Blog 31 Notes from History: of Horses and Men, Elephants and Donkeys

The Roman Emperor, Caligula (full name Gaius Julius Caesar Augustus Germanicus) is reported (probably falsely) to have made his favorite horse a Senator. The question still remains, was this idiocy or satire?  That is, was he really crazy, or simply mischievously clever at putting down the old aristocracy?

So does it matter today? Probably not, but history does repeat, and repeat. And, as philosopher, George Santayana, said, "Those who do not know history are doomed to repeat it."

We may be witnessing a historical parallel today without knowing it.

For instance, the irreversible decline of a great republic.

On March 15 in 44 BC, Julius Caesar returned to Rome, a great Republic, from a series of very successful foreign wars. He had written a whole history of his exploits and sent it back to Rome like weekly news bulletins. It made him very popular.

The old Republican ruling class had lost touch with a large, various, and unruly populace. Knowing the law of money, as we do, we might safely surmise that their wealth bought their political power and their political power increased their wealth .... Well, you know. Till there were only a few rich and a great many poor.

When the poplar Caesar started home, he just happened to have brought back with him a seasoned army. That gave him a certain political independence.Officials of the ruling Senatorial class had ordered the popular general not to come back into Italy. But he did. He crossed the Rubicon River, and Rome was never the same. 

We still use the phrase, "cross the Rubicon", to refer to a decisive action from which there is no turning back.

When the victorious warrior arrived back in the City itself, he was mobbed with supporters. They wanted to make him King!  King!!
For six centuries, "King" had been a bad word in Rome. The great Roman republic had been born out of a successful revolution against their oppressive foreign kings.

Something like the American Republic, you know.

Well, they did not get Julius Caesar for their king. A group of Senatorials, including some of his good friends, publicly stabbed him to death.

But 17 messy years later, his adopted son/nephew, Octavianus Augustus, became the first in a long line of Roman emperors.

Augustus did not call himself King, but "First Citizen". Good PR department, I'd say.

The Republic never recovered.

A divided society, a wide gap between rich and poor, wealth, political power, military power.  Hmmmnnnn.

Those who don't know history...

Blog 30 Power Play

Power

Money

Blog 30   POWER PLAY

One of my favourite places is New Zealand. Not primarily because it was the first national state to experience the Neo-liberal destruction of the post-war welfare state, but because New Zealand has partly recovered from that public catastrophe.

In 1994, a new Labour government was highjacked by disciples of the Chicago School of Economics, and among the things done in the next four years was the privatization of publicly-owned infrastructure. In 1998, a big lesson was learned. With credit to Wikipedia, here's the story.

The 1998 Auckland power crisis was a five-week-long power outage affecting the central city Auckland, New Zealand. At the time, all of downtown Auckland was supplied with electricity by Mercury Energy via four 110 KV power cables originating from the national grid at Transpower's Penrose substation, with two cables each connecting to two central city substations at Liverpool Street and Quay Street. The two cables connecting to Quay Street were 40-year-old gas-insulated cable that were past their replacement date. One of the Quay street cables failed on 20 January, possibly due to the unusually hot and dry conditions, although this did not warrant a crisis; the three remaining cables could still supply the central city. The second Quay Street cable failed on 9 February, leaving only the Liverpool Street cables supplying the city. Due to the increased load from  the failure of the first cables, these remaining two cables failed on 19 and 20 February, leaving the entire central city supplied by a single 22 kV cable from Kingsland, resulting in about 20 city blocks (except parts of a few streets) losing power. Queen Street was almost deserted for the first few days, as few businesses could operate. Some brought goods out onto the street to sell, but heavy rain in the first week made that impractical. Generators were brought in from around the country to power essential services and some businesses. These made queen Street a very noisy place and thus deterred customers.

In the five weeks it took to restore the power supply, about 60,000 of the 74,000 people who worked in the area worked from home or from relocated offices in the suburbs. Some businesses relocated staff to other new Zealand cities, or even to Australia. The majority of the 6,000 apartment dwellers in the area had to find alternative accommodation. Temporary power was supplied for a while from large container ships at the port supplying power to the CBD grid

The old gas cables were found to be repairable and were put back into service, but were restricted to 30 MVA capacity. The newer oil cables were irreparable, so to restore full supply to the city, a temporary 110 kV overhead line was constructed along the rail corridor between Penrose and Liverpool Street.

