Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 43 of 91

Stopping Deflation? Dead Easy. So Why Isn’t It Being Done?

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On March 27, 2016

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As with many problems we face today, this is a solved problem.

About half of the New Deal can be summed up as “wage and price supports.” The post-war economic paradigm in the West was also about making sure prices and wages rose.

Avoiding deflation, by the way, is mostly about ordinary people’s income. If you don’t want deflation, make sure ordinary people are getting more money, faster than inflation and that they’re spending it.

Oh, there’s a bunch of other stuff, most of which comes down to: “Don’t let any oligopolies or monopolies form without subjecting their prices to close control.” That means both “not too high” and “not too low.” Think classic regulated utilities.

“You will charge enough to pay your employees well, keep the infrastructure in good shape, and make five percent a year. No more, no less.”

(Five percent is an example, other (lowish) numbers can be used.)

We have, or are flirting with, deflation right now because we refuse to give ordinary people money in a way which makes them think they can afford to spend it.

We allow inflation in the worst possible areas, like housing and rental prices in cities with jobs, and luxury goods, but that’s pretty much it.

If you let fixed costs have inflation above income increases, then everything else is going to have to suffer deflation, because it is discretionary. Gotta eat and have a warm place to sleep, first.

If a government wanted to end inflation, it could be done easily enough.

First, you go back to progressive taxation on corporations and rich people, without loopholes, based on, “If you earn the money in our country you pay tax on it here.” Yes, there will be attempts at dodging (especially by multinationals); yes, there are ways to deal with them.

Then you spend the money in a way that produces local jobs and creates a tight market.

Here’s your dead simple idea: Every building in your country must be at least energy neutral, and all the energy infrastructure must be made “smart” so this can be done properly.

Financially, your central bank says, “We will accept “energy savings bonds at 98 percent,” thus creating a market for it.  Your government offers the loans. Your mortgage guarantee authority says, “We won’t guarantee any mortgage for a building which is not, at least, energy neutral.”

If you can grow some big ones, larger industrial countries must even slap a tariff on things like solar panels, so the manufacturing is done at home. The actual refitting of buildings, of course, can’t be offshored.

Lots and lots of jobs. A tight market. Raises for people in the building trades. A boom.

There are plenty of other ideas like this, because there are plenty of other things that need to be done.

The direction must be long term. It would take a long time to refit all of America’s building stock. Companies can invest in that, because they know it will still be going on in ten years. Likely longer.

Now, for this stuff to work, you must understand that high, progressive taxation is necessary. All that money will end up in a corporation or rich person’s pocket eventually. The government then takes it back and recirculates it. (Yes, MMT people, we could just print the money and forget the wealth effect, but that’s a terrible idea because oligarchies are terrible societies in which to lie.)

You should also go hard on monopolies and oligopolies (start with the app stores, which charge 30 percent–but that’s another article).

The point is simple enough: there’s a lot of stuff we should be doing, and doing that stuff would end deflation if we were serious about it. It would also make the economy a lot better for ordinary people.

This has been another episode of “how to do policy.” I remind readers that good policy is easy, and that I don’t write about it often because the problem is not good policy ideas, or how to fix our problems (we know how to fix most of them), but that our current political-economic organization does not want to implement policy that helps the majority of people if doing so will upset current concentrations of money and power.

Some sectors can die, yes (coal now, oil in the next 15 years), but the structure cannot change.

So, if you’re British, figure out how to get Corbyn elected in the face of the endless propaganda against him. If you’re in the US, Bernie is your (current) best bet. In general, figure out how to overthrow your current systems, which includes the people running them, and how to do it in such a way that there isn’t a counter coup. (This is a larger question than just electing a leader, as the UK’s Labor Party and media are currently at pains to teach Britons.)

We’ve blown the incremental change chance. Revolution will now be necessary. In some countries, it will be largely peaceful. In others, it will be stopped and stagnation will continue until destruction.

And in still others, it will be the guillotine.

Those who make peaceful rev…well, you know the rest.

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Pure Utilitarianism and Capitalism

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On March 5, 2016

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Hilary Clinton recently tweeted the following.

