Robert Shiller Argues That Rising Inequality In The US Was A Major Cause Of The Recent Crisis, And Little Is Being Done To Address It
Famed Yale economist Robert Shiller agrees.
As the Browser reports:
Yale economist Robert Shiller argues that rising inequality in the US was a major cause of the recent crisis, and little is being done to address it.Shiller gave The Browser a reading list of books which explain the economic crisis, including former IMF chief economist Raghuram G. Rajan's book Fault Lines, which gives several causes for the current crisis, explaining:
The first of them is political, and the politics that lead to rising inequality. That’s been a trend in recent years in most nations of the world. Inequality has been getting worse, particularly in the US, but also in Europe and Asia and many other places. One thing that this has done is it has encouraged governments, who are aware of the resentment caused by the rising inequality, to try to take some kind of steps to make it more politically acceptable. He gives other examples as well, but historically, that has often taken the form of stimulating credit: instead of fixing the problems of the poor, lending money to them. He has a chapter entitled ‘Let them eat credit’.Shiller notes:
The US in particular has stimulated the housing market, it has subsidised lending to people, which drove up home prices in an unsustainable way. And there wasn’t that much concern about, or understanding of, the sustainability of this. That’s his first fault line
I think inequality is a huge emerging problem, and that our society has to think about dealing with it in a constructive and real way – not through ‘Let them eat credit,’ not through wishful thinking. We have to understand how we get inequality and what we can do about it.Shiller then discusses Winner-Take-All Politics: How Washington Made the Rich Richer and Turned its Back on the Middle Class, by Paul Pierson and Jacob Hacker:
This is a new book – it just came out. It’s about rising inequality and it traces back to fundamental causes. I like books that get back to ultimate causes and that think like social scientists about these causes. The question is, ‘Why is inequality getting worse in so many different countries?’ This book particularly focuses on the US. The traditional answer is – well, there are a number of traditional answers, but the most prominent among them is this idea that in a modern economy there is a skill bias in technical change. Our computers and communications have led to a winner-take-all society, where only the really smart can make money. Everyone else is technologically obsolete, with all these computers that are replacing people. It is, I think, a very important theory.The interviewer asks:
But Hacker and Pierson point out that it doesn’t really fit the recent data. In the US, we’ve seen a rapid concentration of wealth at the extreme high end. The top tenth of a per cent of the top hundredth of a per cent of the population is getting wealthy very fast. They point out that this is not true in Europe, and yet the economies are very similar and growing at similar rates. If the technology is the same, why would there be a difference at the extreme high end? And they argue that the answer is really political. There have been political changes in the US that allow the extreme high end to garner more wealth. Ultimately, it represents a failure of our society to take account of the fact that the extreme high end can lobby and can organise for its own interests, and we’ve let it happen.
So you feel inequality is central to what has gone on and that we really need to address that?Shiller responds:
Yes – and there is very little concrete talk about addressing it. It’s a very difficult problem. You might think that in a system of majority voting, the middle class and the poor would dominate and would prevent this kind of inequality from developing. But it hasn’t been that way – it’s been even less so that way lately, especially in the US. And once again, we have to attribute that to some change in our zeitgeist, in our way of thinking about what people view as important. That’s an underlying theme in all of these works, going back to Adam Smith. I don’t think he uses the word inequality very much – but it is about poverty and the alleviation of poverty. In Adam Smith, of course, the wealthy tend to be the kings and lords…
Are We Accidentally Medicating Ourselves Into a Mind-Numbing, Body-Weakening Stupor?
The Chairman of the Department of Medicine at Cedars-Sinai, Glenn D. Braunstein, M.D., noted Wednesday:
The United States Geologic Survey reports:In a ... study by the United States Geological Survey that tested for 95 contaminants in water supplies nationwide, 80 percent of the samples from 139 streams in 30 states had at least one of the substances being tested for, with an average of seven contaminants in each sample. These findings included traces of anti-anxiety medications in the drinking water delivered to approximately 18.5 million Southern Californians. In western Montana, the study found aquifers had been penetrated by waste water from a high school, and contained trace elements of acetaminophen, caffeine, codeine, antibiotics and warfarin, in addition to a mood-stabilizing drug for bipolar disorder and nicotine.
***Is Bottled Water the Solution?
Not necessarily. Tap water suppliers are required to perform regular water quality tests and publish the findings; makers of bottled water aren't. In fact, in a survey by the Environmental Working Group (EWG), 38 contaminants were found in 10 big-selling brands.
And in a webpage entitled "Antidepressants in Stream Waters! Are They in the Fish Too?", the U.S. Geological Survey points out:In streams and rivers across the Nation, scientists are finding detectable concentrations of pharmaceuticals and other organic wastewater chemicals. For example, a recent study of the water-quality of streams in the Boulder Creek Watershed, Colorado, found a diverse set of pharmaceuticals and organic wastewater chemicals in water samples. In fact, U.S. Geological Survey (USGS) scientists found 12 of the 22 (55 percent) pharmaceuticals, and 32 of the 47 (77 percent) organic wastewater chemicals looked for in the watershed. Many of the water samples contained a complex mixture of pharmaceuticals, wastewater chemicals, pesticides, and trace metals .... The scientists found that:
- The concentration of many of these chemicals, such as sulfamethoxazole (an antibiotic used to treat a wide range of bacterial infections), triclosan (an antimicrobial agent commonly used in soaps), and caffeine, increased dramatically downstream from the first major wastewater treatment plant .... However, some organic wastewater indicators (such as triclosan) were also found in much lower concentrations in the relatively pristine upper part of the watershed, and scientists attributed their occurrence to home septic systems and other sources on the landscape.
- Few of the detected compounds exceeded water-quality standards; however, many do not have water-quality standards.... Native fish populations were found to exhibit endocrine disruption, including low male-to-female sex ratio and fish having both female and male reproductive organs (gonadal intersex).
