Psychopolitik 2.0

Perusing articles for a bit, came across a WaPo doozy projecting 70’s style “stagflation” on the horizon — and preemptively blaming expectations of wage increases by organized labor (???) for it, as if people are supposed to happily accept the same money when it gets less of such frivolous items as food, gas, and lighting not made of wax.

As bad as that is, it’s at least understandable: the type of people the mainstream media consider to be Serious hold a worldview that doesn’t match up with reality because reality doesn’t pay their bills. They’re going to portray it that way, they have no choice due to their positions. Us plebes, however…

Sadly, people have the capacity to do really fucking stupid things when they’re justifiably frustrated.  And no, I’m not talking about the Superman costume, though that did them no favors.  Bitching at gas stations about the price is about as helpful as addressing a gunshot wound by guzzling Robitussin.

$4 gasoline.  People in other countries have dealt with it for years.  People in the US are now threatening to kill each other to avoid paying it.  Think about that for a moment.

Props.

When it comes to the current churning of the economy affecting the livelihood of various people, about this group I have three words: Took long enough…

CEO compensation at the biggest U.S. corporations dropped sharply last year, reflecting in part the rough business conditions at top-tier banks and other large financial firms, a study has found.

The study, released Thursday by consulting firm Mercer, a unit of Marsh & McLennan Cos Inc, is one of the most comprehensive reports to date analyzing chief executive pay data for companies’ most recently completed fiscal year.

The study looked at pay data in annual proxy filings for 350 companies of varying sizes and industries in the Fortune 1000. […]

The study found that the CEOs of 50 large U.S. companies — companies with median annual revenue of $66.2 billion — took the sharpest cut in total direct compensation in the last fiscal year on a percentage basis, down 15.8 percent from the previous year.

This group of companies includes many big financial firms such as American International Group, Citigroup and Merrill Lynch & Co Inc that have been hurt by woes in the mortgage and credit markets.

“Companies are correlating their payouts more closely to performance,” said Diane Doubleday, global leader of Mercer’s executive compensation group in San Francisco. “I think we will see that play out in 2008 again.”

Median total direct compensation for CEOs in this group was nearly $14 million in the fiscal year covered by the proxy, Mercer said.

It should’ve been tied to performance all along anyway. If they aren’t serving a purpose to the company then honestly WTF are they there for? Only on corporate boards do you get this sense of amazement at the concept of not showering people with money for half-assed effort, meanwhile the people doing the actual work are seen as little more than walking cost.

The response? Panic:

With business leaders facing rising scrutiny from shareholders and lawmakers about their compensation, a new organization wants to tell corporate America’s side of the executive pay story.

Leaders of the Center on Executive Compensation, an industry-backed group based in Washington, say they want to offer a reasoned view about how to create good pay practices. […]

Great, yet another interest group. How much representation do they need?

CEOs themselves play no direct role at the new center, an offshoot of the HR Policy Association, which represents human resources officers at big U.S. companies.

The center has a 16-member advisory board made up of chief HR officials at companies such as American Airlines, International Business Machines and Lockheed Martin Corp.

So the new organization saying “not so fast!” about CEO compensation is made up of people whose job is to keep everything below the board whittled down enough to maintain the boss’ unjustified high life. Operationally, the difference is moot.

Shareholder rights activists say they do not have high hopes that the executive compensation center will advocate for investors.

“This is part of the effort of the business community to protect the status quo from angry shareholders and a concerned Congress,” said Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees (AFSCME), a frequent critic of executive pay plans. “It just shows that the business community is mobilizing, rather than reforming pay,” he said.

Well no screaming eagle shit, Sherlock…

The center was formed at a time when union pension funds and other activist investors have proposed pay reforms, such as measures to give shareholders nonbinding votes on top managers’ pay plans. These measures won majority votes at annual meetings of some companies this year, such as at Motorola Inc, but have failed to pass elsewhere, including at Citigroup.

The executive compensation center opposes the “say-on-pay” investor proposals and a bill pending in Congress calling for a mandatory shareholder vote on executive pay, saying they could end up forcing companies to adopt “cookie-cutter” pay plans aimed at winning shareholder support rather than be in the corporations’ best strategic interests.

“People, what are you doing? I can barely keep my private jet fueled these days! It feels like you’re snatching the lobster from my kids mouths! What are they supposed to have for breakfast, eggs?”

They claim that popular proposals from the shareholders that just happen to thin their obese wallets and limit their potential for self-aggrandizement hurt the interests of the company, and should thus be blocked. Yet the entire reason these things are so popular is the rampant abuse of trust in the corporate world. This is basically the same argument that politicians make when people criticize their power: “you don’t understand! You’ll just weaken us!”. In the long run, even when the ones involved don’t realize it, that’s the point.

