The Velocity of Money… and Revolution

If you’re perfectly comfy with the economy’s gyrations, then pay no attention as I explain what’s actually going on. Economists have been recognizing signs of serious dislocation for some time. Even right-of-center fellows like newsletter mavens John Mauldin and Lacy Hunt have finally recognized the core indications. I wish I could share their excellent newsletters with you. But – at some risk of misinterpreting or even treating them unfairly – I intend to paraphrase. And criticize.

A recent Mauldin missive correctly cites the most disturbing symptom of trouble in the U.S. economy: a plummet in Money Velocity (MV).

To quote John:  “You may be asking, what exactly is the velocity of money? Essentially, it’s the frequency with which the same dollar changes hands because the holders of the dollar use it to buy something. Higher velocity means more economic activity, which usually means higher growth. So it is somewhat disturbing to see velocity now at its lowest point since 1949, and at levels associated with the Great Depression.”

Somewhat… disturbing? That’s at-best an understatement, since no other economic indicator is as telling. MV is about a bridge repair worker buying furniture, that lets a furniture maker get dentures, so a dentist can pay her cleaning lady, who buys groceries….

There are rare occasions when MV can be too high, as during the 1970s hyper-inflation, when Jimmy Carter told Paul Volcker “Cure this, and to hell with my re-election.”  But those times are rare. Generally, for all our lives, Money Velocity has been declining into dangerous sluggishness, falling hard since the 80s, rising a little in the 90s, then plummeting.

Alas, while fellows like Hunt and Mauldin are at last pointing at this worrisome symptom, they remain in frantic denial over the cause. Absolutely, it is wealth disparity that destroys money velocity. Bridge repair workers and dentists would spend money – if they had any.

We have known - ever since Adam Smith gazed across the last 4000 years - that a feudal oligarchy does not invest in productive capacity. Nor does it spend much on goods or services that have large multiplier effects (that give middle class wage earners a chance to keep money moving). Instead, aristocrats have always tended to put their extra wealth into rentier (or passive rent-seeking) property, or else parasitic-crony-vampiric cheating through abuse of state power.

See my earlier posting: Must the Rich be Lured into Investing?

== Situation Normal: Cheating Flows Up ==

Do not let so-called “tea party” confederate lackeys divert you. The U.S. Revolution was against a King and Parliament and royal cronies who commanded all American commerce to pass through their ports and docks and stores, who demanded that consumer goods like tea be sold through monopolies and even paper be stamped to ensure it came from a royal pal. Try actually reading the Declaration of Independence. “Taxation without representation” was about how an oligarchy controlled Parliament through jiggered districts and cheating, and used that power to funnel wealth upward.

Here’s a fact that shows where we came from… and might be going: over a third of the land in the thirteen colonies was owned – tax-free – by aristocratic families.

The U.S. Founders fought back. After their successful revolt, they redistributed fully a quarter of the wealth and land, and they did it calmly, without the tsunami of blood that soon flowed in France, then Russia, then China. That militantly moderate style of revolution actually worked far better at fostering positive outcomes for all. For the people… and yes, for local aristocratic families, who retained comforts, some advantages. And their heads.

Nor was that the only time Americans had to push back against proto-feudal cheating, which we now know erupts straight out of human nature. The Civil War was certainly a massive ‘wealth redistribution’ by giving millions of people ownership of their own lives and bodies. During the 1890s Gilded Age, we avoided radical revolution in favor of reform – e.g. anti-trust laws.

Our parents in the Greatest Generation – who adored FDR – sought to prevent communism by keeping market enterprise flat, competitive and fair. Far less radical than the Founders, their reforms created the flattest social structure and the most fantastic burst of economic prosperity, ever.

And dismantling the work of that generation has been the core aim of the confederate aristocracy, since Reagan.

== Dire beasties! Debt and the Fed ==

But let me share with you more of the myopia of decent men. John Mauldin continues: “Debt is another big issue for Lacy Hunt. People compare debt to addictive drugs, and as with some of those drugs, the dose needed to achieve the desired effect tends to rise over time.”

John then shows a chart (he always has the best charts!) revealing the additional economic output (GDP) generated by each additional dollar of business debt in the US. Needless to say, the effectiveness of each dollar of debt, at growing healthy companies, has plummeted.

