Saturday, July 27, 2013

Deer in the Headlights II: A Proposal

Yesterday we saw with interest an Aaron Task/Daily Ticker interview of Meredith Whitney. Ms Whitney is a banking analyst who now manages her own advisory firm. She is a frequent contributor to business and financial news, especially after she publicly and correctly called out Citigroup in 2007 for overexposure in the sub-prime mortgage lending market.

Her most recent comments are about Detroit's bankruptcy. We like the fact that there really is a general consensus about what happened to Detroit. Both Ms Whitney and are part of that consensus. The facts are pretty straightforward and few deny them. See our most recent post Deer in the Headlights, for example – for which this is a companion piece.

We also like some of the details she noted. For example, she commented that the rich and businesses are the first to leave when an area starts having difficulties. This parallels what we pointed out in our Loyalties post and elsewhere. She also said that this left mainly the poor behind in Detroit, living in a welfare state and in conditions that are approaching third-world status.

Related to this, here is a quote from her 2013 book Fate of the States (which came out prior to the Detroit bankruptcy):
"The housing industry that drove growth in America for the past thirty years is a perfect example of the new velocity of capital. Banks and home builders do not stay the course. When home prices start dropping, they pick up stakes and search for new markets. There is no loyalty ..."
The basic premise in her book, however, is that, roughly speaking, the economies of the East Coast states and the West Coast states will be hobbled for years by poor economic policies and too many obligations. The economic hope for the U.S. is growth in the "fly-over" states in the middle of the country, from Texas to North Dakota, because of their better economic policies.

What we do not like about Ms Whitney's analysis (and many similar ones) is that it both glosses over the losers in these processes and it does not point out the obvious lesson for the future: what happened on the Coasts and to Detroit will eventually happen to the heartland unless significant changes are made. In fact she talks about boom and bust cycles as natural events, resulting in the ongoing creation of boom towns that later become ghost towns.

The idea is that big money moves into a promising area, then "strip-mines" it and the lives of its people for wealth. When prospects look better elsewhere, they leave and take their wealth with them. What is left is human detritus with little hope for the future. This process is a sort of demented ongoing rapture in which the rich are transported to heaven and the poor are left behind to deal with the apocalypse. says that this is unacceptable. It is unacceptable to build and then devastate a sequence of cities like Detroit, filling our landscape with economically burned-out places where once-wealthy workers have to live in near third-world conditions. Allowing it seems like a bland acceptance of a dystopic future in which eventually most of the nation will be impoverished. We feel certain that is not what Ms Whitney and other financial analysts desire, but perhaps their "deer in the headlights" acceptance of it indicates that they see no way out. Or perhaps, being trained to think on what is now the "wrong" side of capitalism, they do not even believe that there is a way out.

That is what is about – providing a way out. Ms Whitney still believes in having a single currency, but that will no longer do. The people of Detroit are chained to their poverty by that single currency. Like Greece they cannot earn enough of it to dig their way out of the economic hole that their leadership dumped them in.

The first step then is to define Detroit as a geographic region which will have its own markets and currency. The purpose is to get money in the hands of the people again, however valueless it might be at first in the external economy. Money is the lifeblood of the markets, and Detroit has been bled out. The economic heart of Detroit will not beat again without enough money as lifeblood, but that money cannot be in external U.S. dollars. If a bailout were possible, it would have been done already.

By using an internal currency, the people of Detroit would live in a market economy again instead of a demoralizing welfare, third-world state in the middle of the wealthy U.S. Detroit's markets might be small and protected, but their markets would encourage them to improve their lives by their own efforts to earn more. We must restore their faith in the markets to provide jobs. Therefore we must make sure that there are more jobs than there are able-bodied persons in Detroit.

Supply and demand for Detroit would at first be managed by the nation as a whole, as represented by the federal government. Naturally, not all people and businesses in Detroit need to be part of the internal markets, but many will need to be. The federal government will provide for their needs by buying for them collectively in the external markets and then selling to them individually in the internal markets. The federal government will also provide for their incomes by collectively "buying" jobs for them in the external markets and then making sure that the hiring is done in the internal Detroit markets.

This should be enough to get economically-sick Detroit back on the road to recovery. A transfusion of money within exclusive and protected markets should do. We do not believe that the full program of "mutually exclusive currencies and markets" is necessary in this case. For example, we do not think that the guarantee of basic living requirements is advisable at this point, even though it possibly could replace pensions and be a solution for pension problems in the Detroit budget.

It is expected that this program would run at a deficit for a while until the people of Detroit regain their productivity and start to build wealth. It would not be a bailout, however, and it would not be charity. Workers would get what they earn. We think that is important. Rather than handouts, it would just be a chance for the people of Detroit to enrich themselves once again by their own efforts. But our leaders will have to think of capitalism and finance in new ways. Traditional solutions based on thinking from "the wrong side of capitalism" will not do any more.

