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Game of Thrones

By Vijay Prashad. This article was first published on Frontline.

NICHOLAS KAMM/AFP President Donald Trump speaks at a rally at Orlando Melbourne International Airport, in Melbourne, Florida on February 18. The next day, Swedes reacted with confusion, anger and ridicule on to a vague remark by Trump at the rally that suggested that something terrible had occurred in their country.

IT is hard to predict what will happen in the Trump White House. A senior diplomat tells me that he would prefer to watch old episodes of House of Cards rather than watch news programmes. A veteran of the Barack Obama administration predicts that President Donald Trump will not last even a few months. The rigours of the actual presidency will wear him out. Trump likes the theatre, but he will not have the stomach for the grind. Speaking to a woman in the State Department is amusing. She says that the analysts suffer from whiplash. The political direction comes from Twitter in the rush of messages dispatched from the President early in the morning but then is modulated and shaped by his advisers later in the day. “We don’t know what is going on,” she said. These are all seasoned Washington, D.C., insiders. None of them sees anything normal about the Trump White House.

It would be easier to report on the Trump presidency if it were plagued by scandals. That is familiar territory. What you have instead is a power battle inside the Trump administration that does not seem capable of being controlled. This is more Game of Thrones than House of Cards. Chief of Staff Reince Priebus is at loggerheads with Chief Strategist Steve Bannon. White House counsellor Kellyanne Conway says things that are at odds with what is reported by White House press secretary Sean Spicer. Rumours flood Washington that various factions inside the Trump administration are leaking stories in order to damage their competitors. Trump, says one insider, is content being the emperor above them, a Mortal God who allows his underlings to wage a war of all against all. Trump, in his bathrobe, eating his Big Mac on a silver plate, watching television in the dark—he is a cross between the overestimated Wizard of Oz and the omnipotent Leviathan of Thomas Hobbes.

Meanwhile, Trump’s nominees for his Cabinet to run the major Ministries of the federal government idle their time. He has sent so many billionaires with such thin resumes and such thick ideological dispositions that the Senate, which has the right to oversee these appointments, simply cannot digest the information fast enough. The people who have taken their seats are stunningly incompetent or adversarial to their own posts. Betsy DeVos, the Education Secretary, is a billionaire who has financed campaigns against public education. Tom Price, the Health and Human Services Secretary, was a former Congressman who fought Obama’s health care plan as if it were the greatest threat to the United States. These are people with little broad credibility.

No wonder that James Mattis, the Defence Secretary, and Rex Tillerson, the Secretary of State, seem stable. Mattis believes against all evidence that Iran and the Islamic State—fundamental adversaries—are somehow allied. Tillerson, as head of Exxon, has shown little capacity for statesmanship outside corporate interest. Nonetheless, in comparison to the others, these men seem the epitome of distinction. As the ship of state splutters, these men struggle to control the tiller.

To Russia with love

It sometimes seems as if Russia, not the U.S., won the Cold War. Democratic Party politicians continue to suggest that Russia was able to sufficiently influence the election to prevent Hillary Clinton from winning. Suggestions of contacts between the Trump campaign and Russian intelligence bedevil the political discourse. The “deep state” in the U.S.—namely the intelligence agencies—has perhaps leaked sufficient information to damage quite seriously any possibility for Trump to ease the tension between the U.S. and Russia. The resignation of Trump’s National Security Adviser, Michael Flynn, was the first casualty of these leaks. Others will follow. The “deep state”, abused in public by Trump, will not be taken lightly. He made a grave error in crossing the Central Intelligence Agency (CIA) and its more mysterious cousins. They will make Trump pay.

Meanwhile, the National Security Council is in serious disarray. Trump’s closest ideological ally, Steve Bannon, has brought politics into the heart of what is often considered as a sanctum for intelligence and military analysts. They do not want domestic politics to intervene in their decision-making. This is their conceit. Bannon’s presence brings American political considerations into discussions of national security. Sitting near Bannon is an art historian with no experience in the world of intelligence or security. Professor Victoria Coates writes a blog at the RedState website and helped former Defence Secretary Donald Rumsfeld on his book. Perhaps she is there because she will help Trump digest the conversations. He likes one-page presentations “with lots of graphics and maps”, according to The New York Times. One official in the White House told the newspaper: “The President likes maps.” He is a deeply visual person. Reading irritates him. His ex-wife Ivana Trump once said that beside his bed, Trump kept a copy of Hitler’s Mein Kampf. One should rest assured that he most likely never read it.

It was perhaps reasonable for Trump to consider what the Americans call a “reset” on its policy with Russia. Tensions between the U.S. and Russia have damaged U.S. power both in Europe and in West Asia. Threats over the North Atlantic Treaty Organisation’s (NATO) expansion eastward have pushed countries inside Europe to either become more belligerent against Russia—and thereby damage relations with a major supplier of natural gas—or to move closer to Russia—and thereby threaten the unity of Europe. In the 1980s, the Soviet Union lost much of its toehold in North Africa and West Asia, particularly when the Egyptian government pivoted from the Soviet Union to the U.S. around 1979-80. Now, with U.S. policy in the region in disarray, the Russians have strengthened their position in Syria, Iran, Egypt and Libya. Trump’s theory of a reset was logical from the standpoint of U.S. power. It would have served to rein in Russian ambitions. But that is now in the past. It would be too suspicious for Trump to make a deal with the Russians. The “deep state” will insist that the bellicosity be maintained. Trump will preside over the further decline of American power.

