Professor Friedman felt both that corporations had no business spending money for social good, and that business should not be regulated, because all regulation would eventually be captured by business interests. What type of world would this result in we wonder?

Of the posts on this blog, those related to Milton Friedman seem to be some of  the most popular. People seem surprised that Milton Friedman is so heavily criticized in this blog and in others. While Friedman has an aura of respectability which has been granted by concentrated power, the fact is that Friedman is easy to criticize because his track record is so weak. No doubt we all know a person who is good at their job, but tends to have a number of doctrinal or essentially retarded political views. This was Friedman in a nutshell. Economics is presented as a topic that has a great deal of applicability to everyday life. However, academic economics, which is the area where Friedman achieved fame, is so esoteric and deliberately obstuse that it is nowhere near as applicable as many people think. Furthermore, the emphasis of economics over the past century has been to move further and further way from the real economy and focusing on advanced forecasting (which while containing a great deal of math can’t seem to predict the most apparent asset bubbles). Thus, while Friedman’s academic work may or may not have been good (for non-academics it makes no difference as Friedman was not publishing reseach for any applicability, but simply to impress other academics or wealthy benefactors), it does not have much to do with his political opinions. While Friedman used his Nobel Prize reputation to back his political opinions, they were in fact nothing more than that.

Selling Opinions

A second problem with the profession of economics is that most economists outside of academics work for large concentrated financial interests. This actually relates to the reason why economists can’t seem to predict anything. Economists are paid to provide forecasts their bosses want, not forecasts that are “negative.” Furthermore, many economists simply can not speak out about the present boondoggle-bailout because they work for the institutions receiving the money. Paul Krugman can afford to criticize idiotic banking and bailout policy because he has made his name already, however, if he was silent, he could make even more money because he would be lavished with hedge fund speaking opportunities (like economics super-whore Larry Summers) and so on. In terms of selling his opinions for cash, Friedman was peerless.

In this post we wanted to list our posts that discuss Friedman.

This post discusses how Friedman appeared to configure his opinion in order to get on the gravy train from wealthy corporations. He said what they liked, and they promoted him.

http://counterecon.com/2008/01/10/milton-friedman-economistintellectual-prostitute/

This post describes Friedman’s greatest defect…he was simply unethical. He was primarily about accruing power, therefore, how he accomplished this goal was secondary. The immorality in his own life went a long way to explain why he could not see a place for morality or standards in society in general. Friedman was famous for supporting any regime internationally, no matter how terrible, as long as they implemented his “shock therapy.”

http://counterecon.com/2008/12/24/friedman-and-rumsfeld-and-cheney-corrupt-brothers-in-arms/

This post describes how economics writing is filled with politics and that much of it has nothing to do with economics.

http://counterecon.com/2008/01/11/politics-in-economics-writing/

Shock doctrine

Naomi Klein’s book – the Shock Doctrine is an excellent primer on Milton Friedman.

http://www.naomiklein.org/shock-doctrine

100% Wrong?

One thing we have recently begun to do is to try to find instances where Friedman was right about something. He has what must be the most miserable track record of popular economists, or at least he is tied with Larry Summers for being consistently wrong. However, we did find a documented instance where Friedman was correct about something, and it is related to real estate taxation. You can find out where he was right here.

http://counterecon.com/2009/05/04/michael-hudson-on-real-estate-taxation/

According to the power elite, a casino economy is important for our economic well-being. One moment investment bankers are taking home astronomical bonuses, the next the ceiling falls in. This is called having a “dynamic” economy. If you disagree with this you either lack a PhD in economics or are a communist.

We are told that boom and bust cycles are a matter of things getting a little out of hand, requiring corrections. However, the increasing frequency of these market busts internationally, at a time when finance has become more esoteric and sophisticated is beginning to bring into question how random these events are.

Is Debt as Necessary as Air?

Another assumption that should be questioned is how critical debt is to economic life. Debt has been enlarged from something that is necessary for purchases that are very large to purchases that are everyday in nature. That is debt has come to be used to finance a better lifestyle than many could experience than paying up-front for many desired items. This perspective is increadibly short term in nature. The treatment of debt as if it were a drug is an example of a behavior which while irresponsible, is promoted by the very wealthy, because it is very profitable for them. The very wealthy need a fertile market in which to load money, because the completely unoriginal industry of money loaning is easier than employing their money is more interesting ways that make a real contribution to society. What is amazing, with all the suppose financial innovation that has occurred recently is how completely robotic the activities of banking should actually be. Complexity comes into play in finance when there is chicanery. After all the focus on financial innovation, the lowly mortgage brought down the financial system. The mortgage – a simple loan, was turned into a bizarre and dishonest financial instrument called a mortgage backed security. Really, what as all the mortgage broker industry about but plausible deniability for banks?

http://counterecon.com/2008/11/17/mortgage-brokers-as-corrupt-middlemen/



We have estimated that this lowly 286 computer could process all the mortgage applications in the entire country. Mortgage approval is a simple process….as long as the inputted data is actually accurate. Banks should hold mortgages, and get paid on the interest rate differential and fractional reserve banking system (i.e. $1 in assets results in $10 of loans). Who would not be satisfied with this business model? Furthermore, this is consistent with their charter, selling mortgages to Wall Street is not part of their charter and in fact violates the reason they have been deputized by the government to create loans. If “liquidity” (the initial excuse for mortgage backed securities) is required, there is as much liquidity as desired through the government’s ability to create money. Allowing banks to produce liquidity through bizarre schemes like selling mortgages means that the government in effect loses control over its money supply. We can see the results of the policy of doing this.

The financial system that America needs is far less complex than the one that it has. Finally, the reliance on more debt is increasing asset bubbles. This quote from an article at Global Research says a lot about the problems with debt.

Of course, we’re told that a stable financial system is essential to economic prosperity. We’re told that credit must be easily acquired again, so that businesses can meet payroll and consumers can resume buying. But these claims are also irrational. Businesses properly should be capitalized by investment and products should be purchased with earnings. So why do governments claim businesses and consumption need to be financed by debt? The answer is really very simple. The wealthy increase their wealth by lending and they do it without even having to use their own money by means of the Ponzi scheme known as fractional reserve banking. And when debtors cannot meet their obligations, their assets are acquired by the wealthy at fire sale prices who then become even wealthier. This is what capitalism does; it does it consistently and spectacularly. It really can have no other purpose. Credit is good only for creditors; debtors always lose. – Global Research

References

http://www.jkozy.com/

We have reached the final stage of this process – when the financial economy has very little to do with the actual economy. In this model, the financial economy is simply subsidized to continue to exist in its enlarged state. The original concept of the banking and financial system was that it serviced the real economy. With $13 trillion so far pumped into the financial economy and only $400 billion in stimulus for the real economy we can see where the emphasis and political power resides. The main emphasis now is to come to the rescue of asset prices, not workers and not the physical economy. In the new philosophy, manufacturing is optional, however finance is primary.

Real Economy Craters

While the real economy is putting up its worst numbers since World War 2, the stock market has regained some life.

