A few days ago, in a role reversal, I was being lectured to by a Luddite teenager for the hundredth time about how my parenting would improve if I stopped using my phone all the time. That caused me to put the phone away and look around in a place seldom visited these days—the bookshelf. This was about the same day Pres. Trump’s chief economic adviser got an embarrassing reminder of the lack of corporate investment that will arise from tax cuts. (nymag.com/…) Not that he should have needed a reminder, mind you.
On the bookshelf I happened upon my paperback copy of the late liberal Keynesian John Kenneth Galbraith’s The Great Crash 1929, first published in 1954, which per Wikipedia has never been out of print. When I first was acknowledging my inner socialist, I purchased and thoroughly enjoyed the 1988 edition, issued one year after the 1987 stock market crash, with a priceless—and timeless—then “New Introduction by the Author.”
It soon became apparent that it might be useful to quote a few choice parts and comment about their enduring relevance. I am going to focus my quoting on that intro and the majestic and hilarious if it wasn’t true Chapter III, “In Goldman, Sachs We Trust,” but I thoroughly recommend the entire book.
GALBRAITH’S 1988 INTRODUCTION
ONE OF THE LEAST salubrious of debates between the more vulnerable orders of philosophers is over whether history repeats itself and whether those who remain innocent of its often painful course are doomed to retrace it. While the decision from this discussion has never been conclusive, it can be said with some assurance that in economic, social and political matters, if the controlling circumstances are the same or similar, then so will be at least some of the consequences. And to it was as between the great stock market convulsion of October 1929 and that which was experienced in October 1987.
On this point, to get this party started, I will cite that not too vulnerable philosopher, whose bolded words are among our comrade NY Brit Expat’s favorites.
Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce. Caussidière for Danton, Louis Blanc for Robespierre, the Montagne of 1848 to 1851 for the Montagne of 1793 to 1795, the nephew for the uncle. And the same caricature occurs in the circumstances of the second edition of the Eighteenth Brumaire.
Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like a nightmare on the brains of the living. And just as they seem to be occupied with revolutionizing themselves and things, creating something that did not exist before, precisely in such epochs of revolutionary crisis they anxiously conjure up the spirits of the past to their service, borrowing from them names, battle slogans, and costumes in order to present this new scene in world history in time-honored disguise and borrowed language.
www.marxists.org/...
My view, apropos of the financial markets, not least including as we head into 2018, putting these two points together, is that politicians paid for by the ruling class work to ensure that we will continue to be willing or unwilling actors in the recycling of this farce. And what specifically is this farce? Galbraith describes it well.
I will boldface as particularly timely the part about tax cuts, and underline a point that now relates to General Electric, the latest humiliated industrial giant:
The most important of the controlling circumstances, powerfully operative before the two Octobers, was, as it must be called, the vested interest in euphoria. …
Associated closely with the vested interest in euphoria is the pure speculative instinct. …
It is a condition that is inherently unstable, for implosively within it are the causes of its own collapse. What triggers the rush to get out doesn’t matter. It will, however, be discussed with compulsive banality by those who are impelled to find an external explanation for all market movements. If markets are perfect, as much doctrine holds, they cannot incorporate the seeds of their own disaster. In fact, the pure speculative development has a self-contained dynamic all its own. It is programmed to end with a crash.
A third controlling circumstance, little mentioned then or recently, was the enactment earlier of tax reductions with primary effect on the very affluent—before 1929, those of Andrew Mellon; before 1987, more spectacularly, those of supply-side economics and Ronald Reagan. In both cases they were supposed to energize investment, produce new firms, plants and equipment. In both cases they sluiced funds into the stock market; that is what well-rewarded people regularly do with extra cash.
Another controlling circumstance common to the years before 1929 and those before 1987 was evident in the field of corporate finance. Corporate finance, it is assumed, lends itself wonderfully to change and development. Both the speculation and the underlying euphoria are nourished by whatever is the latest and, it is believed, quite remarkable innovation. In the years preceding the 1929 crash, it was the investment trusts of Goldman, Sachs and United Founders, and many lesser operators, which were organized not to do business but to hold stock, sometimes stock in yet other investments trusts. … And there were the holding company pyramids, some of them eight or ten layers deep—bonds issued along the way, stock held in sufficient amount to ensure ultimate control.
