The Worst Case

Posted on March 2, 2022 by thezman

It is assumed that the worst case scenario for the Russo-Ukrainian conflict is the direct or even indirect involvement of NATO in Ukraine. If NATO forces came into direct conflict with Russian forces, the result would be total war and total war could easily and quickly lead to nuclear war. This is a remote possibility as NATO has been adamant about not getting militarily involved. The West is content to use the economic weapons at its disposal that it assumes the Russians have anticipated.

While there is nothing worse than nuclear war, the fact that it is the least likely outcome means it is not the worst probable outcome. The fact is, the Cold War was a good lesson in the use and non-use of these weapons. Nuclear weapons are last resort defensive tools. A nation will use them as a last gasp at survival. This is why Israel stole the technology from America in the last century. It is why North Korea is developing the ability to deliver a nuke to North America.

If nuclear holocaust is off the table and a wider scale war in Europe is off the table, then that leaves the softer, less predictable outcomes. We are already seeing big ripples in the financial markets as people try to figure out the downstream consequences of the economic sanctions on Russia. Despite what the media may claim, Russia, Belarus and Ukraine are not hermit kingdoms. They have a lot of economic links to the rest of the world and are a vital part of the global supply chain.

For example, one bottleneck in the chip supply chain is in Ukraine. The world has just started to turn the tide on the chip shortage, but now a vital bottleneck has been closed due to the war. Optimistic predictions said the chip shortage would be over by the end of 2022, but now that date is pushed well into the future. Everyone in the dreaded private sector knows the mischief caused by the chip shortage. That mischief is now going to play out for a much longer period than expected.

That last part is where to focus. Economics is about expectations. People will stock up on something, for example, if they anticipate a shortage or price hike. On the other hand, people will take risks in good times, risks like starting a business, buying a new home or hiring new staff. A massive amount of risk has been dumped into the global economy as a result of this war and the response from the West. For the first time in a long time everyone has a reason to not take any risks.

On the more tangible side, energy prices are spiking at a time when we have spiraling food prices globally. The last time this happened there was civil unrest throughout the Middle East and North Africa. The so-called Arab Spring was marketed as a quest for freedom but it was a revolt over food and fuel shortages. It is good to remember that the same people who sold those results as a positive are the ones responsible for the mess in Ukraine and responsible for managing the fallout.

Ten years ago, the Arab Spring was watched in America during a time of historically low inflation and interest rates. The population was fairly content. Today, America has double-digit inflation and is now about to get an energy cost spike. The population is also at each other’s throats because the people in charge are sure one half of the population are evil insurrectionists. A global depression is not going to help sooth the social tensions that exist in Western nations.

Wide-scale supply chain and financial disruptions is probably the rosy scenario end of this conflict in Ukraine. Shippers are already hesitating to take on Russian products, even those products are not sanctioned. It is conceivable that deliveries of vital natural resources like fertilizer, food and energy from Russia, Belarus and Ukraine will be delayed for the next several months. These countries ship a lot of food to the global south, so it is a profoundly serious problem.

If that is not enough to consider, think about the last time waves of men flooded into Europe from the south. That was largely driven by economics. Given the socio-economic mood in Europe right now, how well will they handle a million men marching into the heart of Europe from the Middle East and Africa? Who will be blamed this time for the demographic calamity that would follow? Far-right candidate Eric Zemmour could end up sounding like a moderate.

The global order that the West, led by the United States, has evolved over the last several decades assumed certain things. For example, populism was assumed to be impossible in a system that efficiently delivered quality consumer goods. It assumed that price shocks were a thing of the past. Similarly, inflation was assumed to be controlled by the judicious control of the money supply. It assumed the free flow of goods, capital and information.

The system struggled to contend with the populist revolts of the last decade. Two years of mismanagement of the Covid crisis have brought populism back to the fore and called into question key economic axioms. We have labor shortages all over the place, despite rising wages, but we also have spiraling inflation. This is at a time of historically low interest rates. Prior to the war, this combination was assumed to be impossible and now it will only get worse as a result of the crisis.

