The Buffalo Beast Pulls an Amazing Stunt on Wisconsin Governor Scott Walker

A jouranlist from buffalobeast.com calls Gov. Walker pretending to be David Koch, and Walker talks to him at length and is more than forthcoming with his plans and thinking.  It looks like the buffalobeast.com website is undergoing a denial of service attack, but the audio of the call is available on YouTube and has been partially transcribed at HuffPo.

Part 1: 



Part 2:

Of Two Minds: Interesting Guest Essay

Charles Hugh Smith has opened up his place for another guest essay, this one from Eric A. called "Meme Theory and Markets."  The essay is fairly lengthy and chock full of charts, so I've only been able to skim it.  I will return to give it more attention, though, as it hits on a lot of themes and ideas that I've been pursuing for the last year or so (fractals, memes, etc.).  I do have some initial thoughts, though.

Eric A. is clearly another Austrian-inspired person, which means that he accepts that the boom-bust business cycle is "natural."  I don't.  While I accept that the boom-bust business cycle is a natural consequence of human behavior, I do not accept that the boom-bust cycle itself is natural.  Without the leveraged financial speculator, the deep boom-bust cycles of the industrail era simply would not happen.  The human fractal function operates in response to an input, and if that input is gamed by leveraged financials speculators who also control access to credit, you will see wild swings in market behavior (i.e., booms and busts) as a result.  Credit simply should not be extended to financial speculators, and financial speculation should be criminalized.   Make those changes, and the "natural" boom-bust cycle will disappear from the face of the earth, as capital will flow into real investments instead of speculative financial instruments such as the secondary equity market.

There is a throwaway line about Keynesianism that refers to it as "printing your way to prosperity," which is not what Keynes actually proposed.   Keynes sought to "euthanize the rentier class" by providing counter-cyclical pressures that would reduce the incentives to engage in the financial speculation that is always the cause of boom-bust cycles.  Because speculators profit both when the bubble is being deflated and while it is deflating, they have every incentive to drive boom-bust cycles.  Keynes sought to change that dynamic (albeit in a cowardly way; he should have called for criminalizing financial speculation).

Stoneleigh v. Gonzalo Lira: No Contest

Here's a link to Stoneleigh's summary of her deflation/hyperinflation debate with Gonzalo Lira, which she titled "Inflation for the Innocent, Hyperinflation for the Clueless."  The post includes a link to purchase rights to listen to the debate at the low low price of $30.  (Too rich for my blood; if it were just Stoneleigh talking, maybe I'd pay the money.)

One of the things she points out in her summary is the fact that it is hard to even have the debate when you don't have a common definition of "inflation":

The major hurdle in the debate hinged on the definition of inflation, as such debates often do. Financial analysts who expect deflation typically do so because they recognize the critical role of credit in the effective money supply and the effects of credit implosion. With a natural focus on the money supply, they typically (but not universally) define inflation and deflation as monetary phenomena - as an increase or decrease in the effective money (and credit) supply relative to available goods and services.

Analysts who anticipate inflation or hyperinflation typically focus on nominal prices, which they expect to increase, likely concurrent with a loss of confidence in the currency. As I am in the deflationist camp and Gonzalo is a hyperinflationist we naturally defined inflation/deflation differently, which lead to some awkwardness at the beginning of the debate.

The funny thing is that what Lira typically describes as hyperinflation (falling real estate prices, rising prices for staple commodities, and very high interest rates) is actually deflation.  First, tight credit is inherently deflationary, something that Lira admits with respect to real estate prices.  Second, tight credit can and will translate directly into higher consumer staple commodity prices IF (1) commercial credit is subject to the same high interest rates and (2) businesses pass the increased cost of doing business on to the consumer by raising prices in order to maintain profit margins.  I think  it is a safe bet that both conditions existed in Chile when it experienced "hyperinflation." 

Bottom line: inflation, as Lira understands the term, is easy for banks to create or disappear at whim solely through the severe tightening of credit and without any "money printing" by a central bank. 

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.

