Eric Janszen’s Article in Always On
I read a brilliant article written by Eric Janszen, CEO of Autocell, titled The Big Bet Bet in the Always On site. It captures the damage being done by the easy-credit, “Greenspan Put” (I guess soon to be the Bernanke Put) policies of the Federal reserve to the long term health of the American economy. To summarize: financial activities are prospering, while real productive activities are struggling. Inequality is rising. None of this is the result of capitalism or the free market, as some foolish economists will have us believe. To get a sample of mainstream macro-economics thinking, see http://blogs.adventnet.com/svembu/2005/11/26/joining-the-quotreal-worldquot/
The libertarian Austrian School economists have long warned of the consequences of inflationist monetary policy. What we are witnessing in America is a Federal Reserve-induced perversion of capitalism and free markets. The mainstream completely misses the debt-induced nature of America’s “growth” and the long term erosion of competitiveness. It falsely attributes the loss of productive capacity, the stagnation of incomes at the lower levels and the rising inequality, to globalization, when in reality it is the financialization of the economy that is causing this (Germany and Japan, even with numerous other problems, have retained their engineering productive edge).
I am afraid that the Federal Reserve now poses a risk to capitalism itself, because if this goes on unchecked, populists of all stripes will emerge to sell their usual socialist quack remedies, repackaging them under different names.
Here is an excerpt from Janszen’s article (highlights mine):
| Quote: |
| All these [business] leaders understand, but never admit, that the motivation and incentive for Americans to resolve these critical problems�to improve our education, healthcare, and energy systems; to control our debts, live within our means, and so on�have been gradually reduced by the U.S.-dominated global speculative financial system that they themselves have helped create.Welch of GE, in his book Winning, describes how pleasantly surprised he was to learn (in the late 1970s and early 1980s) how easy it was to make money in financial services as he sold or shut down GE’s industrial businesses. He not only became very wealthy by doing so, but also came to symbolize an entire era.
The reality is: why should Gerstner really care to do anything about education, when his private equity firm can buy a public company, “fix” it via financial leverage and layoffs, and then sell it for a quick profit to individuals and pension funds made both desperate for yield (by years of accommodative Fed rate policy) and oblivious to risk (from decades of Fed bailouts every time a poorly conceived, high-risk investment failure threatens the so-called “real economy”)? For that matter, why should ambitious American students study physics, engineering, and math (except perhaps to become Wall Street “quants”), when it is so much easier to make money speculating in real estate, stocks, and everything else, including untenable IPOs for companies that are unlikely to ever be profitable? Why should corporate CEOs worry about American education, science, and technology, when they can simply “downsize” and “outsource” to Asia, greatly enhancing the value of their stock options and, at least in the short term, shareholder value? Why should any corporate leader be surprised that, 25 years after the magic of making masses of money from government-protected leverage and guaranteed liquidity, the process has come full circle? The financial corporations now dominate the private sector’s ability to generate profits. At the same time, we are witnessing the slow death of industrial giants like General Motors, which for decades stood as the world’s premier industrial corporation. … For obvious reasons, no one in power ever makes this simple link between the U.S.-dominated global speculative financial system and the diminishing motive for Americans to innovate and create new goods and services. This is the reason why clearly needed economic, social, and political changes are not forthcoming. Instead, the so-called solutions to the problem have become a shell game of retraining and social safety nets. While the global speculative financial system shifts U.S. assets and productive capacity (and thus wealth-generation capabilities) overseas, the average U.S. household is losing its ability to generate real income in the domestic economy. About 80% of the U.S. labor force has seen real weekly earnings decline 16% over the past 33 years, according to government statistics. Meanwhile, the global speculative financial system has pushed income inequality to all-time highs, with over 50 percent of 2004 income going to the top fifth of U.S. households, and the biggest gains going to the top one percent. … But printing money to inflate asset values creates no new real wealth. Econ 101 taught us that true wealth creation can only come from real income generated by the real production of innovative, new, real goods and services that improve productivity and generate domestic savings, which are in turn re-invested into the economy. … Now that the U.S. economy has lost much of its ability to generate high-paying jobs outside the business of asset speculation, U.S. workers inside the goods and services sectors (the making and doing part of the economy) are being asked to “share the burden” via more cuts in retirement and health plans and essential services, all the while leaving untouched the huge gains of the one percent at the top of the wealth and income pyramid, already enhanced by Bush’s tax cuts. … After more than 25 years of this, is it any wonder that the entire U.S. economy has organized itself to conform to this financial model: a gigantic, risky, one-way bet that uses trillions of dollars of credit and massive leverage, relying on the savings of foreign workers to fund the bet and the foreign central banks to cover the risks? |
I couldn’t have said it better. Thank you, thank you, thank you, Eric, for speaking out.