Globalization and the failing economy

Paul Craig Roberts has a PhD in Economics and a conservative background. As the Assistant Secretary of the US Treasury in the Reagan administration he was a big believer in supply side economics.  He was a very establishment economist who was editor of the Wall Street Journal, Senior Research Fellow at the Hoover Institution, Stanford University, and holder of the William E. Simon Chair in Political Economy at Georgetown University.  He was a regular on FOX news until he turned on the Bush administration in 2002.
He has a new book, The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West (Towards a New Economics for a Full World).  (Unfortunately it is only available in Kindle E-Book format) He sounds more like  a very shrill Thom Hartmann.

Dr Roberts explains why the job creation has been slower than in any recession in recent history and no it's not just because of the Republicans alone - it's globalization and the offshoring of jobs.

The fact that millions of jobs have been moved offshore is the reason why the most expansionary monetary and fiscal policies in US history have had no success in reducing the unemployment rate. In post-World War II 20th century recessions, laid-off workers were called back to work as expansionary monetary and fiscal policies stimulated consumer demand. However, 21st century unemployment is different. The jobs have been moved abroad and no longer exist. Therefore, workers cannot be called back to factories and to professional service jobs that have been moved abroad.
Economists have failed to recognize the threat that jobs offshoring poses to economies and to economic theory itself, because economists confuse offshoring with free trade, which they believe is mutually beneficial. I will show that offshoring is the antithesis of free trade and that the doctrine of free trade itself is found to be incorrect by the latest work in trade theory. Indeed, as we reach toward a new economics, cherished assumptions and comforting theoretical conclusions will be shown to be erroneous.

The economies of the United States and Western Europe are in decline because they now produce little that can be exported and most of what we consume is imported.  An economy that doesn't turn raw materials into something more valuable is not sustainable.

This book is organized into three sections. The first section explains successes and failures of economic theory and the erosion of the efficacy of economic policy by globalism. Globalism and financial concentration have destroyed the justifications of market capitalism. Corporations that have become “too big to fail” are sustained by public subsidies, thus destroying capitalism’s claim to be an efficient allocator of resources. Profits no longer are a measure of social welfare when they are obtained by creating unemployment and declining living standards in the home country.
The second section documents how jobs offshoring or globalism and financial deregulation wrecked the US economy, producing high rates of unemployment, poverty and a distribution of income and wealth extremely skewed toward a tiny minority at the top. These severe problems cannot be corrected within a system of globalism.
The third section addresses the European debt crisis and how it is being used both to subvert national sovereignty and to protect bankers from losses by imposing austerity and bailout costs on citizens of the member countries of the European Union.

There is not a lot in the book but Dr Roberts puts it all together in a concise if shrill way.  He explains what could be done to turn it around but then says it won't be because Wall Street and the large financial institutions have captured the government - we have essentially become an Oligarchy.  Much of his discussion of the financial system comes from Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History by Matt Taibbi.

He also explains why nearly all economists get it so very wrong.

Economists do a poor job of adjusting economic theory to developments brought by the passage of time.   Just as capital theory originated prior to the income tax and free-trade theory originated at a period in history when capital was internationally immobile and tradable goods were based on climate and knowledge differences, economists’ neglect of the ecosystem as a finite, entropic, non-growing and materially closed system dates from an earlier “empty world.”     In an empty world, man-made capital is scarce and nature’s capital is plentiful.   In an empty world, the fish catch is limited by the number of fishing boats, not by the remaining fish population, and petroleum energy is limited by drilling capability, not by geological deposits.   Empty-world economics focuses on the sustainability of man-made capital, not on natural capital.   Natural capital is treated as a free good. Using it up is not treated as a cost but as an increase in output.   Economic theory is based on “empty-world” economics. But, in fact, today the world is full.
In a “full world,” the fish catch is limited by the remaining population of fish, not by the number of fishing boats, which are man-made capital in excess supply.   Oil energy is limited by geological deposits, not by the drilling and pumping capacity of man-made capital. In national income accounting, the use of man-made capital is depreciated, but the use of nature’s capital has no cost other than extraction cost.   Therefore, the using up of natural capital always results in economic growth.

In other words economic theory is based on a world that no longer exists.  Nature's capitol is nearly exhausted. 

This is an important book not because there is anything really new in it but because it puts all the pieces together and is a must read

Note:

If you don't have a Kindle you can download a free app for your PC at Amazon.

