Tuesday, September 30, 2008

The new New Deal

On Monday we witnessed a partial collapse in the stock market as the bailout package was voted down in Congress amid unprecedented ideological confusion. We are currently witnessing a shift in both the political and financial landscape of the United States. Monday’s vote describes two things that are going on right now:

1. The Republicans don’t seem to realize that their political future hinges on the continued alliance with Wall Street and big money. They seem to think that there is an alternative political and financial current of “free market” thinking that they can support, but they are wrong.

2. The Democrats don’t seem to realize that this plan is indeed a fat cat bailout that never had the potential to work in the first place. The stock market will crash very soon anyway, and today the value that was lost on Wall Street because the market went down was $1.4 trillion, which is twice as much as the size of the bailout package… In theory, if Wall Street would have gotten all the money today, the market still could have gone down by $700 billion in just five hours. The Democrats don’t realize that this bailout goes 100% against their goals as a party, because it supports the continued reliance that America has on Wall Street as the provider of fictitious prosperity instead of government guarantees of social safety for citizens and sound finances for the government. For inspiration, the Democrats should instead look at the New Deal.

What I’m saying is that the financial situation of this country is so bad on a systemic level that it has to be re-done from the ground up, and that we don’t have a choice. There is no longer anything you can do about the state of the financial system with bailout packages, takeovers, capital injections and the like, because things have simply gone too far for too many decades. We have to re-think the way our economy functions, of what it consists, on what it relies and on what principles it is run.

We all know now that a trickle-down, unregulated economy does not work. Whatever has trickled down over the years since the markets were set free has swiftly disappeared lately. However, the trickle-down effect is likely to work very well in reverse as people at the top of the income pyramid quickly withdraw their money from the economy so that unemployment rises sharply. We will see a lot of pain in the months to come among poor people in the United States. They will lose their jobs, homes, health insurance and more. Also, thanks to Reagan, they don’t have a social safety net to rely on, which leaves these people utterly vulnerable. We need a new New Deal to get America back on track.

What I suggest that this New Deal would do is to re-create a vibrant internal market for goods and services in this country. This country is definitely large enough to produce everything it needs for its own economy, and it does not need to rely on China for goods, or India for services. I’m not saying that international trade is bad. I’m only saying that the lack of investment in America’s public infrastructure is what has made goods and services produced in America unaffordable, to a large extent. The competitiveness of American goods and services, sold in America, could be greatly increased by investing tax money in railroads, roads, education, research, public transportation and more. By being able to efficiently produce and deliver these goods and services, the financial advantage of outsourcing to China would be eliminated for a lot of goods and provide many jobs in America. As a result of this much more tax money would stay in America, profits could be re-invested in America and the trade balance and currency value would be greatly improved. By investing more money in education and research, America could become more competitive on the international market for very advanced goods, i.e. goods that no one else is able to produce. That was traditionally the essence of international trade: you had to buy what you didn’t have or couldn’t produce. I believe that the manufacturing industry in America can be re-created through public investment and that new industries can come about as well.

There also needs to be substantial investments in the American people. 20,000 people per year are dying because they don’t have healthcare. There is so much suffering on so many levels of American society that that crisis is far more significant than a Wall Street crisis can ever be. We need to bring back a comprehensive social safety net immediately. This will obviously have enormously positive effects on society as a whole in the short and long term. What we need to stop is dying, hunger and extreme poverty right here in America. We need to raise the minimum wage, provide national health insurance, national pension plans, childcare and eldercare, labor rights and social rights.

How do we pay for this? It’s simple: Bush ended Pax Americana with invasions and torture. The era of American dominance in the world is over. Pull the military out of Iraq and Afghanistan and decrease spending on the military by 50%. There’s your money.

Friday, September 26, 2008

What the Hell Happened?


The political and financial events of Thursday evening were baffling, and too many at one time to make any immediate sense of. I don’t know if anyone heard, but the biggest bank failure in the history of the world happened. Wall Street was supposed to have been saved by the politicians in Washington, but hundreds of thousands of Americans rose up against it. John McCain showed up in Washington all of a sudden, not realizing that he was in the middle of a historic moment in the history of the Republican Party, and managed to ruin everything for Paulson and Bernanke by just sitting sheepishly in a meeting. Here’s a confused summary of recent events:


First, I don’t know exactly why Washington Mutual failed, but I suspect the answer is rather simple: the banks and Wall Street firms are continuing to hide the bad assets that they have on their books, and I’m sure a majority of these firms are using some sort of fraudulent and criminal accounting techniques to do so. Someone must have been on to WaMu, and this is certainly not the last bank failure we will see. Within a couple of years, I think we’ll see a financial landscape in America where there are only a few very large banks running the financial show. Don’t count on the good times in the stock market to return in the next ten years, as this stock market will have to depend on the production and success of real merchandise rather than pieces of paper with unsolvable equations on them.


Second, Wall Street as we know it is gone. When the American people realized that the bailout was going to amount to literally giving Wall Street executives billions of dollars with no strings attached, it was enough to break the magic spell that has bound the American people for 30 years: the spell that makes you believe that the stock market can replace real pensions, labor rights, saving for the future, investments in public goods, and just about anything that concerns the economic life of citizens and government alike. Hundreds of thousands of Americans wrote and called their Congressmen (myself included) and told them to stop this madness. In the face of 99% of voters vehemently disagreeing with the bailout, a few politicians had to do something.


Third: three cheers for the right-wing nut jobs in the south! 30 years ago, they shacked up with the traditional, conservative, country club elite when the conservative backlash was started. How the men in suits on corporate boards were able to convince the low-income social conservatives that their bosses’ salaries should be increased by ten thousand per cent, while theirs should be lowered and later stagnate for decades while the social safety net for them should be dismantled, is a little strange to me. It happened nonetheless. The free market never did these people any good, obviously, and not much happened in the social arena either. Kids don’t pray in schools, homosexuals are getting married and abortions are still being performed.


On Thursday evening, though, it seemed that enough was enough. The conservative Republicans in Congress refused to go along with the $700 billion bailout, realizing that it was Wall Street welfare. This type of welfare is, of course, something that the traditional wealthy conservative is very much in favor of, but it was too much to swallow for the social conservatives. They actually came up with a great plan, under which Wall Street would pay for the bailout itself, through buying insurance from the government, at a premium, against losses from the toxic investments. Why didn’t I think of that?


It could be that the social conservatives are finally realizing that economics actually has something to do with politics, which they completely forgot about 30 years ago. I hope so, because it has been extremely detrimental to this country that economics has been broken out of the political equation for 30 years, and that is a big factor in the crisis we’re seeing today. I believe that the social conservatives must split with the Republicans, and although I very much disagree with their viewpoints, I think it is utterly unfair that these people could never form a viable party of their own in this political system. In a system with proportional representation, all the people who are socially conservative and poor, could form a party that addresses both of those issues at the same time, instead of having to be played repeatedly by the wealthy in society, even to the point of a nationwide financial meltdown.


10% of the vote = 10% of the seats! That’s a political system that works.

Thursday, September 25, 2008

McCain to the rescue!

