Tuesday, May 27, 2008

Signs of the Economic Apocalypse, 5-26-08

From SOTT.net:

Gold closed at 925.80 dollars an ounce Friday, up 2.9% from $899.90 for the week. The dollar closed at 0.6342 euros Friday, down 1.2% from 0.6419 at the close of the previous Friday. That put the euro at 1.5767 dollars compared to 1.5578 the week before. Gold in euros would be 587.18 euros an ounce, up 1.6% from 577.67 at the close of the previous week. Oil closed at 131.87 dollars a barrel Friday, up 4.1% from $126.62 for the week. Oil in euros would be 83.64 euros a barrel, up 2.9% from 81.28 at the close of the Friday before. The gold/oil ratio closed at 7.02 Friday, down 1.3% from 7.11 for the week. In U.S. stocks, the Dow closed at 12,479.63 Friday, down 4.1% from 12,986.80 at the close of the previous Friday. The NASDAQ closed at 2,444.67 Friday, down 3.4% from 2,528.85 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.84%, unchanged for the week.

Oil prices resumed their sharp increase last week. Why have oil prices been rising so much over the past few years? Supply and demand? Certainly not based on current supply and demand. Future supply and demand? Maybe. Or maybe it’s supply and demand of currencies, with currencies falling as the flip side of the so-called commodities bubble.

Adrian Ash compares the dizzying proliferations of ways to increase money supply to a hallucinatory frenzy, with all the dissociation and mania that that implies:

The Financial Furry Freak Brothers
The fiat-money experiment and the monsters it's spawned have broken out of the lab and onto the street...

Adrian Ash

22 May 2008

When Albert Hofmann – the Swiss chemist who discovered LSD – passed away at the start of this month, newspaper editors the world over reported it as the death of the man "who experienced the first ever bad trip."

But Hofmann's hallucinations seem little worse than most acid-induced visions. Or so people tell us..."

Beginning dizziness," he wrote in his lab journal for 19 April 1943. Looking to find a stimulant for the circulatory and respiratory systems, he'd just concocted – and taken – a big dose of lysergic acid diethylamide-25.

"Feeling of anxiety," he noted, before adding in due course "Difficulty in concentration. Visual disturbances. Desire to laugh."

Finally, Hofmann scrawled the words "most severe crisis". Then he fled the lab on his bicycle.

It seemed to stay stationary even as it wheeled him back home, where his neighbor – who brought him a nice glass of milk to calm him down – appeared as a witch in a colored mask.

He felt possessed by demons. The furniture in his bedroom began to menace him. All pretty run of the mill stuff if you dabble with psychotropics, in short.

But such "fantastic images" don't always ease into the sensations of "good fortune and gratitude" Hofmann got to enjoy later that day. Hallucinations can still cause the "most severe crisis" – even without some fool laying Witches Hat by the Incredible String Band on the turntable.

"Inflation will return to the 2% target," claimed Mervyn King, head of the Bank of England – and one half of the financial furry freak brothers running Anglo-American monetary policy – last week."

Growth will eventually recover to a sustainable rate."

Just a central banker's wide-eyed hallucination? Maybe not. Like Albert Hofmann's wobbly bike-ride six decades ago, the credit cycle will get us home in good time, ready to turn once again from boom to bubble to bust. But like any powerful psychedelic, the trip gobbled down by Western investors could take much longer to wear off than anyone dares hope right now.

And just what was the Governor smoking when he claimed that "in these [current] circumstances, the household saving rate is likely to rise"...?

The Bank of England has been cutting UK interest rates since December. Its latest Inflation Report says it will continue to cut interest rates "in line with [bond] market expectations," too.

And UK households have grown their savings only once when interest rates fell in the last four-and-half decades. That brief period lasted for two years at the start of the 1990s.

Both before and since – and most markedly during the previous post-war recessions (of 1974 and 1981) – people have tweaked their savings almost precisely in line with changes to the rate of interest, as set by the Bank of England itself.

King's starry-eyed vision, however, "is part of a rebalancing of the UK economy, away from spending and importing, towards saving and exporting," he told reporters last week, pointing at the surge in household savings swirling above his head before asking if anyone wanted to split a Juicy Fruit chewing gum.

The sky's turned all purple in Washington too if US policy-makers think the credit crunch will somehow boost household savings there. Consumers aged 45 and above are in fact raiding their retirement accounts, reports the American Association of Retired Persons (AARP) – "a horrific scenario," according to Tom Nelson, the CEO."

People are feeling this pinch [of tight credit and surging inflation] in the short term...but the long-term consequences that are facing these individuals – and our economy – for years, if not decades, are frightening."

One in four middle-aged workers surveyed by the AARP says they're delaying retirement because of the crunch. The same proportion is withdrawing funds from pension and other savings accounts. The youngest baby-boomers are also failing to pay utility bills, reports MarketWatch – and "even cutting back on medications."

Well, they're cutting back on reported medications at least. Who can say what's being cooked up at home with the kids' old chemistry sets, dusted down from the attic?

Put another way, "who had heard of collateralized debt obligations just 10 years ago?" as Niall Ferguson, history professor at Harvard, asked in a speech opening New York's new Museum of Finance back in January this year."

Collateralized loan obligations? Credit derivatives? These forms of financial instrument are of very recent origin. So are the hedge funds; so are the private equity partnerships; so are the sovereign wealth funds; and so are those wonderfully named entities, the conduits..."

Ferguson then flashed up a series of charts "to illustrate the speed with which these phenomena have proliferated." First, mortgage-backed securities. Starting in 1980 – "when scarcely any such thing existed" – they total $3.5 trillion-worth today. Then he cited "the whole range" of other newly-born asset-backed instruments – automobile loans, equipment loans, student loans, credit card-backed debt derivatives..."

Over the counter derivatives outstanding?" the professor asked. "Well, if you'd asked someone to name that figure in 1987 it would have been a very small number indeed."

Today we're talking about $450 trillion," said Ferguson. (He wasn't to know back in December that the global outstanding total of over-the-counter derivatives based on debt, currencies, commodities, stocks and interest rates had in fact expanded by 44% in 2007 to $596 trillion...)

Ferguson's theme bears repeating; he likens the huge growth in complex financial products to an evolutionary spurt, "an explosion of lifeforms [amid an] unusually benign climate."

Whereas here at BullionVault, we see it more as a chemistry experiment gone horribly wrong. The hare-brained PhDs mixing up the medicine are too spaced out to even guess at what's now sitting in the petri dish. And the financial monsters it has spawned aren't merely in the scientists' minds.

Take hedge funds, for example; Ferguson notes that in 1990, those financial life-forms known as "hedge funds" numbered around 600 (also including funds of funds). Now they've reproduced and multiplied up towards 10,000."

As a form, the hedge fund dates back to the 1940s. But this population explosion is of very recent origin.

"The raw numbers also hide a "regular, annual dying out"; there's chronic survivorship bias in the data. In 2006, for example, 717 hedge funds were culled; the 2007 figure should be even larger. And here, believes Ferguson, we see survival of the fittest in action. If he's wrong, perhaps it's just the contingency of life itself, allowing the standard proportion of idiots to thrive and market their "top decile" performance to a new generation of unwitting investors.

The survivors have been getting larger too, with the top five hedge funds running assets of around $100 billion. All told, in fact, hedge funds accounts for between one-third and one-half of all trading on the US and UK equity markets. Yet they barely showed up in newspaper and TV reports before 1997, when the death of Long-Term Capital caused a blip in their break-neck rate of evolution.

Where Ferguson's analogy breaks down is in his admission of "intelligent design". Whether or not you hold with this evolutionary sop to religion, casting central bankers in the role of "minor gods" gives them more power than they really hold, even if it's less power than they believe they can wield. And Niall Ferguson accepts this."

Without occasional bouts of what Joseph Schumpeter, the Harvard economist, termed creative destruction," he wrote in the Financial Times last December, "the evolutionary process will be thwarted. Japan's experience in the 1990s stands as a warning to legislators and regulators that an entire banking sector can become a kind of economic dead hand if institutions are propped up despite underperformance."

But the bad trip of Japanese deflation – now running for almost two decades in equities and real estate prices – failed to scare off those fabulous furry freaks at the Bank of England and Federal Reserve. Tinkering with near-zero and sub-zero real rates of interest throughout this decade, they helped create two impossible hallucinations.

First, that the resulting credit expansion would fail to show up in consumer inflation. Second, that the credit cycle could keep on running forwards forever, without needing to turn. Just like the wheels on Albert Hofmann's bike."

A lot of reporters ask me these days whether we're in the midst of a commodity bubble," said Dr. Benn Steil, senior fellow at the Council on Foreign Relations, at the Hard Assets Conference in New York last week."

In fact, I'm going to Washington to give a Senate testimony. [Because] my perspective is that the more interesting, and indeed more important, question to ask is whether we're at the end of what I would call a 'fiat currency bubble'."

Like Professor Ferguson, Dr. Steil looks back "to the early 1980s" to find the origins of whatever it is we're now watching mutate, if not die out.

Under Paul Volker at the Federal Reserve, "inflation, and at least equally importantly inflation expectations, were driven out of the system through a pretty ruthless policy of very tight money, high interest rates. Very tight money."

What followed was "the golden age of the fiat Dollar" says Steil, reminding us that credit expansion was unshackled from Gold in 1971, when Richard Nixon stopped redeeming the US currency for bullion altogether. It took tight money – "very tight money" – to bring the resulting inflation of the 1970s under control.

