Relevant and even prescient commentary on news, politics and the economy.

Adding to Steve’s quest to define “money”. A couple short films.

Via Digby comes a couple short films talking about what is money.   They are part of an effort by a group/site called We The Economy that has 20 short films aimed:

 to drive awareness and establish a better understanding of the U.S. economy. Told through animation, comedy, musical, non-fiction, and scripted films, WE THE ECONOMY seeks to demystify a complicated topic while empowering the public to take control of their own economic futures.

I have to say I am a bit biased toward these two films as they promote the idea that I have presented here in various ways: trust.  It all comes down to trust.  All our wealth, power, security, prosperity and future.  Trust is the money.   And we have been doing our damnedest to destroy it in the quest for ever greater growth (financial or otherwise) via some concept referred to as freedom or more relatedly “free market”.

They are kind of humorous in parts too.

That Film about Money, part 1

The second part of That Film about Money

I’m going to go watch the rest of the films now.

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Due Process: Holder vs Colbert. Art or Reality. Choose.

Re-posted from last year is Dan Becker’s post:

Due Process: Holder vs Colbert. Art or Reality. Choose.
This is the object:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;

It’s all one sentence. Any questions?

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid

Did you ever have that feeling in your life

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Due Process: Holder vs Colbert. Art or Reality. Choose.

This is the object: 

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;
 
It’s all one sentence. Any questions?
 

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid
Did you ever have that feeling in your life
That someone was watching you?
You don’t have no reason that’s right
But still he’s there watching you
Someone is waiting just outside the door
To take you away
Everybody knows just what he’s there for
To take you away
 
vs the lyrics of Red Rider’s Lunatic Fringe 
Lunatic Fringe – in the twilight’s last gleaming
This is open season, but you won’t get too far
‘Cause you got to blame someone for your own confusion
We’re all on guard this time against the Final Solution
all on guard this time
 

This is the reality. 44% of our wealth is due to rule of law.

 
World Bank study on wealth in 2005 stated:
 
Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.” “Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.”
 
Rule of law equates to trust.
 
 
 

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It’s not the tax and spending cuts, it’s the destroyed trust that has doomed our economy

By Daniel Becker
In the comments to my post “A reminder from Obama’s February 2009 speech”, there is the following:
“I guess it relates to the fake Obama they had made up in their heads,…” 
This sums up the early comments to the post suggesting that those who trusted Obama have only themselves to blame.
I addressed that concept in Obama, is he or isn’t he real…?  In that post I presented transcripts of Obama’s speeches and responses to questions and then argued:
“Are those talking like Glen Greenwald correct in that people should not be surprised with Obama’s appointments? Maybe, but then based on the above Obama words, that would mean we (you and I) just plain have to approach our relationship with governing as suspect until proven otherwise. Unfortunately, that means we will always be a day late and a dollar short having never known at the time of the decision if we made the correct one because you can not go by what is said.”
I recommend people go and not only read the posting, but the comments. (History is always fun to review.)
I concluded that posting with:
“Do you know what happens to a person when they can never get a straight, no hidden agenda answer from one they count on? They go nuts.”


 

This all speaks to the issue of growing our economy, because to promote distrust in a developed economy where 77% of our capital is intangible (via 2005 World Bank study) is to be destroying the prime driver of our growth. I wrote about the issue of were our true wealth comes from a few times. For this posting I am drawing on Attention Republicans/Blue Dog Democrates: Tax cuts as stimulus work against your goal.
February 5, 2009.
From the World Bank study:
“An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth.”
I concluded:
“The republicans/blue dogs, and those helping them by lending their “professionalism”, think they are only effecting a political strategy. In truth, they are destroying the very basis for the wealth they desire. Their entire campaign for decades to discredit, to instill mistrust in the primary institution we have, the US (We the People) government, has been the primary cause to our economic decline. To increase the level of distrust is to decrease the available “intangible capital” which is 77% of our wealth generating power. “
Which brings us to what we just experienced with the debt ceiling issue. It’s not just the resulting budget changes, it’s the overall cognitive change being made in the people regarding trust of our ability to access a candidate and make the choice that will produce the desired results. Clinton, as for the Dems made the first blow to our trust with “triangulation”. I can and have on my own gone back and read speeches and answers to questions by Clinton during his first run and it shows the same as I note regarding Obama in “is he or isn’t he real”. Obama is (knowingly or not) bringing our trust close to death. 
Even the debt ceiling event is only the latest in a string of recent events that all drive an additional spike into the coffin of “trust”.
Last night on Racheal Maddow’s show, Chris Hayes, noted that we are now in a phase of governance where “created” crisis is the vehicle for results. Yes, Shock Doctrine governance level II.. It was presented from the perspective that the conservative mind set is the one employing such a tactic.

