The Espresso Economy, or Double, Double, Toil and Trouble

Like most Freepers, I like to get my news and information online. Also, I am (as I suspect many Freepers are) a confirmed coffeeholic. There are few things more pleasurable than sitting down with a tall coffee -- extra cream, and Splenda or Stevia, please, I'm doing the Atkins diet -- and surfing through the web for the latest news and commentary. Free Republic is only one of my favorite sites.

Within the last couple of weeks, I have noticed a great deal of time and attention being given to the ongoing debt limit negotiations in DC. Apparently the problem is that Congress has passed a law that sets a limit on the amount of money the US government can borrow, and yet the fear is that now, or in the near future, the amount of current spending will drive us over the debt limit, and that the government will default on its obligations. Doom, misery, and despair to follow, women and children (and other favored Democrat constituencies) hardest hit, film at 11.

Let me say for the nonce, that this appears to be the first of many problems coming up. According to some pundits, and some Republicans, there is enough money coming in from taxes right now to fund the interest on the existing debt, plus pay the military, and Social Security(*), and a couple of other giveaways, for the foreseeable future: at least until October, when the incoming freshman Congress will be allowed to pass their first budget (the Democrats, in their rush to give us Obamacare, tastefully neglected to pass a budget in the runup to their electoral comeuppance in 2010).

And what is it that has led us to this pass? "Bush's fault" to be sure -- he and the dimwit GOP Congress spent enough during their time together to be an insult to drunken sailors everywhere. Until Nancy Pelosi came in, and with Barack Obama, inspired by Cloward and Piven, they spent enough to make Bush & Co. look like pikers. Why, what's the word everyone is using? Oh, right. A bubble.

It's a strange word, it is, the word bubble. Almost as if I've heard it before. In connection with...another government problem...oh, that's right. Freddie Mac and Fannie Mae. The whole mortgage crisis. People being given ridiculous loans (more than 100% of principal) for poorly-appraised (at best) housing for which they didn't stand a chance of making regular payments; shoehorned in by -- drat, not quite the word bubble, but close -- balloon payments.

Well, how are people supposed to pay for the mortgages? Particularly in this economy. We're competing with Europe, Japan, India, and China you know. Why, we need...EDUCATION!^TM And what do you know, college costs have increased, too, rising recently at twice the rate of inflation; and since the mid-1980's, tuition has gone up almost 500%, compared with 100% for prices overall. And yet -- you need the college degree to compete, despite the cost. It sounds like (say it with me) a bubble.

Well, if we had wanted to pay for college, perhaps we should have invested some money. During the recession, most people's 401(k) accounts took a big hit; certainly stocks have not performed well; but precious metals such as gold, have veritably skyrocketed. Almost as if they were in...a bubble.

What on Earth is going on here? Is there anything that isn't a bubble? Where are we going, and why does this handbasket have "Lawrence Welk" written on the side?

Well, some people would suggest that the problem is related to the government spending and borrowing, and that with the devaluation of the currency, the prices of various items will of necessity go up, since we are bidding for them with increasingly meaningless dollars. (If money grew on trees, it wouldn't be worth much, right?)

I think that's true, to an extent; but I don't think it accounts for all of the problems. Supply and demand counts, too, and with the US economy in a slump, there is not that much demand across the board for all items.

Or is there? Think of college as an example, and as a gateway -- just as college is supposed to be the gateway to a middle class lifestyle out in the real world. College is very much a medieval institution: a bunch of people get together and discuss, pontificate, cogitate, and drink (look up the origins of the word symposium) and come up with beaucoup deep conclusions, to the praise of their fellows and the admiration of their countrymen. And then when one has studied enough, one is supposed to dress up in a silly robe and tassel and march about to musical pieces with names like Pompous Circumstance.

Nowadays, companies are not supposed to use intelligence tests (it might be discriminatory against morons, and then where would business find new managers?), so they have decided to use college as a substitute: if you have a degree, you must be smart enough to hold a job. The consequence of this (together with the government's insistence that "everyone should go to college, and we'll supply the money in the form of loans"(**)) is to create a LOT of demand for a limited item. And the laws of supply and demand dictate, that if demand goes up, prices do too. The government putting its thumb on the scales by encouraging things like Womyn's Studies or "Earth Science and Environmental Justice" (I only *wish* this were a joke) isn't helping much either.

