“So, I am to receive thirty percent for finance, for legal protection and political influence. Is that what you’re telling me?” – The Godfather
Hunter was so stoned he ate a kid’s meal at McDonald’s® yesterday. The kid’s mom was not happy.
I am a fan of capitalism, mostly. Over time it has proven to be the single best way to have people contribute. It gives them a reason – if they do well, they gain more. By combining lots of people competing fairly, the entire world gets wealthy enough to afford a full tank of gas. How we split it 8 billion ways is up to us, I guess.
It’s simple – with capitalism, people don’t try to get more of the cake, they make the cake bigger. Or they make more cakes. And it’s all voluntary, unless it’s for a gay person. I’ve been told that baking cakes for gay people is the one thing in capitalism that’s not optional.
Capitalism is so excellent that it (along with several thousand nuclear weapons) was the primary weapon that allowed the United States to not become fragmented into places like Collective Farm #1701 in the Nebraska Oblast of the Greater Soviet Union.
I saw a the Davis twins at my high school reunion. Those two sure looked the same!
However, there is a problem with pure capitalism.
Morality, or more specifically, the lack thereof.
I used to be a complete libertarian, and I thought that, generally markets would take care of any imbalances over time. They don’t. What has happened is that the economy has been warped.
When I graduated from college, I didn’t really have the vocabulary to describe the way that I felt about it, so I said, “I really don’t want to work for a financial company, I want to work for a company that makes something.” At 21, that was about all I could come up with to describe it.
Thankfully, I’ve spent more time out in the world and have come to understand what I was trying to say so inelegantly back when I was young. Here’s what I’d say today: “I don’t want to work for a company that’s a vampire leaching off the economy by providing nothing.”
Still better than Goldman Sachs®.
And that’s what a lot of the economy of the country has become. It’s led by companies that don’t fundamentally produce anything. Black Rock® financing private investors who bought hundreds of thousands of houses across the country is a great example of this. Why? To turn renters into profit centers.
They were creating no value for society, instead their entire idea was to turn a necessity – a place to live – into a profit center and create no value in doing so. And that’s the segment of society that’s increased – finance, real estate, and insurance. We make less stuff, but spend more time and effort on the segments of society that only leach off the cake, not make it bigger.
I hear the Vatican started an online bank. They call it Pa-Pal®.
I won’t argue that banking isn’t important as a way to store and fund money, but banking isn’t the purpose of the system. Banking, insurance and real estate are services to make food, to make cars, to make radios, to make planes, to make movies, and to make plants that make PEZ® dispensers.
Why is it like this?
The short answer is: because we let it be like this.
The long answer is that, since they had lots of money, they bought enough bureaucrats and legislators and judges that they changed all the rules of the game in their favor. And we let them do it.
The good news is that it wasn’t always like this. And there’s no reason that it has to be like this.
Now, I’ve seen plenty of blogs go off the rails when the writer comes up with a complex system that will be the one and only true system that will get the world out of difficulty. Uh-uh. Not this guy.
But throwing light on the problem is important, because after the system collapses (and it is collapsing) we should recognize the reason that it is collapsing and not let it get back like this again. Ever.
The signs are clear. Look at Boeing® – offshoring an entire industry to teach China how to make planes so China could learn to make planes so they could . . . make planes. I’m not sure exactly what Boeing™ makes anymore, but when they decided that having everyone else make all the parts instead of them was a good idea, they ceased to be a plane maker and began to be . . . a vampire.
Looks like Boeing® hired the Wrong Brothers?
Boeing© isn’t all the way there, but you can see it headed that way. They want the profits without making the plane. They have ceased to be a plane maker, and will take any profit that they can at any time. In a search for profits, they have lost their sense of self.
I believe there’s an old statement that covers this situation very well – “For what shall it profit a man if he shall gain the whole world, and lose his own soul?” And I think that particular quote covers a lot of the issues that we have as a country right now.
So, I guess if we have a vampire problem, we have a lot at stake.
Having majored in Finance many, many years ago, banking used to be like this if you lived in, say, a 25,000 pop. town…
1. You had 2 or 3 S&Ls. If you were a Presbyterian or Episcopalian, you likely attended church with the Presidents of those. The old joke about the S&L biz was it followed the 3-6-3 Formula. Pay 3% interest, mortage at 6%, close up shop & hit the links at 3PM.
2. In most states banking was strictly local, and you knew your “banker”. No branch banking outside the county. They knew who you were.
3. Pay was HORRIBLE. In the late 70s, new future execs got $450-500/mo. That’s around $30-35K today. Had one college friend who was making more $$$ bartending on Fri & Sat nites at POETS (Piss On Everything, Tomorrow’s Saturday) and quit banking.
Between Keating (S&L) and Gramm-Leach, this somewhat workmable model was trashed.
