The U.S. Command Economy?

The U.S. Command Economy?

The general rule for the use of the military is that it is better to keep a nation intact than to destroy it.  It is better to keep an army intact than to destroy it, better to keep a division in tact than to destroy it, better to keep a battalion in tact than destroy it….

The Art of War – Sun Tzu  (Translated by Thomas Cleary)

By J.M. Hamilton (2-1-15)

  

In regards Iraq, I guess no one in the Bush Administration bothered to read Sun Tzu.

The thought must have crossed my mind in 2008, in the midst of the financial crisis. The awesome power of the state, The U.S. Federal government, to protect and preserve vast sectors of the economy and major corporations, to save entire industries, and to pick winners and losers... first sparked the idea. And yet, having been a child of the cold-war era, and being raised on the tenets of capitalism... the idea, admittedly, seemed rather odd. Could the U.S. be a command economy, or at least be embracing some key features?

First a definition, as described from several resources, a “command economy,” (aka centrally planed economy), is an economy where government, rather than the market, determines what goods should be produced, and the price of such goods and services. China, North Korea, Cuba and the former U.S.S.R. are often held up as command economy examples. In short, the preeminent power of the state is used to determine what is produced, how much is produced, and the price of the goods and services produced.

In the following piece, J.M.H. attempts to explain how the U.S. may in fact, be a centrally planned economy (wittingly or unwittingly), or embrace some command economy attributes. Then move on to describe the industries that are planned and/or enjoy tremendous state backing and support; and finally, what a centrally planned economy means for Americans, the consumer, and our economy.

So in order to have a command economy, you need a central ruling body or political party. That’s an easy enough case to make, let’s examine the following.

1) As recently reported by Oxfam, the 1% own nearly 50% of all global wealth.

2) Aside from social policy issues, J.M.H. has been making the case for years, that we live in a one party state, with Dems and the GOP fighting each other to demonstrate who can best service the plutocracy. If the stock market is any measure, it looks like the Dems are winning.

3) SCOTUS decisions guarantee the ruling plutocracy are the government’s true puppet-masters, via McCutcheon and Citizens United. In short, our democracy is for sale, in a form of legalized corruption.

4) The amount of money flowing into each successive campaign cycle is both unprecedented and ever growing... much of it from anonymous sources. And neither political party has shown any interest in reining it in.

5) The Chamber and Business Roundtable hold uncompromised sway over the Congress and various government branches.

6) The relationship between government and the private sectors have become both blurred and symbiotic, with privatization of government activities and duties, and government spending making up 40% of GDP. Leading to waste, fraud, and a grossly mismanaged resource allocation.

In short, the nation is ruled by the plutocracy, so we have our central planning committee or single ruling body right here.  As with China, and the former U.S.S.R., not everybody within the governing body, or within the Plutocracy, is of one accord. But generally, as stated by Mr. Lawrence Summers to Senator Elizabeth Warren, one tenet holds basically true: Insiders don’t criticize insiders.

So if the U.S. has a core cadre of elite rulers using democracy as a façade, and politicians as a mask (maybe not dissimilar to China's elite ruling body), what are the key “planned industries” within our economy? Here, look no further than industries that are singled out for privilege, special treatment, tax breaks, government largess, have unimpeded access to politicians, are exceptionally concentrated, and that consistently, roll regulatory bodies and authorities. The following industries make that list:

1) The Wall Street banking cartel. There’s probably no other U.S. industry that receives unprecedented sums of government assistance than the Wall Street cartel. Whether it be outright bailouts, worth trillions of dollars (with no strings attached), or the fact that we have branch of government, The Federal Reserve, that is tacitly dedicated to maximizing banker welfare and inflating asset prices - there is no other industry that receives so much at the nation's expense. That this industry often works at cross purposes with the interests of its clients, Main Street business, investors, and the American public is no longer in dispute. In fact, it’s well documented. And yet, the Leviathan keeps moving forward, rolling back regulatory reform, and setting the U.S. up for the next crisis.

2) The Defense Industry. It’s no accident that the top government contractors all work for or supply the DoD and the Surveillance State.  It’s also no accident that the Pentagon has not passed an audit in years, and there’s little or no accountability within this industry. The revolving door between the military brass and executive positions at these major military corporations is on full display, and helps insure that there is no sustained criticism (The Pentagon has become little more than an advocacy group for war and the MIC). Quite to the contrary, at least one political party believes the U.S. must be permanently engaged in war, and plays the fear -card, constantly. Hence helping to insure that a bewildered and frightened American public never questions the gross fraud and negligence that is attendant within the military industrial complex. Lockheed Martin’s F-35 being the classic example. Our Congress not only kowtows to the MIC, but runs interference and heaps contracts upon contractors for weapons systems that are not needed. Offline budgets, black budgets, DoD budgets that are classified: What’s to hide? Apparently, a great deal and billions. The GOP likes to go after government assistance for the elderly, children and the indigent, but when it comes to welfare for the MIC, the sky is the limit.

