Category Archives: Economics

Middlemen

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The American economy is a middleman economy, designed around the idea of there being a person or group of persons between the parties of a transaction. No matter how trivial the transaction, there is someone trying to get in on the deal. This middleman brings nothing to the transaction. He adds no value and only facilitates the deal because the rules have been set so that he is required. The middleman is the ever-present silent partner that is the point of the economic arrangements.

If you go back a century, selling a house involved three parties. The seller and buyer, of course, and the government. You had to register the transaction with the government so it was known who held the deed for the property. If there was a lien on the property, then the bank would be involved, but only on one side. Today there are dozens of people involved in the transaction. The government is promising to add dozens more in order to flood stable neighborhoods with magic.

Just about every transaction in the economy now has silent partners. This is why the economy is still a mess due to the Covid lockdowns. Shutting down supply chains was always a dumb idea, but getting them restarted means activating millions of middlemen who have to get paid for the system to work. In a completely financialized economy, nothing moves without money moving first. The money men are the ever-present middlemen in every deal, no matter how small.

The riddle for all human societies since the first settlements was what to do with the people who could not work or would not work. The old and the sick needed care, so they not only were not working, they took someone out of the workforce. This meant that those who did work had to produce extra. It also meant that those who were loafers had to be dealt with so they were not freeloading off the system. Of course, many of the loafers were called the rulers, so that was a problem.

The way out of this problem has been productivity. The farmer who could grow enough food for his family plus the king’s share was never enough. He had to grow enough to feed himself, plus the king and some extra for the king to sell. That way the king could field an army and have a nice castle. Every king wants a better castle, so the drive to produce more with less is a feature of human society. The great ideological wars since the Enlightenment have been about how best to do this.

The claim by communists and capitalists was that eventually, productivity would produce so much that scarcity would be solved. Human society, if planned the right way, would produce so much with so little that want would disappear. That could never happen, of course, but the West has reached the point where everyone has the basics if they want them. In America, poor people are obese because they spend all day eating and watching television in comfortable homes.

That does not mean the problem of economics has been solved. The old free loading problem is still there. Those millions of middlemen baked into the economy are still there, snatching away a little from every transaction. Not only are they skimming from every transaction, they no longer help facilitate the deal. Instead, they often just steal the entire value of the deal. America cannot build a road or bridge, mostly because the money is stolen before the first shovel hits the dirt.

In other words, all of those middlemen are now consuming the host. This army of people involved in every deal are no longer just a weird patina on the economy, but a very serious rot of the system. This is why hedge funds are buying up residential housing to create new renters. The very top of the rentier economy has run out of people from whom to skim, so they are forced to eat their own. The big skimmers are now going after the small skimmers down the ladder from them.

Running a skim is nothing new, but even the mafia understood that you can shear a sheep many times, but you can only skin him once. The modern mafia, the managerial elite, entangled with the powerful, are moving from sheering to skinning. They have busted out everything, so now they are busting out the bust outs. The hedge funds robbing the real estate bandits is like a bank robber robbing drug dealers, in that it says the criminal ecosystem is out of balance.

The story that started with the problem of scarcity has arrived where it started. What is to be done with those who don’t produce? Every society needs an elite and they do not produce in the conventional sense. Their duty is to coordinate. What happens when you have too many people in the elite? Turning them into middlemen seemed like a solution, but now we have too many middlemen. So many in fact that they are now making it impossible for the productive to stay ahead of demand.

The old image of economics is of a group of men pulling a wagon. In the wagon are the unproductive, like rulers and bankers. The goal was to keep the people in the wagon to the barest minimum. The modern wagon is still relatively light, but now the men pulling the wagon are surrounded by an army of people impeding their progress, as they demand a fee for every step. Worse yet, the people in the wagon are creating people who take up positions between the men pulling the wagon.

That has been one lesson of Covid. The reason the economy did not collapse when millions were sent home from their jobs is that most of the people being sent home were not doing anything all that useful. Some were, for sure, but the empty offices went unnoted for a reason. Just as every snowstorm in Washington reveals that vast number of unessential workers, Covid revealed the vast number of middlemen. Many were unaware of their middleman status. They thought they were essential.

Of course, the bizarre fads vomited up by the Cloud People is another sign that we have too many people standing around looking for something to do. Idle hands to the Devil’s work and Old Scratch is spoiled for choice these days. We simply have too many middlemen with time on their hands. The system is overstocked with them, so they sit around dreaming up new ways to horn in on the life of the productive. Now the middlemen have middlemen and that cannot go on forever.

The crackdown by the oligarchs on dissidents has had the happy result of a proliferation of new ways to support your favorite creator. If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

False Choice Society

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Note: The weekly Taki post is up. When possible, the Monday post here will be related to the Taki post. Of course, there is the Sunday show behind the green door for those interested.

One of the underappreciated aspects of liberal democracy is that it always pits morality versus objective facts, always creating a false choice. Every public debate is between one camp that demand we do “the right thing” and another camp that insist on doing “the correct thing”. The right thing is defined as the moral thing while the correct thing is the factually accurate or effective thing. The choice is failure while on the moral high ground or succeed and be seen and inhumane or indifferent.

This false choice predates the rise and spread of liberal democracy, so it is not accurate to lay the blame there. The debate that evolved over economics that grew up out of the industrial revolution is the origin. The Marxists were never making an economic argument back in the 19th century. They started with a moral claim that capitalism is built on exploitation of the workers. This was inherently immoral so it must lead to class struggle, crisis and then revolution.

This lack of an economic plan of any sort should have been obvious, but the followers and Marx were not interested in practical matters. The appeal was always the morality of the program. It was the chief selling point. This was made manifest in Russia when the Bolsheviks seized control of the state. Suddenly they were faced with solving the sorts of problem governments are tasked with doing. They had no economic platform from which to work, just gobs of Marxist theory.

