Tag: Robert Reich

The lure of patterns.

Is this present era really coming to an end?

Somewhere in my aged brain cells is the memory of having heard that humans are great lovers of patterns.  In other words, patterns are deemed to be very important for the progress and evolution of homo sapiens.  Of course, it is not just humans who learn from patterns; I’m sure most of the animals who live around us are great pattern matchers.  To support that proposition, anyone who has owned a dog or cat will have spotted how quickly they learn patterns.  (As an aside, some months ago our puppy German Shepherd, Cleo, work me at around 4am because she needed to go outside for a ‘call of nature’.  I now get woken every single night variously between 2am and 5am for Cleo’s benefit!)

The British mathematician G. H. Hardy who lived from the last quarter of the 19th Century well into the 20th Century, reputedly said (and I cheated and looked it up!):

A mathematician, like a painter or poet, is a maker of patterns. If his patterns are more permanent than theirs, it is because they are made with ideas.

So why has this post opened with the theme of patterns?  Because, call it coincidence or what, within the last couple of weeks there have been three articles, each from very a different source, predicting that the present levels of inequality in society are both unsustainable and the beginning of the end.

First, on Michael Robert’s blog there was a post eleven days ago about global wealth inequality. From which I quote:

Global wealth inequality: top 1% own 41%; top 10% own 86%; bottom half own just 1%

—–

Just 8.4% of all the 5bn adults in the world own 83.4% of all household wealth (that’s property and financial assets, like stocks, shares and cash in the bank).  About 393 million people have net worth (that’s wealth after all debt is accounted for) of over $100,000, that’s 10% own 86% of all household wealth!  But $100,000 may not seem that much, if you own a house in any G7 country without any mortgage.  So many millions in the UK or the US are in the top 10% of global wealth holders.  This shows just how little two-thirds of adults in the world have – under $10,000 of net wealth each and billions have nothing at all.

This is not annual income but just wealth – in other words, 3.2bn adults own virtually nothing at all.  At the other end of the spectrum, just 32m people own $98trn in wealth or 41% of all household wealth or more than $1m each.  And just 98,700 people with ‘ultra-high net worth’ have more than $50 million each and of these 33,900 are worth over $100 million each.  Half of these super-rich live in the US.

Michael Robert’s essay closes:

All class societies have generated extremes of inequality in wealth and income.  That is the point of a rich elite (whether feudal landlords, Asiatic warlords, Incan and Egyptian religious castes, Roman slave owners, etc) usurping control of the surplus produced by labour.  But past class societies considered that normal and ‘god-given’. Capitalism on the other hand talks about free markets, equal exchange and equality of opportunity.  But the reality is no different from previous class societies.

Secondly, just last Friday I was drawn to an essay on, of all places, The Permaculture Research Institute blog.  The essay, by Chris Hedges (**), was called On Inequality and the Collapse of Globalization.  Chris Hedges opened his essay, thus:

The uprisings in the Middle East, the unrest that is tearing apart nations such as the Ivory Coast, the bubbling discontent in Greece, Ireland and Britain and the labor disputes in states such as Wisconsin and Ohio presage the collapse of globalization. They presage a world where vital resources, including food and water, jobs and security, are becoming scarcer and harder to obtain. They presage growing misery for hundreds of millions of people who find themselves trapped in failed states, suffering escalating violence and crippling poverty. They presage increasingly draconian controls and force—take a look at what is being done to Pfc. Bradley Manning—used to protect the corporate elite who are orchestrating our demise.

We must embrace, and embrace rapidly, a radical new ethic of simplicity and rigorous protection of our ecosystem—especially the climate—or we will all be holding on to life by our fingertips. We must rebuild radical socialist movements that demand that the resources of the state and the nation provide for the welfare of all citizens and the heavy hand of state power be employed to prohibit the plunder by the corporate power elite. We must view the corporate capitalists who have seized control of our money, our food, our energy, our education, our press, our health care system and our governance as mortal enemies to be vanquished.

