Friday, January 31, 2014
De-Framing Economics: What Harvard Didn't Teach Me
During my undergraduate days, I took an introductory course in economics. The course was taught by a tandem of economists and, as well, brought in a variety of guest speakers ... including Paul Samuelson.
I didn’t do very well in the course ... I got some sort of a C. In fact, I was flunking the course prior to making the sort of recovery in the second semester that was sufficient to bring my overall average up to a passing grade.
One possible interpretation of the foregoing difficulties was that I was just too dumb to understand economics. Another possibility is that economics was just too dumb to be understood.
My instructors might have been inclined toward the former explanation. In retrospect, I am inclined toward the latter possibility.
The first half of the course focused on microeconomics, while the second semester explored the world of macroeconomics. For the most part, no facet of microeconomics made very much sense to me -- and the realm of macroeconomics was not far behind in that regard.
For instance, consider the idea of a market. In fact, let’s consider one of the most basic forms of market there is – namely, the labor market.
Labor markets are all about the manner in which companies (employers) negotiate with potential workers – and vice versa – in order to arrive at a compensation agreement through which various forms of labor will be offered in exchange for certain kinds of payment. I was told that the ‘invisible hand’ of the market would move the foregoing negotiation to some sort of equilibrium point in which there would be a sufficient number of workers who would be prepared to accept a given level of compensation to permit the company to move forward with production.
There were comparable markets involving such things as resource pricing and product/service consumption. In all of these markets, the invisible hand of the market would push the negotiation dynamic toward an equilibrium point in which buyers and sellers would cross paths in a mutually agreeable manner.
Some said that the best kind of markets were free ones. Markets which, for whatever reason, were not free, introduced various kinds of distortion into the process of negotiating among buyers and sellers that would affect the efficiency of those markets in problematic ways.
Efficient markets were desirable because they minimized costs and maximized productivity. Moreover, since free markets were believed to be efficient, then free markets also were desirable.
When markets were left to themselves, the invisible hand of the marketplace supposedly would solve whatever economic problems arose within those systems. Consequently, free markets had the potential to be self-regulating.
Okay, let’s return to the idea of a labor market. If one permits workers and companies to freely negotiate with one another – that is, without interference – in relation to determining the price of labor, what might happen?
Much will depend on the supply and demand of labor. If there are a lot of people seeking work -- yet there are only a limited number of jobs -- then it is a buyers’ market from the standpoint of management and, therefore, companies likely will try to force a fairly low point of equilibrium -- when the situation is graphed out -- in which there will be a sufficient number of people that are desperate enough for work who, as a result, will be prepared to accept a relatively low compensation package offer from the company.
On the other hand, if there are not many workers available, or not many workers with the right sorts of skills who are present, then, it is a sellers’ market as far as labor is concerned. Therefore, labor will be in a much better position to push the equilibrium point in an upward direction as far as the size of the compensation package is concerned.
There really isn’t any invisible hand at work in the market process. Needs of one kind in a given market tend to pair up with needs of another kind in that same market and, thereby, establish relationships that are -- to one degree or another – considered to be reciprocal or compatible in nature.
What makes the hand of the market appear invisible is that all of the forces at work in individuals (e.g., motivation, interests, needs, character, and values) take place in a largely hidden form of psychological calculus that manifests itself in choices of one kind or another. When those choices are collectively tabulated, one can plot the character of the dynamics at work in a given market.
However, there is nothing mysterious or mystical taking place. People who are hungry, or who have children who are hungry, or who have bills to pay, can be induced to work in exchange for a compensation package that will keep those individuals impoverished or at a subsistence level of survival since the alternative – not working -- seems even more disastrous.
From the perspective of capital, those markets are most efficient which are able to generate a high degree of productivity as inexpensively as possible. From the perspective of capital, labor is merely a cost, and, therefore, what happens to the lives that are represented by that kind of a cost is irrelevant to the interests of capital.
From the perspective of human beings, those markets are most efficient which are able to satisfy the collective need for justice, tranquility, defense, welfare, and liberty at a cost that everyone is prepared to accept. If capital is used in a manner that will not assist individuals to realize the aforementioned collective need, then capital is being used inefficiently.
In most forms of capitalism, efficiency is a function of what enhances or obstructs the flow of, and return on, capital. However, why should capital, rather than the essential needs of human beings, be used to set the standard for what constitutes efficiency?
The above way of approaching things seems exceedingly arbitrary. Why isn’t a human-friendly standard of efficiency used to induce markets to become self-regulating?
A company that is able to negotiate a low wage for workers while demanding a high return of productivity from those same individuals might be quite efficient. However, if one considers the problems that are likely to ensue from the foregoing sort of miserly compensation package – e.g., poverty, crime, dysfunctional families, health issues, worker safety, quality of education, emotional disturbance, substance abuse, and community conflict – then, companies that have adopted the standard which defines efficiency purely in terms of capital flow and return on capital have externalized the true costs of producing whatever they produce and, consequently, from the perspective of the community or the overall ecology of society, are not all that efficient.
There seem to be at least two schools of accounting principles at work in the foregoing considerations. One accounting method concerns itself only with the flow of capital through a company and the profits which are generated by that flow, while the other modality of accounting keeps tract of the multiplicity of costs which accrue to the community and arise as a result of the characteristics of that capital flow through the company in question.
What is efficient from the perspective of a company is not necessarily efficient from the perspective of the surrounding community. Yet, the former perspective is the standard which tends to be adopted by those who operate out of capitalistic framework when it comes to issues of efficiency, and this never made any sense to me.
Furthermore, negotiations which are entered into out of desperation – such as often, but not always, occurs with labor -- do not really have much of the aura of freedom about them. The idea of ‘free markets’ exploits the positive feelings that surround the term “free” and uses those feelings to camouflage the fact that the only facets of those markets that are actually free are capital and those who possess that commodity.
From the point of view of capital, governmental regulations constitute sources of distortion which are being introduced into markets ... distortions that will adversely affect the efficiency of that market because those regulations tend to adversely affect the flow of capital and/or lower the rate of return on capital investment On the other hand, material, financial, emotional, social, and environmental pressures acting on a given party – for example, labor – during market negotiations also constitute potential sources of distortion that are being introduced into such a market that, from the perspective of human beings, will adversely affect how truly “free” those markets are, as well as whether, or not, the idea of “efficiency” will be defined in a manner that serves the interests of ‘We the People’ or only the interests of capital.
Being able to induce workers to accept a certain level of compensation is one thing. Being able to arrange for a fair level of compensation with respect to those workers is often quite another matter.
Why are only markets that meet the criteria of capital efficiency considered to be free? Why is ‘freedom’ being defined as a function of what happens to the flow of capital within a market. Moreover, if allegedly free markets are not fair, then, what value do those markets have except to serve the interests of capital against the interests of ‘We the People’?
How does the invisible hand of the market solve the problem of ‘fairness?’ If people are forced by circumstances to accept a low-level package of compensation for their labor, then as long as efficiency and freedom are defined by the needs of capital, those laborers will never be treated with fairness.
Moreover, how does the invisible hand of the market solve the problems of: justice, tranquility, common defense, general welfare, and liberty? There is no room for any of the foregoing issues within the flow charts of capital interests because those issues tend to complicate the flow of capital with respect to the generation of maximized profits.
What is truly remarkable is the manner in which the language of capitalistic economics has been used to induce people to cede their moral and intellectual agency to a theory of life that is largely devoid of humanity. Free market enterprise is not about what is good for humanity but about what is good for capital formation, capital accumulation, and the capacity of capital to control the lives of people to serve the interests of capital.
The language of: “free” markets, efficiency, and the invisible hand of the marketplace are at the heart of capitalist economics. However, those terms only make sense – in a pathological sort of way -- when one deals with an abstracted notion of capital flows from which issues of: justice, tranquility, common defense, general welfare, and liberty for the collective – as opposed to the capitalist – have been removed, and it never made any sense to me why anyone would want to learn about an economic theory which was so biased in its depiction of the world and so readily inclined to slip into destructive behavior of one kind or another with respect to the ramifications of capitalism for those who lived outside the channel-ways of capital flow.