The manifestation of presumptively innovative corporate finance and design in 1987 and immediately before was the corporate mergers and acquisitions mania, the corporate restructuring and leveraged buyouts. These presumed innovations, as in the 1920’s, involved the substitution of debt for equity; new only was the financing by the admirably denoted junk bonds.
… There was nothing new or useful in 1929 or 1987 in the privileged, if temporary, occupation of these operators. … As in 1929, to repeat, the core of the action was leverage. Fixed interest-bearing obligations to banks and bond holders replaced dividend-paying securities on which nonpayment does not portend bankruptcy or lesser fiscal disaster. And the further results was a heavy increase in corporate debt … This, in turn, has left the affected corporations deeply vulnerable to any serious future fall in earnings.
Think of the 300,000 GE employees, many of whose jobs are now in jeopardy, even without a market-wide crash, precisely because of massive corporate debt and falling earnings.
Specifically, Moody's takes GE to task for using $25 billion from asset sales in 2016 and 2017 to repurchase stock in an effort to boost share price, taking out $10 billion of debt to fund acquisitions, and paying out a dividend higher than cash flows and as the company was downsizing key operations.
www.cnbc.com/...
And don’t get me started about the backup jet.
Oct 29 (Reuters) - General Electric executives did not tell the multinational conglomerate's board until October about a spare business jet that routinely flew for its now-retired chief executive, the Wall Street Journal reported on Sunday, citing people familiar with the matter.
Executives also did not tell directors that the maker of aircraft engines, locomotives, power plants and other industrial equipment had received an internal complaint about the jet several years ago, the publication said, also citing people familiar with the matter.
The Wall Street Journal reported on Oct. 18 that former Chairman and CEO Jeff Immelt had an extra aircraft follow his corporate jet on some overseas trips during much of his 16 years in the role. GE executives first informed the board about the practice after the report, the publication said.
www.businessinsider.com/...
Or the obnoxious, not to mention inane, decision to break ground on a new headquarters earlier this year.
Industrial giant General Electric on Monday officially broke ground on its new corporate headquarters in Boston.
State and city officials joined company executives to scoop traditional shovels of sand in a ceremony marking the start of construction on the company's new three-building campus along Fort Point Channel.
It was about two years ago that senior General Electric officials, unhappy with Connecticut's corporate tax policies, met to decide whether to stay in suburban Fairfield or go. After a few months, they arrived at an answer.
www.wbur.org/...
Lest we focus exclusively, however, on the important similarities between now and the years leading up to the 1987 crash, let’s go for a moment back to the Great Crash to see if it has more to say about truly useless financial behavior.
CHAPTER III, “IN GOLDMAN, SACHS WE TRUST.”
The most notable piece of speculative architecture of the late twenties, and the one by which, more than any other device, the public demand for common stocks was satisfied, was the investment trust or company. The investment trust did not promote new enterprises or enlarge old ones. It merely arranged that people could own stock in old companies through the medium of new ones. Even in the United States, in the twenties, there were limits to the amount of real capital which existing enterprises could use or new ones could be created to employ. The virtue of the investment trust was that it brought about an almost complete divorce of the volume of corporate assets in existence. The former could be twice, thrice, or any multiple of the latter. The volume of underwriting business and of securities available for trading on the exchanges all expanded accordingly. So did the securities to own, for the investment trusts sold more securities than they bought. The difference went into the call market, real estate, or the pockets of the promoters. It is hard to imagine an invention better suited to the time or one better designed to eliminate the anxiety about the possible shortage of common stocks.
