Great start in Washington; a suggestion here

I was totally delighted to listen just now to the open press wrap-up of the White House and Congressional meeting. I cannot be overly complimentary when I praise both the taking place of this meeting (which was structured according to working groups on key topics and issues) and the open dialogue and feedback at the conclusion. This was an extraordinary event and a fine role model for what I hope is just the beginning of a new way of doing business in America. The President and the members of the Senate and the House deserve a lot of praise.

Now, I have just one suggestion that I hope will make everyone’s job easier as they wrestle now with the very urgent and complex topics. I address this suggestion to both conservatives and liberals, Democrats and Republicans, each with a slight twist but the same message.

Whenever our members of Congress contemplate legislation, it is natural to think first and foremost, “Can we pay for this and if so, how will we do so?” In fact, one of the greatest areas of unease is the feeling by conservatives that America has resorted to “printing money” and “throwing it at the problem,” and I share this unease. However, I am also sympathetic with those who argue that inaction is worse, as the economy continues to spiral further in crisis, than shelling out the money. Also, generations of politicians and bureaucrats, fueled by corporate mindsets, have grown up with the belief that “grown ups” always keep “how do we pay for this” in mind before contemplating any expenditure.

The problem is that if that attitude rules the entire analysis of a particular legislation or problem solving, it codifies a problem into only two possible solutions: spend money or not. As a result multitudes of other possible approaches fall off the table unnoticed. Consideration of “how to pay” has become a show stopper for doing the right thing because the “how to pay” argument overshadows problem solving too early in the process.

Legislators need to start the legislative process following a more classic approach to problem solving, which is open ended at the very beginning. In other words, they need to put all options for progress on the table, evaluate and refine them first and foremost by whether they are the correct, desirable and “right” thing to do. Consideration of “can we pay” and “how do we pay” must come later in the process. Let me give an example.

Suppose that the legislature needs to evaluate a specific health crisis, let’s say some sort of toxic compound poisoning has been discovered and there is an urgent need for new legislation to address this new crisis. (Stick with me on the example, even though I know that literally existing agencies and budgets would cover this scenario in reality). Instead, assume in my example that a totally new potentially dire but not yet proven dire scenario has come up that requires legislation and of course, by implication, funding.

If the legislators and their aides immediately jump into a “how do we pay for it” attitude, they cannot focus on the genuine extent of the need and all possible implications for solution. Those who are alarmed by the threat of the toxic compound will want to throw money at the problem. Those who are tight with the purse strings will be tempted to poo-poo the potential risk, arguing there is no proof that legislation or investment is needed. That is the danger of allowing money to set the stage for determining whether something needs to be done, or not.

In the ideal case committees do research and determine whether or not this problem exists in truth, and whether or not a solution is needed. THEN experts in this problem can put forth alternatives. Many of these alternatives might suggest creative ways to fund the legislation rather than budget busting straight out expenditure. Suppose in my scenario that a university is already doing research in this area. One solution might be to transfer government resources on temporary assignment to that university’s endeavor, rather than allocate new funding. So people in the educational sector already working (in theory) on research in this area now have a dotted line relationship to a program that is already funded, and the staff and their resources are now reassigned, and what they had been working on is demoted in priority. This is one example where a new legislative endeavor can be “funded” without the tradition approaches of allocating new budgetary funds and the problem of raising money or busting budgets.

Here is another example. Suppose that another country is already doing research in this toxic compound problem. Why not consider an alliance, rather than fund a parallel effort? Again, one could allocate some new funds for additional staff, or reassign, or “swap” with the other country for use of their resources.

It is crucial, especially in this financial crisis, that the President, legislators, their aides, educational institutions and corporations start first and foremost with dialogue on what is correct and what needs or must be done, and leave funding as secondary, as counterintuitive as that sounds. If one decides first and foremost that something is a genuine legislative need, with allocated resources of some specific type needed, one can then secondarily consider options that may not involve budget spoilers or new allocated funds at all. It can also force a fresh look at existing budget priorities, where the responsible agencies just have to push something further down the stack as a greater problem arises.

My suggestion is actually the MOST fiscally conservative approach, rather than the worried dollar signs in the head from the very beginning approach. That is because one is open to a host of alternative ways to procure and provide the resources needed for the new legislative initiative. Sometimes one can craft a better law and budget if one MUST do something but there is no NEW money to do it. That is because one can consider governmental partnerships, private initiatives, swaps and alliances with corporations. What if, for example, a private company was given an extraordinary tax break in return for using their existing staff to work on this problem? Some laboratory that was working on pure research gets the assignment to work on the new potential toxic compound problem and they reallocate their staff from pure to targeted research, in return for a tax break or other non-budgetary incentive.