Two other economic terms that are skewed by the biases of those who wish to control commercial activity and, thereby, undermine basic sovereignty among ‘We the People’ are: “wealth” and “capital.” The “commerce clause” in Section 8 of Article I of the Philadelphia Constitution indicates that Congress shall have the power to regulate commerce “with foreign nations, and among the several states, and with the Indian tribes,” but that clause does not give Congress the power to regulate such commerce in order to favor either corporations or capitalism (as a theoretical system of philosophy).
The ‘commerce clause’ is supposed to serve the principles and purposes of the Preamble. After all, allegedly, the Preamble is the reason why the Philadelphia Constitution was established.
There is nothing in that Preamble about corporations or capitalism. It is entirely about ‘We the People’ and the establishing of: a more perfect union, justice, tranquility, common defense, general welfare, and liberty for the people.
Therefore, with respect to the regulation of commerce, wealth is a function of whether, or not, the purposes and principles of the constitutional Preamble are realized. Real wealth – not the superficial, shallow wealth of financial self-aggrandizement -- gives expression to the degree to which the people of the United States collectively enjoy the benefits of justice, tranquility, defense, welfare, and liberty.
Wealth is not a matter of financial accumulation. Wealth is about the quality of life among ‘We the People’ considered both individually and collectively.
Unfortunately, there tends to be an inverse correlation between the level of financial wealth of the few and the quality of life of ‘We the People.’ In other words, regulating commerce in a way that enables a relatively few people to become wealthy in a financial sense tends to adversely affect the quality of life for the generality of people, and, as a result, this sort of an arrangement does not serve the purposes and principles for which the Philadelphia Constitution was supposedly created ... which, in turn, means that the foregoing manner of regulating commerce is neither ‘necessary’ nor ‘proper’ per the requirements of the Philadelphia Constitution.
In short, defining “wealth” in purely financial and material terms cannot be reconciled with the Preamble to the Philadelphia Constitution. Justice, tranquility, defense, welfare, and liberty transcend those purely financial and material considerations ... although, to be sure, financial and material dynamics have a role to play to help realize the purposes and principles that are entailed by the Preamble.
Similarly, the proper meaning of ‘capitalism’ should be about the flow and enhancement of the capital of human life in conjunction with a fiduciary responsibility to the environment that makes that kind of flow and enhancement possible (i.e., it is the ground out of which all forms of capital emerge). One degrades the idea of capitalism when one reduces it down to merely financial/material considerations ... in fact, if capitalism does not serve the interests of the collectivity of human beings, then, it is no better than socialism and communism – both of which seek to use arbitrary philosophies to undermine the basic sovereignty of human beings.
Therefore, the manner in which my introductory course in economics tended to approach and engage the ideas of ‘wealth’ and ‘capital’ made no sense to me. I was being asked to accept a perspective that went contrary to my feelings and thinking with respect to democracy, morality, humanity, life, and justice.
Another part of the lexicon of capitalist economics is ‘competition.’ Supposedly, markets are at best when they are competitive.
When companies compete for a share of the market, then, they must do whatever they can to attract customers. Competitive markets are said to enhance efficiency by driving down costs, improving productivity, and enhancing the quality of products.
However, competition also can bring out the worst in people. When this occurs, then people will cheat, lie, manipulate, exploit, bribe, and abuse others – whether workers, suppliers, customers, or society -- in whatever way they can get away with in order to generate a profit.
Many economists are inclined to argue that in the long run, illicit forms of competition – that is, forms that involve unethical behavior – will not be rewarded and, therefore, the only stable form of competition is fair competition. The foregoing perspective assumes, of course, that, sooner or later, the unethical behavior being alluded to will be uncovered – in the courts, by the media, through political activity -- but this is not always the case ... especially if the courts, the media, and political activity happen to be co-operating, in one fashion or another, to cover up or camouflage that sort of unethical behavior.
After all, government officials have been known to accept bribes or campaign contributions in exchange for looking the other way with respect to problematic economic activity. Similarly, media outlets have been known to kill or alter stories that cast an unattractive light on one, or another, of their advertisers. Moreover, those judges whose understanding of the world is, for whatever reasons, heavily influenced by capitalistic biases (for example the judge in the Dodge v. Ford case), will interpret the law in ways that are favorable to corporations and other capital interests rather than ‘We the People.’
Unethical commercial activity is best uncovered when a given market is transparent and well-regulated. Those who conduct themselves in an unethical manner are adept at obfuscating matters as well as undermining regulation ... which is why one hears so many ideological psychopathic entrepreneurs criticizing the presence of regulation in their markets since regulation – when it is done properly – interferes with the desire of those individuals to have their unethical practices remain in the dark and out of sight of inquiring minds.
According to Adam Smith, a market that is made up of a number of relatively small, and roughly equal, competitors is likely to produce the fairest form of competition. Problems arise, however, when the participants in a given market are either limited and/or not necessarily equal to one another, and, under those conditions, ‘competitors’ are capable of leveraging the asymmetry of power distribution of these sorts of circumstances to hold a market hostage. One possibility that arises from the foregoing sort of asymmetry is that companies in such a position of power will not necessarily seek to enhance the quality of products, or increase productivity, or decrease the prices of products/services.
The emergence of monopolies, trusts, mergers, and multinational corporations over the last one hundred and seventy years has come to have a dominant – and, for the generality of people, problematic -- impact on almost all markets. Consequently, competition has become increasingly less fair as it is shaped by the interests, resources, powers, influences, and financial clout of a variety of commercial behemoths in conjunction with their fellow political, media, and judicial supporters.
Markets that are dominated by a few companies are not free. The efficiency of those markets is distorted by the manner in which the very meaning of “efficiency” must – according to the controlling companies -- be defined by the interests of those companies and by the manner in which whatever negotiations that occur in those markets are driven by the advantages enjoyed by those companies relative to other players in that market.
This is most readily understood in the context of labor markets where companies use their financial and political power to prevent workers from receiving fair compensation for the labor of the latter individuals. From the perspective of management, efficient companies are those which have poorly compensated workers generating high rates of productivity that lead to attractive profit margins.
Consequently, companies that compete with one another – whether fairly or illicitly -- will not necessarily help to bring about the realization of basic sovereignty for the generality of people. Sovereignty requires co-operation, not competition.
Sovereignty is not a zero-sum game. Sovereignty is rooted in the willingness of people to co-operatively struggle against and resist all forces – including commercial ones – that would seek to undermine individual and collective attempts to activate the principles inherent in the basic right of sovereignty.
Furthermore, I am not aware of any proof that shows, beyond a reasonable doubt, that co-operation is incapable of generating (if not improving upon) what competition supposedly does – that is, lower prices, enhance quality of products/services, and generate higher productivity. In fact, co-operative commercial activity is much more likely to lead to the realization of sovereignty – both individually and collectively (and this resonates to some degree with what Henry Ford was trying to accomplish before the Dodge brothers took him to court) – than is the sort of competition which is narrowly focused on inducing capital flow to generate profits.
The division of labor with which Adam Smith was so enthralled in The Wealth of Nations is about co-operation, not competition. By breaking a job down into small steps that are performed by different people, one can produce more – for example, pins -- than one could achieve if one were to have different people compete with one another when each of them was responsible for the entire production process of individual pins.
Studies tend to indicate that companies work best when their employees co-operate with one another. On the other hand, a variety of research also tends to show that companies become dysfunctional when their employees are engaged in competitive, internecine turf wars with one another.
In sports, teams that work co-operatively with one another tend to do better than those teams in which its members are in competition with one another. In addition, plays, movies, and television programs tend to be better when all the participants in those productions are working from the same page.
Furthermore, military success depends on all facets of the military being able to harmonize their efforts with one another. While competition, within limits, may help soldiers to hone some of their skills, the goal is to generate a set of people who are capable of co-operating with one another in order to be able to meet their assigned objective.
If co-operation – rather than competition – works best in the division of labor, corporate functioning, team success, and military operations, then why not entertain the possibility that co-operation among companies for the purposes of establishing an economy that meshed with issues of individual and collective sovereignty might be a much better way of engaging the problems of life than to suppose that competition will be able to resolve all problems? In other words, another basic term – that is, ‘competition’ – which is drawn from the lexicon of the sort of capitalistic economics to which I was introduced as a fledgling student doesn’t necessarily make all that much sense.