By his own account, John McCain’s understanding of economics comes chiefly from reading the biography of Alan Greenspan. As the country is convulsing under the financial crisis, and while politicians and bureaucrats cannot agree on what to do about it, John McCain is coming to Washington, to the rescue!

McCain has “suspended” his campaign in order to go to Washington to try to help politicians reach a consensus on the Wall Street bailout. This is right after he fired a mighty salvo towards Republicans when he said that the bailout proposal could not go through in its current form. I believe this was very detrimental to the original bailout plan proposed by Paulson and Bernanke, because this plan had from the beginning relied on a vast amount of political spin and outright deception. Of course it did not help that the utterly discredited President Bush went on TV last night, trying to tell Americans how great this plan was.

What exactly is McCain going to do in Washington? He already helped to derail the plan, and he obviously does not understand what’s going on with these complex, fictitious assets, nor could he ever come up with tangible ways to deal with the problem, so… I don’t know. Is he going to try to get all of his pals in Washington together so that they can solve the problem together?

But wait, isn’t John McCain the guy who tells his fellow Republicans that they suck, in addition to being the guy who runs one of the dirtiest campaigns ever launched against the Democrats? Why is he going to Washington to talk about things he does not understand with people who don't like him?

McCain’s campaign is simply becoming ludicrous. He knows that this focus on the economy is hurting his poll numbers, and he knows he can’t win a debate about it, so he tries this thing. Republicans, Democrats and voters alike are simply laughing at the stunt, as it turns out.

Maybe Sarah Palin could help, though. We could propose to build a tunnel to New Zealand, take the money, and then oppose it, then use the money to bail out Wall Street!

Wednesday, September 24, 2008

Bernanke and Paulson are lying!!!

This bailout plan is outrageous. It cannot be allowed to go through for a myriad of reasons. It is obviously incredibly expensive, but more importantly: the taxpayers and the politicians are being lied to repeatedly by the Treasury and the Federal Reserve as these people try to secure a trillion dollar blank check!

Bernanke and Paulson are presently trying to create the illusion that the government will buy all the troubled assets that banks and Wall Street firms have, and that this will stabilize the American economy and get everything back on track. They are trying to say that the government will buy the assets at a market price, and hence the risk to taxpayers should be low, because they can be sold later and the taxpayers can get their money back. Bernanke said yesterday in the Senate hearing that the buying process, by the government, would be like an auction at Sotheby’s, and that no one could know the price of an art piece before it is sold. This is an outrageously misleading comment that, unfortunately, the politicians in the Senate don’t understand. THERE CAN BE NO MARKET PRICE IF THERE IS NO MARKET.

 If I were to paint a horse, a house and a tree on a piece of paper and try to sell it at Sotheby’s, I don’t think anyone would buy my painting. It is worthless because there is no market for my paintings. It is the same thing with these bad assets that Bernanke and Paulson are trying to get the American taxpayers to buy. They know it, but they don’t say it!

Furthermore, the idea of selling these assets at a market price is ridiculous simply because of this fact: if there were a market for these assets, someone would have bought them already. In order for the banks and Wall Street firms to go along with this plan, the taxpayers will not only have to pay what the companies themselves say is the market price (which in reality is zero), but the taxpayers are going to have to pay A PREMIUM for these so called assets in addition to the fictitious price given to the Treasury by the companies themselves.

On another note, but one that strengthens the case against Bernanke and Paulson, the bailout of AIG was arguably illegal. Legally, the Fed can only bail out institutions that it oversees. It does not oversee AIG. It can, however, bail out institutions like AIG under extraordinary circumstances, provided that there are no private bids on the table. I’m not going to argue that there were no extraordinary circumstances, but there were other private bids on the table. These bidders wanted to change the management of AIG, and for that reason the bids were rejected. They could not legally do this AND be bailed out by the Fed, so we can add blatantly illegal actions to the list of recent accomplishments by Bernanke and Paulson.  

Tuesday, September 23, 2008

Grandma for President!

The bailout of Wall Street that is currently being put together will definitely not solve the financial crisis. I believe it will only accomplish two things:

1. It will put millions of dollars back into the personal pockets of Wall Street executives, and

2. It will throw hundreds of billions of dollars down a black hole

A rescue plan that actually works could, of course, be created. The problem is that it would have to be something similar to the New Deal, and that is something that is unattainable in today’s political climate. So, we will most likely have an economic crisis that will go on for quite some time, but the politicians of the near future are going to have to deal with it in one way or another, and the big question is whether it will be an Obama or McCain administration that is going to have to do it. I believe that, in the economic policy respect, the choice between these two candidates is a choice between John Maynard Keynes and Milton Friedman.

In order for a country to get out of an economic crisis, the two economists would have suggested the following:

Obama’s choice - Keynes: increase government spending, through more government jobs, infrastructure and fiscal stimulus, in order to increase demand in the economy. Do not balance the budget, and do not raise taxes

McCain’s choice - Friedman: lower taxes wherever possible. Get rid of financial regulation. Do not balance the budget. The gains that the richest people in society will get from these policies, will trickle down to everyone eventually

I base these two connections between politician and economist on the two candidates’ economic plans, and the plans are very different on a philosophical level.

Obama has stated that he wants to increase spending on infrastructure and government support for local industry, especially in the mid-west. The idea behind this, coupled with some aspects of economic protectionism, seems to be to create a more vibrant market for all goods and services, produced and consumed, here in The United States. Obama would also spend more money on government provided services such as healthcare, which would create jobs. These ideas constitute quite a radical shift away from American economic policies dating back several decades, in that the government would take a much bigger role in the economy, reliance on foreign goods for cheap merchandise would be lowered, and more non-military people would be employed by the government.

The philosophies of John Maynard Keynes were implemented in large parts of Europe that had social-democratic governments between 1950 and 1990. Generally, these countries were doing very well at this time, and prosperity grew at an unprecedented pace. At any time when there was a bump in the economic road, the government responded by spending more, lowering interest rates and sometimes devaluing its currency (to make it easier to export goods). This has often been described as pushing the accelerator and brake pedals at the same time. The governments also had large budget deficits. By the end of the 1980:s however, the system came crashing down. It simply was not sustainable to be spending so much while running large budget deficits if the economic environment was not very, very advantageous. It must be pointed out, however, that these policies also completely eradicated poverty and provided free healthcare, pensions and free education for everyone in these countries.

John McCains’s economic plan does not provide a radical shift in economic policy. It calls for lower taxes for high income individuals and corporations, less government spending and less regulation. The plan offers almost nothing new and barely even an update of the current policies. Anyway, the McCain plan is intended to free up money for corporations and wealthy individuals, so that this money can be spent throughout the economy in order to create jobs and prosperity. Recently the McCain plan has evolved slightly, and now includes a focus on personal responsibility for decision-makers in the economic administration. McCain wants to fire many of the people in the Treasury, and appoint new people.

