The Fed and Perverse Incentives and Disincentives

The Fed and Perverse Incentives and Disincentives

“Insiders don’t criticize other insiders.” – Laurence Summers – Former Treasury Secretary, as quoted by U.S. Senator Elizabeth Warren

By J.M. Hamilton  4-26-2014

An economics professors once told the class I was attending, that economist make terrific historians, but rarely get their forecasts right.  He said economist constrained foresight had something to do with too many endogenous and exogenous variables.  (Which explains why Dr. Nouriel Roubini is so famous, for correctly calling the financial crisis.)  My former prof., it turns out, was exceedingly wise.

The Federal Reserve, largely run by academics and economist, being a case in point.  Starting six years ago, the American public has been told repeatedly, since the financial crisis occurred in 2008, that the Fed's extraordinary measures (interest rate suppression, and quantitative easing) are completely necessary to heal the economy and put Americans back to work.  Another dozen months go by with similar sub-par results and poor employment figures, and the time line or horizon for what others have called inter-generational wealth larceny (interest rate suppression), and yet another back door bank bailout (quantitative easing), gets stretched out by the Fed Chair for another twelve to twenty-four month window.

Some say the definition of "insanity" is repeating the same act of failure over and over again, and expecting a different outcome.  Questionable as the act may seem, there is a method to the Fed’s possible madness.

What the Fed has been exceedingly good at, going back to Mr. Greenspan, is setting up asset bubbles, the most recent of which is great for the wealthy but has done little for the middle-class and the destitute.  As JMH has argued, seems that trickle down economics is not only a failure for the economy when the tax code is rigged for the plutocracy, but it is also appears equally unsuccessful when trickle down is deployed by monetary policy means.  Then again, JMH has also argued traditional Keynesian economics could indeed work its magic, if Fed largess made its way directly into the hands of he American people, via mortgage relief and outright debt forgiveness.  As opposed to the Fed shuttling an ocean of free cash into Wall Street hands.  In sum, per the plutocracy: socialism for the elite is good; socialism for everyone else… is, ahem... Bad!

In terms of employment, the Fed's policies would appear to have fallen short (and that's putting it mildly), especially relative to its size-able balance sheet expansion.

This blog pointed this out in two recent pieces:  Having Failed, The Federal Reserve does Charity;  and the second piece, The Leviathan is Vertically Integrated.  In this latter piece, JMH points out the Fed has created a perverse incentive for corporations and the banking sector not to employ Americans... Namely, so as too keep Fed largess (QE uber alles) flowing for the wealthy.  The Fed has stated that its extraordinary measures will continue until the unemployment rate drops below 6.5 percent, which gives Wall Street every incentive not to hire.  This latter piece also pointed out that the banking sector, including shadow banking and private equity, are now so interconnected throughout the economy, via ownership, interlocking boards, and likely a ruling oligarchy, that they can control employment, and therefore, unemployment and underemployment.  Maximization of shareholder value in recent years often consists of not selling and exporting additional goods and services (i.e. increasing revenue); but rather, in engaging in the elimination of, and the export of, American jobs (i.e. cost cutting).

Is this what the McKinsey Group tells business leaders for a sizable fee: Want to make money, cut your staff and hire a handful back as temps... in short, embrace globalization?

Now before you dismiss my argument as paranoid, that the Wall Street Cartel is colluding to hold national rates of unemployment at artificially high levels, so as to keep the Fed's printing presses set on overdrive, consider what has been going on in Silicon Valley for sometime.  This is the locale where a company, who's motto is "do no evil," has colluded with the beloved Apple, et al., to suppress employee wages and not compete for each others engineering and IT talent.  So if that's happening in Silicon Valley, which has also turned tax avoidance into an art form, can you just imagine the collusion that is going on in other sectors of the economy?  One doesn't have to imagine of course, you can read about Wall Street collusion any day of the week: whether it be the LIBOR scandal, storing commodities to keep prices inflated, insider trading, FOREX manipulation, or private equity firms colluding amongst themselves to price fix LBOs, and now, even high frequency trading points to a rigged outcome.  

The game/economy is rigged, so why would rates of employment or unemployment be any different?  Labor being a key cost for nearly any enterprise.  In forsaking the American worker, the elite have cut themselves off from top line growth; but thanks to the Fed, they can increase revenue and profits through speculation, and increase ROE, through stock buybacks, often times financed via the Fed’s fire hose of liquidity (i.e. historically inexpensive debt).



Perverse incentives not to hire are one thing, there is yet another way in which Fed policies disincent employment opportunities.   But first a quick digression... Many knowledgeable persons will agree that many sectors of the American economy are now dominated by monopolies and cartels.  Ironically, monopolies and cartels are creatures of the state, and protected by the state that fails to enforce anti-trust laws, rules and regs., and creates barriers to entry.  Moreover, some of Wall Street's and Omaha's best and brightest have made billions investing in monopolies and cartels, because monopolies not only "short" the customer, and their employees, but they are magnificent at minting exceptional profits, especially for products and services with relatively inelastic demand.