When the axioms of a system begin to crumble, people quickly begin to doubt the system that rests on those axioms. Confidence in the socio-political order was already falling as a result of demographics and mismanagement. The banging of war drums by the geriatrics ruling Washington is not going to change this. In fact, it is clear that the public blames those geriatrics for the Ukrainian mess. We are entering uncharted territory with regards to public confidence in the system.

It very well may be that the worst case scenario is upon us with regards to the Russo-Ukrainian conflict. A fragile system that was already wobbling due to demographics and mismanagement is now about to receive a series of economic body blows. Europe may be getting a new wave of demographic reality. The worst case scenario may be a revolution in public consciousness about the socio-economic order. The elites may be blowing their world up the old fashioned way.

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Storm Clouds

Posted on February 16, 2022 by thezman

If you are over a certain age, something you will remember is that the economy used to be a central part of the daily news feed. People talked about the economy because it was always in the mass media. Of course, you had lots of news about finance, especially the stock market. This dovetailed with the stories about the federal budget and the resulting deficits. People used to talk about the federal debt because it was a number that was easy to conceptualize.

All of this has been pushed aside in favor of other topics now. Look at the front page of the New York Times on any day and the one thing you are not going to see is news about the debt or even the economy. Instead it is foreign affairs or perhaps a long story on the fight against Trumpism. The Washington Post is pretty much just a copy and paste operation, relying on press releases from government agencies. It is as if the economy and related topics no longer exist.

One reason people are not talking about the economy over lunch is the mass media has been told to drop it. The real power of corporate media is the power to ignore, which is what they have done with economics. When was the last time the New York Times did a big story on the finances of the government? There was a time when this was a stock feature. People used to know the size of the federal debt because it was a number that was made meaningful by the media.

Another reason econ-talk has moved to the fringes of the public debate is the people in charge launched a culture war against the people back in the Bush years. That is when the great shift in media focus started. Bush became Hitler and the Left reorganized itself around the great crusade against fascism. This academic psychosis started to spill into the retail politics of the Left. By fascism they mean anything and anyone that opposes the grab bag of incoherent beliefs now called the Left.

The great leaving alone of the economy was also made possible by the fact that the system seemed to be on autopilot. The mortgage meltdown of 2008 did not result in bread lines or mass unemployment. The accounting scandals from the prior decade had no impact on daily life. We have had several market crashes over the last twenty years and no traders have leaped from their office windows. Like war, the gyrations of the economy have been “made for television” events.

The truth is the economy is something people care about and it is something they can know about without the media. If you are a Dirt Person, you have been watching your food bill tick up over the last year or so. You have chatted about this with people at work and with friends at parties. Food inflation is becoming a feature of life. Now gas prices are starting to creep into the conversation. The solons in the mass media may not notice it, but everyone else sees it when they gas up.

The last time inflation was a thing, Reagan was going around the country while running for president, saying, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” This sounds way over the top, but it resonated with people because at one level he was right. Crime is about social trust and the crime of inflation robs the people of their trust in the basic functioning of society. Inflation puts everything about economic life up for grabs.

Compounding things now is the fact that the core demographic responsible for there being an economy has lost all trust in the government. The inflation numbers recently posted were met with scornful laughs. Everyone knows they are under-gunning the inflation numbers, because these are people who have lied about everything for the last decade or more. The same people who wear ceremonial face gear and lie about the Covid problem are now reporting seven percent inflation. Right.

This is why inflation should be the number one topic on people’s minds as we proceed through the long dark winter Biden has inflicted on us. Even the fake numbers the government released say that something must be done. The Fed has committed to tightening the money supply starting in March. History makes clear this will result in a recession and an uptick in unemployment. Put another way, the bad news on the economy is just getting started.

How will the public respond to the first real recession in decades? How will they respond to the rambling about it by a geriatric old fool who can barely put two sentences together? How will Americans respond to the stream of managerial sociopaths that will be sent out to insult our intelligence? How will the media respond? They have been the Greek chorus for the system for so long, are they even capable of dealing with a practical issue at this point?

This long vacation from reality that our ruling class has enjoyed since the end of the Cold War is about to end. They can stick to whatever theories they remember from their grad-school seminar on diversity and equity but the reality of the human condition has not changed. The ruling class of any society is responsible for the general welfare of the people in that society. When they fail, they are held accountable. This is an immutable law of human organization that never goes away.