The policies of Milton Friedman have a much longer history. The reason for that is that they’re not so much policies, as they constitute the absence of policies. As such, any society without any control, such as a stone-age society, could arguably be called a Friedman economic system. Friedman believed that economies should be left alone, without regulation or intervention, and that the market would solve the problems in the economy itself. This is called “laissez-faire”, which means, “leave it be”. The only large country that has ever had a major commitment to Friedman economics is The United States. This country started to move away from most aspects of other economic policies in the early 1970:s, and after George W. Bush’s first term, the transformation was almost complete. In The United States, the market is seen as being able to provide everything, including things such as healthcare, infrastructure and education, without the help of the government. I believe the current economic crisis is a direct result of Friedman economics, so I obviously don’t think that we should continue down this path.

To sum up a few things:

Orthodox Keynesianism does not work because it leads to reckless government spending and budget deficits, and that is not sustainable in the long run. It has been tried in Europe for many decades, but has been abandoned.

Orthodox Friedman economics also does not work because it turns the entire economy into a Las Vegas casino, while a lot of people never see any of the benefits. It has been tried in The United States for a long time, and it will become painfully evident very soon that it does not work.

What countries in Europe figured out about 15 years ago was that what you absolutely need is a mixed economy that is very fiscally stringent. In most parts of Europe, it is illegal for the government to not balance the budget, and to have more than a set amount of government debt. A modern country today, absolutely needs to do the following things:

- never run a budget deficit

- always have a surplus in the budget, pay off debt and save for the future

- put strict financial regulation in place that regulates financial products in the same spirit as food products are strictly regulated

- have a central bank whose only concern is fighting inflation, and never to help only the financial markets

- put in place a pay-as-you-go system for all spending bills

Basically, this insures the economic stability of a country. Whatever is left over in the governments budget, is up to the voters to decide what to do with. If the voters want to spend it on healthcare, then they can, if they want to spend it on machine guns and aircraft carriers, then they can.

There is a great economic shift coming to America. Previously, instant gratification has been the name of the game for people as well as government - we could afford anything at any time. That will no longer be the case because of the imminent economic depression. The government has to shift from acting like a gambler in Las Vegas, to acting like a frugal old grandmother.

Grandma for president!

Monday, September 22, 2008

Communist Wall Street

It is a well-known fact that you can often see similarities between different types of extremist thought, even if the different schools are, in theory, each other’s opposites. Another interesting aspect is that you can often see similarities in the outcome of the implementation of extremist ideas on opposing sides, that had previously been utterly unexpected. The main problem in the American economy today boils down to something rather simple: it is impossible to value assets. This problem is very great, because an economy really can’t function if that is the case. This problem has arisen before, and brought an economic system down, but it might not be where you expected.

The Soviet Union crumbled mainly because its economic system was not working. There are a couple inherent, fundamental flaws with communism. First, the theory of communism requires humans to desire only what they need. We all know that’s never going to happen. Second, if no one has any money (because everything is distributed according to need by the government), how do you put a value on something? Without any sort of bargaining process, the only way to put a value on something is to try to ascertain that value intellectually with vast amounts of information. If one thing is more scarce than something else, it should be worth more, hence gold should be worth more than coal. But what if you desperately need heat and not accessories, then shouldn’t coal be worth more than gold? What are people going to find cool or fashionable ten years from now? How does every piece of merchandise compare in terms of value to every other piece of merchandise? These are some of the questions that a communist government has to answer correctly in order to have a functioning economy, and obviously, it cannot be done. As a result, the government does not know what to produce, how much to produce, or when to produce it, and the whole system crumbles.

Very complex calculations and bets on what will happen in the future has become one of the main features of the American economy. The financial industry has become so powerful, that it has come to be seen as the most important part of the economy. Wall Street is now running parallel to Main Street. The American economy took a radically different path compared to the rest of the western world about 30 years ago. It essentially gave up on creating a mixed economy, where some things in society are broken out of the capitalist equation, such as healthcare, infrastructure and education (usually, these things are considered not to be suited for profitable enterprises). America went down a purely capitalist path, which can arguably be called somewhat anarchistic. As a result of this, the real income of most Americans stagnated, because money was increasingly being funneled to the top of the income brackets. Because humans are selfish, and wants and needs for products and services always increase over time, something had to take the place of the absent increases in real income. What took its place was credit, or more accurately: loans.

An entire industry had to be created in order to provide all these loans, to compensate for the growth in real income that never came. First, America had to borrow the money from abroad, and then spread it out throughout the system. The financial industry eventually came up with different ways to spread all these loans around, so that they didn’t have to take the risk of the loans not being paid back themselves. That was done with the esoteric products such as CDO:s that are now on the lips of ordinary people. That was the key to the whole thing. Once they had figured out how to take risks without really taking risks, they were free to embark on a money-making adventure that knew no limits. This adventure further spread all the borrowed money around, making it appear as if the economy, and ordinary people were doing very well. The need for real income growth, based on real industries, was obliterated. That fact was obviously very convenient for politicians, who no longer needed to work to provide well-being for voters; Wall Street could do that. Now we can see that the American economy has become utterly reliant on Wall Street, and its usage of loans from abroad.

Now, financial companies don’t have any real products for sale, like, for instance, car companies do. The financial industry was not traditionally an industry in its own right, it was merely an outlying facilitator that helped the real economy function, and as such it was still very important. After Wall Street had taken its place as the most important part of the economy, it had to create the illusion that it offered something equally as real as a car or a chair. It needed some way to create huge profits, other than the traditional profits of the financial industry: interest from people who borrowed money from the bank.

The answer came from investment banks, who invested heavily in things they believed would be profitable in the future. This involved constantly betting on anything and everything that could affect the market, mind you with borrowed money. All of a sudden, Wall Street found itself asking the same types of questions that the communist government was asking itself in the beginning of this article. Essentially they were asking: what is going to happen, in detail, to everything in the economy in the future? In addition, they were trying to figure out what all the other traders were thinking, so in order to be successful, you also had to be a masterful psychologist. These questions had to be answered correctly, so that Wall Street firms could be successful, and so that the American economy could depend on Wall Street for overall prosperity.

You can see now that there are great similarities between the communist economic system and the purely capitalist system in the eventual outcome of the philosophies. The same problems face the two systems, and they share the same fate - these calculations can never be solved correctly, so neither system can ever work in the long term.

We can see very clearly today that this capitalist model with Wall Street at its core is crumbling. As of this morning, none of the big investment banks exist anymore. They have either been bought by banks, gone under, or changed their structure to become banks themselves. The financial industry has to get back to basics, and can no longer be an industry in its own right. America has to move to a more mixed economy, with proportional representation in the Congress and Senate and a social safety net for all of its citizens. Otherwise, the downward spiral will only continue.

Friday, September 19, 2008

The Bailout

So it has been settled - the American tax payers are going to bail out Wall Street. Hundreds of billions of dollars more will have to be spent, and the American government is going to buy what no one else would touch with a ten-foot pole. Preliminarily, it looks like the government is going to spend 600 billion dollars on this part of the massive bailout. How easy it was to agree on this gigantic spending, compared to something as outrageous as, for instance, healthcare for poor children…

It is not for certain that this bailout will go as smoothly as Wall Street thinks, though. As we all know, the American government is not exactly flush with cash, and it definitely does not have 600 billion dollars to throw around. Who does? Well: China, Japan, Russia, Germany and few others maybe. So it’s going to have to come from one of these countries, and the big question is whether they believe sufficiently in the American economy to lend all this money to our dear Mr. Bush.

