Will Blog for Food

Social Choice Based Economic System Utilizing Range Voting

It has been shown that range voting offers a way out of Arrow's Impossibility Theorem. Arrow's Impossibility Theorem only applies to rank order voting methods and not point value methods. According to Arrow's book, "Social Choice and Individual Values," the field of social choice includes economic systems as well as voting systems. Since he thought social choice was impossible, no further discussion regarding economic systems was necessary. The assumed impossibility of social choice based economic systems was considered by some to be a theoretical endorsement of capitalism. However, Arrow had this to say about potential economic systems based on social choice, and since they are not as impossible as once was assumed, the topic is open for reconsideration:

THE ORDERING OF SOCIAL STATES

In the present study the objects of choice are social states. The most precise definition of a social state would be a complete description of the amount of each type of commodity in the hands of each individual, the amount of labor to be supplied by each individual, the amount of each productive resource invested in each type of productive activity, and the amounts of various types of collective activity, such as municipal services, diplomacy and its continuation by other means, and the erection of statues to famous men. It is assumed that each individual in the community has a definite ordering of all conceivable social states, in terms of their desirability to him. It is not assumed here that an individual's attitude toward different social states is determined exclusively by the commodity bundles which accrue to his lot under each. It is simply assumed that the individual orders all social states by whatever standards he deems relevant. A member of Veblen's leisure class might order the states solely on the criterion of his relative income standing in each; a believer in the equality of man might order them in accordance with some measure of income equality.

We will consider a potential economic system which abstracts from the general social choice model which Arrow considers but is related to it. We submit that it is a form of economic democracy in that it's based on range voting. We consider only a very simplified, hypothetical system which is impractical without the many ramifications necessary in the real world. However, it is necessary for the sake of analysis to abstract from many real world ramifications in order to get at the basic structure. In particular we consider an individually based system in which an "individual's attitude toward different social states is determined exclusively by the commodity bundles which accrue to his lot under each." We also simplify each commodity bundle so that it contains only "a complete description of the amount of each type of commodity in the hands of each individual [and] the amount of labor to be supplied by each individual." "[T]he amount of each productive resource invested in each type of productive activity" is determined by consumer demand as specified by the aggregate commodity bundles off all individuals. Furthermore, each individual submits an input regarding only his or her own work-consumption schedules, and not those he or she desires for other individuals. Finally, collective activity is abstracted from so that each possible social state represents the aggregate of the individual inputs regarding only their own work/consumption.

Each individual rates his or her preferred individual state on a scale such as [0-9] or [0-99], for instance, in accordance with range voting procedures. The social state is then determined in such a way as to maximize social welfare or utility as measured by the summation of ratings over individual states such that the following condition is met. In each possible social state, the work to be performed shall be exactly what is necessary to produce the commodities to be consumed. In other words supply of commodities shall be equal to demand for those commodities as specified by the ratings of individuals over all possible work-commodity bundles. For instance, individual A might rate a work-commodity bundle in which he performed 20 hours per week of dentistry (assuming he's qualified as a dentist) in return for a copious amount of goods and services a 99. He might also specify a rating of 50 for a work-commodity bundle requiring 30 hours work per week and a less copious amount of goods and services. He then might assign a 1 to a bundle requiring 60 hours work per week in return for a meager amount of goods and services.

THE ROLE OF MONEY IN A SOCIAL CHOICE ECONOMY

No real economic system could exist without money as a medium of exchange. It's just impractical to think that individuals would accept a system in which they were assigned a certain amount of work in return for a certain commodity bundle even if that maximized social utility. Therefore, work performed must be paid for in money and not by an "in kind" commodity basket. The commodity basket can be translated into monetary terms by pricing it such that the money received by each individual for his or her work exactly pays for it.  Pricing in such a system could be undertaken as follows. Pick some basic, simple and ubiquitous commodity and price it at 1 unit. (The units could be dollars, euros, pounds etc.) Then other consumer items could be priced in terms of that basic commodity considering the quantity and quality of labor and the quantity and quality of materials and other resources involved. For instance, a tube of toothpaste might be priced at 1 unit. Based on this, a particlular kind of automobile might then be priced at 20,000 units. Ideally, the aggregate amount of money dispensed by the system would be just sufficient to buy the aggregate amount of production as specified by aggregate consumer demand according to the the sum total of commodity bundles. Therefore, money supply would equal money demand, and there would be no inflation. Aggregate income could be computed in such a way that the amount of money in circulation would just be sufficient to buy all the consumer goods and services demanded according to the social state which maximizes social utility.

The social choice would then involve an assigment of work and income to each individual. It would be assumed that an individual's work preferences could be quite general involving different kinds of work and different hourly schedules. In general, an individual could do any type of work he or she was qualified for, and, at the lower end of the job spectrum, almost everyone would be qualified whereas at the upper end, only those with highly specialized training might be qualified. In general people would be qualified to do more than one type of work and would be free to submit more than one hourly schedule. Work weeks need not be standardized but could be individualized in accordance with worker demands. Since individuals might not spend their income exactly in accordance with the commodity bundle they submitted with the corresponding work schedule, aggregate consumption would have to be tracked and adjusted so that there is little or no over or underproduction.

Periodically, individual inputs regarding work-commodity bundles could be resubmitted, the social choice recomputed and adjustments made accordingly. Ideally, supply would equal demand both for work and commodities so that there would be no over or underemployment and no surplus or scarcity of commodities.

THE ROLE OF GOVERNMENT

Fundamentally, the role of government would be to gather information from individuals, compute the social choice, disburse information to individuals informing them of their work-commodity schedules and monetary income (the one that maximized social utility), and oversee and track the production and consumption process making adjustments for the fact that actual consumer demand might not be the same as specified consumer demand. The production units could be either publicly or privately owned. Individual work schedules could be combined to construct a production unit so that production units might represent the collaborative work efforts of many individuals and production output for the enterprise might represent enough commodities to fill many consumer commodity baskets. Individual or enterprise inputs might include capital or other resources as well as labor.

The government would have to employ the services of massive supercomputers to do all the computation necessary. Information collection and work-commodity bundle assigments would be centralized. Work schedule and consumer demands would be decentralized and individualized. Assigments would be flexible and subject to change both for work schedules and commodity bundle consumption schedules. The government could track changes in worker-consumer activity and make real time changes in production/consumption. The government might grant every citizen at least a minimum income for which could be purchased a minimum commodity bundle. A minimum amount of labor might also be required. Likewise, maximum work and/or consumer demands might be limited.

CONCLUSION

A social choice based economic system that utiilizes range voting has been described. Such a system would represent a highly simplified form of economic democracy. Individual work-commodity bundles would be preference rated in accordance with range voting and an amount of money associated with each. The system would then compute that social state which maximized social utility as the aggregate of individual utilites subject to the condition that production equal consumption. The system would also compute the pricing of consumption items and the amount of money to be distributed to each individual in return for the work and or capital resouces input by that individual. Money would just be a medium of exchange, and the total amount of money generated at any particular time would just be sufficient to buy the amount of production generated as specified by the social state which maximized social utility. Individual work-consumption assignments could be updated periodically or, perhaps, in real time in accordance with individual demands. Ideally, there would be no shortages or surpluses of commodities or labor and supply would equal demand. If priced correctly, supply would also equal demand in the money supply so there would be no inflation or deflation. There would be no unemployment by definition because exactly the amount of labor needed for production and no more would be required, and this would be distributed equitably by the maximizing of utility as a result of range voting.

Solar Energy: Centralized, Corporatized, Commodified or Power To, Of and For the People?