The reaction to Marxism was Austrian School economics. Unlike the Marxists, the Austrians had a very detailed analysis of economics. Their model explained the basics of how goods and services flowed through an economy. This factual accuracy made it possible to form public policy and test the result. Over the course of the Cold War, Austrian economics became the primary weapon against Marxism. It stripped communist economics of the claim to empirical authority.

The trouble with Austrian School economics is it also striped morality and group preference from public debate. Every want and desire had to be justified by an economic argument. Rotten results that may make sense according to the laws of economic could not be contested. The out of control consumerism we see, for example, just has to be tolerated. The spread of degeneracy cannot be opposed, because the market dictates what is right in society.

American society has been squeezed in this vice for a long time. One side makes arguments that make some sense from a moral perspective but are completely unworkable as a practical matter. The other side counters with what appear to be factually correct arguments, the results of which are unsustainable. Worse still, neither side has a way to counter the other. The result of this dynamic is a system that is morally indefensible but shaking to pieces by moral fervor.

Ironically, both jaws of this vice are built on false assumptions. The Marxists fall victim to Hume’s guillotine. The value of a good or service is no doubt the sum of the labor it requires to produce it. It does not follow that anyone in society or society as a whole should agree. The other jaw makes a different error, assuming that human beings act from economic self-interest. They can, but they more often act from biological reasons, especially group biological reasons.

The dynamic resulting from this false choice seems to be reaching an end point, where neither side is sustainable. The moral claims made by what is called the Left have veered so far into the ridiculous that it looks like satire. A century ago, it was easy to sympathize with the groups the Left claimed to champion. Workers being ripped off by unscrupulous employers had a strong claim. Men is bizarre outfits claiming to be a third sex are clowns no one can take seriously.

A similar fate has befallen the so-called Right. When massive global corporations are stripping people of their lights, often by funding street gangs to assaults people going about their business, it is laughable to defend the “free market” system that produced these companies. When state sponsored financial concerns are buying up houses to create new renters, in the name of capitalism, the so-called free market is just as ridiculous as the men in dresses.

Liberal democracy has become an octopus with its tentacles wrapped around various parts of society. One tentacle is the moralizers assaulting us with the latest fads from corporate HR. Another tentacle is consumerism strip mining the traditions and history, the social capital, that are the foundation stones of society. Another tentacle is finance capital skimming a bit from every transaction without adding anything back. Every tentacle has a corresponding one to help it fight off attacks.

That is the primary defense of the system. All critics are herded into this set of false choices the system maintains. If you do not like that state-sponsored hedge funds are hoovering up single family homes, you have two choices. One is you can throw in with the loons and their bizarre defense of bourgeoise decadence. The other is you can waste your time making an economic argument claiming that the “market” will solve the problem if we worship it more.

The point of democratic systems is for the public to have a say in how public policy is formulated and a veto over the final result. In reality, it offers false choices controlled by a narrow elite. The narrow elite hides in the shadows of a mythical beast called the general will or the invisible hand of the market. It is a curtain behind which stands the ruling class. In the end, it is looking like what Marxism and liberal democracy have always claimed to oppose.

The crackdown by the oligarchs on dissidents has had the happy result of a proliferation of new ways to support your favorite creator. If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

Electric Elite

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Most everyone has looked down at the fuel gauge and suddenly realized the tank is very close to empty. Maybe it is the idiot light going on as you pass the sign that reads “last stop for food or fuel for X miles.” The worst one is when this happens in a rural area or at night. The prospect of being stranded on the side of the road for a very long time quickly crowds out other thoughts. It is a terrible feeling. Almost all of us are conditioned to make sure this never happens.

Running out of gas used to be a common thing in America. In the early days of the automobile, care did not have a gas gauge and gas stations did not always have gas, so it was a common scene. The first “gas gauge” was a marked stick the driver would stick into the tank. Until very recent, gas stations used this method to test how much water was in their tanks. Eventually, more sophisticated solutions were invented and then manufacturers install them at the factory.

Running out of gas is not very common these days. For starters, we have gas stations everywhere people live. They are about 120-thousand gas stations in America. If you live in an urban or suburban area, finding a gas station is not a challenge. The cars are also vastly more efficient today than the old days. Even sports cars get over 20 miles per gallon, so when the light comes on, you have about 40 miles to find gas. It is why it is very rare to see someone walking down the road with a gas can.

This old concern will become a feature of life shortly. Every car maker is determined to abandon the internal combustion engine for electric in the next decade. All of them have a five year plan to ditch the IC engine. Even the sports car makers are planning to drop the old engine and use electric motors. The roar of the engine will soon be replaced by the high pitched hum of the motor. Whether we wanted or not, the electric car will be forced onto American roads over the next decade.

The problem is that electric cars need to be charged. Right now, there are about five thousand fast chargers in America. The term “fast charger” is a little bit of inside humor the EV people enjoy. It takes about forty minutes to charge a car on a fast charger, so the word fast here is sarcasm. There are more slow chargers available, but slow should be interpreted as glacial. Those slow chargers take hours to charge. They are only useful as at-home options or at office parks.

Replacing the gas stations with fast chargers is no easy task. There is the cost, obviously, even if one assumes they could be profitable. That is not an assumption you can make at this point. The economics of EV charging stations are wildly different than those of a normal gas station. You do not need a lot of space for cars pulling into the pumps, fueling up in five minutes and then pulling away. You need vast spaces for cars pulling in and parking for an hour as they charge up the batteries.

Then there is the power grid. The current estimates say the cost to upgrade the power grid for electric cars is between four and ten trillion dollars. That is not money to be spent all at once, but it is real money. In modern America, most streets look like the surface of the moon and our bridges are literally collapsing. Like all aging empires, America is struggling to keep the plates spinning. How realistic is it to think we can upgrade the power grid over the next decade for electric cars?

Like the automobile makers, the nation’s utility companies have five and ten year plans for upgrading their part of the power grid. One cannot help but appreciate the Gosplan nature of this project. Like the car maker’s five year plans, the utility company plans always has a line in there for free money from the Federal Reserve. Unlike the car makers, the electric companies have not secured their free money. Slipping tax breaks into the code is a lot easier than printing trillions of dollars.

