Quote notes (#3)

Noureddine Krichene at ATol:

There are contrasts and similarities between the extinguished communism of Mao and the rising one of Bernanke-Obama. Both reject Hayek’s theory and the private sector, and believe in a provident state; wealth has to be redistributed equally. Both believe that capital has no remuneration and the interest rate has to be zero.

Nonetheless, there are contrasts between Mao’s Red Book and Bernanke-Obama collectivism. The former called for confiscation of private poverty and forced labor to work with hands and small tools; unemployment was not allowed and workers earned deservedly a share in the product. The Bernanke-Obama model is based on Keynesian economics and calls for creating as much demand as possible through fiscal deficits and money printing.

June 5, 2013admin 34 Comments »
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34 Responses to this entry

  • Gom Jabbar Says:

    I was having lunch with a friend yesterday and we were talking about Taleb’s book The Black Swan and Krugman. He agreed with Taleb’s point about the relative folly of long-term economic projection, but his point was that if no one can know the future we might as well not be pricks in the present and that he liked Krugman because he wasn’t one of those heartless bastards who was using sloppy prognostication to cut off food stamps.

    My retort was that small government conservatives don’t often say as much, but part of their point is that it’s dangerous to aggregate all the (black swan) risk in one place.

    Anyway to tie it back to the article I wish I had thought of using the example of the Chinese famines. A lot of harm can be done by ostensibly well-meaning people who are just trying not to be pricks. (Whether this description applies to Mao, I leave for you to decide.)

    [Reply]

    admin Reply:

    The truly superb insight of this little article is the point that absolute anti-capitalism, insofar as it has a financial expression, is ZIRP. “Capital deserves nothing” — that counts as sound opinion in the halls of Western power today.

    [Reply]

    Posted on June 5th, 2013 at 3:10 pm Reply | Quote
  • vimothy Says:

    Both believe that capital has no remuneration and the interest rate has to be zero.

    Eh?

    [Reply]

    vimothy Reply:

    Sorry, substance free comment there. What’s the evidence that Bernanke believes that “capital has no remuneration and the interest rate has to be zero”?

    [Reply]

    vimothy Reply:

    BTW, here’s a measure of the return to capital in the US and other major economies pulled off La Wik (the labour-capital share of income):

    upload.wikimedia.org/wikipedia/commons/3/38/AdjustedWageShareUSAFRGJapan.PNG

    You can see that in the US in recent years, capital earned > 40% of total GDP, which is in excess of $6 trillion a year. Whatever Bernanke thinks, this certainly quite a way from zero. And notice that capital’s share is increasing, and has been for years …

    [Reply]

    Posted on June 5th, 2013 at 3:52 pm Reply | Quote
  • Handle Says:

    “Both believe that capital has no remuneration and the interest rate has to be zero.”

    This is simply untrue and, really, an embarrassing exaggeration. I don’t relish my role as the push-back apparent voice of Cathedral Economic Orthodoxy (I’m not at all, but I gather it’s perceived that way), but one can go too far in the other direction.

    There is something called “the market” for capital and it works. Plenty of people I know, including myself, have significant portions of their savings invested or ventured in new, moderately risky debts at real interest rates well above zero – and the expected average real interest rate of my diversified portfolio of those investments, even should some of them fail in uncorrelated ways, is also well above zero.

    Now, those rates are indeed lower than they would be without the Fed’s interventions, but that’s the point of what the Fed does – not to necessarily make bond rates lower, but to make investing in risky productive factors relatively more competitive for fresh capital allocation than safe harbor assets. Hey, it worked on me!

    Some people are taking their saved capital and transforming it into real estate they can rent out or live in, or hoarding commodities, hoping for better than 0% gains, and they are free to do so. Is anyone’s “rent” zero? Because rent is the return to capital, right?

    That the real interest rate for federal government bonds, perceived as about as safe as debts can be, and part of the most deep and liquid and low-transaction-cost capital market on the planet, “is optimally zero for the moment given various Macroeconomic objectives” is a far, far cry from the statement quoted above.