1. The economy is losing 700,000 jobs per month
2. Massive bankings losses continue to be hidden
3. Supposed positive information on housing starts has been completely misinterpreted by analysts that need to go back to school to learn basic analysis

Supported by further decreasing already flexible accounting rules, a number of completely dead banks posted fake pro-forma earnings estimates that many financial anchors on television (who are glorified weathermen and weatherwomen) mistook and misrepresented as harbinger of good things to come. The major networks could hire non-twits to present financial information, however the major networks are themselves part of concentrated power, and concentrated power wants to pump up the banking sector because:

1. The banks are big advertisers
2. The banks know this is a critical time and need more political leverage to prevent a populist revolt – hence the fake pro-forma earnings announcements

It is not clear that any of these anchors are actually voicing their actual views. Like Glen Beck – the Fox News anchor who is an ex-alcoholic born again Mormon with a high school degree who clearly has no idea what he is talking about, talking points are most likely layed out for them. Anchors and commentators are clearly being selected because of their low mental capability and suggestibility. This is so they can be easily manipulated and serve a puppet for what the top advertisers at the network want to be repeated. This approach worked so well with Ronald Reagan, who had Alzheimers disease while in office, and had no idea what was going on for most of his presidency (Footnote1), that the power elite have been copying this strategy over and over.

This woman has no knowledge of finance, economics, history or any other topic related to financial reporting. We know this because we can observe the MSNBC icon in the lower right hand corner. She is most likely fed what to say by an editor or producer who is in constant communication with advertisers. In case anyone thinks this statement has sexist overtones, we have one name that should put an end to that speculation…Jim Cramer. Jim Cramer is no fool (although he appears to have either ADD or a cocaine addiction), however Jim Cramer is a con-artist and is continually being caught either misrepresenting his record or lying. Jim Cramer will pitch any stock or idea if he is paid.

Main Street vs. Wall Street

When this crisis first broke, the issue was framed in a way that supported the notion that Main Street was dependent upon Wall Street (or the real economy was dependent upon the financial economy) and that Wall Street would have to be saved in order to save the real economy. The fact that Wall Street has improved, while the real economy has cratered highlights the disconnect between these two economies. Wall Street is not servicing the real economy, Wall Street is parasitzing the real economy. In fact, Wall Street’s effect on business in the US is almost entirely negative. It promotes concentrations of power through mergers and acquisitions and causing executives to look to their short term stock options over the long term interests of their companies. Unknown to most, Wall Street is actually bad for business and bad for democracy.

A full explanation of the ridiculousness of the US stock market can be found here:

http://counterecon.com/2008/01/11/stock-an-unnecessary-illusion/

What is to Come

Michael Hudson has written extensively on the financialization of societies and how it has marked the decline of many major powers through history. Examples includes Rome, The Netherlands and Britain. Essentially what happens is that as a nation goes through its arc of power, its people and institutions move away from doing things that add value (shipbuilding, manufacturing, etc..) and move into things that are primarily focused on chicanery (real estate speculation, creating bizarre financial products and practicing law). We either collectively put a stop to the financialization of our economy, or we get ready for a steep decline in our living standards. It is that simple.

Footnote on Reagan

Strangely, though almost mentally retarded due to Alzheimers, Reagan is almost considered a god by Republican politicians. Actually Reagan’s complicity with power goes back to his tenure as president of the screen actor’s guild. Placed there by power broker Lew Wasserman of MCA – United Artists, Reagan traded his representation of the actor’s union for roles in Lew Wasserman’s movies. Prior to becoming governor he was a pitchman for General Electric. Thus Reagan began and ended his career as a pawn of the power elite. It is unlikely he hand an understanding of most the things he said.

References

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/false-hope-in-a-plunging-economy/

http://tpmcafe.talkingpointsmemo.com/2009/04/07/the_disaster_stage_of_us_financialization/

In an earlier article we noted that Hoover Institute was an embarrassment to Stanford. We could not figure out why Stanford would allow such a transparently fraudulent research institute to reside on its campus. Our original interpretation was that Stanford simply took the money and allowed Exxon-Chevron-Halibuton-etc… to place a fake research institute on its campus. However, we learned some discouraging news recently. That is that 25% of Hoover’s operating budget comes from Stanford. There is very little choice but to conclude that Stanford is on board with Hoover’s fascist extreme right research and further that because Hoover taps so many professors from Stanford, that Hoover is in fact partially a false front for Stanford. That is Stanford shared the funding of Hoover with other undemocratic contributors who want false but pro-elite research and media influence.

How the Standford-Hoover Relationship Works

Stanford publishes work through Hoover that would that the top administration wants published, but which would damage Stanford’s academic reputation. What this means is there are some seriously mean and narrow minded people in the Stanford administration-funding system. Like the type of people who used to own slaves, use the term “let them eat cake” talk about their superior “breeding” and invest in South African diamond mines. Those type of people. Hoover not only likes people like Rumsfeld, it is the Stanford administration at the highest levels that supports both his appointment to Hoover as well has his general philosophy of aggressive social Darwinism and corruption. To be direct, Stanford is running Hoover. When we brought this issue up to a person who works at Stanford, they stated that Hoover is not part of the academic Stanford so its not a problem. We believe this is part of the scam. It is deliberately setup that way to make you think there is a separation. In fact this was probably always the purpose of Hoover, since its inception back in 1919. There is a long history of this in politics. When a political candidate wants to run a negative ad against rival, they make sure the ad is released through a non affiliated lobbying group. This way the candidate, that both came up with and produced the commercial has plausible deniability.

Stanford-Hoover’s Positions

Hoover funds global warming denier Thomas Gale Moore, author of “Climate of Fear: Why We Shouldn’t Worry About Global Warming. Global warming deniers are essentially the idiots of the sciences. Laughed at in scientific conferences where they get zero respect, nevertheless, they receive a warm reception at think thanks. The Cato Institute – another faux think tank recently took out an ad stating that concerns about global warming are overblown. Of course, but until recently, they denied it completely. This type of of “research” Stanford can simply not publish from its sciences department. However it is research its wealthy fundraisers and corporate sponsors really want published. So it is released through the Hoover.

Hoover covers its positions with a lot of high sounding language, and they like to use the term “syposium” as a term for what really are just old-boy get togethers. Stanford-Hoover are in favor of a number of not so nice things that would be extremely embarrassing to Stanford if it was known that they Hoover is their lapdog. Things Hoover supports includes:

• Attacking Iran (and therefore taking its oil, as has been one with Iraq) – this is covered up with high sounding papers and conferences on “Democracy in Iran.” In the new Orwellian vocabulary, those countries that you want to separate their resources from, you begin to take a real interest in promoting democracy in that country. This is kind of like the democracy we brought to Iraq – where most the inhabitants preferrred conditions under Saddam Hussain to the US occupation
• Curtailing environmental regulation
• Privatizing schools (the ultra-wealthy are positively furious about having to pay for the education of non ultra-weatlthy children, especially the children of what Stanford-Hoover would call “wet-backs” and “negros.” The ultra-wealthy need a polititically correct term to reduce public funding of education so that only the wealthy can afford to be educated. The term they have settled on is “privatizing schools.”
• Torture (as evidenced by their hiring of one of the main architects of Abu Ghraib – Donald Rumsfled – actually Rumsfeld’s association with Hoover goes way back) One can only conclude that Stanford-Hoover supports torture as this is one of Rumsfeld’s main parts of his resume is promoting torture techniques in the armed forces.

