The New Economy

Something that has been brought to the surface by the recent economic shutdown is that classical economics seems to have run out of answers. More precisely, we are seeing things today that classical and neoclassical economics said were not possible, at least not in the long term. All over the West, but particularly in the United States, we are seeing contradictions for which there are no explanations. It’s as if we have crossed into a new world that operates by different economic rules.

The best example of this is the debt carried by governments. For a long time, it was assumed that debt levels approaching GDP were unsustainable. In war time or a national crisis, a nation could run up huge debts, but must immediately address those debts after the crisis had passed. This meant austerity or inflation. Today, Japan has debt over 200% of GDP. Greece is at 170% and Italy at 130%. The United States was at 110% before the recent economic calamity.

Those who cling to the old economics keep predicting that sovereign debt will be the downfall of the West, but that’s like predicting rain in Arizona. Eventually, the prediction comes true, but when is what matters. As the John Maynard Keynes famously said, “In the long run we’re all dead.” Maybe there is some point where these debt levels have to be addressed, but everyone used to know this was not possible. Within living memory, trillion-dollar Federal deficits were said to be impossible.

All around the modern economy we see things that should not be happening. America has seen 50 million people file for unemployment. The streets are empty during work days in most cities. It has been an article of faith that wide-scale unemployment would lead to unrest. Instead of marches by unemployed workers, we have riots by the delinquent children of the ruling class. They are not demanding jobs. Instead, the jobless are watching the shenanigans on television.

Similarly, the stock markets are doing the opposite of what economics has said should happen on the cusp of a long depression. Apple became the world’s first trillion-dollar public company on Thursday, as a rise in its share price pushed it past the previously unthinkable valuation. This is a company that makes luxury goods financed on retail debt. Their core market is now unemployed. How is it possible for a “Good Time Charlie” business to boom in a depression?

There may be ways to explain these and other phenomena within the old rules of economics, but those patches to the old theory just create new contradictions that have to be addressed with new patches. It may simply be that the West, having moved past scarcity, has entered into a new world of economics. Just as quantum physics takes over for classical physics at the atomic level, the new economics takes over for the old economics at the post-scarcity barrier.

An example brought up in this brilliant discussion (Video and MP3) on modern finance is the elevation of transaction-creation over capital formation. A company like Tesla has a ridiculously high valuation, despite its many problems, because it creates lots of transactions and creates potential transactions. Everything from government credits to complex financial instruments are spun off by the activity of the firm. As a result, it creates lots of downstream financial activity.

Compared to an old school car maker, Tesla makes little sense. The old school car maker was focused on building cars, which meant they focused on all of the processes to building a car, like supply chains and managing factories. As a result, they had massive balance sheets. The real value of the company was the massive array of assets it owned to build and sell cars. Tesla, in contrast, has a tiny balance sheet, as it is focused on generating economic activity.

The elevation of the transaction over capital formation is one of the unremarked aspects of the new economy. Wealth is now generated by either creating new ways to move information around the system or maintaining a gate through which information must flow to some other part of the system. In the new economy, information can be knowledge about some future transaction or the store of old information in a wealth containment vehicle, like money, assets, credit and so forth.

In the new economics, the demand for genuine innovation, the overcoming of scarcity in some way, is in low demand. Instead, the economy is dominated by middlemen who benefit from each transaction. Therefore, the innovator is one who comes up with a new way to accelerate the movement of information in the system, thus increasing the number of transactions. Facebook is worth billions not because it has a great product or service. Its value is in its ability to generate transactions.

Another aspect of the new economics that seems to contradict the old rules is the rise of credit as an asset. All over the global financial system credit sits on the books of banks, hedge funds and companies as an asset. The asset is taken at face value and often the nature of it is unknown. This was obvious in the mortgage crisis when debt holders had no idea what was in those mortgage pools. Credit is now just another store of information in the financial system.

In fact, certain types of debt are the preferred store of information. The financial system has an unquenchable thirst for US treasuries. Federal debt is now over 26 trillion, a number thought unimaginable just a few decades ago. When you add in unfunded Social Security and Medicare liability, the debt is multiples of that total. Despite this staggering debt load, United States treasuries remain the preferred collateral in the financial system. They are better than actual money.

An irony of this new post-scarcity economic order is that it seems to be evolving toward something closer to the old palace economies of the Bronze Age. All over the economy we see a great consolidation. Amazon is close to half the retail economy now. Five big banks control more than 90% of the financial system. The tech oligarchs are close to having a monopoly on the public square. In their respected spheres, everything flows into them and is distributed out as they see fit.

We have quickly moved from a situation where these new economic models were too fragile to regulate to a situation where they are too big to regulate. In fact, the phrase “too big to fail” is now just an accepted truth of the current age. Like the palace economies, these institutions are not here to serve society. American society now exists to serve these new institutions. As a result, these institutions are actively shaping our behavior to create transactions that serve their needs.

Whether or not this is sustainable is unknown. People who want to the think it cannot go on will find reasons to believe that. The answer though lies in whether this model can last in a world of informational symmetry. As automation takes over the economic system, will there be a way to create more transactions. After all, the robots will reach a point where they know the market value of all items before the market is set. No robot will be able to fool the other robots.

That is another aspect of the new economy that goes unexamined. It is just assumed that automation will idle the human assets the ruling class does not like. In realty, it will be the information class that suffers the most. In a world where financial transactions are conducted among algorithms on the block-chain, what is the need for guys working the phones in a brokerage? How would trades even happen if both sides know the future price of the item being traded?

As with anything new, there are more unknown things than known things. The new field of quantum economics is an effort to take methods and ideas from quantum physics to model economic activity. It starts from the observation that something like the efficient market theory contradicts the assumption that humans are rational and will attempt to maximize their utility. People know the odds, but they keep going to the casino anyway, buying sports cars and following new trends.

There’s also the possibility that reality has simply gone on holiday and will return to put all of this back in order. Some unknown crisis will reveal the massive cracks in the foundation of the current economic model. Everyone will suddenly snap out of the fog of plenty and rush for the exits. After all, the Bronze Age economic model was unable to hold up under the pressure of the Sea People. The current economic model may simply collapse under the weight of a billion Africans.

