Why the US Economy is in serious trouble

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By Mark Ciotola

How we arrived here

As EOS and Technocracy have long pointed out, our lassez-faire economic system is inherently unstable. Profits tend to accumulate out of the hands of consumers and concentrate into the hands of a few wealthy people. When the people who spend run out of money, then the people who save can’t get any more profits, and the whole system collapses. Ironically, during economic downfalls, many of the savers lose a lot of money, too, and even go bankrupt.

Upon the advent of earlier economic crises such the Great Depression, means were taken to prevent excessive concentration and control of wealth by the few. The founding fathers of the USA invoked an aggressive estate tax to prevent the emergence of an aristocracy and power that was was obtained by mere luck of birth. Antitrust laws were created to prevent monopolies. Labor unions were finally allowed to protect wages and the consumer spending so vital to the endurance of an economy. Banking legislation prevented the formation of banks that were too large to fail, and Glass-Steagall prevented banks from problematic conflicts of interest. Progressive tax rates diluted money out of the hands of the wealthy and some of it back in the hands of consumers, reducing dangerous build-ups and improving economic activity.

However, once the shock of the Great Depression ended, and memory of the social debt owed to the veterans of World War II receded, big business interests began to dismantle these economic protections. Progressive tax rates were significantly rolled back. Manufacturing was transferred on a near emergency basis to Japan and elsewhere to bypass North American unions. China was given most favored nation status by the USA that greatly accelerated this process. Banking “games” lead to the destruction and theft of the previously consumer-owned savings and loan associations. Glass-Steagall was revoked, allowing consumer banks to engage in especially risky investment banking operations. Such banks could now issue fraudulent consumer mortgages and package them into instruments for unsuspecting investors.

As consumers ran out of money, we increasingly became a “debt” economy. With domestic wages falling or frozen due to often subsidized foreign competition, consumers turned to home equity loans, student loans and credit cards to maintain their former standard of living. U.S. Federal Reserve chair Allan Greenspan called lenders heroes of the economy. As consumers could not afford to take on more debt, banks whipped up profits by doubling, tripling, etc. consumer loan interest rates. Rates exceeding 50% were common.

Finally, the wealthy couldn’t make enough money by actually producing anything or even lending to consumers at what were once legally usurious rates. They began buying and selling exotic financial instruments known by cryptic names such as butterfly options, derivatives, puts and calls. A particularly devastating was the “naked short”. It allowed a party to make large amount of money by selling millions of shares of nonexistent stock, flooding the market with this bogus stock until the market price of that stock collapsed and drove the underlying company out of business. The naked short sellers made fortunes, the newly unemployed executives received their $10 million golden parachutes, the laid-off employees received a few months of unemployment aid, and the pension funds/mom-and-pop investors received shallowly apologetic letters (if even that).

The only thing that saved the global economy from total melt-down was unprecedented government financial injections into banks, companies and certain national budgets (e.g. USA, China), and other stimulus measures.

An Economy on Life-Support

Supposedly, we learned our lessons after the Global Financial Crisis of 2008 nearly melted down the entire global economy. A few consumer protections were enacted. Banks were slightly more regulated, and given FDIC protection for their high-risk investment banking operations (this latter should really terrify you). Lending was tightened up for consumers. Pensions were cut. European economies adopted severe austerity measures. Numerous automobile manufacturers were sold off to China. Indeed, the global economy has regained some semblance of order.

Yet, DO NOT be deceived! This is clearly an economy on life support. The Global Financial Crisis has resulted in tremendously-increased concentration of wealth and consequentially has produced long-term damage to consumer spending. Once the stimulus ends, the economy will return to chaos. It may even do so with continued stimulus.

The following graph shows how ill the economy has become since 2008. This Sizzle Index is an indicator of US economic “heat”. (It was developed by a member of Technocracy). Notice the peak at the year 2000 due to the dot com bubble. A second peak during 2005-2006 represents the housing bubble. Then in 2008 and 2009, the US economy literally fell off a cliff during the Global Financial Crisis. The Sizzle Index decline was about triple the magnitude of the dot com/9-11 crash of 2001. This was an unprecedented drop in recent times. This you already know.

