Crisis point for American elites

SUBHEAD: The exploitive elites cannot turn back the tides of history, but they can immiserate millions.

By Charles Hugh Smith on 19 June 2017 for Of Two Minds -
(http://www.oftwominds.com/blogjune17/crisis-elites6-17.html)


Image above: In 2012 Los Angeles-based artist MEARONE was making a building mural in the UK and faced a lot of scrutiny about the piece. "I came to paint a mural that depicted the elite banker cartel". From (http://crpbayarea.org/2012/10/05/the-corporate-medias-response-to-mear-ones-latest-piece-on-the-banking-elite/).

The "fixes" to the stagnation of postwar Capitalism in the 1970s were financialization, globalism, and the sustained expansion of debt--all have run out of steam.

Many of us have written about cycles in the past decade: Kondratieff economic cycles, business/credit cycles, the Strauss–Howe generational theory (an existential national crisis arises every four generations, as described in their book The Fourth Turning), and long-wave cycles of growth and decline, as described in seminal books such as The Great Wave: Price Revolutions and the Rhythm of History and War and Peace and War: The Rise and Fall of Empires.

There is another Rhythm of American History that few recognize: the economic, social and political crises sparked by exploitive Elites. There are two dynamics that drive these crises:

1. The exploitation of commoners by financial/political Elites reaches extremes that create systemic instability as commoners no longer have the means to improve their conditions.
   
   
2. The economic mode of production that generated Elite wealth no longer functions, but the Elites cling to the failing system and enforce it with increasingly violent suppression of dissent.

Here are the previous Crises of Exploitive Elites:

A) American Southern Slavery: 1850 to 1865
Though the toxins generated by slavery are still with us, the existential political, social and economic crisis arose in the years between 1850 and the end of the Civil War in 1865.

In broad brush, the rise of the American West triggered a political crisis in the U.S. as the southern states realized the non-slave West's rising political power would doom the fragile balance between the non-slave Northern industrial-economy states and the cotton/agricultural slave-economy South.

It was a trend the South couldn't possibly win, but the South's exploitive Elites refused to concede any of their power--and that refusal to adapt to changing conditions guaranteed the Civil War.

The first Industrial Revolution radically transformed the source of wealth creation. The plantation agrarian mode of production of the South was eclipsed by the vast wealth-generating might of the rapidly industrializing North.

The Southern political and economic Elites could not win economically or politically, so they attempted a military solution--a war they might have won had it not been for the Westerners Lincoln, Grant and Sherman. (Lincoln was born and raised in the frontiers of Kentucky, Indiana and Illinois; both Grant and Sherman were born in Ohio and served in Army postings along the West Coast.)

The moral tide was rising against slavery. The Christian world had long been divided on the issue of slavery, but the tide turned against slavery in the early-to-mid-1800s, both in Great Britain an the U.S. Moral turnings are powerful instigators of political crises, and once again the Southern Elites attempted to stem this tide with military force.

B) The Crisis of Gilded-Age Exploitation: 1892 to 1914
The dates of this crisis are inexact and open to interpretation, but in broad brush, the Second Industrial Revolution (mass production, integrated industrial corporations, the rising dominance of Finance and Industrial Capital, emergence of monopolies and cartels, etc.) forced millions of commoners into the penury of wage-labor while concentrating the gains of capital and speculation into the hands of the few.

Adjusted for inflation, the wealth of the financier-industrialists in this era exceeds the wealth of today's billionaires, and is on par with the extremes of wealth concentration that characterize the last stages of the Roman Empire.

Commoners attempting to unionize were brutally suppressed by hired private enforcers and the police/military forces of the American government. Radical unions such as the I.W.W. (Industrial Workers of the World, a.k.a. Wobblies) were destroyed by coordinated, concerted government suppression, much of it by means that are visibly illegal by today's standards.

The conflict between exploited industrial labor and politically dominant Capital was eventually resolved by progressive anti-trust laws (aided by President Theodore Roosevelt) and the beginnings of social rights and welfare programs--universal education, limits on hours worked per week, etc.

C) Great Depression & Debt Capitalism: 1929 to 1941
Capital was increasingly concentrated in the hands of the Elites in the Roaring 20s, but the commoners had new access to the financial magic of credit: banks sprouted by the thousands, anxious to loan money to fund the purchase of more farmland, new autos, and all the other output of a consumerist economy.

But alas, credit is not collateral, nor is it wealth. When the debt bubble burst, so did the stock market, which was based on highly leveraged margin debt.

The Elite financiers resisted writing down the debt that had made them so rich, and as a result the Depression dragged on, immiserating millions who then turned to fascism or radical socialism as the political fixes to the systemic exploitation and dominance of Elites.

