Please note: The Comments function on all Adelphi blogs will be disabled until further notice due to security risks. We appreciate your patience during the transition to our new blogging platform.
November 21, 2013 - by David Gleicher
Elizabeth Warren--perhaps the most intelligent US political figure of any significance to have come along since Henry Wallace--surprised and perhaps momentarily puzzled members of a senate committee at a recent hearing (Nov. 5). She asserted that the present health reform law is " a value statement ... [No] one deserve[s] to be bankrupted or shut out of the health system when they get sick."
Warren dares to imply--no matter how subtly--a meta-social condemnation of the global system that has begun to form in the post-golden age. At an accelerating rate basic things that a family would need in order to live decently are becoming less and less available to more and more people across almost all the leading States. We might infer from Warren that a necessary meta-social condition of a good system is one that immunizes itself from immiserating masses of people for the sake of a few.
But it is taboo among those who identify themselves with the culture of liquidation to say, the social system rooted in large-scale corporations serviced by the State is dangerously faulty. Indeed if you listen carefully to US politicians, whenever one of them (and it is rare) upholds the provision of a basic need in its own right, a monetary motive is nonetheless required to clinch the deal: Every one deserves to have access to health care. And, more importantly, emergency-care cost reductions will more than make up for the expense
McMurtry (2013: 1-2) writes: "None [of the world's cultures] are grounded in objective life-goods ... For within the last thirty years there has been a great sea-change towards one system of transnational corporate market rule which is indifferent to this entire life-substructure of humanity and to the consequences of its life-blind rule system."
The U.N Climate Change Conference being held right now in Warsaw is in its 21st year. It includes representatives of States, corporations, and non-governmental organizations (NGOs). It is intended supposedly to address perhaps the greatest threat to human life in its history. But among every one of the world cultures referred to by McMurtry--Anglo-American, Europe, China, India, Islam and Latin America--the leading States have done little to halt global warming.
To the contrary these States, allow corporations to add considerably to climate warming. In protest there has been a walk-out of the conference by a large contingent of NGOs in protest of the refusal of those States to address the catastrophic effect of not reducing carbon emissions by limiting production and use of fossil fuels.
One sees here the amazing blindness of those inside the culture of liquidation. An inability to comprehend the actual lives of other human beings. The making of money, the equation money equals value, the corporatized capture of massive amounts of money only a tiny fraction of which will ever be realized as goods: the global system is such that these trump the right of people to pursue a decent life; to follow ones bliss.
There can be no doubt that this indifference to human life is systemic. Virtually no good, from the point of view of human entitlement (which includes life itself) is immune to the the cancerous drive to expand money for its own sake, effectively siphoning it off from money to use in support and enhancement of human life.
Drug companies commonly hide their own studies if they show a profitable new drug or device of theirs to have dangerous, even fatal effects. Gun manufacturers fight tooth and nail requirements that would have them distinguish between buyers who are likely killers from those who are not. The military-industrial complex puts enormous never-ending pressure on the State to demonize others around the world, and in so doing to generate never-ending warfare, ruining the lives of millions upon millions of people.
Along these very lines, the fact that the large narrative of a Cold War against Communism has been adapted as the War against Terrorism can only be systemic.
Even the health reform that Elizabeth Warren characterizes as a gesture toward human entitlement is based to a great extent on subsidizing the corporate health-insurance industry, enabling it, one hopes, to provide more affordable insurance in the private market.
Those of us that do not identify with the culture of liquidation, and these are most prevalent among the baby boomers, do understand in one way or another that the culture of liquidation is cancerous. I myself know it because movies are rated according to box office revenues, because movies are produced according to box office revenues, because Art and Everything Else is judged and created and admired according to box office revenues. Everything according to money.
What I miss about the 60s really is that for those few years the brands were not there, and the man in the grey suit was Mr. Jones, and singers didn't lip sync their concerts, and the art of meaningless phrases had not yet been cultivated (be all that you can be). The culture of liquidation does seem to be metastasizing at an alarming rate, having already destroyed or at least greatly weakened a myriad of inter-connected social immune systems. Systems that served relatively well during the golden age/Cold War period.
The early baby boomers like me--whose generational fate right to the end seems to be metaphor for the spirit of the whole--are now entering old age (mid to late 60s). I think of my own daughter (age 23) and wonder what she will think, when she is my age, of the world she grew up in.
November 09, 2013 - by David Gleicher
Continued from Entry 13.
Of course, Ringo's complaint "nothing ever happens to me" is miraculously answered. Ringo stumbles into a wondrous world animated by the Beatles. The Yellow Submarine (which we all live in a). The "Sixties"
McMurtry's description of the Sixties as "a brief era of unlimited social interrogation" (2013: 96) is an extremely apt and insightful one. It was an historic moment in which the uniquely cruel appraisal of parents by their adolescent child, had galvanized into a living generational critique, a loud rejection of the silently evolving culture they had grown up up in; hence the infamous "generation gap."
At the heart of the Sixties was a struggle by the baby boomers en-masse to free themselves from what was broadly referred to then as "commercialization." Rooted in the "Beats"--Ginsberg and Ferlinghetti among others remained prominent figures throughout the Sixties--there was an instinctive urge to shed the weight of commercialism, to somehow render it harmless, to create a true reality.
This is captured by Leonard Cohen, himself a unique figure of the Sixties, in this verse of his song Chelsea Hotel, about a brief affair he had with the iconic Janis Joplin:
I remember you well in the Chelsea Hotel // you were famous, your heart was a legend // You told me again you preferred handsome men // but for me you would make an exception. // And clenching your fist for the ones like us // who are oppressed by the figures of beauty, // fixing yourself you said, "well never mind, // we may be ugly but we got the music."
This urge of the baby boomers to escape commercialization is seen in efforts to literally alter the sociological landscape, forming self-sufficient communes, or, within the black-power movement, seeking to effect a return to Africa.
But it is also seen in very personal everyday aspects and customs of life in the sixties that have been forgotten. For example with respect to women, only during the Sixties--not before or after, and more or less just among baby boomers--did it become acceptable (and for a few it still is) to not regularly, if at all, do things like shaving your legs and under -arms, using deodorants, putting on lipstick and nail polish, wearing stockings or high-heeled shoes.
Along the same lines it was unusual in the Sixties, and not before or after, for there to be formal paid weddings. Rather the typical wedding was at the home, often not catered. It was simply a large party with a ceremony of the bride and groom's own making, and often without the bride wearing a formal wedding dress or the groom a tuxedo and without bridesmaids and such.
My own experience of the Sixties was one in which adolescence and the Sixties were inseparable. In 1965 I was a junior in high school and my life changed. Toward the beginning of my senior year I was suspended from school for wearing blue jeans. By the end of the year the school abandoned their dress code except, if I remember, limiting how short mini-skirts could be.
The Beatles of course entered the pop cultural scene around 1964 and transformed it ("the day the music died"). I was transformed in 1965.
That one year I discovered Bee Bop, flowering then--Coletrane, Miles Davis, Eric Dolphy--along with traditional Mississippi and Chicago blues from the thirties and forties, Bill Broonzy, Howlin' Wolf, John Lee Hooker, Lightning Hopkins, all of whose careers were revived in the Sixties. These were the first LPs I owned, along with all three Bob Dylan albums and a few of Joan Baez (all the records still monophonic). And I had my first hi fi system, which I brought with me to college.
