Financial Value Revisited

 In my book Conspiracy 101 I criticize Marx for not realizing until after his book Capital was written that capital is not only the means of production; producing earnings, but it also has the amazing quality of expanding financially. You can borrow on capital. Once financial instruments are created based on future values they multiply, they are traded and speculated on. When understanding events, this financial value is far more impactful than simple earnings.

Recent events have reminded me that capital can also collapse. The value of assets is aspirational. Even with earnings people can perceive that the future value will not justify the investment. Oil is an excellent current example. Even with oil earnings you can see that people aren’t anxious to invest. US is not building new refineries to process our light crude. Canada builds pipelines but again a refinery is too much. Venezuela bought US refineries but even with its huge reserves no one wants to invest in a new Venezuelan refinery. China is throttling its oil consumption. US has turned the southwest into a bursting toxic dump draining the shale. We have an oil glut. One of the reasons for the dollar’s fall is the drop in oil value.

In Conspiracy 101, I suggest that oil has taken the place of gold. That we could divide through by the price of oil as we would gold to get true value. Currently this assertion is wrong. The US policy to make the petrodollar a universal currency is failing. So far, gold is the measure of value. Perhaps one day there will be a gold glut.

Under the gold standard there were large financial gyrations. These were caused by financial speculation and competition for wages. Culminating with Franklin Roosevelt a grand bargain was struck:

Immigration became stricter. Before this, waves of immigrants entered the nation at will. Now there are two classes of immigrants: documented and undocumented. The undocumented set the base rate, they are our cheapest labor cushioning market forces replacing the slave labor we used to have. The documented are more expensive providing competition for higher priced labor.

Labor unions agreed to collective bargaining, gave up the wildcat strike and the boycott.

Just as Adam Smith described, managed trade assuaged the prerogatives of manufacturers.

The Federal Reserve in response to government bond auctions raises or lowers interest rates which controls small business formation which compete on wages.

 Social Security ameliorates workers fear of retirement.

Income Tax favors owners over employees.

These are controls on wage inflation; there is nothing restraining capital inflation. Diddling Doddering Doofus first term severely mismanaged wage inflation. Kids in cages pissed off the Mexican undocumented and they quit coming. Since the parents were often refugees, keeping the children created orphans when the parents were forced to return. Fruit rotted on the ground. Stores closed on Mondays. More citizens got hired. The various parking lot worker markets were empty. When the Covid shocks hit the undocumented weren’t around to provide their cushion.

In desperation, Biden let in a lot of documented. They were papered coming through the door. There was some dumb glitch with work permits. I don’t know how the inflation would have been if Biden hadn’t acted. Problem is that documented don’t set the base rate, so it took a lot more. The Federal Reserve still had to raise interest rates to sell T-Bills making our debt more expensive. Second term closed the border to documented refugees who may someday vote, and let the undocumented back: fruit is harvested, stores are open, there is more unemployment, the parking lot hiring has returned. Wage inflation will subside.

The inflation shock called dollar’s value into question. If US can’t even manage our labor market, why is anything else working? Just like unitary executive, managed trade gets a horse laugh. Without stability, what advantage is there to American Empire?

US has demonstrated our ability to control the frequent wage inflation cycles. What we lack is the mechanisms to control the severe capital inflation cycles. Holding wages in check makes capital more volatile. Thomas Piketty in Capital in the 21^st Century wants to tax capital as we tax real estate.  If the tax is fair, it won’t be effective. Capital exists as relative advantage. After tax, everyone will be in the same position as before.

Reagan got rid of the capital gains deduction as a reform. This should have been a step on removing the advantages owners have over employees. Instead, it was used to excuse tax cuts and then lost to a concerted lobbying effort by Bill Gates. 

As my brother says we shouldn’t have two classes of taxpayers. Currently we are taxed on our income. If companies were also taxed on income rather than earnings maybe that would be sweeping and radical enough that it could not be easily changed back. Initially this should lead to much lower tax rates. My fear is that inevitably the tax rates would creep up. This should be more than offset by removing the tax advantage of corporations. Rather than taxing the assessed capital asset we should remove the tax value of corporate assets.

Personality vs Materialism

 

Historian’s emphasis on leadership and the decisions leaders make ignores the ordinary material facts surrounding those decisions. These histories of leadership over circumstance are favored by those in power and their subordinates. Material conditions are ignored in favor of personalities. This personification obscures the obvious. But there are moments in history where individuals made the difference. Here are some possibilities:

Another obscured area is who the decision makers are. The Hamilton musical based on Ron Chernow’s biography attempts to redress this by giving glory to a functionary. But ignores that Alexander Hamilton was working for Robert Morris. Hamilton was on Washington’s staff, representing Morris. Thank heavens he was there to summon Morris when Washington, scared of heading south, was about to attack New York rather than Yorktown. Morris paid to transport Washingtons army to Yorktown. Imagine how the French would have felt if we hadn’t supported them at Yorktown. Washington was the Virginia general in the north. Benjamin Lincoln was the Massachusetts general in the south and Lincoln got his butt handed to him by the English General Henry Clinton.

Washington had a penchant for losing battles. The Patriots victories were usually under other commands or despite Washington. Washington was the last American General who understood attrition. Having worked for the English, Washington was properly terrified that they would send over the thug who would arm slaves in the south and burn granaries in the north. Washington wanted to keep the English generals he had. The English learned from this colonial rebellion and were far more ruthless in later conflicts. If you doubt the English could have won the American Rebellion, I give you South Africa, India, China, Ireland, and the Napoleonic Wars.

There are financial reasons for the American Rebellion and eventual victory. But the reason the British were soaking their colonies was to pay for the Seven Years War that Washington started. The British feared that colonial greed would lead to slave insurrection, indigenous uprising, and further international conflicts.

Another example of leadership making the difference is the succession of Roosevelt by Truman. Wars are decided after the battles. The loss of Roosevelt changed history. Truman took responsibility for Hiroshima and Nagasaki. But Truman was a reluctant warrior compared to Roosevelt.  Why drop atomic bombs to just turn around and accept the surrender that Japan had been offering for months?

Japan wanted to keep its emperor and Parliament:

-screw our nation, emperor comes first.

Roosevelt wasn’t interested. Roosevelt wanted unconditional surrender. When Truman got disgusted and took the deal, he proclaimed it as unconditional, it wasn’t. Roosevelt would have dropped the third bomb that was on its way, used the nerve gas we had stockpiled, invited in the Russians, and then invaded. Roosevelt may have even provided the Russians with transport.

