UNDERSTANDING CHARLIE HEBDO IN 3 MINUTES

Via Vox.com we get an overview of Charlie Hebdo in three minutes ...

Via Vox.com we also get The New Yorker's next magazine cover ...

Click here for 12 powerful political cartoons from around the world responding to the Charlie Hebdo attack. Here's one example ...

- Mark 

OBAMA DESTROYING AMERICA :-)

- Mark

RISE OF THE MACHINES (Part II): ECONOMIC FALLOUT FROM THE THIRD INDUSTRIAL REVOLUTION, ACCELERATED BY GOVERNMENT POLICIES

In "Rise of the Machines (Part I) ..." I took a cue from economist Nouriel Roubini and wrote about the birth of the Third Industrial Revolution, the rise of the Silicon Valley, and how they have impacted the world we live in. Specifically, I pointed out how productivity and wealth creation has been surging because of technological advancements, but that none of these gains are trickling down to ordinary workers in the form of higher wages, or job security.

Because smart machines appear to both facilitate and terminate the functions of ordinary workers the wage gains made by labor in the first two industrial revolutions are slowly being degraded and lost.

Specifically, ordinary workers are watching as the financial gains they help generate today are gobbled up by those who either develop our new technologies, or who control and financially underwrite the larger economy. This reality helps explain why we are now living in an era where we can have a strong economy, a record setting stock market, record wealth creation, and growing GDP, but very few financial gains for ordinary workers who help increase our nations productivity.

This hasn't always been the case. There was a time when the compensation of ordinary workers kept pace with increased productivity.

So, what's happening?

In a few words, the rules of the economic game have been changed. But technology is only partially responsible for the weakened position of labor and stagnating wages we have seen over the past 40 years. The other part is political, and can be tied directly to state-led policies that have stripped labor of its bargaining power, and is now marginalizing its place in society. As I pointed out over a year ago, the case of Detroit goes far to help us see how this happened.

We'll get to the Detroit example after we discuss why Nouriel Roubini's "rise of the machines" apocalyptic prediction for ordinary workers is already in the works.

ECONOMIC FALLOUT FROM THE THIRD INDUSTRIAL REVOLUTION
At the outset we need to acknowledge that current trends make it clear that future advances in technology will continue to primarily benefit those with money and high skill sets. What this says about the prospects of ordinary laborers, and the middle class, is not good.

Why keep the house cleaner around so long when the iRobot Roomba 880 can vacuum your floors for free? To be sure, there will always be service oriented work, but the number of laborers needed to complete a job will decline as machines do more of our menial work.

In fact, the amount of things we now do for ourselves - called "prosuming" - is considered so normal that we don't even think about how we have adapted to technology. We now pump our own gas. We do much of our banking at the ATM or on-line. We purchase products on the internet. We order uber drivers from our phones. We do so many tasks that once required considerable assistance from a middleman or service professionals that we're eliminating the need for low- and middle-skilled workers.

Put more simply, ordinary workers are being displaced by machines, which is pitting more and more workers against one another for fewer and fewer low- and middle-skill jobs. As wages stagnate and decline (and they have) middle-class Americans have had to cope with more work, while accumulating more debt.

While more debt is good for those in the financial sector in the short-term, it's not so good for society over the long-term.

The on-going displacement of workers by technology explains why economist Nouriel Roubini suggested that our modern economy is built on a "rather shaky foundation." Roubini's concern - as Franklin D. Roosevelt and the intellectual godfather of capitalism, Adam Smith, understood - is that if workers can't earn a strong income America will be left with an economy where only distressed consumers, debtors, and the wealthy can buy the products produced.

Suggesting that the U.S. will become dependent on distressed consumers, prosuming debtors, and a small group of extremely wealthy consumers to keep the economy going isn't some wild prediction on Roubini's part. It's already happened. People have been working and racking up debt in America because of stagnating and declining wages for some time now.

Think about the following for a moment.

LOST WAGES, DEBTOR NATION
According to data from the St. Louis branch of the Federal Reserve, because wages have stagnated or declined in America over the past 40 years, America's middle class lost about $1.215 trillion in wages during this time. Put another way, if wage gains from 1970 through 2010 had maintained the same pace that it did immediately after World War II through 1970 Americans would have had an additional $1.215 trillion in their pockets.