For some fish living downstream of sewage treatment plants the answer is yes. U.S. Geological Survey (USGS) scientists and their colleagues published a paper in Environmental Science and Technology documenting that specific antidepressants and their degradates found in wastewater discharged into streams by municipal wastewater treatment plants are taken up into the bodies of fish living downstream of the plants. The antidepressants were found in fish collected over 8 kilometers (approximately 5 miles) downstream of the location of the wastewater discharge. The scientists detected several commonly used antidepressants in water, streambed sediment, and the brain tissue of white suckers, a native fish species. Fish collected upstream from the wastewater discharge did not have antidepressants present in their brain tissues....AP reported in 2009:
A year earlier, the Associated Press noted:U.S. manufacturers, including major drugmakers, have legally released at least 271 million pounds of pharmaceuticals into waterways that often provide drinking water — contamination the federal government has consistently overlooked, according to an Associated Press investigation.
***
Last year, the AP reported that trace amounts of a wide range of pharmaceuticals — including antibiotics, anti-convulsants, mood stabilizers and sex hormones — have been found in American drinking water supplies. Including recent findings in Dallas, Cleveland and Maryland's Prince George's and Montgomery counties, pharmaceuticals have been detected in the drinking water of at least 51 million Americans.
Most cities and water providers still do not test. Some scientists say that wherever researchers look, they will find pharma-tainted water.
***
Researchers have found that even extremely diluted concentrations of drugs harm fish, frogs and other aquatic species. [This may be part of the reason that amphibians are disappearing.] Also, researchers report that human cells fail to grow normally in the laboratory when exposed to trace concentrations of certain drugs. Some scientists say they are increasingly concerned that the consumption of combinations of many drugs, even in small amounts, could harm humans over decades.
A vast array of pharmaceuticals — including antibiotics, anti-convulsants, mood stabilizers and sex hormones — have been found in the drinking water supplies of at least 41 million Americans, an Associated Press investigation shows. [The estimate was raised to 46 million a couple of months later.]
***
Bottlers [i.e. bottled water producers], some of which simply repackage tap water, do not typically treat or test for pharmaceuticals, according to the industry's main trade group.
***
There's growing concern in the scientific community, meanwhile, that certain drugs — or combinations of drugs — may harm humans over decades because water, unlike most specific foods, is consumed in sizable amounts every day.Our bodies may shrug off a relatively big one-time dose, yet suffer from a smaller amount delivered continuously over a half century, perhaps subtly stirring allergies or nerve damage. Pregnant women, the elderly and the very ill might be more sensitive.
Many concerns about chronic low-level exposure focus on certain drug classes: chemotherapy that can act as a powerful poison; hormones that can hamper reproduction or development; medicines for depression and epilepsy that can damage the brain or change behavior; antibiotics that can allow human germs to mutate into more dangerous forms; pain relievers and blood-pressure diuretics.
The University of Arizona College of Agriculture and Life Sciences wrote in 2000:
Discovery News pointed out last year:Certain pharmaceuticals are now attracting attention as a potentially new class of water pollutants. Such drugs as antibiotics, anti-depressants, birth control pills, seizure medication, cancer treatments, pain killers, tranquilizers and cholesterol-lowering compounds have been detected in varied water sources.
Where do they come from? Pharmaceutical industries, hospitals and other medical facilities are obvious sources, but households also contribute a significant share. People often dispose of unused medicines by flushing them down toilets, and human excreta can contain varied incompletely metabolized medicines. These drugs can pass intact through conventional sewage treatment facilities, into waterways, lakes and even aquifers. Further, discarded pharmaceuticals often end up at dumps and land fills, posing a threat to underlying groundwater.
Farm animals also are a source of pharmaceuticals entering the environment, through their ingestion of hormones, antibiotics and veterinary medicines. (About 40 percent of U.S.-produced antibiotics are fed to livestock as growth enhancers.) Manure containing traces of such pharmaceuticals is spread on land and can then wash off into surface water and even percolate into groundwater.
***
Researchers Christian G. Daughton and Thomas A. Ternes reported in the December issue of “Environmental Health Perspectives” that the amount of pharmaceuticals and personal care products entering the environment annually is about equal to the amount of pesticides used each year.
***
In the United States, the issue might have attracted earlier notice if officials had followed up on observations made 20 years ago. At that time, EPA scientists found that sludge from a U.S. sewage-treatment plant contained excreted aspirin, caffeine and nicotine. At the time, no significance was attached to the findings.
***
Europeans, however, took the lead in researching the issue. In the mid-1990s, Thomas A. Ternes, a chemist in Wiesbaden, Germany, investigated what happens to prescribed medicines after they are excreted. Ternes knew that many such drugs are prescribed, and that little was known of the environmental effects of these compounds after they are excreted. He researched the presence of drugs in sewage, treated water and rivers, and his findings surprised him.
Expecting to identify a few medicinal compounds he instead found 30 of the 60 common pharmaceuticals that he surveyed. Drugs he identified included lipid-lowering drugs, antibiotics, analgesics, antiseptics, beta-blocker heart drugs, residues of drugs for controlling epilepsy as well as drugs serving as contrast agents for diagnostic X rays.
***
At the recent American Chemical Society conference, Chris Metcalfe of Trent University in Ontario reported finding a vast array of drugs leaving Canadian sewage treatment plants, at times at higher levels than what is reported in Germany. Such drugs included anticancer agents, psychiatric drugs and anti-inflammatory compounds. North American treatment plants may show higher levels of pharmaceuticals because they often lack the technological sophistication of German facilities.
***
Scientists generally agree that aquatic life is most at risk, its life cycle, from birth to death, occurring within potentially drug-contaminated waters.... For example, recent British research suggest that estrogen, the female sex hormone, is primarily responsible for deforming reproductive systems of fish, noting that blood plasma from male trout living below sewage treatment plants had the female egg protein vitellogenin.
As the New York Times' Lede notes:Scientists are particularly concerned about a class of pharmaceuticals known as endocrine-disruptors. Traces of estrogen from birth control pills, for example, are now known to affect animals at really tiny concentrations.
Antibiotics are another concern, because once they are unleashed in the environment, they can prompt the development of dangerously drug-resistant bacteria.
Even drugs that don't fit into those categories have been shown to cause problems in some cases, especially when levels get high enough, said Bryan Brooks, director of the Environmental Health Science program at Baylor University in Waco, Texas.
A 2004 paper in the Journal Nature, for example, documented a catastrophic vulture die-off in India. It turned out that the birds were eating the carcasses of cows that had been given a type of non-steroidal anti-inflammatory medication, similar to ibuprofen or naproxen. The drug was making the birds sick.