On the face this is unexceptional. A business exists to do certain things, and employees are hired to contribute towards those actions. We hire an employee because we think they will do a good job.

Except that in our current system, we distribute goods through money, and most of how we distribute money is through corporations. You have a good life if you have a good job, pretty much. There are exceptions and they are exceptions.

Hilary has also said that she doesn’t favor a $15/hour minimum wage.

This is what happens when you think of people as assets. Some people don’t deserve $15/hour because they don’t “add enough value.”

But they are still people, and they still need to eat, sleep in a warm place, and have the occasional bit of entertainment.

They have value that cannot be reduced to their economic utility.

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If we had a society where everyone lived well whether they had a job or not, then we could make pure utilitarian arguments about employment. But when employment is required for people to be able to live decently, or even live at all, such arguments lead to treating huge masses of people as disposable, and consigning them to awful lives.

Again, this might be ok if we lived in a scarcity society, but we don’t. We produce enough food to feed everyone, we have the ability to house everyone, and so on. This would be especially true if we would dump the doctrine of planned obsolescence and produce goods meant to last pretty close to forever.

There are other arguments, of course, like “What is utility?”, bolstered by findings that blacks, say, get half the interviews as whites with identical resumes. Those are important arguments, but they pale next to, “Everyone should have a decent life, and that shouldn’t be contingent on whether they can make money for a billionaire.”

The economy and corporations exist to serve people, not the other way around. When they do not do so, the problem lies with them. This is not a subsistence farming community, it is not, “You work, you eat.” We’d be better off, in fact, if a lot of the work we are doing wasn’t done, because so much of it does more damage than good, even if it does generate a “profit.”

The core of any decent system of ethics, and thus of any political and economic order, is Kant’s maxim that people are ends, not means. When you forget that, you inevitably descend into monstrosity.

Stopping Donald Trump at the Convention

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On March 4, 2016

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So, this is the plan. All the major candidates stay in the race, strategic is encouraged, and if Donald doesn’t have the majority of delegates at the convention, only a near-majority (because, don’t kid yourself, he’ll be close), they’ll vote for someone else.

If Clinton took the nomination from Sanders using super-delegates, well, that would cause a lot of Sanders supporters to refuse to vote for her.

But if Republicans do this, there will very likely be riots and the Democratic nominee will almost certainly win the ensuing election. I wouldn’t be surprised if Trump ran a third-party campaign.

The Republican establishment response to this has been more than tone-deaf. Using Romney to attack Trump?NeoCons writing a letter claiming he’d be bad for foreign policy?  (Worse than them?)

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All they are proving is that they don’t get it. They’re saying that the shitty world they and the Democrats have created is acceptable to them, and telling people to vote for Trump.

This has been brewing for a long time. I’ve warned since I started blogging that the US had set up the conditions for a hard man of the right or left, or a man on horseback. People wouldn’t put up with a shit economy forever. And because the right is stronger in the US, it seems likely to be Trump instead of Bernie.

And if Trump does fail this time? Doesn’t much matter. He’s shown how to do it. Someone else will.

The US economy sucked before the financial crisis.

It fell off a cliff after that and never recovered for ordinary people. Bush’s economy was trash, yes, but a lot of people got to participate in the housing bubble until it crashed. The current property bubbles are elite ones in a few cities like New York and San Francisco. The stock market, which is one of the best bull markets in history, is not something most ordinary people had much skin in (no, your pension or 401K does not cut it).

People WILL NOT TOLERATE this.

Last time the US got FDR. This time… not likely to be so lucky.

(Note: Also, “Wall Street going nuclear on Trump.” Yeah, that’ll convince people not to vote for him. Because he opposed free trade? These people are so disconnected from street reality they might as well live on Neptune.)

 

 

How Much Property Is Ethical?

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On March 1, 2016

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Mine. It’s mine. No one has the right to take anything from me. That’s theft.

It’s mine.

Property rights. What a mess.

In this age of oligarchy, the question of how much a few people, or corporations can own, or can control, is thrown into highlight again.

The novelist and priest Father Andrew Greeley used to write that the poor were not poor because the rich were rich. By the end of his career in the mid 2000’s, he was railing against greed as one of the seven deadly sins.