Um…. Duh? Once upon a time, the purpose of corporate debt was to gather capital to invest in new productive capacity (factories, stores, infrastructure and worker training), with an aim to sell more/better goods and services that would then produce healthy margins that pay off the debt, across a reasonable ROI (Return on Investment) horizon.

This would then actually decrease the net ratio of debt to company value, across a sapient period of a decade or so.  This approach still holds, in a few tech industries, but not wherever companies have been taken over by an MBA-CEO caste devoted to Milton Friedman’s devastating cult of the quarterly stock-price statement.

Today, companies borrow in order to finance stock buybacks, market-cornering mergers and other tricks that our ancestors (again, in the Greatest Generation or “GGs”) wisely outlawed. Tricks that GOP deregulatory "reforms" restored to the armory of cheaters. Tricks that enable the CEO caste to inflate stock prices and meet their golden incentive parachutes, with the added plum of pumping rewards for their Wall Street pals who arrange the debt. 

Every parasitic act of “arbitrage” is justified with semantically-empty incantations like “correct price determination” – mumbo-jumbo spells that bear absolutely zero correlation with reality.

No wonder each added dose of debt is ineffective at actually growing long-term company value! What’s so hard to understand? Why are Mauldin and Hunt puzzled? 

Oh, yeah. They are honest and sincere men, at last able to perceive symptoms. But alas, they are also far too stubborn to acknowledge the root disease -- a conspiratorial cabal of would-be feudal lords. Loyal to a fault... (well, these plutocratic connivers are their friends)… John and other residually-sapient conservatives choose denial over admitting that Adam Smith had it right, all along.

Instead, Mauldin focuses again and again on his chosen Bête Noir … the Federal Reserve, even though the Fed has almost insignificant power over any of the things we’ve discussed here.  It’s Congress – Republican for all but two of the last 23 years – who sent U.S. fiscal health plummeting, from black ink to red that’s deeper than an M Class dwarf star. Congress did this while devastating every protection against monopoly/duopoly or financial conspiracy.

== Misunderstanding your own icons and heroes ==

Consider that Friedrich Hayek – often touted as the “opposite to Keynes” – actually agreed with John Maynard Keynes about many things, like the need for a very wide distribution of economic decision-makers. In an ideal market, this would be all consumers, empowered with all information. (There goes Brin’s broken record, repeating “transparency!” over and over.) Though yes, a 21^st Century Keynsian will call for a government role in (1) counter-cyclical stimulation and (2) inclusion of externalities, like the health of our children’s children and their planet. (Note the spectacular success of the greatest modern Keynsian politician, California's Jerry Brown.)

Hayek complained that 500,000 dispersed and closely watched civil servants could never substitute for the distributed wisdom of an unleashed marketplace of billions. Hm. Well, that’s arguable. But so?

What does the right offer up, as its alternative? A far, far smaller, incestuous cabal of a few hundred secretly-colluding golf buddies in a circle-jerking CEO caste? That’s gonna allocate according to widely-distributed market wisdom?

Hayek spins in his grave.

This selfsame CEO-caste went on a drunken debt spree that blatantly served the cabal and not their companies, nor the economy or civilization.

Blaming the Federal Reserve for that is like condemning the owners of a liquor store for all the drunk drivers crushing pedestrians. Sure, the low price of booze might have contributed, but it’s not the primal cause. Oh. And yes, it’s been Congress that keeps funneling wealth from the middle class into gaping, oligarchic maws.

== Some of these guys almost get it ==

How I wish I could share John Mauldin’s newsletter with you! It’s smart! I mean it. I always learn a lot, the charts are excellent. Moreover, I get self-pats on my own back, for assiduously reading the smartest commentators that I can find, from every side. Also, John’s a cool dude and way fun. I read every word and its maybe 70% real-smart stuff!

(For contrast, see the super-smart liberal “Evonomics” site; the place where Adam Smith is most-discussed and would be most at-home.)

Moreover, John does honestly acknowledge – forced by the blatantly obvious - that income and wealth disparities are problematic and rising, while money velocity plummets.

Only then he goes to the newest catechism of the rationalizing right… arm-waving that technology is at fault. 