In a paper published earlier this year in the journal Environmental Toxicology and Chemistry, scientists reported that minnows exposed to certain antidepressants were slower to flee from predators. Another paper in the same journal issue found that tadpoles exposed to antidepressants -- at levels similar to what might show up in the environment in some places -- ate less and grew more slowly.
"We recognize it is a growing concern and we’re taking it very seriously,” said Benjamin H. Grumbles, the Environmental Protection Agency’s water chief. But the government has not established any safety limits for pharmaceutical drugs in drinking water, as it has for many other chemicals; the agency is just learning how to detect low concentrations of drugs in water, let alone assess the risk posed by them.And see this, this, this, this, this and this:
As If That's Not Bad Enough ...
As if that's not bad enough, some well-known public figures have suggested intentionally adding drugs to water to prevent heart disease, prevent suicidal depression, and to combat other illnesses.
For example, the American psychiatrist Peter Kramer - best known for his work Listening to Prozac - has suggested that lithium be added to the water supply to reduce the number of suicides. Fox News medical expert Dr. Archelle Georgiou seems to like the idea as well:
And as Paul Joseph Watson writes:
Drug companies claim that statins have been proven to lower cholesterol and help prevent heart disease and strokes, leading many health experts to insist that they be artificially added to public water supplies, but dangerous side-effects buried by drug companies conducting statin trials have now come to light, in addition to the fact that “for three quarters of those taking them, they offer little or no value.”
A new study published in the Cochrane Library, which reviews drug trials, examined data from 14 drugs trials involving 34,000 patients and found evidence of “short-term memory loss, depression and mood swings,” that had been deliberately underplayed by the drug companies funding the research.
The researchers warn that, “Statins should only be prescribed to those with heart disease, or who have suffered the condition in the past. Researchers warn that unless a patient is at high risk of suffering a heart attack or stroke, statins may cause more harm than good.”
However, despite the fact that statins have also been linked to a greater risk of liver dysfunction, acute kidney failure, cataracts and muscle damage, health authorities have been pushing for the drug to be added to public water supplies as part of a mass medication program that is not only illegal without consent, but also threatens a plethora of unknown consequences.
Only last week, George Lundberg, MD, the editor of MedPageToday..., wrote an op-ed entitled, Should We Put Statins in the Water Supply?
In May 2008, renowned cardiologist Professor Mahendra Varma called for statins to be artificially added to drinking water.
Putting statins in the water supply was also considered during a November 2008 discussion which featured Robert Bonow, M.D., of Northwestern University in Chicago, Gordon F. Tomaselli, M.D., of Johns Hopkins University in Baltimore, and Anthony De Maria, M.D., of the University of California at San Diego.
Also in November 2008, CNBC aired a segment lauding the effectiveness of statins, after which one of the hosts remarked, “Why don’t they just put statins in the water supply,” to which CNBC’s medical expert replied, “A lot of people have said that and they are in the water in fact.”
And bioethicist and medical historian Jacob M. Appel wrote in the Huffington Post in 2009:
Lithium may actually be the tip of the fortification iceberg. The cholesterol-lowering agents known as statins might also be good candidates for inclusion in the water supply ....However, as discussed above, bottled water may contain the same pharmaceuticals as tap water, and many water filters do not effectively remove pharmaceuticals.
Other possible agents are still in development. If researchers could effectively isolate a chemical that safely blocks pleasure pathways involved in the use of toxic substances, such as tobacco and cocaine, those blocking agents might also be added to the water supply. Preventing nicotine highs through such a novel distribution mechanism would save millions of lives annually.
***
Some nay-sayers will inevitably argue that medically fortifying the public water is a violation of individual liberty. Of course, nobody is forcing those dissident individuals to drink tap water. They are welcome to purchase bottled water, as do a few hold-outs who still fear the pernicious effects of fluoride, or to dig their own wells.
***Unfortunately, some opponents will likely attempt to hold the public water hostage, arguing that because drug-free water is natural, is it somehow better. However, if the vast majority of people gain health benefits from fortifying the public water, and particularly if these benefits are life-saving, then there is nothing unreasonable about placing the burden not to drink upon the resistant minority. One person's right to drink lithium-free water is no greater than another's right to drink lithium-enhanced water. As long as the negative consequences or inconveniences are relatively minor, water fortification seems to be one of those cases where the majority's preference and interest should prevail.
Time will reveal whether lithium is indeed the next fluoride. Far more important is the revolutionary prospect of harnessing the common water supply to deliver life-saving and health-enhancing therapies to the public at low cost. The water belongs to the public, after all, and should be used for the collective good. As someone who treasures my freedom immensely -- including, I should emphasize, my inalienable right to commit suicide -- I look forward to the day when I can sacrifice whatever specious "liberty" claim I might have in consuming "natural" tap water in order to help save the lives of my neighbors and fellow human beings.
In addition, because a healthier lifestyle of exercise and a low-fat diet leads to less cardiac disease and less suicidal tendencies, those who are more responsible in their health habits would be penalized by being exposed to drugs they don't need, or incurring the extra cost of digging a well or buying an expensive filter to secure non-medicated drinking water.
Fluoride as Poster Child for Adding Chemicals to Water
Fluoride is - of course - the example everyone uses when discussing the safety of adding chemicals to drinking water. It should be the example everyone uses.
The U.S. government has itself now expressed concerns about fluoride's health effects and the possibility that it impairs brain function.
And as the president of Environmental Working Group - a highly-respected environmental group which has been quoted some 1,400 times by the New York Times -recently said:
For decades, people who raised concerns about fluoride being added to tap water or food were dismissed as crazy. All of a sudden we have two federal regulatory actions, announced just days apart, that tell us what was really crazy all those years: a government bureaucracy that ignored strong scientific evidence and clear warning signs of the threats fluoride has posed to public health all along.
And the Sierra Club and other leading environmental groups oppose mandatory fluoridation as well.
Quantitative Easing Is Causing Food Prices to Skyrocket
As I've previously noted, interest rates have risen both times after the Fed implemented quantitative easing.
Graham Summers points out that food prices have also skyrocketed both times:
This isn't really unexpected.In case you’ve missed it, food riots are spreading throughout the developing world Already Tunisia, Algeria, Oman, and even Laos are experiencing riots and protests due to soaring food prices.
