Breaking ground

This will be the first of what I hope to be many posts to come on this blog. It is my fervent hope that this will evolve into something more than a mere collection of ideas or stories written upon that are posted here - I hope that in some way the words put here help contribute to the meta-narrative that is the movement of the left today. For many years the left has been, in essence, in the closet; however, recent events have started to make the closet door come open.

Two events this first post will touch upon are worthy of note. The first, the US Treasury bond 'value' downgrade by S&P. The second will be the riots that have recently taken place in the United Kingdom. These events are not in a relationship to one another in any direct way, but in a very real way, they are connected.

The US Treasury bond downgrade comes with a story. Since I'm not writing for the history books I won't bother to write up everything that transpired in the US Congress leading up to the downgrade - suffice to say I doubt even the vaunted Members of Congress could honestly pen such a tale. Nonetheless what matters, from a rational actor perspective, is that the US Congress has an artificially imposed debt ceiling. Many countries have a debt ceiling of some sort: Canada's is tied to their budget authorization,  the United Kingdom has one but being a parliamentary system they rarely have any problems raising it - only Denmark's is similar, but it's far above their debt level rather than moved in a somewhat lock-step fashion to actual debt. Suffice to say that there is a number the US Government has imposed that, beyond which, the US Treasury can issue no more bonds - if the US Government has insufficient revenue to meet its payments, and cannot issue more bonds, then something doesn't receive money. Sound simple right? Well it's not.

The biggest lie surrounding this entire debacle has been through an equivocation - turning a macroeconomy into a microeconomy - whereby the US Government is compared to a household. The logic is simple enough that anyone in a capitalist economy can understand it: if we're short on money, and can't borrow any, then we've got to cut spending. If you're a household that's spending $500 a day on caviar (or maybe $80 a month in On-Demand movies) then this makes sense - you just forgo 'extravagances." The problem is that while "many" people might be okay with cutting out the caviar / movies, and generally agree that its a prudent course, the course of cutting macroeconomy spending is rarely so easily agreed upon. What programs, exactly, are the caviar?

I won't spend time here getting into the arguments of defense spending versus welfare spending versus infrastructure spending versus whatever. Suffice to say the argument rests between two camps: one (Austrian school) that argues that government spending suffocates private spending, which is to say that the government cannot allocate economic resources as well as private markets can and thus spending should be left to private hands. The other side of this argument rests with the Keynesian arguments, which say (in a vastly summarized form for the purpose of brevity) that when private markets are failing to create economic growth they will continue to do so, each acting to reduce its costs (labor and commodities) to stay alive; however, in so doing, each microeconomy actor is in effect causing their own systemic decline. If everyone cuts spending in the economy then there is no demand, and that leaves only one entity - the state - to fill in the gap.

Suffice to say there is also the Marxist argument, which largely says that demand collapses like this are endemic to the nature of the capitalist mode of production. Capitalists will always try to maximize profit by extracting more and and more surplus value from their laborers, and when the laboring wage is insufficient (and credit to laborers dries up) then the laborers will not be able to afford to buy the things the economy produces - creating a feedback loop of economic stagnation and eventually collapse until enough destruction has been wrought so as to allow the system to restart. The Marxist argument is simply that, as a mode of economic production, the whole system is deeply flawed. If you're interested in reading more about this then there's plenty of authors out there like Dr. David Harvey, Dr. Richard Wolff, and Slavoj Zizek to just name a few. For those interested in theories to create new means of production go read up on Michael Albert and Robin Hahnel for their theory of Participatory economics. Suffice to say, however, that these aren't exactly theories that are breaking into the main right now; however, they are quite interesting for use as lenses of analyses. Marx's critiques of the nature of capital are quite useful across all capitalist economies.

So what does all of this have to do with the US Treasury bond downgrade by Standard & Poor's? Unfortunately not a lot in any technical economic sense, but a whole lot in the political economic sense. It is my hope to now make this a bit clearer herein.

Anyone following the news for the past few years probably wonders why anyone should trust S&P with regard to debt ratings. After all, these "financial engineers" are the same sort who rated the mortgage-backed securities that became collateralized debt obligations (which is just a bit of trickery to avoid regulation) which caused the financial crisis. It's a fact the likes of The Doghouse Diaries has made fun of in a recent comic strip. It's a fact the likes of which PBS Frontline made two documentaries out of (The Warning and the continually updated Meltdown). I take it as accepted fact that S&P's record, as of late, is quite tarnished - and I think that's putting it mildly.

