ECONOMICS – REVIEWS AND VIEWS OF LIFE

ECONOMIC CRISES

Sorkin’s “1929” makes one think about 20th and 21st century American Presidents who may have set a table for a second economic crisis. As the Turkish proverb says “…fish stinks first at the head.”

Books of Interest
Website: chetyarbrough.blog

1929 (Inside the Greatest Crash in Wall Street History–and How It Shattered a Nation)

Author: Andrew Ross Sorkin

Narration by: Andrew Ross Sorkin

Andrew Sorkin (American author, journalist, and columnist for The New York Times.)

“1929” is a history of the build-up to the stock market crash and the advent of the depression with opinions about how today’s economy compares and what should be done to keep it from happening again. Though Sorkin is not an economist, he has written an interesting history of the build-up to the 1929 depression.

Faltering economies.

There is a sense of danger being felt by some today when reading/listening to Sorkin’s history of the 1920s. Few seem to have a clear understanding of world market forces and whether we are heading for an economic catastrophe or a mere hiccup in the growth of the economy. Neither bankers, regulators, nor politicians in the 1920s (or for that matter now) seem to have a clue about the economy’s trouble and what can be done to ameliorate risks. Like 1929, today’s insiders, power brokers, and rich have more options to protect themselves than most of the world’s population.

Increasing homelessness in America.

In America, it seems those in power have no concern about the rising gap between rich and poor or the immense increase in homelessness. Without a plan by those in power, there seems little concern about reducing inequality, the common denominator for the wealth gap and homelessness. Sorkin’s book outlines the reality of 1929 that gives reader/listeners a feel of history that may repeat itself.

Sorkin’s history seems credible as he notes human nature does not change.

Today’s leaders are like yesterday’s leaders. Not because they are venal but, like most if not all human beings, leaders in power are concerned about themselves and what there is in life that serves their personal needs and wants. Of course, the difference is that leaders that are power brokers affect others that do not have the same influence or options to protect themselves. We all have blinders that keep us from seeing the world as it is because human nature is to ask what is in it for me, i.e., whatever “it” is. The 1920s had a merger bubble in manufacturing and communication that is fed by the industrial revolution. Today, we have a merger bubble with mega-corporations like Tesla, Apple, Amazon and others that are mega-corporations capitalizing on a new revolution coming with A.I., the equivalent of the Industrial Revolution. Some critics argue mega-corporations, like what happened with the oil industry could be broken up to increase competition which is the hallmark of improved production, cost reduction, and lower consumer prices.

Charles E. Mitchell (American banker, led the First Nation City Bank which became Citibank.)

What makes this history interesting is Sorkin’s identification of the most responsible power brokers who bore responsibility for the stock market crash. Charles Mitchell of Nation City Bank is identified as the central driver of the stock market bubble. Mitchell denied the reality of the financial systems fragility. His ambition and unfounded optimism magnified the systemic risk of the financial crises. He openly defied the Federal Reserve’s warning to curb margin lending that risked other people’s money and their financial stability. He continued to promote purchase of stocks on credit that were fueling the stock market bubble. Mitchell appears to have misled the public in order to increase his power and protect his personal wealth by creating the illusion of market stability and his bank’s profitability. Though Mitchell is not the sole villain, he became the most powerful banker in the nation while breaking the financial backs of many Americans. In general, it is the self-interest of those who listened to him that have responsibility for their financial collapse, but it is always hard to know who is lying to you. Part of the blame is the hesitation of the Federal Reserve Board to act because the people in charge could not agree but that was more a matter of omission than commission which Mitchell was charged with but not convicted. Of course, the political leaders of that time also failed but hindsight is a lot easier than foresight.

Artificial Intelligence is today’s equivalent of the Industrial Revolution of the twentieth century.

Similar to the corporate mergers and investment from growing industrialization of the 1920s, today’s mania is mega corporation’ investment in Artificial Intelligence. Sorkin notes the ease of trading stocks, expectations of crypto investments, and A.I. hype may well move the market beyond its value. He argues for stronger guardrails on speculative investments, more limits on margin lending, and transparency on high-risk investments. He cautions easier credit as seen this Christmas season with buying based on delayed payment incentives and increasing credit card availability, card balance increases, and more liberal repayment terms. In general, Sorkin wants to see more, and better government oversight and regulation of credit offers. He believes too many lenders are overly optimistic about the future with the gap between rich and poor widening and trending to get worse. That inequality threatens the success of capitalism as a driver for shared prosperity, and economic growth.

Herbert Hoover (President 1929-1933, though characterized as the primary villain for the depression, Sorkin identifies his role as one of omission rather than commission.)

The Presidents shown below carry some responsibility for where the American economy is today but that would be another book.

Clinton, the first Bush, the second Bush, Obama, Biden, Trump.

