SP 500 and NDX Futures Daily Charts - Blue Skies

Non-Farm Payrolls tomorrow.  The market is expecting 163K jobs added on the headline.  It is hard to tell how they will spin a big miss or a number on the high side.  I am looking for a potential head fake in the futures, maybe a typical 'three step' before they settle on something for the morning.  As for the afternoon, who can say?

The equity market has ended positive on 14 of the last 15 Non-Farm Payroll Reports. 

I picked up a little volatility just on the if come.  But actually shorting this market looks like a long shot, even if you call it a contrarian move, primarily based on monetary expansion.   

If you have not noticed, being a bear in an asset bubble backed by the Fed put is not a constructive profession.  I have paid for a graduate degree in that subject.   Being servants to power, their hypocrisy knows no bounds.

My real play is now in precious metals for the intermediate and long term as you may have gathered.  It gives me something to do while watching the currency war unfold.

Have a pleasant evening.

The State of Modern Economics and Politics: The Credibility Trap

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair


"A hypocrite despises those whom he deceives, but has no respect for himself. He would make a dupe of himself too, if he could."

William Hazlitt


"Tyranny is always better organized than freedom."

Charles Peguy

And its faithful servants often have more titles and access to power as well, common born, otherwise undistinguished, but uncommonly well pedigreed, having been confirmed by Mammon to all that this entitles: money, success, fame, glamour.

The single biggest impediment to reform is that no one in the status quo wishes to admit that they were wrong. And especially if they were wrong having been prompted by considerations of personal gain, reputation, or career. This is what is known as the credibility trap. Those who can best effect a reform cannot even admit to the problem, because they fear that they themselves are in some way complicit in it, either by their actions or their silence.

The fear of losing credibility prevents those in power from doing anything to effectively reform the system once it has gone off the rails. Credibility is confidence, a faith in someone or something based on accomplishment and credentials. And those who have been in power may be implicated in the disaster, either directly or indirectly, and suffer a loss of loss of wealth, reputation, or power.

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 entirely 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.

How else can one explain the general acceptance of the 'the efficient market hypothesis,' the fallacy of which is palpably obvious to anyone who has ever driven on a modern expressway or gone to a major sale at a department store? 

People are not always serenely rational, acting for the greatest good, limited in their appetites, and respectfully self-regulating.  And what makes this belief especially pernicious it that those who have the most  power are often the worst, because this is how they have obtained that power in the first place.  In the light of history, such a belief is madness.  And yet this unmistakably utopian theory went unchallenged, shaping public policy for decades, and still lingers on as a major political influence.

Oh no, they say.  You are confused.  It is not the individual that is perfect, but the market, which is a collection of individuals all balancing each other out, achieving perfectibility.

Well, another name for a large collection of people is a mob, and we certainly have seen the effects of mob rule in our financial markets since this great Enlightenment burst forth, of the natural wisdom, of people acting in herds, being driven by jackals.  Brilliant.

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 were 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. 'What is this madness?  Where are we going?'  If they have any statement to make, it is that 'The Emperor has no clothes.'  Their protests are wasted on those who are barely self-aware, much less willfully blind.

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, the professionals, are often seen swimming out to meet the boat.

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, and is in decline, 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 stagnation.  The private sector serves none but itself, and often shockingly narrow and short term interests.

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.

This is a reprise of an essay originally published in 7 October 2011, with some minor editing.


And if you will not learn from goodness and reason, then learn from this:

From the foldings of its robe, it brought two children; wretched, abject, frightful, hideous, miserable. They knelt down at its feet, and clung upon the outside of its garment.

"Oh Man! look here. Look, look down here!" exclaimed the Ghost.

They were a boy and a girl. Yellow, meagre, ragged, scowling, wolfish but prostrate too in their humility. Where graceful youth should have filled their features out, and touched them with its freshest tints, a stale and shrivelled hand, like that of age, had pinched and twisted them and pulled them into shreds. Where angels might have sat enthroned, devils lurked, and glared out menacing. No change, no degradation, no perversion of humanity, in any grade through all the mysteries of wonderful creation, has monsters half so horrible and dread.

Scrooge started back, appalled. Having them shewn to him in this way, he tried to say, they were fine children, but the words choked themselves, rather than be parties to a lie of such enormous magnitude.

"Spirit! are they yours?" Scrooge could say no more.

