Sunday, February 23, 2014

You Are Being Stagnated: The social engineers are managing your standard-of-living expectations downwardly.

A pair of insidious memes is making the rounds in the mainstream media. These memes have to do with your standard of living, and they declare that the "Great Recession" is here to stay. George Mason University economist Tyler Cowen calls the persistent economic anemia, "The Great Stagnation," and in his book of that title he argues that we had better get used to hard times. The second meme of the pair is a corollary and is one of the primary legs on which Cowen's argument rests. This meme concerns "the end of innovation." All of humankind's potential inventions evidently already are with us. Or, at least we've picked all of the technological "low-hanging fruit." Innovations currently occupying the pipeline consist of embellishments; they are not game changers, like the inventions of the last century.

This assertion, about technological innovation, admittedly, invites debate, given the ongoing computerization of pretty much everything. Nonetheless, say the pessimists, for whatever reason, recent breakthroughs lack the economic potency of the technological breakthroughs of the early to middle twentieth century. Those innovations fueled deep and broad economic gains. More recent breakthroughs are of a different nature. They are hood ornaments glued onto tried-and-true technologies, and they concentrate their relatively meager economic gains selectively in the pockets of the already rich. Evidently, the "New Normal" applies only to the middle class and the poor. Cowen seems too cavalier about this implication of the new economic order: It's just the way the cookie crumbles.

Columnist Paul Krugman attributes much of the economic stagnation to a lack of demand for goods and services, essentially telling us that the legendary "job creators" won't be creating jobs any time soon, not until they see more cash in the pockets of prospective customers. If that's a major hold-up, keeping the economy from recovering, then putting cash in the pockets of consumers might be a good thing--the kind of economic stimulus that might work. If only that were the objective of the professional theoreticians and technicians "working" on the problem.

Despite these implications of Cowen's and Krugman's diagnoses, the prescription from both sides is simple: Get Used To It. Krugman glowingly cites economist and political advisor Lawrence (Larry) Summers as having arrived at the same conclusions about the New Normal and The End of Innovation. Now, there's a champion for the working bloke.

Push-back from the contrarians, those who reject the end-of-innovation premise, predictably cites the ubiquity of computing and communications technologies. The new devices have reshaped thoroughly the habits of consumers and big business alike. Computers streamline manufacturing and make comparison shopping as simple as swiping a touchscreen. The impact of the more recent technologies can hardly be said to pale next to that of the twentieth century's marvels. Nonetheless, the scope of their impact is easier to appreciate when one looks under the hood and sees that tiny little integrated circuit, or IC.

This technology, the IC, is a universal labor-saver and process-accelerator. Imagine how the Human Genome Project would have ground to a halt if its staff had no access to computers. It would remain a dream. But there's a reason why this revolutionary technology, the IC, has not lifted all ships. It is because the crash of the U.S economy and its aftermath are the consequences of hostile economic engineering. A ruling class that we might refer to simply as The Reptiles, given their rapaciousness and cold-bloodedness, executed the project.
"Big government and big business have long marched together in American history. You can call one good and the other bad (depending on your point of view), but that's missing their common origin and ongoing alliance." -- Tyler Cowen, The Great Stagnation
The engineering ran something like this: The 401K “revolution” sucked money out of its secure place in pension funds and deposited it in risky equity markets, under the guise of letting employees manage their own retirements. In 1999, President Clinton signed the Financial Services Modernization Act, which tore down the wall that had separated commercial and investment banks. Now banks could gamble as recklessly as they liked with their depositors' money. But the banks had to securitize the toxic subprime mortgages that they had concocted to take advantage of the deregulated environment, so they invented bizarre new packages of derivatives to hide the toxic junk. And none other than Larry Summers, at the time President Clinton’s chief economic advisor, along with Secretary of the Treasury Robert Rubin and Federal Reserve Chairman Alan Greenspan, worked overtime to dissuade Congress from heeding the warnings of a minor bureaucrat, Brooksley Born, about the dangers of the newly created, unregulated, opaque instruments (PBS Frontline story examining this episode is here: http://www.pbs.org/wgbh/pages/frontline/warning/) What was it about the contents of the opaque instruments that made these guys so concerned about concealing the contents from the public? And Fed Chairmen Alan Greenspan and Ben Bernanke had to keep interest rates anomalously low for an extended period to make available all the cheap borrowing needed to inflate the housing bubble. And Congress had to pass legislation forcing banks to underwrite mortgages for people who otherwise wouldn't qualify. And the George W. Bush administration egged everyone on to borrow recklessly with its cheerleading slogan, "The Ownership Society." Along the way, Congress and the Bush administration made bankruptcy laws more stringent, as if girding for a wave. And the ratings agencies, such as Moody's and Standard & Poor's, gave triple-A ratings to the toxic junk. And the SEC turned a blind eye to all the bogus ratings. Fannie Mae and Freddie Mac, for their part, at the same time had to abandon their competencies and/or scruples and securitize their share of subprimes. All of this set the stage for the Fed, Wall Street, and the bureaucrats in charge of the U.S. Treasury to loot the Treasury to cover the bankers' losses, protecting them from the risks of their leveraged investments and dropping the burden on taxpayers. And the Obama administration, once most of the dust had settled, and it became clear what had happened, ignored the blatant fraud committed by the Wall Street banks, including the rampant robo-signing of thousands of mortgage agreements. Let us be grateful that President George W. Bush failed in his attempt to privatize Social Security, that is, to suck the Social Security trust fund into the equities market, or that too would have been gifted to the upper circles. This number of contributing factors, this magnitude of coincidence, could not have aligned by chance. This recession was planned and executed with reptilian callousness.

