I read pretty much all the comments from my last diary. I've also read PLENTY of comments from other sites, from every shade of the political spectrum. I've mulled it over a couple of weeks, and it leads me here, to a place I don't want to be. You see, there's this place called Fantasy Bullspit Land. I know, because I lived there. What's funny about living there is I get to see a few of you folks on a daily basis. What's amazing though, is how often I see the other side of the isle over there too.
So, what's going on in Fantasy Bullspit Land? Happy, Hunkey-dorey Bullspit, that's what.
Bullspit like:
1)There aren't people out there that don't mind exploiting anyone and anything they can, and
2)Those people aren't running things.
So, while I was leaving from the parking lot of the Town Hall of Feudalism to reaching the Corn Fields of Ignorance I put together my thoughts. I've shared those already.
And now I see that we BOTH have a long way to go before we reach someplace sane.
Part One: Where This Road Leads
Read my other entry at http://www.dailykos.com/story/2005/2/24/123331/586. I won't reenumerate here.
The gist is there are people, my people, and we have a plan. My folks are few, entitled, and shrewed. They are just a tiny fraction of what you might call Republicans, but they wield tremendous influence, connectivity, and motivation. We are what I called American Conservatives.
I called them American Conservatives because they are nothing else. They are not Fiscal Conservatives, Social Conservatives, or Government Conservatives. They are not Goldwater Conservatives, or even Regan Conservatives. I am changing the name to Entitled Power Conservatives for the purpose of this and future diaries. It seems to have confused people into thinking that ALL conservatives in America fit this description. They don't. They are land developers, mineral rights developers, mavens, barons, and high-powered consultants. They are mayors, senators, presidents, and lobbyists.
They can only be described as American and Entitled to Power, and they have always hidden their political machine among others' political movements. They drive the strategy, agenda, and message of the Republican Party. They also drive the strategy, agenda, and message of the Democrat(ic) Party.
Eh?
Yea. Look closer, I'm sure you've seen it. How can Hillary support a debt-enabling bill (Indentured Servitude)? How come the DLC pooh-poohs economic and political populism? For that matter, why does the DLC support business interests and lobbies so aggressively (Corporate Welfare)? It is because they are owned. Bought, and paid for.
More Bullspit? Nope. To understand how our political system has been hijacked by Power Conservatives you only need to look America's Planned Economy.
Part Two: America's Planned Economy
Ok, if I haven't alienated the last of you now, I'm going for the coup-de-gras.
The Left is dead.
Harsh, I know. But you can take comfort in the fact that the Right is too. Sure, there are folks who SAY they are part of the Right, but that corpse has long-since become worm food. Gone are the days of the French Republic and their Right/Left idea of legislature and politics.
So, what is everyone if they aren't Left or Right? Politically unmotivated. People here and everywhere are very much just people anymore. They may, or may not, own guns. They may, or may not, believe that unrestricted abortion is a good thing. They may, or may not, drive pickup trucks, watch NASCAR, and hang out at the titty bar. Those decisions do NOT make you Red, Blue, Black, White, Left, or Right.
There is but one dichotomy left in this country. It is based on if you believe in a planned economy. There are only two options:
1)You are a Democrat if you like bloated, entitlement-laden planned economies
2)You are a Republican if you like bloated, entitlement-laden planned economies
Yep. We loves us some planned economies. They only difference is flavor; do you believe:
1)Economies are best controlled by all people involved, or
2)Economies are best controlled by SOME people involved.
If you said no one, you get a zero. To believe there is a free, uncontrolled market that impartially sifts through merit in order to reward those most capable and daring, you have not only drank the Kool-Aid, but polished off the Jell-o Shots and chased it down with some laced Flavor-Aid. There is no impartial Free Market. Lack of government regulation does not a Free Market make.
Right now, by laws and government, our economy is planned by the White House, Congress, and economic actors. Agencies and the laws that create them put pressures on an economy. Economic activity is generated and regulated by actors. Those are the rules. They are pretty much immutable. What isn't immutable is how the chosen market model works.
Before we go any farther, let's define our jargon. When earning my Bachelors, my minor was in Economics, focusing on the Econometrics of Externalities, so I can probably swamp you in words that, at best, can have relative meanings.