Media Update: The guys at Myth of the 20th Century had me on as a guest to talk about various things related to economics. I appreciate them having me on. They do a lot of interesting stuff, so I hope everyone will check out their material. Like so many, they have been condemned to the valley of the damned. That means no YouTube of Twitter, but you can download the latest episode here. They also have a Bitchute channel and a D-Tube channel.

Note: 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 like a tea, but it has a milder flavor. It’s hot here in Lagos, so I’ve been drinking it cold. It is a great summer beverage.


For sites like this to exist, it requires people like you chipping in a few bucks a month to keep the lights on and the people fed. It turns out that you can’t live on clicks and compliments. Five bucks a month is not a lot to ask. If you don’t want to commit to a subscription, make a one time donation. Or, you can send money to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. You can also use PayPal to send a few bucks, rather than have that latte at Starbucks. Thank you for your support!

Covid Capitalism

For most people, buying a car is not a pleasant experience. Getting a new car is always nice, even if you are not a car person, but the process of getting it is almost always a hassle due to how cars are sold in America. Getting a used car can eliminate the hassle of the dealership, but then you have to worry about getting hustled by someone trying to unload their lemon onto a sucker. The car market is extreme capitalism, where no one gives a sucker an even break or smartens up a chump.

Strangely, this makes it the ideal place to understand what has happened to our society over the last six months. For example, every car dealership website now has a prominent banner informing the visitor just how much the car dealer cares about the health and safety of their customers. There’s usually a link to their page detailing just how much they care about you, the sap they hope will buy a car from them. All of these mission statements are titled, “Our Response to COVID-19.”

In case it is not obvious, a business built around the phrase caveat emptor is not concerned about the safety of anyone, even the employees. Like every business in extreme capitalist America, the car dealers see an angle in presenting themselves as guardians of public health. At the far end of capitalism, the business must be both rapacious and patronizing. Telling you how much they care about your welfare while stripping you of what they can is the standard business model.

The thing about all of this that goes unnoticed is how predatory economics has not just been normalized, it is now celebrated. Forty years ago, soulless money grasping was seen as immoral. The movie Wall Street presented a morality tale about how extreme capitalism was soul destroying. Today, the ruthless businessman is in the morally superior position, while the person doubting the ethics of his behavior is portrayed as a naive and stupid person, possibly even dangerous.

Maybe it is just a case of monkey see, monkey do with these dealers, but all of their steps to show just how much they care are the same across the board. They have “contactless” car buying, which is a very strange thing, when you consider it. How much physical contact would one normally have with the the car salesman under normal conditions? Of course, since their goal is to screw the customer, maybe this is a strange inside joke or possibly a cry for help.

Of course, all of this is just a racket and everyone gets it, except for the people firmly in the panic camp. They see it as confirmation. In fact, that’s the point of all these ads from giant corporations telling us how much they care about us and the communities they are destroying. It is pure partisanship. On one side there are the people sure this pandemic is punishment for Trump. On the other side are people who are sure the other side is using the virus to advance their ideological goals.

This is the world of today. There are now two camps of people. One camp consumes every event and metabolizes it into fuel for their ideological war. As soon as the virus became news their chief concern was in how to turn it into another weapon in their social war to control society. As soon as the hated Trump declared his side on the virus issue, the Left immediately embraced a set of positions on the virus. Every left-wing and adjacent governor blew up his state to spite Trump.

The second camp are the people who realize that the new issue is becoming politicized and they form up an opposition to the Left. In the case of the virus, they started as curious or maybe mildly skeptical. These were the people who said it was just going to be a very bad flu most likely, but we needed more information. Now they are the people who say the face muffler is the six pointed star of totalitarianism. For them, the facts of the virus no longer matter anymore.

In this environment, there’s no truth or even the desire for truth, as all truth is determined by which side of the line you stand. The car dealers, for example, would have lepers selling cars if it moved more product. It is in their interest to go along with the safety campaign, so they go along with the safety campaign. They would have their people in hazmat suits putting the buyer through a delousing station if that’s what it takes to sell cars. They care, because they don’t care.

Everywhere else, the caring capitalists are either proof that the plague is real and a punishment for the Orange Man or it is just part of the fraud perpetrated by people obsessed with hating the Orange Man. Not only does this make everything extremely simple, it means the simpletons rule the day. If you’re inclined to automatically take one side or the other based entirely on your feelings toward the people on each side of the line, this is a glorious time to be alive.

The car dealership is now the metaphor of our age. The people running it engage in the most extreme form of ruthless transactionalism. They do so while pretending they care deeply about the people they will gladly fleece. Meanwhile, on the lot, one group of buyers is misty-eyed over how much the dealer cares about this plague sent to spite the Trump people. The other group grits its teeth behind its face mufflers, fantasizing about the revolution and that sports car in the showroom.

Note: 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 like a tea, but it has a milder flavor. It’s hot here in Lagos, so I’ve been drinking it cold. It is a great summer beverage.


For sites like this to exist, it requires people like you chipping in a few bucks a month to keep the lights on and the people fed. It turns out that you can’t live on clicks and compliments. Five bucks a month is not a lot to ask. If you don’t want to commit to a subscription, make a one time donation. Or, you can send money to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. You can also use PayPal to send a few bucks, rather than have that latte at Starbucks. Thank you for your support!

Strange Days

Way back in the time before corona, it was conventional wisdom that shutting down the economy would have dire consequences for the economy. Whether you were on the panic side or the skepticism side, you were sure that locking down the economy was going to be bad for the economy. The stock market losing a third of its value in a week seemed to confirm it. No matter the truth of the virus, the consequences was going to be an unprecedented economic depression.

Here we are four months on and the world does not look like anyone imagined it when this all started. The promised bodies in the streets never materialized. The virus has thus far been a sever flu season hyped up by mass media. The promised depression has not made an appearance. The streets are still mostly empty during the work day and many businesses are still closed. Those that are open have all sorts of restrictions and they seem to have fewer customers.