This is why the situation in Canada bears watching. Trudeau is a simpleton who has no business being in charge of anything. Contrary to the old chestnuts about democracy, he is not the ruler the people deserve. He reflects the competence of the ruling class that installed him in office. The people who thought this feckless pansy was right for the job are so far proving to be incapable of managing this trucker crisis. They have made Canada the first English speaking dictatorship.

The American people are far more docile and subservient than Canadians, but until a few weeks ago people assumed the Canadians were a beaten people. It turns out that there is still some life left in Canadians, which suggests there may be a flicker of life left in Americans as well. Put enough pressure on people and they will find the courage to rebel against their masters. Inflation, recession and widescale unrest is the sort of pressure Americans may need to find their spine again.

The holiday from reality is over and we are about to enter into a period in which serious topics with real meaning return to the fore. The reckless sissies and addle minded old fools who have been playing make believe for the last few decades will now have to face a real crisis. Similarly, a lethargic and prostrate people will now have to remember how to stand up for themselves again. It will not be long before the last few years of the culture war seem like a golden age of tranquility.

The Pirate’s Cove

Posted on February 8, 2022 by thezman

An observation made by paleocons in the last century was that the political system had been purchased by the financial system. By that they did not mean bankers were handing bags of cash to specific politicians. That has been going on since both money and politics have existed. What they meant was that the financial system had started to overwhelm the political system. More specifically, the ethics of the emerging new financial system had overwhelmed the political system.

In the money game, every rule is seen as an obstacle to be circumvented, rather than a limit on activity. The only thing that matters is profit. No one in the world of finance has ever considered if their trade is ethical, outside of some areas where there are agreed upon rules or the state imposes rules. In these exceptional cases, it is not ethics that restrains the activity, but force. Banking has always been a Darwinian game where the strong eat the weak. Morality has no role.

Government, on the other hand, has to be a game of morality, in which the boundary between right and wrong is policed. That is the point of government. The starting place of every human organization is answering the question, “Who are we?” What flows from that is a set of rules to define the answer. Government is either granted the power to enforce the rules or the elites seize power in order to enforce the rules, depending upon your philosophical outlook. That is the point of the state.

What some of the paleos observed in the 1980’s is that the ethics of the financial class had overtaken the ethics of the government. Politicians were now thinking the same way a banker thinks when he sees a rule. The first and only thought is how can I get around this in order to profit? Of course, those who are good at solving the puzzle are rewarded, while those who are bad at it or refused to abide by the new ethics of government, are eliminated.

If you look at a graph of the Dow Jones from the start of the last century to the present, what you notice is a sharp tick up in the 1980’s. From WW2 into the early 80’s the graph is a smooth upward trend, reflecting the post-war expansion. Then all of a sudden, when the post-war expansion was clearly over, the graph turns sharply upward and has climbed to heights thought impossible. It also corresponds with the collapse in political ethics that started in the 1980’s.

Cynics will say this all sounds naïve as politicians have always been crooked, but that confuses the personal with the systemic. Men are not angels and every system, no matter how ethical, will have some unethical people in it. The reason we know politicians are crooks is we used to regularly arrest crooked politicians for taking bribes or running schemes. In other words, they fell afoul of the rules. Note that we no longer arrest politicians for financial corruption.

Those old enough to remember the before times know that the corruption surrounding the Biden family would have been disqualifying a generation ago. Taking any money from a foreign source was going to be a problem. Today, it is rare to find a pol in either party who is not paid by foreigners. One member of the House intelligence committee was sleeping with a Chinese spy. The normalization of bribery over the last generation is well outside the norms of traditional politics.

This is what those paleos were talking about in the 1980’s. Here is a good example of this from Pedro Gonzales in Chronicles. He got access to a Telegram channel where a payola scheme was openly discussed. There was a time within living memory when this would have been devastating. Careers would have been ruined. Today everyone inside the political system shrugs, because everyone is on the take. Pens for hire are so common that no one thinks it is odd.

