A History of the American Economy - Part 2

"I believe that every individual is naturally entitled to do as he pleases with himself and the fruits of his labor, so far as it in no way interferes with any other men's rights." – Abraham Lincoln

...continued from "A History, Part 1"

Back to our discussion of comparisons of the middle class in the 1930's and 2010...

It seems that most Americans consider themselves "Middle Class", and it would appear to me that it is our collective sense that this was always so - that America was always a "Middle Class" ("MC") kind of place.

What does it mean to be MC? Are you defined by who you go to school with? Or who you vacation with? Or by education, income, or net worth? The fact is that the concept is an abstract which rests in eye of the beholder and is continually marketed and manipulated in the Mainstream Media ("MSM").

(Here is a link to Wikipedia's article on Social Class in the U.S. I tend to reject the 3 class pitch from the Media given my experience coming from a working class family living in a gritty industrial town 1o miles north of New York City. Speaking from my experience Metro New York has quite a few more than 3 Social Classes. My family, and a large portion of our community, were working class Catholics - there were no vacations, new cars, gadgets, etc... and we never, ever dined out of the home (my poor mother had to cook for 9! 3 meals a day, every day for decades... and at nearly 87 she still parties like a rock star) but there were violin lessons and little league and I used to feel sorry for my wealthy friends that did not have a couple of brothers to share a room with.)

So who is MC in 2010? Can you be MC with little or negative net worth as long as you have a MC income? Are wage slaves MC? (Read that link. While I am an unrepentant capitalist and Libertarian I am NO CORPORATIST... more on this latter in the series.)

Speaking of wage and debt slaves... most Americans are unfamiliar with these concepts and how much angst these concepts produced during the early industrialization of America. Prior to Industrialization America was primarily employed in Agriculture and as Artisans. The great HOPE was that people would be able to move up from "wage slavery" to become self employed (think about that in today's context in which the vast majority would prefer death to the loss of their corporate or government job; were self-employment, unless one is a "professional", is a last resort). None other than Abraham Lincoln famously mused:

“The greatest fine art of the future will be the making of a comfortable living from a small piece of land.”

And then came the Stockholder Corporation and the infamous trusts. But I am getting ahead of myself... I want to leave the 1930's behind and get to the post Civil war period and the Long Depression (or the Panic of 1873) beginning in 1873.

to be continued...

A History of the American Economy - Part 1

Today's Quote:

"Never interrupt someone doing what you said couldn't be done." - Amelia Earhart, disappeared on this day, 1937.

I read with fascination the continued flow of B.S. coming from Wall Street, the MainStream Media ("MSMS"), and Washington in their debate over how to describe the current economic circumstances. I have been noodling this for a while and reading through the economic history of the U.S. (and hence the world) for the post civil war period.

One of the hardest things to do when considering this is to "compare apples to apples". For instance, is a house a house? Or should it be described as a square foot of residence per capita? Are we wealthier because we are better nourished? Or poorer because we are so very overweight? Is life more fair or less? Are we "freer"? And who, exactly, is "we"?

The comparisons in the media of this period to the 1930's accomplishes little - except in what it is meant to accomplish: To sway elections with an economically under informed and under educated electorate that seems incapable of comparing "apples to apples". An electorate that simply does not know its history, because all it knows is "what it reads in the newspapers" - material written by folks that have taken some serious poetic license with history.

I am going to jump around a bit on the time line in order to make comparisons of apples to apples but mostly I am going to compare today to various periods and walk through the series of events that got us from there to HERE.