3) Telecommunications and the Cable Industry. Grants of monopoly are handed out to this industry, like Halloween candy. And all the plutocracy demands in exchange are the communications records of every American with a cell phone, hard line, and/or computer. (Heh, if you are not a member of the plutocracy than you're probably a threat, or at least guilty until proven otherwise.) And the industry is all too happy to comply. The fact that it costs less than $10 a month to provide an internet connection, and our cable/internet bills spiral ever higher, shows just how insidious monopolies and cartels are to consumers, competitors, and other businesses competing for the middle class’ ever declining discretionary income. And yet the Congress and the regulatory bodies (Justice, FTC, SEC) are all too happy to approve combination and consolidation for the enrichment of the plutocracy that governs us all, at the American people's expense.

4) Silicon Valley, U.S. software developers, and Internet Companies. See Telecommunications and the Cable Industry above. Ever wonder why it’s so easy for your computer or phone to be hacked? Ever wonder why businesses and major corporations are hacked daily? It’s in no small part due to our government, the NSA, CIA and FBI, insisting that there be no encryption in the U.S., and that hi-tech companies build back door openings into computer programs, software, and hardware - for ease of government access.  (Moreover, internet companies, like Facebook and MSN, are forced to surrender client information to the Feds, without a warrant, etc.) These built in engineering flaws are not only accessible by our government, but may also be exploited by foreign governments, organized crime, or the hacker next door. That the NSA has had a hell of a time pointing out any major terrorist event that they have stopped by their actions, is beside the point. The symbiotic relationship between the government and Silicon Valley may in some ways be responsible for the billions of dollars in on-line fraud and theft; and through circular logic, one of the key reasons why we need the NSA, FBI and CIA. Karma has an ugly way of exacting justice, and because the Valley works so closely w/ the Nation’s top spies, foreign countries are increasingly cutting their ties, costing the Valley billions. Unfortunately, most American’s are so frightened that they are all too willing to surrender their privacy to these corporations and our government, or are simply, too oblivious to care. Our surveillance state in action, and your freedoms, civil liberties, identity and financial well being, up in smoke or well on their way.

5) Big Pharma - This industry is amazing. We are the only Western democracy that permits this industry to gouge consumers, the taxpayer and our own government, with monopolistic profits. Wonder why nearly 20% of our economy is dominated by Healthcare? Big Pharma plays no small part.  And yet, not content to help themselves to the contents of your life savings or looting our government, Big Pharma has also played its part in industry consolidation and tax inversions. Meanwhile shortages of critical medicines abound, and Big Pharma has become much more adept at extending the lives of patented medicines, and buying out competitors and initiating stock buybacks, than in developing new medicines. And where’s our Congress and government to stand in the way of Big Pharma’s predatory ways?  Owned by the plutocracy, you’re more likely to find our Congress playing lap dog and cheering Big Pharma on.

6) Big Ag.  Yes, nothing is sacred, not even the food that enters your mouth. From killing off the Bee population (the proverbial canary in the coal mine), genetically modified foods, pesticide and herbicide overkill, all the way to farm animals shot through with steroids and antibiotics (and inhumane science experiments conducted upon them), here‘s another industry where the ends always justify the means. And it’s one more industry protected by our government, as the regulators look the other way or allow the Ag industry to regulate itself.

7) Big Oil. For sake of time, I think it’s best to the let the industry and a recent J.M.H. piece speak for itself: Big Oil has got Your Back.

These industries are the players in our possible de jure or de facto command economy.  Noticeably missing from the list are manufacturing concerns, and I suppose we could place GM on the list, since the automotive industry has enjoyed a couple of bailouts over the years. But it seems that up until recently, most American politicians, and the plutocracy, had all but given up on U.S. manufacturing. Given free trade agreements, globalization, outsourcing, and private equity, manufacturing seemed all but done for.  Only the realization that a diverse economy, without too much dependence upon anyone sector for jobs and opportunity, caused our political leadership to re-evaluate manufacturing. That and the growing cost of labor within the BRICs, and inexpensive U.S. energy, have combined to cause industry to reconsider America as a manufacturing destination.

