The Rentiers

Just some quick thoughts on the economy of the rentier class. I have been thinking about this for sometime in the back of my mind and Michael Hudson's essay in counterpunch yesterday helped to clarify it (once again). The problem with the modern political-economy is that it is one that has been captured by a class that makes its living merely by extracting income from productive sectors of the economy. Like a landlord who simply sits on his property collecting rents from his or her tenants. The property channels the income from the renters labor into the landlord's pockets. The landlord does no work, but generates income anyway. This is a form of parasitism.

Banks who make loans at interest are no different. They extend credit (i.e., allow people to pull forward their earning from the future into the present) that allows people to make needed or desired purchases now that they could otherwise afford. By charging interest the bank also acts to siphon its income off of the income generated by productive labor.

Now, where the loan is made such that it enhances the future value of labor, one can potentially see the value of making such an investment against future income, and gladly pay interest on the loan so long as that interest does not wipe out the gains in added value to ones productive labor (or, so long as the person who does the labor retains the value of the added labor and not the bankermen). One can even imagine a labor friendly loan contract that essentially guarantees such an outcome, forcing bankers to assume more risk of the failed investment (and incentivising more prudent lending).

But in the current economy, banks are extended credit mainly for the purpose of aiding the rentier class to set up commercial and domestic "venus-flytraps" to capture the income of productive labor through extractive rents (and, up until recently, for the purpose of allowing speculators to pull that potential for future rental income forward by developing and selling these spaces at tremendous profit -- or engaging in securitization which promises the same only in a much more abstract form). This is true both in residential real estate (a racket since the New Deal of the 1930's) and in commercial real estate (roughly the same period). A whole economic sector emerged in service of this particular economy.

The problem, of course, being that the whole inverted pyramid is based on the value of productive labor. You know, people that actually make and do stuff and exchange that stuff with other people who make and do stuff. When the value of that portion of the economy stagnates or declines (as it has since the early 1970's on an individual basis -- for men and certain core industries in particular) then the ability to realize the income that one has already "pulled forward" to purchase houses, cars, clothing or office space diminishes greatly leading to an increased inability to service the contracts with the banks, landlords, and insurance companies.

What is interesting about the current situation is that the USG has been completely captured by the rentier class. So, as the FIRE economy of the rentier begins to collapse, the federal response is to pull forward (technically pull back) future tax income (remember the government is also an extractive entity) and shovel this money into failing FIRE institutions. Of course, their efforts can only fail because such actions DO NOTHING to shore up the value of labor, either in the present or, through productive investments, in the future. In fact, it is much worse, because it adds additional, crushing debt that future productive labor must pay (with a diminishing value due to the complete absence of productive investment --- this is a recipe for government insolvency).

What are "free markets"

Michael Hudson produced a very nice essay today on counterpunch. It expresses so clearly what I have been thinking about the Big Lie of calling recent history of finance capitalism "free market" capitalism. He also does an admirable job reminding us of the original liberal and progressive definitions of "free markets" that were typical of the classical political-economists.

Here's a selection that captures the heart of the argument;

The fact that today’s neoliberals claim to be the intellectual descendants of Adam Smith make it necessary to restore a more accurate historical perspective. Their concept of “free markets” is the antithesis of Smith’s. It is the opposite of that of the classical political economists down through John Stuart Mill, Karl Marx and the Progressive Era reforms that sought to create markets free of extractive rentier claims by special interests whose institutional power can be traced back to medieval Europe and its age of military conquest.

Economic writers from the 16th through 20th centuries recognized that free markets required government oversight to prevent monopoly pricing and other charges levied by special privilege. By contrast, today’s neoliberal ideologues are public relations advocates for vested interests to depict a “free market” is one free of government regulation, “free” of anti-trust protection, and even of protection against fraud, as evidenced by the SEC’s refusal to move against Madoff, Enron, Citibank et al.). The neoliberal ideal of free markets is thus basically that of a bank robber or embezzler, wishing for a world without police so as to be sufficiently free to siphon off other peoples’ money without constraint.

Unrestrained predator capitalism is what we have. Sadly, Obama is increasingly looking like a head shark in a tank of very nasty others. There seems to be no limit to his complicity in the neoliberal project of raiding the public resources for maximum private gain. Looks like Hoover will get his replacement in the history books. Good news is, we will be rid of him in 4 years -- I just hope we don't get Pinochet as his replacement.

More on Executive Pay Canard

Last night, my wife commented to me that she was pleased to see that our man President Obama was finally going to put some limits on the CEO pay issue for bankermen that take our children's money to cover their gambling debts. I said that it would indeed be a good thing, but we should wait and see what lies in the fine print. This morning we have it, in a report on Bloomberg entitled, "Goldman, JP Morgan won't feel the effects of executive salary caps." The report states,

The rules, created in response to growing public anger about the record bonuses the financial industry doled out last year, will apply only to top executives at companies that need “exceptional” assistance in the future. The limits aren’t retroactive, meaning firms that have already taken government money won’t be subject to the restrictions unless they have to come back for more.

Well, there it is, in black and white. A cap for those who take even more of the kiddies money, only in "da future" -- bankermen love that phrase. There is a wonderful picture of Obama giving a speech with Tim Geithner leering from behind. One can almost sense the bankerman's hand behind Mr. Obama's jacket, pulling the strings as Mr. Obama speaks. I feel sorry for Barack, he is certainly a good man, who will in no way be able to handle the snakes he is in bed with.

Pay Caps for Shooting Craps

There is so much attention being paid to how much big banks pay their key players. Bloomberg is reporting this AM that our man President Obama is ordering that those big banks and firms that take our children's money limit their executive pay to $500,000. Now I am not for greed in any form, though I believe it is a cancer that can only be cut out of the body politic rather than a demon to be exorcised from otherwise good people, but this whole issue seems like a complete red herring. The larger question is that those banks that take our children's money to maintain their walk of the undead for a few months more be forced to open their vaults and their books to the light of day. Taking the public's money must accompany rebuilding the public trust by a thorough truth telling of all of the nonsense that these institutions have been up to and a thorough revealing of all of the worthless paper they are holding off the books. These banks must then be forbidden from engaging in any more of these stupid schemes in the future. Executive pay is nothing but a PR concern to keep the public from focusing on the real issue: that these banks are insolvent, but are being allowed to hide the truth by our government and to stumble on for an indefinite period into the future. Truth will out, sooner or later, and the amount of pain that results is proportional to the length of the charade now underfoot.