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The First Installment

So here we are in July, 2010 America, a time by which a constant comparison to the 1930's is made in the media (primarily to gain advantage in the next election and not to accomplish a damn thing). There is in fact a great deal in common. Today, 25% of men between the ages of 25 and 75 DO NOT have a full time job (the headline unemployment number we see every month is merely propaganda) and through much of the 1930's 25-30% of men in this age group did not have a full time job. From an employment perspective, the circumstances are more similar than not (with the exception of "unemployment insurance"). However, there is vast difference in CAPITAL. No, not just corporate capital - capital investments and stock. We have more houses than we need, more cars than we can use, closets filled with enough clothes to last the life time of a denizen of the '30s, and the ability of the government to spend far more than it takes in WITHOUT having the currency collapse in a bout of hyper-inflation (a very bizarre set of circumstances). This has enabled the continued expansion of "unemployment insurance" payments (though some in the Senate are threatening reality as I write this). When and how this ends is up for debate.

The singular image burned into the minds of those that came after were photos of soup lines in New York City in the winter of 1933. In fact, documented cases of people starving are few and far between (other than Alcoholic residents of the Bowery). Politics ALWAYS rears its ugly head. While starvation in the modern "third world" is almost always as a result of politics, throughout history the simple fact of the matter is that hunger and starvation were ALWAYS ASSOCIATED with weather and natural disaster (and to a much lesser extent due to war. Many argue that this will change drastically in any serious fuel shortage and I tend to agree). In much of the 30's between 10% and 20% of the population experienced food shortages on a regular basis. In 2010, nearly 12% of the population receives "food assistance" from the Federal government.

A major difference is that the markings of middle class - cell phones, cars, certain apparel - is attainable by the "poor". In fact, many of the "poor" don't know they are "poor". They merely consider themselves "broke", and I think that that is a much better state of mind.

(I am being summoned by She Who Must Be Obeyed for some emergency furniture repair.)

To Be Continued...

"Fix Social Security by Hiking Retirement Age"

Today's quote:

"One of the greatest delusions in the world is the hope that the evils in this world are to be cured by legislation." – Thomas B. Reed

I will continue the "economic history of the U.S." thing shortly... But this article really screamed out for commentary.

As I have been saying for years, the government will absolutely, positively default on Social Security by raising the age to receive benefits. We have arrived in the Land of the Philistines.

Social Security collections were not considered a "tax", but a system of forced savings via a Government sponsored insurance program with forced participation that got out of hand (in fact there is no "Social Security", its proper name is the "Old-Age, Survivors, and Disability Insurance (OASDI) program"). People of a certain age (45-59) paid the absolute most in and will get the least out relative to their contributions. Yes Social Security is underwater. Not because people of a certain age (like me) have not been overpaying into it, but because Washington pols bought the good will of the elderly by over benefiting them for the past 30 years all the while increasing the extraction of the people born after 1955. Social Security collections have, in fact, peaked ("Peak Social Security" has a nice ring to it). The government can increase the percentage take all it wants, this will only further drain M1 at a time of deflation... which only exacerbate's the situation.

Now Washington wants your sympathy for stealing from you via robbing Peter to pay Paul.

Of course Congressman Boehner is correct. We will have to move the retirement age to 70 (and then 73) or cut monthly benefits drastically (I like this better, it has more truth to it). Take a good whiff of this Bull SH*T. Social Security was a HORRIBLE idea. It was and is nothing more than a Ponzi/Madoff scheme that, by mathematical necessity, MUST collapse of its own weight at some point... but before doing so it so addicts people to false promises and exaggerated claims that they begin to believe that it is some kind of Right.

Here's the clincher in the article:

There are those who say older workers won't be employable past age 65.

"But this is all, as an economist says, 'endogenous,'" said Mitchell. "That is, if you know that your work life will last till age 70, you'll be likely to continue to invest in your skills later in life, which will help make you more employable. And the fact that jobs today are much less physically demanding than they were 30 years ago helps make a longer work life feasible."

Then again, if you really don't want to keep working till 70, Mitchell said you could save so as to "buy your own early retirement."

Is Professor Mitchell really suggesting that people take responsibility for themselves and save for their own retirement? How Libertarian of her and I could NOT agree more... but funny, coming from a Tenured professor.