In my opinion, what he missed, and what makes this a unique form to this nation’s version of Naomie Klein’s Shock Doctrine is that there are enough economically conservative minded people in the opposing party (democratic party in this case) that the ruse can be played out with a more believable presentation than if just one side is playing along. Yes, both side play it differently, but would that not be expected based on the supposed “base party” paradigms? At no time during any of these “crisis” did the primary players on the democratic side resist the crisis by calling it out. Instead, they used it to get what the conservative faction of the party (a smaller faction since the last election) wants. These “wants” being very much inline with the republican non Norquist/Tea Party faction’s wants. Commonly referenced as Wall Street. In the end, no one to blame…It was the crisis.
This pattern has held true through out Obama’s current term.  In the latest example, the proposed budget from the house progressive caucus, the largest of the democratic party caucuses never was mentioned by the president. Recall the single payer health insurance issue?
The issue for this posting is not the “wants”. It is not about the resulting policy from the latest ruse played on We the People. The prime issue, the issue always suggested, implied, bandied about, but never out and out confronted: Public Trust.
This latest Obama/conservative policy process has brought us closer than ever to the demise of our economy and thus our democracy not primarily by the furthering of the financial disequilibrium, but by the perpetuation and enlarging of the perimeters of social order that will now be distrusted. I think we have approached, if not completely included the full boundaries of American culture in that which is to be distrusted with the completion of this debt crisis event. 
Sadly, I do not think Obama and those referred to as the “adults in the room” know what they have done. Instead. as I stated above, they believe they are just “effecting a political strategy”. 
There are 2 versions of distrust. First is the distrust nurtured by those who have made it a political tool of their strategy for political dominance, power and fortune. It is the “…most dangerous words in the English language: I am from the government and I am here to help you”. These people do not know that in essence their distrust is part of the ruse. The other distrust is those who see the ruse, have acted via those they trusted only to find they can no longer be trusted. I don’t believe one is worse than the other, but I do know having both means the solution will be slower in materializing. In both cases those in power can not be trusted and those who know it, presently have no one in power to represent their solutions.  It serves to make the what is the solution clear, it does not server to make it any easier or quicker in coming.
I do not believe this mode of operation is forever simply because we are not naturally selfish, self serving for survival sake creatures. We are not naturally so shallow in our collective thinking. It is only in our isolated, individual thought that we can and will be shallow. Of course this assumes that the concepts and application of virtual reality throughout our daily lives does not mutate us way from our natural self.  A big assumption considering “reality” is in the phrase “virtual reality” and the character dynamic is trust.

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Guest post: Mark Provost Why the Rich Love High Unemployment

Guest post by Mark Provost

Why the Rich Love High Unemployment
via Truthout

Christina Romer, former member of President Obama’s Council of Economic Advisors, accuses the administration of “shamefully ignoring” the unemployed. Paul Krugman echoes her concerns, observing that Washington has lost interest in “the forgotten millions.” America’s unemployed have been ignored and forgotten, but they are far from superfluous. Over the last two years, out-of-work Americans have played a critical role in helping the richest one percent recover trillions in financial wealth.

Obama’s advisers often congratulate themselves for avoiding another Great Depression – an assertion not amenable to serious analysis or debate. A better way to evaluate their claims is to compare the US economy to other rich countries over the last few years.