As with the Soviets, the central planners in America just assume whatever they dream can become a reality. The Soviets were sure they could find the right math to replace the role of prices in the market. Once they conquered that problem, the system would literally run itself. American central planners are sure they can find the right moral language to make their dreams pop into existence. If electric cars become who we are then all of the problems will solve themselves.

The electric car fetish is a good example of how markets are an illusion, at least in the broad sense the Austrian school economists argued. There never was a market for electric cars and there is not one now, at least in the organic sense. Instead, the market has been manufactured by government policy. Massive subsidies to the production side and subsidies to the demand side have created the market. Take those away and Elon Musk is back selling monorails to midsized cities.

It is also a good example of how elites have the dominant role in society. As with other things like immigration and the Covid panic, your opinion is never solicited, and it is never wanted. These are decisions made by a small cluster of policy makers at secret retreats and over cocktails at parties you will never attend. The American elite has decided the electric car is the future, so that is that. The fact that it could turn out to be another disaster like Covid is not a worry.

The argument against central planning has always been a simple one. It is impossible for the planners to account for all of the variables. Even the most basic of human systems is maddeningly complex. The truth of this is never a deterrent to the elites, especially those who are sure they are on the right side of history. The comically insane outcomes from the Soviet system never deterred the planners. The metric system did not teach American elites a lesson either.

Finally, the electric car fetish is a good example of what happens when an elite class enters into decline. They become rapacious and impractical. On the one hand, they seek to enrich themselves as quickly as possible, because no one in the elite feels a loyalty to the elite class or the society over which they rule. Everything becomes a smash and grab. On the other hand, they have become so insulated from the society over which they rule, they can no longer see their own folly.

America probably needs to spend five trillion over the next ten years to get the infrastructure back to first world standards. We need a Marshall plan for the roads, bridges, and utility systems. An aspiring elite would focus on that, rather than frivolous nonsense like electric cars. It would also be more scrupulous about who gets the money for the projects. That is not the future. Instead, it will be abandoned EV’s next to massive potholes and collapsing bridges.

The crackdown by the oligarchs on dissidents has had the happy result of a proliferation of new ways to support your favorite creator. If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

The Vampire Society

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Note: There is a new Taki post, as per usual. This week the topic is the relative gap between the Cloud People and Dirt People. For podcast fans, there is a new Sunday Thoughts up behind the green door, along with some other items. Of course, you can always buy a beer for the hardest working man in dissident politics.

The boom-bust economic cycle that came with the industrial age has been a primary focus of economics for close to two centuries. Marx was the first to notice that these periodic economic crises were an inherent part of the system. He theorized that over-production was the cause, which lead to a destruction of capital. The economist Joseph Schumpeter picked up on this and gave us the term “creative destruction” to frame the busts as corrections to inefficiencies.

It is one of those truths that still haunt the modern economy. The reason the down cycle is terrifying is that economics is really about politics. When the busts come, the people get angry at the politicians. Worse yet, they can get angry at the rich people and start demanding a share of the loot. It’s why economics has evolved to prevent the bust at any cost. Seven trillion in new money was created over the last year in response to the Covid panic in order to keep people pacified.

We still have the boom-bust issue, just in small scale. A new idea goes through a familiar cycle. At first it is highly profitable for the owner. They ramp up their production to meet demand. Soon, others come up with similar products that cut into his market, thus undermining his profits. In time the profits are reduced to the barest minimum as the product becomes a commodity. In time the value to the original creator of the new product drops to zero. It is a commodity.

This is generally considered a good thing by modern economics, as it means the relative cost of goods continues to fall. It also means intellectual capital is naturally forced to innovate. The company with the hot new product knows they will have to keep coming up with hot new ideas. Otherwise, their profits will fall. On the other hand, they might seek a monopoly like we see with the tech oligarchs, which allows them to artificially maintain their profit margin.

There is another angle to this that is unique to this age. The technological revolution has created a new form of capitalism that is rooted in the creation of new ideas, particularly in the entertainment space. Like the imitators who draft on the creations of the innovators, this new process in the technological economy is dependent on the initial creative energy of an innovator. Unlike the old industrial age imitator, this new form of economic activity is highly profitable.

It works like this. The new idea for something like a movie or a type of popular music is expensive and difficult to create. It requires smart and creative people to try different things until they get a concept that works. Then they have to convince investors or an audience, often both, to give it a look. In the case of a movie, it means the risk of a box office bust. In the case of music, it means years of failure, while living on cat food. The new idea promises profit, but mostly risk.

If the new thing does well, then this is where the new entrepreneur steps into the picture and realizes the big profit. That hit movie becomes a franchise. Soon, there is a remake which is very profitable. Then subsequent remakes, reboots and spin-offs that have declining profits. Eventually, they reached a point where there is no profit in the franchise. At this point, the original concept has lost its value and often has a negative value, due to the terrible imitations that came after it.

Recent examples of this in Hollywood are legion. The Terminator franchise has become a joke due to the many sequels. So desperate to squeeze the final pennies from the idea, they have the 70-year-old Arnold Schwarzenegger playing a geriatric robot named Carl who is an interior decorator. The Alien franchise is mostly known for the idiotic reboots and spin-offs that are easily mocked. These are two ideas drained of all value, like the corpse after a vampire has drained the blood.

This happens with other things like pithy phrases. Back in the Obama years, someone used the term “crony-capitalism” to describe the tightening bonds between global corporations and the government. The phrase caught on and was in the mouth of every right-wing pundit. In time it sounded like some of them had a form of Tourette’s, in which they burped out that phrase uncontrollably. Today we have “deep state” and “globalist” getting the same treatment from the same crowd.

The thing is, these vampires who prey on new ideas are not without talent. They have a useful set of skills, in that they are able to drain every last drop of value from an intellectual property. They do so without regard to their own reputations or the reputation of the original creator. They are proud to be vampires and they are handsomely rewarded for their skill. In fact, they do better than the originators, who are often looking for the next concept or ignored by the imitators.