What we don’t have is people out banging their pots and pans demanding the government do something about the economy. A lifetime ago a handful of white people showed up at state capitols demanding the end of the lock downs, but that soon gave way to swarms of blacks and Antifa promising to burn the cities. Otherwise, the productive portion of society seems to have gone back to sleep. Those working from home, work from home and those not working stay home.

The weekly jobless claims say that 30 million Americans are currently unemployed, but no one seems to notice or believe it. Of course, no one should believe the official statistics from the government and other sources. The only thing true about these numbers is they are constantly revised. We do know that 30 million people are still collecting unemployment benefits at the moment, so at least that many people are not working, but would like to be working.

The virus and the economy are a good example of partisanship. The panic crowd, which overlaps considerably with the anti-Trump, Hamilton listening set, was so sure the virus was a plague sent by the gods because of Trump they are convinced the hospitals are overrun and people are dying in the streets. Similarly, the skeptics of modern economics are so sure the system cannot last, they believe we are in a grinding depression that will explode into civil unrest at any moment.

What we are living through right now is probably one of those times when the partisan framework gives way to a new partisan framework. Perhaps in liberal democracy there needs to be a regular molting of the old partisan skin so a new one can emerge and refresh the debate. After all, forty years ago, the Left was endlessly going on about free speech and the dangers of corporate media. Today, it is the Right that champions speech and opposes corporate media.

Putting that aside, what we are seeing in the economy runs counter to pretty much everything we have been told for generations. The government should not be able to manufacture trillions of dollars without causing hyperinflation. This was something everyone, Left and Right, knew was true not so long ago. Here we are with the US debt at 23 Trillion, a number so large no one can imagine it. So large, no one bothers discuss it anymore. No one cares about the debt.

Similarly, we have been told for generations that the US savings rate was so low that the typical American could not afford to skip a paycheck. Small business was so strapped it could not go a month without business. We’re four months into the lock downs and we don’t have soup lines. Instead, Americans are paying down credit card debt at a record clip. In fact, credit card debt is now the lowest it has been in over a decade and headed for unprecedented lows.

One driver of the credit card debt decline is the collapse in spending. This makes sense, given those empty streets and closed shops. Still, people worried about money tend to hoard cash, rather than pay down debt. You can always tell the credit card company to go screw, but you can’t do that with the landlord, the mortgage company or the grocery store. Contrary to conventional economic wisdom, Americans are choosing to pay down their debts right now.

The weirdness in the economy is just one item. No new movies or television have come out since the panic and no one seems to care very much. Sports entertainment has been shuttered and no one seems to care. All of the spring and summer youth sports have been cancelled. This time of year, kids into baseball, lacrosse, soccer and big-time football would normally be in summer leagues. Their parents would be toting them around the country. None of that is happening.

You can probably spend the better part of day listing the things that used to be a fixed part of daily life that are now gone. More important, they are gone and no one seems to notice or care. Talk to people with kids in the summer sports and they will tell you the kids have quickly adjusted. They are doing other things. Parents with small kids are quickly adjusting to life at home with the kids around all day. Kid sounds are the background music of Zoom sessions.

The point of all this is we are like people who have been dumped out of their canoe in the rapids and we are now being swept down river. All sorts of things are happening to us and around us, but we have no way of getting our bearings. The thought of getting back into canoe has long passed. Now it is just a matter of surviving each minute until the river calms or we bash our head into a boulder. We have no perspective and no way to gain perspective until we reach flat water.

That means we really have no idea where this will all end. Maybe that’s why there is a strange calm over daily life. Maybe that’s why people are instinctively paying down debt and hunkering down. It may not make total sense, but in uncertain times, simplifying the household finances becomes a point of stability. Again, it is hard to know, as we are all just being swept along. Still, the one thing we can know is that we are being swept along by forces outside our control.

Note: 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 like a tea, but it has a milder flavor. It’s hot here in Lagos, so I’ve been drinking it cold. It is a great summer beverage.


For sites like this to exist, it requires people like you chipping in a few bucks a month to keep the lights on and the people fed. It turns out that you can’t live on clicks and compliments. Five bucks a month is not a lot to ask. If you don’t want to commit to a subscription, make a one time donation. Or, you can send money to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. You can also use PayPal to send a few bucks, rather than have that latte at Starbucks. Thank you for your support!


GE: The Story Of America

If you were to pick one company that symbolizes how America has changed and been changed over the last half century or so, it would be General Electric. The company founded by Thomas Edison is in many ways a microcosm of the American economy over the last century or more. It rose to become an industrial giant in the 20th century, the symbol of America manufacturing prowess. It then transformed into a giant of the new economy in the 1990’s, a symbol of the new America.

Today, General Electric is a company in decline. After a series of problems following the financial crisis of 2008, the company has steadily sold off assets and divisions in an effort to fix its financial problems. In 2019, Harry Markopolos, the guy who sniffed our Bernie Madoff, accused them of $38 billion in accounting fraud. The stock has been removed from the Dow Jones Industrial composite. Many now speculate that GE will end up in bankruptcy in order to reorganize.

For those interested in a longer discussion about the history of General Electric, Myth of the 20th Century did a podcast on the company. One aspect they did not cover is how General Electric transformed from a company that made things into a financial services company that owned divisions that made things. Like the American economy in the late 20th century, the company shifted its focus from making and creating things to the complex game of financializing those processes.

Like many companies in the late 20th century, General Electric found that their potential clients were not always able to come up with the cash to buy their products, so they came up with a way to finance those purchases. This is an age-old concept that has been with us since the dawn of time. Store credit is a way for the seller to profit from the cash poor in the market. He can both raise his price and also collect interest on the payments made by his customers relying on terms.

For American business, this simple idea turned into a highly complex process, involving tax avoidance strategies and the capitalization of the products and services formerly treated as business expenses. Commercial customers were no longer buying products and services, but instead leasing them in bundled services packages, financed at super-low interest rates and tax deductible. Whole areas of the supply chain shifted from traditional purchases to leased services.

