Mr. Krugman's Science, Part 8: A Little More Stockmania

Probably the most interesting chapters of David Stockman's "The Great Deformation" concern what he calls the "BlackBerry Panic" of 2008, when Lehman Brothers went belly up and Hank Paulson was manipulating Congress with his warnings about "tanks in the street" unless his buddies (and former co-workers) received massive inputs of Federal cash.  Using a lot of data, Stockman puts on a pretty convincing argument that Wall Street's woes were its own; there were no broader implications for the Main Street economy where you and I live.  Rather, it was the relentless hype by Treasury Secretary Paulson, aided and abetted by his sidekick, Ben Bernanke, who wanted to preside over his very own Great Depression II (having literally written the book on the first one), that convinced the American people that we faced Armageddon unless we allowed the government to make good on all the reckless gambling carried on by the Wall Street Gaming Commission (Goldman Sachs, JP Morgan Chase, Merrill Lynch, Bear Stearns, AIG, et al, everyone except the sacrificial lamb itself, Lehman Bros.).

Stockman's provocative point is that it was completely unnecessary to bail all these casinos out.  The crash of Lehman Brothers (you might think of it as maybe the Flamingo, as opposed to JP Morgan Chase's MGM Grand and Goldman's Bellagio), a mid-sized gambling hall which made all the same stupid bets as its larger Mob Brethren, was simply another bankruptcy.  The Wall Street meltdown was self-contained.  It would have burned itself out "in the canyons of Wall Street," as Stockman puts it.

This viewpoint is not part of the official Manufactured Consent, of course.  Yet it holds up well under scrutiny.  The detonations on the Strip in southern Manhattan mainly concerned the lousy deals ("shitty deals," as Senator Carl Levin called them in Senate hearings when he grilled Goldman execs) put together as subprime mortgage-backed securities (MBS).  These, however, were a fairly small part of the overall mortgage market, the "private label" MBS that were too flaky even for Fannie and Freddie to underwrite as GSE-backed loans.  Since Goldman and the other gaming establishments were so highly leveraged (at about thirty to one), even a small decline in the value of these shitty deals spelled doom, funded as they tended to be with "hot money" (short-duration overnight loans from the shadow banking system - yes, it's a labyrinth, America's Underworld of arcane finance).  If you've seen the movie "Margin Call," you get a sense of how all of this works. Outside investors such as the preternaturally brilliant Michael Burry (lionized in Michael Lewis's The Big Short), Kyle Bass and John Paulson made fortunes betting against the stupid bets made by the likes of Bear Stearns and others.  AIG's "Financial Products" division allowed the casinos to hedge their bets with side deals (CDS, or credit default swaps) on the mistaken premise that housing prices (the collateral for all those subprime loans) could only go up and never down.  Thus, when AIG-FP failed, Treasury Sec Paulson kindly directed a ton of money to AIG which it could use to pay off the CDS "insurance" to Goldman, the BofA, Wells Fargo and the rest of the bankster-roulette players.  This was the infamous "backdoor bailout."  All in all, the whole fiasco was an Inside Job.

The effects on the broader economy in America were derivative; the failure of subprime mortgages caused a lot of houses to sink beneath their loan levels (go underwater), and the distressed properties in overbuilt America, suddenly released onto the real estate market, exerted downward pressure on prices, reversing some of the meteoric rise of prices during the Bubble Years (180% between 1996 and 2007).  There were heavy casualties in the housing industry, of course, both in finance and construction, and particularly in industries related to housing, massive job losses began in late 2008 and continued to the spring of 2009.  And then, by June, 2009, the recession was declared officially over.

The knock-on effects of the deflating housing bubble mainly arose from the end of the House-As-ATM era, the "mortgage equity extraction" process which had dumped about an extra $1 trillion per year into the American economy between the turn of the Millenium and 2006, when the Bubble reached its apogee.  Since America is primarily a "service" and "consumer" economy, the effects on manufacturing, agriculture and mining were not significant.  It's just that the Planning & Tanning Economy took a massive hit in the chops, as Americans once again faced the tough question in America: what the hell do I do now? And where do I get the money to do it?

Looked at this way, the BlackBerry Panic was simply a round trip.  As noted yesterday, the country's economic fortunes have been on a gradual decline for about 40 years, except for that sliver of aristocrats who can leverage world trade or dominate one of America's monopolies.  For the Booboisie who must compete with the world's labor market, it's a different story.  Occasionally, the fecund American mind conceives of a way to break the monotony by producing Bubbles:  Internet IPO offerings (Dot.Com) followed by the housing bubble.  These are enabled, as Stockman notes, through a combination of (a) ultra-low interest rates by the Fed married to (b) the dollar as the world's reserve currency, which supports, for now, our periodic indulgences in faux-wealth creation.  The actually wealthy, the Dons of Wall Street, can meanwhile manipulate the federal government (and American public opinion) and convince us that their setbacks are our own.

Viewed in this way, we can see that Ben Bernanke's main "policy corrective" of Quantitative Easing, buying up, among other things, a lot of MBS and Treasury bonds with hallucinated money (almost all of which winds up on bankster ledgers as "excess reserves") is just more of the same.  It supports "asset prices," stocks, bonds and, to an extent, housing.  Pew Research has demonstrated that since this money-printing began in 2009 the top 7% of America's pyramid of wealth have seen their portfolios increase about 28%; the Booboisie (the rest of us at lower sedimentary layers), the leftover 93%, have lost about 4% of our net worth.  Same, that is, as it ever was.

Who cares if it don't work (to quote Lamont Shadowskeedeboomboom in Mad Magazine)?  Ben Bernanke works for a banking cartel, and he's nursed the survivors from the 2008 Putsch back to opulent wealth.  The rest of us can go screw ourselves, as we are wont to do.  Noted New York Times columnist, and Chief Carnival Barker for the Status Quo, Paul Krugman, runs cover for his Princeton colleague. Krugman likes our Bubbles (he famously called for one in the early 2000's as a means of recovering from the Dot.Com bubble - Krugman is the Lawrence Welk of public intellectuals).  Look, Paul, why don't we just thank our lucky stars we're out of the recession, we're bumping along, and let it go at that?  Stop the QE and let the stock markets and the Casino Managers take a hit, for once.  Join us down here on the abbatoir floor, where the fun is.

Mr. Krugman's Science, Part 7

On Monday the 29th of April the good professor (Mr. Krugman) laid it out:

So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused. 

Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity. 

Essentially, this is The Krugman's Weltanschauung:  he writes many columns, many blogs (an unglaublich number, in fact), and essentially this is what they all say.  Along with saying that he's right about everything, as often as he can.  Mr. Krugman is comically insecure about his ego; his relentless self-promotion alone makes it fun to read along.

Yet I'm grateful for this summation by Mr. Krugman, Scientist.  Mr. Krugman, by referring to a "once-in-three-generations financial crisis," must mean, of course, that our present predicament is like the Great Depression of the 1930's.  Therefore, if we use tools such as those employed to lift the United States out of the Great Depression (specifically, starting a world war), or, more humanely and conducive to international esprit-de-corps (and more fun), preparing for an alien space invasion, we could end this silly downturn and return to prosperity.  "For the economy isn't always like this."

When I read Mr. Krugman's Science, my impression is that he views an economy as a sort of econometric abstraction.  Real people live in it and try to derive a livelihood from it, and in a way it's part of the natural world (you know, Earth), but the idea of "cycles" implies that whatever this abstraction is, it behaves over time in more or less predictable ways, and it can be fine-tuned and modulated by human intervention so that it performs optimally, producing 2% inflation, unemployment at 5% honestly calculated, and a generally rising standard of living with a strong middle class, right here at home.  That's the thesis. 

In 1930, three generations ago, the Earth's human population was about 2.07 billion people.  India was a British colony and essentially medieval, as was China.  Agrarian, rural, subsisting in villages and poor urban centers.  Certainly these countries were no threat to the United States or Europe as economic powers.  Latin America, Africa and the Soviet Union were either extremely undeveloped or mired in unworkable Communism.  The United States was energy independent and the world's industrial powerhouse.  It seems very likely that the Great Depression can be characterized, given all this, as a self-inflicted wound.  The means to recovery were always at hand: plenty of land, plenty of fresh water, plenty of manpower, plenty of energy, plenty of all natural resources, plenty of everything, and no significant international competition which threatened any of these things.  Thus, when the United States, still gripped by the effects of the Great Depression, mobilized to meet the challenges of Fascism, the veil fell from our eyes and we realized we had had the means to become rich all along.  There followed thirty years of prosperity such as the world had never seen.  I personally came of age during that era, and I must say: damn, it was nice.

