Thursday, September 30, 2010

My Frantic Americans

If I was the President right now and could give a fireside chat (FDR-style) to all American citizens over the radio, here's what I would say. So get warm and cozy and take a healthy dose of the red pills:

     "My Frantic Americans, this is your President speaking. I would like to inform the American citizens about the state of their union in this most unfortunate year, 2010. Please, make sure the elderly, weak or infirm in your household are sitting down... in fact, just make sure everyone is sitting down and adequately restrained. What I'm going to tell you is the cold, hard, ugly truth, and I'm telling it to you over the radio so you will have absolutely no idea where I am located. And just so you all know, my presently calm tone is not an accurate reflection of how I actually feel, because, man, I'm FREAKING OUT! The state of your union is worse than it has ever been since 1861, and it's only gonna get worse... much worse. Anyway, let me break down the situation for you in the simplest terms possible.

     The economy is no better than it was in 2008, in fact it's much worse. I've tried just about everything, from bailouts to stimulus to quantitative easing and beyond, but nothing works! Those sheisty banks took the money and paid it out in bonuses, while my poll numbers kept dropping. You people keep filing initial jobless claims, asking for food stamps and unemployment benefits and other handouts, but I have nothing left to give you. The damn housing market faked me out, making me think it was going to stabilize from the tax credits and public backstops, but wouldn't you know as soon as the public money disappeared, sales plunged like a skydiver without a parachute. My colleague Ben Bernanke keeps telling me we can stimulate the economy with his loose monetary policies, but who is he kidding, trillions of dollars in quantiative easing have done diddly-squat. Even if I wanted to give you people more free money, those dastardly conservatives won't even give me an inch of slack! I gave health care and financial reform a try, but let's be honest, everyone knew those bills were dead before they made it out of committee. And you all can forget about low taxes, pension payouts, cushy salaries, retirement benefits and high standards of living, because all of that just ain't happening!

     So what do you want me to do, people?? This country we call home doesn't have a single manufacturing plant left and is soaked to the gills in private and public debt. Remeber I told you we could double our exports by 2015? Well, I forgot to tell you that the only thing we export anymore is FRAUD and, even if we did have real products to export, other countries won't let us take any of their market share. I tried to reason with China and get it to revalue its currency, I really did, but they looked at me like I had just escaped from an insane asylum. Meanwhile, the Japanese and Brazilians are running their own blatant devaluation schemes and I just can't keep up anymore... hell, even the Mexicans are buying dollars. And those Europeans, don't get me started on those fools... they're keeping the Euro down by making people fear the entire European Union is going to fall apart! How can I compete with that nonsense?? Seriously, I feel like I'm in one of those screw-ball comedy movies where everyone is holding a gun to their own heads, threatening to shoot if the other guys don't lower their guns. And I'm at a big disadvantage here, because my gun doesn't have any bullets and the other guys know it. Man, we should have never become the world's reserve currency.

     Even if I had a magic solution to fix the economy, I wouldn't be able to implement it because you people keep throwing domestic boondoggles in my face. People are dropping like flies because health care costs are spiraling out of control, and you want me to fix that? No way, the insurance companies are too strong and they give too many people too much money... not gonna happen. Oh yeah and illegal immigration, now that's a huge pain in the ass if I've ever had one. We have a 2000 mile-long border with the country and the illegals have supported our economy for years, but now they are a major drag and I have to find a way to tell millions of people to get lost. The Mexican quote-unquote government isn't doing me any favors either, because their politicians get assassinated when they try to challenge the trafficking routes of local drug cartels. And what's up with these ridiculous social issues like gay marriage? Seriously, the conservatives have made that such a heated debate I couldn't even get "don't ask, don't tell" repealed, so just leave me alone on that one.

     And as if all this crap wasn't enough, I had to suddenly deal with the worst environmental disaster in our country's history after BP did everything ass-backwards on their drilling rig and blew a hole in the Gulf's seafloor. Listen, if things hadn't already been so precarious, I would have kept those criminals away from the crime scene and been straightforward with you people about what was going on down there. But give me a break, people, this disaster was like a kick to my face after I was already down and I had no other choice but to protect my job and the jobs of my friends. Every single one of you would have done the same thing. Yeah, sure, I authorized the deep-water drilling off of the Gulf shores to appease my "drill, baby, drill" conservative colleagues, but how else could I make any progress on alternative energy and cap-and-trade?? Speaking of which, these pesky scientists really need to stop bothering me about the devastating effects of climate change. Sure it's happening and we're probably driving that boat into a cliff wall, but do you people really think I have any chance in hell of fixing that colossal mess? No sir, not this guy. And another thing about environmental disasters...can anyone tell me why we keep having earthquakes, hurricanes, floods, volcanic eruptions and who knows what else around the world? That stuff is just really starting to freak me out above and beyond my constantly elevated level of freaked-outness!

     Excuse me for a second, my frantic Americans, while I take a sip of some whiskey...

     Alright, where was I? Oh yes, I was just telling you all about how truly screwed we are as a country, and I almost forgot about the quagmires I inherited from the previous suckers in the White House. My base voted for me in 2008 so I would reverse the previous administration's policies in the Middle East and bring our troops home, but they just don't understand. We have too many vested interests over there and if I turned the spigot off right now, all hell would break loose. A swarm of lobbyists and neo-con war hawks would descend on Washington like the black plague. And if America wasn't at war, what could I possibly use to distract the people from everything else going on? I was thinking about pulling the troops out and then manufacturing a fake television war, like those people did in that movie Wag the Dog, but then I decided it would be much easier and more profitable to amplify the real thing. Don't hate the player, people, hate the game.

     Honestly, I hope those Republicans dominate the elections in November and take some of this heat off of my back. I can't wait to see their child-like idealism evaporate when they see all the crazy predicaments they're up against. A few months after November, the economy will be in the process of being flushed down the toilet and then those so-called conservatives will be faced with a choice: stick to their campaign promises or sell out their base and start spending like crazy. I'm willing to bet the keys to the White House that they open up the purse strings and go on a spending spree that would make Paris Hilton look like a financial adviser who tells people to hide their cash under a mattress. They have no idea how hard this job really is, and neither do you people! Everyone in my administration is slowly abandoning me and so are all the Democrats who voted for me in 2008. Maybe the best thing for my poll numbers right now would be to get together with Israel and tag team Iran, Syria, Lebanon and any other country who could potentially be a threat to our national security. It's an age old trick, but I'm starting to get the feeling it wouldn't work anymore, so maybe I'll just save that as an absolute last resort option. My frantic Americans, your president is now completely worn out and must bid you all good night, but allow me to end this chat with a simple request - please take some comfort in the fact that I am just as frantic as you are!"

Sunday, September 26, 2010

Complexity Cartoon

Sometimes, we all get too bogged down in complexity. Complex problems, complex explanations of the problems, complex solutions to problems, complex reactions to the solutions, so on and so forth. So it was a breath of fresh air when my good friend Richie showed me a simple cartoon that may actually explain the dynamics of a complex society better than I can in 10 pages of facts, figures, quotes and ramblings:

Of course, the first chump on the street always gets knocked out because, hey, it's the simplest thing to do!

Friday, September 24, 2010

A Complexity Manifesto

"Every limit appears as a barrier to be overcome"
- Karl Marx (describing the world through a capitalist’s eyes)

     There has been much debate since the global financial crisis of 2008 about what exactly happened and why. Some analysts believe that a period of deregulation in the financial sector, including the infamous repeal of Glass-Steagall (separating commercial and investment banking activities) [1], combined with reckless managerial decisions was the primary driver of a housing bubble, which led to a credit crunch and economic recession. Conservatives and libertarians tend to place the blame on government intervention in the housing and financial markets through Congressional legislation, such as the Community Reinvestment Act (putting pressure on banks to issue credit in low-income neighborhoods) [2], and the Federal Reserve's loose monetary policy (targeting low interest rates during the tech and housing bubbles) [3]. More creative analysts trace the problem back at least several decades to a global credit bubble which has continuously been supported by both private economic actors and public policies [4]. Despite the significant differences in the views of these factions, there is an undeniable trend towards questioning economic dogmas previously thought to be fundamental and sound. Complexity theory provides a useful framework to analyze the inherent limits of our current economic system, which is now in the process of gradually breaking apart. It is especially insightful when applied to the dynamics of a global economy marked by capitalist relations of production.