On the basis of sustaining economic growth, the United States is doing better than nearly all advanced economies. From the first quarter of 2008 to the end of 2010, US gross domestic product (GDP) growthoutperformed every G-7 country except Canada.

But when it comes to jobs, US policymakers fall short of their rosy self-evaluations. Despite the second-highest economic growth, Paul Wiseman of the Associated Press (AP)reports:“the U.S. job market remains the group’s weakest. U.S. employment bottomed and started growing again a year ago, but there are still 5.4 percent fewer American jobs than in December 2007. That’s a much sharper drop than in any other G-7 country.” According to an important study by Andrew Sum and Joseph McLaughlin, the US boasted one of the lowest unemployment rates in the rich world before the housing crash – now, it’s the highest.[1]

The gap between economic growth and job creation reflects three separate but mutually reinforcing factors: US corporate governance, Obama’s economic policies and the deregulation of US labor markets.

Old economic models assume that companies merely react to external changes in demand – lacking independent agency or power. While executives must adapt to falling demand, they retain a fair amount of discretion in how they will respond and who will bear the brunt of the pain. Corporate culture and organization vary from country to country.

In the boardrooms of corporate America, profits aren’t everything – they are the only thing. A JPMorgan researchreportconcludes that the current corporate profit recovery is more dependent on falling unit-labor costs than during any previous expansion. At some level, corporate executives are aware that they are lowering workers’ living standards, but their decisions are neither coordinated nor intentionally harmful. Call it the “paradox of profitability.” Executives are acting in their own and their shareholders’ best interest: maximizing profit margins in the face of weak demand by extensive layoffs and pay cuts. But what has been good for every company’s income statement has been a disaster for working families and their communities.

Obama’s lopsided recovery also reflects lopsided government intervention. Apart from all the talk about jobs, the Obama administration never supported a concrete employment plan. The stimulus provided relief, but it was too small and did not focus on job creation.

The administration’s problem is not a question of economics, but a matter of values and priorities.  In the first Great Depression, President Roosevelt created an alphabet soup of institutions – the Works Progress Administration (WPA), the Tennessee Valley Authority (TVA) and the  Civilian Conservation Corps (CCC) – to directly relieve the unemployment problem, a crisis the private sector was unable and unwilling to solve. In the current crisis, banks were handed bottomless bowls of alphabet soup – the Troubled  Asset Relief Program (TARP), the Public-Private Investment Program (PPIP) and the Term Asset-Backed Securities Loan Facility (TALF) – while politicians dithered over extending inadequate unemployment benefits. 

The unemployment crisis has its origins in the housing crash, but the prior deregulation of the labor market made the fallout more severe. Like other changes to economic policy in recent decades, the deregulation of the labor market tilts the balance of power in favor of business and against workers. Unlike financial system reform, the deregulation of the labor market is not on President Obama’s agenda and has escaped much commentary.

Labor-market deregulation boils down to three things: weak unions, weak worker protection laws and weak overall employment. In addition to protecting wages and benefits, unions also protect jobs. Union contracts prevent management from indiscriminately firing workers and shifting the burden onto remaining employees. After decades of imposed decline, the United States currently has thefourth-lowest private sector union membershipin the Organization for Economic Cooperation and Development (OECD).

America’s low rate of union membership partly explains why unemployment rose so fast and, – thanks to hectic productivity growth – hiring has been so slow.

Proponents of labor-market flexibility argue that it’s easier for the private sector to create jobs when the transactional costs associated with hiring and firing are reduced. Perhaps fortunately, legal protections for American workers cannot get any lower: US labor laws make it the easiest place in the word to fire or replace employees,according to the OECD.

Another consequence of labor-market flexibility has been the shift from full-time jobs to temporary positions. In 2010,26 percent of all news jobs were temporary– compared with less than 11 percent in the early 1990’s recovery and just 7.1 percent in the early 2000’s.

Fight the lies and misinformation! Please make a tax-deductible donation to Truthout today and keep real independent journalism strong.