HARD TIMES

Books of Interest
Website: chetyarbrough.blog

THE WORST HARD TIME (The Untold
Story of Those Who Survived the Great American Dust Bowl)

Author: Timothy Egan

Narration by: Jacob York

Timothy Egan (Author, American journalist, former op-ed columnist for The New York Times, won the National Book Award in 2006 for “The Worst Hard Time”.)

Timothy Egan wrote an interesting history of America during the dust bowl years that resulted in the Great Depression that lasted from 1929 to the early 40s. “The Worst Hard Time” has concerning parallels to today’s economy. Timothy Egan notes the Dust Bowl is caused by climate change, water scarcity, and energy transition, i.e. all conditions of the year 2025.

Contrary to Trump’s belief that global warming is a cycle of nature, most scientists argue the earth is warming because of the world’s burning of fossil fuels.

Clean potable water is a growing threat to a rising world population.

American Oil Refineries.

Transition from fossil to renewable energy sources is being delayed by the Trump administration.

Agricultural markets dramatically rose and fell in the 1920s and 30s. Wealth and greed created by wheat farming blinded farmers to the harm they were doing to the Nebraska, Oklahoma, and Texas panhandle plains of middle America. With the scarification of soil and seasonal planting and harvesting of wheat, millions of acres of grass land were left barren between crop seasons.

Trump is a sad reminder of the political blindness of Herbert Hoover.

Herbert Hoover (31st President of the United States.)

Tariffs and anti-immigration policies were instituted by the Hoover administration as a response to declining prosperity caused by excessive wheat farming cultivation. This is reminiscent of President Trump’s response today with tariffs, militant immigration policies, and his rejection of science that warns of the impact of global warming.

Trump’s modus vivendi.

Artificial Intelligence in today’s economy has increased investment of billions of dollars in today’s money like that spent to grow and harvest wheat in the 1920s. Investment in farmland skyrocketed in the 1920s with farming as a way to increase wealth with cultivation of land that was nearly free in Nebraska, Oklahoma, and the Texas panhandle. Today, massive investments in A.I. are being made by wealthy tech company owners. Without pragmatic and careful implementation of A.I. to America’s economy, tech company’ investments may have the same consequence to its investors as the farming collapse had to the wheat farmers.

A.I. will become the engine of American economic improvement just as Industrial Revolution changed agricultural production.

Today, A.I., rather than industrialized agriculture, has become the great economic engine of America. Today’s massive investments are in A.I. rather than wheat harvesting. The collapse of wheat prices because of oversupply disrupted the American economy because workers were not needed. A.I. will have a similar impact on all industries which may lead to the next world-wide depression.

1933 Depression bread lines.

Trump’s idea of Making America Great Again is a twentieth century idea that may lead to economic collapse rather than economic prosperity. His tariff policies set a table for damaging the world economy in the same way they did when Hoover became President. America needs to embrace the inevitable decline of human manufacturing and focus on transitioning America to a service economy. America needs more doctors, nurses, social workers, educators, house builders, scientists, and ecologically minded politicians rather than investors and manufacturers of disposable conveniences. At the same time, regressive tax policies that penalize the poor and enrich the wealthy need to be changed. Tax revenue needs to be focused on America’s economic transition from a disposable manufacturing economy to service and ecological preservation industries.

The hope for GDP growth in America’s future depends on a change in economic direction.

America’s next President needs to forcefully change the economic direction of America in the same way Timothy Egan shows Franklin Roosevelt and the Secretary of Agriculture, Henry Wallace, did during the Dust Bowl and Depression era. The reversal of Trump’s mistakes will take more than one four-year-term for correction, but the next election needs to set a different course for the American economy.

CAPITALISM’S REFORM

Like abolition, women’s suffrage, labor, civil rights, LGBTQ, and MeToo movements of the distant and near past, capitalism’s reform is due.

Books of Interest
Website: chetyarbrough.blog

SAVING CAPITALISM (For the Many, Not the Few)

Author: Robert B. Reich

Narration by: Robert B. Reich

Robert Reich (Author, American professor, lawyer and political commentator that worked in the Geral Ford and Jimmy Carter administrations, and served as th secretary of labor in Bill Clinton’s administration.)

Robert Reich, as an advisor to Presidents of the United States is recognized by Time Magazine as one of the Ten Best Cabinet Members of the 21st Century and by the Wall Street Journal as one of the most influential business thinkers in 2008. In “Saving Capitalism” Reich criticizes corporate America for unethical and unfair capitalist practices that make a mockery of capitalist equality.

Economic class warfare in America is a time worn argument by many economists in the 20th and 21st century. Reich’s topical analysis has some truth, but his analysis of wealth and markets oversimplifies the complexity of American capitalism. One cannot deny the harm that capitalist greed has done to increase wealth of the rich and decrease wealth of the poor in America. The political system is rigged by the influence of wealth over political policy and economic equality.

American capitalism’s rigging begins at birth, carries through public education, and ends in low-income opportunities for the poor.

