When it was released, David Halberstam said the The Reckoning was his most ambitious of the trilogy on American power; the earlier two were on politics and the media.
Halberstam described why he wrote the book. “One day I was on a book tour and I kept noticing that Chrysler was almost gone, Ford was in trouble, all those great American companies were (gone). ... The Japanese were taking cars, which was an American signature, and doing better at them. I didn't see it as a business story. I saw it as a social cultural story."
In economist John Kenneth Galbraith's New York Times 1986 review of the book, he said the result of Detroit’s downfall is that "life for most Americans (is) bound to become leaner. But in the middle of 1986, there seems to be little awareness of this, let alone concern about it."
Indeed, that was Halberstam's gloomy conclusion of The Reckoning. He wrote: "No country, including America, was likely ever to be as rich as America had been from 1945 to 1975, and other nations were following the Japanese into middle-class existence, which meant that life for most Americans was bound to become leaner. But in the middle of 1986, there seemed little awareness of this, let alone concern about it. Few were discussing how best to adjust the nation to an age of somewhat diminished expectations, or how to marshal its abundant resources for survival in a harsh, unforgiving new world, or how to spread the inevitable sacrifices equitably."
Amen. And the review on Associated Content of April 17 said: “Although The Reckoning is a 20-year-old book, its message has never been truer than it is now as America's once leading automobile industry is heading for deep decline. In my opinion, Halberstam's book should be retitled The Warning. By the time this book was published in 1986, the United States had already gone through two devastating energy crises orchestrated by OPEC. While Ford Motor had experienced some success with its energy-conscious Ford Taurus, the production emphasis was still on gas-guzzling trucks and luxury vehicles. While praising Nissan and other Japanese car companies' business model of affordability, fuel economy and quality control, [Halberstam] doesn't completely let them off the hook in his description of Nissan's union strife in the Fifties.
“In the meantime, in 2007, the price of gasoline is over $3 a gallon, the Iranians are once again threatening the Straits of Hormuz, Ford has laid off thousands of workers, Toyota is now the world's second largest carmaker,” the column written April 17 concluded.
Make that gasoline that could hit $4 gallon and, as of this morning, Toyota is the world’s No. 1 automaker.
What 99% of the people out there, including the politicians (who constantly yammer about "the American Dream". as if they even know or care about what that is) don't understand, is that the 30 year ascendancy of American economic hegemony was a complete anomaly - an accident, if you will, just like Spruance winning the Battle of Midway.
Think about it - from 1948 to 1978, the US workforce was flooded with new college graduates (thanks to the G.I. Bill) and worldly war veteran high school graduates, moving into a newly dynamic industrial base, that grew faster than Guth's inflationary universe... with abundant negative consequences. By the '70's (which I remember ALL to well), Kodak had "workers" napping in film rooms, G.E. had engineers and such (not executives) on the local golf course, and the American work force had become a hyper-bloated warthog from hell by 1978. Change that nibbled on the edges came in the '80's and 90's, but now the same worthless gang of idiots is running GM/Ford/Chrysler, et al, making cars nobody wants or needs, thinking that more (not better) marketing and adding gadgets will boost sales of inferior products. And now they have their collective hands out for guvmint money.
Well, I say - "Fu*k 'Em!
We (the US) are in the middle of an economic transformation the likes of which we haven't seen since the steam engine. Yes, people will be thrown out of work - for a while. Yes, companies will be in receivership, in order to re-organize - for a while. But the transformation will come, no matter what manner of backward, insane, neo-socialist, buggy-whip making stupidity the guvmint tries to inflict, And if the guvmint doesn't midwife this transformation, it will be stripped down against it's will too. We are moving, albeit slowly, into a new economic paradigm, in which KNOWLEDGE, will supersede information as the controlling factor - this means jobs will be discarded and replaced with new types of jobs, manufacturing will shift from human-based to machine-based labor, hell, even the very definiton of what a damn job IS will change. The end of the "job", if you will, is coming, and nothing can be done to stop it..
The end of the "job" as a way of organizing work, it is a social artifact that has outlived its usefulness. Its demise confronts everyone with unfamiliar risks -- and rich opportunities.
Each day's newspaper and blog carries another story of new job losses. We hear the recession has been in effect for quite a while. The coming Obama Administration is trying convince you that they can create jobs, but critics claim some of its new taxes and regulations will destroy jobs. We are told the only way to protect our jobs is to increase our productivity, but then we discover that business process re-engineering, using self-managed teams, flattening our organizations, and turning routine work over to computers always make many jobs redundant. We used to read predictions that by 2000 everyone would work 30-hour weeks, and the rest would be leisure. But as we approach 2010 it seems more likely that half of us will be working 60-hour weeks and the rest of us will be unemployed. What's wrong? It is not that the President or his critics don't care what happens to us, or that organizations that asked for our loyalty and grew because of our efforts have double-crossed us. The fault does not lie even with that dread monster overseas competition, which has been blamed for everything from unemployment to falling living standards. It's a shame these things are not the culprits, for if they were our task would be simpler.
The reality we face is much more troubling, for what is disappearing is not just a certain number of jobs -- or jobs in certain industries or jobs in some part of the country or even jobs in America as a whole. What is disappearing is the very thing itself: the job. That much sought after, much maligned social entity, a job, is vanishing like a species that has outlived its evolutionary time. A century from now Americans will look back and marvel that we couldn't see more clearly what was happening.
The job is an idea that emerged early in the 19th century to package the work that needed doing in the growing factories and bureaucracies of the industrializing nations. Before people had jobs, they worked just as hard but on shifting clusters of tasks, in a variety of locations, on a schedule set by the sun and the weather and the needs of the day. The modern job was a startling new idea -- and to many, an unpleasant and perhaps socially dangerous one. Critics claimed it was an unnatural and even inhuman way to work. They believed most people wouldn't be able to live with its demands. It is ironic that what started as a controversial concept ended up becoming the ultimate orthodoxy -- and that we're hooked on jobs. Now the world of work is changing again: The conditions that created jobs 200 years ago -- mass production and the large organization -- are disappearing. Technology enables us to automate the production line, where all those job holders used to do their repetitive tasks. Instead of long production runs where the same thing has to be done again and again, we are increasingly customizing production. Big firms, where most of the good jobs used to be, are unbundling activities and farming them out to little firms, which have created or taken over profitable niches. Public services are starting to be privatized, and government bureaucracy, the ultimate bastion of job security, is being thinned. With the disappearance of the conditions that created jobs, we are losing the need to package work in that way. No wonder jobs are disappearing.
"People get ready - There's a change a-comin'"
more on this rant to come....
Tuesday, November 18, 2008
Thursday, November 13, 2008
GM "bailout" and the buggy whip syndrome...
Good God, what year is it? 1908?
GM is peddling fast to make a comeback from the brink of extinction. In the case of the auto manufacturer, the problem hasn’t necessarily been superior foreign competition. GM has been struggling out from under the weight of a “buggy-whip maker” syndrome, a syndrome that GM itself participated in at the turn of the century, when the auto industry began to displace entrenched, horse-drawn craft. When your product, no matter how good,is no longer found to be useful, it’s time to get off the track before the innovative express flattens you. If you’re a buggy-whip maker, you can have a legendary history (GM does) and a line of products unsurpassed by others (GM does), but excellence isn’t going to save car dealers.
You might have expected that the company that invented heavy-duty manufacturing and decentralized financial management, would have been faster to rethink,retool, and reinvent itself, but progress has been slow and more painful than expected. You can now choose from among a line of GM cars and trucks, with a few "experimental" flex fuel trinkets thrown in as an afterthought, OR choose a more robust car from Honda or Toyota (and others on the way) that offers the same (or better quality) for less cash, and straight-up H2 or electric vehicles already in the pipeline.
There already IS a bailout system in this country - it's called Chapter 11 bankruptcy. GM won't go away, and a draconian purge of the current (mis) management team wil be the kind of caustic medicine needed to kick the alternative energy revolution in the ass... and serve notice to the other automakers. Tom Friedman has got this right in his NYT op-ed: the Wall Street Journal said on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.
“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”
I would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.
Let 'em die on the vine, then rise from the ashes.
GM is peddling fast to make a comeback from the brink of extinction. In the case of the auto manufacturer, the problem hasn’t necessarily been superior foreign competition. GM has been struggling out from under the weight of a “buggy-whip maker” syndrome, a syndrome that GM itself participated in at the turn of the century, when the auto industry began to displace entrenched, horse-drawn craft. When your product, no matter how good,is no longer found to be useful, it’s time to get off the track before the innovative express flattens you. If you’re a buggy-whip maker, you can have a legendary history (GM does) and a line of products unsurpassed by others (GM does), but excellence isn’t going to save car dealers.
You might have expected that the company that invented heavy-duty manufacturing and decentralized financial management, would have been faster to rethink,retool, and reinvent itself, but progress has been slow and more painful than expected. You can now choose from among a line of GM cars and trucks, with a few "experimental" flex fuel trinkets thrown in as an afterthought, OR choose a more robust car from Honda or Toyota (and others on the way) that offers the same (or better quality) for less cash, and straight-up H2 or electric vehicles already in the pipeline.
There already IS a bailout system in this country - it's called Chapter 11 bankruptcy. GM won't go away, and a draconian purge of the current (mis) management team wil be the kind of caustic medicine needed to kick the alternative energy revolution in the ass... and serve notice to the other automakers. Tom Friedman has got this right in his NYT op-ed: the Wall Street Journal said on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.
“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”
I would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.
Let 'em die on the vine, then rise from the ashes.
Saturday, October 18, 2008
Marx a la Redux
Nearly forgot this gem - a review of the demands contained in the Communist Manifesto - under the email heading "Any of this look familiar?"
Taken from the online version of "The Communist Manifesto" at http://www.gutenberg.org/etext/61
10 Planks of the Communist Manifesto
1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all right of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.
6. Centralization of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability of all to labor. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equable distribution of the population over the country.
10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, &c., &c.[5]
Pass the pitchfork yet?
russell
Taken from the online version of "The Communist Manifesto" at http://www.gutenberg.org/etext/61
10 Planks of the Communist Manifesto
1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all right of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.
6. Centralization of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability of all to labor. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equable distribution of the population over the country.
10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, &c., &c.[5]
Pass the pitchfork yet?
russell
There's been a lotta crap lately....
...about the latest financial "crisis" - apparently nobody can remember back to 1987 or (God help you) 1975. These are both years I remember quite well, because they both had economic implosions, and the same, dog-tired, old, retread crap that one hears now in the dinosaur media was bleated back then. "Financial meltdown, the end of capitalism, etc., etc. It's all CRAP!
In capitalism. markets are SUPPOSED TO FAIL - from time to time. That's how the system flushes out the suckers, but since no one from Ben Stein to Lou Dobbs seems to get this, here is a re-cap of my weeks e-mailings on this matter -
"OK OK OK!
Everybody just calm down!
Jim sent out an interesting powerpoint on the current, so-called "crisis"... sorry Jim, but that thing engaged in FAR too much "Republicans Good" - "Democrats Bad" nonsense. There is enough blame to go around here, but I am sick and tired of this stupid "teamism" going around... You all know me, and by that knot, you know that I HATE all politicians - they are all gangsters and pirates and all need to be dumped in the drink. So there. Now, after sitting down and reading all I could get my hands on, from all sides of the question, here is my take on what really has happened - no blame game, no third grade recess "teacher, he's touching me again" baby talk!
Read it a and weep -
The government, wall st., and everyday average citizens wanted more people to buy and own houses. Instead of traditional loan procedures like good credit, jobs, income level, collateral, and 10-20 percent downpayments, ALL of the above mentioned people thought it would be a good idea to sell loans to people with a good interest rate and low downpayment, when these people couldn't afford it, had bad credit or no credit, little to no collateral, and maybe even no job. These people, obviously, began to default on these loans because as you can imagine, they could not afford it in the first place. Now, again, the blame lies EVERYWHERE. From Wall St. to the Clinton presidency to the Bush presidency to everyday people like you and me. Everyone thought, for some reason that this would, in the end, be a good plan to increase home sales and ownership.
Now, if you don't know anything about economics, read the following closely - contact me if you have questions. Read on..
These loans were then used to back or leverage other deals and transactions, thinking that the interest/payments paid on these loans would more than pay for any other transactions made. These transactions were "mortgage backed" transactions. When people started missing their payments, all of the sudden these "mortgage backed" transactions were not funded any longer. This drove the value of these mortgages as investment tools down to almost nothing. No one would buy them, no one would sell them- which equals death in the market. They became what people call "toxic" or unable to move at all either buying or selling, they are worthless. These investment houses and banks owned so much of these mortgage backed expenses that it absolutely overwhelmed them. It would be like if you owned a business that sold furniture. All of the sudden the furniture was worthless, but you still owed your creditors, the utilities, the rent on your store, and could not pay them because your inventory was worthless. You would go out of business. That is a weak example, because it doesn't take so many things into consideration, but you get the idea.
However, there are real houses out there that are certainly "worth" something, AS LONG AS THERE ARE PEOPLE IN THEM MAKING PAYMENTS ON THEIR MORTGAGES.. That is the government's "bail out" plan. To infuse enough money back into these "toxic" assets in order to get them trading again, and to get people back in them that will pay their mortgages fully and on time. Then, in the near future, these assets will no longer be "toxic" because this money infusion goal is to get people back in them paying their mortgages, which in turn will hopefully make them EXTREMELY valuable, and maybe even make the government 7-10% in gains over the next few years.
