right to weekends off and paid vacation time isn't guaranteed. The only explanation of satisfaction for those living in a country where income mobility is falling and people get excited when McDonald's is hiring is some weird twisted ur-myth of Ben Franklin-Horatio Alger-Henry Ford where through hard work one can attain the American Dream and become rich and successful. To get ahead though, a 70-hour work week has become the new standard. I've got news for anyone who doesn't realize the economic catastophe of the past few years will make it easier for employers to demand more while giving less. Is there any wonder why illegal drug use is at a decade high and prescription drug abuse has surged 400% in a decade while mental illness has skyrocketed?

Reality doesn't hit most until they're one of the 50 million Americans without health insurance and they get sick in a country that spends the most for health care (about double) for less than average results. They don't care until joining the 25.3 million Americans out of work, forced to work part-time, unable to find a full-time job or have given up searching for a job in the past month. Giving up is easy when they realize there is one job for every 4.5 job seekers. If you're wondering where the jobs are check out the chart to the right. By avoiding the responsibilities of taxes that mere people are required to pay and squeezing ever higher productivity out of workers while firing domestically and hiring elsewhere, American corporations are sitting pretty while workers only defense in the past, unions, are losing more and more power. In fact, the ratio of corporate profits to wages is now higher than any time since before the Great Depression. Apple, Exxon and Goldman Sachs don't exist to make our lives better in the crony capitalism that we've allowed to develop, in fact they seem a lot better at making them worse - just like the economy is going to get on our present course, hello double dip, er, recession I mean! Will it take a Robespierre to rally the retards or will enough people simply pitching tents on Wall Street September 17th to let the banksters know the other 99% are suffering? Either way, I'd say let capitalism make you rich and invest in a good, solid guillotine maker.



More suggested reading and doing:
Can the Middle Class be Saved?
The Rise of the New Global Elite
Of the 1%, By the 1%, For the 1%
Occupy Wall Street September 17th
US Uncut
Great charts and graphs here and here

Towards a New Normal

The release of Forbes' annual list of billionaires last week seemed little more than a tired attempt to hawk a few magazines. It tried to create a bit of buzz by ranking a Mexican, Carlos Slim, at the top of the list at $53.5 trillion. Hoped to get America's panties in a bunch trumpeting the fact that Asia was home to more new billionaires than the US and Europe. Endeavoured to convince us the world's economy is turning around heralding the dramatic rise in wealth of the billionaire club, up 500 billion to $3.5 trillion. Guess it's lucky for Forbes that most people really hadn't been paying attention as a quick google search reveals more than a few reactions, from apocalyptic to benign,  fawning to condemning. Somehow they missed Fortune magazine's announcement that Slim was the richest man in the world nearly three years ago, that the West has already sold its future to the East and that the current brand of capitalism is working on the last course of its meal as it devours itself.

In case you missed it, Bill Gates isn't the richest man in the world anymore, nor is Warren Buffet. Gates had topped the list since 1994 then lost the title in 2008 to Buffett only to regain it last year. Neither did too badly last year, both seeing their fortunes grow by over $10 billion. Problem was, the Mexican's grew by $17.5 billion. Carlos Slim Helú's wealth grew from a paltry $35 billion to $53.5 billion in just a year. While the propagandists will peddle the Horatio Alger myth of a self made man whose business savvy has brought him to the pinnacle of power, Slim owes his over the top success to an inheritance head start and insider influence.

Still drinking the Kool-Aid that teaches us that motivation, innovation and education sets one on the pathway to success? Funny enough, Fortune featured at article alongside their rich list which asked "Are You Born to be a Billionaire?" which stresses optimism and risk taking, when in fact one of the best ways to get on Forbes' list is to be like Steve Forbes himself and be born onto it much like the Walton clan of Wal-Mart fame occupying the 12th, 15th, 16th and 18th positions on the list. Sure, you'll find a useful proportion of productive entrepreneurs who have enlarged the economic pie but looking at the rest of the list, one gets a feeling that the invisible hand isn't as important as the silver spoon in determining one's financial fortune.

