Let the Economy Die

[Avernus]

http://www.arthurmag.com/2009/03/16/let-it...on-the-economy/

 

LET IT DIE

by Douglas Rushkoff

 

March 15, 2009

 

With any luck, the economy will never recover.

 

In a perfect world, the stock market would decline another 70 or 80 percent along with the shuttering of about that fraction of our nation’s banks. Yes, unemployment would rise as hundreds of thousands of formerly well-paid brokers and bankers lost their jobs; but at least they would no longer be extracting wealth at our expense. They would need to be fed, but that would be a lot cheaper than keeping them in the luxurious conditions they’re enjoying now. Even Bernie Madoff costs us less in jail than he does on Park Avenue.

 

Alas, I’m not being sarcastic. If you had spent the last decade, as I have, reviewing the way a centralized economic plan ravaged the real world over the past 500 years, you would appreciate the current financial meltdown for what it is: a comeuppance. This is the sound of the other shoe dropping; it’s what happens when the chickens come home to roost; it’s justice, equilibrium reasserting itself, and ultimately a good thing.

 

I started writing a book three years ago through which I hoped to help people see the artificial and ultimately dehumanizing landscape of corporatism on which we conduct so much of our lives. It’s not just that I saw the downturn coming—it’s that I feared it wouldn’t come quickly or clearly enough to help us wake up from the self-destructive fantasy of an eternally expanding economic frontier. The planet, and its people, were being taxed beyond their capacity to produce. Try arguing that to a banker whose livelihood is based on perpetuating that illusion, or to people whose retirement incomes depend on just one more generation falling for the scam. It’s like arguing to Brooklyn’s latest crop of brownstone buyers that they’ve invested in real estate at the very moment the whole market is about to tank. (I did; it wasn’t pretty.)

 

Now that the scheme we have mistaken for the real economy is collapsing under its own weight, however, it’s a whole lot easier to make these arguments. And, if anything, it’s even more important for us to come to grips with the fact that the system in peril is not a natural one, or even one that we should be attempting to revive and restore. The thing that is dying—the corporatized model of commerce—has not, nor has it ever been, supportive of the real economy. It wasn’t meant to be. And before we start lamenting its demise or, worse, spending good money after bad to resuscitate it, we had better understand what it was for, how it nearly sucked us all dry, and why we should put it out of our misery.

 

Chartered Corporations

 

Back in the good ol’ days—I mean as far back as the late middle ages—people just did business with each other. As traveling got easier and people got access to new resources and markets, a middle class of merchants and small businesspeople started to get wealthy. So wealthy that they threatened the power of the aristocracy. Monarchs needed to come up with a way to stabilize their own wealth before the free market unseated them.

 

They invented the corporate charter. By granting an exclusive charter, a king could give one of his friends in the merchant class monopoly control over a region or sector. In exchange, he’d get shares in the company. So the businessperson no longer had to worry about competition—his position at the top of the business hierarchy was locked in place, by law. And the monarch never had to worry about losing his authority; businesses with crown-guaranteed charters tend to support the crown.

 

But this changed the shape of business fundamentally. Instead of thriving on innovation and progress, corporate monopolies simply sought to extract wealth from the regions they controlled. They didn’t need to compete, anymore, so they just sucked resources from places and people. Meanwhile, people living and working in the real world lost the ability to generate value by or for themselves.

 

For example: In the 1700s, American colonists were allowed to grow corn but they weren’t allowed to do anything with it–except sell it at fixed prices to the British East India Trading Company, the corporation sanctioned by England to do business in the colonies. Colonists weren’t allowed to sell their cotton to each other or, worse, make clothes out of it. They were mandated, by law, to ship it back to England where clothes were fabricated by another chartered monopoly, then shipped back to America where they could be purchased. The American war for independence was less a revolt against England than a revolt against her chartered corporations.

 

The other big innovation of the early corporate era was monopoly currency. There used to be lots of different kinds of money. Local currencies, which helped regions reinvest in their own activities, and centralized currencies, for long distance transactions. Local currencies were earned into existence. A farmer would grow a bunch of grain, bring it to the grain store, and get receipts for how much grain he had deposited. The receipts could be used as money—even by people who didn’t need grain at that particular moment. Everyone knew what it was worth.