Stanford’s Intensely Fascist Views

We could list more pet issues of Stanford-Hoover, however its quite easy to guess where Stanford-Hoover will end up on any issue. Essentially, any undemocratic policy which benefits elite interests has a special place in Standford-Hoover’s heart. Their history shows they will go to any lengths to falsify research to make the points their monied doners want made. An extra benefit of Hoover’s research is that it is not peer reviewed, which is necessary because Hoover’s work is some of the worst research performed in the country. At Stanford-Hoover, papers are created, and then simply released to the media without any review or oversight. Stanford-Hoover then attempts to shape the discussion based upon this fraudulent research. If any criticism is brought up about the terribly undemocratic viewpoints presented by Hoover, Stanford can simply say – “its not our research and has nothing to do with us”

The whole things is quite a scam Stanford has running.

References

http://www.exxonsecrets.org/html/orgfactsheet.php?id=43

http://www.stanford.edu/group/peace/hoover/HooverArguments.html

Important Information About The Stanford Hoover Connection from Stanford.edu/peace

• Hoover is officially a part of Stanford, like Stanford Linear Accelerator
• In financial terms, all of Hoover’s money is Stanford’s money. Checks are written to “Hoover institution, Stanford university.” The Hoover account is a Stanford account; the Hoover endowment ($60 million) is a Stanford endowment; Stanford owns everything in the Hoover Institution buildings.
• There is significant involvement in the Stanford community. Of the 100 fellows, nearly 60 did some teaching or advising for Stanford students, many of these are as courtesy appointments in which Hoover fellows teach classes for lower pay than a Stanford professor.

Funding

According to Wikipedia these are some of Hoover’s largest contributors. The donations are listed as “charitable contributions” on these foundations’ tax funds, but there is nothing charitable about them. This is money paid to a professional lobbying and pr firm, which is what Hoovers is.

• Archer Daniels Midland Foundation
• ARCO Foundation
• Boeing-McDonnell Foundation
• Chrysler Corporation Fund
• Dean Witter Foundation
• Exxon Educational Foundation
• Ford Motor Company Fund
• General Motors Foundation
• J.P. Morgan Charitable Trust
• Merrill Lynch & Company Foundation
• Procter & Gamble Fund
• Rockwell International Corporation Trust
• Transamerica Foundation

Reference

Like Stanford, most conservatives support slavery in one way or another.

http://onhumannature.wordpress.com/2008/04/02/everyone-wants-a-slave/

Understanding Monopolies

Our last post on monopolies gathered good reader interest, so we thought we would delve into the topic of monopolies a bit more.

The question many people ask is “Is Google A Monopoly?” For some reason, this seems of more interest to many people that asking say…if Bank of America is a monopoly.

As soon as the question is posed as to whether a company is a monopoly, the question itself is weakened and a person offering the counter argument can easily say that it is not and that therefore there is no reason for concern. A more useful phrasing of his question is, “does XYZ company have significant monopoly power.” Now, many more companies fall into this category. It is not only pure monopolies which are anti-competitive and illegal in the US, but companies with monopoly power. Thus phrasing the question this way helps address if a company is behaving in an illegal manner, and is deserving of attention from the Federal Trade Commission. The FTC is the government department charged with overseeing anti-competitive behavior.

Monopoly Power With Google

It is difficult to make the case that Google does not have significant monopoly power. Estimates are that 64% of web searches are performed through Google. 64% control of any market is easily considered a strong indication of monopoly power. While some propose that consumers can easily switch away from Google, in practice this rarely happens. Furthermore, Google is no longer only a search engine. Google offers Google Docs, Gmail, Google News among many other services. With all these services, Google is making more and more difficult to live without them. For prospective monopolists out there take heed, this is the way to do if you want to accumulate monopoly power. Create such great services that people don’t want to switch away from you. There is another interesting feature to Google which separates it from other companies with monopoly power; all of its services (except corporate offerings and Google Adwords) are free. And most of them are also very good. In fact, while the discussion of Google’s monopoly power has occurred, what has gone unnoticed is that Google is probably the greatest contributor to the common good of any company in operation. When compared with monopolies like Goldman Sacks or Bank of America that have really destroyed public value, the comparison is stark. Both these companies should be subject to anti-trust investigations in addition to fraud investigations and broken into much smaller companies. Instead of being parasites on the economy, as these two companies have, Google has provided extensive functionality to internet users all over the world – and almost all of it for free. Google is currently, and has an even greater potential in the future to break the corporate control of media by selecting to show better content articles in their search results above articles that happen to be written by large media outlets. This would create a meritocracy in media and opinion that is currently insufficient to support democratic systems. However, the internet is far more democratic than any other media system.

Yahoo, AOL and Microsoft were all about putting themselves in front of their customer. AOL tried to make novice internet users think that AOL controlled the internet and that you needed to stay within the AOL interface, Yahoo tried to control internet users to not leave their site and to pay exorbitant fees for the most basic services. Microsoft’s anti-competitive behavior is legendary. Because the internet is a competitive environment, a small upstart company – Google beat them all, and did it pretty easily. What this tells us is that Microsoft’s other markets are not competitive because in any market with substantial competition (such as portable media players) they lose. There is a substantial lock-in with regards to operating systems and office suites, so Microsoft can continue to not innovate, bring out buggy products, and still maintain 90% market shares. The more software becomes web enabled, the less chance Microsoft has to monopolize the industry.

The Strange Monopoly

Thus we don’t dispute the fact that Google has monopoly power, however, what we can not see is how monopoly power negatively affects consumers. The textbook monopoly injures its consumers by overcharging them and limiting their choice.  However, Google is doing neither of these things. In fact, Google is reducing the monopoly power of Microsoft by undercutting its Office Suite, and provided large email storage capacity, that other companies like Yahoo used to charge for. Google is in this way making internet services more, not less competitive. Furthermore, Google is not using its power to rest on its laurels, which brings so many monopolies down (just think GM), but is constantly improving its services.

What Will Google Be In the Future?

If there is a concern it is to the future. Google is accumulating a tremendous amount of power, not the least of which is the world’s largest email database which contains a mind boggling amount of private information. With Google’s massive email database, and its data mining capabities, it could analyze this database towards very bad ends. What type of ends? Lets just say that the FBI and Department of Justice would absolutely love to have full access to the Gmail database. Have you ever written an email critical of Homeland Security? Ever ordered a book from Amazon.com which is critical of the government. Both of these peices of information are in your Gmail account (the order confirmation from Amazon.com), and this does not even get into the web history file that in many cases Google has connected to your Gmail account. This is really not joke the NSA has connected monitoring devices to the ATT internet trunk line in San Francisco, and has most likely done the same thing with the assistance of other internet traffic carriers. What does ATT get? It gets preferrential deregulation legislation. If the government wants to create big brother, the single easiest thing they could do is pressure Google into giving them access to the Google database. There are a few ways to do this

• Threaten Google with an anti-trust investigation by the FTC unless Google plays ball, providing logins to the CIA, FBI and NSA
• Stage an attack, and bring up the fact that the terrorists communicated by Gmail, just to justify attempting to get this access as a way to stop future terrorist attacks

As Google gets more and more comprehensive, there will be greater incentive to do so.

