by Tyler Durden
Sep 6, 2016 6:18 PM
I define corporatism as an economic model (such as our existing) that prioritizes short term profit maximization above everything else even consuming all other aspects of society to attain that goal. Now I try not to simply opine on matters I discuss but attempt to substantiate my claims with objective quantitative analysis. And yet it amazes me the number of ‘experts’ and otherwise out there that don’t just disagree with me but quite aggressively take exception to my claims.
What is really fascinating to me is that so many stringent supporters of corporatism honestly believe they are proponents of capitalism. And it is for them that I’ve set out to unleash the iniquitous truth with such clarity so as to finally sever their misplaced loyalties to those false authorities who would have them not only believe but defend that the system is, in fact, what ‘They’ say it is.
Now before we go on, I must warn you there is a potential risk lying somewhere between jest and certainty that you will never see the world the same way again. And so if this is something that will cause you a sense of unending doom then perhaps best to click over to CNBC. And so….
“This is your last chance. After this, there is no turning back. You take the blue pill—the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill—you stay in Wonderland, and I show you how deep the rabbit hole goes. Remember: all I’m offering is the truth. Nothing more.”
Recently I provided some charts that show Wall Street profits up some 800% over the past 30 years while over that same period median weekly earnings for the American worker have risen about 9%. The point of this was not to make a moral judgement about central bankers (I’ll leave that to you), but to highlight the fact that policy objectives are best understood through policy results. Now in today’s world of continuously updated news, facts and figures it becomes almost impossible to gauge real progress. We rarely ever hear about YoY results anymore let alone 5 year or 10 year results.
Our standard of measure is relative to yesterday or at most last quarter. This allows the artistic freedom of seasonality adjustments. You see YoY results don’t require seasonal adjustments and that means the raw figures would have to be exposed. And well, that is a dangerous proposition for any government office or agency. But by keeping us focused on a new individual leaf each day they have prevented us from noticing the forest has burned down around us.
So take a step back with me and let’s look at the long term results to see exactly what the policy objectives have and continue to be. What we are about to see is that for those not already in retirement and especially for those just entering the real economy today the economic future is menacing and most will not survive it.
Now the subject of trade agreements always seems to elicit some very intense opposition to my own views. My claims have focused around the concept that so called Free Trade Agreements are anything but. These international trade agreements have two basic objectives. First is to create a cost arbitrage while negating the high risk proposition of undeveloped economies that naturally exists in a free market. Second is to protect the cost arbitrage from tariffs when targeting consumers back in developed economies. That’s really it. If you could lock those two objectives up on the back of a napkin the corporate interests would be happy for our legislators to sign it.
I’m about to prove that these trade agreements are the very essence of corporatism and together with fiat money have destroyed the natural self sustainment of capitalism through the requirement of private and public debt. In doing so corporatism has sabotaged the vast majority of American households thereby eradicating the capacity for economic growth. Leaving a tremendously precarious situation for those whose futures are not yet secured by fortune.
Note that labour cost arbitrage is not a real competitive advantage because it only works if government legislates away the naturally occurring free market risk. That is by definition, not a free market concept. So please, let’s stop calling these trade agreements ‘Free Trade’. And now think about a true capitalism cycle – Investment/production requiring profit, profit requiring consumption, consumption requiring income and income requiring investment – with only those parametres could firms profit if all firms implemented a labour cost arbitrage strategy? Well let’s quickly run through it.
Imagine all CEOs replace their domestic workers with cheap foreign workers in hopes of increasing profit. A trade agreement is put in place to negate the higher risk of their foreign capital investment and to ensure no tariffs are placed on products when they sell back into the domestic consumer market. So all firms build products overseas, ship them back to the US and put them on the shelves of Walmart.
So far everything is looking good. We have the Investment/production stage and now just require the consumption stage to realize profits so we can start the cycle over again. However, in our capitalism cycle it appears that consumption requires income yet all CEOs replaced domestic income with cheap foreign income in an effort to increase profitability. And so how do corporations realize profits if there is no income for domestic consumers to consume?
This is the absolute heart of the problem and helps to clarify the difference between capitalism and corporatism. Corporatism strategies (trade agreements and economic cannibalism) necessitate credit and welfare (private and public debt) whereas capitalism is self sustaining.
Please understand the above is a logical syllogism because corporate profit requires a transaction to take place. If no transaction then no profit is possible. The transaction is a necessary (but not sufficient) process for corporate profit. The transaction we call a ‘sale’. The sale we call ‘consumption’. So profit necessitates consumption. Consumption can only come by way of three means, namely, income, credit and welfare. Therefore by decreasing income in an effort to increase profit (on a macro scale, which is exactly what trade agreements do i.e. push microeconomic strategies on a macroeconomic scale) firms must assume the lost consumption from the lost income will be made up by credit and/or welfare. And in our current system it is. And I’m about to prove that to you beyond any shadow of a doubt.
If my claims are correct, then by implementing a labour cost arbitrage on a macro scale (trade agreements) you would end up with current account deficit inflection points following major trade agreement events. The most recent trade agreement events for the US were NAFTA and the Tokyo round of GATT (which increased corporatism benefits by more the 500% over all other rounds combined). The reason is that domestic consumption would increase materially relative to domestic production (i.e. production shipped offshore while selling that production back in the domestic consumer market). So let’s have a look at at the data.