So it’s actually not the most “adult” thing to think “how do we pay” first and foremost. The most adult thing is “what must we do (if anything) about a particular problem, and what is the correct approach with the most hoped for results?” Then one figures out how to procure the resources and staffing. It is extremely difficult to overcome the deliberate and unconscious programming that has taken place in everyone’s mindset, I understand that all too well, seeing it become a disaster of missteps in decision making in government and society for decades now. It is especially hard with entitlements discussions, where hardly anyone discusses what the right thing to do is, and instead, they just dissolve into quarrels and intransigent positions about money, such as in health care and social security. But if you continue to do that you totally miss out on 1) what is right and essential to do and 2) many alternative ways to do it. Both sides harden into an expensive proposal with one side saying yes and the other side saying no.

This happened with Social Security in the Bush administration. President Bush set his heart on a “free market” approach to actually investing some of Social Security in the money markets (heaven forbid). This is an example of where the President and legislators hardened into one proposal rather than starting by looking at comprehensive reform, where needed. This is because both sides assumed that it is the political “third rail” of politics AND that reform can’t be afforded. Therefore the President thought he was peeling off a piece that would be innovative and helpful, but not touch the third rail or “cost” anything. Can you imagine what would be happening now, in the financial meltdown, if Social Security were part of it? But I’m not criticizing President Bush for trying to peel off doing at least “something” that he felt avoided the third rail of budgetary explosion of costs, and political fighting if people feared reduced benefits. It seemed logical to him, but that logic is erroneous. It’s not his fault in this area because he has walked into a hardened environment of thinking that we must think “first” of “how much will it cost” and “how do we pay for it” before even determining if “it” is the right thing to do. So everyone is somewhat bipolar about it. They tiptoe around the need to do the right thing if it is going to be costly or they then swing to the other extreme and just warm up the printing press and manufacture some greenbacks. As a result very poor decisions are made one after the other because they are not based on the facts of the problem and the need to invest in some action.

I hope that you understand what I am explaining here and find it helpful. It is crucial that people try to change this mindset right away. In classic problem solving one does start with an assumption that is totally free of any consideration of funding. In other words, one must spend at least some time in the “problem definition” and “solutions exploration” stages of just assuming “money is no object.” It is only by assuming that in the beginning that one can determine what the “right” thing to do is. It is after the problem is defined and alternatives identified and sketched that one introduces the “resources needed” part of the process, where implications for investment become identified. After that is done then people can start to identify either staged or modified implementations based on budget realities or, as I am suggesting, how to do the “right thing” without classic check writing or money printing approaches, as I demonstrate in the toxic compound example, where several solutions can be reasonably pursued that are not budget busters yet are highly targeted and effective “investment”.

Capitalism/financial crisis, another comparison

This one is especially for young people who don't remember, actually, when alternative two was a genuine alternative, nor the debate that we had when "conglomeration" became an issue. Actually it was not much of a social or economic debate because we were just steam rolled into accepting it as the new norm.

Which is better?

You have a man who has become a great success with his own company. He started out with one company in his area of expertise, let's say a chemical company. He has decided to "diversify" so he starts acquiring businesses that are outside of and separate from his original area of expertise. So let's say he buys a candy making company, a clothing manufacturer, a television station and a manufacturer of health care products. They all are now part of his "conglomerate." How are they purchased? By paying large fees to financial managers, and then stripping off parts of the acquired companies that are viewed as not helping the bottom line. For "efficiencies" jobs that are "duplicating" are eliminated. The success of the conglomerate is measured by the one stock of the conglomerate and by the salaries the executives receive.

or

You have a man who has become a great success with his own company. He started out with one company in his area of expertise, let's say a chemical company. He decides to diversify so using his successful model he helps other chemical companies to start up, and to explore greener product lines. He thus goes into new lines of his old business and prospers, while modernizing his own company to be more green and innovative (let's say how to break down the very chemicals he produces in times where a pollution clean up is needed). He is honored as someone who is part of the solution, not part of the problem, and his company thrives, including bringing good jobs to underdeveloped countries.

A candy company has been in business for a long time and provides one hundred people with steady jobs. They "break even" each year; they operate at no loss but not with much profit. Yet one hundred people have homes, benefits and good jobs that they can count on. The owner thinks about offering her product on the Internet or partnering in marketing during special events, thus she continually looks for steady market growth or at least maintenance.

A clothing company is struggling, and they worry about the hundred people who work for them, if they will keep their jobs. They are tempted to let themselves be acquired, knowing that this will be a payout for the owners, but probably the demise of the local jobs. Instead of doing that they decide to remain where they are and find other ways to thrive and keep the local jobs. They create a new line of clothes that is branded by a local celebrity and sold in the casinos. Thus they have a unique clothing product that is not subject to the lowest price wars. They thus create and hang onto their niche, and those jobs.

I don't know much about the television station business, but know that they were the first to be sucked up by media conglomerates. I think that is a free market example of where the chips fall where they may. The question is, does being acquired by a media conglomerate give it more financial security, or render it a mouthpiece for certain viewpoints or "entertainment?" The station owners and managers make a thoughtful decision based on that question.