Finally, Detroit could be a proving ground for the program. A lot of experience would be gained regarding the systems and processes needed to handle exclusive currencies and internal markets. It would also be a chance to show that people are never to be treated as just detritus of the economic process. No one should be left behind just because the big economic machines have moved on.

That is the key, after all. As we said in the first Deer in the Headlights posting, one purpose of our government is to protect its people (Detroit) from being wiped out, economically or otherwise. It is a balancing act, however, because it is also important to keep competitive capitalism going. Therefore we should not ignore Detroit's problems but neither should we bail Detroit out. We need an intermediate solution that keeps the markets going and the people working. If we cannot do it with standard U.S. dollars, then we have to find another way. At, we have an alternative and we do not know anyone else who does.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

Copyright © 2013 TheOtherSideOfCapitalism

Saturday, July 20, 2013

Deer in the Headlights

There are those of us at who have had the experience of hitting a deer while driving on a dark interstate highway. The maddening part of it is that the headlights thing is not a myth. A deer does get mesmerized by the headlights and changes lanes with you, zeroing in on you as if trying to make sure that you will not miss.

In some sublime way, the workings of politics seems to parallel the workings of a deer's brain when faced by headlights in the dark. When disaster threatens, political systems often seem to steer right into it like some crazed, suicidal machine. Let us take the recent bankruptcy of Detroit as a case in point.

It is not like Detroit's bankruptcy was a surprise. Detroit's decline has been going on for decades, maybe as long as 70 years. The population was around 2 million in 1950, but has declined to less than half that. The rich auto industry moved away. Unemployment is over twice the national average. And so on, but we will not chronicle the decline of Detroit here, or ask how it came about.

We think the more important question is, if Detroit's management saw disaster coming for decades, tried to take action, and still failed to avoid it, their failure makes us question the financial management of government at all levels. Especially the federal level. When we look at the upcoming financial disasters, are we collectively even as intelligent as a deer facing headlights?

For example, take the federal debt, Social Security, Medicare, and the growth rate of healthcare costs. None of these are sustainable, yet the only actions taken are essentially emergency measures designed to put off disaster for a while. Kick the can down the road. It may be that our society's "deer in the headlights" response to our problems is simply a result of our politicians' desire to put off disaster until they are safely retired.

Another reason may be that the rich have immunized themselves against serious problems in the U.S. economy. As we have said several times before in our blog posts, the rich are free to run away. They move into an area because of financial opportunities and they exploit it for all it's worth. Then when the law of diminishing returns plateaus profits, or when rising taxes does the same thing, they move and take the majority of the wealth elsewhere.

Is that not what happened to Detroit? The auto manufacturers did not leave Detroit entirely, but they invested their wealth elsewhere. There was no significant loyalty to Detroit or its people. The bailouts of GM and Chrysler even with the recent recovery of auto sales has not helped Detroit avoid bankruptcy. When Detroit started into decline, the rich ran away from it, one by one, over a period of decades. Exploitation over. Poverty takes over.

The same thing can happen to the U.S. as a whole, if it is not happening already. Many do not seem to realize it. The international rich have been exploiting the U.S. for so long that the population as a whole still feels safe, economically. Good old American ingenuity and hard work will dig us out of any economic holes.

That feeling of safety is false. Think about it – if it were true, then we would have had sustained growth of wealth for the poor and middle class before the Great Recession. That did not happen even though the rich did have sustained growth of their wealth. The same thing is happening today, years after the official end of the Great Recession. American ingenuity and hard work are failing.

If you have been reading, then you are already aware that the chain holding us down is the U.S. dollar. As our single currency, it forces us to compete on an individual level in the same markets as the rich and it forces us to play by their rules.

One way to look at this is in terms of freedom. The political left has always had a better appreciation for the relationship between freedom and economics than the political right.

Freedom is about options. The more freedom you have, the more kinds of choices you can make and the more options you have for each type of choice. Take for example prisoners in jail. They do not choose their environment or their companions, they cannot choose where to go or when, they do not choose their food, and they have little control over what happens to them. Their freedom is limited by walls, locked doors, and guards.

By comparison, even those who are poor but free have a lot more options to choose from than prisoners. However, the poor have many fewer choices than the rich. In this way, only the rich are truly free and the poor are prisoners in a jail made of poverty. They are told that they can gain freedom like the rich by working hard and saving money. That raises a lot of hackles because it evokes not just the fascist notion that "work will make you free," but it is also a lie, again like other fascist lies. The poor cannot defend what wealth they accumulate, so the rich can take even what they have away from them. As the song says, "Freedom's just another word for nothing left to lose."

It becomes increasingly difficult over time to accumulate wealth in a society with lots of wealthy people and a competitive market. As the rich get richer, the market becomes unbalanced.