Just as in partitioned Europe, when the waves got going of Japanese choosing who they were surrendering to, our casualties would have been a lot smaller than currently estimated. Imagine the emperor deciding which way he was running.

A partitioned Japan may have distracted Russia from Korea. Or Roosevelt may have also turned over Korea. It is said that dropping the bombs was a warning to Russia. Americans were far more disgusted with England. Britain dragged us into two world wars and obviously couldn’t manage Europe. That was our fault as well, but it couldn’t be US, must be the British. Demonstrating the fate of an indomitable island fortress in modern warfare might convince England to pack that empire up.

Roosvelt would not have allowed the French back in Indochina. Using our offshore carriers and bases in China, USA had just bombed Vietnam into starvation in support of communist Ho Chi Minh. Ho wanted Vietnam to be the Yugoslavia of Indochina, an ally of Russia and the US, a bulwark against China. The influential Nationalists running Taiwan were not impressed.  Ho Chi Minh was another in a long line of American stooges who turned against us.

Eisenhower can be seen as a return to Roosevelt’s policies ending European empire. Eisenhower stopped Israel, France and England from seizing the Suez. Israel wouldn’t exist without Truman. Roosevelt would have seen Israel as a British puppet.  

Historians fail to understand how large financial value is, as against revenue, when considering material conditions. It is difficult to appreciate how vulnerable individuals are to influence. Usually, by the time of decision the choice is obvious. Yet there are moments when we surprise ourselves. 

We don’t seem to appreciate how serious a boob president is. We have had worse presidents. Many of them had intellectual or personality faults. But no president has such an overwhelming ignorance of propriety. It is difficult to find a particular affront that is outside our history.  But they are affronts, one after another.

US empire, as all empires before us, survives on sufferance. A sort of show me better. If you are a leader or an investor at some point you will be insulted and decisions will be made. I hate the neo-neos: neocons, neolibs defending our empire, but it would be nice to dismantle things politely, instead of bringing it crashing down.

Boycott

 Recently I have seen references in Denver museums to the United Farm Workers Union. I imagine the curators pleased that they tie together Denver labor history, Hispanics and immigration. The curators ignore the material conditions for this union’s relative success, boycott. When Cesar Chavez started the farm workers union Saul Alinsky, with his usual overbearing confidence, told him it was hopeless. The one advantage the new union had was that farm workers were not covered by labor law.

 

Current labor law is designed to suppress unions. The companies are fined and unions can go to jail. Corporate law exists to avoid responsibility. The process of collective bargaining and rules surrounding it explains why only 11% of American workers are union, with most of those in the public sector.

 

The three strongest union weapons, wildcat strikes, boycotts and new trade unions are illegal. Chavez brilliance was realizing that since the farm workers weren't covered by the law, they could boycott. The farm workers' victories, fleeting and difficult as they were, proves the power of boycott. Imagine what other unions could accomplish with boycotts. As well as wildcat strikes and trade unions.

 

Wildcat strikes, abrupt unannounced work stoppages, sometimes rolling across companies and industries caught employers unaware and made reprisals difficult when workers returned. It was then the owners who were impeding production.

 

There was an attempt in the sixties to organize a data entry trade union that was squelched as restraint of trade. Given constant automation, unions must be allowed greater opportunities. It is unfair to allow investment monopoly and forbid it to unions. Notice that “libertarians” never stand for union deregulation.

 

DOGE the Dept of Labor.

Rebuild Los Angeles

Start with fire. You are going to build a fireproof house. Once you have a plan to build a fireproof Los Angeles house build an architectural model using the same materials, say an aluminum foil roof etc. Then take a blow torch and hold it to your model for a day. Dena means valley, Pasadena, Altadena…A valley is a wind tunnel.

Say you have a surviving model. Then blast it with your garden hose, raising the water level to half the level of your model. Desert valleys flood. Make sure your model is somehow anchored, so it doesn’t float or slip away. Check your model for mold. The seals on your model must survive fire and flood.

Then take a large pail of gravel and dump the gravel from some height on the steel framed model with the fancy Swiss made seals. Valleys also have rockslides. Make sure your model can withstand the landslide without moving.

After that, take the entire diorama, including the model, lift it up and bang it on the table as hard as you can. Earthquake proof means the house holds together long enough for you to escape.

If you have such a house and you have somehow convinced a company to give insurance, the question remains: why would you want to?

                           ****************

In the news, I have noticed that the houses are gone, and the lawns are green. What this suggests to me is that people turned on their sprinklers before they left. One person even “put their hose on their eaves”. If everyone did this that explains the loss of water pressure. They saved their lawns and lost their houses.

Don’t put propane tanks, eucalyptus trees, electric cars or lawns in the path of a fire.

There are also the drones. People are flying drones to survey the desolation, catch some cool video of planes dousing the fire and see if the alerts are correct. Then the water planes can’t fly because of drones in their way.

It is expected that people are first warned if the fire is nearby, giving them time to get ready and then told to evacuate, jamming the exits. Treat this like a hurricane, people should evacuate on the warnings.  Instead of lugging valuables, have a fireproof safe.

If you can’t get insurance that is unacceptable risk. When insurance companies raised premiums or cancelled coverage, they told the world months before that this was going to happen. If the insurance company won’t take the bet, why should you?

Dismissing Racist Explanation

 

Recently there has been some fluff that we couldn’t find American workers to build a new integrated circuit plant. Our workers say it is because they are not getting enough money. Boomers bemoan:

-Our kids are too dumb to get the jobs we used to have.

Depend on Americans to find the racist reason even when it is against us. Foreign workers may get less than citizens, but that is not enough for a business decision, particularly on a subsidized plant.

As I explain in this blog in Income Disparity and Bribes, in 1969 America removed discretionary fund as an accounting entry. This has several consequences. Companies moved the amount in that entry to executive compensation, so it is now after tax. Piketty’s book Capital in the Twenty-First Century has a graph showing executive compensation on an upward diagonal from 1970 on. CEOs used to get ten times base earnings. Take the difference then apply the tax rate gives us the total compensation, for the bribes and kickbacks required for business. Moving kickbacks out of sales and into management has dramatically increased right-wing fund raising. Politics provides cover for payments.