When the owners of a small health care product line are first asked about their interest in merging with a conglomerate, they wonder, "Why?" They know they have a small but important product, one that is not market driven so much as healthcare need driven. The conglomerate offers large "PR" and "advertising" resources, and says they can hook them up with decision makers who make bulk purchases. It's tempting, but would the product still be manufactured where it is, preserving the local jobs? Could they not do a better job themselves of marketing their product and keeping their profits rather than be absorbed into a conglomerate balance sheet? Would the conglomerate even know anything about their line of health care and care about their patients and their ability to afford their products? The conglomerate's interest stirs them to explore their options, but they recognize that their first obligation is to preserving their local jobs and meeting the needs of their patients and customers at the lowest possible cost.

Capitalism/financial crisis tutorial telecoms study

Capitalism/financial crisis tutorial

Here is another installment of my continuing series on this subject. This one is particularly important to understand because it is a gigantic case study of a large chunk of our economy where everybody of all economic philosophies made the incorrect decision. It is important to understand this example that I am giving you because I understand that people can be reading my tutorials and understanding the correctness of what I’m saying, but wonder “Is it too late?” and “How could people have avoided making mistakes in the implementation of our capitalism?” So if you’ve not read my previous posts on this subject, please do since I’ll now apply the principles I explained.

Just to reiterate my basic definition of capitalism as provided by the analogy of the “inventors” or “discoverers” or “first practitioners” of capitalism: Capitalism is where surplus of a good or service is produced in an amount beyond what is needed for subsistence, where the surplus is sold on the free market in order to obtain cash. I’ve explained that the fundamental error that specifically the USA has fallen into is to subject the population’s subsistence needs to free market surplus control, and that is the huge error of false capitalism masquerading as true capitalism. Subsistence goods and services (those required for life) should never have been placed in the free market “surplus” sector of the economy. True capitalism sprung from the basic foundation of humans who were able to provide their own subsistence (food, clothing, shelter) through the labor of their hands and who then developed free market capitalism as a way to sell and market (promote) their surplus (extra) goods and services.

So the case study I wish to present is the deregulation and break up of the telephone monopoly. For you youngsters reading this, until the past few decades there was only one Phone Company, called by the nickname “Ma Bell.” It came from Bell Laboratories (as in the famous inventor Edison). That is pretty much what happens when something is invented, and is the proper thing, really. Someone figures out how to do something, like the principles of having telephones and telephone lines, and they form a company to roll it out. The most recent century, the 1900’s, was the time when many “new inventions” and advances were developed or discovered, and then rolled out across the country. The most fundamental example of this was electricity itself. The electrification of the country was something that occupied much of the last century, finally reaching the more rural areas in the 1940’s. Congress guided the rolling out of electrical power provision to ensure that all areas received electricity even, as I said those sparsely populated rural areas. Thus the last century was a time of large public works projects that implemented new technology, such as electricity, as they were developed, such as telephones, by companies, usually the “inventors” of the technology enabling devices, which were usually the only provider, and thus started to be called “monopolies.” So “Ma Bell” became, over time, branded by some of a certain economic philosophy as a “monopoly.”

Here’s the problem with thinking of something as a “monopoly,” with the accompanying implication that there is something stifling and wrong with that. People usually start calling something a monopoly when they resent that the company is making a lot of money because they had the idea first, and they implemented it first. A complication is that the monopoly at some point comes under government control via legislation (in order to protect the consumer, for example), and that is a reasonable and correct thing to do. However, once a monopoly is regulated by the state or federal government, those who envy the business have leverage to charge that the government has somehow conferred “preference” to that monopoly so that only they make money off of, as in this example, the product of telephone lines and telephones. So far so good, the technology and roll out developed as it should, the government regulated where it should, and potential competitors are asking questions, as they should. But here is where it goes all wrong.

People do not recognize that telephone service has become a “subsistence” part of the economy, since people literally cannot live without telephones anymore. Old time farmers walked across the field and talked to their fellow laborers with their mouths, they rode horses to the market and talked with their mouths to customers, and they talked to bankers and other community members with their mouths in person. Now we have a society where that is impossible to do. One needs to have a telephone in order to “subsist” at all. Thus when the legitimate conversation that was initiated by potential competitors was first raised, the government should have recognized that only the “surplus” part of what came to be called telecommunications should be granted free market and competitive rights.

Here is how it should have worked. The national monopoly of providing basic telephone lines and phone hand sets should have remained with one company, and continued to be appropriately regulated by the government. The objective of the monopoly, let’s just call it Ma Bell, would allow for the earning of profit, certainly, but it would not have been a free for all “gouge the consumer for all they can make” since it is viewed as a subsistence service. And the monopoly executives would certainly understand that (not everyone was insanely greedy back then). So the theoretically continuing and ongoing Ma Bell monopoly could make money, but not by raising prices, and they would be happy with that. Why would they be happy? Because competitor rights would be granted to new telecommunications companies to develop all the new “value added” services, and they would “snap on” these services, which are true “surplus services” onto the monopoly’s subsistence service highway.