What you may not know is what happened next. Despite some improvement of the US economy, the Sizzle Index is not only highly negative, but it is still declining despite massive quantitative easing (a more polite term for stimulus). The life energy is literally draining out of the economy despite massive. The deflationary pressures on Japan and Europe show similar declines globally.

By Mark Ciotola

Figure by Mark Ciotola

Nowhere to go

Interest rates earned by large investors are at historic lows, due to ongoing stimulus. Meanwhile, these near-zero interest rates are devastating to retirees, and pension funds are in serious trouble. The Federal Reserve has been hoping to bring interest rates back up slightly, but the markets have been extremely resistant.

Federal Reserve must be terrified about recently increased volatility in stock markets. If the economy tanks again, there is nothing left of interest rates to cut!

Technocracy predicted this!

One may ask why we are trapped in such a doomed economic system? Technocracy pointed out these problems, but people have tended to turn to illusory Libertarian-sounding gimmicks. When wealth becomes too concentrated, lobbyist- driven legislatures cut taxes to allow money to “trickle down” to consumers. When wages fall, they open up more foreign competition to reduce living expenses. When consumers can’t borrow enough to make up for those lost wages, banks get deregulated and numerous consumer bankruptcy protections end. Do you see the pattern?

Endgame

The world probably won’t end due to this economic dead end we are racing towards. However, the situation may get so bad that many of us will wish we were dead: children we can’t support, the slavery of endless debt, and the environmental destruction of unrestrained economics. We either have to change our way to doing things or face a future conceivable only from the worst science fiction films.

Mark Ciotola is an academic researcher on the San Francisco State University. His interests are spanning a wide area, from Fast Entrope and the e th Law to Physical history and economics, Intellectual property issues, Carbon Labeling, Energy Accounting and Brown Dwarf and Exoplanet Atmospheres.

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The flaws of democracy are the flaws of the market system

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By Enrique Lescure

Introduction

The excellent Blog Borderstone did recently outline a series of problems with democracy, related to aspects of voter behaviour and how political parties exploit that behaviour. They also suggested a few alterations to the democratic system, which would mean a function similar to the “consumer ombudsman”/”consumer authority” that would limit the amounts of “bad advertising” political parties are engaging in. I would argue that while I agree with Borderstone that there are major problems with voter behaviour, any set of solutions should really focus primarily on the voters, rather than on the political parties.

What comes first?

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This really says it all.

Democratic Elections are really just another form of a market system. The goal for any political party, or political candidate for that matter, is to scramble enough votes to be able to exert policies (and on the flopside, try to maximise the social status and the income of the participants, if we are subscribing to a more misantropic view of humanity) which benefit the voters.

To be able to achieve this, political parties should be able to reach enough voters to be able to make a difference. This means that the goal is to grab the attention of the voters. Politics is a complex subject, but to be able to gain attention, any political party must be able to generalise and comprime information in such a manner that they can attract just the amount of voters they need to be able to exert influence.

One of the great revolutions of the 20th century, was the birth of mass media and the mass entertainment industry. A typical human being in a developed economy receives as much new information daily as a farmer in the 18th century received during an entire year. While it can be argued that most of this new information is consisting of junk, it is still grabbing the attention of the individual and creates intellectual processing.

i_can_has_cheezburger_1_Thus, there is an ongoing evolutionary struggle within the sphere of memetics, to be able to occupy human minds with information. Billboards, signs, news headlines, adverts, TV channels and Internet are the battlefields of this struggle, which is about control of human psychology.

Just like in nature, evolution strives after achieving the greatest possible outcomes with the necessary, optimal means. That is for example why humans and most animals have just two eyes, because two eyes are optimal for being able to determine where is up and where is down. Three eyes could achieve the same thing, but the third eye would be superfluous (unless you’re into New Age).

Regarding mass media, which is reminding of democratic politics in more than one way, newspapers for example need to attract buyers. This has led to an increasing emphasis on things which engage people – namely celebrities and sport – which are things that humans are biologically hardwired to understand.

