Re Too Much Investment Class Wealth Chasing Too Few Plausible Investments

Paul Krugman writes about it this morning.

Two observations I've been making for a while––and the financial press has been ignoring.

1. You don't have as many plausible investments when workers'/consumers' incomes are flat for 35 years. (This, combined with a concentration of investment wealth = bubble)

2. Now that the Boomers are living on their portfolios they don't want working incomes to rise either.

I wrote about this fragile combination in 2011

I believe Paul Krugman was there before I was.

Question: why has economic orthodoxy moved so far to the right that it cannot see this dynamic and its dangers?

One explanation I’ve been suggesting more recently is that we have allowed our money to think for us. Money is impatient, greedy and has no human factor in its calculations.

(I think letting our money make its own rapid decisions is similar but more dangerous than this new chimera the press is worried about: AI, artificial intelligence, HAL the computer.)

Far from being coldly rational, the money brain is easily panicked, as we’ve seen over the last four days.

When wealth is distributed more broadly with a framework of practical safeguards, the brain in the economy isn’t as skittish or irrational. Look at how it behaved from 1945-1980. But we were too impatient and greedy to tolerate that kind of economy. Or some of us were: The 1% who now make all the financial decisions.

The Systematic Looting of the American Dream

Who owns the shining new residential towers going up in New York and other major cities? Don't answer; you wouldn't know them. The dream home used to be a widely shared American Dream, but this is no longer the case. (Because of Citizens United our political system is now owned the same way by secretive billionaires, many of them foreign, using piles of hoarded cash to buy residency and public policy.)

Increasingly the American Dream of homeownership is reserved for billionaires. They have extremely expensive pieds a terre in places all over the world, where they may only live a few days a year thereby evading the usual obligations to pay for local infrastructure and public services. What do you want to bet their real estate fees and taxes, if any, are paid by their companies and deducted from their income taxes, again, if any. The top 1% have learned to levitate above ordinary concerns and obligations of citizenship. What they want, they buy. What they don't want to do, they buy out of.

And what has happened to middle class homeownership? The opposite. Going, going, gone. Homeownership has become a privilege of the few who own for a living and those who work for a living are increasingly excluded.

The daily sermon fed to us for years by the banking industry and by the Republican Party was that homeownership was next to godliness. It was a measure of how responsible and hardworking you were. Now they seem to be saying that working class homeowners are to blame for the recent financial collapse. Not true, in fact. Middle class homeowners are the playthings of the 1%. The investment schemes that benefit people who own for a living are devised to skim fees and penalties and ownership from people who work for a living.

With incomes down we see more working people looking for ways to make ends meet. Reverse mortgages are advertised as a simple way to balance the family budget. By looting the family’s wealth. What choice do some families have? Looting of this kind happens when there is an exploitable advantage. Incomes have lowered for most Americans since 1980, a gift of Reaganomics. That has made most Americans exploitable.

Where have we seen this systematic looting of value before? We used to read about mobsters who took over small companies and looted their value at the point of a gun. It was a crime back then.

But more recently we’ve seen this same model used by the great heroic Venture Capitalist. The gun isn’t necessary because the middle and working class household is already being made insecure and exploitable by the decline of working incomes.

The Venture Capitalist looks for decent companies who pay their employees decently and maybe have a fully funded retirement plan for them––companies that have been untouched by Reaganomics. What does this Venture Capitalist do? He charms the company’s owner, offers him a nice check, and then he buys the company. Before the check clears he sucks all the money out of the pension fund and uses it to pay the former owner. Then he lays off employees and pockets those savings. Then he has a balance sheet that shows all of this “profit” which he uses to sell the company at an inflated price.

I realize the Nazi analogy is completely forbidden today. But the Nazi miracle was financed in a similar way, by confiscation from Jews and liberals. Someday we may be able to see the criminality of what is going on, or at least its unfairness and dishonesty. But right now it is legal. And it is also sanctified by the sacred memory of Ronald Reagan who set this middle class decline in motion.