This is not confined to entertainment. A new bit of software can expect the same treatment, as most of Silicon Valley is now tuned to rapidly replicate and consume every new idea that comes along. The cable chat shows are festooned with ads for “apps” that are copies of some original. Facebook, in fact, is just a cheap knock-off of an original idea lost to the mists of time. It now is being cloned and copied by those looking to find some remaining profit from the idea.

A few years ago, an “entrepreneur” came up with the scheme to convince people that buying shaving products was difficult. Instead you should subscribe to a mail order service for razors. There was no new product or an effort to change the demand for razors and shaving products. The whole scheme was about fooling people into thinking there was a razor conspiracy. The goal was to get them to expose their neck so the vampires could get a clear shot at the artery.

Of course, this “innovation” has come in for the same treatment. The airwaves are full of ads claiming there is an underwear conspiracy that can only be solved by bespoke undergarments from a boutique maker. Instead of coming up with a better mousetrap, genius is finding a way to trick people into paying for the same mousetrap. Once the blood has been drained from that deception, it will be onto some new scheme to provide less for more, under the guise of innovation.

This has created a world that selects for the type of person able to suck every last drop of blood from a new idea. In a world where you make as much or more money from copying the ideas of others, it makes sense that people will go into that line of work, rather than the creative end. Hollywood is now full of vampires, looking to drain the blood from the next new idea. There are no “new ideas” in the movie world, because there is no one there interested in being sucked dry by his fellow vampires.

If these selection pressures exist long enough and are widespread enough, then eventually you have a world of too many vampires and too few victims. Those vampires have to feed, so they will move onto other victims. That may be where we are now in the late stages of empire. Everywhere you look the remaining bits of the original spirit are covered with vampires, looking for a clear bit of neck into which they can sink their fangs and suck some blood. Ours is a vampire economy now.

The crackdown by the oligarchs on dissidents has had the happy result of a proliferation of new ways to support your favorite creator. If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

The Pressure Cooker

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A universal truth of life is that pressure reveals character. This is not only true in individuals, but it is also true in societies. When times are easy, all sorts of undesirable things can be overlooked. The petty corruption in government is not a big deal in a booming economy. Inequality is ignored, maybe even celebrated when times are good, because people think their time will come. It is when things turn down that all of a sudden, those issues rise up and take up people’s attention.

For the American economy, the good times have been rolling for such a long time now that it feels like the natural state of affairs. There was the very minor recession in the early 1990’s, but that was a blip. The dot-com bust at the end of the 1990’s and the mortgage crisis in 2008 were serious, but they did not impact most people. The stock markets went down, but they recovered. Some people suffered for sure, but the system seemed to right itself and for most people it was a non-event.

In fact, the two big economic crises of the last forty years are a proof that the system and the people running are just fine. This was why many middle-class people were angry at the lock downs initially. They thought it would harm the economy. When the Fed flew in on its magic carpet, showering the economy with magic fairy dust, those people relaxed and trusted the system. Those initial protests that popped up all around the country faded away in a fog of economic stimulus.

Good times do not last forever, even in an honest economy. The signs are everywhere now that this economy is headed for some tough times. Food prices are jumping like we have not seen since the 1970’s. There are strange shortages of products like beer and plastic goods. There is plenty of beer. The issue is the containers. Aluminum shortages and problems in the supply chain mean certain brands are not on the shelf. This leads to greater sales of other brands until they run low.

Inflation is one of those things that everyone feels. Even if you are a rich guy, you notice that steak is more expensive. The money is meaningless to you, but the price hike does not go unnoticed. Poor people, of course, feel it straight away. As a result, everyone starts to notice things in the market, like the shrinkflation, for example. A pint of ice cream is 14-ounces now. The potato chip bag is much larger, but there are fewer chips inside the bag. This stuff gets more obvious in bad times.

The thing is, prices going up because of demand or shortages is an honest result that people may not like, but they can accept. Changing the shape of containers to make it look bigger, but reducing the contents is dishonest. It is a fraud. Inflation will bring new scrutiny to this practice that has become common. This sort of institutional fraud is everywhere, but it has gone unnoticed for decades. With inflation, people will start noticing and they will not like it.

The institutional fraud is not just a retail phenomenon. It is everywhere. The hot new scam on Wall Street is the SPAC. This is where a company wants to go public, but their financials are not good enough for an IPO. A group of insiders then creates a shell company for the purpose of making acquisitions. It raises a bunch of money, then it goes public and soon after buys the company that wished to go public. It is how we end up with $100m sandwich shops in New Jersey.

Of course, the elephant in the room for close to a generation now is the gross inequality we see in modern America. The gap between the rich and the middle has never been larger, and it is growing quickly. Unlike the robber barons of the industrial age, these new oligarchs operate like pirates. They steal everything. Worse yet, they have unleashed a well-funded army of radical harpies to hound decent people in their work, their entertainments, and their private lives.

In good times, no one cares about billionaires. If your life is good and getting better, why should you care if some other guy is doing better? That flips around quickly when your life is suddenly under economic strain. The Democrats can yack about taxing the rich and the Republicans can lecture about class envy, but class consciousness is always a result of tough economic times. Everyone starts feeling working class in bad times, even when they are well-equipped to weather the storm.

The point is a lot of bad things have crept into the system over the last forty years of relatively stable times. As long as material concerns were met, people overlooked the fraud, the corruption, and the inequality. That long run of good times has meant the stock of these things is higher than ever. When bad times come, those problems will come roaring to the front of people’s minds. In other words, the sticker shock we are experiencing can quickly give way to a culture shock.

There is one other item to consider. The middle-class is older than ever. Those Baby Boomers on fixed incomes, checking the stock market every day are not going to take inflation very well. They will not handle the necessary correction in the stock market to ring out the fraud. Inflation and what is required to tame it will bring with it the wrath of the angry Boomer. The generational divide that has been nursed by the usual suspects will suddenly get very real if the economy goes south this summer.