The fiat money experiment then broke out of the lab with the "explosion" of financial life-forms witnessed from 1980 right up to last summer. Indeed, it all ran just fine until around 2002, when the cost of key raw materials – notably wheat and oil, as in Steil's charts above – began to shoot higher in terms of Dollars and other government-backed currencies.

Measured against Gold Prices, however, they've barely budged. "That shouldn't surprise people," says Steil, "because as we go back to the era of the gold standard from about 1880 until the outbreak of the first World War in 1914, prices around the world in countries that were on the gold standard were also remarkable flat.

"The figure looked just like this. So Gold is behaving as it has historically."

Back in the chemistry lab, however, the hot fetid conditions brought on by below-zero real interest rates and surging credit supplies aren't helping ease the central bankers' hallucinations. The financial furry freak brothers, Ben Bernanke and Mervyn King, actually think they can cage the monsters spawned by their fiat money experiment.

And tripped out on delusions of "minor god" status, they really believe they can talk Wall Street and the City back down from their moment of "worst crisis ever".

With Barack Obama seemingly poised to take over the U.S. presidency, not much attention has been paid yet to what his economic policies might be like. One sign, frightening to anyone who has read Naomi Klein’s Shock Doctrine, is that Obama’s economic ideas were influenced by economists from the University of Chicago, traditionally the intellectual center of world psychopathy. Yet his ideas are not of the pure free-market style of Milton Friedman. No, that would be too clear-cut for Obama, who prefers compromise at the center by blending two contradictory tendencies. According to John Cassidy writing in the New York Review of Books, Obama advocates “libertarian paternalism.”

Economics: Which Way for Obama?

John Cassidy

June 12, 2008

Nudge: Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler and Cass R. Sunstein
Yale University Press, 293 pp., $26.00

The bursting of the housing bubble and the associated credit crunch has so far wiped out about $3 trillion of wealth—nobody knows the exact amount—caused havoc in the financial markets, and prompted hundreds of thousands of homeowners to default on their monthly mortgage payments. Some experts predict that by the end of 2009, the number of homes entering foreclosure could reach two million. Not surprisingly, the question of what to do about the housing crisis has emerged as a divisive policy issue in the 2008 presidential election, with each of the three leading candidates representing a distinct economic ideology.

John McCain, for all his protestations that economics is not his strong point, has put forward a coherent, if somewhat heartless, case for doing nothing, or very little, anyway. Echoing the arguments that Andrew Mellon, Friedrich Hayek, and other enthusiasts of the free market espoused in the early years of the Great Depression, McCain has said it is no business of the government to bail out people who took out loans they couldn't afford. Evidently such socialistic interventions would only reward reckless behavior, and, in any case, they wouldn't work. The laissez-faire argument says it is better to let the market "correct"—i.e., let the foreclosures mount up—until people learn to live within their means and prices become more affordable, at which point sustainable economic growth will resume.

Hillary Clinton, after initially equivocating, has emerged as the would-be heir to FDR and John Maynard Keynes. In addition to imposing a ninety-day moratorium on foreclosures and a five-year freeze on certain adjustable mortgage rates, she would have the federal government buy up an undetermined number of troubled home loans, enabling lenders to convert them to more affordable deals and putting a floor under the housing market.

Clinton would also allow bankruptcy judges to reduce the value of mortgages, a proposal the banking industry vigorously opposes, and she has criticized McCain as the reincarnation of Herbert Hoover—a comparison that is a bit unfair to the thirty-first president, whose intellectual commitment to voluntarism didn't prevent him from expanding public works programs, raising taxes on the wealthy, and creating two institutions that funneled federal money into the housing market: the Federal Home Loan Bank and the Reconstruction Finance Corporation.

Barack Obama has also criticized McCain for sitting back and watching while so many American families face eviction. Yet his own proposals are more nuanced than Hillary's. They include setting up a $10 billion fund to help prevent foreclosures, cracking down on mortgage fraud, providing tax credits to low- and middle-income homeowners who don't currently itemize their interest payments, and standardizing the terms of mortgages so that potential borrowers can more easily figure out when they are being hoodwinked. Obama has also expressed support for Democratic Senator Chris Dodd's plan to expand the Federal Housing Administration's ability to refinance troubled loans. So far, though, he has been noticeably less enthusiastic than Clinton about a large-scale injection of public funds into the market for mortgages and mortgage securities.

Should Obama win the nomination, political considerations may well force upon him a more interventionist position, but his first inclination is to seek a path between big government and laissez-faire, a trait that reflects his age—he was born in 1961—and the intellectual milieu he emerged from. Before entering the Illinois state Senate, he spent ten years teaching constitutional law at the University of Chicago, where respect for the free market is a cherished tradition. His senior economic adviser, Austan Goolsbee, is a former colleague of his at Chicago and an expert on the economics of high-tech industries. Goolsbee is not a member of the "Chicago School" of Milton Friedman and Gary Becker, but he is not well known as a critic of American capitalism either. As recently as March 2007, he published an article in The New York Times pointing out the virtues of subprime mortgages. "The three decades from 1970 to 2000 witnessed an incredible flowering of new types of home loans," Goolsbee wrote. "These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital."

When I spoke to Goolsbee earlier this year, he said that one of the things that distinguished Obama from Clinton was his skepticism about standard Keynesian prescriptions, such as relying on tax policy to stimulate investment and saving. In a recent posting on HuffingtonPost.com, Cass Sunstein, who for ten years was a colleague of Obama's at the University of Chicago Law School—and has said he is "an informal, occasional adviser to him"—made a similar point regarding government oversight of the financial markets: "With respect to the mortgage crisis, credit cards and the broader debate over credit markets," Sunstein wrote, "Obama rejects heavy-handed regulation and insists above all on disclosure, so that consumers will know exactly what they are getting."

If Obama isn't an old-school Keynesian, what is he? One answer is that he is a behavioralist—the term economists use to describe those who subscribe to the tenets of behavioral economics, an increasingly popular discipline that seeks to marry the insights of psychology to the rigor of economics. Although its intellectual roots go back more than thirty years, to the pioneering work of two Israeli psychologists, Amos Tversky and Daniel Kahneman, behavioral economics took off only about ten years ago, and many of its leading lights, among them David Laibson and Andrei Shleifer, of Harvard; Matt Rabin, of Berkeley; and Colin Camerer, of Caltech, are still in their thirties or forties. One of the reasons this approach has proved so popular is that it appears to provide a center ground between the Friedmanites and the Keynesians, whose intellectual jousting dominated economics for most of the twentieth century.

The central tenet of the Chicago School is that markets, once established and left alone, will resolve most of society's economic problems, including, presumably, the mortgage crisis. Keynesians—old-school Keynesians, anyway—take the view that markets, financial markets especially, often fail to work as advertised, and that this failure can be self-reinforcing rather than self-correcting. In some ways, the behavioralists stand with the Keynes-ians. Markets sometimes go badly awry, they agree, especially when people have to make complicated choices, such as what type of mortgage to take out. But whereas the Keynesians argue that vigorous regulation and the prohibition of certain activities such as excessive borrowing are often necessary, behavioralists tend to be more hopeful about redeeming free enterprise. With a gentle nudge, they argue, even some very poorly performing markets—and the people who inhabit them—can be made to work pretty well.

In a fortuitous accident of timing, Sunstein and his friend Richard Thaler have just published a book that makes the behavioralist case in nontechnical language: Nudge: Improving Decisions About Health, Wealth, and Happiness. On the face of it, finding two more suitable coauthors would be difficult. Sunstein is a one-man think tank and a prolific writer—by my count, this is his eighth book in as many years. Thaler, who, like Goolsbee, teaches at Chicago's Graduate School of Business, is one of the founders of behavioral economics. During the 1980s, he began publishing a series of columns in the Journal of Economic Perspectives about economic phenomena that defied the accepted wisdom of the subject, which depended heavily on the twin assumptions of individual rationality and market efficiency.

Thaler's columns, some of which he coauthored with Kahneman and Tversky, ran under the rubric "Anomalies." Among the things they highlighted were the failure of participants in economic experiments to pursue their own self-interest; the buyer's remorse suffered by many auction winners when they contemplate what they have bought; and the popularity of lotteries. (If people were fully rational, they would realize they had virtually no chance of winning.) The articles, which in 1992 were published as a book, The Winner's Curse: Paradoxes and Anomalies of Economic Life, inspired many bright young economists to take a closer look at human psychology…

Exploring the limits of human reason is interesting in its own right… but what has it got to do with Obama? Thaler and Sunstein lay out a number of principles that can be used to encourage better choice-making, and they apply them to various topical issues, including retirement saving, health care, and the environment. In a number of cases, the measures that Thaler and Sunstein recommend are mirrored by proposals in Obama's voluminous policy papers, which can be downloaded from his Web site.

In a chapter entitled "Save More Tomorrow," Thaler and Sunstein endorse the idea of automatically enrolling people in corporate savings plans, such as 401(k)s, rather than making them fill out a form if they wish to opt in. In the idealized world of neoclassical economics, this shouldn't make much difference—rational people will decide what works best for them and do it. In reality, because of the status quo bias, or, perhaps, because of sheer laziness, the fallback option matters plenty. Studies show that when employees have to sign up, participation rates are often as low as 50 or 60 percent. When people are enrolled as a matter of course, with an option to opt out, the participation rises to more than 90 percent.