Conclusion

Google has acted ethically since its inception and has pushed a number of opportunistic predators like Yahoo and Microsoft out of the way. Concerns about monopoly, which accurate, miss the mark somewhat because Google is not locking people in to their services to charge money, since almost everything they offer is free. However if Google will act as ethically in the future is anyone’s guess. To us the bigger concern is related to the gigantic and highly personal database that Google continues to amass on individuals and whether this database will eventually fall into the wrong hands and be misused. We must not allow the government to use the specter of anti-trust legislation into providing access to the FBI or DOJ to the Google database.

References and Info

Everyone feels bad for Yahoo now that they are on their way out, but their business practices were horrible. They were about capturing customers and then mistreating them. Yahoo is out of ideas and is now no longer in the position to manipulate internet users. Good riddance.

The F-22 burns through fuel and taxpayer money at a massive rate. The military has no idea what to do with this plane, but Lockheed wants to keep building it, not because it has any military value, but because it is a “great way to create jobs.” Remind us not to go to Lockheed when we want economics advice.

Lockheed Martin has a high profile PR campaign to get the government to keep funding its ludicrously overpriced and incompetent F-22 fighter. This fighter is the pre-eminent example of out of control military spending with a price tag of $300 to $350 million each. Furthermore the US government gets almost no military capability for this massive price tag. Its complexity and unreliability have resulted in an average readiness level of 62%, the lowest of any US fighter, and it is designed to fight a threat tha does not exist and may never have existed. It redefines the term boondoggle. The F-22 actually reduces the Air Force’s capabilities and is considered a laughingstock by air power experts not in the military establishment. That is those with the combination of air power knowledge and who can exercise free speech. However, even if the F-22 were important for US defenses, and if it could stop crashing (it has never been used in combat, but keeps crashing in training), the argument Locheed Martin is putting forward is completely economically illiterate. Numerous studies show the exact opposite of what Lockheed and Congressment from the F-22 manufacturing state of Georgia propose. Time and again, defense spending ranks as one of the least effective ways to create jobs. The highest contributor to economic growth is actually infrastructure. One reason for this is it results in something that people can actually use, roads, rail, water, etc… Advanced fighter aircraft like the F-22 result in either more defense contractor fraud, or lots of dead people. Neither of these can be considered an “economic good.” The current crop of 180 F-22s already require $8 billion in refurbishment ($45 million per plane), and the fighters have yet to fly a single mission. They create such a massive logistics tail that they are unusable in any military thearter. The Pentagon’s best financial move is to mothball the current F-22s and write-off the $65 billion program as corporate welfare for Lockheed Martin, and send the planes to air museams around the country where they can serve as tourist attractions.

Defense Spending Is Only Justified for Real Security Needs – Never Jobs

This proposing defense spending as economically beneficial has got to stop. It is an idiotic proposition because the only logic by which military spending can be presented as beneficial beyond security, is through attacking other countries in order to procure their resources. If that is a policy of the US, then we need to have a discussion on this. Secondly, even if this is the official US policy, F-22s would not be the weapon you would buy. Countries that we attack like Iraq and Afghanistan do not even have modern radar systems (in the case of Afghanistan, they have no radar systems) so the F-22 is complete wasted on these types of “enemies.” 

If Lockheed is indeed prepared to present the F-22 as a jobs creator, it should perform the economic research comparing the money spent on more F-22s to public infrastructure and publish it in a white paper. However, as soon as they do this, they would fall right on their face, because it works the other direction. So they won’t do this because it won’t be effective and the economics would be lampooned. However there are a number of think tanks that would be happy to falsify research like this for a fee. What is much easier is to create emotionally laded ads which have nothing to do with real life economics. When Lockheed says that the F-22 is responsible for a certain number of jobs, the question should be “compared to what?” That same spending spent on anything else – literally anything else – will result in more jobs, and will be better for the economy in the long run.

This video describes Lockheed’s campaign

References

http://defensescholar.wordpress.com/2009/01/07/its-time-the-kill-the-f-22-and-f-35/

http://militarywaste.org/2009/03/07/quotes-on-the-f-22-raptor/

It has spent massive amounts of money on being undetectable by radar, while not noticing that inexpensive Russian made radar homing missles can lock onto the F-22 based upon its radar. These missles are in the couple hundred thousand dollar range. This means a $300 million dollar investment can be destroyed by a $150,000 investment. More details are here…

http://www.cdi.org/pdfs/stevenson%20f-22%20brief.pdf

Lockheed gets the government on the front-end and the back-end. They continually overcharge the government for service parts. The increase in the cost of parts is tremendous and has no logical reason aside from price gouging. The government plays footsy with Lockheed because high ranking members of the military want jobs in the private sector after they leave the Pentagon, and the best way to get these jobs is to look the other way when contractors steal from the taxpayers. See this article for details.

http://spplan.wordpress.com/2008/10/03/pbl-a-real-trend-or-fake-trend/

What would you do if you learned that your government had outsourced its central banking function to a private company? Furthermore that this company had only a loose affiliation to the government, and that the government have very little oversight into this entity both in terms of controlling its behavior and being able to see what this private company was doing. Would it surprise you to learn that, if you are a US citizen, that your government already has done this and actually there is nothing new in that privatizing the central bank was performed back in 1913.

What Does a Central Bank Do?

A central bank does a number of important things, but the most central to its role are the following:

• Creating money
• Controlling the money supply
• Setting interest rates (this is done through what is called the Federal Funds Rate – which is the rate they loan money to banks)
• Loaning money to banks

The central banking function is considered both one of the most important roles of government, as well as one its greatest powers. What is most unusual is that any government would give up this right to a third party, and how this happened, and the fact that it did happen tells us a lot about in effect who is running the country. That is, any government that can be persuaded to sign over its right to the central banking function, may indicate that the government may not be as powerful as one would presume that a government ordinarily is.

How Does the Fed Create Money?

The first idea to dispense with to understand this concept is paper money. Paper money is a physical representation of money, but it is less and less important as transactions are increasingly electronic. Therefore, money is increasingly accounting entries. Of the money that you have, unless you are a rare coin collector or a goldbug (someone who hoards gold), the vast majority of your money is a ledger entry at the bank of your choice. This ledger entry is supported by only a small fraction of reserves as your bank. The bank has the right to do this because  they have been deputized by the government to do so.

Now if the Fed wants to increase the money supply, they have a number of mechanisms they can do so. First they can reduce the federal funds rate, which is stimulative (causing more banks to borrow). Second, they can offer to make more loads to banks. Roughly speaking, for every $1 a bank receives, it can loan out $10 (called fractional reserve banking). Where does the Fed get this money from? Well, that is the thing, and why the Fed is so powerful. They can create money from air. They have been given this power by the government.

The Fed is nothing more than an organization that is a front for large banking interests. This is in the same way that the Cato Institute or Hoover Institute are fronts for large business and defense interests. The Fed is not only an example of a privatized central bank, many of the owners of the Fed are not even US banks. Controlling banks include a number of banks in Europe.

