As early as 1999, while I cold-called my way into a meager existence my first few years at Morgan Stanley, it was obvious 401(k) plans were going to be worthless for workers and an eventual money grab for Wall Street, if not already. I don’t claim any special prescience. I’m just a guy educated at a state school in Houston, born in the Texas Hill Country, and a bit of a world traveler. But my bullshit detector is world class.
That said, we Americans want everything on the cheap. Down here in Texas, we say cheapskates are “penny wise, but pound stupid.”
Said cheapness, plus an unfortunate tendency to conflate gambling and investing, which blossomed during the Reagan and Clinton eras, has created an American system of finance that is galactic in its boundless stupidity–stupidity that is only matched by how far its influence reaches into the nether regions of our government. Aside from the riveting debates between Byron Wien and Barton Biggs, what little non-sales time I had I spent researching the ins and outs of Wall Street. The first big scheme of bovine excretions I investigated were corporate sponsored 401(k)s with claims of cheap cost ratios and even greater returns. The price for both assumptions were out-sized in 2001, but on the day the last Boomer passes will end up in the trillions.
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First, cost ratios on managed mutual funds, which form the majority of Wall Street retail mutual fund sales (they get a 5 percent commission) are roughly 2 percent yearly, with some as high as 5 percent. Cost ratios on market-linked annuities (index funds wrapped in insurance blankets seeking market-like returns) can be double that. Just another in a long line of reasons to reinstate Glass-Steagall. Anyone see a problem with insurance companies guaranteeing stock-like returns with insurance wrappers providing a guarantee?
Huh, say you? That sounds like something guaranteed to blow up in your face.
It was. It did. Had AIG failed, the market-backed annuities would have failed as well. Those annuities carrying a guaranteed rate of return, owned by a failing investment bank, er, insurance company were problematic. This is something Glass-Steagall was designed to prevent. Let us put to death the sad canard of the financially ignorant: but G-S is a 1930s law designed for 1930 problems! You now know better. Hopefully you have a rudimentary understanding of its practical applications as well. But I digress.
Compound those cost ratios, as discussed above (2 percent investment fees and costs), and you’ll find yourself with a pretty deep pool of money, one for which Wall Street has created a special beer-bong like contraption, so as to drink it all in one gulp. Like Taibbi’s Vampire Squid and your obnoxious brother-in-law, Bubba, drinking at the Super Bowl party from which you so desperately tried to keep them away. Free beer? Steal it! That’s what they do.
Now, consider how much they salivate (think English Bulldog, 90* F, and 96 percent relative humidity type salivation) over the looming privatization of municipal, county, and state pension plans? It’s that obscene. The pool of money is immense. The cost ratio for one Texas pension plan is as low as Social Security, which is .52 percent or 52 basis points, last I checked. Wall Street can get 2 percent, easily. You see how huge a difference that is? Now does it make sense why there is all this talk of undoing school teacher pension plans, city plans, county plans, state plans? All so Goldman, Morgan Stanley, and a few others can rape the middle class just that little bit more.
But what about stocks? Weren’t they great investments? Sure, if you were an old fuddy-duddy like Col. K., a client of mine at Morgan Stanley. Dude was richer than Croesus, but dressed like Grandpa Clampett. Every now and then, he’d come in and sell 1,000 shares of GE or Ford or Intel. He’d simply forgotten about them and when his bank account got low, he’d dig out a certificate and bring it to me to sell. One sale of Intel was half a million dollars. $500,000. His cost basis was $9.12 and he sold it at $74 3/16. So yeah, if you bought stock like that, the market works. But this is America and everyone wants a cheap buck. So they bought Dell at $25 and sold out at $50 three months later. Or Billing Concepts at $7 and sold at $20. The list goes on forever until we get to the bubble bursting, and then Intel bought at $75 was then sold at $33. Dell bought at $51 was sold at $16. Investing is like being Pete Rose when he’s not gambling: slow and steady when you’re at bat, collecting singles and doubles like they are pennies and dimes. Pretty soon, you’re the champ! Even then, there was fraud to be found in Blue Chip stocks, like GE.
We had a saying back in the day: As GE goes, so does America. Before Jack “the Hack” was made CEO, this was gospel. But once Jack “The Hack” discovered control fraud and accounting larceny at GE, it was only a matter of time. GE was a bellwether for the entire American economy (I cannot stress this enough), but not after Jack left. First, he sold every worthwhile asset the company ever created, and all the while he cheated. How? Well, each quarter, Welch stoked a penny per share from GE’s supposedly over-funded pension fund, and used it to beat the earnings and whisper estimates on the Street. This drove the entire Dow 309. Up, up, and away.