Similarly, the political class is old now too. Will those angry Boomers passively accept the leadership of Joe Biden in a crisis? Can a generation of politicians selected for their mendacity and obsequiousness gain the trust of the public in a crisis? If the economy tanks this summer, the incompetence and corruption in Washington will become the only thing that matters in politics. In other words, bad times will bring all of these problems to the front in a time of dwindling tolerance for it.

The American empire is old now and that means a lot of bad habits have been normalized over the years. Shrinkflation, SPACs, media mendacity, inequality and political corruption are all troublesome alone. Over the decades, we have an abundance of all of them. They remain in the background as long as the markets are up, and we have cheap goods on the shelves. The pressure of bad times, however, will inevitably reveal the character of the empire. It will not end well.

The crackdown by the oligarchs on dissidents has had the happy result of a proliferation of new ways to support your favorite creator. If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a 15-percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

Cruel Summer

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Way back when the Covid panic began, smart people pointed out that shutting down an economy was going to have unforeseen consequences. A modern economy is an incomprehensibly complex organism. Even turning off some parts of it for a short time will change the organism, resulting in downstream changes. It is why people who work with complex things are very careful about the changes they make. They accept that there is much about the system that they cannot known in advance.

Of course, the people in charge are sure they have it all figured out, so they just blundered ahead with their lock downs and new rules. Shutting down most of the restaurant industry and closing the schools. for example, radically altered the demand side of the food market. Suddenly, goods for the restaurant business had no demand, while demand for home products shot through the roof. This should have given them pause, but they kept blundering ahead with their schemes.

Anyone who has been in a grocery store of late knows that food prices are jumping like it is the 1970’s again. There are also weird shortages. Something like mayonnaise will disappear from the shelves for a week and then come back, but then plastic bags become scarce. The same phenomenon is happening with other things like building supplies and petroleum products. The official statistics are complete nonsense, so we have no idea how much food has jumped. It is enough that people are talking about inflation in private conversations for the first time in decades.

The usual suspects, of course, are spilling into the streets to chant about fiat currency, hyperinflation, and the rest of their stuff. It is as if the Great Pumpkin has finally risen out of the pumpkin patch. They have been waiting their whole lives for the Weimar moment foretold in the prophesies. Because these people are always wrong it is good to remember they are wrong now. The problem now is actually much worse than too much money chasing too few goods. It is systemic.

For starters, governments around the world have been taking sledgehammers to the global supply chain. These supply chains evolved over a long period of time to solve the problems of getting goods to the market. In response to Covid, government willy-nilly started turning things on and off without much thought. The system can respond to short term emergencies like natural disasters, but it was never equipped to respond to random outages imposed by people who have never had a job.

Then you have the stimulus plans. Having idled large swaths of the economy for periods, the same people frantically turning things on and off started pumping money into the retail side. At first this new money was absorbed in the system. Personal debt fell in 2020 as people got conservative in the face of the crisis. They also began to change their lives in response to the lockdowns. Going to the movies and out to eat is a habit, not a necessity. Lots of habits changed in 2020.

Labor markets have been radically changed by Covid and the efforts from the rulers to make a big show of dealing with it. Entry level jobs are now hard to fill, because unemployment still pays very well. If you are a restaurant opening for the first time in a year, finding help is difficult. It is not a shortage of labor as much as a shortage of people ready to go back to work. Labor shortages, however, they are created, result in a spike in labor costs, which appear at the cash register.

Finally, we have monetary policy. Central bank policy has evolved over the last thirty years based on certain assumptions. Government policy, for example, has been predictable going back to the 1990’s. While there have been the usual problems, the global economy has settled into some predictable patterns. All of a sudden, none of this is true, so monetary policy has to adjust. Adjusting to erratic government behavior and unpredictable consequences in the economy is practically impossible.

The upshot to all of this is we are seeing real inflation for the first time in generations, but we have a variety of causes this time. In the 1970’s, it was too much money chasing too few goods. Pulling money out of the economy was painful, but it worked. This time, we have too much money in some areas, but we have broken supply chains and labor markets contributing to the problem. The Fed cannot do anything about shortages of aluminum cans or chicken farm with too few chickens.

To make matters worse, pulling money out of the system is probably not possible, given decades of ultra-low borrowing rates. The world has become so accustomed to low interest rates, it has become an axiom, like the changing of the seasons or the laws of thermodynamics. Any significant change in the money supply to combat retail inflation would send the financial markets into a tailspin. Housing would collapse if mortgage rates returned to anything resembling normal.

None of this means there is no answer. Often, the right answer is to do nothing and let things run their course. That was the right answer with Covid. As with Covid, the rulers cannot accept that answer, so they will thrash around some more. The people animating the corpse of Joe Biden are promising to smash things up some more for the greater good. After all, what matters to them is that we know the people in the mansions and castles really care about us, while they live like royalty.

The result of all this is we are heading into a cruel summer. The bill for the Covid response is coming due. How a society responds to crisis is the result of the social trust in that society. America is a low trust society now. Further, the people who will be counted on to dig out of the mess created by the rulers are now treated like second class citizens by those rulers. The fix to the 60’s and 70’s was to first repair the loss of faith in the system. It is hard to imagine that happening this time.

The crackdown by the oligarchs on dissidents has had the happy result of a proliferation of new ways to support your favorite creator. If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

The Last Link

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Way back in the early days of the conservative movement, it was assumed that Federal spending was both unsustainable and damaging to the country. Cutting the size and scope of government was their thing. The tool they eventually settled on to reduce Federal spending was taxes. If they made high taxes so unpopular with the public, the Left could not keep raising taxes. If they could not raise taxes to cover their spending, they would eventually have to yield to the mathematics.

Obviously, that never happened. The big tax reforms of the 1980’s did simplify taxes and lower rates on rich people, but revenues remained stable. At the same time, spending kept growing. One of the unspoken truths of fiscal policy is the percent of GDP that is consumed by Federal taxes does not change much of time. The range is between 15% to 18%, depending on when tax policy was changed. This is the logic of the flat tax. One rate, no deductions and no more IRS.