The next US administration, hopefully under Democratic leadership, will make a big push toward solar energy. But as always the devil will be in the details. Whether or not there will be energy independence from foreign nations will be a function of how they go about it. There are basically two models. The government will subsidize the development and application of solar energy either way.  Which model is chosen will determine which direction the US will go in for many years. There will be those who will complain about government subsidization of the solar energy field saying it should be left to private enterprise. But what do you call the $16 billion government subsidies given to the oil companies at a time they are experiencing record profits? It's OK to subsidize large corporations but not OK to subsidize individual citizens? It's OK to subsidize rich farmers and pay them not to grow crops as was enacted again in the recent farm bill?

But there are also big subsidies and tax breaks for farmers. Despite the fact that commodity prices are through the roof, up 126% for wheat, 57% for soy and 47% for corn, which is in just about everything from plastics, sweeteners and ethanol to, well, corn. And yes farmers are still being paid not to farm their land to the tune of about 30 billion a year. ... ... with less than a couple percent of Americans still working the land, it's not struggling farm families but huge agribusiness firms that till the land and rake in the profits. And guess what the new farm bill offers them? I mean aside from endless earmarks favoring race horse owners (courtesy of Kentucky's Senator Mitch McConnell) and Western Salmon fisheries? What it offers them is continuing tax breaks on farm income up to -- unhuh -- $750,000 per farmer. President Bush asked to lower the limit to $200,000 but was ignored. Farmers who make more than $750,000 in farm income who don't want to be taxed have an option - get yourself a wife and your non-taxable income goes to $1.5 million.

Basically the government is subsidizing everyone and everything that can mount a huge lobbying effort in Washington. That means corporate subsidization, but when the little guy complains that he or she can't afford gas, food or health care, the Republican right and their corporate lobbyist shills come forward with their propaganda campaign saying that helping the little people would amount to socialism, and, although corporate socialism is OK (they wouldn't exactly put it in those words), we can't have government subsidizing individuals and families - especially poor and middle class - because that would be socialism of the worst sort - socialism that benefits the people instead of the large corporations.

But I digress. Barack Obama or Hillary Clinton or both will have a chance (especially if they have a filibusterproof Senate) to redirect the US away from corporate socialism and towards the empowerment of noncorporate individuals and families. The real issue about solar energy is not whether we'll have it (we will) but who will control it. One model is where government sibsidizes individual homeowners to install solar panels on their homes and property as Germany is doing.

An average German household, for example, can earn over 2,000 euros ($A3,130) a year from subsidies to install solar panels - double their electricity bill - and pay off all costs within 10 years and earn a pure profit for a further 10.

This is a decentralized model in which power generation and distribution is spread over the whole population. One could even say it was democratic power generation or Power to the People! The other model is the one Exxon Mobil and British Petroleum are hankering for: centralized solar power generation and distribution brought to you by the same folks who are now selling you oil. They just want to diversify into other methods, but they want to retain centralized corporate control over US energy needs. They want an energy policy in which energy can be commodified and sold to you in units and priced in such a way that they have control over it. It doesn't matter whether it is solar power or oil generated power so long as they commodify it, meter it, price it and control the distribution of it.

And the absolute worst aspect of centralized corporate control is that solar futures (like oil futures) will be bought and sold on Wall Street and in the London financial district so that speculators can bid up the price of solar energy like they're doing now with oil futures. Hedge funds and other speculators will then control the price of energy like they do now. They don't care what the source of the energy is, only whether it can be commodified, bought and sold and speculated on so they can make their 20% annnual returns to capital at the average person's expense I might add. Where do you think your gas money is going? Now if the government subsidizes individual homeowners to install solar panels, then individual families can generate their one energy both for their homes and for their plug-in electric cars. There will be no middlemen to bid up the price of energy. It will be essentially free once the solar panels are paid for. That's where government subsidization comes in. Instead of corporate profits and speculator profits, there will be a savings to individual families who will be paying essentially nothing for their energy needs. Instead of paying at the pump, paying for heating oil, paying the power and light company, families will be able to diminish their monthly expenses by those amounts. And they may even make money by putting power that they don't need back on the grid like they do in Germany. That would represent a demo- cratic approach to energy generation and distribution as opposed to the corporate approach. If you wanted to make a fine distinction, it wouldn't be socialized energy production because the government would not own the means of production. Individual citizens would. It would be economic democracy and individual empowerment as opposed to government socialism. And it wouldn't be corporate socialism where large corporations, subsidized by the government, owned and controlled the means of energy production. So conservatives how ya going to spin that? How are you going to turn the voters away from decentralized  ownership of the means of energy production and convince them that large corporations should own and control it? 

The absolute worst aspect of corporate control and commodification of energy is that energy independence will turn out to be a farce. Dependence on foreign oil in a globalized market will turn out to be dependence on oil companies who now generate solar energy that will be owned by the same Arabs and Chinese who now provide oil and from whom we borrow money. In a globalized capitalist system, actual corporate ownership in publicly traded corporations can be anyone, anywhere. It doesn't have to be Americans. And who do you think has the money to invest? So dependence on foreign oil will be replaced with dependence on foreign ownership of solar power production in the American market. That's globalization for you. But the results would be the same whether it's American corporations that own the means of energy production or globalized corporations that own the means of energy production. And why do I think foreigners would still control the means of production if this model were to succeed? Because they own a vast amount of American debt at the present time. They're swimming in dollars. The US has gone from the world's largest creditor nation to the world's largest debtor nation in just a few short years. Financially speaking, the Arabs and the Chinese are in the cat bird's seats. They own American debt big time. They can buy up publicly traded shares in any corporation they choose to including those who provide energy (whether oil or solar) to the American market. So the US will still be in the hands of corporatists, speculators and foreigners if we end up with centralized, corporatized, commodified solar energy.

The Democrats, if they should win the White House and control the Senate, will have a chance to turn this country around by rebuiding infrastructure and putting the nation on the path of decentralized, decorporatized and decommodified energy production that will benefit more or less equally every US citizen instead of enriching corporations and speculators. Non-outsourcable jobs will be created and the cost of living will go down. Instead of pouring money into wars and the largest military-industrial complex in the world, that money could be redirected into more profitable (for the people) pursuits. Instead of trying to bring democracy to the rest of the world, why not try to bring a little democracy here at home? However, control of Congress by lobbyists in order to elicit government largess for corporations needs to be eliminated. There will still be a need for oversight of the energy grid and this is a legitimate government or regulated utility function. There will still be a need for pricing of solar units so that energy can be put out on the grid by individuals and credited to them and vice versa. When enough silicon solar collectors are in place, energy should be virtually free - something that is anathema to the commodifiers. Now free energy to power homes, transportation and businesses. Wouldn't that be something? POWER TO THE PEOPLE!

Commodities Speculators

Gas prices are going up with no end in sight. Food prices are rising. We're obviously in an inflationary period and a recession. Wages aren't going up so we have stagflation plus a recession or to coin a term - recesstagflation. It's the worst of all economic worlds. The speculators and hedge fund managers, having profited from the stock market bubble of 2000 which later burst and the sub-prime mortgage bubble which is still bursting, have now turned their attention to the commodities market, driving up prices much as they did in the stock market and real estate. Originally the commodities market had a simple raison d'etre: payday advance for farmers. Farmers could sell their crop whether it be corn, wheat or pork bellies on the futures market before the crop was even in the ground or the animals had even been led to slaughter at a set price. The crop or animal part was to be delivered at a future date, thus the name - futures. Now in most cases the buyer of the futures contract had no intention of taking delivery. He or she was just a middle man or woman. They made their money by selling the contract to someone else for an even higher price than what they paid. Finally, the end user would buy the shipment of the actual product having paid more or less than what the farmer received in the first place. The same principles apply to the oil market.

Now just as in the mortgage market, the commodities market was deregulated making all kinds of financial chicanery possible without any government snooping or looking over their shoulders. This led to disastrous results in the mortgage market as we are seeing unfold in real time. The difference between the mortgage market and the commodities market is that homeowners who were not able to make their payments could default on their loans and walk away with their home going into foreclosure. Commodities speculators have a market for which the end product can not be walked away from. People have to eat no matter what.