Yes, okay, automation has a depressing effect on middle class wages. So? Then it is time for a conversation about the social contract again. Like how to keep the middle class “bourgeois” – by keeping them vested in shared ownership of the means – as well as output – of production. It’s what the Greatest Generation did, while troglodytes accused them of “communism.” The most-entrepreneurial generation in history, they were far from commies.

== Some in-yer-face time ==

Okay, it’s that time again; so let me talk again directly to the confederate/feudal elites aiming to restore inherited hierarchies of old. This is no longer about Mauldin, but the would-be overlords standing right in front of him, in his blind spot.

Dear oligarch-traitors. Let me avow that human nature and history seem to be on your side. Our experiment in flat-fair-open systems always had the odds stacked against it. Hence, you feudalists will probably get your wish. Briefly. The middle class will very likely fall into proletarian poverty while you rake it all in.

Your evident plan is to leverage new technologies to entrench oligarchic rule, right? I depict something like it in EXISTENCE, though done by far smarter zillionaires than you.

Only – was it really part of the plan to wage open war on every single fact-using profession? Now including not just science and journalism and law, but the FBI, intelligence agencies and the military officer corps?  And all the folks who are innovating in genetics and artificial intelligence, too? Really? Are you that confident?

Or else, perhaps you are like so many past lords -- so lulled by sycophants that you cannot hear Karl Marx chuckling, as he rises from his mere-nap. (Copies of his works are flying off the shelves, faster than any time since the 1970s.) If so, you may get much more than you bargained for. More revolution than any sane person would want.

Adam Smith wasn’t the only one to seek a way out of this dilemma. Nor were the U.S. Founders. Will Durant – one of the greatest historians – said this, in his book, "The Lessons of History":


“In progressive societies the concentration (of wealth) may reach a point where the strength of number in the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or by revolution distributing poverty.”

The recent “great” time for America was built by moderate, if somewhat leveling, legislation. The Greatest Generation chose a Rooseveltean alternative to violent revolution. And it worked -- inarguably, spectacularly -- till cheating once more gained the upper hand.

Me? I stand with the Founders. With Adam Smith and a flat-fair-open market society filled with opportunity for all and grand, cheat-advantages for none. A relatively-flat society that still has loads of incentives. One wherein true competition among healthy-confident equals can thrive, pouring a positive-sum cornucopia for everyone.

And now, yes, “equals” must include all previously-squelched sources of talent – genders, races and the raised-up/blameless children of the poor.

You confederates, you are the traitors to that flat-fair-open-accountable Better Capitalism. The form that stood up to Marx and quelled him to sleep. The only kind of market system that can withstand the coming wind, when he awakens.

I stand with the Greatest Generation… and greater ones to come.  

I stand with the moderate, scientific, flat-fair revolution that accepts facts and complexity and denies simplistic incantations. Moreover, that moderate/calm/eclectic kind of revolutionary numbers in the tens… hundreds of millions. We include nearly all of the most-skilled, and our growing cadre hears the alarum.

We awaken. We rise. And you had better welcome this. Because it will either be our reforms or the tumbrels of Robespierres.

Choose.

Cheating, oligarchy - and an uneven playing field

Below, I'll weigh in in why it doesn't matter at all if some in the FBI or on Mueller's team dislike Donald Trump.  But first, let's talk about te great news being celebrated by the world's owner-caste, right now in Davos. Their biggest investment has paid off.

Now that the Tax Cut for the Oligarchy has passed, watch the pattern of the last several decades play out. The GOP has controlled Congress for all but two of the last 24 years, setting new records for indolence, sloth and corruption, as respect for that institution plummeted and only cheats like gerrymandering keep their grip on power. 

But they are always hard-working - even manic - on one topic. They can be relied upon to deliver "supply side" gifts to their uber-rich lords. For example:

"GOP mega-donor Charles Koch and his wife donated about $500,000 to Speaker Paul Ryan’s (R-Wis.) joint fundraising committee, days after the GOP tax plan was passed... lowering the corporate tax rate and estate taxes....  He and his wife also gave $237,000 each to the National Republican Congressional Committee on the same day..."  

Drain the swamp? There have never been better days for K Street lobbying firms.