The PRI editor’s preamble to the Chris Hedges essay included a couple of videos that he recommended watching.  One was a talk by Robert Reich: How Unequal Can America Get Before We Snap?

The other one was a recent TED Talk by Richard Wilkinson (his profile is here).

Mr. Wilkinson explains that for the majority of people there is an instinctive feeling that societies with huge income gaps and corresponding high levels of social inequality are somehow going wrong. He charts the hard data on such economic inequality and shows what gets worse when rich and poor are too far apart: ergo, the very real effects on health, lifespan, and even such basic values as trust.

Just 16 minutes long, it’s a very revealing talk.  Do watch it.

oooo

The final, third piece of the pattern was me coming across an essay on the blog DeflationLand, not a blog I had come across before, on the same day that I saw the PRI article.  This essay, published just two days before the PRI article, was about patterns; the patterns of the centuries.  More specifically, how the characteristics of a century generally evolve to a new culture within the first 10 to 15 years of the following century.  It was a most interesting proposition and, to my delight, I was given permission to republish that essay here on Learning from Dogs.  So here it is.

oooOOOooo

Why I stopped worrying and learned to love the currency collapse

For the past 300 years, the historical pattern has been for the era marked by a century to continue into the following century by fourteen or fifteen years. Let me explain.  Everyone knows that the 19th Century, its uprightness, its optimism and sense of purpose, the halcyon days of British Empire, came to an end with World War I, starting in 1914 and building to a nasty crescendo by 1916.  The 20th Century had arrived, and it had some real horrors in store for us.

Germans before Kraftwerk
Germans before Kraftwerk

But if we return back another hundred years, we notice that the 18th Century ends in 1815 with the final defeat of Napoleon, that final project of the Enlightenment and of the French Revolution.  With the Congress of Vienna in 1814-1815, we have a new Europe along the lines of Metternich’s plan, and the 19th Century at last is here.

"Sorry, guys. My bad."
“Sorry, guys. My bad.”

In 1713 and 1714, we have the Treaties of Utrecht, Baden, and Rastatt, bringing an end to the era of Spain as a major power, and the rise of the Habsburgs.  Louis XIV dies in 1715, after reigning for 72 years.  The Baroque period is over, and we are now firmly in the 18th Century.

War of Spanish Succession
War of Spanish Succession

We still live in the 20th Century.  Nothing much significant has changed in our lives in the past twenty years.  Symptoms of a deeper rot are appearing here and there, foreshadowing a larger crisis, but the crisis itself has not arrived yet.  We still live in an era of Pax Americana, the old republic very much a strained and tired Empire now, with the U.S. Dollar as the world’s reserve currency.

That is going to change.

The next task for History is to dismantle the untenable structures and institutions put in place by late Modernity, which have been extended now as far as they can go.  Our debt-based monetary system will collapse, our unbacked fiats will be worthless.  The debts and unmeetable obligations will all default.

There are ironies and great contradictions as the former home and hope of Liberty becomes viciously unfree and increasingly despotic.  Our leaders no longer govern, but try instead to rule us — they are less legitimate with each passing day, their laws corrupt or worse.  They are nearly finished, and will be swept away with the tide.

Just as in 1914, the internationalist system will break down, dashing the hopes of the would-be first-world nations.  We will probably have a pretty good war as well, or many local ones worldwide.  These transitions tend to involve war.

Deflation first — it clears the way for the complete loss of faith and hyperinflation that will follow.  The next big wave down in the financial markets is the battering ram.  The U.S. national debt is about faith, so is quantitative easing, and so is the very idea of magical coins that could ever be “worth” a trillion dollars.  When this faith breaks, in concert with loss of faith in perpetual growth and unlimited cheap energy, then things will move very, very quickly.

