The Haiku of Finance for 10/20/15

Decadent elite
Reformist impulse absent
Please step aside now

The Haiku of Finance for 02/14/14

The rich love to vote
They want to buy even more
Republic for sale

Two Plutocrats No Longer Hide Contempt For America

Some of the wealthiest among us have taken the gloves off.  They have just declared war on the right of a free people to govern themselves and the promise of upward mobility.  Tom Perkins told the Commonwealth Club that voting rights in a democracy should be apportioned by tax burden, commensurate with personal wealth.  I would have agreed with his criticisms of the welfare state up until he lost me with that one comment.  Bud Konheim over at luxury clothing maker Nicole Miller thinks Americans making $35K/year would be okay living in India.  Hey dude, if they move to India they definitely won't be making $35K anymore.  

The Yahoo Daily Ticker crew did a good job deconstructing both statements.  They did this without saying the word "plutocracy," which still frightens mainstream media players.  We can fear something less once we name it.  I have criticized plutocracy on my blog for the imbalance it brings to our systems of justice and politics.  I have also recognized the stabilizing function that hereditary elites play in the stewardship of important cultural institutions and unifying symbols.  Our nation's Founders were largely plutocratic and wrote a balanced Constitution that would prevent factions from appropriating wealth.  The rule of law mattered back then.  Today's plutocrats appear to be inching away from the Founders' consensus on governance.  

A minority opinion is emerging among the top 1% that democracy and upward mobility are no longer a fitting vision for uniting Americans.  Mr. Perkins and Mr. Konheim appear to have made unscripted remarks, so I can't qualify these comments as deliberate trial balloons that elite institutions have vetted.  I'll wait for the formal policy papers to sneak out of the usual think tanks.  The comments' spontaneity makes them all the more genuine as deeply held beliefs.  I don't know if a Rockefeller or Carnegie of days gone by would have made such comments in public or kept them confined to the gentlemen's club humidor room.  Perhaps the indiscipline of their release shows a decline in the quality of our elite from the time when WASPs ruled America.  The new meritocratic elite is learning to have contempt for America.  

Democracy and upward mobility have largely been myths in America.  They were useful myths as long as a WASP elite could point to successful exemplars of each as proof that America worked as a nation.  Joseph Campbell knew that myths have power.  These myths, and the flexibility of public institutions, enabled America to maximize its amazing gifts of geography and natural resources.  Viable myths combined with free markets and expansive elections to generate prosperity.  The obvious displeasure our elite now shows with these myths implies they are searching for new unifying myths, in the service of a new definition of prosperity.  Most Americans will not be comfortable being left out of that definition.  There are at least two plutocrats among us who are betting that we won't care.  

The Haiku of Finance for 02/10/14

Supreme rule of law
Protection from plutocrats
Ultimate fairness

Supreme Rule Of Law From The High Court

Tonight's Commonwealth Club talk on the Supreme Court by the publisher of SCOTUSblog was an excellent inside view into the mechanics and personalities of jurisprudence.  I am no legal scholar, so I can't weigh in on how to define concepts like the doctrine of privacy and personal autonomy.  I analyze text and data before I make intuitive leaps, and legal doctrine without a textual confirmation is beyond my ability to define.  The historical observation that the SCOTUS likes executive authority, and defers to it when national survival is at stake, deserves its own cultural context.

Two recent Supreme Court decisions influence the financial subject matter I address on this blog.  The first is Citizens United v. Federal Election Commission, which removed any restrictions on corporations' independent political expenditures.  The second is National Federation of Independent Business v. Sebelius, which upheld the individual mandate for health insurance as a constitutional tax.  These two decisions have handed large corporations an enormous amount of power of the lives of individual Americans.   Private citizens cannot outspend a business lobby on campaigns.  Private citizens can be legally compelled to purchase goods and services.  

The two cases above are different in specifics from the Court's traditional deference to executive prerogatives but they are cut from the same cultural cloth.  Corporate capture of the executive's regulatory structure is so obvious as to be unremarkable.  The individual citizen is now subject to the whims of plutocracy in potentially any aspect of life.  Persistent surveillance programs make this control more pervasive than ever.  I do not know the SCOTUS's role in reviewing mass digital surveillance, so it will be interesting to watch them deliberate in the event a case is ever on the docket.  Sen. Rand Paul wants to get them a case ASAP.  