But then the party was over. Enron collapsed, and every bad practice on Wall Street was exposed. Generation X took the brunt of the losses: Almost half of the net worth Generation X had accumulated (46 percent) in the 15 years it had been working a real job (if they’d been lucky enough to avoid a McJob, aka: temp work, that is) was lost. Baby Boomers fared better because most of their wealth was still wrapped up in their homes. Wall Street found a way to steal that money, too.
Boomers saved, bet it all on their homes, and lost. That is reality. Spin it any way you like. Boomers lost at the Blackjack table. Period.
So we’re left with the results and consequences: “We have stagnant wages, whole industries crushed, and entire cities decimated by economic collapse. Yet somehow we were individually supposed to have been able to set aside $1.5 million for our retirement.
The first time I saw this particular story was in Russia, standing on the balcony of a big Khruschev era blockhouse with my soon-to-be-wife, both looking down at the trash area, watching a babushka (literally: grandmother, informally: old lady) rummaging through the garbage. “She’s here every day,” my wife-to-be said. A year later, we got the news she had died. She was 58. She looked 75.
“That could never happen to us,” I thought, true pity stirring in my heart for this old woman.
But then I remember something I saw in Moscow two years prior; something that has stirred in me a constant feeling of discomfort, and often dread.
Upon walking through красный площадь (Red Square) and admiring Собор Василия Блаженного (St. Basil’s Cathedral), I crossed the frozen Москва-река (Moscow River), on my way to Новоде́вичий монасты́рь (Novodevichy Convent) where Peter the Great imprisoned his sister, Sofia Alekseyevna, that she cease challenging his rule. Before me rose a gorgeous stainless column topped off with a Cosmonaut. Here was Yuri Gagarin, first human in space. Let that sink in for a moment: The first human in space.
Empires and great powers fall swiftly now. Modernity is a cruel Olympian god, exacting his tolls immediately and in full. The United States of America, no matter how much it believes it is immune to the rules of history, that it is “Exceptional” is simply a lie we tell ourselves at night like the little boy whistling past the graveyard.
Scenes of elderly poverty, grim and grinding, as bad as those from our Great Depression, will soon become a regular feature in the life of United States citizens.
And that’s only the best case scenario.
This is what happens to places where the rich want to live, under an oligarchy:
Inflation Adjusted Manhattan Real Estate Prices
Yee-ha!
Yeah. I dunno. I could write a bunch of stuff, but the chart kind of speaks for itself, doesn’t it?
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More recent, but also striking, is this chart, on commute distance in San Francisco:
San Francisco Commute Distance
This, by the way, is why the idea that countries like the US and the core European countries can’t tax people is bullshit.
There just aren’t that many cities rich people want to live in, and for Western elites, they are essentially all in Western Europe or the US (maybe Canada, in a pinch). They want to live in your country, or do business there? Then you can tax them. This is especially true of the US, Britain (London), and France (Paris, south of France).
As for the peons, let them live in Detroit. Or Flint, wherever Flint is, in the scabrous country beyond where people who matter live.
No surprise, the polls were leaning strongly to both of them.
Things get interesting from here for Sanders, but Trump will be moving to strength. New Hampshire is prosperous and has done well since the financial crisis; that’s not true in most of the upcoming states.
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I think Trump will be the Republican nominee. On the Democratic side, the Clinton campaign is beginning to panic and lash out. Bernie’s national numbers keep trending up. The question is mostly whether they’re trending up fast enough to allow him to win.
Trump’s nasty endorsement of torture puts him even further beyond the pale than he was before, but he continues to be to the left of Clinton on most domestic policy.
Update: Exit polls show Bernie taking 49 percent of non-white voters. 85 percent of voters under 30. 55 percent of women. I suspect he’s the next Democratic nominee.
I am raising funds for 2016. The more I raise, the more I’ll write.
There are also two specific goals this year:
- $6,000: I will write a series of eighteen book reviews. Twelve will be on books which have influenced my political, economic, and social worldview. Six will be more contemporary books about our societies and our future. If readers want me to review particular books, let me know in comments or e-mail me.
- $9,000: I will write and release an e-booklet (thirty thousand to fifty thousand words), The Construction of Reality. This book will explain how ideology, technology, geography, and other factors create the world we live in. This book will be free to anyone who donates during the drive (and available to others for a small fee).