Capital and labor should not have an antagonistic relationship with one another. In fact, capital and labor are two sides of the same coin of sovereignty.
Capital is a catalyst for labor. Labor is a catalyst for capital.
Their relationship – if functioning properly -- is symbiotic in nature. When financial capital (capitalism), labor (communism), or the state (socialism) seeks to assume control of that relationship, sovereignty is adversely affected.
Commercial activity is a necessary part of society. However -- when, at the expense of basic sovereignty (the only right which can be demonstrated beyond a reasonable doubt to reflect the actual existential status of human beings) commercial activity is filtered through the biases of arbitrary philosophies – such as capitalism, socialism, and communism – commercial activity becomes destructive of purposes and principles that are essential to being human.
Back in the mid-1960s, a few friends of mine somehow – and quite mistakenly -- got the idea that I was something of a financial wizard. If any of them had taken the time to critically reflect on the quality of my living arrangements or the kind of job that I had, they might have come to a more appropriate conclusion.
Nevertheless, one day a friend showed up unannounced at my apartment in East Cambridge and indicated that another friend of mine had told him that he should come to me for assistance with respect to helping him find a way to earn some quick money in the stock market. Perhaps, they were confused about how I got into Harvard ... which wasn’t through possessing an impressive stock portfolio or travelling in elite financial circles.
I was kind of dumbfounded when the aforementioned individual showed up on my doorstep with his plea for help. However, not wanting to turn the person away without attempting to offer some form of assistance, I managed to blurt out a few things about ‘put options’ which I had come across somewhere in a newspaper, magazine, or book and alluded to the possibility that one could sometimes purchase stocks on margin ... the stock market’s version of placing a bet (making a trade) with a bookie (broker) and putting it on one’s tab (account).
I explained – in a rather halting and unsure manner – that if the value of the stock rose, one could sell the stock at a profit without having risked any of one’s own money. In other words one would have leveraged the money ‘borrowed’ from the brokerage firm and translated the loan into a financial gain.
Of course, if the value of the stock went down and the stock broker called for the margin to be paid, then the outcome became more problematic. Under those circumstances, one would have incurred a debt which had to be paid ... and if the size of the loss was more than one’s available cash flow, one had a problem.
I tried to tell my friend that I really didn’t know much, if anything, about such things. Unfortunately, and to paraphrase someone else, even the relatively ignorant are treated like wise men in the land of the completely ignorant.
After listening to me for a short while, my friend thanked me and left. Hopefully, he was smart enough not to invest much stock in my ramblings.
I’ve never had the ‘green’ thumb -- or inclination -- necessary to nurture the growth of money. On the other hand, I was fairly accomplished at inducing my debt load to assume a weed-like growth pattern.
Notwithstanding all my financial incompetence, however, I do tend to grasp some basic truths concerning the stock market. For instance, with the possible exception of an IPO, or initial public offering, in which people are actually investing money in a company with the hope that both the company and the investor will get a good return on their respective investments, the stock market is, for the most part, really nothing more than a legalized form of gambling.
Most people buy and sell stocks to make money, and, as a result, they often don’t actually care about the company (or its people) whose stock is purchased, any more than a gambler cares about the individuals on the sports team that he bets for or against. The way one makes money in the stock market is to buy stocks that rise in value and, then, to sell those stocks off before they lose their enhanced value.
A stock rises in value because of the perception – whether correct or not – that the company for which the stock serves as something of a public persona is undergoing certain kinds of commercial dynamics that, for whatever reason, will lead to a more advantageous positioning within a given market that, in turn, might enable the company to make profits in the future. Similarly a stock goes down in value if the perception – whether correct or not – concerning a company’s future economic outlook becomes stormy or risky.
There are all kinds of indicators which people (both professional and amateur) look at in order to try to develop a sense, financially speaking, of where a given company might be headed -- and when. The quality of competition, technological developments (present or forthcoming), labor contracts, possible transitions in management personnel or strategies, rumors of one kind or another, credit ratings, debt burden, forthcoming mergers or possible hostile take-overs, and so on, are all fuel for the process of trying to analyze which way a given investment fire will burn, or for how long, and with what level of intensity.
Oftentimes, the value of a company tends to rise if the productivity of that company is perceived to increase. Productivity is enhanced when costs go down while the quantity and/or quality of output either stays the same or improves.
There are several ways in which costs might be lowered. For example, when a company: Decreases the compensation package for workers (involving wage/salary levels, health benefits, and/or retirement plans); or, asks the workers to do more for the same level of compensation; or, downsizes and, as a result, lays workers off; or, moves its operations to another state or country where labor will work for less, and/or the taxes, environmental standards, and safety considerations are less regulated, if at all, then productivity is likely to be measured as having increased.
The more money that is made by those who play the stock market, then, quite frequently, the more the quality of life is lowered for those people – i.e., the workers -- who help subsidize those profits through: Lower wages, lost jobs, increased work burdens, slashed pensions, and/or diminished safety considerations). In those sorts of cases, stock profits are made by leveraging the labor of workers, and, in many – but not all -- ways, picking stock winners is about identifying those companies where there is a high likelihood that the life of workers will, in some way, be diminished in order to give such a company an alleged competitive advantage in the marketplace so that the value of the stock will rise and someone will make a profit when the stock is sold or when a dividend is issued.
Hedge funds, mutual funds, venture capital, brokerage firms, and banks give expression to systematic attempts to develop betting or trading strategies concerning the perceived value, over time, of various companies, commodities, currencies, services, governments, and resources. Those bets or trades often leverage the lives of human beings associated with those companies, commodities, currencies, governments, or resources and, if necessary, place the lives of those human beings at risk for purposes of turning a profit.
Generally speaking, the riskier a given trade is, the greater is the possible payout associated with that trade. The other side of this coin is that the higher the risk, then the greater is the likelihood that one will lose the money invested ... bets are placed and the wheel is spun ... round and round she goes.
Time, interest rates, price, yield, market conditions, inflation, and other factors are gathered together in various formulas designed to determine the risk associated with any given betting or trading strategy. Those formulas might be linear or non-linear in character, but they tend to be based on, and attempt to reflectively model, what has happened within a given market across a certain time frame, and, then, such calculations are used to make forecasts with respect to various possible kinds of economic and financial trends into the future.
The more nuanced and complex a given formula or model is, the more vulnerable that formula or model is to fluctuations in the real world that fall outside the predicted parameters of such a trading formula or model ... and, quite frequently, those fluctuations don’t have to be very big in order for trouble to creep into one’s financial life. For instance, the property or house that is associated with a mortgage that has been leveraged at 20 to 1 only has to fall in value by a little more than 5 % before the whole investment is lost.
Mathematicians, physicists, and engineers are often hired by companies to handle the complexities of model construction. When those constructions work, the currents of flowing money are propitious, but when those model/formulae don’t succeed, money still flows, but the currents transform into a riptide that tears a person’s life apart and pulls her or him under.
The foregoing formulas and models are based on the assumption that the future will look much like what has happened during the period which is being modeled. Unfortunately, the future doesn’t always repeat the recent past, and when this occurs, financial losses become very likely.
As was the case with respect to the ‘counsel’ which I gave to my friend back in 1965, if one can manage to make money with other people’s money – called leveraging – then, when this works out, this is the best sort of scenario. However, when this kind of arrangement doesn’t work out, then trouble ensues ... margins are called, and one’s life slides into a financial abyss.
When one juxtaposes complex mathematical formulae and models – ones whose relationship with reality is understood, if at all, by very, very few people, including the people who invent them – next to risk-taking behavior, uncertainty, leveraged money, and ideological psychopathy, one is asking for trouble. Welcome to the world of derivatives.
In simplest terms, derivatives are a function of – or derived from -- the value of some underlying asset (e.g., mortgages). Trading or betting strategies (in the form of complex mathematical models and formulae) concerning those derivatives – which are financial instruments rotating about the performance of some given asset -- attempt to forecast or track how the value of the underlying asset will unfold over time and generate – hopefully – some sort of return on investment concerning that asset.