No, if I was to consider adding one more protected industry to the list, it would be Private Equity. An industry that is antithetical to all the best attributes of capitalism, that is laissez faire capitalism’s extreme. For all intents and purposes unregulated, private equity robs employees, fosters consolidation and monopoly, often cheats investors, and all too often leads formerly, perfectly healthy companies into bankruptcy. It is an industry that is the American dream’s darkest chapter.

So if America operates a command economy or exhibits many of the characteristics of a centrally planned economy, what does that mean for workers, consumers, opportunity, and the economy at large?

  

One of the more shocking revelations of the 2008 financial crisis was how dependent the one-percent are on the government for maintaining both their wealth and power.   In fact the one-percent have co-opted government and taken over our democracy, and in the process redistributed wealth from the 99%, and future generations, to themselves.  That these same elites often decry “socialism” for the "masses" and insist upon fiscal austerity, while helping themselves to a heaping plate full of government largess through deficit spending, wars without end/nation building, privatization of government, too big to fail institutions, free money from the Federal Reserve, tax cuts, the lack of regulation in key industries, and grants of monopoly…. Screams hypocrisy.

In the process many industries have metastasized into monopolies, oligopolies and cartels… in short, the crony economy, and perhaps a command economy.  Wall Street, the stock market, and stock analyst love cartels and monopoly because it guarantees profits.  But as I wrote in my last piece, Lombardi, Exceptionalism, and the Rule of Law, grants of monopoly, or gifting the means of production into a single private party’s hands, are little more than socialism by private proxy.  Once again, demonstrating the double-standard the elites live by.

There’s just one problem:  capitalism without competition – that is, bordering on a command economy -  leaves consumers, workers, investors and Main Street businesses to be preyed upon.  The aforementioned, the 99%, suffer: by paying higher taxes to subsidize tax dodges for the elite; paying higher prices to support monopolistic taxation; the 99% bears the unseen and delayed costs of the lack of rules, regulation and the contamination of our planet; and it is our children who will pay the price for deficit spending, a national debt that it out of control, and the machinations of Federal Reserve policy utilized to bailout the plutocracy.  And investors suffer through a lack of alternative investments and businesses with which to place their money.

Moreover, when wealth is redistributed to the 99%, it makes its way back into the economy, whereas the elite generally hoard same, or send their savings/government largess back to Wall Street (which has diverged from the Main Street economy's interests).

As a devout reader of National Review throughout much of the eighties, William F. Buckley’s magazine, rightly, used to denounce the rulers who stood upon the Kremlin’s walls during the May Day parades as little more than mafia and gangsters, and simultaneously, lamented that Russia's citizens were mere slaves.  A command economy is ultimately a highly dangerous thing, as the economy finally stagnates; becomes less responsive to consumer, worker and investor needs - due to the lack of competition; and moreover, results in serious resource dislocation.

Don’t take my word for it.  Examine the former Soviet Union, which has now been consigned to the dust bin of history.

It's no accident that the last thirty-five years have coincided with the rise of the plutocracy, middle-class diminishment, and greatly polarized wealth inequality.  It's just another symptom of a possible command economy.

Copyright JM Hamilton Publishing 2015

Lombardi, Exceptionalism, and the Rule of Law…

My niece texted me last weekend (while my favorite team beat the Dallas Cowboys), and asked me about my strong affinity for the Green Bay Packers.  Aside from my love for a perennial winner, and being raised on Packer lore by my father, since I was a toddler… there’s an economic aspect to The Team that I have always found intriguing.

The Green Bay Packers are a magnificent economic anachronism for two reasons.  First, how is it that a NFL franchise in the middle of virtually, nowhere is so highly successful?  The simple answer is that the NFL embodies the success of socialism, through a television revenue sharing arrangement among the teams.  And two, the team is owned by citizens of Green Bay, WI and the public, and charter rules prohibit any single party from obtaining majority ownership.  So here is a highly successful version of socialism, the NFL, dominated by a not-for-profit team, the Green Bay Packers.  And what makes the Packers so damn good...? 

Well, the Packers can afford to take the long view of the game and develop talent and strategy, versus every other privately held team in the NFL, who all too often take a quarterly statement view, a myopic view, of the sport.  That is to say, the for-profit strategy of every other team in the NFL is all too often dominated by dollars and cents, not necessarily on winning.

Of course, American socialism is not limited to the NFL.  There’s no greater champion of socialism in America than the Republican Party, who has been redistributing wealth in America to monopolies, cartels and the plutocracy for the last 35 years (via tax cuts for the rich, allowing the formation of monopolies and cartels, by weakening regulation, regulators, and allowing regulatory capture, via Wall Street bank bailouts, and through government privatization… just to name a few examples).  Not to mention we have a fourth branch of government, The Federal Reserve, that is completely dedicated to maximum bank welfare, and inflating asset bubbles (The Fed is the quintessential government gift to Wall Street banks, shadow banking, and private equity).