A Free Market as used here means one that is unregulated by any non-economic actor, and there is no influence on the ability of economic actors to act in any way they feel necessary, except they cannot use violence, coercion, or theft. Imagine a world with that kind of market. There would be vast horizontal monopolies and zaibatsus. There would also be a strong organization of labor in the form of a handful of unions. There would be no government to levy coerced taxes, and all goods, services, police duties, and national defense would be held by private interests. The conflict of interest between fair labor wages and maximized capital would return a point of equilibrium. That's how a free market would work, and in practice it would probably break down the moment violence, coercion, and theft are realized to be basically unstoppable. The system would inevitably lead to constant violence between corporate and labor militias, unprotected communities that refuse to pay "protection fees" to their local militias, feudal corporate fiefdoms that war over land, property, and intellectual rights, forced labor, and another dark age.
A Lossless Market is one that incurs no loss from inefficiencies. All decisions are fueled by exact knowledge of the costs and benefits of that decision, and all costs and benefits are borne and reaped by the decision maker. For example, there would be a Lossless Market condition if I knew exactly how much a car cost and exactly how much it would benefit me. I would need to know my exact future usage of the car, the exact life expectancy of the vehicle, how much I will spend in maintenance and repairs, the compensation of the salesman, the profits of the car company, etc. I would need to pay the public trust exactly how much I am sending out in air pollution. These conditions are obviously impossible.
So, if our market isn't Free in the sense that economic agents aren't allowed to align without regulation, and it bears Loss because economic agents do not know exact costs and benefits, what do we have? We have a planned economy fueled by a market model because it is inherently lossy and restricted. We have come together to make sure there is one monopoly, the government, to set the plan and fill some economic duties.
We have a government that's acting as a monopoly interest. The government, like any business, works by market forces. However, it was chartered to maintain a monopoly interests in coercion, property rights, common defense, civil police powers, the stability of a medium of trade, and public goods (commons). The costs for these services are coerced in the form of taxes. The cost of loss is borne by both consumers and producers who are citizens, and since they are as privately held as possible, the net loss among citizens should be near zero. This is called the Neoliberal model, mostly because it preserves the rights of the individual as set forth in the Enlightenment. The model is embraced by many, many people across the entire political color spectrum (Regan to Clinton, Kristol to DeLong, to me).
Thus ends Wednesdays lesson in Macro 102.
Well, that doesn't seem so planned, does it? I mean, that's pretty much as close to laissez-faire conditions as you can get. What's so wrong about market forces? Nothing. Alone, a completely Free and Lossless Market would do a world of good. Nothing would be more expensive than it had to be, no one would consume more than they could afford. But it would require perfect people, and as such most any theoretical system of governance would work anyway.
But since we are not perfect, we have a planned economic system based on rules. Some of these rules can be bent. Some can be broken.
Part Three: Rules are Made to be Broken
This will be long, boring, and involve micro and macro economics tortured beyond all belief. If you don't want to sit through a college course, read the next three paragraphs, then read the LAST three paragraphs. You'll get the gist.
So, for this to work we need someone to plan the economic system. The plan is ultimately the responsibility of The White House and Congress (since states don't sue each other in the Supreme Court anymore and the SC doesn't set policy). The plan until now has been set by the paradigm of neoliberalism. The idea is that any unnecessary government interference in the marketplace is bad. Which means any unnecessary regulation done is done my industry itself (probably sounds familiar to you, but more on this later).
So, enter the Power Conservatives. We live and die by one axiom- Maximize Shareholder Wealth. The first thing you are indoctrinated with when you enter business school is this mantra. We hold it to heart that in order for the model to be fully actualized, all parts of an economic unit should function to "Maximize Shareholder Wealth." This is our plan. Maximizing Shareholder Wealth is our rule-breaker.
To see how this breaks the neoliberal model, lets examine how revenue streams from invested capital work. You can invest capital in debt, such as bonds, or you can invest in equity, such as stock. Debt is secured on the binding promise of the return of your original investment, plus the cost of the debt over time, called interest. Equity is secured on the ownership of physical capacity for production.