 

The interesting thing about local, grain-based currencies was that they lost value over time. The people at the grain store had to be paid, and a certain amount of grain was lost to rain or rodents. So every year, the money would be worth less. This encouraged people to spend it rather than save it. And they did. Late Middle Ages workers were paid more for less work time than at any point in history. Women were taller in England in that era than they are today—an indication of their relative health. People did preventative maintenance on their equipment, and invested in innovation. There was so much extra money looking for productive investment, that people built cathedrals. The great cathedrals of Europe were not paid for with money from the Vatican; they were local investments, made by small towns looking for ways to share their prosperity with future generations by creating tourist attractions.

 

Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

 

What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.

 

An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.

 

The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

 

Financial Meltdown

 

Which is pretty much how things have worked over the past 500 years to today. So what went wrong? Nothing. The system worked exactly as it was supposed to. The problem was that after America’s post WWII expansion, there was really no longer any real growth area in the economy from which to extract wealth. We were producing and consuming about as much as we could. Almost no commercial activity was occurring outside the corporate system. There was no room left to grow. Sure, outsourcing, lay-offs, and technology created some efficiencies, but wars, rising costs of health care, and exchange rates essentially offset any gains.

 

Making matters worse, all that capital that the wealthy had accumulated needed markets—even fake markets—in which to be invested. There was a ton of money out there—just nowhere to put it. Nothing on which to speculate.

 

The dot.com boom seemed to offer the promise of a new market, but it fizzled almost as quickly as it rose. So speculators turned instead to real assets, like corn, oil, even real estate. They started investing speculatively on the things that real people need to stay alive. What real people didn’t understand was that there is no way to compete against speculators. Speculators aren’t buying homes in which to live—they are buying houses to flip. Speculators aren’t buying corn to eat or oil to burn, but bushels to hoard and tankers to park off shore until prices rise. The fact that the speculative economy for cash and commodities accounts for over 95% of economic transactions, while people actually using money and consuming commodities constitute less than 5% tells us something important. Real supply and demand have almost nothing to do with prices. We do not live in an economy, we live in a Ponzi scheme.

 

Luckily for us, the banks, and the speculators depending on them, made a bad wager: they bet on our continuing capacity to provide a reality on which to base their highly leveraged schemes. We just couldn’t do it. They put us between a rock and a hard place. With George W’s help, they sold us on the notion of home ownership as a prerequisite to the American dream. And they created a number of loan products which made it look as if we could actually afford over-priced homes. The banking industry spent hundreds of millions of dollars lobbying for laws making bankruptcy difficult or impossible for average people to accomplish—while simultaneously selling average people loans that they would never be able to pay back.

 

The banks didn’t really care, anyway, since they never meant to keep these loans. They simply provided the cash to mortgage companies, who then packaged the loans. In return for putting up the original cash, the banks also won the right to underwrite the sale of those mortgage packages to investors—investors like pension funds, retirement funds, or you and me. Get it? The banks get all the interest, but we put up all the money. Our retirement accounts and pension funds invest in the very mortgages that we can’t pay back. The bank collects any interest, playing both sides of the equation but responsible for neither.

 

And when the whole scheme begins to break down, what do we do? We try to bail out the very banks that created the mess, under the premise that we need these banks in order for business to come back, since only banks can lend the capital required for businesses to flourish.

 

Yes, It is Wrong

 

President Obama may be smarter than most of us, but he’s still attempting to rescue the very institutions that robbed us in the first place. He’s not a socialist, as conservatives may be arguing, but he is a corporatist. Using future tax dollars to fund government job programs is one thing. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

 

As painful as it might be to watch, and as irritating as it might be to those with shrinking retirement savings, the collapse of the centralized corporate economy is ultimately a good thing. It makes room for a real economy to rise up in its place. And while it may be temporarily uncomfortable for the rich, and even temporarily devastating for the poor, it may be the fastest and least violent way to dismantle a system set in place for the benefit of 14th Century monarchs who have long since left this earth.

 

If the corporate supermarket chain’s debt structure renders it incapable of stocking its shelves this spring, this may be the wake-up call that consumers need to finally subscribe to a Community Supported Agriculture farmer. If the former associate fund analyst at Lehman realizes that he is unable to get a job not just because his industry is contracting but because his work day creates no real value for anyone at all, he will be forced to learn how to do something that does. If an urban elite parent realizes he can no longer pay private school tuition for his kids, maybe he’ll consider donating to public school the time he would have spent earning that tuition.