Spending, of course, keeps going up, no matter who is in office. Despite their rhetoric, the Republicans are the big spenders. In the 1980’s they had to spend on the military to win the Cold War. In the Bush years it was the crusades against Islam. It is only when a Democrat is in the White House that the Republicans get tight-fisted, and even that is mostly ceremonial, as we have seen with the last Covid bill. It turns out that there is no relationship between taxes and spending.

Another shibboleth of conservatives is that eventually the bond markets will force a haircut on the government. The so-called bond vigilantes will drive up interest rates, which will make borrowing more expensive. The theory here is that there is a hard limit on debt. Once that limit is reached, spending must go down or taxes must go up in order to reconcile the books. Like the belief that taxes will curtail spending, faith in the mythological bond vigilantes has been misplaced.

Of course, you can go back further and find arguments from the hard money crowd about the limits of fiat currency. There was an argument in the old days that said fiat currency not only unleashes spending and inflation, but it eventually makes the money worthless, thus bankrupting the state. We have been off the gold standard for a very long time now and none of the predictions came true. The spending continues, the borrowing continues, and the money creation continues.

The gold bugs have now moved to crypto currency as the savior. Once everyone is using digital money that is outside the control of the state, then we end up with a de facto gold standard. That will force fiscal discipline on the state, which means radically reducing spending. The fact that this will never happen has so far not dimmed the enthusiasm, but like all of the other schemes to cut spending, this one will prove no match for the animal cunning of the ruling class.

There is another theory related to money. The monetarists have always argued that sound monetary policy would impose discipline on the state. Since central banks are independent of the state, they can maintain a stable money supply. While not the same as a gold standard, sound monetary policy has similar effects. That has turned out to be a myth as well. The Fed is now captive to the spending frenzy of Washington, finding new ways to underwrite trillions in new outlays.

Now, there are those who will keep lighting candles for their favorite theory. The gold bugs, for example, are sure hyperinflation is around the next corner. The bond vigilantes are similarly sure the next crisis will confirm their theory. The truth is though, none of these theories turned out to be true. The official debt is $28T, but that excludes things like Social Security. The real debt obligations of the Federal government are incalculable. No one knows and no one seems to care.

The lesson of the last half century is one the monetarists learned from the battles over the gold standard. If the ruler is so corrupt you need hard money to control him, your ruler is corrupt enough to find a way around the limits of hard money. It turns out our rulers are more than capable of conniving around every limit put before them. They have reached levels of corruption that were though impossible half a century ago. The display being put on now suggest they are just getting warmed up.

This rather shabby track record should raise a question. That is, is the field of economics just pseudoscientific nonsense? It has lots of complexity and lots of very clever solutions to the complex problems it unearths, but outside of the most basic of concepts like supply and demand, economics is not very useful. In all of the important things, it turns out to be wrong. Astrologers have a better record than economists, because they know they are grifters, not scientists.

Putting that aside, the lesson here is that contra the libertarians, economics is downstream from politics. No amount of fiddling with the tax code can fix the defects of the political class. Even further, the right people in a corrupt system cannot correct the defects of the corrupt system. This is why the people come and go in Washington, but the corruption rolls on unimpeded. In the great chain of causality, economics is the last link in that chain. It is the final effect of a chain of many causes.

A new year brings new changes. The same is true for this site as we adjust to the reality of managerial authoritarianism. That means embracing crypto for when the inevitable happens and the traditional outlets are closed. Now more than ever it is important to support the voices that support you. Five bucks a month is not a lot to ask. If you prefer other ways of donating, look at the donate page. Thank you.

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

Over Supply

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Note: I have a new post up behind the green door. I’m buy a car, which I hate more than just about anything, so I will be posting about that experience for donors. Given my loathing of car buying, it will be an adventure.

One of the first lessons in economics is that demand drives supply. The more a product or service is desired, the greater the supply of it, barring some artificial constraint on supply. The relationship between supply and demand is expressed in the price for the good or service. A rising price means demand is outpacing supply and a falling price means supply is outpacing demand. If demand falls low enough, supply will disappear as there is no profit to be made in the transaction.

Supply and demand used to be an article of faith in capitalist countries, but it seems that our rulers have abandoned that axiom. Take for example labor markets. They insist that flooding the American labor market with new people from abroad will lift wages and increase employment. All that diversity will cancel out the collapse in demand relative to supply and something will happen. With regards to the labor market, the new article of faith is that unlimited supply drives up demand somehow.

Now, a lot of people think this new universal truth about the labor markets is just a trick to fool people into voting away their inheritance. Collusion between the cheap labor lobby and the cheap voter lobby has resulted in this weird libertarian argument that the old axioms about supply and demand do not apply to labor markets. That way heritage Americans will not resist the flood of foreigners into their country. That could be true, but it is not an isolated example of this new economic law.

You may have noticed that the car makers are making a big splash by announcing they will abandon the internal combustion engine within the next decade or so. Jaguar is the latest car maker to say they will stop making normal cars within the decade. They say they will be fully electric by 2025, which is not far off. Other carmakers have been less aggressive in their target date, but the general consensus is that all of them will be electric-only within the next decade.

The question no one asks is why? The embrace of electric cars has been tepid in the United States and Europe. They are an interesting experiment. If you are the sort that likes owning a novelty product, then buying a Tesla is an option. The government literally pays you to buy one, so there is that. Even so, the demand has not been great, because there is not great need for electric cars. For most people, a car is a tool and the current internal combustion models do the job perfectly well.

Then there is the fact that it is a terribly impractical thing to own at this time, as there are few charging stations and charging takes too long. More than half of US drivers cannot have a charging station at home, because they live in a rental unit. Many homeowners cannot have one because of the cost or their homes are not capable of having one installed. Then there is the power grid. Estimates range from $4 to $10 trillion to upgrade the power grid for electric cars.