Edgar Rice Burroughs and Frank Frazetta

When I was in the 7th grade I discovered Edgar Rice Burroughs.  My fascination with his stories continued through high school.  There was of course Tarzan but there was also Barsoom and Pelucider not to mention Venus.  Silly fantasy but it could have been worse - I might have become interested in Ayn Rand.  Burroughs  was a master of "graphic prose."  It is said that a picture is worth a thousand words: well Burroughs could do it with 20 words or less.  Fifty years latter I can't really appreciate Edgar Rice Burroughs like I did when I was young.  I watched the movie John Carter of Mars but wondered off to do something else abut a quarter of the way through it.  What I can do is think about what attracted me to the works of Edgar Rice Burroughs.  It was the art work on the covers of those Ace paperbacks by Frank Frazetta.
There is little doubt that cover art can sell paperbacks and Frank Frazetta was a master marketer.

Or as an adolescent perhaps is was the scantily clad voluptuous females.

Frank Frazetta could sell books and was a great artist at the same time.  Edgar Rice Burroughs died in 1950 and Frank Frazzeta died in 2010 but they will both be with us for a very long time - that's as close to immortality as you can get.

Book Review - Ayn Rand and the World She Made

With the Ayn Rand cultist Paul Ryan becoming the Republican Vice Presidential Candidate today I thought this might be a good opportunity to republish my reveiw of the Ayn Rand Biography by  Anne C. Heller from 2010.

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The picture on the left may represent the beginning of the deregulation frenzy that resulted in the current world wide economic disaster. It was taken in 1974 by David Hume Kennerly and pictured are President Gerald Ford, Alan Greenspan, Ayn Rand, Rand's husband Frank Conner and Greenspan's mother Rose Goldsmith. The occasion was Alan Greenspan being sworn in as chairman of the Council of Economic Advisers. The significance of the picture is that Ayn Rand is there next to her disciple Alan Greenspan but to understand the significance you must understand Rand herself and her philosophy. Anne C. Heller helps us do that with her excellent biography of Rand,Ayn Rand and the World She Made

I recommend this book not because I agree with anything Ayn Rand stands for but because it's a really good read and it's necessary to understand Rand and undererstand how we arrived where we are today. Heller makes it clear that Rand and her life are much more interesting than any of the creations in her fiction and there are times you forget that you are not reading fiction. I am going to concentrate on Rand's early life in this review - it's important because narcissists and sociopaths like Rand are either created early if not born that way.

Alyssa Zinovievna Rosenbaum was born in St Petersburg, Russia in 1905 of Jewish parents. While it's often said that it was the Bolshevik revolution that was responsible for Rand's philosophy and world view according to Heller the foundation for Rand's philosophy predates the revolution.

When Rand was five or so, she recalled, her mother came into the children's playroom and found the floor littered with toys. She announced to Rand and Rand's two-and-a-half-year-old sister, Natasha, that they would have to choose some of their toys to put away and some to keep and play with now; in a year, she told them, they could trade the toys they had kept for those they had put away. Natasha held on to the toys she liked best, but Rand, imagining the pleasure she would get from having her favorite toys returned to her later, handed over her best-loved playthings, including a painted mechanical wind-up chicken she could describe vividly fifty years later. When the time came to make the swap and Rand asked for her toys back, her mother looked amused, Rand recalled. Anna explained that she had given everything to an orphanage, on the premise that if her daughters had really wanted their toys they wouldn't have relinquished them in the first place. This may have been Rand's first encounter with injustice masquerading as what she would later acidly call "altruism." Her understanding of how power can be acquired by a pretense of loving kindness would grow only more acute with time.
Perhaps it's little wonder, then, that from the age of four or five onward, Rand developed a keen sense that anything she liked had to be hers, not her mothers, the family's, or society's, an attitude that readers of her 1943 novel The Fountainhead will recognize in the perverse and complicated character of Dominique Francon. As a corollary, she claimed not to care about being approved of or accepted by her family and peers. Since she generally wasn't accepted, the proud, intelligent child appears to have learned early to make a virtue of necessity. In her twenties and thirties, she would construct a universe of moral principles built largely on the scaffolding of some of these defensive childhood virtues.

The second influence in Rand's life came when she read a serial in a French Boys magazine, The Mysterious Valley. It was there that Rand met Cyrus Vance, a handsome and heroic figure and in Rand's eyes a hero in every way. Rand would spend the rest of her life looking for a Cyrus Vance and creating him in her fiction.

Rand herself was an elitist who lived on cigarettes, amphetamines and chocolate. Elitism was also what she was marketing in her novels. Her characters like Galt and Roark were unbelievable because they were little more than abstract principles personified. Her vision of capitalism was simple and had a grade school like quality to it.