You won’t, most likely, be receiving The Construction of Reality cheaper if you donate, mind. You will be ensuring, instead, that I write it. Some content will be familiar to long-time readers, but other ideas will be new and the entire booklet will be put together as a single, coherent piece.
Subscriptions will count triple for both goals.
Anthony Ruelas watched for what seemed like an eternity as his classmate wheezed and gagged in a desperate struggle to breathe.
The girl told classmates that she was having an asthma attack, but her teacher refused to let anyone leave the classroom, according to NBC affiliate KCEN. Instead, the teacher emailed the school nurse and waited for a reply, telling students to stay calm and remain in their seats.
When the student having the asthma attack fell out of her chair several minutes later, Ruelas decided he couldn’t take it anymore and took action.
“We ain’t got time to wait for no email from the nurse,” a teacher’s report quotes him as saying, according to Fox News Latino.
And with that, the 15-year-old Gateway Middle School student carried his stricken classmate to the nurse’s office, violating his teacher’s orders.
What sort of person is Ruelas?
Mandy Cortes, Ruelas’s mother, told KCEN that she assumed her son–who has been suspended in the past–was to blame when the school informed her that he had been suspended again.
… “He may not follow instructions all the time, but he does have a great heart,” she said, noting that she was now considering home-schooling him.
The boy is, in other words, a troublemaker with authority issues. Thank goodness, eh?
I imagine most readers are familiar with the Milgram experiment, where university students were told to shock people by authority figures and most did so.
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I’ve always been curious what the people who refused were like, but oddly, that research did not appear to have been done.
A new Milgram-like experiment published this month in the Journal of Personality has taken this idea to the next step by trying to understand which kinds of people are more or less willing to obey these kinds of orders. What researchers discovered was surprising: Those who are described as “agreeable, conscientious personalities” are more likely to follow orders and deliver electric shocks that they believe can harm innocent people, while “more contrarian, less agreeable personalities” are more likely to refuse to hurt others.
“The irony is that a personality disposition normally seen as antisocial—disagreeableness—may actually be linked to ‘pro-social’ behavior,'” writes Psychology Today‘s Kenneth Worthy. “This connection seems to arise from a willingness to sacrifice one’s popularity a bit to act in a moral and just way toward other people, animals, or the environment at large. Popularity, in the end, may be more a sign of social graces and perhaps a desire to fit in than any kind of moral superiority.”
…The study also found that people holding left-wing political views were less willing to hurt others. One particular group held steady and refused destructive orders: “women who had previously participated in rebellious political activism such as strikes or occupying a factory.”
Most people who are popular and too agreeable do not have strong red lines. Their morality is set by authority figures and peer groups. Whatever seems okay with the people around them is okay with them.
I wrote about this in the past in my post on the Decline and Fall of Post-War Liberalism. One key part of breaking an essentially egalitarian economic order was finding and destroying the people who wouldn’t go along to get along, the people who would fight.
From Wikipedia
This was done by creating a set of bullshit laws: Drug laws. Consensual activity which harmed no one (especially in the case of marijuana) was made illegal.
The sort of people who wouldn’t obey rules, laws, or orders that didn’t make sense to them disobeyed those laws and went to prison in droves, where they were destroyed politically, economically, and personally. The vast majority had committed no violence.
The gut was ripped out of America’s working and lower class troublemakers.
Since then, our method of child-raising has become one of high-surveillance. “Helicopter parenting” means children rarely spend time doing anything not approved of by parents or other authority figures. Police patrol schools. Children have cell phones, allowing their parents to check on them any time they want. Houses increasingly have internal surveillance systems to keep track of children.
People who are under constant supervision with little time to be alone or to be with friends without authority supervision tend to become “go along to get along” people, unused to thinking for themselves, and used to jumping through hoops for the approval of authority. Their entire lives have been about doing so, after all.
This is especially true of our elites, and while it’s usually been truer of them than the lower orders, it has become even more so than it was in the past. You could get into an Ivy league school in the past based on pure genius and talent; today you need excellent grades, an extra-curricular record which precludes alone time, and an essay which hits all the proper, authority-pleasing conformist points.
Society does not work for everyone when it becomes authoritarian and conformist. People are what they do, to a remarkable degree. We already had a system designed to create conformity (school is nothing but a conformity producing machine: sit down, speak only when called on, and do what you are told to do in exchange for adult approval and a decent future). The system we have now is even more designed to produce people who won’t stand up when asked, frankly, to be Nazis. Or torturers (an activity of which most Americans approve).