A good metaphor for this might be the game of Monopoly (the Hasbro game). The idea is that all the players start out with the same amount of money, then they roll dice to move their pieces around the board, buying and developing real estate. Players try to acquire money and property until they gain an unassailable advantage and go on to bankrupt all the other players, winning the game. The point is that what starts as a fair game naturally ends up becoming totally unbalanced, with an obvious winner and many obvious losers. After one or two players become dominant, the other players usually quit to start another game. Playing the rest of the game would be a painful exercise in futility, except for the winner. One difference between this and real life is that in real life, you have to play out your losing position to the bitter end.

Real life is also worse in another way. At least things start out fair in the game. In real life you can start out as a loser and never have a hope of "winning." So many lives in human history have been played out to the bitter end in painful futility.

Suppose we changed the Monopoly game to be more like real life. Let us make it a totally unfair game. Imagine that a few "wealthy" players already own the bank and the majority of the money before the game starts. The rest of the players are "poor" and have to skip some turns so they can "work" to earn a little capital to finance their real estate investments. The results are obvious to anyone who has played the game – one of the "wealthy" players would win the game almost every time.

Translating the unfair game to reality, it is like the situation that the U.S. African American community has faced. Yes, they were freed from slavery, but they found that did not mean freedom in the American sense. They had no money and everything was already owned by someone else. The result was a hundred years or more of segregation by law. Even after segregation ended, every African American child brought into the world faced the equivalent of the unfair Monopoly game mentioned above. To be U.S. society's designated losers for centuries has had a profound impact.

This is not just about African Americans, however. Any of those borne in the U.S. without money to support them is in a similar position – but at least without the racial discrimination.

However, let us see what happens if we stretch the "unfair Monopoly" metaphor to cover's proposals. There would be multiple currencies controlled by the government and multiple real estate markets. The poor would work to earn an internal currency that the rich cannot own ... or control. Instead of having to compete on their own with the rich for housing, government agencies would represent them collectively to obtain necessities in the external markets. That is, the rich would have to compete with a government agent that controls all the wealth, advantages, and choices that they do. The government would also regulate the banks. Finally, the government could never be bankrupted in this new game. Despite all their advantages, the rich could never drive everyone else out of the game.

Let the rich bankrupt one another in their external markets if that is their goal. The government has to play the game differently for the sake of the people. The point is for the government not to ruin the people. The government's role is to keep the game going for the benefit of everyone and prevent that final, winning monopoly. In those conditions, the unfair game becomes much more fair.

Without multiple exclusive currencies and markets, however, both the people and the government must buy and sell in the same market as the rich. The government cannot protect the people from exploitation if the people have to buy and sell as individuals in direct competition with the rich. In this unfair game, the poor will almost always lose. The only thing the government can do then is try to help the poor recover from their losses. This is bad for the poor, bad for the government, and even bad for the rich, if they will just see it. has said before that the hardest concept to get across is the requirement for multiple exclusive currencies. We hope that this comparison of the fair game with the unfair game has helped. It is important, because the only way we see to change the "deer in the headlights," self-destructive behavior of our own government is to change the game itself and make it truly fair. In the end, there was no real need for Detroit to go bankrupt. If the system were in place, the debt problems of internal U.S. cities would be handled using internal currencies supported by the national government. Health benefits, pensions, and retirement systems would not be at risk like they are today. The people could build wealth and have real hope of keeping it.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

Copyright © 2013 TheOtherSideOfCapitalism

Saturday, July 13, 2013

The 24/7 Manager

We touched on the topic of management losing touch with reality in our earlier blog post The 24/7 Worker. Now is a good time to expand on that theme. See the Leslie Scism article on the front page of the The Wall Street Journal, weekend July 6-7, 2013, about 88-year-old Hank Greenberg, the former CEO of AIG.

Decorated war veteran and successful businessman, Mr. Greenberg deserves a lot of praise. He is described this way: "... a commanding presence ... dominated the insurance industry ... one of the most powerful executives ... often-brusque, hard-charging boss known for boundless energy ... impatience with managers, analysts and others who didn't live up to his standards. ... tough boss ... 'I wouldn't ask anybody to do anything I wouldn't do.'"

Making that statement of course raises the question what Mr. Greenberg would and would not do.

The article later continues "At AIG, Mr. Greenberg was legendary for placing phone calls to his managers at odd hours ... He always has been in 'in the business 24/7,' said Howard Smith, a former AIG chief financial officer ..."

It seems clear that one of the things Mr. Greenberg will do is wake his subordinates up at night. Also, he is in the business 24/7 and that is what he demands of his employees. Except that he asks something of them that he does not ask of himself: work the hours of the CEO without the pay of the CEO.