Now your economics professor will tell you that monopolies should not exist in a free market economy because monopolistic profits will attract new entrants into the market place, which will increase competitiveness, enhance consumer services, aid or increase employment, and bring down the cost of goods and services.

However, arguably, we no longer live in a free market economy but rather, a crony economy (where collusion, regulatory capture, tax avoidance, and purchased politicians are the norm).  And this economy is kept buoyant for the elite, and is financed by, exorbitant amounts of Fed liquidity.

So let's cut to the chase:  Now if you are Mr. or Mrs. R. Barron and you have a lush and deep pool of capital to invest, do you place your equity into: Plan A) the stock market - juiced by the Federal Reserve - at limited costs and overhead to your hedge fund, a stock market which is now dominated by monopolies and cartels (hence minting profits); or, do you go with Plan B) and enter the time consuming process and aggravation of building a business (infrastructure, organization and staff) necessary to compete in a cartel driven market - possibly upsetting your elite friends in the process by eroding the profit making potential of the existing cartel or monopoly?

No mystery here.  Thanks to a stock market on steroids, courtesy of the Fed, Mr. and Mrs. R. Barron goes with Plan A.

In short, The Fed, by juicing the stock market (and by providing cheap debt to sponsor stock buy backs, private equity, and M&A behavior) causes the wealthy to have zero incentive to invest, take risk, and most importantly, hire Americans in establishing start up businesses.  Why would the plutocracy?  When thanks to the Fed, they can all reap significant rewards in a ginned-up stock (and commodities market), dominated by cartel and monopoly driven stocks -at minimal cost or overhead. That's just naked self-interest.

And arguably, it's classic rent seeking behavior, speculation, and a tax on society, and it is sponsored and supported by the Fed's printing presses.

That is to say and just to belabor the point, by inflating asset classes, the Fed creates a powerful disincentive to invest in start up businesses, hire American, and repair the tax base.

(As an aside, I also believe the Fed couldn't give a "flip" about maximum employment because it would increase labor costs, erode marginally, profits for the wealthy, and set off perhaps record cost push and demand pull inflation.  In fact, the Fed's policies are a disincentive for maximum employment for that very reason: The awesome specter of INFLATION.  The Fed has printed trillions to reward idle speculation among the rich, and these monies are nearly “sanitized/sterilized,” as they are – for the most part – kept out of the hands of the American public by the Wall Street cartel's failure to lend, and American enterprise' refusal to hire.)

The bottom line in all this is: If America wants a traditional economy that creates new businesses, produces competitive goods and services, and most importantly, raises aggregate demand by hiring Americans, than the Fed needs to take away the asset bubble and the punch bowl of inexpensive debt, so that the banks and shadow banking resume their traditional role. The role of lending and investing in American new businesses, that actually produce something and compete against existing monopolies and cartels.  Fed behavior may also explain why annual American GDP growth has stalled in recent years.

Who knows, perhaps under such a scenario, maybe some cartels and monopolies will actually face competition again?  Good for the consumer.  Good for the tax base.  Good for American labor.  Good for management and in the long run, good for stockholders.

But don't count on it.  Yet another hallmark of a crony economy is an ocean of Fed liquidity keeping the insiders happy.  To support this insanity, one can argue that the Fed must keep Americans misinformed about the true nature of The Bank's/Fed's work, and keep the charade about wanting maximum employment in the press and news media.

All of which brings us back to my college prof.... Economist often make terrific historians but often fail in real time forecasts.  Both the current and prior Fed Chair appear to be no exception.  As one pundit described her, the current Fed Chair is either the most naive academic the Fed has yet encountered, or the ultimate insider - cynically exploiting the Fed's mandate and the American dollar, for the enrichment of an elite few.  

The Fed's policies play no small part in the Neo-Guilded age we are living through currently.  An age that has renewed calls for even greater socialism and merited calls for a global tax on wealth and capital.  Someone needs save capitalism from the crony system, and the monopolies and cartels, that wrap themselves in the cloak of the free market.  A reconsideration of present Fed policies would be a great start.


P.S.

Please pray with me: 

Please Dear Goddess… Do not present this nation with another Bush/Clinton match up in 2016.  Please provide for us a Warren/Paul presidential match up, instead. 

Amen.

Oh, and Dear Goddess… Please cast-out those evil doers, The FCC and the Federal Judge, who did Comcast’s bidding, and who struck down net neutrality.  The Internet is after all, a utility, and the cartel that makes billions off of it should be regulated and their profits subject to windfall taxes.  The NSA and the Net’s cartel have done so much to destroy internet freedom, U.S. dominion over the world-wide-web, and commerce over same.  In short, these tribes of inequity have collectively, sacrificed a huge cash-cow and a fountain of information and entertainment; please stop them before they do more harm.  

Selah.

