If You Use Their Frame, The Game Remains the Same

Charles Hugh Smith has a new book out called Resistance, Revolution, Liberation.  I purchased the Kindle version within days of the book's release.

While there are many good things to say about the book, I was left disappointed.  Here is why: how you frame a problem dictates the solution, and if you accept the frame of those who created the problem, you necessarily are limited to the "solutions" they offer.  As Robert Green states in Law 31 of The 48 Laws of Power, "Control the Options: Get Others to Play with the Cards You Deal.":

The best deceptions are the ones that seem to give the other person a choice: Your victims feel they are in control, but are actually your puppets. Give people options that come out in your favor whichever one they choose. Force them to make choices between the lesser of two evils, both of which serve your purpose. Put them on the horns of a dilemma: They are gored wherever they turn.

Resistance, Revolution, Liberation accepts the "capitalist" frame without ever questioning it and ultimately fails for that very reason.  CHS "solutions" are nothing new and, therefore, remain well within acceptable permutations of the various options we are allowed.  The one bright spot is that he encourages actively seeking change, but that is more than counterbalanced by the fact that the change he describes would just put us back to December 22, 1913, a time that is not nearly as romantic as he believes it to be.

To be fair, CHS thinks he questions the frame, but all he is questioning is the respective framing of the current instances of "Left" and "Right" ideology, not the frame of "capitalism" itself, which rests on the three fictitious commodities of money, land and labor (h/t Karl Polyani).  For example, CHS asserts that private property should be inviolate, but he does not question what properly is private property.  CHS likewise asserts the centrality of the marketplace to humanity, but he does not explore how the modern marketplace was originally created through the process of enclosure that privatized the commons and forced peasants into labor at subsistence wages, thus exalting money over labor.  Capitalism thus relies upon the State's enforcement of the private creation of a scarcity of money and land to force an abundance of labor.

Capitalism is feudalism is communism.  There are no differences between any of these systems other than the labels applied and the ostensible beneficiaries.  The real beneficiaries remain the same.  And so do the real victims.

Toby Uses Facts to Refute CHS' Horrible "Plan B"

As I explained back in September of last year here, CHS's concept of forced work for welfare equals slavery.

Apparently, Germany had as similar idea as Smith, and as Toby explains:

The money he needs to financially sustain his chosen path he draws from the state under the Hartz IV programme. This programme does not permit you to work as you choose, but rather forces any type of work, often for €1 an hour, on those in need of its ‘largesse’. If you don’t work, you don’t eat, and the state gets to define, tightly, what is work, and what is not.

And how will the state define "work"?  To benefit corporations, of course!

Hartz IV is so draconian it actually contravenes the German constitution, the first line of which reads, “Human dignity is inviolable; it is the obligation of all state authority to respect and protect it.” Hartz IV cannot respect human dignity, since it proceeds from the highly dubious premise that any work at all, no matter how poorly paid, meaningless or socially harmful, is better than ‘lazing around doing nothing.’ Working as a sweeper at a sweet factory is work, raising your children is not. Hence, a person who signs on the dotted line of the “Eingliederungsvereinbarung” (“incorporation agreement”—actually, it’s not an agreement at all; refusal to sign incurs sanctioning, whereupon the contract is forced into effect anyway, just as a prisoner is forced to comply with prison rules he has not freely consented to) must take whatever work is given, or be sanctioned (which begins with a 30% reduction of income). Signing this ‘agreement’ also means you forgo your constitutional right to dignity (and other rights) set out in the constitution. Being sanctioned three times typically means becoming homeless and penniless, yet still you must adhere to the ‘agreement’ you may not even have signed. The numbers of homeless are rising in Germany, while, just as in the Great Depression, the stores are full.

Layers of Truth

Today, Charles Hugh Smith proudly declares "The Grand Failure of the Econometric Model."


In one sense, and the sense he means, CHS is correct that the econometric model fails to deliver the certainty that its adherents claim.