As Abdolreza Abbassian, chief economist at the UN’s Food and Agriculture Organization (FAO), put it, “We are entering a danger territory.”
Indeed, these situations left people literally starving… AND dead from the riots.
And why is this happening?
A perfect storm of increased demand, bad harvests from key exporters (Argentina, Russia, Australia and Canada, but most of all, the Fed’s money pumping. If you don’t believe me, have a look at the below chart:
[Summers shows the share price of Elements Rogers International Commodity Agriculture ETN as a proxy for food prices generally.]
As you can see, it wasn’t until the Fed announced its QE lite program that agricultural commodities exploded above long-term resistance. And in case there was any doubt, QE 2 sent them absolutely stratospheric.
Last November, David Einhorn warned:
It is quite likely that QE2 will slow the economy by raising food and energy prices [because it is easier to generate these price increases]. [These price hikes] would act as a tax on consumers and businesses.Also in November, Karl Denninger wrote:
We have a Federal Reserve that, in the last two years, has printed and debased the currency of this nation by more than 100%, taking their balance sheet from $800 billion to more than $2 trillion. They now threaten, today, to do even more of that. This has resulted in insane price ramps in soft commodities ....("soft commodities" means food crops).
As the Wall Street Journal, Tyler Durden, the Economic Policy Journal and others note, inflation in food prices isn't limited to developing nations, but is coming to the U.S.
“The Vast Majority Of This Contraction Of Credit Availability To American Industry Has Been By The Larger Banks”
Dennis Santiago - CEO and Managing Director of Institutional Risk Analytics (Chris Whalen's company) - notes:
The really shocking numbers are in the unused line of credit commitments of banks to U.S. business. This is the canary number I like to look at because it is a direct expression of banking and finance confidence in Main Street industry. It's gone from $92 billion in Dec -2007 to just $24 billion as of Sep-2010. More importantly, the vast majority of this contraction of credit availability to American industry has been by the larger banks, C&I LOC from $87B down to $18.8B by the institutions with assets over $10B. Poof!
This once again confirms what I have been saying for years: the giant banks are causing most of the credit contraction.
As I wrote in 2009:
Fortune pointed out in February that smaller banks are stepping in to fill the lending void left by the giant banks' current hesitancy to make loans. Indeed, the article points out that the only reason that smaller banks haven't been able to expand and thrive is that the too-big-to-fails have decreased competition:I showed in January 2010 that part of the reason small banks are loaning more than big banks is that - while small banks still focus on traditional banking - very little of the big banks' business these days is from traditional banking functions. For example, far less than one-tenth of Bank of America's overall assets come from traditional banking functions.Growth for the nation's smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under...
As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.
BusinessWeek noted in January:
As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners...
At a congressional hearing on small business and the economic recovery earlier this month, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks...
Indeed, for the past two years, small-business lending among community banks has grown at a faster rate than from larger institutions, according to Aite Group, a Boston banking consultancy. "Community banks are quickly taking on more market share not only from the top five banks but from some of the regional banks," says Christine Barry, Aite's research director. "They are focusing more attention on small businesses than before. They are seeing revenue opportunities and deploying the right solutions in place to serve these customers."And Fed Governor Daniel K. Tarullo said in June:
The importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks...
For example, while the number of credit unions has declined by 42 percent since 1989, credit union deposits have more than quadrupled, and credit unions have increased their share of national deposits from 4.7 percent to 8.5 percent. In addition, some credit unions have shifted from the traditional membership based on a common interest to membership that encompasses anyone who lives or works within one or more local banking markets. In the last few years, some credit unions have also moved beyond their traditional focus on consumer services to provide services to small businesses, increasing the extent to which they compete with community banks.
I reported last March:
Thomas M. Hoenig - president of the Federal Reserve Bank of Kansas City and the current longest-serving regional Fed chief - said in a speech at a U.S. Chamber of Commerce summit in Washington:
During the recent financial crisis, losses quickly depleted the capital of these large, over-leveraged companies. As expected, these firms were rescued using government funds from the Troubled Asset Relief Program (TARP). The result was an immediate reduction in lending to Main Street, as the financial institutions tried to rebuild their capital. Although these institutions have raised substantial amounts of new capital, much of it has been used to repay the TARP funds instead of supporting new lending.On the other hand, Hoenig pointed out:
In 2009, 45 percent of banks with assets under $1 billion increased their business lending.45% is about 45% more than the amount of increased lending by the too big to fails.
And I noted last April:
Break up the big banks, so the smaller banks have room to grow and lend more.USA Today points out:
Banks that received federal assistance during the financial crisis reduced lending more aggressively and gave bigger pay raises to employees than institutions that didn't get aid, a USA TODAY/American University review found.
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• Lending fell. The amount of loans outstanding to businesses and individuals fell 9.1% for the 12 months ending Sept. 30, 2009, at banks that participated in TARP compared with a 6.2% drop at banks that didn't.
"All In All It Appears That Eisenhower’s Worst Fears Have Been Realized And His Remarkable And Unique Warnings Given For Naught"
President Eisenhower's warned us about the growing threat from the powerful military-industrial complex - and it's threat to our prosperity - 50 years ago.
As NPR notes:
On Jan. 17, 1961, President Dwight Eisenhower gave the nation a dire warning about what he described as a threat to democratic government. He called it the military-industrial complex, a formidable union of defense contractors and the armed forces.
Eisenhower, a retired five-star Army general, the man who led the allies on D-Day, made the remarks in his farewell speech from the White House.
***
Eisenhower used the speech to warn about "the immense military establishment" that had joined with "a large arms industry."
Here's an excerpt:
"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist."
***
Eisenhower was worried about the costs of an arms race with the Soviet Union, and the resources it would take from other areas — such as building hospitals and schools.
***
Another concern ... was the possibility that as the military and the arms industry gained power, they would be a threat to democracy, with civilians losing control of the military-industrial complex.
Eisenhower also said:
Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
As James Ledbetter wrote in the New York Times last month:
It is not a stretch to believe that this armaments industry — which profits not only from domestic sales but also from tens of billions of dollars in annual exports — manipulates public policy to perpetuate itself. But Eisenhower was concerned about more than just the military’s size; he also worried about its relationship to the American economy and society, and that the economy risked becoming a subsidiary of the military.