    Not a single individual at the Fed is anywhere near the position of believing that there should be no return to capital. Not even close. Many do believe that the expansion in demand for “risk free” investments (which are subsidized by the government) warrants an increase in price (which translates into a drop in interest rates). If the Fed doesn’t discourage the purchase of treasuries, then the capital allocation function is delegated to the government instead of the private sector. Where do you think it more properly belongs?

    I’ve said for a long time that if people think they can come up with a “currency-like” financial instrument (perhaps by purchasing baskets of insured futures contracts) that accomplishes what we want from government-bond savings (preserving purchasing power, high liquidity, low risk) and at higher rates of real interest, then they should go forth and establish such devices. The fact that the financial sector hasn’t done so is evidence that it can’t. Since it can’t – that means the reason rates are zero has to do with the nature of our Economy, not because the Fed “believes is ought to be that way.”

    Now, there is one irony behind all this interest-rate stimulus. The point is to encourage more capital to be diverted into creating the means of production. Building those factors of production is supposed to both create the employment necessary for the construction of the capital, and through that employment, to stimulate aggregate demand through extra consumption enhanced by more wages being paid.

    So far so Keynesian. But, the question today is, what is the nature of the new, cheaper capital. Well, part of it is productivity enhancing – so encourages companies to move along their productive curves to a higher capital-labor ratio. If demand doesn’t increase rapidly, then output stays the same at a higher level of capital but a lower level of labor. And some of the new capital is not really “labor-enhancing” but radically disruptive automation – “labor replacement”.

    So, we get a spike in employment and consumption in the short-run, but in a few years, massive numbers of people become redundant to requirements. In the past, industrial economies had enough labor-flexibility to adjust with speeds that were still too slow to be acceptable to large numbers of rioting unionizers. Today that speed will overwhelm all social attempts to respond.

    It would be ironic if “cheaper capital” means that the Fed becomes the principal accelerator of the automation apocalypse. But if that’s true, shouldn’t the pro-immanentizing-of-the-singularity crowd applaud their actions?

    [Reply]

    Posted on June 5th, 2013 at 5:08 pm Reply | Quote
  • admin Says:

    @ Vimothy, Handle
    Capital no doubt had a real rate of return above zero in the black markets of the Chinese command economy, too. You’re both over-interpreting.
    ZIRP = Zero Interest Rate Policy = an official declaration that the beatings will continue until morale improves (maxed-out financial repression). Krichene is taking this public pronouncement and elucidating its formal (rather than substantial) meaning. The point is, there could not possibly be a simple public declaration corresponding to a more general attempt to annihilate capital returns across all asset classes (so the presence or absence of such intentions have to remain obscure). Krichene is exploiting this to embarrass Leviathan, whilst you guys are lumbering to its defense.

    [Reply]

    Handle Reply:

    I understand Krichene’s attempt at dark humor. But it doesn’t embarrass Leviathan at all. And exaggeration erodes credibility to the point that I’m not prepared to presume to take him seriously. ZIRP does not equal “annihilate capital returns across all asset classes” by a long shot. Not as an objective, and not as an effect. Not even as an announcement or denial of such an objective.

    And “Bernanke-Obama” is more misleading than illuminating in terms of communicating agreement and coordination (as opposed to the more accurate “frustrated and compensating reactions to each other”).

    People should remember the medium of ZIRP – which is merely in nominal fiat currency. To the extent that our entire global society is embedded in a Matrix of claims, contracts, and expectations that mark out actionable obligations in terms of this useful fiction – one that all the users of which know in advance is managed by USG for its own purposes – it should bother no one when USG actually manages it when the inertia of that Matrix fails to readily adjust to various reality shocks and corrections.

    That is where Leviathan believes ZIRP comes from. It laughs at those who thinks it thinks something different.