This is of no concern to our rulers. They are sure that if they crank up the supply side the demand side will do something and then something else will happen and before long the roads are full of electric cars. Now, some will claim that these announcements are just like Soviet five-year plans. They are not realistic targets and the people behind them have no intention of doing what they claim. In other words, they still accept the laws of supply and demand, they just like lying.

Maybe that is true. The fake meat business, on the other hand, suggests they really believe the new economic model. Five years ago, the number of people walking around demanding a burger made from beetles that tasted just like a burger was zero. We have vegans and vegetarians, for sure, but we also have schizophrenics and manic depressives too. Mentally ill people are a part of the human condition. Normal people want to eat a balanced diet that includes meat.

Despite zero demand for meat made from grass and insects, the “Impossible Meat” racket is picking up steam. The billionaires are getting in on the racket and the Davos crowd is telling politicians it is the future. In fairness, the fake meat is not revolting, but that is not the threshold. Cat food does not taste terrible under the right conditions, but people do not want to eat that either. Fake meat is the e-book of the food business, in that it is a solution is search of a problem that was solved long ago.

These are some big recent examples, but they are part of a general trend in which the overclass abandons the laws of supply and demand. Given that market capitalism starts with supply and demand, it may be that we are now post-market societies. We are becoming something like a high-tech version of the palace economy. This was a common way to distribute goods in the Bronze Age. Given that the managerial class has a distinctive Bronze Age quality, it makes perfect sense.

On the other hand, supply driven economics has a poor history. In the 1970’s the great and the good pulled out all the stops to impose the metric system on America, but it was a complete failure. No demand meant no acceptance. The same is true of soccer and women’s sports. For half a century the great and good have been pushing these on Americans, but they remain fringe interests. Those iron laws of supply and demand, like reality itself, are resistant to wishful thinking.

The other side of this is that the people pushing these fads know this and believe they can warp reality to their will, or they are lying. Jaguar marketing is probably packed to the gills with the sort of people who live in whites-only neighborhoods, but demand the company bring in Robin DiAngelo to lecture them about their privilege. Fake meat and electric cars are just the latest boutique moral signifiers. Another turn of the wheel and some other fad will fill this role.

Of course, this raises an important question. Is it better to be ruled by maniacs who think reality is an optical illusion or is it better to be ruled by a class of sociopaths willing to lie about everything? From a moral perspective, the former is worse because they really believe in their cause. There is no reasoning with a fanatic. On the other hand, can you reason with a pathological liar? How can you know? These questions suggest that the real supply problem is at the top.

A new year brings new changes. The same is true for this site as we adjust to the reality of managerial authoritarianism. That means embracing crypto for when the inevitable happens and the traditional outlets are closed. Now more than ever it is important to support the voices that support you. Five bucks a month is not a lot to ask. If you prefer other ways of donating, look at the donate page. Thank you.

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

The Pirate Age

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The GameStop story, which is becoming more of a general short squeeze story, is a good example of what happens when an economy is fully financialized. Since there is little money to be made in making things or creating things, the best human resources flow into finance, where a bright person can get rich finding a slight imbalance in the marketplace for an asset or an error in the holdings of another player. The economy becomes a massive poker tournament with the central bank as the house.

If you step back and think about the transaction at the heart of this story, there is no moral or economic reason for it to exist. The practice of shorting a stock can have both moral and economic utility. In the former case, an investor seeing some corruption in a company or sector is letting the world know about it by betting against it with his own money. On the latter point, the blend of shorts and longs provides useful data about stocks and sectors for investors and planners.

When everyone at the table is using chips borrowed from the house and many of the whales at the table will never have to repay the house, both of these functions are flipped on their head. In the case of GameStop, some sharps were gaming the system in an effort to artificially deflate the value of otherwise good companies. GameStop is a solid little company that is an example of modern retail. They are a value-added retailer, which is the future in the world of digital commerce.

The point of the shorting activity was not to reveal some flaw in the company’s approach or signal a lack of faith in the retail sector. The point of the trade was to fool other investors into piling in on the short, so the price of the stock would collapse. This would allow the hedge funds behind this scheme to make a quick profit. The losers in this will be the people holding the stock and the company itself. Like all victims of piracy, their only crime was in trusting the system.

The neoliberal defenders of financialization will counter that the WallStreetBets activity is exactly the sort of self-regulation imagined when the process of financialization began in the 1980’s. Instead of government bureaucrats with no understanding of the market picking winners and losers, savvy players would do battle in the marketplace. In this case, clever traders saw an opportunity to raid the pirate ships raiding companies like GameStop and they carried off some booty for themselves.

This sounds great, if you are a pirate. There is no doubt that the people involved here love the action in the same way gamblers love it when some guy is on a huge roll at the craps table. It is an exhilarating drama, even for the observers. The thing is most people are not pirates and have no interest in being pirates. More important, they do not wish to be ruled by pirates. They do not want to live in a world of no fixed rules, just the shifting standards of the pirates making war in the economy.

This brings us to the purpose of having markets and rules to govern trade between people within a society. In order to have a society with any chance of survival, you have to have rules governing exchange between members. Otherwise, your society is a war of all against all. This opens the prospect of outsiders exploiting these constant divisions in order to conquer or destroy your society. Obviously, you want to prevent this, so the rules are designed to reduce division.

Put another way, economics is a tool. That tool is used to bind the people closer together, by rewarding the things that promote the common good and punishing those things that harm the common good. Inevitably, they help the society to strengthen itself against other societies. Just as males compete with one another for mates, societies compete with one another for resources and status. One is linked to the other as an immutable part of the human condition.

Neoliberalism reverses the relationship between society and economics. Instead of society wielding economics as a tool, pirates pick up parts of society and swing them around like flails at one another. In this example, a little company that probably should be private, is seeing its share prices stuffed into the cannons of financial pirates and fired at the ships of other pirates. When it is all over, the pirates will sail away to the next skirmish, while a little company lies in ruins.