The first step here is to understand the value of debt. Debt will always equal cost plus interest. The market value of that debt is easy to calculate, and will always equal the principle plus the interest, minus a risk premium, minus inflation. So, for any given interest rate X and principle Y, the value of a debt drops based on how likely it is for the debt to be defaulted. Our pricing basis comes about from the Treasury Bond, which has an inherent risk of zero (if the US Government defaults, we are up shit creek no matter what US denominated debt we hold). So, to price the value of debt against a Treasury Bond rate of X and a fixed principle of Y and fixed inflation rate of Y, you must increase the value of the interest by Z, such that
T-Bill Value = Y + X*Y + Z*Y - Risk(Z) - I*Y where Z = 0 for Zero risk
Private Debt = Y + X*Y + Z*Y - Risk(Z) - I*Y where Z = Risk
Now, how do we increase the value of debt? Well, you can't change the principle, Y. It's been tried, and it doesn't work very well, and you end up shot or in jail. Most people have a good memory for how much they lent you in the first place. You can't REALLY change the inflation rate. It works for T-Bills, but only if you're the government. That leaves us with risk. You have to reduce your risk, or you have to make your buyer accept more risk for the same compensation if you wish to increase the value of your debt. Remember this, to increase the value of debt, you must reduce your risk or make the buyer accept more risk for the same compensation.
Now, equities work a bit differently. The value of an equity is derived from the probability of future cash flows. With debt, future cash flows are expected and assured. With equities, future cash flows are expected, but not assured. That leaves us with a larger risk premium to use in our valuation of stock.
Stock's value is calculated by it's expectation of future cash flows. For any given stock price, there is the expected future value of cash flows multiplied by how likely it is to receive future monies. Interesting, but doesn't really deal with the value of the equity you own, does it? No, not really. Remember, that while stock in a company represents a percentage of output in the form of profit, the VALUE of that company rides on more than just it's productive capability.
To posit these equations:
Profit = Revenues - Costs
Stock Price = Profit - Risk Premium
Stock Price = Revenues - Costs - Risk Premium
Production(cost) + Risk(value) + Capital(value) yields Production(value) + Risk(cost) + Capital(cost)
Where
Production(cost) are all fixed and variable costs of production and production capability
Production(value) is the market value of production
Risk(cost) is the Risk Premium
Risk(value) is the process involved in production capabilities
Capital(cost) is the cost of keeping cash, debt, and facilities working and growing.
Capital(value) is the amount invested in production, either in cash or debt
Production(value) = Market Value of Production = Revenue = Production(cost) + Profit/Loss
Such that
P(c) + R(v) + C(v) -> P(c) + Profit + R(c) + C(c)
Profit <- R(v) - R(c) + C(v) - C(c)
Profit <- (R(v) + C(v)) - (R(c) + C(c))
Or Profit is created by a net positive between how well you invest your capital in production, and how well your manage your process of production. If you suck at doing what you do, people should notice and your risk cost will increase. If you waste your monies and debt and invest badly, you get less value generated from cash and debt.
So, to increase profits, you can't just lower the cost of inputs, and hold the price constant. Someone could come along and buy the inputs at the reduced cost, and you're back to square one. Well, you can game it for a while by sweet trade deals, but this is usually illegal, and really, really pisses the competition off. Your competition will just integrate your model, or snipe your trade deals. And besides, excellent trade negotiators are more a function of the business model anyway, and is looked at in valuating a company (human capital value).
This is intense, sorry. Here's a practical example. When you buy a company, you first need to create a ratio that resembles the probability of risk to return. It's like gambling...
Say you have an 80% chance of receiving $801 off an gamble of $800. You wouldn't play, would you? How about $1000 for an $800 bet. Doesn't sound too bad. If you play 1000 times, you will probably come very close to breaking even, and playing once gives you good odds of a nice return. Now, say you receive $1050 off the same gamble each time. You'll play all damn day. So, the value of stock must obviously include a risk premium too. There is a point of equilibrium for the stock price. It all works nice and smoothly here too.
Part Four: Maximize Shareholder Wealth
Where does this break exactly? Remember WHY we're playing this game? Maximize Shareholder Wealth. The only ways to do this are to increase cash flows (improve production, capital investment, and debt management) or force stock buyers to assume more risk.
Risk can be deflected in a couple of ways. First, there's insurance. But the problem with insurance is that no one insures you if you are either an insurance company or a cash flow. So this is practically out.
Also, if your investors can't see how risky you are, you can force them to assume more risk. You can make funky borrowing arrangements, pull inside deals, and sweeten this that or the other. Cook the books, in other words. This will land you in a razor-wire country club for 16 months, but it still happens. Day in, day out. And besides, it's easier to just screw someone else, not Wall Street.