The American model of high productivity and low pay has friends in high places. Former Obama adviser and General Motors (GM) car czarSteven Rattner arguesthat America’s unemployment crisis is a sign of strength:

Perversely, the nagging high jobless rate reflects two of the most promising attributes of the American economy: its flexibility and its productivity. Eliminating jobs – with all the wrenching human costs – raises productivity and, thereby, competitiveness.

Unusually, US productivity grew right through the recession; normally, companies can’t reduce costs fast enough to keep productivity from falling.

That kind of efficiency is perhaps our most precious economic asset. However tempting it may be, we need to resist tinkering with the labor market. Policy proposals aimed too directly at raising employment may well collaterally end up dragging on productivity.

Rattner comes dangerously close to articulating a full-unemployment policy. He suggests unemployed workers don’t merit the same massive government intervention that served GM and the banks so well. When Wall Street was on the ropes, both administrations sensibly argued, “doing nothing is not an option.” For the long-term unemployed, doing nothing appears to be Washington’s preferred policy.

The unemployment crisis has been a godsend for America’s superrich, who own the vast majority of financial assets – stocks, bonds, currency and commodities.

Persistent unemployment and weak unions have changed the American workforce into a buyers’ market – job seekers and workers are now “price takers” rather than “price makers.” Obama’s recovery shares with Reagan’s early years the distinction of being the only two post-war expansions where wage concessions have been the rule rather than the exception. The year 2009 marked the slowest wage growth on record, followed by the second slowest in 2010.[2]

America’s labor market depression propels asset price appreciation. In the last two years, US corporate profits and share prices rose at the fastest pace in history – and the fastest in the G-7.    Considering the source of profits, the soaring stock market appears less a beacon of prosperity than a reliable proxy for America’s new misery index. Mark Whitehouse of The Wall Street JournaldescribesObama’s hamster wheel recovery:

From mid-2009 through the end of 2010, output per hour at U.S. nonfarm businesses rose 5.2% as companies found ways to squeeze more from their existing workers. But the lion’s share of that gain went to shareholders in the form of record profits, rather than to workers in the form of raises. Hourly wages, adjusted for inflation, rose only 0.3%, according to the Labor Department. In other words, companies shared only 6% of productivity gains with their workers. That compares to 58% since records began in 1947.

Workers’ wages and salaries represent roughly two-thirds of production costs and drive inflation. High inflation is a bondholders’ worst enemy because bonds are fixed-income securities. For example, if a bond yields a fixed five percent and inflation is running at four percent, the bond’s real return is reduced to one percent. High unemployment constrains labor costs and, thus, also functions as an anchor on inflation and inflation expectations – protecting bondholders’ real return and principal. Thanks to the absence of real wage growth and inflation over the last two years, bond funds have attracted record inflows andinvestors have profited immensely.

The Federal Reserve has played the leading role in sustaining the recovery, but monetary policies work indirectly and disproportionately favor the wealthy. Low interest rates have helped banks recapitalize, allowed businesses and households to refinance debt and provided Wall Street with a tsunami of liquidity – but its impact on employment and wage growth has been negligible.

CNBC’s Jim Cramerprovides insightinto the counterintuitive link between a rotten economy and soaring asset prices: “We are and have been in the longest ‘bad news is good news’ moment that I have ever come across in my 31 years of trading. That means the bad news keeps producing the low interest rates that make stocks, particularly stocks with decent dividend protection, more attractive than their fixed income alternatives.” In other words, the longer Ben Bernanke’s policies fail to lower unemployment, the longer Wall Street enjoys a free ride.

Out-of-work Americans deserve more than unemployment checks – they deserve dividends. The rich would never have recovered without them.

1. “The Massive Shedding of Jobs in America.” Andrew Sum and Joseph McLaughlin. Challenge, 2010, vol. 53, issue 6, pages 62-76. 

2. David Wessel, Wall Street Journal, January 30, 2010.“Wage and Benefit Growth Hits Historic Low”; Chris Farrell, Bloomberg Businessweek, February 5, 2010.” US Wage Growth: The Downward Spiral.”

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Monetary policy. I’m sorry, it’s just not doing it for me.