Copyright JM Hamilton Publishing 2014

President Protectionism

President Protectionism

Reagan “ has granted more import relief to U.S. industry than any of his predecessors in more than half a century.” -  Reagan Treasury Secretary, James A. Baker III

By J.M. Hamilton  4-12-14

“You’re a hypocrite.”  Ah, fighting words.

“I guess that’s fair,” I said to my sibling.  

I was in the middle of a rant on taxes, when she let me have it in mid-sentence. 

“Many of us are hypocrites to some degree.”  I said.  Some of us are hypocrites deliberately, some of us selectively, and some through willful ignorance. 

“Interesting times we live in.”

Cold silence on the other end of the phone, from my sister, the CPA.

“It’s not that I resent paying taxes… but I do resent paying at twice the rate of the wealthy. A flat tax is inherently progressive.” 

Especially, compared to today’s codes, where the wealthy game the system and often pay no taxes at all.

My sister:  “There’ll never be a flat tax.  You are talking about millions of accountants and tax attorneys losing their jobs.” 

“And I really resent,” I cut in, “that I have to buy $79 worth of software, plus added charges, to file on line.”  Not even Bach and a Cabernet induced-coma, with additional supplements, will smooth out the unmitigated misery of four horrific hours on line, grinding out another annual filing.

What a way to spend a spring weekend.

And so it goes.  Tax reform, after all, even that proposed by the GOP, is D.O.A.  The rich thrive on political malaise, chaos, obstruction, and our apathy, courtesy of their Party, the GOP.  Check out Washington, and the ever growing separation between the haves and the have-nots, or as NASA scientists recently put it, between the “wolves and the rabbits!”

My sister, by the way, is awesome.  My sister is the living, breathing proof that males are the weaker sex.   Probably not an accolade she’d embrace, but the truth all the same.

One of the fun things about putting out this blog, year after year, is you get to go back and look at what you wrote.  Does it hold up?  Does it stand the test of time?  What did I get right and what did I get wrong?  While my record is mixed, I do occasionally get a few things right.

Take my piece from September of 2010, A Nation of Whiners!

In this piece, J.M.H., among other things, took former Texas Senator Phil Gramm to task for calling the U.S. a nation of “whiners.”  The Senator said Americans were “whiners” for not recognizing that the economic malaise perpetrated and visited upon the nation, by the very financial deregulation U.S. Senator Gramm sponsored and passed in the late ‘90s, was just a fiction or a mental defect created in the collective public’s mind.  Mr. Gramm, also a former economic campaign advisor to presidential candidate McCain, called the Great Recession a “mental recession.” The Great Recession, six years running, is "mental?"

This same piece, A Nation of Whiners, also took on “free trade” dogma.  I wrote: “While Republican orthodoxy demands strict adherence to 'free trade' dogma, most educated Americans know that there is no such thing as ‘free trade,’ just as we all know there is no Santa Claus.  In short, ‘free trade’ is nothing more than some form of arbitrage, whether it be labor, regulatory, or avoidance of tax, which often benefits some multi-nationals at U.S. (citizen) expense.”

Now anyone who took Macro Econ 101 had free trade rammed down their throats as a fundamental law or fact.  Notably, both Fresh and Saltwater schools of economic thought were in agreement on free trade.  The theory went that by nations specializing in a particular good or service, they could sell more of that good or service globally, than just domestically, and so on and so forth around the globe.  Moreover, if a nation wasn’t particularly strong at a particular good or service, it should willing surrender that product or service, and jobs, to another nation that did specialize in that particular good or service.  All in the interest of free trade, global economic harmony, and the consumer. 

The theory held that displaced workers, who had their jobs shipped overseas, would flow into the sectors of the economy that America was strongest at.  For instance, displaced manufacturing workers in Ohio and Pennsylvania would go to work on Wall Street.  Also, American consumers would benefit from cheaply produced goods, exported onto U.S. shores.  However, if you are among the increasing ranks of the “displaced,” or underemployed, it’s hard to gather up the funds for food, let alone an iPad.

As a result of this quaint "free trade" theory, the U.S. exported millions of jobs offshore, and exported its tax base and fiscal health with those jobs.  The ranks of the unemployed grew, and globalization, which is a fancy work for “free trade,” caused more Americans to file for unemployment benefits, further damaging the Federal government’s budget.  Therefore, free trade/globalization is a key contributor to ever mushrooming Federal debt.

It’s by no accident that at the same time laissez faire economics and free trade dogma hit its zenith in America… the disparity between the “wolfs and rabbits, ” the haves and the have-nots, has grown astronomically.  It’s also by no accident that the Obama administration wants congress to fast track free trade agreements, which it would like to negotiate behind closed doors for American and foreign oligarchs, and away from the prying eyes of the congress and U.S. citizens.  Ironically, President Obama, back in the day, campaigned against free trade agreements.  Theoretically, free trade is also politically beneficial to the Democratic Party, since it creates wards of the state.