There is nothing any of us can do at this point, except navigate the rapids as well as possible, and to stay out of the way of a dying empire, which is still very dangerous in its death throes.  We are actually very privileged to be alive and witnessing this next transition, to what we do not know just yet.  But what an honor to live at this time, not in ignorance but with an existential resolve to come out of it alive and much the wiser.

Ass Americana.
Ass Americana.

oooOOOooo

** Chris Hedges is a Pulitzer Prize–winning author and former international correspondent for the New York Times. His latest book is The World As It Is: Dispatches on the Myth of Human Progress.

I am neither a scientist nor a historian; just someone who has lived in and observed the world for coming on for 60 years.

So you have to understand that my prediction is hardly worth the ‘paper I write upon’ (which certainly dates me!).  But, undaunted, here are my predictions for the 21st Century:

  • That the power of internet communications will allow more people, more quickly, to find their soul-mates wherever they are on this planet.
  • That the realisation of how dysfunctional many Governments are, of how truly poorly they serve the majorities of their citizens, will lead to mass rejections of these so-called Governments’ policies.  Such rejections predominantly peaceful, as in taking the horse to water but being unable to make it drink.
  • That there will be a new form of localism.  At two levels.  Literally, people geographically close to each other creating 21st C. versions of local communities.  Virtually, those local communities linking to other like-minded communities right across the world resulting in highly effective and innovative learning, accelerated common-sense, (call it wisdom if you wish), and extraordinarily efficient and sustainable ways of living on this planet.

What do you think?

Who is kidding who?

A frank and honest assessment of the reality of the present economic situation.

The next two days see me publishing, in two parts, a recent article from the Blogsite, Washington’s Blog.  Perhaps one can’t blame the efforts of so many of the western governments’ leaders to talk up the economy but at street level the vast majority of people feel pain about their circumstances.

The particular post that appeared on Washington’s Blog on the 28th April was entitled Gallup Poll Shows that More Americans Believe the U.S. is in a Depression than is Growing … Are They Right? You can link to it here. It is detailed and comprehensive, which is why I think it will be more easily digested as two parts presented on Learning from Dogs over this week-end.

Here’s the first part.

Consumer confidence is, well … in somewhat of a depression.

Reuters reports today:

The April 20-23 Gallup survey of 1,013 U.S. adults found that only 27 percent said the economy is growing. Twenty-nine percent said the economy is in a depression and 26 percent said it is in a recession, with another 16 percent saying it is “slowing down,” Gallup said.

Tyler Durden notes:

That means that more Americans think the country is in a Depression, let alone recession, than growing.

How can so many Americans believe that we’re in a depression, when the stock market and commodity prices have been booming?

As I noted last week:

Instead of directly helping the American people, the government threwtrillions at the giant banks (including foreign banks; and see this) . The big banks have – in turn – used a lot of that money to speculate in commodities, including food and other items which are now driving up the price of consumer necessities [as well as stocks]. Instead of using the money to hire Americans, they’re hiring abroad (and getting tax refunds from the government).

But don’t rising stock prices help create wealth?

Not really. As I pointed out in January:

A rising stock market doesn’t help the average American as much as you might assume.

For example, Robert Shiller noted in 2001:

We have examined the wealth effect with a cross-sectional time-series data sets that are more comprehensive than any applied to the wealth effect before and with a number of different econometric specifications. The statistical results are variable depending on econometric specification, and so any conclusion must be tentative. Nevertheless, the evidence of a stock market wealth effect is weak; the common presumption that there is strong evidence for the wealth effect is not supported in our results. However, we do find strong evidence that variations in housing market wealth have important effects upon consumption. This evidence arises consistently using panels of U.S. states and individual countries and is robust to differences in model specification. The housing market appears to be more important than the stock market in influencing consumption in developed countries.

I pointed out in March:

Even Alan Greenspan recently called the recovery “extremely unbalanced,” driven largely by high earners benefiting from recovering stock markets and large corporations.