This has also impacted hiring. Arthur Anderson would come in over the top, but most hiring is decided at middle management. It looks odd for the CEO of a large temp or placement company to directly solicit managers. Foreign companies with the accounting discretionary fund entry have advantage in the American market. As Trump says:

-Foreigners can bribe us; Americans can’t bribe them.

You would think that American ingenuity could overcome this pettifoggery. Simply pass the money to sales. Such practice cements the clique. Without the accounting subordinates take advantage and abuse their position.

Chicago Chokes

 

Christine asked:

-Why is Canada burning?

Without hesitation I responded:

-Lumber companies planted the wrong trees and it got warm.

Seems glib, but in this case my cynicism was correct. If you go out on Google Earth, it is clear that the arboreal, original Canadian forest did not burn. Lumber companies proffer all sorts of rationalizations. Whatever they say, it didn’t work.

If they take refuge in regulation, consider the Exxon Valdez. Exxon Mobil went into court and said that Alaska did not require double wall tankers. Everyone laughed because the reason for that was because Exxon had lobbied against it. Covering North America in soot is a lot worse than dumping oil on beaches.

Lumber companies have no refuge. This is their game. They ran it. Lumber companies don’t own all the land, but they did the cutting. They didn’t know it was getting warmer? The cutover areas flamed. Arboreal sometimes burns, not like this.

Please prevent these boobies from planting trees. They barely harvest the forest. They clear the forest so they can plant the trees they want. Nothing burns as well as a tree farm.

-Look how fast they grow.

If they grow fast, they burn fast. If nothing were done, a varied understory would have to develop, that holds more moisture. From that understory there will come a greater diversity of forest.

-That is not profitable.

That doesn’t matter. The only use remaining for these companies is to pay out settlements. Whatever they did, it failed. Lumber companies have always mismanaged forest, so it has been, so shall it be. Whenever there is cutover there are severe fires. A conservatorship should be established. Hopefully, someone can be found who knows what they are doing to manage the forest.

Stop rescuing the forest. The lumber company solution is to build more roads so they can better manage the fires. Please don’t. Forests manage fires fine. It is the replanted cutover and fire control areas that are dumping the smoke.

Why are Canadians nice? Canadians are the ones who had to leave the USA. Those nice Canadians should nicely tell the lumber companies to get the nice out.

If Canada fails, Chicago has no shortage of lawyers. Some of those lumber companies are US. This is a class action suit. What can’t a Chicago lawyer do? I can see the lumber companies trying their smug and stupid in front of a choking jury. The lumber companies will say that this was caused by a lack of lumber demand that kept them from harvesting enough before it burned.

-Fly my pretties, fly.

Calling It for Inflation

 Inflation wins. We have already had severe capital inflation. Eventually, when rich people spend money, it impacts wage earners. Trickle down becomes a torrent of prices. The pressure for wage inflation was held in check by undocumented immigrant labor, destruction of unions, imports and, until recently, interest rates.

Then DJT and Steven Miller terrorized the undocumented immigrants. Terror works, particularly institutional terror. Mexicans love their kids and they quit coming. Fruit rots on the ground. Stores are closed on Monday. We still get immigrants, but they are refugees, and they have status. Undocumented immigrants set the marginal wage rate low. A documented immigrant is less likely to endanger their status by driving the truck or recycling shipping containers. Without our slaves we have to be more rational and that is expensive. There have been multiple economic shocks and we are no longer as cushioned.

There is also demographic. A lot of us are retired and indexed. We will pay our mortgages and student loans out of social security.

Inflation makes more sense when you distinguish between capital inflation and wage inflation. The dirty secret of the Federal Reserve was that raising interest lowered wage inflation and increased capital inflation. But manufacturers and any other interest sensitive companies were sacrificed in 2008 to the finance industry. Companies that survived are less likely to feel the rise in interest rate and will keep hiring. So now the Federal Reserve is yanking on a loose lever, employment is no longer as dependent on interest rate.

Banks depend on interest rates. I am shocked that Silicon Valley Bank went under. It is fun to see everyone dancing around rescuing SVB clients. SVB was supposed to be the smart ones. Bankers are dumb, but SVB was playing by the rules, admittedly rules they lobbied for, but the same across their midrange sector. SVB going under means that all banks are in danger. The Fed rapidly cranked interest rate. When SVB clients realized they could get better return, SVB was holding onto paper paying the earlier low interest rate and cashing out lost the bank money. If this isn’t a failure of Federal Reserve regulation, then it has to be a failure of Federal Reserve policy.

Please don’t mention reserves. There is no reserve requirement. Capital requirements are thinly veiled silliness. You can’t expect banks to hold cash.

Raising interest rate this quickly will crash more banks, long before it impacts employment. The Fed can crash as many banks as it wants, it can nationalize the banks, the fight against wage inflation is lost.

Sewer Valves

Many people in Oak Park, a suburb of Chicago, are installing sewer valves for their homes. Some years back we had an impressive deluge and this is a reaction. Your stack or stand pipe may drain directly out to the street sewer. Putting a check valve or flapper in the way means that when the system hits load those houses refuse service and the overall pressure on the system will increase precisely at the time it is stressed. If you don’t have a flap then super tough on you, the effluent has to go somewhere. A product that creates its market. Once everyone has flaps there should be popped flaps or broken pipes.

Flaps are necessary on flood plains. As flood plain construction is common it is difficult for other municipalities, such as Oak Park, to deny their use. Chicago used to require a basement floor drain. You were expected to share your suffering with your neighbors.

Most people have their stack drain into their own sewer that then drains into the street sewer. This is a nice feature that gives the system some bounce and durability. Typically, however, the new flap is inserted between the two sewers. This creates the same shock on the system as above. I think the next deluge will disappoint those homeowners. As I remember it, I heard the sewer cover on the home sewer bounce. There was, for a moment, about a foot of water in the yard. It was the yards’ water coming into the home sewer that went up the stack and flooded the basement. Blocking the street sewer alone will not protect your basement. Maybe a sewer lid gasket on your sewer along with the flapper would work. But then it wouldn’t take the normal drain from your yard, increasing the chance of seepage.

It would be better to place the flap between the home and the home sewer. This would give the street system some bounce and also protect your basement, if not your yard. Unfortunately, if you examine your sewer, you will see that this is a deep connection. At that depth the pressure might overwhelm the flap. If you do not mind advertising that your house floods, you could break through your foundation to put the flap near the stack. Might as well put in the sump pump while you are there.

