Archive for the ‘political economics’ Category

Economics is a zero sum game

June 12, 2012

Capitalism is a zero sum game for the same reason an economy is a zero sum game. Physical money is a trading medium. Nothing more. If one player accumulates all the wealth in a static economy, such as an isolated desert town, no trading currency is left. His neighbors must resort to barter for survival. The guy with all the money has to hire someone to do something so his neighbors can continue buying stuff from him. If he doesn’t he might need to hire some of them to protect him from the rest of the town. He might end up hiring half the town to protect himself from the other half. This will tend to solve the problem, because it redistributes the available cash. Otherwise everyone else dies, starves, or survives by barter long enough to vacate that economy. There is a game known as monopoly which does an excellent job of demonstrating this. A game of monopoly can continue as long as no one actually “wins”, but game typically ends when one or two players get all the monopoly money. When this happens on a national scale, the central bank relieves the problem by printing cash, which allows the “game” to continue. The federal reserve has invented a sneaky way to do this by auctioning bonds to those who have made off with the cash. A fine hedge against inflation. But eventually even the fed has to print cash to keep the money supply stable. When the savers chooses to spend their loot, the more they spend the more worthless the savings stash becomes. Economists call this inflation. The Capitalist dislikes inflation because it represents a redistribution of wealth by other means, so the game of commerce can be continued. When this happens on a more global scale it is known as the EURO. The only way the capitalist can actually win is by using his stash to pay his neighbors a salary to make or do something useful. He gets the product of their work, while they get the cash to continue the economic “game”. This keeps the neighbors fat and happy, and the presses down at the central bank idle.


Capitalism is also a zero sum game

June 12, 2012

The reason we have a worldwide financial catastrophe is that people in the financial industries gamed the system to incessantly drive share prices and dividends higher. As a consequence product prices were driven up. Item counts dropped. Prices increased. Every effort to fix the problem directly resulted in fewer buyers. Derivatives were used in various attempts to increase demand. Demand and Markets crashed. Authors of the US constitution instituted the commerce department. They understood that capitalism was also it’s own worst enemy, and that regulation of commercial activities would be needed to keep capitalism from destroying itself and the republic. Only the profoundly stupid fail to understand that capitalism is also a zero sum game, which includes choices.

My Quote of the Day

November 17, 2011

At the beginning of every slide to socialism stands a group of people, generally known as investors, who are unhappy with the current rate of return on the money or property which they control …

Stuff that busts and rusts

August 10, 2011

Despite whatever the silly politicians and talk radio experts on nothing have to say, the American people know exactly how we got into this mess. First we wanted a social safety net. Then we wanted things that fly. And things that go bang. And things that both fly and go bang. And things that fly carefully and low while going bang a lot of times. But mostly we wanted things to carry the things which fly and go bang a lot. We wanted the best of the best of things that carry things that go bang and fly. Then we wanted things that could roll over things that go bang. And we wanted a lot of them. And a lot more things to go bang.  Then we wanted medical care for the elderly. Then medical care for our kids. Then medical care for everybody.

Some of our people didn’t think medical care was all that important. They thought it was more important to prove we could move a great army to the land of ancient Babylon, win a Biblical war there, and return home mostly safe. We have almost succeeded at some of that. But first we have to finish off one remaining war, but we have to look aside for a minute so someone else can send a lot of stuff that goes bang to a third-party in this ongoing disaster. Then we can both finish off that same third-party, with more of our stuff that flies and goes bang. Of course there is another Biblical prophesy we hope doesn’t come true, at least not until we get ourselves extracted from that particular neighborhood.

Meanwhile the bonds which were used to borrow the money to finance these wars by a bunch of people who should have known better, are virtually guaranteed to go bang somewhere. We just hope not here, and not in China. If they go bang here the NKVD prediction about the demise of America could be realized. If they go bang there, well, there are a lot more of them than there are of us. And we have sent all of our technology to them because they could make it cheaper, and faster, than we could – which means they can build a lot of things which fly and go bang, a lot, too.

The problem with investing all your money in stuff that goes bang, has something to do with not being able to do anything with it unless you send it off to go bang near someone else. Otherwise it sits around and either rusts down or goes bang spontaneously at the most inconvenient of times. Neither is an option which has any significant return on investment. The people who made this mess of things are trying their best to wreck our little red wagon, by driving it over a cliff with us in it. We hope the Cincinnati and Boston families are happy, because they and their TEA friends have certainly wrecked the little red wagon for the rest of us.