Mortgage-backed securities – with mortgages being the underlying asset, and the securities being the derivative, or financial instrument, based on that asset – are only one of many kinds of derivatives that were developed over the years. Whatever names are assigned to those financial instruments, nevertheless, when one removes all the hype, complexity, mystery, and opacity surrounding the idea of derivatives, those financial instruments are nothing more than a form of gambling involving whether, or not, some underlying asset will prove to be a winner or a loser.
Simple derivatives begat more complex forms of derivatives. For instance, out of mortgage-backed securities arose what are called collateralized debt obligations or CDOs.
In CDOs, the underlying assets were often pooled together – mixing financially strong manifestations of the asset with less financially sound editions of the same asset. For example, mortgages based upon sound lending principles might be thrown together with mortgages that were based on manipulation, misinformation, disinformation, and something other than sound lending practices (e.g., the realm of subprime mortgages)
These pooled assets were, then, run through a tranching blender (in the form of some kind of mathematical formula or set of formulae) to create different streams of risk/payout investment possibilities. The foregoing sorts of arrangements were often given credit ratings as a guide to the degree of risk associated with the likelihood of realizing any given stream of income, much as certain people in Las Vegas create betting lines with respect to this or that sporting event.
Unfortunately, quite a few people who set the credit-rating part of the betting line in relation to an array of derivatives did so in a dishonest fashion. As a result, derivatives were often knowingly rated with a higher – and, therefore, less risky – credit rating than those derivatives deserved, and, in the process, investors were scammed.
CDOs didn’t necessarily include just one category of assets. A variety of assets with a range of values might be included in the aforementioned tranching packages, and, consequently, each CDO had its own unique risk/payout investment structure.
As long as the underlying assets performed well – or were made to appear to be successful -- then everyone (investors, model makers, financial instrument innovators, banks, hedge funds, brokers, and financiers of various descriptions) earned money. When those underlying assets performed poorly -- or not at all -- then financial fault lines began to run in all directions.
Because the early returns from playing the derivative’s version of roulette appeared to be fairly lucrative, many people began to jump onto the financial bandwagon and place their bets. Quite a few of them did this with leveraged money -- that is, money borrowed from other people which was, then, used to purchase one, or another, brand of the financial instruments known as derivatives – and among the borrowers were investment houses, banks, hedge funds, pension funds, and so on.
A variety of companies were so highly leveraged in the derivatives gambling games that when the market began to go south (partly – but only partly -- set in motion when people in the subprime mortgage market could not pay their mortgages when interest rates rose and/or jobs were lost) panic beset the gaming tables. As a result, margin calls began to be issued like falling dominos with respect to various loans that had been leveraged to purchase derivatives because many of the loaning institutions and organizations were, themselves, scrambling to pay off their own failed leveraged betting strategies for which margin calls had been issued.
The monster of derivatives was spliced to the monster of leveraged money by unsuspecting or indifferent financial ‘scientists,’ and a chimerical form of being was created that began to consume the world. A weapons-grade financial plague had been released.
In December of 2007, derivatives trading, of one kind or another, accounted for nearly $700 trillion dollars. This amount of money is more than 10 times the GWP – Gross World Product – of all the nations on the face of the Earth.
Obviously, if this great gaming table of derivatives – with its many risky bets -- begins to unravel, there are not enough assets in existence to cover the money which has been wagered. Individuals and a variety of financial institutions will fall ... but so will many countries.
One of the problems – and, there, are many others -- surrounding the idea of derivatives is that they were not regulated in any way. In essence, they constituted the promised land of capitalist economics – namely, a completely free market in which capital – through the magic of the invisible hand of the market – would be enabled to travel in any direction without interference.
The results were disastrous. Free market economics didn’t work, and if one has any doubts about this go and ask: Bear Sterns, Fannie Mae, Fanny Mac, Lehman Brothers, Merrill Lynch, American International Group, and a host of other champions of ‘free market capitalism’.
A fundamental precept of capitalism was dysfunctional because the idea of free markets is an economic fiction, just as corporations are a legal fiction. Those sorts of fiction work great in the fantasyland of theoreticians, but they are difficult to reconcile with the real-world needs of human beings.
Markets form, or are generated, in accordance with not only the strengths of the players in those markets, but, as well such markets are formed in accordance with the biases, ignorance, and character flaws of those same players. The so-called invisible hand of the market is nothing else but the dynamics of those strengths and weaknesses made manifest.
There can be no guarantee that the biases, ignorance, and character flaws that help shape a given market will automatically generate equilibrium points within that space which will magically give expression to solutions capable of satisfying the needs of everyone associated with that space. As computer programmers have been known to say: garbage in, garbage out.
Greed, ambition, selfishness, arrogance, hubris, ruthlessness, ignorance, dishonesty, irresponsibility, callousness, aggressiveness, recklessness, impulsiveness, abusiveness, remorselessness, emotional shallowness, cruelty, duplicity, egocentrism, as well as lack of empathy for, or indifference to the pain of, others – that is, most, if not all, of the characteristics of ideological psychopathy – were fully present during the organizing, shaping, orienting, and coloring of the derivatives market. Unfortunately, most economists and politicians were too blinded by their delusional, ideological thinking about the nature of reality to be able to understand that from the very beginning, the so-called free market of derivatives was nothing but a figment of someone’s imagination that, among other things, failed to take into account the manner in which ideological psychopaths will seek to exploit such an opportunity without any regard for the possible destructive ramifications that are likely to ensue for either themselves and/or others.
Derivatives, along with other financial instruments, are not – as some advocates try to argue – a means of introducing: Increased choices; enhanced credit; and improved pricing into the world for the benefit of investors. The foregoing points are merely part of the marketing ploy that is being used to induce people to believe that the creation of the derivatives roulette wheel – along with other manner of financial gaming tables -- is just another form of ‘free markets’ in action, or that everything associated with derivatives is being done for the benefit of ‘We the People’ when, in truth, at best, only a few people – with the help of government assistance -- are able to surf the wave of financial tides to a safe and satisfying conclusion ... sooner or later, most people wipe out.
Like the Walt Disney version of the Sorcerer’s Apprentice, the dynamics of derivatives (i.e., the water-carrying-ever-multiplying brooms) have taken on a life of their own. The complexity of: The tranching process, the leveraging process, and the destructive unraveling process that arises from failed betting/trading strategies is so extensive, that the full extent of the damage is still not known, and – to mix metaphors -- like the fault lines of an earthquake zone, the fractured world of derivative is very likely awaiting the right set of political and economic conditions to once again shake apart the lives of human beings, along with their associated institutions of governance and economics.
Within the context of the foregoing betting/trading strategies, capital in the form of money is given preference to capital in the form of human beings. When capital is defined in terms of financial considerations, human beings have a value only to the extent that those individuals are capable of facilitating and enhancing the flow of money.
When capital is a function of financial considerations, it tends to be a purely quantitative transaction. When capital is a function of human considerations that involve basic sovereignty, capital assumes a variety of qualitative features that, in many ways, cannot be adequately represented through the quantitative metrics of dollars, euros, yuan, pesos, or the value of a derivative.
Many people want the dynamics of free market economics to govern the world. However, the meaning of “free” in those dynamics tends to be a function of ideological biases – such as those which are present in the derivatives market -- that are antithetical to the actual sovereignty of human beings and which wish (intentionally or unintentionally) to place the lives of human beings under the control of the movements of financial capital ... movements that, all too frequently, are ‘freely’ manipulated by the machinations of various corporations, as well as by different representatives of the executive, legislative, judicial and state branches of government.
Those who are the primary shapers of financial markets of whatever description – that is, banks, corporations, insurance companies, hedge funds, investment houses, multinationals, and the government – have given ‘We the People’ no reason to trust them to do the right thing when it comes to helping to establish, protect, or enhance the sovereignty of individuals, considered both singly and collectively. Economics has failed every bit as spectacularly as has governance when it comes to nurturing, protecting, and honoring the basic sovereignty of ‘We the People.’