But the problem with the bubbles isn't just that of college. It seems as though virtually every area of life is becoming infested with bubbles at the same time. Looking at my coffee the other day, with Carly Simon's You're So Vain running through my head --

my mind made the sudden connection. The problem isn't individual bubbles: the problem is frothiness: the tendency to MAKE bubbles in the first place!

To answer this, let's go back to the most popular textbook example of a bubble, the South Sea Bubble (yes, I *know* it's Wikipedia. But it's nothing political, and it has decent links, so bear with it). What happens in a bubble is that first, an item of no tremendous worth in itself attracts the attention of investors, who drive the price up. Other investors notice this and join in, driving the price higher. After a time, more and more people join in, hoping to sell their item to "the next sucker in line" and get rich: and in some bubbles, this activity may be actively encouraged by brokers or by salesmen who don't give a hoot about the item, but only the ease with which they can collect commissions. Finally, sales peter out as prices climb astronomically, demand falls, which drives down speculative interest, and the bubble "collapses" as people become as eager to sell (and preserve their paper gains) as they had formerly been to buy.

What does this have to do with our current economy? Well, it has taken time to get here, and I think it reflects the slow inculcation of an attitude on the part of the captains of industry, which has now spread throughout much of society. Let us recall what life was like in the United States for much of post World War 2, when the United States was the predominant industrial power in the world, and our factories unscathed by the war. In such an environment, making money in industry was comparatively easy: build a decent product and sell it. Pent-up demand is almost guaranteed. And with the demographics of a rising US population ("baby-boom"), such favorable tailwinds were a given.

But over the decades, things changed. Factories were built, first in Europe, then in Japan. By the early 1980s there was serious competition for the US auto industry; by the late 1980s, serious commentators were soberly predicting that Japan would overtake the United States economically. The baby boom approached its peak and began to recede. The US government grew larger, as organizations such as the EPA (begun under Nixon) grew enormous under the combined influence of mission creep and long-lasting liberal Democrat majorities in Congress; and with the regulations on production, so too came regulations on people. Longer vacations, workman's comp, maternity leave, ADA requirements, diversity bureaucracy, ever more burdensome taxes.

All of these things made it harder and harder simply to mint money in the United States, producing exclusively for the US consumer.

So companies changed. They began to seek outside markets; they began the process of offshoring: sending production and other jobs to other countries -- first Mexico, then the Far East. And with the jobs, the headaches diminished: fewer environmental regulations, fewer onerous personnel-related laws, the wonders of wage arbitrage, the eagerly awaited promise of legions of new consumers. And just as lavish, the promises to the workers here in the US -- "don't worry, all the dangerous, dirty work is going overseas, so we can more profitably redeploy the money into higher wage, high-tech jobs here in the US."

The companies then began sending more and more jobs to the overseas locations, in support of the factories which had moved overseas; and to help transition the management to local workers who would have greater cultural sensitivity and increase the overseas markets. And here at home? Some bozo of an executive had the brainstorm that "if we can move the factories there, we can move the foreign personnel here" -- and the use of the H1-B visa exploded.

Who exactly benefited from all of these structural changes? Why, of course. Not the American worker. And not always the consumers (witness the continuing high price of athletic shoes despite production in China, or the continuing high price of Microsoft software despite the legendary wealth of the company executives). But there was worse to come.

Following these kinds of changes in the business world, a similar set of changes happened in the business press, and on Wall Street. The focus changed from long-term, sustainable planning, and from the business as a whole; to the concept of the "superstar CEO" -- the legendary superman who by sheer force of will and determination drove an entire enterprise to unheard of profitability. At least -- in the short term. For in order to make executives more accountable, and to encourage them to look at the financial consequences of their actions, the concept of "stock options" as a primary method of renumeration of corporate officers came in vogue. The theory was that the executives would be motivated to plan for the health and financial well-being of the company, since they would be sure to reap the rewards (in terms of appreciating stock prices) for any well-conceived, well-executed strategies.

(All at a price, of course. Remember the lifetime perks awarded to Jack "Neutron" Welch of GE, to continue in perpetuity, even after he had LEFT THE COMPANY? And in return, so many of the employees who had done the work were rewarded with the empty words "lifetime employability" and a token severance package.)