***
Eisenhower warned that the influence of the military-industrial complex was “economic, political, even spiritual” and that it was “felt in every city, every statehouse, every office of the federal government.” He exhorted Americans to break away from our reliance on military might as a guarantor of liberty and “use our power in the interests of world peace and human betterment.”
On this score, Eisenhower may well have seen today’s America as losing the battle against the darker aspects of the military-industrial complex. He was no pacifist, but he was a lifelong opponent of what he called a “garrison state,” in which policy and rights are defined by the shadowy needs of an all-powerful military elite.
The United States isn’t quite a garrison state today. But Eisenhower would likely have been deeply troubled, in the past decade, by the torture at Abu Ghraib, the use of martial authority to wiretap Americans without warrants and the multiyear detention of suspects at Guantánamo Bay without due process.
Finally, even if the economy can bear the immediate costs of the military, Eisenhower would be shocked at its mounting long-term costs. Most of the Iraq war expenses were paid for by borrowing, and Americans will shoulder those costs, plus interest, for many years to come.
A strong believer in a balanced budget, Eisenhower in his farewell address also told Americans to “avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow.” Too many of today’s so-called fiscal conservatives conveniently overlook the budgetary consequences of military spending.
The Independent pointed out Monday:
If you doubt, half a century on, that Dwight Eisenhower had it right, then consider the advertisements on WTOP, the Washington region's all-news radio station. Every big metro area in the US has one, where car dealerships tout their bargains, and fast food chains promote a new special offer.
WTOP has all that. But it boasts other advertisers too, with names such as Boeing, Lockheed Martin and General Dynamics.
***
These almost otherworldly ads, with patriotic music playing softly in the background, are aimed at a very restricted audience: the government that is their only customer for such wares. For the rest of us, they are proof that in the capital of the world's richest democracy, the defence industry is a very big player indeed.
***
Adjusted for inflation, US national security spending has more than doubled since Eisenhower left office. Year after year, the defence budget seems to rise – irrespective of whether the country is actually fighting major wars, regardless of the fact that the Soviet Union, the country's former global adversary, has ceased to be, and no matter which party controls the White House and Congress.
One common thread however exists: the military-industrial complex, or perhaps (as Eisenhower himself described it in a draft of his speech that was later amended) the military-industrial-congressional complex. Others have referred to the beast as the "Iron Triangle".
In one corner of the triangle stands the arms industry. The second is constituted by the government, or more precisely the Pentagon, the end-consumer of the industry's output. In a totalitarian state, such as the Soviet Union, that combination would be sufficient. The US however is a democracy, and a third corner is required – an elected legislature to vote funds to pay for the arms. This is Congress, made up of members who rely on the defence industry for many jobs in their states and districts, and for money to help finance their every more expensive re-election campaigns.
***
A treasure trove of old documents, covered with dirt and pine needles and discovered last year at a cabin in Minnesota once owned by Eisenhower's chief speechwriter Malcolm Moos, reveals that the 34th president had been working on the speech since mid-1959. It went through at least 21 drafts; in a later one, the "congressional" reference was struck out because, it is supposed, Ike did not want to upset old friends on Capitol Hill. But the "military" part was there from the outset.
***
In reality, the dangers of Eisenhower's "military-industrial complex" are not new; from the earliest days of the Republic, political leaders have warned of them. "Overgrown military establishments," George Washington said in his own farewell address of 1796, "are under any form of government inauspicious to liberty."
***
Once again, one might note, Eisenhower hit the mark in January 1961. Back then, budgets were more or less balanced, and the possibilities of the future seemingly boundless. Even so he urged his countrymen to "avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow". That of course is what has happened with the "credit card" wars of Iraq and Afghanistan, whose costs will burden American taxpayers for years to come.
As the director of the Arms and Security Initiative at the New America Foundation told Democracy Now today, the big defense contractors "recycle our money into the political system". He pointed to one example:
[The Lockheed companies] spend about $12 million per election cycle, either on lobbying or on candidates. And they have people like Buck McKeon, who runs the Armed Services Committee now. They’re the biggest donor to him. They’re the biggest donor to Daniel Inouye, who runs the Appropriations Committee in the Senate.
And investment legend Jeremy Grantham’s most recent newsletter argues that President Eisenhower's worst fear have come true, and makes some hard-hitting points about finance and government as well:
Grantham Jan 14 11Historians may well look back on this period, say, from 1960 on, as the “Selfish Era” – a time when individualism and materialism steadily took precedence over social responsibility. (To be fair, in the period from 1960 to 1980, the deterioration was slow, and the social contract dating back to the mid-1930s was more or less intact.) Personal debt grew slowly at first but steadily accelerated, even though it can be easily demonstrated that consumers collectively are better off saving to buy and that the only beneficiary of a heavy debt society is the financial industry, whose growth throughout this period was massive, multiplying its share of a growing pie by a remarkable 2.2 times…
The financial industry, with its incestuous relationships with government agencies, runs a close second to the energy industry. In the last 10 years or so, their machine, led by the famously failed economic consultant Alan Greenspan – one of the few businessmen ever to be laughed out of business – seemed perhaps the most effective. It lacks, though, the multi-decadal attitude-changing propaganda of the oil industry. Still, in finance they had the “regulators,” deregulating up a storm, to the enormous profit of their industry. Even with the biggest-ever financial fiasco, entirely brought on by the collective incompetence they produced (“they” being the financial regulators and the financial industry leaders working together in some strange, would-be symbiotic relationship), reform is still difficult. Even with everyone hating them, the financial industry comes out smelling like a rose with less competition, profits higher than ever, and not just too big to fail, but bigger still.
Other industries, to be sure, are in there swinging: insurance and health care come to mind, but they seem like pikers in comparison. No, it’s energy and finance in coequal first place, military-related companies an honorable third, and the rest of the field not even in contention. And now, adding the icing to the corporate cake, we have the Supreme Court. Formerly the jewel in the American Crown, they have managed to find five Justices capable of making Eisenhower’s worst nightmare come true. They have put the seal of approval on corporate domination of politics, and done so in a way that can be kept secret. The swing-vote Senator can now be sand-bagged by a vicious advertising program on television, financed by unknown parties, and approved by no stockholders at all!