So that brings us to the second key difference between the housing crisis and the food crisis: the scale of consequences. When a housing bubble inflates till it pops, people lose their homes. But when a food bubble grows till it bursts, people starve. The problem with booms is they're almost inevitably followed by busts. Worse news is that what we're seeing right now-skyrocketing food prices and growing hunger-are still the effects of the boom. If the weather turns bad, commodity prices could still double over the next few months. But with the stability of the food and agriculture system left up to the whims of mother nature's next crop yield, or how Cargill, ADM and the venture capitalists spin the roulette wheel, the bust is in the making. If the rural farm economy tanks, we're set to see farm foreclosures, another banking crisis, and global hunger that will make the sub-prime mortgage effects look like a drop in the bucket.

So as they pour money in, they know that the futures price will only go up, never down because there are always more mouths to feed, never fewer. Much as in the case of Enron jerking around the energy market, the speculators have latched onto something consumers will pay any price for: gas and food. So just as Enron caused the price of electricity to go sky high by manipulating the market, commodities speculators can trade futures contracts back and forth driving up the prices of gas and oil without pesky government intervention.

From the Washington Post:

Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher. Meanwhile, some Americans are stocking up on staples such as rice, flour and oil in anticipation of high prices and shortages spreading from overseas. Their pleas did not find a sympathetic audience at the Commodity Futures Trading Commission (CFTC), where regulators said high prices are mostly the result of soaring world demand for grains combined with high fuel prices and drought-induced shortages in many countries. The regulatory clash came amid evidence that a rash of headlines in recent weeks about food riots around the world has prompted some in the United States to stock up on staples. Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy. Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry. While farmers here and abroad generally are benefiting from the high prices, even they have been burned by a tidal wave of investors and speculators pouring into the futures markets for corn, wheat, rice and other commodities and who are driving up prices in a way that makes it difficult for farmers to run their businesses. "Something is wrong," said National Farmers Union President Tom Buis, adding that the CFTC's refusal to rein in speculators will force farmers and consumers to take their case to Congress. "It may warrant congressional intervention," he said. "The public is all too aware of the recent credit crisis on Wall Street. We don't want a lack of oversight and regulation to lead to a similar crisis in rural America." ... The upswing in prices has been exaggerated by the massive influx of investors and speculators seeking to profit from rising prices for corn, wheat, oil, gold and other commodities. Big Wall Street firms and hedge funds have taken huge positions in futures markets that once were dominated by relatively small operators such as farmers and grain-elevator owners. Small investors, who see fast-rising commodities as good hedges against inflation and a falling dollar, also are getting a piece of the action by investing in index funds that are tied to commodity prices.

Now the speculators know there are world wide food shortages so by the law of supply and demand and because of inflationary pressures on the American dollar, they are only going to make money by buying a fixed quantity of a commodity now and selling the contract before the delivery date to an end user. This drives up the price of the commodity whether it be food or oil because, unlike the housing market, people need to eat and drive. Now some people think this is creating another bubble. Exchange-traded funds and index funds allow speculators to place bets that commodities will go up or down in the future. Money has flooded into these funds mostly on the long side. In other words most people are betting that the prices of commodities will continue to go up, hence the bubble. The "smart money" is betting that at some time there will be a correction and prices will tumble. However, increased demand for meat (it takes 8 pounds of grain to produce one pound of meat) and ethanol means that less food is available to those in poorer countries who are dependent on the grains to avoid starvation. This has produced food riots in some parts of the world.

So just as speculation in the housing market drove up the cost of houses to unsustainable heights providing homeowners with gains in equity that caused them to think that they could refinance unendingly, pull equity out and spend it, money pouring into the commodities market is driving up the cost of gas and food, two essentials that are consumed immediately and thus have no inherent equity value. The homeowner profited by riding the mortgage bubble at least till it ended, but there is no profit for the consumer who must pay higher prices for staples driven by speculators and investors. And poor people are the most vulnerable to rising prices. But this may be the greatest boon to investors who may profit endlessly from rising demand on the backs of increasingly desperate poor people.

None of this speculation is really necessary. If the farmer needs a payday advance, why can't he get it from a commercial bank rather than Wall Street? I'm sure his equity in his farm would justify a loan. There's no need for a futures market in which the farmers themselves participate in order to get the highest price. All the financial middlemen are just driving up the cost of food and gas and ultimately will cause starvation among the world's poor. Let the farmer sell directly to the end user and finance his crops with a loan from a commercial bank if need be. This is just another example of capitalism run amok. The answer is not more regulation; it's making speculation illegal!

America's Trillion Dollar War Machine and the Wall Street Bail-Out

It's not mere speculation that the US is a huge war machine that neglects the welfare of its own people. When it comes to war, no expense is spared. When it comes to funding programs to help the American people, any expense is too much. The US government is very poor when it comes to welfare in the broad sense of the word, very rich when it comes to war and occupying the world and bailing out Wall Street. With over 700 military bases abroad, there are more than 3 bases for every country in the world. Meanwhile, veterans are made to beg for their benefits and go homeless in the streets. No government official or Presidential candidate is even talking about homelessness in America which is a major and growing problem especially among the elderly and veterans. In The Three Trillion Dollar War, Joseph Stiglitz and Linda Bilmes write

The Bush Administration was wrong about the benefits of the war and it was wrong about the costs of the war. The president and his advisers expected a quick, inexpensive conflict. Instead, we have a war that is costing more than anyone could have imagined. The cost of direct US military operations - not even including long-term costs such as taking care of wounded veterans - already exceeds the cost of the 12-year war in Vietnam and is more than double the cost of the Korean War. And, even in the best case scenario, these costs are projected to be almost ten times the cost of the first Gulf War, almost a third more than the cost of the Vietnam War, and twice that of the First World War. The only war in our history which cost more was the Second World War, when 16.3 million U.S. troops fought in a campaign lasting four years, at a total cost (in 2007 dollars, after adjusting for inflation) of about $5 trillion (that's $5 million million, or £2.5 million million). With virtually the entire armed forces committed to fighting the Germans and Japanese, the cost per troop (in today's dollars) was less than $100,000 in 2007 dollars. By contrast, the Iraq war is costing upward of $400,000 per troop. Most Americans have yet to feel these costs. The price in blood has been paid by our voluntary military and by hired contractors. The price in treasure has, in a sense, been financed entirely by borrowing. Taxes have not been raised to pay for it - in fact, taxes on the rich have actually fallen. Deficit spending gives the illusion that the laws of economics can be repealed, that we can have both guns and butter. But of course the laws are not repealed. The costs of the war are real even if they have been deferred, possibly to another generation.

As Fed chairman Bernanke continues to bail out Wall Street and in the process adds hundreds of billions of dollars in liabilities to the Federal government and the American taxpayer, the US continues to increase its debts and liabilities. First, Bernanke arranged a deal for JPMorganChase to buy out Bear Stearns for $2 a share. But Bear Stearns shareholders were not happy with that so Bernanke in effect says "OK, then, how about $10 a share?" We can't have unhappy shareholders in a bankrupt company, can we?  We must do  something!

J.P. Morgan and Bear still needed the Fed's acquiescence to reopen negotiations. New York Fed President Timothy F. Geithner, with support from colleagues on the Fed Board of Governors in Washington and top officials at the Treasury Department, used that as leverage to negotiate the new deal.