For decades now, economists have been bemoaning the fact that so many Americans save hardly at all. Simply offering tax breaks for saving has been tried many times, and it doesn't have much impact on overall savings rates. Here is a simple, noncontroversial measure that seems to work. An Obama administration would build upon it by requiring firms that don't offer 401(k) plans to open a direct deposit retirement account for their workers, with an opt-out clause rather than an opt-in clause. For the first $1,000 in savings that an employee contributed, the government would provide a $500 tax credit.

Elsewhere, Thaler and Sunstein endorse Justice Louis Brandeis's injunction that "sunlight is...the best of disinfectants." In financial markets, especially, prices are often opaque, which gives unscrupulous businesses ample scope for ripping off customers by imposing on them hefty hidden charges, late fees, and the like. Thaler and Sunstein propose that credit card companies, mortgage issuers, and other financial services firms should be forced to disclose all of their charges clearly, in plain language, so that potential customers can comparison shop. Applying the same argument to cell phone plans, the authors write: "The government would not regulate how much issuers charge for services, but it would regulate their disclosure practices." Adopting similar language, Obama has proposed a Credit Card Bill of Rights, which would require issuers to provide lenders with full and clear information about the terms of their loans, including all charges.

Disclosure not only helps consumers make better choices: it can also shame businesses into curbing their egregious behavior. Thaler and Sunstein cite the Toxic Release Inventory, a piece of legislation from the 1980s that forced companies to disclose to the government what potentially harmful chemicals they had stored or released into the environment. As James Hamilton pointed out in his 2005 book, Regulation Through Revelation, the measure was originally intended simply to provide the Environmental Protection Agency with more information, but once enacted it allowed activists and the press to target the worst offenders. Fearful of attracting bad publicity, many companies changed their policies, and overall emissions fell sharply. In light of this experience, Thaler and Sunstein propose setting up a Greenhouse Gas Inventory, which would require companies and other organizations to publish the total amount of carbon they are releasing into the atmosphere:

In all likelihood, interested groups, including members of the media, would draw attention to the largest emitters. Because the climate change problem is salient, a Greenhouse Gas Inventory might well be expected to have the same beneficial effect as the Toxic Release Inventory. To be sure, an inventory of this kind might not produce massive changes on its own. But such a nudge would not be costly, and it would almost certainly help.

All of this makes for interesting reading, and much of it is sensible. Having written many times about the shortcomings of neoclassical economics, and the political ends to which it has been exploited, I am sympathetic to Thaler and Sunstein's effort to construct a more realistic economic philosophy, and one partly based on insights borrowed from other disciplines. However, the more I read of Nudge the less convinced I was that its authors, for all the useful and interesting material they present, have succeeded in their larger aim…

In defense of Thaler and Sunstein, their emphasis is on public policy. Yet the program they outline seems unduly restrictive. Not content to be behavioralists, they are also libertarians, and they endorse something they call "libertarian paternalism." They write:

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened. If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise—or even make things hard for them. Still, the approach we recommend does count as paternalistic, because private and public choice architects are not merely trying to track or to implement people's anticipated choices. Rather, they are self-consciously attempting to move people in directions that will make their lives better. They nudge.

A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

Many of the policies we recommend can and have been implemented by the private sector (with or without a nudge from the government).... In areas involving health care and retirement plans, we think that employers can give employees some helpful nudges. Private companies that want to make money, and to do good, can even benefit from environmental nudges, helping to reduce air pollution (and the emission of greenhouse gases). But as we shall show, the same points that justify libertarian paternalism on the part of private institutions apply to government as well.

On the penultimate page of the book, they write:

The twentieth century was pervaded by a great deal of artificial talk about the possibility of a "Third Way." We are hopeful that libertarian paternalism offers a real Third Way—one that can break through some of the least tractable debates in contemporary democracies.

The addition of the word "real" was presumably meant to distinguish Thaler and Sunstein's ideas from the "Third Way" approach that Bill Clinton, Hillary Clinton, and Tony Blair endorsed back in the 1990s. But just as that well-meaning intellectual construction project, in which the London School of Economics sociologist Anthony Giddens had a prominent part, suffered from soggy intellectual foundations, libertarian paternalism has some fundamental problems, beginning with the fact that it sounds suspiciously like an oxymoron.

Once you concentrate on the reality that people often make poor choices, and that their actions can harm others as well as themselves, the obvious thing to do is restrict their set of choices and prohibit destructive behavior. Thaler and Sunstein, showing off their roots in the Chicago School, rule out this option a priori: "We libertarian paternalists do not favor bans," they state blankly. During a discussion of environmental regulations, they criticize the Clean Air Acts that banned some sources of air pollution and helped to make the air more breathable in many cities. "The air is much cleaner than it was in 1970," they concede, "Philosophically, however, such limitations look uncomfortably similar to Soviet-style five-year plans, in which bureaucrats in Washington announce that millions of people have to change their conduct in the next five years."

If you start out with the preconceptions about free choice of John Stuart Mill or Friedrich Hayek, it is difficult to get very far in the direction of endorsing active government. (This is precisely the problem that the New Liberals of the late nineteenth century, men like L.T. Hobhouse and T.H. Green, faced.) Once again, consider the subprime crisis. At this stage, it is hard to find anybody willing to defend some of the mortgage industry's practices, such as offering gullible borrowers artificially low teaser rates that shot up after a couple of years. Hard, but not impossible. "Variable rate mortgages, even with teaser rates, are not inherently bad," Thaler and Sunstein write. "For those who are planning to sell their house or refinance within a few years, these mortgages can be highly attractive."

Strictly speaking, Thaler and Sunstein are correct. But many of the borrowers who took out loans planning to sell, or refinance at lower rates, within a few years were speculators, and unwittingly they helped to generate the biggest property bubble in American history. Others were simply taken for a ride. Dealing with this bursting of that bubble is going to involve spending a lot of taxpayers' money, which surely justifies the placing of some limits on future borrowers and lenders. A refusal to accept that individual freedoms sometimes have to be curtailed for the general good is an extreme position even for a neoclassical economist to take, and it is alien to the traditions of the Democratic Party.

As it happens, there is a coherent and well-developed economic philosophy that was explicitly designed to deal with the law of unintended consequences, and it is regulatory Keynesianism of the sort practiced in the United States and Britain from the end of World War II until the 1980s, a period, not coincidentally, in which working people saw their living standard improve at an unprecedented clip. With respect to the national economy, Keynesians worry that unfettered capitalism is subject to ruinous boom-bust cycles, so they advocate management of demand through interest rates or government programs that create jobs. On the micro-level, they believe that some economic activities have harmful effects that the price mechanism fails to capture, so they support taxation and regulation. Behavioral economics, by demonstrating how people often fall victim to confusion, myopia, and trend following, provides another convincing rationale for Keynesian policies, but you wouldn't realize that from reading Thaler and Sunstein.

Obama, as far as I know, doesn't refer to himself as a libertarian, but on occasion he appears to be unduly influenced by the need to preserve choice. Rather than mandating universal health coverage, for example, he has promised to set up a new, subsidized, government-operated insurance plan for people who aren't covered by their employers and who don't qualify for Medicare. But if a young and healthy person, for whatever reason, didn't want to buy health coverage, an Obama administration wouldn't compel that person to do so, despite the strong financial and moral arguments for expanding the risk pool. Just how to compel healthy young people to buy health insurance remains a large question; but it is one that should be addressed.

On other issues, such as trade policy and regulation of the financial industry, Obama has recently adopted a more dirigiste tone than Thaler and Sunstein would care for. More generally, he has talked about confronting entrenched interests and giving a voice to the excluded. Doubtless, he means what he says, and his ability to attract new voters, especially young ones, suggests he could have more success in overcoming the forces of inertia and reaction than the Clintons did in 1993–1994.

But for what policy purposes are the masses to be mobilized? According to Obama's program, the answers include another middle-class tax cut; more tax credits for education and fuel-efficient cars; a bigger budget for the National Science Foundation; and the establishment of a National Infrastructure Reinvestment Bank, with an annual budget of $6 billion. At best, these proposals would represent a useful start in redressing the inequities and shortcomings produced by twenty-five years of Republican domination. If the next Democratic president wants to leave a truly lasting legacy, he or she will have to do more than nudge the country in a different direction.

This helps make sense of Obama’s insistence on a new kind of politics an on overcoming traditional divisions. But the problems facing him if he gets elected seem way too enormous to be handled by gentle “nudges” in the proper direction. Also, contructing “choice architecture” to channel free decisions in paternalistically decided directions only nudges the public. What is really needed is a way for the public, for citizens, to constrain their leaders, or, which amounts to the same thing, for normal people to constrain psychopaths in the most efficient and humane way possible. The debate between Keynesians, Friedmanites, and Behaviorists (funny how they leave out Socialists) is over how best for leaders to constrain and discipline the public. Libertarian Friedmanites think that the market can do it with the most amount of freedom, but they still believe in the discipline of the market. Clearly, Obama does not yet understand what the human race is up against, he appears to have not come to grips with evil. What will nudging people to save more for retirement do to stop the Dick Cheneys of the world?