So the theoretical “Ma Bell” would continue to provide low or almost no cost subsistence basic phone service to all USA customers. They would invest in upgrades to the network, which would be their responsibility, to add bandwidth, locations and for technology advances, such when analog was converted to digital. New companies would have been formed to snap onto to the basic phone company new services, such as when advanced handsets were developed, capabilities such as computer access, texting, etc. In other words, we’d have seen the flourishing of free market “surplus” telecommunications in competitor companies as they marketed their products as “add on” to the basic monopoly backbone infrastructure, which continued to provide basic service at low cost, even no cost to the poorest. This is because as the population increased one could continue to charge a low rate for basic service simply because there were more subscribers, as we would have seen in the 1950’s through 1960’s. The free market competitors would pay the theoretical “Ma Bell” for access to the cheap network so their products would work and be carried on the network. So in theory, “Ma Bell” would provide the bandwidth, the basic handsets and the ability to be carried on the network. “Ma Bell” would make money from the very low basic service fee but would make the real profits via charging the free market competitors for access to the network of their products.

How would that have looked today? Like true capitalism that is also providing social justice in provision of cheap subsistence services too. Many people who really did not need all sorts of fancy services and opted for just basic phone would be paying something like $5.00 a month for phone service, period. Then those who have business needs where, for example, they wanted mobile phone service would have, just as they do today, have purchased them from among competitors without driving up the prices of those who remain with the basic service. Likewise the family with texting obsessed teenagers would buy those services from among competitors, just like today, and they would pay through the nose for it, just as they do now, but without messing it up for the subscribers who still want and need the basic service.

And here’s the bonus. Suppose all of a sudden every free market competitor telecommunications company went out of business all at once. The USA would still have basic phone service provided to every household. No one would have “gotten rid of” their basic home service (you know, that service that works even during power outages?) The poor would have that basic service already provided for them, wired into every apartment, rooming house, SRO and home, just like the middle class and rich. We’d have people paying the same amount or LESS for basic phone service decade after decade, not seeing inflated prices ever. The country is extremely foolish whenever it allowed a subsistence product or service, such as in this case basic telephone capacity, to be subject to free market “competition,” thus making prices rise to what the highest payer will pay, and therefore forcing people to fragment what is a basic need of our country. “If I had been in charge” when all this was being decided, I would have pointed that out, and today every single residence would have basic phone service included at extremely low and unchanging basic cost, including free for those at the bottom of the economic scale. When one buys a house or rents an apartment that service would already be there as it would be as basic as the walls and the roof. So in the way “I would have done it,” visionary competitors could have happily developed and marketed their expensive “value added” telecoms services and products, just as they do today, but they would not have deliberately or inadvertently destroyed what is a subsistence basic phone access that is crucial for every person in society today AND is crucial for the country.

Look at the 911 mess. One can no longer just dial 911 without thinking about if your phone will “come up” in the local 911 or where your phone is registered. That is insane. This is just a small example but in “the way I would have done it,” every residence would have a cheap or free phone that obviously when one dials 911 one gets the local 911, where they have all the information they need for an emergency. Who here thinks that 911 is a profit making “competitive” capability? We never would have had the snafus regarding 911 “if it had been done my way in the first place!” Further, with a basic monopoly service, we could have everyone obtain the same information in times of emergency, you know, that homeland security and weather disaster type of situation? We’d already have the entire country able through consistent cheap or free technology to receive all essential (“subsistence”) telecommunications services.

I could not believe it when I watched the “bad old evil monopoly” of Ma Bell being broken up without any of these so called economic or technology geniuses pointing out even once what I have just explained here. This is one of the most visible examples of the USA derailing all at once 1) true capitalism 2) support for the poor and 3) its own national security, all because people wanted to be greedy. That’s the kicker: they could have been greedy all they wanted and have had their free market for the surplus services all along. But they would have gained their profit by not destroying the very basis for provision of subsistence service and would, in contrary, have worked in partnership, allowing the basic theoretical “Ma Bell” to make profit and keep prices low. The theoretical “Ma Bell,” incidentally, would have continued to be one of the basic low cost but totally steady stocks on the stock market, regardless of what was going on in the nation or the world. In true capitalism one needs subsistence product and service stocks that never lose their value. They may blip up and down but their desirability and foundational role in a portfolio would never be at risk. And remember, that is how “utilities” used to be viewed, as highly reliable though boring stocks with modest returns. But the breakup of monopolies destroyed the strength of the theoretical core utility stock, since, for example, electric companies are regional and subject to good/bad decision making and market forces. If there had been a stock in a monopoly nation wide electrical grid, for example, and, as I posit in this case of the theoretical Ma Bell, a stock in the basic subsistence telecom service to every residence, those stocks would never lose their desirability or value, even if returns are modest, steady and boring.

So there you have it. I hope that you have found this case study useful.

Capitalism/Financial crisis tutorial Part 14

I need to point out, at this time, two errors that have not only crept into modern understanding of capitalism, but have become so predominant that they have contributed to the warping and destroying of genuine capitalism and replacing it with a capitalism that is "in name" only, and not in principle.