So why does it matter from an economic perspective? From a pure rational actor perspective this ratings agency, and the rest of them for that matter, should be consulted for advice only if you're desperate and even then the advice should be taken with the world's largest available grain of salt. The companies are, for all intents and purposes, very wrong about a lot of things. S&P even made a $2 trillion dollar error in its estimates chart here which Paul Krugman, an ex-free trade comparative advantagist whose making the turnaround to becoming a leftist again, has described as "the kind of thing any budget expert should have gotten right." So, again, why is S&P considered an expert who's opinion should guide us? Well lets consult further.

S&P lamented the fact that expected cuts wouldn't materialize and that the debt ceiling was raised with no plans to include revenues (tax increases) in the budget. This was a fact, taken by the left, and run with as the S&P tacitly attacking the GOP for refusing to budge on tax increases (An example from Common Dreams). The more "moderate" sources pointed to the fact that "Standard & Poor's laments the possibility cuts to entitlement programs won't materialize." All this is premised around the idea that S&P is both a source to be trusted for analysis, and furthermore, that the economic narrative they put forth is accurate...but is it?

Notice that S&P is strictly focused on a reduction in US debt levels, which explains why the S&P's major players are solid contributors to the Republican Party. Further, S&P's analysis is being allowed to control the narrative, the media story is about WHY S&P's analysis matters - not whether or not it should be considered worthy of mattering. As written above, S&P doesn't have a recent history with being correct much, and with its contributions to GOP political causes it should hardly be surprising that they want debt to come down. The GOP works from the Austrian school perspective, and S&P believes in the Austrian school perspective - it's considered the word of God for all intents and purposes - but is it accurate?

If the Austrian school were really playing out the way it should be then things should be different right now. If the Austrian school were correct then the US choosing to not rescind the "Bush tax cuts" for the wealthy should have spurned growth with the assurance that the government wasn't going to take their money. They should have sought out new markets here in the US, since it's a safe haven for their money, to let that money grow. In other words, if the Austrian school were really playing out the way it claims it should, then the US shouldn't be teetering on a "double-dip" recession - though some argue that beyond technical statistics the US never left its original recession. Remember that while according to current metric the US left the definition of a recession, 88% of economic growth was captured by corporate profits. This is why I said above that Marx's critiques can be quite useful because they explain the nature of why capital acts this way in qualitative terms, which can be more accessible to some readers than an outright quantitative analysis (though I by no means mean to portray Marx as easy to read). Suffice to say the economic growth was in corporate profits, wages stagnated, and the lack of new taxes upon that wealth has so far done nothing to spurn growth that would lead to rising wages or lowering unemployment. In this instance - suffice to say - Austrian economics is not proving correct.

See if the US had real news that would be the story. The narrative would be just as I've put it, that a certain theory was held true, it was tested, and it proved to not hold true - the Austrian school theory didn't work. Indeed taxes are the lowest they've been since 1958. If the Austrian school was right then we should be booming right now as the government is doing little to nothing to sequester private wealth...but instead we're talking about how entitlement spending has got to come down. Why is this?

First off it should be made clear that both Social Security and Medicare are completely paid for, they're funded through the payroll tax, and what limitation they have in funding could VERY easily be removed if people were taxed on their full income (presently limited to the first $106,800 for 2010 and 2011) then these programs are overflowing with money. The word entitlement is actually fitting because the beneficiaries of these programs have been paying into them their entire lives, not as a proportion of their income, but as a percentage. They're owed what's due to them, and you'd think right-wing thinkers that absolutely love the "sanctity of the contract" would believe in that, but they don't.

The spending on social programs, right now, is the only real Keynesian arguments at work. True, defense spending is at an all-time high and keep being raised under the guise that defense spending should be "immune" from austerity measures. It's rather great irony seeing as how the US was telling Europe, post World War 1, that it had to cut its defense spending before we'd loan them anymore money because they were wasting it. That seems to come with empire, though.