Exactly. It was a simple model, but sadly it didn’t funnel the profits to New York.
Greed is good; frugality t’aint.
A desire to do better while serving others is prolly the way I’d phrase it. Then the money flows in.
Boeing is an interesting case in capitalism. I worked for them for several years and so have kept up with their woes. Yeah, they cut deals to sell planes that undermined their own market share, as you note with their China deals. They thought that was OK because they were branching out and buying out other aviation companies in the meantime, so maybe their true cause wasn’t building planes but being an aviation holding company.
They moved their headquarters from Seattle to Chicago to reflect this change in corporate direction.
Over time they decided they were primarily just a plain plane manufacturing company and not a innovative plane designer. Their innovative composite 787 has been a $32 billion dollar financial disaster for Boeing, with quality control issues and delivery delays that have made the market pass it by as a financial dud with “only” 1000 or so sold.
Instead, to keep the lights on and the cash flowing, they just kept stretching their good ole 737, slapping bigger and bigger engines onto it and writing increasingly kluged software to compensate for the resulting move away from sound conservative engineering due to increasing airframe/engine mismatch. They went from the 737 Next Gen 500 in 1993 to the NG 600 to the NG 700 to the NG 800. Success story, 7000 jetliners sold by 2016.
Then, instead of risking another 787 new-design debacle, Boeing kept going with the 737 mods via the new Max 8 in 2016 (with an “unusually far forward center of gravity”) to the Max 9 to the Max 10 (“with the powerful new LEAP-1B engine!”). You can only stretch the laws of physics so far and something had to give. Their MCAS computer tried to hide the unbalanced beast embedded in the MAX series by providing a “virtual” NG flight experience to the pilot. Oops, MAX 737s need to be knowing flown like the wild stallions they are, not as pretend NG geldings, and multiple pilots died learing this lesson that Boeing had deliberately hid from the FAA. Oops, now the 737 Max is another financial disaster for Boeing to go along with the 787.
No problem! Boeing has decided that maybe they are not a aviation holding company, but are instead a defense company. Recently they’ve moved their corporate headquarters from Chiocago to Washington DC. Closer to the trough.
Boeing is a good example of the problem with capitalism today: when your focus changes from building the best jets on the planet to making the most money off of them instead.
Coincidentally, ZH has a lead article today on Boeing.
https://www.zerohedge.com/markets/boeing-misses-across-board-stock-jumps-after-operating-cashflow-unexpectedly-turns-positive
TL;DR:
“Commercial airplanes operating loss $242 million, missing the estimate loss $181 million
Defense, space & security oper earnings $71 million, missing estimate $458 million
Global services oper earnings $728 million, beating estimate $637.4 million
Boeing Capital operating earnings $27 million, estimate $19.7 million”
So…they lost money/just scraped by from manufacturing things, but made money on finance deals.
Also: “Commercial Crew Program Also Recorded A $93M Charge”. LOL, don’t even get me started on the entire Boeing Starliner debacle…clocks that can’t keep time forcing the ship out of orbit early on the first test mission, valves corroded shut during an attempt to launch the orignally unplanned second test mission, multiple thruster failures when the second test mission finally flies – hey, call this dog a success at last and throw some astronauts aboard later this year!!! Godspeed, you brave men and astronaut of color with birthing capability (Sunita Williams)…
Boeing has a huge footprint here in Charleston. They might do more maintenance here than in Seattle/Tacoma. Planes from every international and US based carriers.
Exactly. I watched them unravel through several connections with them. Sad to watch them fall so far.
This is the best explanation for our failing economy and declining culture that I’ve seen. Concise and understandable. Good work.
But, how do we get to where we want to go? And which half of of us will get our way?
This is indeed a Fourth Turning. and I believe we need a strong 3rd party that can out-poll both our Left and Right and scare all of our current Electors to shape-up or go back home. It’s that or go to war.
Embrace the healing power of AND.
Vern, there will be no third party, don’t get your hopes up. And, using how freaked out the ‘(s)elected’ have been over the Jan6 lie; if you want them scared and repenting of their numerous transgressions – they need to start hearing charging handles being pulled and bolts being cycled.
At this point in history, sadly; violence is the only thing that will make them see sense.
There are some great suggestions down below – and one of them (in my mind) is to neuter finance and financial profits (interest, especially, and the markets as well). How about limited scopes and limited lifespans for companies? How about once a regulator, never being able to work in the regulated industry? So many more ideas.
Lovely tracts of land.
Wondering what makes Blackrock worse than the guy across the street who owns three houses and rents two of them, but I’m going with he is local and what happens to his neighborhoods and his properties matters to him.
Profits stay in the community, and decisions aren’t made by the Assistant to the District Manager who lives five states away.