By 1966 I was smoking grass. I was sexually active and had a girlfriend who wore miniskirts. My hair was almost down to my shoulders. And I was reading the likes of Hermann Hesse and Albert Camus. My parents were beside themselves.
I blundered through the Sixties. In most respects it was the most difficult time of my life. But nonetheless, in a fundamental respect, I felt more at one with the culture during those years, more comfortable within the social reality, than I have ever been.
In retrospect one thing that set me apart was the consequence of being a red-diaper baby. I adopted the critical view of "big business" from my father and his circle of friends at a young age. I'd argued all through elementary school that nobody went without food in the Soviet Union and advertising made us buy things that we really didn't need. I had grown up on the wrong side of argument and taken it in.
Therefore, I never questioned the sudden appearance of the yellow submarine. A grand flight from commercialization. Indeed, like Mohamed and the mountain, social reality seemed to my adolescent self to be coming to me. Very different from the feeling of being forced up the mountain experienced no doubt by many other baby boomers. Like Ringo I eagerly welcomed the submarine with open arms and got right aboard.
McMurtry (2013: 96) not only understands the Sixties as an unlimited social interrogation, he is equally accurate in its unhappy consequences: "After a few years of this 'raising of consciousness' history's most momentous counter-revolution occurred. It was hardly less than a slow-motion reversal of humanity's social evolution." .
October 29, 2013 - by David Gleicher
At the outset of the classic 60's film Yellow Submarine, a cartoon Ringo Starr, heads down, hands in his pockets, walks across the screen muttering over and over to himself in a sad resigned voice "nothing ever happens to me ... nothing ever happens to me..."
That was me. At least it was a part of me that I was conscious of and still distinctly remember, as the 1950's ended and the sixties had just begun, 1961, 1962 ... I was impatient to get on with it. The huge fins growing out of ever longer and longer automobiles were becoming passé, and the custom of buying a brand new car every single year, trading in of course the "old" one, was being replaced by an exodus to the suburbs where cars properly belonged.
A decade before, the automobile had already pushed out the trolleys in Newark, where I grew up, so that I only knew their obsolete tracks from the way our green 1952 Desoto skidded when we drove on Hawthorne Avenue. I was born in 1949, the quintessential early baby boomer. I turn 65 in June, heralding the fourth year of the boomers' grand entry into Medicare and Social Security, which will go on for the next 15.
One of my first memories is sitting in front of a TV at a neighbor's house; the one on my block I guess that was first to buy a TV set. One of the first altogether, that were heavily marketed immediately in the New York area. The next memory of mine is getting up early in the morning. A pioneer in growing up watching TV. I remember absorbing in wonder and confusion, at the ag an odd stew of shows.
Most are virtually unknown to anyone else now so I'll name them: the elegant New York sit coms, My Little Margie, Topper and Private Secretary (The Anne Southern Show); the creepy Andy Devine Show, incongruously containing within it a film-like series of adventures of a boy and his elephant in the jungle; Flash Gordon, an adumbration of Star Trek, which for some reason I found very disturbing; and the heart-warming I Remember Mamma, are all part of the first experiences of television by one 3 or 4 years old. And they were experiences that were not just new to me, of course, little more than a baby, but new experiences to the whole world.
What is especially of interest to me, then, in writing this entry and several to follow, is that the life of the baby boom generation seems to have continued in that way to contain within it the life of the world. And as it grows older, to me--for what its worth--it is hard not to see that that world is dying of cancer. Literally dying.
In most respects my family life and friendships as a child fitted the norms of the 1950s. (A film that creates an uncannily accurate feeling of life in the 50s I think is Terrence Malik's Tree of Life; with Brad Pitt.) In one respect however I was a member of a relatively tiny subset of baby boomers, apart from the rest, in the way our parents looked at the world.
We were known--as I was only to find out many years later--as "red-diaper babies," an affectionate term mostly used within the tribe. My father had been in the American Communist Party during the 30s leading up to the War. Like many others who had been in the Party, he actually severed ties with it--but not necessarily with Socialism--when the Hitler-Stalin Pact was signed in 939.
He had a tight circle of friends, primarily, like him, high school teachers in the Newark public school system, his closest ones having been in the Party like him. And they loved to talk. Oh, they loved to talk. They would gather at each other's houses for Saturday nighty dinner parties, with their spouses, and there would be a lot of arguing, but never in real anger. And all along it was the things they didn't argue about that really mattered.
A few in the circle, and many that they knew in the Newark Schools at large lost their jobs due to the red-scare led by Joseph McCarthy. One of my father's closest friends, Bob Lowenstein, a French teacher who taught at Weequahic high school was fired and did not teach all during my childhood. Later a court ruled that due to tenure his firing was unwarranted and he received back pay for all those years.
I soaked it all up. I have memories of sitting on the carpeted staircase leading up to my bedroom dead tired but unable to break away from their arguments. Often as I got older I took sides in my mind, not always siding with my father. And by the age of around 10 or 11 I would use what I heard from my father and others to make unusual pronouncements, and get into long arguments with my elementary school classmates. Challenging unquestioned matters such as the threat of the Soviet Union, the Cuban revolution, and freedom in America.
In the end what came of my childhood was a genuine detachment from presumed social agreement. It left me comfortable with taking the wrong side. It is the source of an insight into the reality that is dying of cancer.
McMurtry (2013:87-88) at the outset of a chapter entitled "The ancient taboo" observes: "When people come to explain any way of life in the world, they are conditioned not to expose their own social order to the same critical eye with which they view a different or opposed social order. ... There is not only a rule against recognizing the monstrous in one's own social system, but a rule against recognizing that there is such a rule. This mind-lock is as old as civilization itself."
Later in that same chapter, he boldly asserts: "In the brief era of unlimited social interrogation which emerged between1965 and the early 1970s,humanity witnessed the most fundamental far-reaching and transcultural questioning of the social-structural given in human history. ... After a few years of this 'raising of consciousness', history's most momentous counter-revolution occurred."
McMurtry, John. 2013. The Cancer State of Capitalism. Pluto Press.
Next entry on November 10, 2013.
Comments by baby boomers are very welcome!
October 19, 2013 - by David Gleicher
Readers of this entry might well be interested in a just-published book: The Public Bank Solution by Ellen Brown (2013).
The public-bank movement parallels that of single-payer health-insurance in the US. Each seeks to guard against a perverse outcome brought about by an invasive culture of liquidation. The is well-known when it comes to health-insurance, and indeed the US for that reason is virtually the only nation that entertains such an industry.
The health insurance oligopoly in the US seeks to insure only the sufficiently healthy, charges non-competitive prices in an extremely market with extremely inelastic demand, and goes to the edge of the law, and perhaps even beyond it to some degree, to avoid making payments of insurance to the buyer.
Health-care even in the US is understood nonetheless to be an entitlement. This is demonstrated by the fact that emergency-care for the uninsured is financed by public hospitals, and of course, the State does insure the health of the elderly and the very poor.
These are acknowledgments of the State's responsibility to "promote the general welfare," insuring "life, liberty and the pursuit of happiness." To take full responsibility the US State would quarantine the culture of liquidation isolating it from provision of health-care altogether by itself providing complete insuring; a single-payer solution.
