Showing posts with label Marx. Show all posts
Showing posts with label Marx. Show all posts

Wednesday, March 22, 2023

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.

Friday, January 6, 2023

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.

Wednesday, April 10, 2019

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.

Thursday, November 1, 2018

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, Hyam 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.

Friday, March 13, 2015

Smith, Marx, Schumpeter, Keynes, Mandelbrodt

There are two classes of economists:  the apologists and the ones concerned with market place paradoxes. Adam Smith is the most readable economist. His use of the word corn is confusing, corn meant grain, or animal feed which now would correspond to gasoline.  Otherwise, he wants to give you the grand tour and show you why the market place is such a great thing.  The reason is that his paradox is unanswerable: the one who wins the game gets to change the rules.  He desperately wants to convince us to stop being such chumps, in particular stopping colonialism, tariffs and government borrowing, good luck with that. All economics after Smith is embroidery.
Marx’s Capital is the Koran of economic writing, much harder to wade through than Smith’s Wealth of Nations.  Unfortunately, although Marx referenced Smith in other writing he did not preface Capital by saying you should read Smith first.  He assumed that you would have read the earlier work that he was answering.  Marx makes a lot more sense once you have read Smith.   You are undoubtedly familiar with Marx’s ideas without having dragged yourself through Capital.
1.       Labor theory of value, a reworking of Smith’s explanation of money
2.       Dictatorship of the proletariat
3.       Class Struggle
4.       Business cycle caused by short term greed
5.       Failure of colonialism (see Smith)
6.       Centralization of production leads to unions
The United States attempted to answer the business cycle by regulating monopoly, banking and trade unions.  As Smith and Marx would have predicted, the only regulations still enforced are the ones pertaining to unions.
Schumpeter’s answer is “so what”.  It’s all part of the great circle of life.  He talks indefatigably of “the creative destruction of capitalism”, not all that comforting if you are the one being creatively destroyed.
The other great apologist is Keynes.  Keynes, beloved of politicians, points out that government borrowing is stimulative.  The reason that Keynes deserves a very special place in hell is that he argued that it didn’t matter how they spend the money, the important thing is to borrow.  Recent events give a counter example.
The banks, freed of regulation, packaged and sold their loans rather than managing them themselves.  This allowed them to loan a lot more money.  In order to make these securities palatable they included insurance on the loans provided for a fee as part of the package.  Then the idiots bought their own packaged securities as investments.
Unfortunately, in order to prevent fraud the terms of the insurance required that the borrower default in order to pay off.
Call this the Mandelbrot depression. His book, The Misbehavior of Markets, published in 2004, explains that prices are fractal rather than discrete statistical events.   The previous price has a lot to do with the current price, and in that way is recursive. This means that the current financial models and risk measures are invalid.  To put it simply when people say that the markets are “risky”, they are correct.
Fundamentally, it doesn't matter what the risk is when the dollar is falling. We, the American people, voted for that.  Even before his election, it was obvious that George W. Bush didn’t care about deficits and that the electorate didn’t much either.   When we Americans say we are opposed to deficits, it means social welfare, not borrowing.
Therefore, as the dollar falls and everybody heads for the exits, it is in the bank’s interest to push borrowers into default rather than discounting the value of the loans and the quicker the better while the insurance still has funds.
Since companies with cash reserves are takeover targets, the businesses were at the mercy of the banks.
If the government had not propped up the insurance, it would have been disaster for the financial industry but investors, those that remain, would have had their choice of discounted industries shorn of their debt; this would have been Schumpeter perfection.  Instead, the banks couldn’t take the deal because they aren’t allowed to take a loss on the insured asset.  
Even today in America, manufacturing employs more people than finance.
Therefore, of course, it is crucial how the government invests the money it has borrowed.
However, as Smith and Marx would point out, it will not be for the greater benefit.
To sum up, it is true that government has the means, through regulation and intervention, to flatten the business cycle but it is unlikely that it will operate in the general interest.