Friday, November 26, 2010

News from the Network, Vol. 3, No. 47

This one is too good to pass up — or too bad (the idiom is "too good," but the news is "all bad"). According to the New York Times of November 23, 2010, (unspecified) American companies posted their highest profits in history in the third quarter of 2010. At the same time, unemployment remains high, new capital investment remains low, and the article was extremely vague about who made all the profits and where they came from. (Catherine Rampell, "Corporate Profits Were the Highest on Record Last Quarter," New York Times, 11/23/10.)

Rather than specify the sources of these profits and who made them, the article immediately began raving at some length about the moderate increases in output, leading the reader to conclude that the profits came from this source . . . although "output" and "sales" are two different things, and there is no necessary correlation between how much you produce, and how much you sell. (We had an "almost-client" once who kept bragging that production in his company was at an all-time high . . . the bulk of which was piling up in over-valued and low-quality inventory, tying up working capital and wasting resources. The company went bankrupt. Twice.)

It doesn't take a great brain to realize that if output increases are moderate and productivity (output per labor hour) is up slightly, then production — and sale — of marketable goods is probably not the source of record profits. Quickly reviewing the financial news stories over the past several months (a number of which we have collected for our research files), we see that, although production and sales of marketable goods and services outside the financial services industry are floundering, exhibiting less-than-anticipated gains and often losses — a bad sign going into the Christmas shopping frenzy (and we anticipate that "Black Friday" may very well acquire a more traditional meaning when today's results are tabulated) — financial service companies have posted gargantuan profits. Similarly, during the hyperinflation in Germany in the 1920s, some individuals and companies made colossal fortunes at a time when production was at a virtual stand-still and the economy was in ruins.

Common Sense Interpretation: the "record profits" are all on paper. The profits appear to result from financial service companies joining in the feeding frenzy on Wall Street. This tends to prove the validity of the "greater fool" theory of investment as the bubble in the secondary stock market continues to divert attention and resources away from the primary productive market and the need to invest in new, broadly owned capital geared to the production of marketable goods and services that real people and productive companies can actually use.

The situation is halfway analogous to that which obtained immediately prior to the Crash of 1929. In the 1920s, there was massive money creation for speculation on Wall Street, yet, at the same time, there was sufficient liquidity for new capital formation. This baffled the experts who assumed then and continue to believe that the "supply of loanable funds" is a fixed quantity, a commodity, and that neither new capital investment nor speculation can be financed except out of existing pools of savings, that there is necessarily a trade-off between the two. Dr. Harold Moulton explained that both past savings and "pure credit" (new money created by the expansion of commercial bank credit) were being used for productive investment and speculation in the 1920s, but that the main problem was the incredible amount of pure credit going into stock market gambling.

The problem today is that, while there is massive money creation for stock market speculation, and existing accumulations of savings are also pouring into the stock market and the commodities market, nothing significant is being done to finance new capital formation. Further, ownership of existing capital is becoming increasingly concentrated at an accelerating rate as companies buy back their own shares instead of distributing dividends or investing in new capital.

All of this activity on Wall Street has generated gigantic profits in the financial sector, while the productive sector that the financial sector presumably serves is going begging. It's as if the physicians in a town judged the general level of health in the area to be excellent by the fact that they managed to keep sick people out of the hospital, generating terrific statistics on hospital mortality and recovery rates, while people were suffering and dying at home or in the street after being turned away from the emergency room.

This manipulation of statistics and definitions — a cornerstone of Keynesian monetary and fiscal policy (vide the comments about "re-editing the dictionary" in Volume I of A Treatise on Money) — should be raising more questions and concern than it does. Why, for instance, does the "Consumer Price Index" leave out most of the things on which consumers spend the bulk of their income? Why is there such a huge discrepancy between the "official" and the "unofficial" unemployment rates reported by the Bureau of Labor Statistics? Why did the Federal Reserve drop "M3" from its definition of money . . . after earlier getting rid of the various "Ms" that tried to account for non-currency and non-demand deposit forms of money, such as bills of exchange?