"They are Man's," said the Spirit, looking down upon them. "And they cling to me, appealing from their fathers. This boy is Ignorance. This girl is Want. Beware them both, and all of their degree, but most of all beware this boy, for on his brow I see that written which is Doom, unless the writing be erased. Deny it!" cried the Spirit, stretching out its hand towards the City. "Slander those who tell it ye! Admit it for your factious purposes, and make it worse! And bide the end!"

Charles Dickens, A Christmas Carol

Lessons From the Panic of 1907

I have just finished reading The Panic of 1907: Lessons Learned from the Market's Perfect Storm, written by Robert Bruner and Sean Carr in 2007. It is an extraordinarily well documented, step by step study of one of the worst bank panics and stock market crashes in modern times.  The broad stock market declined 37% from peak to trough in less than 15 months.

Here is an extended quote from the authors' closing remarks.

"Why do markets crash and bank panics occur? Any single case study, such as the one we have presented here, is subject to a range of interpretations, and we encourage the reader to draw one's own conclusions from the foregoing narrative.

Yet we think that the story of the panic and crash of 1907 inspires consideration that major financial crises can be the result of a convergence of certain unique forces - the forces of the market's perfect storm - that cause investors and depositors to act with alarm.

The recounting of the events of 1907 suggests that the storm gathers as follows.

It begins with a highly complex financial system, whose very complexity makes it difficult for anyone to know what might be going wrong; by definition, the multiple parts of the financial system are linked, which means that trouble in one institution, city, or region can travel easily and quickly to others.

Buoyant growth in the economy makes the financials system more fragile, in part due to the demand for capital and in part due to the tendency of some institutions to take on more risk than is prudent.

Leaders in government and the financials sector implement policies that advertently or inadvertently increase the exposure to risk of crisis.

An economic shock hits the financials system. The mood of the market swings from optimism to pessimism, create a self-reinforcing downward spiral. Collective action by leaders can arrest the spiral, though the speed and effectiveness which they act ultimately determines the length and severity of the crisis."

My own reaction to the Panic of 1907 which they document so well is similar, except for a different emphasis on certain factors and a slightly different slant on their development, based on my own extensive readings about other panics and crashes, including a first hand look at the tech bubble collapse of 2001.

First, almost all panics and crashes are preceded by sustained periods of artificial growth, not based on improvements in productivity, but by a false expansion in the money system, aided and abetted by speculators and financiers. Although they do not act in overt cooperation, yet there is an unmistakable collusion of purpose. It suggests that the impulse to benefit in this way is present in a portion of the people at all times, as there are impulses to do many other things for personal benefit without regard to the public good. But at certain times the prohibitions which normally hold this behaviour in check are weakened, sometimes through active interventions against regulation, at other times from a decline in moral conscience.

Seocnd, almost all panics and crashes involves relatively small groups of people who seem to be at the heart of the matter, and are closely interlinked into small cartels of corrupted self-dealing involving the accumulation of enormous personal fortunes. One is struck by the interconnectedness of the primary players in the Panic of 1907 in each others companies, banks, investments, and boards of directors.

In this instance there did not seem to be any significant corruption of the government, which was actually in a progressive mood under Theodore Roosevelt, although he was by now a lame duck. Rather, the central government at this time was weak, and regulation was largely in the hands of the business principals, of which no greater example than J. Pierpont Morgan. They will act to protect their own interests when threatened, but their benevolent reputations are greatly exaggerated.

Lastly, there is always the overextension of credit and excessive leverage. Always. This is how any Ponzi scheme grows.  In every case this is what precedes and precipitates the growth of a crisis and panic - the unreasonable overvaluation and expansion of assets precipitated by a relatively small number of men, interlinked loosely through business associations and personal financial gain.

As in the case of 1907 and its aftermath, a few visible persons are offered up for punishment and destruction, but the largest and most substantial of the predators remain unscathed, often being lionized as saviours who attempted the rescue of the nation from a few bad apples and the public from its own folly.

Although the authors make a great deal of the need to take swift and decisive action to stem the crisis, they miss the point that the place to stop this is before the leverage and excess build to the point where almost anything will set the overextended system into crisis and panic. Even if decisive action is taken, it is the greater public that is invariably harmed by the cure, with a few becoming even more enriched, although the harm be less than if nothing had been done at all. By the time the crisis is underway, you will be making deals of convenience, and at terms with the devil.

It should be stressed that there is no evidence in the correspondence of any of the principals that they desired to cause this Panic of 1907 for their own benefit. And there does not have to be.