The spending bill will have to be approved by the Congress and Senate, and it will be approved. The alternative is off the table. Wall Street has in the American economy become a substitute for many different political policies. Through the artificial profits created by Wall Street, American workers feel like they’re wealthy, when in fact they’re not. They feel like they have a great pension plan, when in fact it’s crap. In general, they have come to see the stock market as a general gauge for how they and the economy are doing, when in fact that relationship has slim foundations at best in today’s economy. The alternative would be for politicians to create an actual social safety net for the citizens of this country, which is something they simply WILL NOT DO.

In any case, there obviously needs to be repercussions for Wall Street, but it is uncertain whether there will be any significant ones. Since American politicians seem hell-bent on continuing the boom and bust structure of the economy, my suggestion for the future is the following: create a bailout fund, into which Wall Street firms at all times must deposit 10% of their profits. This fund will obviously not be invested in Wall Street. When the next crash comes, the money will be taken from this fund, instead of the taxpayers who suffer under the control of Wall Street.

p.s. the recent bailout of AIG was illegal. The reason is that the Fed does not have the authority to bail out institutions that it does not control, unless under extraordinary circumstances. These were extraordinary circumstances, but the Fed still does not have the authority to bail such a firm out if there are other bids on the table, which there were. Legally, AIG should have sold itself to one of the private bidders and relinquished control of the company, but the Fed broke the law in order to help the owners of AIG.

Wednesday, September 17, 2008

The Pyramid Scheme

On Monday night on the TV program “Charlie Rose”, the economist Nouriel Roubini said of the current financial crisis:

The only light at the end of the tunnel is the one of the incoming train wreck”

A few hours after this statement, one of the world’s largest companies, AIG, was nationalized by the U.S. government. The bankruptcy of Lehman Brothers was the biggest bankruptcy in history. This morning, it seems that Morgan Stanley is also facing only two options - bankruptcy or merger. The amount of money being spent on this crisis by the U.S. government is now nearing 1 trillion dollars, and this comes at a time when the U.S. government has enormous debts and deficits itself, while very little tax money is coming in on the federal and state level. The Fed keeps lowering interest rates, which will inevitably lead to more inflation, while U.S. workers’ wages have been declining for decades. Hundreds of thousands of people have already lost their jobs in the wake of this crisis, and those unfortunate people have no social safety net to fall back on, as their counterparts in the rest of the western world do, resulting simply in poverty and suffering.

It is very difficult to grasp the true problems behind this crisis, but I believe that it can be summed up the following way:


“Financial innovation” is what it has been called over the last 10 years, and that has involved things such as sub-prime mortgages, CDO:s and CDO:s squared. I’m not even going to go into what these things mean exactly, but they are very complex financial products that have the same basic problem: they cannot be valued. It is very important to value assets correctly for the entire economy. If you are going to buy a stock or a mutual fund, you must know what it is comprised of; what the money is buying. How else are you going to be able to figure out whether it’s a good or a bad idea to buy it? These products called CDO:s (Collateralized Debt Obligations), are very much like forged jewelry. They are made to look like something they’re not.

What Lehman Brothers, Bear Sterns and many other institutions which will soon fail did, was to make it seem as if their products were solid investments, when in fact the investment depended on the repayment of hundreds of thousands of sub-prime mortgages. In other words, if some poor unfortunate person in Cleveland was unable to pay his or her mortgage, the investment that someone had made in Lehman Brothers became less worth. To realize the magnitude of this, you must know that, up until recently, that person could get a mortgage with: no job, no savings, no ID, no nothing! Would you lend someone like that 200,000 dollars? If not, you should also not invest any money in a Lehman Brothers mutual fund…

Meanwhile, it looked on the surface as if Lehman Brothers was doing great, because they had a so-called triple-A credit rating. On Wall Street this means that the company is doing very well. The agencies who was responsible for the rating (Moody’s, S&P) was supposed to go over all the investments that Lehman Brothers had. They did not. The agencies have said (to the New York Times) that there was no way that they could spend the time it would take to go through all these mortgages that made up a Lehman Brothers mutual fund, and hence they did not do it. So what good is the rating? Well, not good at all. What good is a grade from a teacher when it comes out that the teacher never reads the students’ essays or corrects their tests? In addition, Lehman Brothers (and all other companies who have ratings) are paying the ratings agencies in order to get the rating. What good is a grade from a teacher to whom you have paid money to receive the grade? As you can see, this is all a big joke, and worse yet, a bona-fide scheme. This is the structure of the pyramid:



[Pension Funds] [Hedge Funds]

[Individuals] [Individuals] [Individuals]

More specifically, the current situation is a result of a giant, classic pyramid scheme, where the people at the top benefit, then pull out, and the whole thing crumbles. Only this time, the pyramid is built on the foundation of the entire U.S. financial system. Again turning to Lehman Brothers as an example: in a pyramid scheme, the people at the top are selling some kind of questionable product. In this example it’s a Lehman Brothers mutual fund. Everybody starts getting into it because it seems that easy money can be made quickly. Money then pours in from, for example, banks, hedge funds, private individuals and those individuals’ pension funds. Some money trickles down the pyramid, but most of it stays at the top, in this case in the form of dividends, profits and bonuses for those at the very top at Lehman Brothers. The top individuals cannot sell their own stocks in the company, however, because that would alert the public of the scheme. When the pyramid crumbles, all those who are not at the top are left with nothing, which is what happened on Monday this week.

In order to keep the scheme going, profits needed to grow each year. That was helped by the housing market, where the price of housing kept going up, but Lehman Brothers was able to amplify and further inflate their profits by investing much, much more money that they had borrowed from other institutions. Now, investing money that you have borrowed is very risky, because if you lose the investment you’re still stuck with the loan plus interest. This happened to Lehman Brothers on a massive scale - they had 30 times more borrowed money invested than they had in assets.

In all pyramid schemes, people eventually find out that it’s fraudulent. In the case of Lehman, that happened last week. Everyone realized that what Lehman was selling was worthless, and everything came crashing down. The implications of this are vast, because people are slowly starting to realize that the scheme has spread throughout the economy, and throughout the world. Wall Street is desperately trying to hide this fact at present, and is trying to come up with a million reasons why everyone should keep investing in the stock market. Believe me: things are much worse than people in the financial industry are trying to tell you. If they admitted how bad things really were, we would immediately have a stock market crash. I think that will come pretty soon anyway, but as of now, Wall street investors are trying to sell as little as possible, and “hold steady” so that panic will not spread. It’s a miracle that we haven’t had a stock market crash yet, and it’s all due to the smoke and mirrors that Wall Street is putting up.

In New York City, the belief in Wall Street is very much like a religion. This past winter, I succumbed to a cigarette outside of a bowling alley in Manhattan. A man came up to me and asked for a light, and he told me he worked for Bear Sterns. I asked him what he thought of the financial crisis, and he responded with a phrase that I have heard countless times before and after this encounter. He told me:

- Everything will be fine.