Mr. Greenberg seems to be rich, certainly, but here we think of him as a manager. There are many who consider him the very model of a modern major manager. A lot of managers want to be like him and lead like him.

The trouble is that he is also a jerk. Still fearfully climbing the ladder of success at the age of 88, presumably still waking up his employees at all hours when he feels like it, and still punishing those who do not live up to his standards. It is worth wondering what future his kind of thinking will lead to.

To some extent, we already know. Mr. Greenberg and those like him have been running U.S. companies for decades. All those commanding, dominating, hard-charging managers led us straight into the Great Recession, with bailouts for their rich companies like AIG. The poor lost their jobs, their houses, and their retirement funds, but they will still be taxed to pay for the bailouts.

The following frankly is a somewhat extreme view of management based on our reading and on our personal experiences. Blogging sometimes forces us to simplify far too much in order to get a point across in the space available. Please keep in mind while reading this that we do not believe managers are evil. They are necessary and important, but right now they are agents of the rich and as such, they have too much control over the lives of the rest of us.

The trouble is that U.S. managers buy into the notion that extreme wealth is economic heaven and extreme poverty is economic hell. Between the two are ladders with managers in the higher places and workers in the lower places. Everyone is supposed to try to climb into economic heaven. The competition is to pull down the people above you and keep kicking those lower than you in the face so that they cannot pull you down. The ladders form a hierarchy of economic fear from top to bottom. Managers believe in the use of fear as a weapon against others and try to defend themselves from its use against them.

There is little that managers will not do to maintain their positions. They tend toward sociopathy; see for example Profile of the Sociopath. Glib, charming, manipulative, secretive, ambitious, willing to lie and mislead, willing to take control, willing to suppress their consciences, and unwilling to take blame. This describes a lot of managers we have known. Case in point: managers will frequently tell workers that they need them even if they know that layoffs are planned. That is, they have to lie for the benefit of the company, attempting to keep workers pinned in place until the company is ready to get rid of them.

If you cannot lie convincingly, you should not try to be a manager in the world today. Likewise if you are unwilling to conform your ethics to the company ethics. Likewise if it bothers you to kick people into economic hell. Ask yourself what kind of people are able to do these things. Friedrich Hayek has a chapter in his book Road to Serfdom titled "Why the Worst Get on Top." We were tempted to title this post "Why the Worst Get to be Managers."

If nothing else, lying in the service of your organization loosens your hold on reality.

Beyond that, keep in mind that getting rid of workers is what companies always want to do. They do not exist to employ people, after all. Their interest is in ever-increasing earnings and ever-decreasing costs, and that is what they ask their managers to achieve. Best for them is maximum earnings with zero costs, meaning zero workers. No wages at all, consigning ever-increasing numbers of former workers to economic hell. Increasing the population of hell is not their goal, we will give them that, but it is a consequence of their kind of "progress."

Suppose that we could take away basic economic fear. Suppose that no one could be consigned to economic hell any more. That is our vision at

We need competition, yes, but we do not need competition that breaks up families and puts people on the streets because of the mistakes of the rich and the pathological and antisocial behavior of the managers they hire.

We do need competition to keep people from becoming lazy. People need goals to accomplish. Therefore does not believe that we should try to make everyone equally wealthy. That is, we do not want to get rid of economic heaven. We want to get rid of economic hell.

People should be encouraged to climb the economic ladder, but they should not be whipped by fear to do so. The lowest level of economic life should be acceptable but not desirable. That way, the importance of staying on the ladder will not be so great. Managers would not be able to threaten workers with economic hell. We think that over time, manager behavior would start to change, with more leadership and fewer threats. That would be good for both managers and workers, with fewer traumatized workers and more humane managers. That is, we want to change the economic hierarchy from one of fear into one of hope.

Read our many other posts for more details how we would go about it. The basic change would be the creation of internal markets and currencies to protect the jobs and wealth of the poor from the economic shenanigans of the rich and their managers. The rich and their managers would be consigned to the external market. On the other hand, becoming extremely rich could only occur in the external markets, because the internal markets must be balanced by government regulations in order to protect them. Therefore the extremely ambitious could still attempt to satisfy their ambitions by going into the external market. The difference is that the internal markets would be the safety nets for the economic ladder. They would catch anyone who fell off. The consequences of failure would no longer include the risk falling into economic hell.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

Copyright © 2013 TheOtherSideOfCapitalism

Sunday, July 7, 2013

Tosoc Update

Sorry, there is no regular blog post this week.  There have just been too many distractions.

We are working on 'The 24/7 Manager' as a companion to one of our previous posts, The 24/7 Worker.  The inspiration for this one comes from Leslie Scism's front page article in this weekend's Wall Street Journal about former AIG boss Hank Greenberg.  In it she quotes former AIG CFO Howard Smith saying that Mr. Greenberg has always been "in the business 24/7."