By Daniel Becker
Stock market is up, Profits are up and banks are safe. So what? Unemployment is somewhere between going down and I can’t get no satisfaction. Housing values are still falling

A new nationwide survey from real estate Web site Zillow.com says the value of U.S. homes fell 3% from January 1 to March 30 — the steepest quarterly decline since 2008.

 
I know, I’m suppose to care. Bigger picture and all. But frankly, when I read comments such as that by Mark Sadowski’s:
 

Since Bernanke’s Jackson Hole speech the steep rise in stock prices has increased household wealth by some $5 trillion. The rise in inflation expectations has helped to ease the household debt deflation problem. Consumption has been the bright story in the BEA numbers last two quarters,…

I just get all “A vineyard? Really?” Now I know Rebecca’s post is about looking for some indication that things are better though tipsy and Mark is responding that with: No, things are rather solid in the “we’re moving forward” category.
I’m going to be bold here and state right out that I’m speaking for the middle-class. (Those of this class can correct me if I’m wrong.) Five trillion dollar in new stock market wealth is not reaching us. I’m happy for you all that are now more wealthy, but really, you’re only a small percentage of the population and thus your success is not representative of how well We the People in total are doing.

Before I go further, let us do a little simple math (for you stat manipulators, the key word: simple. Add more complication as you wish in comments.) I am allowed to do this, keep it simple because I’m not an economist. Or am I?
Let’s say that 81.2% of all stock is owned by the top 10% of wealth gatherers. (table 9). Let’s say there was 100 shares at $1 each for a total value in stock on 8/31/10 of $100. That $100 became $129.80 by 5/2/11.(S&P closing numbers)  But, I’m going to round off all of this to keep it really simple. 100 shares. 80 shares owned by 10 people. 20 shares owned by 90 people. Fast forward 9 months and now the $100 is $120. Still 100 shares. (We’re excluding splits, initial offerings and anything else that would increase the number of shares, simple.)
So, 10 people now have a total worth of $96. The 90 people are splitting up $24. Both saw a 20% rise. Hooray! But here’s the issue, an additional $1.60 will do a lot more than an additional $0.04. The issue is coin in the pocket. For the middle-class, it’s just not happening.
Let’s add a some more fun facts to this Yahoo party.   I used:  Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007 by Edward N. Wolff, Levy Economics Institute of Bard College, March 2010
 

As of 2007, 38% of all households have stock via pensions and of that group it represents 31.4 % of all stock. (Table 14b, 14c) Unfortunately, the middle 3 quintiles 65.1% of their assets are their house, 12.9% is pension, 3.6% is stock held in some form. Darn few of the middle-class have any stock at all and what they have is tied up.
So again, that 29.8% rise… ain’t feeling it. I ain’t feeling it in customers in my shop. I ain’t feeling it in volume of sales in my shop. I ain’t feeling it in dollar’s per sale in my shop. Guess what I ain’t gonna do? I ain’t gonna hire anyone.
Let me leave you with this. Let’s say we manage to move 5 more people into the group that has 80% of the stock for a total of 15 people. They each have $5.333.  (Finance likes to measure as if they are using micrometers.) The remaining 85 have $0.235. The 85 have 5.9% more wealth to start. 9 months later, the 15 people have $6.40 each. They have $1.067 more. The 85 have $0.282.
Certainly $0.047 more to those in the 85 group is not going to make them go out and buy flowers. However, 5 more people have more than a buck to spend and in my shop that buys one carnation that will last 2 to 3 weeks.  As I noted before, buying that flower for one’s self has major positive benefits for one’s personality. I have a better shot at selling that 1 carnation when there are 15 people that could purchase it than when there are 10. That mean’s there is a better chance that there will be one more happy person and thus push the consumer confidence index up.
That my middle-class friends, is the power of policy designed to promote income and wealth equality vs just wealth increases.  I want me some of that there policy. 
A vineyard. Really?