Today there are 7 billion people in the world.  The CO2 concentration in the atmosphere has risen to about 385 parts per million, or .04% of the air we breathe (up from its historic, CRC-listed level of .03 - think about that).  There are those who argue cogently that we face near-term extinction as the result of our destruction of the atmosphere and oceans.  What might save us from this fate is the economic collapse that seems built into the interlocking system of international fiat currencies and mutually-dependent economies.  Door One or Door Two?

Brazil, Russia, India and China (the BRICs) are rising economic powers, competing mightily with the United States in world trade and utilization of natural resources, especially oil.  Our once-vaunted middle class has been hollowed out by offshoring of labor and dependence on cheap labor markets for our daily goods. Automation threatens many of the remaining manufacturing, "value-added" jobs.  The Big Box revolution has destroyed the Main Street mercantile businesses. Big Ag eliminated the family farm and the agrarian life that employed 20% of the United States in 1930. 

On Monday night I attended a lecture at the Jewish Community Center in San Francisco (what, you gotta problem with that?) where Eliot Spitzer gave an impassioned, highly cerebral talk on the American economy and the general state of our democracy (one can see why The Powers That Be needed to lay this man low - how could the oligarchs get on with Fraud As Our Business Model with this guy in the way?).   Mr. Spitzer, an authentic liberal Jewish New York intellectual, laid particular emphasis on this chart:

We all got rich together until about 1975; then the middle class began to lose ground, as the effects of globalization began to kick in, as jobs left for cheaper labor markets, as a relentless surge of mergers & acquisitions created larger and larger monopolies which could "leverage" the global trade and access the cheap labor markets, turning Americans into menial "consumers" who could not keep up with the general increase in wealth, which was in turn concentrated in fewer and fewer hands.

 

Thus, Mr. Krugman, is it really cyclical?  Or are you part of the Cargo Cult which stands on the shore and waits for the masts of the distant ships of prosperity to appear over the horizon?

 

More on this gripping tale in the days to come.

Matt Taiibi in Rolling Stone on the Utter Corruption of the Big Banks

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425?print=true

Read Matt Taiibi and discuss among yourselves.

Book Report: David Stockman's "The Great Deformation"

This is a very satisfying book.  What makes it compelling is the sense of utter "knowingness" and objectivity that pervades the analysis.  Stockman, after all, was Ronald Reagan's Budget Director before he entered the private sector (still quite young) as a Wall Street trader with Salomon Brothers, then perhaps the most respected investment house in Manhattan.  So he's seen the financial shenaningans from both sides - the Wall Street grifters, the power players in Washington, D.C. who are on the receiving end of all that corporate lobbying money (he served in the House of Representatives). He does not come at his commentary on the American economy from a partisan viewpoing; no one is spared, not even Reagan.  The book is politically agnostic.

The writing, in fact, seems to emerge from one other persona on his c.v., his years as a divinity student at Harvard.  Its tone is moralistic, and American in an old-fashioned way.  What he decries, what lies at the base of the Great Deformation, was the decision in 1971 to take the dollar completely off the gold standard, the Camp David agreement that is often called Bretton Woods II. After that, the nations of the world operated under the "floating currency contraption" that we now use. 

I don't really know what I think about the gold standard as the basis for issuing money.  There is nothing particularly "natural" about calibrating the issuance of markers for wealth (money) in terms of the amount of a metallic element with the atomic number 79 which has been found so far.  That gold is comparatively rare was the big point in its favor, I suppose.  If paper money must be "backed by gold," then an upper limit on the amount of currency that can be printed is established.  Without it, we wind up with what we have now, "currency wars" among the various central banks internationally, with the spectacle of nations seeking actively to create inflation in their economies and to devalue their currencies so that their exports are cheaper on the world market.  Japan is presently set on this course, with turbo-charged quantitative easing that makes Bernanke's money printing seem tame by comparison.

And, of course, as Stockman points out, there will always be the temptation at central banks to make up for lost growth and prosperity in a country by just printing the money that we can't "earn" otherwise.  The American housing bubble is his Exhibit A, that fantastic run-up in prices between 1998 and 2006, where the booboisie went on a mad rampage of MEW (mortgage equity withdrawals) through refinance, lines of credit and flipping of houses that went ever upward in price.  Stockman estimates that between about 2001 and 2006, about one trillion dollars per year were spilled into consumer spending by means of the house-as-piggybank. It was the era of flatscreen TVs, granite countertops, weekend buying sprees at Home Depot to plush out all that home improvement, new cars in the driveway paid for with 30-year financing on the house.  What wasn't to like?  We were rich! For a while.

 All of it was enabled by a compliant Federal Reserve (which kept benchmark interest rates in the sub-basement), the "GSE" twins, Fannie and Freddie, and Wall Street's packagers of mortgage-backed securities, along with the "ownership society" craze begun by Clinton and taken to delirious heights by Bush.

While all of this was going on, in those halcyon days of the first half of that long-gone decade, the American commoner made very little real progress on the employment front.  Wages were stagnant, the job market was moribund, and there was no actual economic reason, other than bubble finance, that the housing market should have appreciated in value (on average, 15% per year) at such an insane pace.  It wasn't as if Americans could actually afford these houses on their paychecks.  It all depended on gimmicks: low or no down payment, sketchy documentation, negative amortization, adjustable rate loans, and a central bank willing to keep interest rates at a level amenable to the Wall Street and GSE trash compactors, who smashed together all these garbage loans into tranched exotica.  No more brick & mortar banks with a loan officer (a friendly guy who looks and sounds like Jimmy Stewart) perusing your loan app in a kind and sympathetic way, appraising the likelihood that his bank, which will originate and hold the loan on its own books, will get paid.  No, now the mortgage business was turned over to coked-out grifters at Bear Stearns who needed "inventory," loans by the thousands so they could make their bonus and stay current on the Hamptons house and the prostitute/girlfriend's Manhattan apartment.

Modern America, in other words.

It was fun while it lasted.  It replaced the dot.com bubble, which tended to favor a narrower group of investors and tech entrepreneurs.  The housing bubble was far more democratic - almost everyone felt the "wealth effect."  Stockman is at pains to point out that it was all a chimera, a case of borrowing from the future and blowing the moolah now.  Now we're back to the same dead-ass job market, the same flatlining wages, and the same dismal prospects as would have existed in 2004, say, save for the distended housing bubble stretching to its gossamer thinness over the McMansion-strewn hills of America.

Bernanke, that plucky and indefatigable counterfeiter, is doing what he can to reinflate the bubble, on Wall Street and in the housing market.  He wants America to have those good feelings of being rich again, but all he seems to be doing is comforting the comfortable and leaving the afflicted as he found them.  Since he started printing money at warp speed in 2009, the top 7% of America's aristocracy have increased their net worth by 28%, while the bottom 93% have gotten nowhere at all. 

Stockman's idea is that we should probably try to do something real for a change instead of just playing financial games with interest rates and money printing.  Yeah, I guess.  That sure sounds like a lot of work, though.

It's Time to Move On (Again)

April is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull roots with spring rain. - See more at: http://www.poets.org/viewmedia.php/prmMID/18993#sthash.3x6GMdHH.dpuf

April is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull roots with spring rain. - See more at: http://www.poets.org/viewmedia.php/prmMID/18993#sthash.3x6GMdHH.dpuf

April is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull roots with spring rain. - See more at: http://www.poets.org/viewmedia.php/prmMID/18993#sthash.3x6GMdHH.dpufAApril is the cruellest month, breeding 

April is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull rocks with spring rain.

T. S. Eliot, "The Waste Land."

As I understand matters, we are not to be intimidated anymore by terrorists.  Speaking for all of us, President Obama has declared on national television that we are no longer afraid.  The incomparable (and often incomprehensible) Tom Friedman of the New York Times concurs: 

"And while we are at it [not being afraid], let’s schedule another Boston Marathon as soon as possible. Cave dwelling is for terrorists. Americans? We run in the open on our streets — men and women, young and old, new immigrants and foreigners, in shorts not armor, with abandon and never fear, eyes always on the prize, never on all those “suspicious” bundles on the curb. In today’s world, sometimes we pay for that quintessentially American naïveté, but the benefits — living in an open society — always outweigh the costs."