But Rand has impacted us all and still does. The principal architect of our current economic crisis, Alan Greenspan was a disciple for most of his life but after looking at the havoc he had created had to recant. (Via Digby)

"I have found a flaw" in free market theory, Greenspan said under intense questioning by Representative Henry Waxman, the Democratic chairman of the Government Oversight Committee of the House of Representatives. "I don't know how significant or permanent it is," Greenspan added. "But I have been very distressed by that fact."

Pressed by Waxman, Greenspan conceded a more serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy.

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Greenspan said.

Waxman pushed the former Fed chief, who left office in 2006, to clarify his explanation.

"In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said.

"Absolutely, precisely," Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

But she still has her followers in important places today like the Republican's wonder boy, Congressman Paul Ryan.

It's important to know what motivates the enemy and the Rand cultists are still with us.  As Digby notes Rand's followers are passing out free books.  For that reason this is an important read for anyone concerned about how Ayn Rand is still an influence.

Note:

I received a copy of this book from the publisher for this review.

Book Review - The Trust

It's not easy writing a review for a mystery novel and The Trust by Norb Vonnegut is no exception. I can't say too much without being a spoiler but I'll try.

Successful investment manager Grove O'Rourke receives a mysterious call from his wealthy mentor, Palmer Kincaid and suspects something is wrong. The next day Kincaid's body washes ashore an apparent accidental drowning victim. O'Rourke is contacted by Kincaid's daughter to get the family's financial affairs in order. He suddenly finds himself in charge of Palmer Kincaid's charitable organization, The Palmetto Foundation. One of the first issues involves The Catholic Fund and a mysterious priest, Father Frederick Ricardo. The Catholic Fund has given 65 million dollars to the Palmetto Foundation and Father Ricardo now wants to dictate where that money goes. O'Rourke is suspicious and that is only reinforced by attorney Biscuit Hughes who has discovered that The Catholic Fund is the owner of a Sex Superstore in Fayettville, North Carolina. At the same time O'Rourke's investment firm in New York is being taken over Morgan Stanley and the FBI is asking questions about him.  O'Rourke himself is contacted by the FBI but agent Torres has lots of questions but few answers.  Then Palmer Kincaid's widow is kidnapped and O'Rourke is forced to join forces with agent Torres to save her.

If you like mysteries this is a great read that includes murder, a kidnapping and financial shenanigans. It is often hard to separate the good guys from the bad ones.

Note:

I received a review copy of this book from the publisher.

Book Review - Guest of Honor

In 2008 the United States elected a black President - the result was a very negative reaction by about 25% of the population. It's not the first time there was a reaction to shifts in racial equality. In his concession speech in 2008 John McCain mentioned T.R, Roosevelt's dinner with Booker T. Washington in 1901. Like most of us this was the first time author Deborah Davis had heard of this historical event. She became curious and researched the history of the event and wrote Guest of Honor: Booker T. Washington, Theodore Roosevelt, and the White House Dinner That Shocked a Nation.

The first half of the book is a mini biography of both T.R Roosevelt and Booker T. Washington. For me this was very informative since I had little knowledge of this period of US history. TR was born into wealth and privilege and Booker T. was born a slave but their lives had many parallels. They first met in 1898 when they discussed the performance of the black soldiers that were part of TR's Rough Riders.

While Booker T. continued to build Tuskegee TR used the popularity of the Rough Riders to become governor of New York. Being TR he manged to upset the New York Republican political machine. The machine convinced McKinley to choose TR as his Vice President just so they could get him out of the State House. TR continued his communication with Booker T and agreed to visit Tuskegee. Fate had other ideas and when McKinley was assassinated TR suddenly found himself President and Booker T suddenly found himself an adviser to the President of the United States.

On October 16, 1901 TR had a evening meeting with Booker T. In addition TR had a big family meal planned that included a hunting friend from Colorado. He made the decision to invite Booker T to dinner. Both men recognized the danger - TR almost withdrew the invitation and Booker T almost turned it down. But the dinner happened and the next morning it was reported in the press.

A summary of TR's daily agenda was read by a reporter at the Washington Post and suddenly realized that a black man had dined with the President at the White House.

"Booker T. Washington of Tuskegee, Ala., dined with the president last evening." he wrote in his column. That one line caused the telegraphs to start clicking furiously in the capital, their shocking message reverberating across the nation like a thunderclap.