We might be irritated about all these “news” about which celebrities have divorced, about scandals on Ex on the beach and “infotainment” programs such as Deadliest Warrior, but ultimately it is we as a collective that are responsible for programs such as Honey Boo Boo, Duck Dynasty and Biggest Loser. Certainly, many people are preferring shows like Cosmos and Vetenskapens värld, but since things like reality shows and infotainment is existing, it shows that there is a popular demand for things like that – since that is what people want.

Why do people like to consume crap?

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Because it’s cheap.

And no, when it comes to dumbed-down information (which often is flawed and appealing to emotions), it is not a question of money. Rather, it is a question of time and mental capacity. It is easier for the brain to just accept the information that gets filtered through, than to analyse it from all viewpoints and to come to a conclusion based on a combination of reason and values.

Also, it is cheap in the terms of not wanting to be proven wrong. Often, successful parties operating in a democratic system are ascribing to certain cultural or social identities with conflicting interests (I will return to that and explain why I think an ombudsman is a bad idea later), and individuals do not want to be proven wrong. People who are on the left on the political spectrum might want all social problems to be defined as environmental constructs, while hard right-leaners might want everything to be genetic. There is also this large group of voters who have low education, low ability to learn and/or very little interest of taking information.

Those people have voting rights too (and they should have that, because if not no one would take into account their interests, especially not within the framework of a free market system).

Given that, my conclusion is that the current level of political discourse is the result of popular will.

Revisit the market analogy

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The free market does not want you to take responsibility, but neither does it care about you.

It becomes very dangerous when that kind of ideology is influencing the democratic discourse. Since the 1950’s – when consumer capitalism became established, the market has increasingly come to define not only our way of working and eating, but also our identity. To a large extent, this has led to a breakdown of civic ideals in western societies, and (what Marx warned about) the commodification of the human identity. This means that we – primarily, in all aspects – are treated foremost as receptors, consumers, and not as actors with an own will.

We should really all feel very insulted when newspapers, TV channels and political parties speak to us like if we were children. They are treating us with contempt, and their view of the public is told through the quality of their programming. And to a very large extent, I would suspect that being fed information that doesn’t challenge us, nor contribute to our intellectual development, has gradually come to reduce the quality of our ability to understand information.

When democratic elections start to work after the same principles, it becomes really dangerous, since it can make the public unable to detect hidden dangers, or be able to withstand demagoguery. It can be discussed if this process is some kind of aware progress towards a society run by international elites, since an uninformed, disinterested electorate can make it easier to enact treaties such as ACTA, TTIP and MAI. Western democracies today are really run after principles where both the dominating parties (usually a left-centre and right-centre party) are striving after the same long-term goals in economic and foreign policies, and then it is of course “good” if public participation is reduced and politics as a whole are “dumbed down”.

What is the solution then?

participative-leadership

The course that EOS sees for the future is direct-democratic within the context of voluntary confederations. However, this remains a distant goal in the future, and even if introduced, such a system would possibly have the same problems as our current systems, and might degrade further since a direct democracy in the hands of an electorate which has learnt to constantly be fooled by messages which are directed towards children rather than adults can yield some frightening results.

An ombudsman would however be a bad idea too, as well as laws limiting what politicians might send out for messages. It would lead to constant legal proceedings, where rival parties would accuse one another before court of misleading adverts and of lying, and it can serve to destabilise societies further, when polarising issues such as immigration, climate change and economic issues emerge. Also, if the state in question has a dominating party, this party would have the resources to legally persecute their opponents, thus creating a semi-democracy or an authoritarian state.

No. The best route forward is probably to encourage people to think, to create a society where more is demanded than that we should pursue our identity through consumerism. It is paramount that both children and adults learn about scientific reasoning, and about logics and especially logical fallacies. Of course, all people would not be able to fully master these processes, but if a significant amount are, and if such behaviour is promoted amongst the public (instead of the ideals presented by Jersey Shore and America’s Next Top Model), then we would be a significant amount of way ahead.