 

In short, the less we are able to depend on business-as-usual to provide for our basic needs, the more we will be forced to provide them for ourselves and one another. Sometimes we’ll do this for free, because we like each other, or live in the same community. Sometimes we’ll exchange services or favors. Sometimes we’ll use one of the alternative, local currencies coming into use across the country as Central bank-issued currencies become too hard to get without a corporate job.

 

Deprived of centralized banks and corporations, we’ll be forced to do things again. And in the process, we’ll find out that these institutions were not our benefactors at all. They were never meant to be. They were invented to mediate transactions between people, and extract the value that would have passed between us. Far from making commerce or industry more efficient, they served to turn the real world into a set of speculative assets, and real people into debtors.

 

The current financial crisis is the best opportunity we have had in a very long time for a bloodless revolution against the faceless fascism under which we have been living, unaware, for much too long. Let us seize the day.

[wiegie]

What a bunch of crap. (And that is my professional opinion.)

[Avernus]

What a bunch of crap. (And that is my professional opinion.)

 

 

ahah that's the greed talking...

 

the people who have money invested .....period don't want to see this happen because all their hard work will be for naught...

 

...and then comes the desperation....

 

sometimes things have to get worse before they get better and I personally think that with the system we have in place being so easily manipulated by people in power and the people who think they know what's going on continue to invest in things like Real Estate, Stocks, other currencies etc are being sold down the river in this scenario..

 

I personally hope that China bails us out and introduces something new altogether....

[yo mama]

I agree with the general sentiment of that article. Throwing good (borrowed) money after bad doesn't help anyone.

Edited March 24, 2009 by yo mama

[wiegie]

ahah that's the greed talking...

uh, no, that is my economic history field talking

[Scooby]

am I greedy since I work for an oil & gas company?

[Scooby]

meant to add a:

 

[Avernus]

am I greedy since I work for an oil & gas company?

 

 

yer the worstest ones of all....along with them Dubaian peoples

Edited March 24, 2009 by Avernus

[Avernus]

uh, no, that is my economic history field talking

 

so you're saying the path that we're headed in isn't quite possibly the worst that we've ever seen?...

 

money is being given away like it's a coupon....oh wait.....that's exactly what it is...an IOU...

Edited March 24, 2009 by Avernus

[yo mama]

uh, no, that is my economic history field talking

Well then riddle me this, Mr. Tenure: if we've got a trillion dollars to spend on (yet another) bailout for failed/failing financial institutions then why not let them fail and just put that trillion into the hands of banks that DIDN'T screw up. Or start new ones. Shouldn't we reward success, not failure? If we're going to entrust tax revenues (from people who haven't even been born yet, no less) then why not entrust it to those who've demonstrated fiscal responsibility, rather than those that haven't?

 

Not trying to come off as snarky, but I've yet to hear a convincing explanation to this rather basic question.

Edited March 24, 2009 by yo mama

[Avernus]

Well then riddle me this, Mr. Tenure: if we've got a trillion dollars to spend on (yet another) bailout for failed/failing financial institutions then why not let them fail and just put that trillion into the hands of banks that DIDN'T screw up. Or start new ones. Shouldn't we reward success, not failure? If we're going to entrust tax revenues (from people who haven't even been born yet, no less) then why not entrust it to those who've demonstrated fiscal responsibility, rather than those that haven't?

 

Not trying to come off as snarky, but I've yet to hear a convincing explanation to this rather basic question.

 

it makes it easier to kill off the current system and introduce a new one...of course I think they'll still use the monetary system and while I don't completely think a Local Exchange Trading System is the way to go....there has to be a way to have everyone get the essentials for life and eliminate classes....

 

imagine everyone working and getting the essentials....as needed and working as a role...

 

we have too much crap that people don't need...and money is causing things to go bad because of outside funding rather than putting out the best product to keep things in motion...

 

much like what you see in the results of Aspertame being placed in Nutrasweet and other sugars and in Fat/Sugar-Free Products or with the Fluoride being in 2/3 of the water in the US while Europe has it in less than 5% of the water...it doesn't even make your teeth stronger, it makes them harder and brittle....and consumption of Fluoride leads to apathy as well...

 

you wouldn't see this happening because company's would be putting the best product out there instead of charging a premium for what people should be entitled to in the 1st place...