Now to Part 2 of this mess -
All of this also leans into the credit market, especially the overnight lending which usually occurs between banks to keep loans/etc. afloat. This has virtually stopped. I heard yesterday that if you want a car loan, unless you have at least a 720 credit score, you will 100% not get one. Loans for businesses & banks to stay active, trading and working is crucial. So this is the "credit crisis". Banks are hoarding cash and not lending it to ANYONE without the most pristine credit. So this adds to the already terrible problem. So much more but I have not the time to explain it all.
SO, the big question is, will all of this work? Let's all hope so, because there are seemingly no other options on the table. Whether you agree with Democrats or Republicans, it doesn't really matter in this case. We will ALL come down if this doesn't work. Oversight, Oversight Oversight on the money is needed. Brilliant people need to be in charge, and like I said, politics must take a back seat. Paulson, by all accounts, and from EVERYONE I know and have heard, is a brilliant man. Whether this power corrupts him is yet to be seen but I am sure he has the best intentions.
One more note - it would cost the government (that's you and me people), depending on which set of numbers you vet, 144 to 202 billion dollars to just BUY THE TOXIC PAPER OUTRIGHT! Now, I'm no socialist, but it seems to me that the guvmint is giving this money to the wrong people, 'cuz if the bad mortgages are PAID, everyone makes out. Then the FHA/VHA/whatever, can re-issue a, let's call it a certificate, to the current home squatter that is the equivalent to a 99 year mortgage, or the occupant has the option to be evicted. Either way, it would go a long way to solving this w/o giving away a trillion bucks or more.
'nuff said
russell"
Eve Jagger wrote:
> Russ
> That was a helpful explanation for people like myself. Makes much more sense now. What do you predict is going to happen these next few months and how will this affect average americans?
Eve-
If this is managed correctly - and I have absolutely no faith that it will be - forget about getting ANY kind of loan for ANYTHING for 18 - 38 months. The guvmint needs to set up a resolution trust entity to buy up the toxic paper then, as I said previous -"BUY THE TOXIC PAPER OUTRIGHT! Now, I'm no socialist, but it seems to me that the guvmint is giving this money to the wrong people, 'cuz if the bad mortgages are PAID, everyone makes out. Then the FHA/VHA/whatever, can re-issue a, let's call it a certificate, to the current home squatter that is the equivalent to a 99 year mortgage, or the occupant has the option to be evicted."
At this point the toxic paper can be liquidated at a static rate, or the guvmint (IE, taxpayers) will eventually make money on the deal - but his will take TIME. The spillover is going to get worse, but not catastrophic - yet. I quote myself yet again -"leans into the credit market, especially the overnight lending which usually occurs between banks to keep loans/etc. afloat. This has virtually stopped. I heard yesterday that if you want a car loan, unless you have at least a 720 credit score, you will 100% not get one. Loans for businesses & banks to stay active, trading and working is crucial. So this is the "credit crisis". Banks are hoarding cash and not lending it to ANYONE without the most pristine credit. So this adds to the already terrible problem". So hang on to your car for a while, and rent... don't even attempt a mortgage for the time I specified.
Check the following :
http://en.wikipedia.org/wiki/Mortgage_securities
AND
http://en.wikipedia.org/wiki/Credit_derivative#Types
The S*** will hit the fan when the guvmint bailout fails, (and it will fail -see my statement of non-faith, above) and Congress will or can no longer fund this illegal give away of our money. Then the finance houses will HAVE to declare bankruptcy, and during the due diligence and discovery process of the proceeding, we find out that credit derivative investments (mostly unfunded paper) have a real world value of about 2 - 5% of their book value.
Then it will be "Pass the pitchfork, comrade"...
Learn survival skills from Kieth, and hang on.
russell
Donna Williams sent me an email on McCain's proposal to renegotiate bad mortgages - I replied -
Donna-
Yeah, I caught that last night too -- it is exactly what I recommended in an email exchange with some of my people about 3 weeks ago - I am quoting my favorite economist... ME! Read on -
" However, there are real houses out there that are certainly "worth" something, AS LONG AS THERE ARE PEOPLE IN THEM MAKING PAYMENTS ON THEIR MORTGAGES.. That is the government's "bail out" plan. To infuse enough money back into these "toxic" assets in order to get them trading again, and to get people back in them that will pay their mortgages fully and on time. Then, in the near future, these assets will no longer be "toxic" because this money infusion goal is to get people back in them paying their mortgages, which in turn will hopefully make them EXTREMELY valuable, and maybe even make the government 7-10% in gains over the next few years."
" If this is managed correctly - and I have absolutely no faith that it will be - forget about getting ANY kind of loan for ANYTHING for 18 - 38 months. The guvmint needs to set up a resolution trust entity to buy up the toxic paper then, as I said previous" (emphasizing my own genius)
"One more note - it would cost the government (that's you and me people), depending on which set of numbers you vet, 144 to 202 billion dollars to just BUY THE TOXIC PAPER OUTRIGHT! Now, I'm no socialist, but it seems to me that the guvmint is giving this money to the wrong people, 'cuz if the bad mortgages are PAID, everyone makes out. Then the FHA/VHA/whatever, can re-issue a, let's call it a certificate, to the current home squatter that is the equivalent to a 99 year mortgage, or the occupant has the option to be evicted. Either way, it would go a long way to solving this w/o giving away a trillion bucks or more."
But Donna, it will never be done - this has been in the planning, not by some global conspiracy, but by like-minded elitists, for decades now. And now the actions is being takes to destroy, first the US economy, then the rest of the world. Depressing isn't it? And there is nothing that can be done about it, short of... well nothing really. It's all part of the plan my dear...
'nuff said
russell
I concluded the week quoting from George Orwell's 1984 -
Sad song, sad song =
"After the revolutionary period of the fifties and sixties, society regrouped itself, as always, into High, Middle, and Low. But the new High group, unlike all its forerunners, did not act upon instinct but knew what was needed to safeguard its position. It had long been realized that the only secure basis for oligarchy is collectivism. Wealth and privilege are most easily defended when they are possessed jointly. The so-called 'abolition of private property' which took place in the middle years of the century meant, in effect, the concentration of property in far fewer hands than before: but with this difference, that the new owners were a group instead of a mass of individuals. Individually, no member of the Party owns anything, except petty personal belongings. Collectively, the Party owns everything in Oceania, because it controls everything, and disposes of the products as it thinks fit. In the years following the Revolution it was able to step into this commanding position almost unopposed, because the whole process was represented as an act of collectivization. It had always been assumed that if the capitalist class were expropriated, Socialism must follow: and unquestionably the capitalists had been expropriated. Factories, mines, land, houses, transport -- everything had been taken away from them: and since these things were no longer private property, it followed that they must be public property. Ingsoc, which grew out of the earlier Socialist movement and inherited its phraseology, has in fact carried out the main item in the Socialist programme; with the result, foreseen and intended beforehand, that economic inequality has been made permanent."
THE THEORY AND PRACTICE OF OLIGARCHICAL COLLECTIVISM
by Emmanuel Goldstein
(The 'Book within a Book' from George Orwell's Nineteen Eighty-Four)
passer la fourche camarade -
russell
In capitalism. markets are SUPPOSED TO FAIL - from time to time. That's how the system flushes out the suckers, but since no one from Ben Stein to Lou Dobbs seems to get this, here is a re-cap of my weeks e-mailings on this matter -
"OK OK OK!
Everybody just calm down!
Jim sent out an interesting powerpoint on the current, so-called "crisis"... sorry Jim, but that thing engaged in FAR too much "Republicans Good" - "Democrats Bad" nonsense. There is enough blame to go around here, but I am sick and tired of this stupid "teamism" going around... You all know me, and by that knot, you know that I HATE all politicians - they are all gangsters and pirates and all need to be dumped in the drink. So there. Now, after sitting down and reading all I could get my hands on, from all sides of the question, here is my take on what really has happened - no blame game, no third grade recess "teacher, he's touching me again" baby talk!
Read it a and weep -
The government, wall st., and everyday average citizens wanted more people to buy and own houses. Instead of traditional loan procedures like good credit, jobs, income level, collateral, and 10-20 percent downpayments, ALL of the above mentioned people thought it would be a good idea to sell loans to people with a good interest rate and low downpayment, when these people couldn't afford it, had bad credit or no credit, little to no collateral, and maybe even no job. These people, obviously, began to default on these loans because as you can imagine, they could not afford it in the first place. Now, again, the blame lies EVERYWHERE. From Wall St. to the Clinton presidency to the Bush presidency to everyday people like you and me. Everyone thought, for some reason that this would, in the end, be a good plan to increase home sales and ownership.
Now, if you don't know anything about economics, read the following closely - contact me if you have questions. Read on..
These loans were then used to back or leverage other deals and transactions, thinking that the interest/payments paid on these loans would more than pay for any other transactions made. These transactions were "mortgage backed" transactions. When people started missing their payments, all of the sudden these "mortgage backed" transactions were not funded any longer. This drove the value of these mortgages as investment tools down to almost nothing. No one would buy them, no one would sell them- which equals death in the market. They became what people call "toxic" or unable to move at all either buying or selling, they are worthless. These investment houses and banks owned so much of these mortgage backed expenses that it absolutely overwhelmed them. It would be like if you owned a business that sold furniture. All of the sudden the furniture was worthless, but you still owed your creditors, the utilities, the rent on your store, and could not pay them because your inventory was worthless. You would go out of business. That is a weak example, because it doesn't take so many things into consideration, but you get the idea.
However, there are real houses out there that are certainly "worth" something, AS LONG AS THERE ARE PEOPLE IN THEM MAKING PAYMENTS ON THEIR MORTGAGES.. That is the government's "bail out" plan. To infuse enough money back into these "toxic" assets in order to get them trading again, and to get people back in them that will pay their mortgages fully and on time. Then, in the near future, these assets will no longer be "toxic" because this money infusion goal is to get people back in them paying their mortgages, which in turn will hopefully make them EXTREMELY valuable, and maybe even make the government 7-10% in gains over the next few years.
Now to Part 2 of this mess -
All of this also leans into the credit market, especially the overnight lending which usually occurs between banks to keep loans/etc. afloat. This has virtually stopped. I heard yesterday that if you want a car loan, unless you have at least a 720 credit score, you will 100% not get one. Loans for businesses & banks to stay active, trading and working is crucial. So this is the "credit crisis". Banks are hoarding cash and not lending it to ANYONE without the most pristine credit. So this adds to the already terrible problem. So much more but I have not the time to explain it all.
SO, the big question is, will all of this work? Let's all hope so, because there are seemingly no other options on the table. Whether you agree with Democrats or Republicans, it doesn't really matter in this case. We will ALL come down if this doesn't work. Oversight, Oversight Oversight on the money is needed. Brilliant people need to be in charge, and like I said, politics must take a back seat. Paulson, by all accounts, and from EVERYONE I know and have heard, is a brilliant man. Whether this power corrupts him is yet to be seen but I am sure he has the best intentions.
One more note - it would cost the government (that's you and me people), depending on which set of numbers you vet, 144 to 202 billion dollars to just BUY THE TOXIC PAPER OUTRIGHT! Now, I'm no socialist, but it seems to me that the guvmint is giving this money to the wrong people, 'cuz if the bad mortgages are PAID, everyone makes out. Then the FHA/VHA/whatever, can re-issue a, let's call it a certificate, to the current home squatter that is the equivalent to a 99 year mortgage, or the occupant has the option to be evicted. Either way, it would go a long way to solving this w/o giving away a trillion bucks or more.
'nuff said
russell"
Eve Jagger wrote:
> Russ
> That was a helpful explanation for people like myself. Makes much more sense now. What do you predict is going to happen these next few months and how will this affect average americans?
Eve-
If this is managed correctly - and I have absolutely no faith that it will be - forget about getting ANY kind of loan for ANYTHING for 18 - 38 months. The guvmint needs to set up a resolution trust entity to buy up the toxic paper then, as I said previous -"BUY THE TOXIC PAPER OUTRIGHT! Now, I'm no socialist, but it seems to me that the guvmint is giving this money to the wrong people, 'cuz if the bad mortgages are PAID, everyone makes out. Then the FHA/VHA/whatever, can re-issue a, let's call it a certificate, to the current home squatter that is the equivalent to a 99 year mortgage, or the occupant has the option to be evicted."
At this point the toxic paper can be liquidated at a static rate, or the guvmint (IE, taxpayers) will eventually make money on the deal - but his will take TIME. The spillover is going to get worse, but not catastrophic - yet. I quote myself yet again -"leans into the credit market, especially the overnight lending which usually occurs between banks to keep loans/etc. afloat. This has virtually stopped. I heard yesterday that if you want a car loan, unless you have at least a 720 credit score, you will 100% not get one. Loans for businesses & banks to stay active, trading and working is crucial. So this is the "credit crisis". Banks are hoarding cash and not lending it to ANYONE without the most pristine credit. So this adds to the already terrible problem". So hang on to your car for a while, and rent... don't even attempt a mortgage for the time I specified.
Check the following :
http://en.wikipedia.org/wiki/Mortgage_securities
AND
http://en.wikipedia.org/wiki/Credit_derivative#Types
The S*** will hit the fan when the guvmint bailout fails, (and it will fail -see my statement of non-faith, above) and Congress will or can no longer fund this illegal give away of our money. Then the finance houses will HAVE to declare bankruptcy, and during the due diligence and discovery process of the proceeding, we find out that credit derivative investments (mostly unfunded paper) have a real world value of about 2 - 5% of their book value.
Then it will be "Pass the pitchfork, comrade"...