Attempting to impose on people the biased ideology of capitalism (its bias gives preference to the movement of capital considered as a financial commodity) is no different than seeking to impose the biased ideologies of socialism (the bias is in favor of centralized or state public policy planning) or communism (the bias is in favor of a limited, materialistic conception of classless owners of the means of production) on people. Sovereignty is not about ideology, but, rather, sovereignty is about recognizing the nature of the human condition and having a fair opportunity to push back the horizons of ignorance ... and neither capitalism, socialism, nor communism is capable of establishing that kind of fairness or even proving in any non-arbitrary way what that ‘fairness’ might entail.
The idea of ‘rational utility maximization’ – or, alternatively, ‘maximizing a rational utility function’ -- plays a central role in economic theory. The actors in economic dramas are assumed to be individuals playing the role of rational agents who are interested in maximizing their potential according to some sort of theory of utility.
On the surface, the foregoing assumptions seem ‘reasonable.’ However, with a little reflection, that which appears to be ‘reasonable’ tends to become less so.
For example, what are the criteria of ‘rationality’? Moreover, what justifies using those criteria?
Is it necessarily rational to pursue that which is pleasurable? Is it necessarily rational to avoid that which is painful?
Accomplishment often comes through difficulty. Enduring through, and triumphing over, difficulty frequently establishes its own metric of pleasure.
On the other hand, pleasurable experiences sometimes entail problematic consequences. For instance, the highs of various kinds of addiction are capable of motivating one to seek more of the same until that kind of addictive behavior establishes its own metric of pain.
Obviously, the significance of pleasure and pain depends on the ultimate nature of reality. Furthermore, one interprets, or measures, the character of pleasure and pain against the possible meanings of life.
People have different ideas about what they consider to be desirable forms of pleasure and pain. Motivational patterns are woven into life as a function of such ideas, or, alternatively, those patters arise out of the phenomenology of experience as we come to identify the kind of circumstances which are deemed to be worthwhile to seek out, as well as those situations that are considered to be worthy of being avoided.
Not all motivational patters are necessarily rational. Yet, this does not prevent people from acting in accordance with those patterns.
Consequently, not all utility functions are necessarily rational. This raises the problem of having to differentiate between rational and irrational utility functions.
Furthermore, utility functions come in qualitative, quantitative, and mixed varieties. Not all qualitative utility functions (e.g., liberty, justice, truth, tranquility, and spirituality) can be solved through one, or another, kind of pricing arrangement or accurately reflected through quantitative measurements.
Sometimes we have understandings that are backed up by a variety of evidence indicating that a certain path forward is a ‘rational’ one. Unfortunately, our behaviors don’t always reflect those understandings ... that is, we don’t always act in accordance with what we ‘know’ -- or believe we know.
To use reason and logic to seek or acquire that which is not in one’s best interests, does not necessarily constitute rational behavior. To use reason and logic to avoid doing that which might be in one’s best interests, also does not necessarily constitute rational behavior.
Human beings are not always purely rational beings. Emotion and reason interact with one another in complex ways.
Sometimes reason informs emotion (for example, helping to modulate anger, jealousy, greed, and so on), and benefits ensue from that arrangement. Sometimes emotion (in the form of empathy, compassion, love, gratitude, and the like) informs reason and benefits often follow from that dynamic.
Is reason without the right sort of emotional counsel necessarily rational? How does one determine what ‘the right sort of emotional counsel’ is?
If reason is divorced from considerations of justice and morality, is that sort of reason rational? If not, then in what way must justice and/or morality be understood in order for reason to qualify as being rational?
Can one maximize justice for oneself without also maximizing justice for others? What is the relationship between morality and rationality?
The idea of rational utility maximization was, and continues to be, at the heart of the array of formulae and models that populate the derivatives market. However, a great deal went wrong with the “rational,” “utility,” and “maximization” parts of those formulae and models.
The idea of rational utility maximization is at the heart of most markets. Yet, many of those markets often fail because the nature of the understanding of different participants in those markets concerning the nature of ‘rationality,’ ‘utility,’ and ‘maximization’ has destructive ramifications for not only the market but the surrounding society as well.
For instance, socializing costs and privatizing profits – as often is done in the case of free market economics -- might give expression to a form of ‘rational utility maximization’ for one, or another, company. However, that kind of a utility function is parasitic and, sooner or later, the host will die, and, therefore, so will the parasite.
When different rational utility functions vie with one another in the marketplace, there is more than one possible outcome for such a dynamic. Not all outcomes of the foregoing sort of interaction will necessarily be favorable to either the participants or to society.
The invisible hand of the market is not inherently benign. It reflects, and gives expression, to the intentions and character of the participants in that market.
The Iroquois – and several other Indian nations – have indicated that every judgment and decision made by the people of that nation must take into consideration the impact of that decision/judgment on the next seven generations of people. How many economic decisions are made with the foregoing sort of understanding in mind?
If the answer is not very many – and I believe this answer overestimates the situation – then, just how rational are the utility functions that are employed in those economic models for purposes of maximizing outcomes? Moreover, for whom are those functions being maximized, and at what cost to others or the environment, and with what justification?
Economists – and most of the rest of us -- are ignorant about (that is, we cannot prove, beyond a reasonable doubt, the truth concerning) the nature of: intelligence, consciousness, reason, rationality, emotion, motivation, justice, morality, or life. Consequently, how can they – or we -- make any constructive suggestions concerning the idea of maximizing rational utility functions when everything that is said in this respect tends to be entirely arbitrary?
Rational agents are assumed by economists to be individuals who have perfect knowledge of all relevant considerations concerning a given market. Even if one were to concede that kind of an assumption – which seems a dumb thing to do -- nevertheless, having knowledge of a situation and understanding what do with such knowledge -- and when or to what extent or in relation to whom -- are not necessarily coextensive.
The gulf between information and knowledge is considerable. So, too, is the gulf between knowledge and wisdom.
Economists have a lot of data or information. They have very little knowledge or wisdom which can be demonstrated to be accurately reflective of reality in a manner that is beyond all reasonable doubt, and if economics can’t satisfy that sort of a standard, then, why should anyone comply with economics’ interpretation of what constitutes ‘rational utility maximization’, let alone its understanding – or lack thereof – concerning the nature and purpose of life?
Misinformation, disinformation, rumors, dishonesty, limited information, incorrect understanding, and uncertainty characterize all markets. Idealized venues in which those sorts of problematic features are not present have very little to do with the real world.
What does it mean to talk about maximizing rational utility functions when we are immersed in an ocean of unknowing and uncertainty? Is it rational to make decisions with incomplete information?
Are interpretations of incomplete information necessarily rational? Are attempts to maximize some form of utility function in the light of that kind of incomplete information necessarily rational?
What if our interpretations and attempts to maximize those utility functions turn out to be wrong ... as was the case with derivatives? Is it rational to try to maximize one’s own utility function if this will have adverse consequences for others?
The nature of life requires us all to make choices. The capacity to choose does not guarantee that those decisions will be rational, maximizing, or serve some utility function.
The idea of maximizing rational utility is an economic fiction which has more to do with mythology than reality. It is a snipe hunt that all too many economists and politicians wish to impose on people as a proposed solution to the problem of sovereignty.
In reality – and the derivatives fiasco is very instructive in this regard – the ‘science’ of snipe hunting that is being advanced by many free market economists is a process that tends to entangle sovereignty – both individual and collective – in endless forms of arbitrary exercises that, sooner or later, lead to oppression and injustice. Such snipe hunts are inherently unstable because they do not accurately reflect the existential and epistemological circumstances in which we find ourselves, and, consequently, one should not be surprised to discover that the history of capitalism is replete with the foregoing sorts of instabilities.
Ideological psychopaths all possess rational utility functions which they are attempting to maximize. Their utility function gives expression to various, characteristic features of their ideological orientation.
Ideological psychopaths consider their utility functions to be rational ‘because’ they (both the individuals and the functions) are inflexibly tied to the definitions, assumptions, logic, and values of their delusional system of thinking and, therefore, those individuals have no way to independently and objectively verify the degree of truth, if any, in their perspective. Because there is a method to their pathology, they confuse and conflate methodology with rationality.