Just a quick memo to Tom: I'm virtually certain that organizing the Boston Marathon is a year-round activity, and as soon as the current one is finished, plans begin for next year.  In fact, let me look that up for you.  Okay, that wasn't too tough.  Here you go:  http://216.235.243.43/races/boston-marathon.aspx The Boston Marathon is organized and run by the Boston Athletic Association, and plans are underway for the 2014 running of this annual event.  My idea would be to wait until the third Monday in April of next year, just like always, although in theory I'm sure a second Boston Marathon could be organized in a couple of weeks if you think it's necessary to demonstrate our steely resolve. 

As for our obliviousness to "suspicious bundles," I'm pretty sure, if memory serves, that at airports and stadiums, aboard public transit, on train platforms, signs are everywhere now that urge everyone to report "suspicious bundles," and the U.S. Post Office has definite policies on how big a package can be jammed in the corner mailbox, just as another example.  We're also told that if we "see something" we should "say something."  My local CVS Pharmacy has half an aisle devoted to "travel size" everything: eye drops, tooth paste, anything else that can be reduced to four ounces. 

Also, our nonchalance in the face of danger would probably come as something of a surprise to the families of about one million Iraqi dead, or the 5 million or so displaced refugees in that country.  We should also mention the 5,000 or so American dead, and the wounded, maimed, amputated, blinded and insane soldiers in numbers probably at least ten times that amount who served the country by fighting essentially symbolic wars in Afghanistan and Iraq, the latter war to protect us from weapons that did not exist, and the former so that Osama bin Laden, who was living in Pakistan, could not use Afghanistan as a base of operations, that is, if he felt like going back to Afghanistan.

Not that I consider myself uncommonly courageous (not at all, in fact), but I was pretty much with the new program as of September 12, 2001.  As I recall, it was actually the country's leadership (Bush & Cheney) who hyped the bejesus out of the threat of terrorists, as they warned us of mushroom clouds and, in Bush's words, "an enemy who lerks."  Every time we felt like relaxing, they would stir up hysteria again by warning us of the crazed legions of Muslim terrists who spent all day dreaming up ways to mess with us, envious, as they were, of our freedom.  A freedom which Tom Friedman now openly urges us to flaunt, as we run around in our underwear with our eye on the prize, although he notes that among those running around on the streets were "foreigners and new immigrants," which was certainly the case in Boston, and that just shows you what can happen when you're trying to write some pulpy paean to American fearlessness before the news cycle has gone all the way around.  You know?

Well, I got that wrong, too.  It turns out the culprits were a couple of Chechen whack-jobs that we more or less imported for reasons best known...to nobody, but if you survey the pre-history to the entry of the 9-11 hijackers into the United States (available in the Report of the 9-11 Commission), you will see that there is nothing particularly new about this circumstance.  The Underwear Bomber, after all, was on Janet Napolitano's no-fly list, but he was all but given access to the Red Carpet Lounge in the course of flying to the United States.  We freely admitted the 9-11 hijackers into the country even when their visas were expired, then housed them and trained them to fly our planes into our buildings.

I guess what I'm saying, Tom, is that you don't really have to worry about Americans getting all uptight and vigilant and shit, and by next week this thing will have blown completely over. Who's got the time to focus on the Boston massacre?  Next week, or maybe the week after that, someone will open up on a crowd with one of the freely-available automatic weapons infesting the countryside, probably someone in withdrawal from a neurotransmitter drug, and then we can obsess about that for a couple of "Hardball" sessions, and then move on again, eye on the prize, with abandon and never fear, although at a certain point you have to wonder whether all this obliviousness is a mark of moral fiber or a symptom of complete societal madness.

A few reactions to Topic A from Boston

It's too bad the cable news people (Rachel & Chris & Chris & Lawrence) feel compelled to tell us what the tragedy "means" before they even tell us what happened.  They're in such a rush to package everything, to give everything a logo, that they skip over the factual details that may hold the actual answers they pretend to seek.  However, I have an uneasy feeling that MSNBC and CNN and Fox are not going to be able to give this one a "clothing label" (Shoe Bomber, Underwear Bomber) and be done with it.  This terrorist operation does not have the Keystone Kops kharacteristics of the Times Square terrorist who managed to lock himself out of his own car (bomb), nor is it one of the entrapment scenarios the FBI concocts from time to time where they recruit a bunch of incompetent jihadists to participate in a half-ass, dead-end plot that the FBI rushes in to disrupt at the last second (before the plot was about to fail).

No, what this incident seems most like, what it calls to mind, is an IED set off in Baghdad.  The talking heads seem loath to confront that possibility, and for understandable reasons.  That's not something they want to get into.  They want a corporate "handle" for this incident that makes it titillating and exciting and above all heroic and self-congratulatory, to confine it to the current news cycle, so Americans can pay attention for a couple of days, feel good about themselves, and then move on with their lives.  So Rachel Maddow will talk earnestly to MSNBC's go-to terrorism experts who will discuss in general what motivates people to blow up other people while carefully avoiding any explanation that sounds too serious. Or too likely to provoke any soul searching on our part.

But think about it: if you've read accounts of how improvised explosive devices are used in Iraq and Afghanistan, they seem exactly like what happened yesterday at the finish line of the Boston Marathon.  A bomb, maybe in a backpack casually left behind, is planted somewhere (watching the news for several hours last night, I was never able to find out exactly where, but one runner's account reported in the New York Times suggested one of the bombs was in a Starbuck's).  The bomb contains high explosives and a detonating device, maybe a garage door opener which can be signaled with a cell phone.  The bombs detonate a few seconds apart.  This could result from a signal from one cell phone or maybe two, from a lone jihadist or maybe a team.  Logic suggests that more than one person was involved.  One or more operatives to walk along the crowded sidewalks with backpacks, armed and ready to blow, while their co-conspirators wait a safe distance away with cell phones.

It's easy, really, and what's always amazed me is that, given the phenomenon the CIA calls "blowback" (anti-American sentiment from our many wars in Muslim countries), this sort of thing doesn't happen more often, even routinely, the way that mass shootings with automatic weapons have become routine in American life.  In part, it has seemed to me that the fatal flaw for the jihadists is their preference for the spectacular or the unnecessarily difficult: 9/11 illustrates the preference for the Big Score, but the Shoe Bomber and the Underwear Bomber demonstrate the fallacy of attempting a terrorist attack in circumstances where (a) the actual detonation process becomes obvious to those around the terrorist and (b) the operative becomes emotionally overwhelmed because he knows he's going down with the plane.

If the hypothesis is correct, that yesterday's tragedy was a jihadist operation involving remote-signaled IED's, then we now have a helluva problem on our hands.  For one thing, the perpetrators are no doubt still at large.  For another, it presents us with the disquieting feeling that the War on Terror (TM) has come home.  Our "liberal" news outlet, MSNBC, doesn't quite know what to do with that. They can "oppose" the Iraq War, for example, once general public opinion has made it safe to do so, but they can't begin talking about logical consequences of having fought the war in the first place. Such as the likelihood that jihadists would come over here and start detonating IED's in Boston and other American cities exactly as they've shown they can do in Muslim war zones.

Instead, Rachel Maddow "interviews" Ron Suskind, who assures everyone that the bombers "cannot win" because of some peerless quality the American people supposedly possess where we cannot be frightened or intimidated, and next year's Boston Marathon will be bigger and better than ever, et cetera.  Just don't start talking about "blowback."  We prefer the "lone American nut" thesis.  We prefer the randomly pathological to the logically political, because that way we're always right, and we don't have to entertain any uneasy thoughts about how maybe we should have seen this coming.

Time will tell.  In the meantime, the MSM will blather on about this incident's "place in history" and the rest of it.  I thought, oddly enough, that the real star of last night's news shows was a young trauma surgeon at Mass General named Peter Fagenholz.  He answered reporters' questions cogently, directly, after a long day in which he had performed six emergency operations on grievously wounded civilians.  No speculation from him.  He was humble and obviously supremely competent. Tellingly, he acknowledged the help he'd gotten from a fellow surgeon who had spent tours in Iraq and Afghanistan and who was familiar with the kinds of injuries the docs dealt with all day yesterday.