Subsequent public inquiries into the causes of the outage blamed two things - failure of components used beyond their replacement date, and "failure of governance." Translated, "failure of governance" means the directors of the recently privatized electric corporations were not technical people, but were solely focussed on serving their constituency - the shareholders. That is, making money for dividends.

The final lesson of the blackout I have found well summed up by

Sharon Beder, University of Woolongong, Australia:

"Electricity is not a commodity that can be governed by market forces. It is a service that is essential to human welfare and economic prosperity, and it needs to be controlled by those who place public interest ahead of commercial imperatives."

Let me conclude with two quotations offered in the New Internationalist article, "Ten Economic Myths that We Need to Junk.:

"The myth of private-sector superiority has three components that feed off and reinforce one another. First, that the private sector is always dynamic and best; second, that the public sector is costly and inefficient, and third, the conclusion that everyone benefits from the continual incremental privatization of the public sphere. All three elements are false." Andrew Simms British author.

and,

"Privatization means you take a public institution and give it to an unaccountable tyranny. Public institutions may have many side benefits. They're not for profit. They may purposely run at a loss because of the side benefits. So, for example, if a public steel industry runs act a loss it's providing cheap steel to other industries. Maybe that's a good thing. Public institutions can have a counter-cyclic property. So that means that they can maintain employment in periods of recession, which increases demand, which helps you to get out of recession. Private companies can't do that in a recession. Throw out the work force because that's the way you make money.  
Noam Chomsky, in the film "The Corporation."

So Ontarians, what can you do to offset the increase in your hydro bills?  (Remember those dividends.) Or to compensate for the inconvenience of longer blackouts, especially in those winter storms, where your TV news (when you can get it) shows your heroic public power workers labouring long days and nights to get the power flowing?

Can't help you. Your new neoliberal government has three years to go.

Maybe, after the election of the next government they might do as New Zealand has done, recover some of your public power ownership.

Or, for now, if you are a well-to-do opportunist, you could buy some of the newly-offered stock. Toronto Stock Exchange. Symbol (H).  Easy to remember.

"The Economy is Slowing." Part 2

Blog 29  "The Economy is Slowing,:  Part 2

Blog 28 had a diagram representing money moving through four zones. It named the functions of each zone.

1 Government     (tax and spend)

2 The Economy    (produce and exchange goods & services)

3 Banks
    i.    create money;
    ii.   lend money;
    iii.  collect interest on money lent;
    iv.  pay taxes;
    v.   pay dividends to shareholders

4 Shareholders, who own the banks and other corporations, and  receive dividends. They also pay the unavoidable taxes.

Now I have made the point that money to keep the economy moving can be injected by both governments and banks.

Elsewhere I have made the point that bank-created money carries a burden because interest has to be paid on it. The banks do not create the interest; it has to come out of the economy. So government money goes further and stays in play longer because it has no interest strings pulling it back out.

                   No, this is not a chicken with a house over its head. Read on.



Let's take another look at that word "moving".  It makes a significant point about money in the economy.

For this I like to picture a fancy cuckoo clock, with little figures popping out every quarter-hour, displaying a little hip action to entertain you. In my imaginary clock, however, there is a knob to turn up the speed of the actions. Turn it on high, and watch those figures dance through a whole week on the clock - in half an hour!

Money is like that speed-knobbed cuckoo clock. So if you need money to make the economy go, you have two things to consider: the total amount of money available, and the speed at which it changes hands.  In the jargon of economists the second is called "velocity".)

You can have a lot of money out there, but if it is not being spent  back - whether it's the puny jar behind the microwave, or the billions of dividend dollars/yen/francs  which the richest of the earth's citizens divert from the real economy to buy up more wealth-producing assets -- well, it's a losing battle if the real need is to prime a slumping economy.

The usual, and wrong,  process of trying to escape a dismal slump is to turn to governments and plead for public austerity. The right response of government on the other hand, is to pour money directly into the real economy in a way that promotes a rapid exchange of money ("velocity"). For example, by direct lending/granting of money to young people to buy and furnish new houses. What governments are usually bribed, bullied or bamboozled into doing, however, is to give banks money (taxed or, usually, borrowed). and beg the banks to lend to young people to build and furnish houses. This is the slower and costlier ("private") way to do it.