But in the more important and accurate sense, CHS is flat wrong.  The econometric model is not offered for its truth but for its capacity to create false certainty.  All econometric models claim to model probabilities and, therefore, describe the present and predict the future.  The problem is that at best these models consider only risk and do not model uncertainty, but calculating probabilities requires modeling both risk and uncertainty.  The utility of the models only arises when they are used by advocates of the current control system to drive false certainty and, therefore, influence behavior.


The econometric model is nothing more or less than propaganda used to shape public opinion.  To claim that the model has failed because it does not predict the future is to miss the point that the model has succeeded greatly for its intended purpose of controlling human behavior.

Charles Hugh Smith's Challenge

CHS is back from vacation, clearly recharged and invigorated by his time off.  As well as more sober.

In a particularly poignant post, CHS describes the plight of "Russ in Redding," a young homeless man who had graduated from culinary school but couldn't find a job.  CHS ended his post with the following challenge:

If you didn't like Getting 20 Million Unemployed Back to Productive Work: Here's How (August 16, 2011), then outline your own Plan B. Doing nothing--waving dead chickens and painting dials on rocks to please the cargo cult priests--is going to accomplish just that: nothing.

What is Plan A?  This:

As I have made clear here many times, Plan A--millions of jobs appearing out of thin air, magically called into existence by the incantations of cargo-cult Keynesians and their Wall Street banker brethren who think all our structural unemployment will go away if only the Federal Reserve shoves another couple trillion dollars into the banks and speculators' hands every year--has failed. We need a Plan B, and we have no models for Plan B.

I agree with CHS that Plan A can't create millions of jobs, but it wasn't designed to do so.  Plan A exists to finalize the neofedualization of the Western world.

But his Plan B is no Plan B at all.  It provides no alternative to Plan A.  Rather, it proposes that involuntary servitude-- i.e., slavery-- is the price for the welfare provided by his Savior State.  His idea is so bad, so impractical, that I don't know that he is credible enough to issue any kind of challenge.

That being said, his heart is in the right place, even if his two minds are not thinking clearly.  For this reason, I'll take up his challenge.

Plan B is to do nothing.  For now.  Remember that Plan A, according to CHS, is to continue bailing out the speculators (something that he calls "Keynesian" but which is categorically NOT Keynesian but Chicago School monetarism).  (It continues to irk me that so many libertarian-inspired types want to label Milton Friedman's policies as "Keynesian" when he was the anti-Keynesian.)  So, my Plan B is not Plan A.

I get CHS's sense of urgency.  I really do.  But it will take a bit longer for things to unfold to the point where people are desparate for change.  It is then that most of us will realize that community matters, that our neighbors matter.  These things simply take time.

Charles Hugh Smith: An Ideologue Who Fails To Acknowledge His Own Ideology

I will always remain a big fan of CHS, but I can no longer take him seriously.  Today's post was yet another foray into righteous, self-delusional rationalist arrogance, which he labeled as "too practical" but which I label as shortsighted, foolish, and just as ideological and "cargo cult" as the right/left strawmen he sets up as his opponents.

All I can conclude is that CHS is a true believer in capitalism.  And it is this belief in captialism that blinds him to the fact that it is captialism itself that he decries. 

For example, what he describes as the "Savior State" is the exact same thing that Jamie Galbraith describes as the "Predator State."  Where both men recognize that the [insert perjorative adjective here] State is detrimental to the individual, at least Galbraith rejects the lie that all our workers need is better training and education.  Any fool can see that if the jobs aren't there, being better trained and educated can't earn you a job.  CHS isn't burdened by that kind of insight.

The worst part is that CHS seems to be angling his attack on the state as if he were an anarchist, but his recommendation (indentured servitude to the state) seems certain to entrench the power of the state over the individual.  Moreover, if his twisted concept of "workfare" was workable, it could not be allowed to "crowd out" the highly skilled labor of the private sector contractors to whom the state currently ourtsources.   In other words, there is no way the powers that be would allow the indentured servants to gain skills that empower them to compete against the private cartels.