The first error is to think that capitalism means the same thing as "competition." It most certainly does not. Competition is a valid concept of capitalism that applies to the obtaining of the best price for the sales of one's surplus. For example, going back to my foundational definition of capitalism, a farmer that grows enough corn for his family and then sells the rest in the market is of course entitled to try to get the best price that he can for his corn. If his corn is better than his neighbor's corn, or gets to a market where there is no demand, that is "competition."

Competition is not, however, "negative" in true capitalism. Using that example, the sole objective of one farmer should not be to do a "beat down" of the other farmer's corn. In true capitalism the quality and demand of the product "speaks for itself." In other words, while cunning marketing and vigorous competition is of course valid and desirable, one farmer should not structure his entire corn crop in order to focus only on competing with an "enemy" competitor rather than letting the market work naturally to either reward or penalize his product. I've seen this from the inside of corporations. When corporations focus on "smashing" or "beating" the competition to the exclusion of normal product offering and development, they stop being capitalists who are both prudent and visionary and instead, use their products (and the buying and selling public at large) as protagonists in an ego and greed based "competition." So imagine that two farmers with surplus corn to sell become "enemy competitors" rather than genuine capitalists. If they are focused on each other's success or failure, they forget not only the market but their own families and the health of the economy as a whole. So suppose they are so busy trying to "beat" each other that they no longer notice that let's say a new disease has developed that threatens their corn production. They are so busy competing and manipulating market share that they do not invest in a new corn, one that may not get the "best price" in the market at first, but one that resists the threat of the new disease.

When capitalists "fight," treating their worlds as video game fiefdoms, where they are "battling" in the so called "healthy competition," they are no longer actually being competitive in a natural market. They are skewing the market to accommodate their battlefield, not to build genuine capitalism. So remember, when you hear about "competition," that refers to angling for obtaining the very best price and market share for your product, but is ultimately self destructive if competition is the be all and the end all of one's purpose. You can see this in the financial crisis. Banks started "inventing" financial products and instruments not with the healthy of the consumer, their company, their community or their country, but with the sole purpose of grabbing more money that is "out there in the market." That is like if one of the farmers decides he can make even more money by selling tainted corn. Suppose the farmer does a marketing blitz to convince the public that buying corn that is one tenth rotten is the coolest and smartest thing to do. So that farmer "beats" his rival who continues to sell corn that is one hundred percent wholesome. And then, over time, the farmer that sells 10 percent rotten corn, "grabs" a bigger and bigger share and "beats" his competitor, because he has convinced the public that buying and eating partially rotten corn is "OK." That is what much of the American "capitalist" economy has become, in analogy, in the name of "competition."

The second error that I want to point out in this edition of our ongoing tutorial is related to this first error of misunderstood and misconducted "competition," that is done for antagonistic and greed purposes, rather than balancing keeping one's focus on wholesome products AND ethics. This second error is the actual "creation" of "products" to gain money that is based totally on looting and exploitation. Trial lawyers are the example I wish to offer up here.

Lawyers offer a "service" for money. Thus they are capitalists even using our farm definition because in theory, a lawyer provides his service to his family and all surplus of his "profession" is then offered in the marketplace for cash. So I have nothing against lawyers and indeed, I even taught a little environmental law seminar in college while I was a student, and took the law boards exam when I considered career options. Further, the idea of lawyers "specializing" had well taken root when I was a student, and I considered becoming an environmental lawyer as my "specialty" (which was a totally new area at that time). So again, I have no problem with "trial lawyers" per se nor with those who narrowly specialize, such as in "product liability."

However, these "specialties" have become monstrous destroyers of capitalism, and have taken on a robotic greed of their own that is appalling and having destroyed much of genuine capitalism. Here is an example of why.

People, in general, over the centuries, do the best that they can. They do not mean to be evil and cruel, in general, so long as they are raised to be normal and loving, within a secure context of family, faith and community. Thus, people are constantly "inventing" or "discovering" things that attempt to improve the quality of life, and if that didn't happen, most humans would not be alive today. How about the first people who realized that some weird mold, for example, would be the basis for discovering the first antibiotic penicillin? I'm going to give you first a silly example, and then a deadly serious example. Suppose that trial lawyers "discovered" that some nut in a laboratory was testing "making people eat mold" and therefore sued to get that laboratory closed down? I wish I was joking but I'm not, really. Fortunately, people back in the 1930's and 1940's were not totally greedy and demented (yet). "Progress" was something that did not need explaining because it was a shared value... millions of people died from infections each year around the world because at that time there was no cure for infections. So people of course through self interest and global humanitarian interest researched medicine in order to serve the greater good, and rarely received great financial renumeration other than their paychecks. But people who make money ONLY through "conflict" (trial lawyers), would have seen the development of "eating mold" as an opportunity for some juicy suing in court, questioning whether that was "healthy" or not. So rather than being part of the community that silently praises and endorses the world, trial lawyers "look for" money making opportunities in the creation of conflict. So that is my "silly" example, but one that I think modern people can understand. Thank God product liability trial lawyers did not exist when penicillin was being developed!