    [Reply]

    admin Reply:

    Krichene isn’t trying to upset Leviathan, but rather to infuriate — or at least entertain — its class enemies (i.e. ordinary savers).

    [Reply]

    Handle Reply:

    Now that’s a good point. “Ordinary Savers” are indeed quite upset at ZIRP and a little more rhetorical hyperbole could push them to … well, I’m not sure really.

    But who are these “ordinary savers”, what do they want, and why should I be on their side?

    What they want is just the inverse of what’s happening now – which is even more Leviathan-dependent. They don’t care about the existence of the system, they just want it to use its power to guarantee the infinite availability of risk-free, worry-free, and thought-free high-real-interest-rate instruments.
    If the banking system does that for them, then they don’t care which poor sucker’s getting screwed on the other side of that side of that deal. And someone else could be infuriated by “Leviathan”.

    But financial claims of that sort cannot exist under current Economic circumstances without Government subsidy. ZIRP means the Government is trying to reduce that subsidy (and quite encouraging economically counterproductive assumptions and behavior) as much as feasible. Is this not appropriate?

    No one seems to want to tell ordinary savers that message because it is very ugly and dark – “Wha? Wait a minute? What kind of world do I live in? What does that imply? This is very disturbing to me.”. Because Kirchene won’t and wants to get these people angry at “Leviathan” instead of their own impossible-to-meet “I don’t want to be the one holding the bad, let someone else hold it” desires, ZIRP is apparently the only way that message can be communicated. But since it is true it ought to be communicated.

    One final thing, Kirchene’s comparisons to the US and China (especially old Maoist China) are stretched already, but in one way completely misleading. The same interest-rate policies create entirely different effects depending on 1. Whether you have a current account surplus or deficit, and 2. The propensity to save and consume of your local population given existing circumstances.

    China is able to achieve financial repression and a transfer from households to enterprise because, under their social conditions, lowering the real interest rate makes households save more, not less, and because PBoC has to hold over US$2T worth of Dollars and Euros on the country’s behalf because of their currency policy. Something similar applies to Japan. But in the US, lower rates lower savings and increase consumption through the credit channel. Totally different.

    John Hannon Reply:

    I’m already infuriated regarding the pitiful interest on my savings, and can derive no “entertainment” from this whatsoever.

    Thales Reply:

    @ Handle

    “What they want is just the inverse of what’s happening now – which is even more Leviathan-dependent. They don’t care about the existence of the system, they just want it to use its power to guarantee the infinite availability of risk-free, worry-free, and thought-free high-real-interest-rate instruments.”

    So long as “ordinary savers” are defined as those who would rely primarily upon maturity transformation for a yield that approaches the growth rate of the overall economy. Yes, Leviathan is necessary to prop-up maturity transformation, and absent Leviathan, there are no “ordinary savers”. But those same folks would be seeking similar, high-safety, low-moderate returns in any economy.

    In theory, you would “want them on your side” because they are the salt of the Earth, forgoing consumption today to buy their kids braces tomorrow, education the next day and retiring without needing a hand-out the day after that. Also, when you needed to take out a mortgage or finance a car, the money’s there at a reasonable rate.

    But with an infinite supply of Bernankebucks, you don’t have to care about any of that — in fact you don’t have to care about anyone or anything. But I do not see how that is any less dependent upon Leviathan.

    vimothy Reply:

    The Fed controls one interest rate and one interest rate only — the Federal Funds rate. This is the rate on overnight reserve lending between banks. The Fed does not control every interest rate in the economy. The Fed does not determine the rate at which capital is remunerated in general. (In general, capital is increasing its share of income and has been for the last half century)

    But let’s assume, as some people do (usually via the expectations hypothesis) that the Fed can set the risk free rate for the entire yield curve. Okay, fine: unhappy that the risk free rate is at zero? It’s still only the risk free rate. Get out there and bear some risk if you want a return.