The power of wealth feeds American capitalist Democracy’s circle of life. Money of the wealthy is spent to birth and educate their children with the best medical care and schools in America. The corporations and super rich of America hire and fund lobbyists who promote corporate agendas to support government representatives’ campaigns for office. The aspiring representatives are people who owe their allegiance to corporations and the rich who helped get them elected. That circle is biased toward making the rich richer.

Equality of opportunity is rigged in ever-larger corporations that reap super profits and pay CEO’s millions of dollars per year while low wage earners are left to fend for themselves. Mega corporations should be broken up like the oil industry dismantling in 1911. Like Standard Oil, today’s conglomerates have too much power over consumer purchasing, advertising, social media, medical industries, and (most importantly) the election process of America. The rigging begins with healthy birthing of children of the rich, extending to less qualified schooling for the poor, and ending with low-wage family’s children having unequal economic opportunity.

One cannot deny that Reich’s book and this biased review are an ideological belief that distorts and oversimplifies reality, but it carries an element of truth that cannot be denied. How can one person be worth a potential trillion-dollar net worth for service as CEO of one company that makes electric cars. Corporations like Amazon, Google, Facebook, UnitedHealth Group, and Cencora control markets through their size to capture disproportionate shares of advertising, social media, retail sales, and medication industries without competition to moderate their power, and influence. Add billionaires like Elon Musk, Larry Ellison, Mark Zukerberg, Larry Page, Steve Ballmer, Warren Buffett, and Michael Dell and others of great wealth–one is inclined to believe American capitalism is rigged.

As brilliant as Musk shows himself to be, his fragile ego diminishes his genius.

There is an unfairness in criticizing the wealthy for their success in America. They are not wealthy because of luck but because of their innate abilities, risk taking, and hard work but influence should not come from the power of their wealth to change government policies that focus on enriching themselves. Just as the robber barons had their influence curbed by antitrust legislation, the same should be done today. The influence of lobbyists and their support should be more publicly disclosed. The federal government should play more of a financial role in improving public education. Cries of inequality should be exposed, critiqued, and adjudicated fairly.

Survival of global capitalism seems dependent on reducing the gap between billionaire/millionaire capitalists and the wage-earning public.

Capitalism remains the best economic system in the world, but it has its weaknesses. The best prescription for that weakness is equality of opportunity in the arena of employment competition. It begins with fair and equal access to medical care and access to a good education.

Like abolition, women’s suffrage, labor, civil rights, LGBTQ, and MeToo movements of the distant and near past, capitalism’s reform is due.

U.S. WEALTH GAP

Capitalism should be designed to ameliorate the wealth gap, not exaggerate it to the point of people going hungry in one of the richest countries in the world. Capitalism is the greatest economic system in the world, but equality of opportunity remains a work in progress that is made worse by poor government policies and the inherent faults of human nature.

Books of Interest
Website: chetyarbrough.blog

This Time is Different (Eight Centuries of Financial Folly)

Author: Carmen Reinhart, Kenneth Rogoff

Narration by: Sean Pratt

Carmen Reinhart (on the left) is a Cuban American economist and Professor of the International Financial System at Harvard Kennedy School of Business. She has a Ph.D. from Columbia University. Kenneth Rogoff is an American economist and chess Grandmaster who received a B.A. and M.A. from Yale and a PhD in Economics from MIT.

Two well educated academics try to explain why world economies are not unique by arguing the patterns of financial crises are similar, if not identical.

They argue heavy borrowing, inflated optimism, bank collapses, high inflation and currency devaluations are common characteristics of nation-state financial crises. These nation-state government actions and reactions are a result of innate human behaviors. They argue recurrent financial crises feed off of each other to spread economic chaos that creates panic among economic movers and shakers of national economies.

Our American government.

The importance of Reinhart’s and Rogoff’s observation is particularly interesting in light of the economic disruptions of the current American government. History shows America is not exempt from economic crises. In 2008’s economic crises America carries a large responsibility for itself and other nations near collapse. The 2008 economic crisis shows how domestic debt can threaten the world, let alone one country.

Maybe American government is not above the law, but a President shows he is capable of bending it.

In light of Donald Trump’s directed tariff war and his “…Big Beautiful Bill Act” that eliminates federal income taxes on Social Security, tips, and overtime pay, America’s national debt is likely to balloon. He is gambling American citizens’ future on belief that tax reductions will be offset by economic gains from improved industrial development. This is at a time when industrial development is being impacted by arbitrary firing of government employees, AI innovations that reduce employment, and industry employees retiring or transitioning to a service economy that pays less livable wages.

Trump’s tax policy will continue its top tax rate at 37% despite the government’s earlier intent to have it revert to 39.6%.