Here is the serious example. Infections were a huge threat to humanity (and remain so, as cleanliness decreases and potency of infections increase), but the invention of penicillin, and its successors saved millions of lives per year. Humans at that time faced another great threat through history and that was fire. Throughout history entire cities have burned, and every community had a constant fire threat. Heat and light were both provided through the use of open flames. And so humans thought they had discovered a wonderful development when they developed use of asbestos as a fire proofing material in homes and buildings. Be assured that many lives were saved through the use of asbestos. It was one of the theoretical "human advances" when humans focused on how to figure out how to have a less fire vulnerable home, school or place of business. For decades people thought they had discovered a remarkable thing, and they had. But two problems developed over time. One was that people discovered that it was a dangerous material to work with, and that it could become a dangerous material to live with. People did not know better back then. Workers had no way of knowing, nor did their bosses and company owners, that they were breathing fibers that would later harm their health and even kill them. However, I am in complete agreement that once the medical threat was determined that everyone should have acted promptly and responsibly to mitigate and prevent it. But people are not born to be geniuses who have full knowledge of right and wrong in a flash. That's just ain't humans, folks, in case you have not noticed. Thus, there was no reason to totally demonize people who thought they were doing the right thing before the danger was discovered. But trial lawyers are experts in "revisionist history." In order to create the marketplace in which they make money (conflict), they label entire segments of well meaning society as "bad guys" who exploit "victims."

Think about it. Who can speak up for the decades of people who lived in safe housing because of asbestos? No one, obviously, because most of human history is lived, not recorded in paperwork. We don't know how many tenements in slums did not burn because they were protected in some part due to asbestos. We don't know how many factories were safer because they had asbestos. We only know that science and medicine revealed the hidden dangers of asbestos once humans had advanced to a certain point.

But modern "capitalists" no longer think in terms of this balance, because they have splintered life itself into kind of gladiator arenas in which they can make money. And so asbestos trial lawyers discovered (and created) a new arena in which they can make money, by declaring "evil doers" (asbestos providers) and "victims" (workers, genuine illness victims, and theoretical 'future' victims). Now, I'm not talking out of my hat, and I'm not pig ignorant. I had to have asbestos removed from my own home (and fell for contractors who were unlicensed and who probably did a lot of harm in their removal procedures). However, I'm all grown up and a good person and so I figure that asbestos is yet another chapter in human history where people discovered and developed a good thing, for good purposes, but as they grew up they learned of side effects that were unacceptable. That's human evolution, folks. Think of the people who first bit into the bad mold before discovering the good mold from which cheese and eventually penicillin came from. People who tried to find cures and good things for human development were not "evil" just because later research and experience shows a bad consequence for what they did. Likewise, asbestos users never set out to destroy anyone or hurt anyone; in their day they thought they were saving lives (and they did, as many potential fires were prevented).

However, I do agree that ethics dictate that once a worker becomes ill because of improper exposure, all should be done to protect him or her or their family. Companies who refused to do so without litigation are part of the problem, and thus put blood in the water that attracts trial lawyer sharks. In true capitalism a company owner who learns their product causes harm (asbestos) has to "man up" and view their product development as a dead end, and pay the financial consequences. (That's one reason why real insurance policies exist; not to "make a killing by marketing freak derivatives.") In real capitalism insurance policies exist so in case their is a huge "oh oh" and product liability, they are protected as a company from being destroyed, and the victims receive compensation.

But some trial lawyers went into the "find the asbestos and loot da money" business. All they do is sniff out use of asbestos and like truffle pigs, point out a place to litigate and sue, so they can loot money out of the situation (and even call themselves "heroes"), whether damage was actually done or not. And so we have had an unbelievable wounding of American capitalism through trial lawyers who seek up, stir up and even create conflict, in order to loot wealth out of the "crisis," whether real or contrived. And insurance companies have become part of the problem by no longer partnering with their customers to anticipate and proactively deal with inevitable product liabilities and dead ends. The whole asbestos litigation industry has been a debacle that I cannot over emphasize as a case study of where moral and prudent genuine capitalism has been totally derailed, all for the purpose of enriching the few, and victimizing the genuine victims twice. So many people have been enriched due to the "asbestos mitigation and litigation" industry that has derailed what should have been a prompt and reasonable approach to the crisis.

In a genuine, moral capitalist economy all the safeguards for bad or defunct "free market" product development would have been in place and activated. Insurance policies would have been written to do what they are supposed to do, insure, duh, not avoid helping pay out their clients when a tough situation arises. Also, a genuine capitalist company owner would promptly recognize his or her responsibility toward asbestos workers, acted swiftly and morally, AND had the security of the appropriate insurance in place, rather than put blood in the water by fighting and denying. Also, in a genuine capitalist economy, opportunities would have arisen for, yes, asbestos remediation companies (those who take the stuff out) and also for mediators and other advisers. But here is the problem. Trial lawyers should have been a last resort minority in this crisis. Instead, they "led the charge" for sheer monetary reasons. They drive, for example, the wealth of remediation companies. In true capitalism companies that alleviate asbestos should thrive because they offer a great and needed service, not because companies are held essentially at the point of a gun because of fear of the asbestos trial lawyers being sicked on them. Trial lawyers should be a "court of last resort," using their "speciality," and not the emperors of that entire segment of the economy.