When there is no rational reason to believe in something, the mind instinctively turns to faith. That is, after all, the essence of faith as an occurrence. The “everything will be fine” phrase has become the “amen” of the slowly disappearing ranks of Wall Street workers that until so recently dominated the cultural landscape of Manhattan.

Friday, September 12, 2008

Economic Suffering Explained

A lot of people are struggling and suffering today in America. It is obviously very important to talk about what needs to happen in the future, but in order to do that we need to look at history and figure out what went wrong, so that it can be avoided going forward. We cannot just move on without reflection, and we must actually assign blame to the people who made things this way. We need truth first, then reconciliation. More specifically, we need truth and accountability out in the open, so that voters can make an informed choice in the upcoming presidential election. I use the word “reconciliation” because, in the last decade, things have gotten so bad for the American people (and the American economy) at large, that a normal reform politics platform is not enough to bring about something that comes close to a reversal of the misfortunes of late.

America’s economic and societal problems are many at the moment. Some of them can be traced back to recent political decisions, or lack thereof, while others can be traced back much further in time because they constitute changes of a systemic nature. The upcoming presidential election seems to be, in large parts, about undecided working class voters, and I will focus my description of economic and societal problems on how these problems relate to them (although these issues obviously affect everyone in society to a very great extent). The problems that we are experiencing now very much constitute a combination of immediate financial problems, and the old structural changes that amplify them.

For instance, a construction worker who loses his job as a result of the current financial and housing crisis now faces a myriad of problems and dangers because the social safety net in America has been almost completely dismantled. A comprehensive social safety net is meant to ease the blows that financial and personal circumstances will almost inevitably deal most of us at some point during our lifetimes. In other words, it creates a floor of the standard of living in society as a whole, and every industrialized country except for the United States has one. Some of the problems that our laid-off construction worker faces in the current climate includes (but are definitely not limited to) the following:

- He has access only to very meager jobless benefits
- He has no health insurance for himself or his family
- He has very limited abilities to send his kids to college
- He has dire prospects for retirement

By contrast, in societies where there is a social safety net, the jobless benefits would usually go on for much longer and pay him at a much higher rate, so that a transition into a new job can be less painful. The remaining three issues would not be issues in the first place because they are completely covered by the safety net (or other government benefits) in almost every other industrialized country.

Some might say that America does have a social safety net, but I argue that the country in fact, does not, in large parts as a consequence of the four issues faced by the construction worker that I mentioned above. The amount of protection given does not measure up to something that could be described as a social safety net.
So, from my example with the construction worker, which describes a typical type of hardship in America today, two questions emerge:

1. Who dismantled the social safety net?

2. Who is responsible for the current (and extremely grave) financial crisis?

1. On the question of who dismantled the social safety net, many detailed policy changes can be pointed to, but a more helpful approach to answering this question would be to talk of a prolonged strategy and ideology on the part of politicians, parties and other actors in politics. I argue that the strategy of “laissez-faire” and “small government” is unequivocally what has led to the gradual dismantling of the social safety net in America.

Prior to the 1970:s, the social safety net was still in the process of being constructed. In the early 1970:s, the republican party took a sharp political right turn during what many refer to as the “conservative backlash”. In terms of tangible economic policy, however, this right turn did not show during the 1970:s, as the social safety net remained largely intact, and was even expanded in some respects during republican rule.

Then came Reagan. Reagan fully immersed the country in the practical application of theories of laissez-faire, small government and supply-side economics. According to these theories, the provision of a social safety net is something that the government should not be involved in, and hence it makes perfect sense that Reagan vigorously tried to dismantle it.

Reagan was shameless in his pursuit of these philosophies, as he, among other things, was the first president in American history to simultaneously increase taxes for the poor and lower taxes for the rich. Reagan’s campaigns to privatize and de-regulate are policies that take a very long time to fully play out in the economy, and the effect of them can last for a very, very long time. The only short-term effect you will see in a privatization campaign is a windfall of cash for the government, which is traditionally used to lower taxes, according to the Reagan economic doctrine. We are seeing enormous effects of the policies of privatization and de-regulation today as vital infrastructure has been transferred into the hands of the top echelons of society and the financial industry is convulsing due in part to a lack of regulation. (I will return to the subject of de-regulation later on). Reagan also severely weakened the Social Security Program, with the help of an important fellow who I will discuss below.

A figure who was to become very famous and much discussed later on, emerged during the Reagan era - Alan Greenspan. It is VERY important to study Greenspan’s personal philosophical foundations, as they help to describe much of his behavior, and the fate of this country’s economy. Greenspan was a close friend and follower of the philosopher Ayn Rand, and it would not be an exaggeration to say that Rand’s, and hence Greenspan’s, views on economics are close to anarchistic (a more accurate term for what many describe as “libertarian”). In their view, the government should do almost nothing except for provide the country with armed forces (if that even, now that America to some extent relies on private armies such as Blackwater).

During the Reagan administration, Greenspan was put in charge of a commission that was to give recommendations for the future of the Social Security program. The final report that the commission indicated that the program faced serious financial challenges in the future (because of demographic and other concerns), but instead of strengthening the program by investing more money into it, the commission suggested taxing the payments from the program, hence, at the end of the day, decreasing the total amount of money dispensed by the government. The surplus that this decrease in dispensation created was to be put in a fund for the future. However, this fund was instead used to support tax cuts (even though so-called “lockbox” legislation was created), so the final result of the changes made on the recommendation of the commission headed by Greenspan were:

1. a severe weakening of the entire Social Security program, and

2. yet more tax cuts for the wealthy

The combined effect of these two was simply a transfer of wealth from the lower echelons of society to the higher ones, an uninterrupted process that has been going on for almost 30 years in the United States as of the present day.

The destruction of the social safety net was temporarily put on hold during the Clinton years (except for the welfare reform), but not much was done in order to repair it. An interesting comparison can be made between the United States and Great Britain, because Thatcher and Reagan largely had the same agenda, as did Clinton and Blair. The Clinton-Blair years in terms of ideology constituted the destruction of traditional leftist values, as much of the agenda of Reagan and Thatcher was adopted instead. In other words - right-wing influence on the mainstream left was large, which seems like a strange thing, and it was.

With the election of Bush Jr., however, the fight to dismantle what was left of the social safety net was started. Bush turned his attention to the healthcare industry, and was able to pass into law some astonishing policies. Most countries try to keep the prices of drugs low, so that their citizens don’t die because they can’t afford to pay for their treatment. Bush, on the other hand, was able to pass a law that prohibits negotiating with drug companies for lower prices! He vetoed a bill in California for the expansion of a healthcare program covering children. So much for “compassionate conservatism”… It seemed as if Bush were on a pre-emptive campaign against the restoration of social safety in American society. These policies have undoubtedly already led to numerous deaths within the American population. In addition, Bush Jr. has systematically tried to cut funding for just about every other government program that is not related to the promotion of religious fundamentalism within the United States, or the fight against religious fundamentalism abroad.