1. Rothschild Bank of London
2. Warburg Bank of Hamburg
3. Chase Manhattan Bank of New York
4. Warburg Bank of Amsterdam
5. Rothschild Bank of Berlin
6. Lehman Brothers of New York
7. Lazard Brothers of Paris
8. Kuhn Loeb Bank of New York
9. Goldman Sachs of New York
10. Israel Moses Seif Banks of Italy

We don’t like using the term “international banking cartel.” However, we are not aware of any other similarly important government function that is both privatized and also owned by foreign firms. This would be like learning that the Pentagon has as one of its member companies, companies in Fiji or Russia, or that the State Department is taking orders from the Illuminati. We can only conclude that central banking must not be as important as we thought it was!

Why a Private Fed?

Understanding how powerful the Fed is question arises as to why it is in private hands. And in fact, there are a number of experts in this field who believe that the current privatized Fed is unconstitutional and therefore illegal. We have been waiting for a lawsuit to be brought to the Supreme Court to test the constitutional validity of the Fed, but none have been forthcoming that we are aware of.

The Fed website seems to pretend that it serves a public interest function. They have tips for avoiding foreclosure scams. However, there is an inconsistency in their behavior. In the late 1990s when approached by the District Attorney of Cleveland about lending abuses by their member banks to low income households, they did absolutely nothing. The Fed behaves in ways that promote the interests of banks. Their public interest function is not apparent.

Who’s Interests Does the Fed Represent?

This issue of who’s interests the Fed represents is a critical one. There is evidence provided by cepr.net that in the early days of the current financial crisis that Fed Chairman Bernanke actively exacerbated the financial crisis through reducing liquidity through reducing its purchases of commercial paper. The reason this was done is that because the major banks were insolvent, and under federal law would have gone into receivership, and this would have caused the management of these banks to be removed. When one sees that one of the Fed’s owning banks is Goldman Sacks, and the Treasury Secretary at the time was the former CEO of Godlman Sacks, its not hard to see where the term “thick as theives” came from.

Paulson and Bernanke had the same employer….but its not the employer you think. Its actually Goldman Sacks and other controlling banks of the Fed. This is utterly masterful, both men pretending to work for the US government, when in fact that work for the banks that own the Fed. The banks control both the Fed and the Treasury. Because of this control of both of the major finanical branches of the US, they have the ability to collude in order to rig financial markets. For this reason it is not surprising that the bailout has been so bank friendly.

As for Bernanke, its important to point out that he lies for a living. He pretends that he works for the government when he does not. He may have a PhD in economics, but he is no longer an economist. He is now a professional actor, and he has only one role, he is paid to serially misrepresenting himself through his role as Fed Chairman.

What that major banks wanted, and what Bernanke wanted as he represents those interests, was a major bailout of the banks my taxpayers. This bailout would allow what are essentially his friends or his board of directors to maintain their management positions at these banks.

Conclusion

At last tally over $1.2 trillion has been loaned out from the Fed to banks, and that is actually an old figure. When asked about this in a congressional hearing, a representative of the Fed stated that they did not have the “specific list of banks” that received money (in fact, they did not name a single bank). The answer given was that they did not like to publicize this list as it could cause banks to be less likely to borrow from them. What should be remembered is that this is not technically the Fed’s $1.2 trillion. They have only been deputized to create this money by the US government, and without the US government, the Fed is nothing. However, what appears to be the case is that the Fed does not only not report to the US government, but they do not owe the government any accounting of where or to whom the money that they loan goes. That is a serious problem that needs significant investigation. Ron Paul seems to be one of the few congressmen who have had a long term interest in this topic.

In this excellent video by the Real News, a Fed representative refuses to provide specific banks that at least $2 trillion have gone to. Not being a government organization, they are actually not required by law to answer questions of any detail from Congress. That is why their testimony in front of Congress is primarily a dog and pony show.

Quote on this topic from Thomas Jefferson

“I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by
inflation, then by deflation, the banks and corporations that will grow
up around [the banks] will deprive the people of all property until
their children wake-up homeless on the continent their fathers
conquered. The issuing power should be taken from the banks and
restored to the people, to whom it properly belongs.”

References

http://en.wikipedia.org/wiki/Federal_Reserve_Act

http://www.geocities.com/CapitolHill/Senate/3616/flaherty3.html

http://land.netonecom.net/tlp/ref/federal_reserve.shtml

How the Federal Reserve complete failed in its duty to manage the credit and money supply of the US economy during the boom years.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/systematic-risk-regulators-and-the-power-of-arithmetic/

There was a huge focus on change during the Obama presidential campaign. However, after being elected, Obama had the opportunity, or at least the perceived opportunity to bring in fresh blood into the senior posts. However, Obama decided to select the same people from previous administrations. This was extremely concerning, particularly for the cabinet positions related to the economy. This is of course because of the deep economic crisis that occurred before Obama took office and was a major contributor to him being able to become elected.

Obama’s Appointments

Obama’s appointments have been the “usual suspects,” and have demonstrated no unique or critical thinking on his part. He seems to have selected people from an extraordinarily narrow group of names. These names seem to have been provided to him by the banking industry. This includes Timothy Geithner (replacing another industry person Hank Paulson who had already provided immense bail-outs to his friends at the major investment banks), and Laurence Summers. Timothy Geithner has done nothing but give more money to banks, with no strings attached, and what Laurence Summers has provided is less clear, however, what is clear is that both these men are totally subordinated to the banking industry. Laurence Summers was instrumental in supporting the Gramm-Leach-Bliley Act, which lifted the six decade restrictions between commercial banking, insurance, and investment services. His statement..

“Today Congress voted to update the rules that have governed financial services since the Great Depression and will replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy”

It turns out that this legislation was critical in removing the old safeguards and was instrumental in allowing the behaviors that caused the current crisis. Other areas that Laurence Summers bet wrong on include opposing regulation and standards on credit default swaps. This allows companies like AIG to provide insurance on bad mortgage backed securities without having to set any money aside to pay out. AIG, with a book value of $50 billion, now owes $300 billion due to the collapse of the mortgage backed security market. This difference will be picked up by Laurence Summers.

While Laurence Summers was president of Harvard and has quite a reputation as an economist, it is clear that he has cost US taxpayers billions and is wrong on almost every major policy decision he supports. We suspect this is not because Laurence Summers is a stupid man (he was the youngest tenured professor in Harvard’s history), but because he is utterly corrupt. Laurence Summers received millions from hedge funds and well paid speaking engagements at many of the major investment banks.

After seeing this track record, Obama selected him as Director of the National Economic Council. This is how much Obama seems to value track record vs. pedigree. Of course this depends upon how you look at his track record. His track record of being correct is awful, but his track record of supporting policies that are corrupt and enrich elite interests is second to none. This brings up the question…

Does Obama believe or know that he has to appoint a specific number of people from a batch of individuals that are provided to him by corporate representatives. Does his Chief of Staff (Rohm Emanual) have this list compiled for him by corporate doners? Are they first cleared with large corporate interests before they are presented to Obama to he can choose from a preselected group? Has this always been the way political appointments have been done, at least for the very top political appointments. Does Obama realize or at least intuitively know what would happen to him if he were to appoint people from outside of this pre-selected group?

