Bill Black: What I'd Demand of the Fed - Fire Bernanke and Geithner

I think this is a superb list, but a bit misdirected, because as is obvious from my title, the advice ought not to go to the Fed, but to the government in Washington. Timmy is Ben's colleague and quasi-boss, and the problems are intertwined.

That takes nothing from Bill Black who would be an appropriate choice to head one of the big regulatory agencies. And it is unlikely that Obama would appoint him.

The Fed is a critical part of the problem, and is unable to reform itself because it is owned by the banks and the monied interests.

But so is Washington. And that is a matter for a much deeper discussion on the crying need for serious political reform, and how it might be achieved.

They will throw out a landscaper's nightmare of tangled branches, but the key is to strike at the root of it, which is campaign finance reform and the access to power of organized money, and the personal benefits received therein by politicians.

This may not happen now, and the pampered princes of the political aristocracy may put it off yet again. But it will almost certainly happen, one way or the other, after the next financial crisis.

The tragedy is that much of this is within Obama's reach, despite his problems with a fanatical element in the Congress. His priority now is four more years, and to accomplish that he is taking money and orders from the Wall Street bankers.

The State of Economics: On the Seduction of Science in the Service of Power

"Tyranny is always better organized than freedom."

Charles Peguy

This essay by John Kay excerpted below is a nice summary of the problem we have in modern economics. It may be a bit dry for the layman, but it touches on the distortions that crept in to economic thought and their intellectual sources, and in particular the operational rather than political means.

I do not think it was unintentional.  Economics has served to distort public policy and blind people to their unfolding reality. Investments in think tanks and universities encouraged and paid for misleading reports and studies, draping propaganda in the faux garments of respectable academia and science.

This is certainly not the first time this sort of thing has happened. Medicine has a rather checkered history in service to power. These types of distortions can of course cut both ways, and science has been used to justify abuses from all ends of the political spectrum.

Economics and other sciences are no fair substitutes for a priori objectives in the creation of sound public policy. Policy is not an outcome of economic science, but rather, policy is set and renewed from first principles, a commitment to certain ideals and common objectives. Economics and other sciences play a role in shaping the details of implementation. But we must revisit and determine the effect which those details have on the achievement of first principles which are the sine qua non.

In other words, economics does not dictate anything.  It suggests differences and forecasts outcomes.  But there is no economic principle that says that we must disregard the role of regulation and the fostering of well being in society because the market dictates that it must be done.  This is sophistry and rubbish.

Unfortunately we must sift all the opinions and inputs to policy decisions with care, and especially the assumptions on which they are based, because the professions have shown a willingness to misrepresent, distort, and even lie for money and power.

One must always come back to first principles, to some notion of what they, and by extension their community, wish to be. Is the first principle of the US the maximizing of profit? By what measures, and to whom? Or is it something else again.

This philosophical notion that the end of all human activity is the maximization of profit is one of the most pernicious assumptions in all history.  It is the antithesis of all that is human.

This is the question that the protesters of Occupy Wall Street are asking in their own inarticulated way. People of the status quo say, 'What do they want? What is their desire?' No, it is the protesters who are asking the question of those comfortable people in their power. 'Where are we going?'  If they have any statement to make, it is that 'The Emperor has no clothes.'

And since the modern day Emperors do not wish to, or cannot, answer the people plainly and honestly, having only their tired old lies, they become uncomfortable and afraid. Instead they ignore, ridicule, and silence the question, offering new lies and scapegoats, claiming that all is well. And it is, at least for them.

If the people are ignored and abused long enough they will stop asking questions and begin to make demands and push them forward, and then it may be too late as these sort of social movements tend to obtain their own momentum.

Economics is a discredited science at the moment. A few practitioners sold its soul and honor to a small group of wealthy ideologues while the great majority remained silent. But certainly no more discredited than the doctors who served the policies of euthanasia or the Russian abuse of psychiatric wards. It is sad but true, that when the destroyers of civilization appear on the horizon, the quantitative sciences and their purveyors are often seen swimming out to meet the boats.

Those who promoted false theories and dreadfully ineffective policies in return for power and money  are still at work, and the results of their betrayal of conscience will be measured in piles of dead bodies, and a mass of broken dreams.

The answer is not to turn away from knowledge, and embrace a hatred of science like a new crop of passionate know-nothings.  Science has its proper place. But it is not at the top, dictating outcomes in the social world like the answers to irrefutable equations. And it is especially good that we remember this when science is abused, and used to justify cruelty, selfishness, and plunder.

"The preposterous claim that deviations from market efficiency were not only irrelevant to the recent crisis but could never be relevant is the product of an environment in which deduction has driven out induction and ideology has taken over from observation.

The belief that models are not just useful tools but also are capable of yielding comprehensive and universal descriptions of the world has blinded its proponents to realities that have been staring them in the face. That blindness was an element in our present crisis, and conditions our still ineffectual responses.

Economists – in government agencies as well as universities – were obsessively playing Grand Theft Auto while the world around them was falling apart."

John Kay, An Essay on the State of Economics

This intellectual and financial decline traces back perhaps to the closing of the gold window by Nixon, and the rise of the willful relativism of value with fiat money.  But more important is the subsequent rise of the financialization industry, under the flag of efficient markets and deregulation and globalization.

The country once again became gripped by a preoccupation with aggregating wealth from the real economy by manipulating paper. Not only were there real direct effects, but there were profound long term effects through the malinvestment and diversion of strategic resources.   And the absolute worst of it has come from the  most powerful corporations and those who serve them.

As Satyajit Das puts it in a book interview:

"The best and brightest went into finance because... it paid better than every other profession. So we had this whole generation of people — who would have been great scientists, great doctors, great creators of other things — attracted to a business which ultimately only provided, to a substantial degree, toxic waste. And that is the tragedy of our time. ... It was this diversion of enormous amounts of talent."

People can point to select innovations like Facebook and the iPod, but in fact America's technical and physical infrastructure has been distorted, and has languished, because public policy unleashed the financiers, the money magicians, and then became captive to them. And they have willfully led the country into a lingering period of decline.

I hope to have no illusions.  Those who give themselves over to the dark impulses of their imagination often prove more impervious to reason with each victory. 

No one knows how this will turn out yet. There is always hope against forces that seem far too powerful at the moment. And tyranny is always better organized than freedom.

Some inquiring student may read this little morsel of thought, and if his mind is provoked, a flickering light of truth will be struck from that spark, about the corruptibility of even the best, about the dark hearts of predators who walk among us, and about the danger of too much power in too few hands.

If not now, then perhaps in some better tomorrow. Nothing is ever wasted in God's economy.

Jon Stewart: Mainstream Media Coverage of 'Occupy Wall Street'

The next two years will be a bonanza for satirists.

I have concluded from my reading of history that the greatest periods of change, the turning points, are best marked by and most notable for the remarkable inability, and sometimes tragic failure, of contemporary observers to understand them.

They do not see their causes, and fail to mark their progress and direction, in the time at which they happen. The big moments in history are written with letters so immense that they are perceptible only to the most ingenious minds of the day, and by the rest at a much more considerable distance, if even then.

Commercial first, then enjoy the show.

In a similar vein, here is a video interview about financial reform and Occupy Wall Street with with Chris Hedges on the CBC