Sacrificing to the Volcano God

Hundreds of years ago the Incas would sacrifice virgins to appease their Volcano God.

The Gods and methods of sacrifice may have changed, but the tradition remains.

Like the Incas of old, we find ourselves helpless against forces we do not understand. The foundations of our economy shake and falter in terrifying ways.

In our desperation for answers we turn to High Priests of Economics who tell us these evils have befallen us because of our sins. We must sacrifice the innocent to the Volcano God or it will destroy us all.

The High Priests of Economics never explain exactly how these sacrifices will fix the economy, nor do they mention that the sins in question might be their own. Yet we still rush to offer up our children's futures through unpayable debts while never considering that there might be better alternatives.

Sacrificing Jobs on the Cross of Free Trade

"Jesus Christ is Free Trade, and Free Trade is Jesus Christ."
- Dr. Robert Browning

The High Priests of Economics tell us that "globalization cannot be stopped," much like the wrath of the Inca's Volcano God. We've been told that there is no alternative to neoliberal globalization other than utter ruin.

The High Priests tells us that the destruction wrought by "Globalization is good" and should be embraced, and those that denounce multinational corporations are not just wrong, but dangerously wrong.

There is no shortage of politicians and media outlets who will tell you that free trade agreements are a "win-win" proposition, and that they will always create more jobs than they will destroy.

Yet history shows otherwise.

A good example is NAFTA. Despite predictions that NAFTA would create 170,000 American jobs in just the first two years, Congress set up the NAFTA-TAA (Trade Adjustment Assistance) program for displaced workers. Between 1994 and the end of 2002, 525,094 specific U.S. workers were certified for assistance under this program. Because the program only applied to certain industries, only a small fraction of the total job losses were covered by this program.

"Outsourcing is just a new way of doing international trade."
- N. Gregory Mankiw, chairman of Bush's Council of Economic Advisors

What's more, NAFTA job losses are skewed towards high-paying jobs.

Since 1979, the real wage structure of our economy has moved significantly downward, as increasingly more workers have slipped into lower income brackets. NAFTA contributes to this trend: while only 21% of jobs in the 1989 economy were in the high-wage bracket, 23% of the jobs eliminated by NAFTA trade fall in that category. In contrast, the low-wage bracket represented 36% of 1989 jobs but only 32% of NAFTA casualties.

And it wasn't just the wages of Americans that fell. The wages of manufacturing workers in Mexico have done nothing but go down in relative terms. In 1993, Mexican hourly compensation costs for production workers in manufacturing were 14.5% of those for their counterparts in the United States. By 2001 they had fallen to 11.5% of U.S. costs.

This shouldn't surprise anyone. David Ricardo, legendary economist and free-trade proponent, explained how this dynamic worked nearly two centuries ago.

"If instead of growing our own corn ... we discover a new market from which we can supply ourselves ... at a cheaper price, wages will fall and profits rise. The fall in the price of agricultural produce reduces the wages, not only of the laborer employed in cultivating the soil, but also of all those employed in commerce or manufacture."
- David Ricardo, Des principes de l'economie politique et de l'impot, 1835

So you see, your wages are supposed to fall with free-trade globalization. Those who worship the Volcano God knew this all along. They also knew that our manufacturing base was going to move south of the border when NAFTA was passed.

What they didn't bother telling us is that a nation that consumes what it doesn't produce is destined to become poorer, and the idea of a service-based economy is a non-starter.

"The causes of wealth are something totally different from wealth itself. A person may possess wealth i.e. exchangeable value; if, however, he does not possess the power of producing objects of more value than he consumes, he will become poorer. A person may be poor, if he, however possesses the power of producing a larger amount of valuable articles than he consumes, he becomes rich. The power of producing wealth is therefore infinitely more important than wealth itself; it insures not only the possession and the increase of what has been gained, but also the replacement of what has been lost. This is still more the case with entire nations (who cannot live out of mere rentals) than with private individuals."
- Freidrich List, The National System of Political Economy

The High Priests just don't understand why we can't accept our wages falling and our nation getting poorer. You must suffer for the greater good, of which we understand but you cannot. Or to put it another way:

... the sufferings of these workers are inseparable from the progress of industry, and are necessary to the prosperity of the nation, he simply says that the prosperity of the bourgeois class presupposed as necessary the suffering of the laboring class.