     The abstract "rules" of complex adaptive systems can be nicely illustrated by describing how they operate in a familiar system, such as a capitalistic global economy. A description of capitalism would typically rely on the works of some of its earliest proponents, such as Adam Smith, David Ricardo or John Stuart Mill, but its dynamic nature has actually been captured extremely well by the works of Karl Marx, who is frequently said to have been wrong about communism and right about capitalism. Many people automatically associate Karl Marx with the Communist regimes of Stalin and Lenin in the Soviet Union, Mao’s China or Castro’s Cuba, and therefore they dismiss his ideas as those promoting corruption, injustice and a general lack of freedom. Leaving aside those unjustified connections, it is important to remember that a majority of Marx's writings dealt specifically with the dynamics of capitalism, and he was merely seeking to discover the new path that would emerge from what he viewed as an extremely oppressive and unsustainable economic regime. His primary goal was, in fact, to promote the freedom of human beings around the world so they could realize “the absolute working-out of [their] creative potentialities”.

     Before delving into the analysis of capitalism and complexity, the following disclaimer must be issued: This paper's descriptions of Karl Marx’s theories on capitalism are highly simplified, and certainly do not include the mathematics used to justify his conclusions. It also does not intend to imply that Marxian economic theory is perfect or that the dynamics he envisioned are entirely accurate. For example, the Australian economist Steve Keen has produced research questioning the validity of Marx’s labor theory of value (the criticism may actually follow from the logic of Marx himself) [5]. Instead of labor being the only source of surplus value in the production process, Keen suggests that all inputs to production (commodities and labor) can be a source of surplus value. This conclusion casts doubt on Marx’s assertion that the rate of profit for capitalists tends to fall solely as a function of limits to productive labor. However, these flaws in Marx’s analysis do not invalidate some of his more important insights into the dynamic (or “dialectical”) nature of a capitalist production system, and it is also true that other inputs (besides labor) have been depleted in an exponential fashion since his time. The key point of this paper is that there is a general intersection between the study of complex adaptive systems and the study of capitalism, and that the application of the former to the latter reveals certain inherent limits to our current global economic system.

     James Crutchfield, working out of the Complexity Sciences Center at the University of California, has written an article entitled The Hidden Fragility of Complex Systems [6], which is a very good primer on the dynamics of complex adaptive systems and how they breed instability. He states the following about the most recent financial crisis in our complex global economy (what he terms a "truly complex system"):

"The Fall 2008 near collapse of the global financial system and its heart-wrenching impacts are empirical evidence that pure-market ideology does not work as a design principle for the world’s economies. Historically, this design principle was justified in terms of the Efficient Market Hypothesis - markets in their collective behavior will find the unique, optimal equilibrium condition that homogeneously maximizes human welfare. Sadly, this view is a theoretical artifact of experimentally ungrounded models. The mismatch between ideology and reality is desperately large." [Crutchfield, 1]

     He continues to explain that the housing bubble and 2008 financial crisis were not isolated incidents, but the culminating revelation of fragility after a series of less severe episodes, including the "Black Monday" market crash, the Enron and WorldCom bankruptcies, Long Term Capital Management break down (and subsequent bailout) and the Dot-Com Tech bubble. [Crutchfield, 2]. While he points out that this systemic fragility is not limited to financial markets, he does not necessarily explore the dynamic in the general context of a capitalist economy.

     Karl Marx made a significant distinction between "market economies" and “capitalist economies”, though the two are often conflated. The former can exist when economic agents produce goods or services and voluntarily decide to exchange them in a market, while the latter specifically requires at least two classes:

(1) owners of the means of production, who are only interested in growing their existing capital; and,
(2) workers who sell their labor in exchange for money to buy goods or services.

     In this capitalist economy, a dynamic relationship is created when the capitalist purchases the right to a person's labor power and puts it to use for profit. The labor may have been purchased in a relatively free market (although workers are forced to sell their labor to someone if they wish to survive), but the workplace is something much less free and equal than a market, as it is directly under the control of the capitalist who imposes direction on the worker from above.

     Crutchfield touches on a key point when describing the components of truly complex systems, such as a capitalist economy (emphasis mine):

“They consist of multiple components, each component active in different domains and structured in its own right, interconnected in ways that lead to emergent collective behaviors and spontaneous architectural re-organization.” [Crutchfield, 4]
     When focusing on a complex capitalist economy, the two most significant, inter-connected components are the capitalist and the worker. The capitalists are active in their domain of generating profits by applying labor and other inputs to existing capital, while the workers are active selling their labor for money to survive and pursue other human desires. In the words of Marx, the workers’ other desires include “time for education, for intellectual development, for the fulfillment of social functions, for social intercourse, for the free play of the vital forces of his body and his mind.” Marx explained that capitalists must extract surplus value from labor to generate profits, which is possible as long as the workers have limited property rights in the fruits of their labor. According to Marx, this surplus value is the difference between the labor needed for workers to maintain their existing standards of living (based on the rate of wages and productivity) and the productive labor they actually provide in a working day. The ratio of surplus value to the value of necessary labor (real wage paid for a given number of hours) is the rate of surplus value, or what Marx termed “the rate of exploitation”.

     The process described above leads to emergent behaviors by capitalists, who collectively attempt to increase their rate of exploitation so they remain profitable, and by workers, who collectively attempt to resist the process so they can experience normal human lives. In the early stages of capitalism, the capitalist increases his rate of exploitation by extending working days, reducing wages or directing workers to be more effective within a given time frame. The complexity of this production system increases as surplus value rises exponentially (percentage growth rate) and the increased wealth is more concentrated, but this necessarily puts pressure on continued expansion. Capitalists cannot simply continue to increase the rate of exploitation with these measures, because of strict physical limits and the fact that many workers actively resist the process, creating a dynamic struggle between the two classes and a limit to be overcome by the capitalists.

     The capitalist system at this point seeks to increase its complexity as a means of creating more surplus value, but more complexity results in a certain level of fragility. Crutchfield relates the increasing fragility of a complex system to what he terms “functional pattern formation”. One of the first steps in this process is the system’s increase in structural complexity on a horizontal and vertical scale:

“As they evolve, systems become more sophisticated—structurally more complex. That is, structural and behavioral correlation accumulates between components and across time. At face value, there is nothing problematic with this. It is a necessary part of building systems, as one commandeers new components and incorporates them, as they begin to work together.” [Crutchfield, 5]
     Capitalists continue to increase complexity within their spheres of production by creating divisions of labor, where workers train and specialize in certain functions to increase productivity and their rate of exploitation. However, this specialization imposes limits as well, because some functions require time for workers to become skilled through apprenticeship (or training), and there is also the ever-present push by workers to be better compensated for their skills. Marx believed this continuous oppositional dynamic between the two classes led capitalists to use a “divide and conquer” strategy to keep workers from organizing to any significant degree, as reflected by the hostility between English and Irish workers at that time. This tactic is certainly still in use today, evidenced by the bitter relations between workers of difference race, nationality, political affiliation, etc. Any concession gained by workers at the expense of capitalists is only obtained as a result of great effort, political influence or designed placation.

     Another means used by capitalists to increase the rate of exploitation is the implementation of machinery within automated factory systems, which Marx described as the result of capitalists’ constant need to “revolutionize the means of production”. Marx placed special importance on this development and called it “the specifically capitalist mode of production”. Technological innovations of this sort are a direct reflection of evolving systemic complexity fueled by increasing net energy and human scientific knowledge. Another dynamic component is introduced into the workplace and interacts with the existing relations of production. Marx pointed out that the scientific knowledge which forms the basis for these technologies is largely removed from the sphere of collective intellectual progress, and is almost entirely devoted to the goal of capital accumulation. A new dynamic is created where workers become a sub-ordinate force driving the capitalists’ goal of creating more surplus value. The means of production actually end up employing the workers (fixed-to-variable capital ratio increases), and technology is implemented as a new method of controlling and monitoring workers to make sure they are docile and efficient.