This course is a very good initiation to that world, by the way.

WW3?

By Enrique Lescure, Relations Director of EOS.

The recent developments in Syria are very troubling for the prospects of world peace. Both Iran and Russia have signalled that they will respond directly by an US strike, while the USA has stated that retaliation will be taken as a reason to expand the conflict.

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While the recent gas attack in Ghouta was a horrific atrocity, the proposed US intervention is even officially resting on several reasons, one of which is “US national interest”. One could only recall the horrendous Central African wars of the 1990s, which did neither engage a foreign intervention or even much attention from western media and governments.

It is estimated that 10 million people have been killed in these separate wars. Yet they produced no international intervention. It is probably necessary that we in the future find a way to allow a neutral and general way of conducting interventions, without affecting the “precious balance of power”.

Given that, the Syrian Civil War is probably the most intensive conflict in the world today, and there is an acute humanitarian crisis.

The main issue for the involved parties can be said to be “The Great Game”, an underlying conflict between the Anglo-Saxon powers and the Russian Empire, which can be said to be over two centuries old.

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The Great Game is basically a centuries old conflict of interests regarding Central Asia and the Middle East. In its modern incarnation, it is basically an issue of oil and gas reserves.

On one side, there is Russia, which is heavily dependent on its virtual monopoly on Central Asian oil and gas, which it exports to Europe. This has come to fund Putin’s military and security apparatus, and anything which would upset this monopoly would harm Russia’s economy – perhaps leading to an economic crisis and the collapse of the Russian Federation.

On the other hand, there is America, a heavily indebted superpower which is suffering from sluggish growth prospects, a crumbling infrastructure, a social security system which would be bankcrupted in a few decades if not years. If the United States would get an inroad into the Central Asian oil and gas market, it could theoretically be used both to bolster the United States’ fading superpower status and serve to cripple their Russian rivals.

This is probably why Russia consider the prospects for a US intervention in Syria as a mortal threat, and show readiness to use military force in order to try to intimidate the United States. During these last two months, it stands evidently clear that we all are living in the middle of a Second Cold War.

This is a very dangerous situation.

Syria is an ally of Iran, and Iran is an Anti-American power that blocks western access to Central Asia from the south. Since 2003, the geopolitical situation of Iran has steadily improved, due to both the toppling of the Sunni Minority regime of Saddam Hussein in Iraq, the 2006 Hezbollah-Israel War and the increasing participation in the Putin-led “multipolar bloc”.

Syria allows both Iran and Russia access to the Mediterranean Sea.

In the same time, Saudi Arabia and Qatar both desire to contain Iran and if possible weaken it, as they both fear the prospects of Iranian hegemony over the Middle East, and both have desired to shoulder the leadership of the muslim nations of the Middle East.

Many analysts believe that the toppling of the Assad regime in Syria and the subsequent weakening of the Hezbollah militia that must follow would pave the road for a war with Iran, aiming at destabilising it so a pro-western regime could take power. This would then (according to Russian analysts) probably lead to increased western influence over Central Asia.

This “new great game” is a very dangerous game, since it touches the core interests of two great powers and several regional powers. The question is whether we collectively as a species are willing to risk a great war, possibly a global conflict with nukes involved, for the issue of Syria.

The solution must be to openly discuss the great game, and for all the great and regional powers to take a step back and realise that others don’t want to the exposed to what they themselves don’t want to be exposed to. “Do not do unto others, what you don’t what others to do to you.”

The impeding resource crisis is a serious challenge for all powers. We should not primarily think of how to hurt Russia, America, China, Africa or the EU, but how to help everyone adjust to the future.

If we can separate the Syrian Civil War from the corporate and political interests to gain geo-strategic footholds and hurt competitors, we can solve it tomorrow. And the only way forward is if all assorted parties sacrifice their offensive interests visavi one another, and realise that sometimes we might need to allow odd to be even.

I also suggest that you all who read this are signing this petition. It would not mean much, but the more of us that are signing this, the clearer it would be that the peoples of the world do not desire a war.