The chart depicts total current account balance (black line) and 5 Yr moving average (red line). What we find is that following both trade agreement events we had significant increases to the imbalance of domestic consumption and production. Notice the balanced current account prior to Fiat money because you can’t run deficits on a gold standard. Notice a bit of fluctuation in current account after Fiat but prior to Gatt Tokyo. And then notice the major deficit move post Gatt and the massive deficit post NAFTA. Essentially Fiat allowed for deficits but the trade agreements unleashed the deficits.
Now the above chart shows that our existing model post trade agreements (necessarily) integrates perpetual imbalances between consumption and production (and remember gdp = gni) so this means that the imbalance must be ‘balanced’ by some input. And my claim is that exogenous input has to be credit and welfare. You’ll notice I included the point at which we moved from a quasi gold standard to a full on fiat currency. The reason is that we couldn’t implement labour cost arbitrage agreements without the ability to print endless private and public debt and so that was a necessary part of corporatism. So Let’s have look at private and public debt.
The above chart depicts changes in consumer credit + welfare as a percent of changes in personal consumption expenditures. Essentially this is tracking how much of the growth in corporate revenues is coming by way of increases to credit and welfare. What we find is that while there were ebs and flows over time there was a major shift immediately following NAFTA. The shift moved the ceiling of 37% of consumer sales growth coming from credit and welfare increases before NAFTA to 37% being the floor after NAFTA. In fact in 2015 a staggering 76% of consumer sales (PCE) growth came from growth in credit and welfare.
By now I must have your spidey senses tingly but I’m about to blow your mind with this next chart. I’m going to prove to you with absoluteness that these trade agreements that create perpetual trade deficits have a direct requirement for consumer credit.
The above chart simply adds total real consumer credit per capita / total real salaries and wages per capita (blue line) to the first trade deficit chart above. It is useful to think in terms of per capita because ultimately the macro is just the aggregate of individual circumstances and choices. The above chart has a correlation of -.9 and highly statistically significant regression results. While correlation is not causation we have our theoretical basis that predicted this very relationship and the tightness of that relationship is truly striking.
It tells the story that these trade agreements force the economy to subsidize income (i.e. consumption) per consumer with credit. That is, the trade deficits are a result of the trade agreements as depicted in the deficit charts above. And the deficits are then directly subsidized by consumer credit, which must make up the relative shortfall in income. Note the blue line is an almost perfect mirror image of the black line in the chart above, validating the hypothesis that the subsidizing credit is a direct requirement of the ‘free’ trade agreements.
Yeah, I know… colours are getting a bit brighter and things are starting to look much sharper than before. Truth can be so cleansing.
Now each of these above charts are highly supportive that the logical syllogism I discussed above is in fact absolute. It’s logical and mathematical; two things that most have very little success debating. And remember, I’m not suggesting that international trade is necessarily bad. I’m saying we irresponsibly develop trade agreements with corporate objectives that can only be supported by private and public debt. The antithesis of capitalism.
Corporatism embodies the worst aspects of both capitalism and socialism to form a uniquely destructive economic framework. So let’s look at the destructive nature of corporatism. What we’ll find is that it isn’t only destructive to the average American but to the profiters themselves.
As I’ve discussed previously credit and welfare are a function of income and if income is stagnant then as credit and welfare increase we are moving toward their limit. And this means we are heading to a maximum level of consumption (which can only be achieved by way of income, credit and welfare). But not only does credit have a limit relative to income but as it increases for the sake of consumption it actually reduces the flow of consumption over the medium and long term because of interest.
Now without getting too philosophical, when one researches the concept and history of interest (usury, ribbit, riba) one finds that most ancient religions (which were the basis of law) going back to the ancient Vedic Texts prohibited interest either absolutely or in some form (this includes Christianity, Judaism and Islam). And this to me is fascinating because it suggests that these ancient civilizations were wise enough to understand the potential destructive nature of interest bearing debt. Some writings actually specifically ban the concept of consumer debt.
What this means is that at some point in even more ancient history some society or societies must have collapsed under the weight of indebtedness because ancient laws were based on generational experience. Putting this in context with the plight of most great societies in more modern history we see the old lessons were lost on us. The irresponsible expansion of money and debt being the fatal common denominator of so many great societies in recent history.
So let’s look at the destruction of our modern society by way of corporatism, which is synonymous to the expansion of interest bearing private and public debt.
The above chart is pretty self explanatory. What it suggests is that we are only about 5 – 10 years from moving beyond the now 45 year period of deceleration and into actual contraction. Growth in incomes, credit and population are all below 1% on a 10 year average. Consumption and welfare growth are around 4% on the 10 year average. What’s concerning is that this trend, while softening during the 1990’s has again intensified post 2008. One thing to note is that income, credit and consumption growth rates all peaked immediately following Gatt Tokyo. What I’m telling you is that this is not a coincidence but a consequence.
And so I guess the point here is that you no longer have to take my word for it or for that matter the word of Moses, Plato, Aristotle, Cato, Cicero, Seneca, Aquinas, Muhammad, Jesus, Philo or even Gautama Buddha, all of whom condemned the concept of usury. An economic model that is built around interest bearing private and public debt is a form evil in that it necessarily ends in the destruction of society. Do comprehend that evil presents itself not as repulsive but nefariously seductive and credit is nothing if not seductive.
This is no longer about theory or opinion. The facts define how this will end. If you continue to deny these absolutes then you are technically irrational i.e insane. And so I see this as an end to the debate.
The policy objectives have not been what you were told. None of the economic policies were intended for your benefit. Monetary policy is not about you or your well being. Fiscal policies have not had your interest in mind. This is not to conclude that those who control your world maliciously intended you direct harm. But in the very best case you were and are simply irrelevant in this economic model of Corporatism.