     With the arrival of horizontal and vertical complexity in a system, the process of functional pattern formation is set in full gear and with it comes new efficiencies, inter-dependencies and extensive fragility. Crutchfield describes this rapidly evolving dynamic as follows:

“When correlation spontaneously emerges, the original components no longer need be ‘modules’. They interface in new ways within the system and can give rise to new, unanticipated behaviors and functions that cross the system. Moreover, these new functions can themselves become commandeered by other parts of the system. And, then, the entire process starts over again, with new levels of organization being constructed out of the existing ones.” [Crutchfield, 5]
     The interface between progressive automation and the goals of workers and capitalists creates an interesting systemic behavior, which Marx described as “the reserve army of labor”. As workers in certain industries are displaced by machinery, they become a part of an unemployed reserve army that allows capitalists to maintain a level of discipline in the workplace while also preventing wages from increasing too much, despite the workers’ efforts to organize and influence the process. In the short-term this new function aids capitalists in their goals to increase productivity and the rate of exploitation, but in the longer term it is sown with an inherent conundrum for the capitalist. Many of the workers displaced may find it extremely difficult to find new jobs in their line of work or be re-trained for a different field, leading to permanent increases in the size of the reserve army. The growing surplus value created in the production process is no good to capitalists if they cannot circulate their products back into the general market and realize that value. Marx pointed out that the market at this point is not a hypothetical one, but a dynamic one marked by the specific conditions created by capitalism. Production in the localized economy continues to rapidly increase while rates of employment and wages stagnate, so the capitalist system must organize at a different scale in order to satisfy its growing capacity.

      The most obvious strategy for the capitalist at this point is to increase the size of the market which they must sell their products into. One tactic used to accomplish this goal is to expand the sphere of existing needs to include more consumers (or basically manufacture new “needs”) through marketing and advertising. A prime example of this dynamic was sparked by the efforts of Edward Bernays (nephew of Sigmund Freud; known as “the father of public relations”), who cleverly broke the taboo against women smoking cigarettes in the 1920s by getting reporters to photograph young models lighting “torches of freedom” in the New York City Parade. He also launched a public relations campaign in which he managed to convince the public that bacon-and-eggs was the all-American breakfast. [7]. Despite the extraordinary success of social manipulators such as Bernays, the “sales effort” tactic also has limits because a consumer’s “needs” must ultimately be backed up by the wealth to satisfy them.

      The process of increasing technological complexity (mainly transportation and communications technology) makes possible another tactic used by capitalists to increase market size, which is frequently referred to as “globalization”. Globalization allows spheres of production to expand and encompass labor and consumer markets that were previously inaccessible. Capitalists can increase their rate of exploitation by employing extremely cheap labor in poor countries, and also by skirting environmental and labor protection laws in developed countries that may have hampered productivity. They are also able to realize their increased surplus value by selling cheaper products back into developed markets and perhaps a more limited amount into developing consumer markets. The workers in these developing countries certainly achieve some economic gains from the process of globalization, but these short-term gains come at the expense of environmental destruction, social deterioration, systemic fragility and an indefinite struggle for a more equal distribution of the surplus value they help to create.

     At this stage of capitalism, a complex system of production and consumption between two dynamic forces (workers and capitalists) spans the entire globe and sits over top large instabilities created by wealth inequality, environmental degradation, over-consumption of resources and geopolitical tensions. The system can maintain itself, though, if there is still net energy available and new levels of organization at which it can achieve relative stability. Crutchfield provides an important clue to the next stage of capitalist evolution (emphasis mine):

“In short, fragility emerges due to increasing structural correlation that spans system degrees of
freedom and system degrees of abstraction. Fragility is hidden from us because it is emergent.” [Crutchfield, 5]

     Marx pointed out that capitalism’s inherent drive to increase the rate of exploitation leads to production beyond the capacity of capitalists to realize the surplus value created (over-production), which forms the “constant tension between the restricted dimensions of consumption on the capitalist basis, and a production that is constantly striving to overcome these immanent barriers.” Although the concept of finance has been around for hundreds of years, it has only recently become necessary as a tool for capitalists to overcome the barriers to “consumption on the capitalist basis”. This new degree of abstraction in our complex economy introduces the system’s latest dynamic component, the financial capitalist. These financiers employ complex debt instruments to encourage workers to borrow against their expected incomes, which of course will never materialize as their rate of exploitation continues to increase. For some time in our economy, the financial and productive capitalists worked together as the former extracted economic rents in the form of interest (or secured assets) and the latter increased their ability to realize surplus value. Over the last few decades, however, the financial capitalists have used their complex instruments to commandeer the functions of productive capitalists’ (extraction of surplus value).

     An interesting feature of complex systems involving intelligent agents is their propensity to not only be in disequilibrium, but actually stray further and further away from equilibrium at certain times. The existence of this dynamic is especially true in financial systems, since their complexities cause a great deal of future uncertainty for economic agents, who find it difficult to process and predict the outcomes of numerous interacting variables. The result is a game theoretical approach to making investment decisions, which Crutchfield describes in the following manner:

“At first blush, agent intelligence is good. It allows for increased memory and sophisticated strategies. The result, though, is that by anticipating each others’ moves, agents start to “chase” each other’s changing strategies. The group behavior starts to oscillate; when, in contrast, simple-minded agents would or could not adapt dynamically. Technically stated, dynamical systems consisting of adaptive agents typically do not tend to a mutually beneficial global condition - they cannot find the Nash Equilibrium”. [Crutchfield, 7]

     Financial capitalists greatly benefit from the above dynamic as it allows them to push massive amounts of unproductive debt onto workers striving for a better existence, but also onto productive capitalists who seek significant returns on their capital. Workers jump at the chance to own a car or house they otherwise could not afford by taking out loans with minimal down payments required and (initially) low interest rates charged. These debt obligations quickly catch up with them, however, as their wages stagnate and interest rates increase. At the same time, bonds, stocks and derivative instruments become a lot more attractive to productive capitalists who are facing diminishing returns on their sales of goods or services, and they also begin financing daily business operations. Everyone clamors to jump on the debt bandwagon as asset prices increase and large profits are realized, but of course the misguided nature of these investments is quickly exposed when asset prices, incomes and cash flows decrease. The dynamic financial processes that evolved as a “solution” to the problem of capitalist overproduction actually end up exacerbating the problem, and drain large amounts of wealth from the productive economy. Large, debt-fueled booms in economic activity are followed by even larger busts, which Marx would describe as “momentary, violent solutions for the existing contradictions, violent eruptions that re-establish the disturbed balance for the time being.”

     The global financial crisis in the fall of 2008 is the logical outcome of a complex economic system with inherent limits. Private ratios of debt to GDP in developed nations (and some developind ones) had reached extraordinary levels and the capitalists found themselves with infertile markets, where the wealth of workers had been squeezed nearly out of existence and therefore the capitalists had no means to realize the surplus value of their over-produced goods. Our global economy has reached its limits in terms of degrees of freedom and abstraction which could possibly save it from a complete break down in complexity. This conclusion is especially true when considering the “side effects” of capitalism which are often underestimated or dismissed outright, namely the over-consumption of resources, peak production of energy and environmental destruction.

    Many people would argue that, if Marx was actually right about capitalism in his theories, then the capitalist economy would not have survived for so much time after his death. The peculiar thing about complex, dynamic systems is that their long-term specific behaviors are unpredictable as a result of their hyper-sensitivity to initial conditions. This aspect is commonly referred to as “deterministic chaos”, in which variables following mechanistic laws of nature may actually produce behaviors that are beyond our ability to predict:

“One general consequence of deterministic chaos—unlike the above, a limitation—is that component interconnections and internal nonlinearities typically mean that most emergent properties, including fragility, cannot be predicted in advance. In this case, one appeals to model building and simulation to ferret out the emergent properties.” [Crutchfield, 6]

     Unfortunately, Marx did not have the benefit of computer technology to dynamically model his dialectical theories of capitalism, and even if he did it may not have helped much without including factors that only revealed themselves in the future. The extent to which fossil fuels would revolutionize technological capacity and increase overall wealth was certainly underestimated by Marx, which could also be said of international finance and the complex instruments that it produced. It is also true that workers have gained significant concessions since Marx wrote, especially in developed countries. These “victories” over the capitalist class allowed workers to increase their wages/benefits to a certain degree, but more importantly they kept the workers consuming and pacified.