Also, if he’s a slum lord, the word gets out. Soon only the really desperate and the really horrible tenants rent from him. Grandmothers tell their grandchildren to have nothing to do with him. Ideally, he finds himself the subject of Sunday morning’s sermon.
I eagerly became a cog in a huge defense contracting wheel as a newly minted engineer eons ago, congratulating myself for having landed in a safe, secure lifetime career that would underwrite a long and comfortable ride for me and my family. Which has indeed been the case. Recessions came and went and we barely noticed them.
But the field has changed seismically since those early days. First came serious probes into all the kickbacks and sweetheart deals that kept the big-bigs rolling in cash for so long. Then came the advent of COTS (Commercial Off-The-Shelf) hardware that allowed contractors to sell lesser quality components to the military at reduced cost. No more $400 hammers, but the now-$200 hammers broke on the third swing.
And finally, today, due to the shortage of native STEM grads, we have an enormous influx of H1-Bs and lowered bars to employment. Half of my division appears to be foreign-born, giving rise to the inevitable culture clashes, language barriers and “need” for six-figure diversity consultants. I won’t even go into the progressive initiative that demands half of all managers be female.
So what has become of the mighty entity that once designed and manufactured, on-site, the most sophisticated state-of-the-art military-grade electronic hardware on the planet? It has off-shored everything from stuffing chips onto pc boards to staffing HR, watered down the talent pool to p!ss, and points out with pride that it “stands with the black community against racism” despite there being not a single black technical employee at my location. The only thing we manufacture on-site anymore is butthurt and hatred of pale males. Talk about producing nothing of value…
H1B *is* the problem. Bright folks who could learn STEM are being carted off to finance gigs because that’s where the money is . . .
If we actually had a true capitalist system, your thoughts would better reflect reality. It hasn’t been the case since 1913 at least. That was when we got the Fed, the income tax and popular election of Senators. The money itself has been corrupted, hence the trough gyrations of major corporations.
Not that 1912 was an unalloyed nirvana, but I’d like to have those problems instead.
100% it’s part of the problem, since wishing money into existence is part and parcel of the money magic that’s distorting the system. Again, there are other ways.
Lloyd Dobler : “I don’t want to sell anything, buy anything, or process anything as a career. I don’t want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed. You know, as a career, I don’t want to do that.”
There was an Austrian painter who faced issues very similar to those today.
The past has many answers for the problems of today.
Hahaha!
Governmental regulations have induced distortions into the system. These distortions have made it more profitable for businesses to offshore manufacturing rather than investing in upgrading production facilities in this country. The ultimate vampire is our government.
It is, but it’s also controlled by the groups it’s supposed to regulate.
As I like to call them, they are the parasite class. They survive by leeching the productivity of others, taking a bit from every economic interaction without actually adding anything of value.
Which is why they want us to live in zee pod and eat zee bugs – maximum profits!!!
I was working as an engineer at GE when (I believe) they led this transition to the ‘make-nothing’ manufacturing company. We were told (this is an exact quote) “designing products is hard, manufacturing products is expensive, we just want someone else to do that and slap a GE logo on it. Then we’ll make money financing the purchase and selling warranties”. So that’s what they did. And today? That division slipped from first to last in its business and their products are garbage. Surprise!
GE is in a fight to remain relevant, even as 30 years ago they dominated.
I think the financial industry does provide something of value … in order for capital to be allocated to all those industries that DO make something, people need a place to park that capital for shorter or longer periods of time in a relatively safe secure manner. It would not be an optimal distribution of capital to have it all invested 100% of the time, any more than a gambler wants their entire chip stack in the pot on every hand of poker.
Now maybe that is no longer the primary activity of financial institutions, and they have turned around and gambled those chips for their own benefit instead of being caretakers. And if they are gambling more chips than were left in their safekeeping, there’s a bigger problem. (Sounds like precious metals futures!)
From my perspective, the problem is that we have governmental regulations that allow the financial industry to make the bets, collect when they win, but not incur the risks of bad bets. Because government is inherently corrupt when it gets close to large piles of money and it instinctively protects those sources of money.
Yes, but they suck up the bulk of the profits – and, there are other ways to do this.
I thought you were either taking a break or your site got nuked. It turns our you’re still posting but your RSS feed quit working.
Dangit, that explains a lot. Okay, I’ll see if I can’t get that fixed this weekend. Thank you!