Privatization, de-regulation, weakening of the social services are policies that all started a slow-moving process of punching huge holes in the social safety net, and the onus lies mainly with Reagan, Greenspan and Bush Jr.. I believe Reagan’s policies created a permanent shift in American policies with respect to social services and government spending in general. The policy of “small government” seems to have been made permanent, and we will continue to see more effects of this within a short time, and these effects will be amplified by the financial crisis.

2. Turning now to the question of who is responsible for the current financial crisis, let me first make one thing clear: even though George W. Bush certainly has not been helpful, he is not responsible for the current financial crisis. Bush has definitely made things worse by being perhaps the most fiscally irresponsible president in history, but the effect that this will have in the end is that the crisis will go on for longer (and it will probably also negatively affect American foreign policy aspirations).

I believe that the reasons behind the financial crisis have a lot to do with the Reagan doctrine of de-regulation and privatization, so in that respect the creation of the crisis is intertwined with the destruction of the social safety net. The question of de-regulation, or regulation for that matter, of the financial markets is extremely complex, especially in a large federation such as the United States. There is no single authority in the area, and even the most experienced scholar, economist or lawyer would be unlikely to say that he or she has sufficient knowledge of the issue. Basically, what Reagan started was a process to make it easier for the financial industry to operate and grow, in the hopes that this would benefit society. He did so by helping to remove a lot of regulation that had been created in the 1930:s after the depression, that was meant to prevent another financial crisis among banks, companies and investors. Regulation such as minimal capital ratios, what business banks can be involved in, consumer protection legislation, food safety regulation and the legislation guaranteeing the ability to organize unions was in large parts gotten rid of. Reagan was not the only one who assisted in this process.

The 1990:s was filled with joy over what bountiful fruits the financial markets could bring everyone, and Clinton used this to his advantage. Clinton continued de-regulation. It seemed that the markets could provide the people with great prosperity by growing uninterruptedly, so why would the state have to pay for things like pensions or infrastructure? In addition, the magic of the markets could sometimes kill two birds with one stone - enter the sub prime loans. Through de-regulation, the existence of sub prime loans was enabled. It was a stated goal of the Reagan era to move to an ownership society. By borrowing that philosophy, Clinton thought it would be a good idea to bring minorities out of poverty by making many of them into property owners. Maybe then their inner city areas would stabilize, and the invisible hand would guide them from cradle to a late grave. Banks jumped on board with a new strategy known as “reverse red-lining”, that would aggressively market sub prime loans to poor minority areas.

The great prophet in the background was Alan Greenspan. Regulatory freedom, the abolishment of labor rights, enormous amounts of cash released through privatization, the internet boom, and American global economic, military and cultural hegemony, all created an enormous potential for economic growth in the United States. Pax Americana ruled supreme (until Bush ended it completely). Greenspan decided that the best strategy was to fuel the fire of growth as much as possible, and aggressively cut interest rates again and again. When so many factors contributing to economic growth are present at the same time, this can be a very dangerous strategy. It ultimately led to the tech crash less than a decade ago. However, this was only the beginning, because the underlying philosophy and the altered regulatory and financial structure was still there.

Financial companies soon realized that, as a result of de-regulation and a climate supportive of Wall Street, it could take financial innovation to new heights. By creating a refined web of packaged securities, risk was spread around the world. The financial industry would describe the new situation as a giant insurance system, which would guarantee that losses will no longer be as great in one country or one sector. This is not true, because this system undermines the confidence in financial products in general and is far more detrimental to markets than problems in one isolated sector. Instead, an analogy describing the system of packaged and re-packaged securities as an incurable virus is much more appropriate because nobody knows where the bad assets are, and hence there is not much that can be done about them.

Now, in 2008, the value of private pension plans have been seriously hollowed out, ordinary people’s savings have been diminished, many have lost their jobs and their homes. The situation is the worst for minorities, whose ownership situation is worse now than when the process of trying to make them into property owners started in the 90:s. In addition, the American government is bankrupt, which we will see signs of in years to come (and this is obviously George W. Bush’s fault).

I blame this financial crisis principally on Reagan, Greenspan and Clinton because of their crusades for de-regulation, relentless dedication to market solutions and privatizations and general lack of insight into the eventual results of their actions. The American economy needs to be pushed forward in a wheelchair right now, and George W. Bush’s economic policies amount to slashing the tires and hanging lead weights on the chair.

It is now clear to see that there are two people who have been heavily involved in the creation of both of the problems that our construction worker in the beginning faced: Ronald Reagan and Alan Greenspan. These two have somehow been hailed as heroes for a long time, and in the case of Reagan, this obviously has a lot to do with the end of the Cold War. People are not so sure about Greenspan anymore, and it is my view that anarchists do not belong in the world’s most important governmental positions. As for Reagan, I hope that America will have to re-evaluate his “contributions” to the American economy. It is hard for people to see the connection, but it is my belief that Reagan is behind most of the financial suffering that the American people go through today, and that which lies ahead.

It must become known that these people are responsible for the suffering we see today, because this has a direct link to the presidential election of this year. John McCain describes himself as a former "foot soldier of Reagan", and wants to continue the Reagan and Bush economic legacy. This would simply be absolutely disastrous.

Tuesday, September 9, 2008

The real story behind the invasion of Georgia

Ever since Russia suddenly decided to invade Georgia, the news coverage has been sub par to say the least. For someone who is not very familiar with world politics, it was simplistic. For someone who knows a thing or two about it, the coverage was extremely confusing and seemingly misleading at times. Reactions from experts and politicians have also been confusing and disconcerting. Barack Obama wanted to discuss the issue in the U.N. Security Council, which obviously would have been a waste of time (as much as it was a waste of time to discuss the most recent Iraq invasion in the security council). At least the intentions with this statement were good. More worrying, though, were John McCain’s rash reactions to the crisis, when he all of a sudden invoked cold war rhetoric during a rush of emotions (without understanding the conflict). At a time when Russia feels humiliated, angry and emboldened at the same time, this is not the time for such talk, especially not when you have nothing to back it up with.

We may never know all the details behind this story, but I am about to present what I believe to be the most credible theory of what happened recently in Georgia. I believe that both countries were wrong in taking the actions that they took, and I believe that Russia set an ingeniously refined trap for Georgia that in retrospect seems like the work of fiction. I also believe in the right of self-determination of peoples, which is the foundation on which the state of Israel was founded. As a result of this natural right having been invoked in the region, and exploited by Russia, the following results will crystallize within a few months:

1. A new country called Abkhazia will be created

2. South Ossetia will be a de facto Russian province

3. Georgia and the Ukraine will not become NATO members

The political and ethnic map of the Caucasus region is very complicated. Georgia is no exception, and the country has several ethnic groups within its borders. The inhabitants of South Ossetia and Abkhazia never wanted to be a part of Georgia in the first place when the Soviet Union collapsed, and this is really the foundation for the problems we see today. Naturally, the fact that there are ethnic Georgians living in these provinces makes the situation more difficult. Abkhazia wants to be an independent nation, and South Ossetia seems to want to be a part of Russia.