     Perhaps one of the earliest concessions gained by workers happened in Marx’s time, when England passed the “Ten-hours bill” that, unsurprisingly, capped the working day at ten hours. Of course, since that time many countries have also instituted limits on daily hours worked by industry and price floors on wages (minimum wage laws). Workers in certain industries have managed to form labor unions (after hearty struggles – sometimes involving bloodshed) and retain a larger share of surplus value created by their labor and other inputs. Central governments in developed countries have also created many entitlement programs and tax breaks for working class individuals and families. Take the United States for example, where an estimated 45% of households pay no federal income taxes and 30% of households contain an individual receiving Social Security, subsidized housing, jobless benefits or other public benefits (about 40 million people are currently on food stamps) [8]. European countries are also notoriously known for their generous public benefits, including health care, but they have relatively higher tax rates as well.

     Despite the numerous “handouts” given to workers in the last few decades, many of them are currently facing the prospects of losing their jobs, homes, salaries, savings and benefits. In fact, a big reason why they are pushed onto public payrolls in the first place is because their wealth has been absolutely destroyed during the last few financial crises (while the top 1% has extracted 66% of the gains in national income from 2002-06) [9]. As local and state governments watch their tax revenues disappear and deficits mount, many public employees are being laid off or are facing the prospect of taking large “hair cuts” to their salaries and pensions. [10], [11]. Retirees have had their savings wiped out and are resigned to a future of severely reduced payouts from Social Security and health benefits from Medicare [12]. State and local governments are currently in the process of raising taxes and imposing all kinds of exotic fees [13], [14]. The costs of food, energy and basic health care continue to rise and consume a larger percentage of workers’ disposable incomes [15], [16]. In short, the American worker is quickly being reduced to the standard of living  many workers in underdeveloped countries have experienced for decades (these workers are also hit the hardest by environmental destruction), and one simply has to pick up a newspaper to see how much longer they will tolerate this process.

     The points made above reveal another reason why Marx had underestimated the longevity of capitalism, and why the capitalists (at least the financial ones) are still thriving. Many libertarians view the government’s historical and present-day involvement in the economy as a form of central planning that would be espoused by the likes of Marxists and Socialists. The reality is that many state governments have merely become extensions of the capitalist elites, and exist to continuously promote their goals. The American government’s power to tax/spend and its monopoly on violent force have proved very useful tools for the international capitalists, as they are used to extract resource inputs to production, expand spheres of production/finance and generally increase rates of exploitation (its “war on terror” being a recent example) [17]. Tax revenues generated by workers have continually been used to subsidize the activities of large corporations in the agricultural, energy and finance sectors [18], [19]. They were obviously used recently to “socialize” trillions of dollars worth of losses generated by major financial institutions (as they get enormous tax breaks on unearned income) [20]. Statutes and administrative regulations have been implemented to increase the exploitation rates of capitalists, either directly or indirectly through complicated bills that can only be “gamed” by those with enough capital [20], [21]. Even Constitutional amendments, such as the right to free speech, have been interpreted to protect the right of capitalists to purchase political offices [22]. All of the above dynamics amount to a strategy of using the government to forcefully take from the workers that which could not be naturally extracted from them.

    Another tactic of this strategy, which has been in full force recently, is to use privately-owned central banks as a means of devaluing domestic currencies and lowering the prices of capitalists' products in other countries. Since the domestic population is financially unable to absorb the excess capacity, capitalists wish to artificially create demand in other regions. Currently, all of the major economies across the world (U.S., Europe, Japan, China, Brazil) are engaging in an epic battle to devalue their currencies, at the expense of workers who have saved what little money they have left and must endure higher food/energy prices. China has consistently kept the value of the Yuan down, Japan recently began selling Yen [24] and Brazil just announced it would actually borrow money to buy dollars and suppress the Real’s relative value. [25] Perhaps the most pathetic (and ironic) currency dynamic is the Euro being suppressed because of the PIIGS’ sovereign debt crises, and Germany, who benefitted greatly from the export boost, may actually be rooting for sovereign bond spreads to blow out at this point [26]. The U.S. has printed trillions of dollars and is resorting to political pressure to keep the dollar devalued [27], but so far its efforts in this realm have failed miserably (for the capitalists). This currency “race to the bottom” is, of course, a last ditch attempt to sustain the existing structures of the complex, global economy and also a negative-sum game. Some countries will have to lose in the sense that their currencies appreciate relative to others and their economies deflate, and others will have to lose in the sense that their currencies are completely destroyed (perhaps some countries will experience both).

     Marx believed that capitalism was inherently flawed due to a combination of the tendency of capitalists’ profit rates to decline and their “realization problem”, which leads to over-production. He never really mentions increasing complexity as a factor (complexity theory wasn’t even around back then), but he certainly uses a dynamic analysis of interacting components (workers, capitalists, machinery, markets, etc.) to reach his conclusions. Many people would still argue that Marx may have been too ambitious in his proclamation that capitalism was destined to fail under any and all circumstances, and I would consider myself one of those people. As mentioned at the beginning of this piece, Marx’s assumption that labor is the only source of value in the production process was most likely flawed, and therefore the capitalists’ rate of profit does not necessarily have to fall over time. We are still left with the problem of capitalists realizing the surplus value created from inputs, but perhaps there could be a system in which capitalists allow workers to receive a greater share of the surplus value created, creating a more even distribution of wealth (of course sociopolitical dynamics factor in here as well). It may also be possible that speculative finance never grips the system, and finance is merely used to aid productive creation and innovation. Finally, it may have been possible to have a capitalist system where resources are not over-consumed and clean, renewable energy is substituted for fossil fuels, allowing the system to maintain a certain level of complexity indefinitely.

    Unfortunately, we may never know whether any of the above was ever a possible outcome, because the capitalist system we have evolved and the reality we now face is much different. Wealth inequality has reached levels never seen before on a global scale, international speculative finance has obviously spread like a cancer, the environment has been gradually degraded and the age of peak energy/resources has arrived. Our global economy has reached a level of complexity that simply cannot be supported by available cash flows or net energy. President Obama recently made a comment when speaking about the faux economic “recovery”, saying “the financial system is not as strong as it was in 2006 and 2007”. This statement should sound ridiculous to anyone who understands why the 2008 financial crisis occurred, but it is actually a common theme in mainstream dialogue, which tends to completely ignore the emergent fragility that has developed in our complex economy over the course of decades. That, of course, is the nature of fragility in complex systems; it is extremely difficult to predict and stays hidden from detection for long periods of time. However, as wealth is increasingly concentrated in the financial capitalist class at the expense of billions of workers, there are precious few tactics left to placate the masses. The natural evolution of capitalism may soon lead to what system theorists’ call “panarchy”, a bottom-up process of restructuring and renewal in a complex system. Karl Marx would simply call it a revolution by the workers of the world, who have been "compelled to face with sober senses, [their] real conditions of life", and now have nothing to lose but their chains.

** The descriptions of Marx's views on capitalism were obtained from this summary.

Tuesday, September 21, 2010

Tweaks at the Margin

     Most of the economic policies currently debated in America's mainstream discussions have one thing in common - they are relatively small tweaks to our existing economic system that seek to address a specific problem in a vacuum, without viewing it in the larger context of our highly inter-dependent economy.  Every mainstream politician, academic and pundit seems to think that the foundation of our economic structures are sound, and we merely face marginal flaws which should be tweaked away. In fact, our entire industry of economic and financial analysis (epitomized by CNBC) is based on this principle that "everything is just slightly off, but don't worry we can fix it with a few small changes". The following paragraphs will explore a few examples of this "tweak mentality", and discuss why these unimaginative ideas should be scrapped for a complete restructuring of our modern economic system.

Bush Tax Cuts

     A prime example of this ingrained mentality is the current economic debate over the Bush tax cuts and whether they should be allowed to expire. Many on the left side of our faux political divide feel that the cuts did very little to aid the productive economy, enabled reckless financial speculation, and cost the American people billions in potential tax revenue. The CBO projects that our country will reduce its budget deficit by about $500 billion over 10 years if the tax cuts are allowed to expire. [1]. On the other hand, many conservatives analysts believe that expiration of the tax cuts will stifle much-needed economic activity during our deep recession and may not help our deficits as much as we are being led to believe by Obama's administration, since less taxable money will be spent or invested by the rich people whose tax rates will increase. The mainstream financial press, and especially CNBC, frequently frame the issue as one involving a "correct" answer that will promote renewed economic growth.