Property, taken widely to include money, is control. It confers the right to decide how both resources and people will be employed. It confers the right to choose a large chunk of social direction. For instance, under Jobs and Cook, Apple is a fiefdom; so long as the company stays solvent, it decides how a great deal of the activity of the best and brightest is spent. iPhones and Apple’s other innovations are great, but one can certainly imagine scenarios in which Apple employees’ time was better spent.

A more clear-cut case comes in the case of CitiBank, or any of the big banks and brokerages. These people have a LOT of money, and they control a huge chunk of the world’s resources and people–directly and indirectly. They do far more harm than good.

Property is the right to choose how resources, including people, are deployed.

Allowing private individuals and large groups to have large amounts of property is a decision to allow them to control large numbers of people and resources.

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It may be justified if they make the world a better place. It is hard to justify if they don’t. We may like what Jobs, or Cook, or Musk have done (or add your favorite tycoon, and yes, I know all of those are problematic), while admitting that most billionaires and large corporations are a pox on the world economy, restricting innovation and free enterprise; crushing wages and strangling growth until they get their share. Few will defend Monsanto or most pharmaceutical companies, most large banks or brokerages, more American health insurers, large agriculture, and so on.

Those who do defend them are generally either on the payroll or have been trained in the ethical discipline of economics, which is meant to justify concentrations of wealth and capital.

Justice Brandeis famously noted that America could have great concentrations of wealth, or democracy, but not both. Jefferson said he feared banks more than standing armies as an enemy of liberty, which is a radically strong statement if you think about it for two seconds.

It is worth understanding that our definition of property, which is historically close to maximal, is a historical, and pre-historical, outlier. In many hunter-gatherer bands, if you want something another person has, you admire it, and they hand it to you. The idea that one could own ideas, and disallow other people from using them is something which would have struck most of humanity, for most of history, as insane.

And it is not so long ago that land which was not being used could be taken by anyone who would use it productively, be damned whoever owned it on paper. You could not leave resources unused, this was considered anti-social; even evil.

Property is entirely a social construction, and for most of history, justifications for the concept of property came down to, “We got here first, so it is ours,” and, “It is to everyone’s benefit that we use it.”

Capitalism is the bestest system ever, and therefore, the inequality it mandates is acceptable. People who have more money deserve it because they work harder, and are superior people who make superior decisions. Other people wouldn’t work at all if they didn’t have to, they must be compelled by Marx’s whip of hunger, or they’d sit on their lazy asses. If they are poor, they must not work hard enough, possess poor character, are stupid, and don’t make good decisions. They haven’t followed the approved steps.

They do not DESERVE money.

The actual value of money is almost entirely a social artifact. A dollar’s value, what it can buy or what opportunities it makes available in the US, is not located in any individual or in small groups, but in society as a whole; in many cases, this value was created by decisions made and work done by individuals long dead. (For the full argument, read “It’s Not Your Money.”)

But at the end of the day, this is the bottom-line truth:

Property is what society says it is.

What you can own and how much you can have of it, and when it is taken away, is entirely a social decision.  It is the acquiescence of your neighbours, in the broadest sense, which allows you to keep what you have–especially when it grows to include far more than your dwelling, tools, clothes, and the land on which you actually work.

Libertarianism is an attempt to take a socially granted license to use resources which are primarily a result of society’s efforts, not yours, and say that it is an intrinsic, individual human right.

But you did not train the workers you employ. You did not raise them or bear them. You did not educate them. You did not build the roads you use. And so on. The value, the advantage, of living in an advanced society is having access to all the infrastructure and institutions you did not build.

Let us bring this back to ethics.

To create a good society, that work is all necessary. It’s necessary that we build institutions, that we have infrastructure, that we support scientists (all the key research and inventions which created the internet were publically funded, for example).

It is also necessary that the people who are making the decisions are making good decisions. Bankers were making bad decisions. When they lost their money, it should have stayed lost. They weren’t harmed, like GM, by a crisis caused by other people, they were wiped out by a crisis of their own creation.

For a society to run well, we must be able to say, “You are not using society’s resources and people well, therefore, we are going to take away your ability to command so much of society’s resources.”