Writer/editor Don Peck is disarmingly blunt when he observes in Pinched, How the Great Recession has narrowed our Futures and What We Can Do about it, that
"[F]or the very rich in particular, global affinities and global ambitions are quickly supplanting national ties and national concerns. Increasingly, the very rich see themselves as members of a global elite with whom they have more in common than with other classes of Americans. Politically influential and economically powerful, they are becoming a separate nation with its own distinct goals."
(Ensconced in the mainstream as an editor at The Atlantic, Peck must feel secure enough in his rank to offer such alarming observations without fear of ostracism for being an alarmist. Observers outside the mainstream who observe essentially the same thing do so at the risk of joining the company of sad souls dismissed for peddling conspiracy theories.)

Peck does concede that, "[P]eople should of course be allowed to enjoy the fruits of their honest labor. As a society, we should be far more concerned about whether most Americans are getting ahead than about the size of the gains at the top." How can the two be unrelated if those at the top are siphoning off money that could be used to create demanding consumers?

O, why quibble?

Peck continues, "Yet extreme income inequality causes a cultural separation in society that is unhealthy on its face and corrosive over time. Ultimately, it is prone to reaction, particularly when much of society is struggling." What kind of "reaction" does Peck seem to want to avoid?

Possibly the kind hinted at by history professor Jerry Z. Muller in his essay, "Capitalism and Inequality" (Foreign Affairs, March/April 2013). Muller acknowledges the staggering inequality of income that separates the rich and the rest and is duly bothered by it but not because poverty causes suffering.  He is concerned because, "[I]f left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large."  The problem with having lots of unemployed poor people around is not the severe hardships that those people are forced to endure, evidently, but rather the prospect that they might organize themselves into a resistance and fight for their share of the pie. In the past this was called class struggle.

Though seemingly sensitive to the plight of the victims of the Great Recession and while acknowledging that the elites push policies from which they themselves benefit financially, Peck covers himself against alienating his own in-group by referring (over and over and over again) to the oligarchy as the "meritocracy" or "meritocratic elite." Their ranks consist of "winners" imbued with an "entrepreneurial spirit" which guides them to "success." Bound up in all this selective diction is the notion that the privileges of the ultra wealthy have been earned.  No thought is given to distinguishing the earners from the heirs.

Another aspect of the problem, according to Peck, is just kids these days. He references Ron Alsop's book, "The Trophy Kids Grow up: How the Millennial Generation is Shaking Up The Workplace," and comments,

"[Alsop] says a combination of entitlement and highly structured childhood has resulted in a lack of independence and entrepreneurialism in many twentysomethings. They're used to checklists, he says, and 'don't excel at leadership or independent problem solving.' Alsop interviewed dozens of employers for his book, and concluded that unlike previous generations, Millennials, as a group, 'need almost constant direction' in the workplace. 'Many flounder without precise guidelines but thrive in structured situations that provide clearly defined rules.'"

In other words, the U.S. public education system is delivering what it was engineered to deliver: docile, submissive, obedient, pliant, noncreative, dependent, childish, servile, easy-to-manage rule-obeyers. This guiding objective of the U.S. public education system was laid down a century ago. The history of this covert social engineering project has been ferreted out from primary sources by John Taylor Gatto, who as a public schoolteacher was multiple times named New York City Teacher of the Year and once New York State Teacher of the Year, during which year he resigned with an opinion piece in the Wall Street Journal in which he said he would look for new career, one that didn't require him to hurt children. Charlotte Iserbyt also has put together a troubling history of the U.S. public education system. She is in a position to survey the field, having been Senior Policy Advisor in the Office of Educational Research and Improvement (OERI), in the U.S. Department of Education, during the first Reagan administration and a staff employee of the U.S. Department of State. Try out her tome, The Deliberate Dumbing Down of America. If Millennials are floundering in the workplace, as per Alsop's assertion, in a way that compromises the further concentration of wealth among the already wealthy, then maybe this piece of social engineering, to a degree, backfired.