So why would right-wing ideas want to cut social welfare programs? Why would you want to cut off people from the only money they have to spend, especially when that money is coming to you and your buddies in industry since low-income people have the highest marginal propensity to spend? What gain would you have when your taxes are already incredibly low such that most of the welfare that does exist is not a transfer payment from the rich to the poor as a means of wealth redistribution - but as a means of taxing the middle class and borrowing money from foreign countries? Maybe you could argue that we might not be able to borrow, but if Austrian school thinking isn't working that leaves only Keynesian to move forward with (barring a Parecon retcon of the system) and Keynesian arguments would say you absolutely never want to cut social programs in times of economic stagnation - they're the best means to regenerate life and growth into the economy. Also nevermind the fact that right now US Treasury bonds have "negative real yields" for 5, 7, and 10yr bonds, meaning the interest is negative (when accounting for the spread between TIPS and non-TIPS) - it costs us nothing to loan from foreign countries, and in fact we're "making money" - largely stemming from the realpolitik fact that the US economy collapsing would be a global nightmare. The answer is simple - it's not because the rich are sick of paying money to the government for the government to give it to a bunch of "lazy welfare queens" - but because the rich own the means of production, and if they can make the laborers even hungrier for jobs, then they can depress wages even further. In other words if you remove the social programs, and make the poor desperate enough, then you've got America turned into a third-world country that's desperate for any table scraps that happen to fall down to the working masses.

S&P's Treasury bond downgrade wasn't because there was a technical reason for it, hell it was so lazily done that S&P made a major malfunction in their paperwork and performed the equivalent of a 10th grader rolling their eyes and saying "oops" when the teacher scolded them for it. S&P's move was simply to control the media narrative long-enough to focus in on what the wealthy establishment wanted to see happen, and it's precisely what's going on.

What's that got to do with the riots in London, though? I have less to say here because most of it has already been said.

The riots in London found their instigation in the point-blank murder of a drug dealer whom the police claimed had fired at them, but in fact he had never shot at the police. Rather the bullet fired that struck the officer was discharged from a police-issue H&K MP5 - which meant it was a police officer shooting another police officer. This was not known at the time the riots started, but a strong suspicion was that the police were engaged in a coverup, and once rumors started floating about protestors being beaten by the police the situation simply fanned out of control. Original political actions became larger riotous actions which were joined in upon by all sorts seeking escape from boredom to a means of lashing out at society at large. An excellent Opinion piece in The Independent summed it up nicely. Essentially stating that the reason these people were stealing clothes, shoes, games, laptops, and other consumer items rather than stealing necessities or setting fire to luxury-brand shops in a bit of class warfare was because these consumer goods represented everything that had been dangled in front of them like a carrot to an ass. So when the opportunity came, and they had the ability to just take it...that's precisely what they did. These people are treated like criminals from their early days - so what do you estimate they grow up to behave like? They live in a society that glorifies materialist consumption above all else accompanied by the "gangster" lifestyle where the attitude of "screw you I've got mine" reigns supreme and only the top dog has the best - so why wouldn't they lash out to gain it when given the one opportunity where it just might be possible.This is not to say I condone the acts, because I assuredly do not, but I am not at all surprised by them.

So, in essence, my argument is this. The US Treasury bond rating downgrade by S&P was nothing more than a ruse in an attempt to control the narrative coming out of the debt ceiling raise that the US Congress bickered about to no end. From there it is the hope of the rich in America that a solid basis can be given for why entitlement spending must simply be cut - after all our financial rating is at risk! The naked corruption of this statement is on full display for all to see, but few can see the shadows on the wall of the Platonic cave for what they are despite the people screaming with the equivalent of the loudspeakers used in the Invasion of Panama that they are just that, shadows, used to control your perception.

The already marginally detached economic actors in America will be even further detached if social welfare (entitlement spending) is cut further - it suffered massive cuts and systemic changes in 1996 that cause it to barely fit the notion of a social welfare system regardless. Those detached persons will become genuinely desperate for any kind of wages, which is the perfect scenario for a capitalist mode of production. The ultimate result might be that after several generations of seeing the American Dream being the reason to work hard suddenly taken away, that even the greatest amounts of effort will not grant you access to that dream, might be what inspires riots here in the US. Again, I'm not condoning it, but it shouldn't be surprising if it happens.

That's not to say there aren't actors trying to stop it. The American Bar Association came out recently and said that political finance reform was critical in America if the process was to continue to have any semblance of honesty - because the money in lobbying controls everything happening in Washington D.C.. Further, MSNBC's Dylan Ratigan had a complete "Network" moment when he just started screaming at the camera about how the entire political system in America was corrupted by the money in it. What happens from here, of course, is anyone's game.

That's it for this post. Hopefully it has indeed broken ground, and maybe I'll even get a follower or two out of this. I look forward to what I can only hope to be a more prosperous future through shared information and honesty about the nature of the world - and again I hope somehow this blog can contribute to that.

Thanks for reading

Edit: It seems I'm not the only one making connections on issues like this, The Atlantic is running an article today on the link between austerity and riots. Of course, this is nothing new, just see Argentina a few years back.