Making sense of things is not necessarily the same as establishing the truth of those things. Having a system of logic and reasoning does not render a system rational, any more than the logic and reasoning of a paranoid schizophrenic are rendered rational just because the logic and reasoning inherent in their condition seem compelling to the individual operating under the influences of that sort of pathology.
Free market capitalist theorists are ideological psychopaths for a number of reasons. For instance, not only is their understanding of reality delusional – that is, it is a false belief system -- but, as well, they have a pathological expectation that everyone else should be willing to comply with, if not subsidize, that sort of a delusional worldview.
The foregoing expectations are pathological because they tend to lead to a variety of very problematic behaviors and inclinations. As is the case with those who are born with psychopathic tendencies, ideological psychopaths who are immersed in the delusional system of ‘free market capitalistic theory’ often exhibit qualities of: arrogance, impulsivity, recklessness, irresponsibility, abusiveness, manipulation, dishonesty, emotional shallowness, cruelty, callousness, self-aggrandizement, selfishness, and egocentricity, as well as a lack of empathy concerning other human beings, together with a lack of remorse or sense of conscience in relation to the manner in which their own satisfaction must be paid for through the pain and suffering of other human beings.
Like many natural-born psychopaths, ideological psychopaths of the free market capitalistic variety use their language skills to manage and manipulate the impressions of others. Advertising and public relations activities give expression to that kind of a skill-set because the intention of advertising and public relations is to frame people’s attention by excluding all the problematic ramifications from the picture (e.g., in relation to: worker compensation, hazardous working conditions, environmental pollution, tax evasion, customer safety, undue influence on the media and politicians) which often arise in parallel with the profits that are to be made in relation to the alleged value of some given product or service (i.e., the focus of advertising).
Advertising, marketing, and public relations are used to induce potential customers or the public to cede their moral and intellectual agency to the company and product being promoted. Like natural-born psychopaths, ideological psychopaths of the free market capitalistic system use the allure of sex, self-image, power, and control -- or one’s insecurities concerning those issues -- in an attempt to push and prod our buttons of existential vulnerability.
To the best of my knowledge, I have never met John Perkins ... although, conceivably, my degree of separation from him might have been much less than I suppose. More specifically, during my undergraduate days, I had to work various jobs in order to try to survive while going to school, and one of those jobs began around 1965-1966 at the Business and Economics Library at Boston University.
John Perkins began college in 1965 at Boston University. His major was business, and, therefore, he was enrolled in the Business Administration program at BU.
Since I often ran the ‘desk’ for signing out books, periodicals, and course materials that had been placed on reserve at the Business and Economics Library, there is a fair chance that, at some point, I might have checked out books, periodicals, or reserve materials for him. Otherwise, we probably just passed one another like two silent, darkened ships in the night along the hallways and in the elevators of the Boston University School of Business and Economics.
The Business library often served as a social meeting place for students who were occupying the interstitial times and spaces between classes. Therefore, the library tended to be a rowdy place, and, once or twice, in my best sarcastic form, I had to venture into the rather large reading room and make an announcement that there had been complaints from many of the students that the people who were using the library for purposes of studying were interfering with the attempts of the complainants to converse with one another.
I don’t know to which of the two foregoing group John Perkins belonged. Of course, I am assuming that he was actually in the library during such instances.
There is another piece of information about the Business and Economics Library that might serve as a sort of segue into the ideas of John Perkins. From time to time, the staff would check the library’s actual holdings against the card catalogue to determine what books, if any, were missing.
Ironically, the section of books in the library that tended to suffer the worst losses – including defacing – dealt with one, or another, aspect of business ethics. The relevance of the foregoing fact to the experience of John Perkins is that he -- according to his own later confessions -- became engaged in a very ethically-challenged form of work for many years.
Although, initially, Mr. Perkins had been interested in joining the Special Forces and going to Southeast Asia to help fight the Vietnam War, he turned against the war when the media began to report on the many atrocities which were being committed there. Later on he learned Spanish, and following completion of his studies at Boston University, Mr. Perkins joined the Peace Corps, and went to Ecuador.
While in Ecuador, he met a man who was employed by MAIN (Chas T. Main, Incorporated). MAIN was a consulting firm whose primary task was to determine the ‘suitability’ of various countries for being granted loans from the World Bank for purposes of building hydroelectric dams, roads, and other similar projects designed to enhance a country’s infrastructure.
The man encouraged John Perkins to apply for work at MAIN after he finished his Peace Corps assignment. In the meantime, he asked John to write to him with respect to whatever was going on in Ecuador.
As a result, Mr. Perkins wrote 15, or so, relatively long responses concerning events in Ecuador. Later on, he was hired by MAIN.
He became an econometric analyst. His job was to generate economic forecasts concerning different countries that would serve as the basis for deciding whether, or not, MAIN should become involved in various engineering projects in those areas.
His first assignment was Java in Indonesia. He was informed that Java’s economy was about to explode, and his forthcoming economic forecast should reflect that ‘fact.’
He learned how to use statistics to construct whatever economic models that might be needed to serve the interests of MAIN or those for whom MAIN served as a consultant. In other words, part of his task was to develop economic reports and models for a country that would seem to justify making loans to that country ... policy positions that already had been determined prior to the generation of those reports or the construction of relevant models.
Consequently, the purpose of the foregoing reports and models was to ‘rationalize’ loaning money to certain countries so that the loans could, in turn, be paid to a variety of corporations (e.g., Haliburton, Bechtel, and others) to undertake massive infrastructure projects in those nations. The reports and models were part of an ingenious make-work scheme for western corporations in which countries – via MAIN – were induced to sign off on loans for hundreds of millions of dollars that, then, would be forwarded to different companies for services rendered for those countries ... irrespective of whether those services were actually capable of benefitting the people of the country that was going into debt in order to generate profits for western companies.
John Perkins’ job at MAIN had a second dimension to it. Once the aforementioned loans had been made to a given country, he was tasked with arranging things so that the debt could not be repaid and, instead, the country would be induced to go even deeper into debt.
When the amount of a country’s debt reached a certain level, that nation would be pressured into slashing spending on various social projects (such as education, health care, and welfare programs for the poor) – known as Structural Adjustment Programs -- in order to, at least, pay the interest on the loan. In addition, those countries would be maneuvered into selling off their natural resources and privatizing many aspects of community infrastructure (such as utilities, water, and transportation) in exchange for certain concessions with respect to their outstanding debt. Finally, those countries were forced to ‘free’ their banking system and currencies in a way that rendered their banks and currencies vulnerable to a systematic dismantling by foreign financiers and banking interests.
In short, Mr. Perkins job was to economically destroy countries for the benefit and profit of western corporations and governments. Everything began with the reports and models he generated that were intended to induce various western banks and so-called ‘leaders’ in different countries to believe that rosy economic times were just around the corner if certain sorts of infrastructure projects were initiated, but what was left unsaid, or hidden, in those reports and models was the fact that the only people for whom rosy economic times were really being forecast were western corporations ... including banks.
The ‘leaders’ of those targeted countries were manipulated in various ways – through money, sex, power, and threats – to take out massive loans on ‘behalf’ of the people who, then, would become responsible for paying back what had been borrowed on their ‘behalf.’ In other words, small segments from the ‘elite’ of a given country would be bought off in one way or another, while the generality of people would become the ones who -- through taxes, inflation, confiscated property, and slashed social services – had to bear the burden of subsidizing the life styles of western corporations and corrupt, or corrupted, ‘leaders.’
One of John Perkins predecessors in the foregoing sort of international intrigue and corporate manipulation was Kermit Roosevelt, grandson of Theodore Roosevelt. In 1951 Roosevelt – who, at the time, worked for the CIA -- helped to overthrow the democratically elected Iranian government of Mohammad Mossadegh and replace the latter individual with Mohammad Reza Pahlavi, the former Shah (or King) of Iran.
Roosevelt manipulated a variety of people in Iran -- through money, threats, and the allure of acquiring power – into staging violent riots and demonstrations in order to give the false impression that Mossadegh was unpopular with the Iranian people, as well as that he was a dysfunctional leader. Mossadegh was actually very popular with the vast majority of Iranians because he had nationalized the oil industry after his election to office, and this is the reason why the CIA decided to engage in regime change.