The larger we expand the sphere of property, as with intellectual property and the right to patent genetic codes, the more we say, “Only person X can make decisions about what to do with these resources.” We had better be damn certain that that one person, or corporation, or whoever owns these resources, is at least making good decisions, and ideally making better decisions than would be made if those resources had stayed in the commons, available for use by many.

And when we give a very few individuals and corporations the right to control a plurality or majority of our resources, locking out virtually everyone else from real decision-making beyond the anemic level of “consumer” and the neutered level of “voter,” we had, again, best be sure that those few people are making better decisions, for everyone, than would be made if a larger number of people had control over those resources and were making the decisions.

In short, if oligarchs want to control what people do, they need to make a strong case that their stewardship creates better results than those arising from people making these decisions themselves.

This is a rather high bar, and the genius of capitalistic ideology is that it’s not usually understood this is the case which must be made. Instead we are told, “Everyone is free to sell their labor,” as if that is freedom. Freedom to make your own decisions means not needing to work for someone else, and having the resources available to do what you want.

Freedom is not possible if you spend your life working for others when you’d rather not, knowing that, if you don’t, you will lose your shelter, go hungry, be without health care, and probably eventually die from lack of resources.

Freedom is the ability to choose what you do from a range of meaningful choices. The choice to work for Oligarch A or Oligarch B is not a meaningful choice.

Maximal property definitions and maximal acceptance of property concentration, deprive most of the population of their freedom. It is that simple.

They also show a vast distrust of the people, suggesting that if people had resources they would use them badly. This argument has been made by every tyrant since the beginning of agriculture: “I know better, and I will not lead by choice, but by coercion.”

The choice to starve if you don’t work for an oligarch is not much of a choice.

A sane property definition allows people to own the resources they need to do their work and take care of themselves and any dependents. Larger concentrations of property, meant for big projects, are necessary, but they must not be allowed to balloon in oligarchical control of politics and economy.

And I will suggest to you that this is both a much nicer world to live in and a more vibrant one. A world in which we are not slaves, but have freedom, will burst with creativity and projects. A world where ideas can be used by anyone will be a world in flower.

If you want freedom, look hard at property. The larger the sphere of property, and the more it is concentrated, the narrower most people’s world will be.

 

The Kindergarten Ethics We Need

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On February 28, 2016

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When I first started blogging, some 13 years ago, I blogged about sophisticated matters. Economic theory, military theory and practice. Lots and lots of charts.

As time went by, I noticed that these posts, even when they did well, were not what my readers needed. Most of my readers were not at the level of maturity and reasoning that allowed sophisticated policy posts to be useful to them.

Their problems were deeper; they were ethical and moral problems. My readers seemed unable to reason from first principles, they did not understand the relation of ethics to politics and politics to economics. The first principles they did have were axioms whose results, if too many people followed them, would create widespread suffering.

They had grown up crooked. Their adult lives had made them more crooked. They did not think, they engaged their prejudices.

There is no point in sophisticated analysis of how to be kind to large numbers, if people prefer something over kindness.

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As a result, I started descending the ladder of reasoning. I found that I had to explain that killing civilians was worse than killing soldiers, and that killing less people was preferable to killing more people. I had to explain the difference between ethics and morality. I had to explain why and how they had grown up twisted.

I found myself trying to teach, in effect, versions of the Golden Rule. That which is hateful to you, do not do to your neighbour, do unto others as you would have them do unto you. Be kind. Kindness is the best policy.

I came to understand that the sages, from Confucius to Buddha to Hillel to Jesus, taught these rules–these simple rules–because they met people where they were. This is the level of teaching people require. Most, I fear, are not capable of learning even this, not innately, but because they have been twisted by their upbringing.

If you want some econo-speak, variations of the Golden Rule produce strong positive externalities and when enough people in a society use the Golden Rule and unite to take away the ability of predators to do harm, that society prospers.

The Ancient Greek version is as follows.

When old men plant trees in whose shade they will never sit, a society is great.

All economic theories are ethical theories. They are theories about how one OUGHT to act. Under capitalism, one should react to profit and price signals, and seek to maximize personal “utility,” for example, while living in a manner which deprives one of the ability to meet ones own needs.