While you may disdain allowing the sewer unfettered access to your home, consider placing the flap between the stack and basement source. The flap would deny sewer water the exit of your basement without threatening system integrity. Water seeks its level; it can’t go higher in your house than it is outside. It’s just a matter of boundaries. Again, you will have to break the foundation.

The real secret of the Victorians was their plumbing. Failing all else perhaps install a new water closet somewhere upstairs, move the washer and drier up there as well, close off the basement plumbing and then you won’t need a flapper.

Inflation

One proof of the market is that economics is obscure. Because of patronage there is no advantage stating the simple obvious. As I am not getting a grant, I can be direct.

Inflation is manifest differently in each of its many components. My parents bought their house for almost $12,000 in 1959. That was about twice my father’s yearly salary. Today the house is almost half a million in Zillow which would be about ten times the salary of a comparable position, give or take. There are some equivalents. Maybe there is a correspondence between a year’s college tuition and a new car. The social security cutoff seems to be about what it takes to comfortably support an upper middle-class family of four.

Inflation has two classes: wage inflation and capital inflation. There is no government control of capital inflation. Wage inflation is controlled by four government agencies. The Department of Labor supervises unions. Immigration is restricted. Commerce allows imports. The Federal Reserve controls interest rates, at its simplest by buying and selling bonds. Raising interest cost chokes off small business, the business which competes for labor.

This time, the Federal Reserve was slow to raise interest rates because they failed to recognize a structural change to wage inflation. Terror works, particularly institutional terror. Unlike many, Mexicans care about their kids; they didn’t want Immigrations daycare program. Immigration and Naturalization determines who is legal. It is the illegal immigrants who set the marginal cost of labor. Without our slaves the United States has to rationalize our markets, which is more expensive.

In earlier times if shipping containers were piling up at the ports someone would have told Jose to recycle them. Joe will refuse. It’s not enough money to risk jail.

When you see crews hired out of 7-11 again, you will know that “inflation” is declining. Without marginal competition, the Fed is pulling a busted lever.

Insult Factor

Samuelson’s Economics has an entire chapter worrying over wage rates and the efficient allocation of labor. Why do people change jobs? Samuelson would like to tie it to capital allocation, work duration…he doesn’t mention the insult factor.

I know a guy who loved his job. He was proud of the job and the work he did. When he learned that someone else made more than him, it was too much. He quit even without another job to go to. Nothing else had changed. It was simply that he felt insulted.

Managers fail to understand the insult factor. Headhunters understand it. Unions understand it. Customers understand it. Why go through the folderol of a manufacturer’s rebate? If you are getting points, then someone else is getting ripped off. When the price at the aisle doesn’t match the register, you feel insulted. Bombing me with ads texts and emails after I have bought the product is discouraging. When a headhunter offers a better deal, it feels like your own company doesn’t value you.

Companies don’t realize that when they throw out puff pieces about how great they treat employees that it becomes insulting. I was at a company where headquarters was running a morale building exercise awarding the discovery of efficiencies. This was a software company. We were out there, bare knuckle fighting for sales. The company announcements were intensely demoralizing.

There are times when corporations engage in worthwhile activities and then advertise their altruism. But if you are engaged in a tough, demanding, hopefully profitable, endeavor so someone or even yourself has to prattle and prance with little regard for the bottom line it is an insult. Halos are for heaven. The appearance of beneficence becomes a broken promise. Corporate philanthropy means they are not paying enough taxes.

I was assigned to a project that was disgusting. They told me it would only be for a few months. After the few months I was gone. If they hadn’t promised I might have stayed longer. Promises matter. I’m canned if I fail a deadline.

We are ruled by the marketplace but our reasons are complex. Telling people how great they have it while they are under the hammer brings the union. Going to the moon doesn’t cut it. The upper class has to understand that you don’t insult the help. 

Supreme Court

The Supreme Court functions as a safety valve. When the court fails, it is a big mess, we have had a civil war. In 1974 people were voting with their feet. Illegal abortion was so prevalent that the court had to act.

The prisoner’s dilemma underlies our concept of justice. Say a juror is fixed. How does the juror know that they will be paid? If they are paid ahead of time, how does the fixer know the juror will stick?

At this time, it has been announced that there are five judges who will rule against abortion. The early decision is a blatant loud fart. As Biden explained, it ignores the ninth amendment. The ninth amendment is intended to prevent this argument. As Pogo said:

-I got rights I ain’t even used yet!

If privacy or women’s equality are rights, then abortion should be legal. Buttigieg explained why abortion, whatever the term, should be a private family, not an arbitrary government decision.  It is a difficult medical and personal decision made in hard circumstance.

The judges are receiving constant renumeration: speech engagements, book deals, private excursions… Once the decision is reached, the gravy train stops. There are attempts at reassurance: further issues, maintenance of the decision. Out of the five justices, one has to realize that it will be more profitable if they renege. It may even be more profitable for the dissenter.

The early release of the decision physically endangered the Supreme Court. Congress is debating increased court security. The early release also put the matter up to bid, one last squeeze. It might appear that publishing the decision and source confidentiality is covered under freedom of speech and the public’s right to know. But this endangered all the justices. Sounds like an issue for the Supreme Court. Except that the court should recuse itself. Given the surveillance state and all the money spent, it must be known who leaked the decision.

If an amendment is required keep it simple. Allow no wiggle room:

-Abortion is legal. 

Street Rap

There is a new word, apophenia, created by Klaus Conrad to describe false correlations. I propose a duality with gestalt. This isn’t fair to gestalt. Gestalt is intended to break you out of your current patterns and recognize more useful ones. Sometimes we recognize incorrectly. Let us apply this duality to the USA invasion of Grenada in 1983.

When Thatcher remonstrated with Reagan over this breach of international law and convention, Reagan responded that he wanted some nutmeg for his eggnog. This was just after England had defended the Falklands.

While this remark is appropriate within the history of the spice trade, in 1988 Grenada exported 2,230 tons of nutmeg and 256 tons of mace for a total export value of $15,761,107. This was a good year. Let us find the street value. 2,486 tons is 87,691,069 ounces. I have a price of 6 ounces is $10 listed on the internet currently. Divided by 6 is 14,615,178. Times $10 gives a markup of more than 10 times the export value. Somewhere in that 100 million there might be funds to influence policy.