     Everyone seems to miss the fact that we are in an economic predicament, and there will diminishing returns (possibly negative) to any tweaks of existing complex structures. Obama's current plan of allowing the tax cuts to expire for individuals making more than $200,000 (families making over $250,000) will certainly drain some money out of the private sector that could otherwise be spent or invested. When these wealthy people expect their future tax rates to increase due to an expiration of Bush tax cuts, taxes imposed by Health Care "Reform", and taxes/fees levied by local and state governments, they will begin hoarding even more cash "under their mattresses". There is also evidence that suggests the tax revenues of a central government can never rise above 20% of GDP. The rich people affected by higher effective tax rates can find clever ways in which to blunt their impact, such as reducing their taxable income to be right under the $200,000 cutoff, moving their incomes offshore to countries with lower effective rates, or utilizing "tax shelters" and various loopholes in the tax code. [2]

      Leaving the tax cuts in place will still reduce federal tax revenues at a time when we are running record deficits and will continue to do so, regardless of what party is in power. Our creditors will not continue to charge us sub-4% interest on long-term treasury bonds when supply continues to be at record highs and tax revenues decrease due to continued tax cuts and a deflationary economy. It is also not entirely accurate to suggest that money saved by rich people from the tax cuts would provide a significant boost to the economy and GDP. The CBO estimates that every dollar saved by these people (or spent by the government) will only produce a 10-40 cent increase in GDP, which is obviously very little return on the taxpayers' investment. [3] There is also the issue of what kind of economic boost we will get by keeping the tax cuts in place. Most analysts fail to mention that increased consumption and investment in financial markets is not the equivalent of healthy, sustainable economic growth and will merely extend our lifeline by a year or two at most, while potentially making worse the underlying structural problems we face (namely too much debt).

     Our politicians and pundits should instead be focused on more dramatic transformations to the existing structures that have failed us and led to our economic predicament in the first place. The ever-insightful economist Michael Hudson has suggested that radical reform of modern tax systems is a necessary step in creating more stable, yet competitive economies. Although he has focused on countries in Eastern Europe, the reform measures could be just as successful in the U.S. He advocates greatly reducing taxes on labor, such as income taxes, and shifting this taxation to "economic rents" created by rising land values. Reducing taxes on labor would reduce the cost of employment without squeezing workers' take-home pay, while taxing land would disincentivize debt-fueled speculation by leaving less value to be capitalized into loans by banks. It would also make residential and commercial real estate more affordable because the taxed land value would not be included in mortgages issued by banks. [4]. I may not be as optimistic as Hudson, who believes these types of reforms can largely "solve" our problems of private and public over-indebtedness without significant austerity and reduced standards of living, but his "radical" suggestions will be much more effective than the marginal tweaks proposed by Democrats and Republicans.

Financial Reform

     Financial "reform" was the administration's attempt to tweak a dying system back into health, and convince the American public that this goal had in fact been accomplished with the bill's passing. Our government looked at the sub-prime housing crisis after the fact and analyzed its various causes in a vacuum, assuming all else in the economy would remain equal. If the banks were negligent in making loans to sub-prime borrowers, then we just need to have tighter lending standards. If their executives pursued short-term gains at the expense of long-term value for shareholders, then we just need to regulate executive compensation and tie it to share value. If the banks were under-capitalized for the amount of risk they were taking, then we should simply raise their capital reserve requirements and be done with it. There is not anything inherently wrong with the policies themselves, and some of them may actually be beneficial in the long-run, but it is the theoretical framework they use to make these decisions that is flawed.

     They view the subprime crisis as an isolated incident with superficial causes, instead of something that was a small part of a bigger process at work. The credit bubble that burst in 2008 had actually formed over at least thirty years, and it reflected an exponential increase in economic complexity. Now the administration would like to "solve" that problem by adding on even more complexity, when there are obviously diminishing returns to their regulations and unintended consequences produced by them as well. Tighter lending standards may just provide cracks for larger creditors to slip through by "engineering" new financial products, while also pricing out those productive enterprises which need some up front capital to get started (i.e. a company that produces and/or installs solar panels). Higher capital reserve requirements, such as those suggested in Basel III (7% by 2019), will do little to disincentivize risky investments when we need to the most and could also crowd out investment in productive businesses or in the public sector which desperately need to keep their borrowing rates low. [5]. Perhaps what we really need is a complete dismantling of our debt-based money system, in which nearly all of our money in circulation is created as debt. This system where all money is loaned into existence effectively makes it impossible for the money supply to keep up with the compounding interest owed by borrowers. [6]

Keynesian Stimulus

    Of course, the most significant economic tweak by our current administration has been the trillions injected into the economy through fiscal stimulus (bailouts, stimulus, automatic stabilizers, etc.) and monetary easing (quantitative easing, zero interest rate policy). The logic used by the administration and academics (such as Paul Krugman) to justify these actions is that they have worked in the past to lift our economy out of recession, so they should certainly work again. Well it is precisely because Keynesian policies have "worked" in the past that we have reached current levels of private and public debt saturation, and now the economnic dynamics are much different than they were in the past. $700 billion in "toxic asset relief" ended up sitting in the coffers of the bailed out banks or creating mini-bubbles in stocks, bonds and commodities, which will only make the next crash in asset prices worse.  [6]. $800 billion in "American recovery reinvestment" was severely diluted in bureacratic waste or directed towards unproductive activities. [7]. $2T in Fed purchases of mortgage-backed securities and treasuries once again found its way into banks' reserve accounts and helped blow a few more speculative mini-bubbles. [8]. President Obama's new stimulus proposal to make 100% of new capital investments tax-deductible will simply bring forward tax deductions that would have been made in the future anyway, or could actually incentivize companies to defer investments if they expect their taxes to go up in the future. [9]. The low interest rates are doing nothing except punishing savers by paying next to nothing on cash deposits, and through the unintended consequence of depleting the funds of private defined pension plans, which just suffered a $108 billion loss in one month. [10]

     Instead of spending a few billion here and there to restart the credit bubble which destroyed our economy in the first place, our leaders should focus on major transformations in our national priorities. We should stop funnelling money to large banks and other politically connected groups, and deal with the reality of our predicament. Military spending can be drastically reduced and redirected towards alternative energy development and infrastrucutre, which would allow us to create jobs and reduce our dependence on fossil fuels. Our tax policies can be significantly restrucutured to provide relief to the working class while obtaining revenues from those who extract economic rents through appreciating land values and managing other people's money. The debt-based monetary box we are currently trapped in can be dismantled and the power to issue money can be returned to the people through their representatives in Congress. Whatever policies are ultimately adopted, it should be painfully clear at this point that our current systems are inherently unstainable and will lead to great suffering unless we have the courage to sacrifice familiar tweaks for major structural changes.