For many different reasons, Russia feels like it has been disrespected and humiliated by the west for years. It feels as if relations with the west have been entirely on the west’s terms. What has been particularly worrying for Russia is the expansion of NATO countries within its former sphere of influence. Russia has been wanting to get back on the world stage for a while, and decided to make its comeback through the invasion of Georgia. It is clear that they have been planning this for a while, and one tangible example of how they go about their planning can be seen in the education of Vladimir Putin – he has a Ph.D. in how to utilize natural resources for strategic benefits.

What Russia wanted to accomplish was to stop the expansion of NATO in its back yard, scare its neighbors into obeying its old big brother once again, decrease American influence in the Caucasus region, and to restore Russian military and general national prestige in the world and at home. Russia definitely does not want a return to the Cold War, but the country probably wants to be able to run its own show in and around Russia once again, and it does not mind seeing American influence continue to decline around the world. Russia decided to make an example out of the Georgian regime and planned the invasion for years. After the plan was executed, it seems to have worked very, very well.

Georgia obviously wanted to keep the provinces of South Ossetia and Abkhazia as its territory, and was trying desperately to get Russia off its back once and for all. If it could gain the support from the west through strategic energy initiatives (like the famous pipe line that the Kurdish rebels like to destroy) and gain NATO membership, it believed it could be untouchable by Russia, which has dominated Georgia for centuries.

A few years ago, Russia started the campaign to annoy Georgia as much as it could without being overtly hostile. At some point, this strategy must have become tied together in the minds of the Russian leaders with their strife to regain Russia’s standing in the world. At some point, the strategy of making an example of Georgia became the strategy of killing four or five birds with one stone. The practice of invading a foreign country by claiming to protect your own citizens who live in that country, is a practice that has been used by several countries in the past, including the United States, Great Britain and France. This is what Russia did after it had given out Russian passports to South Ossetians. The legal grounds for this are rather loose, although they cannot be dismissed. Russia, it could be argued, had established a very thin, but nevertheless, legal ground for invasion.

The next step was to break out the two provinces from Georgia, which it did first by crushing the Georgian army. After that it decided to also weaken the Georgian army for the future by destroying many military installations. Then Russia moved to recognize Abkhazia as an independent nation, which was actually a very significant move. Russia did not like what Kosovo did when it declared independence, but decided to use this event to their favor instead. It does not matter that only a few countries have recognized Abkhazia, because now the country has a standing in the world, and could call for international help if Georgia were to invade it. As a result of all this, Abkhazia will definitely never again be a part of Georgia. Remember, there are many countries that have never recognized Israel as a country. Russia has created a legal ground for the existence of Abkhazia.

With respect to South Ossetia, I believe Russia will simply use brute force to dominate that region. There are Russian soldiers there now, and who’s going to kick them out? If the Ossetians continue to be friendly towards Russia, this region will also never again be a part of Georgia.

I believe that Russia definitely made its point with respect to new members of NATO. I can’t see any new Eastern European countries joining the organization in this climate. European countries also would never let them in right now for fear of angering Russia, so it’s a moot point anyway.

Conclusion: Russia won, Georgia lost. The U.S. lost some influence, and the EU gained some by being actively engaged in negotiations (although France, as the current leader of the EU, did not do such a great job).

Monday, September 8, 2008

The crisis is here

Today, the real financial crisis is finally here, and it is evidenced by the government take-over of Fannie Mae and Freddie Mac. On Monday morning, stock markets in New York will go up sharply, as investors will try to tell themselves that everything is OK . That is, however, not the case.

The American government and the American people are drowning in debt, and that debt just got a couple of hundred billion dollars bigger. There is little regulation to speak of, and tax revenue is comparatively minimal. In a normal situation, this combination will almost inevitably lead to an economic crisis sooner or later, but in this case things are even worse. The take-over of Freddie Mac and Fannie Mae signals much more than just trouble in the housing market – it signals that debt instruments throughout the economy have lost their credibility. That, in turn, will decrease the values of all kinds of assets, and lead to a vicious cycle of sell-offs and bankruptcies in the financial industry.

Within a few months, we will see a huge downturn in the stock market as assets lose value, while more financial firms fail because they are too highly leveraged (i.e. they have too much debt). A lot of people will lose their savings and retirement money. The economic crisis may go on for about a decade, provided that necessary steps are taken to help the American economy recover. This is not for certain at all, however, because the American political system is set up in such a way that comprehensive economic action for the benefit of society at large is all but impossible. It has happened only once in American history: the implementation of the New Deal. The so-called “checks and balances” guarantee that America will remain a go-it-alone society for the foreseeable future. This crisis will most likely go on for a long time.

This is not to say that the crisis cannot be overcome (although what I am about to suggest will never happen). Very similar economic crises happened in Sweden and Japan about 20 years ago. Japan handled the situation very poorly, and Sweden handled it very well. Japan basically tried to forget about the fact that there was a crisis, and banks and investors were hiding their losses as much as they could. The same thing is happening in America as we speak. Sweden, on the other hand, went through a decade of economic pain, fiscal discipline and investments for the future, which enabled the country to emerge in the 21st century stronger than before.

This is what needs to happen if America is to get out of this crisis:

1. Decrease government spending dramatically, especially spending on the military

2. Increase tax revenue dramatically

3. Pay down government debt dramatically

4. Increase spending on public infrastructure, education and scientific research

5. Create stringent, uniform federal regulation of the banking and financial services industries

6. Raise gas taxes significantly, so that gas costs at least $7 per gallon

This is the rational way to do it, but like I said, it’s not going to happen. What will happen then? Unemployment will go up dramatically and stay high for many years to come. America’s infrastructure will deteriorate further and income disparities will become greater. The financial markets will recover after a couple of years as soon as they have found new ways to make money which are not dependent on the economy at large doing particularly well. If Barack Obama is elected president, we will see a series of band-aid approaches to fixing the crisis. He will not win a second term, and the needed structural changes to the economy will not happen. If John McCain is elected president, he will do nothing to fix the underlying problems in the economy. He will obviously be too old to run for a second term, so whoever takes over the presidency after him will not have a fun job. America will be much worse off than it is now.

The bottom line is, the gridlock that the American political system creates will bring us decades of hardships, now that America has been high on the crack that is debt for 15 years.

Sunday, September 7, 2008

2008 election: Obama versus Reagan

The early 1980:s changed the western world in more ways than most people realize. It was the era of Reagan and Thatcher and their dramatically new economic policies. All things considered, I argue that almost the entire western world is still living in the Reagan-Thatcher era. The reasons behind this are complex, but a Russian saying sums it up rather well: “what is stolen in heaps is not easily returned”.

John McCain does not understand economics, and I doubt he has given much thought to the issues I am about to discuss. It comes as no surprise, therefore, that McCain does not really have an economic agenda. For this reason, he has turned to a line of thinking that is not so much and agenda, as it is the absence of one, namely the Reagan-Thatcher economic agenda. It does not strive to create anything, just to create the possibility of creation, or so it is said. McCain keeps repeating a mantra about small government, less bureaucracy and less federal spending. This is the essence of the Reagan-Thatcher thinking, and some detailed policies that come with it will be outlined below.