Just to be clear, “socialism” is putting the means of production into a single party’s hands.  Generally, as understood by most economist and political scientist, that single party is the government.  But when Republicans, and yes even GOP- Lite (Dems), place or gift the means of production for an entire industry - into the hands of one or a few private sector companies, in the creation of a monopoly or cartel – they are creating “socialism by private proxy.” 

If you think the Federal government sucks money out your pocket, think about the money private sector monopolies and cartels take from you daily.  Whether it be Big Pharma, Big Oil (imagine, a few short months ago the price of gas was double what you are presently paying at the pump), the Cable monopolies, or the airlines (just to name a few)…. Courtesy of the State, they are all taxing you to death, through monopolistic profits.

Which brings us to my final point, before we launch into today’s piece:

Are the Packers, perhaps one of the most successful teams in American football, a model for the future of capitalism, a capitalism that works for the many instead of an elite few?  Think about how the Packers operate… is it within reason that, someday, American citizens demand that local, state and federal governments purchase entire corporations, to be run for the public good (as not-for-profits), instead of for the enrichment of less than one percent of the population?  It's not really a stretch, is it?  Many large American businesses already enjoy government backstop and support, and losses are socialized... so why not socialize profits?  As job opportunities continue to decline, as a result of technology, globalization and private equity - the Packer model may become a serious option. 

If the Packers are the example… government purchase of private sector enterprise, to be run as not-for-profits, may be an enlightened option.  There’s a reason why the NFL has banned not-for-profits from owning any other NFL franchises.  The bottom line: The for-profit teams are having trouble handling the competition.  

- J.M.H.  (1-15-15)

Lombardi, Exceptionalism, and the Rule of Law…

By J.M. Hamilton   (originally published 2-3-11)         

"God, country, and the Green Bay Packers." Vince Lombardi, the greatest Italian export, since Antonio Vivaldi. 

Before there was AMC’s Mad Men, there was a true man of the sixties named Vince Lombardi.  One gets the feeling that Lombardi would have flossed his teeth with Mr. David Draper.  As hard as Lambeau field in January, Lombardi burned brightly throughout the sixties, and led the Green Bay Packers to win the first two Super Bowl games ever played.  His passion, dedication and commitment to the game of football made Lombardi a winner, and an American icon.  His name graces the Super Bowl trophy awarded to the championship team, year after year.  As with any genius he would drive some of his players “nuts,” and many others would have a “love/hate” relationship with the man, long after they stopped playing for the Packers, Giants or Redskins.  We get a snap shot of Lombardi by reading David Maraniss’ book, When Pride Still Mattered.  Note the following passage after the 1967 New Years Eve win over the Dallas Cowboys, in the fabled Ice Bowl:

“The Locker Room was a jangle of cameras and lights when Lombardi got there after the game.  He evicted the press and talked to his men alone, telling them how proud he was:  for running to win, for persevering and meeting their greatest challenge, winning three straight championships.  He barely stifled the tears that came so easily to him, then fell to his knees and led the team in the Lord’s Prayer.”

Now, by way of comparison, can you imagine Lloyd Blankfein, CEO of Goldman Sachs, dropping to his knees to lead a boardroom in prayer, after hitting quarterly financial targets?  Both men, Lombardi and Blankfein, are brilliant in their respective fields of football and banking, and both men are fully engaged, and extremely focused.  Both men are razors.  

But what makes one man loved and adored by many, while the other man is despised and reviled by many? I have thought about this question long and hard, and have concluded it is one thing: it is the rules that these respective men play by.

It is said that there is a thin line between madness and genius, and my guess is the dichotomy centers around whether or not society is the beneficiary of the singular individual’s talent and achievements, or whether it is the victim.  Robert Downey Jr., in the movie Rodney Dangerfield – Back to School, once identified football as a “crypto fascist metaphor for nuclear warfare.”  Now, I don’t believe Mr. Downey’s comedic line for a moment, but if football devolved, by a change in the rules, into some sort of barbaric blood sport during Mr. Lombardi’s time, complete with knives, guns, and collateral damage into the stands, than my guess is society would not view Mr. Lombardi and football in such a favorable light.   Conversely, the rules of banking have become so heinous and so detrimental to society, that the genius Blankfein is not viewed by many as a prince of a man, but rather, a villain.  Why?  Quite simply Mr. Blankfein’s reputation, and that of his Wall Street brethren, are victims of their own rules.