Public banking, similarly, is a means of quarantining the culture of liquidation. Isolating it in this case from the liquidity held in the form of demand deposits.
The perversity of the post-golden age commercial bank oligopoly--in which by far the largest share of household liquidity resides--is striking (see entry 9). The bank oligopoly puts demand deposits at great risk, highly leveraging them in a constant drive to expand money through purchase of debt and increase of deposits. But it is not the depositors or the bank oligopoly that ultimately bear the risk. Much like the free access to the emergency room, the deposits are guaranteed by the State. In practice then safe money needed to purchase goods is also an entitlement.
Unlike Brown, I think it possible to imagine a transformation of the central bank into a national public bank. It would serve household demand accounts, and of course these would be guaranteed by the State. Along with various other banking institution it might provide roughly he same services as the commercial banks during the golden age.
On the other hand, the private bank oligopoly would no longer have their deposits guaranteed. "Too big to fail" would therefore be eliminated. More importantly there inevitably would be a significant shrinkage of the oligopoly's deposits and hence a welcome compression, on a large scale, of money capital, the life-blood of the culture of liquidation.
Brown, Ellen. 2013. The Public Bank Solution. Third Millenium Press.
Next entry will be October 29, 2013
Comments, questions, counterpoints, criticism and suggested topics are always welcome.
October 08, 2013 - by David Gleicher
The question posed by Whitney (see his comment on the previous entry) is a pivotal one. The culture of liquidation is itself a corporate culture, that is a "culture of profit." It has existed and evolved for as long as the corporation has.
The gilded age at the turn of the 20th century clearly adumbrates the current post-golden age that began around the turn of the 21st century. In each, the social immune system is significantly breached and the culture becomes cancerous.
The direct answer to the question, then, is this. What connects the culture of liquidation to for-profit corporations, is the fact that within this culture the corporations are viewed and treated exclusively as financial instruments. No more or less than a form of debt-ownership.
This means that the corporation ceases to have virtually any interest in its product as literally a good, or for that matter its employees as literally fellow human beings.
RK Davis does not care that he is destroying a wonderful orchestra for those who value the experience of it and the musicians who constitute it. As long as he can replace it with extremely low-price musicians and an endowment financed by wealthy donors with edifice complexes--hence generating a large flow of money--then within his culture Davis has succeeded. Tragically, whether he does or does not succeed in his own terms the orchestra will nonetheless have been destroyed in theirs.
The tobacco industry is an exemplar of a key social mutation whose origins can be traced at least as far back as the early 1920s in regard to the Chicago meat packing industry: the use of rats and other rodents in the chopped meat (among other fillers) exposed by Upton Sinclair in The Jungle. With the rise of oligopolies during the gilded age corporate management had quickly seen that there could be huge reductions in cost if one produced and sold things that actually were harmful to the buyers, but without them knowing it, or, eventually, without them caring.
The tobacco industry sold a product that internally was known to be literally deadly, but which you could get teenagers addicted to. And so a near-perfectly inelastic demand for a deadly product was created, by which the industry reaped unprecedented profits.
The long-lasting medical and judicial investigations of the tobacco industry confirmed that the culture of liquidation had been mutating and expanding throughout the twentieth century, including the golden-age. It just wasn't much noticed until the late 60s or so. Thus, the corporations were already freeing themselves from the production of goods in favor of pure money expansion long before the current period.
The transformation of the banking system that ends the golden age (see entry 9) was ushered in, by a corporate-led and unending campaign to de-regulate private industry in general. This was a means of creating unshackled for-profit oligopolies, such as the airline and telephone industries. It was as well a means of freeing industries from governmental limits being placed on the harm observed to be inflicted by the corporations.
Of current interest, the private health industry in the US is an exemplar of a further mutation, one that marks the post-golden age.
The health insurance industry is an oligopoly that, unlike tobacco, was founded on its very capability to do profound harm to the public in the quest for greater money expansion. Like the pharmaceutical industry, for basic health care the private insurance oligopoly enjoys inelastic demand. No need for addiction. Profitability increases to the extent that the industry has the freedom to filter out those who are not in good health, now or potentially. The perversity of this in the light of true insurance service to the public, is perversely a thing of beauty within the culture of liquidation.
This might explain the intense opposition to the health-care reform (despite the fact that the reform leaves the industry remarkable intact). The opposition is not a motley crew of Tea Party congressmen and their followers, but rather it is those within the culture of liquidation who fund them. Over the last two decades the private health insurance industry has held captive, via demand inelasticity, an enormous market, increasing revenues at amazingly high rates. As an insurance industry it thereby creates significant accumulations of money that inevitably find their way into the financial system of expanding money for its own sake.
Next entry will be posted Oct. 19, 2013.
Comments, questions, counterpoints, criticism, and suggested topics are always welcome.
September 26, 2013 - by David Gleicher
The extent to which US health-care reform aimed at wider private insurance coverage is being resisted in the US is certainly extraordinary. But it reveals, once again, the rarely-faced fact that the US body politic is under attack from powerful elements within it. And these are now reaching a point at which there is a threat of them devouring ever-larger chunks of the State; a cancerous growth that may well prove terminal both nationally and even globally. And not just terminal for humans but for the planet itself and a multitude of living beings on it.
This past Friday (Sept. 20), Paul Krugman devoted his column in the Times to the proposition that, based on the extreme measures taken in opposition to the health-care reform Republicans are no longer members of a "stupid party." It has become a "crazy party" that is "out of control."
He takes up much of the piece then with how the Republicans never used to go to such extremes (presumably they were just stupid). He concludes that such extreme behavior was bound to happen because Republican "elites" going all the way back to Nixon's infamous southern strategy have become amazingly cynical. They'll do anything at this point to get what they want.
Thus Krugman substitutes name-calling for a serious deciphering of what and who actually is motivating the health-care extortion. This exemplifies the general state of denial throughout the public discourse in these very trying times. John McMurtry writes in this context, "Once the cancer has become aggressively invasive [it is hidden] at every turn on the social as well as individual plane. That is how the cancer spreads, masking itself [with] every move on both levels" (2013: 31).
Two things already discussed in this blog suggest such a deciphering of the health-care extortion: the rapidly growing culture of liquidation on the one hand (see Entries 5,8.9), and the absence of an affordability constraint on Federal spending, on the one the other (see Entries 1-3).
At the heart of the matter, with reference to each of these, is a simple observation. The resistance to the health-care reform, is at one with a wide attack throughout the post-golden age period on State-insured provision of certain goods, services and income to the public. The attack has been intense, cutting across Social Security, the minimum wage, maternity benefits and universal child-care and pre-K education, also unemployment benefits, subsidized low-income housing and of course insuring health-care of the elderly and the very poor (Medicare and Medicaid respectively). There is not one exception to this rule.
Indeed, even as financing government operations and then the backing of its securities are both being held hostage right now in order to stop health-care reform, the US Farm Bill is being held hostage to a massive reduction of food stamps issued to the very poor.
The culture of liquidation essentially is a money cult. Inside of it the only things of worth are those that command money; as opposed to the belief that money only has worth if it can command a true good. The cult of money has deepened over the last two decades or so. It has increasingly moved to re-route existing flows of money away from the State's provision of life-affirming goods to the public. Leading the money, instead, into flows of the private financial money sequences, money that thereby can multiply without end.