Learn survival skills from Kieth, and hang on.
russell
Donna Williams sent me an email on McCain's proposal to renegotiate bad mortgages - I replied -
Donna-
Yeah, I caught that last night too -- it is exactly what I recommended in an email exchange with some of my people about 3 weeks ago - I am quoting my favorite economist... ME! Read on -
" However, there are real houses out there that are certainly "worth" something, AS LONG AS THERE ARE PEOPLE IN THEM MAKING PAYMENTS ON THEIR MORTGAGES.. That is the government's "bail out" plan. To infuse enough money back into these "toxic" assets in order to get them trading again, and to get people back in them that will pay their mortgages fully and on time. Then, in the near future, these assets will no longer be "toxic" because this money infusion goal is to get people back in them paying their mortgages, which in turn will hopefully make them EXTREMELY valuable, and maybe even make the government 7-10% in gains over the next few years."
" If this is managed correctly - and I have absolutely no faith that it will be - forget about getting ANY kind of loan for ANYTHING for 18 - 38 months. The guvmint needs to set up a resolution trust entity to buy up the toxic paper then, as I said previous" (emphasizing my own genius)
"One more note - it would cost the government (that's you and me people), depending on which set of numbers you vet, 144 to 202 billion dollars to just BUY THE TOXIC PAPER OUTRIGHT! Now, I'm no socialist, but it seems to me that the guvmint is giving this money to the wrong people, 'cuz if the bad mortgages are PAID, everyone makes out. Then the FHA/VHA/whatever, can re-issue a, let's call it a certificate, to the current home squatter that is the equivalent to a 99 year mortgage, or the occupant has the option to be evicted. Either way, it would go a long way to solving this w/o giving away a trillion bucks or more."
But Donna, it will never be done - this has been in the planning, not by some global conspiracy, but by like-minded elitists, for decades now. And now the actions is being takes to destroy, first the US economy, then the rest of the world. Depressing isn't it? And there is nothing that can be done about it, short of... well nothing really. It's all part of the plan my dear...
'nuff said
russell
I concluded the week quoting from George Orwell's 1984 -
Sad song, sad song =
"After the revolutionary period of the fifties and sixties, society regrouped itself, as always, into High, Middle, and Low. But the new High group, unlike all its forerunners, did not act upon instinct but knew what was needed to safeguard its position. It had long been realized that the only secure basis for oligarchy is collectivism. Wealth and privilege are most easily defended when they are possessed jointly. The so-called 'abolition of private property' which took place in the middle years of the century meant, in effect, the concentration of property in far fewer hands than before: but with this difference, that the new owners were a group instead of a mass of individuals. Individually, no member of the Party owns anything, except petty personal belongings. Collectively, the Party owns everything in Oceania, because it controls everything, and disposes of the products as it thinks fit. In the years following the Revolution it was able to step into this commanding position almost unopposed, because the whole process was represented as an act of collectivization. It had always been assumed that if the capitalist class were expropriated, Socialism must follow: and unquestionably the capitalists had been expropriated. Factories, mines, land, houses, transport -- everything had been taken away from them: and since these things were no longer private property, it followed that they must be public property. Ingsoc, which grew out of the earlier Socialist movement and inherited its phraseology, has in fact carried out the main item in the Socialist programme; with the result, foreseen and intended beforehand, that economic inequality has been made permanent."
THE THEORY AND PRACTICE OF OLIGARCHICAL COLLECTIVISM
by Emmanuel Goldstein
(The 'Book within a Book' from George Orwell's Nineteen Eighty-Four)
passer la fourche camarade -
russell
Monday, September 15, 2008
A word about the rant process...
The reason I embarked on this series is that I got off on an email rant with Ramesh (LinkedIn buddy) on this stuff and he said "well then my very good friend, why don't you publish the damned thing!". Well 400 plus pages and the graphs and references to people you ( and all the other on the list) never heard of required that I SEVERELY edit it down - I've left out a LOT, but it got it out of my system.
Thanks to all
russell
Thanks to all
russell
Pulling It All Together & Bringing It All back Home.
Quick Review:
1. Due to the needs of the Civil War, corporatism arose and was upheld as a valid business (and social) organizing principle b the Supreme Court.
2. While preaching government "non-interference, the first large corporations, the railroads, were actually the beneficiaries of massive government largess in the form of land grants, easements, etc.
3. The two World Wars further integrated corporations with government guidance and control for specific, mostly military. areas of operation.
4. Joseph Schumpter's work in the 1920's and '30's showed that there was an appropriate role for government in economic policy-making and that the entrepreneur was the most important element in economic expansion.
5. Government proved, in the 1950's, that there was an appropriate role for government to "shape the market", for specific projects ( interstate highway system, Atomic energy Commission, NASA, etc).
6. Hit with multiple energy crisis's, we now face the most important set of decisions as a nation we have faced since World War Two. How to handle it?
Now we look at next steps and governance.
A word about private property and limited government, since I know people reading this blog are getting nervous about my philosophical framework--Adam Smith was a keen student of John Locke, who eloquently enunciated a natural right to liberty and property, rooted in the very nature of man. For Smith, in fact, property and limited government were the cornerstones of a system of natural liberty, and a necessary condition for the advancement of civilization itself. From the vantage point of the economist, property implies private ownership of the means of production (capital), and limited government implies a regime of low taxation and regulation. With this institutional backdrop, in fact, proper incentives are in place to guarantee maximal economic growth via development of other necessary institutions undergirding a society based on liberty
These are the necessary and sufficient institutional conditions which guarantee maximal growth in an economy (Keynes himself would agree, differing only regarding the relative stability of a market economy and government's role). Effective economic policy, both fiscal and monetary, thus consists in fully promoting this institutional mix.
What claims to be about ‘classical fundamentals’ is suspiciously familiar as a modern presentation that relies on the association of ideas about Adam Smith rather than reflective of them.
“Private property and limited government”
Adam Smith certainly favoured private property in that the emergence of society from the Age of Hunting was what brought about the idea of property, and each successive Age (Shepherding, Farming and Commerce) developed the existence of property into ever more sophisticated forms.
That he favored ‘limited government’ in the same sense (if at all) as a principle is a more complicated notion and a more questionable assertion. To some extent the assertion is brought about because of the detailed rebuttal of mercantile political economy in Book IV of Wealth Of Nations and his account of the roles of government in Book V, reflecting a far more primitive commercial economy in the 18th century than what may be required in the 21st century.
Mercantile governments from the 15th century pursued policies which inhibited optimal economic growth, evident in the 18th century when he was writing. These policies manifested themselves in the forms of the national pursuit of gold, instead of enhancing the annual output of the ‘necessaries, conveniences, and amusements of life’ (which we call GDP), of a ‘balance of trade’, by which was meant avoiding importing more than was exported, of ‘jealousy of trade’ by neighbors, seen as rivals rather than as partners, of the concomitant policies of protection, tariffs and prohibitions, domestic monopolies, and narrowing markets against competition, the Settlement Laws, the Apprenticeship Statutes, Primogeniture and Entails of land, and colonies and their associated wars.
These policies were seen by Adam Smith as a considerable burden of the wrong government policies, not a burden of government in itself.
Government was necessary for a vibrant economy in the stability of laws protecting property, defense capability to protect the nation, a nation-wide system of justice (without which society would ‘crumble into atoms’), and the promotion by the state of public works and public institutions of education, health, and the dignity of the sovereign. These too added to a formidable extension of government in the 18th century, funded by taxation and borrowing.
Given the state of Britain’s roads, harbors, bridges, streets in cities, lack of sanitation and such like, there would have to be a substantial increase in public expenditure just to get the infrastructure in place to facilitate commerce.
Those who link Adam Smith to ‘limited government’ have not appreciated (perhaps have never read) "Wealth Of Nations", "Moral Sentiments", and "Jurisprudence".
Be clear, the reason for relying on government was because individual private capital was in the main not large enough in the 18th century, and while government capital (from taxation and borrowing) was large enough, much of it was wasted on the above mercantile policies including the maintenance of colonies in America and the expenditure on foreign wars.
How do we insure the proper use of public money (taxes) by the government? One of the first things I would do is re-engineer the Department of Energy into a Department of Research & Development. Sub-divisions of the D of R&D would handle disbursements of government subsidies for energy start-ups for new technology, new start-ups for Information Technology, start-ups for everything, from health care to homeless shelters, but no money to extant operations. As Mao said, "plant a thousand seeds to let a thousand flowers bloom'. I am not proposing one, monolithic government program to handle the re-invigoration of American innovation, but a set of conditions that will ease the pain of letting those flowers bloom - innovation everywhere. America has always been an innovation engine, and there is a role for government to play here, but there are difficulties. How to govern this activity? That's where we the people come in. Our politicians must pass the appropriate governance laws for this operation, and must be held accountable for what they do in our name, and this is always a dicey proposition. Gail Russell Chaddock, of the Christian Science Monitor reports on an idea that just might work,:
"After a nearly fruitless long war to rein in wasteful government spending, the Senate's most relentless pork-busters are trying a new tack: unleash the energies - and ire - of 100,000 bloggers.
The answer to budgetary obfuscation, these senators say, is sunlight. They propose to list all federal spending on one easy-to-access website, saying it will be simpler for ordinary citizens to see where tax dollars are going - and to shame lawmakers into being more accountable. "
Perhaps the blogosphere can provide the accountability check we need here - anyone can blog (like me, right now). And there are millions of us, and blogs are searchable by services such as Google. So there - the politicians can't hide anymore. Maybe. What I propose is a very difficult idea to implement - centralized incentives ( Department of R & D) coupled with decentralized operation (the entrepreneurs). It won't be easy - nothing worth having is. But Napoleon did it with state incentives, prizes and honors & awards. And we got the Jacquard Loom which led to the digital computer, canned food, leading to extended exploration and manned space flight, and Carnot's steam tables, which led to the Second Law of Thermodynamics, leading to Quantum Physics, leading to String Theory and a glimpse into the secrets of the Universe.
Start the journey now.
1. Due to the needs of the Civil War, corporatism arose and was upheld as a valid business (and social) organizing principle b the Supreme Court.
2. While preaching government "non-interference, the first large corporations, the railroads, were actually the beneficiaries of massive government largess in the form of land grants, easements, etc.
3. The two World Wars further integrated corporations with government guidance and control for specific, mostly military. areas of operation.
4. Joseph Schumpter's work in the 1920's and '30's showed that there was an appropriate role for government in economic policy-making and that the entrepreneur was the most important element in economic expansion.
5. Government proved, in the 1950's, that there was an appropriate role for government to "shape the market", for specific projects ( interstate highway system, Atomic energy Commission, NASA, etc).
6. Hit with multiple energy crisis's, we now face the most important set of decisions as a nation we have faced since World War Two. How to handle it?
Now we look at next steps and governance.
A word about private property and limited government, since I know people reading this blog are getting nervous about my philosophical framework--Adam Smith was a keen student of John Locke, who eloquently enunciated a natural right to liberty and property, rooted in the very nature of man. For Smith, in fact, property and limited government were the cornerstones of a system of natural liberty, and a necessary condition for the advancement of civilization itself. From the vantage point of the economist, property implies private ownership of the means of production (capital), and limited government implies a regime of low taxation and regulation. With this institutional backdrop, in fact, proper incentives are in place to guarantee maximal economic growth via development of other necessary institutions undergirding a society based on liberty
These are the necessary and sufficient institutional conditions which guarantee maximal growth in an economy (Keynes himself would agree, differing only regarding the relative stability of a market economy and government's role). Effective economic policy, both fiscal and monetary, thus consists in fully promoting this institutional mix.
What claims to be about ‘classical fundamentals’ is suspiciously familiar as a modern presentation that relies on the association of ideas about Adam Smith rather than reflective of them.
“Private property and limited government”
Adam Smith certainly favoured private property in that the emergence of society from the Age of Hunting was what brought about the idea of property, and each successive Age (Shepherding, Farming and Commerce) developed the existence of property into ever more sophisticated forms.
That he favored ‘limited government’ in the same sense (if at all) as a principle is a more complicated notion and a more questionable assertion. To some extent the assertion is brought about because of the detailed rebuttal of mercantile political economy in Book IV of Wealth Of Nations and his account of the roles of government in Book V, reflecting a far more primitive commercial economy in the 18th century than what may be required in the 21st century.
Mercantile governments from the 15th century pursued policies which inhibited optimal economic growth, evident in the 18th century when he was writing. These policies manifested themselves in the forms of the national pursuit of gold, instead of enhancing the annual output of the ‘necessaries, conveniences, and amusements of life’ (which we call GDP), of a ‘balance of trade’, by which was meant avoiding importing more than was exported, of ‘jealousy of trade’ by neighbors, seen as rivals rather than as partners, of the concomitant policies of protection, tariffs and prohibitions, domestic monopolies, and narrowing markets against competition, the Settlement Laws, the Apprenticeship Statutes, Primogeniture and Entails of land, and colonies and their associated wars.
These policies were seen by Adam Smith as a considerable burden of the wrong government policies, not a burden of government in itself.
Government was necessary for a vibrant economy in the stability of laws protecting property, defense capability to protect the nation, a nation-wide system of justice (without which society would ‘crumble into atoms’), and the promotion by the state of public works and public institutions of education, health, and the dignity of the sovereign. These too added to a formidable extension of government in the 18th century, funded by taxation and borrowing.
Given the state of Britain’s roads, harbors, bridges, streets in cities, lack of sanitation and such like, there would have to be a substantial increase in public expenditure just to get the infrastructure in place to facilitate commerce.
Those who link Adam Smith to ‘limited government’ have not appreciated (perhaps have never read) "Wealth Of Nations", "Moral Sentiments", and "Jurisprudence".
Be clear, the reason for relying on government was because individual private capital was in the main not large enough in the 18th century, and while government capital (from taxation and borrowing) was large enough, much of it was wasted on the above mercantile policies including the maintenance of colonies in America and the expenditure on foreign wars.