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Monday, May 19, 2008

Signs of the Economic Apocalypse, 5-19-08

From SOTT.net:

Gold closed at 899.90 dollars an ounce Friday, up 1.6% from $885.80 for the week. The dollar closed at 0.6419 euros Friday, down 0.6% from 0.6459 at the close of the previous Friday. That put the euro at 1.5578 dollars compared to 1.5482 the week before. Gold in euros would be 577.67 euros an ounce, up 1.0% from 572.15 at the close of the previous week. Oil closed at 126.62 dollars a barrel Friday, up 0.5% from $125.96 for the week. Oil in euros would be 81.28 euros a barrel down 0.1% from 81.36 at the close of the Friday before. The gold/oil ratio closed at 7.11 Friday, up 1.1% from 7.03 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 12,986.80 Friday, up 1.9% from 12,745.88 at the close of the previous Friday. The NASDAQ closed at 2,528.85 Friday, up 3.4% from 2,445.52 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.84%, up seven basis points from 3.77 for the week.

There was no correction in oil prices last week, but the rise did slow. Oil rose a half percent in dollars and fell slightly in euros. Some political maneuverings around the oil issue did uncover interesting indications about future events, thought. Last week the U.S. Congress was successful in forcing Bush to stop adding oil to the Strategic Reserve. Why, in times of rapidly rising oil prices, with all the political pressure that entails, would Bush not want to ease prices by a moratorium on filling up the Strategic Oil Reserve? Could it be that he is expecting to need a lot of that oil if he or Israel is able to attack Iran, with all the supply disruptions that would result? It can’t just be a desire to enrich the oil companies, they already have more money than they know what to do with. Then there was the embarrassing public rebuff that the Saudis gave Bush by refusing to increase oil production. Is that tied to their possible opposition to an attack on Iran?

In any event, the bubble in energy prices is cause for a sick feeling of fear in populations around the world. Now that it’s clear that the financial powers that be intend to inflate their out of the mess they’re in, it will be the average person who will pay the price. Unlike the high-tech stock bubble of the 1990s or or the housing boom of this decade that benefitted a fairly wide spectrum of the population, the commodities bubble we are seeing now is causing widespread pain.
US workers paying the price for Wall Street’s debacle

Barry Grey
16 May 2008

The Federal Reserve Board, with the full backing of the Bush administration, Congress and both political parties, has carried out a massive and unprecedented intervention to avert an imminent collapse of the US banking system and bolster the major Wall Street finance houses.

The Fed’s decision in March to underwrite with $29 billion of its own funds the takeover of investment bank Bear Stearns by JPMorgan Chase, in order to prevent the collapse of Bear Stearns, and its even more extraordinary move to allow major investment banks to avoid a similar fate by borrowing directly from its coffers, was a signal that the US government would marshal whatever resources were necessary to rescue the banking system from the consequences of the speculative binge that had generated billions in salaries and bonuses for the Wall Street elite.

While the government bailout, ultimately to be financed from public funds, has seemingly averted an immediate banking collapse, it has done nothing to address the underlying crisis. Rather, the Fed and the US corporate-financial establishment hope that it has created the conditions for a more orderly “deleveraging” of the financial system, i.e., a liquidation of trillions in vastly inflated and unmarketable assets, in which the social and economic pain is borne overwhelmingly by working class and middle class families.

The Fed’s actions have restored a measure of confidence to the financial markets, reflected in a stock market rally that has driven the Dow Jones Industrial Average back toward the 13,000 level. At the same time, the Fed and most financial analysts are acknowledging that the US housing collapse and credit crunch have precipitated an economic slowdown that will likely be protracted.

Addressing a conference of the Federal Reserve Bank of Atlanta on Tuesday, Federal Reserve Board Chairman Ben Bernanke said that financial markets were improving but “remain far from normal.” He said the decision in March to allow investment firms to obtain emergency loans from the Fed “seems to have bolstered confidence.”

But, he cautioned, the crisis would not be resolved quickly. “Ultimately,” he said, “market participants themselves must address the fundamental sources of financial strains through deleveraging, raising new capital and improving risk management, and this process is likely to take some time.”

Whatever the technical indices of the slump—not a few experts have taken to denying that the US is in a recession or heading for one—ordinary working people in the United States are suffering a major cut in their living standards. Job losses are mounting, wages are declining, work hours are being reduced and prices for essentials such as food and gasoline are soaring.

In a word, the underlying historical and economic processes that produced the crisis on Wall Street are making the vast majority of Americans poorer. And we are only at the beginning of this process.

The impact of the economic crisis on the general population was reflected in a Washington Post-ABC News poll released Tuesday, which reported that 68 percent of people surveyed said they were concerned about their ability to maintain their standard of living. The biggest factor cited by respondents was the sharp rise in consumer prices.

A separate poll released by ABC showed economic anxiety to be at its highest point on record since 1981.

In the Post-ABC poll, the nearly 70 percent who said they were worried about maintaining their lifestyles represented a 17 percent jump since December of last year. The growing anxiety reported by respondents cut across party and income lines, “spreading rapidly among Republicans, people from rural areas and those from middle- and upper-income households,” according to the Post.

The newspaper said that nearly six in ten people from households with an annual income of $100,000 or higher said they were worried, up from a third in December. Of those who identified themselves as Republicans, 56 percent expressed concern, up from 32 percent.

Twenty percent cited higher gasoline prices as the single most important economic issue, and about a third pointed more generally to rising prices as the primary cause of their apprehension. Two-thirds called rising gasoline prices a financial hardship, including a third who said higher fuel prices were a severe burden.

There is, of course, a very real basis for these concerns. Just on the question of gasoline, the Energy Department reported that the average cost of gas rose 11 cents in the past week alone, and has gone up 33 cents over the past month on its way to over $4 a gallon.

According to a report issued Wednesday by the Labor Department, food prices shot up 5.1 percent in April over a year earlier, and 0.9 percent from the previous month. Both of these gains are the biggest since 1990. The spike in food prices was propelled by increases in the price of bread, fruit, coffee and other consumer staples.

Health care costs have risen 4.3 percent in the past 12 months.

Prices for imported goods—a direct reflection of the precipitous decline of the US dollar—rose 1.8 percent in April from March. They have soared 15.4 percent from last year, the biggest year-to-year increase since such records began to be kept in 1982.

Meanwhile, real weekly wages have fallen compared to a year earlier in every month since October.

A major component of the “deleveraging” process is an assault on jobs by means of downsizing, restructuring and corporate bankruptcies. The last three months have seen, according to the Labor Department, a net loss of 180,000 jobs in the US. Aside from construction and manufacturing, where job cuts continue to escalate, the financial sector is bearing the brunt of the job-cutting.

It is estimated that so far this year 50,000 financial jobs have been slashed. More than 23,000 financial-related US job cuts were announced in April, according to the outplacement firm Challenger, Gray & Christmas. That increased the total to 49,825 in the first four months of this year—nearly as many job cuts as were announced in all of 2007.

This, however, is only the first stage of what promises to be a far larger job-slashing process. Last week, the Swiss bank UBS announced it will lay off 5,500 employees in the US and Britain. Lehman Brothers is expected to announce that it is eliminating 5 percent of its employees, or about 1,425 positions, on top of a previously announced 5 percent cutback in its work force.

By the end of June, Morgan Stanley plans 1,500 more job cuts. This puts total layoffs at Morgan Stanley at about 4,500, or 10 percent.

Citigroup on May 9 announced a plan to shed up to $500 billion of assets and slash some $15 billion off its cost base. The bank did not say how many jobs would be eliminated, but the figure will likely be in the tens of thousands. The bank has already announced 13,000 job cuts.

The crushing impact of job losses and price rises continues to undermine retail sales. The Commerce Department reported Tuesday that retail sales fell another 0.2 percent in April from the previous month. This smaller-than-expected drop obscures the dramatic slump in consumer spending in key manufacturing sectors. Auto sales fell 2.8 percent in April, after a 0.5 percent drop in March.

The Federal Reserve issued a report on US manufacturing Thursday which showed that the slump in that critical sector is deepening. Industrial production declined 0.7 percent in April, more than twice the drop forecast by economists.

The financial crisis is taking a growing toll in the form of corporate bankruptcies. Corporate bankruptcy filings rose in the US last month more than 50 percent over the previous year’s figure.

In the financial sector itself, losses from failed mortgage-related assets and bad debts continue to mount, reflecting the underlying insolvency of major sections of the financial system. Last week, American International Group, the world’s largest insurance firm, announced a record $7.8 billion loss in the first quarter of 2008. This brought the company’s loss to $13.1 billion over the past two quarters. AIG has written down $20 billion in credit derivative contracts since December.
The deepening financial crisis of Fannie Mae and Freddie Mac, the two major mortgage companies that are sponsored by the US government, is indicative of the way in which the crisis on Wall Street is being offloaded onto the government. Freddie Mac on Wednesday reported a loss of $151 million in the first quarter of 2008. The market responded to this lower-than-expected loss by driving the company’s stock up by 9 percent.

However, the reported figure was achieved by means of accounting gimmicks that concealed an actual loss of $2 billion. The previous week, Fannie Mae reported a first quarter loss of $2.2 billion. Its stock also shot up.

The two companies suffered more than $9 billion in mortgage-related losses last year, and are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. Their combined cushion of $83 billion underpins a colossal $5 trillion in debt and financial commitments—a level of leverage that is unsustainable.

