Saturday, December 20, 2014

Happy Invicible Sun Day Chistmas!

The Winter Solstice (December 21 this year) has a certain gravity to it. Most human civilization evolved north of the equator, and until recently the most obvious natural phenomena, besides the phases of the moon, was the shortening of days in the Fall.

Con artists, having observed the sun cycle, they began telling people that the sun would, indeed, sink forever out of site if "priests" were not given "sacrifices" starting around the solstice. Many ancient religions were centered on the solstice or on the resurrection of green plants in the Spring, or both.

No one knows what day of the year Jesus of Nazareth, aka Jesus Christ, was actually born on. Apparently he was not an important man at birth. The data is not given in the Gospels, nor are there clues in the narrative that would help guess it. Stranger still, there is no record of when Christians adopted December 25 as Christ's birthday, or Christmas. They apparently started keeping written records not too long after Jesus's death, but probably no one wanted to admit they did not have a firm grasp on God's birthday. Or where they borrowed it from.

Scholars, of course, have tried to research the question. Here is my favorite scholarly guess, by the Very Reverend W. R. Inge, D.D., in the chapter The Rival Religions in Universal World History, Volume Four, pages 1123-1124 (1935):

"The Christians were both puzzled and annoyed by the resemblance of the Mithraic religion to their own. Not only did Mithras have his high pontiff [pope], his priests vowed to celibacy and his consecrated virgins, but there is to be a second coming of Mithras, preceded by great plagues. The dead will rise from their tombs to meet him... Finally, the [Christian] Church paid Mithras the great compliment of annexing his chief festival on December 25, the birthday of the "Invincible Sun," and turning it into the feast of the Nativity of Jesus Christ."

The Invincible Sun. If you need a local god or prophet, why worship some Jewish rabbi or Indian prince or Arabic camel trader or American polygamist when the Invincible Sun is available? Resurrected daily, with an additional annual bonus show around the solstices.

The United States of America has recast Christmas in a modern light. December 25th marks the end of the consumer buying frenzy season.

If there is anything to thank Nature or any god for, it is the end of the modern Holiday season.

Enjoy the holiday, but don't get too drunk, too stoned, too high, or too sad for your own good.

Friday, December 12, 2014

American Prosperity 3.0 Coming Soon

"Cripple our senators, that their limbs may halt
As lamely as their manners!"
William Shakespeare, Timon of Athens, Act IV, Scene I

There are more job openings listed today in the United States of America than there are (officially) unemployed people. That does not mean it is super easy to find a job, but it is certainly a lot easier than it was in, say 2010.

There is no obvious bubble in the American economy. Sure, houses in some areas of California have become pricey again. Sure, a few stocks like Tesla stand out like sore thumbs. But on the whole housing is priced reasonably and so are stocks.

Even at the bottom there are glimmers of brightness, as a few states and cities raise their minimum wages.

But don't worry, if Congress or the Fed does not screw things up, at some point some group of greedy, shortsighted people will. Enjoy Prosperity 3.0 while it lasts. Tuck some savings away, if you are smart.

Looking at American history, you would almost believe that Americans prefer a roller coaster economy to steady improvement. It is a manic depressive economy. It was so manic depressive during the 1800's that the Great Powers — bankers and politicians and friends — set up the Federal Reserve in 1913 to try to dampen the economic cycles.

That did not work, as illustrated by the economic boom of the 1920s, followed by the Great Depression. Millions died in the Great Depression, although you won't hear mention of that from the Hoover Institute, which is too busy blaming Mao for every death that took place in China when he was in power. The New Deal probably helped, at least at first. In many ways the New Deal resembled Fascism as much as it resembled Socialism, but in any case it kept the economy going until World War II.

World War II was the best thing that ever happened to Americans. President Roosevelt wanted to get us into the war early, but between the Catholics in the Democratic Party (who liked Roman Catholic leaders like General Franco, Adolf Hitler, Benito Mussolini and Marshal Philippe Petain) and the Isolationists (some Democrats, mostly Republicans), we waited until it was optimal. By the time the Battle of Pearl Harbor forced us to admit we were already fighting Japan (in China) and Germany (in the Atlantic), the old empires were in trouble. Our farms and factories fed their war effort; their farms and factories were mostly destroyed.

World War II was great if you were an American worker. My high school drop out mother got a job in a war industry, and even my poker-losing lazy-ass grandfather deigned to take a job.