Take Dodd Frank bank reform legislation for instance.   These rules, on the heels of the worst banking crisis known to man, were stripped down and were basically written behind closed doors, in large part, by members of, or lobbyist for, the Wall Street banking cartel.  “Financial weapons of mass destruction,” Mr. Buffet’s phrase to describe derivatives and credit default swaps, remain, for the most part, beyond the reach of regulators, and hidden from public view.  These derivative instruments with hundreds of trillions in notional value played a very large role in our last global financial crisis, and undoubtedly will play an even larger role in the next financial crisis.  And the fatal flaw in Dodd Frank legislation?   Well, as usual our elected leaders in the Congress passed the buck.  Not only did they fail to give specifics on how the banks and these instruments were to be reined in (in fact they exempted the lion’s share of these derivative instruments from the rules themselves), but Congress abdicated their responsibility and punted to the regulators.  The very same regulators, who failed to rein in Wall Street’s worst excesses the last go around, that are prone to capture, and can change in the blink of the eye, with a change in administrations.   That’s right.  Even the best and most well intentioned ministrations of Obama regulatory appointees can be reversed with the pull of a voting booth lever, and a Republican president entering the White House.  Let us pray, not.

In short, Dodd- Frank is the bomb, and I’m not talking about a 50 yard aerial strike- pass play launched from the twenty yard line.

Perhaps Mr. Downey’s line would be less comedic, and certainly more accurate, had he stated:  Banking is a crypto fascist metaphor for nuclear warfare.  Indeed, Mr. Blankfein’s rule making appears, ultimately, to be to the detriment of society, business, the world, and ultimately to his reputation.  Unfortunately, the joke is on us.

And while we’re tilting at windmills this week, what about that other raging Leviathan, Exxon Mobil Corporation?  Here again, the rules of capitalism, and society, have been so distorted, so as to cause many Americans, particularly Republicans, to think that Exxon is a capitalist enterprise.  No, we hardly pay it a mind when they report out another record profits quarter.  Now when demand is down or flat, supply is up, and OPEC says they have plenty of capacity to fix prices (um, provide a stable environment for world energy consumption), how exactly does Exxon make record profits?   Well, that would be because they are, virtually, a government sanctioned monopoly, controlling significant amounts of market share.  And as this blog has written monopolies and oligopolies are authorized by the government and can be controlled by the government, that is when there is the political will to do so; and this blog has also argued that monopolies, as creations of the state, are nothing short of socialism by private proxy.  That’s right, you – dear consumer – are the beneficiary of an energy industry that is not dedicated to evolutionary energy policies away from the burning of fossil fuels; but rather, an energy industry dedicated to the global addiction of a product produced by Middle-East tyrants and dictators, and maximizing profit at your expense. 

No taxation (i.e. monopolistic profits) without Representation!  Here is yet another industry that writes its own rules in Congress, and not only captures the regulators, but drugs and has sex with them.  Witness B.P.’ gulf disaster last spring, and their pet poster-boy, Representative Joe Barton (Republican-Dallas); and prior to that, the capture, drugging and rape of the Minerals Management Service (Oh, I forgot, one can’t rape the willing!), supposed watch –dog for America and Americans.  Given that monopolies are creations of government, and socialism by private proxy, windfall profits, like those made by Exxon, constitute a tax on society.  But unlike the taxes levied by the government, where at the voting booth Americans have some say in the tax rate and distribution of government revenue, the American voter has absolutely no say in the price per gallon of gasoline, or the interest rate and terms of a bank loan they may receive.  And the problem the American consumer is faced with?  We now have several monopolies engaged in predatory pricing campaigns against the public so that America’s ever shrinking middle class has little or no discretionary spending for goods and services, beyond the basics: food, gas, and interest payments to the bank!  And we wonder why the alleged nascent recovery stalls whenever government stops spending stimulus money.  

Unemployment remains untenable.

Supply side theory/ Reaganomics, and the Laffer curve, an oft touted economic theory of the Republican Party, posit that tax revenue to the state actually diminishes at some progressive tax level.  So that by cutting marginal tax rates, economic activity is actually spurred by animal spirits, entrepreneurial initiative is charged, and as a result, a rising tide of business activity causes the economy to advance ten yards up the field, and government receipts to actually increase.   Democrats call this theory “trickle down.”  For the sake of the argument I’m about to make, I’m willing to give the theory some credit.  The problem with supply side economics is that both political parties are good at cutting taxes to drive the economy up the field, but neither party has the will or discipline to increase taxes once the economy has run across the goal line; hence our colossal national debt.  Witness the saga of the Bush tax cuts, over the last decade.  By the way, it has been argued that President Kennedy was the first supply-sider.