Bibi and Donald

Israeli Prime Minister Benjamin Netanyahu and his wife, Sarah, are in deep trouble inside Israel. They face charges of corruption and might very well see the inside of a prison cell before Netanyahu, also known as Bibi, leaves office. This was the context of their visit to the U.S., where Trump gave them a royal welcome. They were photographed inside the Oval Office, sitting on the cream coloured chairs with Trump and his wife, Melania. It was as if the Trumps and the Netanyahus had not a care in the world.

At their joint press conference, Netanyahu seemed deeply enamoured of Trump. Bibi spoke in his customary baritone voice, but he laughed in a totally uncharacteristic way—almost flirtatiously. Trump fumbled his way through a discussion about Israel’s occupation of Palestine. He offered, with no real assessment, that the two-state solution was no longer U.S. policy. Netanyahu seemed to revel in this new period, with the idea that the Palestinian state was no longer on the table an appealing one for him. But this idea of the one-state solution should trouble all parties. What would it mean? No journalist was permitted to ask a question about this new reality. Would Israel annex the West Bank and East Jerusalem, both areas now treated as occupied territories under international law? If Israel does annex these areas, would the Palestinians who live there be granted full citizenship of Israel? If this happens, it is likely that the Palestinians in Israel would be in the demographic majority. The idea of the “Jewish State” would be annulled by the new facts on the ground. If Israel does not give the Palestinians full citizenship, then will the Palestinians of the annexed regions have to live in a permanent apartheid situation? Would the international community tolerate such apartheid rules? None of this was raised in the press conference, nor did the leaders explain it.

Trump was happy to be there with a man who fawned upon him. It made the press conference palatable. Facts are intolerable to Trump. He likes spin and perception. Adulation is what he requires. In a testy exchange with CNN’s Jim Acosta, Trump said: “I would be your biggest fan in the world if you treated me right.”

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Kenneth Arrow’s (Ignored) Impossibility Theorem

William K. Black, February 22, 2017     Bloomington, MN

Kenneth Arrow, one of the giants of economics, has died at the age of 95.  He became a Nobel Laureate in 1972.  As a young lawyer in 1977, I saw him in action as an expert witness on the subject of risk.  The context was setting the rates for shipping oil through the Trans-Alaska Pipeline System (TAPs).  Arrow testified about the risks of oil prices falling.  The FERC administrative law judge thought such a scenario was ridiculous.  Within four years, oil prices fell sharply.  Arrow’s experience was a common one for economists dealing with lawyers – the ALJ ignored him.

The New York Times obituary for Arrow is revealing about how the conventional wisdom distorts economic theory in a predictably skewed fashion.  It begins by discussing Arrow’s “impossibility theorem,” which states that where there are more than two choices it is impossible to construct perfect majority choice systems.

The author of the obit stressed the impossibility of such systems being optimal.  Contrast that emphasis with the author’s treatment of Arrow’s work on “general equilibrium.”

Professor Arrow proved that their system of equations mathematically cohere: Prices exist that bring all markets into simultaneous equilibrium (whereby every item produced at the equilibrium price would be voluntarily purchased). And market competition puts society’s resources to good use: Competitive markets are efficient, in the language of economists.

Professor Arrow’s theorems set out the precise conditions under which Adam Smith’s famous conjecture in “The Wealth of Nations” holds true: that the “invisible hand” of market competition among self-serving individuals serves society well.

That is one way to phrase it, but a more accurate, parallel way to phrase Arrow’s work on general equilibrium would be as an “impossibility theorem.”  Arrow actually proved that it was impossible for general equilibrium to occur.  The “precise conditions” in which economists can guarantee that a market transaction “serves society well” is the null set.  There is no market that meets those “precise conditions” because they are impossible to meet.

Market competition does not inherently “put society’s resources to good use” and “competitive markets” can be enormously inefficient.  In a Gresham’s dynamic, for example, the more competitive the market the more CEOs put society’s resources to bad uses and the more inefficient the results.  When hit men compete to murder spouses, the price of hiring hit men declines, but this does not serve society well and it is not efficient.  (The same is true for competition by cigarette company CEOs.  When companies prosper by increasing greenhouse gas emissions it, eventually, does not serve society well and it is not efficient.