Still, Slim wasn't granted the advantage of the Waltons, so how did the son of a Lebanese immigrant amass such a fortune in Mexico? Easy. You control the communication industry of not only your country, but an entire region. "Slimlandia" truly blossomed thanks to privatization of the Mexican telecommunications industry in the early 90's, which brought about a monopoly instead of diversity. His purchase of Telmex, facilitated by contributions to then president Carlos Salinas, was the springboard which has led to a Mexican economy that "is highly inefficient, and it is losing its competitive standing vis-à-vis other countries because of people like Slim." Almost every time a phone rings or text message is sent, Carlos pockets pesos from the 92% of subscribers in land-line telephony, while his mobile operator, Telcel, has almost 80% of users in Mexico. Oh, in the past five years his mobile telephone company America Movil has purchased most of the remaining mobile operators across Latin America, becoming the largest mobile service provider in the region. The reward for the people? Some of the highest phone hook up rates in the developing world. America Movil now has 201 million customers from Brazil to the United States. Slim also owns five insurance companies, a Mexican retail chain, a mining company, the Inbursa bank, the Cigatam tobacco factory, the Volaris airline company and the Progidy Internet provider. Oh yeah, chunks of Saks and Sears, plus he lent $250 million to the NY Times at 14% interest plus warrants convertible into 16% of the paper. All together, Slim’s companies have a value of half of the Mexican stock market, 7% of Mexican GDP, while much of the rest of the country gets by on a little over $4 a day per head (54-57 pesos).

Sure, your probably saying to yourself, "Yeah, sounds like Mexico, poor and corrupt, nothing like that happens in the developed world, after all they've got a drug lord on the rich list." Yet one could easily argue that Gates billions are largely thanks to the monopoly position he attained in his industry, but I won't. Or maybe bring up the culture of war that his seen a transfer of wealth measuring in the trillions to defense contractors’ whose growing use of offshore subsidiaries from 2003 to 2008 resulted in the loss of tax revenue and unemployment benefits for workers. How about you take a noble idea, say, granting health care coverage to your people, then twist it into an evil package that will deliver guaranteed profits to the insurance industry? I suppose I could point out that the entire financial industry was given trillions of dollars to keep them afloat in order to hand over billions in compensation to the guys who drove the world economy into the ground, but that would be too easy. How did capitalism become so corrupt?

Unlike the last depression when the gilded fortunes of most plutocrats dropped precipitously, along with the banks the rich have been well taken care of by the system. The government printing presses have been working overtime to maintain the illusion of stability in order to artificially propel stock and resource prices. This has clearly benefited Warren Buffett who has gorged himself on the buffet of buying opportunities that the crisis presented resulting in a $10 billion increase in his wealth. Sure, the "Oracle of Omaha" does his bit allocating wealth through Berkshire Hathaway while taking home a reasonable salary, but what has he produced? One can ask the same of these other 33 hedge fund managers on the list. How did they improve the world?

And who else's wealth is your tax payer money, along with your children's and children's children's children, going to support? Only 16% of the new members of the elite thousand were from the States while Asia added 104 moguls giving them just 14 fewer total than Europe, 234 to 248. The 4th and 5th richest people in the world are now from India, Mukesh Ambani and Lakshimi Mittal moved up from 8th and 7th respectively. Soaring resource prices helped the biggest gainer on the list, as Brazil's Eike Batista saw his wealth increase by $19.5 billion(!) thanks to his mining interests, moving him up to 7th at $27 billion. Russia rounded out the BRIC countries fine performance. As oil and gas prices bounced back, so did oligarch fortunes. Of the 164 returning members to the list, 28 were Russian, giving them a tally of 62 billionaires. Taiwan tripled its number of billionaires to 18 and Turkey more than doubled its own to 28. For the first time China, with 64 billionaires, has the most outside the US whose residents now command 38% of the collective net worth of the world's richest, down from 44% a year ago.

It wasn't until I read the BBC version of the story that my ears pricked up. You see, apparently the latest Forbes list is good news for everyone: "In a sign that the global economy could be improving, the average net worth of the world's billionaires is now $3.5bn, up $500m from last year." You hear that everyone? Yep, it's a good sign for the global economy that the super rich became super richer last year. It was just a year ago that the Beeb was lamenting "Rich list hit by economic crisis". Yesiree Bob, 2009 was a much better year for the world than 2008, a year that saw 332 names wiped off the rich list leaving a measly 793 billionaires who saw their wealth plummet by 23%. Things are much better now as the billionaire list is back in quadruple digits with 1,011 members.

The pursuit of wealth has clearly become an end in itself, with the wealth rankings taking on the importance of an Olympic medal table (yeah Canada, New Zealand or more likely India). Much of the rest of the list is being celebrated and debated over national lines with many cheering their country's inclusion (Finland and Pakistan got their first members) while others lament their nation's totals on the list. National pride seems to be at stake as we're fed the meme that having more billionaires means a better country and world.

Though they've convinced the apologists that this may be true, they couldn't be more wrong. We're seeing the fruits of the system planted by Nixon in which the treadmill of debt allows a nation to sell future generations into indenture in order to buy stuff made by the future slave owners, the price being held low thanks to the artificial peg maintained by the purchase of debt in the first place. Does that make sense (I mean the sentence and the system)? To my way of thinking, a world where hyper-wealth is celebrated has two basic flaws: a system that creates winners also breeds losers to scale, resulting in massive inequality and even more fundamentally, more stuff means more unhappiness.