Which led to the 1950s and 1960s, the high tide of America relative to the rest of the world. It was a party! African-Americans were allowed in, even in the Democratic South, and not just to play banjo and serve drinks.

Sadly, while America was on a cocaine binge, the rest of the world mostly still had their belts tight and were rebuilding their factories and economies.

Which brings us to the 1970s. They sucked big time. In many ways they were as bad as the Great Recession. After the U.S. helped Israel beat up the Arab countries again, we had the Oil Embargo, an astonishing increase in fuel prices, and Stagflation, and Disco. Jobs were scarce. Factories started moving overseas.

Some of us muddled through to the 1980s, many died along the roadside. But the Hoover Institute doesn't rant about Ronald Reagan being a mass murderer for turning the mentally ill out into the streets. After the 70s the later 80s felt prosperous. The stock market began to go up as capitalists and their politicians began pushing more and more of the economic pie into their own mouths. Oh, and PCs (just spreadsheets and word processing back then) made people more productive, which meant lots of them got laid off, then retrained as part-time big box store employees.

The PC and Internet thing seemed to be turning out well by the late 1990s, as the usual gang of privileged college grads were hired into the dot com boom. Followed very quickly by the dot com bust. Followed by the housing boom, as the Federal Reserve failed to take the dot com money out of circulation, even after the companies themselves zeroed out.

Which led to the Great Recession, which unless this blog is being read more than 20 years from now, you know about.

You would think the American people would boot out both the Democratic Party and the Republican Party, hang the people at Goldman Sucks, and stop wasting their money on iPhones and AT&T contracts.

But no. We are about to have Prosperity 3.0. Grab what you can while you can, because if history teaches us anything, the party will come to an end when the alcohol and blow run out. No one is likely to be around to help you when this party is over, unless you are a major political donor.

Saturday, November 29, 2014

Why the Great Recession was Unnecessary

I believe the Great Recession of 2007-2009 was unnecessary, even given the bursting of the housing bubble. I said so at the time. Almost everybody is a critic of the government's policy during that recession, but most of the criticisms fit into standard ideological frameworks. As a result economists, politicians and bureaucrats, business people and ordinary people learned little useful from the experience. They simply had their own previous ideas confirmed.

I am not calling the recession unnecessary simply because I believe policies leading up to 2007 could have prevented it, though they could have. I believe that government policies enacted in the Clinton administration, notably deregulation of banking, combined with actions or inaction by the Bush administration and the Federal Reserve did lead to the housing bubble, and then to the crash of the economy. But in this essay I will explain why the collapse of the housing bubble did not need to lead to the Great Recession.

This is largely a critique of Capitalism, the real world capitalism of 2007. This is about how business people who control capital act, individually and together. As far as government policy goes, it is about how policy should have been used to prevent capitalists from harming themselves and practically everyone else in the nation. Like mental patients, capitalists sometimes need external restraint, for their own good.

First a bit of a test, a warm up exercise for atrophied minds: in which nation did the economy grow fastest between 1922 and 1932, communist Russia or capitalist America?

Before answering, keep in mind that Americans are constantly trained to believe that capitalism always trumps communism, and that America is exceptional even for a capitalist nation. Also think about the particular years chosen.

Between 1922 and 1932 the American economy shrank, as 1932 was the worst year of the Great Depression. The Russian economy, in contrast, grew quite a bit in that period if only because its economy hit bottom in 1922 or so, in the aftermath of its civil war. Among the world's nations, Russia was likely the least affected by the stock market crash of 1929 and ensuing economic mayhem. That should not be surprising, since Russia did not have a stock market, but a (brutal) command economy hell bent on catching up with capitalist industrialization.

What does that have to do with 2008? Only a pointer: the capitalist boom bust cycle is what you get when no one regulates it, or it if is poorly regulated. By picking different points in a boom bust cycle, you can get different growth (or shrinkage) rates for an economy. By picking particular nations and time intervals you can make capitalism or socialism or command economies like fascism and communism look good, or not. In other words, as they say about investing in mutual funds, past performance is not a guarantee of future performance. Economies are complex. There is no guaranteed winning policy, except perhaps being pragmatic, which is no policy whatsoever.

While the housing market was way overpriced in 2006, driven by foolish lending policies and foolish home buyers, the overall economy was not. The stock market was not. True, the building of new homes had become a driver of the economy, but it was hardly the only industry going on in the United States.