For example, a local supplier of industrial goods used to own a warehouse to hold the products he supplied to clients. Inside would not only be the products, but material handling equipment like forklifts and shelving. Outside at the loading docks would be a fleet of big scary trucks used to deliver the products. Of course, to make it all work would be a staff of people loading and unloading trucks, moving product around the warehouse, making deliveries to clients and so on.

All of this would require a lot of money to acquire and maintain. That small local distributor would have millions tied up in assets. This is where the magic of cheap credit came into the economy. Companies like GE could go to these suppliers and unleash that capital tied up in those assets, by converting them into leased services. The trucks, for example, would no longer be purchased, but leased from a GE division that paid the taxes, did the repairs and provided spares in peak times.

As an aside, another aspect of this new leased economy is what happened with the people inside of it. That local supplier could not only lease his trucks and material handling equipment; he could lease his people. The building, the warehouse people, the administrative staff, the trucks, all of it, could be turned into a single lease payment for larger operators. This allowed the big players to muscle out the small players in just about every aspect of the supply chain.

What really made this new form of store credit work was both super-low borrowing rates for big players like GE, but also changes in the tax laws that allowed these lease payments to be treated like depreciation. The customer not only got the benefit of holding his cash he would normally use for asset acquisition; he could also get favorable tax treatment on the lease expense. To no one’s surprise, the big lobbyists for these changes in the tax laws were the financial services firms.

That is what GE became in the 1990’s. It was no longer a company that made stuff and financed it for select clients. It was a financial services firm that owned manufacturing facilities that supplied products it could finance. GE Capital became a massive commercial bank, not entirely regulated like a commercial bank and free to invent new financial services to meet its needs. They bought up manufacturing and commercial services companies, in order to monopolize their financing operations.

In the old economy, the credit system existed to serve the broader economy. In the new economy, the broader economy exists to serve the credit system. That which can be turned into a credit instrument increases in value, while that which cannot be bundled into a financial instrument loses value. Small players that provide specialized services lose value, while global players with easy access to credit increase in value. Everyone and everything serves the global credit system now.

This is what happened with General Electric as its credit empire grew. It was first and foremost a finance company. Since the flow of cheap credit was unlimited, the need to find new places for the credit became the point of GE. They bought companies in order to have new clients for their financing arm. They expanded the realm of that which could be leased and financed. By the end of the Jack Welch era, the point of General Electric was to grow bigger in order to supply more credit.

This financialization of the economy also allowed companies like General Electric to maintain implausible growth rates. This is where that credit machine at the heart of the company came into play. They could finance acquisitions with cheap credit. They could structure the purchase of a company in such a way as to realize its revenue now, while amortizing its debt and expenses. Suddenly that new division was wildly profitable through the miracle of off-balance sheet transactions.

The last financial crisis broke General Electric, by exposing a reality of the modern credit-based economy. Without new ways to move credit through the system, the credit system begins to seize up. Since the profit in this system is entirely through the skim, the slowing of credit means a collapse in profits. Once those profits disappear, the ability to make interest payments declines and that slows the system further. GE was close to insolvent within days of the mortgage crisis in 2008.

That is the real lesson of General Electric. The company became something like the old Mafia bust-outs. The whole point of the business was to squeeze every drop of value from clients and divisions. Instead of running up the credit lines and burning down the building for the insurance, General Electric turned the human capital of companies into lease and interest payments. They were not investing and creating, they were monetizing and consuming whatever it touched.

GE came close to collapse in the financial crisis, but they were bailed out. They stagger on, despite having lots of divisions that make high quality products. The cost of unwinding the company back into a normal company will be high, maybe too high for them to survive. The same can be said of the American economy. It will have to be unwound, but there will be no bailout. Instead, it will have to unwind quickly and painfully, in order to become a normal economy again.


For sites like this to exist, it requires people like you chipping in a few bucks a month to keep the lights on and the people fed. It turns out that you can’t live on clicks and compliments. Five bucks a month is not a lot to ask. If you don’t want to commit to a subscription, make a one time donation. Or, you can send money to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. You can also use PayPal to send a few bucks, rather than have that latte at Starbucks. Thank you for your support!


The Paradox Of The Market

An axiom of liberal democracy is that the more open the system the more choices there are within the system. A market for widgets, if it is an open market, will have the maximum number of widget makers and widget suppliers. The marketplace of ideas, if it is open to all, will have the full range of ideas. Similarly, as long as the demand side is unrestricted, the full spectrum of demand will be represented. Every widget buyer will have the chance to demand his type of widget.

This is the starting point for modern societies. It is no longer a point to be debated and certainly not questioned. This is obvious in the non-debate over tech censorship. Any effort to discuss what is going on with companies like Google and Twitter is met with a wall of sound about the sanctity of private firms operating in the market. “Build your own platform” has become the top single in the amen chorus. The marketplace is now a god that provides what the people need and deserve.

In theory, the chorus should be right. If everyone who wants to make widgets is allowed to make widgets, then there should be a widget maker for every type of widget demanded by the public, assuming the widget can be produced at a profit. Even people wanting free widgets could be supplied by charity. Outside of the extremes, if there is a way to make a profit by meeting even the most bizarre demands for a product or service, someone will find a way to meet that demand.

Something similar should happen in public discourse. If the public space is open, then everyone can present their ideas. If everyone is free to listen, or not listen, to those ideas being offered up, the marketplace should develop in the same way as it should with a product or a service. The insane ideas will have a small audience, while the sensible ideas will gain a larger audience. The marketplace of ideas will sort and stack the ideas on offer based on the preferences of the audience.

This is a bit redundant, but it is important to think about this axiom of liberal democracy while considering current reality. If the market place for goods and services functioned as believed, then we would have more than two mobile phone makers. There would be more than one search engine. We would have lots of small car makers, rather than a handful of global operators. In fact, General Motors should have gone out of business decades ago based on market principles.

In the realm of ideas, we should have a dozen political parties flourishing to one degree or another at the state and national level. For example, there is no obvious reason why there should not be political parties that operate just as the state level. According to the axioms of liberal democracy, there should be state parties that focus just on state and local issues, maybe operating as a feeder to a national party. Yet, we have just two parties that are really just two faces of a single party.