But let's overlook that naivete and focus on the inanity of his recommendation.  His complaint about welfare, which is spot-on-- i.e., that it atomizes the individual and detaches him from society-- is not adressed by involuntary servitude, which should be anathema to the free-thinking, Austrian-leaning libertarian that CHS portrays himself to be.  The kind of workfare that CHS advocates would do little more than create an American caste of untouchables who would never be able to attain the kind of job that they might be capable of simply because they fell below the line one time. 

You might as well make welfare recipients sew a star of David on their work clothes, Chuck.  But, of course, to you the vast majority of Americans are worthless whining fools deserving of all that's coming to them.

The right to earn you own way through life is a human right.  The welfare state was constructed to perpetuate the canibalism of capitalism while denying that basic human right.  The recipients of welfare are not saved by the state but the prey of the state.  They're the coppertops of this particular instantiation of the matrix.

I'm glad the man is taking some time off.  I'd suggest he go away for a year or more and get in touch with his inner humanity.  It is apparent to me that he's just another rationalist Jedi who has become enamored by the Dark Side.

People matter, Chuck.  Stop pretending that everybody but you is a dick.

Oh, by the way, here is the link to his latest drivel.

To be fair, and to defend my continuing respect for the man as a rational thing, here is his post from yesterday.  He thinks much more clearly when he focuses on process instead of outcomes.

Charles Hugh Smith: Of Two Minds, Neither Thinking Very Clearly

Today's offering from CHS asks the question: If the Market Crashes, Who Owns Enough Stock to Even Care?  

He answers the question "basically nobody."  Why?

Since 81% of all stocks are owned by the top 10%, a stock market crash has little effect on the bottom 90% of Americans.

But this was just as true when the stock market crashed in 1929, and yet it led to the Great Depression, which affected the bottom 90% of Americans more than anybody else.

Wait.  There's more:

If the market crashes, high-end retailers and restaurants would likely see sales fall significantly. While there would be consequences, we should be careful not to overstate the stock market's role in the nation's Main Street economy.

Again, this was true in 1929. 

A final insight from Mr. Smith:

One last point: those who exited the stock market won't care if it crashes because they opted out of playing the risky game altogether.

On the one hand, CHS is literally correct in that there is no direct or immediate effect of a stock market crash on the vast majority of the populace.  On the much larger and far more practical hand, a stock market crash will cause the owners of wealth who were "invested" in the stock market to undertake actions that will be shockingly deleterious to everybody else.  When, as a society, we allow debt-leveraged financial speculation, there is no way to "opt out of playing the risky game altogether."  To believe otherwise is depressingly naive.

Rationalist Arrogance

On display here.

Don't get me wrong.  Charles Hugh Smith is still one of my favorite bloggers and thinkers out there.  I will not change my opinion of him because he is as human and "irrational" as everybody else.

But the man is just as trapped in a box as all the ideologues he bemoans, he just can't see it.  And the reason he attracts so many readers is that his custom-made box (as opposed to pre-fabricated box) is the same as 99% of the pre-fab box that attracts most of his readers, i.e., the Austrian-inspired libertarian creed.  To one or both of his two minds, that makes everybody else a chimpanzee to his true human, but the fact is that he needs to evolve a little bit to reach the lofty heights which he claims to have attained.  When he starts questioning whether fiction (what he calls "mental constructs") should rationally lead to global instability, perhaps a bit of his conviction will crumble, even though it is based on logic, i.e. what he considers being rational.

If your logical chain of reasoning starts with a fiction, your conclusion will be a fiction.  Under such circumstances, being logical does not make your conviction any less false or irrational than those who do not try to rationalize their belief system.

Charles Hugh Smith: An Excellent Take on Neoliberalism

In today's essay, has a great analysis of neoliberalism in the context of describing "Why the European Union Is Doomed."  While his Austrian influences are brought to bear (e.g., he continues to insist there is a distinction between the Central State and the global cartels; he also uses the term "malinvestment," which I view as an intentional misdirection from the fact what is happening is speculation and not investment in any sense), he basically describes neoliberalism in a nutshell.