But I digress, because the main point of this piece is that the belief that I first wrote about in 2010, that free trade is little more than arbitrage, for the enrichment of, well, the rich, and at the expense of a nation of “whiners” (per Senator Gramm) and her workers … appears to be gathering momentum.

None other than renowned economist, Joseph Stiglitz, and a former free trader at that, has now come out against free trade.  In his piece, On the Wrong Side of Globalization, he wrote:

“Trade agreements’ new boosters euphemistically claim that they are simply after regulatory harmonization, a clean-sounding phrase that implies an innocent plan to promote efficiency. One could, of course, get regulatory harmonization by strengthening regulations to the highest standards everywhere. But when corporations call for harmonization, what they really mean is a race to the bottom.”

Now, if you read my blog and curse it, you’ve likely already concluded that I’m some liberal/libertarian flake, who should be dismissed out of hand.

But would you be so quick to dismiss, say another liberal, President Ronald Reagan?  Yes, President Reagan, who despite many rhetorical flourishes in favor of free trade, was actually said to be, by none other than the arch-conservative CATO Institute, one of the 20th century’s greatest protectionist presidents.

Of course, that’s really the difference between today’s GOP and yester-year’s GOP…. And the primary reason I abandoned the Party.  President Reagan, who had his own severe stagnation and recession to deal with in the early ‘80s, knew that in order for the nation to get back on its feet, he had to deploy protectionist measures to protect jobs, American labor, business, and the economy.  In deploying protectionist policy, surely President Reagan angered the wealthy (like the arch-conservative CATO Institute, then founded and run by the billionaire Koch Bros.) 

Mr. Reagan certainly paid lip service to free trade, but his second term and top line growth for American business depended upon a rational balance of protectionist policy, which protected the American worker, who after all, is the driver of aggregate U.S. consumption.

Then Treasury Secretary Baker, said:  Reagan “ has granted more import relief to U.S. industry than any of his predecessors in more than half a century.”  We'll never hear Obama's Treasury Secretary say that.

Today, the laissez faire crowd and the advocates of free trade, that have hi-jacked both political parties, know that they are doing unmitigated damage to the American people, workers, businesses, and the federal budget by backing free trade agreements (a rigged tax code is also endorsed by this same crowd), all in the name of making the rich richer, because they believe that’s a good thing.  Our politicians in catering to the elite with free trade agreements are serving their true master, American and global oligarchs.  Clearly, the interests of the rich and powerful have diverged from the interests of the majority of Americans, but that has always been the case.  Yester-year's GOP often struck the right balance between the republic’s interests and the plutocracy’s interests.  President Reagan's position on free trade and protectionism being a case in point.  

Then again, President Reagan did start out as a Democrat, and once represented the Screen Actors guild... I guess that would make him a parlor-pink, by today's oligarchy standards.

If we compare the two economies, both President Reagan and Obama inherited a really lousy situation.  However, Reagan had higher tax rates than Obama for much of his two terms in office, and Reagan engaged in protectionism (which the Robber Barrons will tell you are both "no- nos"and impediments to growth).  By comparison, President Obama has lower tax rates and has embraced free trade (which should make him a darling of the oligarchs). Both Presidents had monetary doves at the Fed, in the form of Messrs. Greenspan and Bernanke.  And yet, President Reagan's economic recovery was stronger than President Obama's.  Why?  

Thanks to protectionism, President Reagan was able to protect and preserve the middle-class.  The middle-class, thanks to three decades and more of laissez faire economics and free trade, has all been but gutted by the time President Obama entered office.  In brief, during President Obama's time in office, there has been no middle class recovery.  The missing ingredient for President Obama, existed for President Reagan.  Under both recoveries, however, the rich have grown richer, despite higher tax rates under President Reagan.

Unfortunately, some Americans through willful, or benign ignorance, turn a blind eye (I call it the “ostrich syndrome”); and either deliberately eschew politics, or duck their heads in the sand and hope, pray, and pretend things will get better, or have simply resigned themselves to the fact that things will only grow worse. 

“I can’t control these outcomes, so I must accept them,” so goes the familiar refrain.  To which I respond, “Yes, but what about your children and the future your apathy is bequeathing them.” 

The American pubic can control democracy and economic and political outcomes, by staying educated and exercising their enfranchised right.  I know this to be true, because why else would the rich pour hundreds of millions into political campaigns, attempting to overthrow the democratic process?  If I believed democracy didn't work in the long haul, I’d stop writing this blog tomorrow.  Nor is it “cynicism” to write on the problems of the nation, and attempt to point out the often obvious solutions; in fact, for some, it’s a patriotic responsibility.

Democracy comes at a price for its citizens, that means remaining actively engaged, knowledgeable, and insisting that your interests are represented.  It’s a small price to pay, remaining educated and informed, relative to all those men and women who have laid down their lives to fight for and protect this country.  Handing the car keys over to a band of pirates, cutthroats and plutocrats is a recipe for a nation in decline, and we are witnessing that decline.  If you believe staying actively engaged in our democracy is difficult and requires too much thought and time, in short - if you want to abdicate responsibility, than do nothing more and watch the plutocracy take hold and the economy continue to stagnate and grow worse.