This is why National Review, for example, created the National Review Institute, a not-for-profit that operates National Review. The not-for-profit does not have to disclose its donors, so no one knows who is calling the tune. That money is used to pay for content, often supplied by allies of the donor as guest content. There are shops all over now that hire writers to produce white box content for interest groups, who then sell it to these sites for the benefit of their donors.

This is not an accident. Just about every mainstream media outlet aligned with the two parties sits around thinking about how to do this. They know it would not sit well with the public, which is why they setup the not-for-profit entity. Like the bankers who hide their grifts in mountains of regulation, the political press hides their corruption in the tax code, fund raisers and phony book deals. Like the bankers, they look at the rubes on Main Street as suckers to be played.

Of course, if you want a career as a pundit, you better figure out quickly that the game is to make the donors happy. Since those donors are in one way or another aligned with finance or technology, the issues are simple. The reason National Review will never have a discouraging word to say about tech censorship is they rely on tech money to keep themselves in the lifestyle they believe they deserve. Whether they believe it or not, everyone involved is a pen for hire now.

Again, this is not about some people being corrupt. This is a about a revolution in the ethics of the vast political system itself. Forty years ago, people across the political spectrum operated from the assumption that the goal of public policy was good government, which they defined in utilitarian terms. Good government was the greatest benefit to the greatest number of people. No one talks like this now, because no one thinks like this anymore. Everyone thinks like a banker.

The irony here is that the last forty years have been a great test of the libertarian claims about the nature of man and society. America has been transformed into a pirate’s cove where the only limit on your profit is your conscience. The one thing everyone agrees upon is that this system is horrible. Soon the other thing everyone will agree upon is that we need a strong hand to reimpose order. Right now, the left-authoritarians have the advantage, but the right-authoritarians have the numbers.

Everything Is Broken

Posted on September 30, 2021 by thezman

Way back when the government kicked off the Covid panic, smart people pointing out that shutting down the world to bend the curve was not a cost free way of addressing the problem. In fact, it was a very expensive and risky solution to a problem that was best addressed through traditional means. The world has a pandemic every 15 years and a severe one at least once a generation. Humans have figured out to tough out these naturally occurring events.

Shutting down the world and making people stay home from work is a novel invention, so there was no way to know what would happen. Human societies are tough, so it took a while for the problems to manifest. Initially, those who could work from home worked from home and those unemployed were supported with subsidies. This could never be a permanent condition, so we have been trying to transition back to normalcy for the last six months, but things are nowhere near normal.

The Brits have gasoline shortages, and they are facing a winter with spiraling natural gas prices, because the energy supply chain is a mess. Keeping people at home meant keeping people out of their cars, which collapsed fuel consumption. The trucks and truck drivers were put to other uses and now that demand is returning, they suddenly have a shortage of trucks and truck drivers. This will soon hit other parts of the supply chain as demand suddenly increases for goods and services.

In the US, ports are a mess as they face similar supply chain problems. The ports in America are weird systems. The labor is unionized, but the unions are pretty much run by the government under an array of consent decrees. Demand for labor is driven by the ships in port needing to be loaded and unloaded. The stevedoring firms hire when they need to unload a ship, but they keep few fulltime people. They simply draw from the pool of longshoremen that operate at the port.

During the shutdowns, fewer ships came into port, so fewer people were needed to unload ships and fewer trucks were needed to cart the goods out of the port. That is why ships are stacked up at the ports now. The system for unloading those ships had atrophied during the pandemic, so it is now over-capacity. This leads to shortages and price disruptions throughout the economy. For example, America has been suffering an aluminum shortage for close to a year.

A good example of how throwing wrenches into the system has unpredictable long term effects is the automobile industry. When the government shut down the country, the travel industry was flattened. The car rental firms did the prudent thing. They liquidated their car fleets. After all, if you make your money renting cars and no one is renting cars, those cars are direct hits to the bottom line. In order to weather the storm, they sold off their fleets and furloughed their staff.

The trouble is a big source of used cars is the car rental industry. They get cars on programs from the manufacturers. They can be three, six or nine month programs where the company takes the new cars for a monthly fee and then returns them to the manufacturers after the term of the program. Those cars end up in the new car dealer lots as discounted used cars. Look around the car lots in America and what you see is lots of empty spaces where cars used to sit.

