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Tuesday, April 15, 2014

The so-called "Weatlh Effect": the Stealth Technology of Economics.


After reading an interview with Immanuel Wallerstein, posted on  Theory Talk, on World Systems and the imminent collapse of capitalism, the title of Wolf Richter's piece on his Testosterone pit blog, "What Happens when all Assets become too expensive?" naturally caught my eye.

I say naturally because, one of the many salient points Wallerstein brings up in his discussion of Capitalism, is the eventuality that is rapidly becoming reality whereby the inputs necessary to drive the industrial machine become more expensive than the resultant high price necessary to charge in order to still result in a profit for its Captains and investors. Now, although couched in different terms, this is pretty much what I was trying to say yesterday in my rather inflammatory post, "The Climes, They are a-changing", along with many of my other posts citing the fraud now prevalent throughout our economic system which, as the title of this one suggests, is thrown in our collective faces as cynical feel-good phrases, like "The Wealth Effect", "Extend and Pretend", or TBTF, which are all just barely disguised substitutes for the word "Fraud".

You can see this is so by merely looking at the meaning of the phrase, the latest, as well as the oldest, being "The Wealth Effect". Its disguise is in fact provided by its age, in that when it was first bandied about by our then King of Fraud, Bernanke, or his mentor Greedspan (are they really different people? who knew?), it was during the housing mania when it was used to convince the general population that, because their housing was rapidly becoming too expensive for them to afford to even pay the taxes on, that they were thereby enriched, but has, in its current resurrection, become much  more associated with the stock market, even though everyone (seriously, even children know it now) knows that the stock market is blatantly goosed by the machinations of the Central Bank we like to call the Fed, in order to reflect a valuation far in excess of its actual worth. The reason the Fed is doing this is so that the wealth effect such gerrymandering engenders will convince investors that they are flush enough to risk putting their disposable income, what we used to call savings, into said stock market, because, thanks to ZIRP, it will otherwise diminish in value to zero (thereby exposing the real meaning of ZIRP: Zero Interest's Ramification's Poverty), as it is eaten into relentlessly by that other Fed-goosed culprit, inflation.

What Wallerstein does so well in his essay is provide the rationale behind such legerdemain by describing the rising costs of the components of the system that need to be reflected in the price of its products, which, because the strategy of reducing the costs of one, personnel, makes a rising price unsupportable, cannot be raised (a conundrum which is the primary cause of the Fed doing an abrupt about face and changing overnight from a crusader against inflation to the avatar of inflation). The three costs he concentrates on are personnel, inputs, and taxes. It is the first, personnel, that by reducing the costs, which at first was feasible, as industry sloughed off its"excess" workers resulting in organisations that are quite literally lean, and especially, mean, but, more to the point, has the effect of leaving the remaining personnel unable to procure their necessities should their prices rise, especially in the face of continuing wage reductions.

Which, with rising health care insurance costs far surpassing both any wage increases and inflation, every year, year after year, continue to cost the employer more than inflation and consequently delivering less than inflation's increases, in the form of wages, to the worker. Who, although this is ignored by Wallenstein, is beset by the exact same costs as industry, namely, personnel, inputs and taxes, as well as a myriad of other responsibilities that burden a citizen that Corporations are immune to. The personnel of an individual could be construed as their hairdresser and other grooming temps, and others such as mechanics, financial advisers (what a waste, but nonetheless...), house-cleaners, tax preparers, even bartenders, all of whom expect that, since you have a "real job", you will extend extra compensation to them in the form of a tip. Next are their children and parents, siblings and social circle who need to be maintained as they make life possible in the first place.

Next are inputs. these would include the cost of procuring transportation to and from work, a communication device, usually more than one, such as a computer as well as a cell phone of some type, and both the necessary expenditure to buy the hardware and the never-ending ever-escalating cost of access to the networked and the requisite security, back-up, and replacement costs of the hardware, all of which need to be maintained throughout the employee's tenure, whether they be a temp or a permanent employee. The temp's expenditures being a degree higher as they usually have the added expense of having part of their salary garnished to pay the agency that got them the gig, as well as their own healthcare insurance, and, should they ever need time off, a week or two every year without any paycheck.