The inside baseball on the SCOTUS justices' conviviality was remarkable.  The justices get along despite their ideological differences.  They all share common cultural outlooks that easily fit urbane, cosmopolitan habits.  Their universal lack of rural roots explains their reluctance to embrace an expansive interpretation of the Second Amendment.  That is a small symptom of the gulf between the urban elite and the rural proletariat.  Our national fascination with "Duck Dynasty" notwithstanding, the coastal media elites just can't grok the culture of flyover country.  The Supremes' outlook reflects this plutocratic sensibility.  

I must remind my readers that the US ranks 19th on Transparency International's Corruption Perceptions Index and 12th on the Heritage Foundation's Index of Economic Freedom.  The world's largest economy in GDP is not number one in the rule of law.  Supreme Court rulings that entrench the power of elite economic institutions will likely further erode these US rankings.  Americans don't seem to mind as long as a redistributive tax system supports entitlement programs.  Readers of the Alfidi Capital Blog know that those entitlements cannot count on indefinite funding.  Supreme Court deliberations may not be sufficiently expansive to consider the socioeconomic effects of legal precedents that allow elite entrenchment.

The Founding Fathers were plutocrats themselves but they never envisioned government as an agent of wealth redistribution.  They did envision the Supreme Court as a balance to executive and legislative power.  They also envisioned the Bill of Rights as a popular balance to the government's power.  The balance tips in favor of the executive and its captured bureaucracies with every deference to executive power and its corporate support.  An indefinite crisis atmosphere makes for indefinite deference.  Today's plutocracy is not as wise as our original Founders but has more complete control mechanisms.  Americans should know the role of today's Supreme Court but that asks too much of a supine people.  

Choosing Between Meritocracy And Topocracy

Topocracy is a counterpoint to the meritocratic distribution of rewards within an economic network.  This isn't some mere theoretical description of how economies behave as their structures mature.  It's a description of reality as plutocratic regimes become entrenched in modern economies.

Contrast the Arrow-Debreau model of supply-demand equilibrium with the Sonnenschein–Mantel–Debreu theorem that individual rationality does not necessarily lead to macroeconomic rationality.  This is not intuitive; Kantian reasoning tempts us to believe that rational actors everywhere would construct a rational world even without a deliberate attempt to do so.  The lack of rationality in humans, such as with the inability to apply Bayes' Theorem or game theory in thinking, begs theoreticians to construct explanations that account for non-rational economic actions.  This leads academics to the study of the tension between topocracy and meritocracy in a world where a perfect Arrow-Debreau equilibrium does not always hold for every commodity.

Serious students of these topics are welcome to peruse "To Each According to its Degree: The Meritocracy and Topocracy of Embedded Markets" from Scientific Reports.  One doesn't need an understanding of advanced mathematics to comprehend the study's implications.  Social networks have costs, and those costs channel rewards to economic actors favored by "nodes" of connectivity regardless of whether they produce things of value.  A plutocratic society skews these reward channels upward through manipulation of the legal and political systems.  Increasing income inequality is the result.  Economic advantage is locked into the most robust social networks.  Members of lower social classes find themselves locked out of opportunities to join social networks that channel excess economic rewards upward to the ruling elite.

The choice between meritocracy and topocracy is never completely mutually exclusive.  Economies have always been inseparable from social networks.  Only the complete disintermediation of all production, all consumption, and all knowledge from social connections would theoretically eliminate the possibility of topocratic rewards skewed to those of high connections and status.  The greatest promise of additive manufacturing (3D printers allowing anyone to design and produce), automation (the possibility of production anywhere, anytime), and MOOCs (free education and knowledge) is the potential to confine topocracy to a very small portion of the economy.  The convergence of those three forces can unleash a meritocratic economy that bypasses plutocratic social nodes.  

Ebenezer Scrooge Among America's Modern Plutocracy

I saw ACT's performance of "A Christmas Carol" last night.  This is a long-standing habit in my holiday repertoire and the holidays aren't over for me until I've witnessed my usual circuit of performing arts events.  The performers tended to stay in character for the curtain call, typical of those live performances intended for family audiences.  Most children aren't mature enough to understand that actors are allowed to acknowledge the audience in their true identities after a show.  Retaining their guise as characters makes a morality tale just a little bit more real for the youngsters.

Ebenezer Scrooge is the focus of the show's moral lesson.  We are all supposed to surrender greed and selfishness once we see their dire consequences.  Morality tales are a form of cultural programming.  The programs run while the programmers remain as invisible to the audience as the stage director and producer for "Carol."  Charles Dickens wrote the original story with his audience and patrons in mind.