But one little thing got in the way of the compensation scheme working as planned...one which was to prove disastrous for the economy over time, and in ways nobody had foreseen. The stock options were structured to reward SHORT-term performance. Together with the massive ego boost given to the executives, and the lessons learned in offshoring, executives quickly figured out that goosing the numbers for a year or two was much more rewarding, and MUCH less work, than building a slow-growing company that would last, and weather downturns.

And other executives saw the easy money to be made; but not all of them had large payrolls to transfer offshore; or perhaps, even that amount of work was too arduous for the quick payoffs which seemed possible. Companies began simply to lie and cheat rather than producing any product, in order for the executives to get rich. And all to a fawning press.

Just a few names will suffice. Does MCI-Worldcom ring a bell? Or Enron? Or -- oh, I don't know -- maybe some Wall Street firm or other which dabbled in mortgage-backed securities, or in guaranteeing the loans on those securities.

Which brings us back to the present day. The US economy USED to be based on a shared value, from top to bottom, of hard work and personal accountability: and the United States, hearkening back to the wartime days when it had justly been called the "arsenal of democracy," prided itself for an honest day's pay for an honest day's work: and on the promise of growing into wealth.

It has, over time, and with many fits and starts, been transformed into a culture where political connections count more than work, where manipulation of numbers or of acting merely as a gatekeeper on others' transactions, rather than producing a product, is the path to *real* wealth, where the very government itself is interfering directly in the marketplace to dictate winners and losers, and acting to promise wealth without work to the connected few, and sustenance without work to millions more

...and where the former "arsenal of Democracy" is threatening to become the modern-day "arsenal of Maoism."

In order for the country to survive, we need to move from an economy of froth, based on a profusion of bubbles, in the hopes of instant wealth without work, to an economy of substance, where instant wealth is not realized, but the safety and sustainability of the entire country IS.

(*) Which, come to think of it, presents another potential bombshell. Haven't we been told all along that Social Security is in its own segregated lockbox and that the funds are there whenever we want them? Why, then is Obama saying he can't guarantee that Social Security checks will be sent out if there is an impasse? ...Oh, I get it. He's bluffing. But in doing so, he just admitted that Congress has been spending the incoming Social Security receipts on current expenses all along, leaving a couple of hopey-changey stained IOUs in the lock box in their place. So he just called his own bluff and saved the Republicans the trouble.

(**) This sounds a lot like the government's insistence that "everyone should have a house" because "housing prices always go up" doesn't it?

I must demur, sir. There was never any "shared value." People sucked just as much in the past as they do now. Government is indeed the problem.

Nice write! Now what do you think about the money that’s there but supposedly sitting on the side lines because it’s known that more Obamanomics is coming down the pike and is now institutionalized, but it hasn’t all hit yet?

Personally, I think we’re done from man’s manipulations and must figure how to now adapt in a country whose countrymen bloody well liked the money from trees era and forgot their God. Sorry to be negative, but solutions will likely come only in proportion to the time spent on our knees and in reparation.

I must demur, sir. There was never any "shared value." People sucked just as much in the past as they do now. Government is indeed the problem.

Let me put it this way: how many Presidents before Obama ever walked around with a book entitled The Post-American World and invited the author to the White House?

Americans used to believe in America.

Now fewer do; some hate America; and a few are acting as organ thieves while her heart yet beats.

NO cheers, unfortunately.

Sarah's going to have to consult with some good Hayek-believing economists to work on that; it may be ameliorated by the pent-up wave of corporate spending which will start when her election is announced, and reach a crescendo during the first six months of her working with the new ~~GOP~~ Tea-Party-controlled House and Senate.

Cheers!

There is only one kind of regulation keeping me and many others from manufacturing something useful for others: local zoning “laws” (once ordinances) against manufacturing, even on large lots in the middle of nowhere.

Ask for a variance, and you’ll get closer to who’s behind that regulation. “Closer” is most often older women, who oppose your effort to start a business and threaten to sue in advance for some violation or other against the environment.

Find out who once employed or is directly related to the threatening, older women, and you’ll find out who is behind the regulations against new, small manufacturing operations: he, who will not allow competition against his global manufacturing, real estate or construction empire.

And the socialism and big spending are bipartisan efforts in every locale. Anti-family and anti-small-business laws are for preventing domestic competition from the domestics.

So then try to get into your local political party meetings, and try to change that political party. But before you do that, make sure that you, your family and all of your possessions are very well secured.