Considering the illegitimacy of corporate structure, and the similarity to the design of the modern State, these kind of internal fights can be seen as cracks in the wall. The purpose, then, of radicals is to encourage questioning of the point of the wall itself, and to hand out increasingly more effective chisels and mallets until it all comes down.

Submitted with minimal comment:

Sales of new homes rose in April for the first time in six months although the unexpected increase still left activity near the lowest level in 17 years.

The Commerce Department reported Tuesday that sales of new homes rose 3.3 percent in April to a seasonally adjusted annual rate of 526,000 units.

But the government revised March activity lower to show an even bigger drop of 11 percent to an annual rate of 509,000, which was the weakest pace for sales since April 1991. Economists believe that new home sales will remain weak for some time as the housing industry struggles with falling prices and rising mortgage foreclosures, which are dumping even more homes on an already glutted market.

The Commerce report showed that the median price of a new home sold in April dropped to $246,100 in April, down 4.2 percent from April 2007. (emphasis mine)

Cause & effect?  Nah…

Here’s a little exercise in perspective.  Consider the following article about “record oil prices“:

Crude oil rose to a record above $135 a barrel as OPEC ministers said they could do nothing to stop the rally that has more than doubled prices over the past year.

Oil has risen 18 percent this month as banks increased price forecasts because of limited supply and demand growth. OPEC has “no magic solution” to high prices, Qatar’s oil minister said. The IEA, energy adviser to 27 nations, said it plans to reduce its long-term projection for oil supply.

“OPEC is impotent” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “The only member with the power to do anything is Saudi Arabia and they are laughing all the way to the bank. They have no incentive to spoil the party as long there is no major demand destruction.”

This is presented as if the entire reason the prices are going up is pure demand increase.  It is a factor, yet clearly not the only one.  Mentioning that, since oil is priced in dollars, the price inherently must go up over time as the purchasing power of a dollar goes down is quite rare, to the point where it’s almost seen as a “gaffe” when anyone in the media remotely suggests it.

I asked myself after seeing some articles like this “how much oil is actually IN a barrel?”, and looked it up.  The “barrel” referred to in oil pricing is apparently 42 gallons, based on a standard established over a century ago.  Take 42 & divide it by the latest “record high” of 135, and you have 31/100ths.  Now, imagine the first line of that article rewritten:

US dollars dropped to a record below 1/3rd of a gallon as the Federal Reserve said they could do nothing to stop the bleeding…

One problem with that: unlike in the original, the Fed caused the bleeding themselves.

It’s funny how we interpret the actions of other countries so differently from if we were in the same situation.  Imagine if the US were a Saudi level oil exporter, & Saudi Arabia were a US level oil consumer.  You think we’d be portrayed as “laughing all the way to the bank” as people suffer in the US media?

Feel free to draw your own conclusions…

Libertarian Public Service Announcement:

-When we talk about state failure in terms of “who regulates the regulators?”, this would be an example of what we mean:

The funds that pay pension and health benefits to police officers, teachers and millions of other public government employees across the country are facing a shortfall that could soon run into trillions of dollars.

But the accounting techniques used by state and local governments to balance their pension books disguise the extent of the crisis facing these retirees and the taxpayers who may ultimately be called on to pay the freight, according to a growing number of leading financial analysts.

State governments alone have reported they are already confronting a deficit of at least $750 billion to cover the cost of the retirement benefits they have promised. But that figure likely underestimates the actual shortfall because of the range of methods they use to make their calculations, including practices that have been barred in the private sector for decades.

Local governments use these same techniques for their pension funds and face deficits that further contribute to what some investors and analysts say may be shaping up to be a massive breach of faith with a generation of public government employees. (emphasis mine)

On the bright side, those rules aren’t even serving the purpose people thought in the “private” sector either, so you could rationalize this as the State for once avoiding something that doesn’t help. If you’re desperate, that is.

As an unfortunate side-effect of our UNfree trade policy, global markets are setup like a huge string of dominoes.  You know how that goes — flick over the one at the end, and everything else starts to fall.  That domino effect is now hitting people who, quite frankly, had enough problems already:

The International Monetary Fund’s steering committee directed the fund and its sister organization, the World Bank, to work together to ease the burden of surging commodity prices on poorer countries.

“A number of developing countries, especially low-income countries, face a sharp rise in food and energy prices, which have a particularly strong impact on the poorest segments of the population,” the 24-member International Monetary and Financial Committee said in a statement at the end of a meeting today in Washington.

“The committee urges the fund to work closely with the World Bank and other partners in an integrated response through policy advice and financial support.”