All in all it appears that Eisenhower’s worst fears have been realized and his remarkable and unique warnings given for naught. From now on, we should tread more carefully. Honoring President Eisenhower’s unique warnings, we should perhaps not take this 50-year slide lying down. Squawking loudly seems preferable.
And see this and this.
Even Small Amounts of Oil and Dispersant Are Toxic to Phytoplankton ... the Basis of the Entire Gulf Food Chain
Naomi Klein said at her December 8th TED talk:
What [scientists] found is that water with even trace amounts of oil and dispersants can be highly toxic to phytoplankton—which is a serious problem because so much life depends on it. So contrary to those reports we heard back in August about how 75 per cent of the oil has sort of disappeared, this disaster is still unfolding, still working its way up the food chain.
She's right.
As The Ecologist noted last September:
This process of dispersing oil neither eliminates nor decreases its toxicity. In fact it creates a much more toxic cocktail of oil and chemical dispersant. Experts say this cocktail mix is now beginning a slow but sure degradation of the ecosystem from the bottom up. Despite this environmental officials in the US have allowed them to be used on an unprecedented scale.
The Tampa Tribune wrote in September:
Tiny droplets of combined oil and dispersant adhere to plankton, says Dr Susan Shaw, founder and director of the Marine Environmental Research Institute (MERI). The plankton-eaters then indiscriminately gobble up the tainted particles while fish-eaters consume the poisoned plankton eaters, and so on through the marine food web.
Most of the oil and dispersant are still below the surface and have the potential to cause long-term damage the eco-system, according to University of South Florida researcher John Paul who is included in a documentary debuting Tuesday night in the National Geographic Channel.
***They discovered plumes of dispersed oil at the bottom of an undersea canyon about 40 miles off the Florida Panhandle.
It was found to be toxic to microscopic sea organisms, causing mutations to their DNA.
If this plankton at the base of the marine food chain is contaminated, it could affect the whole ecosystem of the Gulf.
***
"The problem with mutant DNA is that it can be passed on and we don't how this will affect fish or other marine life," he says, adding that the effects could last for decades.
National Geographic reported in October:
Even in the turbulent, highly oxygenated waters of France's Breton coast, it took at least seven years after the 1978 Amoco Cadiz spill for local marine species and Brittany's famed oyster farms to fully recover, according to French biologist Philippe Bodin. An expert on marine copepods, Bodin studied the long-term effects of the spill from the grounded tanker. He believes the impact will be far worse in the generally calmer, lower-oxygen waters of the Gulf, particularly because of the heavy use of the dispersant Corexit 9500. BP has said the chemical is no more toxic than dish-washing liquid, but it was used extensively on the Amoco Cadiz spill, and Bodin found it to be more toxic to marine life than the oil itself. "The massive use of Corexit 9500 in the Gulf is catastrophic for the phytoplankton, zooplankton, and larvae," he says. "Moreover, currents will drive the dispersant and the oil plumes everywhere in the Gulf."
AP noted in November:
Scientists say they have for the first time tracked how certain nontoxic elements of oil from the BP spill quickly became dinner for plankton, entering the food web in the Gulf of Mexico.
***
"Everybody is making a huge deal of where did the oil go," said chief study author William "Monty" Graham, a plankton expert at the Dauphin Island Sea Lab in Alabama. "It just became food."
***
Michael Crosby of the Mote Marine Laboratory in Florida didn't take part in the study but said what fascinated him was that the carbon zipped through the food web faster than scientists expected. That in itself isn't alarming, but if the nontoxic part of the oil is moving so rapidly through the food web, Crosby asks: "What has happened to the toxic compounds of the released oil?"
***
Graham's study, released Monday, is published in Environmental Research Letters. It was mostly funded by the National Science Foundation, with additional money from the state of Alabama and BP's Gulf Research Initiative, which distributed money through the Northern Gulf Institute in Mississippi.
And as the Herald Tribune wrote in November:
For birds, fish, sea turtles, marine mammals and ocean-based economies on the Gulf coast, the immediate catastrophe from the BP Deepwater Horizon oil spill has ebbed, but the long-term effects have yet to unfold.
Everything, from shrimp fleets in Louisiana to chicken wings in Buffalo, hinges on the health of tiny plants and animals at risk from oil lingering in the environment. Undetectable by sight or smell, trace amounts of degraded oil are poisoning these species, called plankton, at the bottom of the food chain, scientists say.
***
"When you are perturbing the food web from its foundation, the ultimate ecological response could be catastrophic," said David Hollander, a chemical oceanographer with the University of South Florida's College of Marine Science.
Hollander and his colleagues at USF are among the first to suggest that plumes containing extremely low concentrations of BP oil are having toxic effects on beneficial algae, a large component of plankton.
***
These animals, including shrimp, menhaden, oysters and clams, spend a part of their lives as zooplankton, tiny larvae that float at the whim of ocean currents and gobble other bits of plankton.
The spill coincided with the time of year when those zooplankton drift near the surface of the deep sea. They likely encountered oil and chemical dispersants used to dissolve the oil. If direct exposure did not kill them, they could still suffer reduced immunity to disease or genetic mutations that interfere with their growth into reproductive adults.
Scientists know oil and dispersants are toxic to plankton, so they theorize that diminished food would also take a toll on larval critters that do not get exposed to oil.
They would either starve or not get enough nourishment to reproduce.
"It's a whole cascading thing of possibilities that end up being a decline in reproductive output," Condrey said.
Bill Gross: "Ultimately Creditors And Investors Are At The Behest Of A Central Bank And Policymakers That Will Rob Them Of Their Money"
Bill Gross had a great sound bite at Forbes' annual investing roundtable:
I don't know if the U.S. has reached a desperate point, but it is employing instruments and vehicles and policies that smack of desperation. We are not looking at a default here, but at years of accelerating inflation, which basically robs investors and labor of their real wages and earnings. We are looking at a currency that almost certainly will depreciate relative to other, stronger currencies in developing countries that have lower levels of debt and higher growth potential. And, on the short end of the yield curve, we are looking at creditors receiving negative real interest rates for a long, long time. That, in effect, is a default. Ultimately creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.Gross' statement came right after the following zinger from Marc Faber:
Janet Yellen, vice chair of the Federal Reserve, said about a year ago that if it were possible to push interest rates into negative territory, she would vote for that. This is a very important statement because it implies that the Fed will keep real interest rates negative as far as the eye can see. Negative real rates amount to expropriation and destroy one function of money: to be a store of value and a unit of account. If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn't value their wealth in dollars because one day, in dollars, everyone will be a billionaire.Of course, Gross and Faber are forecasting high inflation. If deflation or "MixedFlation" prevail instead, things might look very different.