The author of the obit accurately reflects the conventional economic wisdom in the two paragraphs that I quoted.  The conventional economic wisdom is flat out wrong.  As I have emphasized in prior posts, a prominent economist (who loves general equilibrium) admits that the conventional wisdom would only be true under the “silent” “assumption” that “God” mystically ensures that buyers and sellers do not act in a “self-serving” manner that harms society and reduces efficiency (Athreya 2013: 104).  We should call it the Arrow-Debreu-McKenzie (ADM) “impossibility theorem,” but instead orthodox economists make the hilarious (implicit) assumption that God loves laissez faire so much that he prevents all predation.  As Dr. Athreya phrases it, the “ADM God” prevents CEOs from even considering the possibility of predating on customers.

The author of the obit understands most of these points.

[Arrow] made clear, his powerful conclusions about the workings of competitive markets held true only under ideal — that is to say, unrealistic — assumptions.

His assumptions, for example, ruled out the existence of third-party effects: The sale of a product by Harry to Joe was assumed not to affect the well-being of Sally — an assumption routinely violated in the real world by, for example, the sale of products that harm the environment.

Note, however, that the author does not go back and correct his earlier errors and he never states that the ADM general equilibrium model shows that it is impossible for laissez faire to produce general equilibrium.

He also fails to inform readers that orthodox economists’ twin “dystopian” assumptions (Athreya 2013) make it impossible for laissez faire to guarantee either efficiency or socially desirable outcomes. The twin dystopian assumptions are self-interested behavior and rationality.  Orthodox economists such as N. Gregory Mankiw define actions by CEO, such as the refusal to “loot” the firm, as “irrational” rather than “moral” because it would harm the CEO’s “self-interest” (Akerlof & Romer 1993: 65).

The punch line to the defining economist joke is “assume a can opener.”  To “silently” assume an ADM God,” however, takes that joke to an unprecedented level worthy of a superlative humorist.

“Modern macro economists” have surpassed micro economists’ supreme act of humor.  Modern macro silently assumes an ADM God – and invariably describes its use of general equilibrium models as “rigorous.”  One imagines the rigor of “modern macro” proponents as they begin their incantations, using an analog to a pilot’s pre-flight checklist.  Step one:  silently assume an “ADM God.”  Step two: silently assume that the “ADM God” is the patron of laissez faire and acts rigorously to prevent any predation by CEOs (even though the express dystopian assumptions would produce widespread CEO predation).  Step three: Define steps 1 and 2 as the “rigorous” treatment of “micro foundations.”  Step four: chant the mantra endlessly and with a straight face.  Step five: do not fly on the ADM plane – and blame the crashes on “governmental interference” with the otherwise inerrant ADM checklist.

A last nerdy note.  The author of the obit stresses repeatedly how impressed he is by Arrow’s general equilibrium math.  The math only general equilibrium, however, because the model assumes away reality.  If the model attempted to deal with reality, without the “ADM God’s” aid, the math would produce indeterminacy or spiral away from equilibrium into bubbles and market breakdowns.  The math would also show that laissez faire is frequently criminogenic and would produce epidemics of elite fraud and other predatory abuse.  Arrow made his absurd assumptions in his model not because they reflected reality, or proved reliable in prediction, but to make the “system of equations mathematically cohere.”  When the math fails to explain reality and predict events it is a grave error (rather than a cause for celebration) when economists assume out of existence reality and torture the model until the math “coheres.”

The ultimate failure of economics as a field is to:

(1)  worship an economic model that is criminogenic,

(2)  hide that disaster from the public by assuming “silently” an “ADM God” that contradicts the model’s express assumption,

(3)  continue to worship and proselytize that model when its silent assumption of an “ADM God” repeatedly produces criminogenic policies and epic predictive failures, and

(4)  praise your models as “rigorous,” “scientific,” and “transparent,” and

(5)  define critics as anti-scientific and demand that their critiques be excluded as heresy.

Arrow was brilliant and well meaning.  We celebrate his life and mourn his passing.  The opportunity cost to our field is how much he could have accomplished had his research not been so distorted by neoclassical dogma.

 

 

 

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Is the Vault 7 Source a Whistleblower?

By Jesselyn Radack. This article was first published on Expose Facts.

It is the leakiest of times in the Executive Branch. Last week, Wikileaks published a massive and, by all accounts genuine, trove of documents revealing that the CIA has been stockpiling, and lost control of, hacking tools it uses against targets. Particularly noteworthy were the revelations that the CIA developed a tool to hack Samsung TVs and turn them into recording devices and that the CIA worked to infiltrate both Apple and Google smart phone operating systems since it could not break encryption. No one in government has challenged the authenticity of the documents disclosed.

We do not know the identity of the source or sources, nor can we be 100% certain of his or her motivations. Wikileaks writes that the source sent a statement that policy questions “urgently need to be debated in public, including whether the CIA’s hacking capabilities exceed its mandated powers and the problem of public oversight of the agency” and that the source “wishes to initiate a public debate about the security, creation, use, proliferation and democratic control of cyber-weapons.”

The FBI has already begun hunting down the source as part of a criminal leak investigation. Historically, the criminal justice system has been a particularly inept judge of who is a whistleblower. Moreover, it has allowed the use of the pernicious Espionage Act—an arcane law meant to go after spies—to go after whistleblowers who reveal information the public interest. My client, former NSA senior official Thomas Drake, was prosecuted under the Espionage Act, only to later be widely recognized as a whistleblower. There is no public interest defense to Espionage Act charges, and courts have ruled that a whistleblower’s motive, however salutary, is irrelevant to determining guilt.

