[A-List] US Legitimacy: 535 Thieves

["Annewilliamson" <Annewilliamson@xxxxxxx>]

October 28, 2002

Sanders Research Associates



Chris Sanders


The 535 Thieves.
.or the greatest deliberative body in the world?


If we confine ourselves to the narrowest scientific contexts while trying to
decide the critical issues of the moment, we are very likely to go astray.
>From David Ehrenfeld,  "Unethical Contexts for Ethical Questions, " a
lecture at Yale University December 2001, quoted in Harper's Magazine,
October 2002.



The incompleteness of economics comes from a loss of vision of social
totality, a defect reinforced by the present-day division of academic labor.

William K. Tabb, Reconstructing Political Economy, Routledge, 1999, p.15



For people of modest situation who have once risen above that level, it is
unendurable to fall back into it even momentarily.
Adolf Hitler - quoted in Guerin, Fascism and Big Business, 1973 Pathfinder
Press, p 47


Hotel California

The US trade deficit hit a new high last month. At over $38 billion, it is
fast approaching an annualised level of nearly 5% of GDP. To Assistant
Treasury Secretary Richard Clarida writing in the Financial times of October
22, this is just evidence of a growth deficit elsewhere in the world.
"Nothing to see here. Just move along," says the tough financial traffic
cop. Clarida adopts the tired tone of the much imposed upon parent,
sincerely "hoping" that the rest of the world can get its act together. To
Clarida, foreigners invest in America because it offers more safety and
higher returns. On the other hand, he says the cost of servicing its huge
net foreign debt position is very low for America because it earns more on
its investments overseas than foreigners earn in the supposedly more dynamic
American economy.



There is something not quite right with this view of things. If the US is
more dynamic and more productive than other industrial countries, you would
think that foreign investors would earn more from their American investments
than the Americans earn from their foreign investments. Of course what
Clarida neglected to say is that the US as a whole is able to settle its
external liabilities using unsecured paper, that is to say dollars. While it
is true that foreigners can invest that paper in other US assets, ultimately
their earnings too are simply denominated in more of the same paper. It is
reminiscent of "payment-in-kind" bonds that were popular with junk issuers
in the go-go years of the late 80s. Instead of cash, you received more bonds
in settlement of coupon obligations. The world monetary system based on
dollar reserves is just like that. It is the ultimate Hotel California: you
can check in but you can never check out.

Stale ideas from yesterday's men.

Clarida's arguments are old hat. American Treasury officials have been
saying the same thing, using the same words, for decades.  To our ear it is
sounding rather brittle, not least because it is such manifest nonsense, and
overuse suggests that there really are not any new ideas in Washington.
Washington does what Washington knows how to do, and it is highly unlikely
that having made so much money out of running international rackets for the
last fifty years that it is going to stop now. This is ultimately why it is
so likely that whatever anyone else thinks or tries to do about it that the
US is set on invading Iraq. By administering Iraqi oil production the US
will remove any serious attempt to do anything that might "destabilise" the
"system" such as denominating oil sales in euros, for instance.


Ironically the most destabilising component in the system is the axle on
which everything else turns: the US itself. There is a good reason for this.
The economic foundation on which modern American power rests is not, as the
official line would have us think, free markets, competition and law. It is
rather based on cartels, coercion, and gaming. These two models differ
considerably. The former implies consensual and decentralised forms of
decision-making, decentralised ownership and production, and the rule of
law. The latter implies centralised decision processes, concentrated
ownership and capital, and a law of rules.


.who grab for more even as what they have slips away

The latter set of characteristics is typical of military and authoritarian
societies. The United States economy has operated for more than four decades
with a heavily militarised industrial architecture. During that period the
difficulty of competing with the subsidised militarised sectors has driven
civilian manufacturing and production out of industry after industry. This
has resulted in the military sector increasing in relative importance. While
this was for many years a hotly debated development, the debate has cooled,
or even been effectively censored. This should not come as too much of a
surprise. Since the Korean War, the US has maintained a military force
structure of well over a million men and women, even without national
conscription. To the uniformed services one must add the five million or so
workers in those companies that comprise the industrial base of the military
procurement system and the government employees who supervise them. This
represents some 4% of the entire civilian labour force, and a considerably
larger proportion compared to America's steadily shrinking manufacturing
employment base. This is a sizeable political constituency. But perhaps even
more important in the long run, the socialisation of workers over decades to
the habits of work in a cost-plus and non-competitive (in the economic sense
of the term) economy selects habits and modes of behaviour that work in that
environment. Once gone, other skills and ways of thinking about problems are
hard to recover. In his book After Capitalism, Seymour Melman of Columbia
University points out one of the tangible consequences of this: a relentless
rise in the proportion of workers not involved in the production process. In
1940 the ratio of "administrative" workers to production workers was 42:100.
As a matter of interest, by the time the soviet Union collapsed, its ratio
of administration workers to production workers had reached 219:100.



Theft is still theft, whatever you call it.

If you are sceptical about the relevance of all this, consider: in the
twenty years to 2000, the ratio of senior executive compensation to
employees' compensation rose from 42:1 to 531:1. As Jeff Gates of the Shared
Capitalism Institute points out in an as yet unpublished paper, Legalised
Looting, JP Morgan himself thought that a ratio of 20:1 was the maximum
sustainable gap between management and workers. Morgan should have known. He
might have been one of the most powerful men in history, but he understood
productivity and leadership. Today's American leaders either understand
neither or, as I am inclined to think, have simply given up on the country
that has served them so well.