It is a paradox of markets that the internal dynamic of the market leads to fewer choices and maybe even no choice. Take the desktop computer market, for example. The only choice is the color and the label of the Chinese slave camp that produced it. Inside, the parts all come from the same source. Alternatives to the standard PC are fringe options that exist for hobbyists and weirdos. You see this everywhere you look around the marketplace. Our markets are oligopolies now.

It goes beyond market consolidation. Another aspect of this is that as some dominant players emerge, they begin to insulate themselves from demand. In fact, it is possible that the quest for market domination is actually an effort to insulate the supplier from the pressures of the marketplace. The players initially experiencing success shift from competing for clients to competing to wall off their share of demand in order to prevent others from competing for that market share.

You see this with sports. The NASCAR phenomenon is assumed to be driven by the edicts of this weird new religion that has gripped the great and good. That may be one aspect of it, maybe even the primary aspect, but there also seems to be a desire to get rid of their own audience. That is, NASCAR would be fine with not having a live crowd and depending entirely on television money. Then they no longer have to be responsive to the demands of the customers.

The temptation here is to say that the fans will not watch, but in the realm of television these days, ratings matter very little. ESPN, for example, gets the bulk of its revenue from mandatory cable fees. If you have a TV sub through the local cable monopoly or a service like Hulu, you pay ESPN eight dollars per month. It does not matter if you watch, you pay the fee. All cable channels work off this model. Once again, the glory of the market place is to result in a monopoly and no market.

This dynamic where the dominant suppliers seek to eradicate the demand side is evident in politics. Both faces of the uniparty are now onboard with vote by mail, for example, which eliminates the pesky demands of the voters. This form of voting makes for unlimited fraud, so we will end up with Stalin’s maxim. “It’s not the people who vote that count. It’s the people who count the votes.” Since picking one party or the other has no effect on policy, voting will soon be entirely ceremonial.

It is always tempting to confuse a paradox with a contradiction. Critics of modern capitalism, for example, will claim that the oligarchs are not really capitalist in the free market sense. They are corrupting the system. Similarly, people will claim that the problem with politics is that a small group of highly corrupt people are subverting the democratic system. In other words, the axioms of the market place are true, it’s just that the current systems are not adhering to them.

The trouble with this line of reasoning is it suggests that the marketplace itself selects for the sorts of people who seek to subvert the marketplace. Everywhere we look, the great experiment in open markets has had the same result. Whether it is finance, technology, ideas or politics, the result is small club that controls everything, not only to their exclusive benefit, but to the detriment of the people they allegedly serve. It is almost as if the market selects for sadists who despise their customers.


For sites like this to exist, it requires people like you chipping in a few bucks a month to keep the lights on and the people fed. It turns out that you can’t live on clicks and compliments. Five bucks a month is not a lot to ask. If you don’t want to commit to a subscription, make a one time donation. Or, you can send money to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. You can also use PayPal to send a few bucks, rather than have that latte at Starbucks. Thank you for your support!


The Jelly Bean Man

Imagine one day you are snatched off the streets by a group of men, who throw you into a van and take you to some hideaway. They blindfold you and refuse to tell you why they have snatched you off the streets. At some point you’re drugged and you wake up in a mysterious coastal village. Everything about the village seems normal, except for the fact you are there, a place you have never been. Everyone seems to know you, as if you belong there. Naturally, you are completely disoriented.

Of course, you try to find a way out of the village. After several escape attempts which are thwarted by a giant balloon-like automaton. You realize that the village is not really a village, but a form of prison. It is bounded by the mountains and sea, in addition to various surveillance devices. In between your escape attempts, you are interrogated by the person that seems to be in charge of the place. He keeps asking your questions about your old life, but you cannot figure out what it is he wants.

After a while, the interrogations become conversations and then friendly conversations as you become habituated to your new life. In fact, you have grown to like the talks you have with the man in charge. The villagers are nice, but rather simple and incurious and they are oblivious to their situation. Number One, on the other hand, is fully aware of your situation and quite open about it. It becomes clear that you were not really kidnapped, but recruited in an unusual way to an unusual life.

In time, the man in charge offers you a position in the power structure of the village, as you are feeling quite at home. The village does not use normal money, but instead uses jelly beans. The different colored jelly beans have different values in relation to one another and are used like currency. The villagers carry them around in a sack like gold coin in the old days. The basic unit is the black bean, while the highest denomination is the white bean, which is five-thirds the black bean.

The arrangement works well enough, as the villagers with jobs are paid in jelly beans and those on the dole are paid with jelly beans. Everyone has some source of income, so everyone can use beans for transactions. In fact, it works so well that no one thinks it odd in the least. Even you have grown used to carrying around a sack of jelly beans to make your purchases. Now that you are working for Number One, you too get a fresh sack of beans every payday.

There are some problems. One is people occasionally eat their jelly beans, thus removing them from the economy. Because they are small, they can also be lost if someone drops them. Then there is the fact that they are a bit fragile and can be destroyed if not handled carefully. The result is there is a declining number of beans in the system. It also means certain villagers, who are more prudent, increase their stock of beans relative to everyone else in the village.

Your job with Number One is to figure out how to maintain the stock of beans in the village and keep anyone from hoarding the beans. Then there is the fact that new people show up in the village from time to time, just as you did, and they have to be stocked up with beans. Of course, people do try to run off from time to time and the giant balloon-like automaton will take them out. Your job as Head Keeper of Beans is to figure out how to manage the bean supply in the village.

You got the job because you have a head for numbers, so you first try to count the beans in the village on a regular basis. This proves to be impossible, as the villagers appreciate why you are doing it, but they can’t be bothered. The count is unreliable and you can’t trust it to make decisions about adding or subtracting beans. You then come up with a way to take a sample count and estimate the total from it, but you find that your estimates are lagging indicators. You’re always behind the curve.