The Intelligence Community is an equally bad judge of who is a whistleblower, and has a vested interest in giving no positive reinforcement to those who air its dirty laundry. The Intelligence Community reflexively claims that anyone who makes public secret information is not a whistleblower. Former NSA and CIA Director General Michael V. Hayden speculated that the recent leaks are to be blamed on young millennials harboring some disrespect for the venerable intelligence agencies responsible for mass surveillance and torture. Not only is his speculation speculative, but it’s proven wrong by the fact that whistleblowers who go to the press span the generational spectrum from Pentagon Papers whistleblower Daniel Ellsberg to mid-career and senior level public servants like CIA torture whistleblower John Kiriakou and NSA whistleblower Thomas Drake to early-career millennials like Army whistleblower Chelsea Manning and NSA whistleblower Edward Snowden. The lawbreaker does not get to decide who is a whistleblower.

Not all leaks of information are whistleblowing, and the word “whistleblower” is a loaded term, so whether or not the Vault 7 source conceives of him or herself as a whistleblower is not a particularly pertinent inquiry. The label “whistleblower” does not convey some mythical power or goodness, or some “moral narcissism,” a term used to describe me when I blew the whistle. Rather, whether an action is whistleblowing depends on whether or not the information disclosed is in the public interest and reveals fraud, waste, abuse, illegality or dangers to public health and safety. Even if some of the information revealed does not qualify, it should be remembered that whistleblowers are often faulted with being over- or under-inclusive with their disclosures. Again, it is the quality of the information, not the quantity, nor the character of the source.

Already, the information in the Vault 7 documents revealed that the Intelligence Community has misled the American people. In the wake of Snowden’s revelations, the Intelligence Community committed to avoid the stockpiling of technological vulnerabilities, publicly claiming that its bias was toward “disclosing them” so as to better protect everyone’s privacy. However, the Vault 7 documents reveal just the opposite: not only has the CIA been stockpiling exploits, it has been aggressively working to undermine our Internet security. Even assuming the CIA is using its hacking tools against the right targets, a pause-worthy presumption given the agency’s checkered history, the CIA has empowered the rest of the hacker world and foreign adversaries by hoarding vulnerabilities, and thereby undermined the privacy rights of all Americans and millions of innocent people around the world. Democracy depends on an informed citizenry, and journalistic sources—whether they call themselves whistleblowers or not—are a critical component when the government uses national security as justification to keep so much of its activities hidden from public view.

As we learn more about the Vault 7 source and the disclosures, our focus should be on the substance of the disclosures. Historically, the government’s reflexive instinct is to shoot the messenger, pathologize the whistleblower, and drill down on his or her motives, while the transparency community holds its breath that he or she will turn out to be pure as the driven snow. But that’s all deflection from plumbing the much more difficult questions, which are: Should the CIA be allowed to conduct these activities, and should it be doing so in secret without any public oversight?

These are questions we would not even be asking without the Vault 7 source.

About Jesselyn Radack

Jesselyn Radack is a national security and human rights attorney who heads the “Whistleblower & Source Protection” project at ExposeFacts. Twitter: @jesselynradack

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Bank of International Settlements Paper Confirms That High Levels of Household Debt Hurt Growth

By Yves Smith. This article was first published on Naked Capitalism.

We’ve written from time to time that not all debt is created equal. Prudent business borrowing enables companies to make investments and expand operations. And even though governments like the US that issue their own currency may nevertheless sell bonds, operationally they can simply create more dough to fund spending. The constraint on spending is creating too much inflation, not bankruptcy. And since as we’ve regularly discussed, the business sector chronically underinvests, deficit spending is necessary and desirable most of the time. Economist Mariana Mazzucato has argued that there are certain risks, such as engaging in basic research, where the uncertainty is too great for entrepreneurs. And that’s before getting to the fact that the party that makes the discovery could easily see its technology exploited by free riders.

However, economic studies have regularly found that high levels of household debt is a negative for economic growth. Moreover, some economists have found a strong relationship between high levels of consumer debt and economic crises. Yet if you read the business press, analysts and government officials see rising consumer borrowing as a plus for growth. How does that make sense?

A recent Bank of International Settlements paper (hat tip UserFriendly) helps reconcile this apparent paradox. The immediate impact of household borrowing does indeed spur the economy near-term but creates drag down the road. And the level at which household borrowing becomes a net negative is 60% of GDP, when nearly all advanced economies are at higher levels. Worse, the dampening effect is more pronounced when the household debt to GDP level exceeds 80% The BIS puts the US as above that threshold

From the study by Marco Lombardi, Madhusudan Mohanty and Ilhyock Shim:

Our results suggest that debt boosts consumption and GDP growth in the short run, with the bulk of the impact of increased indebtedness passing through the real economy in the space of one year. However, the long-run negative effects of debt eventually outweigh their short-term positive effects, with household debt accumulation ultimately proving to be a drag on growth. Our estimates suggest that a 1 percentage point increase in the household debt-to-GDP ratio tends to lower output growth in the long run by 0.1 percentage point, suggesting that policy makers face non-trivial, real costs in stimulating the economy through credit expansion. These findings are robust to alternative lag structures and control variables. Our analysis of the threshold effect suggests that the negative long-run impact of household debt on consumption growth intensifies as the household debt-to-GDP ratio exceeds a threshold of 60%. The estimated threshold is somewhat larger for GDP growth, with the negative debt effects intensifying as the household debt-to-GDP ratio exceeds 80%.

