Category: Corporatism

Making Money

I’ve been intrigued, and troubled, by the concept that “banks literally lend money into existence” ever since I first heard it.

Today a very occasional contributor to Front Porch Republic lays out how it’s done and how the confluence of that and some other factors leaves the economy in great structural peril still. Better yet, he tells how we can get out of it with minimal pain – at least initially.

The contributor, Eric Zencey, is a novelist, essayist, and Visiting Associate Professor of Historical and Political Studies for Empire State College in Europe and New York. His writing in environmental history and political theory has been supported by grants from the Rockefeller, Guggenheim, and Bogliasco Foundations. Today’s essay is a glimpse into his forthcoming book The Other Road to Serfdom: Essays in Sustainable Democracy (University Press of New England, Fall 2011).

That banks lend money into existence is not necessarily a secret worthy of outrage. It is a conscious policy decision at the national level to loosen the federal grasp of a traditionally sovereign prerogative, seigniorage: the difference between the face value money and its cost of production; the profit that comes from creating money.

But outrageous or not, allowing banks into the game changes it pretty fundamentally, especially when the banks are backed by the FDIC is they get so far out there as to create a crisis of confidence and consequent “run on the bank.”

Zency lays it out well if you’re interested. It seems to me that this is a major factor in our manic-depressive economic mood swings.

Globalization + the Pill = Culture Wars

A very interesting post at FPR clued me in to a Jonathan Rauch article in National Journal, which in turn discusses a new book that essentially publishes a Grand Unification Theory of the origins of “Red” and “Blue” America.

I hesitate to summarize. Read either the Front Porch Republic piece or Rauch’s for a summary instead.

What this leaves me with is a couple of intuitions, none of which I’m remotely prepared to defend to the death:

  1. I have taken some solace that “Red America” is growing demographically while “Blue America” is at NPG. This new theory makes me think that teeming Red America will continue to work for Blue America and will continue to be relatively ineffectual in carrying out any red agenda.
  2. Any red agenda is already in trouble. Red America, relatively speaking, tramples on the values they profess and which, in their pulpits, they literally preach. Why? They’re spitting into a very, very strong headwind of sexuality and lower wages, and their early marriages, plus the newish necessity of both parents working, make musical beds a far more popular game in Red American than in Blue.
  3. What happens when the Trillion Dollar Ponzi Scheme collapses? Red America knows more about the practical arts like gardening, homebuilding, etc. than Blue America knows. Will Blue America be picking Red America’s asparagus in a few Springs?


Crony capitalism

I haven’t yet, and probably never will, fully think through this editorial from today’s Wall Street Journal, titled An Economy of Liars. The author is from the Cato Institute, a right-libertarian group, so read it discerningly for that bias.

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as “anarchy plus a constable.” As a romanticist, Carlyle hated the system—but described it accurately …

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing …

Hayek’s mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct.

In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out.

Note through this that it’s not just big business lying. Big business and government are in bed together.

But “financial institutions should have a duty of care to their customers”? And “Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism”?

Yes, but who will enforce that if not the “cognitively captive” regulators? Class action lawyers? Sheesh! They’re as unpopular as bureaucrats, and justifiably so in many, many (most?) cases. Dismantling regulation per se is not an adequate response. That will only leave us captive to megacorp or to a new cartel of judges and shysters with a chaotic jumble of 50 different rules, one per state.

On the other hand, a local bank, not answerable to a Mother Ship in New York City, might behave itself without massive, Washington-based regulation and without big gun bullshit slingers like the Breck Girl, John Edwards, to sue them if they do get out of line.

Isn’t this another indicator that we need some trust busting of the “too big to fail”? Then we can deregulate. Right?

Big military as small government?

Heritage Action for America will guarantee that when a wavering congressman thinks of voting for higher taxes, increased regulation, or a weaker national defense, television ads in his home district will remind him that a vote for bigger government is a vote for less freedom.