Same option with government direct spending to build or repair bridges, highways, harbour facilities, power lines - where most of the wages are quickly spent and circulate throughout  the economy.

Why have governments around the world gone further and further into debt over the last forty years?. Because of Myth #5: "The private sector is more efficient than the public sector."

We must ask, "More efficient at what?"  Not at moving the economy, keeping workers fed, highways paved and hospitals and schools open. No. But - because of those little financial devices  called interest and dividends - the private sector is better than government at extracting money from the productive economy.

It is time to see that governments are more efficient in achieving the goals of public good. Look for that in Blog 30.

A little hint: the next blog will make a short observation on privatizing public services, with a glance at the New Zealand experience and the Ontario provincial government's current sale of shares in its publicly-owned hydro-electric company.

Till then, turn your lights off and go to bed early.

Blog 28 "The Economy is Slowing ! The Economy is Slowing "!

Blog  28   "The Economy is Slowing!"

So what is "the economy?" 

Economics is "the science of the production and distribution of wealth." (Concise Oxford Dictionary). The World Book Dictionary defines the economy as "a system of managing the production, distribution and consumption of goods and services."  
All well and good.  A "science" (in a British dictionary) and a "system") (in an American dictionary). That could be food for a blog in itself. But not today.

The Cogs Blog, dedicated to making things clear and comprehensive to speakers of simple English, explains it a little more fully. The economy covers everything that is bought and sold for money - from the colorful slippers on your feet to the coffee, and its cup, at your elbow; the work of the machine operator who made the chair you are sitting on; the time of your travel agent booking your holiday in Cuba; the cost of  your hearing-aid, and the work of the sailor whose ship brought you the new batteries for it from the other side of the globe. And don't forget the bank lady in the smart dark suit who approved the loan to pay for your Cuba trip. She still has to pay for the suit.

Total money involved in my example, say, $5,000, in six or seven transactions.

Note that in every one of these transactions, money changed hands. Every dollar of that money is totalled up to give the economists, politicians and other interested parties, that Gross Domestic Product (GDP) figure.

Now, imagine for a minute, first that you had no money, nor credit, but you got all those things by "borrowing" them. No money was involved. So no effect on the year's GDP figures, even though a lot of goods and services changed hands. I put it to you this way to make two points (not about your personal honesty).
  1.  GDP figures, on which governments' and investors' decisions are frequently made, do not come directly from heaven. Therefore they ought not to be worshipped.
  2. For most of the transactions in the economy, however, money is a requirement.

Point 2 is the important one. Let's go from there. Suppose for a minute that you do have $5000 tucked away. It is in a jar behind the microwave. So long as it stays there, you are depriving the economy of money for six or seven transactions involving numerous people, for every week of the year.  Over a year that would amount to $250,000? And if a million other people in the country felt insecure and each put $5000 away toward their security?  $5,000,000,000 -  5 billion withheld from the economy. Finally, imagine the banks, at the same time, in the same fearful state of mind. They would be calling in loans, not in mere $5000's but, let's say, $50,000's. That is a minimum of $50,000,000,000, for each bank, each day, taken off the table.

Has the depression mentality set in yet, dear reader?

So do we look to the government? The bankers do. What should the national state governments do to pull their people out of a slump?

The second New Internationalist xxx Economic Myth to be Junked xxx  reads: "Deficit reduction is the only way out of a slump." Deficit reduction means the government should spend less money - or raise more taxes. But does D.R. put money into the economy? Not likely.

But governments exist to spend money. (Think about that.)

What most governments did in the 2008 recession, on the advice of shaky banks, was to borrow money from the banks and then give it back to the banks "to prevent a major crash." The debt still remains on the government books. And interest is being paid on it. Are banks smarter than governments? Seems like.

Since our aim is to simplify, let's have a diagram, in preparation for the next blog,

This diagram is pretty messy, but it shows four things you have already met. In the big box upper left, you have a government, and an economy, with participants and priorities. In the other two boxes, a bundle of banks (upper right). Note their five activities.  In the lower right, corporate shareholders, who represent the owners of wealth. Note also that banks create 98% of the money supply (as loans), and governments create only 2% (as cash).
The arrows show the major streams of money flowing among these four participants.