Sauce for the Gander: Charles Hugh Smith Gives the Same Treatment to "Conservatives"

The Paradoxes at the Heart of the "Conservative" Project

I have the same criticisms for this piece as I had for yesterday's piece about "progressives."  The political labels are much broader than the leading Washington Consensus archetypes that CHS is tilting at.

Here's hoping he gives us a new political label that lets the majority of Americans who don't see themselves in his description of progressives and conservatives.

Charles Hugh Smith Does an Anti-Denninger, Goes Ideological

The Paradoxes at the Heart of the "Progressive" Project

Okay, I'm being unfair.  Sort of.

CHS made the mistake of painting with too broad brushstrokes.  If he had identified the "progressives" he was thinking of, I probably would have agreed with everything he said.  For example, there's no doubt that "progressives" like Robert Reich and Arianna Huffington fit CHS's description.  But other self-identifying progressives, like Glenn Greenwald and Jane Hamsher, don't. 

In many ways, the fault does not lie with CHS but the imprecision of the English language.  The "progressive" tent, like the "Tea Party" tent, covers a bit more surface area than that occupied by the apparent leaders of the project/movement.  If we'd just foreswear the security of political labels we wear and focus on the actual ideals we profess, a real majority could emerge. 

Complexity . . . Meh . . . Whatever

Just to maintain continuity, I figured I'd discuss a Charles Hugh Smith essay for three days in a row.  This one is called "Complexity: Bureaucratic (Death Spiral) and Self-Organizing (Sustainable) ."

I don't have any comments on what he has to say about complexity expect that it is completely irrelevant.

Why?

Because, as far as human beings are concerned, the world is no more and no less complex that it has ever been.

Human beings are not wired to comprehend complexity, they're wired to ignore it.  The world has always been far too complex for humans to comprehend, which is why we've created religions like Christianity, Islam, and economics (a secular religion).  It's all about "satisficing."

All human systems (e.g., societies, states, corporations, bureaucracies, etc.) merely serve three basic functions: expectation setting; perception shaping; and applying force.  Remember, human beings define happiness by comparing what they see to what they expect and confirming that expectations are met.  Expectation setting is the single most important function, which is achieved in human systems by transmitting value systems through societal institutions.  Perception shaping is next most important, but cognitive biases always kick in to help, so propaganda is a lot easier than initial conditioning.  Applying force is what you do when people get too upset when they realize that reality is not what they were taught to expect in spite of all efforts to control perceptions.

Human systems do not fail because they become too complex.  They're always the same in terms of the functions they perform.  No, they fail because the people performing those functions become too simple to comprehend the entirety of the function they're performing, i.e., they lose their way and, ultimately, make a misstep that causes the masses to choose "fight" when presented with the "fight or flight" reflex. 

Ultimately, I tend to view "complexity" arguments as a symptom of a weak will.  Human beings are no more or less complex than they ever have been in history, and the complexity of human systems is identical to that of a single human being.  Yes, more people are involved, but the functions that must be served remain the same.  The manner in which the human mind interacts with what is outside of it is the chokepoint.  Whether you have an 16-bit brain, or a 64-bit brain, you're stuck with an 8-bit bus that limits how you perceive and interact with the outside world.  The good news is that you can engineer the bus to sample multiple times a clock cycle to effectively increase your bandwidth, but you have to realize the limitations that are hardwired into your system.  Most people just accept the 8-bit, single sample per clock cycle limitation, though. 

Complexity is a bitch, you know.  We simply can't comprehend it all.

But you don't have to understand complexity in its entirety.  You just have to understand the building block that gets replicated to create the appearance of that complexity; i.e. the basic function of the human mind.  Tinfoil hat conspiracy theorists inherently internalize this understanding because the only way elaborate conspiracy theories could be so successful is if human beings were exceedingly simple.  Well, human beings are exceedingly simple, and they're all fundamentally the same regardless of how different they appear to be.