Guest Post: Rob Urie on Obama's Latest Sell-Out

Whenever I see a Rob Urie post on Counterpunch, I hasten to read it.  Mr. Urie is described as an "artist and political economist," an interesting combination that seems to produce lapidary prose and brilliant insight.  He is much better than I have been about explaining how it all fits together economically, but then composition is the essence of art.  He addresses such questions as why, precisely, Barack Obama, for example, is so utterly "Hopeless (TM)" as a liberal leader and little more than a clueless stooge of Wall Street lobbyists.  If you read enough of Rob Urie, you might give up your tendency to post Facebook pleas to Mr. Obama "to do the right thing."  He is never going to do the right thing, and it doesn't matter if he's given a third term.  With that, I turn the floor over to Mr. Urie.  His analyses are dense and intellectual, and presented often at a high level of abstraction, but I think it's all there: a true comprehensive overview in the manner of the great social theorists.

http://www.counterpunch.org/2013/04/12/obama-does-social-security-and-medicare/

Saturday Morning Essay: Mr. Krugman's Science, Part 6

One of my purposes in attempting to demonstrate the pro-status quo bias of the fearless Liberal, Paul Krugman, ace economist for a great metropolitan newspaper, is to encourage fellow hooper Bob Somerby, who mans the keyboard at The Daily Howler, to include Krugman in his daily thrashing of columnists at The New York Times and the Washington Post.  Bob does this exceedingly well, in a meticulous, recursive, penetrating way. 

I take it on faith that Bob exempts Krugman for reasons which are sufficient to Mr. Somerby, and that his accolades for Mr. Krugman are sincere.  However, I can't help feeling that Bob is himself a liberal who has been taken in by Krugman's self-promotion as a "Liberal" with a "Conscience" who fights for the little guy on Social Security and Medicare et cetera, and that without him we would be exposed to the slings and arrows of outrageous Republicanism.

This I doubt.  I was gratified to see that Mike Whitney, who often writes about economics for Counterpunch, has come over to my way of seeing things; that is, of seeing through Mr. Krugman.  In a recent, hilarious account of the David Stockman vs. Paul Krugman "debate" on "This Week" Mr. Whitney had this to say: 

 But while Stockman’s editorial has broad popular appeal, it’s come under ferocious attack by the liberal commentariat, who’ve savaged Stockman on issues that are largely meaningless to the average working stiff.  Obama’s primary apologist, Paul Krugman, has been leading the jihad against Stockman; pounding away at his economic theories while dismissing him  as a “cranky old man”. 

 Whitney narrates the play-by-play as he continues:

Krugman, one last time:

“This isn’t about machinery, it’s about people and visions. We have two parties who have fundamentally different visions of what America should be. We have Democrats, who want the expansion of the safety net and have gotten it in Obamacare. They want it to be even more. And we have Republicans that want to dismantle a lot of the legacy of the Great Society and the New Deal.”

This is such nonsense. What difference have we seen under the Dems?
Zilch. The drones, the wars, civil liberties, regulation, spying, Guantanamo; you name it, it hasn’t changed a bit. Same shit, different leader.
Obama claims he can kill a US citizen without charges or trial, but Krugman maintains the Democrats have “fundamentally different vision of what America should be.”
Uh huh.
Finally, Stockman goes in for the kill.

“The (Democrats) don’t stand for anything.
They don’t believe in anything. Why do we still have Too Big To Fail? We allegedly had a heart attack, the banks are bigger than ever. Why don’t Democrats do something to break them up and cut Wall Street down to size?”

And that’s how it ended, with Krugman backing up against the ropes while Stockman delivered one haymaker after another like a windmill spinning in a gale-storm.

That's great stuff.  The animus against Mr. Krugman is pretty apparent from the imagery Mike Whitney uses: he imagines David Stockman simply beating the shit out of  Krugman once and for all.
The essential point that I think people miss about Mr. Krugman's science is that Krugman deploys his science (private joke: in the same sense that Percy produced science) as a political operative who carries water for the Democratic Party, and for that wing of the Party known as the Democratic Leadership Council (the DLC), the Clintonian, Robert Rubin, Larry Summers, sell-out wing of this once-great institution who ushered in the Casino Capitalism of modern America with their relentless drive to deregulate and turn Wall Street into Vegas-on-the-Hudson.

That is what David Stockman is writing about in The Great Deformation and in his Times essay which sent Mr. Krugman into paroxysms of rage and jealousy.  Mr. Krugman wholeheartedly supports the money printing operations of the Federal Reserve, but does not bother to explain (as Stockman does) the mechanics by which the Too Big to Fail banks use this endless stream of largesse to play the stock market and become Too Bigger Even to Fail.  Stockman does explain how this comes about.  I've wondered about the differences in their approaches; does Krugman give the Fed Reserve a pass because his Princeton colleague runs the Fed? Or is it because Mr. Krugman is a pure academic who simply doesn't understand how things actually work in the business world, but pretends that he does?

Whatever the reason, the result is as Mike Whitney says: Mr. Krugman is simply an apologist for the Crony Capitalist-Hugging faction of the Democratic Party, who sheds crocodile tears for the plight of the American Commoner as his logo and cover story for self-promotion. 

Anyway, Bob: take a closer look.  You do a great job savaging the bullshitters on MSNBC.  Your series on Chris Matthews and his efforts to rewrite his history as an Iraq war hawk were priceless.  But that's the point: what happened to a genuine anti-war crusader like Phil Donahue on MSNBC?  They got rid of him.  What would happen to a New York Times columnist who wrote a sincere economics column that took on the Wall Street casino and the corruption endemic in the two-party system?  Gone in a New York Minute.  What happened to Bob Scheer, a relentlessly honest journalist who used to write for the Los Angeles Times until he became too hot to publish?  Bob Scheer, who had this to say about David Stockman, by the way:

“Why is David Stockman driving everyone crazy?…What’s all the outrage about?…
The headline on Stockman’s piece—“State-Wrecked: The Corruption of Capitalism in America”—is unquestionably accurate…..What his critics find so disturbing is not a quaint argument about the purity of monetary policy but rather the bold assertion that the overall American system of crony capitalism is in fact wrecked. This is a contention that most Americans might readily agree with in terms of their daily experience, but one that the hardly suffering pundit class would rather not contemplate…
Bernanke, who throws $85 billion a month at the bankers who caused this mess, purchasing their toxic mortgage based derivatives, is still treated with respect. But Stockman, who opposed bailing out the banks so they, like those tens of millions of foreclosed homeowners, could learn a tough love lesson in real economics, is now an object of derision…
That fiasco’s enablers—Alan Greenspan, Robert Rubin and Lawrence Summers—and the more disastrous ones to follow were crowned “The Committee to Save the World” on Time magazine’s Feb. 15, 1999, cover and are still welcomed in those polite circles where truth-teller Stockman is being treated as a pariah.”

Cage Match Clash of the Dry Lab Titans of Economics

And yet, I can't be serious.  I can't seriously believe that simply printing money will lift the industrialized countries out of the doldrums and usher in a new era of prosperity.  This is all a variation on Yossarian & the Bomb Line, that perfectly written scene where Yossarian changes the map in the middle of the night so the squadron doesn't have to fly the dangerous mission over northern Italy.  The aviators had stared at the bomb line day after day, willing it to move beyond the danger point so they could fly another milk run, not a life-and-death battle in the sky. 

Clevinger plays the role of the rationalist:

When night fell, they congregated in the darkness with flashlights, continuing their macabre vigil at the bomb line in brooding entreaty as though hoping to move the ribbon up by the collective weight of their sullen prayers. "I really can't believe it," Clevinger exclaimed to Yossarian in a voice rising and falling in protest and wonder. "It's a complete reversion to primitive superstition. They're confusing cause and effect. It makes as much sense as knocking on wood or crossing your fingers. They really believe that we wouldn't have to fly that mission tomorrow if someone would only tiptoe up to the map in the middle of the night and move the bomb line over Bologna. Can you imagine? You and I must be the only rational ones left."

In the middle of the night Yossarian knocked on wood, crossed his fingers, and tiptoed out of his tent to move the bomb line up over Bologna.”
― Joseph Heller, Catch-22

Just to read that scene, and so many others like it, has made life worth living.  Heller was that good. 

Printing money is the monetary equivalent of Yossarian's action.  One might first ask, why are all the big central banks printing money like there's no tomorrow?  The Federal Reserve, the Bank of Japan (at Mach 3), the European Central Bank.  They are cheered on by the Keynesian true believers, such as the chief economist at the New York Times, Professor Paul Numbnuts.  Indeed, all of this hallucinated money is again blowing massive bubbles in the stock exhanges and housing markets.  Bomb lines are being moved in the dead of night.  Will morning ever come?