And what did they find explained most of the differences among the 54 countries they studied from 1990 to 2015? How much power the lenders had in forcing borrowers to pay them back:

Another interesting aspect of our results is the role of country-specific characteristics in determining debt limits. One key result is that the only institutional factor able to account for cross-country variation is the degree of legal protection of creditors. In particular, we find that countries with stronger creditor protection tend to experience more drag on long-run growth from higher levels of household indebtedness. We interpret this result as implying that in countries with stronger creditor rights, household borrowers are less likely to default on their loans and more likely to service their debt in the long run. This reduces consumption growth and eventually GDP growth to the extent that banks in the countries do not sufficiently reduce ex ante their loan spreads in consideration of higher expected earnings due to stronger creditor rights.

Note that this paper isn’t set up to capture what amounts to changes in the legal regime. In particular, in the US, mortgage borrowers had the belief, which historically was sound, that if they got into trouble, as in had a work interruption or a financial emergency, that the bank would work with them, as they do with business borrowers who have a bad spell but look to be viable in the long run. That went out the window with the rise of mortgage servicing, since the servicers found it more profitable to foreclose than modify loans, even though the investors would also do better with a successful mortgage modification than a foreclosure sale.

And you can see that in this chart. The US has supposedly had the largest post-crisis household deleveraging of any advanced economy, and much of that was involuntary, meaning the result of foreclosures. Banks also became stringent post crisis about issuing new mortgages, more the result of typical behavior and the need to strengthen their balance sheets than the favorite scapegoat of regulations:

And even with all of its deleveraging, the US is still just above the 80% level1:

The researchers tried to decompose long versus short-term effects:

The right-hand panel of Graph 3 makes two points very clear. First, past increases in household debt are not a good predictor of positive growth but appear to be associated with weaker consumption and higher risks of recession. Second, the downward-sloping line suggests that the negative correlation between household debt and consumption actually strengthens over time, following a surge in household borrowing. What is striking is that the negative correlation coefficient nearly doubles between the first and the fifth year following the increase in household debt.

As is well known, simple correlation does not suggest anything about the causal effects. That said, the preliminary evidence in Graph 3 appears to support the view that credit expansions may have very different effects on the short- and medium-run economic prospects of countries. It also confirms the findings of King (1994) that large increases in private debt in the 1980s made many OECD countries vulnerable to problems of weak growth and “debt deflation”. He shows that the most severe recessions since the 1930s have occurred in countries that have seen the largest increases in private debt in the preceding five years.

If you like nerdy papers, you’ll enjoy the data analysis here. In addition to using several different methodologies to examine the data, they also tested extensively for cross-country explanatory variables and robustness.

The authors point to the open policy questions at the end:

An important question, on which this paper is largely silent, is the role of various factors in the accumulation of household debt.20 One key issue in the context of the risk-taking channel of monetary policy (Borio and Zhu (2012)) is the extent to which low short- and long-term rates over the past eight years may have played a role in the recent rapid rise in household debt in many countries and may even have constrained central banks in raising rates. Even though such a question remains beyond the purview of this paper, any assessment must consider the various short- and long-run effects associated with any strategy aimed at stimulating the economy through ever larger debt levels.

Let us offer our own bit of speculation from ECONNED in 2010:

Let’s use a different metaphor to illustrate the problem. Say a biotech firm creates a wonder crop, the most amazing creation in the history of agriculture. It yields far more calories per acre than anything else, is nutritionally extremely complete, and can be planted and harvested with far less machinery and equipment than any other plant. It is tasty and can be prepared in a wide variety of ways. It is sweet too, so it can be used in place of sugar and high fructose corn syrup at lower cost. We’ll call this XCrop.

XCrop is added as a new element in the food pyramid and endorsed by nutritionists and public health officials all over the globe. It turns out that XCrop also is an aphrodisiac and a stimulant (hmm, wonder how they engineered that in) and between enhanced libido and more abundant food supplies, the world population rises at a faster rate.

Sales of XCrop boom, displacing traditional agriculture. A large amount of farmland is turned over from growing other types of produce to XCrop. XCrop is so efficient that agricultural land is taken out of production and turned to other uses, such as housing, malls, and parks. While some old-fashioned farms
still exist, they are on a much smaller scale and a lot of the providers of equipment to traditional farms have gone out of business.