(Edwin J. Feulner and Michael A. Needham of the Heritage Foundation, announcing  formation of Heritage Action for America as a lobbying arm; emphasis added; subscription may be required.)

Strong national defense as small government? What cosmos do these guys inhabit?

And would “increased regulation” include trust-busting of those intolerable “too big to fail” banks and other businesses? Gee. I feel freer being held hostage by Megacorp already.

Play with the cards you’re dealt

Interesting column today from David Brooks of the New York Times.

[M]uch research suggests that extremely self-confident leaders can also be risky … [C]harismatic C.E.O.’s often produce volatile company performances. These leaders swing for the home run and sometimes end up striking out. They make more daring acquisitions, shift into new fields and abruptly change strategies.

Jim Collins, the author of “Good to Great” and “How the Mighty Fall,” celebrates a different sort of leader. He’s found that many of the reliably successful leaders combine “extreme personal humility with intense professional will.”

You don’t have to be a corporate leader to appreciate some of the insights.

After the Market State: Phillip Blond on the Future of a Free Society

I must pass along an important lecture which summarizes the direction my thought has been heading in politically.

Society and the private sphere have become increasingly monopolized by the state and the market, which seem inadequate for dealing with increasing economic and social dysfunction. Phillip Blond, the influential Director of the London think-tank Respublica, argues for the necessity of the enduring bonds of family and local community, and the wide distribution of property and public responsibility that these require. Blond will outline the vision that has increasingly captured the attention of Britains Tory Party in his lecture, Red Toryism: What it means and why it is a genuinely radical alternative to the Market State.

I tried to embed the YouTube video here, but couldn’t get that to work.

Are factories (mostly) obsolete? Cities?

(James Howard Kunstler blogs and podcasts extensively on urban sprawl. One of the biggest of many motivators for suburbia (the automobile and cheap oil being the great facilitators) was that the close proximity of homes and factories in the cities really was pretty awful for the home owners/occupants.

Yet Kunstler spins a vision of a return to walkable cities. It’s a vision I find quite lovely, but with nagging doubts including how can people walk to their factory jobs without recreating the “company town” in the form of a “company neighborhood” and, if people are walking to their factory jobs, aren’t we back to square one: dreadful living conditions due to nearby factories?

I have read one or two of Kunstler’s books in the past year, and have listened to every single podcast, and can’t recall him addressing this. But Allan Carlson has addressed it, at least briefly, in his keynote address I praised yesterday:

While praising the modern “machine” tool, Borsodi condemned the “huge” factory as “a steam-age relic rendered obsolete by the electrical age,” yet sustained in the twentieth century by the regulatory powers of government.  As he wrote, “It is the factory, not the machine, which destroys both the natural beauty and the natural wealth of man’s environment; which fills country and city with hideous factories and squalid slums,” and which robs “men, women, and children of their contact with the soil” and “familiarity with the actual making of things.”  He added:  “Against the family…the factory wages a ruthless war of extermination….  Industrialism seeks to root out individual devotion to the family and the homestead and to replace it with loyalty to the factory.”

So, what was Borsodi’s alternative?  The working home, the economically functional home, he said, had to be restored; and this needed to be done in a revived countryside.  As he argued, “Man, no matter how often he has tried to urbanize himself, can only live like a normal human being in an essentially rural place of residence.”  Setting an example, Borsodi and his family resettled on an abandoned seven-acre homestead near the Ramapo Mountains, north of New York City.  Each family, Borsodi insisted, must also begin “an adventure in home production,” rooted in “true organic homesteads.”  Gardens, chicken coops, a few cows and pigs, carpentry workshops, small machine shops, loom rooms:  all were necessary in real family homes, he said.  Careful experiments showed that a homestead equipped with appropriate tools and small-scale machines was more efficient in producing three-quarters of the products that a family home would need.

Oops! Borsodi thought this “working home” alternative to factories needed to be in the countryside!