If a general atmosphere of looting is fostered by the provocations of a few like-minded individuals, their subsequent actions need no coordination, other than the insufficient response of society to stop them before they gain sufficient momentum from their desires. It is the apathy and weakness of the many that provides the stimulus and the encouragement for their plans.

The authors recount the subsequent meeting of many of the principals at Jekyll Island in 1910, to craft a reform of the banking system to be later known as The Federal Reserve System.

I do not see anything in the system itself that is improper or malignant; it is only in it ability to increase and amplify leverage in secret and without equanimity that makes it a powerful tool for like-minded individuals to seek to defraud the many of their life savings through unscrupulous abuse of anything and everything that comes under their power and control.

If you wish to take the measure of a society, look to how its weakest members are protected from its strongest, and its predators skulking at the fringes.

More concisely, you will receive the results that you incent, the behaviours that you cultivate, the society that you promote, if only by doing nothing and allowing small groups of like-minded individuals to set your greater agenda. We have seen this repeatedly in companies both large and small, in entire industries, and we think in the national economy.

If you wish a hell on earth, do nothing for the benefit of others, for the greater good, or to inhibit those who act solely out of greed, fear, and hate. Soon enough you will have a society that is intensely self-interested, self-concerned, superficial, destructive and self-consuming.

A free and just society is not a prize to be won or a gift that can be bestowed; it is a recurring commitment, and an enduring obligation.

This is a reprise of a blog entry originally published here on 5 July 2008.  It seems remarkably appropriate today.

That such economic disaster is promulgated by official corruption and the general belief that morality and justice are merely quaint notions is nothing new.   If you have not done so you might read A. H. Beasley's description of Rome prior to the rise of the Gracchi brothers, Marius and Sulla, which I included in a recent blog entry here.

Gold Daily and Silver Weekly Charts - They Make a Desert, and Call It Peace

"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas.

The wealth of another region excites their greed; and if it is weak, their lust for power. Nothing from the rising to the setting of the sun is enough for them.  Among all others only they are compelled to attack the poor as well as the rich.

Robbery, rape, and slaughter they falsely call empire; and where they create a desolate wasteland, they call it peace."

Tacitus, Calgacus' Speech from Agricola

Perhaps Calgacus was anticipating the rise of the predatory financial class and their Banks.  They seem to be almost unparalleled in their global power and reach, as well as their lack of self-awareness, and arrogance.

Gold and silver bounced back a little today, but from the charts it is clear that they are now working once again on an important overhead resistance level that marks a key 'neckline' in a series of inverse head and shoulder formations.

We may see quite a bit of sideways chop for the month of March, in anticipation of the next active delivery month of April.

Friday is another Non-Farm Payrolls report, which is often a magnet for market antics.  If the big trading desks cannot shove the price of gold lower, then we might have some indirect confirmation that the shortage of physical gold from the huge transfer of bullion to Asia is starting to bite into the cartel's ability to shove the paper markets around with their position size and leverage. 

There was no movement of bullion in or out of the Comex warehouses yesterday.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Non-Farm Payrolls Report on Friday

"When in any country the small-farmer class is being squeezed off the land; when its labourers are slaves or serfs; when huge tracts are kept waste to minister to pleasure; when the shibboleth of art is on every man's lips, but ideas of true beauty in very few men's souls; when the business-sharper is the greatest man in the city, and lords it even in the law courts; when class-magistrates, bidding for high office, deal out justice according to the rank of the criminal; when exchanges are turned into great gambling-houses, and senators and men of title are the chief gamblers; when, in short, 'corruption is universal, when there is increasing audacity, increasing greed, increasing fraud, increasing impurity, and these are fed by increasing indulgence and ostentation; when a considerable number of trials in the courts of law bring out the fact that the country in general is now regarded as a prey, upon which any number of vultures, scenting it from afar, may safely light and securely gorge themselves; when the foul tribe is amply replenished by its congeners at home, and foreign invaders find any number of men, bearing good names, ready to assist them in robberies far more cruel and sweeping than those of the footpad or burglar -- when such is the tone of society, and such the idols before which it bends, a nation must be fast going down hill.

A more repulsive picture can hardly be imagined. A mob, a moneyed class, and an aristocracy almost equally worthless, hating each other, and hated by the rest of the world; Italians bitterly jealous of Romans, and only in better plight than the provinces beyond the sea;  more miserable than either, swarms of slaves beginning to brood over revenge as a solace to their sufferings; the land going out of cultivation; native industry swamped by slave-grown imports; the population decreasing; the army degenerating; wars waged as a speculation, but only against the weak; provinces subjected to organized pillage; in the metropolis childish superstition, wholesale luxury, and monstrous vice.