I watched, in an unedified way, the Economic Cage Match between Prof. Numbnuts and David Stockman, former head of the OMB under Reagan, former divinity school grad student, former Wall Street con man, on George Stephwhatever on Sunday's "This Week."  Stockman had had the unmitigated gall to publish, in the Times itself, a long screed on the many sins of the American economy over the last....80 years.   It was, in fact, a little too much.  It's true that the American economy has run out of gas, insofar as the fate of the American commoner is concerned.  (Large corporations are doing fine, because of the international nature of their business and because their current practice is to hire R2D2, not carbon-based life forms.)  Mr. Numbnuts believes that the lot of the commoner can be lifted through Keynesian monetary (money printing) and fiscal (borrowing more money) stimulus.  It's just that we won't do it.  It's so simple, it's sitting right there, and we won't do it. 

Stockman, on the other hand, is a Debt Freak.  Everything is about debt - public, private, international, whatever.  Too much of it, wherever you look.  Adding more debt to a debt-saturated economy is not going to work.

Both of these intellectual titans left out of their deliberations a factor I consider important: the real world.  Paul Krugman is convinced that this recession (which he sometimes calls a depression) can be remedied, and will be remedied, and it's only a matter of when.  It will happen sooner if we pursue the right "policy."  It will take longer (but apparently will happen anyway, despite doing everything wrong) if we keep on this "austerity" kick, meaning borrowing an insufficiently large fraction of what Numbnuts calls "potential GDP."  (Using an hypothesized number like "potential GDP," a state of affairs that does not actually exist, allows you to claim that the amounts we're borrowing are smaller than they appear to be, "as a share of GDP."  Krugman compares everything to shares of GDP - his lunch tab, his bar bill, his hat size.) 

I notice lately, however, that Krugman is beginning to show a few signs of wear and tear.  Let's face it: it was the summer of 2007 when Bush told us this sucker could go down.  The stock market tanked, millions of people lost their jobs.  We're pushing six years later.  Have we really gotten anywhere?  We have not actually created a single job.  We're stuck.  Everything the society actually needs is produced by the skeleton crew of humans and robots with actual jobs.  Numbnuts tells us that the whole problem is "insufficient demand," but that's what a Keynesian always says.  The demand matches output, and the output is sufficient.  What he's saying is that the Planning & Tanning Economy has gone away, and it needs to be revived, so that the "potential GDP" will become the actual GDP.  We must increase "aggregate demand" for Planning & Tanning.  This is, of course, utter nonsense, the result of imagining that the world conforms to an economic model that once was and now can no longer be.  Americans can't live that way anymore.  They've been reduced to basics, like filling up the tank, paying rent and getting enough to eat.

These Two Titans of Dry Lab Economics, in other words, are debating historical curiosities, the cyclical booms and busts of the past.  Analogizing forward from the irrelevant conditions that existed in 1937, or whenever, tells us nothing about a world up against the Limits to Growth, global warming and overpopulation.  It's currently Now.  But the study of Now is not what these guys were trained to do, and they can't make any money talking about it.  So they go on talk shows and prove each other wrong.  And they're both right that they're both wrong.  It's just that neither one is right about anything else.

At Last, A Real Economic Solution

First of all, you have to understand that Michael Woodford is probably the leading monetary theorist in the world.  He holds degrees from the University of Chicago, Yale Law School, and a Ph.D. from MIT in economics.  He teaches economics at Columbia University.  He literally wrote the book on the implications of monetary theory for macroeconomics.  Unlike Professor Paul Numbnuts, who writes about economics for the New York Times and won the Nobel because of his vociferous (and poorly-written) screeds about the Iraq war and the misprisions of the Bush Administration, Woodford is a genuine heavyweight, and if he won the Nobel Prize from that bank in Sweden for his work in economics, it would make some sense.

Enough preamble.  Here is what Michael Woodford had to say on the question of Quantitative Easing:

"If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. "This could done with a flick of the fingers. The debt would vanish." (Quoted by Ambrose Evans-Pritchard in London's The Telegraph.)

Woodford, who's serious in general, is serious about this.  What he is recommending is that the Federal Reserve simply buy up the entire annual federal deficit (in the $1 trillion range currently) and take the entire stock of public national debt (about $11 trillion) and place it on its balance sheet, along side the $3.2 trillion it has accumulated previously, most within the last four years of "asset purchasing."

Faithful readers (and I know you exist, even if Blogger has somehow made it impossible for me to access comments anymore) will recognize Woodford's plan as a variant of my Big Buy Thesis, whereby the Fed fronts a huge loan to its pet banks (the Primary Dealer community), say on the order of $100 trillion, which is used to "purchase" a huge stock of new Treasury debt issued at an interest rate sufficient to finance the federal government's annual budget (let's say $4 trillion).  The "remittances" from the Federal Reserve to the Treasury would then be sufficient to finance the government without taxation.

It's perfect.  It's a Perpetual Motion Machine that does not confound the rules of thermodynamics. Mr. Woodford notes that the present system confines the money flow from the Fed to the canyons of Wall Street, where it winds up blowing asset bubbles in the stock market and housing sector.  If we simply acknowledge what we're doing (monetizing the debt through money printing), we can do some real societal good.  The Treasury can issue as much debt as it wants, the Fed will buy it all, and Congress can pump the free money into a national modern rail network, desalination plants, alternative energy grids, the works.

Bear in mind that Mr. Woodford is of course aware of what happened when the Reichsbank in Germany attempted something along these lines between 1922 and 1924, resulting in the Weimar hyperinflation (the archetypal wheelbarrow full of money is pictured below).  What is less well-known is that Japan succeeded with a money-printing scheme in the early 1930's and used it as a means to escape the worldwide Depression and gear up its war machine.

I am reminded of Ralph Waldo Emerson's good advice in his essay "Self Reliance," wherein he suggested that if you have an idea, even if it seems dubious and unprecedented, even a little crazy,

you should express it, because you may have come up with something original and useful.  And here I am, ratified by an esteemed winner of a MacArthur Genius fellowship.  We're in lockstep, Mike and I.  He simply hasn't figured out the Big Buy yet, which is actually superior to his idea and less inflationary, because we could pull it off before the world figured it out and reacted.  All of the freed up "tax money" (which would no longer be needed in Washington) could be used to improve society's infrastructure more or less in perpetuity.  But it's okay; don't you and I know, Mr. Woodford, that it's hard to figure it all out at once.

As Woody Allen had Larry David say in the movie of the same name:  Whatever Works.  What stands in the way is a fussy shopkeeper's mentality that has us stuck in the obsolete belief that money must bear some relationship to existing wealth, incrementally increased by organic "growth."  Balderdash.  Print the stuff, print it till we can't print no more.  Distribute it far and wide, into every nook and cranny of this fair land.  If we're going to scare the fricking horses, let's scare the fricking horses!

The Homophobia Cases in the Supreme Court

I listened to some of the oral arguments yesterday in the Supreme Court concerning California's Prop 8 ban on same-sex marriages.  At this point in our social history, of course, the debate is absurd. For example, during his argument the flummoxed lawyer defending Proposition 8 was attempting to reason his way through Justice Elena Kagan's question about gay couples older than 55 who might want to marry.  If the goal of the discriminatory law is to implement the state's legitimate interest in controlling the "procreative" situation (this is one of the Last Stand Arguments used by the homophobes), that is, to allow only marriages between one man and one woman in furtherance of "family stability," then why not allow those beyond child-bearing years to marry regardless of sexual orientation?

The Prop 8's lawyer's answer appeared to suggest that a person 55 years old can in fact bear children (regardless of age, regardless of sex, apparently), although Justice Kagan, taking pity, gently disabused him of this notion.  When one is defending an irrational prejudice, this is the sort of blind alley you wind up wandering down.  You are met at every turn with the utterly stupid implications of what you are advocating.

The best questions were from Justice  Kennedy, who could not see why the ban on same-sex marriages was legally distinguishable from the unconstitutional ban on interracial marriages, which the Supreme Court has already disposed of.

Personally, I think the answer to all of these questions is pretty obvious, but hidden in plain sight: get rid of all legal implications and complications of the marital state.  Allow anyone or anything to marry any other person or thing, in any number, that he, she or it chooses to marry.  If churches want to bless the sacrament of marriage with their rituals, let them.  If a guy on your bowling team wants to perform the marriage ceremony for you and your girlfriend on the basis of some incantation he downloaded from the Internet, that should fly.  If you want to marry your dog, or turtle (to handle Rick Santorum's gotcha reductio ad absurdum), then you should be allowed to marry your dog, your turtle, or to enter into polygamy with both of them.  As long as you're sincere.  I insist on sincerity.

