The Wrongologist

What’s
Wrong Today:

Here
is more news about the world of the ultra rich, those shameless wealthy who treasure their stuff more than life itself — at least more than other
peoples’ lives. The Economist has
an extremely telling report
about Freeports.

Freeports are tax havens located at airports around the world. The super wealthy are
using free ports to hold very high end assets, like art collections. The
advantage is that if the assets are housed at a Freeport, it is not subject to
taxes, and the goods held in them are, well, anonymous, no government knows
what is held there, and thus they provide a fine new loophole for the
uber-rich.

From
The Economist:

Today in 1968, one of
the bigger influences on the Wrongologist’s writing, Upton Sinclair, died. Sinclair wrote eighty
books. His most important books made a real difference in America: He wrote the
classic muckraking novel, The Jungle (1906), that exposed conditions in the US
meat packing industry. The Jungle
contributed to the passage of Pure Food and Drug Act and the Meat Inspection Act later in 1906.

In 1916,
he wrote King
Coal, about Wall Street and the coal-mining industry.

In 1919, he published The Brass Check, an exposé of American
journalism that publicized the issue of yellow
journalism and the limitations of the “free press” in the United States.
Four years after the initial publication of The Brass Check, the
first code of ethics for journalists was created.

He won the
Pulitzer Prize for fiction for Dragon’s
Teeth, about Hitler’s rise to power, in 1943.

Many of
his novels are about life in the domain of Wall Street. Although the
industrial processes described in his books are outmoded today, the financial
chicanery and greed of today’s financial giants are simply more refined. His
work takes on a new relevance in our current time of market manipulation and
destruction of the commons under the guise of a free market.

Some thoughts about Sinclair by others:

Wikipedia quotes Time
magazine, who called him “a man with every gift except humor and silence.”

Howard Zinn said: “…at
the end of the novel The Jungle, Sinclair has one of his characters
present a picture of what a good society would be like:

• It
  would be a society in which the fruits of the Earth were shared in a kind of
  rough equality

• In
  which corporate profit would not be the driving motive of the economic system…

• In
  which democracy would exist

• In
  which people would have a voice not just in voting and choosing political
  leaders but a voice in how the economic system operates.”

Edmund Wilson: “Practically alone among the American writers of
his generation, [Sinclair] put to the American public the fundamental questions
raised by capitalism in such a way that they could not escape them.”

A few quotes from
Sinclair for your contemplation:

• “One
  of the necessary accompaniments of capitalism in a democracy is political
  corruption.”

• “They
  were trying to save their souls – and who but a fool could fail to see that all
  that was the matter with their souls was that they had not been able to get a
  decent existence for their bodies?” – The
  Jungle Ch. 23

• “You
  don’t have to be satisfied with America as you find it. You can change it. I
  didn’t like the way I found America some sixty years ago, and I’ve been trying
  to change it ever since.”

• “They
  were beaten; they had lost the game, they were swept aside. It was not less
  tragic because it was so sordid, because it had to do with wages and
  grocery bills and rents. They had dreamed of freedom; of a chance to look about
  them and learn something; to be decent and clean, to see their child grow up to
  be strong. And now it was all gone-it would never be!” The Jungle, Ch. 14

Upton
Sinclair documented and disrupted his era. The Jungle and The
Brass Check both changed American history. His best works deal with the
unbridled profit motive and human exploitation, and they remain relevant. They stand with the best of US political literature,
even today.

What
Sinclair did was, at the same time, simple and profound: His life was about helping people of
his era understand how society was run, by whom and for whom.

We
need the new media Sinclair’s to come forward and teach us today.

Last
week was chock full-o’-news: We saw the JFK anniversary, the end of the easy Filibuster
by Republicans, and a temporary deal with Iran. This week, many Americans will
have a ceremonial turkey dinner and a trip to the mall to begin their efforts to
boost the economy. Well, except for Walmart workers, who need financial support
in order to make it through the holidays.

