Tuesday, November 26, 2013

Crass Production

I'm trying to systematically describe how the United States became so fucked up--lay out the history, dig up the philosophical foundations, and stay away from current affairs. But I am going to take a break from that and jump to the present day and talk about negative interest rates.

A recent article in the Huffington Post discusses an idea that's being kicked around by the same sort of people who are the subject of my current inquiry. A century ago there was Charles Conant, and today shills with credentials and public platforms are people like Larry Summers and Paul Krugman.

In 2008, the western banking system died, but rather than composting the carcasses of these criminal institutions and exposing their owners and creditors to financial distress, they were turned into zombies that require constant infusions of cash to stay alive.

The popular conception of banks is they are wealthy institutions (i.e. loaded with assets) because people deposit their money there, and the ATM machine always has cash. In fact, almost every bank is like a middle manager neighbor that has two Lexuses, a McMansion, and kids in college; they basically eke out a subsistence living from what's left of their income after debt service and are constantly teetering on the brink of insolvency.

The story I am telling in this blog is how a really small group of people mostly in New York duped a nation, and put everyone and everything in the United States in the service of these institutions. A hundred years ago, we had the shill Conant arguing:
It is proposed to point out in this article how great this excess [capital, i.e. savings] is at the present time, how profoundly it is disturbing economic conditions in the older countries, and how necessary to the salvation of these countries is an outlet for their surplus savings [imperialism], if the entire fabric of the present economic order is not to be shaken by a social revolution.
Today, we have the shill Krugman arguing:
“Larry’s [Summers] formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity [i.e. "credit"] trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.
Of course, the crucial difference between Conant's idea of capital and Krugman's liquidity, is that capital was really the result of industrial production and wealth creation in his day, while Krugman's liquidity is the result of central planners at the Fed hitting the CTRL-P keys and he wants to force that money out into the economy through easy credit.

It's really easy to fall into the public policy debate with these dudes, but in so doing, we enter the Snowglobe of Orthodoxy where sophistry poses as wisdom. That is, we enter a land of make believe where accepted axioms form the basis of arguments that fly like tiny flakes within artificial constraints.

The way out of our current dilemma is to ignore these people. The problem of the past 100 years is that the Western world actually enthroned the equivalent of philosopher kings. We live in a system, for example, where a central banker, by virtue of sitting through economics classes at an ivy league school, gets to make decisions that influence billions of people. Billions of people who become elements of an economic model.

Our fundamental problem is that people confuse symbols with reality. For example, millions believe the goal of life is to create numbers in an account. Billions of people have had this delusion ruin their lives!

Imagine an alternative reality where a craftsman builds a single coffee machine for his own use. He enjoys the whole process and produces exactly what he wants. Then he makes another one to sell. It's a really time consuming and expensive process to make a single coffee machine, but it's enjoyable. Plus, the machine might really last a long time, and will actually retain its value. Let's imagine that he doesn't ever turn to mass production. He forms a small company that makes a relatively small number of coffee machines per year--its goal is not to make money, it's to make coffee machines and to enjoy the craft of making them.

It's really just the beliefs that the society has that keeps the wretched Wal Mart/Wall Street model chugging along. These beliefs are spouted by people pretending to be scientists and philosophers, but they're really just shills.

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