The creation of a private health insurance industry in the US took off in the mid-seventies, and among similar countries it is certainly unique. It was an early triumph of a budding culture of liquidation, and has been equaled in kind subsequently perhaps only by the US private prison industry. For this reason health-care reform at this juncture may have hit a particular nerve, although of course the reform does not in fact do away with private health insurance. In any case the ultimate outcome of the industry remains to be seen.
Secondly, the culture of liquidation must be extremely sensitive to the State's ability to create money at will, even if the absence of an affordability constraint is largely kept hidden (under a pile of Austrian gold). Given the crucial State's guarantee of deposits held by the commercial banks, and its potentially independent control of the central bank, it would be difficult not to realize that health-care could very well be insured by the State. Especially given the uniqueness of a private health insurance industry globally.
More importantly, there is likely to be a deeper sensitivity in the culture to any movement toward a State that is willing to guarantee basic conditions of a decent life, independent of private capital. Should such a movement be set off, then the bare fact that the culture of liquidation is a culture of death will become evident. And that is the fear driving health-care extortion. Beyond that it is behind the resistance it is behind the resistance to any State-insurance provided the public.
Nonetheless, that which is so obvious will be grasped. That culture is causing an ecological disaster beyond human conception and there is nothing done to stop it. There is a massive ongoing immiseration of the many at the hands of the few, nationally and globally. So many have no chance at all of a decent life. There is great production of things capable of warfare and great destruction, of things we ingest that make us sick, that addict us, or that simply provide us no nutrition.
Perhaps it is to give those living in the culture of liquidation too much credit in thinking they might themselves realize that what cannot be allowed by them is a lifting of the veil.
McMurtry, John. 2013. The Cancer Stage of Capitalism. Pluto Press.
Next entry will be posted October 8, 2013
Comments, questions, counterpoints, constructive criticism, and suggested topics are always welcome.
September 17, 2013 - by David Gleicher
I have added an addendum to Entry 8 that readers who are associated with Adelphi--along with the naturally curious--might wish to look at.
Entry 7, as indicated by the first comment on it, was posted on Facebook in the Save our Symphony Minnesota site, and there were many comments on it that readers might find of interest. A few comments had to do with whether Richard Davis was as I called him an investment banker, rather than? ... just a banker.
This leads me in this entry to a look at key elements of the contemporary banking system that remain unknown by many.
Richard Davis is the head of the fifth largest of the so-called commercial banks: US Bank. The key to post-golden age banking is that the commercial bank is now a misnomer. US Bank and the others no longer add to the loans they make by attracting added deposits on the part of the public. Nor do they primarily serve as intermediaries consolidating capital to finance production of goods. That is a myth perpetuated by Money & Banking textbooks. Such commercial bank services now account for a minor share of the profits generated by these institutions.
One thing has been retained in the post-golden age period, to a great extent still singling out the commercial banks and the reason they are so large. The bulk of their deposits, notably checking accounts, are insured by the State.
With the demise of the Glass-Steagall Act the commercial banks were freed to speculate with their deposits. And the prime activity of these banks in the post-golden age then became the creation of deposits through purchase of myriad financial instruments (lending); providing a basis for what is termed money sequences by McMurtry (2013).
A money sequence is an on-going multiplication of money through debt purchases and extreme leveraging by the sellers at every point of the sequence. As long as the multiplication of money is sufficient the commercial banks can back their growing deposits. At the same time they are forced into greater and greater debt purchases, hence creation of more money and more deposits to back.
As head of US Bank, then, Davis's prime responsibility is risk management: i.e., investment banking. The deposits injected by the bank are created out of loans to traditional investment banks (kissing cousins now to the commercial banks),and either directly or through them, to growing hedge funds, private equity funds and many variations of them.
For example Willumstad's Brysom Global Partners is described in a press announcement of its founding in 2007 as: A private equity firm "that will focus on financial services investments in the emerging markets. In addition to making capital investments from its own capital and investment funds, Brysam will co-invest with financial institutions and private equity firms." (AltAssets: 2007).
A money sequence is extended by securities packaged and repackaged over and over, derivatives infinite in variety, and debt obligations in commodity futures markets , swap markets based on hedging, and of course equity firm speculation in corporations and as discussed here, other institutions as well.
Except when there is a crisis, the money being created in the money sequences purchases only debt. This has given rise to a state whereby goods required by all to have a decent life are being transformed into financial instruments designed exclusively to creating money. The consequence is a myopia characteristic of the culture of liquidation--which I will take up in more detail in the next entry--succinctly illustrated by McMurtry (2013: 54):
"[T]he private money sequencing across borders called debt obligations grows through peoples' most basic means of life ... For a poignant example ... multiplying speculations on the three top food commodities--rice, corn and wheat--spikes the prices of the staple diets of the world's 2 billion poorest people. Since high finance got into a frenzy of betting on prices of these foods that people must have, a seventh of the world's population cannot afford to eat when the prices escalate--as between 2005 and 2008 when average food prices rose by 8.3% with no harvest failures."
McMurtry, John. 2013. The Cancer Stage of Capitalism. Pluto Press.
AltAssets 2007. Jan. 23. on-line.
Next Entry will be posted September 26, 2013.
Comments, questions, counterpoints, constructive criticism, and suggested topics are always welcome.
September 10, 2013 - by David Gleicher
Well, what do you know, within little more than one week of the fall semester--(and but two months after the birth of this blog), it already appears that Robert Willumstad's chairmanship is making itself felt. And he is following a strikingly similar path as that taken by RK Davis with respect to the Minnesota orchestra (see previous two entries).
First, there is the following announcement on the Adelphi web-site, made in June but not noticed I would guess, let alone digested by most of the Adelphi faculty until now: A new 100,000 square foot building to house the nursing school, renamed College of Nursing and Public Health ,is about to get final approval for construction next month at a projected cost of 58 million dollars plus. This is to say, equivalent to about 60% or more of Adelphi's entire endowment fund! The run-up to the lockout of the MNO musicians was a 50 million-dollar refurbishing of a concert hall.
Whatever ways the Adelphi project is being financed (information I don't personally have) this leaves Adelphi more vulnerable to budget deficits. It means a greater susceptibility to forced liquidation of the faculty. It also raises the possibility of accumulating debt, loans at usurious rates, large brokerage fees and penalties and so on. A testimony to Willunstad's accomplishments at Citi- Group.
The project itself is clearly a white elephant, far beyond the expense of anything needed by the Adelphi nursing school. (The tell-tale Edifice Complex rears its ugly head again, but I will leave that for another entry.) To the extent that the money is raised through donations, however, such a project cements the university's reliance on the good will of patrons, rather than the interests of students and faculty. This is seen in how oblivious the Adelphi Board and President are to the plight of our students, so many of whom are going into deep debt to finance their education. How much relief could the university provide them with a decent portion of that 58 million dollars? It could go toward lower tuitions more generous scholarships and work/study programs, and so forth. But these are not deemed the stuff of 58 million dollar fund drives. A huge building that you can name after someone who is very rich, is.
A second thing has just occurred this past week that is less public and more confrontational, striking at the heart of liquidating the faculty. An attempt by the faculty to set guidelines for on-line courses, offered as alternatives to existing courses, has just been rejected. The Provost, as told to me, has informed the faculty senate that creation of such courses is going to be done ad hoc, although perhaps sometime in the future there might be a faculty review of them.