Cultural programming exists to instruct the masses on pro-social behavior.  A mass audience is attuned to emotional cues that signify behavioral turning points.  Lighting, special effects, an actor's raised voice or pained expression, and dramatic music all show us what we should believe.  Hollywood and Madison Avenue learned the lessons of drama honed over thousands of years of live theater.  These lessons program mass behavior.  Most cultural elites are resistant to these lessons.  After all, they are sufficiently cognizant of these techniques that they can recognize when they're being played.  Carroll Quigley described the plutocrats' institutional structure, Leo Strauss defined their ideology, and Edward Bernays updated their control techniques.

Thomas Malthus' opinions on demography would have been known in Charles Dickens' time when he wrote A Christmas Carol.  He ensures the Scrooge character hears his complaint about "surplus population" thrown back in his face by one of his haunting spirits.  A mass audience is gratified at this illusion.  An elite audience in America today would just chuckle that such a conversion would resonate with the powerless.  Lesson transmitted, emotions triggered, agitation neutralized, revolution prevented, mission accomplished.  We fooled the proles once again into thinking they don't need a regime change as long as we demonstrate a change of heart.  Jeeves, another glass of cognac, please, while we carry this sales pitch's tie-in through the new year.

Let me tell you about the very rich, said F. Scott Fitzgerald in "The Rich Boy," because they are very different from you and me.  Readers in the middle and lower classes get to watch a plutocrat transform into a benefactor in Dickens' Carol.  The real world isn't so fanciful.  Today's American plutocrats are more likely to exhibit brazen ethical deficiencies than other classes.  The lack of criminal punishment for Wall Street's financial crimes in the 2008 crisis has not gone unnoticed.  We all see this behavior and the cultural programming begins to lose its instructive power in the face of obvious injustice.  Even the unschooled experience cognitive dissonance.  Our country's lower classes are now addicted to EBT cards and unemployment benefits because our plutocracy fears their unrest.  The wealthy watch YouTube like the rest of us.  Videos of EBT cardholders ransacking Wal-Mart and low-income shoppers rioting over athletic shoes make our ruling class ponder alterations to the message.

Changing the message won't suffice this time.  Information technology has empowered the lower classes with real-time intelligence on the ruling class's actions.  The Occupy movement, despite its obviously contrived origins, figured this out and that's why its revival in another economic crisis can get out of hand.  The revolution won't just be televised, it will be webcast and Tweeted.  "Anonymous" hackers aren't all government plants; some of them mean business and can penetrate proprietary systems.  The tinder box of class warfare awaits its lit fuse.  Any macroeconomic Black Swan - a market crash, an EBT payment failure, an oil supply shock, a sovereign default, a hyperinflationary neat idea from "Calamity Jane" Yellen at the Fed - will send our system farther south than it traveled in late 2008 and early 2009.  The plutocracy risks being unable to stabilize the system in time to prevent social unrest.  I don't think they want to witness a Dickensian nightmare come true.

Dickens' story is very much in the tradition of noblesse oblige that cemented the ruling class to other classes in Anglo-American culture.  It should be more than a meme useful in elite-sponsored programming.  Generosity is good in and of itself.  Warren Buffett and Bill Gates made The Giving Pledge widely known.  High-profile giving is of course another form of programming.  Recipients steer business to donors because, as some say on Wall Street, money never sleeps.  The Wall Street Journal admits that today's grasping, vicious ruling class is far less talented in governance than the WASPs of yesteryear.  The revival of noblesse oblige by the meritocrats behind The Giving Pledge may be some hope for social stability in an America no longer governed by hereditary WASPs.

My readers know that I believe military service is a worthwhile rite of passage for a civilization's leadership cadre.  Our post-WASP plutocrats no longer endorse this sentiment.  They need to wake the heck up.  Civilizations have looked to military leaders for salvation throughout history because nothing is more determinant of a nation's fate than success or failure in war.  Veterans embody the spirit of generosity that Dickens celebrated in Carol.  Writing a blank check to Uncle Sam, payable with one's life, is a donation even Scrooge couldn't manage.

The conventional view of Charles Dickens' writing emphasizes his sympathy for the poor and his skepticism of class privilege in capitalism.  There's nothing wrong with the message of Carol at all.  There is something wrong with a ruling class that doesn't practice its own preaching.  Only America's plutocrats can make this right.  If they elect not to make a course correction, they are welcome to enjoy the sad fate that Scrooge avoided in Carol.  