To make up for these lost wages, and to help make ends meet, American households became two-income families, saw breadwinners working two or more jobs, or began tapping into (or gave up on) savings. Worse, credit card use shadowed all of these developments.

This helps to explain why American households racked up almost $1 trillion in credit card debt right before the market collapsed in 2008.

Taking on almost $1 trillion in credit card debt came close to matching the $1.215 trillion in lost wages that Americans lost over the past 40 years. But it has turned America into a nation of debtors, while transferring trillions to the wealthiest Americans.

The economic fallout from the Third Industrial Revolution is clear: Productivity and wealth may be increasing but ordinary workers aren't seeing the same share of the wage gains that they saw in the immediate post-war era. The amount of debt and individual bankruptcy cases in America is just one of several examples of the economic fallout.

All of this is important to economist Nouriel Roubini because it confirms that technological leaps aren't necessarily making workers or nation-states better off in the long-term. But Roubini's analysis is incomplete. Technology is only one part of a larger problem. A very deliberate set of government policies in the United States have advanced a national race to bottom, which is also working against the interests of labor.

As I pointed out over a year ago, what's happening in Detroit helps explain why the rise of the machines is not the only challenge laborers face in America.

WHAT'S WRONG WITH DETROIT ... AND AMERICA

Contrary to what you've heard, the fiscal problems of Detroit, and the challenges that confront America, are not so simple, or the result of labor unions. The 79,500 Michigan jobs/workers that were displaced or shipped to China between 2001 and 2007 didn't happen because of mysterious "magic of the market" forces. Nor did Detroit's tax base suddenly disappear because of incompetent political leadership (though the incompetence didn't help).

Michigan's jobs and manufacturing picture worsened - as did the nation's - because of policies taken by the federal government over the past 30 years. These policies rewarded companies for shifting manufacturing jobs around the world.

When jobs leave so does the tax base. Pretty simple.

Now, someone reading this might be screaming at their screen right now that unions priced the American worker out of the global labor pool by demanding too much. Think again.

Germany produces twice as many cars as the United States. Their unionized auto industry pays workers significantly more than what the U.S. auto industry pays. Indeed, when you take out what it costs for health care (Germany has universal health care) we find that German auto workers make about two times what their U.S. counterparts earn, while benefits for German workers are substantially more rewarding (8 weeks paid vacation, free day care, etc.).

So, the big question is if German auto workers make far more than their U.S. counterparts, why is it that Germany hasn't experienced collapsing industrial cities like Detroit? Why is it that Germany - with its higher salaried auto workers - is seen as the key to Europe's economic stability, while the U.S. is still languishing in a 2008-induced market zombie walk?

SO, WHAT HAPPENED TO DETROIT?
While we could discuss how favorable legislation helped facilitate the financialization of America's economy (discussed in my next post on this topic) for now we'll concentrate on three other developments that help us understand what happened to Detroit, and America's manufacturing base.

The first development is pretty simple. For the longest time no one wanted to buy U.S. automobiles. Beginning in the early 1970s America's auto makers began producing crap. Remember the Gremlin? The Corvair? The Pinto? The Chrysler Imperial LeBaron Two Door? The AMC Pacer? The Chevy Chevette? This wasn't the workers fault. This one is on management. When auto manufacturers in America were forced to shut their doors jobs disappeared too.

The second answer is a bit more complex, but still relatively simple too.

Germany's constitution and social culture embrace unions, worker councils, and the right to strike. This helps shape Germany's union-management relations so that they are collaborative, as opposed to being adversarial (the case in the United States). It's the primary reason that Germany didn't experience wholesale layoffs in the auto industry after the 2008 market collapse (offering "extended vacations" instead). Unions and management worked together to keep people employed.

Finally, apart from producing crummy automobiles and going after unions, the United States has gone out of its way to encourage its auto industry and manufacturing base to leave, while doing little to protect American workers. Think about the following.

As I noted above, between 2001 and 2007 Michigan lost 79,500 auto jobs to China. This happened because of specific government policies, both here and in China.