The tragedy of the commons as applied to institutions, bribes, is precisely because the profit of such actions far exceeds the expense. Congress scrounging for contributions for example. Winners get to fix the game is the whole point of Adam Smith’s Wealth of Nations. Military is a sunk cost.

Take the financial value of the nutmeg. The trade in nutmeg supports various business institutions. The multiplier of financial value is constrained by the reserve requirement. If the reserve requirement is 20% then the multiplier will be 5. There is also interest and the future value of money. Taking an arbitrary value of 5 as the multiplier times $100 million, on an annual basis, almost sounds like money.

The financial value of nutmeg is constrained by its earnings and uncertainty. More fungible assets, oil reserves, undeveloped land, don’t have that limitation. Each financial transaction requires reassessment of the asset. The development of land or the pumping of oil can crash their financial value because they are now associated with earnings. Dreams sell. It is a shame that we don’t have the technology to claim oil reserves without digging and then capping a well.

In 2021, China is harassing the Philippines over their oil. This seems silly. Where is the Philippines getting the financing to develop their oil? What is the market for the Philippine oil? All that is being determined is which Chinese company will develop the oil. Until one realizes that it is the financial value of the Philippine oil reserves that turns Chinese Communists into slathering greedy imperialists. We need to find means for nations and their populations to profit from the trade in financial value of their assets.

Returning to the events of our invasion of Grenada: Maurice Bishop, the Prime Minister of Grenada, negotiated a better price for Grenada’s nutmeg. Within the month, Bernard Coard with the support of Cuba overthrew and murdered Bishop. An important American principle had been violated. It is yet another humiliation that our founders chose our name in the belief that we would one day physically cover two continents. As it is, we dominate those two continents. The principle is that if you are going to fix it in the Caribbean, you don’t go to Cuba, you come to US’ns. After the US invasion, Grenada lost Russia as the largest and most generous buyer of its nutmeg for a time.

The financial value of Grenada itself can be understood as its debt. Through debt restructuring, grants, tourism, and selling passports enterprising Grenada reduced its debt from just under a billion US dollars in 2015 to 720 million in 2019. This is an island of 112,523 people and 134.6 square miles. In 2019 unemployment was 15.2%. In 2018 debt was 62.7% of GDP. I Don’t know how the population would have fared under General Austin. Austin took over from Coard for six days before our invasion. Today the primary industry of Grenada is debt. President Reagan’s comment was factually invalid, the invasion was not about nutmeg. The statement was in the correct spirit.

Applying the principles of gestalt, the event of the Grenada invasion took place in the context of the United States of America Empire. A good example is the career of Aristide, the prime minister of Haiti. When Aristide was overthrown in 1991, the Haitians didn’t waste time singing or smuggling guns, they lobbied Washington until we sent forces to put him back. This is how to deal with Empire. Unfortunately, drug cartels and industrialists have more clout, and Aristide was back out again. Haitian debt is a fiction. As Haiti has no autonomy the debt is treated as ours and we pay the interest. Statehood for Haiti.

Whispers in the boardroom bring deaths in the jungle. If we are to get past the flutter and theater, we must understand the profit.

Material Analysis 2019

Historical Materialism was once all the rage. Freakonomics is historical materialism without Marx. I am giving an overview and then showing how Marx and basic questions about material conditions can enlighten.

Review of Marx

Wading through the invective and gossip of three or four volumes of Marx’s Capital to find the nuggets is tedious:

1. dictatorship of the proletariat
2. labor theory of value
3. class struggle
4. money isn’t capital
5. failure of colonialism
6. Centralization of production leads to unions.
7. business cycle
8. Competition drives down margins in investment and production. Profit requires disaster and  disruption.

You’re welcome. Sorry if I missed any. These ideas have been absorbed into common use. Occasionally an economist makes a living inveighing against or rediscovering one. Bernanke’s bad asset class or Tom Peter’s excellence, for instance. Here is a list of some other market issues:  

1. Winners change the rules.
2.  Parkinson’s Law
3.  Peter Principle
4.  Dilbert Principle
5.  treat vs cure
6. positive reinforcement frustrated by regression to the mean
7. products that create their markets

In fairness Communism is new and these issues also occur in markets:

1. People want things.
2. Some are more equal than others.
3. filthy factories
4. Aldi vs Target
5. responsibility for failure
6. excessive quality
7. standing committees

Socialism is treating constituents as donors. Socialism requires accommodation with Capital. Capital has no honor.  Lyndon Johnson was our socialist president. The few remnants of his programs stand against constant attack. The nature of accommodation defines the socialist. Are you a national socialist or an international socialist?

Where is the money?

Investors seek disruption and avoid disaster. One future disaster is described by the Council of Institutional Investors. The PDF on their website lists over one hundred companies that have unequal voting structure. These neutered shares form a large percentage of the market, indexes and funds.  Ask the Winklevoss brothers about Zuckerberg.

The obvious disruptor is China. The tax cut of 2019 releases capital to invest in China. Republicans were so anxious to free capital that they capped real estate taxes. Real estate taxes are noxious because they fund local services and thus encourage social segregation. The Republicans were following the age old schism between north and south. Southerners regard infrastructure as boondoggle. When the north got free after the civil war they were able to invest in light houses, canals, and railroads. Don John’s trade war with China backs up the boat so more investors can get on.

What is the Vote count?

Don John’s victory is attributed to racism, sexism, and jobs. Yes, but these terms lack content. It is asked why those who voted for Obama then voted for Don John. It wasn’t that many. Obama’s percentage of popular vote was not that great. It was the emergency room doctor; the guy comes to in the emergency room, looks up and says to himself:

-I hope he knows what he’s doing.

We were facing disaster. Stupid wasn’t working, maybe we should try smart. Considering how bad it was and the obvious disparity of ability, the percentage was pathetic. What surprised me was that after the guy got out of the hospital, he was so mad that he took the cast off with a hammer, was in such pain that he got drunk and then drove home.

Obama, from the same neighborhood, has Hugh Hefner's I can’t believe this smile. He is proud of being president and proud of the country for electing him. Like Tom Robinson, he felt compassion and tried to help. Like Tom Robinson this provoked their rage. If Obama cares about them, it means no one else does.