The effect of these tax policy changes is expected to reduce tax revenues by 4 to 5 trillion dollars at a time when America’s debt has never been higher. It is estimated at $38 Trillion dollars today. America’s interest rate on that debt is 3.393%, more than double the rate of five years ago. The increasing rate is related to the believed risk of U.S. default which will most likely rise with Trump’s tax breaks. U.S. debt has never been higher. Interest at its present rate will consume 14% of the federal government’s outlay in 2028. That 14% could help pay for the Affordable Care Act that is opposed by the Republican majority. The Trump tax policy implies continued heavy borrowing, an inflated optimism that threatens bank collapses, high inflation, and currency devaluations. Though the authors are not writing that America is on the verge of economic collapse, their observations infer a crisis is nearing, if not inevitable.

The gap between rich and poor in America is unconscionable.

HOUSING

Didion reminds one of Yeats Poem to warn society of civilization’s collapse. Yeats wrote “The Second Coming” after WWI and the Spanish Flu. Seems similar to today’s political war and the Covid pandemic.

Books of Interest
Website: chetyarbrough.blog

Slouching Toward Bethlehem

Author: Joan Didion

Narrated By: Diane Keaton

Joan Didion (Author, American writer and journalist, published in The Saturday Evening Post, National Review, Life, Esquire, and The New Yorker. She also wrote screenplays for “The Panic in Needle Park”, “A Star is Born”, and “Upclose and Personal” as well as receiving a National Book Critics Circle Award and a Pulitzer. 1934-2021.)

Diane Keaton (Actor, Academy Award winner, BAFTA recipient, two-time Golden Globe, and Tony Award winner. 1946-2025.)

Diane Keaton died yesterday.

Several years ago, I purchased “Slouching Toward Bethlehem” without reading it until Keaton had done an audiobook’ narration of it. “Slouching Toward Bethlehem” illustrates Didion’s skill as an essayist and writer while Keaton’s many acclaimed movies show how accomplished both women have been in their lives.

“Slouching Toward Bethlehem” is interesting because it offers an interpretation of why homelessness is so much more obvious in America than other countries.

Having lived in different areas of the United States, the appearance of homelessness in the big cities of America is disgraceful. Visiting the Baltics, Norway, Finland, China, and Japan in the last few years illustrates how badly America is handling homelessness. With the exception of Norway, per capita incomes in the United States are more than twice the incomes of the aforementioned countries. Norway’s per capita income is $87,925 while America’s is $82,769. China’s per capita income is $13,122 but walking through major Chinese cities, there are no people sleeping on the streets. The Baltics per capita incomes range from $22,000 to a little more than $30,000. There is poverty in all these countries, but their leaders and societies have found a way to keep their citizens housed. This is not to argue their poor are not faced with hardship but to show how poorly American society is treating its homeless.

There seems a generational divide in Didion’s “Slouching Toward Bethlehem”.

The beat generation of the 1960s for which Timothy Leary coined the phrase “Turn on, tune in, drop out” alluded to in Didion’s essays may offer a partial explanation. Many of us experimented with drugs in the 60s but there has to be more than that to explain what has happened to big cities in America. Part of the answer is the change in income for the middle-class. In the 1960s middle-class incomes were strong and broadly shared. In the 21st century, middle class incomes have stagnated. CEO’s income in the ’60s made 20 times middle class earners but in the 21st century the ratio rose to 300-1. The rich got richer and the middleclass got poorer. Power shifted from a voting middle class to a richer upper-class that accelerated income gaps that changed election results with an income class bias.

America has contradictory economic policies that have created great abundance among Americans while exacerbating income inequality.

Housing costs accelerated to new highs in the 21st century. The 1960s price-to-income ratios were 2:1 while today they are 5:1 or higher. The effort during the Obama administration to weaken standards for home buyer qualification exacerbated the greed of mortgage companies which led to a near economic collapse of the finance industry. Instead of bailing out homebuyers that could not pay their mortgages, the Obama administration bailed out mortgage companies and their owners while endorsing eviction of buyers who could not afford their mortgage payments.

“Slouching Toward Bethlehem” writes of famous successful people like John Wayne, Howard Hughes, Joan Baez, and herself as symbols of the 1960s. She is effectively glorifying them and herself while showing how they mythologized success to a generation of young people who were turning on, tuning in, and dropping out. Image became more important than substance. Working to be great at acting, becoming wealthy by investing wisely, singing about peace, justice and non-violence to make money, and writing about societal dysfunction were money makers. Capitalizing on dysfunction of society did nothing to ameliorate it. John Wayne is only a symbol of justice in the movies and Howard Hughes inherited his wealth that allowed him to invest, sometimes unwisely and with poor personal management skills. He began investing in Las Vegas because management could be left to others. To be fair, Didion and Baez try to return something to society for their success but their efforts pale in comparison to America’s decline. Artists report facts of life but rarely offer solutions.

William Butler Yeats (1865-1939, Irish poet, dramatist, writer and literary critic.