Most Economists Fall Back Into Neoclassical Stupor ... "If They Don't Know Anything, Then Why Should We Listen To Them?"
When the economic crisis hit in 2008, economists started to admit that neoclassical economics was wrong.
Specifically, they started to admit that the assumption that the economy is inherently stable is false, and that their models were faulty and needed to be adjusted. See this, this, this, this, this, this, this, this, this, this, this, this, this and this.
But now that - on the surface (here's what you may see if you scratch below the surface) - things seem to be improving, most economists are falling back in their neoclassical stupor.
For example, two PhD economists - Steve Keen and Dean Baker - recently attended the annual meeting of the American Economics Association. They are both exasperated that most economists have not learned anything at all from the crisis.
Keen reported on his surreal experience on the Max Keiser show, stressing that most economists still use defective models and believe the fairy tale of the inherent stability of the economy:
And Baker writes:
The American Economics Association held its annual meeting in Denver last weekend. Most attendees appeared to be in a very forgiving mood. While the economists in Denver recognised the severity of the economic slump hitting the United States and much of the world, there were few who seemed to view this as a serious failure of the economics profession.
The fact that the overwhelming majority of economists in policy positions failed to see the signs of this disaster coming, and supported the policies that brought it on, did not seem to be a major concern for most of the economists at the convention. Instead, they seemed more intent on finding ways in which they could get ordinary workers to accept lower pay and reduced public benefits in the years ahead. This would lead to better outcomes in their models.
***
The willingness of economists to so quickly embrace this darker future is striking. After all, one of the reasons that we have economists is, ostensibly, so that we don't get such unpleasant news about a "new normal". This is like a football team calmly accepting the sports writers' prediction that they would have a winless season, and deciding that their new goal was to minimise the margin of defeat.
***
If economists did their job, they would be pushing policies to get the economy quickly back to full employment. Instead, they just repeat lines about how "we" will just have to accept some rough times. Unfortunately, no one ever asks the economists who preach austerity how much time they expect to spend in the unemployment lines.
If they don't know anything, then why should we listen to them?
Martin Luther King Jr.: Stop the Wars in Iraq and Afghanistan and Stop the Mugging of the Middle Class and Poor by the Wealthy
The Defense Department’s general counsel said that he believed Martin Luther King, Jr., might have supported the current wars:
I believe that if Dr. King were alive today, he would recognize that we live in a complicated world, and that our nation's military should not and cannot lay down its arms and leave the American people vulnerable to terrorist attack.
That is easily disproven.
As King said in 1967:
As I have walked among the desperate, rejected, and angry young men, I have told them that Molotov cocktails and rifles would not solve their problems. I have tried to offer them my deepest compassion while maintaining my conviction that social change comes most meaningfully through nonviolent action. But they ask -- and rightly so -- what about Vietnam? They ask if our own nation wasn't using massive doses of violence to solve its problems, to bring about the changes it wanted. Their questions hit home, and I knew that I could never again raise my voice against the violence of the oppressed in the ghettos without having first spoken clearly to the greatest purveyor of violence in the world today — my own government… We can no longer afford to worship the god of hate or bow before the altar of retaliation. The oceans of history are made turbulent by the ever-rising tides of hate. And history is cluttered with the wreckage of nations and individuals that pursued this self-defeating path of hate.King also proclaimed in 1967:
A true revolution of values will lay hand on the world order and say of war, 'This way of settling differences is not just.'... A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual death.King lamented that the United States had become the “greatest purveyor of violence in the world today, said the world "is sick with war", and said that "war is not the answer." King said:
I never intend to become adjusted to the madness of militarism and the self-defeating method of physical violence.And he warned that the deep malady of the American spirit is our perverse devotion to what he called the "giant triplets" of "racism, extreme materialism, and militarism."
Indeed, if one understands King's core philosophies, the Pentagon's statement becomes even sillier.
Initially, as Pulitzer Prize-winning author Chris Hedges points out:
Anger at injustice, as Martin Luther King wrote, is the political expression of love.In other words, King believed that his Christian faith required him to fight injustice. That is why King said that we have to fight against "systems of exploitation and oppression."
Moreover, King was an adherent of two philosophical concepts which Gandhi also followed:
Adherents of the philosophy of ahimsa don't believe that some wars are jusitifed ... they believe that we shouldn't harm any person or even any critter if we can help it (the most extreme followers of ahimsa are the Jain sect of India. They are so extreme that they sweep the path ahead of them when they walk so that they will not accidentally squish any bugs. Neither Gandhi or King were Jainists, however, this extreme example helps to explain the basic idea.)1. "Ahimsa" - non-violence towards all
and
2. "Satyagraha" - truth is the only weapon needed
Indeed, the following statements by King only make sense when one understands King's ahimsa philosophy:
- "The ultimate weakness of violence is that it is a descending spiral, begetting the very thing it seeks to destroy. Instead of diminishing evil, it multiplies it. Through violence you may murder the liar, but you cannot murder the lie, nor establish the truth."
-
"Nonviolence is the answer to the crucial political and moral questions of our time; the need for mankind to overcome oppression and violence without resorting to oppression and violence. Mankind must evolve for all human conflict a method which rejects revenge, aggression, and retaliation. The foundation of such a method is love."
- "Man must evolve for all human conflict a method which rejects revenge, aggression and retaliation. The foundation of such a method is love.
Returning violence for violence multiplies violence, adding deeper darkness to a night already devoid of stars... Hate cannot drive out hate: only love can do that.
We must learn to live together as brothers or perish together as fools."
King Was Against Economic Injustice
Additionally, King fought against economic injustice as well. For example, he said:
I never intend to adjust myself to the tragic inequalities of an economic system which takes necessities from the masses to give luxuries to the classes.