Along these lines, we also deflect risk by withholding information from stakeholders. Uh oh, what are stakeholders? Well, they are anyone and everyone usually. Stakeholder is defined as anyone who has an economic interest in the enterprise. So, a consumer is a stakeholder, a family member of a stakeholder can be a consumer, some guy in Zaire can be a stakeholder if those overpriced doughnuts you bought cause you to spend less in charity this year. Employees are stakeholders. The CEO's mom is a stakeholder. You name it, they are probably a stakeholder.
How do we force risk on these people? Lies usually. Well, use words like "proprietary" and "competitive advantage," but we usually mean "We won't tell you because it will bone us." 10% of the time it's because we have an idea we REALLY need to protect from theft. 90% of the time it's because we have an idea we need to protect from outraged stakeholders or potential investors.
We put shit in doughnuts that YOU SHOULD NEVER EAT, and WOULDN'T if you were educated about how frikkin unhealthy they were. But we don't really tell you, so you assume risk in the consumption at a reduced price. We charge you $1 a doughnut that does $1.50 in damage to your health. You are now out $2.50, for a sweet taste of diabetic hell. We wouldn't tell you shit about shit if the FDA didn't require it. Why do you think food companies fight SO HARD against government regulation of labeling? It isn't because of "competitive advantage." But that doesn't stop us. Take for example that everyone knows what's in SPAM or milk. It's that if we were educated about the risks of high-fat meat or eldrich moon-bat milk laced with substances straight from the Golden Treatise of Hermes Trismegistus, we WOULD NOT CONSUME AS MUCH, thus making the enterprise of selling this shit more risky.
And so lies, and of course, "Personal Responsibility" covers your ass anytime someone does something stupid, like using your product.
But don't forget, risk can be shoved on employees too. Imagine this: You hire employees for life. You get them as babes, nurture them, take care of them, educate them, actualize them, and work them as hard as oxen their entire lives. That would be great, except it would cost too damn much. We tried it, it was called slavery, and it doesn't work too well if you need people for more than forced labor. Raising thinking individuals is really hard, and most of all RISKY. There is no guarantee on your investment, and it's why you don't see more vertical monopolies. It's why gas stations are owned by oil companies (low risk in oil commodities), but you don't see a Wal-Mart owned by some major producer. Production that involves risky inputs can't organize vertically (buying up their own input production). So, just model employment with your nice Maximizing principle. Make someone ELSE make your input, make it cheaper, and make the OTHER person assume the risk. Then, screw them on the deal to purchase that input. In other words, Privatize Children. I think it's time for another chapter break, this is starting to get incoherent.
Part Five: Arbitrary Chapter Break
Ok, it's not arbitrary. It's about how we can force labor to assume risk it isn't being compensated for. I just can't think of a snazzy title, because this is the source of my horror and self-loathing. I don't have the hardness of heart to screw people I deal with every day (yes that means I, like most people, find it easier to screw people I DON'T face on a daily basis). I also don't have it in me to make this snarky. So here's the plan:
1)Division of labor
2)Assumption of employment risk
3)High cost of unemployment
4)Elimination of "Feature Creep"
One and Four- Education is the biggest tool for this. Have you ever heard "Why are we teaching this kids shit like art and music? We need to teach them skills to use in the workplace." Good. Make them good little automatons, skilled at one things only. Make your children a commodity. Because education is now a Personal Responsibility, not a necessary function of Democracy. Because God knows, those extra features like "independent thought," "creativity," and "self-realization" will inevitably cost more. And, you can squeeze more professional skills training into less time if you streamline education. Not to mention, commodities are more volatile to demand changes, creating synergy with points Two and Three.
Two and Three- When you have a labor pool that cannot reorganize or substitute in another labor pool, you can force the volatilities of employment and human performance back on the employees. You cause wages per hour go down over time, as demand for a constant supply of old labor training goes down. Boom, higher productivity due to reduced costs of inputs.
You also create a riskier unemployment situation where new employment is hard to find with your "feature set." Since well-defined skillsets are generally non-substitutes to employers, you are forced to stay in what will always be declining skillset pools. IT was hot once, but is now glutted. When an employee actively stops seeking outside employment because of a job market functioning at capacity, and employment in another sector is not likely, you up retention and lessen your exposure to hiring costs. Also, as employment conditions darken, you can start to lower the rate of wage increases and increase the hours required to maintain employment.