1. Free Trade Agreements: The U.S. has entered into numerous trade agreements that facilitate moving manufacturing jobs overseas, especially to low paying regions of the world.
2. Currency Manipulation: China has been allowed to manipulate its currency, which enables it sell more goods in the United States.
3. Labor Rights Abused: China regularly suppressed labor rights, which lowers manufacturing wages by as much as 47% to 86%, and attracts manufacturers from the U.S. 

Throw in generous U.S. tax credits for business expenses - which include credits for shipping jobs overseas - and it's easy to understand why almost 3 million jobs in the United States were outsourced or were displaced by government policies between 2001 and 2007 (the German government, on the other hand, appears to have had a role in saving VW from a hostile takeover in 2008 by orchestrating the largest hedge fund loss in history).

By sending taxpayer funded trade representatives to negotiate trade deals, while ignoring currency and labor abuses, the U.S. government has effectively told Detroit and America's industrial base - and the middle class - we don't care about you. The end result is that millions of American jobs have been sent to countries all over the world.

Overseas profits and executive pay in the United States has climbed, but workers and America's middle class are left scrambling for what's left.

WHAT WORKERS ARE COMPETING WITH ... IT'S NOT JUST MACHINES
The interesting thing about these developments is that while negotiating trade agreements the private sector has been adamant about protecting proprietary rights and corporate patents. Forcing governments around the world to go after street vendors and protect intellectual property rights is part of our larger free trade negotiating position. Worker rights, however, are an entirely different matter.

Forced or slave labor? No problem, send the products here. 

Child labor? No problem, send the products here. 

Unsafe working conditions? No problem, send the products here. 

All of this has made it easier to go after labor in the United States.

To be sure, there's no doubt that German auto makers have shifted production over seas and now produce cars in China. But they don't do so as part of a larger policy goal to drive down wages in Germany. The idea that we're all in this together is rooted in Germany's historic approach to economics, and is not simply a shop floor poster in Germany.

Forcing the American worker to compete with laborers who have few protections and can't defend themselves in a global undermines the moral justification of capitalism - the idea that if you work hard you can get ahead. It also defeats the spirit of market economies that we fought two wars in the 20th century to promote.

At the end of the day, as I wrote almost two years ago, if we wanted to protect and demand global labor rights we could. But we don't. Instead we encourage firms in the United States to go abroad and then dismiss the needs of labor, which helps explain what happened to Detroit and what's happening in America.

Racking up almost $1 trillion in credit card debt becomes much easier to understand once we see the bigger picture.

THE REAL REASON WHY RICH ARE GETTING RICHER
The economic fallout from the Third Industrial Revolution is real. People are losing jobs, while low- and middle-skilled workers are encountering more competition for the work that they do. Technology is pushing this along by creating magnificent labor saving devices. Still, as we saw above, technology alone is not the only culprit for falling wages and job instability.

The experience of Detroit (and Germany) makes it clear that the U.S. government has embraced a series of domestic and foreign policies over the years that have undermined labor's bargaining position, and America's broader wage picture. The ability to send American jobs overseas so easily today is not simply a function of mysterious market forces led by technological advancements. An aggressive post-war trade policy, built around the American-led Bretton Woods institutions, is what made globalization possible. 

For those who study international relations or American foreign policy - and to be blunt about it - what we've experienced is Pax Americana empire building, with a mercantilist twist. There are no "free markets" here.

The wealth that has been created as a result of these dynamics - increased productivity, labor displacement, and aggressive trade policies - has been phenomenal. Just over the past 10 years global GDP has gone from $43 trillion to $77.6 trillion. The distribution, or the trickling down, of this wealth around the world and in America has not comported with the promise of free market enthusiasts. 

What's worse are some of the claims that are made to explain why "the makers" of wealth are far more deserving than "the takers" who push for higher wages. Among their arguments, as I noted in an earlier post on inequality, is that the top 1 percent of wage earners (and their congressional sychophants) believe their income gains are "earned" because - if we are to believe their argument - they are smarter, harder working, and more deserving, among others. End of story.

Conversely, if your income and financial situation have stagnated or worsened - as is the case with America's middle class - it's because you are not smart enough, hard working enough, and less deserving. At the same time, many are viewed as whiners and moochers.

Both assumptions are simply not true.