Getting In Touch With My Inner Plutocrat

This week I attended a reception at one of San Francisco's exclusive membership clubs.  I won't say the club's name and I can't even prove I attended because photography is discouraged inside.  No matter.  You can trust me.  The finance types who invited me were absorbed in their banter about families, sports, and alumni gatherings.  I made minimal niceties and paid close attention to my larger surroundings.

The club members in attendance were well-dressed, well-coiffed, and well-heeled.  They were almost all over fifty years old but they still looked very attractive for their ages.  The men had chiseled jawlines and the women had firm derrieres.  They were at the pinnacle of their earning years and professional reputations.  That's why they could afford membership in this club.  They can also afford the healthy diets and advanced medical care that will maintain their physical attributes.  Attractiveness is a self-fulfilling prophecy.  Nothing succeeds like success.

The interactive relationship between physical attractiveness, social status, and innate characteristics is undeniable.  The social sciences have substantiated that outward physical indicators of good health - high cheekbones, clearly defined jawlines, symmetrical faces - correlate with specific biochemical markers for longevity and fecundity.  Handsome people produce more testosterone, which by itself is a major determinant of athletic performance and resilience under stress.  Those things are enough to do well in life and accumulate the trappings of success.  Tribes want their best warriors in the hunt.  Humans look up to their betters and reward them with status.

The reward mechanism has now generated its own permanent feedback loop.  The hunt's winners now have a multi-generational advantage thanks to intermarriage and inheritance.  They are permanent residents on Mount Olympus and I was allowed to visit them for one evening.  They are quite a spectacle to behold.

I have spent years studying their ways to understand how I can replicate their patterns of behavior and thus achieve comparable success.  I have discovered that behavior has nothing to do with success.  Any combination of persistence, education, and demonstrated competence is only so much cargo-cult thinking because it cannot replicate the true source of intergenerational success.  That source is the bloodline.  Hereditary elites evaluate each other as business partners and soul mates using the same criteria they use to evaluate the polo horses in their stables and the hunting dogs in their kennels.  No entry to these circles is possible with a proper introduction from the household majordomo.  The lords tolerate guests long enough to compare themselves favorably to their lessers.  One does not enter the noble household by marriage unless one has a household of one's own, coat of arms and all.

This understanding confirms my own social standing.  Whatever wealth or status I earn on my own is a mere flyspeck in the eyes of those who have been raised to preserve several hundred years of family privilege.  Such privilege is not shared lightly.  Interlopers must explain themselves when summoned or vacate the premises immediately.  The lucky few commoners may ascend to majordomo status once they prove capable of protecting the precious bloodline.

The path to power for the powerless runs through the most transparent of fault lines.  I have passed a few tests and more remain.  Penetrating the plutocracy means becoming one with the moral imperative to maintain the social order.  Healthy civilizations require control mechanisms and course corrections.  Skilled navigators are in demand among those who can afford to fund exploration.  The Mayor of the Palace often ends up running things when the absent-minded owner becomes too derelict from inbreeding to care about results.  The Anglo-West's plutocracy needs me more than they know.  They also know where to reach me.

San Franciscans Misunderstand Middle Class Erosion at Commonwealth Club

I really like being a member of the Commonwealth Club of California but sometimes the people who attend lectures there need to be smacked upside their stupid little heads.  Today I attended a noontime panel on the danger facing America from a skewed allocation of wealth.  I'm pretty sure there was more collective intelligence among the three panelists than among everyone in the audience (minus me, of course, because my intellect reigns supreme).

The panelists correctly identified the risk of social instability from the erosion of the middle class, which in many societies throughout history has prevented open class conflict between the proletariat and plutocratic classes.  They noted that a majority of the US's GDP growth is now generated in a minority of its metropolitan statistical areas.  They also noted that the gap between rich and poor cities is increasing and persistent, with some cities becoming permanent enclaves of wealth and innovation.  It should go without saying that high-tech sectors generate a wealth multiplier effect that supports skilled service trades but the idiots protesting outside Twitter will never figure that out.

One economist on the panel was kind enough to identify some key factors that drive commercial real estate investment.  We've all heard the mantra about location, location, location for retail outlets.  Large commercial projects take it further into six factors:  income levels in a region; types of jobs available (especially high-skill, high-income); quality and availability of skilled labor; education; civic infrastructure; and the regulatory environment for business.  She noted that the US is falling behind other countries in middle-class job creation, infrastructure investment, and economic mobility.