Twenty years into the widespread use of XCrop, doctors discover that diabetes and some peculiar new hormonal ailments are growing at an explosive rate. It turns out they are highly correlated with the level of XCrop consumption in an individual’s diet. Long-term consumption of high levels of XCrop interferes with the pituitary gland, which controls almost all the other endocrine glands in the body and the pancreas.

The public faces a health crisis and no way back. It would be very difficult and costly to put the repurposed farmland back into production. Some of the types of equipment needed for old-fashioned farming are no longer made. And with the population so much larger than before, you’d need even more farm- land than before. The world population has become dependent on the calories produced by XCrop, so going off it quickly means starvation for some. But staying on it is toxic too. And expecting users simply to restrain themselves will likely prove difficult. The aphrodisiac and stimulant effects of XCrop make it addictive.

Advanced economies have become hooked on debt technology, which, like XCrop, is habit forming and hard to wean oneself off of due to its lower cost and the fact that other approaches have fallen into partial disuse (for instance, use of FICO-based credit scoring has displaced evaluations that include an assessment of the borrower’s character and knowledge of the community, such as stability of his employer). In fact, the current debt technology results in information loss, via disincentives to do a thorough job of borrower due diligence (why bother if you are reselling the paper?) and monitoring of the credit over the life of the loan. And the proposed fixes are not workable. The Obama proposal, that the originator retain 5% of the deal and take correspondingly lower fees, is not high enough to change behavior. And a level that would be high enough to make the originator feel the impact of a bad decision would undercut the cost efficiencies that made securitization popular in the first place. You’d have better decisions, but less lending, and higher interest rates. That’s ultimately a desirable outcome, but as in the XCrop situation, no one seems prepared to accept that a move to healthier practices will result in much more costly and less readily available debt.The authorities want to believe they can somehow have their cake and eat it too.

Note this hasn’t proven to be quite correct; the most rapidly growing category of consumer debt post crisis has been student debt. With most loans government guaranteed, investors have no credit concerns…but the high level of delinquencies and defaults attests to the severity of that ticking time bomb. And we have the more immediate effect that generous student loans simply produce more college education cost bloat, while leaving many graduates with debt burdens that in many cases keep them from getting married, buying a house, and starting a family, and can wind up being a millstone.

Yet both parties shy away from addressing this issue. The Democrats are particularly complicit since academia serves as an informal but very large addition to their think-tank apparatus. Where is our William Jennings Bryant, who will talk about a cross of debt?

__________
1 Bear in mind that the researchers made adjustments for consistency, which may explain why their figures for the US, which exclude student debt (they consider only borrowings made via banks, while the Federal government makes the majority of student loans via colleges) come up with a higher debt to GDP ratio than if you take the New York Fed’s quarterly report on household debt for year end 2016, and divide that by the fourth quarter GDP just released.

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When Was America Great?

By Andrew Levine. This article was first published on Counterpunch.

Photo by Nicolas Raymond | CC BY 2.0

Photo by Nicolas Raymond | CC BY 2.0

Donald Trump ran for President on the slogan “Make America Great Again,” implying that America had been great once, but no longer is.

True to form, Hillary Clinton’s rejoinder was clueless.  America is great now, she would insist every chance she got — indispensably great, “exceptional” even.

Could there be a more empty-headed exchange of views!

After all, Trump was neither asserting nor implying anything; he was pitching a line to a demographic that he, advertising himself, wanted to target.  Therefore, no rebuttal was called for; least of all, one as inane as Clinton’s.

But, of course, she was pitching a line too.

A cottage industry has lately sprung up analyzing the pathologies of Donald Trump’s personality.  His public persona is inscrutable, however; it defies analysis for the simple reason that there is no there there.

Trump is a con man for whom reasons and evidence matter only insofar as they serve his purposes.   He is whatever he needs to be at the moment.

Meanwhile, Clinton took her lead from the Ronald Reagan, “morning in America” playbook.  The Gipper sold his snake oil by projecting a shallow, but infectious, optimism.  However, for that to work, a sunny disposition is required.  Hillary isn’t a good enough actor to pull it off.

All she could do was scare a lot of voters – a majority of them, it turned out — with the specter of the orange haired monster.  As for promoting herself, she was hopeless.

Moreover, her take on the morning in America meme only fed the hostility of her detractors.   How could it not?  In their minds, she represented the “elites” behind the losses they felt.

They were right about that.

Meanwhile, Trump knew exactly how to play his marks by making them think that he could restore a past that they look back upon with nostalgia.

In reality, though, Trump cannot do anything of the sort, and wouldn’t if he could.

This is why, before long, “Make America Great Again” will stick in the craw of Trump voters in much the way that Obama’s “hope and change thingee,” as Sarah Palin called it, still plagues disillusioned Obamaphiles.

Obama was vague about what he wanted people to hope for, and what changes he saw coming.  Trump is vague as well.

But it is obvious enough what he wants people to hear when he speaks of making America great — again.

Since Trump’s target audience was comprised mainly of people who are at least middle aged, it would be fair to say that his goal was to get them to think of post-War America as their personal Paradise lost.