Once things opened up, the car rental companies went looking for cars, so they went to the used car auctions. Other shortages have made it impossible for the manufacturers to get cars to their own dealers, much less supply program cars to the rental fleets, so that left the used car market. Used car prices are now spiking to record levels because the supply chain is a mess. It will take years for this to normalize, and the cost will be in the tens of billions.

Of course, everyone who buys food has noticed that food is suddenly much more expensive and there are weird shortages. Like everything else, the broken supply chain is the main culprit. Those trucking companies suddenly put out of business by government fiat did not sit around waiting to open up again. They fired their staff, sold off their trucks and found other ways to survive. Rebuilding the many small links of the supply chain will take years and show up in higher food prices.

In a modern liberal democracy, every event requires a response, and every response requires a response and so on. The smallest pebble tossed into the water can potentially result in a flood. In this context it means government jumping in to mitigate the consequences of their fix for something else they broke. Inflation will get calls for more spending, which will get more inflation. The central banks will then try to redirect that inflation from goods to assets.

In other words, the shutdowns have created a dynamic of chaos that will take years to settle out, assuming no further shocks. The Biden administration is promising another meteor strike with their Build Back Better nonsense. You see, they broke everything and now see it as a chance to remake the world in their image. When crazy stupid people want to try to make the world, the only thing that can follow is chaos. We may be at the cusp of an age of unimaginable economic madness.

This is a good example of something said by Will Durant. “Out of every hundred new ideas ninety-nine or more will probably be inferior to the traditional responses which they propose to replace. No one man, however brilliant or well-informed, can come in one lifetime to such fullness of understanding as to safely judge and dismiss the customs or institutions of his society, for those are the wisdom of generations after centuries of experiment in the laboratory of history.”

In the fullness of time, after the West is a ruin of its own making, this age will be remembered as a gross and sustained violation of that sentiment. If over the last thirty years the people in charge had done nothing but entertain themselves with their toys, none of this would be happening. Instead, they kept trying to prove nature wrong and overturn the wisdom of ages. Reality does not take kindly to this amount of abuse, so there will be consequences.

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!

The Limits Of Vampirism

Posted on September 16, 2021 by thezman

Imagine if tomorrow, the Federal Reserve announced that the top ten home builders in the United States are insolvent. They would cease paying interest on debt and probably would default on principal payments. Further, their bonds would be frozen for some period as the Fed sorted through their finances. It is not too hard to imagine as 13 years ago something close happened when Lehmen Brothers collapsed. It started a long financial panic and then a long recession.

Something similar is now happening in China. The nation’s largest developer is no longer able to pay its creditors. The Chinese government announced yesterday that the firm will not make interest payments and probably will default on principal payments, although that remains unclear. China Evergrande has liabilities over $300 billion, but this is China, so no one knows the real number. All anyone knows is they sit at the heart of the Chinese financial and real estate system.

One thing that is universally true in all times and all places, even in China, is that real estate is the base asset. Mother Nature is not making more of it, so it remains a constant and therefore the basis of all value. It is why this development is not just another story of corrupt financial dealings. As in the West, all land in China is leveraged and that leverage is treated as an asset, which means it is leveraged. If Evergrande stops paying its bill, many other firms stop paying their bills.

At this point, the financial world is not all that concerned with what is happening in Chinese real estate, but they were not concerned about the mortgage crisis in the United States until it was a pending disaster. The old claim that financial markets look forward and therefore offer a glimpse of the future was always nonsense, but the Lehman disaster proved that markets are not the future. The world of finance assumes tomorrow will be yesterday but better.

At the minimum, the Evergrande crisis is a test of the new Chinese model of governance ushered in under Xi Jinping. The relatively loose days of Chinese capitalism are coming to a close as the party imposes new rules on the economy and cracks down on its pirates. The focus is now on domestic growth, rather than cheap labor and exports. China is no longer the cheapest or most productive labor market in the world, so it cannot remain an export economy.

No one really knows if China can successfully make the turn from export economy to one driven by domestic consumption. The breathtaking modernization of the country is impressive, but that required massive cooperation from the West. If the United States had a ruling class concerned with the welfare of the American people, for example, the Chinese miracle never would have occurred. The feckless American ruling class cannot help China transition to a domestic demand driven economy.