But these are the endpoint, after someone's been hired. But the employee's inputs start long before they're hired. They are responsible to first pay the bribe to get the job in the first place, via a diploma mill that used to be called college, but which is now more often less than an education than indoctrination into the work ethic of corporate America but paid for via loans and parental financial inputs.

The third is self-explanatory. As the corporate tax rate drops and the upper class both of whom derive the lions' share of the benefits from the capitalist system, but do their utmost, and spend the most money in order to not have to pay it to the government on whom they depend much more than you or I, whether you agree with that position or not, means that the third factor, taxes, can only go  up for the personnel of the enterprises for whom personnel is always trumpeted as being their number one expense.

So these three items are together causing the end of the system we are now laboring under, as succinctly put in the following paragraph from Wallenstein:

"They always have to pay all three, and would always like to keep them as low as possible. There are structural forces that have steadily increased the cost of these factors as a percentage of sales prices over five hundred years, until the current point where they’re so high that you can’t really accumulate capital to any significant degree anymore, which means capitalists are no longer going to be interested in capitalism because it doesn’t work for them anymore. They are therefore already looking around for serious alternatives in which they can maintain their privileged position in a different kind of system. After five hundred years of successful functioning, the fluctuations of this system are now so great and uncontrollable that no one can handle them anymore".

Bingo! What we are experiencing personally is what the system on the whole is rife with, the structural impossibility of continuing life as we've come to know it. This is absolutely the problem we've been grappling with, yet been in complete denial about, for decades.

So, when, instead of resolution, you see the changing of accounting standards, the constant push to force money onto people whose credit ratings scream that they 'll never be able to pay it back, the squeezing of the poorest workers via payday loans, and other forms of usury and trickery, the constant descent of promises of the good life being attainable only by spinning a web of deceit and con games, face it, the game's afoot and you'll never get ahead, even with a handout (sorry).

And the number one culprit in the rising costs is energy, which I have tried to emphasize time and again, but which falls on deaf ears, but has risen by a factor of TEN, since the turn of the century. The very fact that this unparalleled and permanent increase of the lifeblood of both our military and or economy is never even mentioned, when a mere quintupling of it was the subject of conversation for the entire decade of the seventies, should alone indicate to any thinking adult, that they are being mightily deceived as to the true scope and intractable nature of our situation. Because since our dependence on centrally generated energy hasn't gotten less, but has greatly increased, means that it is in somebody else's best interest other than our own to keep us ignorant of the dynamics of our economic dilemma.

Even as the Kyoto protocols were being signed, SUV's were flying off the showroom floors and everybody was buying a computer and all the peripherals necessary to go with it, since as a stand-alone processor, it's practically worthless. From inside said industry, in the networking business that is the heart of Banking, finance and the entire military, including, as is now clear, the intelligence agencies, but which, unfathomably, no one would believe before Edward Snowden, I could see how the rich were using the full power of the federal government, ie , the public purse, to develop for themselves the weapons, technology (including robotics, cell phones, drone warfare, plastic surgery and other life-extending technologies) and psychology of extraction to assure their ascendancy when the structure they were aware far before any of us were, (Thanks a lot RR, you clown, because, "The Way We Live Now" was explained to him very well, by the first VP who ran the Whitehouse: GHW Bush; Cheney learned how to run the Presidency from the VP position from Le Maestro, except Cheney was so arrogant he didn't care who knew whereas Bush hid behind his puppet as his complete dedication to serving the interests of his own class to the detriment of the rest of us was well known) would, dragged down by its own weight, collapse into the dust.

And this is why all the talk about ameliorating climate change is exactly that: talk. Because what it will deliver, or what the rich hope it will deliver to them, is a world much more prone to disaster and therefore willing to have itself protected by strong central authoritarian governments, to whom they are not answerable, but the contrary, are answerable only to the Rich. Ask the Central Bankers. They know who rules them all. One King to rule us all and in the darkness bind us. While they crow about the wealth Effect, a chimera that keeps us hopelessly oppressed with a conceited hope that is as wispy as a cloud.


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