That said, and here’s my point, if Republicans believe that supply side theory actually works, why not apply the practice to monopolistic profits, or taxation by private proxy?  If the government was to truly rein in the likes of Big Oil and the banking industry by taxing, or regulating against, unseemly profits at the pump or by taxing the usurious interest banks charge (both are forms of taxation without representation), think about how much more discretionary income the middle class would have to spend on other goods and services?  If we believe Mr. Laffer and the Austrian school, the economy would certainly soar.  And let’s not forget rising fuel prices precipitated the financial collapse in 2008.

But if you believe the Republican Party is going to apply their economic golden-rule to the likes of Wall Street Banks or Big Oil than think again.  Public be damned, the institutions of Wall Street and Big Oil, flush with monopolistic taxation, fill election campaigns with money, and their mercenary lobbyist roam the halls of Congress, frequently and often.

If Big Oil and banks expect the government, and the public, to bail them out for their own disasters, whether it is gulf oil spills or financial crisis, might “the people” reasonably expect that their own government would protect them from monopolies worst pricing/taxation excesses?  After all, democratically elected government allowed for these monstrous combinations.  Unfortunately rule making, and the rule of law, has been hijacked by the plutocracy…. to the public's, business community’, and nation’s utter detriment.

History tells us that Coach Lombardi, a favorite of the business community, was both a Democrat and a friend to the Kennedy clan.  One wonders if Mr. Lombardi would have supported a windfall profits tax.

GO GREEN BAY!

 Copyright JM Hamilton Publishing 2015

The Great Economic Divergence…

The Great Economic Divergence…

(Bubble, bubble) toil and trouble;
    Fire burn, and caldron bubble. 

- From the play, Macbeth, by William Shakespeare

By J.M. Hamilton (1-1-2015)

With full apologies to the Immortal Bard… His line immediately came to mind recently, when thinking of the Federal Reserve (or Fed) and the American economy.  With slight modification, this witches’ incantation fits the times.  The witches I write of, of course, are from Macbeth, and these three wise women foretold of Macbeth’s rise, and eminent downfall.  The line fits because of the rise and fall of the American economy, caused by the Fed’s magic ability to create bubbles out of thin air, only to see mayhem and collapse ensue.   Again and again, like the rising and receding of the tide…. The Fed pumps up the financial side of the economy, the side based upon debt and finance, only to see it end badly for the majority of Americans, and in particular, Main Street.  

Will the Fed ever learn?   Will Wall Street banks, shadow banking, and private equity ever learn?

That’s exceptionally doubtful, since Wall Street is driven by greed and emotion, and profits are privatized, while losses and bailouts are socialized among the 99%. 

Where’s the incentive to learn? 

The Street, like Macbeth, is marked by recidivism.  And mandate aside, the Fed has one true master, and she answers to the Cartel.  It’s just one more way ordinary Americans get screwed daily; the populism of the times, and rising support for prospective Warren and Paul presidential candidacies, suggests that Americans are waking up to the many ways in which they are getting the shaft, by the Banking cartel, monopolies, The Fed, and our crony government.

For anybody who cares to know, you really don’t have to dig hard.  The business papers, and general news press, are full of story after story on how Americans are run over and backed over, frequently and often, not just by the Street but more amazingly, by some of the icons of American business.  The recent piece about Wal-Mart being ordered by two judges to pay back wages to workers, to the tune of $188 million, is a perfect example.  Seems that Wal-Mart withheld wages, and did not compensate for breaks (often not taken) … not unlike the allegations leveled against another Fortune 500 company, McDonalds.  The original ruling against Wal-Mart took place in 2007.  One can only hope sizable interest is accruing to the plaintiffs, as Wal-Mart continues to delay payment and play legal games.

What inspires the crème de la crème of American business to rip off their employees and the American consumer?  Somebody, somewhere, inside these organizations must be doing the cost/benefit analysis.  And well, as the saying goes: crime pays.  Crime pays particularly well, when both political parties are owned by The Business Roundtable, and The Chamber.  If you operate within a monopoly or cartel, the temptation must go up exponentially, since said enterprise faces no, or limited, competition.

Wage theft is everywhere these days, and it doesn’t even have to come from your employer.  (And to be sure, many companies are guilty of no intended vice at all.)  It seems, one can no longer purchase an item, commodity, basic staple, or service without running into some sort of monopoly, monopsony, cartel, duopoly, oligopoly, or criminal enterprise.  For examples of wage theft read here, here, here, here, here, and here again.

The unholy alliance between big business and our government has never been stronger (under a Democratic Administration, no less), and unseemly profits accrue, as Horatio Alger might have put it, to the “swiftest of foot, and the devil take the hind most.”  The pols, bought off, purchased, and co-opted, pass the legislation put forth by the attorneys for the various cartels.  Politicians from both political parties respond, dutifully.

