Sacrificing the Economy to the Volcano God

Hundreds of years ago the Incas would sacrifice virgins to appease their Volcano God.
The Gods and methods of sacrifice may have changed, but the tradition remains.

Like the Incas of old, we find ourselves helpless against forces we do not understand. The foundations of our economy shake and falter in terrifying ways.
In our desperation for answers we turn to High Priests of Economics who tell us these evils have befallen us because of our sins. We must sacrifice the innocent to the Volcano God or it will destroy us all.

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

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Sacrificing Jobs on the Cross of Free Trade

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

The High Priests of Economics tell us that "globalization cannot be stopped," just like the wrath of the Volcano God. We've been told that there is no alternative to neoliberal globalization other than utter ruin.
The High Priests tells us that the destruction wrought by "Globalization is good" and should be embraced, and those that denounce multinational corporations are not just wrong, but dangerously wrong.

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

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

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

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

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

And it wasn't just the wages of Americans that fell. The wages of manufacturing workers in Mexico have done nothing but go down in relative terms. In 1993, Mexican hourly compensation costs for production workers in manufacturing were 14.5% of those for their counterparts in the United States. By 2001 they had fallen to 11.5% of U.S. costs.
This shouldn't surprise anyone. David Ricardo, legendary economist and free-trade proponent, explained how this dynamic worked nearly two centuries ago.

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

So you see, your wages are supposed to fall with free trade globalization. Those who worship the Volcano God knew this all along. They also knew that our manufacturing base was going to move south of the border when NAFTA was passed.
What they didn't bother telling us is that a nation that consumes what it doesn't produce is destined to become poorer, and the idea of a service-based economy is a non-starter.

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

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

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

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

Free trade means the freedom of movement for capital. However, the laws against the free movement of labor remain. Thus, when it comes to free trade, those who control capital will always have the advantage.
What the High Priests did not anticipate was a failure of the system from the bottom up through bankruptcy of households, small businesses and communities. That is what happened late last year. Such widespread insolvency threatens the very system that the High Priests depend on. Without this system no one will be willing to sacrifice their children to the Volcano God. Without those sacrifices the priests lose power.
People might even commit the ultimate heresy: toss out the neo-liberal economic model.

Sacrifices for the High Priests

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

In late September 2008, capitalism was on the verge of failing.
The reason for this calamity wasn't because the government taxed too much or spent too much.
It wasn't because the Federal Reserve raised interest rates or contracted the money supply.
It wasn't because the American consumer stopped spending.

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

It's really quite simple when you break it all down.

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

Congress must approve a $700-billion US financial bailout or see the lifeblood squeezed from the world's richest economy, the U.S. central bank chief warned Wednesday, as the crisis overran the presidential campaign.
Bush administration officials warned of a looming economic disaster akin to the Great Depression of the 1930s if an angry and rancorous Congress failed to act swiftly to fund a bailout that would be larger than the total cost of the Iraq war.

There was no time to debate this. Besides, the High Priests had explained before there was no alternatives anyway. No one would be held accountable because the Volcano God answered to no one.
If anyone was guilty for angering the Volcano God, it was us. It was our sins that brought us to the edge of doom, so we better cough up those virgins pronto.

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

Other problems with the bailout have also come to light. For instance, instead of making a profit, it will instead lose up to $200 Billion.
Instead of the banks using that money to lend to small businesses to produce jobs, the TARP banks are cutting back on lending at the fastest rate on record.

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

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

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

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

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

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

It's understandable for a commoner to wonder what was the point of bailing out Wall Street banks if they aren't going to lend the money (much like what happened in Japan in the 1990's).
Never fear. The High Priests will answer those questions. Just look at this headline:
We saved the world from disaster, Fed's Bernanke says.

The Volcano God was appeased by our sacrifice. Obama agrees.

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

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But if we hadn't bailed out the bankers so that they could cut off credit to small businesses while using the bailout money to speculate on the stock market, things would be much worse. What's that? You say that doesn't make any sense?
You should not say such things or you will bring doom upon us all. Where is your fear of the Volcano God?