As part of the same liberalization, all laws should be restated and restructured to get rid of all references to the marital state.  The condition of being married should have no effect on taxation or other legal rights (no filing of "joint returns," no "marital deductions" on estate tax forms, no "survivor's rights" to Social Security, none of this bullshit).  If an adult wants to visit you in the hospital, and it's okay with the patient (either through volition or Advanced Directive in the event of incompetence), then the hospital ought to let the person visit.  Divorce law, including alimony, property rights and the rest of the traps and snares should be eliminated altogether.  Instead of divorce we will have "breaking up," with both parties (male, female, reptile) then left to their own devices.

I am all for marriage equality.  It's a bad idea to enshrine prejudice with legal proscription, as was done in California with Proposition 8.  California passed, in essence, a Jim Crow law in the (Mormon) guise of "protecting the family."  It was a huge step backward, but it will not last.  Either the Supreme Court will overturn it (if the white conservative bigots, the African-American Justice Me-Too, and the closet case on the High Court can be overcome), or the people in California will throw it out with a subsequent initiative.

But granting access of gays to marriage (which they deserve, as things stand) leaves in place another prejudice: that against single people or people in relationships not "sanctified" by marriage.  We don't see that discrimination so easily because it is the ocean and we are the fish.  Like the other prejudices that have given way to modernity in other categories of discrimination, the preference for the absurd institution of marriage will take time to overcome.  But it too will pass away in the goodness and fullness of time.

The Keyboard Kommando Brigade

A tip o' the hat to Kathleen Geier for a recent essay in the The National Memo.  The tenth anniversary of the Iraq invasion has spawned a number of good retrospectives on the war, an uncomfortable fact for many in the "centrist" community of pundits who pawned their liberal credentials and bought themselves a set of spurs and a pair of shiny six-shooters so they could be real cowboys, too.  Without the bizarre support of such "contrarians" as Christopher Hitchens, Andrew Sullivan, Peter Beinart, Tom Friedman, George Packer of The New Yorker, and numerous other supposedly liberal writers and opinion-shapers, it would have been much more difficult for George W. Bush to sell the war.

I think it was the late Hitchens who gave us the term "Islamo-fascist" to describe the radical element of Islamic terrorism, particularly in Iraq.  It's difficult to discern any meaning at all in this nomenclature.  Mussolini, credited with the original neologism, was describing a  "tissue" of government and corporate control over a society, taking the word from the Latin "fascia," the term we use for tissue in English.  Since it doesn't make any sense in the Muslim world to describe a religious totalitarianism in this way, we can be fairly certain that this drunken English scribe was simply trying to inflame opinion (and aggrandize his own brave "contrarianism") by conjuring up images of Hitler's dreaded Wehrmact.  What an utter load of bullshit that was.

Ms. Geier writes:

"Finally, there’s the most powerful, if most deeply buried justification of all: Iraq provided an opportunity for dweebish, pasty, desk-bound dudes to indulge in macho daydreams. Throughout history, men have asserted masculine dominance through imperial adventures. While few liberal female pundits were pro-war, many centrist and liberal men were unable to resist the war’s siren call.
The most infamous example of  such macho knucklehead punditry is Thomas Friedman’s 2003 appearance on The Charlie Rose Show. The war, he said then, was “unquestionably worth doing” so we could tell the Iraqis to “suck on this.” Commentary so inane and puerile would sound outrageous coming out of the mouth of Friedman’s fictional look-alike Ron Burgundy; that an actual, Pulitzer Prize-winning, New York Times columnist said it simply boggles the mind."

I had occasion over the weekend to talk through this phenomenon with an old friend of mine.  He shared his father's perspective, that of a World War II veteran, that Americans tended toward the "prima donna" in their modern reactions to adversity.   Another World War II veteran and friend of mine, The Incomparable Sage of Boynton Beach (now 96), opined (as I've mentioned before) that the proper reaction to 9/11 would have been to "do nothing," insofar as international invasions and adventurism were concerned.  Essentially, the 9/11 attacks were the result of a criminal enterprise carried out on a "war-like" scale by non-state actors who were allowed through Administration negligence to enter the United States, plan their terrorist act, and train themselves to fly American jets at American flight schools while residing here on expired visas.

The dweebish and pasty Keyboard Kommando group seized on the dramatic scale of the damage done in New York City to inflate this caper into the modern equivalent of Pearl Harbor or Hitler's invasion of Poland.  This is patently ridiculous.  As I've written many times, the tragedy of 9/11 fell upon those who were killed and the loved ones of those who were killed.  These were the true losses.  Beyond these immediate tragedies, we're talking about a couple of buildings, four jet airplanes, and a wing of the massive Pentagon.  9/11 had no significance for the United States strategically or economically, let alone "existentially."

It's weird, in this context, to note that the invasion of Afghanistan always gets a pass when the over-reactions of the dweebish and pasty cowboys are discussed.  Essentially, the displacement of national anger onto Afghanistan was only marginally more sensible than the wholesale madness of the Iraq invasion.  Afghanistan was the "ass-covering" war of the Bush & Cheney Knucklehead Show.  These two overrated incompetents were so busy concocting an excuse to topple Saddam that they ignored clear warnings from the intelligence community that a terrorist attack was imminent.  To distract us from their massive incompetence, they found a way to justify an invasion of a country where the attacks were "planned" or perhaps "financed" or maybe just "talked about," although we were subjected to countless re-runs of captured footage of terrorists-in-training using the Dreaded Jungle Gym Complex of Afghanistan.  Something, because it's hard to figure out otherwise when you're dealing with actual terrorists exclusively from Egypt, the UAE, Lebanon and Syria Saudi Arabia, the core elements of which met in Hamburg, Germany.

By the way, because of the movie "Zero Dark Thirty," it's only now becoming generally obvious that the evidence pointing to Osama bin Laden's key role in the 9/11 plot was elicited from The Gurgling Confessor, Khallid Sheikh Mohammed, during his 183 sessions on the waterboard.  The report of the 9/11 Commission is riddled with footnotes attributing statements to KSM as the government's chief informant concerning bin Laden.  Because of President Obama's Bush-era style of Assassinate Now, Conduct the Trial Later, we killed bin Laden (when it was obvious he could have been captured and tried), so the full story will never be known.  That, of course, was the whole idea. 

Senator Rand Paul's Filibuster

"In questions of power . . . let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution."   Thomas Jefferson, the Greatest Thinker in the History of Political Ideas. 

Sometimes I've gotten carried away with my newfound fascination with the money system in the United States, and the related question: can a modern economy actually be rescued from failure by printing currency?  At its base, that's what Ben Bernanke & Co. are trying to do, or at least the rescue of the economy is the putative reason for "quantitative easing."  In practice quantitative easing provides an advantage for those economic players who operate in closest proximity to the Federal Reserve money spigot, namely, the Primary Dealer community who enable the Fed to carry out its "open market" operations in asset "purchases."  It's obvious where the bubbles have been blown: take a look at the New York Stock Exchange, the U.S. bond market, and the renaissance of the housing bubble.  In other words, here we go again.  In a sense, this money is "sequestered," sitting idly in Federal Reserve accounts of large financial institutions or as unrealized gains in equities and housing. It has not found its way into the general economy, and so inflation remains "muted," in one of The Bernank's favorite words.

If all that hallucinated money begins leaking into the general economy, in other words, if you and I begin to prosper along with JP Morgan Chase and the big housing speculators, then The Bernank will have to throw the machine into violent reverse to remove "excess liquidity" from the system.  The contraption at that point may begin to vibrate and rattle, lurch from side to side, parts may start falling off, smoke may rise from the Marriner Eccles Building, and the entire system may go supernova.  No one knows, because no central bank which has hypertrophied to the extent that The Bernank has overseen has ever attempted to "exit" from such a massive balance sheet.

Sometimes I'm convinced that what The Bernank is doing is overcompensating for his amazingly bad judgment in the period 2005 to 2007 concerning the housing bubble.  The Bernank just couldn't see it, or he was attempting to wish it away.  So now he's trying to bring back the era of sky-high housing prices and a raging stock market to "prove" that "the fundamentals of the American economy are strong," and that the American commoner can support such a market.  The path he's chosen, however, simply further distorts the wealth disparities which have crippled the overall economy and made a mockery of our democracy. In short, he's making the rich richer and the poor poorer.