This is an ethical theory. It is not scientific, it is based on axioms which can’t be proved, and which are highly questionable (people aren’t rational, don’t maximize utility, and I’ve yet to encounter a useful definition of “utility” which isn’t circular).

It is about HOW people should live.

As such, economics is also a political theory. Capitalism requires a great deal of executive and legislative work to set up, starting with depriving most people of capital. You probably don’t believe me, because you were never taught history properly, but this is well understood by sociologists who study capitalism. Start by reading Karl Polanyi’s “The Great Transformation.” This process happened both at home, and in great waves of imperialism which disrupted and impoverished much of the world.

All political theories are ethical theories. People OUGHT to have rights and those rights are inalienable. Legitimacy comes from the people’s consent, or it comes from God. A person who gets there first owns what was there. We should be able to own more than we can use. We should obtain the goods required for our survival from the market (not true for most of history.) A man or corporation who files a patent or copyright should have exclusive use of that creation. Corporations should shield their owners from liability.

These are prescriptive statements. They are ethical propositions about how the world should run.

All politics and economics, boiled down, is either OUGHTS, technical details about how to get to those oughts, or moralizing about why these oughts and means are good, and why other systems’ oughts and means are bad.

What we have today in the West is a mishmash of systems, with neo-liberal capitalism and representative democracy as the foremost. Some areas have technocratic bureaucracy as their foremost value, like the EU and Singapore.

You can throw in words like “enlightenment values” and “humanism” as well.

It’s hard to disentangle all this. So many different ideologies have been created and so many of them still have strong influence on us.

So I’m going to simplify. Cut through the knot.

Greed, selfishness, and pride, combined with tribal identity.

You love your child, yes? You would let a hundred people die to save your child?

You are a monster.

Most other people would.

They are monsters.

You would kill for your group. They would kill for their group. Your group may be a religion, a nation, an ethnicity, a neighbourhood, or a wide variety of other associations or identities.

You are a monster.

You work to make sure your child has a “competitive advantage” over other children. Those parents work to make sure their child has a “competitive advantage over your child.”

You are monsters.

In every way, your needs and wants are more important than anyone else’s. Then your family’s. Then your friends.

This worked when humans lived in bands or even smaller tribal societies. This included almost everyone, and it allowed an easy apportionment of work. “Feed yourself and your family then everyone else.” (Though, in fact, the nuclear family wasn’t usually prioritized in hunter-gatherer bands.)

It sort of worked in agricultural societies, but only sort of. Which is why you have the above sages with their various golden rule variants.

It doesn’t work in the modern world. The interconnections are too dense. You affect too many other people. Societies have too much violent and coercive power.

The sheer volume of negative externalities created by a culture of “me first” and of meanness overwhelm the positive externalities, creating vast hell-zones. It doesn’t matter whether we’re talking about most of Sub-Saharan Africa, Bangladesh, most of India, all the Chinese who hate the new economy and loved their villages, the inner cities of America, or the exurban wastelands, or the hopeless neighbourhoods in London or Paris which occasionally riot.

They are all overwhelmed by this “me first, my family second, my friends next, my identity only after all that, and fuck everyone different.”

It is impossible to overstate the damage “me first” has done to the world. It includes all the damage that will be done by climate change, imperialism, and vast amounts more.

To be sure, the so-called altruists have done great harm. But when you liquidate entire chunks of the population, you aren’t an altruist in fact, only in rhetoric. Just as capitalism, properly understood, has not proved to be the best system for most people in the world.

I’m going to tell a slightly perverse story. When I was a child, I read a science fiction military story which was half fantasy. The protagonist has a vision in which he bombs a city from orbit, and sees that his child is in that city.

The protagonist is determined to avoid that war if possible, but he is not determined not to bomb his own child. He says, “Were I to decide whether or not to bomb a city based on whether my own child was there, I would be a monster indeed.”

So let us come down to our first axiom:

Your life is not worth more than anyone else’s. Your pain does not hurt worse than anyone else’s.

Some time back there was a book called All I Really Need to Know I Learned in Kindergarten.