Why . . . well, you get the idea. It calls to mind an article we read once trying to explain away the estimated 2-4 million people who died during An Gorta Mór, "The Great Hunger" in Ireland in the 1840s, in which it was asserted that few people died of starvation . . . directly. No, weakened by hunger and malnutrition, they fell easy prey to disease, while hundreds of thousands died of exposure by the side of the road after being evicted or trying desperately to reach a port to take ship for America — while those not fortunate enough to book passage on an American or Canadian vessel ended up in the British "coffin ships." But they didn't die of starvation, ergo, the famine was a myth created out of anti-English sentiment.

How are we supposed to counter such antics? Education is the only answer — and to do that we need to be able to educate people . . . and to do that, we need YOU to open doors to prime movers, academics, people in the media, and so on, to get the message across. A part of your "social justice tithing" should be directed to working to open doors so that spokesmen for the Just Third Way can present the case to a broader audience than is currently the case.

And it is successful:

Norman Kurland's interview on WAIC's "Money America" radio show is now available. This initiative by Mr. Thom Fox of Cambridge Credit Counseling Service, a non-profit consumer credit assistance organization, is not only a valuable educational piece, but shows what can be done by adhering to "Number 17" on the CESJ Code of Ethics: "There are three keys to gaining acceptance of revolutionary ideas: persistence, persistence, and persistence."

• Learning some lessons from our own educational efforts, you should target radio stations in your area, especially those that address consumer, economic, and financial matters. Believe it or not, most of these shows have a slightly harder time than Leno or Letterman rounding up guests who are both interesting and articulate. Presenting, say, Norman Kurland as a potential guest, giving them the link to the "Money America" show, and having them agree to give it a go would be a major contribution to the Just Third Way. Nor is a "travel budget" or set honorarium involved. You'll notice that Norm was interviewed over the phone for the "Money America" show, just as he previously was on Michigan Catholic Radio, Williamsburg Revolutionary Radio, "Blacktalk" Radio, and a number of others, including a show hosted by a biker dude concerned with the direction America has been taking.

• Not that we turn down opportunities to appear on television. Norm has appeared as a guest on the Harold Channer Show, Molly Cheshire's show, and an Islamic television show out of Fairfax, Virginia. (Should we also mention this writer's very brief appearance on Jordanian television some years ago when asked what the UN was missing in all the endless debates about economic and social development?)

• As for newspapers — we've copied our series on the latest Irish financial crisis to the Irish Independent, a newspaper out of Dublin. They haven't responded (yet), but even Ireland might soon be desperate enough to start listening to common sense instead of to Lord Keynes.

• Mr. Pollant Mpofu's letter to the Taoiseach (Prime Minister) of Ireland on which we reported on Wednesday went forward as scheduled. He got a polite reply saying that "they" would be reviewing his letter — which is more than we get by sending e-mails to the White House. Sending your own brief note to Mr. Cowen — taoiseach@taoiseach.ie — might increase the chance of the response being more than a polite brush-off, and inspire "them" actually to look at the Just Third Way as a possible solution to the crisis. As pointed out near the end of Arlo Guthrie's iconic Thanksgiving monologue "Alice's Restaurant Massacree" (the full title), if people stick their heads in the door of the military psychiatrist's office when undergoing medical evaluation when conscripted and tell him that, "You can get anything you want at Alice's Restaurant," it will soon be a movement that will sweep the country . . . and get them out of military service.  What, then, would be the effect if people making fools of themselves in this fashion actually said something worthwhile?

• As of this morning, we have had visitors from 57 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Brazil, Canada, and India. People in Japan, the United States, Argentina, Pakistan and Venezuela spent the most average time on the blog. (Some people in Tokyo really like us — now, if the Japanese government would take note of the Just Third Way to get them back on track economically . . .) The most popular posting is Norman Kurlands tribute to Robert P. Woodman, followed by "Keynesian Economics is Socialism Lite," "Thomas Hobbes on Private Property," the "Halloween Horror Special on "Mean Green Mother from Outer Space," and "Preventable Disasters" about the Irish crisis.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

#30#

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