But in the aftermath of the bursting of the housing bubble, the government has allowed them to expand their loans while lowering their capital cushions. This is because the two government-backed firms are essentially taking over the mortgage financing business that has been dumped by the banks and investment firms.

As the New York Times reported last week, “As Wall Street all but abandons the mortgage business, Fannie Mae and Freddie Mac now overwhelmingly dominate it, handling more than 80 percent of all mortgages bought by investors in the first quarter of this year. That is more than double their market share in 2006.”

In a separate article on Thursday, the Times explained the reason for the stock market’s enthusiasm for the shares of the two companies. “‘Both these companies are clearly going to be insolvent by the end of the year, but everyone knows that Congress will do anything to keep them afloat, because if Fannie and Freddie go under, the entire global financial system will melt down,’ said Christopher Whalen, a founder of Institutional Risk Analytics, an independent research firm. ‘These companies’ earnings don’t matter. Their accounting hardly matters. People buy the stock because they believe the federal government will bail them both out if things get really bad.’”

No such bailout is in the works for the millions of families that are losing their homes as a result of the mortgage crisis.

Foreclosure filings surged 65 percent in April from April 2007, according to a report issued Wednesday by RealtyTrac. One in every 519 households received a foreclosure filing—the highest such figure since the real estate tracking company began issuing foreclosure reports in January 2005. Nationally, 243,353 homes were facing foreclosure last month. That amounts to 2 percent of all homes.

Foreclosure filings rose in all but eight states. The hardest hit states included Arizona, California, Florida and Nevada. Analysts expect the foreclosure rate to continue to rise, spiking in the third and fourth quarters of this year.

Not surprisingly, consumer confidence has hit a low point not seen since 1980.
Consumers' mood as grim as early-80s

Burton Frierson

May 16, 2008

NEW YORK (Reuters) - U.S. consumer confidence tumbled to a 28-year low this month as rising prices strained household finances, while another drop in single-family housing starts underscored problems still plaguing the economy.

Friday's reports highlighted worries that the United States could be entering the early days of a period of stagflation like the late 1970s and early 1980s, characterized by a sluggish economy and accelerated price growth.

The data showed consumers' short-term inflation expectations hit a 26-year high, heightening the dilemma facing the Federal Reserve, which has bet that a slow economy will tame prices.

"The Fed has continuously said they want to contain inflation expectations -- and they are not contained," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

"The Fed is going to have to address inflation expectations in some manner, whether they talk it down or they force it down, possibly by taking away the aggressive rate cuts over the last year."

Stocks ended little changed another record high in oil prices helped energy shares, though it reminded investors of inflation worries. The bond market, which abhors inflation, ended lower.

The Fed has slashed its target for the benchmark overnight federal funds rate by 3.25 percentage points since crises in the housing and credit markets last year pushed the economy toward recession. The rate cuts are a textbook response to the threat of recession, but the opposite strategy used to fight inflation.


The Reuters/University of Michigan index of consumer confidence certainly highlighted the threat to economic growth, dropping to 59.5 in May -- the lowest level since June 1980.

This is bad news for the United States, where consumers fuel two-thirds of national economic activity through their purchases of goods and services.

"Consumer confidence continued to slip in early May due to surging food and fuel prices," the Surveys of Consumers statement said. "Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon."

This took the shine off news from the Commerce Department that starts on new U.S. homes rose by a surprisingly strong 8.2 percent in April, the biggest monthly increase in more than two years. The bounce, however, came entirely from multiple-unit dwellings such as apartments and condominiums.

Applications for new building permits also turned up for the first time in five months, presenting another rare bit of good news for the beleaguered U.S. housing market, the original source of the economy's current troubles.

In a sign that housing's woes were not yet over, groundbreaking on single-family homes in the United States dropped to the slowest pace since 1991.

Meanwhile, the Michigan report's gauge of one-year inflation expectations surged to 5.2 percent -- the highest since February 1982 -- from 4.8 percent in April.

Also worrying for policy-makers at the Federal Reserve, five-year inflation expectations were the highest since August 1996, edging up to 3.3 percent from April's 3.2 percent.

The inflation measures challenge the Fed's view that soaring commodity prices have not yet led to an increase in long-term expectations for price growth.

None of this should come as a surprise to people. Yet it probably is surprising, since we were fed a steady diet of lies for the past thirty years about the economy. For example, we have been told since the 1980s that making rich people richer will benefit everyone. That pritatizing government services will create efficiencies and improve services. That lowering taxes will increase government revenue. That social democracy will impoverish people and take away freedom. It was all a con job designed to implement predatory capitalism and to concentrate wealth in the hands of a few psychopathic elite.

If we weren’t so stupid in the United States, we could have this, according to David Seaton:

What I would like for the USA is first: a federal, universal, obligatory, public health system that would be so good that the private system would be reduced to preforming silicon breast implants on precocious 12 year old Valley girls. This would mean that a little black girl in Tupelo Mississippi would have the same medical care as a rich little white boy in Lake Forest Illinois.

Next I would like a free, federal, universal, public education system, from cradle through post graduate, that would be so good that only people belonging to strange sects, would think it worth the money to send their kids to a private school. Like the French Lycée system: the same all over the country, same courses, same exams, same standards for all students, so that the little black girl in Tupelo Mississippi would get exactly the same, quality education, as the rich little white boy in Lake Forest Illinois. All of this with a free public university system, so good that Harvard, Yale and Princeton would be reduced to diploma mills for rich kids that didn't want to study hard.

And a good pension system, of course. This what I consider the minimum a "progressive" should demand from the state. You might have a few questions.

Does this mean big government?

You bet. It would mean a huge, unionized, bureaucracy.

Wouldn't that be very expensive?

Horribly expensive.

How would you pay for it?

To start with I would reduce US military spending to make it only more powerful than the combination of China and Russia and not more powerful than the next 19 countries on the list all together. I would be grateful to see the numbers, but I imagine that setting up my version of America would cost a lot less than the war in Iraq.

Now it is easy to understand that from my viewpoint the Democratic Party of the USA is the greatest bunch of wankers since Tommy Chong's definitive, "Harry Palms". I am not sure that the Democrats are a path to the kind of America I would like, in fact they might be the greatest obstacle standing in the way. So while generally feeling more comfortable traveling in the company of Democrats, I am not rooting for them.

Having read and understood this, you may understand why I am often crueler to Democrats than to Republicans. With them, what you see is what you get, while with the Democrats we may be looking at nothing more than a Judas goat to neutralize the appearance of any social movement in America that might bring about social justice.

I think that all of this is something that the politicians really cannot be expected to do. The civil rights movement came from the African-American community's political agitation, the politicians bowed to that pressure. I think it will require mass movements, even a classic general strike to get my agenda taken care of. Barack Obama is not going to do any of this... people are fooling themselves if they think he ever will.

Or this, according to the blogger “Badtux the Snarky Penguin” who reminds us that energy deregulation was one of the biggest con jobs of all time:
Government is the problem?

Third day in a row of record heat here in Santa Clara. My air conditioning has been making my electric meter spin madly. I pity those of you who don't have cheap reliable government-provided electricity but instead must purchase that expensive unreliable private enterprise provided electricity for twice the price (or for those who can't purchase private enterprise provided electricity for any price and must rely on expensive diesel generated electricity). I might go walking down the street and take a few photos of that shiny glistening Santa Clara Muncipal Utilities power substation just so I can play them back as a slideshow on the background of my Macbook while smiling at the people who say "government is the problem, not the solution!" while I pay half as much for my power as they do thanks to the people of the City of Santa Clara gathering together and building their own power plants and power substations for themselves (that whole WE THE PEOPLE thingy).

When folks elsewhere are having blackouts, we have reliable electricity flowing to our wall outlets. When folks elsewhere are being reamed by private utilities, we pay half the price. AND THAT IS TRUE EVERYWHERE THAT MUNCIPAL UTILITIES PROVIDE ELECTRICITY! And it's not because Santa Clara Municipal Utilities is subsidized by taxes. Indeed, the City of Santa Clara has lower taxes than all the surrounding cities because of "in lieu of taxes" revenues from the electrical utility. It's simply that for necessities that we cannot easily live without such as electrical utilities, government is more responsive to the people than private enterprises are. Once a private enterprise has obtained monopoly status, it has no incentive to economize, reduce headcount, and increase its reliability. But for the City of Santa Clara, if the electrical utility becomes unreliable, we would start clogging our city councilors' phone lines with complaints -- and WE KNOW WHERE THEY LIVE. They aren't anonymous unelected people in some giant corporate tower thousands of miles away. They live HERE, and we voted them into office, and if they don't serve us, we can kick them out and elect city councilors who will, and if worse came to worse and dozens of people were dying from the heat because of their incompetence, we could get together with our baseball bats and pitchforks and run them out of town with their homes burning behind them.

Now, folks say that private enterprise always works better than government, and that's why we should not allow government to provide health insurance. To them all I have to say is this: Muncipal power companies, bitches. When you idiot ideologues were sweltering in the dark during the rolling blackouts in 2000, we few cities in California who own our own power companies were nice and cool. If Medicare For All operates with even HALF of the efficiency of Santa Clara Muncipal Utilities, it would still be TWICE as efficient as private insurance companies are at providing health care funding. And there's no reason to believe that Medicare For All would be any less efficient than Santa Clara Municipal Utilities.