How do we insure the proper use of public money (taxes) by the government? One of the first things I would do is re-engineer the Department of Energy into a Department of Research & Development. Sub-divisions of the D of R&D would handle disbursements of government subsidies for energy start-ups for new technology, new start-ups for Information Technology, start-ups for everything, from health care to homeless shelters, but no money to extant operations. As Mao said, "plant a thousand seeds to let a thousand flowers bloom'. I am not proposing one, monolithic government program to handle the re-invigoration of American innovation, but a set of conditions that will ease the pain of letting those flowers bloom - innovation everywhere. America has always been an innovation engine, and there is a role for government to play here, but there are difficulties. How to govern this activity? That's where we the people come in. Our politicians must pass the appropriate governance laws for this operation, and must be held accountable for what they do in our name, and this is always a dicey proposition. Gail Russell Chaddock, of the Christian Science Monitor reports on an idea that just might work,:
"After a nearly fruitless long war to rein in wasteful government spending, the Senate's most relentless pork-busters are trying a new tack: unleash the energies - and ire - of 100,000 bloggers.
The answer to budgetary obfuscation, these senators say, is sunlight. They propose to list all federal spending on one easy-to-access website, saying it will be simpler for ordinary citizens to see where tax dollars are going - and to shame lawmakers into being more accountable. "
Perhaps the blogosphere can provide the accountability check we need here - anyone can blog (like me, right now). And there are millions of us, and blogs are searchable by services such as Google. So there - the politicians can't hide anymore. Maybe. What I propose is a very difficult idea to implement - centralized incentives ( Department of R & D) coupled with decentralized operation (the entrepreneurs). It won't be easy - nothing worth having is. But Napoleon did it with state incentives, prizes and honors & awards. And we got the Jacquard Loom which led to the digital computer, canned food, leading to extended exploration and manned space flight, and Carnot's steam tables, which led to the Second Law of Thermodynamics, leading to Quantum Physics, leading to String Theory and a glimpse into the secrets of the Universe.
Start the journey now.
Sunday, September 14, 2008
What is the National Good?
Remember how we defined state capitalism? Three components -
1. The state does not own the means of production (like socialism, which does).
2. The state does incentivize innovation, via grants, tax breaks and, in some cases direct subsidies to innovative technologies, social services, health care services, etc.
3. The enterprises receiving these benefits do so to support political goals. Others are not discouraged, but not overtly encouraged by state incentives.
" to support political goals" is the part that riles most folks up. But lets look at what that means.
Our understanding of politics in practice in detail hangs on the Athenian experience, which is the best documented.
From Aristotle's "Politics", the underlying principle of Athenian democracy was liberty which was ruling and being ruled in turn, and living as each individual chooses. There are two types of equality - numerical and merit-based. The former gives equal weight to all individuals, the latter to the elite, therefore the former gives true liberty.
There was also emphasis on 'justice', a many-faceted word, the underlying meaning was 'settlement' - that is justice was the settlement of problems in consonance with community standards.
A third principle was support of the common good. As citizens were fully part of the state, so they were to embrace and promote it.
The Athenian Democracy was based on the citizens, who performed all legislative, judicial and public service functions. The regular assembly of all citizens had sole prerogative to pass laws, large juries constituted courts (there were no judges or lawyers), and office bearers were popularly elected or chosen annually by lot and for once term only. Women, slaves and resident aliens were excluded from the body politic.
A political goal then, viz-a-viz the US context is supposed to mean the people (Greek "polis - the people") electing representative, which then work the peoples will. Of course, we don't do anything close to that here, but you get the idea.
That being said -
Schumpter and the second coming of Locke, Hume and Smith.
Joseph Shumpter. Born in Triesch, Moravia (then part of Austria-Hungary, now Třešť in the Czech Republic), Schumpeter was a brilliant student praised by his teachers. He began his career studying law at the University of Vienna under the Austrian capital theorist Eugen von Böhm-Bawerk, taking his PhD in 1906. In 1909, after some study trips, he became a professor of economics and government at the University of Czernowitz. But that is not why he is important, perhaps the most important economist of the 20th Century (Sorry Miltie!). Schumpeter's vast scope of knowledge is apparent in his posthumous "History of Economic Analysis", although some of his judgments seem quite idiosyncratic and sometimes downright shallow and undisciplined. For our discussion, his most relevant works are:
• Business cycles
• Criticism of Keynesianism
• Capitalism's demise
• Democratic theory
• Entrepreneurship
So, to unfairly distill all this down (time and space constraints), what Schumpter contributed to the further refinement of state capitalism is the following:
This represents a radical re-working of the theories of David Hume, John Locke and Adam Smith, yet squarely in that camp... the camp of the governments role in shaping market forces. Now, please understand, I am not a socialist who wants to regulate markets. I prefer a variety of incentives for both businesses and consumers. I also firmly believe that free markets (we don't have a free energy market today) guided by these incentives can work, and I expect that corporations and new entrepreneurship will lead the way on technological innovation, once they smell a dollar.
Next - Pulling It All Together & Bringing It All back Home.
1. The state does not own the means of production (like socialism, which does).
2. The state does incentivize innovation, via grants, tax breaks and, in some cases direct subsidies to innovative technologies, social services, health care services, etc.
3. The enterprises receiving these benefits do so to support political goals. Others are not discouraged, but not overtly encouraged by state incentives.
" to support political goals" is the part that riles most folks up. But lets look at what that means.
Our understanding of politics in practice in detail hangs on the Athenian experience, which is the best documented.
From Aristotle's "Politics", the underlying principle of Athenian democracy was liberty which was ruling and being ruled in turn, and living as each individual chooses. There are two types of equality - numerical and merit-based. The former gives equal weight to all individuals, the latter to the elite, therefore the former gives true liberty.
There was also emphasis on 'justice', a many-faceted word, the underlying meaning was 'settlement' - that is justice was the settlement of problems in consonance with community standards.
A third principle was support of the common good. As citizens were fully part of the state, so they were to embrace and promote it.
The Athenian Democracy was based on the citizens, who performed all legislative, judicial and public service functions. The regular assembly of all citizens had sole prerogative to pass laws, large juries constituted courts (there were no judges or lawyers), and office bearers were popularly elected or chosen annually by lot and for once term only. Women, slaves and resident aliens were excluded from the body politic.
A political goal then, viz-a-viz the US context is supposed to mean the people (Greek "polis - the people") electing representative, which then work the peoples will. Of course, we don't do anything close to that here, but you get the idea.
That being said -
Schumpter and the second coming of Locke, Hume and Smith.
Joseph Shumpter. Born in Triesch, Moravia (then part of Austria-Hungary, now Třešť in the Czech Republic), Schumpeter was a brilliant student praised by his teachers. He began his career studying law at the University of Vienna under the Austrian capital theorist Eugen von Böhm-Bawerk, taking his PhD in 1906. In 1909, after some study trips, he became a professor of economics and government at the University of Czernowitz. But that is not why he is important, perhaps the most important economist of the 20th Century (Sorry Miltie!). Schumpeter's vast scope of knowledge is apparent in his posthumous "History of Economic Analysis", although some of his judgments seem quite idiosyncratic and sometimes downright shallow and undisciplined. For our discussion, his most relevant works are:
• Business cycles
• Criticism of Keynesianism
• Capitalism's demise
• Democratic theory
• Entrepreneurship
So, to unfairly distill all this down (time and space constraints), what Schumpter contributed to the further refinement of state capitalism is the following:
- although business cycles follow measurable and predictable (!!???!!?!) cycles, barring any sudden innovation (creative destruction he called it), the actions of entrepreneur has the greatest effect on economic disruption and expansion.
- Keynes...oh to Hell with Keynes!
- first real explication of "Third Way" political-economic frameworks - http://www.ppionline.org/ppi_ci.cfm?contentid=895&knlgAreaID=85&subsecid=109
- Schumpter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive, will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another.
- The concept of entrepreneurship cannot be fully understood without his contributions, being probably the first scholar to develop its theories.
This represents a radical re-working of the theories of David Hume, John Locke and Adam Smith, yet squarely in that camp... the camp of the governments role in shaping market forces. Now, please understand, I am not a socialist who wants to regulate markets. I prefer a variety of incentives for both businesses and consumers. I also firmly believe that free markets (we don't have a free energy market today) guided by these incentives can work, and I expect that corporations and new entrepreneurship will lead the way on technological innovation, once they smell a dollar.
Next - Pulling It All Together & Bringing It All back Home.
Friday, September 12, 2008
Ok, let's review...
Sorry! We have to delay talking about Schrumpter and the second coming of Locke, Hume and Smith.
Let's review -
Corporatism arose in the US because of the needs of the Civil War. Corporations were temporary entities until the Supreme Court decided the 14th amendment applied to companies too, making them "entities" with many of te same rights and privileges of a human being! This continued after the war, and the Federal Government began to integrate itself managerially and financially into the operation of the railroads.
Corporations had therefore the potential, from the onset, to become very powerful. Even Abraham Lincoln recognized this:
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. ... corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
— U.S. President Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins) Ref: “The Lincoln Encyclopedia”, Archer H. Shaw (Macmillan, 1950, NY)
Adam Smith, in his famous book the Wealth of Nations, the “bible” of capitalism, was also critical of some aspects of corporate activity. He saw corporations as working to evade the laws of the market, trying to interfere with prices and controlling trade etc.
As Robbins further points out, from this ability to influence, “corporate libertarianism” emerged, which placed the rights and freedoms of corporations above that of individuals. This influence also led to cultural and economic ideologies known by numerous names such as neo-liberal, libertarian economics, market capitalism, market liberalism etc.
Some of the guiding principles of this ideology, as Robbins continues, included:
Corporations in and of themselves may not be a bad thing. They can be engines of positive change. But, especially when they become excessively large, and concentrated in terms of ownership of an industry and in wealth, they can also be engines for negative change, as seems to have happened. There is of course, the common concern about the drive for profit as the end goal sometimes contradicting the social good, even though it is claimed that the “invisible hand” ensures the drive for profit is also good for society. Sometimes this has surely been the case. But other times, it has not.
There is much recognized and unrecognized corporate influence in our lives. Indeed, much of western culture and increasingly, around the world, consumerism is expanding.
Corporate influence can reach various parts of societies through various means, which many other entities don’t have the ability to do, as they lack the financial resources that corporations have:
An explosion of new discoveries and inventions took place, causing such profound changes that some termed the results a "Second Industrial Revolution." Oil was discovered in western Pennsylvania. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. And by the dawn of the 20th century, cars were replacing carriages.
Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Large iron mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these two important raw materials could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.
As industry grew larger, it developed mass-production methods. Frederick W. Taylor pioneered the field of scientific management in the late 19th century, carefully plotting the functions of various workers and then devising new, more efficient ways for them to do their jobs. Also fueling mass production was the increase in efficiency due to the electrification of factories from steam power to electric power. Electric line shafts and electric group drives improved efficiency through reduced energy loss, improved work environment, reduction in fire hazards and ability to reorganize factories into specialized departments. (True mass production was the inspiration of Henry Ford, who in 1913 adopted the moving assembly line, with each worker doing one simple task in the production of automobiles. In what turned out to be a farsighted action, Ford offered a very generous wage—$5 a day—to his workers, enabling many of them to buy the automobiles they made, helping the industry to expand.)
Whew! Got all that? Good!
Now let's talk about the beginnings a codified approach to state capitalism, as opposed to this scattershot stuff.
Economic Policy & World War One
Continuing integration is the name of this game. European demands for war supplies mobilized some sectors of the American economy before the United States entered World War I. Exports increased from $2.1 billion to $2.6 billion annually between 1911 and 1914 and jumped to $5.7 billion in 1916. Changes in the public sector were less dramatic. The government established the National Advisory Committee for Aeronautics, the U.S. Shipping Board, and the Council of National Defense, with an advisory commission, before 1917. But President Woodrow Wilson's policy of neutrality and the powerful peace sentiment in Congress and the rest of the country precluded systematic planning for a war economy.
The private nature of economic mobilization in the United States did not disappear after U.S. entry into the war on 6 April 1917. Throughout the spring and summer, volunteer committees of corporation executives tried to design production, transportation, and price schedules for army and navy supplies. Congress and the president, in the meantime, clashed over the nature of the government's economic policies and administrative controls, and the military services scrambled for supplies in an essentially free market. But much of the output of vital materials, such as steel and coal, had already been committed for months in advance to private and Allied purchasers.
In July 1917 the president increased the scope and power of the U.S. Shipping Board and established the War Industries Board (WIB) to regularize business-government relations. On 10 August Congress empowered the president to control food and fuel supplies and to fix a minimum price for wheat. Congress continued to yield to presidential initiatives in subsequent months, albeit reluctantly, and the War Trade Board, the Alien Property Custodian, and the Aircraft Board appeared in October. By that time, the administration had also taken the first tentative steps toward fixing prices on industrial raw materials.
Urgent Allied demands for ships and munitions, as well as transportation breakdowns in the desperate winter months of 1917–1918, touched off a much more rigorous extension of public economic controls in 1918. The president enlarged and redefined the functions of the WIB early in March and set up the National War Labor Board and the War Finance Corporation in April. The WIB's Price Fixing Committee negotiated a series of maximum prices with raw-material producers, and its Priorities Board broadened the range of restrictions on nonwar production. The military services launched a variety of internal reforms that made it easier for the board to coordinate its economic policies.
Wilson inaugurated a series of weekly meetings with his top war administrators in the spring of 1918, but the administration, and this is the main point here, never fully centralized the responsibility for economic mobilization. The WIB offered the greatest potential for such a development, but the Armistice of November 1918 came before all aspects of economic mobilization were fully integrated. Achievements varied, therefore, from one sector of the economy to another. By the time of the armistice, for instance, there were surpluses in some agricultural products and industrial raw materials, while production lagged in ships and aircraft.