I hope you have found this helpful, especially the young people, who have to rely on hearing about saner times, since they were born into these times when the "norms" are very abnormal.

Please excuse any typos or misspellings. Often I "cannot contact the server" when I try to spell check.

Capitalism/financial crisis tutorial Part 13

Here I will teach you to understand that the definition of "capitalism" is not the stock market.

As I listen to commentators and their analyses and opinions, even the ones I respect make a very fundamental flaw. They mistake one tool of capitalism-the stock market-as actually "being" capitalism. That is not only false but it is dangerous and exactly why the world is in this mess. The stock market is not capitalism. In fact, capitalism can flourish in a country where "stocks" and the 'stock market' were never even invented.

Let me repeat the true definition of genuine capitalism. Capitalism is the selling of surplus goods and services in order to obtain cash. By surplus I mean goods and services that are beyond what an individual or family needs for its own survival (subsistence). Thus a farmer who sells corn beyond what he needs to feed his own family, in order to obtain cash, which he can use ("invest") to buy more goods and services for his family is a capitalist. Thus, if you had a country that was comprised only of people who grew their own food, made their own clothes and built their own homes, and then sold "extra" of whatever they made in order to raise cash by which to obtain other goods and services would be a totally capitalist country.

That simplistic and pure form of capitalist country would be, therefore, a genuinely capitalist country without banks, loans, interest earned or paid, corporations, financial instruments (such as stocks) or the market in which they are bought and sold (the stock market). You can have a totally pure and successful capitalism without a single bank, stock or interest payment in the entire country.

This is one reason that Communists used to call western countries and their people and allies "capitalist tools." They actually correctly saw that the tools that people invented to support their theoretical (but warped) capitalism have taken over, becoming the "definition" of capitalism and smothering the flourishing of genuine, traditional capitalism. In other words, westerners actually think that capitalism is defined by one and only one of its tools, the stock market. Communists were able to laugh at capitalists and make insults based on that truth, without even realizing how right they were, LOL. See, Communists (not to go too far astray on a political tutorial, but bear with this diversion for a second, because it is constructive) actually in their heart of hearts remained in touch with a truth of genuine capitalism that the western capitalists themselves actually forgot and abandoned once they surrendered themselves to "make a killing" capitalism rather than "make a good living" capitalism. The original Communists actually held onto one of the foundational necessities and "ideals" of pure capitalism long after actual capitalists forgot and abandoned it. That is the idea that there is an individually worked but collectively shared mechanism for elevating all people to a good subsistence level, and then creating surplus to raise everyone equally to greater and greater standards of living. Of course Communism is such a disaster that it did the exact opposite of what they "aspired to." But this is why Communism had such a charm for many people, because it correctly observed a fundamental flaw in the advanced forms of "capitalism" that had replaced true fundamental capitalism. Maybe some day I'll blog about where Communism went all wrong, but all you need to do is observe how Russia and China are self correcting the misassumptions and abuses of Communism to understand its flaws.

That's one reason I always had a real giggle over some of the standard insults by Communists. No one, either the insulter or the insulted, realized some awesome insights contained in the insults. Forbes used to tout their motto as "Capitalist Tool," derived from that insult, thinking they were being really clever. The laugh is on them, though, because Forbes, like all westerners, are subservient to "capitalist tools," just like robots who have taken over their makers. So even the great champions of "capitalism" do not realize that they have genuinely and honestly forgotten what true capitalism really is and how to both achieve and maintain it. Everyone, wealthy, middle class or poor, educated or uneducated, thinks that capitalism=stock market. That is totally an error.

The stock market, if one truly understands capitalism and applies the definition that I have provided, is simply one place and one method where "cash is obtained for surplus." Thus, westerners have taken one method and one place where the subsistence guy sells his surplus to obtain cash and now declared that this one market place is capitalism. They no longer even acknowledge the existence of subsistence and surplus nuance (or reality) in the economy, which is the actual definition of capitalism. All they call "capitalism" is the raising (or losing) of cash in the stock market. Ye gads, it is no wonder that both the average person and the so called experts have messed up this economy so badly. Yes, the average person must share blame with the masters of the universe, though I'm not trying to be mean, but if everyone "buys into" a false and greed oriented definition of capitalism, everyone must share the blame when it doesn't work the way it should, and it eventually, like a snake, recoils and bites both the handlers and the supportive bystanders.