It pays well to have expert panelists correctly diagnose a problem only if the audience members can absorb the lessons.  Sadly, that may be asking too much of the average San Franciscan.  The audience's questions expressed desires to redistribute wealth and raise taxes to spend more on public education.  That is the kind of failed statist thinking that has contributed to the destruction of the middle class.  Centrally planned redistribution has brought middle class entitlement programs to the brink of insolvency.  The public education model no longer delivers increased value for marginal increases in spending.  Putting more money into either of these failed paradigms will only exacerbate the middle class's woes with more taxes and less benefit.

The panelists knew the way ahead but the audience could see neither the forest nor the trees.  One panelist cited San Francisco's restrictive housing ordinances and "inclusive zoning" as a hindrance to development.  Competitive housing markets allow development and attract affordable housing.  The difficulty I see with getting from problem to solution was right there in the room.  The audience members from San Francisco love rent control and the quaint character of neighborhoods frozen in time.  No way are they ever going to vote for politicians who can give The City the policy reform it needs to make affordable development happen.  Just look at the anti-Twitter loudmouths on the street.  Try telling them that gentrification moves lower-income renters into areas where developers will meet their demand for low-income housing.  They won't understand and neither will most educated San Franciscans.

The cognitive dissonance the audience members expressed was amusing.  One guy asked what it would take to fill the high vacancy rate among East Bay and South Bay commercial properties with "high-paying jobs" (I think he meant business tenants, but he was an idiot).  A panelist later said that many urban areas would have to undergo a prolonged period of contraction to a sustainable level of concentration, starting with Detroit.  I may have been one of a few people in the room who saw the connection.  Read my own blog posts on Detroit.  Those vacant offices and stores in the Bay Area will remain vacant because their regions were overbuilt, and now they must be unbuilt.  No amount of job training will fix it until unused office space becomes farmland.

I would have started laughing in people's faces if this seminar had lasted one minute longer.  None of these idiots have a clue about why society is falling apart.  They need to read the panelists' works (specifically Dr. Enrico Moretti's The New Geography of Jobs, Dr. Claude Gruen's New Urban Development,  and Dr. Asieh Mansour's research) but I'm pretty sure they won't.  If they do, they won't learn anything that will change their minds.  I know exactly how to solve the middle class crisis and it won't be pretty.  Here it comes.  Entrepreneurs spawning MOOCs will cut the cost of education and eliminate the debt burden preventing young college graduates from saving for a home or starting a family.  The public education establishment and its union drones will fight that tooth and nail until they earn the public's wrath.  Smart urban growth will favor multi-use urban infill development that civic infrastructure can serve efficiently.  The enemies of common sense will close ranks to defend rent control and inclusionary zoning until municipalities that do favor those reforms attract all of the wealth creators away from San Francisco.  Only then, when all looks lost, will common sense return to the city by the bay after all of our current foolishness has been discredited.

I've always liked one of the quotes from T.R. Fehrenbach's This Kind of War that says something about how most human beings abhor competition, and that is why most people are acted upon by history instead of being the actors.  I will act upon these audience members as much as my will to power will allow and they will like it.  I took as many chocolate chip cookies as I could on the way out of the Gold Room because I didn't want them going to waste among anti-development fools.  Much of the knowledge available at the Commonwealth Club is similarly wasted on people who won't use it.  

The Haiku of Finance for 10/24/13

High-end retailer

Luxury goods and service

Plutocrat client

Saving College Really Means Saving Securitized Student Loans

The Administration has a bold plan designed to keep American youth flowing into the post-secondary education pipeline.  This plan will rate institutions of higher education on the quality of after-college careers their graduates achieve and steer more federal grant money to those colleges that score well.  I think this plan is brilliant in several ways (from a plutocratic perspective, anyway).

It will reward those universities whose graduates gravitate toward high-paying occupations.  The Ivies and Seven Sisters alumni who go into law, finance, and corporate management will see their schools richly rewarded.  The for-profit diploma mills whose grads head back to the fast food counter will get nothing.  This will accelerate the college market shakeout that is long overdue.  A large number of people don't belong in college, so fewer colleges means more workers don't need to waste their time with something beyond their ability.

The next part of the plan's brilliance lies in its perpetuation of student loan indebted servitude.  It does little  to control students' costs.  It continues funding Pell grants and does not make student loans dischargeable in bankruptcy.  Helping economically disadvantaged students is nice but it will come at the expense of middle class students who will continue to be priced out of college unless they take out enormous loans.