In the South the reaction was immediate and angry. TR was blasted for the invitation and the "uppity" Booker T for accepting. The loss of slavery was bad enough for the South but the idea that "coons" were social equals was just too much. The press in the North was for the most part positive.

Although both men were able to accomplish a great deal that dinner haunted them for the rest of their lives.

This is a very readable book covering the history of the US 30+ years after the civil war. It is valuable because it gives us not only a picture of how things have changed in the century since TR was President but also how much really hasn't changed.  I recommend this book to anyone interested in this short period of history.

Cross Posted At The Moderate Voice

Note:

I received a review copy of this book from the publisher.

Book Review - The RX Factor

I read mostly non-fiction and when I read fiction is usually Science Fiction. But I also like a good suspense thriller once in awhile. The RX Factor by J. Thomas Shaw certainly qualifies. There is certainly enough suspense and enough murders and assassinations to qualify it as a thriller. In addition there is a lot of corporate and government malfeasance.

Dr Ryan Mathews discovered a cure for ovarian cancer. His company did not have the resources to do the human testing so he sold out to a large pharmaceutical company. Human testing commenced and the results were not good - it didn't work. Ryan's wife came down with ovarian cancer and she was part of the human testing. When the testing was canceled Ryan stole the last two doses his wife required. He was caught and fired from the large pharmaceutical. All of the tests indicated his wife was going to die within months so the decision was made to move to the Bahamas for the last few months of her life. His wife and children were killed in a plane crash on the way to the Bahamas and Ryan spent the next few years drinking in paradise. One day Ryan met another medical researcher there to spend some time with her aunt and uncle. When her relatives ship was blown up Ryan partnered with her to find out what was going on and the adventure began. Many murders and attempted murders in addition to many surprises. It came to Ryan's attention that his drug had worked and the results had been tampered with. But why - the big pharmaceuticals don't want to cure people. People who are well don't buy drugs. More adventures and murders along the way and an ending that unearths an even more sinister plot.

A really great read that I had trouble putting down and the ending was a shocker.

Cross Posted At The Moderate Voice

Note:

I received a review copy of this book from the publisher.

The RX Factor
by J. Shaw Thomas

Book Review - The Monster

Do you like a good crime novel – a corporate crime novel? If so The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--And Spawned a Global Crisis by Michael W. Hudson is for you. Unfortunately it's not a fictional novel but the history of the mortgage crisis that may yet bring down the US and world economy.
This book is not directly about the foreclosure crisis but about the seeds of that crisis – deceptive and fraudulent mortgages that left desperate people worse off than before and without a chance of meeting the obligations of the contracts they had signed.
The seeds were initially planted over 30 years ago in the form of deregulation of the financial industry. The seeds sprouted in the late 80s and blossomed into the S&L crisis. Little if anything was learned and the deregulation continued – still more seeds were planted. By the early and mid 90's the players that had escaped the S&L crisis and even some who didn't were back at it writing predatory sub prime loans. The deception and outright fraud was becoming even more prevalent easily circumventing the few new consumer protections. At about the same time mortgage backed securities were a hot commodity. The Wall Street investment banks had stayed clear but a familiar name in the most recent crisis, Lehman Brothers, saw an opportunity it couldn't pass up. As the money to be made in subprime mortgages increased so did the deception and fraud as well as involvement by more and more Wall Street banks.
Like any good crime novel this story has a cast of villains and victims. Of course this is not a novel so the people are real. One of the main characters is Roland Arnall who grew a small Orange County S&L into the mortgage giant Ameriquest. The way it grew was to place sales and profit above all else. There was nothing an Ameriquest salesman would not do to close a loan.

At the downtown L.A. branch, some of Glover's coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office's break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the "Art Department."
........
What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents—the ones indicating the loan had an adjustable rate that would rocket upward in two or three years—near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

There was lots of money to be made so neither the investment banks that were packaging the loans or the investors buying them questioned the loans themselves. But the continued growth depended on a continued influx of new loans and rising home values – it was in effect a Ponzi scheme. When the housing bubble deflated in 2007 the Ponzi scheme collapsed.
I recommend The Monster: You can pretend it is fiction and have an enjoyable read or you can learn about how greed driven fraud and deception resulted in the worst economic crisis since the great depression. While Wall Street and the bankers are still quick to blame those who don't make their mortgage payments you will see who the real victims are.
Note:
I received a review copy of this book from the publisher.
Cross posted at The Moderate Voice

The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--And Spawned a Global Crisis
by Michael W. Hudson