The economic boom that eventually lead to the great American depression, occurred as a direct result of the war. the economic boom of the 1920s.
The boom was caused by the "re-mobbing" (sending home) of the soldiers after the war, more resources were needed and everything was in higher demand, so businesses produced more and more. However, not everyone benefited from the boom. The price of farm produce dropped as the demand was no longer as high (people had no need for cheaper goods now that their husbands were bringing in so much money from their booming businesses) in order for farmers to make up for the money they were losing, they produced more causing over-production. They were left with too much produced that they were unable to sell and could not sell it abroad because of the expensive tariff that had been put in place (The Fordney-McCumber tariff)- this happened in the 1920s towards the end of the boom as the economy began to crash. Other events occured as well but it take forever to explain. Sorry, we don't have room. Poorer people, black americans, most chinese immigrants also did not benefit. The economic boom was also social. Flappers began making bold actions (women who cut their hair short and burnt their bras) advertisement was HUGE. Fads (crazes) such as marathon dancing, public stunts such as pole-sitting, etc became a huge part of the entertainment business, along with cinemas...
----THEN THE GREAT DEPRESSION HAPPENED-----
I am not going to rehash this. Everybody knows that Roosevelt tried literally hundreds of programs, almost none worked, and real cure for it was World War Two. SO, on with the show -
During World War Two (or, as my father put it, ("WW2"), the War Production Board coordinated the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy." In an effort to prevent rising national income and scarce consumer products to cause inflation, the newly created Office of Price Administration controlled rents on some dwellings, rationed consumer items ranging from sugar to gasoline, and otherwise tried to restrain price increases.
By the early 1940s, the United States had managed to pull itself strongly out of the Depression, largely due to World War II, but there is an ongoing, politically charged debate on whether Franklin Roosevelt's social-democratic policies had anything to do with this, and some argue that Roosevelt's policies hampered recovery, or even made the problem worse than it would have been. Recovery was also, in part, at least, due to the natural resilience of the economy; the Great Depression was the sixth depression in U.S. history. Wall Street enjoyed the longest bull run in history in this post-war period, as the stock market climbed almost uninterrupted from 1949 to 1957. The U.S. government involvement in social welfare and what Dwight Eisenhower called the "military-industrial complex" continues to this day.
But what is the "military-industrial complex"? It is the child of Generals George Marshall and Hap Arnold. These two set out to create a systemically tight integration of industrial production and military specifications for product. in order to meet wartime necessities. Industries making swords in times of war could make plowshares in times of peace, for example. However, it was not until the 19th or 20th century that military weaponry became sufficiently complicated as to require a large subset of industrial effort solely dedicated to warfare. Firearms, artillery, steamships, and later aircraft and nuclear weapons were markedly different from ancient or medieval swords -- these new weapons required years of specialized labor, as opposed to part-time effort. Furthermore, the length of time necessary to build weapons systems of high complexity and massive integration required pre-planning and construction even during times of peace; thus a portion of the economies of the great powers (and, later, the superpowers), was dedicated and maintained solely for the purpose of defense (and war). This trend of coupling some industries towards military activity gave rise to the concept of a "partnership" between the military and private enterprise. Thus, the USA deliberately developed what was originally expressed by Daniel Guérin, in his 1936 book "Fascism and Big Business", about the fascist government support to heavy industry. It can be defined as, “an informal and changing coalition of groups with vested psychological, moral, and material interests in the continuous development and maintenance of high levels of weaponry, in preservation of colonial markets and in military-strategic conceptions of internal affairs”
Six million women took jobs in manufacturing and production during the war; most were newly created temporary jobs in munitions. Some were replacing men away in the military. These working women were symbolized by the fictional character of Rosie the Riveter. After the war many women returned to household work as men returned from military service. This use of women workers during World War II paved the way for the later integration of women into the American workforce.
One step further toward true state capitalism: what is referred to by economists as national capitalism or corporate nationalism which is a political and economic philosophy that expects private enterprise to work mainly towards the national good, rather than solely for profit maximization. In a quid-pro-quo, national policies are expected to favor the large corporations, whose representatives are present in the earliest stages of drawing up legislation. Corporate goals and national ones are seen to coincide.
Wow, that was tough, but hang in there...I'll make my real point eventually... I think... someday...
Let's review -
Corporatism arose in the US because of the needs of the Civil War. Corporations were temporary entities until the Supreme Court decided the 14th amendment applied to companies too, making them "entities" with many of te same rights and privileges of a human being! This continued after the war, and the Federal Government began to integrate itself managerially and financially into the operation of the railroads.
Corporations had therefore the potential, from the onset, to become very powerful. Even Abraham Lincoln recognized this:
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. ... corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
— U.S. President Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins) Ref: “The Lincoln Encyclopedia”, Archer H. Shaw (Macmillan, 1950, NY)
Adam Smith, in his famous book the Wealth of Nations, the “bible” of capitalism, was also critical of some aspects of corporate activity. He saw corporations as working to evade the laws of the market, trying to interfere with prices and controlling trade etc.
As Robbins further points out, from this ability to influence, “corporate libertarianism” emerged, which placed the rights and freedoms of corporations above that of individuals. This influence also led to cultural and economic ideologies known by numerous names such as neo-liberal, libertarian economics, market capitalism, market liberalism etc.
Some of the guiding principles of this ideology, as Robbins continues, included:
- Sustained economic growth as the way to human progress
- Free markets without government “interference” would be the most efficient and socially optimal allocation of resources
- Economic globalization would be beneficial to everyone
- Privatization removes inefficiencies of public sector
- Governments should mainly function to provide the infrastructure to advance the rule of law with respect to property rights and contracts.
Corporations in and of themselves may not be a bad thing. They can be engines of positive change. But, especially when they become excessively large, and concentrated in terms of ownership of an industry and in wealth, they can also be engines for negative change, as seems to have happened. There is of course, the common concern about the drive for profit as the end goal sometimes contradicting the social good, even though it is claimed that the “invisible hand” ensures the drive for profit is also good for society. Sometimes this has surely been the case. But other times, it has not.
There is much recognized and unrecognized corporate influence in our lives. Indeed, much of western culture and increasingly, around the world, consumerism is expanding.
Corporate influence can reach various parts of societies through various means, which many other entities don’t have the ability to do, as they lack the financial resources that corporations have:
- Influence on general populations via advertising and control and influence in the mainstream media.
- Influence on public policy and over governments, as hinted to above. This can range from financing large parts of elections, to creating corporate-funded think tanks and “citizen” groups, to support from very influential political bodies such as the Trilateral Commission, the Council on Foreign Relations and the Bilderberg group, etc.
- Influence on international institutions, such as the World Trade Organization, as well as international economic and political agreements.
An explosion of new discoveries and inventions took place, causing such profound changes that some termed the results a "Second Industrial Revolution." Oil was discovered in western Pennsylvania. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. And by the dawn of the 20th century, cars were replacing carriages.
Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Large iron mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these two important raw materials could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.
As industry grew larger, it developed mass-production methods. Frederick W. Taylor pioneered the field of scientific management in the late 19th century, carefully plotting the functions of various workers and then devising new, more efficient ways for them to do their jobs. Also fueling mass production was the increase in efficiency due to the electrification of factories from steam power to electric power. Electric line shafts and electric group drives improved efficiency through reduced energy loss, improved work environment, reduction in fire hazards and ability to reorganize factories into specialized departments. (True mass production was the inspiration of Henry Ford, who in 1913 adopted the moving assembly line, with each worker doing one simple task in the production of automobiles. In what turned out to be a farsighted action, Ford offered a very generous wage—$5 a day—to his workers, enabling many of them to buy the automobiles they made, helping the industry to expand.)
Whew! Got all that? Good!
Now let's talk about the beginnings a codified approach to state capitalism, as opposed to this scattershot stuff.
Economic Policy & World War One
Continuing integration is the name of this game. European demands for war supplies mobilized some sectors of the American economy before the United States entered World War I. Exports increased from $2.1 billion to $2.6 billion annually between 1911 and 1914 and jumped to $5.7 billion in 1916. Changes in the public sector were less dramatic. The government established the National Advisory Committee for Aeronautics, the U.S. Shipping Board, and the Council of National Defense, with an advisory commission, before 1917. But President Woodrow Wilson's policy of neutrality and the powerful peace sentiment in Congress and the rest of the country precluded systematic planning for a war economy.
The private nature of economic mobilization in the United States did not disappear after U.S. entry into the war on 6 April 1917. Throughout the spring and summer, volunteer committees of corporation executives tried to design production, transportation, and price schedules for army and navy supplies. Congress and the president, in the meantime, clashed over the nature of the government's economic policies and administrative controls, and the military services scrambled for supplies in an essentially free market. But much of the output of vital materials, such as steel and coal, had already been committed for months in advance to private and Allied purchasers.
In July 1917 the president increased the scope and power of the U.S. Shipping Board and established the War Industries Board (WIB) to regularize business-government relations. On 10 August Congress empowered the president to control food and fuel supplies and to fix a minimum price for wheat. Congress continued to yield to presidential initiatives in subsequent months, albeit reluctantly, and the War Trade Board, the Alien Property Custodian, and the Aircraft Board appeared in October. By that time, the administration had also taken the first tentative steps toward fixing prices on industrial raw materials.
Urgent Allied demands for ships and munitions, as well as transportation breakdowns in the desperate winter months of 1917–1918, touched off a much more rigorous extension of public economic controls in 1918. The president enlarged and redefined the functions of the WIB early in March and set up the National War Labor Board and the War Finance Corporation in April. The WIB's Price Fixing Committee negotiated a series of maximum prices with raw-material producers, and its Priorities Board broadened the range of restrictions on nonwar production. The military services launched a variety of internal reforms that made it easier for the board to coordinate its economic policies.
Wilson inaugurated a series of weekly meetings with his top war administrators in the spring of 1918, but the administration, and this is the main point here, never fully centralized the responsibility for economic mobilization. The WIB offered the greatest potential for such a development, but the Armistice of November 1918 came before all aspects of economic mobilization were fully integrated. Achievements varied, therefore, from one sector of the economy to another. By the time of the armistice, for instance, there were surpluses in some agricultural products and industrial raw materials, while production lagged in ships and aircraft.
The economic boom that eventually lead to the great American depression, occurred as a direct result of the war. the economic boom of the 1920s.
The boom was caused by the "re-mobbing" (sending home) of the soldiers after the war, more resources were needed and everything was in higher demand, so businesses produced more and more. However, not everyone benefited from the boom. The price of farm produce dropped as the demand was no longer as high (people had no need for cheaper goods now that their husbands were bringing in so much money from their booming businesses) in order for farmers to make up for the money they were losing, they produced more causing over-production. They were left with too much produced that they were unable to sell and could not sell it abroad because of the expensive tariff that had been put in place (The Fordney-McCumber tariff)- this happened in the 1920s towards the end of the boom as the economy began to crash. Other events occured as well but it take forever to explain. Sorry, we don't have room. Poorer people, black americans, most chinese immigrants also did not benefit. The economic boom was also social. Flappers began making bold actions (women who cut their hair short and burnt their bras) advertisement was HUGE. Fads (crazes) such as marathon dancing, public stunts such as pole-sitting, etc became a huge part of the entertainment business, along with cinemas...
----THEN THE GREAT DEPRESSION HAPPENED-----
I am not going to rehash this. Everybody knows that Roosevelt tried literally hundreds of programs, almost none worked, and real cure for it was World War Two. SO, on with the show -
During World War Two (or, as my father put it, ("WW2"), the War Production Board coordinated the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy." In an effort to prevent rising national income and scarce consumer products to cause inflation, the newly created Office of Price Administration controlled rents on some dwellings, rationed consumer items ranging from sugar to gasoline, and otherwise tried to restrain price increases.
By the early 1940s, the United States had managed to pull itself strongly out of the Depression, largely due to World War II, but there is an ongoing, politically charged debate on whether Franklin Roosevelt's social-democratic policies had anything to do with this, and some argue that Roosevelt's policies hampered recovery, or even made the problem worse than it would have been. Recovery was also, in part, at least, due to the natural resilience of the economy; the Great Depression was the sixth depression in U.S. history. Wall Street enjoyed the longest bull run in history in this post-war period, as the stock market climbed almost uninterrupted from 1949 to 1957. The U.S. government involvement in social welfare and what Dwight Eisenhower called the "military-industrial complex" continues to this day.
But what is the "military-industrial complex"? It is the child of Generals George Marshall and Hap Arnold. These two set out to create a systemically tight integration of industrial production and military specifications for product. in order to meet wartime necessities. Industries making swords in times of war could make plowshares in times of peace, for example. However, it was not until the 19th or 20th century that military weaponry became sufficiently complicated as to require a large subset of industrial effort solely dedicated to warfare. Firearms, artillery, steamships, and later aircraft and nuclear weapons were markedly different from ancient or medieval swords -- these new weapons required years of specialized labor, as opposed to part-time effort. Furthermore, the length of time necessary to build weapons systems of high complexity and massive integration required pre-planning and construction even during times of peace; thus a portion of the economies of the great powers (and, later, the superpowers), was dedicated and maintained solely for the purpose of defense (and war). This trend of coupling some industries towards military activity gave rise to the concept of a "partnership" between the military and private enterprise. Thus, the USA deliberately developed what was originally expressed by Daniel Guérin, in his 1936 book "Fascism and Big Business", about the fascist government support to heavy industry. It can be defined as, “an informal and changing coalition of groups with vested psychological, moral, and material interests in the continuous development and maintenance of high levels of weaponry, in preservation of colonial markets and in military-strategic conceptions of internal affairs”
Six million women took jobs in manufacturing and production during the war; most were newly created temporary jobs in munitions. Some were replacing men away in the military. These working women were symbolized by the fictional character of Rosie the Riveter. After the war many women returned to household work as men returned from military service. This use of women workers during World War II paved the way for the later integration of women into the American workforce.