W. B. Yeats Poem summarizes and exemplifies what Didion alludes to in her book.

Turning and turning in the widening gyre  
The falcon cannot hear the falconer;  
Things fall apart; the centre cannot hold;  
Mere anarchy is loosed upon the world,  
The blood-dimmed tide is loosed, and everywhere  
The ceremony of innocence is drowned;  
The best lack all conviction, while the worst  
Are full of passionate intensity.  

Surely some revelation is at hand;  
Surely the Second Coming is at hand.  
The Second Coming! Hardly are those words out  
When a vast image out of Spiritus Mundi  
Troubles my sight: somewhere in sands of the desert  
A shape with lion body and the head of a man,  
A gaze blank and pitiless as the sun,  
Is moving its slow thighs, while all about it  
Reel shadows of the indignant desert birds.  

The darkness drops again; but now I know  
That twenty centuries of stony sleep  
Were vexed to nightmare by a rocking cradle,  
And what rough beast, its hour come round at last,  
Slouches towards Bethlehem to be born?

FARMLAND

Historically, collectivization of land has failed even when those who are part of the collective are better off than they were when they had no land.

Books of Interest
Website: chetyarbrough.blog

Land Power (Who Has It, Who Doesn’t, and How that Determines the Fate of Societies)

Author: Michael Albertus

Narrated By: Braden Wright

Michael Albertus (Author, professor at the University of Chicago in the Department of Political Science.)

Michael Albertus develops a powerful argument for “Land Power”. Much of history and current events in relatively undeveloped countries are identified as proof of Albertus’s belief that “Land Power” is key not only to economic growth but to social improvement. He reflects on the history of Great Britain, France, and the United States while noting current affairs in developing countries like Peru, Columbia, and Bolivia support his argument.

The unfortunate truth of history is that indigenous populations, particularly in America and Great Britain, were displaced in order for “Land Power” to be the engine for economic prosperity and social change. In the case of America of course, it is the displacement of North American natives by English settlers who became Americans. In contrast Great Britain’s “Land Power” comes from a landed aristocracy and their subjugation of foreign cultures with autocratic control and rule of Asian and European countries. In France, Kings and an aristocratic government’s rejection by commoners in 1789 seem the motive force behind “Land Power” ascension.

For Peru, Columbia, and Bolivia Albertus infers examples of Britain, America, and France set a table for “Land Power” change by their governments. In my opinion, the age of technology has diminished “Land Power” importance in America, Great Britain, and France.

“Land Power” still carries weight in America, Great Britain, and France but in the tech age it seems the power of accumulated wealth has become more powerful than land. However, Albertus’s “Land Power” argument in regard to South American countries like Peru, Colombia, and Bolivia are compelling in regard to their economic and social improvement. Albertus notes private land ownership and recognition of women’s rights to own property, show that “Land Power” is a source of economic and social improvement in South America. He suggests countries like Mexico are being challenged by their failure to reform land ownership policies but today’s leaders in Peru, Columbia, and Bolivia have made significant land reform changes.

Albertus explains the major reform movement between 1969-1980 made by General Alvarado in Peru.

General Alvarado ordered nearly half of all private agricultural land be redistributed among Peruvian citizens. He dismantled large estates to empower peasant cooperatives. It has not been a perfect solution because it created an insurgent group called the Shining Path that pressed for a Maoist collective land reform for the redistributed Peruvian estates. Just as collective farms failed in China, they failed in Peru because common gains in collectives did not fairly reward performance. Collective farms distort the needs and results when a collective rather than a singular leader is responsible for performance of the collective. Nevertheless, the steps taken to dismantle half of private agricultural land, is considered by Albertus a step in the right direction because it incentivized many Peruvians who were living in poverty.

In Colombia, in 1966 through 1970 President Restrepo redistributed agricultural land to former agricultural laborers.

FARC (Revolutionary Armed Forces of Colombia) is organized in 1964 to offer peasant self-defense for actions soon to be taken by President Restrepo to reduce land ownership inequality. Between 2010 and 2018, President Santos negotiated with FARC to settle disputes between former landowners, and new farmers that benefited from land redistribution. There is still conflict because of FARC’s false belief in collective farming which has been proven a failure in other countries, but President Santos and his successors have created a path, though no solution, for reform through the hope for understanding and compromise. Albertus infers land reform is a work in progress, not a perfect solution.

Land reform in Bolivia spans 1953 and the early 2000s.

Presidents Estenssoro (1952-1956) and Evo Morales (2006-2019) worked on land reform along the same lines as Peru and Colombia. Large estates were broken up in 1953 and redistributed to peasants. Morales clarifies indigenous land rights but formalized communal ownership of redistributed land. This is another example of a work in progress because collectivization may be a step in redistributed land, but it has not proven to be a long-range benefit to a country’s citizens. It becomes too divisive and unrewarding for optimum performance and fair rewards for those who excel.

Collective farming.

One who read/listens to Albertus’s insight to land reform believes his story has merit but his history is too optimistic when a little additional research shows land reform is a losing proposition when not fully supported by institutions that had implemented change.