Charles Hugh Smith Is On a Roll!

CHS says "You Want Inflation?  Here's How to Get It."

In the very first line, he gets it:

Rising prices driven by speculation is not the same as organic inflation, and diverting national income to the banks will not create organic inflation.

He goes slightly off-course when he accepts the Federal Reserve's stated goal of creating "modest inflation" as its actual goal (which I think is to induce a political crisis in the U.S. in response to the 1970s-style stagflation that the Fed is purposefully fostering), but I can forgive him for that.  Skipping to the end:

The Fed's policies cannot create organic inflation, because all the Fed is doing is transferring wealth to the nation's Elites. Their spending on luxuries and fine dining are not broadbased enough to generate organic inflation in the entire economy.

Borrowing money does not drive organic inflation: higher incomes and free cash drive organic inflation. If you want inflation, then you have to increase the incomes and assets of 60% of the households, not just the top sliver who own most of the financial assets.

Unlike most other Austrian-inspired people, Smith is taking care to use the term "inflation" as it is actually defined by the Austrian school, which is in terms of the quantity theory of money, which conveniently lays the blame for inflation at the feet of labor for demanding and getting higher wages.  "Silly wage slave, if you demand higher wages, I'll just have to raise the prices you pay for stuff."

One thing that Smith has done that I think works well is to embrace the misuse of the term inflation and relable it as "speculative inflation" so it can be compared and contrasted to correct usage of the term in economics according to the quantity theory of money, now relabeled "organic inflation."  As much as I demand and appreciate this kind of rigorous thinking, I do so in part because it calls the quantity theory of money into question.

Remember that Chicago neoliberals blamed rising labor wages for the stagflation of the 1970s.  If what we have today is the same as the stagflation of the 1970s (I think it is), and what we have is being caused by financial speculators, shouldn't we revisit the 1970s and reassess what caused the stagflation in the 1970s?  When you do, you'll see that financial speculation caused that, too, and when you dig a little deeper, you'll see that the quantity theory of money entirely fails to explain inflation.  Inflation is, always and everywhere, caused by financial speculators.

Charles Hugh Smith With a Good Explanation of Why Hyperinflation Is Not In Our Near Term Future

Charles Hugh Smith has an excellent post up today, which you can find here.  Smith's piece stands as a nice counter to Gonzalo Lira's recent missive on hyperinflation.

Here's what I view as the key passage in Smith's lengthy piece:

Credit is not cash, and creating credit is not the same as printing cash. Shoveling $1 trillion in zero-interest credit into the banking system does not necessarily mean that $1 trillion flows into the real economy--that can only happen if someone or some entity borrows the credit.

This is why some claim that hyperinflation has never occurred in a credit-based system; it can only arise in a monetary system in which cash itself is printed (i.e. Zimbabwe et al.)

I am not making any such broad claim, but to identify the two as identical seems to me to be a profound confusion.

This distinction plays out in a number of ways. If the Fed had actually printed $1 trillion in cash and dropped it from helicopters, then those collecting the cash on the ground might have spent it, creating more organic demand for goods and services.

If the Fed creates credit and loans it to banks at zero-interest rate, the credit only flows into the real economy if somebody borrows it.

Without borrowers, the "money" just sits in reserves, where it does not spark inflationary organic demand for resources, goods or services.

If someone borrows the "money" to refinance existing debt, the only money that flows into the real economy is the difference between their original debt servicing costs and their new debt servicing costs, presuming the new costs are lower than the original. (Not always the case if said borrower had an interest-only "teaser rate" mortgage that he/she is now rolling into a mortgage with principal payments and a market rate interest payment.)

Or a large speculator (trading desk, hedge fund, etc.) could borrow the credit-money to speculate in commodities, driving prices up on the widespread expectation of higher costs in the future. In this case, the credit-money does influence the real world economy by driving commodity prices above levels set by organic demand.

But speculative "hot money" is not organic demand; it flees or is lost if trends suddenly reverse.