Are we to look forward then to a proliferation of these courses, which already exist across the university, and which might very easily become a norm? Learning is a living experience in open time, a direct human dialogue, ideally structured by a qualified teacher existing within a living, healthy academic culture. The experience of real learning, and the academic culture itself, is being weakened and ultimately will be destroyed by eliminating its living components through on-line technologically driven courses.
Such courses at best preserves an outer-shell that imitates learning, but it is not living. It is empty inside. Like processed food about which McMurtry (2013: 41) writes "[P]rocessors and marketers strip foods of their nutriments to cut costs, and inject additives into what remains to maximize sales." In the myopic culture of liquidation this transformation appears as a chance to cut the cost of faculty both by raising student faculty ratios and by reducing faculty qualifications. The on-line course is being treated as if it were actually a replacement rather than an extreme cheapening of a traditional course. All that can be seen apparently the shell.
Where this all leads of course remains a question. Moving in the direction of on-line courses is all the more wrenching in that Adelphi is in such a good position at this moment in time to provide students an education that is genuinely alive as opposed to the large more prestigious universities. There are no huge lecture courses for undergraduates in the first two years, and no domination by an athletic program. Support of highly qualified professors, which in recent years has been considerable at Adelphi, could be sustained (and a real attempt made to curb grade inflation). Instead the opposite looms scarily in the future.. In the manner of a cancer, the cheapening of faculty and courses cheapens the education being offered and ultimately consumes the university as an institution of learning.
A day after this entry was first published the Adelphi President gave his State of the University address to the faculty. His tenor to me seemed unusually diffident, almost defensive, leading me to wonder if Willumstad's new status on the board was having its effect on him. Nonetheless the President was unusually straight forward in stating three lines of action to which the university had committed itself. In the light of the discussion in this entry, none are what you would call reassuring.
The 58 million dollars raised for the construction of the nursing building, the President reported, is just one construction project in a master plan. It calls apparently for further building into the foreseeable future; and presumably further fund drives to finance it. He made brief mention of a 90 million dollar debt. He rushed to add that it was well-financed, without saying how. I don't know what that was about, but it is a bit disturbing.
Second, the President made it clear that there is no consideration being given to reduction even of increases in student tuitions, let alone the needed cuts in tuition both directly and as tuition discount. Of course the President did not broach the obvious connection between this treatment of our students and the mammoth expenditures being made both on buildings and a bloated over-paid and over-spending administration.
Third, the President made it clear that there would be a continuing proliferation of on-line courses throughout the university into the foreseeable future. He did concede in a vague way that these are in fact inferior courses, especially at Adelphi where there are virtually no large lecture courses with hundreds of students in a single class. Particularly distressing is how weak his ostensible reason for this decisive path is. He points to a decline in recent years in the enrollment of some 250 continuing-education (adult) students, due to their going to schools offering the convenience of on-line courses. To attract 250 students, then, there is a willingness to compromise the very quality of what the university offers, that is, higher learning. This strongly implies that the reason for expanding on-line courses lies elsewhere, inside the culture of liquidation. The cheapening of courses and with it the cheapening of the faculty, in the manner of an equity firm rises to the surface.
McMurtry, John. 2013. The Cancer Stage of Capitalism. Pluto Press.
Entry 9 will be posted September 17, 2013.
Comments questions, counterpoints, constructive criticism and suggested topics are always welcome.
September 03, 2013 - by David Gleicher
(Check out the article in the Times, Aug. 31, first page of the Arts section, "Orchestra Calls in Big Gun in Dispute." You might notice that there is an interesting lacuna in the report of what has happened to the Minnesota State Orchestra.)
The analogy suggested in my previous entry between Adelphi, a medium-sized private university
in Long Island, NY, and a classical orchestra in the Midwest would seem at first blush quite a stretch. But then again, through DNA analysis it was discovered that genetically the porcupine is the closest living relative to the platypus. And once discovered it proved to be not too difficult to explain the closeness of the two. In other words sometimes a likeness is not easily seen at first, but once deciphered independently, one is enabled to understand why the connection.
The orchestra like Adelphi is a non-profit institution. And it was financially stable, just like Adelphi is now, prior to the ascendancy of the investment banker, Richard Davis,to the Chairmanship of the Board of Trustees. Davis, like Robert Willumstad, clearly inhabits the almost-sealed culture of liquidation. And looking with Davis's eyes--given what he's already done--two significant commonalities of the university and the orchestra do become visible.
One is the common tell-tale sign of an equity firm, namely drastic tactics used to radically cut labor costs and to liquidate the most valuable assets of the institution. In both the university and the orchestra these two merge, the bulk of employees being the most valuable assets. This is unlike most corporations (including for-profit schools).
Davis has effectively been liquidating the musicians without any apparent concern over or even perhaps comprehension of the deleterious effect on the actual music created. So too, the relentless push to adopt on-line courses, MOOC's and the like-- especially at an institution like Adelphi--can only be comprehended as means of liquidating the faculty.
And parallel to Davis in relation to music in its own right, Willumstad is highly likely to be myopic when it comes to the enormously negative effect such courses (with few exceptions) would have on Adelphi. Transforming the majority of faculty into scripted and therefore homogenized purveyors of a kind of show directed by the teacher,and in which the students are isolated. The show is produced by a precious few, opening up the corporatization of the universities, with virtually all unmediated human interactions of professor and student within a classroom done away with.
A second commonality is the strategy treating the orchestra and university respectively as a patron-delivering business rather than a (non-profit) server of classical music.. One sees in Willumstad's own exorbitant "gift" to the university the signal of Adelphi as a patron-delivery business. (Another telling symptom of this at Adelphi is the Chairman of the Board's seeming edifice complex; the regal announcement scripted in large letters at the entrance of the business school building, you can't miss it, being The Robert Willumstad School of Business.) Moreover--and very disturbing--the University has announced a 58 million dollar construction of a brand new Nursing and Public Health building. Almost the same exact amount spent on refurnishing the concert hall housing the MNO, even as the Board demanded over30% cuts in the musicians' base pay.
Financing the university primarily by donations leaves Adelphi all the more in the hands of Willumstad and those like him. The patron replaces payments by students, or, as it should be, the State, by attracting money from sources that if not outright inhabitants of the culture of liquidation still treat the institution as if it were something like a profit-making corporation. The Adelphi faculty and indeed much of the Adelphi administration seem to have little sense of the exposed position in which Adelphi now finds itself. As one steeped in the culture of liquidation, Wilumstad can hardly be expected to have an interest in delivering quality faculty who offer a true experience of learning to students seeking a "higher education." Indeed, as I plan to address in another entry, the culture of liquidity seeks only liquidity; i.e., money.
Ultimately the widespread movement--well beyond little Adelphi--toward the evisceration of universities writ large, signals a scary advance of what McMurtry (2013) refers to as a cancer system that is attacking contemporary social life in almost all its crucial aspects. "[T]he life-host is increasingly plundered, but the cancer is masked from immune recognition or response." This blog, like Adelphi, is a little fish for sure, but recognition if not yet a coherent response I think is right now beginning to break out in many social domains, not the least of which is higher education. I do hope that in its own microscopic way then that this blog can contribute to such a recognition.