One step further toward true state capitalism: what is referred to by economists as national capitalism or corporate nationalism which is a political and economic philosophy that expects private enterprise to work mainly towards the national good, rather than solely for profit maximization. In a quid-pro-quo, national policies are expected to favor the large corporations, whose representatives are present in the earliest stages of drawing up legislation. Corporate goals and national ones are seen to coincide.
Wow, that was tough, but hang in there...I'll make my real point eventually... I think... someday...
Thursday, September 11, 2008
What is "state capitalism"?
Twenty years ago when I was at the War College, it was fashionable to talk about state socialism, and that the USA was moving in that direction - economically, culturally, politically. Examining the history the political evolution of socialism, it occurred to me then, that we were not moving toward state socialism, but something different, which I called state capitalism. State Capitalism (SC), has the following hallmarks or rather principles that guide it -
1. The state does not own the means of production (like socialism, which does).
2. The state does incentivize innovation, via grants, tax breaks and, in some cases direct subsidies to innovative technologies, social services, health care services, etc. Friedman calls this "shaping the market". So total free-booting wide open markets are,, well, out.
3. The enterprises receiving these benefits do so to support political goals. Others are not discouraged, but not overtly encouraged by state incentives.
OK, this overly simplistic so far, and is only part one of a series. Also, none of this new: in fact it began, in this country, during and immediately after the Civil War. Here's how it happened - Sectional conflict over control of the area taken from Mexico was a key factor in starting the subsequent War for Southern Independence, the Civil War. This period, from 1861–65, led to a mammoth resurgence of Hamiltonian statism. First, by denying to states the right of secession, Lincoln utterly transformed the federal union, dealing a deathblow to real decentralization and abolishing the final check in the checks-and-balances system.
Second, Lincoln’s far-reaching executive “war power”—invented from whole cloth—paved the way for twentieth-century presidential Czarism. Likewise, his conscription set a precedent for wartime, and later peacetime, militarization of America. Civil liberties naturally suffered. With respect to the political economy, wartime centralization was equally harmful. With the free-trading South out of the union, Lincoln’s Republican administration secured passage of a “National Bank Act, an unprecedented income tax, and a variety of excise taxes ” verging on “a universal sales tax.”
Finally, subjugation of the Confederacy and its reintegration into the union on Northern terms made the South into a sort of permanent internal colony of the Northeastern Metropolis. Aside from protection of American manufacturers, perhaps the most flagrant wartime and post-war subsidy consisted of funds lent and land given to the railroads by the federal government to encourage railroad growth. Between 1862 and 1872, the railroads received from Congress some 100 million acres of land. Similarly, federal legislation saw to it that large quantities of “public” land in the South-which might have gone to freed slaves and poor whites—wound up mainly in the hands of Yankee timber and other interests. This was the beginning of state capitalism in the US. Without the Federal subsidies, the railroads probably would not have been built, at least in the form they took, and perhaps not at all.
Regulation of railroads, monetary reform, and the search for overseas markets (especially for agricultural surpluses) were among the major American political issues from 1865 to 1896. Southern and Western farmers sought regulation—and, ultimately, their radical wing sought nationalization—of the railroads to ensure their “equitable” operation. Another agrarian goal was large-scale coinage of silver to reverse its 1873–74 demonetization, and to provide “easier” money to foster trade with countries on the sterling standard.
Above all, many farmers sought new outlets for their crops. The deflation of 1873–79 gave them added reason to look abroad. According to William Appleman Williams, an “export bonanza” in 1877–81, occasioned by natural disasters affecting European agriculture, underscored the possibilities that overseas markets held for American prosperity. The bonanza’s end, when European farmers recovered, only reinforced the growing conviction that larger export markets for American farmers were both desirable and necessary. Failing at first to win government assistance to open up such markets, agrarian interests exerted substantial pressure for expansion.
With the Panic of 1893 and the subsequent economic crisis, many metropolitan industrial interests arrived at the view that foreign markets were essential to their prosperity. The turning point came when metropolitan Republicans, led by Ohio Governor William McKinley, presented a program attractive to industrial and agrarian interests alike. This set the stage for McKinley’s emergence as leader of an expansionist coalition. The stage was now set for the next stage of government / private sector economic integration... and in case you are wondering - the answer is yes. It's called fascism.
The developments summarized above were not natural or inevitable outgrowths of a market society. Rather, they fit the pattern of “export-dependent monopoly capitalism” as analyzed by Joseph Schumpeter, Ludwig von Mises, and E.M. Winslow.
Next week - Schrumpter and the second coming of Locke, Hume and Smith.
1. The state does not own the means of production (like socialism, which does).
2. The state does incentivize innovation, via grants, tax breaks and, in some cases direct subsidies to innovative technologies, social services, health care services, etc. Friedman calls this "shaping the market". So total free-booting wide open markets are,, well, out.
3. The enterprises receiving these benefits do so to support political goals. Others are not discouraged, but not overtly encouraged by state incentives.
OK, this overly simplistic so far, and is only part one of a series. Also, none of this new: in fact it began, in this country, during and immediately after the Civil War. Here's how it happened - Sectional conflict over control of the area taken from Mexico was a key factor in starting the subsequent War for Southern Independence, the Civil War. This period, from 1861–65, led to a mammoth resurgence of Hamiltonian statism. First, by denying to states the right of secession, Lincoln utterly transformed the federal union, dealing a deathblow to real decentralization and abolishing the final check in the checks-and-balances system.
Second, Lincoln’s far-reaching executive “war power”—invented from whole cloth—paved the way for twentieth-century presidential Czarism. Likewise, his conscription set a precedent for wartime, and later peacetime, militarization of America. Civil liberties naturally suffered. With respect to the political economy, wartime centralization was equally harmful. With the free-trading South out of the union, Lincoln’s Republican administration secured passage of a “National Bank Act, an unprecedented income tax, and a variety of excise taxes ” verging on “a universal sales tax.”
Finally, subjugation of the Confederacy and its reintegration into the union on Northern terms made the South into a sort of permanent internal colony of the Northeastern Metropolis. Aside from protection of American manufacturers, perhaps the most flagrant wartime and post-war subsidy consisted of funds lent and land given to the railroads by the federal government to encourage railroad growth. Between 1862 and 1872, the railroads received from Congress some 100 million acres of land. Similarly, federal legislation saw to it that large quantities of “public” land in the South-which might have gone to freed slaves and poor whites—wound up mainly in the hands of Yankee timber and other interests. This was the beginning of state capitalism in the US. Without the Federal subsidies, the railroads probably would not have been built, at least in the form they took, and perhaps not at all.
Regulation of railroads, monetary reform, and the search for overseas markets (especially for agricultural surpluses) were among the major American political issues from 1865 to 1896. Southern and Western farmers sought regulation—and, ultimately, their radical wing sought nationalization—of the railroads to ensure their “equitable” operation. Another agrarian goal was large-scale coinage of silver to reverse its 1873–74 demonetization, and to provide “easier” money to foster trade with countries on the sterling standard.
Above all, many farmers sought new outlets for their crops. The deflation of 1873–79 gave them added reason to look abroad. According to William Appleman Williams, an “export bonanza” in 1877–81, occasioned by natural disasters affecting European agriculture, underscored the possibilities that overseas markets held for American prosperity. The bonanza’s end, when European farmers recovered, only reinforced the growing conviction that larger export markets for American farmers were both desirable and necessary. Failing at first to win government assistance to open up such markets, agrarian interests exerted substantial pressure for expansion.
With the Panic of 1893 and the subsequent economic crisis, many metropolitan industrial interests arrived at the view that foreign markets were essential to their prosperity. The turning point came when metropolitan Republicans, led by Ohio Governor William McKinley, presented a program attractive to industrial and agrarian interests alike. This set the stage for McKinley’s emergence as leader of an expansionist coalition. The stage was now set for the next stage of government / private sector economic integration... and in case you are wondering - the answer is yes. It's called fascism.
The developments summarized above were not natural or inevitable outgrowths of a market society. Rather, they fit the pattern of “export-dependent monopoly capitalism” as analyzed by Joseph Schumpeter, Ludwig von Mises, and E.M. Winslow.
Next week - Schrumpter and the second coming of Locke, Hume and Smith.
Wednesday, September 10, 2008
The Two things...
Well, my old pal Thomas Friedman is at it again, chewing up stuff we already know, and spitting out the obvious - but he does make some good points. Last time his tome "The World is Flat was stupefyingly obvious on it's take on globalization, flattening linear relationships between countries, people, blah blah blah. Now this kind of gibberish may be news to you, but engineers with MBA's saw this coming DECADES ago. But I digress - check out this insanely gushy Wired article:
"Thomas Friedman is about to dive into the green-tech fray. In his latest book, Hot, Flat, and Crowded, the multi-Pulitzer-winning journalist says everyone needs to accept that oil will never be cheap again and that wasteful, polluting technologies cannot be tolerated. The last big innovation in energy production, he observes, was nuclear power half a century ago; since then the field has stagnated. "Do you know any industry in this country whose last major breakthrough was in 1955?" Friedman asks. According to the book, US pet food companies spent more on R&D last year than US utilities did. "The Stone Age didn't end because we ran out of stone," he says. Likewise, the climate-destroying fossil-fuel age will end only if we invent our way out of it.
But he's not suggesting a new Manhattan Project. "Twelve guys and gals going off to Los Alamos won't solve this problem," Friedman says. "We need 100,000 people in 100,000 garages trying 100,000 things — in the hope that five of them break through."
Our current efforts are not only inadequate, they're hopelessly haphazard and piecemeal. Friedman argues it'll take a coordinated, top-to-bottom approach, from the White House to corporations to consumers. "Without a systems approach, what do you end up with?" he asks. "Corn ethanol in Iowa."
The New York Times columnist, who keeps up a punishing travel schedule, is just back from the Middle East and London. "If you don't go, you don't know," he says. Such wanderings provided the material for his 2005 best seller, The World Is Flat. Now he has added two new terms to his diagnosis of global ills: the intertwined problems of climate change and population growth — "too many carbon copies," as he puts it.
In this new world, governments and companies that take the lead will find themselves with the single most valuable competitive advantage of our time.
To illustrate, Friedman tells the story of a Marine Corps general in Iraq who requested solar panels to power his bases. Asked why, he explained that he wanted to win his region by "out-greening al Qaeda." Instead of trucking in gas from Kuwait at $20 a gallon — money that fuels oppressive petro-dictatorships — in convoys that are vulnerable to roadside bombs, why not beat the insurgents by taking away their targets and their funding?
Coming out months before the presidential election, Crowded is sure to bigfoot its way into the campaign. "McCain and Obama come from the right side of this debate," Friedman says. "They have the right instincts, but neither is quite there yet. They haven't yet thought it through fully." The battle over "green," he believes, will define the early 21st century just as the battle over "red" (Communism) defined the last half of the 20th."
Now this all well and good, but we already know this stuff - or we should. And Friedman brings absolutely nothing new to the table (read my own, very general Energy Overview). What I am going to do is post snippets from my Ph.D thesis on "The Rise of State Capitalism", as a public service to you smart folks out there, and then you can see how "market shaping" as he puts, REALLY can work. But this nonsense is... well, nonsense! This guy is as stupid as T. Boone Pickpocket, but not nearly as transparently greedy.
more later--->
Monday, September 08, 2008
Energy Efficiency: The Other Alternative Fuel
Proven methods for industry to reduce energy consumption and environmental impact are already at hand. These cost-effective solutions promise substantial return-on-investment now and in the future, without sacrificing performance or quality. The trick is to apply scales of efficiency across the total spectrum of the energy paradigm - from generation to distribution to storage to end use.
By applying a suite of cost-effective power and automation solutions from technology leaders, currently in use power generation facilities can achieve substantial energy savings today without waiting for the “alternative fuels” of the future.
I guess I've beaten that horse to death, so -
By applying a suite of cost-effective power and automation solutions from technology leaders, currently in use power generation facilities can achieve substantial energy savings today without waiting for the “alternative fuels” of the future.
Through these continuous improvement methods, existing plants and factories can systematically reduce both energy requirements and their impact on the environment. Such improvements will become increasingly valuable as fuel costs continue to rise due to today’s global supply and demand dynamics, and pressures grow for environmental compliance. Products that deliver equal or greater performance while reducing energy consumption will bring greater flexibility in overcoming these pressures.
By selecting proven products and operations strategies that feature built-in energy savings, new plants and factories can start with highly efficient production and immediately begin reaping the rewards of lower costs without sacrificing functionality. Existing plants can achieve the same benefits with techniques for asset optimization that deliver greater performance from installed systems.
I guess I've beaten that horse to death, so -
The actual movement of energy itself can become more efficient, illustrated by research that now allows moving large amounts of electric power efficiently to where it is needed without building new power plants. For example, power can be transferred from one power grid to another safely and cost effectively using proven technology such as High Voltage Direct Current (HVDC). This approach reduces cabling costs versus conventional alternating current links, and allows power to travel in either direction to compensate for demand variations.
Energy Efficiency as an Energy Solution
With dramatic surges in fuel costs, procrastination in adding fuel efficiency to existing operations can be an expensive error. Hoping that the current energy crisis is temporary, and that price spikes will eventually become valleys of lower costs, is most likely wishful thinking. Today’s crisis has manifested itself through a host of different dynamics.