    [Reply]

    admin Reply:

    Exactly, Bernanke’s strategy in a nutshell: If you don’t want your savings eroded by inflation, go out there and prop up our lunatic asset bubbles (so we can pretend we haven’t terminally wrecked the economy).
    There’s got to be a point where this abuse drives everybody into Gold, Bitcoin, and other types of non-fascist money …

    [Reply]

    vimothy Reply:

    How can there be an asset bubble and no remuneration for capital?

    Posted on June 5th, 2013 at 10:41 pm Reply | Quote
  • Orlandu84 Says:

    “Nonetheless, once collectivism becomes deeply established, as now under the Bernanke-Obama model, with most of the population depending on direct money from the state and free wealth from Bernanke, it would be very difficult politically to reverse it. As Aristotle predicted, the country will be in a declining or, at best, stationary state.”

    Collectivism has been established for a long time for certain groups. America has had elements of a socialism for several generations: food stamps, welfare, social security, government subsidies, etc. All of these systems separate the country into different camps that have less and less to do with each other – people who pay taxes, those who collect benefits, and those who decide who pays whom. The last group is the Cathedral, of course.

    The real question for me is not how “deep” but how “broad” has the collectivism become. I find this a difficult question to answer since I would need to have reliable statistics on population, employment, wages, and government benefits. Since I am a novice at economics I usually find myself unable to falsify or verify economic “facts.” For example, I am convinced that our economy is not as solid as the official press states, but I do not run into people dying of starvation that often either. Anybody have links to some sites with verifiable data?

    [Reply]

    admin Reply:

    There’s no “verifiable data” on this question, because the stock of capital assets has a speculative value, inextricable from future performance, which no one can reliably predict. The system is reflexive (Soros, bless his cotton socks, is right about that), with confidence functioning as a decisive causal variable. Since confidence is profoundly political, hypothesis-sensitive (futuristic), to some considerable degree manipulable, and influenced by ‘memetic’ conflict, it opens a sucking wound in all economic modeling.

    [Reply]

    Orlandu84 Reply:

    I agree that the value of capital assets cannot be verified for the reasons you mentioned. When I said “verifiable data,” I had in mind statistics such as “hours worked,” number of people paying taxes, amount of energy used in the economy, etc. I am always on the look out for statistics that do no rely on $$ signs to gauge the economy. One of the reason I go to http://www.zerohedge.com/ is due to the statistics that sometimes are linked there. If I could find a website dedicated to those kinds of stats, I think I would have a much better idea of who’s lying to be about what.

    [Reply]

    vimothy Reply:

    FRED:

    research.stlouisfed.org/fred2/‎

    Posted on June 5th, 2013 at 11:22 pm Reply | Quote
  • Religion 2.0: Identitarian Religion | Occam's Razor Says:

    […] two groups are often antagonistic toward each other.  But I wonder.  As Nick Land has written of the different groups of the Dark Enlightenment putting aside their differences, at […]

    Posted on June 6th, 2013 at 9:14 pm Reply | Quote
  • admin Says:

    @Orlandu84
    If you manage to wring that information out of somebody, I’ll consider it for the (forthcoming) resources side-bar. There’s still room for some skepticism though, because all macroeconomic aggregates are ultimately non-rigorous and unmeasurable except as pseudo-science. ZH is good at this, as you note. The best that can be managed is a range of comparisons, with at least one series relating everything back to the gold price — a far from perfect measure of economic reality, but at least one that is only partially cooked-up by master magicians.

    @ Handle
    I know that you’re saying something important here, but I can’t deal with it now — my brain keeps shorting out into an inarticulate white fury of fiat hate … In the era of central banking, nothing makes any sense. I’m going to dedicate Part 3 of Right on the Money to your arguments here.

    @ Vimothy
    Your link isn’t working

    [Reply]

    vimothy Reply:

    It’s just a link to the FRED database. You can search for whatever particular time series you’re interested in from that page.