Flowing Money will be the topic of the next blog, with emphasis on   m o v  e   m   e    n     t      ---)-    ----)-     -----)-      ------)-

Blog 27 Ten Economic Myths to be Junked

Blog 27  Ten Economic Myths - A Series  


What makes the garden grow? 
Water. 
Yes, smart answer. How did you figure that out? 

So what makes the economy grow? 
Austerity, and Debt Reduction.  
Sorry, dead WRONG! Even the International Monetary Fund has changed its tune on that one.

Think "water" and "flowers."

                                                              MONEY
 NATIONAL ECONOMY

Substitute "Money" and "National Economy" for water and flowers.

Footnote:  It would be best to use government-created non-debt money,  rather than borrowed money, of course.

The next three or four blogs will be devoted to "The Big Story" in the December 2015 issue of New Internationalist.  NI is a British journal, established in the 1970's, The journal's title has a renewed relevance in these days when globalizers are getting closer to supplanting the national states with a really, really big government, bigger than any nation, and too big to be democratically responsible.

The cover title of the article is 10 EconomicMyths that we need to junk.

Some Background

The greatest war in the world, as we write, is not the war between men and women, not the war between Russia (or China) and America, nor the war between Muslims and Christians*, but the war between global corporations and national states
However, safely bunkered between the productive corporations (the manufacturing, mining, agricultural and other "real-economy" corporations), on the one hand, and, on the other hand, the public economies of national states (taxing and spending mainly for societal necessities), there is a third always smiling but mighty player. Like a colossus, with one foot on either side of the battleground, supporting, for a price, both sides, stands the almost non-productive financial corporations, the banks.

Why are they able to do this? Because of their power of CREATING money to lend - to all parties. Ever noticed that it is not just national states that have large debilitating debts, but that most corporations have big debts on their books, too? And money goes where money is - from borrowers to lenders. Banks are the happy creators and lenders of almost all f the world's money,

So in this global war, it is important to distinguish THREE parties, each with a separate agenda: global corporations, national states, and banks.
Of course, behind the scenes - in a bunker built of corporate stock certificates,  are the real rulers of the world, who own the corporations, including the banks.  In the shorter term it matters not to them who wins or loses. They know that, no matter what, it is better to be a lender than a borrower, and that when times are tough, cash is king - and very useful for buying up fire sale assets.  

Small print disclosure. Your CogsBlogger is a minor member of that class: does no useful work; lives on his rents. But maybe can see the way to a better construction of the world's economy.
So next blog will continue to look at New Internationalist's Myths to be junked.

*Footnote:  Christians should read the Koran. They will be amazed to see how much they have in common with Muslims. Both were, remember, derived from Judaism - with just a dash of paganism.

Blog 26 Some Random Thots on the Law of Money

Some Random Thots on the Law of Money


The law of money (Money goes where money is,) works at global, national, state, even municipal, levels.

The two most obvious mechanisms are interest-bearing loans (the basic step) and capital gains on assets (a little more chancy, but sometimes very effective). 

1. Interest-bearing loans.

It must be understood that there are two classes of people: (net) lenders and (net) borrowers. Net lenders lend more than they borrow. Net borrowers borrow more than they lend. Simple distinction?

Charles Dickens, whose father spent some time in debtors' prison, put it this way: "The different between a happy man and an unhappy man is two shillings. The happy man lives one shilling below his income. The unhappy man lives one shilling above his income."

So how to work the law of money? Take the next dollar you earn. Put ten cents of it in a box and leave it there. You can spend the rest. Do that for every dollar eyou ever acquire for the rest of your life. Whenever your box gets full, take the money out and lend it to a bank by depositing it in an interest-bearing account. Never borrow.

You have now become a happy net lender on the way to becoming an owner of slaves - because over time the borrowers become slaves of the lenders (The bank will be your "courteous enforcer").



Be wary, though, that you, or your bank, are not too harsh on your borrowers, because at certain times in the history of nations and economies, it becomes dangerous or even fatal to be a too-successful lender.

I trust that you see, nevertheless, that the law of money makes it better to be a lender than a borrower.