You force employees, who generate and sell the input "work" into a bad selling position. Our society LOVES to force people into bad selling positions. Every time you make a "good deal" on a house, a music contract, a stock, etc, you screw someone with a "bad deal." A "good deal" here means getting more for something than it's worth. It's a binary circumstance. Someone gets more of the pie, someone gets less. And as slavery, then assembly-lines, then grocery chains have progressively screwed the bottom with a bad deal, the producers are the ones that reap benefits.
And so endeth the lesson.
Part Six: Anything Left to Do?
Well, you can stop these Robbers of Risk from getting away with it. To start, how can we get away with it? Remember "Unnecessary Regulation" earlier. Every real, true Power Conservative thinks ALL government regulation is BAD and interferes with market-generated equality (notice how some are always going to be more equal than others?). You can ALWAYS spot us because we scream about how the Government does things that private interests could do better. Really? We've stopped private interests from organizing one input- labor. Having blind faith in market self-regulation is just plain silly. Our market is run by one axiom, remember? If I charge my air quality $1 in the process of making $2, I just made money. You however, probably just lost $1. And business CANNOT regulate that on it's own (among many other things).
Not buying labor exploitative products, or trying to take down corporations will NOT solve this problem. Every little suburb housing baron who screws people on $30,000 cookie-cutters purchased at $200,000, to every record label that rips the value of music from artists, to every Personal Responsibility Clone would have to be re-educated. And by re-educated I mean fed his own kidneys. This is not possible.
So. How do you use creative leverage in this situation? How do you make Personal Responsibility, Corporate Interest, and Maximizing Shareholder Wealth work for you?
I've thought, and thought, and thought about it. The ONLY way to eliminate the loss of misdirected risk is to eliminate lies. The best way I've found to accomplish this is what I call the Open Business Model.
How does it work? Well, at 4100 words already, I'm prepared to write a diary about it. But here's how it fundamentally works:
Take Open Source Software. Why does it generate more value than commercial software. Why is Red Hat such a hot damn place to work for, and how do they make so damn much money off an essentially free product? They sell the VALUE of their product multiplied by their EXPERTISE. Their product has incredible value because most grunt work is done concerned STAKEHOLDERS, and frees the business model of generalized production. That frees the company to use their power to sell their expertise.
How would an Open Business work? The grunt work would be done by... Shareholders and Stakeholders. The ENTIRE business process would be accessible, preferably online. ALL financials, production, buying, selling, customer lists, employees, wages, EVERYTHING would be tracked and free to view. This information would be provided to ANYONE. It needs to be accurate and true. Leave no business process un-illuminated. What will this accomplish? It will allow everyone involved, all stakeholders, to view exactly how much risk the enterprise is generating. It would remove any loss based on false claims of risk. Would it be possible? Yea. You would streamline competition (you all know how each other works, and could respond instantly to each other), you would provide accurate data to gage the risk premium in the market, and you would allow outside interests such as customers a chance to view the process and offer FEEDBACK. Hell, even bounties on process improvements could be offered, a la many Open Source consortiums.
Also, good unions wouldn't kill you. For God's sake, unorganized labor is BEGGING for a tragedy of the commons. Any shared resource will be consumed far greater than the resource can bear. Kick anyone who says "Unions are bad" in the nuts with "Unions force labor to accept normal market forces." You can't argue that logic. It's like arguing that all oil rights should be handed over for a free-for-all instead of owned, sold, and consumed according to market forces.
So, yea, in conclusion, I figured you folks weren't clueless around here. I think it's mostly selective belief. Most people are guilty of it. In fact, selective belief is what creates this false "Left" "Right" "Red" "Blue" dichotomy. I think it's time to leave that belief back in the rolling fields of Fantasy Bullspit Land, USA.
So, if you folks are still with me, and even give a damn anymore, what should I diary on next: The truly glorious anal-rape that is Personal Responsibility, the Open Business Model, or how to Market Identity and Alpha Principles (marketing is a big interest and, heh, even hobby of mine, and I've been taught the Alpha/Beta paradigm since I could toddle and say "Maximize Shareholder Wealth").