While yesterday and today's energy crises were / are often the ramifications of politics, the situation NOW is driven by classic market forces of supply and demand, and the world-wide perception of peak-oil (more about that in later posts) The thirst for fossil fuels in the developed world is barely quenched by known reserves. Added to this is the growing demand from nations in the developing world, be it Asia, Latin America or Africa, who are putting ever-increasing demands on dwindling energy reserves.
Surely, one can assume that necessity is the mother of invention, and greater demand and lessening supply will result in new energy resources being introduced. Even if new alternative fuel sources appear promising, they are not a quick fix. It will take years, if not decades (see Energy Overview below), to create substitutes for current fuels. Additionally, chances are good that alternative fuel sources will not bring down the cost of energy much at all. Indeed, while alternative fuels may make energy more plentiful in the years to come, it is very likely they will be even more expensive than current fuels due to the highly technical processes required for extracting and processing them.
In the meantime, what can companies and organizations do? They can take control of the situation and install proven fuel efficient products and applications that increase their return on investment in today’s economic climate. The technology for achieving this energy efficiency is here today. The products and applications are available, and the expertise from technology leaders are in place to bring optimization methods to the plant and factory floor without delay. Investing in energy efficiency will not take the place of searching for new energy resources. It will, however, help industry to blunt the effects of higher fuel prices and develop the mindset that “the other alternative fuel” is already in hand.
The Looming Issue & The Dirty Little Secret(s)
Let's take a look, in reverse order, my concerns about the most to alternative energy as our nations primary power source. First, Let me re-emphasize that I believe we must do this - the long needle in the American vein called Petroleum, must be dealt with, and like withdrawal from heroin, it will be painful. But it can be done, but some groundwork has to be done first, So let's get going!
The solution to this problem would seem to be a no-brainer: develop a new and modern power grid as alternative energy sources are developed. Use the old, antiquated grid as a stopgap during the interim and, later, as a backup system for as long as needed. Something similar was done during the creation of the Interstate Highway System. Simple? Yes. Easy? Not on your life, friends!
The grid as built, has minimal redundancy, insufficient safeguards against cascading power outages, and inadequate resistance to weather damage. The result has been massive regional blackouts in the past, as well as far too many localised ones. It's only a matter of time before we suffer national- and even continent-wide grid failures. The grid has to be reconfigured and rebuilt, which will cost a lot of money, will require regulation of power companies, and raise the price of electricity to something closer to its true cost. In other words, it's gonna hurt.
Well, one person's cost is another person's income, so spending the money isn't a problem. Reasonable regulation of corporations is not a bad thing, either. They should either pay more taxes to cover the cost of externalities, or accept regulation. That's only fair. As for higher electricity costs, that will encourage more efficient use of power.
The analogy of the grid to the highway network is apt. The Interstate highway network was conceived, planned, and supervised by the government. Only a power grid conceived, planned, and supervised by the government will do the job. Part of the dirty little secret actually belongs to the environmentalists and states who will not allow the construction of new transmission lines to accommodate wind energy while they lecture the rest of us on how badly we need clean energy and put up roadblocks everywhere to make it as difficult as possible. Presidents, Congresses and the American people have spent the last thirty years not developing a coherent energy policy. None of the possibilities are problem-free. Wind power can be noisy and degrade scenic views. Solar power is uneconomical, additional drilling won't yield enough new energy and won't be available in a reasonable time frame. And as many engineers point out, our infrastructure isn't ready. The curmudgeon in me wants to point out that we deserve this mess we've gotten ourselves into, but that's the easy shot. Instead we need a national debate and determination about how to power the country. Instead we have politicians who seem to think that this problem developed in the last six months and can be solved by granting oil companies more rights to drill. And more tax credits.
We do deserve this mess we're in, but the question is what do we do about it and so far nobody seems to have a good plan.
Another dirty little secret of the clean energy / power grid issue is that while generating it is getting easier, moving it to market is not.
Again - we need to develop a new and modern power grid as alternative energy sources are developed. Use the old, antiquated grid as a stopgap during the interim and, later, as a backup system for as long as needed. Something similar was done during the creation of the Interstate Highway System.
The solution to this problem would seem to be a no-brainer: develop a new and modern power grid as alternative energy sources are developed. Use the old, antiquated grid as a stopgap during the interim and, later, as a backup system for as long as needed. Something similar was done during the creation of the Interstate Highway System. Simple? Yes. Easy? Not on your life, friends!
The grid as built, has minimal redundancy, insufficient safeguards against cascading power outages, and inadequate resistance to weather damage. The result has been massive regional blackouts in the past, as well as far too many localised ones. It's only a matter of time before we suffer national- and even continent-wide grid failures. The grid has to be reconfigured and rebuilt, which will cost a lot of money, will require regulation of power companies, and raise the price of electricity to something closer to its true cost. In other words, it's gonna hurt.
Well, one person's cost is another person's income, so spending the money isn't a problem. Reasonable regulation of corporations is not a bad thing, either. They should either pay more taxes to cover the cost of externalities, or accept regulation. That's only fair. As for higher electricity costs, that will encourage more efficient use of power.
The analogy of the grid to the highway network is apt. The Interstate highway network was conceived, planned, and supervised by the government. Only a power grid conceived, planned, and supervised by the government will do the job. Part of the dirty little secret actually belongs to the environmentalists and states who will not allow the construction of new transmission lines to accommodate wind energy while they lecture the rest of us on how badly we need clean energy and put up roadblocks everywhere to make it as difficult as possible. Presidents, Congresses and the American people have spent the last thirty years not developing a coherent energy policy. None of the possibilities are problem-free. Wind power can be noisy and degrade scenic views. Solar power is uneconomical, additional drilling won't yield enough new energy and won't be available in a reasonable time frame. And as many engineers point out, our infrastructure isn't ready. The curmudgeon in me wants to point out that we deserve this mess we've gotten ourselves into, but that's the easy shot. Instead we need a national debate and determination about how to power the country. Instead we have politicians who seem to think that this problem developed in the last six months and can be solved by granting oil companies more rights to drill. And more tax credits.
We do deserve this mess we're in, but the question is what do we do about it and so far nobody seems to have a good plan.
Another dirty little secret of the clean energy / power grid issue is that while generating it is getting easier, moving it to market is not.
Again - we need to develop a new and modern power grid as alternative energy sources are developed. Use the old, antiquated grid as a stopgap during the interim and, later, as a backup system for as long as needed. Something similar was done during the creation of the Interstate Highway System.
Energy Overview - Redux
In reviewing my Energy Overview guide, I was struck by the lack of granular information on two things -
- The impact of mass market energy efficiency of reducing power consumption in many dimensions of use, in many "silos", both industrial and commercial, and
- The looming problem - the one that could kill the whole deal. That would be the decaying nature of our national power grid, the infrastructure that carries the power. Actually, we have no "national" infrastructure -it is ALL localized. This system must be upgraded, in phased steps, to mitigate cost and labor availability. A tricky situation, to be sure, but it can be done - ore on specifics later, I just wanted those thoughts captured and published.
Thursday, September 04, 2008
The Makers of Modern Schooling
borrowed from John Taylor Gatto--->
The real makers of modern schooling weren't at all who we think.
| | Not Cotton Mather |
| or Horace Mann | |
| | or John Dewey |
The real makers of modern schooling were leaders of the new American industrialist class, men like:
| | Andrew Carnegie, the steel baron... |
| John D. Rockefeller, the duke of oil... | |
| | Henry Ford, master of the assembly line which compounded steel and oil into a vehicular dynasty... |
| and J.P. Morgan, the king of capitalist finance... | |
M
The Business of Schooling
| If modern schooling has a “Fourth Purpose,” there must be an earlier three. Traditional forms of instruction in America, even before the Revolution, had three specific purposes:
The new mass schooling which came about slowly but continuously after 1890, had a different purpose, a "fourth" purpose. | |
| | The fourth purpose steadily squeezed the traditional three to the margins of schooling; in the fourth purpose, school in America became like school in Germany, a servant of corporate and political management. |
| We should reveal the mechanism of mind control training, habits, and attitudes. | |
| The secret of commerce, that kids drive purchases, meant that schools had to become psychological laboratories where training in consumerism was the central pursuit.
| |
Since bored people are the best consumers, school had to be a boring place, and since childish people are the easiest customers to convince, the manufacture of childishness, extended into adulthood, had to be the first priority of factory schools. Naturally, teachers and administrators weren't let in on this plan; they didn't need to be. If they didn't conform to instructions passed down from increasingly centralized school offices, they didn't last long.
In the new system, schools were gradually re-formed to meet the pressing need of big businesses to have standardized customers and employees, standardized because such people are predictable in certain crucial ways by mathematical formulae. Business (and government) can only be efficient if human beings are redesigned to meet simplified specifications. As the century wore on, school spaces themselves were opened bit by bit to commercialization.
T
But even in moments of greatest resistance, the institutions controlling the fourth purpose—great corporations, great universities, government bureaus with vast powers to reward or punish, and corporate journalism—increasingly centralized in fewer and fewer hands throughout the twentieth century, kept a steady hand on the tiller. They had ample resources to wear down and outwait the competition.
The prize was of inestimable value--control of the minds of the young.
School Becomes a Dangerous Place
After 1900 the new mass schooling arenas slowly became impersonal places where children were viewed as HUMAN RESOURCES. Whenever you hear this term, you are certain to be in the presence of employees of the fourth purpose, however unwitting. Human resource children are to be molded and shaped for something called "The Workplace," even though for most of American history American children were reared to expect to create their own workplaces.
I
This revolution in the composition of the American dream produced some unpleasant byproducts. Since systematic forms of employment demand that employees specialize their efforts in one or another function of systematic production, then clear thinking warns us that incomplete people make the best corporate and government employees.
Earlier Americans like Madison and Jefferson were well aware of this paradox, which our own time has forgotten. And if that is so, mutilation in the interests of later social efficiency has to be one of the biggest tasks assigned to forced schooling.
.
School Becomes An Arena of Meaningless Pressure
| | |
| | School became jail-time to escape if you could, arenas of meaningless pressure as with the omnipresent "standardized" exams, which study after study concluded were measuring nothing real. |
| For instance, take the case of Bill Bradley. . . | |
| | and George W. Bush, |
| two of the four finalists in the 2000 presidential race. Bradley had a horrifying 480 on the verbal part of his own SATs, yet graduated from Princeton, won a Rhodes Scholarship, and became a senator; Bush graduated from Yale, became governor of Texas, and president of the United States—with a mediocre 550. If you can become governor, senator, and president with mediocre SAT scores, what exactly do the tests measure? | |
| Perhaps they sort out good scientists from bad? If so, how is it that both the scientists principally involved in the Human Genome Project have strange scholarly backgrounds to say the least! | |
| | Francis S. Collins, the head of the public portion, was home-schooled, never followed any type of formal curriculum, and is a born-again Christian. |
| Craig Venter was a very bad boy in high school, a surfing bum who nearly flunked out, and he didn't go to college after graduation, but into the U.S. Army as an enlisted man before being shipped off to Vietnam! | |
School As a Place of Bewilderment and Boredom
| | As you'll learn when you read The Underground History of American Education the new purpose of schooling—to serve business and government—could only be achieved efficiently by isolating children from the real world, with adults who themselves were isolated from the real world, and everyone in the confinement isolated from one another. |
| Only then could the necessary training in boredom and bewilderment begin. Such training is necessary to produce dependable consumers and dependent citizens who would always look for a teacher to tell them what to do in later life, even if that teacher was an ad man or television anchor. | |
For further edification go to –
http://www.world-prosperity.org/
http://www.johntaylorgatto.com
Read this, if you dare!
AGAINST SCHOOL
How public education cripples
our kids, and why
By John Taylor Gatto
John Taylor Gatto is a former New York State and New York City Teacher of the
Year and the author, most recently, of The Underground History of American
Education. He was a participant in the Harper's Magazine forum "School on a Hill,"
which appeared in the September 2003 issue.
I taught for thirty years in some of the worst schools in Manhattan, and in some of the best, and during that time I became an expert in boredom. Boredom was everywhere in my world, and if you asked the kids, as I often did, why they felt so bored, they always gave the same answers: They said the work was stupid, that it made no sense, that they already knew it. They said they wanted to be doing something real, not just sitting around. They said teachers didn't seem to know much about their subjects and clearly weren't interested in learning more. And the kids were right: their teachers were every bit as bored as they were.
Boredom is the common condition of schoolteachers, and anyone who has spent time in a teachers' lounge can vouch for the low energy, the whining, the dispirited attitudes, to be found there. When asked why they feel bored, the teachers tend to blame the kids, as you might expect. Who wouldn't get bored teaching students who are rude and interested only in grades? If even that. Of course, teachers are themselves products of the same twelve-year compulsory school programs that so thoroughly bore their students, and as school personnel they are trapped inside structures even more rigid than those imposed upon the children. Who, then, is to blame?
We all are. My grandfather taught me that. One afternoon when I was seven I complained to him of boredom, and he batted me hard on the head. He told me that I was never to use that term in his presence again, that if I was bored it was my fault and no one else's. The obligation to amuse and instruct myself was entirely my own, and people who didn't know that were childish people, to be avoided if possible. Certainty not to be trusted. That episode cured me of boredom forever, and here and there over the years I was able to pass on the lesson to some remarkable student. For the most part, however, I found it futile to challenge the official notion that boredom and childishness were the natural state of affairs in the classroom. Often I had to defy custom, and even bend the law, to help kids break out of this trap.