Some may dismiss this quote because it was made by Karl Marx. However, Karl Marx was pro-free-trade. He supported it because he believed that it would engender conflict between the working class and the rich, and thus hasten the day of social revolution.

Free trade means the freedom of movement for capital. However, the laws against the free movement of labor remain. Thus, when it comes to free trade, those who control capital will always have the advantage.

What the High Priests did not anticipate was a failure of the system from the bottom up through bankruptcy of households, small businesses and communities. That is what happened late last year. Such widespread insolvency threatens the very system that the High Priests depend on. Without this system no one will be willing to sacrifice their children to the Volcano God. Without those sacrifices the priests lose power.

People might even commit the ultimate heresy: question the divine right of the multinational corporations and the religion of the High Priests of Economics.

Sacrifices for the High Priests

"Capitalism will never fail because Socialism will always bail it out."
- Nathra Nader

In late September 2008, capitalism was on the verge of failing.

The reason for this calamity wasn't because the government taxed too much or spent too much. It wasn't because the Federal Reserve raised interest rates or contracted the money supply. It wasn't because the American consumer stopped spending.

It was because the financial system knowingly overpriced a major financial asset class, and then leveraged itself against that asset class in the vain hope that the Day of Reckoning never came.

That, and the fact that we had angered the Volcano God.

The High Priest of Economics realized that something had to be done. So he came to Washington and told us that unless we willingly gave more sacrifices to the Volcano God we would all be destroyed.

Congress must approve a $700-billion US financial bailout or see the lifeblood squeezed from the world's richest economy, the U.S. central bank chief warned Wednesday, as the crisis overran the presidential campaign.

Bush administration officials warned of a looming economic disaster akin to the Great Depression of the 1930s if an angry and rancorous Congress failed to act swiftly to fund a bailout that would be larger than the total cost of the Iraq war.

There was no time to debate this. Besides, the High Priests had explained before there was no alternatives anyway. No one would be held accountable because the Volcano God answered to no one.

If anyone was guilty of angering the Volcano God, it was us. It was our sins that brought us to the edge of doom, so we better cough up those virgins pronto.

Well, that's what the Priests told us. It turns out that Paulson and Bernanke lied to us. Bernanke was then rewarded for his lies by being re-appointed as High Priest by President Obama.

Other problems with the bailout have also come to light. For instance, instead of making a profit, it will instead lose up to $200 Billion.

Instead of the banks using that money to lend to small businesses to produce jobs, the TARP banks are cutting back on lending at the fastest rate on record.

"There has been nothing like this in the USA since the 1930s," he said ... Not only is that unprecedented, but it is also a record decline in percent terms -- down at over a 12% annual rate on a 13-week basis ... these declines in lending activity are triple the most severe downdrafts we have seen in the modern era -- there is no comparison.

So what did the bank do with all those hundreds of billions of dollars of taxpayer money if they aren't lending it out? Why they used it to make risky bets in the stock market.

"Little of the bailout money given to banks seems to have been passed on to businesses or consumers. But it must have gone somewhere and it might have gone to the proprietary desks of the banks to punt the markets ... Clearly, someone has been buying, and given that it hasn't been ordinary investors and the institutions that just leaves the banks.

Nobel Prize-winning economist Joseph Stiglitz says that the problems on Wall Street are worse now than they were before the crisis. Wall Street has gone back to making bigger and bigger bets on the economy in a way that resembles gambling at a casino.

"There's no fundamental change in the way the banks are run or regulated, there's just fewer of them."
- Peter J. Solomon, former Lehman vice chairman

To be fair, the banks have used the taxpayer bailouts for more than just speculating in the stock market. They've also used it to lobby lawmakers to prevent reforms in the financial system. They've also given themselves massive bonuses.