The author Phillip Dick said in “The Man in the High Castle”:

Walmart helps with the declining hope:

Aren’t you glad the Pilgrims didn’t need visas to land here?

A week to celebrate the eternal flames of each party:

The reasons behind using the Nuclear Option:

Harry Reid pisses off the elephant:

Remembering the day the Music Died:

Today is the 50th anniversary of John F. Kennedy’s
assassination. A tsunami of books, blogs, movies and TV reports are now hitting
the beach. They dissect every element in the story of John F. Kennedy.

How do we remember JFK, that sad day and the legacy of his
presidency? Everyone has a story; each has an opinion about the man, the
assassination and the times since his death. Today, the Wrongologist will share
his thinking, and asks that you also share yours.

In a sense, his assassination marked the beginning of the end of
America’s optimism: The inspiring promise of an exciting future began to die that
November day 50 years ago, along with Kennedy.

In the early 1960s,
many in America were willing to believe that JFK was someone who would “get the
country moving again”. Action and dynamism were central to Kennedy’s appeal.
During his 1960 presidential campaign, he called out the Republicans for eight
years of stagnation:

Kennedy gave urgency
to the idea of pursuing a national purpose—the New Frontier, a great American vision.
In 1960, which was just 15 years after the end of World War II, momentum
had been slowly building in the United States, fueled by anxieties about our
rivalry with the Soviet Union and by optimism about the dynamic performance of
the American economy. Kennedy
embodied certainty. His orientation was toward the future, rather than the
past.

A member
of the “Greatest Generation”, Kennedy had survived great difficulty, and
he had confidence as did others of that generation, that they could build a
better future.

How
different JFK was from the Baby Boomers who followed him: Even today, Boomers
are nostalgic for their youth; they look backward more than forward. They may
be remembering the loss of JFK, and with him, much of their idealism. Now, as
they enter their dotage, many are blaming the mess they’ve made on others.

Growing up, the Wrongologist believed that America could do
anything. He had worked in the civil rights movement. He worked to help elect
Kennedy, doing door-to-door canvassing on Long Island in 1960. He graduated
from high school in 1961 and was in college in Washington, DC, sitting in class
when JFK was killed in 1963. He watched Lee Oswald get shot live on TV. He was
drafted and went into the military in 1966. Then, with Lyndon Johnson presiding,
came the escalation in Vietnam. And in 1968, the Tet Offensive, the
assassinations of Martin Luther King and Robert Kennedy, the riots, Lyndon Johnson’s “I shall not
seek” speech, when he pulled out of the race for a 2nd term as
President, opening the path to Richard Nixon.

1968 was a fulcrum year for America. We were stumbling toward
the unknown. Young demonstrators, certain of the essential rightness of their
worldview, were arrayed against an establishment that also had moral certainty
about their opposite worldview.

In a sense, there is a direct line from JFK’s death to Ronald
Reagan. In between, we had a succession of presidents who could not articulate
a vision for the country, who did not truly command respect globally, who did
not leave the country in a better place than they found it.

We experienced Nixon and the Mai Lai massacre, the Kent State
shootings, price controls and Watergate. Then, Ford and the fall of Saigon. Carter
gave us the oil embargo, the Iran hostages, 18% prime loans, and gas shortages.
Carter made America feel insecure, opening the door for Ronald Reagan.

Reagan sold the American people a new vision and an ideology of
lower taxes and small government. His optimism helped him capitalize on the
Kennedy legacy. 29% of Dems who voted
for Carter in his 1st term voted for Ronald Reagan. Kennedy and Reagan shared
an anti-communist fervor. In 1963, Kennedy said that he was a Berliner, meaning
that we would never accept the USSR controlling East Germany. In 1987, Reagan
said “Mr. Gorbachev, tear down this wall”, thereby capturing some of JFK’s Berlin
magic.  