This is kindergarten level ethics we are dealing with here. This is what is broken–the stuff you should have learned when you were five and had reinforced as you grew up.

  • Don’t hurt other people.
  • Share your toys.
  • Don’t take more than your share.

And if someone doesn’t live by those rules, what do you do? You give them a time out. During that time out, you don’t torture them, you don’t allow the other kids in time-out to beat them or rape them. Instead you try to help them so that after the time-out, they won’t do it again.

Perhaps everyone in the world should just sit down and for one day, heck, one hour, just not hurt anyone else. Just do nothing.

You can get rich, you can get famous, you can get what you want by being a mean and violent bastard. Let us not pretend otherwise. But the knock-on effects of doing that, for everyone else, are terrible. True democracy will happen when the population is ethical enough, and willing enough, to simply not allow this. “No, no, off to your time-out you go.”

This will be sneered at as Utopian. No doubt it is. But this is the Pole Star, the guiding light you aim towards. The closer you sail to it, the closer you come to some semblance of a world worth living in for the majority of people.

If we do not aim for this, we may solve some temporary problems for a temporary period, but there will be no remotely stable good society.

Everyone’s life has equal value to yours. Everyone’s pain is equal to yours.

What Can Rich Countries Afford?

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On February 18, 2016

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Remember the American GI bill, which put ex-service members through university?

GI Bill

When people talk about how much health care for all will cost, or any other program, you need simply remember the above, or that military spending makes up over 50 percent of all discretionary spending in America.

Spending is a fairly good indicator of a country’s real priorities. It’s easy to afford the cost of something you believe is first priority in a rich country–and the US is still a rich country.  And if you don’t “have enough,” well, by historic standards, the US is hardly taxing anyone at all. Remember, back in the 50s top marginal tax rates hovered around 90 percent and corporate tax rates were much higher (and with far fewer loopholes).

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Basically, America can afford whatever America wants to afford, and the same is true of a variety of other countries like France, Germany, and Britain, and so on. The choice not to do something, in rich countries, is a choice, and reflects the goals of the people who run the country, and very little else.

This is especially true because the more a country does, the more it can afford, since doing more means more economic activity and generates a larger tax base.

It’s just a choice. There are countries that are literally unable to choose prosperity, it’s not so easy for them. But all of the major developed countries are perfectly able to do so.

 

The Economy Has NOT Recovered (With Graphs)

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On February 11, 2016

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Ok, this was triggered by a Politico article (I know, Politico), which included this throwaway line, “The economy has largely recovered.” The conclusion to be drawn is that a lousy economy can’t have anything to do with young people loving Bernie.

Wrong.

Here’s the thing: People take the unemployment rate as meaning something to ordinary people, though it almost never does. Here’s the unemployment rate chart:

Unemployment Rate to Dec 2015

Unemployment Rate to Dec 2015

Now, looking at that you could be forgiven for thinking, “Ian, the economy really has largely recovered. Are you on crack?”

No Sir, I am not on crack. I am too poor to afford crack.

Here is the ratio of employed people to the population:

Employment Ratio to Dec 2015

Employment Ratio to Dec 2015

Oh.

There has been no meaningful recovery in the actual percentage of Americans employed. The jobs do not exist. The unemployment rate is what it is because people have stopped looking, and what the unemployment rate measures is the percentage of people who are actively looking for a job, as compared to the people who are employed (the labor force).

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Now here’s a nifty graphic from the New York Times to round out the picture. Less people are working, as a percentage of the population, AND those who are working are earning less money:

Wages by decile from 2006 to 2014

Wages by Decile from 2006 to 2014

The economy sucks. If you aren’t in the top 10 percent, it never recovered. It didn’t mostly recover, it mostly didn’t recover.

I will discuss what unemployment really measures in a later article. It doesn’t measure…unemployment.

 

“Trust Me,” Said the 401(k), “A Sucker Is Born Every Day.”

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On February 11, 2016

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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.

(I am fundraising to determine how much I’ll write this year. If you value my writing, and want more of it, please consider donating.)

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.

     “Most people are retiring with less than $25,000 saved. For the next three decades, we will see an entire generation of Dolores Westfalls roaming our neighborhoods in a dire state of crisis.”

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.

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