    [Reply]

    Posted on June 6th, 2013 at 11:18 pm Reply | Quote
  • admin Says:

    “… ‘ordinary savers’ are … the salt of the Earth …” — a million times, yes.
    Siding with savers against debtors is civilization, pure and simply. Whilst entrepreneurial debt (strictly disciplined by markets) can be enormously productive, consumer debt is sheer poison. It’s nothing but looting, pulling down the future to spend on leftist chaos, on the assumption that fascist politics will sort out the mess later. All actual leftist movements have been driven by debt barbarism — basically Jubilee operations, aiming to annul accumulated obligations. It’s the lifeblood of democratic politics — create a situation where there’s only one question left: “So which is it going to be, bail outs or revolution?” If that doesn’t sound familiar, I don’t know which planet people are living on.

    Since we know all existing societies are too sick to face down debtors later, the only option is to stop them in advance. High-interest rates, no bank bail outs, caveat emptor, and fanatical austerity. That’s what civilizatrion demands, so of course we’ll get the opposite. Gargantuan borrowing to spend on garbage is what will bring the whole thing crashing down. Then the left will tell us — as it always does — that the debtors are the ‘oppressed’ and appropriate sympathy soak, whilst the financial institutions that enabled this ruin get to quietly ram their blood-nozzles even further into the tax base. Stock up on ammo. (2025 Jim tells us.)

    [Reply]

    Thales Reply:

    Whilst entrepreneurial debt (strictly disciplined by markets) can be enormously productive, consumer debt is sheer poison.

    Unsecured consumer debt, I mostly agree. Secured debt (homes, autos) is entrepreneurial debt at the individual level – the consumer is being lent capital, and if the individual cannot make profitable use of said capital, the asset can (and should) be repossessed.

    A loan is just the intermediary step – you’re not borrowing the money so much as the asset. Knowing it, it’s clear why taking out a HELOC to, say, fix-up the house is a reasonable use of equity and why buying a jetski or taking a vacation is simply contributing to a potential bubble in jetskis and tourism.

    Totally agree with the point about debt barbarism being the lever for Leftism. #OWS

    [Reply]

    admin Reply:

    I’ve no argument with this — in fact your example (home improvement) shows how slippery the consumption / investment distinction can be. Anything that can be reasonably described as investment could, at least potentially, provide sound motivation for a debt. Key point: “… if the individual cannot make profitable use of said capital …”

    [Reply]

    Thales Reply:

    Presently, there’s no way to micro-manage this distinction from afar. Societies have run the gambit from banning anything that even looks like interest to basing an entire nation’s economy on debt. Like so many other issues, the ability to self-regulate is what seperates the prosperous from the destitude.

    Posted on June 7th, 2013 at 12:56 am Reply | Quote
  • David Says:

    @admin Can’t stock up on ammo. Living in China.

    [Reply]

    admin Reply:

    Then my offshore, ocean-bed, weaponized drone base is clearly the solution you’re looking for. I’ll keep you posted on developments.

    [Reply]

    David Reply:

    Excellent! This might just save me 25 years in R&D…

    [Reply]

    Posted on June 7th, 2013 at 2:12 am Reply | Quote
  • admin Says:

    @ Vimothy
    “How can there be an asset bubble and no remuneration for capital?”
    — how can a pistol be held to your head and you have to walk the plank?

    [Reply]

    vimothy Reply:

    Asset holders can’t be earning unfair returns and earning no returns.

    [Reply]

    admin Reply:

    “unfair returns”? — dupes buying into a bubble are walking the plank.

    [Reply]

    vimothy Reply:

    Maybe and maybe not. However, you are claiming two things: 1) that returns are being held abnormally high by Bernanke; and, 2) that returns are being held abnormally low by Bernanke. That’s obviously a contradiction.

    Posted on June 7th, 2013 at 1:58 pm Reply | Quote
  • admin Says:

    @ Thales
    Again, I completely agree. Caveat emptor, in its widest possible extension.

    [Reply]

    Posted on June 7th, 2013 at 2:04 pm Reply | Quote

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