Needless to say, the people who did this were not deep or experienced thinking types. They were busy acting presidential, cowboy cheerleader types. They could have saved the rest of us a lot of trouble by thinking about what was to be done, before building all that stuff to go bang. But since they were men of action, and their friends needed a payday, they invested trillions in war making.

No one paid them to think, and they didn’t much think, thinking, was all that important either. So now we have this huge mess, simply because all the people who wished to save stuff, refused to consider the idea of change, and decided one morning to get up without powering their brains up first, after which they threw away the power up key.

The big question now: Can we extract ourselves from this fine mess they have made of things?

The Conservative mind

August 1, 2011

As we watch the politicians mechanistically argue over the financial mess which is the US, one can only shake the head in disbelief. It should not surprise anyone that many of us will only believe there is an actual deal when it is finally done. I find it incredibly amazing that conservatives have found it so easy to run up the debt when they are in office, but somehow the massive debt is all the fault of those with less conservative philosophies. This tortured situation brings one particular point to mind: The conservative mind is a profoundly devious place. The good Senator from Kentucky immediately comes to mind.

Economic Disaster in the Southern United States

May 27, 2011

If you live in A-Town as the truckers call Atlanta, you know things are bad economically when you can get anywhere in half an hour anytime between 6:00 AM and midnight. Things are BAD in A-Town, and they are not getting much better any time soon. Period. That part is obvious, because the area has been in economic decline since prior to 2004. There are a collection of reasons for this, none of which perhaps has all that much to do with anything by itself. The collection as a whole, however, pretty much guarantees an ongoing local economic catastrophe.

A-Town, has always been a marketing center laid over a transportation hub, laid over a provincial southern state capital. The transportation hub predates the uncivil war, and today encompasses the worlds largest and busiest airport, highways in all directions, plus an extensive heavy rail system. Marketing dates to a pharmacist developing soda pop around 1876, and the cola business which grew from it. Soda sales in the US have long since saturated the US market. Sales do not change appreciably in saturated markets. Growth in soda sales has strictly been a product of international markets at least since before the rise of Regan-ism circa 1980. The provincial southern state capital bit was well hidden in the good times, however with the rise of Republicanism and the tea party in Georgia, the political situation is somewhat more obvious and troubling. To appreciate this, one must remember many Georgia Republicans are the children and grand children of southern Democrats. Those of us who are old enough, remember what many southern Democrats were busy doing circa 1964. The other side of this picture involves a population today which is better educated, and much less tolerant of  crime, than in years past. Crime has been a big issue in A-Town for a long time. One political party primarily benefits from this issue, and will tend to do so for some time to come. That political party has largely, even on a national level become more extreme, and less tolerant, occasionally delving into issues like secession from the union, which might make business, extremely uncomfortable.

The boom in A-Town between 1982 and 1990 had more to do with the completion of a lot of road construction which has always been years late and billions short. The perimeter highway aka I-285 was widened to at least four lanes each direction by 1986. spaghetti junction was completed in the late 1980’s enabling people living in Gwinette to finally drive directly into the city, without waiting for everyone else to get on-or-off of I-285. Widening the freeways from the rural four lane to urban expressways dramatically impacted the value of property beyond the perimeter highway. Adding light rail service to the North East suburbs didn’t hurt property values or prices one bit, either. The best way on the planet to turn a $50k house into a $250k house is to add a light rail line going to where people want to go. Dunwoody, Roswell, and many of the other outlying cities quickly changed from farming communities to suburban, and then urban sprawl. One of the olde Georgia politicians at the time said there was no point in building all those roads, because they would just fill up with cars. He was right. By 1990 the new highways were filled with cars. A-Town had become “Boomer City” as baby boomers moved from rural America to “HotLanta” to join the reputed party life, which was incidentally more reputed than actual, much of it created in the delusional minds of drunken sales people on convention.

In early 1984 the first echo of the baby boom was born. The mythical restaurants and bars of Hotlanta were soon replaced with real daycare, schools, churches, minivans, toy stores, mega-malls, and a lot of shopping centers known as strip malls. I always wondered if these places got their name trying to compete with strip clubs on Cheshire Bridge road. Speaking of strip clubs one day I came home from work to discover my wife had struck up a friendship with a new neighbor who was trying to sell Tupperware. Turns out this girl was trying to get herself extracted from the stripping business, which was not easy, apparently all that money and attention were, shall we say, addictive. Let’s just say that if you have some desperate need to involve your self in such, take a lesson from the “Housewives of Cary”: Live in Cary, do any stripping closer to Greensboro, hire a limo which is met at some random, non-descript location, and make sure you live in a gated community. For more info on that checkout the archives of Raleigh area TV stations. The apartment a few exits north of the Cheshire Bridge club just didn’t work out all that well, does not make for good relations with neighbors, and seemed to involve a lot of police presence in the community.