Thursday, September 16, 2010

Confronting Our Complicity

"Everyone thinks about changing the world, but no one thinks about changing himself."  
- Leo Tolstoy
      American society, for at least the last few decades, has been immersed in an unbearable tension which is constantly present and hiding just beneath the surface of our daily lives, but is rarely ever featured in mainstream sociopolitical discussions. It is the tension between the decisions we as Americans choose to make every day and the unethical outcomes that result; between our actions and their consequences. Since the end of World War II, America the country has gradually expanded into America the empire through increasing economic and military strength. While the rest of the world lay in ruins, our significant competitive advantage in manufacturing goods allowed us to export our way into economic dominance. Our "Cold War” with the Soviet Union also provided us a great opportunity to intervene in the politics of various countries, either via indirect diplomacy/covert operations or brute military force, and to create a justification for expanding "free-market" capitalism across the globe. It was a systematic endeavor to export our economic and political values to the rest of the world so that, theoretically, everyone could benefit from increased efficiencies and overall wealth. Regardless of what one thinks about the specific policies we implemented during that time, it is undeniable that significant social, political, environmental and economic costs were exacted as a result. 
      Currently, we find ourselves mired in two endless wars with a vaguely defined enemy (the Afghanistan War has recently surpassed Vietnam as the longest war in American history) [1], a global economic depression with no clue how to navigate through it, a myriad of domestic predicaments (rising health care costs, illegal immigration, environmental destruction, etc.) and a bitterly divided populace that can no longer trust its own government or each other. The recognition of these unpleasant developments has emerged within the American population’s consciousness quite recently (primarily within the last decade), while many other parts of the world have been experiencing the real effects of our policies for at least several decades. I could use the rest of this essay to explain the ways in which our political and corporate leaders have abused our trust and pursued atrocious policies in our names (and I will), but it is also time we all acknowledge and own our individual roles in this rapidly unfolding story. As disturbing facts about the activities of American institutions are illustrated in the sections that follow, I would advise my readers to remember their personal contributions to these institutions and embrace any feelings of guilt or remorse. For it is this harbored guilt and a sense of helplessness to effect change that truly drive the constant tension in our society, and the first step to confronting that tension is admitting it exists and understanding why.
Building the Big Banks
      So, let's start with me. I have a checking account at a Wells Fargo Wachovia bank and I regularly make deposits, withdrawals and debit purchases with it. A few months ago, Wachovia settled a case with the Department of Justice for $160 million on the charge of laundering potentially billions of dollars for Mexican drug cartels. High-level Wachovia executives would have us believe they had no prior knowledge of this serious criminal activity which helped keep their company afloat (at least for a little while), but evidence suggests there were numerous red flags they were made aware of and chose to ignore. At the very least they had been extremely negligent in establishing and maintaining money laundering “detection systems”, and why wouldn’t they be when due diligence may cost them millions in bonuses. [2]. Thousands of innocent Mexican and American citizens die every year at the hands of Mexican drug cartels and violence associated with their activities. The drug trade also contributes greatly to socioeconomic ills in both societies, such as the social costs resulting from habitual drug abuse and economic costs from medical treatment and prosecuting the "war on drugs". [3]. I feel an acute sense of guilt for depositing my money at Wachovia banks, supporting their business activities and aiding them in growing to the extent that their managers can get away with financing murder, even though the amount in my checking account alone is negligible to their overall worth. There are obviously millions of other people in this country who also support Wachovia and other major financial institutions like it, and all that cash adds up to serious capital.
     Most people are already familiar with the SEC’s charges of fraud against Goldman Sachs for a deal involving a synthetic credit default obligation and severe conflicts of interest, since it gained so much coverage in the financial press, including the champion of mainstream financial news, CNBC. [4] There were also some more subtle, yet equally fraudulent practices at other major banks which have occurred during the last year or two. J.P. Morgan was recently investigated by the Department of Justice for manipulating prices in silver markets and potentially defrauding people out of billions of dollars. This investigation was launched after a whistleblower contacted the CFTC with specific details of how the bank used concentrated short positions to push prices down on certain dates and actually told them a specific future data when it would happen, and sure enough it happened exactly as he said (the whistleblower was then involved in a hit-and-run car accident which may or may not have been related). [5] [6]. J.P. Morgan also settled a $700 million case with the DOJ earlier this year regarding their blatant kickbacks to local officials in Jefferson County, Alabama to be selected as the managing underwriter for bond offerings and complex swap agreements, in which the bank charged the taxpayers higher interest rates to offset the bribes. [7].
     The bank who is thought of as the first domino in the 2008 financial crisis and the biggest corporation to ever declare bankruptcy, Lehman Brothers, had been committing accounting fraud in the midst of the subprime crisis through “repo 105” transactions. These sale and repurchase agreements effectively allowed them to temporarily transfer toxic assets off of their balance sheets before reporting periods and use the money borrowed against them to pay down liabilities and reduce their publicly reported leverage. [8]. This accounting scheme allowed them to appear healthier and more solvent than they actually were as the subprime housing market began to implode. Although Lehman’s games eventually caught up with them and they were allowed to fail, it is hard to imagine that the other major banks weren’t engaged in similar frauds against investors and creditors, and of course many of these banks were eventually bailed out by the taxpayers. This type of blatant disregard for ethical accounting practices just further shows the lengths to which some of these institutions would go to keep playing their cruel games, right up until the bitter end. Perhaps we didn’t bail them out at all, but simply paid for our past decisions to support these banks as a collective society.
     The above examples of clear-cut crimes involving fraud and money laundering are not the only shortcomings of our major financial institutions. It is also the case that their insatiable appetite for short-term profits has led to them to make grossly negligent decisions, creating systemic risks and putting the entire American economy in jeopardy. Most people are familiar with how they consistently cut corners when making sub-prime loans during the housing bubble, making "liar's loans" where the borrower’s stated income was not verified [9], and creating/trading trillions in securities and derivatives based on these bad loans without any good means of assessing the risks involved. Now we are all experiencing the harsh economic realities of a severe debt deflation, regardless of whether we actually participated in the credit bubble or made any bad financial decisions. We can go back even farther than the American housing bubble though, and see how they have negatively influenced the politics, environments and economies of many less fortunate locations. John Perkins, in his book Confessions of an Economic Hitman [10], revealed the true nature of international finance and foreign "aid" to underdeveloped countries over the last fifty years. 
      Perkins had been recruited by the National Security Agency to work with a consulting firm, Chas T. Main, for the purpose of convincing leaders of developing countries to take out large loans from the World Bank, IMF or USAID for various “public” infrastructure projects. These projects would be awarded primarily to the major corporations of developed countries and they actually provided very few benefits to the majority of the country's population. Many of them were energy projects that have ruined the environments of the countries in which they were undertaken, while most of the revenues generated would be directed to corporations and political leaders. Once the country was predictably saddled with too much debt to repay, they would be forced into making large political or economic concessions to developed countries such as the U.S. (i.e. forced to support our wars with their troops or sell their natural resources to us for extremely cheap prices). If the country's leader(s) refused to go along with the debt pushing plan, then the schemers would resort to more insidious tactics, such as rigging elections, extortion, manufacturing coups or assassinations. When all else failed, the last option on the table was military operations against and/or invasions of these countries under this, that or the other pretense (i.e. WMD). Perkins described how these types of hit operations were performed in Iran (the democratically-elected Mossadegh was replaced with the Shah), Panama (their President Omar Torrijos was assassinated and former CIA asset Manuel Noriega was “persuaded” to resign during our invasion), Ecuador (President Jaime Roldos was assassinated in the same manner as Torrijos) and Iraq (the Gulf War and Iraq War of 2003) just to name a few countries directly affected. [11]