Millennials have no real concept of
what has been lost. They have no memory of believing that anything was possible
with hard work and a little luck. They have no memory of good union wages, of ordinary
workers buying a new car every 2 years, of plentiful summer jobs that paid college
students today’s equivalent of $21/hour. Few have seen lower middle class stay-at-home
moms keeping house in the home the family owns.

We
have had 9 presidents since John Kennedy. Were any truly great? Which if any, changed
the course of history? It is arguable that both Reagan and G.W. Bush changed
the course of America, but it was not for the better.

Did
any of these presidents, with the possible exception of Johnson, make America a
better place to live?

Thinking
about Kennedy, it was his handling of the Cuban missile crisis that is his
legacy. He saved the world from what was a real threat of a nuclear war. Today,
we think that nuclear war couldn’t happen, but in 1962, it could easily have
happened, given Khrushchev and our military. This was the nation’s closest
approach to WWIII and nuclear holocaust.

When people recall
JFK’s domestic record, they think of civil rights, especially the struggle to
end segregation. Jim Crow was still flourishing in the Deep South. It is important
to remember that Kennedy was elected President just 6 years after the Brown v. Board of Education decision
by the Supreme Court. That decision said racially separate schools were not
equal schools under the Constitution.

Ferment over civil
rights began before JFK was elected president. President Eisenhower sent the
101st Airborne Division, and later the Arkansas National Guard to enforce
school integration in Little Rock, Arkansas in September, 1957. Yet, when Eisenhower
tried to pass a civil rights bill in 1957, Senator
Kennedy voted with southern (segregationist) Democrats against the bill.

He was thus thought
of as a “moderate” on the civil rights issue when he ran for
President. He only partially overcame that label during the 1960 campaign, as 32% of black votes went to Richard Nixon in 1960.

JFK did not live long enough to be a great president. He was a conservative Democrat,
anti-communist and a political realist. He skillfully surfed the wave of popular
opinion. His most memorable quality was his charm, that was attractive to many
Americans. 

His
violent death came at a time of great upheaval for the country that was being driven
by civil rights and Vietnam. Death propelled him into mythology for many
Americans. Many believe that he would have side-stepped the problems of the
mid-to-late 1960s. Many believe that he would not have escalated our
involvement in Vietnam, for example.

But,
it is likely that he would have dealt with these issues similarly to Johnson and
Nixon, had he lived. A different question is: Would Nixon have become the next
President if JFK lived? If not, where would we be now?

So, on this day, what
do you remember?

Was JFK a great
president?

Do you believe Oswald
acted alone?

The
Wrongologist and Ms. Oh So Right are on a quick trip to a warmer climate. That
seems appropriate, since it was 19°F here last night.

There
will be a post on JFK tomorrow, and Sunday Cartoon Blogging will appear on
Monday.

Stay warm,
my friends.

Today is the 150th
Anniversary of Abraham Lincoln’s Gettysburg Address. His speech was 271
words long and took just two minutes to deliver. For younger readers, that’s slightly less than 2 tweets.
Lincoln gave his short speech during the middle of the Civil War, on November
19, 1863.

Back then, the New York Times reported:

You can read the Gettysburg
Address here.
Today’s anniversary brings to mind that we will remember John F. Kennedy’s assassination
on Friday. Many have written about the unlikely connections between Lincoln and
Kennedy, most of which offer no insight into either individual, but their
speeches tell us a lot about each person, and there are similarities in the power
of rhetoric used by both Presidents.

One interesting fact is that Abraham
Lincoln gave his 1st inaugural speech in 1861 and John F. Kennedy
gave his 100 years later, in 1961.

Their inaugural speeches, unlike
many, are also memorable. Lincoln, as the nation was beginning to split apart,
ended his speech by affirming that the Union would endure once Americans were again
guided by the “better angels of our nature.” Succession had already happened by
Lincoln’s first Inaugural. Jefferson Davis had been inaugurated as President of
the Confederacy two weeks earlier. Lincoln had arrived in Washington in secret
to avoid danger. He spoke
almost exclusively about succession and slavery:

He
did clearly say that no one had the right to secede from the union, and that he
would oppose succession, but not slavery. He ended with:

He had no speechwriter, yet: “the
mystic chords of memory…will yet swell the chorus of the Union when
touched…by the better angels of our nature” is as near to capturing the
essence of what it means to be part of one’s country. He speaks to the nation in
words that all can hear.