And this has already happened.  Have you looked at the Federal budget lately?  It looks like private equity’s Carlyle Group has taken over the Federal government: we are leveraged to the hilt and gone bust.

In a democracy, liberal politicians, like President Reagan, knew that their true master was the republic and its citizens, and their duty and obligations were to same.   However, in a post- Citizen’s United world, in a post- McCutcheon world, money is worshiped, oligarchs are catered to by both political parties, and the people, the republic, and our economy suffer for it.

Continue on this path and we no longer live in a democracy, but rather are ruled and governed by a plutocracy.  The U.S. is in danger of becoming the very thing our founding fathers fled, a corrupt and crony Europe, ruled by monarchs.  We can give SCOTUS, the GOP stacked court, credit for that. 

The wolves would do well to remember, however, as pointed out by the aforementioned NASA scientist, that when society and the rabbit population collapses, the predators tend to die out with it.

P.S.

All of which brings up that famous Wall Street maxim:  Bears make money.  Bulls make money, but Pigs… well, they get slaughtered.

Would it really harm Apple’s margins if they manufactured iPhones in the U.S.?  The answer is an unmitigated “no,” but greed and the laissez faire ethos prevents that from happening.  And I would add, stockholders (like CalPERS) have been harmed, not in every instance but frequently and often, by business actions initiated by management and multi-nationals, in the name of “stockholder interests.”  Then again, I suppose in today's high frequency trading world... holding onto a stock for the long term, based upon sound business fundamentals and a management sponsored long term outlook, is considered passe and strange.

One can read Nation of Whiners - and an anthology of my early work, and do your democratic duty, by purchasing: Playbook, on Amazon.com.

Copyright JM Hamilton Publishing 2014

HANDY & Predator Versus Prey Models

Human and Nature Dynamics (HANDY):

Modeling Inequality and Use of Resources in the Collapse or Sustainability of Societies

Happy Birthday Jack!

Hoover, Alexander, and The Surveillance State... 

Those who do not know history's mistakes are doomed to repeat them.  - Santayana

By J. M. Hamilton.     4-2-2014

In light of a torrent of NSA revelations, many Americans forget that we flirted with a police state in this country once before.  How many sitting Presidents did Mr. Hoover, the nation's first FBI Director, blackmail to do his bidding?

We know for a fact that Mr. Hoover had hundreds of dossiers on congressmen, senators, and that his reign spanned several presidencies.  His power was unimpeachable because he controlled the nation's largest domestic police apparatus, with the greatest amount of resources.  Hoover wielded this power to insure that his bureau, his job, and his boy friend remained protected and ensconced.

Don't take my word for it.  President Truman has been quoted as follows in reference to the nation's founding G-Man:  

"We want no Gestapo secret police. The FBI is tending in that direction. They are dabbling in sex-life scandals and plain blackmail. J. Edgar Hoover would give his right eye to takeover, and all congressmen and senators are afraid of him."

Even more frightening still was that organized crime was said to have the blackmailed Mr. Hoover.  Think about that for a moment.  Organized crime blackmails the blackmailer, so that in theory  - if not in practice, whatever "dirt" Mr. Hoover had on executive administrations, SCOTUS, or House and Senate leadership and membership, was accessible to organized crime.

Americans today, may wonder why organized crime was said to have walked all over Mr. Hoover... But many historians will tell you that at time when rampant homophobia was the societal norm, some thought it a mental disorder, blackmailing Mr. Hoover and Clyde Tolson was a very real possibility.

So in essence, a democratically elected government was run by the nation's top cop, who was in turn likely controlled by organized crime.   

Sound familiar?

Last week saw the retirement of General Alexander, who ran the NSA and Cyber Command, and his reign too, spanned a couple of Presidencies.  Mr. Alexander's power was nearly unlimited and his spying, surveillance, and police state apparatus would have been marveled at by Hoover and the German Stasi.

What dossiers did Mr. Alexander have in his possession on democratically elected officials?  And who had the "dirt" on Mr. Alexander, so that they had access to his files?

"Paranoid stuff," you argue.

"Not hardly." I respond.  "Just look at Mr. Hoover and history."

Even if Mr. Alexander was Mr. Clean, what was to prevent hackers (foreign or domestic; criminal, commercial, or state sponsored) from hacking into the NSA to obtain NSA information?

Possibly by no coincidence last week, at the same time there was a changing of the guard at the NSA, President Obama announced his plans to end mass surveillance.  Surveillance that has done so much damage to our relationship with allies, harmed American internet companies and hardware and service providers, and damaged U.S. standing in the world, as the beacon of freedom and democracy.

Like Mr. Hoover before him, make no mistake about it, General Alexander's creation, the post-modern NSA, was, and remains, a threat to our democracy and our freedom.  The General stands among many historical figures, who would sacrifice personal freedom, liberty and privacy for specious claims about greater national security.