As Roger Bybee writes today:
And so - if King were alive today - it is certain that he would be demanding an end to the wars in Afghanistan, Iraq and elsewhere, and an end up to the mugging of the middle and lower classes by the wealthy.As Norman Solomon and Jeff Cohen noted,
But after passage of civil rights acts in 1964 and 1965, King began challenging the nation's fundamental priorities. He maintained that civil rights laws were empty without "human rights" — including economic rights. For people too poor to eat at a restaurant or afford a decent home, King said, anti-discrimination laws were hollow.
Noting that a majority of Americans below the poverty line were white, King developed a class perspective. He decried the huge income gaps between rich and poor, and called for "radical changes in the structure of our society" to redistribute wealth and power."Thus, at the time of his death on April 4, 1968, Dr. King was deeply immersed in the struggle of 1,300 black sanitation workers in Memphis who had organized themselves into an AFSCME local.. At the same time, he was also building a coalition for a "Poor People's Campaign" that would assemble in Washington, D.C., to demand "economic rights" for people of all colors. It was aimed at building a mighty coalition that would span autoworkers in Detroit, discarded coalminers in Appalachia, Latino farmworkers, and oppressed blacks in both the South and North.
In his new book All Work Has Dignity, Honey pulls together 11 of King's speeches on labor and explains the lasting significance of King's emphasis on the need for "economic rights" for all.People forget that Dr. King was every bit as committed to economic justice as he was to ending racial segregation. As we struggle with massive unemployment, a staggering racial wealth gap and near collapse of our financial system, King’s prophetic writings and speeches underscore his relevance for today.
Of course, to the extent that the war in the Middle East is largely a crusade against brown-skinned Muslims, King would also have opposed it as being based on racism and religious intolerance.
Fiddling (With Its P.R. Campaign) While Rome Burns
Instead of putting out the fire, or even changing things so that they are less likely to catch fire in the future, the Obama administration (like the Bush administration before it) is just fiddling with it's P.R. campaign.
With everything from the financial crisis to the Gulf oil spill, the government didn't actually help so much as launch a campaign to convince Americans that:
(1) Things aren't really that bad (when they were. See this, for example)
(2) The big companies that caused the mess are good guys who just made some wee little mistakes (when they committed fraud and criminal negligence. See this)
(3) Big changes have been made (when meaningless changes were made - primarily written by the big companies themselves - and loopholes built in so that the companies don't really have to comply with them anyway. See this)
and
(4) The government (and the above-described companies) care and have been doing a lot for the little guy (when the little guy continues to get gouged and shafted. See this, for example)
If you run down the list of programs implemented by the government in response to the financial crisis and the oil spill, you will see the same thing over and over.
"The Fed No Longer Even Denies that the Purpose of Its Latest Blast of Bond Purchases ... Is To Drive Up Wall Street"
The stated purpose of quantitative easing was to drive down interest rates on U.S. treasury bonds.
But as U.S. News and World Reported noted last month:
By now, you've probably heard that the Fed is purchasing $600 billion in treasuries in hopes that it will push interest rates even lower, spur lending, and help jump-start the economy. Two years ago, the Fed set the federal funds rate (the interest rate at which banks lend to each other) to virtually zero, and this second round of quantitative easing--commonly referred to as QE2--is one of the few tools it has left to help boost economic growth. In spite of all this, a funny thing has happened. Treasury yields have actually risen since the Fed's announcement.
The following charts from Doug Short update this trend:
Of course, rather than admit that the Fed is failing at driving down rates, rising rates are now being heralded as a sign of success. As the New York Times reported Monday:
The trouble is [rates] they have risen since it was formally announced in November, leaving many in the markets puzzled about the value of the Fed’s bond-buying program.
***
But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.
“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”
Last November, after it started to become apparent that rates were moving in the wrong direction, Bernanke pulled a bait-and-switch, defending quantitative easing on other grounds:
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
As former chief Merrill Lynch economist David Rosenberg writes today:
Indeed, leading economic consulting firm Trim Tabs (25% of the top 50 hedge funds in the world use TrimTabs' research for market timing) wrote on Wednesday:So the Fed Chairman seems non-plussed that Treasury yields have shot up and that the mortgage rates and car loan rates have done likewise, even though he said this back in early November in his op-ed piece in the Washington Post, regarding the need for lower long-term yields:
“For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment.”
But the Fed Chairman is at least getting what he wants in the equity market. Recall what he said back then — “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
So now the Fed has added a third mandate to its charter:
1. Full employment
2. Low and stable inflation
3. Higher equity valuationThe real question we should be asking is why Ben didn’t add this third policy objective back in 2007 and save us from a whole lot of pain over the next 18 months?
And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.
The Federal Reserve’s quantitative easing programs have helped stock market participants, financial institutions, and large companies but have done little to address the structural problems of the economy, according to TrimTabs Investment Research.
“Quantitative easing is supposed to produce stronger economic growth and lower unemployment,” said Madeline Schnapp, Director of Macroeconomic Research at TrimTabs. “While QE1 and QE2 have worked wonders on the stock market, their impact on GDP and jobs has been anemic at best.”
Similarly, Ambrose Evans-Pritchard wrote today:
The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Unfortunately, a rising stock market doesn't help the average American as much as you might assume.
For example, Robert Shiller noted in 2001:
We have examined the wealth effect with a cross-sectional time-series data sets that are more comprehensive than any applied to the wealth effect before and with a number of different econometric specifications. The statistical results are variable depending on econometric specification, and so any conclusion must be tentative. Nevertheless, the evidence of a stock market wealth effect is weak; the common presumption that there is strong evidence for the wealth effect is not supported in our results. However, we do find strong evidence that variations in housing market wealth have important effects upon consumption. This evidence arises consistently using panels of U.S. states and individual countries and is robust to differences in model specification. The housing market appears to be more important than the stock market in influencing consumption in developed countries.
I pointed out in March:
Even Alan Greenspan recently called the recovery "extremely unbalanced," driven largely by high earners benefiting from recovering stock markets and large corporations.I noted in May:
***
As economics professor and former Secretary of Labor Robert Reich writes today in an outstanding piece:Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The "wealth effect" is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.
As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.And last month Professor G. William Domhoff updated his "Who Rules America" study, showing that the richest 10% own 98.5% of all financial securities, and that:
***
(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)
The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
The bottom line is that quantitative easing is not really helping the average American very much ... and is certainly not worth trillions of dollars.
.
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