The empire struck back, of course; childish adults regularly conflate opposition with disloyalty. I once returned from a medical leave to discover t~at all evidence of my having been granted the leave had been purposely destroyed, that my job had been terminated, and that I no longer possessed even a teaching license. After nine months of tormented effort I was able to retrieve the license when a school secretary testified to witnessing the plot unfold. In the meantime my family suffered more than I care to remember. By the time I finally retired in 1991, 1 had more than enough reason to think of our schools-with their long-term, cell-block-style, forced confinement of both students and teachers-as virtual factories of childishness. Yet I honestly could not see why they had to be that way. My own experience had revealed to me what many other teachers must learn along the way, too, yet keep to themselves for fear of reprisal: if we wanted to we could easily and inexpensively jettison the old, stupid structures and help kids take an education rather than merely receive a schooling. We could encourage the best qualities of youthfulness-curiosity, adventure, resilience, the capacity for surprising insightsimply by being more flexible about time, texts, and tests, by introducing kids to truly competent adults, and by giving each student what autonomy he or she needs in order to take a risk every now and then.
But we don't do that. And the more I asked why not, and persisted in thinking about the "problem" of schooling as an engineer might, the more I missed the point: What if there is no "problem" with our schools? What if they are the way they are, so expensively flying in the face of common sense and long experience in how children learn things, not because they are doing something wrong but because they are doing something right? Is it possible that George W. Bush accidentally spoke the truth when he said we would "leave no child behind"? Could it be that our schools are designed to make sure not one of them ever really grows up?
Do we really need school? I don't mean education, just forced schooling: six classes a day, five days a week, nine months a year, for twelve years. Is this deadly routine really necessary? And if so, for what? Don't hide behind reading, writing, and arithmetic as a rationale, because 2 million happy homeschoolers have surely put that banal justification to rest. Even if they hadn't, a considerable number of well-known Americans never went through the twelve-year wringer our kids currently go through, and they turned out all right. George Washington, Benjamin Franklin, Thomas Jefferson, Abraham Lincoln? Someone taught them, to be sure, but they were not products of a school system, and not one of them was ever "graduated" from a secondary school. Throughout most of American history, kids generally didn't go to high school, yet the unschooled rose to be admirals, like Farragut; inventors, like Edison; captains of industry like Carnegie and Rockefeller; writers, like Melville and Twain and Conrad; and even scholars, like Margaret Mead. In fact, until pretty recently people who reached the age of thirteen weren't looked upon as children at all. Ariel Durant, who co-wrote an enormous, and very good, multivolume history of the world with her husband, Will, was happily married at fifteen, and who could reasonably claim that Ariel Durant was an uneducated person? Unschooled, perhaps, but not uneducated.
We have been taught (that is, schooled) in this country to think of "success" as synonymous with, or at least dependent upon, "schooling," but historically that isn't true in either an intellectual or a financial sense. And plenty of people throughout the world today find a way to educate themselves without resorting to a system of compulsory secondary schools that all too often resemble prisons. Why, then, do Americans confuse education with just such a system? What exactly is the purpose of our public schools?
Mass schooling of a compulsory nature really got its teeth into the United States between 1905 and 1915, though it was conceived of much earlier and pushed for throughout most of the nineteenth century. The reason given for this enormous upheaval of family life and cultural traditions was, roughly speaking, threefold:
1) To make good people. 2) To make good citizens. 3) To make each person his or her personal best. These goals are still trotted out today on a regular basis, and most of us accept them in one form or another as a decent definition of public education's mission, however short schools actually fall in achieving them. But we are dead wrong. Compounding our error is the fact that the national literature holds numerous and surprisingly consistent statements of compulsory schooling's true purpose. We have, for example, the great H. L. Mencken, who wrote in The American Mercury for April 1924 that the aim of public education is not
to fill the young of the species with knowledge and awaken their intelligence. ... Nothing could be further from the truth. The aim ... is simply to reduce as many individuals as possible to the same safe level, to breed and train a standardized citizenry, to put down dissent and originality. That is its aim in the United States... and that is its aim everywhere else.(the NWO like their sheeple dull and docile-DH)
Because of Mencken's reputation as a satirist, we might be tempted to dismiss this passage as a bit of hyperbolic sarcasm. His article, however, goes on to trace the template for our own educational system back to the now vanished, though never to be forgotten, military state of Prussia. And although he was certainly aware of the irony that we had recently been at war with Germany, the heir to Prussian thought and culture, Mencken was being perfectly serious here. Our educational system really is Prussian in origin, and that really is cause for concern.
The odd fact of a Prussian provenance for our schools pops up again and again once you know to look for it. William James alluded to it many times at the turn of the century. Orestes Brownson, the hero of Christopher Lasch's 1991 book, The True and Only Heaven, was publicly denouncing the Prussianization of American schools back in the 1840s. Horace Mann's "Seventh Annual Report" to the Massachusetts State Board of Education in 1843 is essentially a paean to the land of Frederick the Great and a call for its schooling to be brought here. That Prussian culture loomed large in America is hardly surprising, given our early association with that utopian state. A Prussian served as Washington's aide during the Revolutionary War, and so many German-speaking people had settled here by 1795 that Congress considered publishing a German-language edition of the federal laws. But what shocks is that we should so eagerly have adopted one of the very worst aspects of Prussian culture: an educational system deliberately designed to produce mediocre intellects, to hamstring the inner life, to deny students appreciable leadership skills, and to ensure docile and incomplete citizens 11 in order to render the populace "manageable."
It was from James Bryant Conant-president of Harvard for twenty years, WWI poison-gas specialist, WWII executive on the atomic-bomb project, high commissioner of the American zone in Germany after WWII, and truly one of the most influential figures of the twentieth century-that I first got wind of the real purposes of American schooling. Without Conant, we would probably not have the same style and degree of standardized testing that we enjoy today, nor would we be blessed with gargantuan high schools that warehouse 2,000 to 4,000 students at a time, like the famous Columbine High in Littleton, Colorado. Shortly after I retired from teaching I picked up Conant's 1959 book-length essay, The Child the Parent and the State, and was more than a little intrigued to see him mention in passing that the modem schools we attend were the result of a "revolution" engineered between 1905 and 1930. A revolution? He declines to elaborate, but he does direct the curious and the uninformed to Alexander Inglis's 1918 book, Principles of Secondary Education, in which "one saw this revolution through the eyes of a revolutionary."
Inglis, for whom a lecture in education at Harvard is named, makes it perfectly clear that compulsory schooling on this continent was intended to be just what it had been for Prussia in the 1820s: a fifth column into the burgeoning democratic movement that threatened to give the peasants and the proletarians a voice at the bargaining table. Modern, industrialized, compulsory schooling was to make a sort of surgical incision into the prospective unity of these underclasses. Divide children by subject, by age-grading, by constant rankings on tests, and by many other more subtle means, and it was unlikely that the ignorant mass of mankind, separated in childhood, would ever re-integrate into a dangerous whole.
Inglis breaks down the purpose - the actual purpose - of modem schooling into six basic functions, any one of which is enough to curl the hair of those innocent enough to believe the three traditional goals listed earlier:
1) The adjustive or adaptive function. Schools are to establish fixed habits of reaction to authority. This, of course, precludes critical judgment completely. It also pretty much destroys the idea that useful or interesting material should be taught, because you can't test for reflexive obedience until you know whether you can make kids learn, and do, foolish and boring things.
2) The integrating function. This might well be called "the conformity function," because its intention is to make children as alike as possible. People who conform are predictable, and this is of great use to those who wish to harness and manipulate a large labor force.
3) The diagnostic and directive function. School is meant to determine each student's proper social role. This is done by logging evidence mathematically and anecdotally on cumulative records. As in "your permanent record." Yes, you do have one.
4) The differentiating function. Once their social role has been "diagnosed," children are to be sorted by role and trained only so far as their destination in the social machine merits - and not one step further. So much for making kids their personal best.
5) The selective function. This refers not to human choice at all but to Darwin's theory of natural selection as applied to what he called "the favored races." In short, the idea is to help things along by consciously attempting to improve the breeding stock. Schools are meant to tag the unfit - with poor grades, remedial placement, and other punishments - clearly enough that their peers will accept them as inferior and effectively bar them from the reproductive sweepstakes. That's what all those little humiliations from first grade onward were intended to do: wash the dirt down the drain.
6) The propaedeutic function. The societal system implied by these rules will require an elite group of caretakers. To that end, a small fraction of the kids will quietly be taught how to manage this continuing project, how to watch over and control a population deliberately dumbed down and declawed in order that government might proceed unchallenged and corporations might never want for obedient labor.
That, unfortunately, is the purpose of mandatory public education in this country. And lest you take Inglis for an isolated crank with a rather too cynical take on the educational enterprise, you should know that he was hardly alone in championing these ideas. Conant himself, building on the ideas of Horace Mann and others, campaigned tirelessly for an American school system designed along the same lines. Men like George Peabody, who funded the cause of mandatory schooling throughout the South, surely understood that the Prussian system was useful in creating not only a harmless electorate and a servile labor force but also a virtual herd of mindless consumers. In time a great number of industrial titans came to recognize the enormous profits to be had by cultivating and tending just such a herd via public education, among them Andrew Carnegie and John D. Rockefeller.
Tre you have it. Now you know. We don't need Karl Marx's conception of a grand warfare between the classes to see that it is in the interest of complex management, economic or political, to dumb people down, to demoralize them, to divide them from one another, and to discard them if they don't conform. Class may frame the proposition, as when Woodrow Wilson, then president of Princeton University, said the following to the New York City School Teachers Association in 1909: "We want one class of persons to have a liberal education, and we want another class of persons, a very much larger class, of necessity, in every society, to forgo the privileges of a liberal education and fit themselves to perform specific difficult manual tasks." But the motives behind the disgusting decisions that bring about these ends need not be class-based at all. They can stem purely from fear, or from the by now familiar belief that "efficiency" is the paramount virtue, rather than love, liberty, laughter, or hope. Above all, they can stem from simple greed.
There were vast fortunes to be made, after all, in an economy based on mass production and organized to favor the large corporation rather than the small business or the family farm. But mass production required mass consumption, and at the turn of the twentieth century most Americans considered it both unnatural and unwise to buy things they didn't actually need. Mandatory schooling was a godsend on that count. School didn't have to train kids in any direct sense to think they should consume nonstop, because it did something even better: it encouraged them not to think at all. And that left them sitting ducks for another great invention of the modem era - marketing.
Now, you needn't have studied marketing to know that there are two groups of people who can always be convinced to consume more than they need to: addicts and children. School has done a pretty good job of turning our children into addicts, but it has done a spectacular job of turning our children into children. Again, this is no accident. Theorists from Plato to Rousseau to our own Dr. Inglis knew that if children could be cloistered with other children, stripped of responsibility and independence, encouraged to develop only the trivializing emotions of greed, envy, jealousy, and fear, they would grow older but never truly grow up. In the 1934 edition of his once well-known book Public Education in the United States, Ellwood P. Cubberley detailed and praised the way the strategy of successive school enlargements had extended childhood by two to six years, and forced schooling was at that point still quite new. This same Cubberley - who was dean of Stanford's School of Education, a textbook editor at Houghton Mifflin, and Conant's friend and correspondent at Harvard - had written the following in the 1922 edition of his book Public School Administration: "Our schools are ... factories in which the raw products (children) are to be shaped and fashioned .... And it is the business of the school to build its pupils according to the specifications laid down."
It's perfectly obvious from our society today what those specifications were. Maturity has by now been banished from nearly every aspect of our lives. Easy divorce laws have removed the need to work at relationships; easy credit has removed the need for fiscal self-control; easy entertainment has removed the need to learn to entertain oneself; easy answers have removed the need to ask questions. We have become a nation of children, happy to surrender our judgments and our wills to political exhortations and commercial blandishments that would insult actual adults. We buy televisions, and then we buy the things we see on the television. We buy computers, and then we buy the things we see on the computer. We buy $150 sneakers whether we need them or not, and when they fall apart too soon we buy another pair. We drive SUVs and believe the lie that they constitute a kind of life insurance, even when we're upside-down in them. And, worst of all, we don't bat an eye when Ari Fleischer tells us to "be careful what you say," even if we remember having been told somewhere back in school that America is the land of the free. We simply buy that one too. Our schooling, as intended, has seen to it.
Now for the good news. Once you understand the logic behind modern schooling, its tricks and traps are fairly easy to avoid. School trains children to be employees and consumers; teach your own to be leaders and adventurers. School trains children to obey reflexively; teach your own to think critically and independently. Well-schooled kids have a low threshold for boredom; help your own to develop an inner life so that they'll never be bored. Urge them to take on the serious material, the grown-up material, in history, literature, philosophy, music, art, economics, theology - all the stuff schoolteachers know well enough to avoid. Challenge your kids with plenty of solitude so that they can learn to enjoy their own company, to conduct inner dialogues. Well-schooled people are conditioned to dread being alone, and they seek constant companionship through the TV, the computer, the cell phone, and through shallow friendships quickly acquired and quickly abandoned. Your children should have a more meaningful life, and they can.
First, though, we must wake up to what our schools really are: laboratories of experimentation on young minds, drill centers for the habits and attitudes that corporate society demands. Mandatory education serves children only incidentally; its real purpose is to turn them into servants. Don't let your own have their childhoods extended, not even for a day. If David Farragut could take command of a captured British warship as a pre-teen, if Thomas Edison could publish a broadsheet at the age of twelve, if Ben Franklin could apprentice himself to a printer at the same age (then put himself through a course of study that would choke a Yale senior today), there's no telling what your own kids could do. After a long life, and thirty years in the public school trenches, I've concluded that genius is as common as dirt. We suppress our genius only because we haven't yet figured out how to manage a population of educated men and women. The solution, I think, is simple and glorious. Let them manage themselves.
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