So you guys who say private enterprise is always better than government can just go take out a third mortgage on your homes to pay for your electrical bills during this heat wave. I, on the other hand, shall pay for it with the contents of my change jar. Hasta la vista, baybee! And may someday we get government-provided health insurance as reliable as government-provided power. Government of the people, by the people, for the people. We The People, f*** yeah!

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Monday, May 12, 2008

Signs of the Economic Apocalypse, 5-12-08

From SOTT.net:

Gold closed at 885.80 dollars an ounce Friday, up 3.2% from $858.00 for the week. The dollar closed at 0.6459 euros Friday, down 0.3% from 0.6480 at the close of the previous Friday. That put the euro at 1.5482 dollars compared to 1.5432 the week before. Gold in euros would be 572.15 euros an ounce, up 2.9% from 555.99 at the close of the previous week. Oil closed at 125.96 dollars a barrel Friday, up 8.3% from $116.32. Oil in euros would be 81.36 euros a barrel, up 7.9% from 75.38 at the close of the Friday before. The gold/oil ratio closed at 7.03 Friday, down 5.0% from 7.38 for the week. In U.S. stocks, the Dow closed at 12,745.88 Friday, down 2.5% from 13,058.20 at the close of the previous Friday. The NASDAQ closed at 2,445.52 Friday, down 1.3% from 2,476.99 at the close of the week before. In U.S interest rates, the yield on the ten-year U.S. Treasury note closed at 3.77%, down nine basis points from 3.86 for the week.

The price of oil shot up last week by more than 8%. Various reasons have been trotted out for the rise in oil prices, but none of them seem to account for it. Oil prices have almost exactly doubled in the past year ($62.51 on May 11, 2007) at a time when supplies are plentiful and the world economy is weakening. A year ago, by comparison, gold was at $672 an ounce. Clearly we are seeing a commodity bubble nourished by the huge influx of money available to speculators from central banks, but oil has been rising so much faster lately that we can only conclude that insiders think the United States and Israel are about to embark on a suicidal course of attacking Iran, Syria and Lebanon in the remaining months of Bush’s term. Analysts are not directly saying this in the context of oil prices, though, preferring to use euphemisms such as “geopolitical fears.”
Oil hits record $126 on supply worry

Robert Campbell

May 9, 3:45 PM ET

NEW YORK (Reuters) - Oil jumped to a record above $126 a barrel on Friday, extending gains to more than 11 percent since the start of the month on fuel supply concerns and a rush of speculator buying.

U.S. crude settled up $2.27 at $125.96 a barrel before rising to a record $126.25 in late post-settlement trade. London Brent crude gained $2.56 to settle at $125.40 a barrel, off the earlier high of $125.90.

"It appears that any calculations that included waiting for the next pullback were discarded on the European opening this morning as waves of buying materialized, particularly from speculative interests," said Mike Fitzpatrick, vice president at MF Global.

Oil has surged since slipping as low as $110.53 a barrel on May 1. Investors have seized on disruptions to crude oil supplies in the North Sea and Nigeria, as well as galloping demand for distillate fuels, a category that includes diesel fuel and heating oil.

Strong demand for diesel fuel in Europe, along with the growing use of distillates for generators to supplement strained power grids in fast growing emerging markets, have cut into stocks of distillate fuel and pushed up prices sharply.

"Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast," said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

The steady rise in crude oil prices once again has turned the spotlight on the Organization of the Petroleum Exporting Countries (OPEC), which for months has insisted it has no control over the factors it blames for pushing up the price of oil, including speculation and the weak U.S. dollar.

An OPEC source said the group might consider boosting output before its next scheduled meeting in September should crude oil prices keep rising.
But Ecuador's oil minister said there were no plans for an early meeting.

"If the price keeps going up, OPEC may consult on an increase in production before it meets in September. In my view, any increase would have to be more than 500,000 barrels per day to have an impact on the price," said the OPEC source.

President George W. Bush said on Thursday he would bring up the subject of oil prices during talks with Saudi leaders during a planned trip to the Middle East from May 8-13.

Bush's trip to the region comes as the Iran-backed Hezbollah group seized the Muslim half of Beirut on Friday from fighters loyal to the U.S. backed governing coalition in the worst spate of violence in Lebanon since the country's 1975-90 civil war.

Although Lebanon is not an oil producer, civil unrest there has pushed up oil prices in the past, most recently in the summer of 2006 when Israel invaded Lebanon in an unsuccessful attempt to subdue Hezbollah.

It doesn’t take too much reading between the lines of the last two paragraphs in the above article to see what the “geopolitical fears” are. Cheney has already toured the Middle East. Bush is going there now while blaming Iran for U.S. setbacks in Iraq and Lebanon. Israel and the U.S. neocons have increased the pressure on Bush to attack Iran before leaving office, and they have been doing this very publicly. The only question that remain: Will the military carry out his orders? Will they need an “incident” to push public opinion along?

In other market news, stock fell last week, in part because Wall Street financial firms may have to actually let shareholders know what they are doing. What does this say about the system?

Wall Street fears the light

Loren Steffy

May 8, 2008

The fear in Wednesday's stock decline was palpable.

Wall Street was responding to the specter of transparency the way it always does — with alarm.

Big brokerage firms, led by Merrill Lynch and Lehman Bros., plunged after the nation's top securities cop called for more disclosure of Wall Street's finances.

The decline was the biggest in two months for financial stocks.

Securities and Exchange Commission chief Christopher Cox said his agency later this summer will require investment banks to make more capital and liquidity information public.

In other words, these publicly traded firms will have to give their investors a more accurate financial picture of what they're doing.

Those who own shares in investment banks have reason to worry.

The bright light of public scrutiny almost always costs Wall Street money.

It's an institution, after all, that profits most when it can exploit the ignorance of others.

Creature of the night

Wall Street prefers the dark, where it can control the information meted out to investors. It's no coincidence, after all, that market participation exploded with the advent of the World Wide Web, which made stock prices readily available with minimal delay to average citizens.

Nor is it surprising that companies such as Bloomberg became multibillion-dollar businesses by taking information once held exclusively in the dark hallways of Wall Street and making it available to those with money at risk.

In the 1970s, when the SEC forced Wall Street to disclose brokerage commissions, rates tumbled and Wall Street's profitability shifted to other businesses such as investment banking.

Something similar happened in the bond market.

As real-time pricing seeped in, investors could see the difference between their bids and the seller's asking price, known as the spread. The spread represented brokers' profit.

If you wanted to know the price of a municipal or corporate bond, you had to ask your broker.

You assumed he was giving you an accurate price and that he wasn't inflating the spread for his own benefit.

When pricing became more transparent, the spreads narrowed.

Information, after all, is the foundation of competition.

Worries no wonder

Is it any wonder, then, with Wall Street facing new disclosure demands over its finances that investors are worried?

Most investment banks provide some basic liquidity information in their quarterly financial statements, and some provide more detailed data to the SEC that the commission currently doesn't make public.

Cox's plan would require banks to disclose that information and provide more details about funding and capital ratios.

Eventually, firms also will have to reveal their concentrated exposure to key markets, he said.

For example, had the rule been in place this year, Bear Stearns would have had to discuss its vulnerability to the collapsing mortgage market.

International rules

Commercial banks already have to release this kind of data under the international standards by the Basel Committee on Banking Supervision, a 10-nation consortium of central bankers.

The Basel Committee is developing a new set of standards that would require similar disclosure from investment banks.

It's unclear whether better disclosure would have saved Bear Stearns.

Certainly, it would have given investors a clearer picture of what they were buying into.

Cox, of course, is on the defensive, facing questions from Congress and the investing public over the SEC's failure to head off Bear Stearns' demise.

Exposing time bombs

As the SEC stood on the sidelines, the Federal Reserve stepped in and brokered a fire sale deal to JPMorgan Chase, in part because it worried that Bear's failure would spark a cascade of financial institution failures that would reverberate through the short-term debt markets.

Cox's plan might not have prevented that, but it may have caused investors to question Bear's exposure to mortgage securities long before those holdings became fatal.

Who knows what other time bombs may be ticking on Wall Street's books?

What other financial risks have investment banks understated in the name of fast profits?

That's what Wall Street is worried about. When we turn on the lights, its party is over.

Sometimes, after analyzing such a sick system week after week, it’s a good idea to step back and think about what a healthy system would look like. Was there a fork in the road at some point in the past where we took a wrong turn?

The Gospel of Consumption
And the better future we left behind

Jeffrey Kaplan

Private cars were relatively scarce in 1919 and horse-drawn conveyances were still common. In residential districts, electric streetlights had not yet replaced many of the old gaslights. And within the home, electricity remained largely a luxury item for the wealthy.

Just ten years later things looked very different. Cars dominated the streets and most urban homes had electric lights, electric flat irons, and vacuum cleaners. In upper-middle-class houses, washing machines, refrigerators, toasters, curling irons, percolators, heating pads, and popcorn poppers were becoming commonplace. And although the first commercial radio station didn’t begin broadcasting until 1920, the American public, with an adult population of about 122 million people, bought 4,438,000 radios in the year 1929 alone.

But despite the apparent tidal wave of new consumer goods and what appeared to be a healthy appetite for their consumption among the well-to-do, industrialists were worried. They feared that the frugal habits maintained by most American families would be difficult to break. Perhaps even more threatening was the fact that the industrial capacity for turning out goods seemed to be increasing at a pace greater than people’s sense that they needed them.