Food inflation has emerged as one of the main issues at this weekend’s meetings of the 185-member IMF, competing for discussion time with the global credit crisis. Food prices have soared 48 per cent since the end of 2006, a “huge” increase that threatens to erase the gains the international community has made in reducing poverty in recent years, IMF managing director Dominique Strauss-Kahn said earlier this week. (emphasis mine)

Needless to say, having the IMF address soaring food & energy costs in 3rd world countries is like hiring Lil Jon to teach a creative writing class.

Re: the whole subprime-mortgage, debt-as-commodity mess:

It seems to me that heading this off would’ve been as simple as making it so that if a bank that gave a loan wanted to pass it around like that they’d have to get permission from the people that owe them on the loan first — who would obviously overwhelmingly opt for “no”.  Besides, these rules for the most part are conjured up from thin air anyway, much of the scandal surrounds regulatory accidents spawning an entire pyramid scheme that wouldn’t exist otherwise.  Weren’t changes to previously agreed upon contracts supposed to be consented to by both parties anyway?

Oh, wait, that kind of transparency is for commoners w/o government backing.  My bad…

A couple basic Econ concepts, just to set the table:

• When something is cheaper, you can buy more of it, and people tend to.
• If your money > their money, then your work is > their work

Thanks to the US basically lucking into global financial dominance after obtaining global military dominance, for a long time everyone wanted dollars.  Over time, via national policy we squeezed as much advantage out of this as we possibly could by promoting consumption as what it meant to be an American.  Big cars, a new one every year or so; big houses with a huge perfectly manicured lawn; suburbanization and the assumption that it was distasteful to not have to commute to work; an association of damn near achieving orgasm off of Stuff.

Now, this was, at least on paper, just fine with a perpetually big dollar.  We send green pieces of paper with dead white guys on the front, the rest of the world sends us trinkets.  Quite the racket.  A large dollar inherently meant we made less stuff, but we kicked it into overdrive — remember, this is not true free trade involving a mere drop of protections and “have at it, folks” I’m talking about.  As a result, we took what would’ve been a normal ebb & flow process — when we’re doing good we buy stuff, when we’re doing relatively bad we sell stuff — and broke the switch.

Fast forward.  The “rust belt” collapses, the federal government racks up debt so big ten clones of Bill Gates wouldn’t be able to pay it off, and oil companies are king makers.  Oh yeah, and we’ve royally pissed off a chunk of the world where much of the oil is.  Gradually, the rest of the world is calling bullshit on the value of our money.  Fair enough, we have a fiat currency, they can do that and by all indications should.  Problem is, we’ve spent so much time not only in “buy” mode but in an inflated, Jose Canseco-esque version of it, that there ain’t much to sell.  In fact, we’ve largely forgotten how to sell stuff, and due to the previous strong-arming, the drop necessary to bring it all into balance would feel like sitting on one of these.

When statist-progressives complain about low-wage jobs, and when Dobbs and his band of nativists blame everything on “free trade”, they’re talking about this.  They’re screaming at the symptoms and completely missing the real cause.  As for a solution, I don’t have one, as I believe this (and many other things commonly causing screaming) is not something that can be “solved” in the sense people assume.  Most that we can do is hope that the slide is relatively slow, & that conditions elsewhere cushion the impact, then take this as a learning experience.  After all, in nation years we’re basically going through puberty.

Noted in a column on the Bear Stearns bailout:

When large market players - like Bear Stearns of today - find themselves in dire straits, the Federal Reserve can face a bit of a conundrum in the court of public opinion. If the Fed decides to bail out a bank or hedge fund whose failure could mean much wider market crises, the public can grow frustrated that only the largest institutions have the privilege of avoiding failure by tapping government funds.

And yet, if the Fed hews to strict free-market philosophy - allowing Darwin to cull weak institutions from the market’s ranks - the decision to stand pat could create a public back-lash should the markets end up tanking while the Fed kept its hands folded.

My view would be that the strict free-market stance should be followed precisely because of the unfairness of the alternative.   All other things being equal, if it is taken as a given that the State exists, and that they will bail out SOMEBODY, a billionaire bank should get one approximately, oh…when El-P joins the military.  People saying “DO SOMETHING!!” should not be surprised when things get worse, as they’re effectively calling for them to.

That said, the characterization given by the author isn’t quite accurate in the first place.  The average citizen isn’t going to associate further economic drain-circling with a failure to rescue investment bankers.  Unfortunately, neither will most associate current conditions with government interference, thanks to the prevailing common wisdom that we have a free market, thus anything bad happening gets used as proof that free markets don’t work.  If it were up to me, the following question would become inconveniently frequent from our lips:

“How can a financial institution be ‘too big to fail’ without first having been too big to succeed?”