 

I mean...how can you own a house and still pay taxes on it?...it's like a game of Monopoly, but someone else owns the who game...even the chance cards....

 

 

blah....

[Scooby]

yer the worstest ones of all....along with them Dubian peoples

 

 

 

you know you love me & my oil gushin', cadillac drivin', chili-eatin' , Stetson wearin', boot-scootin', cowboys lovin' ass!

[Ursa Majoris]

This line caught my eye, referring to the Middle Ages:

 

Women were taller in England in that era than they are today—an indication of their relative health.

 

This is such utter drivel it's hard to fathom.

[wiegie]

so you're saying the path that we're headed in isn't quite possibly the worst that we've ever seen?...

is that what this article is saying? It was so full of nonsense that I honestly couldn't decipher it

 

For example, stuff like this is pure crap:

These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

 

What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.

 

Well then riddle me this, Mr. Tenure: if we've got a trillion dollars to spend on (yet another) bailout for failed/failing financial institutions then why not let them fail and just put that trillion into the hands of banks that DIDN'T screw up. Or start new ones. Shouldn't we reward success, not failure? If we're going to entrust tax revenues (from people who haven't even been born yet, no less) then why not entrust it to those who've demonstrated fiscal responsibility, rather than those that haven't?

uh, why do you think I have been calling for them to nationalize the banks?

 

(Nationalization is basically just forcing the banks into bankruptcy and then letting the government resolve the bank by selling off its assets to repay its depositors. The government basically does this every time that a bank fails and the FDIC takes it over. Typically they are able to resolve things over the weekend and find a new bank to buy up the failed bank. One main reason that the government doesn't just let the banks fail on their own and steps in to resolve them is because, with deposit insurance, the government is basically on the hook to repay depositors up to the amount they are insured for.)

[Chavez]

I feel like Avernus should be thinking up a nom de revolucion for himself like the Bolsheviks did.

[Avernus]

I feel like Avernus should be thinking up a nom de revolucion for himself like the Bolsheviks did.

 

that sort of talk can get you locked up...

[Avernus]

 

you know you love me & my oil gushin', cadillac drivin', chili-eatin' , Stetson wearin', boot-scootin', cowboys lovin' ass!

 

[tazinib1]

 

you know you love me & my oil gushin', cadillac drivin', chili-eatin' , Stetson wearin', boot-scootin', cowboys lovin' ass!

 

Damn thats sorta sexy in an odd sorta way.

[Avernus]

Damn thats sorta sexy in an odd sorta way.

 

everything except the Dallas fan part...

[wiegie]

everything except the Dallas fan part...

I thought that implied she was into masochism.

[Avernus]

I thought that implied she was into masochism.

 

I'm not completely sure....

 

I just know it can't be a good thing...

[yo mama]

uh, why do you think I have been calling for them to nationalize the banks?

 

(Nationalization is basically just forcing the banks into bankruptcy and then letting the government resolve the bank by selling off its assets to repay its depositors. The government basically does this every time that a bank fails and the FDIC takes it over. Typically they are able to resolve things over the weekend and find a new bank to buy up the failed bank. One main reason that the government doesn't just let the banks fail on their own and steps in to resolve them is because, with deposit insurance, the government is basically on the hook to repay depositors up to the amount they are insured for.)

I dunno. I stopped getting your news letter after it became all about the money. (Pun intended).

 

How seriously is nationalizing failed/failing banks being discussed among non-communists? (Just teasin'. I'm actually curious what you think on this topic).

[BillyBalata]

.

Yes, unemployment would rise as hundreds of thousands of formerly well-paid brokers and bankers lost their jobs;

 

 

Wait....so you're saying only the brokers and bankers are going to lose their jobs? The rest of us are safe? Well if that's the case, by all means, flock the economy!

 

 

[Avernus]

.

 

 

Wait....so you're saying only the brokers and bankers are going to lose their jobs? The rest of us are safe? Well if that's the case, by all means, flock the economy!

 

 

 

 

I think that in 10 years, the "good times" will be what we now consider to be "the bad times"...but we have a chance to set the tone and do it right this time and not be part of such a flawed system...

[whomper]

You know what makes me sick about this whole thing ? I have a freind whose brother was a shady predatory lender. The dude made money hand over fist when mortgages were given out like tic tacs. That practice was a major catalyst for the trouble we are in now. I talked to my buddy the other day and his brother is now making money hand over fist doing refi's