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Nuclear Option and Trust

by divorced one like Bush
Updated comment at end

So, now that the Democratic Party has the majority and the White House, why am I not hearing about the use of the Nuclear Option? I mean, it occurred to me that if there was a way to end the partisan old ways, the Nuclear Option is it. It sure worked well for the Bush administration. You need 60 votes? Bring in the non-executive executive senate menber: Biden. Oh, you think there needs to be a tie to be broken before our hatchet man can be used? Well I have news for you. Being that everything comes down to breaking the 60 vote line to get anything done, by precedent of calling for a record number of filibusters the Republicans have set the new definition of a tie: 59/41. Biden makes it 60/41.

This gets me to the trust issue and I’m going to toot my own horn here for those who think human capital is bunk regarding getting us out of this mess. (Did I mention the flower shop was off 13% for Christmas and 45% for January? Yeah, I got skin in this game.)

Seems on the same day I posted my message to the Republicans and the Blue Dogs, a man officially of the economic science posted on the same subject (via C & L via Naked Capitalism).
Willem Buiter.

Here is what I said:

The greatest harm that is coming from the republican’s drive to instill their minority will on the many out of selfish want, is to further the demise of the people’s trust. For the blue dogs it is their ignorance of their economic ideology that creates the mistrust. The republicans/blue dogs, and those helping them by lending their “professionalism”, think they are only effecting a political strategy. In truth, they are destroying the very basis for the wealth they desire. Their entire campaign for decades to discredit, to instill mistrust in the primary institution we have, the US (We the People) government, has been the primary cause to our economic decline. To increase the level of distrust is to decrease the available “intangible capital” which is 77% of our wealth generating power.

Here is Willem Buiter:

As part of this widespread erosion of social capital, both citizens and markets lost faith in the ability of governments to commit themselves to any future course of action that was not validated, at each future point in time, as the most opportunistic course of action at that future point in time – what macroeconomists call time-consistent policies and game theorists call ’subgame-perfect’ strategies.

This morality tale has important consequences for a government’s ability to conduct effective countercyclical policy. For a fiscal stimulus (current tax cut or public spending increase) to boost demand, it is necessary that the markets and the public at large believe that sooner or later, measures will be taken to reverse the tax cut or spending increase in present value terms. If markets and the public at large no longer believe that the authorities will assure fiscal sustainability by raising future taxes or cutting future public expenditure by the necessary amounts, they will conclude that the government plans either to permanently monetize the increased amounts of public debt resulting from the fiscal stimulus, or that it will default on its debt obligations.

Mr. Buiter is prescribing a different solution to the lack of trust than what I’m going to suggest. He thinks more money to the banks is needed to promote lending. Well, isn’t that kind of giving to those you know you can not trust, not to mention just adding to the debt that he notes no one seems to want to consider? He did state the following as part of his “morality tale”:

During the decade leading up to the crisis, current account deficits increased steadily and became unsustainable. Strong domestic investment (much of it in unproductive residential construction) outstripped domestic saving. Government budget discipline dissipated; fiscal policy became pro-cyclical. Financial regulation and supervision was weak to non-existent, encouraging credit and asset price booms and bubbles.

Hope was the word. Trust is the need. I’ve seen and lived what the Republicans and Blue Dogs can do. I’m willing to take a chance for the benefit of building future trust, thus building with the 77% of our power, thus nurturing hope, and let Obama send in Biden to the Senate. Hell, maybe it’s time they come up with the unitary vice executive theory and take it for a spin in the Senate! In-other-words, my solution is for Obama et al to just take god damn control and do what they want, then we’ll have something to compare to along with “Republican brand” bipartisanship. We can decide come November 2012 how the brands compare. (Catch that “bringing business to governance” lingo of how to speak civics?)

We survived the last 4 years, we know where we’ll be if we keep going as we are (no thanks to our free press), so I say let the Dem’s pull a republican move: redefine what a tie is, have the Obama’s legal council write up the unitary vice executive theory and send in Biden to the Senate.

I trust that it will not be worse than what we have now. And that, “my friends” is using our fullest economic power.
Almost forgot: Can we please broaden the discussion now?

