Monday, February 22, 2010

Social Cohesion

Greetings good citizen,

Finally, someone (besides myself) is raising the issue of ‘social stability’. Maybe it’s a ‘sign of the times’ but this piece also attempts to tackle/explain the, er, ‘abnormally stable’ social environment…even if it concludes the current stability is ‘temporary’ at best.

Indeed, even I have been made to look foolish for predicting bloodshed that has, thus far, failed to materialize. That said, every additional day of ‘social cohesion’ since roughly last summer has been a ‘gift’.

With the commencement of the withdrawal of financial support to our economy, what has passed for civilization will crumble and fade away.

When the days grow short and the 2010 Holiday season gets underway, the snow will fall on a vastly changed landscape. It’s not a question of ‘if’ but of ‘how bad’?

So we arrive at tonight’s offering Where Jesse paints a rather grim landscape for our consumption…

Modern Economic Myths and The Failure of Financial Engineering

"The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards." Walter Bagehot

The housing bubble did nothing for real median incomes in the US but it did wonders for the insiders in the financial sector.

This is why the average Joes in the States went into debt to continue to maintain their consumption.

Until this situation is addressed, there will be no sustained economic recovery in the US. The US Census Bureau only goes to 2007, but it is highly likely that the median income has taken another serious downturn in the latest financial crisis.

Very little has been done by the Obama administration to address this problem.

Trickle down or supply side economics does well for the upper percentiles of income but does much less for the median wage.

Why care? For several reasons.

First, the median wage is the bulwark of general consumption and savings, and the prosperity of a nation. It must match the character of the social fabric, or place a severe strain on the contract between classes and peoples. A nation cannot survive both slave and free without necessarily resorting to repression.

Second, in any relatively free society, the reversion to the mean in the distribution wealth and justice is never pleasant, and often bloody and indiscriminate.

There are several economic myths, popularized over the last thirty years, that are falling hard in the recent series of financial crises: the efficient market hypothesis, the inherent benefits of globalization from the natural equilibrium of national competitive advantages, and the infallibility of unfettered greed as a ideal method of managing and organizing human social behaviour and maximizing national production.

One has to wonder what would have happened if some more coherent, approachable science, had put forward a system of management that relied upon the nearly perfect rationality and unnatural goodness of men as a critical assumption in order to work? They would have been laughed out of the academy. Yes, there is a certain power to befuddle and intimidate common sense through the use of professionally specific jargon, supported by pseudo-scientific equations.

Why doesn't 'greed is good' work? Because rather than work harder, a certain portion of the population, not necessarily the most productive and intelligent, will immediately seek rents and extraordinary income obtained by unnatural advantages, by gaming the system, by cheating and coercion, by the subversion of the rule of law, which will sap the vitality of the greater portion of the population which does in fact work harder, until they can no longer sustain themselves. And then the greedy seek to expand their venality, and colonies and then empires are born.

What will take the place of these modern economic myths? Time will tell, and it will vary from nation to nation. But the winds of change are rising, and may soon be blowing a hurricane.

It is foolish in the extreme to entertain the idea that social cohesion will withstand a persistent stream of falsehoods…or that those falsehoods will not collapse under scrutiny.

Here’s an example of how the motives of the banking sector can easily be laid bare…it’s not too tough if you know what you’re looking at.

On the same vein, we have this Krugman piece which highlights the conundrum the ‘Starve the Beast’ conservatives have made for themselves…

Just because things haven’t fallen apart yet doesn’t mean they won’t…

Thanks for letting me inside your head,


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