economics – Page 2 – Auxiliary Memory

Who rules America? We all like to think we do, since we believe we live in a democracy. But what if that’s not true? If you watch the new documentary film Inside Job by Charles H. Ferguson you might think the rich rule us, and they’re doing a bad good job because of the 2007-2010 financial crisis. Greed triumphs over wisdom. Richocracy is a form of oligarchy, where the extreme tiny minority of the very rich have the power of ruling. The insight of Inside Job is these people reign whether the Republicans or Democrats are in control.

We do not see the real ruling rich in Inside Job, but their representatives, Henry Paulson, Ben Bernanke, Timothy Geithner, Alan Greenspan, the CEOs of the leading financial institutions, and their philosophical spin-doctors, the economists that teach in academia and consult in Washington. Many of these men stay in power regardless of which political party is in the Whitehouse or Congress. They rule by economic theory that justifies getting more wealth for the richocracy.

It’s all very obvious when you think about it. Money is power, the people with the most money have the most power. With very large amounts of money and power its possible to change both the laws of the land, and the rules of business. Furthermore the richocracy hire the top Ivy League economists to justify their wild money making schemes.

To me, the most damning evidence revealed in Inside Job is how the richocracy made the credit rating agencies a total sham. Wall Street created investment systems that insiders knew were worthless but got them rated AAA so gullible banks, investors, retirement systems, local, state and foreign governments, would buy. These investors of little people’s money used these corrupt credit ratings in their decision making, and thus trillions were stolen.

Would we have had this financial crisis if we had honest credit ratings? I don’t think so. Most people who invest money have very little knowledge of how their money is put to work. They have to trust the institutions that hold their savings. Those institutions use the credit rating systems like Moody’s and Standard & Poor’s to understand risk. An AAA rating is suppose to be as secure as U.S. government bonds. How do you feel about your retirement money being invested in schemes rated AAA (prime) but should have been rated CCC (extremely speculative).

But that’s the point of this film, greed corrupts everything. People ignore risk when they think they can make a quick buck. The solution to that is regulation. Capitalism without rules is chaos. The richocracy fights all regulation with every fiber of their souls. That’s how they use the Republican party. Regulation slows down wild speculation, but it’s the bubbles of wild speculation that create wild piles of wealth. But in recent decades most new forms of speculation have been no more rational then Ponzi schemes. The richocracy love the Ponzi scheme because it’s a quick way to take away a lot of money from the suckers and give it to the very few, the richocracy.

As Inside Job points out, in the old days investment firms invested their own money and they were very careful how it was used. Over recent decades investment firms started investing ever larger growing pools of money that didn’t directly belong to the money managers, so it became ever more easy to bet on riskier schemes. Governmental financial regulations are designed to keep investing money within the bounds of reality. Which means no Ponzi schemes. And all systems for quick riches ultimately come down to a Ponzi game.

Now the real question to ask: What can us little people do about this? The people with all the money have all the power, but the legal system is suppose to be based on democracy. Democracy is corrupted by lobbying. The more money you have, the more lobbyists you can buy. For the little people to gain power they either have to find ways to get their own lobbyists, or force a political change to the lobbying system. But the inherent nature of the richocracy really precludes the second option from happening.

The ultra rich is often called the top 1% of America, but that would be over 3,107,044 people. My guess is the richocracy is actually much smaller than that, maybe only the top .1%, or a little over 300,000 people. Those other almost three million people are hardcore richocracy wannabes. So we can think of it as us (99%) versus them (1%). You’d think the little guys would have the power, but they don’t, because all the wealth is with the 1 per-centers.

But that’s an illusion too. Us little guys have a lot of wealth too, but we let the richocracy manage it for us. Of course, we’re just as greedy as they are. We want 10% returns on our retirement investments and take risky chances with our 401k money. It would be possible to lobby with our money but we don’t control how its invested.

We don’t make the laws of the land, the laws of business, nor the theories behind government and finance. We think we have power with our votes, but I’m not so sure about that anymore. As Inside Job shows, people voted for Obama because they wanted change in the financial systems but he failed to deliver. Obama hired the same richocracy representatives that were used by the Republicans, and regulation was once again avoided.

Essentially us little people have no power and all we can do is sit by and hope the richocracy doesn’t drive the country into absolute ruin. We can hope the richocracy can learn from their own madness but Inside Job also points out that all the people that caused the recent crisis walked away rich. The richocracy is evidently waiting for the economy to settle down so they can start up the next bubble. They know how to get fabulously wealthy from financial bubbles. The trouble is if you look back at the history of these bubbles, they are getting larger each time, and the country and us little people are suffering more with each new cycle. How many more can we survive?

JWH – 11/14/10

Since the earliest days of Amazon.com I have been buying shelf loads of books from this innovate Internet business every year. Then I stopped going to record shops and bought my CDs from them too. Later on I bought running shoes, electronic gadgets, printer ink, and anything else that was convenient. I buy a lot more books because of Amazon.com’s heavily discounted prices, no state sales tax and free shipping on orders over $25. Now that the economy has taken a fall, I’ve got to wonder if my buying habits helped in knocking it out?