4) Civil Rights and Global Empire: 1954 to 1973.
The legacy of slavery's oppression had lingered on for almost 100 years, and the rising prosperity of the 1950s and 60s generated a social, moral, political and economic movement to throw off the most oppressive aspects of an exploitive social/political order.

At the same time, the costs of maintaining a Global Empire were raised to a boiling point by the war in Vietnam, which destabilized the moral, political, social and economic orders.

In response the Elites instigated waves of violent, suppressive state tactics designed to disrupt and destroy the organized dissent of social movements. These tactics included the FBI's COINTELPRO programs as well as other blatantly illegal, heavy-handed government enforcement of the dominance of exploitive Elites.

I've written extensively about state over-reach and illegal suppression of dissent: remember, the state exists to enforce the dominance of Elites: everything else is propaganda, misdirection and obfuscation.

Welcome to the United States of Orwell, Part 3: We had to Destroy Democracy in Order to Save It (March 28, 2012)
State Over-Reach: Stripmining the Citizenry for Fun and Profit (November 13, 2009)
When It Becomes Serious, First They Lie--When That Fails, They Arrest You (March 16, 2015)
For more on COINTELPRO, please read War at Home: Covert action against U.S. activists and what we can do about it.

Simply put: when lies no longer work, the government devotes its resources not to eliminating wars of choice, cronyism and corruption but to suppressing dissent and resistance to those extractive, exploitive policies.

Which brings us to the present-day Crisis of Exploitive Elites. The "fixes" to the stagnation of postwar Elite/state-dominated Capitalism in the 1970s were financialization, globalism, and the sustained expansion of debt in all sectors--state, corporate and household.

Now all three engines of "growth" have run out of steam. All three greatly exacerbated wealth and income inequality, as these two charts reveal:


Image above: Chart comparing American disparity of family income in 2002 and 20012. From original article.


Image above: Chart American asset prices versus Gross Domestic Production. Note Cnetral Bank bubble value veering uo and away from GDP. From original article.

Once again, the political and economic Elites are resisting the tides that are undermining their Empires of Debt and Exploitation. The Elite-controlled Corporate Media has been ordered to War Status, an DefCon-5 emergency requiring an endless spew of all-out propaganda designed to distract, disrupt and destroy organized dissent and any resistance to the dominance of Exploitive political and financial Elites.

The Exploitive Elites cannot turn back the clock, so they cling to their failed "fixes" and demand our compliance.

The Exploitive Elites cannot turn back the tides of history, but they can immiserate millions. That seems to be "solution" enough for them, but you cannot destroy rising moral revulsion to soaring inequality and the abject failure of debt-based global capitalism with mere media propaganda.

See also
The Automatic Earth: Coming Apart at the Brink
Bloomberg: The U.S. Is Where the Rich Are the Richest
Peak Prosperity: The Pin To Pop This Mother Of All Bubbles?

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Our Intellectual Bankruptcy

SUBHEAD: When the system itself is the source of our problems, changing nothing guarantees collapse.

By Charle Hugh Smith on 19 April 2017 for of Two Minds  -
(http://www.oftwominds.com/blogapr17/idea-bankruptcy4-17.html)


Image above: Painting of an alchemist attempting to turn lead into gold. From (https://ecstatic-darkness.com/2016/12/13/solar-transformation/).

Clinging to magical-thinking fixes that change nothing on the fundamental level hastens collapse. For esxample the religious belief in "Keynesian Economics", "Universal Basic Income" and "Medicare/Medicade for All".

Here we stand on the precipice, and all we have in our kit is a collection of delusional magical thinking that we label "solutions." We are not just morally and financially bankrupt, we're intellectually bankrupt as well.
Here are three examples of magical thinking that pass for intellectually sound ideas:

1. Mainstream neo-classical/ Keynesian economics
As economist Manfred Max-Neef notes in this interview, neo-classical/ Keynesian economics is no longer a discipline or a science--it is a religion.

It demands a peculiar faith in nonsense: for example, the environment--Nature-- is merely a subset of the economy. When we've stripped the seas of wild fish (and totally destroyed the ecology of the oceans), no problem--we'll substitute farmed fish, which are in economic terms, entirely equal to wild fish.

In other words, the natural world cannot be valued in our current mock-science religion of economics.

Other absurdities abound. Stripping the seas of wild fish adds to GDP, so it's all good, right? Dismantling newly constructed buildings and building a replacement structure also adds to GDP, so it's an excellent source of "growth."

As Max-Neef points out, conventional economists have absolutely no understanding of poverty. If you need a sobering account of just how this abject willful ignorance works in the real world, I recommend reading The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good.

Gail Tverberg (among others) has shown how the existing economic model no longer makes sense of the actual economy we inhabit: The Economy Is Like a Circus.