President Obama is shrewd.... Not only did he do the right thing by proposing to rein in the police state; but, if successful, the President will have also removed a political cudgel from Senator Rand Paul's hand, who has gained traction as a prospective presidential candidate - based upon issues of privacy and freedom.

Of course the NSA isn't the only military branch who is out of line... The CIA has been called on the carpet by Senator Feinstein for hacking into Senate computers.  How bad has it become when the primary defender of the faith, and a huge MIIC advocate, calls out the CIA? 


When did the MIIC decide that they no longer needed civilian oversight?

Article II, Section 2, of the U.S. Constitution makes the POTUS commander-in-chief over the nation's armed forces.  This is a good thing.  However, this key tenet to our democracy, a tenet that stands between Americans and military rule, is directly threatened by a police and surveillance state.  The MIICs power and influence only becomes magnified - exponentially, I would argue, when many of the MIICs duties and responsibilities are subcontracted out to commercial interests.  (The profit motive can drive men and women to greater good, and if not monitored by our elected officials, potential national harm.)

President Obama should act unilaterally to rein in MIIC excesses that threaten our democracy, if the Congress fails to act expeditiously to support his efforts.  There appears to be many threats to our democracy today, not the least of which are too much concentrated wealth and power, a Citizen's United decision - et al., and our surveillance state.

P.S.

One of the great things about the majority of Americans finally recognizing that homosexual conduct, and marijuana use, is neither criminal nor aberrant, is that these are two behaviors that politicians, indeed all Americans, can no longer be blackmailed for....  unless of course, one is a Republican politician.

One of the best anti-monopoly/anti-cartel pieces written all year:  Washington Post, Catherine Rampell - Comcast- Time Warner Cable merger is a bad deal.

Copyright JM Hamilton Publishing 2014

UKRAINE

UKRAINE

“Oceania was at war with Eurasia; therefore Oceania had always been at war with Eurasia.”   -  George Orwell, 1984

By J.M. Hamilton  3-14-2014

Oh, oh.  Big Oil and Big Death (the military industrial and intelligence complex) are upset.  This means politicians must snap to attention, and answer to their paymasters.

At issue, Big Oil has made a huge investment in natural gas, right about the same time natural gas has become both ubiquitous and very inexpensive, here in the States.  So plentiful in fact that the U.S. is staring at the prospect of becoming energy independent.  Moreover, inexpensive fuel means that manufacturing in the U.S., and the transportation of U.S. manufactured goods becomes less expensive and more competitive.  Which in turn, has the potential of setting off a U.S. manufacturing renaissance, jobs for Americans, greater discretionary spending from the public and higher aggregate demand, and a broader U.S. tax base (which further means, fewer Americans dependent upon the State, and a reduction in Federal deficit spending to support same). 

All good things, right?

Energy independence, also, frees America up from foreign entanglements in the Middle-East.  The U.S. having been so wildly successful at two recent nation-building exercises: one in Iraq, where a military dictator was replaced by a duly elected dictator; and a second exercise in Afghanistan, which has been an abject failure.   As a result of President Obama’s pledge to wind down the two nation-building exercises (in the case of Afghanistan, at nearly the same pace that President Nixon honored his commitment to pull the U.S. out of Vietnam), the DOD budget – which consumes half the nation’s discretionary Federal budget – is finally projected to shrink.  The oft quoted line, generally provided with disapproving histrionics, is that the U.S. military will shrink to pre-WWII levels.  If this actually happens, there are plenty off line budgets, black budgets, and assorted MIIC slush funds to make up the difference.  Such is the MIIC’s power, an awesome power that President Eisenhower, a GOP favorite, warned the nation about in his farewell address.

In sum:  More U.S. natural gas, equals less dependence upon foreign oil, equals more U.S. jobs, equals less of a need to be involved in Middle-East affairs.  And therefore, less of a need for a MIIC that is: outdated; riddled with waste and fraud; arguably, abuses our citizen soldiers; and in the case of the NSA, is prone to catastrophic over-reach, endangers the internet, and violates our constitutional principles, if not the constitution itself.  (A=B=C=D= Less need for the DOD)

All is right with the world, seemingly, and especially for a fleeting moment, for American citizens and the men and women who serve.  (America, of course, declared itself the winner in Iraq and Afghanistan; however, it certainly can be argued that both nation-building exercises were pitiful failures, diminished U.S. stature, and are a reminder that the MIIC, and foreign policy in its present incarnation, have become little more than just another excuse to make billions in war profits at the expense of the taxpayer, and the lives of U.S. soldiers.)