2. Capital Gains on Assets

This means buying assets at low prices and selling them at higher prices. The assets can be property, or stocks, or commodities, or currencies, or works of art, or...  Now, Hold it right there. Don't get over-excited at all those opportunities. Just a caution. Whenever you are a buyer, there is a seller, who may be smarter than you. Whenever you are a seller, there is a buyer, who may be smarter than you. Maybe you might just stick to lending money at interest for a while.

Buying corporate stock for dividends is a hybrid sort of process. Approach with caution also.

So lend money at interest. The more income you can make by lending your money at interest, the more money you will have to lend at interest. and the more money you have to lend at interest, the more money you have to lend at interest, the more to lend at interest, to lend at interest, at interest. It''s what lenders call "the miracle of compound interest." Borrowers have other names for it.

Let me finish with another caution. You will also be happier if you keep the value of money in perspective - as a means, not an end.

Pursuing money can become like feeding a food addict until he/she looks like an explosion about to happen...
Let me say it again: money, like food, is a means to an end, a means to something else, not an end in itself. Keep your eye on the something else, whatever it may be.

Now, that's a lean thot to meditate on.

Son, what do you want to be when you grow up?

I want to be the 1%.

Well, that would give you only 99 slaves.

.

Debt, Deficit, What's the Difference?

debt-deficit-debt-deficit-debt-deficit-

Blog 25
The  "Balanced Budget." Does Nobody Know the Difference Between Debt and Deficit?






First, let me introduce what has exuberantly been called "the miracle of compound interest." Here is a true story to illustrate it.

In 1974 a nation-state, which we will not name but call Nation X, had accumulated a national debt of about $20 billion. Debt means money you owe. On money you owe, you have to pay interest. So one item in their budget that year was "Interest on Debt".

Over the next 20 years, they had a small number of annual deficits that rang up another $30 billion in debt. That is, in those years the government spent $30 billion more than it took in. That is the definition of deficit; spending more than you take in. To pay the bills in the deficit years, the government borrowed enough to balance the books for the year.

So in the year 1994 the total national debt of Nation X was roughly $600 billion.

Let's look at that.

Debt at start, 1974............................20 billion
Deficits added 1974-1994................30 billion
        Total Debt 1994.....................600 billion

How's that? Did I get it right? You say 20 plus 30 does not equal 600? But it did. And by what is called "the miracle of compound interest."
I should note that only lenders call it the miracle of compound interest. Borrowers, like the government of Nation X, are entitled to call it the curse of compound interest.

The circumstances in the 1980's were, admittedly, unusual. Interest rates rose to over 18%. So the compounding of interest - that is, interest on the non-payment of interest on accumulated interest, on accumulated interest, on accumulated interest, year after year, made a small addition to the national debt for Nation X of $550 billion.

In short, for 50 billion borrowed, Nation X is on the hook for about 12 times that amount. How was that made to happen?

Well, in they mid-1970's, unbeknown to most people, the lending class had become unhappy with "negative interest rates". (Negative interest rate means that the rate of inflation is higher than the rate of interest of, say, government bonds.) Thus inflation eats up a lender's profits. So a concerted effort was made, starting in the US, but engaging major lenders everywhere, to teach the national states a lesson. Interest rates were ramped up. Lenders loved it. (That includes lenders in Nation X.)

The point of looking at these figures now in late 2015 is that conditions today are eerily similar. Inflation and interest rates are close to equal and have been for some time.

To calculate what a new twenty years of deficits, high interest rates and debt-building would do for Nation X's little $600 billion debt -- well, let's just say that it's beyond your poor blogger's computing skills. But $600 billion times 12, I think, is a mere $7,200,000,000,000. Boggles the intellect, doesn't it?

Poor Greece. Poor Nation X. Who's next?

We can't move in there, Dad.It's going to collapse.

Afraid so, son.

So why do "democratic" politicians only talk about deficit-vs-balanced budget, and never mention the accumulated gross debt? Because it is too complicated for the people to understand, they say.

Bah, humbug! We are smarter than they think.

Maybe it's just too difficult for some politicians to understand. Some certainly do. But I think they may be quietly muzzled- "because it is too complicated for the people to understand." 

 Feel free to copy this blog and send it to your local representative.