Kiss Up, Kick Down

What does it say about our modern values that we always give the benefit of the doubt to the wealthy and assume the worst about the poor? Here's an article from the Guardian about how we punish the poor for being poor.

Everybody agrees it’s wasteful to throw money at the poor. A lazy way of thinking. But the rich? So much is given to them you couldn’t begin to throw it, it has to be delivered in semi trucks, in supertankers. Everybody’s giving money to them, so it must be a good thing. That’s lazy too, and wasteful in much larger amounts. The rich get so much it seems to justify giving them everything. Rich people pass us in the street and without thinking we hand them the contents of our wallets. We buy them drinks and lunch, pay their parking meters, polish their cars, kiss their feet. Here's an article from Vox describing how the rich get richer no matter how lousy they are at their jobs, assuming they have one.

Poor people, though? Ugh. Let’s criminalize poverty. Let’s fine them for being poor and charge them a fee for being unable to pay the fine and imprison them when they cannot pay the fee for nonpayment of fines. This accomplishes two things: it teaches the poor a lesson––not to to be poor––and it adds to the enormous profits we pay to the for-profit prison industry and its wealthy shareholders.

Our society is so clever though. Always innovating. Inventing new ways to kiss up and kick down. Devising new methods for discouraging and penalizing the poor who are already discouraged and penalized and new rituals for worshipping the rich.

Our urban landscape has a new feature: spikes to prevent the homeless from lying down to sleep.

New apartment buildings are being built with separate doors for the rich and the poor. (This way the developers get a tax break for housing us poor folks without forcing the rich to tolerate our company in the elevator.)

Our society used to dish out indignity to one easily identified segment of the population, people with darker skin. The system was called Jim Crow. What will we call this new system?

Sadly, our vocabulary is deficient. We aren’t innovating there. We don’t have words that adequately describe this galloping unfairness. Why? Because in our kissing up we are careful not to cause offense to our betters. We don’t want to hurt the feelings of the rich by explaining how monstrous their privileges are. We don’t want to understand the ways they are robbing us all blind.

Let’s get to work on a fairer vocabulary. Terms like “wage theft” are just coming into use. Let’s see it used more often. Until it was labelled as theft, it seemed perfectly legal for rich employers to do what they were doing. We need to use our language. It’s the only weapon we have left.

“The salient fact of American politics is that there are fifty to seventy million voters each of who will volunteer to live, with his family, in a cardboard box under an overpass, and cook sparrows on an old curtain rod, if someone would only guarantee that the black, gay, Hispanic, liberal, whatever, in the next box over doesn’t even have a curtain rod, or a sparrow to put on it.” ~Davis X. Machina

Income Inequality is Killing Us

This short TED lecture by Richard Wilkinson is worth watching and sharing. You might want to pause the video, as I did, to look more closely at the graphs. The TED lecture series is wonderful, a great place to learn from the best minds out there.

I like Professor Wilkinson's statement at one point, looking at a graph on upward mobility: "If you really want to live the American Dream I suggest you move to Denmark." I don't remember who he was quoting. Income inequality is killing us, but it's also making us miserable while we're alive. This is what is putting people into the streets.

Richard Wilkinson is an epidemiologist and professor at Nottingham University, and founder of the Equality Trust.

Corporations and Rich Interests Created this Economic Mayhem

Today's must-read. A very good piece in the Washington Post by Steven Pearlstein, an intelligent writer about markets and money, and one who lives far enough from Wall Street not to be in thrall to it.

As I watch the stock market drop like a stone, again, fueled downward by panic selling by small investors, whose retirement will materialize or not depending on what happens in five minutes, and then zoom just as quickly upward, lightened by the absence of thousands of little people who got off at the bottom, I think of the "bounce effect".

The "bounce effect" is a term I invented to describe something I overheard on television: the "useful elimination of investors who have no business owning investments." Here I'm quoting a "market expert" explaining creative destruction on one of the television stock market programs. This was years ago now but it's happening again and worse than ever. The economy drops hard and bounces back up, without thousands, millions, of poor losers.