Most significantly for the financial markets, the plan grandfathers pre-2008 loans as ineligible for income-based repayment plans.  This preserves the value of cash flows from students to loan servicers to holders of securitized student loan pools.  The Administration's plan is thus a backstop (or "bailout" if you please) for the valuations of collateralized Sallie Mae securities in the portfolios of every pension fund in the US.  That is the single most important thing to know about any plan for education reform in the US.

I like the plan's allowance for experimentation with competency-based models and MOOCs.  Those concepts will succeed just fine without federal funding so this federal "help" will probably end up corralling them into something the educational establishment can control.  That control will never succeed, of course, but regulators are going to try.  Information wants to be free and much of what we know as education will soon be free thanks to MOOCs.

The myth that credentialing leads to rising income and social status has served the nation's elite well as a cash cow.  It will disappear only after much resistance and probably a round of hyperinflation.  

Defining The American Lumpenproletariat

Every civilization is ultimately defined by the goals and cohesion of its ruling class.  Their lives and deeds become the stuff of legend and their visages are fit for monuments.  Let's not forget the lower orders, who get no monuments.  The term "lumpenproletariat" has a bad reputation.  Forget its Marxist origins.  Karl Marx was wrong about collectivism replacing capitalism but his class definitions are still convenient descriptions of society.  George Orwell's proles actually existed in his day.  America has its own prole class.

The low-information voter is a prole.  These are the folks who vote for politicians based on charm, dress, hobbies, and family image.  They don't have time to read position papers or party platforms because some ball game or reality show is on TV.  They don't read news commentary because they're too busy clicking "like" on some Photoshopped meme going around.  Political operatives generate memes that supplant critical thinking and the best memes win elections by swaying the low-information voter.

The welfare queen is a prole.  This part of the American caste system has grown by several orders of magnitude in my lifetime thanks to SNAP/EBT, SSI, and other forms of the dole.  Their planning horizon extends precisely to the collection date of their next benefit, no farther.  They may be goaded into performing marginally useful labor from time to time if benefit collection is conditioned on said performance.  Some of their number are habitual criminals and must always be monitored.  The rest are a source of amusement.

Unsophisticated country folk are proles.  I won't repeat their more derogatory synonyms here.  They escape the attention of the bi-coastal ruling elite because they inhabit the farms, woods, and mountains of this great country of ours.  Most of them grow our food and fix our machines.  The best of them have given us American roots music and other styles of entertainment.

I for one am grateful that the proles exist.  Someone has to do the hard work and mindless consumption in society and it might as well be the unfortunate folks at the low IQ end of the bell curve.  Automation may change that within a generation.  Elites need to start thinking up something for all these proles to do to keep them occupied.  Social safety nets are insurance against the proles' revolt but their lack of class consciousness is their primary inhibiting factor, as George Orwell correctly assessed.  

All Aboard For UN Agenda 21 In America

Agenda 21 is the United Nations' suggested policy architecture for sustainable development.  I completely endorse both its spirit and details.  I'll leave aside the straw man arguments charging its proponents with socialism.  You'll read those vituperative objections all over the right-wing blogosphere and they just don't hold water.  Agenda 21 is not a treaty and does not have the force of law in the United States.  It is a framework for solving development problems that local communities may implement as they see fit.  American communities are in sore need of some best practices to mitigate suburban sprawl.

The American preference for suburbia is a unique cultural pattern. The rural configuration of unused but fertile cropland (aka lawn space ) transplanted into an urban setting is a high-entropy lifestyle that encourages waste.  Dense living is common in Asia and parts of Europe.  It has been overdue here ever since the frontier closed, specifically the admission to statehood of those territories West of the Rockies.

I have lived in and visited major Asian cities.  They work just fine with robust mass transit and realistic expectations about livable space.  I lived in the greater metropolitan area of Seoul for a total of over two years.  Air pollution only became a serious problem there once South Koreans began to adopt the American car-centric culture.  Speaking of which, dense urbanism was reality in American cities until the postwar era when automakers and oil companies funded campaigns to remove urban light rail and bus service all across the US.  Check out the exhibits at the Western Railway Museum in Suisun City, California if you question my facts.

The preference for big cars, suburban homes, and random driving excuses is a lifestyle enabled by several factors:  two generations of Detroit's ad campaigns (thank GM's employment of Bernays' techniques) and large discoveries of light sweet crude in the US and Saudi Arabia.  Well, Detroit is bankrupt because the US middle class can't afford its gas guzzlers anymore and the US's oil shale boom isn't reducing gas prices at the pump. That golden age is over.  Feel free to do the math on how to sustain a suburb-centric civilization at a time when the disposable incomes of the suburban middle class are declining.  Yes, I'm serious.