     So who else benefited from these economic hitmen other than politicians, large industrial/retail corporations and sometimes the wealthy ruling families of targeted countries who sold out their own people? The answer, of course, is the financial institutions that indirectly control international organizations such as the World Bank and the IMF and underwrite the loans they produce. It's no surprise that the most effective tool of these hitmen and their bosses had been the use of financial transactions designed to saddle underdeveloped countries with too much debt. This tactic should sound eerily familiar to American consumers who are currently facing the imminent prospects of foreclosure, judgment liens on their property and bankruptcy filings (which greatly favor creditors after the 2005 amendments to the bankruptcy code) [12]. The international banking cartel has also been instrumental in imposing harsh austerity measures on countries that can no longer afford to pay their debts (i.e. IMF's conditions on the Greece bailout package) [13], and these measures place severe social and economic strain on the population in order to keep the governments paying off creditors with tax revenues. Simply put, the powerful banks end up managing and making commissions off of the blood money they receive from governments and corporations that participate in the schemes.
     What would happen if we all pulled our deposits out of the major financial institutions and refused to use their credit cards, take their mortgage and car loans, invest in their shares and let them invest our money? How many lives and ecosystems in underdeveloped countries would have been spared because of our financial sacrifices (or foresight in recent years)? The truth is that we have built up these banks to the point where they are too big to fail (and to be held accountable for their crimes) through our consumption habits and financial decisions. Instead of parking our cash in smaller community banks, replacing credit cards with debit cards or checks and investing our money with smaller firms or in "hard" assets, we have chosen convenience and greed at the expense of millions of the victims of these corrupt institutions. The allure of cheap money to buy consumer goods, cars, stocks, bonds and homes had blinded us from what our interest payments and fees actually supported. We must remember, though, that if we chose to build the banks up, then we can also choose to tear them down.
Keeping the Energy Flowing      
     Americans are just now becoming intimately familiar with the extremely harmful environmental and economic effects of the greedy, reckless activities of major energy companies. British Petroleum was obviously negligent in its pursuit for deep water oil in the Gulf of Mexico, cutting corners and ignoring numerous red flags to turn a quick profit, and the result of their actions was the death of eleven people and the worst environmental disaster in American history. [14]. The people in affected southeastern states were also economically devastated by their inability to work in oil-contaminated waters or bring in tourists for the summer season. There are countless other ways in which BP acted unethically as this disaster unfolded (including constant misinformation and cover-ups) [15], but there are also many other examples of energy companies destroying people's lives, finances and environments for the sake of short-term profits. While almost every American is familiar with the recent Gulf oil spill, they most likely are unfamiliar with the 2000+ major oil spills which have occurred in the Niger Delta over the last forty years. 
     Royal Dutch Shell was the owner of a majority of the fields and pipelines from which oil has spilled in the Niger Delta, and these spills have caused terrible environmental, health and economic consequences for the residents of the region. The 31 million people who reside in the Niger Delta, already living in abject poverty despite the abundance of oil underneath their land, have had their ecosystems, food and water consistently polluted over several decades. [15]. In 2008, a ruptured oil pipeline ended up killing at least 100 people in the region. Unlike the populations of American states in the southeast, more than 60% of the people living in the Niger Delta absolutely rely on the forests, farmland and water for their ability to survive and generate income. In stark contrast to the legal process we take for granted in the U.S., the African people affected have had almost no means of redress or compensation from their governments or the oil companies responsible; no justice whatsoever. The population of this perpetually polluted region has had to sacrifice everything they know and rely on for the benefit of exploitative oil companies and consumers in the developed world. We Americans currently import about 40% of our crude oil from the Niger Delta, and this is obviously a great incentive for oil companies to continue destroying the region as they extract as much of the stuff as possible. [16]
      Energy companies have also contributed to the destruction of people's homes and lives in more brutal ways, as they greatly benefit from our wars in the Middle East. One of our first orders of business after invading Afghanistan and dispersing the Taliban was to construct an oil pipeline across the country to Pakistan, which in turn meant millions of dollars in the pockets of Unocal executives (Afghani President Hamid Karzai was a top advisor to Unocal in the 1990s). [17]. Nine years later and we are officially in the longest war in American history, fighting an unrelenting "enemy" and dealing with an extremely corrupt puppet government. Thousands of innocent people have lost their lives, their families, their homes, their way of life and any sense of security they may have had in the past. The opium drug trade has been vigorously reignited after the Taliban was dismantled, which not only finances the Taliban insurgency but also pads the wallets of financial executives as their banks launder much of the drug money. [18]. The 2003 war in Iraq, based on the false pretenses of WMD and Saddam's links to Al-Qaeda, was not much different than Afghanistan in terms of windfall profits for oil companies who suddenly found themselves with direct access to Iraqi oil. An estimated 1.2 million Iraqis and more than 4,000 U.S. soldiers have been killed since the war began. [19]. Personally, I find it very difficult to believe that we invaded these countries to find Osama bin Laden and fight a bunch of terrorists, since we have all but stopped looking for Osama (if we ever really were) and we have created more anti-western terrorists than we have captured or killed. Maybe I'm wrong about these wars being undertaken for the benefit of corporate interests, but it is hard to draw any other conclusion after following the money trail.
     Any discussion of the Middle Eastern wars and their relation to natural resources should not leave out the role of private security contractors, such as our biggest contractor Xe Services (formerly known as Blackwater), who mainly help to secure the resource interests of our power elites. Currently, at least 90% of Xe’s revenues come from government contracts and about two-thirds of these are no-bid contracts. Of the numerous unethical and illegal activities conducted by Blackwater over the last few years, the worst offense was the murder of 17 innocent Iraqis in Baghdad on September 16, 2007. U.S. military reports indicated that the Blackwater guards had decided to open fire on innocent civilians without any provocation and, obviously, used “excessive force”. This deadly incident resulted in the revocation of Blackwater’s license to operate in Iraq and ultimately to its transformation into Xe Services. [20]. The activities of this shameful corporation are yet another example of how our tax dollars go to support resource wars and the overpaid corporate interests that benefit from them while they destroy innocent lives. Of course, it is us who end up materially benefitting from the cheap Iraqi oil flowing into our country.
     The list of ways in which major energy companies or security contractors have destroyed lives and ecosystems on the American citizenry's dime certainly goes on, but I'm confident the bleak picture has already been painted. After picking all of the low-hanging fruit in our own country, we have continued to crave the “black gold” from locations beyond our borders and live well beyond our means. The American people, myself included, account for almost 25% of the entire world's oil consumption, and much of this oil is stripped from other countries through illegal or unethical means. [21]. What if we lived closer to work and took public transportation or rode bicycles more often? How about if we invested our money in hybrid or electric vehicles, or at least something more fuel-efficient than the typical SUV? What if we ate locally grown food and refused to purchase consumer goods made of material manufactured from hydrocarbons, such as plastics? Some of these changes involve physical and financial sacrifices on our part, but many of them simply require us to pay more attention to what we do on a daily basis. For the livelihoods of 31 million people residing in the Niger Delta or the lives of innocent civilians in Afghanistan and Iraq, it's certainly not too much to ask.
Enabling the Central Enabler
      It is not just our major corporations that have engaged in destructive activities around the world, but our governmental institutions as well. The legislative and executive branches of our federal government have used their powers of taxation and spending and their monopoly on violent force to expand the American empire and increasingly concentrate wealth in the upper most segments of the population, which happen to be comprised of many of the executives at the companies chastised in previous sections. The judicial system has consistently failed to hold the financial elites and corrupt politicians accountable for their domestic and international crimes. In fact, our Supreme Court has recently aided large corporations in controlling our government by holding their political campaign expenditures to be protected by free speech. [22]. Many Americans may feel they have a responsibility to support their government, which was true to an extent, and they may also feel helpless to change the behaviors of their government and/or opt out of the political system. We cannot simply withdraw our support from the government by making a few different decisions here and there, and sometimes we are also compelled to support the system under threat of economic or physical punishment. However, this reality does not change the fact that we are supporting an extremely corrupted, destructive institution, and when it really comes down to it, we may have no excuses left for that support.