To be clear, some tax cuts are different than others. It would be harder to argue against cuts that were actually aimed at achieving - in real life - the fantasy goals of every Supply Side gift to the rich. When cuts are targeted to incentivize R&D, or investment in productive capital, or export sales or job growth, these things historically happened, resulting in economic stimulus on the "supply side." So why did this GOP tax cut (and nearly all of the others) do none of those things?  Not even some infrastructure spending that might prevent a recession?

As Adam Smith described... and every sane economist knows... most plutocrats won't invest in such things, when they get a big new slug of cash. Instead, it nearly always goes to inflating "rent-seeking," passive asset bubbles. (Anyone notice the stock market? Or how passive rentier income was way-advantaged in the Tax Bill, over wages or innovation?) 

The top trend subsidized by Supply Side "reforms" -- after skyrocketing wealth disparity -- has always been ever-shorter ROI (Return of Investment) horizons.

Note: that's diametrically opposite to the long range view of guys like Elon Musk or Bill Gates or Jeff Bezos, who got super rich by working with engineers to deliver better goods and services. Guess which political party these innovator billionaires are never part of?

== Real entrepreneurs know this... ==

Fully 50% of our economy derives value and function from the prodigiously creative innovation that Americans performed since before the Second World War. That trait defeated Hitler, ended the Depression, won the Cold War, built a great middle class and - more importantly - kept the greatest general peace the world ever knew. It made the U.S. so rich that we could uplift most of the planet through our ironically-beneficent trade deficits: buying anything the world wanted to sell us and thus transforming their nations, cities and lives.

It took us to the moon and made our existence vastly more interesting, putting all the world’s knowledge at our fingertips! Those who would directly undermine our national penchant for innovation are - therefore - at-best fools and at-worst outright traitors.

And you know that I mean the “T-word” literally. It is the only conceivable explanation for the Mad Right’s outright and open War on Science — along with every single other fact-centered profession.  There is only one reason for them to do that… to eliminate any competing elites who might counterbalance a return to 6000 years of feudal power.

New York Times

Now look at an article Lost Einsteins: The Innovations We're Missing, by David Leonhardt in the New York Times - which included a national map that uses one metric — number of patents per 1,000 children — to elicit obvious… well, just look at the map and see what thoughts are roused.

Now I have some reservations about the article itself. It hollers so, over the glass-half-empty that the author fails to note how full it is! This is the core insanity of liberalism. If writers like this were more balanced - giving us glimpses of good news, as well - then Fox & idiots would not control the narrative, so.

Consider this: right wingers -- and the prevalent Dumb Wing of Libertarianism -- sneer at liberal efforts toward equal rights for all genders/races etc. They deride this great project as based on sappy do-gooderism or else sanctimony. They style themselves to be the “practical” ones.

But what is practical about wasting talent? What could be less “libertarian” than pre-biasing a child’s outcome based on traits for which she had no choice, and thus preventing her from proving herself with accomplishment? Thumbing the scale so that the number of skilled/confident competitors is minimized? That was the trick of feudalists for 60 centuries, and shame on every faux-libertarian who justifies it! Even if Ayn Rand approves, Adam Smith and Friedrich Hayek despise you.

There are many aspects to this problem, such as the failure of our leaders to stand up to those overseas who steal our innovations hand over fist. Some of that is to be expected - Americans were I.P. thieves in the 19th century - but the insatiably rapacious extremes of recent years are so predatory that they are tantamount to war. Tantamount to stupidity! Because the predators - unable to engender their own creative caste - are killing the goose that has laid their own golden eggs of development. And my biggest disappointment about Barack Obama was how tepidly he addressed that travesty.

Arnold Toynbee, arguably the greatest of all historians, said that the one trait shown by almost all nations that failed or collapsed was when they stopped investing and heeding their own "creative minorities."

Which leads us back to the glaring generality… that the wing of American political life that should care most about the health of innovative enterprise has become its worst enemy. Again, the recent Tax Bill wages open war on every single aspect of American ingenuity, creativity, science, R&D, and innovation, top-to-bottom, so systematically that its true author must have been some foreign despot.

== Prosecutors gotta prosecute... ==

As promised, here's the polemical point that no one seems able to make, in defense against the latest Fox-Mad harrangue about the Mueller probe.