The key word here is acquiescence. The Fed is acquiescing to everything in order to appease Wall Street investors, taking on even more liability in the new deal. The first deal had the fed assuming $30 billion in Bear Stearns liabilities. The second deal has it assuming everything over $1 billion. How is that a better deal for the American taxpayer? This is all a continuing and massive transfer of wealth from the taxpayer to the wealthy along with Bernanke's promise of $400 billion of liquidity to Wall Street banks. Now don't you think that the collective minds on Wall Street are going to figure out a way to cash in on all that liability? They will figure out how to work the system so as to manifest that transfer of wealth and cash in on every last dollar of the Fed's guarantees. When you add on the $160 billion stimulus package, you come up with the astonishing figure, depending on how you value the Bear Stearns liability, of around another trillion dollars for  the recent bailouts and stimuli. A few trillion here, a few trillion there ... pretty soon you're talking about real money!

From Robert Reich's blog:

So JP Morgan is raising its offer for Bear Stearns, hmm? Well, it still may be a good deal for old JP, because the worst that can happen is JP loses $1 billion. If losses turn out to be more than $1 billion, the Fed – that is, you and I and every other American taxpayer – will make it up to JP. Who knows what the assets are really worth? They may be worth 80 cents on the dollar, in which case Bear’s stocks are a huge value even at $10 a share (remember, their market price before the panic was around $70 a share). They may be worth 90 cents on the dollar – even better for JP. Or they may eventually (in the long run, when the crisis is over and housing values start trending upward again) be worth far more --- maybe, just maybe, even approaching $70 a share. JP doesn’t know. Bear doesn’t know. The Fed doesn’t know. Everyone is guessing. Bear shareholders are playing a giant game of “chicken.” They’re threatening to go into bankruptcy – that is, liquidate the firm and essentially sell off their assets in an auction – if they don’t get a better deal from JP than the $2 per share JP originally offered.

As part of the new Bear Stearns deal, the Fed's role was also renegotiated. The central bank originally had agreed to put public dollars on the line to guarantee $30 billion of risky mortgages owned by Bear Stearns. In the reworked deal, J.P. Morgan agreed to cover the first $1 billion in losses if the value of those securities falls, with the Fed responsible for any losses beyond that. The main point here is that what Bernanke and the Fed are doing is all guess work. They are in uncharted waters and they are playing by ear. But their main concern is the investors not the homeowners who are in or about to go into foreclosure. If they wanted to protect them, they'd mandate restructuring of their loans. But this would piss off the investors who were counting on the homeowners' mortgages resetting to higher interest rates. In other words the investors were counting on the homeowners getting screwed when they made their investments, and, by golly, it's not fair to change the rules of the game now and make their investments worth less. However, it's OK to bail out huge investment banks.

Wall street has become a huge casino and doesn't serve any positive economic purpose or function. It used to be that they provided venture capital for start-ups and assisted with initial public offerings (IPOs). Now Silicon Valley has their own venture capital firms, and Wall Street just provides ever more fancy investment vehicles for rich investors who are not satisfied with just buying stocks and bonds as in the old days. No, they want to bet that the values of these stocks and bonds will go up or down at some future date. They want to buy insurance against their bets. They want derivatives of derivatives. They want synthetic exposure to the bond market as opposed to real exposure. They want credit default swaps. Who needs all this stuff? Surely, it contributes nothing to GDP. 70% of GDP is consumer spending; the remainder is almost evenly divided between real investment and government spending.

[Investment] is defined as investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products.

In the $14 trillion American economy, if Wall Street and all its supposedly sophisticated investment vehicles disappeared off the face of the earth, the GDP would not be affected one bit! They are talking about regulating Wall Street banks; why not just outlaw all these fancy schmancy investment vehicles? They didn't rear their ugly heads until a couple years ago anyway, and right off the bat they've cost the American taxpayers almost a trillion dollars. Why not get back to a real  economy?

And, tying this all together, the US government is spending $3 trillion on war (and spends more on its military than the rest of the world combined), another trillion on bailouts and stimulus packages, and all the while running up the US national debt to almost $10 trillion. If the US government were to disappear altogether, the US GDP would still be roughly $12 trillion based on consumer spending and real investment. So my solution to this mess: get rid of Wall Street and get rid of the war based component of government spending. They say that in 10 years the government budget will be totally consumed with paying interest on the national debt, social security and medicare. But that doesn't account for the fact that war trumps social security and medicare. It's far more likely that the government budget will consist of paying interest on the national debt and war.

Tragedy of the Commons

Tragedy of the commons is a phenomenon which is characterized by individuals acting in their own self-interest in a way that results in costs being imposed on someone else or on society in general. For instance, when a company dumps its waste products into a river thus polluting that river, that company is imposing costs on society rather than on itself to clean it up. If it didn't impose that cost on society, its profits would be reduced since it would have to pay to clean up its own waste products. There are many other ways that a company or a group of people or an individual tries to increase its own profits or welfare by imposing costs on another segment of society. Another example is when dog owners let their pets defecate on the sidewalk and then don't clean up after them. Costs are imposed on someone else to clean up, or, when someone steps in it, a cost is imposed on them to have to deal with that. One of the biggest heists in this regard is the imposition of national debt on future generations. Rather than pay for stuff we are consuming now, we are borrowing the money, running up huge debts and leaving the task of paying them off to another group of people, namely, future  generations.

Immigrants to New England in the 17th century formed villages in which they had privately owned homesteads and gardens, but they also set aside community-owned pastures, called commons, where all of the villagers' livestock could graze. Settlers had an incentive to avoid overuse of their private lands, so they would remain productive in the future. However, this self-interested stewardship of private lands did not extend to the commons. As a result, the commons were overgrazed and degenerated to the point that they were no longer able to support the villagers' cattle. This failure of private incentives to provide adequate maintenance of public resources is known to economists as "the tragedy of the commons."

So overusing and not being a good steward of public resources while maximizing private profits is the essence of  the tragedy of the commons. Well now, under the Bush administration, the essence of their approach to government is just that: denigrate and deteriorate public resources while maximizing benefits to private interests, namely corporations and the wealthy. That's what cronyisn is all about. Drain public resources including the Treasury while siphoning resources to the chosen few. Government not "for the people" but for the wealthy. Government not "by the people" but by lobbyists. Government not "of the people" but of the unitary executive. This accords with their philosophy of reducing the public sphere to a minimum while maximizing the private sphere. Denigrating government maximizes private profit.

Bush (and the Republican Presidents in general starting with Reagan) has specialized in this brand of imposing the costs on others while enjoying the benefits themselves. The motto is "we'll enjoy this now while others will pay later." This is a tragedy of the commons. Rather than paying for what we consume, or paying the costs of what we produce, some of the costs are imposed on others thereby increasing either our profits or our benefit or our enjoyment. It all amounts to the same thing.

When a company makes a "mistake" and the mistake redounds to their benefit because it imposes a cost on others, this is a tragedy of the commons. For instance, if I cancel, say, a phone company service and the next month I still get a bill, their mistake in not canceling when I asked to be canceled means that I'm billed when I shouldn't have been. Either I have to pay when I shouldn't have had to pay which increases their profits or I have to get put on hold trying to connect with customer service to try and get the matter rectified. Either way a cost is imposed on me rather than the company or person who made the "mistake." Companies have figured out that mistakes that they or their representatives make which impose costs on their customers are good mistakes, and, I'm sure, that their employees are rewarded for making them. Of course, they wouldn't be rewarded if the mistakes imposed costs on them rather than their customers.

Of course, the largest commons is the atmosphere. We all breathe this resource  and without the oxygen it provides we would  die. And we pour all kinds of waste products into it. Just like we pour waste products into rivers and then drink the water (also necessary to life), we dump tons of pollutants into this commons and then are forced to breathe the results. There isn't a direct cause and effect link between the pollutants in the atmosphere and the increased incidence of asthma and cancer nor is there a direct link between pollutant dumping and increased tornadoes and hurricanes, but intelligent human beings (scientists) have warned us that the link is there. The privatizers tell us not to worry; they're eager to sell us all private oxygen supplies.  We will have to buy our own oxygen supply to carry with us and breathe at all times.  Those who can't afford it will die. Corporations are salivating at the billions of dollars in profits this industry will provide. Already, they are selling us privatized water supplies (bottled water) as public water supplies dwindle in quantity and quality.