While I respect the Agrarians, I’m a city boy man. I not only love big cities (at least to walk as a visitor), but I’m getting a bit old to take up organic gardening, woodworking, etc. at any meaningful level.

So I’m still struggling with where cities fit in human-scale living. Am I confusing my personal situation (“the train pulled out of the station and left you …”) with the bigger picture (“… but your descendants aren’t too late”)?

Lighting an Economic Candle

If it’s better to light one candle than curse the darkness, Allan Carlson, an Editor at Large over at the Porch (and a pretty major figure is real conservative American thought for decades now), has done a better thing recently, and I the curser of darkness pass it along.

Carlson’s keynote address for a University lecture series starts, necessarily, with a little darkness-cursing to set the stage:

Eighteen months of severe recession have brought to the surface old truths that many chose to forget when times seemed to be good:  the business cycle has not been eliminated; finance capitalism is by its nature unstable; politically-connected corporations commonly escape market discipline; and there is nothing conservative about the “creative destruction” of a capitalist economy.

…As one commentator noted in the mid 1930’s, the label “conservative” had then been thoroughly “discredited,” twisted by the “apostles of plutocracy” into a defense of “gamblers and promoters.”

He then turns to the more illuminating task at hand, noting recent historic

seekers after a “Third Way,” a social and economic system that in important respects would be neither capitalist nor socialist.

In Europe, these seekers included:  Great Britain’s Hilaire Belloc and G.K. Chesterton, architects of the Distributist program [to which I will return]; the Russian agrarian economist Alexander Chayanov, who crafted a remarkable theory of “the Natural Family Economy”; the Bulgarian peasant leader Alexander Stamboliski, who turned his nation into a model agrarian republic and co-founded the “Green International” in 1923; Nancy Eriksson, a Member of Sweden’s Parliament who defended a curious political movement that might be accurately labeled, “The Desperate Swedish Socialist Housewives”; and Gilbert Dru, Etienne Gilson, and Wilhelm Roepke, architects of a vibrant mid-20thCentury Christian Democracy that aimed to build a Humane Economy.  These episodes effervesced in events of brilliance and excitement, sometimes reaching fruition, only to fade in the face of the two main 20th Century ideological contestants:  capitalism and communism.

Then he summarizes the true core of his talk:

Tonight, I want to tell you about three American writers and activists who also have been part of this quest for a Third Way:  Ralph Borsodi; Herbert Agar; and Wendell Berry.  I will also suggest ways in which their examples and ideas may help us understand the current economic crisis and point toward an alternate Conservatism for the decades ahead, one combining a preferential option for the natural family with a more decentralized, human scale economy and a curtailing of the “national security state.”

There’s enough thereafter to make almost anyone squirm. Anyone who thinks Rush Limbaugh and Sean Hannity are genuine conservatives may go postal upon reading it. But it challenges me, too: can my vision of walkable cities and food co-ops survive except as parasitic of those who live in rural areas and burn fossil fuel to get their edibles to my cozy co-op or picturesque farmers’ market? But what becomes of community and “Front Porch” conversations if everyone’s sitting on their own 40 acres with their mule?

I don’t think I can commend it too highly or excerpt its treasures adequately. My PDF version for my archives is already heavily marked up.  You must read it yourself if you, like I, suspect that we’re toast economically in the short term but hope for a humane life beyond the coming collapse.

Greedy, but gratuitous, too

I’ve mentioned my antipathy to “too big to fail,” which notably included banks. But Grameen Bank  interests me as much for the anthropology behind it – its view of human nature – as for its localist angle and “Small Is Beautiful” aesthetic:

Dr. Yunus came to realize … that all economic theory was built on considering only half of what men really are. It is built on the fact that men are selfish. And so they are. But that is not all that they are. Men are also unselfish, because without that, no social order—and no economy—would be possible or sustainable. So the good Dr. set out to found an economics, and a bank, built on the whole man, and not just the half-human.