Oh, well... another do-gooder social program out to make Life fair is in its last throws before it bite's the big one.

In its death throws this is likely to cause some unbelievable angst. How are the over 60 folks that spent $400,000 on cigarettes (with interest) over a lifetime going to work? Are they going to carry the O2 tank with them? And the over 60 morbidly obese? With their fallen arches, diabetes, and bad backs I am concerned that they might be that reliable. We addicted them and we took away their incentive to FEAR old age and provide for it.

Why is it that someone who worked 20 years gets the same benefit as someone who worked 40? The system was so poorly conceived for the real world that it is hard to get your head around.

But there is some good news. We have too many houses and too many cars and too many EVERYTHING.... we will figure it out... but not if we continue to insist that $20,000 or $30,000 per year in property taxes is supportable by senior citizens (amongst other things).

More Unintended Consequences

"You never need an argument against the use of violence, you need an argument for it." - Noam Chomsky

That B.P. must survive in spite of their incredibly reckless behavior can be seen in the share prices of the other major international oil companies. The market now looks at Exxon et al as just another B.P. waiting to happen.

Think about this: Would you invest in a small petroleum E & P company given what just happened to B.P.'s valuation? Exxon et al are, for the most part, no longer in the exploration business, and will be less so from this point forward. Big Oil are really just large, publicly traded investment banks/private equity funds. They are in the business of ACQUIRING production and reserves.

But from who? Where is the capital going to come from to form these new, smaller E & P outfits?

The U.S. consumes roughly 19 million barrels per day of liquid fuels. Politically destroying domestic production, intended or not, WILL have consequences for our economy and national security to say nothing of our internal politics.

I do not suggest wild changes in policy, only a full disclosure to the American people and a sales campaign by TPTB exhorting us to accept the inevitable and to encourage people to find their way - but I have a better shot at a Pulitzer as a blogger.

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Last week I posted that the Mad Scientist and I had gone net short in the U.S. equity markets, even going so far as closing most of our energy equity positions. The world's political leaders are now, finally, getting some religion in fiscal realities. If so, I would expect a nasty repricing of "risk" and fat whiff of deflation (but I reserve the right to change my mind if the data changes).

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Less than 270 days until California needs a Federal bailout.

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I love Noam Chomsky (see quote above). Not that I agree with some of his politics (what the hell is a "socialist-libertarian") but it is hard to look past some of his brilliant thoughts.

This morning I woke early as usual on the farm to get a start on the chores before the heat of the day. I came into a breakfast of eggs, sausage, potatoes and corn bread with preserves - all grown on the farm. Yes there was coffee and butter and honey (the butter and honey come from a guy I trade eggs for)... and these were not produced on the farm... but in the end this is just me expressing my politics - and there is simply no better way to express oneself than to sustain one's belief system by sustaining oneself... go that? I cannot say if I will always live like this, but it will be one hell of an adjustment if I had to give it up.

What I tell you?

Barak Obama says B.P. must not collapse.

What'd I tell you?

For many reasons, it is a good thing that Obama and his team came to recognize this now.

Shipping Out

"If we don't believe in freedom of expression for people we despise, we don't believe in it at all." – Noam Chomsky

My oldest son left this afternoon for Europe. Like all parents, we were somewhat apprehensive about sending our offspring overseas... but to help put it into perspective I told his mother:

"Other families, even as we speak, are seeing their teenage sons off to wartime boot camp or deployment in a war zone."

We both paused and then said, "Thank G-d" simultaneously.

There is a good reason why I oppose our involvement in Iraq AND Afghanistan. I am unwilling to commit my sons to the risks of combat for these causes; it then follows that I am unwilling to commit your sons. Somebody really ought to give the folks in Washington a heads up. I have yet to see a funeral detail for the son of a U.S. Senator, Congressman, or Military Brass killed in action either of these countries (feel free to correct me). Coincidence? I think not.