Let's make this real simple. The rich aren't getting richer simply because of productivity gains made possible by technology. The rich are getting richer because of state sponsored globalization (Bretton Woods/Treaties), state supported outsourcing (tax inducements), a string of market bailouts, artificially cheap money, legislative favors that include tax gifts, deregulation, and many other state-led developments that have nothing to do with being harder working or smarter than middle-class Americans.

Put another way, as I point out in my book, the state creates the conditions under which wealth is created. The fact that it's not trickling down to ordinary workers is also on the state.

CONCLUDING THOUGHTS
As I pointed out in "The Rise of the Machines (Part I) ..." the technological ecosystem created in California didn't happen simply because entrepreneurs and capital magically merged together. The state created the conditions for a unique set of developments to find critical mass in the Silicon Valley. Just as we couldn't marvel over the gifts of athletes until we had organized sports and built stadiums, we couldn't have benefited from the gifts of Robert Noyce and Steven Jobs if the state had not created the conditions for market entrepreneurs to prosper. 

Unfortunately, over the past 40 years the United States has moved in an ideological direction that no longer recognizes the mutually beneficial relationship between states and markets. We have chosen, instead, to focus on the market myth of the frontier rugged individualist.

This ideological shift has created a safe environment for favorable legislation and political gifts to play big hand in determining how much of market profits trickle down to the workforce. Wealth creation and wealth accumulation at the levels we see today are not simply a result of technology driven increases in productivity, as economists like Nouriel Roubini suggest. 

In fact, making technology the primary culprit in putting people out of work, or pushing wages down, is too facile. Worse, it provides "market cover" - and a convenient excuse - for larger politically motivated commercial and trade policies that have done so much damage to the prospects of ordinary workers, and the middle class, over the past 40 years. 

We need a new cooperative agreement between the state, workers, and industry - coupled with a new social structure of innovation that helped build the Silicon Valley - that reflects how markets really work. Without it, the wealth gaps and stagnating wages we see today will continue apace.

The Third Technological Revolution will not bring promised benefits, as promised by Ronald Reagan and other "supply-siders" over 30 years ago, as long as the productivity and new wealth associated with the rise of the machines doesn't "trickle down" to the middle class. 

- Mark 

P.S. I have a "Rise of the Machines (Part III) ..." piece in the works that explains how our changed world economy, built on the back of the technological revolution, has enthroned financiers. These developments will make things much more difficult for workers, and the middle-class, around the world. 

I'll post on this here, with a link, at a later date.

READING FOR THE WEEKEND (1-9-15)

How the standard of western beauty has changed over the years, in just one minute (YouTube).

I knew Mr. Rogers was awesome, but this is just special (tickld).

Violence in Mexico, the U.S. connection and the New Mexican Revolution (Truth Out).

Did Obama just introduce a 'public option' for higher education (The Nation)?


CHARLIE HEBDO
Charlie Hebdo killings must not lead to self-censorship, Tony Abbott urges (The Guardian).

The real reason al Qaeda attacked 'Charlie Hebdo' (The Nation)?

Charlie Hebdo: We must not stop laughing at these murderous clowns (The Guardian).

Charlie Hebdo suspects and third gunman killed in twin police raids (The Guardian).

Charlie Hebdo attack: five killed in Paris as manhunt for gunmen ends - live updates (The Guardian).


OUR RIDICULOUS REALITIES
Chuck Todd defends not challenging Republican on Meet the Press, citing "access" (PoliticsUSA).

Unbelievable: Obstructionist Republicans now trying to take credit for improving the economy (If You Only News).

Who are these freaks? Fischer claims Jesus would approve torture (Ring of Fire Radio).

America's war machine sells fear and loathing beyond Ferguson. Black and brown people pay the price (The Guardian).


RIDICULOUS REALITIES IN THE MAKING
The Trojan Horse of 'Dynamic Scoring' (NY Times).

Warren: 'The GOP is inventing a Social Security crisis' (MSNBC).

New GOP Congress fires shot at social security on Day One (TPM).

WALL STREET HAPPENINGS

Congratulations chumps! You are now on the hook for $303 trillion in derivatives (Daily Kos).

Kara Stein: Wall Street's worthy adversary (Ozy).