None of my favorite bookstores have gone under, but they’re struggling. All my old record stores are dead. So is the place where I bought my running shoes. And all the small computer shops I used to visit have disappeared. My state is hurting from low revenue, mostly gotten from sales tax rather than an income tax.

I buy a lot of audio books. Audio books used to be $25-150 on cassettes and CDs, but I get them for $9.54 each at Audible.com as a digital download. I never would have bought many titles if I had to pay the old prices, but if retailers now sold them for $15-25 a book, and Audible.com didn’t exist, I would buy 3-4 titles a month.

I used to buy 2-4 CDs a week. Now I buy none because I pay $120 a year for unlimited listening on Rhapsody.com. I used to buy a lot of software, but most of the programs I use today are free. My wife and I used to collect DVDs, but now we have Netflix. We used to pay for photo prints to give to people, but now we email copies.

I’ve got to ask: Is the Internet hurting our capitalistic system? I love the Internet. I would never want to give it up. But survival in this world depends on economic activity. And comfort and security depends on everyone having a job and the economy doing well. A 2% rise in unemployment, which we’ve recently experienced, has brought fear and misery. What will 10% do to our sense of well being? Do you remember the early 1980s? People are talking about this financial crisis being the worse since the Great Depression. 1932 had a peak of 25% unemployed. I have no way of imagining that level of bad times, and I don’t think anyone under 95 can really remember what it was like either. We really don’t want to go there, and need to consider doing almost anything not to.

We all need to be conscious of our economic impact. Spending frugally, staying out of debt, making careful purchasing decisions, and all those lessons financial advisors taught us might not be the right thing to do right now. Would spending a few dollars more for each book and paying the sales tax be a better choice for my local economy than ordering from Amazon?

This afternoon my wife and I wanted to watch a movie together, but there was nothing on at the theater we wanted to see. So we thought we’d go by Target and buy Kung Fu Panda. It was $19.99 plus almost $2 in tax. I could get it from Amazon for $15.99, a savings of almost $6. But we decided to wait a couple of days for when it comes in via Netflix. The rental cost would be less than the tax, thus saving over $20.

We didn’t buy Kung Fu Panda. We just didn’t feel like spending $22 for something so trivial in these economic times. If Kung Fu Panda would have been on sale for $12.99 we would have come home with a new DVD. I wanted to help the economy, and considered a 4 DVD set of Dexter Season One for $17.99 plus tax or a 6 DVD set of Northern Exposure Season 6 for $14.99, both of which seemed like excellent buys, but I’ve been spoiled by Netflix. Why buy something to own when I only expect to watch those shows one time?

See, the Internet has turned me into a bad consumer. It’s saved me a lot of money, plus it’s more efficient because I don’t have to maintain a physical copy of something that would clutter up my house. But I’ve deprived a local business of income, took jobs away from the local economy, and reduced the tax revenue of Tennessee. My gain is a loss for my community.

Either we have to design an economic system with the efficiency of the Internet in mind, or we need to go back to our old ways. I’m reminded of an old science fiction story. I can’t remember the title, but it was about a future where the poor had to consume on schedule, while the rich were free to consume as needed. An example, the poor had to change their shirts several times a day to keep production up in shirt factories.

Do we really want an economy where people need to buy DVDs rather than rent so more people will have jobs? Or buy a new gas-guzzling SUV every three years. I’m sure you get my drift.

Well, the answer might be yes. If we want to keep the old economy going. And we might until they invent a new economy. This is all very hard. What if you could buy a car that would last 300,000 miles, and used little or no gas, being mainly powered by solar panels on your garage’s roof. What does that do to GM or Exxon? If environmental technology, ET, becomes just as efficient as information technology, IT, what does that do to the economy?

What if I took the money I saved by using the Internet and spent it on renovating my house with local labor, buying from local suppliers, but with the goal of making my home more energy efficient? Will that help the new economy, or just delay the death of the old economy? I already bought a new SEER 16 HVAC that’s saving me hundreds of dollars a month on energy. That’s $9300 that went into the local economy, but now my monthly nut to the utility company is smaller. I could start spending money on insulation, better windows, better appliances, and all of that will add to the economy.

Eventually, I’ll have a very energy efficient house, and I’ll start putting much less into the economic system. It’s like switching from buying DVDs to renting them. At some point being efficient leads to less economic activity.

Yes, I think the Internet is bad for my old local economy, and bad for our old national economy. What’s needed is a new economy. It’s called a steady-state economy, one that’s not based on growth. Is the financial crisis that has come down on us going to be the metamorphosis that we must endure before becoming butterflies in a new economic world? Will Barack Obama return to old tricks to solve our new problems? Or can he be Copernicus seeing the Ptolemaic economic solar system with new vision?

We can always go back to a wood-chopping, horse and buggy world. We could turn off the Internet. This financial crisis may force many to give up cell phones, Internet and cable TV. Without the Internet, most people will have little need of a personal computer. Going backwards is possible and may happen. We may have to prop up the old economy, but is that what we want?

It’s very important that we all pay attention. In the next few years, a lot of decisions are going to be made. Where are you going to throw your support? Every dollar spent is a vote.

JWH – 11/15/8