“You see the way the economy worked under finance capital, and the way it still works even today, is based on usury. Let’s suppose you’ve got German tractors needed in Brazil and Brazilian coffee needed in Germany. The old fashioned capitalist way of exchanging those two commodities is that the Germans go to a Jewish bank in Frankfurt and borrow the money to buy the Brazilian coffee beans, at a handsome rate of interest, and the Brazilians go to another Jewish bank in Rio and borrow money to buy the German tractors, again at interest. This way the Jews get their cut on both ends of the transaction, for providing nothing that is really essential either to growing and brewing coffee or manufacturing tractors. This is how these people have gotten over for thousands of years. But then under the Third Reich a financial genius named Hjálmar Schacht figured out a breathtakingly simple way to accomplish the same transaction much more efficiently, much less expensively, and above all eliminating the banker as middleman and eliminating the undeserved accrual of interest for doing nothing. Schacht established a German trade bank that issued a kind of Monopoly money called trade credits, which could be used for German goods. When the Brazilians needed German tractors, they sent a big freighter full of Brazilian coffee to Hamburg and in exchange got X number of trade credits, which they used to purchase German tractors. The big advantage to using this kind of system was that in order to get Western goods, the developing countries could in essence use barter of their own natural resources instead of having to come up with huge amounts of cash money which they could only raise by borrowing. If Nazi Germany had won the war and imposed their system in the place of usury, the entire International Monetary Fund would never have come into being and the international banks wouldn’t have the entire world by the throat.” — Harold A. Covington, author of ‘A Distant Thunder’, p. 86.
Two changes in the legal structure in the 1800s enabled corrupt capitalism that resulted in cascading government regulations in perpetuity until the government gains all kinds of power de and super-mega-corps that are more powerful than governments. The first gave corporations rights. A fictitious corporation should have no legal rights on its own. The owners and employees have rights, not the corporation. The second limited liability to corporate owners. There should be no limits on liability to the owners nor to the employees. Unlimited liability grows investor/owner risk exponentially as the corporation grows, resulting in a self-limiting corporation. They could get just big enough to do big things, but not so big that they could force the government to bail them out nor would they have the ability to control lives of individuals. They would have to stay productive and useful to stay in business.
100% this. Limited lifespans and limited stuff they can do would make 90% of the stuff go away, especially if banks ceased to be (very) profitable.
You can’t have free markets and capitalism without real money – which is gold and silver. Or some other commodity backing the currency. The Federal Reserve Note is backed by nothing.
The Federal Reserve is not part of the government. It is a private, for profit corporation that has unconstitutionally been granted the right to print currency, not money, out of thin air. And then charge the US taxpayers interest for the privilege of using it. That’s the national debt.
This is how the oligarch class took over America, it’s government, finance, and economy. And ceased allowing them to be tools for and by Americans and now uses them all for themselves. The 1% absconded all they have because they own the Fed. And we’re ‘required’ to use FRN’s and that is not freedom, that is imho a form of slavery.
When the system implodes they intend to shove the Central Bank Digital Currency down our throats. Refusing to use them will deny them the stranglehold they have over us.
Local currencies and State Banks used to exist before the Fed. It is what free states should return to. Even if the local script is backed by nothin it will be better taking on even bigger chains of servitude in CBDC. And local script will have no debt associated with it. Freeing local economies to flourish in what they do best.
End the Fed, and Uncle Sugar in the District of Corruption loses control over the states. And free states can be free.
And the oligarchs strings cut.
You won’t hear an argument from me on those points.
Capitalism has no morals, but morals can make it a wonderful system. That, and strong individuals that understand how it allows much for many, and share the success. Unfortunately, the current flavor is seasoned with committees, boards, stockholders, investment firms, and grifters well schooled in slushing enough to hide their actions. When politicians are allowed into the game, the rigging eventually becomes blatant, yet their actions have no penalties.
We need more pillories, and buckets of rotting fish for those with a strong opinion. I can think of a few dozen people that need to spend two days contemplating their actions, and wondering if their last days will be spent with flies in their noses.
Indeed. To allow them to control the system is madness. A system built entirely on greed . . . .
Who are you to decide for others that products and services they voluntarily pay for are “nothing”? What data tell you the yokel landlord across the street is categorically better than the pro with a bigger portfolio?
There are two wheat harvests each year, which last for one month each. If you want bread the other ten months of the year, then “speculators” must risk their own capital to grow and store additional wheat. This speculation is required to produce bread ten months of the year.
Perhaps you want government to do all the speculation, like the Soviet Union did in Ukraine and deliberately starved tens of millions. ‘But that’s not real socialism!’ I pretend to hear you say. ‘The experimental results must match the rosy picture in my head, or I will discard them as unrelated. Each time I bled George Washington to treat his flu, he got sicker, then he died. But that wasn’t real medicine, I have religious faith that leeches are a treatment for flu!’
Or maybe you are not complaining about pure libertarian capitalism, but rather activities which are dictated by government employees at gunpoint? Banks don’t have anyone by the throat; traders can use items like gold coins and alcohol in their possession for money any time they wish…except when government bans that, like George Washington did in the https://en.wikipedia.org/wiki/Whiskey_Rebellion