After careful consideration, you land upon an idea. You realize that as any bean becomes scarcer, it will become more precious, so villagers will be less inclined to part with their stock of them. It means these beans will move around the village at a slower rate. If you can measure the bean flow on a regular basis, this will be a good measure the total number of beans and the balance of beans. More important, you’ll know in real time if there is a bean imbalance.

You also notice that the people who hoard beans are never the people who eat their beans as a snack. They value their beans more than anyone else in the village, so they are always looking to increase their stash as a good in itself. You figure out that like other types of loss, this is a constant. The solution is to add the hoarding rate to your other measures in order to increase the bean supply. In effect, the number of beans must always increase over the base line bean total.

It has taken a while, but you now have a set of measures you can use to manage the bean supply. Once you see bean flow drop in some area, you put more beans there to stimulate the movement of beans. If you see beans accumulating in one area, you change the mix of beans or add beans in a different part of the village to balance the bean total in the village. You even figure out how to maintain the mix of beans in the system, as the various colors have symbolic value beyond their face value.

Number One is so happy with your work as the head of the bean supply, he slowly increases your portfolio to manage other things related to beans. In fact, you started life in the village as Number Six, but have slowly ascended to the position of Number Two, but both you and Number One realize you’re partners now. He may control the giant balloon-like automaton and other weapons, but your control of the now highly complex bean system makes you an indispensable man.

What really keeps you up at night is not the fact that Number One still controls the giant balloon-like automaton or that you could be transported back to your old life. Sure, there is some possibility he will use his monopoly of force to undermine or even eliminate your position. What haunts you is the thought of the villagers suddenly realizing that their economy is based in candy. What if one day they all wake up and realize their economy is based on a made-up system of fake money?

This is the life of the central banker.


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Cui Bono?

Early in my working life, I found myself managing a few salesmen, along with some entry level managers. Since my area of responsibility only required three salesmen, it did not warrant a sales manager, so that duty was mine, as well as operations. It was a good training job for a young guy. One thing I learned from the sales guys is something that stuck with me forever. That is, no one cares about a deal more than the salesman working the deal. He’s the one that will make it happen.

You see, even in a big company, every salesman is like a small business. His expenses are his time and his revenue is his commission. The really good salesmen are shrewd in how they spend their time, never wasting a minute on a bad deal. They never fight the commission structure. If selling the crap product gets a bigger commission, then they sell the crap product. If the product is so crappy, they can’t sell it, they find a new job where they can hit their commission goals.

Since sales drives everything about business, it was a great lesson about the reality of business and bureaucracy. The managers have goals and they try to craft incentives so their people naturally work toward those goals. The trouble is, they often see the world through their own myopic eyes, rather than through the eyes of their people. Alternatively, they will foolishly think their people will make personal sacrifices on behalf of their goals. They think everyone cares about their deal as much as they do.

We are seeing this play out in the response to the pandemic. The people making the models and making predictions care about things that are important to them. It has always been assumed that they care most about being right, but as the models have failed and they are now “updated” on a daily basis, it turns out that accuracy really was never all that important to them. Marc Lipsitch, the guy largely responsible for the panic, was never all that concerned with being right.

Similarly, the people making public policy were always working their deals, rather than working your deal. By that I mean they were not issuing crack down orders on people because it was good for the public. They did it because it was good for them or at least they assumed it was good for them. It is why we had a race between states to see who could arrive at the most absurd policies. The nation lies dormant now because of a bizarre beauty pageant among the nation’s governors.

The response from our imperial rulers to this shuttering of the country is another deal that means everything to the people who passed it. Trump and Congress were really proud of themselves for having done the deal in such short time. It turns out though, that the deal was a great public relations stunt, but not much of a deal for the nation’s small business people. This post at the Federalist walks through the math of the Payroll Protection Act. Be prepared for breadlines this summer.

Of course, the most glaring example of this is the health care system. In response to a theoretical problem, it is in the process of creating real problems by faking death certificates and indefinitely postponing medical care for people with real diseases, in order to perpetuate the crisis atmosphere. The system is acting in the interest of the system, because the people at the top making the decisions care about their deal more than anything else. They closed the system to save it from the virus.

All of this should be a good reminder about the reality of anything that has the word “managed” in its label. Whether it is a managed health care system or a managed economy, the people doing the managing care more about their deal than anything else, thus the system they manage comes to reflect their interests. The stone-heads on our side cheering the crisis and demanding managed health care and a managed economy will soon find out what that really means. Enjoy the bread lines.

Of course, the stone-heads will argue that destroying the civil life of the country is the price to be paid for discrediting the current order. That may be true, but that does not mean the people cheering it will suddenly be vaulted to the top by the people being made to pay the price for this disaster. Again, those people at the top with the monopoly of force will surely take care of their deal before allowing anyone else to profit from the turmoil that is coming our way this summer.

The point of all this is even small organizations become very complicated in a hurry, because people have lots of priorities individually, which can coincide with and contradict their collective priorities. Fine tuning those while working your own deal is beyond the skill of most managers. It is why bureaucracies become self-serving and why managed anything is a fool’s errand. Whether it is managed economies or managed health care, eventually, the deal that matters most is the manager’s deal.

Circling back to those salesmen I managed, the second big lesson I learned in that job was from my boss. I complained to him that the commission structure I inherited worked against our interests because it was too complicated to manage. He told me to make it a flat commission on gross, but that I was responsible for the performance of every deal I signed off on going forward. It did not take long for the sales staff to know what was good business for me and what was a waste of their time.

That’s the lesson the stone-heads from the planned economy camp and the free market zealots never grasp. The choice is not between a system managed by angels or a system run by the invisible hand of magic. The choice is always between clarity and opacity. When the incentives are clear and individual interests are clear, everyone makes better decisions and demands more rational sacrifice. When those things are hidden, it is when our virtues are soon turned into vices.


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The Cost Of Profit

Every businessman understands that every dollar of revenue that comes in has with it a cost required to earn it. If the business provides a service, then the biggest cost of sales is the labor required to provide the service. If the business sells a physical item, then the cost of making or acquiring the item is the big driver. There are indirect costs like rents and administrative expenses, but the starting place for any business is the cost of sales, as that is what ultimately determines profits.