Hybrid-electric cars for everyone in the suburbs are not a completely sustainable solution.  Think how much heavier the drive trains are on hybrids and electric cars than the drive trains of internal combustion cars.  Heavier cars wear out roads faster and their drivers don't pay the gasoline taxes that fund the Federal Highway Trust Fund.  Widespread hybrid adoption to maintain the suburban lifestyle fantasy will accelerate road degradation!  The Mineta Transportation Institute and other policy think tanks have done the math.

Government already has the authority to determine land use.  It's called zoning.  I'm not allowed to build a single family home at One Market Street because it's zoned for commerce.  Nor can I develop a 30-story office skyscraper here in the Outer Sunset on my block because it's zoned for residences.  Government can and does determine what can be built where because development drives the public infrastructure that our taxes must fund to enable said development.  Please compare the per-mile maintenance cost of light rail versus asphalt road and then state which is more cost-effective for our taxes to maintain.  Dense development is better for taxpayers because municipalities can build and maintain public infrastructure more efficiently.

The ugliness of uncontrolled urbanization is evident all around Northern California.  My hometown of Sacramento is now a greater metropolitan area that has absorbed the farm towns that used to be geographically distinct.  I could never tell where Rancho Cordova ended and Citrus Heights began whenever I drove from Folsom Boulevard to Sunrise Avenue.  The East Bay is just as bad; Walnut Creek, Lafayette, Concord, and other cities all kind of blend into each other at some point.  Everything south of San Francisco is a big overdeveloped mess.  Whatever charm was once found in San Mateo and Burlingame is now lost among too many buildings.  One point of Agenda 21 is to promote community integrity by preserving greenbelts and other natural boundaries.

Homework assignments, if you're interested . . . Charles Hugh Smith's "Of Two Minds" blog . . . New Urbanism . . . Plateau Oil (not Peak Oil, as new technology has always successfully postponed that event).  These are among many sources that document the costs of urban sprawl.  Agenda 21 presents a framework for reducing the costs of urbanization in ways that respect traditional communities.  I'm all in favor of using some Agenda 21 ideas where appropriate in the San Francisco Bay Area.  

The Haiku of Finance for 05/28/13

Plutocratic rule
Global wave of the future
Stable at the top

The Limerick of Finance for 12/16/12

Crony capitalists shout hooray
For bailouts the rest of us pay
There will be some more
So quit keeping score
Just wait for the reckoning day

"Strong" Estate Tax Targets Middle Class And Ignores Super-Rich

Warren Buffett wants a strong estate tax.  This has a populist, common sense appeal in light of his advocacy for higher income taxes and generous charitable giving pledge.  Uncle Warren's argument is that plutocratic-enabling tax policies harm democracy.  Let's consider the circumstances of today's plutocracy to determine whether any changes in tax policy will really weaken their hold on power.

The estate tax plan from United for a Fair Economy, which Mr. Buffett has endorsed, reduces the estate tax exemption threshold from $10M to $4M.  This will harm the middle class and those who try to raise their status into the upper middle class more than it will harm billionaires.  The ultra-rich who signed up for Mr. Buffett's big giving pledge have already structured their estates to pass into tax-free foundations and giving vehicles they control through trust agreements.  George Lucas' designation of the proceeds from Lucasfilm's sale to a charity he favors is a classic example of how the ultra-rich can always avoid estate taxes.  Giving your own money to a non-profit you control is a legal way to continue paying your living expenses.  The aspirational middle class may not have access to the same kinds of estate-preservation strategies unless they can afford very competent wealth managers and tax attorneys.  This is why the proposed policy's endorsement of a strong graduated tax on larger estates is meaningless.

True estate tax reform would begin with the elimination of the tax deductibility of charitable contributions.  That won't happen, of course.  Non-profit executives who derive their funding from endowed foundations would lobby against it and so would wealthy donors who fund political campaigns.

I'll give you a plan for real, comprehensive tax reform.  Have the U.S. Treasury study the history of tax collection in the U.S. and identify the point on the Laffer Curve that maximizes gross revenue.  I suspect it's somewhere between 16% and 19%, which means Warren Buffett probably isn't undertaxed at all if he pays 17.4%.  Once we've identified that optimal point, make that the flat tax rate for all income with no deductions, exemptions, or carry-overs for any reason.  Taxing earned income, unearned income, capital gains, and estates at that one rate will enormously simplify the government's operations.  It will also render redundant the hordes of accountants and attorneys who perform little productive work.  Tax planners represent as much of an overhead burden for the economy as tax collectors.  I know the federal government will never adopt my plan because I can't bundle as many campaign contributions as Warren Buffett.