Global warming is the ultimate tragedy of the commons. Private corporations and individuals dump their waste into the fragile atmosphere, that not only sustains life by providing oxygen to individual breathers but also determines our weather. Thus it has a two fold function. Changing the chemical composition of the atmosphere is not a good idea but that is exactly what we are doing by dumping carbon dioxide into it. But, although we know how to stop doing this (get a plug in hybrid and fill 'er up with solar panels), there are vested interests interested in selling us oil and oil burning vehicles. Vested interests are only interested in their short term private profits not in the long range interest of the public commons and the common interests of the human race. If they can convert any public commodity into a privatized one that can be bought, sold and commodified, they will. This applies to water and air also.   

So whether it's pollution, fiscal irresponsibility or "mistakes," all these things can be tragedies of the commons if people don't clean up after themselves (so someone else has to do it), if people try to get other people to pay for things that increase their own profits or if individuals or governments try to increase their profits or tax cuts at others' (namely future generations) expense. A good case in point is tax cuts for wealthy individuals now, paid for by borrowing money from the Chinese and Arabs, to be paid for by future taxes on the poor and middle class. Responsible individuals or companies or governments would provide a true accounting by paying all costs associated with their activity or production and then their profit or enjoyment would be legitimate and not brought about by imposing costs on others. This would be good stewardship also known as fiscal responsibility and also caring about the human race in general and not just selfish, private interests.

Bush's Economic Stimulus Plan: Another Shot of Heroin for an Economy Facing Withdrawal

The Republican plan for for the economy was to keep it afloat by government overspending and overborrowing until the Democrats took over in 2009. Then the whole collapsing mess would be foisted off on them, they would be forced into the position of cleaning up the "malaise" and then they would get the blame for it. The Republicans would wing along in economic high times with tax breaks; the Democrats would be forced into the position of being the belt tighteners. What happened? The merde hit the fan about a year earlier than the Republican game plan called for. So what is Bush's response? Another shot in the arm to prop the economy up for one more year till he's safely out of office. This is exactly what the economy doesn't need: more spending and borrowing. Bush's $150 million package would be money just added to the national debt, along with the trillions he's already added, in a frantic attempt to stave off the malaise and not have it identified with the Republican party.

Bush wants everybody to go out and spend the pittance he's promising every American - $600 for individuals; $1200 for a couple; $300 for each child. This is the Roman equivalent of the "bread" in "bread and circuses." But what do economic advisors who advise individuals, such as Ben Stein and Suze Orman, advocate? Paying down your credit card and/or other debt which is exactly what Americans should do. This, however, will not provide any stimulus to the economy. A good case could be made that exactly what this economy needs is a good recession much as a heroin addict needs to go through withdrawal and not have just one more fix. Bush is offering just one more fix, and the  Democrats are cheerfully going along with it, letting Bush off the hook yet again. Instead, they should saddle him with the economic malaise. Let the recesssion or retrenchment, if you prefer, start now. The sooner Americans, collectively, get out of debt and start saving, the better off we'll all be. The problem is not that we aren't spending enough; the problem is we're not saving enough. And so what if there's an economic slowdown. Much economic activity is simply the meaningless buying of worthless goods fueled by advertising, excessive materialism and conspicuous consumption. Diminishing those impulses would be to the spiritual enrichment of all Americans.

And the problem, at the national level, is  that we're indebting ourselves to China and the Arabs who have issued us a national credit card and are facilitating our running it up to absurd proportions. They're our enablers, and we're their patsys. The irony is that as we are trying to control the world in the name of national security, we are underminig our national security by voluntarily making ourselves into a vassal state of China, primarily, becoming our lord and master. We are borrowing billions in order to spend billions on military adventurism that is only making the US less secure and is acccomplishing nothing in terms of making us safer. The Iraq war is sheer folly from a national security and an economic perspective. The Chinese are co-dependently enabling us to spend billions there fighting some rag tag group, while, at the same time, putting us in the position of being beholden to them and even making more likely a US-China war sometime in the future when they exercise their "right of the master" and make a move to take back Taiwan.

Individuals need to pay off their credit cards with the money Bush is giving away - not go out and spend it on Chinese goods. This will only stimulate the Chinese economy. The same goes for interest rate cuts. More unwarranted stimulus accelerating the falling dollar. Anything to keep the spending spree going until Bush gets out of office! The Democrats should fight for something more in line with Democratic principles like extended unemployment benefits, rebates to seniors on social security who have no earned income, full rebates to low wage earners and a moratorium on mortgage rate resets. Right now they've got Bush by the cajones; they should press their case. Bush has forced his crap down their throats for 7 years; turnabout is fair play. Bush wants a short lived shot of heroin; the Democrats should start now putting the American economy on a sound footing and marginalizing Bush and his foolhardy borrow and spend policies.

On another note, there are four propositions on the California ballot that would allow Indian casinos to add more slot machines with the sweetener that billions more, raked off the profits of these, would go to the financially strapped state. Is this the kind of society we really want? Money spent foolishly by seniors blowing their social security checks in order to provide profits for Indian tribes who then graciously give part of the profits to the state so that it can continue to function? I say no. Let them come by the money  legitimately like by, oh, horror of horrors, dare I say it, raising taxes instead of encouraging, aiding and abetting the foolhardy to piss their money away at Indian casinos. The state shouldn't bail itself out on the backs of the foolhardy; the Indians, it seems, have no such scruples. They just want to increase their profits. That's the American way. And they can argue that turnabout is fair play after Europeans stole their country and long-marched them onto reservations, at least those that didn't die from European introduced diseases. But, nevertheless, we shouldn't allow it to happen - increased facilitation of gambling that is. And the "direct democracy" of allowing propositions on the ballot instead of having these matters legislated by our elected representatives is severely flawed when the proponents of any given proposition can spend millions on TV ads promoting their cause.

The Sub-Prime Mortgage Mess

In the good old days, if you wanted to buy a house, you went to your local bank, had a talk with your local banker, filled out some paperwork and applied for a mortgage. The banker determined if you qualified, that is, if your income made it possible to comfortably make your mortgage payments, if you had enough money for a down payment, and then loaned you the money to buy the house. You made monthly payments to the bank that included principal plus interest for 30 years. At that time your relationship with the bank ended, insofar as the mortgage was concerned, the bank was happy because it had made money on the loan, you were happy because you owned the house outright and could live mortgage and rent free in your Golden Years and all was copacetic. These transactions were regulated by the government primarily by means of the Glass-Steagall Act which erected a barrier between investment and commercial banking. This was a reaction to the stock market crash of 1929 and the Great Depression. On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933.  Then it was off to the races for the housing bubble.

Instead of your local banker, who had a personal relationship with you, loaning you the money, the "loan originator," a mortgage company such as Ditech or Countrywide, immediately sold your loan to a Wall Street investment banking firm such as Goldman Sachs or Merrill Lynch. These companies assembled portfolios of mortgages from all over in a pool called Collateralized Debt Obligations (CDO)and then "securitized" them which means they sliced them and diced them, packaged them up and sold them off to investors. Cleverly, they packaged these Mortgage Backed Securities (MBS) in such a way as to be able to give different investors customized slices or tranches (French for slice). So if you wanted a low risk, low return tranche, they sold you that. If you wanted a high risk, high return tranche, they had a deal for you too. They had everything from AAA rated tranches all the way down to junk tranches. The problem was, unbeknownst to Wall Street, all the tranches were really junk because of the way the loans were originated. Instead of your banker carefully poring over your paperwork (as in the Ditech commercials) and making a determination whether or not you qualified for a loan, as far as the mortgage companies were concerned, everyone qualified because they based the loan on "stated income." You could be working at Wal-Mart for minimum wage but you walk into the mortgage company and simply state or tell them the whopper that you are making $100,000 a year and, guess what, you  qualify for a "jumbo"  mortgage.  And as housing prices were bid up by the increased demand resulting from easily available mortgage money, more and more houses required a jumbo.