This is certainly one of the problems Tom Jefferson was talking about.  The Bernank IS the Fed, and the Fed is a banking cartel which is essentially unfettered by democratic processes.  All I know is that I saw the housing bubble as plain as day as early as 2004, and I think I can see how this process of money conjuration will also end.

Meanwhile,  Senator Rand Paul of Kentucky stood his lonely vigil in the Senate, using a filibuster of John Brennan's nomination as an occasion to debate the constitutionality of President Obama's program of killing American "enemies of the State" without due process.  This was an interesting conundrum for "liberal" Senate Democrats, and for the American liberal community generally.  They needed a pigeon hole for this Tea Party usurper.  What were Chris Matthews and Lawrence O'Donnell and Rachel Maddow supposed to say about Rand Paul?  What about such champions of civil liberties as Senator Carl Levin?  And Chuck Schumer? (Okay, bad example.) Senators Pat Leahy and Bernie Sanders of Vermont stepped up, as did Ron Wyden of Oregon.  Principle over party politics, a rarity in this day and age.

The liberal media trope was to marginalize and ridicule Rand Paul.  Sure, he had guts, sure he was right (in a way), but does he seriously think that President Barack Obama is going to order a drone strike against Senator Paul while he sits at an outdoor cafe in Washington, D.C., as Paul suggested in his utterly ludicrous hypothetical? 

And thus you have the utter dumbing-down of American political discourse, the clear proof that the modern day practitioners of American democracy do not deserve the country that Thomas Jefferson, John Adams, George Washington, Benjamin Franklin and many others put their lives on the line to bequeath them.  The idiotic argument against Paul proceeds from the premise that President Barack Obama will always be President, that we can rely on him always to do the right thing while he always remains President, and that the demons of Rand Paul's imagination are entirely fictitious.  We can trust a system where the Executive has the unfettered right to imprison Americans without trial, or to execute them without bringing charges, or anything else the Executive cares to do, because the current occupant of the office is a nice guy, and we know he won't abuse this power.  And such an attitude, after all, has always worked out in the past, wherever it was practiced.

Parodying the Master of Self-Parody, Tom Friedman

Bearing in mind at all times Bob Somerby's admonition that "we are where we are because of these people," I give you Tom Friedman's lede in his column today: 

"On this 10th anniversary of the U.S. invasion of Iraq, three things are clear. First, whatever happens in Iraq, we overpaid for it in lives and treasure and focus. Second, you can overpay for something decent and you can overpay for total junk. What exactly we overpaid for in Iraq is not yet clear and will be decided by Iraqis. Third, as much as we’d prefer to forget about Iraq, what happens there matters more than ever for the Middle East."

Friedman, of course, is an important "opinion maker" in the United States. Many Americans assume he makes sense, that he has some idea what he's talking about, that he is a learned and wise man. That's a shame, because the man's an idiot, a schmendrick of the first water. However, these days I have a reason to look forward to his columns because of the "Really, Tom Friedman?" parody that haunts and follows Friedman around at reallytomfriedman.com.  That's his photo-shop of the peerless thinker above.  Some blogger has managed to inhabit Friedman's psyche as a virtual doppelganger, and uses all of Friedman's tricks, mannerisms, non sequiturs, gee-whiz techno-nonsense, Flat Earth crap, and everything else against Friedman.  As J.D. Salinger wrote in Raise High the Roof Beam, Carpenters, it's enough to make a man believe in a cosmic Santa Claus.  Reallytomfriedman almost makes the real Friedman worth the time to read.

As one of the major corporate-media cheerleaders for the Iraq invasion, one might think that Friedman's best ploy would be never to say another word about this misbegotten madness, which a friend of mine has called "the greatest sin committed in the world in the 21st Century."  Friedman deliberately conflated "revenge" for the 9/11 attacks with the Iraq war, with his famous tough-guy column in which this (of course, never-in-the-military) fearless warrior told the "Arabs" (in general, I guess) to "Suck. On. This."  That should have been Friedman's letter of resignation.

The passage quoted above in the lede has all of the usual Friedman elements: (1)  It doesn't make any sense. (2) It's grotesque, in that it makes a war in which perhaps one million Iraqis were killed (according to the Johns Hopkins, Lancet epidemiological study, never seriously refuted); over 4,000 Americans were killed, and perhaps one hundred thousand more American soldiers were blinded, brain damaged, amputated (losing one or more limbs), or reduced to madness because of post-traumatic stress disorder - sound like a bartering session over a Persian rug.  "You can overpay for something decent and you can overpay for total junk."  Please: God save us from this man.

And, of course (3), as Matt Taiibi always demonstrates in his hilarious send-ups of this poseur: Friedman manages to contradict himself within one paragraph of writing.  This is perhaps Friedman's true gift - his ability to "baffle" himself (to quote the banner at reallytomfriedman.com) as much as he confuses his readers.  So three things are "clear," but it turns out that the very thing he's talking about, "what we overpaid for," is not "clear."  So Friedman is telling us that we "overpaid" for something but he doesn't know what it is that we "bought."  We should be more careful next time we blow three trillion dollars, I guess, and try not to kill a million people while we're at it.  Our bad!  And golly! - maybe Tom Friedman should be more careful about the wars he pimps for, especially when an Administration like Bush/Cheney is running the show.  Ya think?

Yet there's another angle, a trap and snare for Friedman's rationale for American top-down imposition of "democracy" on others,  and Friedman inadvertently steps into it in his column.  He refers to the popular revolutions of the Arab Spring in Libya, Tunisia, Egypt, Syria and elsewhere.  What potentiated these revolts?  Probably a combination of climate change-related droughts driving up the price of wheat and the effects of social media (Twitter, Facebook) undermining repressive regimes and bringing down American-sponsored dictators like Mubarak in Egypt.  In other words: the fall of the Iraqi dictatorship was just a matter of time.  Most likely, Iraq would have undergone tribal fission and returned to its condition of post-Ottoman divisions: Sunni, Shia and Kurd without the horror of the Iraq war and the ruination of a crucial decade in the history of the United States of America.

Does one find any recognition in Friedman's latest pile of nonsense that he sees this?  Of course not. If he had any self-awareness, any sense of common "decency," a word he's so fond of using, he would never have written this column at all.  Please, Friedman.  Just go away.  You've done enough. 


 
 

The Iraq Invasion, Ten Years On

The decision to invade Iraq in 2003 is not itself a mystery: Dick Cheney worked with Paul Wolfowitz and Douglas Feith and their Office of Special Plans, that new department in the Pentagon with the Orwellian name, to "stovepipe" unvetted intelligence on Iraq to the White House, free of any complicating involvement of the CIA or other agencies trained in evaluating information.  This was "goal-seeking" intelligence work, designed to prove the case for an invasion of Saddam Hussein's Iraq.  President George W. Bush was only too happy to go along, since it provided the opportunity to play out a Freudian drama, the wastrel, prodigal son completing the manly work his unmanly father was unwilling to finish while Bush the Elder was President.

To sell the war to the public, it was cast as an act of self-defense.  We were told that Saddam Hussein was loaded to the gunwales with weapons of mass destruction, including nuclear weapons, nerve gas and biological contaminants, and we were reminded endlessly that Hussein "had used poison gas on his own people," the Kurds of the north.  I confess that for a while the Administration had me going: surely they couldn't be lying about all of this.  I did not buy the argument that Hussein had anything whatsoever to do with the terrorist attacks of 9/11, that line of baloney pushed especially hard by Dick Cheney and Richard Perl, with their "Iraqi agent in Prague" ruse.  In this respect, I differed from about two-thirds of my fellow American commoners.

Several months before the invasion, I became convinced that the WMD argument was also complete bullshit, and to draw my own historical line in the sand, I marched in February, 2003 in San Francisco in a demonstration against the war.  I remember telling my companion on the trip (a ferry ride to San Francisco, then the long hike up Market Street to Civic Center in the company of hundreds of thousands of other demonstrators) that the invasion itself was a foregone conclusion, but it was a nice way to spend a Sunday.  By the time Colin Powell destroyed his reputation once and for all with his unbelievable act of cowardice and complicity in his "United Nations" speech, I was pretty sure the entire WMD case was a fabrication from the ground up.