As for rising wealth/income inequality--there is a cure for that, but it's not in mainstream econ textbooks: The Only Thing, Historically, That's Curbed Inequality: Catastrophe Plagues, revolutions, massive wars, collapsed states—these are what reliably reduce economic disparities.(via Arshad A.)
2. Universal Basic Income
As noted in yesterday's essay, wages are no longer an adequate means of distributing the dwindling surplus of advanced economies. Wages as a share of GDP have been declining for decades, and only click up temporarily during massive speculative bubbles. Once these bubbles pop, which they inevitably do due to their instability and unsustainability, wage earners' share of GDP plummets to a new low.

The mainstream is enthusing about the "solution": Universal Basic Income (UBI). The solution to low pay and scarcity of middle-class paid work is to give everyone a basic income for doing nothing.

Delusional academics anticipate a flowering of creative talent akin to a new Renaissance as people are freed from work by robots and automation. But if we look at people already receiving the equivalent of "free money" UBI--disability-- studies find recipients are simply watching more TV and YouTube videos and pursuing opioids, not writing poetry and composing concertos.

They are not volunteering in their community or engaging their communities in any positive fashion. What actually happens with UBI is recipients become isolated and miserable because UBI strips their lives of meaning, purpose and the need to contribute to a community.

The real purpose of UBI is to chain every household to the state, and drain all social relations between the isolated "consumer" and the state.

As tragic as the delusion of UBI is to individuals, it is unworkable financially because profits will fall as automation becomes commoditized, and the surplus available to distribute to every household will diminish.

I explain this at some length in my books Why Our Status Quo Failed and Is Beyond Reform and A Radically Beneficial World: Automation, Technology & Creating Jobs for All.

Much of what is passed off as "corporate profits" is accounting fraud and the monetization of what was once free. For example, all that customer labor: now that we pump our own gasoline, check and pack our own purchases, do our own banking--who's skimming the output of our labor? Yup, the corporations.

Commoditization of software and tools + the Internet = loss of monopoly. This is a problem, for the core function of the state-cartel version of capitalism we inhabit is the state enforces a cartel-monopoly structure to guarantee steady surpluses it can tax for its own expansion.

As automation is commoditized, profits plummet as competition can no longer be controlled by cartels or even the state--just as Marx laid out.

Combine declining productivity and declining surplus (profits) (both for deeply structural reasons) and there cannot be enough money to fund UBI. Weirdly, proponents of UBI never even perform a back of the envelope calculation of cost and the source of all this free money (tax revenues and/or borrowing from future generations). Perhaps they intuit that such an exercise would reveal the bankruptcy of their magical thinking.

As we shall see below, the system can't even support the entitlements it has already promised to hundreds of millions of people, never mind an additional universal entitlement.

(Note to UBI enthusiasts: there are limits on what robots and automation can and will do: they will only perform work that is highly profitable. Since most human work is not profitable (or even paid), the idea that robots and automation will free everyone from work is delusional fantasy. I explain all this in greater detail in A Radically Beneficial World.)  
3. Medicare for all
I understand the desire for a single-payer healthcare system, and have published various proposals over the years for such a system.

The latest magical-thinking "solution" attracting widespread support (again, without any basis in actual numbers) is Medicare for all. The idea is: take a system (Medicare-Medicaid) that's already bankrupting the government and the nation and expand it from 70 million people to 320 million people.

Uh, right.

Shall we consult reality before embracing delusional "solutions"? Here's a chart of the rise of administrative costs in healthcare, public and private. Proponents of Medicare for All claim admin costs are lower in Medicare, but this conveniently overlooks the estimates that 40% of Medicare costs are paper-shuffling, needless or harmful tests, procedures, etc. and outright fraud.


Image above: Chart showing the growth in the number of physicians versus medical administrators. From the article.

We know a few things as fact
One is that the populations qualifying for Medicare and Medicaid (the elderly and low-income households) are expanding at a high and very predictable rate.

The other thing we know is that the Medicare-Medicaid costs are rising at a rate far above the growth rate of the economy that supports these programs (GDP), far above the growth rate of tax revenues and far above the growth rate of wages, which matters because payroll taxes fund Medicare.

It doesn't take much to extend these lines and conclude Medicare-Medicaid alone will bankrupt the federal government and the nation. The problem is these programs are bloated by fraud, defensive medicine, predatory pricing for medications, and every other costly ill of our healthcare system.

Like every other centrally funded/regulated sector, Medicare-Medicaid is optimized for maximizing private-sector profits and increasing regulatory costs. This is one manifestation of the diminishing returns on the entire centralized-control model.

We'd all like "solutions" that don't change anything, but when the system itself is the source of our problems, changing nothing guarantees collapse.

As noted in the article linked above, various inequalities and asymmetries get resolved by collapse. Clinging to magical-thinking fixes that change nothing on the fundamental level hastens collapse. In that sense, magical-thinking fixes are "solutions," but not the sort their proponents imagined.


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