The mortage company had the incentive to grant as many loans as possible because they immediately sold them to Wall Street so their "exposure" to the loan was nil. At the same time, they were making a ton of money on commissions. Like any good broker they were "churning" mortgages. They were offering all  kinds of "creative" loan products: nothing down, no problem. You want to lower your payments and take equity out of your house, in other words, use your house like an ATM machine, no problems! So in reality all the tranches were really junk and you had no relationship with Goldman Sachs or whoever it was that bought your loan and tons of others, repackaged them and sold them off to investors all over the  world.  Any particular investor might own a slice of your house, a slice of someone else's house somewhere across the country and so on, all neatly packaged into a AAA rated bond. Credit rating agencies such as Standard and Poor's went along with this charade so that investors really believed the tranches they were buying were AAA rather than junk.

So all the investors were depending on Mortgage Backed Securities which means that the revenue streams from all the collateralized mortgage payments from John and Sally Homeowners formed a pool of money from which the investors were paid. But then what happens when the housing market turns down or when the homeowners' adjustable rate mortgages reset to higher interest levels and all of a sudden their payments go through the roof or both! Pretty soon John and Sally get behind in their payments or stop making their payments altogether. In other words they default. Eventually their house gets foreclosed on. From an investment banker's point off view, it becomes a non-performing asset, a revenue stream that he was counting on to combine with other trickles and then divide up to pay off the tranches, a stream that has dried up. And at this point it's pretty difficult to even figure out who actually owns the house: the bank, the mortgage company, the "loan originator," Goldman Sachs, the investors with their tranches??? In the old days it was the bank, of course! 

John and Sally can't sell their house because all of a sudden it's a buyer's market. They can't get their equity out because the market has dipped and they have refinanced all the equity out of it anyway. They can't refinance because all of a sudden "stated income" doesn't make it any more; credit standards are tighter. Everyone's in a bind. That's why Merrill Lynch and Citibank have had to "write down" billions of dollars. They need to pay their investors that bought their tranches even though they're not getting revenues from mortgages they were counting on. All of a sudden, you've got a mess. But wait, it's even not as simple as that. There's more. The situation is even more complicated because we still haven't taken into account the ABS index, (Asset Backed Security index). This allows investors to "gain broad exposure to the subprime market without holding the actual asset-backed securities." They can "go short" or "go long," in other words, they can place bets on how the sub-prime market will do. Those who have shorted the market, obviously, have done very well.

"We expect ABX to build liquidity and transparency in the synthetic asset-backed market, attracting global investors that seek exposure to this asset class, both on the buy-side and sell-side," stated Kevin Gould, Executive Vice President and Head of Data Products and Analytics at Markit. In order to qualify for index selection, an issuer must have rated bonds for each of the AAA, AA, A, BBB, and BBB- categories. One bond from each deal will be referenced in each sub-index, and bonds must be rated by Moody's and S&P, with the lesser of the two ratings applying. The five sub-indices are based on the rating of the reference obligations which are equally weighted at index launch. Subsequent weightings may change based on the performance of loans in the underlying pools. The minimum deal size is $500 million, and each tranche referenced must have a weighted average life of between four and six years (except for the AAA tranche, which must have a weighted average life greater than five years). No more than four deals can be selected from the same originator, and no more than six deals can be selected with the same master servicer. Unlike the corporate CDS indices, the ABX contract component trades are reference obligation-specific, rather than entity-specific. Also, unlike corporate bonds which are bullet maturity, ABS bonds amortize at variable rates over the life of the instrument. An ISDA Pay-As-You-Go (PAUG) template, the standard for U.S. residential mortgage-backed securities, references each bond. Traditional credit events, as they apply to the PAUG contract, do not form part of the index contract. Hence all settlements will occur through the Floating Payment mechanism covering interest shortfalls, principal shortfalls and writedowns.

This is all pretty arcane, esoteric and far removed from the simple reality of John and Sally Homeowner who just want a place to raise their family and build up their life savings as the equity in their home continues to rise. Is there something to be said for simplicity? Until they fell for the advertising pitches from mortgage companies aggressively marketing re-fi's which allowed them to use their home as an ATM machine, they could have rolled with the tide as the market for homes went up or went down, locked into their constant payments on a 30 year mortgage. But alas, they fell for the pitch. And they are not innocent victims either. Their own greed and lust for consumer goods is at least partly to blame. As home prices went through the roof fueled by all the readily available mortgage money freely given with nothing more than "stated income," taxi drivers starting flipping houses. Now the problem is housing prices have been bid up so high that nobody except the rich can afford to buy them. Instead of living in a mortgage free house in their old age, John and Sally have been effectively priced out of the housing market altogether. Even hedge funds, whose investors greedily "sought exposure" to the sub-prime market, have gone over the edge of the bubble as unsustainable growth has indeed become unsustainable. First the stock market bubble of 2000, now the housing bubble, what's next?

Is it really worth it? Free market capitalists think so. No financial instrument is too sophisticated or too complicated for them. Should the  government regulate this mess? Heck, no. That's why Hedge Funds were created in the first place. Guess what? Unlike mutual funds, they're unregulated. So John and Sally are suckers and sophisticated investors who shorted the ABS index are the gainers. Devil take the hindermost! That's Capitalism for you. Oh, by the way, Goldman Sachs didn't do too bad because it shorted its own mortgage backed securities via the ABD index. So while its customers were getting stomped, Goldman Sachs came out smelling like a rose!

Remove the Cap On Social Security and Means Test It

Social security is screwed up. It's a regressive tax on the poorest people. The rich are exempted from paying it, but they still receive it although they don't need it, and then the government "borrows" it to pay for its wars and military-industrial complex. Then politicians complain that it's going to run out of money. Duhhh!! And it's only supposed to be for people who paid into it but a third of the recipients are disabled people so it's not really just a retirement plan for working people but a plan for people who otherwise would be destitute which is what it should be. Then why are the rich who have investment income and don't need it receiving social seceurity benefits?

They tax employees and employers each 6.2% for social security (real name "Old Age, Survivors and Disability" program) and 1.45% for Medicare for a total of 15.3%. Note that this is a regressive tax in that the tax rate is just the same for those earning $1 a year as it is for those earning $90,000. Income tax, on the other hand, is minimal to non-existant for low wage earners so that the poorest wage earners end up paying more for social security and medicare tax than they do for income tax. In addition, self-employed workers such as myself pay a whopping 15.3% (both employee and employer shares) for social security and medicare. There are several things to do both to increase the fairness of the tax and the fairness of the benefits: 1) Eliminate the cap on income after $90,000  so that the rich will pay on their entire income not just part of it. After all these are the people who can afford to pay more. 2) Means test social security so that people with large investment incomes, passive incomes, unearned incomes or whatever you want to call it receive less or no social security income when they retire. 3) Make the social security and medicare tax progressive so that poor people pay little or nothing and rich people pay more than 7.65% if they're employees and more than 15.3% if they're self-employed. By the way poor self-employed are paying a higher percentage tax for social security and medicare than rich hedge fund managers are paying in income tax, and the rich hedge fund managers, earning upwards of $100 million a year, are only paying social security tax of 6.2% on the first $90,000 of their income, a mere pittance. However, there is no cap on the medicare portion of 1.45%, a step in the right direction! 4) Exempt the first $50,000. from social security and medicare taxes instead of all income greater than $90,000. In other words cap the bottom not the top!