It was this latter concern that led Charles Kettering, director of General Motors Research, to write a 1929 magazine article called “Keep the Consumer Dissatisfied.” He wasn’t suggesting that manufacturers produce shoddy products. Along with many of his corporate cohorts, he was defining a strategic shift for American industry—from fulfilling basic human needs to creating new ones.

In a 1927 interview with the magazine Nation’s Business, Secretary of Labor James J. Davis provided some numbers to illustrate a problem that the New York Times called “need saturation.” Davis noted that “the textile mills of this country can produce all the cloth needed in six months’ operation each year” and that 14 percent of the American shoe factories could produce a year’s supply of footwear. The magazine went on to suggest, “It may be that the world’s needs ultimately will be produced by three days’ work a week.”

Business leaders were less than enthusiastic about the prospect of a society no longer centered on the production of goods. For them, the new “labor-saving” machinery presented not a vision of liberation but a threat to their position at the center of power. John E. Edgerton, president of the National Association of Manufacturers, typified their response when he declared: “I am for everything that will make work happier but against everything that will further subordinate its importance. The emphasis should be put on work—more work and better work.” “Nothing,” he claimed, “breeds radicalism more than unhappiness unless it is leisure.”

By the late 1920s, America’s business and political elite had found a way to defuse the dual threat of stagnating economic growth and a radicalized working class in what one industrial consultant called “the gospel of consumption”—the notion that people could be convinced that however much they have, it isn’t enough. President Herbert Hoover’s 1929 Committee on Recent Economic Changes observed in glowing terms the results: “By advertising and other promotional devices . . . a measurable pull on production has been created which releases capital otherwise tied up.” They celebrated the conceptual breakthrough: “Economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants, as fast as they are satisfied.”

Today “work and more work” is the accepted way of doing things. If anything, improvements to the labor-saving machinery since the 1920s have intensified the trend. Machines can save labor, but only if they go idle when we possess enough of what they can produce. In other words, the machinery offers us an opportunity to work less, an opportunity that as a society we have chosen not to take. Instead, we have allowed the owners of those machines to define their purpose: not reduction of labor, but “higher productivity”—and with it the imperative to consume virtually everything that the machinery can possibly produce.

From the earliest days of the Age of Consumerism there were critics. One of the most influential was Arthur Dahlberg, whose 1932 book Jobs, Machines, and Capitalism was well known to policymakers and elected officials in Washington. Dahlberg declared that “failure to shorten the length of the working day . . . is the primary cause of our rationing of opportunity, our excess industrial plant, our enormous wastes of competition, our high pressure advertising, [and] our economic imperialism.” Since much of what industry produced was no longer aimed at satisfying human physical needs, a four-hour workday, he claimed, was necessary to prevent society from becoming disastrously materialistic. “By not shortening the working day when all the wood is in,” he suggested, the profit motive becomes “both the creator and satisfier of spiritual needs.” For when the profit motive can turn nowhere else, “it wraps our soap in pretty boxes and tries to convince us that that is solace to our souls.”

There was, for a time, a visionary alternative. In 1930 Kellogg Company, the world’s leading producer of ready-to-eat cereal, announced that all of its nearly fifteen hundred workers would move from an eight-hour to a six-hour workday. Company president Lewis Brown and owner W. K. Kellogg noted that if the company ran “four six-hour shifts . . . instead of three eight-hour shifts, this will give work and paychecks to the heads of three hundred more families in Battle Creek.”

This was welcome news to workers at a time when the country was rapidly descending into the Great Depression. But as Benjamin Hunnicutt explains in his book Kellogg’s Six-Hour Day, Brown and Kellogg wanted to do more than save jobs. They hoped to show that the “free exchange of goods, services, and labor in the free market would not have to mean mindless consumerism or eternal exploitation of people and natural resources.” Instead “workers would be liberated by increasingly higher wages and shorter hours for the final freedom promised by the Declaration of Independence—the pursuit of happiness.”

To be sure, Kellogg did not intend to stop making a profit. But the company leaders argued that men and women would work more efficiently on shorter shifts, and with more people employed, the overall purchasing power of the community would increase, thus allowing for more purchases of goods, including cereals.

A shorter workday did entail a cut in overall pay for workers. But Kellogg raised the hourly rate to partially offset the loss and provided for production bonuses to encourage people to work hard. The company eliminated time off for lunch, assuming that workers would rather work their shorter shift and leave as soon as possible. In a “personal letter” to employees, Brown pointed to the “mental income” of “the enjoyment of the surroundings of your home, the place you work, your neighbors, the other pleasures you have [that are] harder to translate into dollars and cents.” Greater leisure, he hoped, would lead to “higher standards in school and civic . . . life” that would benefit the company by allowing it to “draw its workers from a community where good homes predominate.”

It was an attractive vision, and it worked. Not only did Kellogg prosper, but journalists from magazines such as Forbes and BusinessWeek reported that the great majority of company employees embraced the shorter workday. One reporter described “a lot of gardening and community beautification, athletics and hobbies . . . libraries well patronized and the mental background of these fortunate workers . . . becoming richer.”

A U.S. Department of Labor survey taken at the time, as well as interviews Hunnicutt conducted with former workers, confirm this picture. The government interviewers noted that “little dissatisfaction with lower earnings resulting from the decrease in hours was expressed, although in the majority of cases very real decreases had resulted.” One man spoke of “more time at home with the family.” Another remembered: “I could go home and have time to work in my garden.” A woman noted that the six-hour shift allowed her husband to “be with 4 boys at ages it was important.”

Those extra hours away from work also enabled some people to accomplish things that they might never have been able to do otherwise. Hunnicutt describes how at the end of her interview an eighty-year-old woman began talking about ping-pong. “We’d get together. We had a ping-pong table and all my relatives would come for dinner and things and we’d all play ping-pong by the hour.” Eventually she went on to win the state championship.

Many women used the extra time for housework. But even then, they often chose work that drew in the entire family, such as canning. One recalled how canning food at home became “a family project” that “we all enjoyed,” including her sons, who “opened up to talk freely.” As Hunnicutt puts it, canning became the “medium for something more important than preserving food. Stories, jokes, teasing, quarreling, practical instruction, songs, griefs, and problems were shared. The modern discipline of alienated work was left behind for an older . . . more convivial kind of working together.”

This was the stuff of a human ecology in which thousands of small, almost invisible, interactions between family members, friends, and neighbors create an intricate structure that supports social life in much the same way as topsoil supports our biological existence. When we allow either one to become impoverished, whether out of greed or intemperance, we put our long-term survival at risk.

Our modern predicament is a case in point. By 2005 per capita household spending (in inflation-adjusted dollars) was twelve times what it had been in 1929, while per capita spending for durable goods—the big stuff such as cars and appliances—was thirty-two times higher. Meanwhile, by 2000 the average married couple with children was working almost five hundred hours a year more than in 1979. And according to reports by the Federal Reserve Bank in 2004 and 2005, over 40 percent of American families spend more than they earn. The average household carries $18,654 in debt, not including home-mortgage debt, and the ratio of household debt to income is at record levels, having roughly doubled over the last two decades. We are quite literally working ourselves into a frenzy just so we can consume all that our machines can produce.

Yet we could work and spend a lot less and still live quite comfortably. By 1991 the amount of goods and services produced for each hour of labor was double what it had been in 1948. By 2006 that figure had risen another 30 percent. In other words, if as a society we made a collective decision to get by on the amount we produced and consumed seventeen years ago, we could cut back from the standard forty-hour week to 5.3 hours per day—or 2.7 hours if we were willing to return to the 1948 level. We were already the richest country on the planet in 1948 and most of the world has not yet caught up to where we were then.

Rather than realizing the enriched social life that Kellogg’s vision offered us, we have impoverished our human communities with a form of materialism that leaves us in relative isolation from family, friends, and neighbors. We simply don’t have time for them. Unlike our great-grandparents who passed the time, we spend it. An outside observer might conclude that we are in the grip of some strange curse, like a modern-day King Midas whose touch turns everything into a product built around a microchip.

Of course not everybody has been able to take part in the buying spree on equal terms. Millions of Americans work long hours at poverty wages while many others can find no work at all. However, as advertisers well know, poverty does not render one immune to the gospel of consumption.

Meanwhile, the influence of the gospel has spread far beyond the land of its origin. Most of the clothes, video players, furniture, toys, and other goods Americans buy today are made in distant countries, often by underpaid people working in sweatshop conditions. The raw material for many of those products comes from clearcutting or strip mining or other disastrous means of extraction. Here at home, business activity is centered on designing those products, financing their manufacture, marketing them—and counting the profits.

Kellog’s vision, despite its popularity with his employees, had little support among his fellow business leaders. But Dahlberg’s book had a major influence on Senator (and future Supreme Court justice) Hugo Black who, in 1933, introduced legislation requiring a thirty-hour workweek. Although Roosevelt at first appeared to support Black’s bill, he soon sided with the majority of businessmen who opposed it. Instead, Roosevelt went on to launch a series of policy initiatives that led to the forty-hour standard that we more or less observe today.