His statements on economic issues are rather fun to listen to, as they have no substance whatsoever. He wants America to become energy independent by drilling for more oil and gas in this country, when the reserves here don’t even come close to quenching America’s enormous thirst for oil. Why would we have started importing oil in the first place if we had all we needed right here (back when the oil consumption was a fraction of what it is now)?? When it was announced that Freddie Mac and Fannie Mae were to be placed under the management of the U.S. government, McCain hailed this as a way to make these two entities “smaller and more efficient”, and as a road towards lower interest rates. In both cases the reality is the complete opposite. With this statement, it is clear that he fundamentally misunderstands even his own economic agenda, which is that which was invented and implemented by Reagan and Thatcher: socialize risk, privatize profit.

The economic infrastructure, the transportation infrastructure, government agencies and utilities had been built up with taxpayer money for almost a century when Reagan and Thatcher came along. Their ideas were simple, yet multifaceted and far-reaching. This vital infrastructure was to be sold to the highest bidder, providing the country with a huge, one-time, income that enabled the lowering of taxes for the wealthy (Reagan was the first president to simultaneously lower taxes for the wealthy, and raise taxes for the poor). This process created a huge transfer of wealth in two ways, by transferring the ownership of infrastructure to the wealthiest echelons of society, while at the same time lowering the taxes for the people who now owned the infrastructure.

For a while, this type of selling on the part of the government will provide society at large with a vast amount of money that can indeed have a positive effect on job growth and increased standard of living. For a decade or so (and maybe longer), ordinary citizens might feel as if the economy is doing great, because the wealth that had previously been bound up in things like railroads and Freddie Mac was now spread around in the private economy. The fact remains, however, that vast amounts of money and infrastructure now lie in the hands of a small number of people who have only profit as their goal. This is not an ideological statement, this is how corporations work, and should work. If a company owns a toll road, there is obviously no incentive for that company to repair, make safer, or beautify that road beyond what is mandated by law. Profits will not be hurt, because everyone has to use the road anyway. There is also no incentive to keep tolls low, because there is no competition.

Sooner or later, though, one will start seeing signs of the inevitable decay that private ownership of vital infrastructure will bring. Public utilities in America today are both expensive and in poor condition (the price of electricity in Texas being a good example). Freddie Mac and Fannie Mae are imploding. Healthcare is obviously the worst example, and in that case the evidence does not get much clearer: the overall health of the people of The United States is the absolute poorest out of any first-world country (and poorer than that of many second-world countries such as Cuba).

A vote for John McCain is a vote for Reagan economics. Reagan economics has brought incredible decay to this country as well as incredible suffering for many of its people. It will take at least a decade to get this country back on track through deficit reduction and investments for the future. If McCain is elected, the decay and suffering will continue, and the enormous problems will be put off for another few years, resulting in those problems multiplying in strength.

John McCain is a joke.


Thursday, September 4, 2008

The Republicans have gone mad

Last nights Republican convention was a truly bizarre display of political theater and incomprehensible policy. No matter which party, if any, you support, it must be very difficult to ascertain what the Republicans are actually trying to achieve. They talk about Washington as corrupt and “broken”, when they are the ones running it, and have run it for a decade. Their recommendations for the future describe a conservative vision for America that is already here, but they’re telling you we’re living in a “liberal” America…

I tuned in to the convention as Mitt Romney was about to speak, and I was flabbergasted by what he said. One of the first things he said was the following:

“Last week, the Democrats talked about change. But let me ask you — what do you think Washington is right now, liberal or conservative? Is a Supreme Court liberal or conservative that awards Guantanamo terrorists with constitution rights? It's liberal! Is a government liberal or conservative that puts the interests of the teachers union ahead of the needs of our children? It's liberal!”

Apparently, in Romney’s mind, the idea of the rule of law and everyone being equal before the law is something that can be scoffed at. The same goes for employee influence in the workplace and the efforts of organized employees to avoid arbitrary treatment and vanishing salaries..

Romney went on to speak of the economic problems facing America, saying that “liberal Washington” had made it that way. Unsurprisingly, he suggested lower taxes as a way out of the problems. He also said that America’s strength came from the opportunities in the economy (which I agree with) but to my great surprise there are certain threats to these opportunities, completely unknown to me, that can hurt the American economy. Romney said:

“Opportunity rises when children are raised in homes and schools that are free from pornography, promiscuity and drugs; in homes that are blessed with family values and the presence of a father and a mother.”

Uhhh… OK. Pornography and promiscuity are serious threats to the American economy!! I’d like to suggest more research into this statement. Economists seem to be very confused lately with respect to oil prices, stocks and unemployment, unable to capture the reason behind what’s happening. I hereby urge them to look into the Romney pornography connection. Soon we’ll have Wall Street investors pouring over pornography sales data in order to proclaim where the economy is headed. What’s happening with your job, are you getting laid off? Call up Penthouse and ask them how they’re doing; an enthusiastic description of recent sales increases should have you shaking in your boots.

Romney has been described in the media as a man who knows about the economy. Well, let me just say that that statement deserves a second look. The most flabbergasting comments came towards the end of Romney’s speech, when he started talking about the mortgage crisis. He said the following:

“Our economy has slowed down this year and a lot of people are hurting. What happened? Mortgage money was handed out like candy, speculators bought homes for free — when this mortgage mania finally broke, it slammed the economy.”

There is nothing strange or untrue about this statement, but why did this happen? Everybody knows exactly why it happened: because financial regulation was systematically decreased in size and scope for three decades in a row. Mortgage money was indeed handed out like candy, and this was made possible by a lack of regulation. There is no discussion here, there are essentially no other reasons behind the crisis. So, what does this man who “gets the economy” recommend to get us out of the crisis? He recommends the following:

“The right course is the one championed by Ronald Reagan 30 years ago, and by John McCain today. It is to rein in government spending and to lower taxes, for [sic] taking a weed whacker to excessive regulation and mandates […]”

Let’s hear it again: “taking a weed whacker to excessive regulation and mandates”. This statement is truly laughable by any standards. Who in their right mind would at this point in American history suggest LESS regulation as a way out of the current crisis!?

Well, that’s just it: the Republicans are out of their minds right now, coming up with some of the strangest arguments that I have ever heard. Here are a few examples:

Problem: gas is expensive.
Solution: increase the supply of gas to permanently lower prices.
Result: you have just failed a high school prep course for Economics 101.

Problem: Russia is energized, pissed, and humiliated.
Solution: piss off Russia even more.
Result: America’s influence in the world has been decreased again.

Problem: 20,000 Americans die each year because they don’t have access to healthcare.
Solution: increase reliance on privately run healthcare (whose interest is profit, not health).
Result: 30,000 Americans die each year because they don’t have access to healthcare.

In addition to these strange recommendations, Republicans are now trying to make the case that the problems we face is the fault of those other guys, the scary “liberals”. It’s not going to work. A lot of voters may be dumb, but they’re not that dumb.

My recommendation is the same as always: end the two-party dictatorship by abolishing the first-past-the-post voting system, and get the voter participation above 75% so that the will of the American people can be reflected at all via roughly 10 different political parties.