Then they want to privatize it. Talk about compounding stupidity with insanity! First of all let's discuss the purpose of it. Shouldn't it be about providing people in their advanced years and old age with a minimally decent lifestyle regardless of their income from other sources such as life savings? If so, rich people shouldn't be getting it at all, right? But they should pay into it because there's no certainty that they will end up being rich. They could lose all their money and then they should be eligible for it. So means testing would guarantee that people not needing it wouldn't get it and people needing it would and in what amounts. The basic principle should be that the well off should help those less well off, a principle that's anathema to the Republican Party but a basic Christian principle. Jesus said to the rich man, "Sell what you have and give the money to the poor" or words to that effect and "It's easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of heaven", and "Blessed are the poor..." The basic Christian message is that the rich, because they have been extraordinarily fortunate, should help the poor because they have been extraordinarily unfortunate. Now these right wing Republican evangelicals believe the exact opposite disqualifying them from even being Christians in my view. Their philosophy is really social Darwinism - devil take the hindermost.

And Jesus didn't discriminate between the "deserving poor" and the "undeserving poor." So even the good for nothings who have squandered their money on drugs, made bad decisions one after another their entire life and were too lazy to get off their butts still deserve a minimally decent life in their old age or if they become disabled. Jesus never discriminated between deserving and undeserving poor. But right wing Republican evangelicals do. So-called megachurches with incomes in the tens of millions a year might qualify as Christian if they gave the bulk of that to the poor, but, if they don't, they're not Christian even though they call themselves that, in my opinion. Christianity has become a distortion and perversion of Jesus' teachings, but this is nothing new. Medieval popes collected indulgences (money constituents paid to get themselves or their relatives out of purgatory and into heaven), collected art, fought battles and in general lived the lives of secular humanists. Christianity would not even have been a major world religion if the Roman emperor Constantine had not made it the official religion of Rome in 325 AD. Theodosius made it the state religion in 392 AD. After that all other religions were forbidden. So Christianity has been subverted and perverted for 1700 years or more. This is nothing new.

Matthew 25 says: "When the Son of Man comes in his glory, and all the angels with him, he will sit upon his glorious throne, and all the nations will be assembled before him. And he will separate them one from another, as a shepherd separates the sheep from the goats. He will place the sheep on his right and the goats on his left. Then the king will say to those on his right, 'Come, you who are blessed by my Father. Inherit the kingdom prepared for you from the foundation of the world. For I was hungry and you gave me food, I was thirsty and you gave me drink, a stranger and you welcomed me, naked and you clothed me, ill and you cared for me, in prison and you visited me.' Then the righteous will answer him and say, 'Lord, when did we see you hungry and feed you, or thirsty and give you drink? When did we see you a stranger and welcome you, or naked and clothe you? When did we see you ill or in prison, and visit you?' And the king will say to them in reply, 'Amen, I say to you, whatever you did for one of these least brothers of mine, you did for me.' Then he will say to those on his left, 'Depart from me, you accursed, into the eternal fire prepared for the devil and his angels. For I was hungry and you gave me no food, I was thirsty and you gave me no drink, a stranger and you gave me no welcome, naked and you gave me no clothing, ill and in prison, and you did not care for me.' Then they will answer and say, 'Lord, when did we see you hungry or thirsty or a stranger or naked or ill or in prison, and not minister to your needs?' He will answer them, 'Amen, I say to you, what you did not do for one of these least ones, you did not do for me.' And these will go off to eternal punishment, but the righteous to eternal life."

Jesus' so-called social gospel is at the heart of his ministry. The rich should help the poor. Social security at its heart represents an even lesser requirement in that, for the most part, it represents the average person paying into a fund to eventually help herself. Paying in according to income should go without saying. In fact the more one earns, the higher percentage one should pay. In other words the social security tax should be progressive. On the other hand the payout should be according to need. Rich people don't need to collect social security. Poor people do. But there is no way of knowing who is going to be rich and who is going to be poor. That's why it's an insurance program. And the refusal of most Christian churches, especially right wing evangelicals, to support government programs to help the poor and disadvantaged is why I'm not a Christian. At least not in their sense.

And then they try to parse it that they don't believe in government programs to help the poor, but they do believe in private or voluntary programs to help the poor. Give me a break! Government is we the people acting collectively. I'm sure the rich right wing Republicans were grateful for government help when their houses were about to burn in the recent California fires. There is an appropriate sphere for government activity and vice versa for private  enterprise. Some things can be done more efficiently and effectively by collective or government action, namely building roads, fire fighting and helping the poor. Private old age insurance would simply screw the elderly in order to generate higher profits for stockholders and higher salaries for CEOs.

Another thing: in order to qualify for social security one must work ten years. There are a lot of people who, for one reason or another, have not worked or have not paid into social security for 10 years. So what's to happen to them in their old age. Out on the street? Shouldn't everybody be entitled to some minimal assistance in their old age? Homelessness is a travesty, but that's what happens to poor people who cannot pay rent in the USA. Many of them are veterans. This is a double travesty. Alcoholics and drug addicts should not be given money but in kind food and housing. Nobody should be out on the street.

Current law exempts anyone from paying social security taxes on salaries more than $90,000. That means that someone earning a million dollars (or a hundred million in terms of hedge fund managers) pays the same social security taxes as someone earning $90,000. This is not right. And it isn't right that the Federal Government is actually using money that has been collected for social security and medicare to fund other parts of the government, namely, war and the military-industrial complex. Then the Bush Administration has no money for children's health insurance, the SCHIP program, that, if entirely funded, would represent about two weeks worth of the money spent on the war in Iraq. There's always money for war and tax reductions for the rich. The poor have to beg for crumbs from the table.

Suppose the US Treasury Gave a Debt Auction and No One Came!

Ever so often the US Congress goes through the exercise of raising the debt limit "allowing" the government to borrow more money. Right now US debt is approaching $10 trillion thanks to President Bush having spent the US into more debt than all the preceding presidents combined, a distinction held heretofore only by Ronald Reagan. It's not hard to see why: endless wars and tax cuts for the rich. But the US may be reaching the point where Congressional raising of the debt limit is akin to pushing on a rope. What if nobody wants to buy any more US debt? Currency traders are dumping US dollars so fast that the dollar has already been overtaken by the euro and the Canadian "loonie," and it is soon to bow to other major currencies such as the Aussie dollar.

Ever so astute and perceptive, Alan Greenspan has made the following comments regarding the US debt ceiling which instead of being set by Congress may be approaching the point where it is set for the US by international market forces:

Former Federal Reserve Chairman Alan Greenspan said the dollar's depreciation may reflect growing unwillingness among foreigners to buy U.S. debt. "Obviously there is a limit to the extent that obligations to foreigners can reach,'' Greenspan said in a speech in Washington today. The dollar's decline to its lowest since 1997 may be "an indication America is approaching this limit.'' Greenspan's warning came after the U.S. Treasury reported last week that international investors sold a record amount of U.S. financial assets in August. Total holdings of equities, notes and bonds fell a net $69.3 billion after an increase of $19.2 billion in July. The dollar has declined about 8 percent against the euro this year and 4 percent against the yen.

China, the US' largest creditor,  has recently threatened to dump US dollars, a move that would precipitate a meltdown of the international monetary system. However, the eventual devastation caused by a gradual sell-off of US dollars would be just as bad for the US, at least, if not for the rest of the world. Just at  a time when there is pressure on the Treasury to lower interest rates to stave off a subprime mortgage induced recession, there is pressure to raise interest rates to attract more capital to assuage the US' voracious appetite for borrowed money. Just as the American people are charging up a storm on their credit cards, the US government is charging everything on its credit card with the willing compliance of China, Japan, Saudi Arabia and other enablers. But as the dollar falls in value, dollar denominated commodities, such as oil, will inevitably rise in price. This is because the purchasing power of oil producing countries based on their income in dollars is declining once those dollars are converted into their native currencies. This pushes up the price of oil for the American people, but not necesssarily for the rest of the world whose currencies are appreciatting vis a vis the dollar and who, therefore, can purchasse dollars, in order to buy oil, at relatively discounted prices.