The same tactics have been used again and again in various parts of the world (e.g., Indonesia, Guatemala, Cuba, Vietnam, Nicaragua, Haiti, Chile, and Panama ... to name but a few). The work in which John Perkins became engaged for a time via MAIN was merely a more politically cosmeticized variation on the original template that had been introduced by Kermit Roosevelt in 1951.
In other words, rather than have the CIA directly take charge of projects that altered the economic and political environment of a country, ‘economists’ like John Perkins would be sent in to bring about the same sort of results through, seemingly, more innocuous means. After all, what could be wrong with helping countries to improve their infrastructure and, thereby, assist those nations to take their ‘rightful’ place at the world economic table? Unfortunately, as pointed earlier, the entire scenario was a scam intended to, on the one hand, benefit western corporations and banks, and on the other hand, plunder the resources of various countries at fire-sale prices while enslaving the populations of those countries for generations to come.
The World Bank and International Monetary Fund had become the staging grounds for planning one economic coup after another. People like John Perkins were the Special Forces’ officers who economically infiltrated countries and helped destroy those nations from within.
The CIA did not disappear from the foregoing sort of economic warfare. Their role merely changed in certain ways.
For example, if ‘leaders’ in a given country would not play along with the economic version of ‘Three Card Monte’ which had been devised by the World Bank (located in America and largely funded by the United States), those ‘leaders’ would be offered various incentives to get their head in the ‘game.’ Some of those incentives were pleasurable and beneficial, while others ended in death.
In the latter case, certain elements in the CIA became enforcers for the policies of the ‘economic mob.’ Mr. Perkins referred to them as ‘jackals.’
In passing, one might note that John Perkins speaks at some length in several of his books about how a ‘friend’ of his – Omar Torrijos – encountered a private, real-world version of the ‘Day of the Jackals.’ At the time, Torrijos was head of state in Panama and, among other things, he had been instrumental in getting the School of the Americas (a U.S. run school that had been located in Panama and which taught leaders and military officers from Central and South America how to oppress, terrorize, and control their own peoples) thrown out of Panama. Torrijos’ reward for opposing the interests of the United States in the region was to be eliminated by one, or more, jackals.
The foregoing gives expression to the real meaning of terms such as: “free markets,” competition, the invisible hand of the market, and efficiency. In other words the ‘economic mob’ for which John Perkins once worked busies itself with: rendering markets free for capital to exploit; eliminating all forms of competition (part of the process of making markets “free” for capital); being the invisible force that moves markets in directions that serve the interests of the economic mob, and efficiently generating profits for corporations and banks at the expense of local populations who are the ones who actually subsidize those companies.
After nearly fifty years, my memory is a little hazy on the matter. However, I don’t remember any of my undergraduate, economic professors discussing the foregoing kinds of activities when attempting to initiate me into the finer points of microeconomics or macroeconomics ... maybe something was lost in translation, or, perhaps, I just wasn’t paying sufficient attention to class discussions or the text materials.
The ‘economic mob’ – consisting of an amalgamation of corporations, banks, and the United States government – are ideological psychopaths. They don’t care who they hurt as long as they get what they want.
In best psychopathic fashion, the members of the aforementioned mob will use the flowery language of: freedom, development, democracy, progress, self-regulating markets, efficiency, leadership, and competition to give expression to the economic ‘miracle’ that is being created in country A, B, or C. Unfortunately, that language is only being used to camouflage the horror and tragedy of what is actually transpiring as the people of country after country are cruelly abused, exploited, manipulated, enslaved, and destroyed by a variety of ‘market forces.’
While the foregoing activities are couched in the language of the rule of law, the only rule that is being manifested is the ‘way of power.’ The people of America have been induced by representatives of the way of power – whether corporate or governmental -- to cede moral and intellectual agency to the progenitors of ideological psychopathy.
There is no way in which the activities of the ‘economic mob’ can be justified in a manner that, beyond a reasonable doubt, can be shown to be legitimate expressions of non-pathological forms of behavior. Unfortunately, all too many representatives of the executive, congressional, judicial, and state branches of government have sought to ‘educate’ Americans and, in the process, induce Americans to accept a delusional and Orwellian-like understanding concerning the nature of that behavior such that: ‘freedom’ becomes a synonym for oppression, and ‘manipulation’ is relabeled ‘the invisible hand of market forces’, and ‘efficiency’ is a euphemism for the destruction of the environment, people, and their sovereignty.
Here are some facts to consider. These facts are among the products of free market capitalistic economics.
The combined total of the financial/material wealth of 90 % of households in the United States is less than the wealth of the top 1 % of households. Furthermore, since the mid-1970s, all increases in household income have gone to the top 20 % of households.
If one probes the foregoing data a little more deeply, one learns that during the last 25 years, or so, there has been a tremendous shift in income levels. More specifically, in the early part of this century, the top one-tenth of one percent of taxpayers was collectively earning more income than were the bottom one-third income levels. Yet, approximately thirty years ago, that same bottom one-third was collectively earning twice as much income as was the top one-tenth of one percent of taxpayers.
Over the last fifty years, the productivity of workers in the United States increased by a little over 110 %. Nevertheless, during this same period of time, the average hourly wage went down by about 5 %, and, therefore, in part, increased productivity was subsidized by lower wages.
Thirty years ago, the CEOs of a variety of major corporations earned incomes that were about 45 times the size of non-executive, full-time workers. The foregoing wage rate differential rose to a factor of 140 times in the early 1990s, and, then a little over ten years later, the wages of CEOs were approximately 350 times greater than were the wages earned by most full-time employees in non-executive positions ... and over the last few years, the wages of CEOs has climbed to more than 430 times that of regular full-time workers.
During the 1980s, the average net worth of individuals who were on the Forbes 400 list was around $400 million dollars. In the first decade of the twenty-first century, the average net worth of those appearing on the Forbes 400 has climbed to nearly 3 billion dollars.
The average level of education achieved by workers over the last forty years has risen dramatically -- with more workers having acquired a high school education than ever before, and, as well, there has been a doubling of the number of working individuals who have at least four years of college/university under their belts. Yet, when adjustments for inflation are factored in, the hourly wage rate for workers has dropped by more than 10 per cent over the same period of time.
On average, women earn $ .24/hour less than men for doing the same work. Over a forty-year work life, this pay differential translates into approximately $450,000 for high school graduates, and the pay differential between men and women doubles to about $ 900,000 in relation to individuals who have a bachelor’s degree of some kind. Moreover, women with a professional degree are likely to earn about two million dollars less than their male counterparts during the course of their respective careers.
The differences are even starker when one factors in race. Nearly half way through the opening decade of the current century, the median household income for people of color was just under $25,000/year, while the median household income for whites was nearly six times higher ... and if one considers the plight of Indians (Native peoples) in particular, the discrepancies in average earnings are, on average, even worse.
Nearly 50 million people in the United States subsist at, or below, the poverty level. This includes millions of children.
Since the financial debacle of 2007-2008, millions of people have lost their homes and jobs. Homelessness and hunger are on the increase in the United States.
Companies that have higher percentages of women in their management groups tend to perform financially better than those companies that have lower percentages of women on their management teams. Nonetheless, 95% of the top salary earners at the largest 500 corporations in the United States are men.
More and more, corporations are shedding full-time employees and replacing them with part-time workers. Many of these: contract, leased, and temporary workers are required to take cuts in pay, benefits, and health care.
In addition, many corporations are increasingly shifting their operations to other countries where: labor is cheaper; benefits are non-existent; health and safety standards are lax or not enforced at all; taxes are low, and there are few, if any, environmental regulatory laws. Americans either lose their jobs and are told that the business environment in America must become more competitive – which is code for the idea that the United States must become just like any number of third-world countries when it comes to wages, benefits, taxes, regulatory restraints, and so on.
What if the tables were turned? What if corporations were told that they have to be far more competitive with respect to issues of: wages, benefits, safety conditions, environmental issues, and paying their fair share of taxes or else their products will not be permitted to be sold in the United States?