     Some people dismiss the idea of our government manufacturing “false flag attacks” as bogus conspiracy theory, but these people obviously have not taken the time to review publicly-available facts. An internal study by the NSA was declassified in 2005, in which it stated that the first episode of the Gulf of Tonkin incident was the result of an American destroyer engaging a North Vietnamese ship, with the only casualties being four North Vietnamese sailors. The second episode, which is what led to Congress’ authorization of the Gulf of Tonkin Resolution, was found to have never happened. [23]. Here we have a confirmed case of our government manufacturing the perception of an attack by North Vietnam in order to justify our invasion of the country. The stated reason for the war was to retaliate against the Gulf of Tonkin “attack” and combat “communist aggression” in Southeast Asia, which was code for “to make sure the Communists do not get in the way of our corporatocracy's quest for imperial dominance”. Everyone knows what happened next, as the Vietnam War proved to be a never-ending quagmire that was devastating for the combat forces of both sides and many innocent people in the region. Any of this sound familiar?
     As previously mentioned, our government has also used our tax dollars and its various arms to interfere with the political and economic systems of many different nations for the benefit of a few corporate interests. Whether it’s the covert displacement of democratically-elected leaders or the outright invasions of allegedly hostile countries, our federal government has used its massively complex intelligence apparatus and its military forces to destabilize numerous regions whenever they felt it necessary, and then re-organize those regions in a form they believed would be most beneficial to politically connected institutions. A location heavily interfered with over the last few decades has been Latin America, which is a very strategic location for the American Empire to control due to its proximity and vast resources. A well-known example of this interference occurred in the 1980s under Ronald Reagan’s administration, when the CIA was sent into Nicaragua to establish the Contra rebels and destabilize the political and economic institutions of the Sandinistas. The Sandinistas were operating a socialist government whose policies would not be favorable to the financial interests of crony capitalistic countries and the corporations that run them, so they were targeted for removal. [24]. More recently, President Obama and his Secretary of State, Hillary Clinton, implemented a plan formulated by Bush and Cheney to instigate a coup against Honduran President Manuel Zelaya and replace him with someone more “friendly” to U.S. economic interests. Zelaya had temporarily expropriated oil supplies owned by American companies after they had caused an economic crisis in Honduras by artificially keeping prices high. The military coup and smear campaigns against Zelaya were successful and Roberto Micheletti was installed as the de facto leader, since which time there have been numerous human rights abuses, including sexual assaults of women, committed by his government. [25] [26]
     As the above examples illustrate, the American government has been instrumental in assisting economic hitmen such as John Perkins to carry out their hits, or providing them backup in the form of the CIA and the military. It is the worst kind of corrupt institution, as it uses its public face to speak for peace and justice while its private face gives orders promoting violence and inequality. Most recently, the American government has essentially carried out a hit on its own people by aiding private financial institutions in saddling us with unproductive debt (through legislation, deregulation and monetary policy) and making us believe we need that debt to be successful. After the debts became too burdensome to be serviced and repaid, the government forced us to surrender our most valuable national asset (the Treasury) to the financial institutions who had conned us in the first place. We will soon be forced to make larger and larger concessions for the benefit of our creditors, such as foregoing promised entitlements, paying higher taxes and living with fewer public services. Indeed, this economic hit has actually been decades in the making, as wages have permanently stagnated and wealth inequality has reached levels never seen before. [27]. The American people have grown so attached to the false promises made by our government that our entire social fabric will now be tested as a result of its breach.
      What can we do to withdraw our support from such a vile, corrupt government? Can we refuse to pay taxes and participate in the sham elections? Should we organize protests and commit acts of civil disobedience, similar to those of the Civil Rights Movement? How about something more along the lines of a social, cultural or even political revolution? Maybe we should just get the hell out of dodge and never look back. These are not easy questions to answer and each option carries with it significant physical, financial, social and emotional consequences. After all, this is the country that many of us were born and raised in, where we made pledges of allegiance in our schools and we have paid taxes all of our lives. We root for this country in the Olympics and we have vested financial and emotional interests in seeing it ultimately come out on top. On the other hand, we must also realize that there comes a point at which the atrocities committed by one’s country make it no longer fit for survival, at least not in anything like its present form. There are ways in which we can express our disagreement with our government and withdraw our support, but it takes a bit of creativity. I would not necessarily advise anyone to do anything that is technically illegal or put their lives or the lives of their families in harms way, but at the very least we must recognize that something fundamental has to change within us before anything changes at a larger scale. We simply must not continue to sit back and passively watch our fascist government destroy everything that is fair and just in our world.
Failing to Change
       Although this piece has focused on our financial institutions, energy companies and government as the main purveyors of societal destruction, there are certainly other corporations in agri-business (Monsanto), retail (Wal-Mart, Coca-Cola) and industrial production (Union Carbide) who have pursued grossly negligent or malicious poicies for the benefit of their bottom lines. We can set those discussions aside for now, though, because it is time that we shift our focus. The bulk of the above sections of this piece have explored the ways in which our government and various mega-corporations are destroying our collective humanity and how our daily actions make us complicit in this consequence. However, the question of why we consistently support these destructive policies still remains. Part of it may be that we simply are ignorant of how our daily actions affect people and ecosystems around the world, but that's much too simple an explanation, since there would be no underlying tension in our society if we were all blissfully ignorant. It's more likely that we are at least slightly aware of our action's consequences, but we simply cannot shake our desire to maintain the status quo for one reason or another. At this point I must take a detour into my favorite topic of discussion – complexity [27].
      There is some truth to the fact that we are ignorant of our action’s consequences, in so far as we find it difficult to trace the chain of events which transforms something as simple as a credit card purchase into the murder of an innocent woman or child by a Mexican drug cartel. Powerful, centralized actors in a complex empire typically maintain their vice-like grip on the levers of power by using the system’s complexity as a cloak. Take the financial institution Wachovia for example, whose daily business activities are not easily discovered by the average, curious American citizen. It just so happens that the DEA stumbled upon a plane in Florida trafficking drugs from Mexico as a part of a separate investigation, and then, with the aid of other government agencies, were able to trace the purchase back to funds transferred from Mexican currency exchanges to Wachovia bank accounts. Even after that fortunate revelation, the Justice Department had to launch an investigation and deal with a team of lawyers who were doing everything they could to protect their client (Wachovia) from criminal and civil liability. In the end, we ended up with a “slap on the wrist” penalty through settlement, a few short headlines in the mainstream media which were quickly forgotten and Wachovia’s promise that they would be good boys from here on out.
      The American legal system uses terms of art such as “factual causation” and “proximate causation” as elements required to prove a defendant’s liability in a civil or criminal action. Factual causation requires that, but for the defendant’s conduct, the consequence at issue would not have happened, while proximate causation requires that there is an unbroken connection between the defendant’s conduct and the consequence (a third party’s conduct could potentially break the connection). Our legislators have generally decided that it would be unfair to hold American citizens liable for consequences that they did not “cause” in some direct manner (a complex legal system also allows powerful actors to escape accountability in this and other ways). Obviously, a person investing in shares of Xe Services was not the factual or proximate cause of the slaughter of innocent Iraqis committed by employees and weapons purchased with that capital. The slaughter could have happened without that specific person’s investment, and there are plenty of third parties in between that person and the event at issue. However, what we are discussing here is not legal liability for destructive consequences, but immoral complicity. We cannot continue to hide behind complicated legal structures and technicalities to absolve us of our instrumental roles in the exploits of the American Empire.
      It’s also the case that it is simply easier for many of us to follow the beaten path in such a complex society. We are constantly bombarded with shows, commercials, news headlines, products, services and generally choices of how to conduct our lives, and specifically what financial decisions we can make. This influx of choice can actually prove to be debilitating to the point that we feel pressured to use shortcuts (what’s less time-consuming, more convenient, being done by other people, culturally acceptable, etc.) to decide, even if these decisions are counter-productive to our own best interests or our personal goals. [28]. When we visit the grocery store to purchase food, there appears to be a multitude of different items to choose from and perhaps some of the items were produced in a healthy, environmentally-friendly manner. However, it takes knowledge, time and effort to locate these latter items and choose them over the majority of mass-produced items that appear to offer a lot of variety. Barry C. Lynn, in his book Cornered: The New Monopoly Capitalism and the Economics of Destruction, reveals that many of these “different” products are actually produced and distributed by relatively few large corporations, so we invariably end up supporting a concentrated economic power structure with our “choices”. [29]     
     Our complicity does not stop at ignorance or laziness by any means. In a highly complex sociopolitical system, many of the agents within the system actively work to maintain and evolve that complexity in some manner. We find it extremely difficult to sacrifice the short-term benefits gleaned from complexity, even when the long-term costs clearly outweigh them (especially when factoring in the costs to our society as a whole). Therefore, we continue investing in complex financial markets, consuming luxury goods/services, using energy-intensive technologies for entertainment, traveling long distances for work/vacation and obeying the plethora of rules that have been imposed on us, whether they are a product of our political or social institutions. Many of us devote our lives to working in careers that help keep the system expanding and running efficiently. If we stray too far from the status quo, then we may be punished legally, financially or socially and become marginalized within our own communities and families. We are pressured into rationalizing our complicity as simply being the “normal” behavior of an American citizen who wishes to be happy and successful.
     Another common justification espoused by people who refuse to change is that their individual decisions will not have any effect on aggregate outcomes, or the aptly-named “collective action” problem. Here we have another example of individual agents preserving the status quo due to complexity, as the agents feel the system is too large and complicated for them to have any influence on it. It’s relatively easy to see through the logic of this “justification”, since the only way it holds true is if a significant number of agents within the system think the same way and refuse to act. People who use this justification also underestimate the ability of relatively small action to produce large effects in a complex, dynamic system. A mere 10% of the American population could establish a significant presence and effect real change throughout the system by transforming their individual choices and withdrawing support from corrupt, unethical institutions. We can coordinate the action with others to the best of our ability through communication, but we must also trust in the fact that our actions speak louder than our words. Let’s cut through the complexity of a highly-populated society and stop caring about what other people may or may not do, because the only thing that truly matters is what we do.
      It becomes much easier to make ethical sacrifices when faced with the prospect that they will be imposed on us to a large extent, regardless of whether we refuse to voluntarily pursue them. The inescapable truth is that our selfish, fearful actions have not only harmed other people living thousands of miles away in other nations, but they have rapidly placed the American population in an economic, political, social and environmental predicament that we cannot extract ourselves from without significant pain. Our major financial institutions are still just as insolvent as they were in 2008 [30], and when (not if) the next financial crisis comes along they will fall hard, dragging the American consumer down with them. Without rising wages, public entitlements or access to credit, we will no longer be in a position to financially back the exploitative decisions of our large corporations and our government. Frankly, we have ultimately enabled these institutions to sow the seeds of their own destruction. So the only question now is whether we will still decide to adjust our daily actions and withdraw our support, knowing full well that the system may be on the verge of collapse anyway. Will we do what we know is right, without worrying about what will come of it? I am genuinely asking, because I don’t know the answer to that question. All I know for sure is that I am trying, and I hope my fellow Americans are as well.