As it stands, the US and much of the world suffers from more inequality than any time in over 100 years. We're taught to believe in this evil Gilded Age that existed before capitalism kicked in and distributed wealth away from the kings, queens and Rothchilds. Yet today these fat cats do more than throw off the standard deviation of wealth distribution. When a ruling class becomes entrenched it follows that mobility between classes inevitably declines - a lethal ailment for economies. Sadly, the tea partiers will believe it's the government control of the economy that destroys innovation but in reality it's the gilded class and true enough, the government is enabling their control. Funny how those Nordic 'socialist' countries feature much more intergenerational movement than the US (Italy and the UK are even more stagnant).

Whether you invent something or inherit your cash, there is no doubt money is an innovation driver, but 10 digit wealth takes a lot of cream off the top. Could this loss of incentive to move up have led to the decline in median wages in the US between 1998 and 2008? Yet it's facilitated by a tax system that has seen a fall of the highest marginal tax rate from 91% in the 1950's to 28% today (well, the IRS says that the top 400 richest tax filers actually paid a rate of just 16% in 2007 thanks to loopholes, a lower rate than your average Joe). In 1970 the compensation ratio of the top 100 CEOs compared to the average worker was 45 to one. By 2008 it was 1,071 to one. You think they got that much smarter? If given the choice of giving our money to these guys, the banks, the military industrial complex or health care it seems like you would choose door number four, no?  We're sold the fairytale image of the first man from the developing world to become the world's richest along with slumdog billionaires, but they're just replaceable cogs in the machine. It's the machines they operate that control the world's markets, employing armies of lobbyists to influence government, and a network of spies (yes, real spies, CIA, MI5, ex-KGB) in order to maintain their stranglehold on global wealth.

Finally, here's the kicker. More money and more stuff don't make you happier. Building upon the ideas of Thorstein Veblen, who in 1899 coined the term "conspicuous consumption" in his book The Theory of the Leisure Class (google books here), two professors of economics, Curtis Eaton and Mukesh Eswaran, believe they have shown through economic formulas that more things make us less happy. Veblen's work is considered to have been the first critique of consumerism where he argued that our modern division of labour began in tribal times when the "higher-status" group monopolized war and hunting while farming and cooking were considered inferior work. Veblen's ideas were discarded by neoclassical economists as he cast people as irrational creatures who chase after social status without regard to their own happiness, an idea that should be gaining more traction in light of the financial crisis. In the Middletown studies, for example, researchers learned that lower-class families were willing to go without basic necessities such as food or new clothes to maintain a certain level of conspicuous consumption, in particular, car ownership. The concept of conspicuous consumption has been carried forward to this day, and is often used to criticize advertising and to explain why poorer classes have been unable to advance economically. His views on the uselessness of "businessmen" have been adopted in modified form by none other than third-ranked Warren Buffett, who has harshly criticized the growth of practices such as day trading or arbitrage, which makes money solely through abstract means.

Well, according to Eaton and Eswaran it seems our drive to own more stuff is really a sort of zero-sum game, where the owners may feel happier but the rest of us are left feeling worse off. They state that once society reaches a reasonable standard of living and consumption shifts towards the purchase of status symbols with no intrinsic value, average wealth may rise causing people to be richer but unfortunately not happier. Worse yet, as people yearn for more status symbols they have less time or inclination for helping others. This, the authors argue, damages "community and trust", which are vital to an economy because they ensure the smooth running of society. They conclude: "Conspicuous consumption can have an impact not only on people's well-being but also on the growth prospects of the economy." Huh, sounds a little bit like what's ailing the west these days as we mortgage our futures in order to buy more stuff today, thus sacrificing our growth prospects.

Well, seems I've managed to ramble on quite a bit again. As usual though, these arguments will fall upon deaf ears of the true believers as the cognitive dissonance created between reality and their beliefs cause them to fall back on tired, disproven arguments. They'll blame my Karl Marx beard for my socialist rantings or accuse me of tall poppy syndrome while ignoring the words of their idol, Adam Smith who warned:

Of the corruption of our moral sentiments, which is occasioned by this disposition to admire the rich and the great, and to despise or neglect persons of poor and mean condition

There is little question that our current form of capitalism is failing us, while those in positions of power are doing all they can to protect and propagate their wealth. There's a frightening increase in momentum about it as the rich become richer and the poor poorer. In the meantime, panem et circenses will be fed to the masses while ensuring the next generation will be dumber than the last as places like Texas reinvent the history books and Kansas City closes half of its schools. Knowledge is after all nearly as powerful as the dollar.