Those companies would likely be screaming about unfair restraint of trade. However, what about unfair restraint of sovereignty with respect to the vast majority of people in America? ... a form of restraint that is the direct result of corporate activity.
The advocates of free market capitalism would have us believe that all of the foregoing statistics reflect: the superiority of whites over other races, or the superiority of men relative to women, or the superiority of CEOs compared to average workers, or the superiority of the rich over the poor, or the superiority of free market enterprise compared to other economic system. However, notwithstanding that kind of braggadocio and self-promotion, the foregoing differences actually reflect a system that is rigged to favor: Men over women, whites over people of color, executives over non-executives, and the rich over the poor.
The foregoing differences are not a testament to the wealth-producing capacity of free market capitalism. Those differences are a testament to the way in which free market capitalism exploits women, workers, people of color, and the poor to subsidize the life-style of – for the most part -- rich, white, males.
Certain rich, white males are becoming increasingly wealthy because increasing numbers of women, workers, and people of color are becoming increasingly poorer. Money is increasingly being siphoned from the less well-off and channeled into the lives of the more well-off.
Governments – both at the federal and state levels – as well as many courts and the media are increasingly serving the interests of corporations. Those corporations need government, the courts, and the media to arrange things in a favorable manner for the corporations because otherwise everyone would soon learn that free market capitalism does not work ... in other words, to whatever extent so-called free market capitalism succeeds, this is because of the assistance it receives from productive workers, government subsidies, and coddling from the judicial system.
Under the right set of circumstances – ones rooted in the idea of sovereignty -- commercial enterprise can work to the benefit of everyone. However, commercial enterprise is not capitalism.
Free market capitalism is a theoretical fiction with no proven track record. In fact, as the foregoing statistics point out, the terminal equilibrium point of free market capitalism always tends toward dividing society into those, on the one hand, who have and, on the other hand, those who have far less or nothing at all.
Corporations don’t want the government and the courts to regulate corporate behavior and interfere with their capacity to generate profits at the expense of the generality of the people and the environment. From their perspective, that kind of regulation constitutes interference with the process of free market capitalism.
In best hypocritical fashion, however, corporations do want government and the courts to regulate: subsidies, tax codes, mergers, investments, safety conditions, environmental pollution, and minimum wages in a manner that favors corporate interests. Of course, the latter sorts of regulatory activities are not considered to be interference by corporations but, rather, are merely fulfilling the “necessary and proper” function of the commerce clause.
When free market capitalism controls issues of sovereignty, one gets the foregoing sorts of statistics ... and many others that are just as discriminatory, offensive, and oppressive. The Preamble to the Philadelphia Constitution alludes to the promise of sovereignty shaping economics (instead of economics controlling sovereignty), and when understood in this fashion, the ‘commerce clause’ becomes a matter of regulating economic activity in a way that establishes, protects, and enhances the sovereignty of ‘We the People’ as measured by qualitative indices such as: justice, tranquility, the common defense, general welfare, and liberty rather than through the sort of quantitative indices which show how the rich are growing richer and everyone else is sliding into an economic abyss.
One of the sacred principles of free market capitalism is the idea of ‘property.’ However, the issue of ‘property’ has a very problematic history.
If we restrict ourselves to just the United States, the nature of the problem becomes quite apparent fairly quickly. For instance, long before the Pilgrims allegedly landed at Plymouth Rock, the East India Company was busy claiming land in America on behalf of English royalty -- just as land in various other parts of the ‘New World’ was being claimed on behalf of France, Spain, and Holland.
The land being claimed didn’t belong to the ones doing the claiming. Nevertheless, they proceeded to claim it anyway.
There was no argument which the English, French, Spanish, or Dutch could put forth that was capable of demonstrating, beyond a reasonable doubt, that their property claims were justified. They did what they did because no one stopped them from doing so.
Possession might constitute nine-tens of the law in England, France, Spain, and Holland, but the existence of that sort of a legal idea doesn’t necessarily translate into a defensible right – one that can be established beyond all reasonable doubt. Of course, through the use of power and violence, those countries sought to enforce their arbitrary claims, however, might doesn’t necessarily make a given action ‘right’ ... although might does often constitute an effective form of control with respect to those claims.
The East India Company didn’t have any right to claim land for England that could be proven in a non-arbitrary manner -- that is, in a way that was evidentially independent of the mere act of making such a claim. Moreover, the East India Company didn’t have a non-arbitrarily determined right to cede property/land to the Jamestown Company.
Similarly, the French didn’t have a non-arbitrarily determined right to sell its non-arbitrarily determined possession of ‘Louisiana’ lands, and the United States didn’t have a non-arbitrarily determined right to make such a purchase. Moreover, the United States didn’t have a non-arbitrarily determined right to take vast tracts of land (encompassing the current states of: Nevada, Colorado, California, Utah, New Mexico, most of Arizona, as well as portions of the present states of: Oklahoma, Wyoming, Kansas, and Texas) from the Mexicans for nearly 19 million dollars at the conclusion of a trumped-up war. Nor did the Russians have a non-arbitrarily determined right to sell Alaska to the United States, any more than Secretary of State William Seward had a non-arbitrarily determined right to buy his ‘folly.’
Abraham Lincoln didn’t have a non-arbitrarily determined right to cede land to the railroads. Moreover, Lincoln didn’t have a non-arbitrarily determined right to cede land to people via the Homestead Act of 1862.
Many Jewish people referred to the formation of Israel as being a matter of bringing together, on the one hand, a people without a land (i.e., the Jewish people), and, on the other hand, a land without a people (i.e., Palestine). However, as I.F. Stone observed not too long before his death -- and he was someone who initially supported the idea of Israel but later came to have concerns about the morality of what had transpired -- Palestine was never a land without a people.
In like fashion, the lands being claimed by the East India Company and called Virginia, or the 828,000 acres sold by the French to Jefferson, or the millions of acres finagled away from the Mexicans by the United States, or the lands purchased by Seward, on behalf of America, from the Russians, were not empty of people ... people who had lived on those lands long before the Europeans arrived. Of course, the fact various Indian nations occupied different parts of the land that came to be known as the ‘New World, doesn’t necessarily mean that the lands in questions belonged to the Indian peoples either.
To whom, if anyone, do the lands, waters, and resources of the world belong? No one has been able to answer this question in a non-arbitrarily determined fashion.
Everyone has pointed to sales, treaties, histories, contracts, deeds, eminent domain, and so on in an attempt to justify their claims to this or that portion of the Earth. All of those claims have a suspect pedigree.
Like the principle of the ‘chain of custody’ concerning evidence which requires the integrity of that chain to be preserved and capable of being demonstrated at every point of transition along the path from crime to courtroom, so too, one must be able to establish the integrity of ownership when it comes to matters of land and resources. However, the legitimacy of all claims concerning land and resources are obscured by everyone’s inability to establish that the evidential and moral basis on which any initial or original claims concerning land and resources can be demonstrated, beyond a reasonable doubt, to an array of people who have no vested interests in such claims.
The law of ignorance indicates that we don’t know -- in any fashion that can be demonstrated beyond a reasonable doubt – to whom, if any one, the lands, waters, or resources of the Earth belong. In essence, the idea that the world belongs to no one seems less arbitrary than does the idea that the world belongs to particular individuals, nations, or corporations since the latter claims are all a function of arguments of dubious validity, whereas the former contention – i.e., that the world belongs to no one – is consistent with what we can prove concerning the ultimate nature of Being or is consistent with what can be demonstrated, beyond a reasonable doubt, with respect to the relationship of human beings and Being ... which is nothing at all.
Free market capitalism wishes to make everything a function of markets, prices, costs, efficiency, capital, equilibrium conditions, productivity, wealth, competition, profit margins, rational utility functions, and the like. However, free market capitalism has never demonstrated beyond a reasonable doubt that its way of parsing reality is correct – especially when it comes to the issue of determining who, if anyone, has a non-arbitrarily determined right to reduce the world and its resources down to parcels of property or packages of resources which benefit the few, while enslaving and impoverishing the many, as well as destroying the Earth itself.