McMurtry, John.. 2013. The Cancer Stage of Capitalism. Pluto Press.
Entry 8 will be posted September 10, 2013
Comments, questions, counterpoints, constructive criticism and suggested topics are always welcome.
WAR WHAT IS IT GOOD FOR? ABSOLUTELY NOTHING!
August 20, 2013 - by David Gleicher
A question raised by the previous entry--see Whitney's comment--is, What of other cases like Adelphi?, where there is a Chair of the Board of Trustees possibly a major figure in the banking system and the present owner of a large private equity firm, or ancillary financial institution. I don't know of any schools like Adelphi in quite this situation, although I would not be surprised if there were others of various sorts.
There are many controversies surrounding universities who have Trustees that own private equity (and/or hedge) funds, and have contracts managing the university's finances, notably its endowment. But Adelphi--and countless other private colleges and universities that rarely are reported on except locally--is primarily financed by tuition. Therefore it is not so prone to this particular corruption. And I have it on good authority that there are no dealings between Adelphi and Byrsam Global Partners.
There is however an interesting case that in itself is certainly not predictive, but nonetheless might give the Adelphi faculty and alumni some pause. It also reveals I believe the peculiarly cancerous nature of the culture of liquidation generally.
In 2009 Richard K. Davis was elected to be Chair of the Board of Trustees of the Minnesota State Orchestra (MNO). Davis was (and is) the President and CEO of Bancorps Investment Inc., located in Minneapolis St. Paul. Also on the Orchestra's Board is Jon Campbell, executive vice-president of Wells Fargo. When the musicians' contract was up for negotiation in 2011 Davis, acting as chief negotiator, demanded draconian cuts in base pay of 32% along with other financial reductions. The Board claimed a sudden deficit, a claim that was later rescinded however.When his terms were not accepted he took the extreme act of locking out the musicians. No movement away from these initial demands has occurred since. (See Eisenberg, 2013; Hogstad, 2013).
The lockout is almost a year old by now and the orchestra has been decimated. Almost every important position in it, including the conductor, has either been vacated or is in the process of being vacated. The Board seems not only unconcerned about this, but has provided financial incentives for musicians over 55 to leave. The orchestra in reality is unlikely to be restored to its previous caliber soon, or ever, particularly if the salaries agreed to are not competitive. The MNO musicians describe it as "suicide by cop".
Similarly, the musicians shake their heads at the absurdity of the Board's "edifice complex." The same Board that raised huge amounts of money (dwarfing the supposed deficit) on a building project during the time Davis was first on the Board, then tries to save money by sacrificing the quality of the music being created.
While the musicians may be rightly perplexed, it is striking that Davis is acting just like an equity firm that has gained control of a corporation. It drastically moves immediately to cut payments to labor. However in this special case--but shared with a university faculty--it can be more aptly conceived as liquidating the most valuable component of the orchestra. Via the lock-out Davis seeks to sell off his musicians by relieving the firm of their salaries. The firm will purchase cheaper ones instead, and thus the net in-flow of money will be increased.
As to the revenue side, there is the suggestion that to Davis the orchestra in its own right is a "loss-leader." Davis sees himself as owner of a "patron-development business." From that point of view, to the extent that a building project can bring in large donations, it is seen as an inflow of revenue from patrons.
Davis's seeming strategy captures what Karen Ho has identified as a key to the culture of liquidation. The latter relies on a worship of money for its own sake. A good is how much money I can get for it. The cancerous nature of this comes from the fact that money not spent is a cipher. That is, money for its own sake is empty. Thus those within this culture empty the orchestra members who cannot really worship music or the university faculty members that cannot really worship learning.
More on the culture of liquidation next time.
Hogstad, Emily. Questions remain about fiscal performance of Minnesota orchestra's board, management. Mnn Post 5/31/13
Eisenberg, Jonathan. How management's self-inflicted wounds are killing Minnesota's two world class orchestras--and what to do about it. Mnn Post 6/10/13
Entry 7 will be posted September 3, 2013
Comments, questions, counterpoints, constructive criticism and suggested topics always welcome.
August 13, 2013 - by David Gleicher
What are the implications of Robert Willumstad--former president and COO of Citigroup and, briefly, CEO of AIG--becoming chairman of the Adelphi Board of Trustees? It is necessary in the first instance to take into account not simply, or even primarily, Willumstand's significant role in the economic crisis of 2007/2008. Rather, what matters is the role he currently plays within the powerful private financial sector of the economy, how that motivates him with regard to a university like Adelphi.
In 2007 Willumstad founded and now manages a private equity firm in partnership with an old cohort of his at Citigroup, the former chairman and CEO of Citigroup's Global Consumer Group. It is called Brysam Global Partnership.
In its usual more narrow sense a private equity firm is a relatively unregulated fund that tactically finances control of corporations by purchasing their stock, so as to gain shareholder control. The firm's basic strategy is short-run liquidation of the corporation by driving up the stock price and selling back the shares. While that strategy can conceivably be realized by real cost efficiencies boosting profits, this is rarely the case, because the strategy is short-term.
And besides, the managers of the fund lay no claim to any great insight into the corporation itself. To the contrary, the managers of the corporation are anathema to those who run the private equity fund. The latter view the corporate heads as acting in their own self-interest at the expense of the share-holders. The only thing the equity firm is interested in is liquidation.
Instead of efficiencies, then, the equity firm typically inflates quarterly profits by drastically cutting labor costs; breaking unions, laying off workers, cutting wages, raiding pension funds and so on. It also creates quick revenues by selling off high-valued components of the corporation. In many cases, then, an otherwise healthy corporation is greatly weakened or destroyed in the long-run for no rational economic reason, even as the equity firm flourishes.
Karen Ho in her path-breaking work, Liquidated: an Ethnography of Wall Street (2009) gets to the heart of this matter: "[T]he sole concern for the stock price creates an environment and understanding of total fungibility: that is, ... the entire organization (from pension funds to jobs) becomes a site for transferring, exchanging, and selling in order to quickly increase the stock's value. The entire organization becomes a site for potential liquidation, and not surprisingly, the corporation as a liquid transfer site for stock price appreciation is usually unsustainable" (2009: 150-51).
Is this what is in store for Adelphi? How? I don't know. But having someone like that as chairman of the board does trouble me greatly.
Yes, we are a non-profit without shareholders (but not without Trustees). However, the control of institutions other than corporations and even the control of individuals, upon which liquidation as a strategy is predicated, does not apply exclusively to controlling ownership of shares. The Citigroup Consumer Group itself was a pioneer in the practice of attracting debt--credit card, mortgage, payday loan etc., laden with fees and at usurious rates that cannot be met, causing accelerating penalties and ultimately claims on salaries and bankruptcies. This strategy has come to dominate the credit card industry.
In any case, what does one suppose someone like Robert Wallumstad conceives Adelphi University to even be. If not a cow to be milked, then what?
2009. Ho,Karen. Liquidated: an Ethnography of Wall Street. Duke University Press
Entry 6 will be posted Tuesday, August 20,2013
Comments, questions, counterpoints, constructive criticism and suggested topics are always welcome.
August 06, 2013 - by David Gleicher
I begin with a contemporary parable of university life these days.