A Democracy Allows Corporations to Control The Appointment Process?

One can question the degree of democracy in a country that both controls the electoral process to the degree that it does, has Madison Avenue produce the political commercials, engages in voter purging, adjusts the votes through computerized machines and after all of this has one final trick up its sleeve:  it then decides for those who are elected who will be appointed to the key positions in the any new administration.

Kennedy was not getting along very well with the Pentagon and Federal Reserve Bank and was not buying into key concepts like “the Domino Theory,” Cuba as a threat to US national security and the Federal Reserve as a private banking entity with government money creation abilities. LBJ proved a compliant president which the Pentagon and Federal Reserve Bank was much more happy with. Obama has to be careful and institute policies that support elite interests, or else…..well lets just say the elite have their methods of limiting someone like Obama. If it were to actually happen, it will be a lone gunman. (its must always always be a lone gunman, or the individual does it to themselves. For instance, the Waco victims were not killed by the FBI, they shot themselves, some of them managed to shoot themselves 9 times.) If anyone ever disagrees with the official story they will be labeled conspiracy nuts. However, given Obama’s complicity with the elite, putting their people in key positions and taking tax-payer money and giving it to Goldman Sacks and so on, he should avoid JFK’s fate.

US History of Political Assassination

The fact is the US conservative power structures (i.e. FBI, Pentagon) kills people that get in the way of the objectives of concentrated power. The following list of people have a number of similarities. First, each of them were opposed to the Vietnam War, each of them had an extensive FBI file on them as well as substantial FBI intimidation (except JFK), and all of them were killed by bullets.

• JFK
• Robert Kennedy
• Martin Luther King
• Malcom X
• John Lennon
• Fred Hampton

The conventional wisdom is that each of these people were killed by lone gunmen (except for Fred Hampton, who was killed in police raid by the Chicago Police Department, after being told, falsely by the way, by the FBI that Mr. Hampton was responsible for the killing of police officers). However, how likely is it that the most influential anti-Vietnam individuals were all killed by lone gunmen? Mathematically, and considering that no pro-Pentagon people were killed, not very likely at all. Simple probability theory would indicate that these people were assassinated by criminal conspiracies by those who were in the power to do so and who found their politics objectionable. Its really not that complicated, once you see the pattern. The government does not have to answer these questions because anyone questioning the official story is marginalized as a conspiracy nut.

The Conspiracy Nut and the Perfectly Rational Institution

The very existence of the concept of a conspiracy nut is in a way a license to kill. However, labeling people as “nuts” is not a new strategy. Interestingly, institutions are never described as nuts. For instance, the Pentagon and defense contractors were at one point performing nuclear testing in the atmosphere, distributing nuclear debris far and wide, but strangely the Pentagon is never described as nut. When some American scientists opposed this, the Pentagon had their passports taken and they were extensively monitored by the FBI. Only individuals are nuts, institutions are perfectly rational.

The Nut Behind the Wheel

When the automobile industry was opposing the introduction of safety belts into cars the industry (specifically GM, Ford and Chrysler, all the same companies now asking for a bail-out) came up with the concept of “the nut behind the wheel.” This was an idea that all traffic fatalities had nothing to do with car design or their safety features, but where simple a feature of “nuts” who were not driving safely. This worked for quite some time, but eventually, the industry lost the fight and began to put safety equipment in their cars. This drastically reduced the fatalities and injuries from vehicles, disproving the nut behind the wheel concept. Institutions will always propose that they are perfectly rational, and that those who oppose them or criticize them are “nuts” or “hippies,” etc… These is nothing new about this strategy, but what is interesting is that it works.

No Prosecution of the Financial Criminal Class?

What is most amazing is that there have been no prosecutions of the people responsible for this crisis. Bernie Madoff perpetuated a large ponzi scheme, however, he is not responsible for the crisis. The culprits are the major financial institutions such as Citibank, Bank of America, Country Wide, Lehman Bros, Goldman Sacks, AIG, etc…along with people like Laurence Summers and Phil Graham that supported legislation that removed necessary financial regulation. The major players a not being prosecuted, but rather are being bailed out. The number of responsible parties reaches far and wide, from the corrupt mortgage broker to President Bush who appointed people with no interest in enforcing financial and accounting laws. None of these people is headed to jail, though this scandal is far greater than the previous accounting scandals that did result in a few criminal prosecutions. Is there some reason Obama is not pushing for investigations of people in this area? Has he concluded that these people helped elect him and will be necessary to help raise money for both his re-election and the reelection of his Democratic majority in congress? Did the Secret Service show him the video of JFK when he came into office and then leave a note on his desk stating “mistakes can happen for those that don’t go along?” Its hard to know, but it is quite suspicious.

Reference

“The Order was for the Treasury to issue silver certificates against all silver held by the government which did not already have certificates against it. The Order was needed due to the passage of Public Law 88-36 which repealed the Silver Purchase Act and other related monetary measures. One result was that after the repeals, only the President could issue new silver certificates.

The Federal Reserve System could replace the certificates, but only in larger denominations. The thrust of the Order returned the authority to issue new silver certificates (and specify denominations) back to the U.S. Treasury.

This executive order allowed for the Federal Reserve System to distribute and exchange currency at lower denominations that met the growing economic need. The authoritative basis for the Order was substantially nullified in 1982 with the passage of Public Law 97-258.

The Order was never directly reversed. However, Section 1(j) of Executive Order 10289, which was added by Section 1(a) of Executive Order 11110, was revoked when Ronald Reagan signed Executive Order 12608 in 1987.[1]” – Wikipedia

In terms of how to begin thinking like this, we offer a quote from Ralph Nader:

“Ralph Nader: One day in the spring, at Princeton, where I went to college, I noticed there were dead birds on the pavement between the campus buildings, where very large trees were. At first I didn’t think much of it, I just said, there’s a blue bird or a robin. They weren’t mutilated in any way, they just were on their back, dead. And, a few days later I saw more such birds, early in the morning before the grounds keepers picked them up. I noticed that during the day, we’d be going from one classroom to another, and the ground keepers would be spraying with huge hoses these trees. It turns out it was DDT. At the time, in the early ’50s, no one thought DDT was dangerous to anybody but insects. Well, it turned out it was dangerous right there to birds. I went down to the Daily Princetonian, the college paper, and tried to persuade them to do a story. I had one of the birds with me to show them, and they said, “Naw, there’s nothing wrong. We have some of the best science professors in the world,” they told me. “Chemistry, Biology, if they had any idea it was harmful, it would be stopped.” Well it continued on for years, into the 60s and even later. And the students would wipe some of it off their face, it would be so thick at times. But that taught me a very important lesson. One, that newspaper people can get very jaded. The editor was a senior, he had his feet on the desk, leaning back in his swivel chair, which is always a sign that curiosity might have dimmed. Second, that you might know something, like an expert chemistry professor, but if you are not interested in a problem, or if you have a dual allegiance like perhaps you might be a consultant to one of the chemical companies that produces the pesticide, you are not going to apply what you know. You are going to be in your little, pigeon-holed specialization, and become one of the world’s experts on some tiny little item. But when it comes to applying it to a problem right where you live and work, you are not necessarily the best person to start the ball rolling. It could be someone who doesn’t have a Ph.D., someone who has a sense of curiosity, and begins to ask questions. That’s why I always say there’s no ticket of admission for active citizenship. Anybody can get through that gate, and anybody can ask that basic question that gets the ball rolling. “

Monopoly..the favorite game of corporations. When not playing it, or trying to become a monopoly, they like to get onto television shows talking about how much they love free markets.