And the enablers are getting less sanguine about buying US debt:

However, the big foreign buyers of US debt aren't buying this debt like they use to. According to information from the Treasury Department, the five largest holders of US debt (Japan, China, UK, Oil Exporters and Brazil) owned a combined total of $1.224 trillion in August 2006 and $1.459 trillion in August 2007. That's an increase of $235 billion. And over that same time, the really big purchases came from the UK ($189.4 billion) and Brazil ($63.6 billion.) China only increased their holdings by $13 billion and Japan decreased their holdings by $37.9 billion. In other words, Asian Central Banks -- who use to be reliable purchasers of US debt just aren't that interested in buying any more right now.

When push comes to shove and the Treasury is faced with the choice of lowering interest rates and, therefore, disccouraging foreign acquisition of US debt or raising interest rates and, therefore, plunging the US into recession, which will it be? The US government must meet its obligations, including large interest payments on its debt, so it must either borrow money or raise taxes or cut spending or a combination of all three. Therefore, it will raise interest rates to attract capital and to hell with the American people who will have to pay higher taxes and suffer through an interminable recesssion. Additionally, the American people will have to get used to the fact that social  programs to help the poor and middle class will be cut back because war has a higher priority and a more powerful lobby. The  Republicans would like nothing better than to have an excuse for doing away with social security and medicare altogether, two programs devised by Franklin D Roosevelt, their Democrat nemesis. As Rush Limbaugh said "We're working on that too" or words to that effect.

How about inflation? Couldn't the US just print dollars and inflate its way out of its debt.  Inflation would only hasten the decline of the US dollar making it even less  attractive to foreign investors. US government  obligations could be met this way but the dollar would spiral downward, the price of oil would spiral upward, and there is no guarantee that wages would keep pace. As the cost of living for American citizens continues to rise, the lack of unionization and other factors are keeping American wages down while CEOs pocket excess profits. Thus the prospect for the American people in general isn't that bright. American corporations will continue to do well because they sell into a global market, not just into the American market. If American demand for their goods and services declines, foreign demand will only increase due to the devaluing dollar and the relative prosperity of the rest of the developed and developing  world which is spending on infrastructure and commercial industry and not on war.

So -- why is the US dollar dropping? This is where Greenspan's comments come into play. Currency traders are obviously selling the dollar. While they have had ample reason to sell lately, the US economy wasn't slowing until the first quarter of this year -- hardly a reason to sell. One underlying reason may be a lack of confidence in the US' fiscal outlook and current situation. This would make sense, especially in light of the lack of interest from foreign central banks for US debt. Now -- no one is going to come out and say they have lost confidence in the US' financial situation. Instead they will simple go on quietly selling dollars.

And this may have even more sinister implications for the US than a precipitous crisis. A crisis can be handled by "fixing," an old American custom. But a slow almost imperceptible decline is like the frog in water whose temperature is slowly increasing. Unbeknownst to the frog, while he is relaxing in the warm bath, the temperature gets to the point, by imperceptible degrees, where it's impossible for him to get out and his goose is cooked, to mix a metaphor. This could well happen to the American economy!

The  American penchant for war and weaponry will continue to increase demand and expenditures on products and services for the military-industrial complex, most of which are entirely wasteful and destructive.  Continual expenditures on weapons procurements and the militarization of every aspect of American life will virtually guarantee the impoverishment of the American people not only in the public sphere but also in the private sphere as well, at least for the middle class and below. The rich and super rich will have no problem because, for all intents and purposes, they are global citizens and can live and port their capital anywhere in the world where circumstances are the most propitious.

More on Outrageous CEO Pay

Larry Ellison, who dropped out of two colleges, is CEO of Oracle Systems and is worth $16 billlion. As the 11th richest man in the world he does not even need to earn a huge annual compensation package. A CEO like Ellison literally cannot spend enough on personal consumption to stop his fortune from growing. According to Corp Watch, Ellison would have to spend over $183,000. an hour on things that cannot be resold, like parties or meals, just to avoid increasing his wealth.

Last year the eight most highly paid CEOs each took home more than $100 million. Activist investors are introducing resolutions at annual shareholder meetings challenging such obscene levels of executive pay but so far without much success.

In May, at the annual meeting of the Denver-based telecom Qwest, high school teacher Linda Baggus — annual salary: $55,000 — wanted to know how CEO Dick Notebaert could justify his annual earnings, estimated at $33 million by one Midwest daily newspaper. “How is the service that you render so much more valuable than the service I render?” she asked. Notebaert gave the standard corporate defense for American CEO pay levels. His pay, he explained, depends on his “performance” and reflects the realities of a “very competitive market” for executive talent. His defense carried the day. Four shareholder resolutions designed to clamp down on CEO pay excess failed to win majorities at the Qwest meeting.

Some activists think that corporate employess should share in the wealth of the corporate executives. Margaret Covert coordinates shareholder activism for NorthStar Asset Management, a Boston-based wealth management company. “It comes down to having a company share its bounty with all its workers,” she told CorpWatch. “All workers have contributed to company success. They should all share in the rewards, not just the top tier.”

NorthStar asked shareholders of ExxonMobil, the world’s most profitable corporation, to call on the company to prepare a study that compares the “total compensation package of our CEO and our company’s lowest paid U.S. workers in September 1995 and September 2005. “As shareholders,” the proposed NorthStar resolution read, “we are concerned that the over-compensation of top executives has a negative effect on employee morale and customer trust.” NorthStar president Julie Goodridge carried the resolution to the May 30 ExxonMobil annual meeting at the Morton H. Meyerson Symphony Center in Dallas, reminding the thousand or so shareholders present that CEO Rex Tillerson took home just over $22 million in 2006. “Our resolution asks shareholders to join us in questioning why it takes our lowest-paid employees a full year to earn what Mr. Tillerson earns for an hour on the job,” Goodridge said, “… because we believe it is fiscally irresponsible for a company to put so much of its resources into a single individual. “High company profits do not justify outrageous CEO compensation.” No shareholders spoke in favor of Goodridge’s resolution.

The same thing was tried at Wal-Mart. “If options are a good incentive to get people to do a good job,” says Mike Lapham, director of Responsible Wealth, a national group that links affluent individuals from across the U.S. and which introduced the resolution, “why not use them for employees on the store floor, too, and help the women and people of color who work at Wal-Mart build their assets?” They didn't have any luck with their resolution either.

Other countries have laws that allow unions to have a say in their executives' pay packages.

U.S. trade unions pushed particularly hard this spring for “say on pay” resolutions designed to give shareholders the right to take annual advisory votes on executive pay packages. This right is now enshrined in law in Australia, Sweden and the UK. In the Netherlands and Norway, shareholders have the right to take a binding executive pay vote.

Current US corpoprate law encourages companies to pay their CEOs outlandish salaries and stock options. They are allowed to deduct from their taxes far more money than the options cost them. Since 1993, Occidental Petroleum has claimed $353 million in tax deductions for stock options that went to the company’s CEO. The total that would have been deducted if reforms initiated by Michigan Senator Carl Levin had been law: $29 million. There are a few CEOs who think $3 or $4 million is enough annual compensation. “There's only so much crap you can buy,” Peter Rose, a Seattle-based corporate CEO who took home $4.7 million last year, told his hometown newspaper. But the attitude of most CEOs is proof that human greed has no bounds, and that sharing does not come naturally to the human spirit.