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.

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