Update: Two commentors noted that the tie break may not work as I suggested. RonE notes there is no need for the 60, just change the rules to a simple majority. TStockmann notes that we would not get all the Dem’s to go along. I assumed the Dems would act tribal if they had someone to lead them, that is what is needed when you are fighting another tribe You can’t beat the other tribe by acting all independent thinking virtuous as to the ideal bipartisanship.

But here is where my plan works. We’re going to have the unitary vice executive who is president of the Senate just as soon as Obama has his attorney write it up. Or, maybe Biden should just have his attorney write it up ala Cheney. Then, he goes in and changes the rules (because he’s the Unitary Vice Executive President) to a simple majority, we’re golden.

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Can we please broaden our thinking in this crisis?

by Divorced one like Bush

February 26, 2008 I posted a question: How are we going to fix a money from money economy. Quoting that post: There is a nice chart. (A few actually). Especially this one.”

And this:

Total financial turnover went from $17,804 billion in 1980 to $508,456 billion in 2000. We’ve seen GDP go from 37.8% of turnover to 1.9% of turnover. That’s how big the money from money train is. Our GDP is only 1.9% of the money from money machine.”

The first response in comments was: “Fix what?”
I think that person has their answer now.

October 6, 2007 I posted: Money from money, not good.

It was about an interview by Bill Moyers of John Bogle. He noted:

JOHN BOGLE: Well, it’s gotten misshapen because the financial side of the economy is dominating the productive side of the economy…We’ve become a financial economy which has overwhelmed the productive economy to the detriment of investors and the detriment ultimately of our society.

I want to come back to the difference between the financial system and the productive system. The productive system adds to the value of our economy. And, by and large, the financial system subtracts. And, yet, it’s growing and growing and growing. And this short term thing where short term orientation in which trading pieces of paper is regarded as a social value. It is not a social value.

Go listen to it. Then listen to Mr. Moyers latest interview with Kevin Philips.

But what’s here that doesn’t get the attention is the United States in the last 20 years undertook an enormous transformation of itself with no attention paid. And what it means is and what makes all this so frightening is the country is at risk because of the size of the financial sector that has never been graded on its competence and behavior in any serious way. They are the economy at this point. And we are now seeing what happens when a 20 to 21 percent of GDP financial sector starts to come unglued.
You had essentially a financial sector that, let’s say, was sort of neck and neck with manufacturing back in the late 1980s. But they got control in a lot of ways in the agenda. Finance has been bailed out. I mean, everybody thinks this is horrible now what we’re seeing in terms of bailouts. Even a lot of the people who do it think it’s bad.

This has been going on since the beginning of the 1980s. Finance has been preferred as the sector that got government support. Manufacturing slides, nobody helps. Finance has a problem, Federal Reserve to the rescue. Treasury to the rescue. Subsidies this, that, and other.

I am certain we have to do something to help the money flow such that it does not take down the entire system. It would be cutting off our noses to spite our faces not to protect ourselves from what a few have done. We have to be adults, suck it up and clean up the alcohol aroma vomit all over our bathroom.

But, we do not have to let it happen again. There is only one solution to this and no one, not anyone is pointing it out: Put the financial sector of the economy back in alignment with the productive sector. What got us in this mess is our (well not all of us) belief that the financial sector can stand on it’s own as a primary wealth/money creator. It can not. Never could. But, believing it put the impetus to the creation of “vehicles” for creating trades. You know all those securitized whatevers, and alphabet monikers, and insurance for insurance for insurance based on alphabet monikers of securitized whatevers. What did people expect would happen when you turn the part of your system that is dependent on activity in an other part for it’s existence into a stand alone money creator. If you are going to keep generating money from money, then you are going to have to keep coming up with new “product”. New designs, new marketing to create an need and want, new packaging, BRANDING.
Again, Mr. Philip put’s it this way:

But we’ve seen the central component of the rise of the financial sector is the rise of the debt industry. Mortgage, credit cards, all these gimmicks that Wall Street sells– just all kinds of products. And, of course, the products are laying an egg all over the world right now.