This type of economics is inherently unstable. For one thing, the pirates must always be looking for new raiding opportunities. This is why the United States, the pirate’s cover of globalism, is always belching out raiding parties around the world. The quest for new plunder is insatiable. The constant war with Russia, for example, is over the pirate’s desire to financialize the vast natural resources of Russia. The Middle East is chaos, in part, because it is endlessly plundered by pirates.

More important from the perspective of the West, financialization undermines the institutions, because they become partners in the endless raiding. Instead of being the source of stability in a society, they are seen as aiding and abetting the pirates endlessly plundering the economy. Look around the West and the one universal thread is the public no longer trusts or respects its institutions. The people inside the institutions look out seeing nothing but sails on the horizon.

The age of pirates ended when the British government decided it was no longer in their interests to promote it. The British navy went out and sank pirate ships where they found them, and pirates were hung when they were caught. Eventually, order was restored to sea commerce. The modern world lacks an authority with the will and ability to bring the pirates under control. The public, on the other hand, demands such an authority, so eventually, they will find one or create one.

A new year brings new changes. The same is true for this site as we adjust to the reality of managerial authoritarianism. That means embracing crypto for when the inevitable happens and the traditional outlets are closed. Now more than ever it is important to support the voices that support you. Five bucks a month is not a lot to ask. If you prefer other ways of donating, look at the donate page. Thank you.

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link.   If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at sales@minterandrichterdesigns.com.

 

GameStop

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Until a few days ago, most people had no reason to think about GameStop, a retail chain that sells video games and accessories. If you have kids, you probably know the place, because your kids like to go there. Otherwise, the only reason to think about the place was to wonder how they managed to survive as a brick-and-mortar operation in a world dominated by on-line retailers. They exist as a reminder that humans still prefer in-person shopping, even if it comes at a premium.

That is the funny thing about the GameStop story. While other traditional retailers struggled to maintain margins, they are an exception. This is a company with ridiculously high margins. Even with a drop in sales due to the great reset launched by the managerial class this year, they maintained their margins. Whatever they are doing in their shops, people think it is worth a premium. Despite this, their stock was a dog, falling below $4 until the recent explosion.

It is the explosion in their share price that has them in the news. The share price as of the close of business yesterday was $347.51. The pre-market ask is $489.00 as these words are being typed. That number keeps going up, so it is not unreasonable to think that shares will be trading at or above $500 today. Everyone now wants a piece of the winningest stock since the dot-com bubble. If you had this company in your portfolio six months ago, you are a very happy investor.

Of course, this explosion in share price did not happen because everyone suddenly realized this was a great company. The story here is retail investors organizing on Reddit noticed that some big hedge funds were shorting the hell out of the stock, despite its depressed price. Shorting a stock is when you borrow shares of the stock and then sell them, hoping to buy them back at a lower price. You then return them to the lender, and you collect the difference.

These hedge funds took this a step further and borrowed shares that did not actually exist, which is called naked short selling. Basically, the center of the naked short sell is a promise to sell the shares at a price on a certain date. If the seller is unable to borrow those shares, then they must go into the market and buy them. If the price is below the promised price, no problem. If not or if the shares are simply not available to be purchased, then it is a very big problem.

This is where we are in the story of GameStop. At least one hedge fund was committed to delivering shares of this company at a few bucks per share, but now the shares are many times higher and becoming something close to unobtanium. The result is the hedge fund, Melvin Capital, has been wiped out. They had to liquidate all of their other holdings to cover their short position. Even with help from other hedge funds, they will file for bankruptcy next week.

By itself, this is an amusing story, but hardly big news. But, no one really knows if this is an isolated situation. The insiders were targeting a number of companies, hoping to jawbone down their share prices while they aggressively shorted those stocks. It is not unrealistic to think there are dozens of hedge funds out there working this grift, so this could be the tip of a much larger iceberg. The movie chain AMC Entertainment is seeing its stock follow GameStop for the same reasons.

Now, this may not sound very interesting, but even in today’s world of magical finance, math still matters. If you have to raise cash to cover your bad bet on a naked short sell, it means selling something to raise the cash. Hedge funds tend not to sell their furniture or expensive sports cars, so they sell their good holdings. Usually, they sell their best holdings, as they are the most liquid. If enough hedge funds are forced to liquidate their good holdings, those holdings will decline in price.

This is the great fear in these situations. No one knows how much exposure there is to this bad trade. That is why the general market will decline, as the robots that do almost all of the trading move into the safest of safe harbors. This, in turn, can result in selling of otherwise solid assets, simply because no one wants to be holding an asset in decline, especially in a declining market. Given the ridiculously inflated share values, this short squeeze could signal a very big correction.

It could also be a big nothing or it could mean the government comes in and makes everything right with bailouts or new rules to prevent further erosion. That really is the story here with GameStop. This revolt of small retail investors against this hedge fund is about the larger issue. The marketplace has been perverted by insiders with special access to both market makers and market regulators. The financial markets are no longer tethered to economic reality. It is just a giant bust out.

This is why this event is being compared to Gamergate. Like the populist revolts we have seen all over the culture the last ten years, this organized attack by small investors is about a larger issue. The institutions we are supposed to rely upon to regulate our lives have been corrupted by managerial insiders. Just as the marketplace of ideas is now manipulated by thugs and lunatics on behalf of the oligarchs, the financial markets have become a grift operated by wealthy insiders.

What this means, of course, is that the insiders getting hurt in this will go to their colleagues in the ruling class and have the insurgents crushed. These people will be pushed off public forums, have their accounts closed by the trading companies and some will probably be arrested on made up charges. In a society where mocking the rulers on Twitter could get you ten years in prison, anything is possible. The ruling class will not be mocked or defied.

On the other hand, it is great example of how to resist managerial tyrants. These people will not be talked out of their corruption. They have no scruples, so they cannot be shamed into doing the right thing. They have real power, so they cannot be removed from their positions. The only course is to drive up the cost for them. Throwing sand in the gears whenever possible drives up the cost of rule. Eventually, the managerial state becomes the naked short sell and has to be liquidated.

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