Sexism also lacks emphasis. Don John is a pimp. His entree to Manhattan was young girls and coke. The hospitality industry respects the auxiliary. We didn’t all come from the little house on the prairie, which wasn’t such a great deal either. Some of us came from the little shack by the railroad. The reason Miss Kitty had a heart of gold is because that was mom. Mom got beat on the street and Marshall Dillon walked by, or maybe it was the marshal beating her. Whoever, that was Dad. That’s why she kept you. Coming off the exit ramp you will see a gas station, fast food franchise and a motel.

Don John’s abuse of immigrants has an impact. The fruit rots on the trees. Restaurants have off days. The minimum wage has increased. This woke the Federal Reserve. The Fed sees inflation as wage inflation. Raising interest rates chokes off small business, the business that competes on wages. The reason the Fed has forborne is that they recognize a blip.

What should the Democratic Party do to win the 2020 presidency? Recognize demographics. There is no Hispanic voting bloc. There is no women’s voting bloc.  There is no youth vote. The middle class is tiny. There are only two voting blocs, those who vote their interest and candidates: racist and black. There are numerous triggers but only two actual segments. The black vote deserves more than smiling and playing the saxophone.

Who got paid?

Most presidents had foreign loyalties. When Kennedy said he was a jelly donut he was expressing a loyalty that he shared with his father. Hillary strikes me as an old fashioned French girl. The puzzle is Putin. I can understand the satisfaction of paying the US of us back for installing him. But this is dangerous. He is twisting our tail and he is the leader of a nation. Why would Putin think he is blessed? Putin got paid.

Who paid Putin? The likely candidate is the Health care industry. When Hillary proposed her fetcher bill the Saudis sat down and Ross Perot complained about the service. I haven’t seen that money since Nixon’s drug, I mean trade deal with China. There is such profit that it would be irresponsible for health care, drug and insurance, to let Hillary beat Don John. Electioneering doesn’t change minds, it works the edges, and it matters in tight elections. Why did health care off shore its electioneering? Don John is unreliable and Putin doesn’t report.

Historical Inevitability and United States History

Usually, historical inevitability means the king is great, the empire will last forever and I want to keep my job. The counter story, Noah, Gilgamesh or Ur, is that when you live on a delta surrounded by mountains things may change, someone building a boat in the middle of a plain may not be ridiculous and you should be nice to the hill kids. The first to directly disagree with inevitability as permanence was Adam Smith. Smith liked explanations. Smith said empires inevitably fall because they are inefficient. He attempted to convince England to abandon empire, particularly the American colonies. Wealth of Nations, Smith’s book, is not taught despite its central place in political and economic philosophy.

I think the fall of civilizations is more basic. I was in Cahokia, Illinois at the Native American trash heaps. The museum said that this town only lasted about two or three hundred years and they didn’t know why. Two or three hundred years is a decent run. How long can people stand to live with each other? Generation conflict in hierarchical social structures is destructive. Especially surrounded by trash heaps:
-Let’s put Roger on top of the trash heap.
-Why will he stay up there?
-We’ll tell him he’s in charge.

Karl Marx’s ponderous Capital is taught more frequently than Smith. Read Smith first. Don’t bother with Hegel: things don’t turn out as you expect big deal. Marx speaks to Smith and he expects you to have read the basic work.  Marx’s attack on Riccardo is confused with attacking Smith. Riccardo claims to be a Smith partisan. Riccardo is a turgid waste of time. The subtext of Riccardo is that Smith was right except for a few details, but we know what we are doing and our empire will survive. Marx conscientiously knocks down Riccardo’s arguments, implying that of course this empire will fall as all the others.  

Smith has a clever argument that feudalism was brought down by consumerism. Nobility preferred things over people, leading to Noble’s impoverishment. Marx hates this idea. He goes on about the Crofters who were self-sufficient with their own land and crafts. Manufacturers passed laws forcing Crofters off their land and into factories. Unfortunately Marx adds a comment about now being able to join unions which was used as an excuse for collectivization. Marx was describing an atrocity. Recent events in Soviet Russia and old Communist China confirm Smith’s observation. People want things.

Don’t be smug. The Freakonomics series of books provides examples using Smith’s systemic principles to analyze current events. The authors throw shade on global warming.  I think I understand. James Hansen argued that greenhouse gases would create a logarithmic global warming curve. This was a fairly optimistic prediction. Hansen didn’t appreciate the amount of organic material trapped in permafrost. All curves look similar at the origin. Hansen hates soot. His recommendations are predicated on snow cover. Now that the cover is gone, the recommendations should be reexamined. The Freakonomics chuckleheads said:

-I know curves. That’s Malthus. Heh heh.   

Malthus observed that populations increase exponentially whereas agricultural output had increased linearly. Recognizing the problem, science stepped up and agricultural output has exceeded population growth.

Medicine has also improved. Because antibiotics are fed to livestock, each new antibiotic becomes ineffective. Any scientist who comes up with another antibiotic should be taken out back and thoroughly slapped. They are digging wells in the Sahara. The advances of science lead us to global warming. Malthus was never disproven. The curves will still intersect. Freakonomics is saying that we don’t have to pay attention to scientists because science will save us. 

The check on human population is prosperity. When people are prosperous, they don’t have as many kids. If trends hold, we will plateau around 10 billion. Foul ups mean increase in population. The other issue is footprint. I sneer, quite rightly, at my neighbor driving his F150 to the lake with his jet ski while I drive my government subsidized hybrid to Madison with my road bike for my meet up. But we both have footprint. Freakonomics is being ninnies because the only political philosophy that promises prosperity without consumption is communism. 

Socialism is consumerism on steroids. There is nothing wrong with a socialist having a Ferrari.   We should all have Ferraris. Then we can race.
Just because Capitalism fails doesn’t make Communism inevitable. 

Don’t pester scientists for solutions. The low cost immediate ameliorative for global warming is nuclear winter.

The search for inevitability leads to geography. Geography is destiny because it defines why we hate each other. In my grammar school, the teachers divided the playgrounds between boys and girls. Once we knew the sides, we fought. The people of the delta, the people of the mountains, the people of the plains, the people of the coast, the people of the woodlands, the people of the desert, we all hate each other. 

Japan and Korea hate each other. Looking at the globe, this is easy to understand. Japan’s isolation exacerbated the problem. Every foreign contact was a typhus outbreak. When the United States busted open Japan and demanded trade, Japan reacted by mimicking our worst features. They chose a state religion and conquered parts of Russia, China and Korea. My greatest fear of North Korea is that they will provoke Japan. You would think they’d know better. 