Financial Speculation IS Driving Commodity Prices

Here's an interesting interview segment where two economists agree that Krugman is wrong, that speculation is driving the price of staple commodities, not any shift in supply and demand.  The two economists in question share actual data that one should be able to track down to confirm/deny their conclusions, but the fact that they claim to have data and are not just spouting fact-free economic dogma makes them more credible, in my opinion.

The basic conclusion is that there has been a shift in market dynamics over the last decade that allows the futures market to drive prices on the spot market, and that if a player is big enough, it can drive prices on the futures market (and, therefore, on the spot market) to whatever it wants.  Between the massive concentration of wealth and financialization of the real economy, there is no such thing as a free market; markets are merely at the command of the big capital pools who move prices at their whim.



From the transcript, which may be found here:

JAY: Jayati, some people argue, including people like Paul Krugman, who actually--who usually isn't someone to critique--to be shy about critiquing speculation, he's saying that if there isn't physical hoarding of food, you can't have this kind of gambling affect the price of food, that if you buy a future on, you know, corn or whatever and you think a year from now the price will be higher, that the spot markets, the actual day-to-day market, catches up to that, and that there's no point--you can't actually manipulate the price unless somehow you're physically putting corn somewhere. What do you make of that argument?


GHOSH: Well, you know, that used to be true, that used to be the case, that in fact to speculate in grain, you had to hold grain. And that was why, essentially, the speculators in grain were those who were commodity dealers. That was the old story. What happened in the last decade is that you have this kind of transition whereby you have a futures commodity in which financial agents who have no interest in holding the actual physical commodity are able to play this market. And that's because they are essentially rolling over contracts and constantly purchasing newer contracts, that is a crucial change in the market in the last decade.


JAY: I mean, one would think, Bob, that if you know there's a future market, and the futures six months from now are higher than what the market is right now, you would--I mean, it goes to--the logic would say you'd try to hold on to what you've got for six months and sell it when it's higher. Is that the logic of this?


POLLIN: Well, except that, as Jayati said, the people that have come to dominate the market are people who are not really calculating on the basis of when any physical commodity is coming due. They are basically moving the market in order to move the market. And if they're big enough, if they're so much bigger than all the other traders, they have the capacity to move the market to the degrees that we have seen that are just unprecedented. And so when they move the futures market, that pushes the spot market up--the futures market is driving the spot market prices. And that's why you have, you know, the new form, much greater form of speculation becoming the predominant force in the futures market, which is then pulling the spot market along with it.


JAY: Well, what do you make of Krugman's argument that says you can't do that with food, that you actually have to hoard it or you can't move the price?


POLLIN: I think it's wrong.


GHOSH: Well, that's simply not true, and we have evidence of that in 2008. In fact, what happened in 2008 is a classic example, where the food price went up by--almost doubled in the period between January and June, and then fell back to almost the previous level in the next six months, and yet there was hardly any major movement in terms of actual turnover of the physical commodity.

Putting "Austerity" In Perspective

Via Max Keiser, we find this link to a piece by an Irish journalist named David McWilliams who distills the truth masked by the term "austerity":

So let’s get things straight: the Irish citizen is being asked to take on the debts of the European banks and pay for this by selling our assets for half nothing to the same banks so that we can bail them out. We take on debts without a discount and sell assets without a premium. At the moment these loans that we are being asked to pay are trading at a deep, deep discount because the “assets” they were supposed to back have collapsed in value. Yet we are being asked to pay for these loans at par.

The only reason the American people are facing calls for "austerity" is the fact that we "borrowed" money from insolvent financial institutions who had no money to lend us in order to save them from extinction.  Our punishment for this good deed (performed in our name but not by us) is not only to pay interest on the fictional money we created by borrowing it, but to dismantle the social safety net that was established the last time these financial institutions screwed the world.

Seriously, from a moral perspective, do we owe anything to bankrupt institutions that lent us money they didn't have (with interest) in order to bail them out?  But for the accounting fiction created by the bailouts, those institutions would still be dead.  And we're beholden to them why, exactly?

The powers that be clearly view this as some kind of Milton Bradley board game, but their insistence on keeping their monopoly money is killing people around the globe, including people in the United States.

Matt Tiabbi Does What Matt Taibbi Does

From "Why Isn't Wall Street in Jail?":

"You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

Read the whole thing here.