The church of free trade

This is a fantastic Populist rant and analogy.

I love the economics texts and papers which talk about "localized and regional adjustments" for "a period of time" which will then come back "into equilibrium".

It's completely ridiculous (beyond the fact we do not have real free trade by the theory).

Gee, maybe all of those "little localities" add up to a nation and gee, maybe that "period of time" is....100 years....and maybe that new equilibrium point is....poverty and despair.

Are MNC and oligarchy Pizarro?

And are the High Priests a treacherous lot that conspires w/Pizarro?

Great job. I believe that we mistakenly equate the survival our democracy to capitalism and the leaders of capitalism but Capitalists are a destructive bunch - they are killing capitalism and democracy. The destruction of one is intentional and the destruction of the other is a consequence of their actions. - Financial Information for the Rest of Us.

Why creative destruction?

Why not creative construction (as in WPA, to lay the foundation for an American Green Economy)? What if we sacrificed bankers (or AIG) to appease the Volcano God? Don't they have more market value than virgins (who, after all, are not adding that much to the economy).
Frank T.

Frank T.

Gods come and go

Gods come and go, The Lord is permanent.

Superb piece, I wish it were under the nose of every American, instead of the steady diet of corporate tripe they're fed.

In my view, when the people are in the streets tearing down this nation, the 6 month period from Oct. '08 - Apr. '09 will have planted the seeds. That's when our government had it's chance. It had the chance to bail out the people, but instead, it chose to bail out the very gangsters who have the people by the throat.

They actually did a 1/2 Minsky. When we get to the implosion, Minsky called for printing up money for bailouts. But that was only 1/2 of what he called for. He also called for simultaneously providing a minimum wage job for anyone in the nation who wanted one. Didn't matter what it was, picking up trash if need be, anything of social good. What we did though is like a single book-end pushing from one side with no support on the other - the books will go flying everywhere. We poured the whole bailout into the top, in the single biggest act of trickle-down in world history.

Not even sure if Minsky would have altered his approach given the debt we started with, and that this time it's foreign owed as opposed to owing ourselves like in WWII. But in any case we completely ignored the bottom end of the system and pushed all the liquidity through the top.

That's illegal. Foul. And for this, we will pay, bigger than we realize now.

Brilliant blog, midtowng!

And to channel a great American from the grave:

We seem determined to unlearn the lessons of history. Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis. Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was designed to prevent a handful of powerful financial conglomerates from holding the rest of the economy hostage. Glass-Steagall was one of several stabilizers designed to keep that from ever happening again, and until very recently it was very successful.

Senator Paul Wellstone (D-MN)

Jobs offshoring, the neverending bailout of the banksters (securitization and derivates scamming and ultraleveraging) and leveraged buyouts by the private equity vultures: resulting in destroyed companies and ongoing unemployment --- the Unholy Trinity of our collective demise.

May the ghost of Ebeneezer Scrooge look after all those debt-financed billionaires this Holiday Season.

[Nomi Prins' It Takes a Pillage, easily the best of all the economic meltdown explanation (truly covers all points honestly) to hit the market -- highly recommended.]

talk about doom & gloom economic analysis

You've got to check out this perspective over on Ritholtz's blog, Quarterly review and outlook, by Hoisington Investment Management.

focus in on debt, but he's making no bones about doom & gloom economic projections.

Missed a trick there

There are all sorts of new businesses and jobs that are impractical because we don't have enough people and/or we don't have enough money. If the entrepreneurs are fully unleashed, you get a lot of new businesses, new jobs absorbing the displaced. But the incumbent firms who would get plowed under by more nimble competitors seek to capture regulatory bodies and pass laws that are a light burden for big firms but killers for their small and medium sized competitors.

It's only the combination of globalization and entrepreneurship killing taxes and regulation that lead us to our current problems. The wealth you make by new companies and new jobs being created is worth the price you pay by opening us up to everybody else's entrepreneurs in my opinion. But ignoring the job creation parts and what we're doing to kill off those new jobs is a problem in this essay.

you might be interested in this post TMLutas

Small Business & Jobs as well as create an account and join in.