There is another cost that is important, sometimes the most important, that does not show up in the financials. That is the cost of profit. This is an intangible cost. What unpleasant things do you have to do in order to make a profit? Maybe you have to be terrible to your employees or tolerate nasty customers. You can make a nice living running a pawn shop, but most people don’t think it is worth having to deal with the sorts of people, who avail themselves of the pawn shop.

As a society, this concept is easier to quantify, or at the minimum articulate, as a society has a shared morality. There is an agreed upon set of things that a society wants to minimize and a set of things it promotes. It may be better for the economy to rely upon slave labor in certain kinds of agriculture, but the moral cost of slavery is too high to contemplate such a policy. One reason manufacturing was shipped abroad is the cost of the pollution and the aesthetics was too high for our rulers.

The point is that certain types of economic activity may be lucrative for the people in that business or for the economy as a whole, but the intangible cost is too high. It is not just the moral cost either. There is the cost of risk. To allow certain types of lending, for example, puts the credit system at risk, so we forbid it. The cost of profit can also be the long term risk it poses the society, which generally means the cost that will be imposed on future generations when those risks become real costs.

A good example is the very lucrative basis trade popular with hedge funds, where they buy US Treasuries, while selling equivalent derivatives contracts. There is a small difference in price between the two, but when done in volume and with cheap credit, the profit to the hedge fund can be enormous. This is great for the private investors in the hedge funds, but it has huge risks for the economy. The recent bailout by the Federal Reserve is a good example of socializing the cost of profit.

This is just one example of economic activity that is profitable to the people doing it and good for those GDP numbers. It’s also high risk and therefore has an unacceptable cost for the profit gained. Throughout the financial system we see high risk strategies that can be highly profitable and serve some important purpose, like lowering the cost of borrowing, but bring with them unacceptable risks to the system. Socializing the cost profit through bailouts does not make it go away.

Another example of how the cost of profit works in the financial system is this story from Reuters about Capital One. This is the bank that peddles high interest rate credit cards to poor people and non-whites. They can specialize in high risk borrowers, because they charge mafia-esque interest rates. That covers the cost of collecting from deadbeats and the inevitable defaults. It turns out another one of their activities was gambling in the commodities markets, namely the energy markets.

Now, the obvious question is why is a credit card company that preys on dumb people playing at the high stakes tables in the commodities casino? Betting commodities is like playing at the baccarat tables in Monte Carlo. Actually, the odds are better in the casino, as the odds of winning are just 1.23% lower than the odds of winning a hand. The answer, of course, is the potential profit for the bank was huge, just as long as energy process never fell below a certain level, like they have recently.

As American states lost the will to directly tax their people, especially their rich people, they turned to indirect ways to fund government. One is the legalization of gambling, especially state-owned casinos. Since every state is in the gambling racket, a new type of casino has evolved. This is one with a grand shopping mall and Potemkin town center attached, so people can dine and socialize. The idea is to get everyone under one roof in order to encourage more consumption.

This model is the symbol of modern America. Our economy is a massive shopping mall, an international bazaar operated by traders from around the globe. Attached to it is a massive casino called the financial system in which the profits from the bazaar are wagered on increasingly high stakes bets. It has become so unstable that the landlord, the Federal Reserve and central government, has to keep stepping in to keep everyone afloat. It is a high tech, high stakes palace economy.

This is very profitable for the nation’s rich people, which get to enjoy luxury unimaginable just a couple generations ago. Even Louis XIV could not have rode out a pandemic aboard his floating castle. Meanwhile, the cost of such luxury will be his fellow citizens (does he consider them his fellow citizens?) lining up for miles to get food distributed by the local food bank. The price of such profit in terms of risk and inequality is simply too high to tolerate much longer.

In times of want, people are forced to think hard about their priorities. The same is true of a people facing a crisis. The Great Madness over the plague is going to send the economy into a depression. The West in general, but America in particular, is going to have to decide if the cost of profit, the cost of this high stakes casino economy, is truly worth it. Is this how we want to live?  For what shall it profit a man, if he shall gain the whole world, but lose his soul?


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Over Stimulated

The news brings word that Washington has agreed to an unprecedented economic package, estimated to top $6 trillion. This includes the $4 trillion in money the Federal Reserve will hand to rich people through various ways. The other money will go to different rich people in the form of tax rebates and cash payments. Some very small amount will go to everyone else in the form of unemployment checks, loans to small business and one time crazy checks randomly mailed to people.

The money in the stimulus bill is not all a waste. Bailing out the airline industry has a real benefit. Airlines are like a hybrid utility these days. They are technically private companies, but almost all of their actions are controlled by government. They operate through state owned airports and every aspect of their operations must be agreed to in advance by the federal government. We need the airlines to function, so bailing them out has some actual value to the rest of us.

As an aside, you’ll note what is not in this bill. If we are throwing trillions around, it would make sense to build a wall along the border or maybe fix up some roads. Perhaps we could draw back some overseas commitments and put those funds to work rebuilding the homeland. While the checkbook is open, maybe Trump could get something for his voters this time. Instead, you can be sure, tucked away in the details, will be money for more dirty barbarians to be settled in your town.

The stimulus bill is just the show. Its main purpose is to show the public that the actors and actresses hired by rich people to play the role of congressmen and senators really care about the people. The other carny folk post videos of themselves enjoying quarantine in their mansions. The carnies in DC pass stimulus bills. That may sound very cynical, but everyone in small business knows the score with these rescue packages passed by Washington during a crisis show.

The real mischief, however, is in the other money being handed to the nation’s desperate rich people. This is the stuff being done by the Federal Reserve, away from the TV cameras. Trillions of dollars will be poured into the financial markets, much of it through the direct purchase of assets, like bad debt, stocks, corporate bonds and the synthetic stuff no one really understands. The central bank is coming close to turning the global financial system into a palace economy.