History shows land collectivization when large landowners lose their land is a fool’s errand because it fails to reward those who excel as part owners of redistributed land. Human nature gets in the way. Those who work harder than others expect to have proportionate reward. Collective farming disincentivizes personal high performance. Historically, collectivization of land has failed even when those who are part of the collective are better off than they were when they had no land.

ARROGANCE

A President who only sees government as a cost and the wealthy as the nation’s only benefactors, compounds America’s inability to solve the problems of poverty with eviction being a preeminent symptom.

Books of Interest
Website: chetyarbrough.blog

Evicted (Poverty and Profit in the American City)

By: Matthew Desmond

Narrated By: Dion Graham

Matthew Desmond (Author, sociologist and a Pulitzer Prize winner, Professor of Sociology at Princeton.)

Matthew Desmond has written about American poverty in “Evicted”. There are two types of poverty. One is a worker who is not making enough money to be anything more than poor. The second kind of poor is grinding poverty where one must choose between having food to eat or a roof over one’s head. One who is poor can live in America, may get an education, find a job, and get along in life. However, those with too little money to eat and have shelter–live lives of desperation. Desmond’s book is about the latter to show how American society is failing desperate citizens. Desmond interviews several poor Americans that offer a clear understanding of the difference between being poor in America and being desperately poor in America.

Some argue America is the land of opportunity and if one cannot grasp opportunity, it is because they create their own problems.

“Land of opportunity” believers argue there are jobs in America and those who choose to beg for food rather than work deserve their fate. The truth is that many jobs in America do not pay enough for those who have jobs to pay rent and feed their families. Housing is expensive and affordable housing is not being produced in large enough quantities to reduce the costs of housing. Affordable housing is hard to build because many homeowners resist having it built in their neighborhoods. When land is found, it is often too expensive for the builder to make a profit with low rents. The cost of construction is often higher than it needs to be because of high land prices, building code requirements, or rezoning needed to allow multifamily housing.

Education in America is not meeting the needs of its citizens.

School availability is not well enough managed to ensure education for all who live in America. Sex education and contraception are being discouraged in school, which is a foolish, self-destructive societal mistake. Healthcare is too expensive for many Americans with low incomes which compounds the health problems of the poor who cannot afford either medical service or treatment. Grinding poverty causes some to seek relief through drugs which increases medical problems and further aggravates inequality being fed by an illicit industry that is growing in America. Drug abuse kills Americans in many ways; not the least of which is addiction and poverty.

The history of American income inequality is burdened by forms of racism and sexual discrimination that do not treat people equally.

Jobs are changing with automation and outsourcing of goods produced by an international economy. American government has failed to create policies that help those who need more help. As one of the wealthiest nations in the world, America has been incapable of solving the spread of poverty among its citizens.

In reading/listening to Desmond’s research, it seems like there is an American conspiracy making one of the wealthiest countries in the world incapable of solving the housing, education, and employment problems of its citizens.

INDUSTRY GREED

Sir John Anderson Kay calls for more training in ethical behavior and fiduciary responsibility in the financial industry. Kay believes “too big to fail” financial institutions should be broken up to reduce risk and encourage competition.

Books of Interest
Website: chetyarbrough.

Other People’s Money (The Real Business of Finance)

By: John Kay

Narrated By: Walter Dixon

Sir John Anerson Kay (Author, CBE, FRSE, FBA, FAcSS, British economist, dean of Oxford’s Said Business School.)

John Kay explains how the world’s finance system was designed to support national economies and international trade. However, he argues the world’s financial system, though designed to improve the lives of everyone, has evolved into a system that primarily benefits those within the financial industry, not everyone.

Kay offers the example of Ponzi schemes like that created by Bernie Madoff, and mortgage derivatives created by financial quants. Unlike Madoff’s personal enrichment, the financial industry’s’ mortgage derivatives enriched mortgage lenders, banks and brokers who sold them to other financial institutions like hedge funds, investment banks, mutual funds, foreign and retail investors. Mortgage derivatives were a national Ponzi scheme, greater than Madoff’s, that only enriched the financial industry. In 2008, the financial industry nearly bankrupted the world. The finance managers served no jail time while poorly qualified homeowners were thrown into the street because they could not afford their home mortgages.

What is puzzling is how so many people lost their homes in 2008 despite government regulation of the financial industry, which was ostensibly designed to protect consumers and stabilize the housing market.

“Other People’s Money” is managed by financial institutions that have nothing to lose if other people’s money is lost. A poor finance industry manager might lose his/her job because of poor sales received for selling financial products to other financial companies. However, if their sales are good, huge bonuses are given to top earners. Kay notes three faults in this system. One, it is a closed system that primarily feeds on itself as an industry. Two, the product of sale can as easily be worthless as valuable. And three, the money that is being used is primarily the public’s money, not the financial industries’ money. Mortgage derivatives became weapons of mass financial destruction. The public suffered more than the financial industry for the obvious reason that it was the public’s money.