I'm talking about unleashing the entrepreneurs, although I'll disagree with you on people. They are tons of people out there and maybe one might have to do a little training, ramp up time, but they are fully capable, hard working, dedicated and they need opportunities.

But that's why this post isn't talking about that side of the EQ, because the "other blogger" that being me, just wrote about one idea.

It's the money side as well as the killer of competition side (nice point, this is really true, esp. with IP wars), it's so skewed towards those "with lobbyists" the little guy often doesn't have a prayer unless acquired.

Good example is how the SBA continually awards big MNCs "small business" contracts, yet the little guy simply doesn't have the time/resources to navigate through that maze of bureaucracy to even figure out how to bid on some of those government contracts and if they do bid...uh, how to get paid if they manage to even swim through all of the requirements, paper work.

That's just on one side. VCs want a huge chunk of a business, which is ok, but ya know, not everybody is even at the point of getting to a VC and only certain types of businesses, i.e. startups would they be interested in...

so those little Mom&Pop operations aren't going to get any funds from a VC of course and even when it comes to smaller market share manufacturing, or services, a VC wouldn't be interested in it...

As far as I know there is no "Angel investor" pool out there for those smaller businesses to get off the ground.

But fundamentally I agree with you, we need a MAJOR job creation engine at this point and that's new ventures, so we not only need a good old fashioned jobs program, infrastructure, we need to kick start new businesses.

So, anyone who wants to help out to discuss ideas, some of the problem details in this area, come add your insights...

Just so I have this straight

It's only the combination of globalization and entrepreneurship killing taxes and regulation that lead us to our current problems.

So you are saying that after 30 years of massive deregulations and free trade agreements that all our problems are caused by not enough deregulations and free trade agreements?

Tell me something: what does the Volcano God look like?

midtowng this comment

assuredly lends itself to hopefully someone with a real good technique with graphics/photoshop.

I have all sorts of images now of what an Economic Volcano God looks like! Some sort of $$ eyeballs of fire with maybe a Cronos eating his young image.

I couldn't figure out that comment completely either so I shot for the issues I know exist, but just for start-ups.

We do NOT have Free Trade.

We do NOT have Free Trade. What we have is Lopsided Slanted Stacked Trade.

Per Paul Craig Roberts:

"Labor arbitrage is not trade and does not meet the Ricardian conditions for comparative advantage upon which the case for free trade is based."

"Few economists have bothered to think about the issue of offshoring, preferring to dismiss concerns about it as manifestations of the old protectionist fallacy. They learned in graduate school that free trade is always mutually beneficial and ceased to think when they passed their exams. This is especially true of "free market economists" who believe that economic freedom, which they identify with the freedom of capital, is always good. Thus, most economists mistakenly believe that offshoring is protected under the authority of free trade doctrine.

However, free trade doctrine is based on the assumption that domestic capital seeks its comparative advantage in its home economy, specializing where its comparative advantage is best and, thereby, increasing the general welfare in the home economy. David Ricardo, who explicated the case for free trade, rules out an economy's capital seeking absolute advantage abroad instead of comparative advantage at home."

Too funny!

"In late September 2008, capitalism was on the verge of failing.
The reason for this calamity wasn't because the government taxed too much or spent too much.
It wasn't because the Federal Reserve raised interest rates or contracted the money supply.
It wasn't because the American consumer stopped spending.

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

It's really quite simple when you break it all down."

A truly hilarious populist rant! William Jennings Bryan would be proud. So much to debunk in one section and so little time...I love the internet.

> So much to debunk in one

> So much to debunk in one section and so little time.

Since you didn't even try and yet you had time to post an empty reply, the conclusion about your position is obvious.

to anonymous debunker

I have no idea what you are referring to, but you must realize that anonymous comments are not trackable. No one has any idea what you are talking about.

We also live by the calculator on EP, so you can create an account, but if you have criticisms, you have to back it with facts, statistics.