This is nonsense, of course; but, by now, the span of time between the late forties and early sixties is remote enough to be looked back upon in ways that Trump could and did successfully exploit.

***

The man is anything but subtle.

He wanted his marks to yearn for a Golden Age in which hard working white men could make a decent living doing honest, productive labor in jobs that were not about to go away; and in which everybody else knew his or her place: blacks in the back of the bus, women standing by their men, gays in the closet, Hispanics in Mexico or Central America.

The pundits tell us that “Make America Great Again” is a dog whistle slogan – meaning that its meaning is audible to Trump’s target audience and no one else.   Like so much else that liberal pundits tell us, this is nonsense.  What Trump wanted people to hear was audible to everybody.

It is a noxious message, and a false one: even white men didn’t have it so good back in the day.

Nevertheless, as with much else that Trump says, there is something to it – just not what he intended.

For one thing, the political scene really was better in the Truman, Eisenhower and Kennedy years.  Republicans were pernicious, of course, but no worse than Democrats are today.  And the New Deal spirit still survived in sectors of the Democratic Party.

Democrats now, especially since Election Day, are many times worse than they used to be.  Cold War Democrats had at least some measure of common sense and proportionality; Democrats today, for no plausible reason whatsoever, are hell-bent on taking the world to the brink of destruction, or beyond.

Hillary lost, but, within the ranks of the party she led, her Russophobic, neoconservative warmongering has taken on a life of its own.   Can any sane person not be nostalgic for a time when Democrats were better than that?

It is all well and good to question the “legitimacy” of Trump’s presidency.   There are so many questions that could be raised about that: voter suppression topping the list.

But Democrats cannot find it in themselves to do anything more edifying than blame those damn Ruskies.

This is not only preposterous; it is criminally reckless because all it does is prepare the public for war.

On this, “progressive” Democrats are as bad as the others; as bad even as Republicans like that perennial miscreant John McCain and his sidekick, Lindsey Graham.

Shame especially on “civil rights icon” and Clinton stooge John Lewis.  The guardians of the status quo now find it useful to place him on a pedestal, just as they find it useful to de-radicalize and then venerate Martin Luther King.

In exchange for the honor, he does them yeoman service – as when he conflated still unanswered questions about Russian hackers with the legitimacy of Donald Trump’s election.

Civil rights icon indeed; the man belongs in a museum.  Along with most of the rest of the Congressional Black Caucus, and nearly the entire membership of the incongruously named Progressive Caucus, he should just get out of the way.

Cold War Democrats were anything but “great,” but at least they didn’t make starting World War III their life’s work.

Trump obviously has no interest in transforming the Democratic Party for the better, and neither did voters who thought that a Trump presidency would make America great again.

Nevertheless, along with all the really bad stuff that Trump, and many of his fans, actually did have in mind, the nostalgia for the fifties and early sixties that he churned up does suggest a thought that is well worth taking on board — that neither Republicans nor Democrats need be quite as awful as they actually are.

Ironically too, Trump’s implicit appeal to post-War American values and norms helps sustain (small-r) republican ways of thinking about politics that are generally progressive and diametrically opposed to all things Trumpian.

From the sixteenth century on, there have been political thinkers in Western countries for whom ancient Sparta and the Roman republic served as political models.  What they esteemed was their egalitarianism (applicable, however, only to free male citizens) and their ideal of civic virtue, according to which the public good takes precedence over individuals’ private interests.

In the ideal world envisioned by republicans, small, mainly rural, largely self-sufficient households prosper together – with no one rich, no one poor, and everyone happy.

America’s founders were influenced by republican thought – Thomas Jefferson, most famously – and, early on, strains of republican thinking found a welcome home in the collective consciousness of the American people.

The fortunes of republican thinking have waxed and waned in the years that ensued, as has the appeal of republican values – in part because republicanism’s fortunes and capitalism’s are thoroughly intertwined.

(Small-r) republican societies may not be full-fledged capitalist societies, according to one or another account of what capitalism involves, but they are relevantly like mature capitalist societies in supposing private ownership of major means of production and market relations.  They therefore give rise to concentrations of wealth that undo the conditions for their possibility.

In this sense, their vision of ideal political-economic arrangements is utopian, unrealizable in real world conditions.  Full-fledged capitalism, on the other hand, is astonishingly resilient; and, as everyone nowadays understands, it is capable of sustaining enormous levels of inequality.

In the years that people in Trump’s target audience look back upon yearningly, the inegalitarian tendencies inherent in the logic of capitalist development were effectively held in bounds by circumstances that cannot now be reproduced, and by the sustained efforts of a political class for whom memories of the Great Depression of the 1930s remained vivid.  Those days are long gone.

Moreover, for nearly the entire post-War period, rampant, corporate and state sponsored consumerism has been militating against republican notions of civic virtue.

Even so, vestigial republican attitudes survive in the deepest recesses of the American psyche.   In recent years, there has even been a revival of republican political philosophy in respectable academic precincts.