It's understandable for a commoner to wonder what was the point of bailing out Wall Street banks if they aren't going to lend the money (much like what happened in Japan in the 1990's). After all, what is the purpose of a bank that doesn't loan money?

Never fear. The High Priests will answer those questions. Just look at this headline:
We saved the world from disaster, Fed's Bernanke says.

The Volcano God was appeased by our sacrifice. Obama and the High Priests told us so.

Yes, world trade is collapsing at a faster rate than even the Great Depression.

Yes, the job market continues to get worse and worse. Yes, bankruptcies are at epidemic levels. Yes, the credit crunch is intensifying. Yes, foreclosures are hitting new records. Yes, almost 35 million Americans are on food stamps and 39 million people live below the poverty line.

In fact the economic conditions of every working America who didn't get bailed out has gotten worse in every measurable way.

But if we hadn't bailed out the bankers so that they could cut off credit to small businesses while using the bailout money to speculate on the stock market, things would be much worse. What's that? You say that doesn't make any sense?

You should not say such things or you will bring doom upon us all. Where is your fear of the Volcano God?

Comments

[outnow]

The bank wars are not over. Thomas Jefferson initiated the war against the Hamiltonians who were in league with the Bank of England. He was elected to revoke the charter of the First American Bank. Later, there was an actual Bank War, so-called. Andy Jackson followed up with a few shots over the bow.

Free trade is all about Adam Smith, who favored free trade but he ignored Say's Law, that free trade only works if there is full employment.

Lincoln favored the tarriff but allowed the bankers to issue bonds and that was the beginning of the end. The Fed allowed a fractional banking cartel to issue currency and set monetary policy.

So here we are today with a private banking oligarchy that is anti-democratic, as foreseen by Madison, Jefferson, Adams, and many others.

The middle class will be nomore. We will tighten our belts as consumers as bankers get fat at our expense, financing wars and selling Treasuries, and outsourching jobs past the employment limits of Say's Law.

[DiogenesOfAlaska]

Allow me to name the root of the current crisis in insights that are even older than the American Revolutionary War.

Borrowing from ideas of Prof. Black, the problem is encapsulated in Thomas Gresham's law from the 16th century: bad money will drive out good.

Except that bad money isn't fake or worthless currency now but fake and worthless bonds issued by banks.

Newton could have known and predicted that.

Well, no biggie. Climate change will kill us anyway.

[DiogenesOfAlaska]

Yes, indeed globalization is good and cannot be stopped.

It is so inevitable and so brilliant that it won't take long until the proponents of the neoliberal worldview will finally find out that they have to actually factor taxation and national budgeting into the equation of that merry-go-round of wonderful profits.

The very idea of conceiving of tax arbitrage as a 'motor' for growth is pretty silly, when you think about it. The only thing that's true about it is that yes indeed, national budgets must be managed with care and you shouldn't waste money, not even when you're a government.

Call me a false prophet, but my hunch is that the question for the coming decades is: how could we be so dumb to buy into the notion that the best answer to that challenge is: bankrupt your nation and you'll be back in the original paradise, in the prestabilized harmony of tarzan-like free-wheeling markets.

Those 'profits' that were the mere result of tax arbitrage-driven ratcheting effects and tornados in the past three decades were nothing but a lemon market failure in slow motion.

[DiogenesOfAlaska]

Let me put the point provocatively like this:

If the US had not separated from the british empire, we might all be better off - as children of that single capitalist monarchy.

:-)

[DiogenesOfAlaska]

actually I meant tornados of cash-flows. But I guess the point is clear.

[Troubledwawa]

Thank you Garrett, you've shown us once again that you get it. It's all about jobs now, and your chart accurately displays that there's no end in sight to the losses.

I hope for all of us that President Obama takes the initiative and removes Bernanke, Summers, Geithner, and Rubin from his economic team. Right now, I don't see myself supporting or voting for him in 2012, like I did in 2008. I thought I was going to see a change from BCBC.