The troublemakers are the guarantors of your freedom and prosperity. When they are are broken, both will soon follow.
They were broken. Both followed.
He’s a nativist populist.
Yesterday, during the debate he said that he wanted something even better than the single payer that Sanders is offering. Then he said that people are dying on the street (from poverty) and that he’d make that stop.
If Trump is the general election candidate, he left-flanks Hilary on economics. It is not even close. He wants bilateral trade deals (if you are anti-“free trade,” you want this too.) He does not want to diminish Medicare and SS. He wants universal health care.
His policy platform is pitched to appeal to the working class. They don’t like immigrants, and under the current economic regime, that makes sense: They are competing for the same jobs, and there aren’t enough jobs. I favor immigration, but you have to have an economy set up to deal with it. Right now the US does not.
Trump’s got a minority problem. They aren’t going to vote for him.
But he has the ability to mobilize huge swathes of the white working, lower and middle classes.
He’s also less of a hawk than Clinton on foreign affairs.
A lot of people think he can’t win the primary, and he can’t win the general. I’m really not sure. He has the potential to be a real phenomenon. He parses as an outsider. He feels like a “conservative,” but his actual economic policies are left-wing and populist.
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He gets past, then, as many Americans desire to vote for the conservative. He will peel off a chunk of people who would usually vote Democratic for economic policy reasons. He is more credible on SS and Medicare than Clinton, which will appeal to the olds.
Steal Bernie’s free college plank (or offer something close to it), and he could clean up amongst youngsters as well.
Nothing’s guaranteed, but…
And, for the record, I think he’s more palatable than Cruz, the other front-runner. It isn’t like either of them are good candidates from my point-of-view, but Cruz is saying even crazier things than Trump, without any of the good stuff, and appears far, far more severe.
Both, are, of course, scum. Trump fell over himself to talk about how he’d torture yesterday, and I’ll have no truck with such.
But amongst evils, he’s not the worst, and that’s what American elections are about.
Pick yer poison.
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I first took Economics in Grade 11. We used the standard college textbook at time, written by Lipsey, Steiner, and Sparks.
It started with axioms–the assertions upon which economics are based. The most important axiom was the following: Humans act to maximize utility.
Utility.
What is economic utility? It’s generally defined as how useful a product or service is to someone.
How do you find out how much utility an item has?
It is a revealed preference. That is to say, how much utility something has is shown by how much people buy it and how much they are willing to pay for it.
So, Coca-Cola has vast economic utility, for example, but it has less than it used to have in many countries, where people are buying much less of it.
Basically, utility says, “Whatever action people choose to take is the one from which they derive the most usefulness.” This is known as revealed preference.
This is a circular definition; metaphysical in the worst sense. Any action we take is utility maximization. A person can never fail to maximize utility (within their budget), because their actions are what defines the actions’ utility.
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People are utility maximizers. Whatever they do is meant to maximize their utility, therefore anything they do is maximizing their utility.
Note that utility is not happiness. It is not health. It is not meaning. It is not pleasure. It is not avoidance of pain. It is not self-satisfaction. Utility boosters would claim that it includes all these things.
But you can’t measure utility except as price and behaviour. “If they do it, it must have maximal utility for them.”
This is based on another axiom of economics. “Humans are rational.” This axiom has been hit badly in modern economics, but it still underlies most of the models.
Note that utility is always measured as whatever actions people take. This allows no room for self-destructiveness (they must want to be self-destructive!), now does it allow room for not knowing what is good for oneself, for making bad decisions, for doing things which makes one unhappy, and so on.
Utility is not independently measurable. We can (sort of) measure happiness, or pleasure, or meaning, or physical health. We could then ask, “Do these actions actually produce any of these things?”
For example, money produces quite a bit of happiness up to the point where you have everything you need and some security. After that point, it doesn’t produce much compared to other things like having a loving spouse, say.
If we said, “Humans act to increase their happiness,” a common assertion in philosophy, we would have some way of measuring that, albeit roughly.
We cannot measure utility maximization, because utility is always maximized.
This is a statement of belief. “People must do things because they know those things are useful to them in some way, and they must choose that which is most useful.”
Well, no, no they don’t. You don’t need a Ph.D. to know that, you just need to have lived life and seen that people often don’t know what would improve their situations, and, when they do, they often choose not to take those actions, even when they could and often when they wish they would.