I LOVE my country as it is/was Constituted. Its my government that concerns me. Fighting any War For Oil is a fools errand. BTW... I am a 6th generation registered Republican...

(One of the reasons I distrust political Special Interest Groups, even the "good" ones, is that they morph over time into something unrecognizable... Allow me to share some personal family history: My mother's family has lived in New York City for several hundred years with just about every group coming off the immigration boats in New York harbor winding up in my Gene pool. My Maternal Great-Grandmother's family were German Jews that emigrated from Alsace-Lorraine, and she was deeply involved in the suffrage movement, the pre-cursor to the feminist movement of today. She was the first woman to earn the rank of Detective, and worked for Teddy Roosevelt when he was the chief of New York's police. Her portrait hangs in the NYPD museum, her name: Adele Dittwieller. Her husband's family were abolitionists working on the "underground railroad" in 19th century Brooklyn. They must have been pretty serious about racial equality because his mother or grandmother was an escaped slave (He was Dutch/English/Native American/African). They were all REPUBLICANS; it was Republicans that began today's "Liberal" movement and founded papers like "The Nation" (The Nation was founded by Abolitionists, NOT Leftists). From my perspective it appears that people like my mother and grandmother splintered away from these roots over the issue of abortion (my mother was at one time the chairperson of New York's Right to Life party). Not all Republicans are the nose picking morons chronicled in the media, just as not every Democrat is mathematically and economically challenged, either. It just seems that way. It was only 40 odd years ago that the Deep South Segregationists were all DEMOCRATS. No Religious group or political special interest group remains static. They do not necessarily remain true to their founding principals. Somehow I think my ancestors would be appalled at what the Suffrage and Abolitionist movements have morphed into.

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"At some point, the people's ability to pay runs out." N.J. Governor Chris Chrisite

The various states an cities in the U.S. are in the EXACT same circumstance as Greece - running hue deficits but not having their own currency to devalue.

Further, the state budget's are showing/giving the lie to how GDP is calculated. If retail sales are up, why are sales taxes down? Because the folks doing the counting work for the government (and they are here to help...snicker, snicker...).

Even as the U.S. appears to be on the mend -- gross domestic product has climbed three straight quarters -- finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP.

Hysterical, right? You can add state debt right onto the U.S. Federal budget deficit.

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The economy hit a wall about 2 months ago. You can argue over what that wall is made of or why it happened or how long it might last. That it DID happen is not up for debate so much. Making money in this environment should take a back seat to capital preservation.

Today's quote:

"To me, it doesn't matter if your scapegoats are the Jews, the homosexuals, the male sex, the Masons, the Jesuits, the Welfare Parasites, the Power Elite, the female sex, the vegetarians, or the Communist Party. To the extent that you need a scapegoat, you simply have not got your brain programmed to work as an efficient problem-solving machine." – Robert Anton Wilson

I love that quote, even if it is only 99% accurate (I DESPISE political special interest groups - well, what can be done with a hardcore Libertarian?)

So let's engage our problem solving machine... but before I move on... Do you know what today is? Today is the 60th anniversary of the Korean War. Keep that in mind when thinking about Iraq and Afghanistan...

I was speaking with the Mad Scientist the other day. He had an interesting thought on the potential cause of the shipping and rail decline/bond yield curve/gold and silver:

Perhaps the CDS's backing B.P.'s bonds are causing fits with the banks - especially the European banks. He read my post about my thought that something bigger than AIG was in the offing and thought this was more likely than a default by Italy.

I thought that was one of the smarter thoughts someone shared with me in a while. There is simply no way that B.P. does not default on those bonds if the GOM Well cannot be capped (though I think B.P. will survive, MUST survive if Obama is survive and eventually his team will get that, that does not mean its stockholders or bondholders necessarily have to survive).

The number of guarantees and cross-guarnatees on CDS's of B.P.'s debt is just mind-boggling. Those banks are already very, very sick... In any event, it is a h*ll of a coincidence.