State attorney generals for sale to the highest bidder. 

A SCOTUS that more resembles nine monarchs, is the plutocracies greatest friend. 

The U.S. is the only Western democracy that has not set limits on Big Pharma’s profits, and the industry responds in kind: with price gouging, shortages of critical medicines, and tax inversions.  The SEC, the FTC, Justice Department, Congress, and the Fed turn a blind eye.  Yup, it’s all good. 

It’s no accident that over the last 35 years – a period marked by a highly accommodative/”dovish” Fed policy (barring Mr. Volcker’s time in office) – a period also marred by the laissez faire ethos and increased government deregulation – that we have seen the rise of job killing M&A activity, an increase in the number of firms in the job killing private equity industry, and the worst financial crisis since the Great Depression.  And just to drive the point, “job killing,” or the reduction in the number of jobs, also directly equates to stagnating wages.

These are just some of the ways wage theft, macro and micro, occurs on a daily basis.  There are many more.

How ironic, that it was not the Fed’s exigent and “crucial” efforts at trickle down monetary policy that finally turned this economy around… some six years into the Great Recession, but rather, the collapse of the Energy cartel.  Greed once again, came knocking on the door of the oil patch, and the American consumer is the beneficiary.  There wasn’t enough offshore oil tankers, barges, and on-shore oil storage facilities for the Koch Bros., Goldman $achs, KKR, and Exxon to store the surfeit of oil and gas.  The stock market responded in kind, with the start of a correction… that is before the Fed, once again, stepped into the breach, and assured the Lords of Finance and the Mavens of Financial Engineering that the free money for the 1% would continue, unabated.

How is it that a terrific business fundamental, like cheap and abundant energy, could be looked down upon by the Street and the stock market?  (And how is it that the business fundamentals in this country have been lame for six years, but the stock market soared anyway?)  If you read J.M.H., the answer is summed up in two words: The Fed.

Inexpensive energy – like a living wage, like inexpensive medicine, like the demise of all monopolies and cartels, and a fair and progressive tax code – means more money for the 99% to spend, and greater aggregate demand.  All positive characteristics for a robust economy, right? 

Except, these characteristics are not necessarily beneficial to the elite/1% (at least not in the short run), who have been calling the shots in this Neo-Gilded Age for some time now.  And the elite, and their apologists, are used to having their way.

We are witnessing a great economic divergence between the interests of the 1% and the 99%; a divergence of economic interests not seen between the classes, since the last Gilded Age.  Where anything that threatens: the chokehold monopolies and cartels exercise over the American consumer, short term monopolistic profits, wage theft, financial engineering, the flow of easy money from the Fed, boom/bust cycles, regulatory capture, and tax avoidance… is considered by the Street and the stock market to be bad. 

And anything that is good for employees and consumers (i.e. aggregate demand), who drive the economy:  like the break up of cartels and monopolies, mitigation of short term profit making potential in exchange for a long term glide path to prosperity for all, a living wage, the end of easy money and financial engineering (encouraged by the Fed’s policies) – so that enterprise can focus on their core business - and a progressive distribution of the tax burden… is also considered bad by the Street.  Nearly everybody – including many economists – acknowledges: what puts more money in workers/consumers pockets is good for the long-term health of the economy, aggregate demand, top line growth, Main Street businesses, job opportunities, and the American people.  And yes, in the long run, these factors are good even for the economic elite.

In short, the interests of the plutocracy/Wall Street and the 99% do not align.  Since the U.S. government is the only countervailing power that can hold the plutocracy in check, and set the rules of the road for a healthy American economy, there is also a great political divergence.  Hence, thanks to SCOTUS, the plutocracies highly successful efforts to purchase and own our state and federal governments.

Much of this sense of entitlement, and economic and political divergence, is fueled by the easy money policies of the Grand Enabler, the Federal Reserve.

John D. Rockefeller founded Standard Oil.  Recently, his heirs divested all fossil fuel interests.  Prescient?

So where’s the next bubble to come from?  Take your pick:  sovereign debt, junk bonds, sub-prime auto loans, the stock market, a debt crash in the oil/gas fields, or perhaps it’s from the hundreds of trillions in uncollateralized derivative and swaps products?  Your guess is as good as mine.  Although it’s highly probable that when one bubble bursts, it’s likely to set off a cascade of additional corrections.  The Fed’s history is haunted by such calamities, like Banquo’s ghost, inconveniently, visiting Macbeth at a most inopportune time.  None of the lessons from the ’08 financial crisis have been learned, which sets us up to repeat history, yet again.  We can largely thank Treasury, regulatory capture, a feckless Congress, and the Fed for that.  Many key reforms have been undone, and the Fed’s bubble policies continue unabated.