China and Vietnam hate each other. Vietnam is gorgeous, one long nonstop beach, mountains, delta, farms, jungle, forest.  Say Vietnam was adjacent to the United States and despite our best efforts was still an independent nation that spoke Vietnamese. Everything the Chinese do is with the objective of someday being successful enough to take Vietnam. Vietnam knows this.

England, France and Germany hate each other. Newton stole Calculus from Leibniz. Leibniz was dependent on patronage and eviscerated by Candide. 

In the United States, North and South hate each other. The North is right.

Recently agriculture has been held responsible for warfare. A male genetic bottleneck was discovered about 8000 years ago around the start of farming. This corresponds to finding ritually slaughtered groups of people. I think sedentary populations activated the human lekking reflex. Women selected the same father for their children. This would have aggravated the spread of venereal disease. The slaughters were response to epidemic. Dementia, particularly venereal dementia, is often characterized by a demeanor that can be both terrifying and infuriating. 

War is excused as sharpening technological development. We are discussing inevitability. What matters is more difficult. Competition for sales leads to human development. But competition leads to collusion. War is seen as an antidote to human stasis. But war itself competes for capital investment. Marx spent an entire volume pounding in excruciating detail the difference between capital and money. The reason that stocks do well in inflation is that money and capital are different. War is a reaction to human progress and the, may I say it, inevitable social development described by Marx. It may not be communism, but it is change. Does it matter? Yo Helot. 

Military industry has gained prominence as a cause for war. Since military industry competes in the capital markets it has retarded consumer industry. Because of the concentration of military consumers, military capital investment employs less people making it inflationary.  It is argued that military research is more productive. I will concede that government research is more productive.

The major cause of war is atrocity.  Different peoples favor different atrocities. Starvation is favored by the Russians and the British. Part of Adam Smith’s disrepute is that the British used market forces as their all-purpose explanation for atrocities.  If you see a smaller vulnerable group provoked to hopeless conflict, the British are egging them on:  Kurds, Baltics, etc. the Lawrence of Arabia syndrome.  The Japanese renounced war when they realized they could no longer see their enemies eyes as they were killed. USA is known for bombing and military aid. 

Military aid is particularly disgusting. Living under a dictatorship is bad but it doesn’t have to be impossible. Eventually even the dumbest colonel notices that if people can go to work in the morning and return to their families in the evening the colonel will get a bigger take and may even be allowed to escape and enjoy their Delaware bank account.  Unless someone gives the colonel a few billion and tells them to kill the terrorists or whatever:
-Sure them too.
We have opened the gates of hell throughout the world.


I’m tempted to say materialist, let us take a systemic view of American colonial trade:

Imports	Exports
slaves	gold
indentured servants	silver
manufactured goods	land
earthworms	sugar
Honey Bees	cotton
Small Pox	tobacco
horses	peppers
Measles	chocolate
malaria	syphilis
apples	beaver
tea	potatoes

There are better lists, see Colombian Exchange. By land I do not mean that soil was dragged to Europe but rather the concept of land. Land rights and sovereignty over land are precious.

The forests we see today are far different than pre-colonial forests because of the European earthworms.

Smith derides the Spanish obsession with gold and silver, just creating holes in the ground. Keynes makes an allusion to burying money so people can dig it back up.

If you were to approach anyone throughout the world at the time of the American Revolution and ask for the news, they probably would not mention us. The issue of the time was whether France or England would rule the world.

The American English colonial population was around two and a half million including slaves, excluding Native Americans.  The population of England was less sure, say eight million. Britain’s anthems avow that they are a monarchy, they are not slaves, they are lucky and they run it. Britain’s opposition to slavery is due to their experience with the Barbary pirates.

George Washington was Virginian. Virginia’s principal export was tobacco. Prosperity was a consequence of how large your tobacco plantation was. This led to fierce inbreeding which led to an intense lekking environment governed by ostentatious display. Washington was a poor relation somewhere in the hierarchy to a good marriage to a plantation owner. Having a small estate, Washington was smart enough to earn money and land as a surveyor. The irony of surveying large tracts of wilderness while owning small holdings must have been obvious. His gentleman’s status entitled him to a paying military commission in the colonial forces. The French and British were engaged in a little bump and shove. The real point was to get Native American tribes to fight each other. Surrounded by the forests of Pennsylvania, Washington went mad and murdered a French officer.   

Nothing comes from nowhere. If Washington had not killed Jumonville we would still be part of the commonwealth. The subsequent French response made it clear that Native Americans, settlers, and soldiers died, not gentlemen. Washington’s force was subdued and Washington signed a confession. This started the Seven Years’ War, a global conflict involving all the colonial powers. As usual, burgeoning population threatened the existing social order. Jumonville perfectly crystallized the threat felt by the nobility and gentility.  In continental America the French were primarily fur traders, with few coastal harbors. So the British won. The French were depending on their strong European continental presence to win sufficient victories to bargain for their lost colonies, didn’t happen. The British navy and continental treachery frustrated the French. The British had expended men and fortune holding their colonies. Now was the time to balance the books. Faced with paying for their war, Britain’s opposition to slavery, and squeezed by the British loans and controlled prices, the colonies chose treason.

Robert Morris financed the rebellion. He knew that even with his great wealth, he would be squeezed next.


Tories, loyal subjects of the king who believed in paying their debts and opposing slavery were tortured in front of their family and neighbors and robbed of their land and possessions.


Washington’s military career was not as prosperous as he had hoped. The British were unhappy about Jumonville and a few excesses. But he had enough success to marry well, which was the point. His eventual commission as head of the Continental army was due more to his social prestige and position than his military background. The miracle was that ex slaves, farmers, and rabble followed the foppish Virginia plantation owner. They must have shared his avarice. He had learned to keep his mouth shut.

America sent our best man, Benjamin Franklin, to the fecal encrusted palace of Versailles. The French obliged with a few mercenaries, adventurers, funds and gunpowder. Washington skimmed the French funds for his plantations and land acquisition. Eisenhower was a genius, Butler won the civil war, but Washington, for all his faults, was the last American general who understood attrition. Washington must avoid a victory that only changes British command structure and strategy. He wants the British generals he has, thank you very much. Another constraint was the gunpowder drought. The English had gunpowder and the colonials didn’t. If France had stayed out of the conflict the colonials and British would have bled each other white and France might have both continents. By another miracle Franklin danced his silly dance, wore his silly hat, and dragged France into the rebellion.

