Wednesday, March 29, 2017

"Trickle Down" Has Failed; Wealth and Income Have "Trickled Up" to the Top .5%

Central bank policies have generated a truly unprecedented "trickle-up" of wealth and income to the top .5%.
Over the past 20 years, central banks have run a gigantic real-world experiment called "trickle-down." The basic idea is Keynesian (i.e. the mystical and comically wrong-headed cargo-cult that has entranced the economics profession for decades): monetary stimulus (lowering interest rates to zero, juicing liquidity, quantitative easing, buying bonds and other assets-- otherwise known as free money for financiers) will "trickle down" from banks, financiers and corporations who are getting the nearly free money in whatever quantities they desire to wage earners and the bottom 90% of households.
The results of the experiment are now conclusive: "trickle-down" has failed, miserably, totally, completely.
It turns out (duh!) that corporations didn't use the central bank's free money for financiers to increase wages; they used it to fund stock buy-backs that enriched corporate managers and major shareholders.
The central bank's primary assumption was that inflating asset bubbles in stocks, bonds and housing would "lift all boats"--but this assumption was faulty. It turns out most of the financial wealth of the nation is held by the top 5%.
As for housing--yes, a relative few (those who happened to own modest bungalows in San Francisco, Seattle, Portland, Toronto, Vancouver, Brooklyn, etc.) on the left and right coasts have registered spectacular gains in home appreciation as the housing bubbles in these cities now dwarf the 2006-07 real estate bubble. But on average, the gains in home appreciation have barely offset the declines in real (adjusted for inflation) household income.
These charts illustrate the abject failure of the "trickle-down" economic theory.The majority of the assets that have soared in value are owned by the top 5%:
Wages as a share of GDP (gross domestic product, i.e. the nation's total economic activity) has been declining for decades:
The only segment of households who have registered gain in real income over the past 20 years is the top 5%:
Even excluding capital gains--the source of much of the wealthiest class's income--wealth disparity has reached astonishing asymmetries: most of the gains are flowing to the top 0.5%:
The Clinton, Bush and Obama presidencies shared one commonality: the wealth of the bottom 90% cratered in their presidencies while the wealth of the top .1% skyrocketed.
Central bank policies have generated a truly unprecedented "trickle-up" of wealth and income to the top .5%. Evidence supporting "trickle down" is nowhere to be found, at least in the real world.
Recent podcasts/video programs:
Rogue Money (56:59 min.)


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Millie N. ($60), for your fantastically generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Dugaboys ($50), for your supremely generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Tuesday, March 28, 2017