When bad things happen to little people, big people will explain why it's a good thing. Ever since Reagan restacked the deck against all little people in America we've had no explanation of the bad events except ones that let the big investors, the big market manipulators, the "market makers" off the hook.

This cannoning stock market and these three years of a bad economy are the lovechild of Wall Street and K Street. Americans need to begin asking their Republican representatives and their corporate bosses who pay for the Republican campaigns, "Is this the economy you wanted?" I believe it is. I believe they are privately very happy for most Americans to be fearful and impoverished because a worried workforce works harder for less, and a worried electorate is more obedient.

They are happy to impoverish the government because they hate it. Without a democratic government there is no one to boss them. Without government spending there is no spending right now, and no help for this economy. Meanwhile they are giddily tearing down useful institutions and replacing them with nothing. This is what revolutions are made of, only they are the revolutionaries and we are the innocent bystanders.

A Republican Economy

This is a Republican economy. This is the economy they wanted.

This is where the money is going.

The money that would have hired people and created jobs and got money flowing through this economy to pay the mortgages and the grocery bills and the gas bill and the electricity and the middle class taxes, is instead being fed to the executive suite. This has been the pattern for the past few decades, and that is why the economy is flat.

How the Rich Became the Uber Rich (but no explanation about how we helped them to it.)

How the Middle Class Became the Underclass (but no explanation of how we voted for this to happen.)

The point is it's all driven by public policy, which is driven by money in politics, which was re-legalized by Republican appointees to the Supreme Court, who pushed every single de-regulation they could, which the super-rich demanded and paid for with campaign contributions and extortion tactics, it also got us a free predatory economy which the rich also wanted, which plundered working Americans' savings, which made the economy more unstable, which led to the financial collapse of 2008.

Are you happy now? Reagan's dreams have come true. The Republicans are ecstatic.

If you want evidence that the very very very rich are in control. Look at spending.

And do they have to carry their share of the load? No. Their money gives them license to evade taxes, and the middle class can't continue picking up the slack, which is why we have a deficit, which is why they'd like us to profitize Medicare and Social Security. Which would make things infinitely worse. Is this a solution?

Instead of listening to the attractive, expensively dressed "reporter" on some market-watch program, who probably gets his or her "scoops" by buying lunches for Wall Streeters, listen to a Pulitzer Prize-winning reporter who's covered this story honestly and aggressively for decades.

Is a Bad Economy Part of the GOP Plan?

There was an excellent editorial the other day in the Mankato Free Press about how Republican budget cuts and no tax increases on the rich is bad policy. I wonder if anyone has said this. I'll say it:

Bad policy is the Republicans' intention. Pain and general collapse is their objective.

They want to drown government in the bathtub; they've said it often enough. It's their goal. They'd like to be rid of democratic government because it inconveniences them. It regulates them. And, who knows, it might wake up and tax them again at the rates it taxes the rest of us.

("Taxes are for little people" Leona Helmsley)

The Republicans also do NOT want the economy to recover before 2012. An economy that only recovers for the rich has its uses. As long as they are sitting on their cash and the middle and working classes are afraid to spend or don't have jobs, and as long as government, the only entity that can spend in a deep recession, is cutting back, the economy will stall. That has been their goal. They are achieving it.

Republicans despise government so much they want it NOT to function. If enough people lose confidence in government they will vote to dismantle it, and the vacuum can be filled by corporations and private operators. Unregulated of course. They do have their eye on the ball.

The GOP and their rich clients have been hoarding cash to ride out another recession that they can blame on Obama. The end result will be an economy more like Mexico's, with a very rich and powerful upper class and a vast, poor, obedient, fearful working class that is grateful to work for whatever is offered. Think of the American population as a huge labor pool for hiring off the back of a truck.

This isn't a far fetched scenario. It's radical, but the modern Republican Party is radical. It can't be called conservative because it is systematically attacking the strong institutions and fair practices that worked well for the best fifty years in American history. The engine of the economy during those best fifty years was a prosperous, confident, secure working and middle class.

I might even go further than radical and describe this new Republican Party as vandals. Greater Minnesota needs to recognize what their cynical strategy will do to rural communities.