At his 2nd Inaugural, the Civil War
had ended, and Lincoln sought to take the nation on a journey of healing:

Lincoln would die a little more than a month later.

And a century later, John F. Kennedy took office on a cold day, during a
cold war that threatened to end the world through the use of nuclear weapons.
There were domestic issues that again threatened the Union in the form of civil
rights and school desegregation. JFK gave what was the 4th shortest
and arguably the most
memorable inaugural address. We all know these words:

Kennedy optimistically called for cooperation among nations in challenging
“tyranny, poverty, disease and war itself.” He concluded by asking Americans
and our “fellow citizens of the world” to consider “what together we can do for
the freedom of man.”

Unlike
Lincoln, Kennedy had a speechwriter, the gifted Ted Sorensen, who died in 2000.
In his memoir, “Counselor” he wrote:

This
speech was the template for the great JFK speeches that followed. It had energy
and determination; it contained a real agenda for the future; and it energized
a quiescent generation that previously had not been asked to do anything.
Like Lincoln’s Gettysburg Address and his Inaugurals, Kennedy’s Inaugural contained
both power and poetry, including, “Let every nation know…that we shall oppose
any foe”.

Lincoln
said he would not interfere with slavery, but the Civil War that he prosecuted did ultimately end slavery. Kennedy, like Lincoln, would revise his views
about the federal government’s role in securing civil rights for all in
America.

Our leaders often can’t determine
or even anticipate the course of events. Much of their individual greatness has
come from their ability to adapt and change, and then communicate to us in ways that help us understand
the ideals that define us.

As Lincoln said, we are sometimes
guided by the better angels of our nature.

The speeches of both men are
worth remembering for reasons beyond the eloquent phrases or the coincidence
of their being 100 years apart. Lincoln
and Kennedy, perhaps unlike other American presidents, except perhaps FDR, had
a unique ability to stir the soul and define our purpose as a people.

 

Another week where it was difficult to determine if we were
supposed to laugh, or pound our palms into our foreheads. We saw more of the
Obamacare unravel, the 60 Minutes retraction, and Mr. Boehner saying, “No need
for immigration reform, or for ending employment discrimination for gays, or
for filling vacancies in the judiciary.” Use this faux Mark Twain quote to
write a homily that fits this week into the cosmos:

Mr. Obama gets a few helping hands:

Will Obamacare run with a little bailing wire and chewing gum?

Rule #1 in governing (and everywhere else): Don’t announce that something important will work, then have it spectacularly fail, and expect to go on your merry way. In the long run, Obamacare is likely to be as popular and permanent as Medicare, but, in the short term, it is the worst political crisis of Mr. Obama’s presidency.

Lara Logan channels her inner Andy Rooney:

Benghazi Bites CBS and the Truthers:

Party of “No” fails to see the connection:

Congress must love Vets; since it creates so many of them:

What’s
Wrong Today:

How
many times did Mr. Obama apologize yesterday? You probably lost count, but it
was 10 times. Apparently, he needed to call for allowing people to keep their health
plans, because members of his party are freaking out as they head home today to
face what they assume will be angry constituents.

There
will be a vote in the House today on the Upton Bill which is another way to effectively
end Obamacare. The bill will never become law, but it is more Republican sport
as they turn from their huge defeat (the shutdown) to find political gold.

It’s not just
the website that is hurting Mr. Obama; it’s the cancellation of pre-existing
policies. He told people they could keep their policies, but that decision
was never his to make. It was up to insurance companies. Since there is no
robust public option, Mr. Obama does not have any significant leverage over the
insurance companies. There is nothing he can do to them, so insurance companies
are doing what is in their best interest.