As the echo of the boom grew up they created a huge demand for kidstuff much as their parents had a generation earlier. This demand drove prices and presumed value, especially of real estate. The bar hoppers of the late 1970s moved to the burbs after 1985 driving prices from under 100K in the early 1980s to well above 300K in the early 1990s. Old rural neighborhoods were dozed and replaced by new homes priced closer to a million than not. Real property prices were based strictly on demand, with little attachment to actual cost of replacement. Meantime a revolution was beginning. In 1995 the potential of the world wide web was beginning to awaken. The net was built out, the backbone upgraded, fiber laid in a few places, etc..

Business saw a vision of the potential of the internet then invested heavily in companies with no real assets, skills, or value. It is probably safe to say most investors were clueless as to the worthlessness of the average internet company, until millions were actually lost in the bubble of 2001. Technology companies were punished, valuations went from stratospheric to subliminal almost overnight. People who worked in technology were punished more however, than the business morons who were rewarded for having oversold the technology idea. This eventually percipitated an even bigger disaster. As noted in a previous article, it is this writer’s opinion that $100 billion in technology salaries were lost to the outsourcing of information systems work at about the same time as the collapse. The trickle effect is perhaps closer to one trillion dollars. One should note here, that technology people often invest in the technology stocks of companies they worked with, so when computer programmers lost their jobs they could be expected to cash out of their software stocks. People working in telephony could likewise be expected to cash out of telephone business stocks. This could have been a precipitating factor, because lots of technology people were dislocated after Y2K.

The 9-11 disaster, pretty much eliminated any hope of a technology recovery, deepening the continuing technical recession into a full scale technical depression, from which many of us have not, and probably will never fully recover.  At the same time the first echo of the baby boom headed off to college the next year. Lots of boomers were now thinking of downsizing out of the big house, from minivan to sports car, etc.. Boomer Cities such as A-Town were dramatically effected. Developers were outbuilding each other in the ongoing strip mall craze, however the country was off contemplating it’s toenails, so demand for goods and services in strip malls was heading off the cliff, but no one knew yet. No one knew, in large part because investors escaping from put their money into real estate, creating a faux demand which served to move prices beyond the earnings of the working middle class who were earning fewer real dollars each year.  Perhaps in an effort to make market for investors now in the wrong place at exactly the wrong time, the mortgage of choice became the zero down ARM complete with balloon payment.  This particular collection of balloons began to burst in 2006, and the securities which supported them popped in the fall of 2008. The financial business, being so full of itself, had constructed a layered maze of loss prevention, which benefited the aggregating  seller, but represented catastrophe behind a curtain for even large investors. There is no reason to believe the people who put this disaster together had not at some point moved beyond their own mental capacities. Traders and bankers had build a monster which only the most clever of them even professed to understand. Clearly the banking class depended on their customer’s lack of insight into what they were actually doing.

At the same time the investor class moved from investing in real property, to short on real property, then on to commodities. The real killer in the room in 2008 was commodities, oil, in particular. Had investors turned speculators not gotten into oil, chances are perhaps even, the disaster could have been averted. The quest for ever increasing profits however, was without reason. As the price of oil headed for 150 dollars per barrel, investment banks envisioned 250. When the price of motor fuel reached $3.00 per gallon, a noticeable drop in driving and sales were immediately apparent on A-Town highways. This bumping of the $3.00 price barrier went on for months, until the speculators with some help from weather and other random events, finally forced the price above $4.00 per gallon in the spring and summer of 2008. The price of motor fuel decimated spending for every other consumer good and service. The immediate result was massive business failure, and early terminations in short term business leases.  New strip malls stood vacant, old strip malls became vacant. As jobs began to melt down, mortgage failures rose, eventually collapsing banks lucky enough to have bought up mortgage companies. Once the bank collapse started, investment banks with derivative portfolio’s were easy pickings for their friends and counter parties, however one may choose to use that particular term.