So what could have been done different in 2007 and 2008, aside from using taxpayer money to prop up banks, and in 2009, rather than using taxpayer money to fund greatly expanded welfare and "shovel ready projects?"

I just happened to be watching a representative section of the capitalist class in that period. I call what happened the "capitalist firing squad." In case you don't know the joke, a "leftist firing squad" is a group of people who form a circle to, presumably, execute a capitalist, and instead end up shooting each other. This speaks to the tendency of leftists to focus on being the new Lenin, using their energies to discredit rivals rather than uniting to win over the nation to socialism (or communism, or environmentalism, or whatever).

The capitalist firing squad was literally firing people, laying off round after round of workers. In the house building industry this was necessary. There was no point to building new houses; no one wanted them. And the secondary effects of that were hard to avoid too: much lower demand for plywood, 2x4s, appliances, and etc. That alone would have slowe the growth rate of the economy. But the economy could have kepts growing around the new housing market.

At previous times in history one sector or another took a hit without taking the whole economy down with it.Why didn't it in 2008? The firing squad was the crucial difference.

Could we just admit that for the most part our capitalist class in America is a bunch of degenerates? Of economic cowards? Instead of figuring out how to sell more of their stuff, perhaps even taking advantage of the end of the housing frenzy, pretty much every CEO, in line with the fears of the major shareholders, decided to fire employees even before demand actually shrank. Each rationalized it the same way: they believed demand would drop, and wanted to get ahead of the curve to keep up profitability.

Worse still, each of the CEOs saw a chance to squeeze the remaining workers. They made the remaining workers work harder. This included middle management in particular. 2008 to 2009 was a reign of terror for middle management. Had they been working 50 hour weeks? 70 hour weeks were the new norm. And management is not paid by the hour. Often managers found themselves spending a considerable portion of their week doing jobs their subordinates used to do, before they were laid. Off. And middle management was supposed to be happy about this; "Thank you, master, for not laying me off."

The macroeconomic effects of one bad CEO's decisions are usually minimal. But when the 3000 or so CEOs of the nation's largest companies all did the same stupid thing, the macroeconomic effects multiplied. A small hole in the economy, new house construction, with the attendant banking fiasco, turned into a giant vortice of unemployment. With 5% of the workers laid off, the same craven CEO's decided they had to lay off another 5%. Lemmings would make better CEOs.

Government policy, which was to spend vast sums of taxpayer money and borrow vast sums of money, saved our collective ass. Despite CEO behavior the economy ran on food stamps, unemployment checks, Social Security and Medicare, and infrastructure investment. Eventually CEOs regained confidence, stopped laying off people, and even started rehiring as burnt-our middle managers and workers died of heart attacks, strokes, or just melted into unusable jelly.

Free market ideologues and tax-and-spend liberals are both in denial of what happened and why. The Free Market guys say private enterprise saved the day, ignoring the beneficial effects of what little New Deal and Great Society legislation had not been dismantled. The Liberals deny that there was any downside to a vast expansion of the national debt, and act like the layoffs were natural, not a result of bad decision making.

On the whole, I would say we were lucky the Great Recession did not turn into another Great Depression, or worse. And if we do not make some fundamental reforms, the next time we may not be so lucky. In particular, the next time around the world's investors may not chose to fund our national debt.

CEO's do fine when times are good. A few do fine when times are bad. But at certain times they clearly need supervision. Unfortunately their usual supervisors, stockholders, are often as even more inclined to making bad, panicky decisions than CEOs.

There are two obvious sources for supervision. It should be discrete supervision, exercised only in times when CEOs have a collectively bad history of decision making. But it should be in place to be used the next time it would help. The two sources of supervision are the government or the employees of the businesses. I am hesitant to go with an NRA type of supervision, which seems too much like the fascist program for supervising industry. I'd prefer the workers to have some supervisory power, perhaps by being guaranteed board seats on all publicly listed (in stock markets) corporations.

Given the known cyclical nature of free market capitalism, I would make the corporations pay the real long term costs of labor. If an industry or a particular corporation goes into decline, I don't see layoffs as a problem. Workers can be rehired by other corporations and industries. But if a decline in demand for labor is just cyclical, then corporations should just keep cash on hand to keep workers employed until the down cycle ends. That in itself would minimize recessions and should prevent depressions.