The hour for reform was surely come. Who was to be the man?"

A.H. Beesley, The Gracchi Marius and Sulla, 1921

Stocks shook off the miss in the ISM Service number, and the weaker than expected ADP jobs number, including a huge downward revision in the prior month's number.

There will be a Non-Farm Payrolls report on Friday.   I expect it will be weak, and that weakness will be blamed on the weather.  The Recovery™ will ask to be given a snow day.

It is hard to figure out which way the market will spin this.   Will they view it as a threat to the recovery and consumer demand, or a sign of more Fed largess that will continue to boost financial paper, if not the real economy?  

I suspect the reaction will be largely 'technical' and driven by the large trading desks in a standard wash and rinse of the stock owning public and their institutional proxies. 

The only thing efficient about this market is its extraction of wealth from productive activities to underserving insiders.

Have a pleasant evening.

Sheldon Wolin: Inverted Totalitarianism and the Rise of the Corporatist Neo-Cons

“The enormous gap between what US leaders do in the world and what Americans think their leaders are doing is one of the great propaganda accomplishments of the dominant political mythology.”

Michael Parenti

Note that Sheldon Wolin wrote his essay and book referenced below long before the revelations about the surveillance state, and the bailout and ongoing subsidy of the corporate financial sector by the Treasury and Federal Reserve, with the proposed counterbalance being the imposition of austerity on the greater public, and the confiscation of private savings first through monetary inflation with carefully targeted distribution, preferential immunities, and then through ongoing subsidies and bail-ins.

Although I enjoy Parenti's insight, I think an even greater propaganda accomplishment has been to distort and twist the dissident impulse of a free people into the ironically named libertarian support for dominance of the many by a powerful few, and the subservience of the individual to the corporate State, totalitarianism by another name and shape, but to essentially the same effect. Orwell or Bernays could have not imagined it any better.

And of course, the far left is no better in its elevation of the central power over the rights and integrity of the individual.  Human beings are always an endangered species in times of great change and political polarization.

The Nation
Inverted Totalitarianism
By Sheldon Wolin
May 1, 2003

The war on Iraq has so monopolized public attention as to obscure the regime change taking place in the Homeland. We may have invaded Iraq to bring in democracy and bring down a totalitarian regime, but in the process our own system may be moving closer to the latter and further weakening the former.

The change has been intimated by the sudden popularity of two political terms rarely applied earlier to the American political system. "Empire" and "superpower" both suggest that a new system of power, concentrated and expansive, has come into existence and supplanted the old terms. "Empire" and "superpower" accurately symbolize the projection of American power abroad, but for that reason they obscure the internal consequences.

Consider how odd it would sound if we were to refer to "the Constitution of the American Empire" or "superpower democracy." The reason they ring false is that "constitution" signifies limitations on power, while "democracy" commonly refers to the active involvement of citizens with their government and the responsiveness of government to its citizens. For their part, "empire" and "superpower" stand for the surpassing of limits and the dwarfing of the citizenry.

The increasing power of the state and the declining power of institutions intended to control it has been in the making for some time. The party system is a notorious example. The Republicans have emerged as a unique phenomenon in American history of a fervently doctrinal party, zealous, ruthless, antidemocratic and boasting a near majority. As Republicans have become more ideologically intolerant, the Democrats have shrugged off the liberal label and their critical reform-minded constituencies to embrace centrism and footnote the end of ideology.

In ceasing to be a genuine opposition party the Democrats have smoothed the road to power of a party more than eager to use it to promote empire abroad and corporate power at home. Bear in mind that a ruthless, ideologically driven party with a mass base was a crucial element in all of the twentieth-century regimes seeking total power.

Representative institutions no longer represent voters. Instead, they have been short-circuited, steadily corrupted by an institutionalized system of bribery that renders them responsive to powerful interest groups whose constituencies are the major corporations and wealthiest Americans. The courts, in turn, when they are not increasingly handmaidens of corporate power, are consistently deferential to the claims of national security.

Elections have become heavily subsidized non-events that typically attract at best merely half of an electorate whose information about foreign and domestic politics is filtered through corporate-dominated media. Citizens are manipulated into a nervous state by the media's reports of rampant crime and terrorist networks, by thinly veiled threats of the Attorney General and by their own fears about unemployment. What is crucially important here is not only the expansion of governmental power but the inevitable discrediting of constitutional limitations and institutional processes that discourages the citizenry and leaves them politically apathetic.