France sent General Rochambeau and Admiral de Grasse. Trained from early youth to their professions they fought a coordinated land sea battle that defeated the British at Yorktown.
Washington didn’t want to go anywhere south. He rightly feared slave insurrection. The South’s failure in all its conflicts is due, in part, to the necessity of maintaining garrison to forestall such rebellions. The British, as they do, were stirring up the indentured servants and slaves. They enlisted a few, but if they had armed the slaves the British might have won. Washington was dragged to Yorktown with Robert Morris footing the bill.

With the war won, Washington made his worst mistake. Franklin was exhausted. Washington sent Jefferson to replace him as ambassador to France. Thomas Jefferson was a master of disingenuous sanctimony. When they had to perfume the pig: defend treason, bankruptcy, and slavery, Jefferson was the guy. Washington just wanted to get Jefferson as far away as possible.

It was time to settle accounts. The French King would get the tobacco concession. Everyone was in hock, but with trade moving it was possible they could pull it off. The Virginia planters including Jefferson, American excises, Robert Morris, Haym Salomon, and the French monarchy would all be put square, or at least able to front. Then Jefferson and his best friend Lafayette, American war hero and French minister of trade, pissed on the deal. Why? Why would Jefferson do that? The Virginia planters were ruined. Jefferson was ruined. There were no tobacco excises. Robert Morris, Haym Salomon, and the French monarchy were ruined. Why would anyone trade with this new country that couldn’t even do the tobacco deal? From Jefferson’s point of view within the Virginia hierarchy if everyone is bust then he is equal.
-Not with my Tabachy.


With little excise coming in, Morse and Hamilton decided to tax whiskey. They didn’t want their loans defaulted on. If you were a subsistence farmer in the middle of nowhere the only good worth dragging over the mountains to market was whiskey. The large distilleries didn’t appreciate the competition, so the tax was to their benefit. The farmers resented a tax on the poorest that cut their one source of tools and supplies. Some of the farmers were Washington’s tenants but they had long since realized that he couldn’t come out and collect the rent. So Washington didn’t mind enforcing the tax.


After putting down Shay’s Whiskey Rebellion the United States had enough income to borrow on. The British were amused:
-Didn’t pay us the last time.

Backstabbing Jefferson, having escaped the French revolution, told the French to hold off until Washington was out of office. The delegation came back from France claiming Talleyrand wanted his beak wet. Two-term Washington started as France’s man. Since he couldn’t get the loan, he should grab his hat and not let the door hit him on the way out. Washington forestalls Jefferson by getting his stooge, John Adams, in as president.


Washington died struggling to maintain his plantation. Under Washington we had begun to support England’s antislavery efforts. In part to oppose Barbary pirates. In part because it made domestic slaves more valuable and gave American pirates new opportunities.


Adams, having to choose from the French or the British, goes to the Dutch. At that point the Dutch are a two-hundred-year-old republic. The Americans were kiting, or debt consolidation. The Dutch were pirates. Send a boat out, if it comes back, they’re rich, what happens in between who knows? Dutch share the most popular religious belief, Calvinism, that the universe has an ethical plan. Gangsters like that you got what was coming to you. One of the many splits in Dutch society was between the adherents of Britain and France. The supporters of France also favored America. This division helped Adams get the loan.


Once Adams had the loan he scuttles back to the British for a trade deal. The French are already furious that after they saved America and lost their monarchy, Washington went neutral on them. This left the French talking to Jefferson. To ensure passage of their treaty, the British buy Adams’ midterm congressional elections. With Adams obviously in England’s pocket, the French attack American shipping. America then has to raise its own navy and army, so much for neutral.

The Dutch were widely ridiculed for their factious society. Perhaps it was this example or Adams’ sensitivity to criticism that leads to the Alien and Sedition acts. Adams still saw himself as part of the British Empire.


The paranoia of Adams was justified. Daniel Boone was outraged that his Spanish land titles were not honored; Spain and America were not at war. Billy Caldwell, a British- Potawatomi fur trader in the Chicago area wound up running a Potawatomi tribe in Iowa. Whenever someone proclaims their good qualities: honesty, loyalty, courage, thrift, sobriety, virtue, modesty, or patriotism, consider why the subject was broached. Adams had no right to patriotism.


Adams’ repression elected Jefferson. The United States population was over 5 million with slaves. France had almost 30 million. The French:
-Freedom for us and nobody else,
See The Marseilles were now ruled by Napoleon. Because of Dutch factions, France had conquered Holland. At this point France was allied with Spain. Since France owned Holland, Napoleon forgave France’s Dutch debt. How can you be unjust to Calvinists? In the Louisiana Purchase Napoleon cancelled eighteen million francs of French debt. Some of this debt may have been owned by the citizens or monarchy of the Kingdom of France. Some may have been owed the citizens or government of earlier French republics. Some debt may have belonged to the citizens or government of the Dutch Republic. None of these lenders would have minded if the USA had stiffed Napoleon. It is difficult to collect debts without the support of a government. Debt default is one of the reasons for revolution and conquest.

As to the land, Louisiana, whose title had passed back and forth between Spain and France, USA was here and France was there. Haiti had just kicked Napoleon’s butt. Napoleon was a general, not an admiral; he wasn’t coming back. There may have been the occasional loyal French subject, whether colonial or Native American, but the issue would be far more immediate than a distant treaty, certainly not worth the expenditure. Everyone remarks how advantageous the Louisiana Purchase was to America and how Napoleon got the best he could, given his situation. Why do the deal at all?

The only accomplishment was funding Napoleon’s assault on Europe. Why would Jefferson do that? He did it because he was Jefferson. It wasn’t just payback to Adams. The Louisiana Purchase was yet another example of American military aid.

The British, infuriated by the USA turning Napoleon loose and our support of slavery interdict trade leading to the war of 1812. It was generally recognized that the import of slaves subsidized piracy. We no longer had British protection against Barbary pirates and paid the pirates' tribute.
The USA anthem says we are free and brave, and we will survive and get those slaves and indentured servants.


The overseas Dutch carried on their financial affairs throughout the world, including the United States. If their money was good enough, they’re good enough.


Historical Inevitability: I give you Washington, Franklin, Adams and that sanctimonious shit, Jefferson.