Once powerful, Mary Jo White's S.E.C. is seen as sluggish and ineffective (NY Times / Deal%k).


IN THE BUSHES

In case you missed it ... Bush convicted of war crimes in absentia (Foreign Policy Journal).

"The nuts hated him": How the Bush dynasty - and its evolution - explains America (Salon).

MISCELLANEOUS

Former governor sentenced to 2 years for bribery scheme (Nation of Change).

Female pirates: Not a myth (Ozy).

Shaking the tree in global business ... here's how money is moving in four countries around the world (Ozy).

- Mark 

LET THE GAMES BEGIN

So, yeah, we can expect a lot of pointless and petty grandstanding over the next two years, again. In a related story, John Boehner went after House Republicans who voted against him.

- Mark 

IT'S REAL SIMPLE ... WHAT CONGRESSIONAL DEMOCRATS WANT vs. WHAT REPUBLICANS WANT IN 2015

- Mark 

KEYSTONE PIPELINE ... IT'S THE WATER, STUPID

While there's more to the issue, this makes it real simple ...

Click here for a quick overview of the Ogallala Aquifer.

- Mark 

YET, THEY STILL HATE HIM

Eloquent, and to the point ...

- Mark 

THE BANKERS DON'T EVEN HAVE TO TRY ANY MORE ... IT'S ANOTHER STORY FOR THE POOR (and the rest of us)

The above meme is a natural follow up to my earlier post on capitalism's death wish. In effect, the banks don't even have to try to be good anymore because Congress is letting them regulate themselves. As they write their own legislation our nation's largest banks are gorging themselves financially and - like the nobility, military, and religious classes of the past - have slowly carved out a culture of privilege and immunity.

The rest of us who can't bribe Congress - and who saw our financial prospects worsen after the banks ruined the economy in 2008 - still have to play by the rules. If you're poor, things get even worse.

As Matt Taibbi points out in The Divide: American Injustice in the Age of the Wealth Gap, as income disparities continue to grow in America so do the kind of silly activities that attract the attention of our law enforcement system. Think about it. If you fail to pay, say, a simple parking ticket because you have no money you will end up with fines, warrants, and just might find yourself in jail. But if you nearly bring down the economy with reckless market bets - which are ultimately backed by the U.S. taxpayer - you're probably going to get a big fat bonus.

What we have is a system where white-collar criminality is rewarded, while being poor opens you up to all kinds of criminal charges. Think this is a bit too harsh? Think again.

Violent crime in America has dropped by about 45 percent over the past two decades. But America's prison population has more than doubled during that time. So what's going on? Reports about conditions in Missouri help us to see part of the problem: There are many communities in America that depend on a financially punitive system of fees and fines that hit people of color and the poor especially hard.

One thing's clear from the statistics. It's not the people who almost destroyed our economy serving time. It's people of color and the poor who are filling our jails.

Put more simply, being poor is increasingly criminalized in America, while the bankers are enjoying privileges once reserved for nobility.

- Mark 

CAPITALISM'S DEATH WISH

Political economist Robert Gilpin (and others) has long asserted that those on the left see a world where individual capitalists are rational, but the capitalist system as a whole is irrational. The reasons why are varied and, at times, complex. 

At the risk of over generalizing, the primary argument is that as market players become bigger and more entrenched their investment decisions (or "incentives") become distorted while business downturns in the economy (recessions & depressions) become increasingly severe. The energy and creativity of entrepreneurs who built economic empires are eventually superseded by entrenched market players who are rigid and manipulative. 

As economist Joseph Schumpeter might have put it, the people who built monopolies are replaced by people more interested in playing monopoly. 

These market players are driven by the search for easy profits and power, at any cost. If this means finding ways to guarantee their profits while the entire system is put at risk, well then, that's a problem someone else will have to deal with. 

As a point of reference, if you're thinking of 2008 Wall Street/Big Banks vs. Silicon Valley (and the rest of us), you're spot on. Here individual market players in the financial sector were acting "rational" regardless of how it impacted everyone else. The entire system was almost brought down in the process. 

Unfortunately, we're getting ready to do it again.