Utility maximization doesn’t make sense. Utility itself is a concept with no “useful” definition. Trying to use utility as a concept in the real world leads to circular bullshit: “Well, people are doing these things, therefore, they must be the best things for them even if they don’t seem to be. Who are we to ban trans fats in the face of revealed preferences?”
This leads to all sorts of arguments that take the form of, “Well, yes, we know X has a bad effect on people, but they have chosen X, so, therefore, we should not interfere.” This scales from drinking pop, to borrowing money for college, to activities which have caused global warming.
Actual decision-making, if it is to be rational, depends on an individual knowing their actual objectives re: the decision. Do we want more happiness? Do we want love? Do we want to be healthy? We can measure those things. (On an individual level, yes, even love. I know when I’m in love–though I grant I used to mistake infatuation for love. Still, infatuation was closer to love than not.)
As a society, we probably want to satisfice. We can’t actually measure progress in utility. We can measure progress in happiness, health, childhood mortality, and even in meaning. We can measure infrastructure deficits, and pollution, and global warming, and income mobility.
Utility is best used when you turn it into a basket of “good stuff” and measure those good things.
As for market economies, for capitalist economies, they work best when you take money (price) and you say: “The more people have of this the happier they should be.” As for “utility” maximization as a society, if money is leading to that basket of goods, you try and get everyone past the point where utility starts to sharply decline.
At that point, you work on policies which directly benefit various metrics. Do parks make people happier? Build park. Does more free time make people happier? Give them more free time. Does less chronic disease make them happier (or less unhappy)? Work on that.
How do you work on those things? You progressively tax people who are above the utility inflection point. If $40K/year is where your inflection point is, you don’t tax people who earn that amount or less, and you increasingly tax people above that.
“Any income above one million has a negligible effect on measured utility (the basket). Therefore, we are taxing you at 95 percent and will spend that money on activities which do increase ‘utility.'”
Because increased inequality decreases various, actually measurable, criteria such as health, happiness, and life-satisfaction, there is even an argument for a simple, 100 percent cutoff point. “Any income beyond this point makes you worse off, and makes society worse off.”
As for utility, as it currently exists, it is a form of Panglossianism. “Whatever a person is doing, that must be what is best for them!” We know that’s bullshit in social terms (this is not the best of all possible worlds, unless it is the only possible world), and we know it’s bullshit in terms of individuals because we all know people (and maybe are people) who could have been far better off if we’d done a few things differently or if society was a little different.
Economics, as a discipline, has some useful things to say, but it was created in an attempt to mimic not just the sciences too closely, but to mimic the certainties of Euclidian geometry and other axiomatic systems too closely.
And there is no such thing as utility in any useful, pragmatic, usable sense.
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This is not difficult. If you are a Millenial who goes or went to college and your parents aren’t rich, your life is dominated by debt from student loans.
If you haven’t gone to college, well, if it was free, you probably would.
Bernie wants to make college tuition free. Clinton does not.
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There are other parts to it, of course. Bernie’s policies are just generally better for young people, but this is the core.
This is not hard to understand.
I also find it amusingly hypocritical that the majority of Boomers oppose free college tuition, given that most of them benefited from a system which was so cheap it was almost free.
Nuremburg
Well, not all the time, but it is one of the necessary preconditions.
More broadly, when the old regime has failed (lost a war, bungled the economy), then people are willing to try something else. This “something else” may mean electing someone like FDR. It may be allowing someone like Stalin or Hitler to rise to power. It may be opting to try Communism. It may be electing someone as mild as Corbyn.
Or it may take the form of someone like Trump or Cruz.
Unhappiness occurs during decline.
Decline. The US economy has been lousy for most people for decades. Since somewhere between 1968 and 1980. 1968 was the peak of wages for working class white males, for example. You are surprised they are unhappy? They have been in decline for almost 40 years.
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Women’s wages were rising through much of the period. They might be less than men’s, but they were rising.
Happiness is predicated on doing better than in the past. It doesn’t have to better by much, it just has to be better.
Since 2008, the economy, for the majority of the population (over 80 percent, over 90 percent by some calculations), has been bad. They have lost income. Their houses are worth less. They are less likely to be employed, much less have that lesser job.
They are ripe for fascism.
They are ripe for any sort of radical change offered by anyone who doesn’t parse; doesn’t feel, like one of the current set of elites. Trump does not, Cruz does not, Sanders does not. In Britain, where the situation is similar, Corbyn does not.
This is the beginning of the time of changes. Some countries will choose well, others will not, but the issues of how and by whom countries are run is in play–in a way it has not been in my lifetime.