Pedigree And Politics In 2012

National elections in America are always a wonderful opportunity to discover new things about our country and those who truly govern it.  This weekend's anointing of a completed national ticket is a terrific window into those qualities the ruling class finds attractive in candidates for high office.

The Republicans have selected a business-friendly ticket.  In fact, both selectees have multigenerational business backgrounds in common.  I had wondered how the Veep nominee had won his election to Congress at age 28, but now I completely understand.  One quote from that article says it all:  "I recall the fledgling candidate walking me around downtown Janesville to show the houses and the historical markers that trace his family’s influence on this small industrial city since the late nineteenth century." My next question:  Has Ryan been vetted by the Grove?  

Another piece falls into place . . . Rep. Ryan's wife is part of the Boren political dynasty.  I first witnessed the phenomenon of ruling class mating rituals at Notre Dame, where dating couples seemed to be testing out dynastic alliances. I had no dynasty to offer, so I remained dateless. No Senator's daughter for me, no sir-ee.  

I brought up Rep. Ryan's pedigree to illustrate something most conventional political anaylsis ignores.  Much of what we see in the public arena is a kind of performance from people born to play roles. The script (i.e. policy choices, ad hominem attacks) doesn't matter as much as the pure spectacle.  America's hereditary elite raises its children to play very important roles - literally like actors!

The present Administration holds an electoral advantage because it has given the country's permanent government - Wall Street, the Pentagon, and the intelligence community - everything on those parties' private wish lists.  The incumbent faction retains this electoral advantage so long as the economy does not go into free fall before the end of October.  The challengers have been vetted by Wall Street to ensure they will maintain status quo policies indefinitely in the unlikely event they win.   There will be no real change in November 2012.  Whether this is good news for America depends on how much longer the international bond market keeps a blind eye turned to our national profligacy.  

Nota bene:  I am a registered voter but I do not identify with either major party.  This article is not in any way an endorsement for any candidate or party.  Please vote responsibly.  Your grandchildren will thank you.  

The Haiku of Finance for 07/30/12

Trans-Atlantic fight
Rockefeller and Rothschild
The world is the prize

Why There Will Be No Serious Prosecution Of Libor Fraud

The latest brew-ha-ha in the news is the revelation that hot shots at TBTF banks colluded to suppress published rates for Libor.  The nonsense you may hear about prosecutions is much ado about nothing.  There will be no serious prosecutions of anyone above mid-level supervisor on a handful of trading desks.  Those trading desks that are targeted will be those that are not central to the government's funding needs; i.e., Goldman Sachs and JPMorgan Chase are certainly exempt.  Those few low-level traders that are indicted will be thrown under the bus by colleagues because they are not members of pedigreed families and did not join the proper social clubs at Ivy League schools.  No senior bank executive will ever face jail time for collusion, price fixing, restraint of trade, or any other flavor of securities-related criminality.

You may be wondering how I can make this claim.  It's simple.  Read today's news that the Secretary of the Treasury knew of Barclays' participation in Libor fixing while he ran the New York Fed.  Building a case for widespread, top-level collusion would require law enforcement agencies to subpoena the sitting Treasury Secretary (and perhaps his predecessor) and force him to testify against his peers in banking.  That is not going to happen.  No one with intimate ties to the Fed can be prosecuted for financial wrongdoing in plutocratic America.  That would strike at the heart of the Fed's credibility, and the Fed is the one bedrock institution whose credibility cannot be in question as the U.S. economy heads into the second inning of Great Depression 2.0.  It will need every ounce of trust it can finagle out of the markets to execute QE3 within the short window of opportunity presented by a severe equity market crash and foreign run on the dollar.  I can question the Fed because I don't matter to our ruling elite.

Fed and Treasury officials have the equivalent of get-out-of-jail-free cards as long as the TBTF insolvency crisis goes without resolution.  The same goes for senior executives at those banks; they are part of our country's ruling class and are therefore irreplaceable.  After all, who would take their places in the local country club dining rooms if they could no longer attend caviar tastings due to incarceration?  It certainly won't be you, dear reader.  

The Limerick of Finance for 07/15/12

The banks that fudged Libor don't care
That their quotes were picked out of thin air
They won't face the law
Though this scandal is raw
Prosecutions will prove to be rare