As mentioned, none of this sits well with Big Oil and Big Death, who have their own interests to consider.  In the case of Big Oil, it’s not enough to make record profits from quarter to quarter, or sit on a glut of fuel, or to restrict supply – via a limited number of refineries - so as to maintain higher prices at the pumps.  Or to enjoy billions in tax breaks, subsidized by ordinary Americans (and the Fed's printing press), who cannot afford the same lobbyist and politicians.  No.  What Big Oil wants is to ship America’s energy independence off shore, to more lucrative markets, and all the better to keep prices higher here at home.  If that means killing a nascent resurgence in domestic manufacturing, than so be it.  Jobs and ordinary Americans be damned, once again… they're just Big Oil's collateral damage. 

In the case of Big Death, it needs a new war, so as to fend off pending military cuts.  And since the Middle-East is a hot bed of economic and social unrest and ready-made for war, the DOD, presumably, doesn’t mind seeing U.S. energy independence shipped off shore either, or the U.S. steeped in Middle-East affairs, in order to keep the war machine grinding.

Now the political duopoly that runs this nation is prone to the money that flows from both Big Oil and Big Death; but Republicans in particular, who absolutely detest President Obama, are looking to paint the Democrats as classic peaceniks and “surrender monkeys,” because of the proposed MIIC cuts.  The GOP laments the lack of American leadership in the world, allegedly, provided by the current administration... code for, we need another war.  That President Obama humiliated the GOP by killing decade(s) long foes of America and the GOP – like O.B.L. and Col. Gadhafi – w/out an invasion or yet another failed nation building exercise (in the case of the latter with a multi-national force, no less), has made the GOP only dislike the President more.  President Obama has shown the U.S. that a bloated military bureaucracy is not only not needed, but with a national debt approaching 20 trillion, and one and four American children born into poverty, continued excessive MIIC spending is both unsustainable and unconscionable.

Ranting, raging and fuming... the G.O.P., Big Oil and Big Death need a new enemy and a rallying point.

As if on cue… Entrée President Vlad Putin and the crisis in the Ukraine.  This role was made for the man.  Mr. Putin is former KGB and reminds the GOP of the Cold War: when America rode tall, Russians were evil, Reagan was in power, our debt to GDP ratio was a fraction of where it stands today, and the sky was the limit for MIIC spending.  

There’s just a couple of problems for the MIIC, Big Oil, and the GOP with this analogy:  one, Mr. Putin – albeit being a detestable dictator – locking up an all girl rock band, named Pussy Riot – is not Joseph Stalin or Adolph Hitler; two, Russia is no more a Super Power than the State of Florida; three, today’s Russia, unlike the former Soviet Union, is not bent on global domination (Russia is just protecting its turf, after the U.S. and Europe took several former Eastern Bloc states into NATO… much like the U.S. would protect its interests, if Russia attempted to invade Mexico); and four, having become quasi-capitalist, the Russian oligarchs are fearful of being cut off from the world, via U.S. and European sanctions, and the Russian stock market has already taken a considerable pounding.

As for Crimea (a republic within the Ukraine), this is what colonist do… they put occupying citizens (Russians) in colonized lands (Crimea/Ukraine), so that they have an excuse to move in soldiers and tanks, at the first hint of an uprising from indigenous peoples.  Think of the approximately 30,000 U.S. troops in the Korean DMZ and South Korea… the U.S. soldiers who serve in the DMZ are little more than a speed bump to one of the largest armies on the planet, the North Korean army.  A speed bump designed to provoke the wrath of Big Death, herself; and hence, assure the world that only an absolute megalomaniacal dictator, worthy of removal, would dare run over said speed bump.  But I digress.

So, it’s clear why the GOP and the MIIC are infatuated with the evil Putin…. But how does Big Oil stand to gain?   It’s simple, President Putin exports natural gas to Europe, via the Ukraine, and uses the export of natural gas as both a carrot and a stick to keep the Ukraine and Europe (read Germany) in line…. At times cutting off supplies for political reasons, in the middle of winter.  (And we all thought Senator Mitch McConnell was heartless.)  The new U.S. foreign/energy policy proposal – to the absolute joy of Big Oil and its lobbyist – is America will export our energy independence and natural gas to Europe and flood world energy markets, so that Putin no longer has his carrot or his stick.  Yes, U.S. politicians, including our President, actually appear to be in favor of this stunt, which will likely cut off future U.S. manufacturing jobs, opportunity and an economic recovery, so that we can spite a tinhorn dictator.  

I call the crime of shipping U.S. LNG, and U.S. energy independence, into the world market, allegedly to help our European allies, a "stunt," because as pointed out in Foreign Affairs, U.S. LNG would actually be priced uncompetitively by the time it  reached Europe (factoring in processing and transportation).  The Ukraine and the Russians are just another excuse by Big Oil and the GOP, and a power grab, to hustle LNG out of the country, period.  U.S. LNGs true destination will ultimately be China and the Pacific Rim; and absolutely key, will be to create a global market and global spot price for LNG, so speculation can begin in earnest.  In military parlance, situation BOHICA.

That U.S. trade with the Ukraine amounts to a rounding error, compared to our national GDP, and that we have no national interests in the Ukraine… is apparently, beside the point. 

