Friday, April 4, 2014

Re-mold it nearer to the Heart's Desire!

I am not the only person who notices that things cannot continue as they are.  Changes need to be made.  In the US, the productivity gains of the last 30 years have gone straight into the wallets of the richest .01% of us.  In real terms the purchasing power of the average American has been in decline since the late 1970s.  That isn't just a problem for the middle class, that isn't just a problem for the lower class, it is a problem for every American.

And it isn't just the US.  The manufacturing jobs that let anyone with a high school education support a family and buy a house on a single income are long gone.  They were the backbone of the economy, they won us two world wars and they were an escalator out of poverty.  Investors in the US thought it would be better to move those jobs overseas so they didn't have to deal with unions and American environmental and safety regulation.  Now we get cheap electronics and the Foxconn employees that make it are committing suicide to escape the misery of 21st century indentured servitude.

Wealth is brought into the economy in two basic ways, harvest or extraction.  You can broadly characterize them as agriculture vs mining, but that's an oversimplification.  Harvest is the sustainable production of a good or service in a way that means it can happen year in and year out.  When farmers produce crops year after year, and take care to guard against erosion and rotate their crops and even leave fields fallow to protect the soil, that's harvest.  However if the farmer plants the most lucrative crop year after year, fertilizing and spraying pesticide as much as they can to maximize yield without giving any consideration to runoff or soil erosion or anything that would cost him an additional cent, that would be extraction, that farmer is trading in the long term viability of that farm for an immediate paycheck.

Mining is, by definition, extraction.  Mining is also necessary and central to our current economy.  But
even mining could be better. Some  plants bio-concentrate heavy metals,  they could be grown on beds of crushed ore, and later burned and smelted for a dramatic reduction of energy input to produce metal.  Smelters themselves need  not use coal fired furnaces, they could just as easily run from wind power or solar arrays.

Extraction is attractive to financiers and investors, it maximizes the return on up front investment and
pushes off negative externalities onto local communities.  It is less attractive to those local communities, because of those same negative externalities, like communities full of underpaid workers, piles of coal dust, mine tailings and smokestacks belching smoke.

Leveraged buyouts, and hostile takeovers and stockholder lawsuits are all the result of investors demanding higher return on investment, which is to say a shift to extraction, or to double down on it.  If you examine what used to be considered the hallmarks of a well run company, e.g.  a well trained, prosperous work force, production capital that was wholly owned, not mortgaged or rented, a well staffed R&D department busily developing new products and production methods and a pension fund that was fully funded and invested in safe investments.  Every single one of those things is something a buyout artist will liquidate for a quick payout.  Workers will be downsized or outsourced, facilities will be sold and rented back or mortgaged, and pension funds will be raided.

For a current example I invite you to read this article on what Bain Capital is doing to Guitar Center, the "big box" merchant of musical instruments.  (I am a fan of knowing where a hyperlink will send you, sono shortened links here!) Guitar Center is just another example of a company that is being squeezed to death by too much attention from investors.

When big finance turned its attention to real estate, we got credit default swaps, the ongoing recession and millions of Americans bankrupted and evicted.  Every step of that process was squeezed for maximum upfront payoff, which is why banks got in trouble for foreclosing on everyone they could, even those eligible for assistance.  They wanted the immediate payout of a short sale.

Now, big finance has turned it's eye to post secondary education.  State financial support for public universities has collapsed since the seventies, so prices have ballooned, college loans are easy to get and federally subsidized, so for-profit colleges of doubtful utility have bloomed like mushrooms in manure, private  college loans are ruinously expensive and now college debt cannot be discharged in bankruptcy. From an economic standpoint, we have another situation akin to a pile of oily rags stacked next to a leaky furnace (hmm, it's almost like someone's out there doing this on purpose).  The result is millions of young people have huge amounts of debt they that many of them will never earn enough to discharge.

We need a way to insulate our institutions from the financial sector.  We need a way to shield a boring profitable business from the investors that will break it up for a quick payday.  We need a way to stop propping up businesses that take government  money in one hand and beat up their workforce and outsource and send profit off shore (...with their other three hands? metaphors are not an exact science)


  1. The trajectory of the average American has been from citizen to consumer to consumed.

    1. Some say this is why zombie lore has become so popular.