A clearly wealthy woman is in conversation with a brief acquaintance concerning her luxury apartment on the East-side of Manhattan. She has been completely occupied with re-doing it ever since she bought it, she is telling the acquaintance, and finally "It is exactly, exactly the way I wanted it, it is finally perfect, nothing, nothing can make it more perfect." And then there is a gleam from her eyes visible to the perplexed acquaintance, and she says ith conviction: "And now is just the time to sell!"
I arrived at Adelphi in 1981 just as the golden-age of the post-War 'Western' economies suddenly was coming to an end. The thirty-one years of my life as a professor has included a myriad of various truly intellectual interactions with a stream of students roughly between the ages of 18 to 22 many of them from outside the US, with almost always a few for many hours over 2, 3 or 4 years. At the same time over these 31 years I have always been continually subject to a feeling that Adelphi could be so much more as an institution of learning if only those who spoke and acted n its name took it seriously as an institution of learning.
A key source of this alienation,when I first came, and to some extent still, has been Boards of Trustees dominated by businessmen. Many of them are local with something straightforward to gain from the university. Recent changes in the nature of the Board is something of great interest that I will get back to in due course. However, both then and now with few exceptions members of the Board either see the institution as a plain investment, or based on their own experiences as businessmen, naturally conceptualize it as a corporation, of which they are not so much trustees as they are directors.
It is lost on them that that the activity of learning--the search for understanding--is what John McMurtry (2013: 1) calls an "objective life-ground of value across individuals and cultures." And that they are trustees not of capital but of the gift of learning itself.
The Glass-Steagall repeal moment at Adelphi occurred in the nineties (circa 1991). The faculty's priority in the governance of academic realms, as was written in the faculty contract, was fought in contract negotiations by the President and Board from 1985 until finally the faculty gave in, agreeing to its publication as a separate document. The Presidents and Boards since then have had free reign to make academic decisions, notably when it comes to tenure decisions (not to say renewals of non-tenured faculty contracts), as well as in taking a more direct hand in shaping of the overall curriculum. Hence, more than ever the conception of the institution as a corporation pervades Adelphi, although--short of converting into a for-profit university--it actually is not one.
By the first decade of the new century, as the economy hurtled toward crisis, there has been constantly heard by everyone a loud voice centered in the Provost's office, but its two-pronged force obviously coming from the President and the Board. And moreover it is heard in universities all over the country. One prong is outcome assessment, and the other, digital technology both in and out of the classroom and more and more, instead of the classroom altogether.
There is little interest (outside of schools of education) in the first of these on the part of university faculty virtually anywhere, the consensus being that it is inevitably a flawed endeavor. As for technology, the question in any particular case is whether its purpose is to enhance learning or instead to reduce costs, and many faculty reject the latter. The point is that the focus on these aspects of the learning experience not only did not emanate from serious educators, it arose from presidents and boards of all sorts of universities. A kind of internal campaign being waged anonymously and for purposes that are not obvious.
I myself had puzzled over this a bit during these recent years, and from time to time I was outspoken in my opposition to assessment. Also I personally rejected many of the applications of technology as detrimental to learning. Like many of my colleagues, however, I mostly looked the other way. Therefore while I later did vaguely remember noting to myself in 2005 that Adelphi had awarded Robert Willumstad of all people an honorary degree, and moreover that he'd been elected to the Board of Trustees, I still didn't think much about it. I missed altogether Willumstad's rise in 2007 to Vice-Chairman of the Board.
My awakening, and one of the main reason I am writing this blog, occurred last year. An announcement joyously swept the Adelphi campus. Robert Willumstad, one of the major figures in running Citi-group in the period from 1998 leading up to the crisis in 2007and 2008, and now the owner of a large equity firm, is giving a 9.5 million dollar gift to the Adelphi School of Business, which will now be named after him. What's more, Robert Willumstad has been elected Chairman of the Adelphi Board of Trustees. TO BE CONTINUED ...
Book Reference: John McMurtry, 2013. The Cancer Stage of Capitalism. Pluto Press.
Entry 5 will be posted Tues. August 13
Comments, questions, counterpoints, constructive criticisms and suggested topics are always welcome.
July 23, 2013 - by David Gleicher
Some remarks on some of the comments.
First however, FYI: There have been some 600 to 700 hits on each of the first two entries of this blog. Looking through the Crack is linked by both Linked-In and the URPE list-serve. If you know of other possible "distributers" please let me know. Also, you might want to know that in addition to discussions like these first two entries I intend to devote a considerable amount of space to the forces of economics and finance that I see first-hand acting upon Adelphi University. Even for readers outside the Adelphi community--especially faculty and students elsewhere--this should be of some interest as a case-study in process of a kind of school that is not written about very often, but in many ways is more representative of higher education than those (like the Ivies and the large State universities) that are.
Thanks for the kind comments, very encouraging. Randall Wray e-mailed me, with words that touched my own heart: "What I wonder is why you understand what we are trying to say, while many "heterodox" economists spend all their time attacking us."
To Whitney: I've been planning to look into the matter of cases of a sovereign currency State that does not tax the public's income (including value-added taxes and the like). I know the Soviet Union created money to pay for all its expenditures, no security markets either, and I don't think it was particularly problematic. This is so different than contemporary market economies however that it isn't much help.. For one thing, is the Soviet Union a sovereign currency State at all? (Not when it came to the West.) The United States until 1913 did not have a Federal income tax--in fact such a tax was viewed as unconstitutional--but there again the economy was so different in the late-18th through much of the 19th century--a bi-metal standard and then gold, and in many respects still a a confederacy--that it does not have much application to, let us say, the US in 2013. If anyone knows more about this I'd be really pleased to hear from them.
To hn: Price inflation might be a problem during the transition away from Federal taxation, insofar as household disposable income would of course go up generating more demand. However, phased out over a number of business cycles, or something along those lines, would provide in the transitional period a stimulus during the recessionary phases without any deleterious increase in prices Beyond that the State can act to attract greater savings out of disposable income by offering low-price (high interest) securities. Also, states, cities and other municipalities might raise local taxes during the period to finance infrastructure, education, housing and the like.
The idea that money is created by taxation, which is found in MMT writings, is illusory. It moves their thinking down the wrong path, spuriously re-connecting taxes and government spending. To see this, take the interesting example of Social Security. The latter actually is not dependent on a payroll tax dedicated to a special Social Security fund. The State can and does transfer money from the fund, just like it does from the Fed, into the Treasury account. And in turn it adds (non-negotiable) securities into the fund. Thus the State can just easily make the payments directly to the beneficiaries by transferring the money from the Fed. There is no real purpose to either the fund or the tax. A retiree in the current system is not assured payments because there is a surplus in a fund, what matters is that the fund is guaranteed by the sovereign-currency State.
Recommended Book: Eisner, Robert. 1998. Social Security More not Less. Twentieth Century Fund
Entry 4 will be posted Tuesday August 6
Comments, questions, counterpoints, constructive criticism and suggested topics are always welcome
July 16, 2013 - by David Gleicher
I left you, my newfound and much-loved readers with a question. What is it about modern money theory (MMT) that leads a NY Times reporter to identify it as the fringe of economic thinking, a departure even from Keynesian thought let alone the neoliberal orthodoxy, and about which even for those with some knowledge of economics, the tenets of the modern money can make your head spin.