Now that sounds kind of familiar. I think about the fact that the Wilshire 5000 should now be renamed the “Wilshire Over 3000!” (wilshire.com/...) Where did the other 2000 publicly traded companies go anyway? One would think there is a Death Star out there. Obviously the solution to the problem is tax cuts for the rich and lowering corporate taxation so that corporations can … buy up their own stock and those of other surviving corporations.
And who needs actual old-fashioned physical operations that make things, do stuff, and provide jobs with pensions anyway? With modern financial science, you too can have unlimited, round-the-clock consumer “access,” while you still have credit, to ever-growing virtual race-to-the-bottom marketplaces that not only market real goods and services direct to your front door but also facilitate information sharing about, and hip investing in, non-things and non-actions. These days, we have millions of passive investors, many of whom are not of great means and who will one day depend upon their 401(k)’s, making monthly deposits into index mutual funds and ETFs, which can be traded “just like stocks!” Heard of Bitcoin but haven’t heard of ETF’s? Silly peasant. When the next crash comes, you will likely learn.
DEFINITION of 'Exchange-Traded Fund (ETF)'
An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.
(www.investopedia.com/...)
What could possibly go wrong? Smart people will make sure everything goes well, just like, gulp, in the late 1920’s.
A Michigan trust had three college professors—Irving Fisher of Yale, Joseph S. Davis of Stanford, and Edmund E. Day then of Michigan—to advise on its policies. The company stressed not only the diversity of its portfolio but also of its counsel. It was fully protected from any parochial Yale, Stanford, or Michigan view of the market.
Other trusts urged the excellence of their genius in other terms. Thus one observed that, since it owned stocks in 120 corporations, it benefited from the “combined efficiency of their presidents, officers, and the boards of directors.” It noted further that “closely allied to these corporations are the great banking institutions.” Then, in something of a logical broad jump, it concluded, “The trust, therefore, mobilizes to a large extent the successful business intellect of the country.” Another concern, less skilled in logical method, contented itself with pointing out that “Investing is a science instead of a ‘one-man job.’”
Apparently that long-dead financier did not have the foresight to predict Jeff Bezos. And the science of investing has now changed so much that it is a one-man job after all. And maybe, just maybe, what goes up does not have to go down anymore.
A quick look at P/E ratios for Apple Inc (AAPL) and Amazon.com Inc (AMZN) illustrates the dangers in using only the P/E ratio to evaluate a company. In late June, 2014, Apple was traded at $92.18 with a P/E ratio (TTM) of 15.34. On the same day, Amazon’s stock price was $334.38 with a P/E ratio of 511.06. One of the reasons Amazon’s P/E is so high is that it has been sacrificing profits in order to expand aggressively on a wide-scale, thus, keeping earnings suppressed and the P/E ratio very high. If you were to compare these two stocks based on P/E alone, it would be impossible to make a reasonable evaluation. A low P/E ratio doesn’t automatically mean a stock is undervalued, just like a high P/E ratio doesn’t necessarily mean it is overvalued.
(www.investopedia.com/...)
Since those 2014 Amazon numbers, its stock price has almost quadrupled and its P/E ratio has been almost halved, miracle man Bezos is proud to say. (www.nasdaq.com/...) He is wiping his company’s virtual butt with real world Mom and Pop, and all is right with the world, as long as we make it on to the Death Star that is. We should all apparently want to be afraid. It’s all a farce anyway, so who cares?
"It's almost eerie that one company could play such a huge role in both the economy and, yes, for Cramerica, the stock market," the "Mad Money" host said. "As the legendary cable operator John Malone told David Faber yesterday, Amazon is a 'death star' moving in 'striking range of every industry on the planet.'"
Yes, Amazon has seemingly unlimited capital, a laser-focused founder, CEO and proverbial "evil emperor," Jeff Bezos, and a lack of exposure to the struggling brick-and-mortar landscape, rife with steep rents and crushing labor costs.
…
"For now, Amazon is indeed the death star," Cramer concluded. "As long as they continue to provide better goods at a better service, every conceivable competitor is right to be afraid. Be very afraid."