Since commodities such as oil are priced on the margins, this matters. A sudden decline in oil from $86/barrel to $76/barrel would trigger an exodus from speculative long positions, reinforcing that decline in a positive feedback loop.

The distinction between credit and cash is an important one to make.  While a lot of people have recently been pointing to an increase in M2 as evidence of inflation, i.e., the expansion of the money supply, the fact is that M2 is just another way of measuring credit as it reflects obligations held by financial institutions to repay depositors.  The base money supply M0, which includes both circulating currency and currency held in bank vaults as reserves, has essentially stayed flat while M2 has been growing.  In other words, the number of demands for the same base money have grown while base money has not, which implies a deflationary spiral if and when the next financial crisis hits. 

Think of it this way, if everybody tried to to pull their money out of the banks at the same time, there'd only be enough cash to pay out what I think of as "RealM1,"  which is M1 minus the amount of money in circulation (official M1 already excludes the amount of money held as bank reserves). What I think of as "RealM2," which is M2 minus RealM, is nine times the size of RealM1.

Charles Hugh Smith: Of One Mind Not Fully Known

As I've said before, Charles Hugh Smith is one of my favorite thinkers/authors out there because he is truth seeker, but from time to time I find myself frustrated when he allows his biases to deter him from the truth.  The good news is that deterring him is not the same as stopping him, so I trust he'll soon discover what he has missed.

Today's essay is a perfect example of what I'm talking about.  It is clear from his body of work that Smith is most influenced by the Austrian school of economics, but he is no ideologue, as he demonstrates by seriously considering two schools of economics that Austrians are trained to despise: the Keynesian and Marxist schools.  Indeed, he emphasizes in his essay that there is truth to be found in these schools of economic thought so they should not be rejected out of hand.  He then goes on to get to the topic of the day, which is the hyper-inflation v. deflation debate.  His analysis is logical and spot on UNTIL he introduces an Austrian analysis of the debate, which he lauds as "insightful," and then he falls into the false "government v. bankers"  dichotomy pushed by the Austrian school to ensure that the money supply is privately controlled, which is the very mechanism and basis for the financial corruption that he has so eloquently identified on numerous occasions.

Apparently, the paper concludes that hyper-inflation only arises when politicians (governments, really) control the money supply, a conclusion that is consistent but not co-extensive with Smith's own conclusion that hyper-inflation is always a political phenomenon.  The theory, according to Smith, is that bankers have to plan for the long haul while politicians have "no future beyond four years," so bankers will make better decisions than politicians.  (Puh-lease.  Bankers are more sober and cautious than politicians?!?  Really?)

The problem with this facile theory is that the politicians are primarily beholden to bankers and capital holders.  A more cynical way of putting it, as we've seen demonstrated time and again over the last two decades, is that the politicians are owned by the banks.  Under our current system, money is politics and politics is money, which means that both hyper-infaltion and deep deflation are political phenomena.  See Damon Vrabel's video series for an excellent analysis of how nations are no longer sovereign under the existing global financial empire.

I will admit to knowing about the hyper-inflation of the Weimar Republic, but I can say with some certainty that it didn't harm the major capital holders in Germany.  I'll even go further and argue that, if somebody will look, they'll probably find that hyper-inflation benefitted those same capital holders because it allowed the Weimar Republic to avoid taxing and/or confiscating their wealth, which was most likely held in real assets and precious metals, to pay war reparations. 

So, I'll agree with Smith's conclusion that hyper-inflation can't happen in the United States in view of the fact that so much of the wealth of major capital holders is tied up in U.S. debt and the dollar, but if that fact ever changes, hyper-inflation can and will happen, if it will accrue to the benefit of the major capital holders and the banks.

Why does Smith find the Austrian analysis to be so insightful?  Most likely because it confirms his own similar conclusion, and because he is biased in favor of the Austrian school.  Unfortunately, once we've confirmed what we think we know, we tend to stop thinking about the issue.  As a result, Smith continues to accept the concept of privately-controlled debt-money, the very source of the corruption he decries, unquestioningly.