Get it? We take an industry subservient to the needs of production and turn it into a competitor of production. I can polish and sell rocks without a bank to borrow from. I can accumulate wealth over time. My business may grow slowly and so may my wealth, but I can do it. But, remove all none financial activities and what does financial do to survive? What does it do to survive with no one needing a loan, backing, no desire to produce in a way that increases our productivity such that we have more time to purse happiness (that constitution purpose)? We treat finance as if it is the chicken/egg question. It is not. Finance came second and is dependent.

For those from the 80’s, we have now learned exactly what was being said when we were told our economy was moving toward a service economy. We were told it was just as good, solid and viable as the producer economy so get trained and be ready. Remember that? Remember those who said no way, it can’t work? Have you watched the movie Other People’s Money yet?

Well, all we do now is complain about the cost of the service economy sector known as health care. It cost too much. And, we have now proven that the service economy sector known as finance can’t create any real material wealth as a prime generator. So, why is no one talking about the need and means to realign our economy?

HOW MANY TIMES DO WE HAVE TO DO THIS? HOW MANY FREAKIN’ TIMES DO WE HAVE TO LEARN THE LESSON?

According to Mr. Philips:

It’s been a bipartisan phenomenon. You can go back to the 1980s and say Reagan and George Bush, Sr., got a bubble started. Clinton got in and got an even bigger bubble going. And then George W. Bush with the biggest bubble of all. But it’s not that the Clintonites didn’t play. They did. Bob Rubin as Secretary of the Treasury — I mean, if he was a Hindu and he was being reincarnated, he’d come back as a pail because this guy bailed out everything you can imagine. They had the Mexican loan bailout. They had the long-term capital management bailout, the Russian Southeast Asian currency bailouts.

Think about any of the concerns voiced here at AB regarding this current “crisis” and read Dean Baker’s list of Principles for Restructuring the Financial System and ask how much of this could be accomplished by simply realigning our economy such that finance is in service to our needs of producing primarily and I guess consume in part. Putting it another way, none of what Mr. Baker is suggesting can come to fruition such that we protect ourself from repeating this experience for a 3rd time (fourth if you count 1987) unless we get our minds back to how true wealth and money are created. Which I happen to post on October 8, 2007: Human Capital is where it’s at. It reports on a World Bank study from 2005 in which I us the quote:

The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.

All of this relates to some graphs I put up December 12, 2007 in: It’s the big one honey, I know it, showing that personal income for the 99% had fallen below personal outlays since 1996. Something that had not existed since 1941 but was present from 1929 and before. What I found most interesting from that post was that there were only 9 comments. Just 9. Are we going to pretend income distribution is not part of this current crisis? Are we the 3 monkeys of see, hear, speak no income inequality?

So, we can talk about the hundreds of billions, we can total them up, we can debate ethics, we can talk morals and argue who is being partisan and what regulation is needed, what’s fair or….we can face the fact that who we think we are is not who we are; that we have been blowing smoke up our own butts regarding wealth, money, economy and the pursuit of happiness. It’s intervention time folks. Just putting up road blocks to the elixir’s and potions, or setting up games with ourself without changing our world view about what money is and how wealth is created and why we want to create it in the first place won’t cut it.

We use to know all this. It is represented in our Declaration of Independence and our Constitution. An example of the materialization of our realization was put in place in our tax code as we learned the lessons we are relearning now. For example, an instance of need of integration in our thinking, one issue with the current crisis is the mega pay of those that created the mess. Well, one of the reason’s for having a graduated income tax to the point of 90% at the top was to prevent exactly what we are now discussing as one of the issues that needs to be addressed in the bailouts. It was to prevent economic royalty, to preserve democracy, to assure one voice – one vote, to prevent some from being so powerful that they would be insulated from responsibility for the problems they could create. But we’re not hearing about taxing as a solution. One that worked very well because it addressed many of our goals. No, we now will create an entire new set of rules and paper filing…a new game to address one aspect of a crisis of one aspect of our economy because we have isolated taxation as an issue of personal freedom as oppose to an integrated tool of our economy based on our goals as laid out in our founding documents.

How small the discussion has been during this crisis so far.

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