In theory client funds are kept separate from a firm’s own assets. Though that may be true, the equity of lenders is small in relation to the loans made to others because the loan actually comes from “Other People’s Money”, i.e., those who deposit their paychecks in a financial institution. There are government entities like the SEC in the US that enforce separation of a lender’s equity from other people’s money but so what? Other people’s money is the bulk of what is lent out to others.

An example of the perfidy of the financial industry is the creation of mortgage derivatives that resulted in big bonuses to financial industry employees while many American citizens lost their homes.

Government regulations require record-keeping, transparency and risk management. So why did so many people lose their homes in 2008 while lenders were bailed out? If the Government regulated how other people’s money was being invested, how did the 2008 mortgage crises occur? It occurred because of the way the financial industry is regulated and the greed of financial institutions in selling a product that had less value than realized until it was too late. The fault within the industry grew bigger based on the packaging and resale of other people’s money in a product that became worthless.

The point is that there is little equity from money lenders that use “Other People’s Money” to invest in the economy. Financial institutions are required to have as little as 4.5 percent to 6 percent equity in loans for what they lend to others. The remainder is “Other People’s Money”. Most of the risk of institutionally loaned money is born by the public. Of course, there are insurance guarantees from the government, but they are limited.

Kay notes financial industries are motivated to expand their businesses by capitalizing on short-term gains for profit rather than long-term stability and growth.

Kay goes on to explain that financial institutions are the biggest contributors to candidates for public office. Just as the Supreme Court’s decision to give corporations personhood, the influence of corporate America distorts the influence of American citizens. Naturally, financial institutions push for favorable regulations designed to benefit owners and managers of the finance industry. He explains how financial risk is designed to fall back on taxpayers and less informed investors. Because financing institution managers are using other people’s money, they are more concerned about lender profit and their bonuses than loan default. Kay suggests there is a lack of transparency that hides the exploitive nature of lending that has minimal personal risk to lending institutions, its managers, and loan officers.

Kay argues financial products and services need to be simplified and made more transparent so consumers can understand how lending institutions and insiders are benefiting from their transactions.

Kay explains the primary functions of the financial industry should be focused on making payments simple with clearer explanations of risks so that capital is efficiently and wisely allocated. Government oversight should be exercised to promote transparency, accountability and long-term stability of the economy. Training in ethical behavior and financial responsibility is needed for agents of the financial industry so that incentives and rewards balance with the needs of the economy.

Kay notes there is nothing in the way of another financial crises like the 2008 debacle.

Kay suggests regulatory reform is necessary with greater transparency, and accountability for long term financial stability. He calls for more training in ethical behavior and fiduciary responsibility in the financial industry. Kay believes “too big to fail” financial institutions should be broken up to reduce risk and encourage competition.

THE DISMAL SCIENCE

It appears to this listener/reader, the rise of authoritarianism in the world today lays at the feet of Marx and, to a lesser extent, von Mises’ economic theories.

Books of Interest
Website: chetyarbrough.blog

Human Action: A Treatise on Economics

By: Ludwig von Mises

Narrated By: Jeff Riggenbach

Ludwig von Mises (Austrian-American economist, logician, sociologist, and philosopher. 1881-1973, died at age 92.)

Economics is defined as a social science that studies how individuals, businesses, governments, and societies allocate resources to satisfy the needs and desires of a community of people. Historically, one of the greatest explainers of this social science is Ludwig von Mises. Maturing at a time of the communist revolution, the advance of capitalism and both world wars, von-Mises offers one of the greatest books about economics since Adam Smith. The only economist of greater significance is Adam Smith (1723-1790) because of his origination of the principles of economics. Close behind are Karl Marx (1818-1883), and John Maynard Keynes (1883-1946).

KARL MARX (BORN TRIER, GERMANY 1818-DIED LONDON, ENGLAND 1883)

Of course, all economists are beholding to Adam Smith with his original conception of the dismal science. Smith conceived of the “invisible hand” of economics that postulated self-interest as the primary contributor to the overall good of society. Von Mises seems to guardedly agree but suggests self-interest’ market pricing can artificially distort distribution of economic resources. Von Mises infers the “invisible hand” is inefficient at the least and may artificially distort prices in the hands of authoritarian governments and business monopolies. Karl Marx suggests the invisible hand would evolve into a production system that would be owned by the public to ensure equality of distribution in an evolutionary economy that passes from capitalism to socialism, and finally communism. Marx argues self-interest will evolve into a common interest for all. Marx’s idea of change in the nature of human beings beggars the imagination.

Smith supported limited government intervention to maintain justice, defense, and public works.

Both Smith and Marx believed in a “labor theory of value” which argues the value of a commodity is determined by the labor required to produce it. Where Smith and Marx depart is in government enforcement of a balance between labor and the cost of goods. Von Mises opposed most forms of governmental intervention in the economy. However, Keynes argues government intervention is necessary during economic downturns. After WWII, Keynes theory became an important part of the American government’s support of European reconstruction.