Thanks for the ping; post; post. Very good.

From...”The Law”...

Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

Now, since under this definition socialism is a body of doctrine, what attack can be made against it other than a war of doctrine? If you find this socialistic doctrine to be false, absurd, and evil, then refute it. And the more false, the more absurd, and the more evil it is, the easier it will be to refute. Above all, if you wish to be strong, begin by rooting out every particle of socialism that may have crept into your legislation. This will be no light task.

Frederic Bastiat 1801-1850

DEFUND/DISMANTLE (when necessary) socialist collectives, foreign and domestic (especially those constructed by “our” government).

...That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness...

ALTER it.

"Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism."

Very well said. But one of those girls is not like the others. ;-)

China is a foreign communist nation. Corporate-government interests collaborating with China are working against American freedom and are now collaborating in trying to destroy the USA. They are communist sympathizers.

The United States Constitution, Article I, Section 8:
"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;...To regulate Commerce with foreign Nations,..."

The Tariff Act of 1789 was the first national source of revenue for the newly formed United States.

WTO helping China Loot Caterpillar
AmericanThinker.com ^ | 10/04/2010 | Howard Richman & Raymond Richman

"But on September 29 Caterpillar announced it is building its twelfth factory in China -- this one to produce mini-excavators. Why can’t Caterpillar make a profit exporting mini-excavators to China? The answer is simple: China has a 30% tariff on all excavators. In fact it has a similar high tariff on just about every vehicle, be it a Ford car, a GMC truck, a Harley Davidson motorcycle, or a giant mining machine made by Bucyrus International."

But on the rest of the points you made, I agree very much. And the best strategy that I know of would stop federal funding to state, county and municipal governments first. Weaken them that way, and most of the bipartisan power of socialism will be busted.

In general, stop the outlawing of men starting new, small manufacturing operations on their own remote properties, and stop messing with their families.

Thank you. There is an information gap in my “strategy.” One way to fill that might be to let the older population (including me) know that Social Security is danger. Heh.

Disseminate the message that SS or something similar can somehow be salvaged by cutting federal funding for public ed., emergency-rescue-911, etc., social programs and so on. All of the local government employees of my past acquaintance received newsletters telling them to write to both parties and vote for Democrats. When they’re out of work, they’ll no longer be as politically active. And oldsters can outnumber them if used wisely. There would even be division between local government employees (Social Security wedge between old and young).

I’m in my fifties (not so old but knocking on the door). I’m poor (but fed with healthy food by my own efforts), but I’m building things (energy, shelter, food, etc.) on the cheap, little by little. Also own a cheap-**s little piece of land. I saved, had the well drilled and installed the water system myself (gravity fed with cistern, no expansion tank necessary). I’m doing the “Galt” thing with family a little at a time (out of pocket).

My idea is to use our gigantic Baby Boomer population’s political weight and momentum as a soft style martial arts practitioner would (or a military commander, for that matter): against us. We can work. We’ll live. We’ll be alright. Happiness starts in our own minds, and “self-esteem” is an unhealthy concept altogether. Don’t worry about us. Older folks tend to prepare and save much anyway. And we’re better off doing some kind of manual labor. Because if we stop working completely, we tend to die quicker anyway.

There. The young folks win (jobs!), and the old folks will survive (with many really living it up just great).

I’m doing the “Galt” thing with family a little at a time (out of pocket).

HOORAY familyop! Be prepared BUMP! As for SS I'm 61 and could collect in about 9 months (not sure at this time) but plan to keep working. IMO they (socialists) can take that whole FORCED system and shove it up their _ _ _. It is built on the backs of dead Americans. As I see it, the only thing worse in America is Obamacare/Hillarycare TOTALITARIANcare. They will be directly killing (witholding treatment) of Americans who would be FORCED to pay for their own demise. Socialism always results in a lot of dead people. Witness history. Very clever...our POS socialists.

Your idea IMHO has merit though...to rid ourselves of MANY OTHER socialist systems already in place.

"...That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness..." ALTER it.

How? By DEFUNDING socialist collectives, foreign and domestic.

After that idea gains traction with citizens, legislatures (state and federal) who would have very little real work to do, could be part-time jobs with 1/10th pay, NO retirement, NO perks, NO insurance. Get a job. Pay for your own crap, you POS politicians/socialist wannabees.

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