The massive influx of cash generated by US Treasury and Federal Reserve activities eased the collapse and enabled some what of a stock market recovery, however the profits went to wealth funds and institutional investors who did not re-invest those funds into either business or consumer services. By this point the financial class have come to believe their own wisdom from the 1990s which generally stated financials were big enough to carry everything, and nothing else was all that important anyway. The end result of this flawed wisdom is ever higher prices driven up by the need to keep stock holders happy by increasing their dividends, while units sold steadily decrease. Rising commodity prices in the spring of 2011 are once again the final branch cracking away from the tree of un-restrained capitalism. Signs on North Georgia commercial real estate changed from “for lease” in December 2010 to “for sale or lease” in January 2011, to “for sale” in February, to “make offer” in April. Once again massive speculation on motor fuel is obviously rampant, as prices burned through $4.00 per gallon in April, 2011, and the number of real property sales of existing houses collapsed by double digit percentages in the same time frame. Commercial real estate has meanwhile burned through what ever goodwill it has had with banks and investors since the fall of 2008, so that particular bubble is now in some version of final bust.

The problem in A-Town is compounded by fundamental issues involving marketing and transportation however. Transportation has become more regionally diversified, moving further out, as the cost of fuel, and urban traffic has increased in the last decades, so A-Town no longer enjoys significant large benefit from changes in import or export activity. In the Late 1980s and early 1990s GDOT wanted to buy up property to build an outer beltway between 30 and 50 miles out. The idea was eventually crushed by the rising conservative political machine, so any economic advantage such a project might have brought is lost.

Marketing has consolidated to save costs by becoming an internet activity, as opposed to lots of sales people wandering from business to business, grabbing a burger and soda between calls. The idea of taking a client out has devolved to the equivalent of a peanut butter sandwich over a Skype call. Small Business people in particular have come to accept the advantages of ordering supplies as needed via the internet, rather than wasting time schmoozing with sales people from the wholesale company – it is a lot easier to compare prices when not dealing with a vendor rep telling them what to think.

To put it simply A-town is residentially and commercially overdeveloped. The job base which once supported those activities and businesses has long since evaporated. Nothing obvious is standing by as a replacement. Boomers themselves are no longer able to positively effect the local economy, having become political liabilities, often vilified by conservative political figures. Many boomers have credit issues and are thus eliminated from candidate pools for good jobs because of the now routine use of credit reports in making hiring decisions. Boomers are typically not as well off, as either the “baby bust” generation which immediately followed them, or their children in the echo. Experience indicates it is difficult to get a manager age 29, with an MBA, to hire to anyone significantly older than himself, and near impossible to get him to hire anyone over the age of 40 for any reason. These issues generally mean diminishing productivity within the populace, which by definition dictates a declining, if not collapsing economy.

The last problem is student loan debt. The people who can qualify for good jobs are so loaded with student loans they will be beyond middle age before they can daydream about either buying a home, or starting a business of their own. This is true whether they borrowed from the US Department of Education, private lenders, or their parents. Because A-Town is a boomer city, with a lot of the echo, all of these problems come together here, with the economic impact measured in catastrophic terms.

All of these problems come together in A-Town.  Collapsed transportation. Collapsed marketing. Collapsed lending. Collapsed value. Collapsed economic reality. Collapsed political reality. Collapsed banks. Collapsed expectations. It is no accident that bank failures in Georgia have been off the charts. It is no accident that state politicians have muddled things by talking about secession. The same people who religiously vote for a politician who desperately needs to control illegal immigration, will frequent the rent-a-crew places where illegals gather to find work, out along GA-9 in Forsyth County.

The only way out of an economic crisis is to develop income. You can never save enough to find your way out. Conservatives are in charge of the economic world, and conserving has more than a lot to do with saving. Any liberal can tell you saving only works if you do it before you have a catastrophe. When everybody goes off saving after the crisis starts, that is called a panic.

It sure seems like it will be a long, long, time before HotLanta is HotLanta again, if ever.

Ongoing Economic Problem

August 10, 2010

The problem here is the MBA crowd and conservative friends are so focused on the illusion of profit that no one is allowed to consider how to fix a profoundly broken system. Modern capitalism is built on the idea that development is without end, while the US economy has evolved to services. Development has pretty much ended except for the fringe stuff – Apple can make a few billion on a new i-phone … but it won’t power a country, or a world. Either someone must find something new to develop which savers will pour money into … like space, or we have to develop an economy which is no longer totally dependent on development. In any case the “development” engine was always cyclical swinging constantly between boom and bust, often more driven by the whims of wall street than any perversion of economic reality. Wall street often sees boom where there is bust, doubters check out the, real-estate, derivatives, and oil busts – stampedes to profit do not an investment make. The first step to fixing the problem is ending the political polarization so an analysis can actually be done. The second step is to demonstrate to the masses that economics is actually counter-intuitive, instead of the simple-minded solutions of the conservative talking heads. Unfortunately, solving this part of the problem may require a depression level economic event, because clearly none of the conservative crowd has wrapped their limited brain power around the idea their economic theology does not actually work.