Well, the metaphor of a spinning head is definitely apt and here's the reason. What the MMT economists have done is to bring to the fore the implication of a plain fact about the sovereign-currency market economies, epitomized by the US. This fact has existed since 1913, establishment of the Federal Reserve (central bank), and without qualification since the last remnant of the gold standard was removed by Nixon 42 years ago.
The State via the Federal government can and does create money at will, i.e., without cost; and this is the true basis of government spending. Not taxes.
Of course as anyone familiar with economics or finance knows--and which therefore does not make the heads of Times reports spin--the Federal Reserve can lend money that swells the deposits in large banking institutions. But that's not what is being discussed here. The more important contribution might better be termed a modern fiscal theory.
What the fact is about is that, depending on how much it wishes to spend, the Federal government transfers a sufficiently large number, constituting money, from the Fed to the Treasury Dept.'s account at the Fed. Just like any checking account you or I might have, the Treasury can either write checks on that number, make electronic transfers, or it can even turn it into cash, famously known as printing money. These transfers into the Treasury's account are marked by the issuing of State-guaranteed securities, new equity given to the Fed, about which I return to momentarily.
That this is a fact, other than the actual observation of it, is not difficult to confirm. No less an authority that the CBO (Congressional Budget Office) measures the so-called national debt by subtracting the government securities held by the Fed from the total. The official measure is 9 trillion not the oft-stated 16 trillion because of this. You can see why this is done. The State-issued securities held by the Fed require interest payments. These come out of the Federal budget. The government can pay the interest, like any other payment, by shifting a money number into its account, marking this by issuing new securities of course. That money number then is shifted back to the Fed as payment of the interest.
To the Times reporter: If that causes your head to spin, MMT is not the culprit. You might report on a culture that cannot face the truth that the State does not need to borrow or collect taxes to pay for things. In the words of a leading MMT thinker, L. Randell Wray, the government does not face an affordability constraint ... [The government] can afford anything for sale in its own currency. (2012: 184).For this reason MMT economists are critical of Krugman for always qualifying his call for a demand-led Keynesian policy at the moment, by saying that when the crisis has ended there will be a need to deal with the national debt.
If one is to criticize the MMT economists it is not that it spins heads, but to the contrary that it does not spin them enough. In particular their failure to recognize the enormous effect of disconnecting taxes from government spending in the public discourse. Ultimately it opens up a new way of viewing the contemporary State.
For one thing, the response to Krugman is not that the debt is limitless. It is that there is no such things as State debt at all. At least in the normal sense that repaying a debt--if it is to be a debt--must have a cost to the borrower. There is a total of outstanding government securities measured in money that the State is obligated to make payments on. Rather than debt, leaving out those held by the Fed, the public has available to it uniquely risk-free assets precisely because the State can create money at will.
There is a much deeper implication of the disconnection, however, surprisingly rejected by many MMT economists. It takes us well beyond the fringe, not to say the scope of this blog. I touch upon if concluding.
The fact that the State creates money at will implies that there is no necessary purpose in the Federal government collecting taxes out of private income at all. (Federal taxation of corporations as means of internalizing negative externalities would of course continue to have a purpose however.) Both money creation and connected to it sale of risk-free securities are a sufficient basis of government spending. Eliminating taxes unties public discourse on the State from issues of spending and tax receipts, the lynch-pin of neoliberal austerity policies. It is freed to address how best the State can meet its real debt, its obligation to promote the general welfare. Insuring basic entitlements like health care, education and living incomes and in general life and the pursuit of happiness.
Reference Wray, L. Randall. 2012. Modern Money Theory
Entry 3 will be posted on Tuesday, July 23
Comments, questions, counterpoints, constructive criticism and suggested topics are always welcome.
July 09, 2013 - by David Gleicher
Ring the bells that still can ring
Forget your perfect offering
There is a crack,
a crack in everything
That's how the light gets in …
That’s how the light gets in
-- L. Cohen
You might want to read a NY Times article, by Annie Lowrey, that appeared last Friday (July 5) on the front page of the Business Section, under the heading A Deficit Lover with a Following: A Hedge Fund Manager Financing an Academic Battle Against Austerity.
Never mind the hook that Warren Mosley, a hedge fund manager, is a leading advocate of a contemporary economic school of thought deemed unfavorable to his own interests, or at least the interests of his class (the 1%). Of greater import the piece provides a basically accurate but oblique landscape of academic economists when it comes to the current economic crisis. Lowrey writes: Mr. Mosler’s ideas, which go under the label of “modern monetary theory,” or M.M.T., are clearly on the fringe, drawing skeptical reactions even from many Liberal Keynesian economists who agree with some of their arguments. But they have attracted a growing following, flourishing on the Internet and in a handful of academic outposts.
This is all well and good, but how many of even the relatively educated readers of the Times know what the content is of the labels M.M.T. and Liberal Keynesian. In other words the M.M.T is a fringe of what?
M.M.T. and Keynesian theory are each built on a pair of foundational problems posed by John Maynard Keynes, and together lead to the same basic policy implication. In this sense then, both sets of economists are Keynesians. On the other hand, economists who advocate austerity policies, generally referred to as neoliberals, reject both of these, as problems, either out of hand, or in the long-run.
- The problem of effective demand: firms will not produce more goods if it projects that the goods will not be profitably sold.
- The problem of unemployment: the less goods being produced by firms the less individuals they will be hiring.
When these problems exist, as in the current crisis, Keynesian economists advocate a policy of creating demand, stimulating the economy, by increasing government expenditures, including public investment. This counters the first of these problems, and--aided by a multiplier effect—solves the second, achieving near-full employment, that being the primary object of the policy. This is to say, the government demands more goods, such as purchasing additional military weapons, or it increases its direct payments of money to the public, for example extending unemployment benefits.
Following the two principles, firms react then by increasing production which in turn increases employment. The multiplier effect occurs because in the process of expanding production and employment, incomes to employees and firms rise, and, independent of the government, and that in turn creates more demand, and thereby further expansion of production and employment.
The Keynesian viewpoint is voiced in the Times op-ed page regularly by Paul Krugman, a Nobel Prize winner who writes almost exclusively on the current crisis, and who certainly fits the label of Liberal Keynesian. To those of you who don’t already read Krugman’s column I definitely recommend it to you.
Confined to the general policy of stimulating the economy by increasing effective demand, predicated on the two foundational problems, M.M.T. is not at all on the fringe of contemporary economic thought. And aside from M.M.T. economists themselves, Liberal Keynesians, typified by Krugman, are very well represented in major universities and various non-profit institutions, the influential Congressional Budget Office employs Keynesian models, especially for short-term forecasts, and moreover, there are many economists who would not describe themselves as Keynesian but nonetheless concede that the short-run Keynesian policy of creating demand in the midst of the present crisis is desperately needed.
What then is the M.M.T.’s departure from Keynesian (not to say neoliberal) thought, one that places it so far out of the mainstream—the fringe--that, in the words of Lowry, even for those with some knowledge of economics, the tenets of the modern monetary theory can make your head spin? TO BE CONTINUED …
2008. Keynes and Macroeconomics after 70 Years. L. Randall Wray and Matthew Forstater (eds.), Edward Elgar.
Entry 2 will be posted Tuesday July 16, 2013
Comments, questions, counterpoints, constructive criticisms and suggested topics are always welcome