***

As economics professor and former Secretary of Labor Robert Reichwrites today in an outstanding piece:

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

I noted in May:

As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.

***

(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)

And last month Professor G. William Domhoff updated his “Who Rules America” study, showing that the richest 10% own 98.5% of all financial securities, and that:

The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.

Indeed, most stocks are held for only a couple of moments – and aren’t held by mom and pop investors.

How Bad?

How bad are things for the little guy?

Well, as I noted in January, the housing slump is worse than during the Great Depression.

As CNN Money points out today:

Wal-Mart’s core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.

“We’re seeing core consumers under a lot of pressure,” Duke said at an event in New York. “There’s no doubt that rising fuel prices are having an impact.”

Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.

Lately, they’re “running out of money” at a faster clip, he said.

“Purchases are really dropping off by the end of the month even more than last year,” Duke said. “This end-of-month [purchases] cycle is growing to be a concern.

And – in case you still think that the 29% of Americans who think we’re in a depression are unduly pessimistic – take a look at what I wrote last December:

The following experts have – at some point during the last 2 years – said that the economic crisis could be worse than the Great Depression:

***

States and Cities In Worst Shape Since the Great Depression

States and cities are in dire financial straits, and many may default in 2011.

California is issuing IOUs for only the second time since the Great Depression.

Things haven’t been this bad for state and local governments since the 30s.

Loan Loss Rate Higher than During the Great Depression

In October 2009, I reported:

In May, analyst Mike Mayo predicted that the bank loan loss rate would be higher than during the Great Depression.

In a new report, Moody’s has just confirmed (as summarized by Zero Hedge):

The most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

And see this.

Here’s a chart summarizing the findings:

(click here for full chart).

Indeed, top economists such as Anna Schwartz, James Galbraith, Nouriel Roubini and others have pointed out that while banks faced a liquidity crisis during the Great Depression, today they are wholly insolvent. See this, this,this and this. Insolvency is much more severe than a shortage of liquidity.
Unemployment at or Near Depression Levels

USA Today reports today:

So many Americans have been jobless for so long that the government is changing how it records long-term unemployment.

Citing what it calls “an unprecedented rise” in long-term unemployment, the federal Bureau of Labor Statistics (BLS), beginning Saturday, will raise from two years to five years the upper limit on how long someone can be listed as having been jobless.

***

The change is a sign that bureau officials “are afraid that a cap of two years may be ‘understating the true average duration’ — but they won’t know by how much until they raise the upper limit,” says Linda Barrington, an economist who directs the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations.

***

“The BLS doesn’t make such changes lightly,” Barrington says. Stacey Standish, a bureau assistant press officer, says the two-year limit has been used for 33 years.

***

Although “this feels like something we’ve not experienced” since the Great Depression, she says, economists need more information to be sure.

The following chart from Calculated Risk shows that this is not a normal spike in unemployment:

As does this chart from Clusterstock:


As I noted in October:

It is difficult to compare current unemployment with that during the Great Depression. In the Depression, unemployment numbers weren’t tracked very consistently, and the U-3 and U-6 statistics we use today weren’t used back then. And statistical “adjustments” such as the “birth-death model” are being used today that weren’t used in the 1930s.

But let’s discuss the facts we do know.

The Wall Street Journal noted in July 2009:

The average length of unemployment is higher than it’s been since government began tracking the data in 1948.

***

The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

The Christian Science Monitor wrote an article in June entitled, “Length of unemployment reaches Great Depression levels“.

60 Minutes – in a must-watch segment – notes that our current situation tops the Great Depression in one respect: never have we had a recession this deep with a recovery this flat. 60 Minutes points out that unemployment has been at 9.5% or above for 14 months:

Pulitzer Prize-winning historian David M. Kennedy notes in Freedom From Fear: The American People in Depression and War, 1929-1945(Oxford, 1999) that – during Herbert Hoover’s presidency, more than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 24%longer than three years; and 11% longer than four years.

Part Two tomorrow.