Or maybe we can all somehow make it on to the Death Star. Maybe we can all get rich by cashing out and pooling what is left of Mom and Pop’s real assets on a single share of Amazon, or maybe a Bitcoin.
Which side are we on? We are not expected to intelligently examine that question but to be divided and ruled. If we do at this moment become politically engaged, we are expected to mindlessly know only one word, no two: not plastic but tax … cuts. To the anti-capitalist who sees this farce for what it is we hopefully admit we do not know everything but we do know boom … bust when we see it. Amazon, as big and bad as it is, is not the Death Star. Anti-democratic, planet-destroying capitalism is.
Galbraith, RIP, was a good liberal who desperately hoped to bridle the capitalist system for the common good. He gets the last words in this anti-capitalist story.
John Kenneth Galbraith, for all his strengths, failed to recognize what every true socialist knows deep in her or his heart—that there is no real democracy without socialism and no real socialism without democracy. He ended his simultaneously thoroughly entertaining and thoroughly troubling book on the Great Crash by expressing accurate cynicism of what the “men of business” would allow to become law. But he failed to call for a mass egalitarian movement to a world controlled truly democratically rather than by and for the men of business to begin with. He recognized that the economy is actually a political economy. But he failed to identify and call for the system change to democracy that includes the economy that is needed to bring about liberty and justice for all.
Part of me wants to give him the benefit of the doubt. Perhaps he was in part a person of his times, as are we, as were Marx, Proudhon, Goldman, Luxemburg, Jesus, Gandhi, and King. We too try to sort things out in a complex, shifting world, taking into account or ignoring, as circumstances dictate, the dead generations weighing like a nightmare in our brains. Galbraith tried to assess the world “throughout history,” but he wrote this book on real paper in a binary world at the height of the Cold War. I am writing long after the Cold War bits of digital information that can be transmitted around the burning world in a millisecond at a time of nascent but confused and divided mass questioning of capitalist triumphalism.
The latest generation of Reagan’s rich buddies keeps winning because the system is rigged to do that. His worn-out mantra of tax-cutting followed by austerity still fixates his party and still routinely controls economies. Just as most of us now recognize that “Communist” China is no more socialist than Cramerica, many of us now know or suspect that the men of business who buy, sell, securitize, and control large companies and investment gizmos, be they in Beijing or Manhattan, Palo Alto or Berlin, primarily are not on our side, the side of equality, but on their side, the side of privilege. Otherwise, they would be living like us, paycheck to paycheck, not knowing how we are going to pay our rent or college debt. Consider their actions not their words. They may pronounce devotion to “the shareholders” or even “the people,” but they are most definitely not building true democracy. Such is farce.
Of course, if we on the serious left are being honest with ourselves, we know that we, like Galbraith, for now lack the means to do much of anything practical about it. We have to try anyway. Dialectical processes are in play, but the outcomes are not predestined any more than the discovery of a temporary cure for ED. We are potential deeply democratic actors in need of uniting, not passive market investors in a corrupt system, striving to get on one Death Star or another. Step aside spinning men of business. Spare us the financial wizardry. Your time is gone.
But now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even thought it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.
Sunday, Nov 19, 2017 · 11:30:27 PM +00:00
·
annieli
ACM SCHEDULE
November
19th: Galtisalie
26th: Annieli
December
3rd: Greenandblue
10th: ??
17th: NY Brit Expat
24th: Annieli
31st: Greenandblue
January 2018
7th:
14th:
21st:
28th: Annieli
Hi Comrades and Fellow Travellers:
November blogs are full, so I have put up the list for January. Can comrades consider volunteering to keep this stellar group going? We also need to finish organising for December, so volunteers would be amazing comrades!
Alternatively, we love it when members put something in the queue so that we can use it when we have an opening. If you want to do that, please put something that is not time-constrained and something that has not been posted either in your own blog here or in another group’s blog previously. There are so many things going on and we have so much to learn from each other.
Please make your interest in hosting known in the Comments below this post, send kosmail to NY Brit Expat, or send a note to dkanticapitalistgroup@gmail.com