THE IRRATIONAL CAPITALIST IN REAL TIME

If you understand how someones selfishness can put others around them in harms way then you probably have an intuitive sense why the cromnibus spending bill that was passed into law by Congress this past December (2014) is so dangerous. The logic surrounding the bill sets us up to repeat the "I got mine, you're on your own" mentality that brought us the 2008 market crash.  

The biggest problem with the cromnibus bill can be found in the part written primarily by Citigroup. It allows our nation's largest banks to use depositors' money to gamble in the same derivative markets that brought us the 2008 market collapse.

Yeah, you read that correctly. The banks get to do it all over, as if 2008 never happened.

The part of the bill that gives the banks the green light to go nuts again was actually written last year. It's been brewing for over a year. The goal was to gut the post-2008 Dodd-Frank legislation that protected you and me from banks when they make reckless or stupid "investment" decisions.

The cromnibus bill achieved that goal by eliminating the provision in Dodd-Frank that kept our nation's biggest banks from gambling recklessly with our money. If you're thinking that everything will be OK because the banks learned their lesson from 2008, think again. Their derivative bets, which brought down the house in 2008, are larger today than before the crash. Thanks to a U.S. Congress full of Wall Street sycophants, the banks are set to make record profits all over again.

The financial pirates are now back in the saddle (as it were).

Making matters worse is that after shoving at least $4 trillion in bailout dollars into our financial sector - through the Federal Reserves Quantitative Easing (QE) programs - the financial sector was still able to get trillions more in the form of financial guarantees for the market bets they are currently making. Jefferey Lacker, the Federal Reserve Chair of Richmond, was so worried about this that he publicly expressed his concern over the $14 trillion that automatically becomes available to America's biggest financial institutions when the next market collapse happens.

Yeah, that's right, there will be no discussion in Congress the next time we have a market melt down. While you were asleep the bankers worked the next bailout, worth multiple trillions of dollars, into the system. This was good for the bankers, but it's clearly bad for you and me.

This, my friends, is how someone can argue that individual capitalists doing the rational thing (for themselves) can make the system as a whole irrational (for the rest of us).

Comic: Stephanie McMillan / Minimum Security

SUMMING UP THE IRRATIONAL CAPITALIST

For those of you keeping score at home, this is what we have.

1. TAKE OUR MONEY, PLEASE: Because of the cromnibus bill, our nation's largest banks get to gamble with FDIC-insured money that you and I deposit in our commercial banks. Nice.  

2. GUARANTEE MY BETS TOO: In spite of already forking over more than $4 trillion as part of our on-going bailout of Wall Street and the Too Big to Fail Banks (in schemes like this), we're all on the hook for another $14 trillion when the next market collapse happens. 

Whatever we decide to call the next bailout - my suggestion is QE Eternity - it all adds up to more than $18 trillion in bets that you and I get to backstop (as a point of comparison, if we're fortunate the entire U.S. economy might have produced about $18 trillion in goods in services in 2014).

With wages stagnating, wealth concentrating in the hands of the 1%, increased debt loads, and job insecurity one thing is clear: People are working harder and harder but getting less in return.

Yet, thanks to favorable legislation and generous tax breaks, Wall Street and our TBTF banks are doing just great.

Today, Wall Street and our TBTF banks are writing their legislative tickets, getting trillion dollar market guarantees, and putting the rest of us on the financial hook for their market mistakes. In the process we are now allowing a small group of people who have little regard for anyone except themselves - which is rational in a market setting, right? - to put our larger economic and political institutions in jeopardy.

WHAT OTHERS ARE SAYING ... CAPITALISM'S DEATH WISH
According to Forbes, by enabling banks to use the insured deposits of ordinary depositors to once again gamble in derivative markets "the big,bad banks are back." Money Morning's Shah Gilani took a look at the latest gift for our largest banks and sees a "no-lose" trading scenario for the biggest market players. Heads they win, tails we lose.

Representative Alan Grayson (R-Fl) goes a step further, and sees a nation taking a big step towards fulfilling "capitalism's death wish." Think about it. Who's going to argue that the system needs to be saved after the next bank induced market collapse?

While the individual capitalist might disagree with Rep. Grayson's assertion, the market busting legislative gifts we are handing our nation's largest banks are poison pills that the rest of us will one day have to swallow.

In this light, Rep. Grayson is only stating the obvious.

- Mark