Does anyone in politics or punditry have three neurons to scrape together? Trump supporters scream “bias!” because some at the FBI, or Fusion GPS, or or Robert Mueller’s team may have - despite Mueller’s scrupulous efforts - displayed distaste against DT or even Republicans. “Bias!” 

Alas, Trump opponents should have a trivial answer - one that no Democrat or journalist or independent public figure has spoken, to my knowledge. That answer is… “So?” I mean prosecutorial bias? Horrors! … Um, not!

Dig it, our justice system - like markets, democracy, science etc. - is designed to be adversarial! There is no need for investigators or prosecutors to be completely disinterested or impartial, so long as they follow well-know standards of conduct and eventually, before trial, subject their behavior to defense discovery and scrutiny. Eagerness to “get that guy” is their job!

Take Ken Starr, whose relentless pursuit of Bill Clinton cost the taxpayers upwards of a hundred million dollars, put the nation through hell, and finally came up with just one thing: a husband desperately fibbing about some consensual-adult 3rd-base infidelity in a hallway. That… was… it.

Sure, the whole Starr Chamber witch hunt was disgusting political theater, but among all the decrepit lunacies of that affair, the least noxious one was “these investigators blatantly dislike the guy they’re investigating.” Starr and his pack committed innumerable lies, torts and even criminal offenses. But enthusiasm for their goal was not one of them. So long as a skilled defense team has full access to every action and datum… and so long as the courts are fair and unbiased… then prosecutors should certainly want to succeed at prosecuting.

All of the current, desperate confederate whining against Mueller et. al. is far beyond hypocritical. It isn’t remotely logical! And it is a sign of the microcephalic stupidity of liberals, that they are unable to pause, perceive this counter-meme - and a myriad others - and actually respond with knife-like logic. 

Caught between evil-treason on one side and stupidity on the other… what can we do?

Well, get more folks to subscribe to Contrary Brin!

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== Addendum: Hayek would be so mad, by now... ==

I mentioned him earlier: How ironic that Friedrich Hayek is generally dismissed as an apologist for elimination of all market regulation, yet the liberal (leaning-Keynesian) economics site - Evonomics - explores Hayek’s views on both market theory and evolution with considerable respect. (Evonomics is also the one place, online, that most often studies and lauds Adam Smith!) In this conversation, several leaders in both economic theory and evolution start by praising Hayek’s revelations that markets are about information and how over-regulation is inherently fraught with errors that stymie the crowd- and open-sourced wisdom of markets.

Alas, Hayek thereupon was lured to the opposite extreme, as his arguments were used to justify elimination of regulations that kept markets flat-open-fair and competitive. If 500,000 civil servants are too narrow a clade to allocate economic resources well, then how is an incestuous, conniving-secretive and conspiratorially greedy CEO caste of golf buddies supposed to be more wise? 

Hayek’s criticisms of socialism applied cogently to Leninist regimes, but as these scholars point out, they’re much less meaningful when aimed at Norway.

“Regulations” that break up power concentrations (e.g. anti-trust action vs. monopolies and duopolies) are not suppressors of competitive enterprise, but rather gave birth to its golden age… as our parents in the Greatest Generation well-knew, before those beneficial and stimulative regulations were chopped away by right wing “reforms.” (Followed by collapsing growth rates.)

Hayek’s greatest failing? His inability to refer to the other great enemy of market enterprise, feudalism, which wrecked far more nations and economies than poor, dumb socialism could ever dream of. A flawed and stupid system that wrought hell in 99% of past cultures, feudalism is rooted in human temptation to cheat, and it appears to be roaring back. And the shills who work for the lords are - alas - really good at oversimplifying and misquoting Friedrich Hayek.

The fundamental is this: if markets work best when the maximum amount of information (and least deception) is acted upon by the widest diversity of market participants... then liberal policies that intervene to ensure all children get education, health care and infrastructure are best -- not for “goody-two-shoes” reasons but for entirely pragmatic and Hayekian-capitalist reasons! 

And "conservative" policies that empower a narrow caste of 5000 secretive-conniving golf buddies are the worst enemy that free and creative markets could possibly have.