When the "Solutions" Become the Problems

Those benefiting from these destructive "solutions" may think the system can go on forever, but it cannot go on when every "solution" becomes a self-reinforcing problem that amplifies all the other systemic problems.
We are living in an interesting but by no means unique dynamic in which the solutions to problems such as slow growth and inequality have become the problems. This is a dynamic I have often discussed in various contexts. In essence, a solution that was optimized for an earlier era and situation is repeatedly applied to the present--but the present is unlike the past, and the old solution is no longer optimized to current conditions.
The old solution isn't just a less-than-optimal solution; it actively makes the problem worse.
As a result, the old solution becomes a new problem that only exacerbates the current difficulties. The status quo strategy is not to question the efficacy of the old solution--it is to apply the old solution in heavier and heavier doses, on the theory that if only we increase the dose, it will finally resolve the problem.
Take borrowing from the future, i.e. debt, as a prime example of this dynamic.Back when credit was scarce and expensive, unleashing a tsunami of cheap, abundant credit supercharged growth by enabling millions of people who previously had limited access to credit to suddenly borrow and spend enormous sums of cash.
This tsunami of new spending supercharged growth such that servicing the debt was easy, as incomes and wealth both expanded far beyond the cost of the new debt.
Fast-forward to today, and adding 50% of the nation's GDP in new federal debt ($9 trillion) and trillions more in corporate and houshold debt in the past 8 years has yielded subpar growth--roughly 2% a year.
This poor response to massive floods of credit, borrowing and spending has flummoxed conventional economists, who incorrectly assumed old solutions would always work as they had in the past.
In a similar fashion, conventional economists expected fiscal stimulus to boost growth. Fiscal stimulus--one-time tax refunds, infrastructure spending, tax cuts and various forms of "helicopter money"--central banks creating money out of thin air for the government to spend or distribute--have all failed to generate the self-sustaining virtuous cycle of boosting the output of the engines of income/wealth creation.
As I noted in Fragmentation and the De-Optimization of Centralization (January 2, 2017), The 4th Industrial Revolution has de-optimized centralization. Centralized control, power and money are now the problem, not the solution.
In the past, centralizing control of industries, credit and production increased the productivity of the whole economy. But that was then, and this is now. In the current era, centralization only breeds corruption, moral hazard, revolving doors between state agencies and private industry, opaque, rigged markets, rentier cartel parasitism and state-cartel crony capitalism, in which the central state regulates industries like Big Pharma, defense weaponry, higher education and so on to benefit entrenched interests, elites and cartels.
Regulations have also slipped from being solutions to problems. Everyone weighing the costs and benefits agrees that building and zoning codes enacted at the turn of the 19th century and the beginning of the 20th century greatly reduced the health hazards posed by slums and unregulated industries. Everyone weighing the costs and benefits agrees that clean air and water regulations imposed in the early 1970s benefited the public and the nation, despite the higher costs for goods and services that industry passed down to the consumer.
Technological improvements and efficiencies offset much or all of these costs by the 1980s, and by the 1990s, technological gains were increasing the income and wealth of almost every participant in the economy.