Let’s look at three recent examples:

·      Passed in the Crime-nibus, sorry meant CRomnibus, spending measure this December, was the provision placing the taxpayer back on the hook for the hundreds of trillions in swaps and derivatives.  Thank Mr. Jamie Dimon, the fine folks at Citigroup, Cartel lobbyist, and our U.S. Congress for this crime.  Given the bubble economy we are now in – debt being a key bubble - the banking cartel’s timing is impeccable.  Swaps and derivative products – reinsured by the American taxpayer - are used to insure debt, bonds, and bet against same.  There’s that “socialization of Wall Street losses” thing, many pundits keep writing about and Senator Elizabeth Warren has been warning us against.  Oh, and Citigroup... well they're expanding, not curtailing, their gambling operations.

·      The Volcker Rule was delayed by our beloved Fed for years to come (maybe even decades), allowing the federally insured banking cartel to continue to gamble with U.S. taxpayer money (in highly illiquid and long term business transactions, like private equity deals). 

·      And speaking of our private equity (PE) buddies… seems that our friends, Apollo and KKR, went long on the recent gold rush into oil and gas.  Of course, PE is fueled by the easy money policies of the FED, and naïve investors chasing record low junk debt yields (i.e. very little reward for a great deal of risk).  This same crew, PE, is responsible for another ill-timed investment, and the largest private equity bankruptcy in history, Energy Future Holdings or TXU.  Under the crushing pressure of a PE LBO, Energy Future Holdings (TXU) went bust in 2014.  Just ask Mr. Warren Buffett.

The Fed sure likes to keep it interesting.

Perhaps too interesting.  The power of the Federal Reserve is perhaps unmatched by any other branch of government; and yet, its tools are incredibly blunt and crude, and often deployed with many unintended consequences.  We like to talk about the three branches of U.S. government, but really there are four, including the Fed.  The heads of two of these four branches, SCOTUS and the Fed, are not subject to popular vote, nor are they subject to term limits.  

Seems that such powerful institutions, like the Fed and SCOTUS, should be more open, transparent, subject to term limits, and its members elected by popular vote.  There was a time in this country, when U.S. Senators were not subject to popular vote, but rather were elected by the pols/cronies, who made up our state legislatures.  Then, 1913 rolled around and the Seventeenth Amendment was passed, which put an end to the practice and made U.S. Senators subject to the electorate’s will. 

See, miracles do happen.  Not surprisingly, Progressives championed the 17th Amendment, while Republicans and the first Gilded Age's trusts/monopolists fought the amendment.

One doesn’t have to be a witch, or be able to foretell the future, to know that the Fed appears to have supplanted its dual mandate of maximum employment and low inflation, with maximum welfare for Wall Street and highly inflated asset bubbles.  (As a historical digression, it’s interesting to note, given the Fed’s bipolar explicit and tacit mandates, that the blue prints for the Fed were drawn up by the Wall Street cartel on Jekyll Island, GA, and that the Fed was sold to the Congress in the early 20th Century, as a means to eliminate boom/bust cycles in the economy.)  A movement towards the democratization of the Fed and of SCOTUS, term limits for all government officials (especially judges), caps on campaign contributions and the time allotted for political campaigns, and the start up of presidential election campaigns headed by common sense/populist leadership, from both political parties…. All would be a great start for 2015. 

Hey, one can dream, and we know miracles can and do happen.  Another burst bubble, and another catastrophic financial crisis, may move this country one step closer to these much-needed reforms.  I’m not smart enough to pick the day or the time of such an event (nor am I wishing such an event upon us), but smarter individuals than myself have already been quoted as stating that the next financial crisis is "inevitable."  Given the Fed’s track record, such an calamity is almost guaranteed.

And while we are compiling our 2015 wish list…. Let’s not forget: Placing limits on the true power brokers, the plutocracy, by seeing President Obama use the awesome powers of the federal government to break up monopolies and cartels.  The President has been on a roll lately, with unilateral action on immigration, renewed ties to Cuba, and finally, pulling out of Afghanistan.  The President’s poll numbers are rising.  Maybe he can spend some of his new found political capital, by saying “NO” to monopolies and cartels and the formation of same?

Who knows, with such an act, perhaps President Obama’s poll numbers and approval rating will continue to rise?  After all, what is good for the Street and the stock market is not necessarily good for Americans, businesses, investors, and the American economy.

P.S.   A very Happy New Year.

Copyright JM Hamilton Publishing 2015