By the time the Black bill came before Congress, the prophets of the gospel of consumption had been developing their tactics and techniques for at least a decade. However, as the Great Depression deepened, the public mood was uncertain, at best, about the proper role of the large corporation. Labor unions were gaining in both public support and legal legitimacy, and the Roosevelt administration, under its New Deal program, was implementing government regulation of industry on an unprecedented scale. Many corporate leaders saw the New Deal as a serious threat. James A. Emery, general counsel for the National Association of Manufacturers (NAM), issued a “call to arms” against the “shackles of irrational regulation” and the “back-breaking burdens of taxation,” characterizing the New Deal doctrines as “alien invaders of our national thought.”

In response, the industrial elite represented by NAM, including General Motors, the big steel companies, General Foods, DuPont, and others, decided to create their own propaganda. An internal NAM memo called for “re-selling all of the individual Joe Doakes on the advantages and benefits he enjoys under a competitive economy.” NAM launched a massive public relations campaign it called the “American Way.” As the minutes of a NAM meeting described it, the purpose of the campaign was to link “free enterprise in the public consciousness with free speech, free press and free religion as integral parts of democracy.”

Consumption was not only the linchpin of the campaign; it was also recast in political terms. A campaign booklet put out by the J. Walter Thompson advertising agency told readers that under “private capitalism, the Consumer, the Citizen is boss,” and “he doesn’t have to wait for election day to vote or for the Court to convene before handing down his verdict. The consumer ‘votes’ each time he buys one article and rejects another.”

According to Edward Bernays, one of the founders of the field of public relations and a principal architect of the American Way, the choices available in the polling booth are akin to those at the department store; both should consist of a limited set of offerings that are carefully determined by what Bernays called an “invisible government” of public-relations experts and advertisers working on behalf of business leaders. Bernays claimed that in a “democratic society” we are and should be “governed, our minds . . . molded, our tastes formed, our ideas suggested, largely by men we have never heard of.”

NAM formed a national network of groups to ensure that the booklet from J. Walter Thompson and similar material appeared in libraries and school curricula across the country. The campaign also placed favorable articles in newspapers (often citing “independent” scholars who were paid secretly) and created popular magazines and film shorts directed to children and adults with such titles as “Building Better Americans,” “The Business of America’s People Is Selling,” and “America Marching On.”

Perhaps the biggest public relations success for the American Way campaign was the 1939 New York World’s Fair. The fair’s director of public relations called it “the greatest public relations program in industrial history,” one that would battle what he called the “New Deal propaganda.” The fair’s motto was “Building the World of Tomorrow,” and it was indeed a forum in which American corporations literally modeled the future they were determined to create. The most famous of the exhibits was General Motors’ 35,000-square-foot Futurama, where visitors toured Democracity, a metropolis of multilane highways that took its citizens from their countryside homes to their jobs in the skyscraper-packed central city.

For all of its intensity and spectacle, the campaign for the American Way did not create immediate, widespread, enthusiastic support for American corporations or the corporate vision of the future. But it did lay the ideological groundwork for changes that came after the Second World War, changes that established what is still commonly called our post-war society.

The war had put people back to work in numbers that the New Deal had never approached, and there was considerable fear that unemployment would return when the war ended. Kellogg workers had been working forty-eight-hour weeks during the war and the majority of them were ready to return to a six-hour day and thirty-hour week. Most of them were able to do so, for a while. But W. K. Kellogg and Lewis Brown had turned the company over to new managers in 1937.

The new managers saw only costs and no benefits to the six-hour day, and almost immediately after the end of the war they began a campaign to undermine shorter hours. Management offered workers a tempting set of financial incentives if they would accept an eight-hour day. Yet in a vote taken in 1946, 77 percent of the men and 87 percent of the women wanted to return to a thirty-hour week rather than a forty-hour one. In making that choice, they also chose a fairly dramatic drop in earnings from artificially high wartime levels.

The company responded with a strategy of attrition, offering special deals on a department-by-department basis where eight hours had pockets of support, typically among highly skilled male workers. In the culture of a post-war, post-Depression U.S., that strategy was largely successful. But not everyone went along. Within Kellogg there was a substantial, albeit slowly dwindling group of people Hunnicutt calls the “mavericks,” who resisted longer work hours. They clustered in a few departments that had managed to preserve the six-hour day until the company eliminated it once and for all in 1985.

The mavericks rejected the claims made by the company, the union, and many of their co-workers that the extra money they could earn on an eight-hour shift was worth it. Despite the enormous difference in societal wealth between the 1930s and the 1980s, the language the mavericks used to explain their preference for a six-hour workday was almost identical to that used by Kellogg workers fifty years earlier. One woman, worried about the long hours worked by her son, said, “He has no time to live, to visit and spend time with his family, and to do the other things he really loves to do.”

Several people commented on the link between longer work hours and consumerism. One man said, “I was getting along real good, so there was no use in me working any more time than I had to.” He added, “Everybody thought they were going to get rich when they got that eight-hour deal and it really didn’t make a big difference. . . . Some went out and bought automobiles right quick and they didn’t gain much on that because the car took the extra money they had.”

The mavericks, well aware that longer work hours meant fewer jobs, called those who wanted eight-hour shifts plus overtime “work hogs.” “Kellogg’s was laying off people,” one woman commented, “while some of the men were working really fantastic amounts of overtime—that’s just not fair.” Another quoted the historian Arnold Toynbee, who said, “We will either share the work, or take care of people who don’t have work.”

People in the depression-wracked 1930s, with what seems to us today to be a very low level of material goods, readily chose fewer work hours for the same reasons as some of their children and grandchildren did in the 1980s: to have more time for themselves and their families. We could, as a society, make a similar choice today.

But we cannot do it as individuals. The mavericks at Kellogg held out against company and social pressure for years, but in the end the marketplace didn’t offer them a choice to work less and consume less. The reason is simple: that choice is at odds with the foundations of the marketplace itself—at least as it is currently constructed. The men and women who masterminded the creation of the consumerist society understood that theirs was a political undertaking, and it will take a powerful political movement to change course today.

Bernays’s version of a “democratic society,” in which political decisions are marketed to consumers, has many modern proponents. Consider a comment by Andrew Card, George W. Bush’s former chief of staff. When asked why the administration waited several months before making its case for war against Iraq, Card replied, “You don’t roll out a new product in August.” And in 2004, one of the leading legal theorists in the United States, federal judge Richard Posner, declared that “representative democracy . . . involves a division between rulers and ruled,” with the former being “a governing class,” and the rest of us exercising a form of “consumer sovereignty” in the political sphere with “the power not to buy a particular product, a power to choose though not to create.”

Sometimes an even more blatant antidemocratic stance appears in the working papers of elite think tanks. One such example is the prominent Harvard political scientist Samuel Huntington’s 1975 contribution to a Trilateral Commission report on “The Crisis of Democracy.” Huntington warns against an “excess of democracy,” declaring that “a democratic political system usually requires some measure of apathy and noninvolvement on the part of some individuals and groups.” Huntington notes that “marginal social groups, as in the case of the blacks, are now becoming full participants in the political system” and thus present the “danger of overloading the political system” and undermining its authority.

According to this elite view, the people are too unstable and ignorant for self-rule. “Commoners,” who are viewed as factors of production at work and as consumers at home, must adhere to their proper roles in order to maintain social stability. Posner, for example, disparaged a proposal for a national day of deliberation as “a small but not trivial reduction in the amount of productive work.” Thus he appears to be an ideological descendant of the business leader who warned that relaxing the imperative for “more work and better work” breeds “radicalism.”

As far back as 1835, Boston workingmen striking for shorter hours declared that they needed time away from work to be good citizens: “We have rights, and we have duties to perform as American citizens and members of society.” As those workers well understood, any meaningful democracy requires citizens who are empowered to create and re-create their government, rather than a mass of marginalized voters who merely choose from what is offered by an “invisible” government. Citizenship requires a commitment of time and attention, a commitment people cannot make if they are lost to themselves in an ever-accelerating cycle of work and consumption.

We can break that cycle by turning off our machines when they have created enough of what we need. Doing so will give us an opportunity to re-create the kind of healthy communities that were beginning to emerge with Kellogg’s six-hour day, communities in which human welfare is the overriding concern rather than subservience to machines and those who own them. We can create a society where people have time to play together as well as work together, time to act politically in their common interests, and time even to argue over what those common interests might be. That fertile mix of human relationships is necessary for healthy human societies, which in turn are necessary for sustaining a healthy planet.

If we want to save the Earth, we must also save ourselves from ourselves. We can start by sharing the work and the wealth. We may just find that there is plenty of both to go around.

If we are given only “the power to choose and not to create” as Richard Posner put it, and or choices are narrow and predetermined, then the only way out is to engage in true creativity and truly free choice. Just turning off our machines is not enough, we need to no longer be machines. During the First World War, G. I. Gurdjieff put in very stark terms what the consequences would be if we didn’t stop being machines:
“People are machines. Machines have to be blind and unconscious, they cannot be otherwise, and all their actions have to correspond to their nature. Everything happens. No one does anything. ‘Progress’ and ‘civilization,’ in the real meaning of these words, can appear only as a result of conscious efforts. They cannot appear as a result of unconscious mechanical actions. And what conscious effort can there be in machines? And if one machine is unconscious, then a hundred machines are unconscious, and so are a thousand machines, or a hundred thousand, or a million. And the unconscious activity of a million machines must necessarily result in destruction and extermination. It is precisely in unconscious involuntary manifestations that all evil lies. You do not yet understand and cannot imagine all the results of this evil. But the time will come when you will understand.” (from In Search of the Miraculous, by P.D. Ouspensky)

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