Recently, these technological gains have become concentrated in the top 5% of wage-earners and the owners of the capital. There are several drivers for this, including proximity to cheap credit, tax evasion techniques available only to corporations and the wealthy, pay-to-play lobbying for tax breaks and regulatory barriers to competition, and so on--all the foul fruits of centralized power and the crony-capitalism it breeds.
But technology is also exacerbating the trend to a winner-take-all or winners-take-most asymmetry between the most profitable and productive and "everyone else."
Regulations have now become burdens rather than low-cost means of improving the commons shared by all. Advocates for "tiny houses" and similar solutions to homelessness run into buzz-saws of regulations that prohibit such construction and zoning, and advocates of innovations from urban farming to crypto-currencies find regulations (often serving the interests of political donors rather than the public) are stifling innovations and efficiencies that would benefit the many rather than the few.
The regulatory agencies are prone to self-serving complexity that justified their budgets and power; as the regulations become more voluminous and arcane, "experts" in reading the runes and keeping up to date justify their big salaries and departmental budget.
The Lifecycle of Bureaucracy (December 2, 2010)
As I explain in my book Resistance, Revolution, Liberation: A Model for Positive Change, the state only knows how to expand; there is no mechanism, no institutional memory and no reward motivation to reduce the size of state power or revenues, or reduce the reach of the regulations and laws that empower the state to control virtually every aspect of life.
There are many other "solutions" that no longer solve their intended target problem but have become burdensome problems in themselves. One need only look at healthcare, higher education and weaponry acquisition programs to find hundreds of examples of perverse incentives and unintended consequences that are the direct result of anti-competitive, intentionally opaque, centralized regulations that are implicitly designed to benefit the few (wealthy political donors, lobbyists and entrenched interests) at the expense of the many who are shut out of the regulatory game.
Student loans are an excellent example of a "solution" becoming a problem itself, while the underlying problem--soaring costs for diminishing-return diplomas--rages on, enabled by the "solution": force student debt-serfs to borrow another trillion dollars to fund sclerotic, self-serving bloated bureaucracies.
Borrowing and spending $9 trillion did little but indenture future taxpayers to pay for for our massive malinvestment in diminishing-returns dead-ends.
If we look at yesterday's chart of overlapping crises, we note each crisis began as a purported "solution." The "solutions" are: more debt (now a problem); more centralization (now a problem); financialization (now a problem); promising more benefits to everyone (now a problem), and so on.
Real solutions are optimized for the 4th Industrial Revolution and the emerging economy, not the economy of 1946. These solutions are the opposite of all the institutional-state-cartel "solutions": decentralize power and control, transparency rather than self-serving obfuscation; empowerment of communities rather than centralized agencies and cartels, and embracing disruptive technologies--technologies that disrupt existing rentier skims, cartel rackets, regulatory barriers, etc.
The cold truth is all these institutional-state-cartel "solutions" serve the few at the expense of the many. This is not a side-effect; it is the intended output of these "solutions." In other words, these "solutions" work great for the parasitic few at the top skimming all the wealth, power and income, at the expense of the exploited many and the stability of the system as a whole.
Those benefiting from these destructive "solutions" may think the system can go on forever, but it cannot go on when every "solution" becomes a self-reinforcing problem that amplifies all the other systemic problems.
Recent podcasts/video programs:
Rogue Money (56:59 min.)