Big oil wants to add billions in natural gas revenue to their billions in profits, and it appears that Washington is going to give it to them, by foreign policy route.  To hell with ordinary Americans, the economy, and the tax base, and plundered U.S. national resources…. Exxon and the MIIC have got to make a killing!

President of Russia, Vladimir Putin Photo: Getty

There’s another key problem for the GOP, Big Oil and Big Death….   Americans, increasingly, aren’t buying what our corporate and political leadership are selling them.  The latest straw poll winner at the March CPAC conference was Mr. Rand Paul.  In fact, he’s won two years running.  Mr. Paul and libertarians, I believe, object to the U.S. being the world’s policeman for three primary reasons:  one, it’s unconstitutional; two, the nation has gone bust supporting a bellicose and bloated MIIC (and our plutocracy); and three, the FED is printing money to support our Big Death habit. 

How sustainable is that?   

So many in the conservative movement, if Mr. Paul is an indicator, probably believe the MIIC is a fraud and just another big government public works project run amok.  On the Left, the true Left (which actually meets up with Mr. Paul and Libertarians on many issues, particularly foreign policy), well they’d rather see, much like President Eisenhower would have, that much of MIIC funding go to feed and school U.S. children (a thought that would probably be considered criminal by the NSA and the CIA).

This of course, leaves the GOP establishment and prospective Presidential Candidate Hillary Clinton as the only true military hawks/jingoist left standing in the room.  If they only realized that it is their foreign policy, utilizing the U.S. military on failed nation building exercises, that makes this country look weak, less credible, and tired.

If I can humbly offer one word of advice to Mr. Paul, and foes of excessive MIIC spending and Big Oil on the Left, it is this: Don’t make excuses for President Putin.  Let’s call a dictator a dictator, but let’s not make a mountain out of a Russian molehill either, as the GOP establishment and Clintonian Democrats would have us do over the Ukraine. (Yes, Ukrainians deserve our sympathy, moral support, and economic assistance; but if America has learned anything from Iraq and Afghanistan, it is that foreign revolutions cannot be sponsored or fought by proxy forces, and in particular the MIIC, with any degree of sustained success.)

After all, “Putti”… while a bad, bad boy…. Hardly warrants an additional dime of MIIC spending, and he does not warrant the export of U.S. energy independence offshore. 

President Putin certainly doesn’t deserve the attention he receives daily from all the major U.S. news organizations, all under corporate control. 

Gee, do you think all that concentrated media attention on the former Soviet Union and the Ukraine is by design?  This begs the question: do we really want the Comcast monopoly to have yet more power in controlling the news and content flow, with the Time Warner merger?

“Oceania has always been at war with Eurasia?????” 

Yeah, that about sums it up!

Trust me on this one.  We will not see the equivalent to PM Neville Chamberlain flying back from Germany to declare that “there will be peace in our time,” due to some like aggression perpetrated on the world by a President Putin.  From the Russian perspective and our own, President Putin’s actions in the Ukraine are reactionary, but certainly not revolutionary or unexpected.  Nor would any sane or rational President send U.S. troops into harms way to fight the Ukraine's battles, and to his everlasting credit, the President is not proposing this.

President Obama gets a lot of credit for focusing on America and Americans, and not launching this nation into yet another war.  The President should not, however, make threats that he cannot or should not follow through on. 

Besides, the U.S. has much more creative ways to topple dictatorships, and Mr. Putin, should he get out of line.  Mr. Jefferson's statement immediately comes to mind, when he once called Banks more powerful than standing armies.  Just ask former Egyptian President Mubarak, and the former government of Iceland, circa 2007-2008.

P.S.

I really got a charge out of David Brooks column this week in the NY Times, The Leaderless Doctrine.  Mr. Brooks, the resident conservative at the Times, lamented - among other things - that Americans are increasingly more isolationist in outlook, have less respect for authority and U.S political and business leadership, and only 19% of millennials believe their fellow citizens can be trusted.  

What could cause such distrust.... Oh, I don't know, perhaps it was:

Two failed wars with the ultimate economic and fiscal cost unknown for years to come, but certainly north of two trillion dollars, and thousands of U.S. war dead.

Or perhaps, it was a 2008 financial crisis, in which ordinary Americans are still paying the price, while the plutocracy has been bailed out, repeatedly.

Perhaps it's the Citizens United SCOTUS decision that placed our government up for sale to the highest bidder.

Maybe it's an obstructionist congress that puts politics and money above the public good, as a matter of standard operating procedure.

Maybe it's a rigged legal and tax system... rigged in the plutocracies favor and rigged against everyone else.  I could go on and on.

Could it be Private Equity business practices that are not entrepreneurial, but little more than the maxing out of a corporates' credit line, so pirates can get rich, while workers, the tax base, and investors pay the price.

If Mr. Brooks and our "leadership" are wondering why Americans no longer trust hierarchies and our present economic and political elites... perhaps they only need take a long hard look in the mirror.

Copyright JM Hamilton Publishing 2014