Gates' paper puts dry statistics to something that everyone ought to
understand. The money funding this stupefying transfer of wealth is the
pensions of the taxpayers who have subsidised it through retirement tax
subsidies of $110 billion annually. Pension funds under management in the
American economy have grown in consequence from $1.9 trillion in 1980 to $17
trillion twenty years on. This amounts to an asset allocation shift of truly
epic proportions. Every trader understands something that apparently neither
Alan Greenspan nor Larry Summers will admit: financial asset prices are set
by the flow of money, not by an abstract concept like productivity. The
turgid Greenspan's theorising a "step change" in productivity is simply
propaganda masquerading as economics.



Once this is clear, governance of the US political economy is much easier to
understand. Americans' 401-K pension plans are commonly understood to exist
to finance the retirement of the beneficial owner, that is to say workers.
On paper and in law this is certainly the case. But more important is that
they provide the bid for the shares and options of the executives who run
the companies in which those retirement plans are invested. Watering stock
makes no sense if you have no exit.



Apologists argue that American democracy is more egalitarian precisely
because workers share in the ownership of the productive base of the economy
through their pension plans and employee stock option plans. This is hard to
agree with. Neither confers any control over the destiny of the firm. The
steady loss in manufacturing jobs over the last ten years is hard to explain
in terms of employee ownership. Would employees with any control have voted
themselves out of jobs?




Objectively, it is hard to see this situation as much different than a form
of embezzlement, which is to say theft. It may also tempt one to conclude
that if the plebs are stupid enough to allow this to be done to them, then
they deserve it. Hitler, quoted above in Guerin's classic on authoritarian
corporatism, had a pretty jaundiced view of the public. Whether or not you
think that the public "deserves" it, there is little doubt that the
disappearance of retirement value into the pockets of a handful of
individuals is a major political issue. It amounts to nothing more than
robbing the many of their future so that the few can enjoy the proceeds in
the present. The political consequences of such disappointment are unlikely
to be small.  However, the little guy has few means of recourse. We have
observed before how little chance a sitting congressman or senator has of
losing his of her seat in open election. Money controls the electoral
process, and declining rates of voter participation betray the truth. The
electorate has a pretty good idea of how much the political process is
worth. From the point of view of voters, the answer is clearly, "not much."


Déjà vu: another convenient political plane crash

The death last Friday of Democratic Senator Paul Wellstone along with his
family and several staff members in a plane crash illustrates the point.
Wellstone was fighting a tough, close race. His opponent, Norm Coleman, is
said to have been handpicked by Cheney and Bush to take on the liberal
Wellstone. Wellstone earned himself a place in history by daring to be the
only Democratic senator running for re-election to vote against empowering
Bush to make war on Iraq. Behind in the polls before this, he moved into the
lead in the wake of the Senate's Iraq vote.



How dangerous it is to adopt a political position at odds with the system.
Especially if it looks as though it might win you votes. It has been said of
America that you can say anything you want as long as no one pays any
attention. Clearly, Minnesota's voters were paying attention to Paul
Wellstone. His death is eerily similar to another Democratic senate
candidate, Mel Carnahan, who was killed in a plane crash in Missouri during
the final heat of his campaign against now Attorney General John Ashcroft.
As it happened Ashcroft couldn't manage to defeat Carnahan even in death.
Carnahan's wife Jean went on in the final days of the 2000 campaign to
defeat him. It is hard to escape the feeling that Ashcroft is taking it out
on the rest of us now that he runs the Justice Department.



Market people tend to be uncomfortable with this kind of analysis and for
good reason. They tend to prefer to analyse situations objectively and
clinically, even to the extreme of inventing "objective" and "clinical"
technical analysis to do so. Politics, to say nothing of ideology, is on the
contrary highly subjective, and it is impossible to divorce completely the
observer from the matter under observation. But there is a way out of this
dilemma, by looking at the international economy as one of the components,
or expressions if you will, of a larger system. This used to be the norm at
least until a hundred years ago when the study of the "economy" half of
political economy was mathematised and segregated as a specialisation in its
own right. Today it ought to be obvious, but apparently is not, that one of
the biggest problems in understanding the economy is the discipline of
economics itself. Mechanistic, self-referential, even tautological,
mainstream economic thinking has increasingly little to do with the life of
the societies about which it is ostensibly concerned.



Lula wins.

The Brazilian elections are a case in point. Wall Street and American
government economists, dismayed by the prospect of a da Silva victory have
predicted inflation, public sector default, and worse. The currency market
has delivered a stunning devaluation of the real. But the truth is as always
more nuanced. Devaluation is in fact very welcome. Brazil's terms of trade
have improved tremendously and quickly. The country has sufficient hard
currency reserves to service its public sector foreign currency debt through
2004. With a floating currency, there is no likelihood of default on its
real obligations. The central bank is under no obligation to finance capital
flight, and is perfectly capable, legally and institutionally, of purchasing
and rolling over the government's debt on a day-to-day basis if necessary.



However, the typical American or European prescription is for an
appreciation of the real to "reduce dollar denominated debt pressures." This
should be followed by stringent disinflation to "curb Real-denominated debt
pressures." On top of this, real growth of 3% per annum or more needs to be
achieved "to turn around the underlying negative debt dynamics." (These
quotes are from Currency Weakness in Perspective, a publication of ING
Financial Markets, 22 October.) A more destabilising policy mix could
scarcely be imagined. Could that be what is really wanted?



Why Brazil should not earn the foreign currency it needs rather than
shackling itself to an economic policy that virtually imposes dependence on
the IMF and World Bank is beyond us, unless shackles are what are desired.
The tiresome New World Order mantra about democracy is nothing more than a
slogan, just as it has been in Asia, the Balkans and Eastern Europe.
Democracy is fine, as long as only acceptable candidates win.



Was Paul Wellstone an unacceptable candidate?