Contrary to the revisionist history that became popular after the invasion, and the failure to find any WMD in Iraq whatsoever, that "everybody thought" Hussein had such weapons, there was always ample evidence available to the general public that the rationale was a complete hoax.  That, indeed, is the amazing part.  Granted, the official organs of propaganda, including the New York Times and its Administration-aiding mouthpiece Judith Miller, sold the war with a vengeance.  A positive feedback loop of self-reinforcing bullshit was set up in which Cheney & Co. would leak stovepiped information from the Office of Special Plans to Judith Miller, who would dutifully write it up as fact-based narrative; then Cheney or Wolfowitz or Feith would appear on a compliant Sunday morning talk show to discuss the latest "findings" in the Times. 

Nevertheless, William Arkin, the chief defense writer for the Washington Post, stated categorically before the invasion that it was "almost certain" that Saddam had no WMD.  Scott Ritter, the UN weapons inspector, said much the same thing.  The UN inspector actually in Iraq before the invasion, Hans Blix, stated over and over that he could find nothing.  Blix was attacked by the truly awful Charles Krauthammer of the Post, both professionally and personally, and Bush & Co. belittled everything he had to say on the theory that Saddam was leading him around by the nose.  It occurred to me, in light of corroborating reports and the simple reality that Iraq had been hobbled by crippling sanctions for over ten years since the first American invasion, that maybe the reason Blix could not find any WMD was because there weren't any.

It was, as Lillian Hellman said about another era, a "Scoundrel Time."  For people who look at history and reality a certain way, the prelude to the Iraq War marked the death of trust in official organs of information, such as the national media of newspapers and television, and the birth of increasing reliance on alternative sources of information, mainly the Internet.  It was scary to contemplate, however, just how easy it was to convince a substantial majority of the American people of the truth of demonstrably false propositions, and it remains unsettling to think about the implications of such a truth for the viability of democracy.

Saturday Morning Essay: Mr. Krugman's Science, Part 6

Brought to you by Peet's Espresso Blend...

"So, while I was dealing with real life yesterday — sorry about the blog silence, but sometimes other things are more important--"

That's not my line.  Paul Krugman began a blog post with that apology recently.  I think a line like that provides an important insight into Krugman's self-regard: the man blogs all day long, every day, but if he has to attend to some family business which distracts him from his incessant, obsessive "posting," even for a day, he assumes that his audience becomes so emotionally distraught at his absence that he should say he's sorry.  How will people get through the day if Krugman doesn't tell them what to think? 

Yet I'm grateful for Mr. Krugman and his Science, for he is the clearest advocate for a specific economic "theory:"  the Keynesian theory of support for a depressed economy through increased government spending.  The central bank (our very own Federal Reserve, which Mr. Krugman loves with a love that is really more than love, as Edgar Allan Poe loved Annabelle Lee) can sometimes tweak an economy back to life through interest rate manipulation, lowering rates and opening up the lending faucets to get things moving; but when we're "up against the zero lower bound" (as Krugman writes 8 or 9 times a day in the course of his 15 or 16 blog posts), where interest rates can go no lower, then unconventional monetary stimulus is the last resort, such as the Fed's crackpot method called "quantitative easing," that is, money printing ad infinitum. 

After all, something has to work.  That's how "cyclical" analyses of advanced Western economies roll.  A generic recession occurs in a generic economy, and after a certain amount of time the economy recovers.  How fast this occurs depends on the government's response, according to Keynesian theory; Mr. Krugman has been highly critical of the government's response to the crisis since 2009 - it hasn't been aggressive enough, and this "depression" should already be over.

Notably, Mr. Krugman has been more sanguine about the economy lately.  This is odd, in a way, because both major political parties have been preaching the dreaded doctrine of "Austerity," which to a Keynesian is about as appealing as a necklace of garlic bulbs to a vampire.  Several hundred times a week in his blog posts, Mr. Krugman derides the stupid Europeans for their belief in "expansionary austerity," and points to their misguided penny-pinching as the reason for their economic wallowing.  Yet since 2009, when ARRA was passed and America began paving roads all over this great country like there was no tomorrow, the Congress has not really been into Keynesian overspending of the kind Krugman knows we need.

So how can we be recovering if we're busy "Sequestering" and being all austere and everything?  Well, to answer that question: of course, we're not really recovering at all, but Krugman has other theoretical dragons to slay, such as the Republican doctrine of destroying the entitlement safety nets. So to keep the Republicans at bay, Krugman must now argue that the trillion dollar deficits we're running are not in any sense a problem because they are simply related to the current, and temporary, depressed state of the economy.  Well, half of the deficit is so related, because "automatic stabilizers" such as long-term unemployment and food stamps kick in during down times.  The other half of the deficit is no problem because it's about the right size for a GDP behemoth of America's girth. If this sounds like the deficit was just wished away, those are your words, not mine, although I will concede that Mr. Krugman's science does, on the face of things, seem to involve a little circular reasoning.

It does, of course, unless.....good times are just around the corner.  I had alluded in one of my earlier blogs in the Krugman Science Series to a game I play called "Guess What Krugman's Positions Will Be?"  The way it works is that you figure out what theoretical position this intellectually dishonest man will need to take in order to support his overall theoretical superstructure, place your bet, and then see where he comes down.  Recently, Krugman made passing reference to the work of another economist, Robert Gordon, who has begun to sketch out a "no-growth" scenario for the American economy.  Gordon makes a lot of sense, in the same way that Gail Tverberg on her "Our Finite World" blog makes a lot of sense.  This is not a "generic" economy; it's the economy embedded in a finite world which is now reaching the limits outlined in the seminal work of the Club of Rome in 1972 and their landmark analysis, "The Limits to Growth."  Gail Tverberg understands such reasoning; Krugman does not, or will not, at least, allow it to detract from his academic and intellectual standing among Keynesian economists.

Thus, when Krugman wrote in one of the several million blog posts he submits to the New York Times each year that "Gordon is probably wrong," I was not surprised.  Gordon has to be wrong under Keynesian theory or the whole contraption falls into a smoking pile.  Unless growth in the "medium term" is assured (whenever that is), the idea of pouring on more and more debt, and supporting it by printing trillions and trillions of dollars, is pure folly, the prelude to our own Weimar-style blowout. 

Thus, in Krugman's Science, the world's limits (that is, the real world) must be eliminated from the analysis.  Its hard-to-get-at remaining oil (stubbornly stuck at a price that stymies any recovery), its diminishing fresh water supplies, its eroding topsoil, its 7 billion people, its global warming.  The current downturn must be temporary and cyclical, or else Krugman's ideas are at least as dumb as the Republicans', and probably more so.

Here's an interesting angle you won't find described among the billions of words Mr. Krugman publishes in the Times each week.  From Gail Tverberg:

In our current circumstances, we are reaching debt limits because of a specific resource limit — lack of inexpensive oil. Oil is used almost exclusively as a transportation fuel and  in many other applications as well (such as construction, farming, pharmaceutical manufacturing, and synthetic fabrics). Expensive oil is not really a substitute, and neither is intermittent electricity. We are reaching other limits as well. Perhaps the most pressing of these is availability of fresh water. Fresh water can be obtained by desalination, but expensive water is not really a substitute for cheap water, for the same reason that expensive oil is not really a substitute for cheap oil. See my post, Our Investment Sinkhole Problem.

The situation of reaching debt limits because of resource limits is a worrisome one, because it is hard to see a way to fix the situation. People often say that our debt problem arises because we have a financial system in which money is loaned into existence, and as a result, requires growth to pay back debt with interest.  I am not sure that this is really the problem.

We have been used to a financial system that “works” in a growing economy. In such a system, it makes sense to take out loans on new business ventures. In such a system,  money is also a store of value. In a shrinking economy, relationships change. Some loans will still “make sense,” but such loans will be a shrinking proportion of current loans, with long-term loans being especially vulnerable. Money will either need to “expire,” or a high rate of inflation will need to be expected, making interest rates on loans very high. In a shrinking economy, businesses will fail much more often, and workers will more often lose their (fossil fuel supported) jobs.

This is so much closer to the mark, in my opinion.  It is a theoretical framework in the tradition of the Club of Rome and Herman Daly's landmark work, Steady State Economics.  Mr. Krugman is a carnival barker for the Status Quo and go-go finance, masquerading as bleeding-heart liberal with a "conscience."  As the sweet-shooting Bob Somerby says, "We are where we are because of these people."