Most of
the carnage about canceled plans affects those people who purchase insurance as
an individual, or as part of a group made up of individuals, or (very) small
businesses. A little-known fact about the policies that these individuals or small
groups hold is very few keep them for very long. The WaPo Fact Checker blog notes that less than 4.8% kept their plans longer
than 44 months. Why is that important? Because the Obamacare law
“grandfathered” plans obtained before March 23, 2010, which was 44 months ago. The DHHS knew this when they were
drafting the bill. From Fact Checker: (emphasis by the Wrongologist)

Moreover,
HHS relied on a study by Health Affairs, “Patterns Of Individual Health Insurance
Coverage, 1996–2000”. The study noted that, for most people, buying
individual insurance is itself a temporary condition: (emphasis by the Wrongologist)

A “spell”
means a period of insurance coverage. Maybe we are under another kind of
“spell” by our politicians.

The study
showed that only half of those holding individual policies have to buy private
insurance for longer than 6 months. The turnover in that market is already very
high so “keeping your policy if you
like it” may not even be relevant for most of them.

Translating all this,
less than 5% of individual health insurance policy holders have kept their
policies long enough to be grandfathered under the ACA. This means about 95%
percent of people now getting cancellation notices almost certainly purchased
their plan after the effective date of
the law.

So, Mr.
Obama is losing the messaging war. The perception is that Obamacare cancelled
people’s policies and is raising everybody’s rates.

• Obamacare
  hasn’t canceled anyone’s policy…That was done by an insurance company.

• Obamacare
  hasn’t raised anyone’s rate…That was done by an insurance company.

Mr. Obama
is losing the messaging war either by not knowing the facts, or by not paying
attention. He thought he could make deals with the insurance companies, and still
make sure everyone wins. Maybe not this time. Obamacare was designed to be a
windfall for the insurance companies. They were to get millions of new insureds.
But, they seem to want to bite the hand that feeds them. 

The ACA legislation
was the result of stakeholder unwillingness to sacrifice anything to
achieve “health care reform”. Legislators heard from people who had
health insurance and were not willing to give it up. Some 85% of the voters in
this country had employer provided health insurance, and they did
not want “Medicare for all” to take over. Those who were on Medicare
deluged legislators with demands that Medicare not be changed. Many voters balked
at the idea that taxes might be raised, or the deficit increased.

The insurance
companies, medical providers and the pharmaceutical companies were adamant that
their profits could not take a hit.

The legislators
were pragmatic. Reelection demanded that they meet all of these criteria: Those
with insurance could keep it; employer-provided insurance would be kept;
Medicare would not be changed; reform would be done at no cost; and corporate
profits would be protected. The result is a gigantic, unsatisfying kluge; but
that’s what you get at the “free lunch” counter.

What
Insurance companies should have advocated for, if they were honest and/or
concerned about the people, is something like what the Swiss or Germans do,
which is fixed policies, with fixed profit rates, and fixed everything else
(very few real options, but good insurance), all done through the private
sector.

That way,
insurance executives and sales people could keep their jobs, the companies could
siphon off their share of profits, and everyone could have been covered. That
was a way to get the windfall and not go single payer. But, that’s not what the
industry chose to advocate for. Of course, those in the insurance industry
boardrooms and hospital administrative suites are going to squeeze the Obamacare
teat for all its worth and then some. That is the nature of modern corporatism.

The Republicans
are taking full political advantage of the situation, but mostly for sport.
They have never had any intention of truly replacing Obamacare; they simply
want to hang the Obamacare albatross around Mr. Obama’s neck and that of his
party.

But, Mr. Obama
is proving to be more than capable of placing the bird’s carcass around his own
neck.