Peck looks primarily to technological innovation to lift us out of the doldrums. Unfortunately as seers Cowen, Krugman and Summers inform us, we've reached the end of innovation. Cowen pointedly advises, "Have realistic expectations. We are living in the new normal."
In The Great Stagnation, Cowen rests his case on three arguments:

The first is Free Land. No doubt undeveloped real estate itself can fuel economic growth. Homesteading was an essential element of the economic development of the United States. Entrepreneur Peter Thiel and others can continue to advocate seasteading--homesteading the oceans with floating cities. But for this writer's money, the long-term solution, the real real-estate frontier is space, where (solar) energy is free and abundant, and communities can plant considerable distance between themselves and the established oligarchies. (And where weightlessness catalyzes rapid evolution.)

The second leg of Cowan's argument addresses the rapid deceleration of innovation. The pace of change has slowed dramatically from the 1880-1940 period, which gave us electric lights, autos, airplanes, mass production, mechanization of agriculture, communications mass media.  Since then, the only comparable development has been the internet (or, more precisely, the IC), otherwise we've seen mostly tweaks to existing technologies. Cowen doesn't consider that intense concentration of wealth stifles innovation. Who's hoarding the money that ought to be funding far-ranging R&D projects?

The third leg of the stool is education. Mass education has spread about as far and wide as it can reach. From single-digit high-school and college graduation rates to double digit rates, the peak in high school and college graduation rates is behind us. Most everyone capable of graduating now has the opportunity. There's no longer a large untapped pool of prospective graduates who don't have access.
"A lot of the gains from recent financial innovation are captured by a relatively small number of individuals. Top American earners are increasingly concentrated in the financial sector of the economy. [. . . .] In [2004] the top twenty-five hedge fund managers combined earned more than all of the CEOs from the entire S&P 500. The number of Wall Street investors earning over $100 million a year was nine times higher than the public-company executives earning that amount. When I look back at the last decade, I think the following: There are some very wealthy people, but a lot of their incomes are from financial innovations that do not translate to gains for the average American citizen." -- Tyler Cowen, The Great Stagnation
"Job creator" is a cute piece of political rhetoric, but as a mask for oligarchy it no longer passes the snicker test. A more clinically poetic term for oligarch might be Richard Grove's coinage, "Intraspecific klepto-parasite." But let's not stoop to name calling.

That said, Cowen's characterization strains the bankable meaning of "earners." But the point about financial innovation underscores the observation that innovation actually has been rampant. In the financial sector. The financial-services industry has rolled out an impressive array of innovative instruments during the past decade, including credit default swaps, collateralized debt obligations, structured investment vehicles, securitization of subprime mortgages, and rehypothecation. Anyone who says that innovation has slowed is not paying attention. The financial services industry is surging with innovation. If you don't see it, you must be too busy looking the other way.

Whatever the motivations of Cowan and others who opine on the sad, stuck state of the economy, the insidious effect of their writings is that they condition the American middle class to accept a dwindling standard of living.

In that vein, then, let's prognosticate. How frequently in the coming months and years will the audience for mainstream media be fed human-interest "news" stories about middle-class families that have absorbed an economic hit? These families will have "adjusted" successfully to their new hardship. They will have found "new meaning" or "a new satisfaction" in their relative impoverishment, implicitly inviting the rest of the middle class to join them in the unanticipated rewards of character-building hardship.  At the extreme, this development dovetails with the hearty, self-reliant, noble savage archetype.

Hunger Games, anyone? 


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More commentary on the great stagnation and the end of innovation:

Paul Krugman column on America's long-term economic stagnation.

Larry Summers here muses on the prospect of massive multi-month-long power outages and the economic boom following the eventual lights-on. Hmmmm.

Video of Summers talk at: http://www.youtube.com/watch?v=KYpVzBbQIX0&feature=youtu.be

The Economist, Jan 12th, 2013: The great innovation debate: Fears that innovation is slowing are exaggerated, but governments need to help it along

The tech website quartz.com offered a scathing review of the state of recent technological innovation (Dec 26, 2013).

Not much of a debate, but this Oxford Union event lays out the basic lines of thought that compose the Innovation-Stagnation memetic.

And then there's Bloomberg