A palace economy is a form of economic organization that was common in the Bronze Age societies of Mesopotamia and the Mediterranean. This is a system where a substantial share of the wealth flows to the rulers and is then distributed to the general population. The proceeds of farms, less what the farmers feed their families, goes to the king, who then feeds the people. The same holds for booty gained from conquest of neighbors or the mining of precious metals.

Now, the Federal Reserve is not taking these assets against the will of the current holders and then giving them to the rest of us. Instead, they are paying face value for assets that may or may not be worth what is claimed. The plan is to flood the system with cash in order to prevent cash hoarding. Theoretically, this keeps the banks lending and the credit system moving. In a system entirely based on leverage, any interruption in the credit system threatens the life of the system.

This reveals the big lie about modern economics. Small and mid-sized business are exposed to the dangers of the marketplace. If they make a mistake, they pay for it and possibly go under. In the major leagues, where the big boys play, there is no threat from market forces, as the Federal Reserve backstops everything. It is not a marketplace, but rather a highly complex casino, where the house stakes all of the players. Those that lose are simply given a loan from the house to keep playing.

A good example of this is something that started happening last fall, before anyone cared about the Chinese virus. This was back when the Fed mysteriously began to intervene in the repo market. No one had a good answer for why this was happening and the financial media was told not to ask too many questions. It turns out that it was a quiet rescue of hedge funds. They had over-leveraged themselves working a popular skim called the basis trade. The Fed jumped in to save them.

Just as democracy is a farce to conceal who is really calling the shots, free market capitalism is just a show to conceal the reality of the economic system. The response to the panic they have created shows just how little of the economy is actually a marketplace at all. The $6 trillion in stimulus is a quarter of the economy, on top of the mountain of regulations and trillions in normal government spending. In America, the “free market” is a fringe activity reserved for the little people.

It is tempting to think that this reality is some sort of perversion of our ancient economic traditions, but that’s just another pretty lie. In reality, the normal state of things is for the rulers to tightly control the economy of their territory. In was true in the palace economies of the ancient world. It was true throughout the middle ages. It has been true in the modern world since there has been a modern world. Like libertarianism and communism, the free market exists only in the mind.


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Knocking At The Door

One of the pitfalls of dissident politics is the temptation to succumb to despair, focusing only on the negative. Excessive cynicism is an escape, an indulgence, like libertarianism, where you get to pretend the sideline is the high ground. Cynicism is a cost free way of both participating in politics, but standing outside of it, as if you are above it all. It has been a feature of modern conservatism as a way of keeping the people from noticing that they are being scammed.

The truth is, politics at this level is not about elections or public policy. It is about effective social change, by changing the frame of reference. That’s a lot like steering a super tanker into port. A little nudge here. A little there. In the moment, you see little progress, but eventually, the tanker does move. That’s the point of dissident politics in the current age. It is moving things a little here and a little there in the effort to make our target audience aware of what’s happening to them.

An example of one of those tiny little bits of evidence that the ship is moving a little bit our way is this post from NRO, of all places. It is an interview with Oren Cass, who is the director of a new think tank in the Imperial Capital. The mission statement of American Compass says it is “to restore an economic consensus that emphasizes the importance of family, community, and industry to the nation’s liberty and prosperity.” Put another way, they claim to oppose what we call marketism.

Another Washington think tank is hardly an inspiration to our side, but Oren Cass has gotten a lot of attention from influential people. This twitter thread spelled out the problem of worshiping economic data as an end in itself. More important, he did so in the language technocrats can understand. That is an important step, as it introduces dissident topics to people lacking the language and mental constructs to understand much of what is discussed on this side of the great divide.

A good example of this is the response from another NRO pod person to that Oren Cass twitter thread. Like so many in that hive, he clearly does not understand the concept of trade-offs. He certainly is clueless when it comes to concepts like social capital or community capital. He’s stuck at the place where knowing that the big number is more than the small number gets a gold star. Still, Cass is able to speak to him in language he can grasp, which is important.

Now, this does not signal a revolution of thought inside the Imperial Capital, but it does suggest some people inside are looking over the divide to this side. More important, instead of just assuming the people on this side of the great divide are evil or stupid, they are wondering why so many people are heading this way. The first step to legitimacy is often when the people in charge simply start taking their critics seriously, rather than treating them as a pestilence to be eliminated.

To be clear, Oren Cass is not “one of us” and never will be. In fact, if the inner party decides to round us up and ship us off to camps, he will be right there with them, as he is them and not us. The ruling class, along with their attendants, define themselves in opposition to us. Who they are is explicitly not us. They are the occupiers, the colonial pod people, ruling over the rest of us. Oren Cass and his project are simply a flicker of doubt, a sign that all is not well inside the walls.

A sober minded person would wonder why it has taken so long for anyone inside the walls to notice the problems outside the walls. After all, paleo-conservatives were predicting these sorts of problems forty years ago. Pat Buchanan ran on these issues, as well as Ross Perot. Trump is in the White House, in large part, because of the economic realities just dawning on people inside the walls. Heck, Bernie Sanders exists because of the things Cass identified in that thread.

It is the big tanker ship. A thing normal people cannot grasp is just how different the world inside the walls is compared to regular America. In the Imperial Capital, it is always a booming economy. Every day is Fat Tuesday, because tomorrow is always fat Tuesday as well. It’s always good times in the Washington for people who make their living in politics. Imagine a college campus the size of a city, but instead of students roaming about it is adult who work in politics.

This is why all past political reform efforts have failed. When the road goes on forever and the party never ends, reform sounds like ingratitude. From the Tea Party to the Bernie Bros, to the people inside, these movement strike the revelers as irrational ingratitude by people who don’t know how good they have it. But, the dissident right is knocking at the door and some people are starting to listen. It is a tiny example of how things are moving our way, ever so slowly, like that tanker ship.


For sites like this to exist, it requires people like you chipping in a few bucks a month to keep the lights on and the people fed. It turns out that you can’t live on clicks and compliments. Five bucks a month is not a lot to ask. If you don’t want to commit to a subscription, make a one time donation. Or, you can send money to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. You can also use PayPal to send a few bucks, rather than have that latte at Starbucks. Thank you for your support!