Therefore, one plausible understanding of “Make America Great Again” would be to see it as a call for America to recover its republican roots – by building a politics around the notions of freedom, equality, and virtue associated with the republican tradition.

Needless to say, this is not what Trump was promising.   He stands for everything republicanism rejects.

Trump voters are obviously capable of believing almost anything, but it would strain even their credulity to see Trump’s “Make America Great Again” slogan as a call for equality, virtue, and the simplicity of manners and morals inherent in the republican ideal.

Perhaps this is why, to hear Trump and his defenders tell it, what has been lost that is worth restoring is not exactly the ways that American society accorded a semblance of homage to what republicans care about but something more pedestrian associated with it: the economic security that existed when manufacturing jobs abounded. That is what he claims he can restore.

But, of course, he cannot – not with what he is peddling.  He can only do what mountebanks generally do: sell crap to the gullible and the desperate, counting on the power of suggestion to keep them on board long enough for him not to be run out of town.

This is all he can do for much the same reason that social democrats, these days, cannot hold back the neoliberal tide: because capitalism cannot be transformed or even tamed by government fiat alone.

Marxists were spot on right when they maintained that far-reaching changes of the kind that are desperately needed nowadays can only come about through class struggle.  This is why, in the absence of a collective agent, able and determined to transform the underlying structure of capitalism itself, the broad contours of the status quo are regretfully secure.

Because neoliberal economic realities, and neoliberal state policies, have effectively reduced the labor movement to a shadow of its former self, leaving no functional equivalent in its place, this is indeed the situation we now find ourselves in.

Therefore, even if Trump wasn’t just blowing air – even if he really did want to restore manufacturing jobs — he would be unable to do anything of the kind.

Being both an opportunist and a showman, he will likely collude with a few of his fellow capitalists for a while — making them offers, at the taxpayer’s expense, that they cannot refuse.  But without a counter-systemic social movement leading the way, he cannot defy the inherent logic of the system.   No one can.

At this point in its development, that system has two major requirements, both of which militate against restoring anything like the conditions that, decades ago, created a large and secure middle class.  It requires consumers able and willing to spend enough to keep aggregate demand at acceptable levels; and it requires a domestic work force that that is insecure and poorly paid, and therefore quiescent.   These exigencies are at odds; precarious work situations and depressed wages depress consumption.

Neoliberals square the circle by transferring manufacturing jobs to low wage countries and then flooding the domestic market with goods that are so cheap that most Americans can still afford them.

Obviously, this “solution” doesn’t address any of the fundamental contradictions of neoliberal capitalism.  If anything, it exacerbates them.

Trump owes his election, in part, to the discontents it generates.  If those discontents continue, or intensify, he will have hell to pay.

Barring a radical change of course, the day of reckoning is sure to come; the only question is when.

If, in a vain effort to keep his supporters on board for as long as he can, Trump ratchets up more of the same – and what else could he do with the cabinet of dunces he has appointed, and without being a traitor to his class and to his own venality? – it could well come on his watch.

This will be wondrous to behold.

Had the Democratic Party not rigged the nomination process against Bernie Sanders, he would probably now be President, and he would find his efforts to restore the gains of the New Deal – Great Society era, and then to move beyond them, thwarted not just by the obstacles that (big-R) Republicans and rightwing Democrats (is there any other kind?) would put in his way, but by the same fatal contradiction.

The problem with Sanders’ “political revolution” was not just that it wasn’t radical enough or that it was too empire friendly; it was that, after the neoliberal assault on what little (small-d) democracy we had, there can be no fundamental changes at the political level without taking on capitalism itself.

But since Sanders was denied the nomination, that is a problem for another day.  Trump is the problem now.

Surely, at some level, many, maybe most, Trump voters have known all along that there is nothing he could do that would restore the economic security they crave.  They voted for him anyway, however.  That is how desperate they were.

And so, he won; and, as surely as the sun will rise tomorrow, the shit will hit the fan.

Notwithstanding the willful blindness that is so rampant in liberal quarters, the problem now, had Hillary not flubbed so badly, would be to keep her and her fellow Russophobic neocons and “humanitarian” imperialists from vaporizing the world.

But because he is such a loose cannon, and in so far over his head, what lies ahead with Trump seems even scarier than that – even on matters of war and peace.  If he does derail the War Party, then more power to him.  But he is no more to be trusted to use the American juggernaut, nukes and all, wisely than any normally immature adolescent boy chosen at random.

Expect turbulence ahead!  The time when it is still possible to postpone the inevitable choice between socialism – not the social democratic – Sanders version, but the real deal — or barbarism is fading fast.  Thank Trump for that.

ANDREW LEVINE is a Senior Scholar at the Institute for Policy Studies, the author most recently of THE AMERICAN IDEOLOGY (Routledge) and POLITICAL KEY WORDS (Blackwell) as well as of many other books and articles in political philosophy. His most recent book is In Bad Faith: What’s Wrong With the Opium of the People. He was a Professor (philosophy) at the University of Wisconsin-Madison and a Research Professor (philosophy) at the University of Maryland-College Park.  He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press).

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