The bigger question with regards to China and this current financial crisis is can the Western financial model survive the Chinese transition. For the last thirty years the corrupt Western ruling class has preserved itself like all corrupt ruling classes have done and that is with bread and circuses. The Chinese economic miracle has kept inflation down and money printing up. Cheap goods from China have been an essential part of maintaining stability in the West.

Inflation is already becoming a problem in America. In most parts of the economy, the food markets are plagued with supply chain problems and rising prices. Then there are labor market problems, some of which were created by the Covid panic, but others are the result of demographics. Those Baby Boomers taking early retirement due to the Covid panic are not going to be replaced by the magical people that we see on television shows and commercials.

Of course, the great retirement boom that is just started in the US will put massive strain on programs like Social Security and Medicare. Those programs represent trillions in debt that can never be paid in current dollars. Medicare is now projected to run out of cash in ten years. Social Security has been insolvent for a long time now, based on generally accepted accounting practices. Its assets were spent years ago by the government, leaving it with worthless IOU’s.

People are pointing to the current crisis in China as a replay of the Lehman debacle 13 years ago, but in reality, it is a continuation of it. Starting in the 1980’s, the people actually in charge of the world began to transition the global economy away from an asset based system to a credit based system. The great debt explosion that ensued took many forms and the rise of China was one aspect. Without the massive growth in global debt, China’s growth would have been impossible.

The thing with debt is that it has to eventually be repaid. That means there is a hard limit to the amount of debt that can be generated. A system based on the assumption that debt can expand forever will naturally end in a crisis when that that assumption runs into the reality of the debt limit. In this regard, Lehman, the mortgage crisis and now the Evergrande crisis should be seen as warning tremors. One day soon there will be no way to paper over one of these crises.

Step back and look at what has happened over the last half century and what you see is an effort to mitigate the demographic decline of the West. The reason China was so attractive to the West is she was full of young people. China’s utility to the West is in decline because she is rapidly getting old. The massively complex system that is the Western financial modern is just a way to turn the youth of other societies into cash for the Western welfare state. Their vigor is our safety net.

The trouble is the system drains the vitality of all those exposed to it. Japan was the first example of a formerly fecund society drained of its youth and vitality by exposure to the Western economic model. Korea soon followed. Now we see all of the same signs in China as she nears the end of her economic cycle. The only place left with lots of young people is Africa, but even the scheming of Western elites will never be enough to conquer the dark continent in this way.

In this context, what is happening in China is a sign that the system of endless credit expansion is really the implementation of a system that converts civilizational vigor into cash for a tiny minority. The natural limit on the expansion of credit is set by the limit of young people available to be consumed. China’s future was written in her one child policy and ultimately that would set the end times for the West. Once we run out of kids to convert to credit, the plates stop spinning.

College Sportsball

Posted on July 26, 2021 by thezman

Note: The weekly Taki post is up. Behind the green door we have the Sunday podcast, a post on the joy of work and a review of the movie Giant, which I hated. Most of this is available to those who buy me a beer. They are not hosting podcasts yet, so that is exclusive to SubscribeStar for now.

Last week, the American sporting world was sent into a frenzy over news that the University of Texas and the University of Oklahoma were planning to leave the Big 12 conference for the Southeastern Conference. In addition to stripping the Big 12 of its flagship institutions, it would make the SEC into a juggernaut. They would have half of the dozen or so major brands in college football. This would no doubt set off a frenzy of moves by the rest of college football in order to keep pace.

For those outside the United States, college athletics is a big business and a big part of the sporting tradition in America. It all started innocently enough when groups of young men at college would challenge the young men of another college in some sort of athletic competition. Before long it was formalized and became a part of the identity of the college, a way for the students and alumni to bond. The colleges found it was good advertising, so they would offer good players free tuition.

Into the 1980’s college sports, not unlike professional sports, was mostly the plaything of rich people. Wealthy alumni would give money to the school so they could build arenas, pay players, and hire top coaches. To be a top donor to a college was a prestigious thing, so successful alumni were motivated to give back. Then the world changed in the 1980’s with the explosion of television. With the spread of cable, television revenue exploded, and it poured into college sports.