Why Discuss Monopolies?

Of the people that visit this blog, a large percentage of them arrive at it through a single keyword “monopoly.” This is surprising to us as we did not set about to write a blog about monopoly, however the concept and practice does come up a fair amount in the the topics that we study. The technical definition of a monopoly is where there is one seller and many buyers. A monopsony is the opposite, where there are many sellers and only one buyer. In general the government is a good example of both. That is we have only one federal government, of which we are all consumers of their services. We can chose another provider only by switching countries. In addition, in many circumstances the government is in some circumstances the only buyer of a service and their are many firms attempting to sell to the government.

Signitures of Monopoly Markets

The opposite of a monopoly is a monopsony. However, another An actual or pure monopoly is far less common than a company that lies somewhere on the continuum. The opposite of a monopoly or monopsony is called a freely competitive market. This is where there are many buyers, many sellers, and there are the means to easily getting information about the market. These markets have a signature of having low barriers to entry and are often not limited by geographic boundaries. That is new competitors can enter into the market with relative ease and the product or service being traded can be taken out of a particular geography. Like a pure monopoly, truly freely competitive (or free markets in the common parlance) are actually far less common than monopolies or monopsonies.  More than thinking in absolute terms, a more accurate way of thinking of monopoly is thinking of a continuum. On one side of the continuum is perfect competition, or a free market, on the other is a perfect monopoly (or monopsony). Oil companies are towards the monopoly end of the continuum, while commodities markets tends towards the perfectly competitive end of the spectrum. Most industries have some degree of monopoly, or monopolistic competition within them. This is because many industries have large barriers to entry, but furthermore, the people and executives in them, actually work at reducing the competitiveness of the markets they work in in order to increase their profits.

Some examples of this include:

1. Frequent flyer miles
2. Cash back or bonus credit cards
3. Corporate mergers.

While promoted as consumer friendly, in fact these instruments are designed to enhance the power of the seller over the buyer. One important feature of monopolies or of firms with monopoly power is that none of them admit to this economic modality. Instead they propose that they are in favor of free markets, and that they operate in a free market. They do this while working most of their efforts to make the markets they operate in less transparent and less competitive. No company truly in favor of free markets and open competition would roll out frequent flyer miles or bonus credit cards or ever engage in a merger. They fact that they do all these things indicates that they value increasing their personal or firm’s wealth more than they value any principle related to free markets or open competition. Firms like individuals do not want to compete, but rather they want to win. After winning, in a rigged system, it is them commonplace an expected for them to declare that they won fair and square.

Business is much more honest about their desire for monopoly in their internal documents and even in some of their business books. Here are several examples below.

Several books actually discuss how to build your business into monopoly. This
is problematic as is demonstrates business objectives that are actually against the stated public objectives and orientation of companies in their interactions with the media, as well as describing a desired end state that is actually illegal.

Mergers as Supporting Free Competition?

Companies make the assertion that they support free markets even as they apply for the permission from the Federal Trade Commission to engage in mergers. They use different Orwellian terms to justify mergers such as creating “synergies” and enhancing their ability to “serve customers” However, what they won’t say, which is what every economist knows, mergers increase the leverage of the merged company versus its customers and its employees. Furthermore, there is a strong relationship between the customer satisfaction in a market and the number of competitors. Large monopolistic companies can afford to be be unresponsive to customers as they have fewer places to go. This was the original reason for the Sherman Anti-Trust act (primarily targeted towards monopolistic railroads at the time of the act’s passing, but eventually every most of the monopolistic industries in the US)

The Free Market – Monopoly Continuum

Mergers in a very straightforward manner decrease the number of sellers in a market, making it more monopolistic. This is not a perfect state of monopoly. For instance when Mobile and Exxon merged (we are still scratching our heads as to how this was approved by the FTC, as they were at the  time the 7th and 9th largest companies on in the country) did not create a perfect monopoly when they merged (there was still Shell, BP and so on) however, this merger increased the concentration of the industry and increased the monopoly power of all the producers.

How Monopolies Became Accepted

The business press speaks very little about monopoly, and the non-business media seems to barely speak of it at all. Monopoly in addition to extraordinary powers of corporations over the individual has become interwoven into the US culture. In a way Americans are proud of their large monopolies and they mistakenly believe that they personally benefit from having such large companies. Competitive implications have been brought up to help buttress this view. For instance when Oracle asked to merge with PeopleSoft (another large enterprise software company), Oracle management pointed out that they needed to get larger to compete with SAP – (a German enterprise software company and the largest competitor in the world.) However, what was not pointed out was what this would do to the many smaller competitors in the market (i.e. would they have to merge to compete with the bigger Oracle). Nor did Oracle discuss what affect this might have on Oracle’s or PeopleSoft’s customers. Oracle, with its already substantial monopolistic power, was considered particularly unresponsive to customers even before they merged with PeopleSoft. One IT manager told us years ago that Oracle was their least favorite vendor to deal with and that their attitude was to simply back up a truck and have the company throw a bunch of money in it.

Therefore, whether you accept market concentration and monopoly power in a way is based upon how the issue is framed. Monopolistic companies hire PR firms to help them frame increasing monopoly power as good for the average consumer and good for internationally competitive US companies. The other highly negative features of monopolies are not a focus, and generally not brought up by analysts. This is because companies fund advertising for the media outlets that follow them, and secondly, Wall Street analysts typically look at potential mergers through the lens of the companies stock. While the stocks of acquired firms tend to go up, the stock of the acquiring firm tends to go down (a reflection of the reduced balance sheet of the acquiring firm), however, mergers generate huge fees for wall street, and long term, Wall Street prefers monopolies, as their profits are generally higher than those firms operating in a more competitive market. In fact, this is a main reason for initiating mergers in the first place. Wall Street assigns a P/e ratio premium to merged companies, therefore mergers and Wall Street are a mutually reinforcing system. The major problem is, like most things devised and supported by Wall Street, mergers are terrible for consumers, workers and for the overall economy. Wall Street has a word for giant unresponsive companies with terrible customer service — if they exist in other countries — “socialist.” However, if fees can be made off of mergers, the new term becomes “synergies.”

With this steady stream of positive information on mergers coming from Wall Street analysts and from media outlets, Americans have tended to buy the official line, that mergers are good for the economy and thus good for them. The old ideas, bred at the turn of the century regarding trust busting have been replaced with a propaganda campaign which has effectively co-opted the typical person.