Von Mises believed in human individualism which carries the risk of authoritarian domination.

Von Mises believed in human individualism while Smith and Keynes support limited government intervention. Marx argues human nature could be shaped by a melding of government dictatorship with societal pressures to support communal goals.

None of the economists seem to fully understand human nature will always get in the way of economic growth.

At extremes, von Mises endorses individualism and Marx endorses dictatorship. The middle ground seems held by Adam Smith and John Maynard Keynes that endorse limited government intervention. It appears to this listener/reader, the rise of authoritarianism in the world today lays at the feet of Marx and, to a lesser extent, von Mises’ economic theories.

The length and value of von Mises’ book overwhelms a non-economist listener with his esoteric statistical and lengthy explanations of economic theory. However, comparison with a dilatant’s understanding of other renown economists is enlightening.

FOUR MORE YEARS

Andrew Leigh’s brief history of economics reminds listeners of a threat America faces in the next four years.

Books of Interest
Website: chetyarbrough.blog

How Economics Explains the World (A Short History of Humanity)

By: Andrew Leigh

Narrated By: Stephen Graybill

Andrew Leigh (Author, Australian politician, lawyer, former professor of economics at the Australian National University, currently serving as Assistant Minister for Competition, Charities and Treasury and Assistant Minister for Employment in Australia.)

Andrew Leigh offers a bird’s eye view of the history of economics. He provocatively explains why the European continent, rather than Africa (the birthplace of the human race) came to dominate the world. He suggests it is because of economics and the dynamics of the agricultural revolution.

Because Africa offered a more conducive environment for natural food production, Leigh infers natives could live off the fruits and nuts of nature. He infers farming and agricultural innovations (like the plow) were of little interest to Africans.

One may be skeptical of that reasoning and suggest the primary cause is sparse arable land for early African inhabitants. Without arable land, there was little advantage from the agricultural revolution.

Nevertheless, Leigh’s history is a wonderful reminder of great economic theories that improved the lives of an estimated 8.2 billion people on this planet. He touches on the lives of Adam Smith, David Ricardo, John Maynard Keynes, and Milton Friedman. Each made great contributions to the history of western economics.

Adam Smith is considered the father of modern economics. (1723-1790)

Leigh notes Smith was a deep thinker who sometimes neglected the world he lived in by forgetting to properly dress himself or falling into a hole while thinking about economic theories. Some of his key theories were “Division of Labor”, the “Invisible Hand”, “Labour Theory of Value”, “Free Markets and Competition”, and “Capital Accumulation”; all of which remain relevant today. One that seems so important today is “Free Markets and Competition” and the disastrous idea of tariffs that are being promoted by the pending Trump administration.

Smith notes natural resources are not equally distributed in the world. Some countries have more raw material than others, more available labor at a lower cost, and can produce product at lower prices. With free trade, all citizens of the world are benefited by lower costs of goods. With tariffs, product costs are artificially increased when they could reflect actual costs of production. Of course, the producer can increase costs, but the market will find an alternative if the costs become too high.

David Ricardo (1772-1823)

Ricardo’s theory of competitive advantage suggests some countries can produce product at less cost than others. This reinforces the critical importance of free trade. Free trade flies in the face of both the Biden’s passing administration and Trump’s future administration; both of which believe tariffs protect jobs in America. They don’t; because tariffs artificially increase product costs while protecting labor inefficiency that increases consumer prices. Tariffs are a lose-lose proposition. It may affect jobs in the short term but there are many jobs that can be created by government and private companies in human and public service industries. Those investments would offset inefficient product production and ensure future jobs.

John Maynard Keynes (1883-1946)

Leigh notes that Keynes was bisexual and a pivotal figure in modern economics. He believed in the theory of Aggregate Demand meaning that “…spending in an economy is the primary driver of economic growth.” He advocated government intervention when demand was low, and that government should increase spending and cut taxes to increase demand when a recession or depression threatens the health and welfare of the public. Interestingly, Trump believes in reducing taxes but objects to government spending that improves employment. The effect of reducing taxes only increases income inequality and does little for employment because the rich are wary of investing in a weakening economy.

Milton Friedman (1912-2006)

Both Keynes and Friedman believe in government intervention, but Friedman exclusively believes in using only monetarism as a tool. Keynes agrees but had the added dimension of government spending that creates jobs. In contrast, Friedman argues there is a natural rate of unemployment and when government intervenes it creates inflation. He strongly agreed with free markets which suggests he would be against tariffs but at the expense of higher unemployment. The cloying part of that argument is it increases income inequality by making the rich richer, the unemployed and middle-class worker poorer.

Leigh’s book is a brief review of western economics. It glosses over much of the science, but it is highly entertaining and worth listening to more than once. Additionally, Andrew Leigh’s brief history of economics reminds listeners of a threat America faces in the next four years.

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