It is fair to say that college sports, particularly college football and college basketball, shifted from semi-professional and informal to professional and formal. Prior to the cable age, top coaches made a nice living, but the rest were paid like any other employee of the university. Today, top coaches are the highest paid employees on campus, by a factor of ten. The college athletics department is a 100 million dollar enterprise with hundreds of staff and players.

College football is the primary driver. Football is the most popular television sport in America by far. College basketball also plays a role, but it is primarily football that is driving the economic revolution in college sports. Unlike the NFL, the fans of college football have a bond with the players, as the players, in theory, are attending classes at their school and will be proud alumni one day. Despite the obvious exceptions, this is true, and the players remain part of the community forever.

Both college basketball and college football offer good examples of the dangers of an unregulated marketplace. Into the 1980’s, all college sports were governed by the NCAA, which tried to maintain college athletics as amateur endeavors. With the flood of TV money, the power of the NCAA has declined to the point where they have little say over the governance of football or basketball. Instead, what has erupted is a free market free-for-all where the big try to eat the small and even some of the big.

Prior to the financialization of college sports via the conduit of television money, college sports were a regional enterprise. Schools organized locally into conferences, which supplemented the NCAA in governing the sports and provided local management of the routine items like scheduling and tournaments. With billions in TV money, these conferences were not only empowered to break free of NCAA governance, but they could also go to war with one another in an effort to gain market share.

Contrary to what libertarians claim, this explosion in competition among suppliers did not result in lower prices to consumers or great variety of product, but rather a massive contraction of the marketplace along with spirally costs to consumers. In the 1980’s colleges gave their students free tickets. A college football game was a cheap afternoon of fun for the fans. Today, students pay for seats through their tuition and the fans often have to donate thousands for the right to buy tickets.

Further, the sport of college football is contracting. That is the significance of the latest news about Texas and Oklahoma. The old model was a conference anchored by a few big brands, like Texas and Oklahoma. The league shared revenue and cooperated in scheduling and promotion. The anchor schools got to control the league for allowing the smaller programs to freeload off their brand a little. That model is collapsing as the big brands now seek to combine and exclude the smaller schools.

Like the computer business, college football is headed to a world in which a small number of big names control the market and work to exclude everyone else from the revenue stream. In the 1980’s there was a dozen computer makers with different takes on the home computer. Today there is basically one type of PC. The same happened with mobile phones. The unregulated technology market collapsed into an oligarchy, and we are seeing the same thing happen with college athletics.

Something similar happened with boxing in the 1980’s. It used to be that every large city had weekly boxing shows where up and coming fighters battled one another for recognition and the dream of a title shot. Television put boxing on every week as a normal part of its content. Friday night fights was a thing into the 1970’s, until the cable television explosion. Within short order, greed and corruption removed boxing from the public square and now it is barely an afterthought.

This will probably happen with college sports. There are now minor leagues popping up to pay high school basketball players rather than have them compete in amateur leagues or go to college. It will soon be like tennis, in which promising players turn pro once they hit puberty. Also, like tennis, the interest from the general public will decline. A few stars will make millions, but the rest will be used to maintain a system that was busted out by the usual suspects.

The point of all this is that markets are man-made things. They are not like mushrooms that spring up wherever man leaves nature alone. In order for a market to function, each transaction in the market must have a disinterested third party with the power to enforce both ends of the transaction. It must also have the power to prevent a monopoly of supply or demand. Like a sea wall, this governing authority prevents nature from taking its course and turning the market into an oligarchy.

Boxing never had a governing body to impose order, so it collapsed into a chaos of greed and corruption. College athletics is going through the same process and will meet the same end. Without some entity to guard the interest of the whole, the participants will cannibalize one another until the system collapses. This is the nature of markets and it is why markets can only exist when a controlling authority tasked with preserving the market has the power to impose order on the market actors.

Middlemen

Posted on June 17, 2021 by thezman

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.

False Choice Society

Posted on June 14, 2021 by thezman

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.

Electric Elite

Posted on June 3, 2021 by thezman

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 Vampire Society

Posted on May 10, 2021 by thezman

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.

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