American Corporatocracy

One little-remarked consequence of central banks' policies of near-zero interest rates and quantitative easing is the unrivaled dominance of mobile global capital.  The source of corporate political power is the ability to borrow essentially unlimited sums for next to nothing: what I have long termed free money for financiers.  Armed with central-bank supplied unlimited credit, global capital can outbid local residents and businesses. Over time, profitable enterprises and assets end up in corporate hands....

The same dynamic — the unparalleled power of cheap credit — then funds corporate dominance of the political process.  As corporations buy up productive assets, they consolidate these assets into cartels and quasi-monopolies that can be protected from competition by lobbying and campaign contributions.  Governments come and go, candidates come and go, and political movements come and go, but the Corporatocracy remains in charge. 

-- Charles Hugh Smith, Of Two Minds blog (edited)

Goodhart's Law

"Once a social or economic indicator is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role.  When a measure becomes a target, it ceases to be a good measure."
-- Charles Goodhart, 1975



Humans naturally optimize what is being measured and identified as important.  This is the result of humanity’s highly refined skill in assessing risk and return. The problem with choosing what to measure is that the selection can generate counterproductive or even destructive incentives.  The process of selecting which data is measured and recorded carries implicit assumptions with far-reaching consequences. 

If we accept that growth as measured by gross domestic product (GDP) is the measure of prosperity, politicians will pursue the goal of GDP expansion.  If rising consumption is the key component of GDP, we will be encouraged to go buy a new truck when the economy weakens, whether we need a new truck or not.  If profits are identified as the key driver of managers’ bonuses, managers will endeavor to increase net profits by whatever means are available.

There is a growing dissatisfaction in the economics field with the current measures of economic activity: GDP, unemployment, and so on. This dissatisfaction reflects a growing awareness that these legacy metrics do a poor job of capturing what is actually important in fostering sustainable, broad-based prosperity, what many call well-being.  If we choose counterproductive metrics, we build perverse incentives into the system, incentives that guide the goals, strategies and behaviors of participants.

Rather than measure consumption and metrics that incentivize debt, what if we measure well-being and opportunities offered in our communities? What if we measured doing more with less rather than consuming more? What if our primary measure of economic well-being was the reduction of inputs (resources, labor, capital, etc.) that resulted in higher output (increased well-being)?  Systemic success or failure arises from our choices of what to measure and what thresholds we set as meaningful.

-- Charles Hugh Smith (The Daily Reckoning)

I Wanna Stay Home

When you need someone, and there's no one there
There is always the 9:00 train to take you out somewhere

I take the train in town, like I did for years
There is only seven more blocks; I could walk from here

It's only six o'clock when my day begins
There is always my alarm clock to wake me up again

When I realize the weight that's firmly on my shoulders
I just try and find the place I can take a walk on my blind side 

When these memories fade in my ripe old age
Please remember, my dear...

I wanna stay home
I wanna stay home right here
I wanna stay home today

I wanna stay.... 

-- Andy Sturmer (Jellyfish) 1990

The King is Half Undressed

Blue Autumns
Sunshine Kisses
Hearts and Flowers
Broken Wishes

-- Roger Manning / Andy Sturmer (Jellyfish) 1990

inflation deficiency nonsense

For several years now, a small group of Keynesian academics and hacks have seized nearly absolute financial power. They’ve used the Fed’s printing presses to justify the lunacy of unending zero interest rates (ZIRP) and massive quantitative easing (QE) on the grounds that there is too little inflation. This whole consumer inflation-targeting scheme is an inherently preposterous notion. There is not one scrap of evidence that 2% consumer inflation is better for rising living standards and societal wealth gains than is 0.2%. And there is much history and economic logic that points in exactly the opposite direction....

[T]here isn’t an inflation deficiency problem, and there never has been. The whole 2% inflation mantra is just a smoke screen to justify the massive daily intrusion in financial markets by a power-obsessed bunch of monetary central planners. They made it up and then rode it to ever increasing dominance over the financial system.

-- David Stockman (The Daily Reckoning) Feb. 22, 2016

Russians

In Europe and America, there's a growing feeling of hysteria.
Conditioned to respond to all the threats in the rhetorical speeches of the Soviets.
Mr. Krushchev said, "We will bury you."  I don't subscribe to this point of view.
It'd be such an ignorant thing to do if the Russians love their children too.

How can I save my little boy from Oppenheimer's deadly toy?
There is no monopoly on common sense on either side of the political fence.
We share the same biology, regardless of ideology.
Believe me when I say to you, I hope the Russians love their children too.

There is no historical precedent to put the words in the mouth of the president.
There's no such thing as a winnable war; it's a lie we don't believe anymore.
Mr. Reagan says, "We will protect you." I don't subscribe to this point of view.
Believe me when I say to you, I hope the Russians love their children too.

We share the same biology, regardless of ideology.
But what might save us, me and you, is if the Russians love their children too.

-- Sting / Prokofiev (1985)

faulty Fed figuring

[Federal Reserve Chair Janet] Yellen said at least one thing of importance last week.... She confessed to the frightening truth that the Fed formulates its policies and actions based on forecasts of future economic developments. [Unfortunately] our monetary politburo couldn’t forecast its way out of a paper bag.... [I]t’s inherently impossible to forecast the economic future, but that is especially true when the forecasting model is an obsolete Keynesian relic which essentially assumes a closed U.S. economy and that balance sheets don’t matter....

[T]he economy is now seamlessly global, meaning that everything which counts -- such as labor supply and wage trends, capacity utilization and investment rates and the pace of business activity and inventory stocks -- is planetary in nature.... Nevertheless, Yellen & Co. are obsessed with the immeasurable and largely irrelevant level of “slack” in the domestic labor market. They falsely view it as a proxy for the purported gap between potential and actual GDP. Not surprisingly, they are now under the supreme illusion that the labor slack has been largely absorbed and the output gap nearly closed. So they are raising money market rates by a smidge to confirm the U.S. economy’s strength and that the Keynesian nirvana of full employment is near at hand....

[I]n today’s world of global labor competition in goods, offshored business services, episodic domestic gigs, temp agency labor delivery, and Wal-Mart style labor scheduling by the hour and time of day, week, month, and season, the whole idea of “full employment” is a relic.... [Labor distribution factors] shift and morph steadily over time and in response to new technological and cultural developments. They are utterly beyond the reach of 25 basis points of interest rate shifts on the money markets. So the unemployment rate tells you almost nothing useful. By contrast, there are an immense number of leading indicators which track the global credit bubble and false boom it enabled. They bear far more directly on the main street outlook than does the Fed’s primitive bathtub model of the US economy. 

-- David Stockman (The Daily Reckoning) Dec. 22, 2015