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Jose S. ($200), for your beyond-outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Kristi I. ($50), for your supremely generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Monday, March 27, 2017

The Overlapping Crises Are Coming, Regardless of Who's in Power

No leader can reverse the dynamics of mutually reinforcing crises.
Commentators seem split into three camps: those who see Trump as a manifestation of smouldering social/economic ills, those who see Trump and his supporters as the cause of those ills, and those who see Trump as both manifestation and cause of those ills.
I think this misses the point, which is the overlapping crises unfolding in this decade-- diminishing returns on skyrocketing debts, the demographics of an aging populace, the erosion of the social contract and the profound disunity of political elites--will continue expanding and feeding on each other regardless of who is in power.
Historical analysis seems to swing between the "Big Man/Woman" narrative that views individuals as the drivers of history, and the "Big Forces/it's all economics" narrative that sees individual leaders as secondary to the broad sweep of forces beyond the control of any individual or group.
So while the mainstream views President Lincoln as the linchpin of the Civil War--his election triggered the southern secession--from the "Big Forces/it's all economics" view, Lincoln was no more than the match that lit a conflict that was made inevitable by forces larger than the 1860 election.
The tension between these two narratives is valuable, as history cannot be entirely reduced to individual decisions or broad forces (weather, resource depletion, financial crisis, geopolitical upheaval, demographics, plague, etc.). The dynamic interplay between the two shapes history.
Individuals do matter--but they cannot offset structural crises for long.
Which brings us to Trump. The status quo is falling apart for profoundly structural reasons: promises made when growth was robust, debt was modest, energy was cheap and abundant and the work force was far more numerous than those dependent on the central state's "pay as you go" pension and welfare programs-- these promises made in yesteryear can no longer be kept, regardless of who's in power.
We cannot get blood out of a turnip, and those who claim we can are only exacerbating the coming crises with their fantasies and denials.
I've been addressing these slow-moving, inevitable crises for the past 10 years. Despite the illusion of tepid "growth" and the maintenance of the status quo, beneath the surface everything is becoming much more fragile and increasingly brittle.
Even Timothy Geithner concedes this in his recent Foreign Affairs article on how to deal with the next global financial crisis. The central banks and states have expended all their ammunition-- lowering interest rates, creating money out of thin air to bolster systemic liquidity, buying bonds and other assets to prop up shaky markets, and borrowing immense sums to prop up government spending-- and there is little left for the next crisis.
And this sober view--that some additional central bank trickery can save the system in the next financial crisis--assumes things that are unlikely to be true: what if energy is no longer cheap and abundant? What if global weather isn't conducive to grain surpluses? What if central banks buying stocks no longer props up the market? What if debt finally reaches levels that cannot be sustained?
Could Hillary, or some other leader, forestall these deeply structural crises? The short answer is no. The only thing a leader can actually do is lower expectations so the erosion of promises that cannot be kept will be accepted as inevitable, and bolster hope while demanding sacrifices of all those who have benefited from the status quo.
If we look back on great leaders who dealt with one crisis after another, we find they didn't actually make the crises disappear; they only managed them on the margins, and spoke to the need to make sacrifices for a better future.
If we set aside the rose-colored glasses, we find that Franklin Roosevelt didn't actually "lead the nation out of Depression." The nation was still deeply entrenched in the Depression in 1940, after 8 years of FDR's leadership. It took World War II and federal borrowing and spending on an unimaginable scale to extricate the U.S. from the grip of bad debt the powers that be refused to write off and the resulting stagnation.
Which brings us again to Trump. Since no one can actually resolve these overlapping crises, a focus on the individual leader's actions is a distraction. Yes, an individual can manage the margins of crisis more or less effectively.
But overlapping mutually reinforcing crises are not a war, with a victorious and a vanquished side. As Peter Turchin and other writers I have quoted and discussed for many years have detailed, these structural trends play out regardless of policy tweaks or grand pronouncements. Leaders who manage to ease the decline or temporarily reverse it are considered successes; those who exacerbate the decline are considered failures.
No leader can reverse the dynamics of mutually reinforcing crises. No one can reverse the diminishing returns on financialization, debt, centralization, financial fakery, rentier state-cartel parasitism, or reverse the decline in paid work, the erosion of well-being and health and rising inequality.
There is no way to actually forestall the reckoning as the forces of demographics, financial predation, Imperial over-reach, soaring debts, political disunity, technology disruption and the failings of state-cartel centralization grind up the status quo.
This essay was drawn from Musings Report 5. The weekly Musings Reports are emailed exclusively to major donors and patrons ($5/month or $50 annually).
Recent podcasts/video programs:
Rogue Money (56:59 min.)