No doubt these remarks will be dismissed by some as alarmist, but I want to go further and name the emergent political system "inverted totalitarianism." By inverted I mean that while the current system and its operatives share with Nazism the aspiration toward unlimited power and aggressive expansionism, their methods and actions seem upside down. For example, in Weimar Germany, before the Nazis took power, the "streets" were dominated by totalitarian-oriented gangs of toughs, and whatever there was of democracy was confined to the government. In the United States, however, it is the streets where democracy is most alive--while the real danger lies with an increasingly unbridled government.

Or another example of the inversion: Under Nazi rule there was never any doubt about "big business" being subordinated to the political regime. In the United States, however, it has been apparent for decades that corporate power has become so predominant in the political establishment, particularly in the Republican Party, and so dominant in its influence over policy, as to suggest a role inversion the exact opposite of the Nazis'. At the same time, it is corporate power, as the representative of the dynamic of capitalism and of the ever-expanding power made available by the integration of science and technology with the structure of capitalism, that produces the totalizing drive that, under the Nazis, was supplied by ideological notions such as Lebensraum.

In rebuttal it will be said that there is no domestic equivalent to the Nazi regime of torture, concentration camps or other instruments of terror. But we should remember that for the most part, Nazi terror was not applied to the population generally; rather, the aim was to promote a certain type of shadowy fear--rumors of torture--that would aid in managing and manipulating the populace. Stated positively, the Nazis wanted a mobilized society eager to support endless warfare, expansion and sacrifice for the nation.

While the Nazi totalitarianism strove to give the masses a sense of collective power and strength, Kraft durch Freude ("Strength through joy"), inverted totalitarianism promotes a sense of weakness, of collective futility. While the Nazis wanted a continuously mobilized society that would not only support the regime without complaint and enthusiastically vote "yes" at the periodic plebiscites, inverted totalitarianism wants a politically demobilized society that hardly votes at all. Recall the President's words immediately after the horrendous events of September 11: "Unite, consume and fly," he told the anxious citizenry. Having assimilated terrorism to a "war," he avoided doing what democratic leaders customarily do during wartime: mobilize the citizenry, warn it of impending sacrifices and exhort all citizens to join the "war effort."

Instead, inverted totalitarianism has its own means of promoting generalized fear; not only by sudden "alerts" and periodic announcements about recently discovered terrorist cells or the arrest of shadowy figures or the publicized heavy-handed treatment of aliens and the Devil's Island that is Guantánamo Bay or the sudden fascination with interrogation methods that employ or border on torture, but by a pervasive atmosphere of fear abetted by a corporate economy of ruthless downsizing, withdrawal or reduction of pension and health benefits; a corporate political system that relentlessly threatens to privatize Social Security and the modest health benefits available, especially to the poor. With such instrumentalities for promoting uncertainty and dependence, it is almost overkill for inverted totalitarianism to employ a system of criminal justice that is punitive in the extreme, relishes the death penalty and is consistently biased against the powerless.

Thus the elements are in place: a weak legislative body, a legal system that is both compliant and repressive, a party system in which one party, whether in opposition or in the majority, is bent upon reconstituting the existing system so as to permanently favor a ruling class of the wealthy, the well-connected and the corporate, while leaving the poorer citizens with a sense of helplessness and political despair, and, at the same time, keeping the middle classes dangling between fear of unemployment and expectations of fantastic rewards once the new economy recovers. That scheme is abetted by a sycophantic and increasingly concentrated media; by the integration of universities with their corporate benefactors; by a propaganda machine institutionalized in well-funded think tanks and conservative foundations; by the increasingly closer cooperation between local police and national law enforcement agencies aimed at identifying terrorists, suspicious aliens and domestic dissidents.

What is at stake, then, is nothing less than the attempted transformation of a tolerably free society into a variant of the extreme regimes of the past century. In that context, the national elections of 2004 represent a crisis in its original meaning, a turning point. The question for citizens is: Which way?

Sheldon Wolin is the author of Alexis de Tocqueville: Man Between Two Worlds and Democracy Incorporated: Managed Democracy and the Specter of Inverted Totalitarianism.

Here is a review of Wolin's book 'Democracy Incorporated' by Chalmers Johnson

Inverted Totalitarianism: A New Way of Understanding How the U.S. Is Controlled.