What’s
Wrong Today:

From the Off
the Charts Blog:

The chart below shows that state revenue losses went deeper and have
lasted longer in the Great Recession than they did during any recent recession:

So, is the long state austerity nightmare over? No, this is the calm
before the storm. Off the Charts reports that much of the recent
revenue gain may be a one-time shift in tax payments: 

• With two months left in the fiscal
  year, the typical state has collected 8.3% more personal income taxes than
  it did in the same period last year. Sales taxes have grown more
  slowly

• 26
  of the 30 states for which data are available experienced double-digit growth
  in income tax collections between April 2012 and April 2013 

• Only a portion of the income tax
  growth reflects the economic recovery. Much of the rest reflects wealthy
  taxpayers shifting income into 2012 that they would have received in 2013
  in anticipation of federal tax rate increases in 2013

The Rockefeller
Institute found multiple indications that taxpayers did exactly that, so these gains are an aberration,
not a sustainable increase.

Even with
this recent growth, The Center on Budget
and Policy Priorities (CBPP, and sponsor of the Off the Charts blog) states
that state tax revenues have not recovered from the Great Recession. They
expect revenues to remain more than 3% below pre-recession levels, after
adjusting for inflation. And because of the one-time nature of much of
the recent revenue growth, states revenue growth is likely to decline in the
future.

Now some the
bad news: Although state revenues are finally near to pre-recession levels, the
needs they must address have greatly expanded:

• Public
  K-12 schools have 775,000 more students in the 2013 school year than in 2007

• Public
  colleges and universities have 3.2 million more students

• Nearly
  9 million more people are eligible for Medicaid

• State
  unemployment levels and poverty rates are much higher than six years ago

So, state revenues haven’t truly recovered
from the recession and they aren’t adequate to address growing state needs.

Here is
another chart from the series that appeared in the Ritholtz blog last week. It
shows State and Local expenditures by Administration. Regan is in purple, Bush
I in orange, Clinton in green, Bush II in coral and Obama in blue. As described
earlier by the Wrongologist here,
each administration is color coded and its record in government spending is
indexed to 100 at the start of the first quarter of their administrations. This
index approach allows us to view the performance of each administration against
itself.

Regan, Bush I, Clinton, Bush II and Obama all
presided during recessions, but only the Obama Administration saw no growth in state and local
expenditures. This graphically shows how
radically different the impact of the current austerity is at the state level.

Republicans are fond of saying that
government should be run like a business. Keeping with their simile, the
government is a “business” with $billions of assets. However, the
government is allowing its critical production infrastructure to collapse
because a few “board members” prefer collapse to accepting debt levels
that are near to the amount of our annual “revenues”.

In corporate life, this would constitute a
breach of fiduciary responsibility.

It would be grounds for removing them
immediately.

That should be our rule with Congress as well.

What’s
Wrong Today:

Robert
Gordon gave a TED
Talk last February about economic growth. Dr.
Gordon is Professor of Economics at Northwestern University, and one of the
world’s leading experts on inflation, unemployment, and productivity growth.

He thinks
that economic growth at historical rates is over. He says that we grew at an
average rate of 2% from 1891 to 2007, and slower since then. But, he concludes that we will have trouble
exceeding .8% annual GDP growth going forward. His talk lasts about 12
minutes. Go check it out.

He talks
about the fundamental disconnect between
technology and employment that has occurred since the start of the .com era.

In fact,
the Wrongologist believes that when the history of the last 10 years is
written, one of its darkest chapters will be devoted to the economic devastation
wrought by the de-industrialization of America. The American
Prospect wrote:

Last May, Wonkblog
reported that: (emphasis by the Wrongologist)

Today, US
manufacturing output is 2½ times greater than 40 years ago, while employing
one-third fewer workers. This is great if you are a manufacturer but not so
great if you are a factory worker.

For
most of the 20th Century, economic production involved a combination
of capital and labor. However in the 21st Century, programmable machines
and robots, some powered by artificial intelligence, are capable of doing many jobs
with little labor input. This makes for a different economy. Robots toil for
their owners, (let’s call them corporatists) who make the profits, but
obviously, the manufacturers need buyers for those goods. Buyers are harder to
find if many are falling out of the middle class.

A study
by the Massachusetts Institute of Technology (MIT) concluded that the loss of
so much manufacturing capacity in the US over the past decade has had a
negative impact on the country’s ability to innovate, which has long been
considered the nation’s greatest economic strength. The United States no longer
has the industrial “ecosystem” necessary to bring new ideas to the market, the
study says.

Today,
those with capital and the latest technologies have access to the global
marketplace. They are very same companies that have been cannibalizing our
economy for their own benefit by offshoring jobs and closing factories. Along
the way, they have reshaped our society.

Capitalism
has not been very good at working with our democratic institutions in the past
30 years. But they have gotten very good at working with captured politicians to rewrite
the rules of the game in the corporations’ favor. Long ago, companies worked
together with governments and people to build a middle class economy and
society. This was best demonstrated in the years after World War II up to the
1970s.

Yet, there
is no obvious alternative on the horizon that appears likely to employ the
millions of workers whose jobs have been outsourced to China, or turned over to
robots, or simply eliminated entirely in cost-cutting moves.

Dr. Gordon
speaks about the “4 headwinds” that will hold back growth in America. One of
those was Personal Debt. Let’s talk a bit about personal debt. The Wrongologist
has written about the economic dead end of student debt here
and here.

Even
though mortgage and consumer debt plunged in the wake of the financial crisis,
student loan balances nearly tripled from 2004 to 2012, to roughly $1 trillion,
according to a recent study
by the Federal Reserve Bank of New York. A total of 39 million people have
student debt, including more than 40% of 25-year-olds. According to the Fed
study, 35% of borrowers under the age of 30 are delinquent on their loans, up
from about 25% in 2008!

In the
20th century, no institution had a greater ability to raise people out of
poverty or had contributed more to the development of a robust American middle
class than higher education. And yet in this century, it is willingly
sinking its target market in a sea of debt.

The
Wrongologist was in a Home Depot over the weekend. There was a brochure at the check-out
that described “Project
Loans”. Apparently, Home Depot is willing to make loans up to $40,000 to
homeowners, a role that was handled by banking institutions before they discovered
derivatives.

Giving students
or shoppers at Home Depot easy access to credit is a stop gap substitute for a better
paycheck. It helps keep consumption up, but it is not a sustainable economic
strategy, since economies only succeed when there is equilibrium between buyers
and sellers. And it is that healthy balance between producers and consumers
which is a more important driver of economic prosperity than the imperative
to maximize profits which drives our economy today.

Politicians
speak of the “knowledge economy”, but the question is, knowledge for and about what?
Facebook is touted as a prime player in the knowledge economy, but it employs just
5800 to service 1 billion customers! Twitter has 200 million active customers
and 400 million registered users. It has 2300 employees.

What
is the value of Facebook and Twitter to the economy? These are two of our “best”, and they only
employ 8100 so-called knowledge workers. They have had a huge impact on society, but
cause barely a ripple in the economy. Their total employees are only a rounding
error in our economy.

Consider
Wal-Mart: this paragon of capitalism has 140 million customers and 1.2 million
employees. Its low-wage employees are the largest concentration of users of
food stamps in America.

Something is radically
wrong with the American economy. A once-robust system of “traditional
engineering”, the invention, design, and manufacture of products, has given
way to low wage jobs, while most higher wage jobs are in financial engineering
and software development.

Given automation, people have to figure out how to do much more to
be of value to corporations. The most successful will use technology to their
advantage while everyone else who can’t master the tech revolution may only
aspire to be low-wage employees or worse–jobless–and ultimately at the mercy
of others, (like the state).

In
closing, as we look out to the middle of the Century, most people will find
that if they have little to offer from a productivity perspective, much of their
consumption will have to cease and they will drop out of the middle class.

Those
that prolong their stay in the middle class by borrowing will reach a point
where their debt payments will be high enough to cut into their consumption of
food or their ability to pay rent. When maintaining their credit cuts into
their subsistence, there can be no more consumption.

What will Washington
say the solution is then?