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Herb S. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Anthony B. ($50), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

Sunday, March 26, 2017

Forget ObamaCare, RyanCare, and any Future ReformCare--the Healthcare System Is Completely Broken

It's time to start planning for what we'll do when the current healthcare system implodes.
As with many other complex, opaque systems in the U.S., only those toiling in the murky depths of the healthcare system know just how broken the entire system is. Only those dealing daily with the perverse incentives, the Kafkaesque procedures, the endlessly negative unintended consequences, the soul-deadening paper-shuffling, the myriad forms of fraud, the recalcitrant patients who don't follow recommendations but demand to be magically returned to health anyway, and of course the hopelessness of the financial future of a system with runaway costs, a rapidly aging populace and profiteering cartels focused on maintaining their rackets regardless of the cost to the nation or the health of its people.
Ask any doctor or nurse, and you will hear first-hand how broken the system is, and how minor policy tweaks and reforms cannot possibly save the system from imploding. Based on my own first-hand experience and first-hand reports by physicians, here are a few of the hundreds of reasons why the system cannot be reformed or saved.
Say 6-year old Carlos gets a tummy-ache at school. To avoid liability, the school doesn't allow teachers to provide any care whatsoever. The school nurse (assuming the school has one) doesn't have the diagnostic tools on hand to absolutely rule out the possibility that Carlos has some serious condition, so the parents are called and told to take Carlos to their own doctor.
Their pediatrician is already booked, so Carlos ends up waiting in the ER (emergency room). Neither the school nurse nor the parents see the symptoms as worrisome or dangerous, but here they are in ER, where standards of care require a CT scan and bloodwork.
Hours later, Carlos is released and some entity somewhere gets an $8,000 bill--for a tummy-ache that went away on its own without any treatment at all.
Since the Kafkaesque billing system rewards quick turn-arounds, observation is frowned upon unless it can be billed. So if observation is deemed necessary (to avoid any liability, of course), Carlos might be wheeled into an "observation room" filled with other people, where a nurse pops in every once in a while. This adds $3,000 to the bill.
(Never mind the stress on Carlos being in such unfamiliar surroundings; he might have felt better if he hadn't been subjected to the anxieties that come with being enmeshed in the healthcare system's straight-jacket of standards of care.)
If Carlos doesn't feel better after all this, then the bill is set to balloon bigtime because an overnight stay in the hospital is the next step--and if there isn't a 100% certainty that there is no chance of his stomach-ache becoming something serious, then the system will insist on overnight observation as the only legally defensible option.
There are other ways to increase the fees without actually providing additional care; was Carlos receiving "critical care"? Of course he was, because, well, it pays better, and by definition any ER visit is critical care.
This example is just the tip of the iceberg, but you get the point: all institutional care decisions ultimately revolve around thwarting future liability claims and maximizing the billing value of each interaction or procedure.
You've probably seen some of the racketeering that passes for "business as usual" in the pharmaceutical arm of the "healthcare" industry. A pharma company that spent $500,000 trying to keep pot illegal just got DEA approval for synthetic marijuana (via Chad D.)
Off-patent medications double or triple in cost, and then double or triple again with a few years, without any justification. To extend expiring patents, Big Pharma corporations petition the FDA to change the target audience for the med, and this trivial administrative change awards the corporation years more of lucrative patent protection.
The scams are endless, the skims are endless, the fraud is endless, the waste is endless, the fortunes expended to limit "winner take all" liability claims are endless, the paperwork churn is endless and the perverse incentives and negative unintended consequences are endless.
Everyone knows the system is unsustainable, perverse and insane, but they are powerless to change it within the system as it is. The usual sort of political horsetrading that passes for "reform" yielded ObamaCare, which did essentially zero to limit costs or cartel rackets.
A system based on parasitic predation by all the cartel players cannot be reformed or saved from its own perverse incentives and skyrocketing costs. The foundations of U.S. healthcare are rotten to the core. "Reform" is an appealing delusion, but the rot is so deep and so pervasive it is embedded in the society and the culture, beyond the reach of legislative overhauls, no matter how well-meaning.
This chart-fest reflects the trends that cannot be reversed by policy tweaks and tucks: The U.S. spends more than twice as much per person than our advanced competitors such as Japan and France.
The U.S. spends 2.5 times more per person than the OECD (i.e. the industrialized nations) average:
Wages have risen 16%, GDP rose 168%, and healthcare soared 818%. Do you reckon wage earners might have a hard time paying for healthcare nowadays?
If healthcare had risen only as much as official inflation, each household would be saving $10,000 per year--$100,000 each decade. $100K here and $100K there, and pretty soon you're talking real money in a conventional wage-earner household budget.
Projections of skyrocketing Medicare and Medicaid program costs guarantee national bankruptcy. The projection of 90 million Medicare enrollees is predictable, but there is no reason to believe costs will be limited to $20,000 per enrollee annually.
U.S. healthcare costs more in every category than other healthcare systems.Tweaking  policy in one slice does nothing to limit the staggering increases being logged in all the other tranches of the system.
America's healthcare system is the perfection of the fraud triangle: the pressure to increase billings, fees and profits is immense, the rationalizations are unlimited (it's within the legal guidelines, etc.) and the opportunities for fraud are equally unlimited.
Individual caregivers and administrators want a different, better role and a better outcome, but each is trapped in the system as it is--and reform is impossible given the systemic foundations, incentives and legal framework.
It's time to start planning for what we'll do when the current system implodes.We might start by considering The "Impossible" Healthcare Solution: Go Back to Cash(2009).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Judy W. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Tim B. ($50), for your wondrously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:
Correspondents' email is strictly confidential. The third-party advertising placed by Adsense, Investing Channel and/or other ad networks may collect information for ad targeting. Links for commercial sites are paid advertisements. Blog links on the site are posted at my discretion.


Our Commission Policy:
Though I earn a small commission on Amazon.com books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP