Monthly Archives: July 2012

Paul Kennedy’s “The Rise and Fall of the Great Powers”

Chapter 4 of the book talks about Western industrialization and what it meant for the rest of the world in the 18th and 19th centuries, especially after Napoleon’s defeat in 1815, which is worth study because the opposite process seems to be going on today. Several characteristics of this time are described.

First, a transoceanic and transcontinental trading system developed, rapidly after 1840, with western Europe and especially Great Britain as its trading and finance center.  The process was helped along by advances in transportation and communications and by the removal of the tariff-based mercantilist system, and allowed for Europe to pass from its Great Power politics and war period to a time of economic harmonization and cooperation.

The European powers and the United States did not stop aggressive military action, but instead focused it on the conquest of the less developed but resource rich world. The technological superiority of the west over the rest of the world was also clear in military technology, making resistance difficult.

Before the Industrial Revolution, Indian or Chinese laborers were not too far behind Europeans in productivity, but after European industrialization the absolute level of Chinese and Indian production decreased as cheaper and better European products entered their markets.  The developing world sometimes de-industrialized. Regulations, high wages, and Wall Street, helped by inflation, are reversing this process.

The Makeup of the Polis and Financial Speculation

Plato described the makeup of the ideal polis, with its division of labor broadly into rulers, protectors, and workers, and said it could never exist on the earth, but was instead a study of the individual.  Regardless of the form of government, the nation would only be as good as its citizens.  No form of government, contrary to today’s believers in the religion of democracy, will lead a corrupt people to a just society and prosperity.

What does this type of analysis tell us about modern America?  Our earlier rulers have been displaced to a large extent by a new ruling caste with a different world view.  Noblesse oblige, once common among American elites who considered themselves custodians of something larger than themselves, is less common today.  This may also have something to do with the change in the occupations of the elite; largely in manufacturing in the past, and hence connected more closely with the people of all social classes through contact with their managers and workers, the old elite were actual custodians and guardians of large numbers of people, abuses notwithstanding.

Today’s elites are often to be found in finance, a field which is conducive to short term profit making and allows its participants to be disconnected and aloof from the population at large.  One does not feel oneself a custodian of something larger than oneself when structuring an interest rate hedge for a client or engaging in statistical arbitrage between the yen and euro.

The dominance of finance has led to a government designed to cater to its needs, and in so doing has looted the middle class, the class necessary for its ability to put checks on the power of government, of much of its wealth and earning power through currency debasement regulation.  Ideally, from the government’s point of view, the middle class would be transformed into a middle management technocracy wholly employed by large corporations and thus politically neutered, their work siphoned off by their employers into political donations to favored politicians.

The military, the guardians of American liberty, now largely consist of semi-employable enlisted men, and now women, drawn to the military because it’s a steady job, led by a fairly talented officer class, with a large number of Southern men whose ancestors were the victims of the organization they now so proudly serve and who visit upon the current political enemies of their politicians or the possessors of resources coveted by their oligarchs and “geostrategists” the crimes which were once visited upon their forebears.  They are economic hit men to a degree that even Smedley Butler would not believe.  The nationalistic symbols, slogans, and myths have replaced the old patriotism to an extent that debate can no longer take place in the mainstream.

The ruling class, disdainful of a self-sufficient middle class, is using the poor, both working and not working, and both native born and imported, against them, a tactic as old as societies and an inversion of the principles of the Magna Carta.

The political and economic system is now more fragile than ever as the partnership of finance, industry, and government bails each other out with looted money.  This leads to an unsustainable and volatile situation both dangerous and potentially profitable to those who understand the game as the debt incurred in the name of the people, to give the people undeliverable promises, cannot be paid and leads to a reordering of society.

 

 

The Fed and Stock Prices

This study shows that as much as half of stock market gains since 1994 are the result of Fed actions or expected Fed actions.  Despite the danger in being long the stock market when the Fed’s ability to manipulate stock prices runs out, what other manifestations of this misallocation will arise?

Eric Voegelin’s “Order and History, Volume III” and Plato’s View of the Correct Government

The popular reading of The Republic is that it describes the best form of government that man can attain.  Voegelin considers this to be a vulgar reading of the book which completely misses the point, which he explains in Order and History, Volume III in the section called  “The Foundation Play”,  where Voegelin describes the paradigm of the good polis (city-state) and its politeia (government).

Instead of involving himself with the hands-on business of running a government, as most have interpreted, Plato instead tells of how the just polis cannot be formed on earth.  Instead, the philosopher must remain clear of the impious acts inherent in politics (Plato often uses such words as pious in the world of politics since he considers the polis to be merely an extension of the souls of its inhabitants, and participation in an unjust politeia will corrupt a just soul).  Unfortunately for the philosopher, his true fullness can only be reached in participation in a just politeia, which leads to the paradox that human public stature decreases as the soul’s justice increases.

It can now be understood that Plato is not describing the correct order of an earthly polis, but the correct order of a soul, and without that all attempts at reforming earthly politics is pointless.  Education should establish a “politeia within oneself”, of which the individual’s best elements will be the ruler.  This internal politeia will be preserved by following a middle way between extremes of wealth and poverty and public honors and insignificance.  The existence of an earthly politeia of such form is unimportant now for the philosopher, since he is concerned only with his soul and its link to the paradigmatic heavenly politeia, as Plato has Socrates describe it.  Plato has now gone from apparently describing the formation of the perfect earthly polis to denying its possibility while attesting to the truth of the philosopher’s very real journey (zetema) toward the transcendent source of order.  The earthly polis is the metaphor, and the individual’s soul and its connection with the transcendent and the just internal politeia which result from this connection is the reality.
The dichotomy between Apollonian and Dionysian souls is apparent in the distinction between the political metaphor and the transcendent reality.  The paradox of the earthly diminishment of the philosopher, who cannot take part in politics without risking his soul, is now solved through the individual polis and its ruler’s connection with the universe’s until now hidden order.  The paradox remains for those who cannot see that political life is lower than eternal life.

 

U.S Manufacturing Productivity and Employment

Pat Buchanan makes an interesting point in this article about how bailouts of banks who have foolishly lent to foreign governments has affected U.S. manufacturing.  He says that the countries which have borrowed money and could not repay were encouraged to lower their exchange rates in order to make their exports more attractive, which has made American made products less attractive.

This seems plausible, but does not seem powerful enough to warrant all the hand wringing we so often hear in the media.  Usually, the loss of American manufacturing jobs is blamed on greedy corporations who move their factories overseas in search of cheap labor.  The question of why overseas labor is so much cheaper is rarely addressed other than the fact that there exist teeming masses of exploitable human fodder.

This article shows that U.S. manufacturing has in fact not gone down, but has stayed at around 21% of world output.  What has decreased is U.S. manufacturing employment.  This is indeed due to higher labor costs, but those higher labor costs come from government regulation.  This causes manufacturers to invest in labor saving technology to increase productivity per worker, which is simply the efficient use of available factors.  In countries with cheaper labor relative to technology, more workers are used.  So what should be decried is not a nonexistent decline in manufacturing, but the government/labor union-engineered decline in manufacturing employment.