Conclusion

A lot of things have to change for the challenging of monopolies to occur. First off, Americans need to learn about the history of monopoly and how the larger a company gets, the more it has the ability and tendency to abuse its power. There is far too much “what is good for GM is good for America,” thinking going on. What is good for a company is not good for the country or its people. A good example is wages, all companies prefer lower wages, but are lower wages good for the country. Clearly not. How about pollution. Large industrial companies constantly complain about the socialist environmental regulations they have to deal with. For instance, Exxon would like to dump oil wherever they see fit. Would allowing Exxon to do this be good for the country? Again, clearly not.

There are laws on the books, and the Federal Trade Commission has the jurisdiction to enforce them, but they are not enforced because the FTC has been captured by industry. This topic would need to be much higher on the radar of everyone, and people would need to reduce their overwhelming subordination to concentrated power, which is more reminiscent of feudal Europe than the fighting spirit that inhabited the country at the turn of the 20th century.  It is a an entire mindset that has to be changed.

Who Was Adam Smith?

Adam Smith was an economist who lived in the 1700s in Scotland had a great influence on economics through the writing of his book The Wealth of Nations. This book is quoted frequently by business majors and by conservatives as an explanation for how to setup an economic system. His most common quotation is…

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. – Adam Smith

One really has to wonder why this paragraph is so compelling. For instance, if someone else were to write a book that contained a paragraph that stated that cheating is good. In fact, let’s take a crack at it ourselves.

It is not from the benevolence of the used car dealer that we purchase cars with rolled back odometers, the oil executive that we receive environmental degredation, or the PR specialist that we receive false information, but from regard for their own self interests. – CounterEcon

The statement above is as true as the paragraph by Adam Smith, it simply focuses on the negatives of self interest. One can find both positive and negative outcomes of selfish behavior, but no sane adult would propose that only positive outcomes sprout from self interest. However, this seems to be the conclusion those that quote this paragraph from A Wealth of Nations seem to have arrived at. If Adam Smith actually thought this, he would not have been the thinker that he was.

US President’s Prefer Adam Smith

And this quote, or even a much shortened version has been used to justify all manner of deregulation and self dealing. In effect, it is philosophical and high minded cover for acting selfishly or in a greedy manner. It has become very fashionable to talk about Adam Smith and it seems to lend instant credibility to the individual. Recent presidential candidate Senator John McCain, stated that if given only one book to read when stranded on a desert island he would read.

If I could only choose one book, I might choose “Wealth of Nations” by Adam Smith, because we may be entering some pretty shaky economic times, and I think that`s probably one of the most seminal works concerning how the economy of the nation and the world functions.

We very much doubt that given John McCain’s history, and his simple minded view of the world combined with his short temper – indicative of impulse control issues, that he could either complete the reading of, or understand The Wealth of Nations. In any case, John McCain is not much of a reader. This would be akin to Dan Quale stating he would like to read a medical book on Biochemistry. It is not going to happen. (This problem of barely literate US presidents goes back for some time. George W Bush could not name any books he read when asked by a reporter several years ago. Ronald Regan was well known for having a low reading ability, could not read the reports given to him and would read Reader’s Digest and confuse articles in it with his CIA briefings. This is not so much snobbery as pointing out that people who can not read the necessary material can be easily controlled by others as they rely upon everything second hand.)

Its an interesting question, why would John McCain recall a book that is extremely unreadable due to the writing at the time (1700s) and a book writen before economics was a formalized area of study, especially when far more approachable books in economics are readily available?

Lets be honest, these men are not readers. As long as we choose leaders who lack the depth and background in the topics they govern, we will continue to get broken and illiterate policies. Intelligence and subject matter expertise are not critical simply for the purposes of status (i.e. the ivy league graduate repeatedly stating that he went to Harvard, which is of little practical consequence as Bush also went to Harvard.) but because knowledge often leads to better outcomes.

Why Reading Adam Smith is Unlikely

The problem is that Adam Smith’s work is very very highly quoted, but very very lightly read. The Wealth of Nations is a 900 page book, and extremely difficult to read. This is primarily because it is written in a dated prose, which seems circuitous by our standards. However, most MBAs and other people that quote Adam Smith, do not have the patience, the time or the reading ability to actually read Adam Smith, and therefore, this quote that you see above it all that the vast majority of people know about Adam Smith.

The end result is that Adam Smith’s work is greatly oversimplified and misunderstood. Adam Smith did not say that all that is needed is self interest in order for an economy to perform well. In fact Adam Smith wrote in a time when Economics was not even a profession, (as he was in some ways considered the father of it) instead Adam Smith is referred to as a “moral philosopher.” Adam Smith’s is so misrepresented, and is so known to be misrepresented among people educated on this topic that there is actually a book about how he is misrepresented called Adam Smith’s Mistake, published in 1990.

http://www.amazon.com/Adam-Smiths-Mistake-Kenneth-Lux/dp/087773593X

Intellectuals and Economists on the Misrepresentation of Adam Smith

Some prominent Economists such as Joseph Stligliz pointed that left to their own devices markets will produce too much of things that hurt other people (such as pollution) and too little of things that help other people (such as research – unlike what is presented in advertising, most research is still funded by the government, private companies have no interest in basic research, and much less interest in any research they can not immediately monetize.)

Noam Chomsky, a very serious intellectual, has repeatedly complained about the misuse of Adam Smith’s work. This quotation is also from Adam Smith, though never quoted. The invisible hand, he wrote, will destroy the possibility of a decent human existence

..unless government takes pains to prevent” this outcome, as must be assured in “every improved and civilized society.” It will destroy community, the environment and human values generally – and even the masters themselves, which is why the business classes have regularly called for state intervention to protect them from market forces

Don’t allow those who can barely read complex writing to misuse Adam Smith to justify policies that only benefit the wealthy at the expense of everyone else. The Theory of Moral Sentiments, also by Adam Smith is filled with discussion on how to create a just society and the importance of the government to help make this so.

There are other areas that Adam Smith showed concern for an overemphasis upon work and division of labor caused a tunnel vision causing negative spillover effects on the other portions of a person’s life.

Misappropriation of Adam Smith

Large numbers of quotes made by Adam Smith which are distinctly opposed to the concentration of economic power are never brought up. In fact, Adam Smith supported unions, and where is this ever noted in discussions about him. See this post for more details on his stance on this topic.

http://counterecon.com/2009/12/12/adam-smith-favored-labor-unions/

What To Do

Question the knowledge of Adam Smith by people that use the “invisible hand” comment. Here are a few questions that are likely to flummox a person attempting to brandish the credibility of a long dead author they know nothing about and who’s books they have not read.

1. What other parts of The Wealth of Nations do you know about?
2. Did Adam Smith ever talk about the downsides to the invisible hand?
3. Are you familiar with Adam Smith’s The Theory of Moral Sentiments where he talks about how important it is to build a just and fair society?
4. If everyone acts selfishly, does this sound like it will result in good outcomes? If I only look out for my interests and ignore yours and everyone else’s, would this make you happy?

If you would like to read Adam Smith, his work is available in PDF format here.

http://www.pdf-search-engine.com/the-theory-of-moral-sentiments–pdf.html

References

http://en.wikipedia.org/wiki/Invisible_hand

http://adamsmithslostlegacy.com/2008/02/adam-smith-is-innocent.html

http://adamsmithslostlegacy.com/2008/02/senator-mccain-chooses-to-read-wealth.html