Thinking that capitalism equals the stock market is like a person who believes in a fad diet that is comprised of eating one and only one food, every meal, every day. Not only is that in error, but the person who eats only one food forever will suffer illness, breakdown of the body, and death. Likewise, "capitalism" that is comprised of only the "stock market" causes the entire concept and reality of capitalism to become ill, have breakdowns, and, indeed, die.

Whether you own stock or not, each and every American is enabling this "single food" perception that the stock market "is" capitalism in total. Why? Because all of selling, buying, marketing, and operations of every man, woman and child and their life necessities and pleasures are run by the "robots" of "how much stock dividends pay." I know, I've seen it from the inside. No one makes sane decisions about job creation, hiring, firing and product development anymore. Virtually ALL decisions in the USA and much of the Western world is made by total consideration of how much people will make on the stock market as a result. It used to be that all the average person had to worry about is whether people will make a wise investment or a foolish one based on having enough information and the good will of people who are the decision makers. However, some years ago companies went into actually provoking foolish seeming decisions in order to manipulate stock movements and thus either gain after losses or in collusion with "competitors."

Here is an example. Many of you have heard about "derivatives." I first met developers of derivatives when I worked for a certain bank, JP Morgan. At the time, less developed countries (LDC's) were in a debt crisis. Western countries had lent far more to the poor countries than the poor countries could ever pay back. There was a great pressure in the world for "debt forgiveness" (something we still hear about as an issue today). So I learned that a group of derivatives developers found a way to be helpful and well meaning in this regard. They developed a financial "instrument" that packaged debts that could not be repaid and sold them for a fraction of their face value. In other words, they invented the means by which debt could be forgiven and the remaining debt transferred into a capital raising tool that was discounted to levels that the LDC's could handle. So "derivatives" actually came about as a method for handling certain risks and where "special handling" is needed, and thus they have a good purpose and a place in the market.

But not too long after that an "invent a new game at the casino" mentality took over those in charge of derivatives. They not only invented new derivatives for bizarre reasons, but they "created" the "need" for the derivatives in the first place. For example, imagine if the LDCs became poor because some banker envisioned making money by inventing a derivative for that reason. That's not what happened in the LDC case, but I want to use that so you can envision more easily what happened next. Developers of "new sources" of profit in financial institutions started looking at ways to if not cause a crisis, imagine or invent one, and then sell those derivatives to investors just as if they were inventing a new game of risk at the casino. So "good" derivatives became polluted by derivatives that were invented to create and then "manage" "risk" that was often unconscionable to take in the first place. This will help you to understand the frenzy in "mortgages based" derivatives that have imploded and tanked the economy. People invented ways to "make money" by taking both deliberately and sometimes accidentally and stupidly stupendous "risks." Some purely looted, knowing full well that someday the derivatives market in their area would collapse. They don't care because they took the money and ran several years ago.

Depressing, no? Yes.

So you see, whether you are an auto company, a fast food company, electronics manufacturer, software developer, or what have you, you rarely make a decision based on true capitalism anymore, the capitalism that allows the poor to join in everyone to raise their standards of living and their family prosperity. You rarely think about what jobs our country needs, what products we need, and how to keep prices low, and what is for the greater good, and how, in return, you and the rest of the company executives "make a good living." You look at how to make a killing and what is for the best of the holy and sacred "share price," "dividend," or your "off the book profits" (such as derivatives). And if you are the average person, you bought into that mentality and enable it, some of you willingly, but many of you have been coerced into a corner, because that's the reality in which we operate. You try to be good and have a savings account, but almost like magic someone makes a decision somewhere that raises prices and you have to drain your savings and live on charge card. Trust me, I know, and it ain't an accident. Like I explained in a previous tutorial, if this were true capitalism you should be able to buy a good house for $17,000 just as you could forty years ago. After all, doesn't "progress" bring about new inventions and techniques to do faster and better what used to be expensive and laborious years ago? Of course. For example, when my family flew to Germany in the 1960's economy tickets cost over $3,000. What would you think if over forty years the plane ticket prices went up to $12,000? Well, why have you accepted that regarding housing, food and fuel? True capitalism is the enemy of inflation and serves only to elevate the numbers of people who share in "making a good living," not elevating the prices of making that good living from year to year, decade to decade. True capitalism creates jobs, and does not export them (they may very well create additional jobs that are in other countries, but those are net additions, not subtractions from the domestic job force). The "Harvard Business Review" might as well have been "Satan's Journal," starting in their 1980's with their "capitalism on crack" ideas like "re-engineering" and other devices to eliminate domestic jobs.

I hope you find this helpful. Autopsies are often very instructive, though not very timely.

Capitalism/financial crisis Case study in the news

Read this article about Iceland. I don't even have to comment, because if you have been reading my tutorials you will immediately spot how this is an ideal case study to observe when capitalism derailed, when they went from "making a good living" to "making a killing," and ended up killing their own pseudo-capitalism, which had been thriving and growing via technology advances and investment in the subsistence side, but then was infected by high risk "surplus" greed.

http://online.wsj.com/article/SB122359763876821355.html