Tag Archives: capitalism

The Most Subversive Thing You Can Do Is…

Nothing.

Wait, what?  Nothing?

Yes, that is right, do nothing.  I do not mean do nothing in a political or activist sense.  Good lord no, please make sure that your elected representatives know very clearly what you think of their behavior in office and how that is going to make you vote in 2018.  Make their lives unpleasant by actually showing up to their town hall meetings—assuming they actually schedule town halls in their districts unlike Rod Blum—and let them know how displeased you are with their proposed legislation and Donald Trump.

When I say do nothing I mean stop participating in the consumer driven shell game.  Our consumption of stuff just feeds the beast.  We can rail against the political machine in Washington D.C. as much as we want but as long as we are filling our shopping carts the wheel will keep on spinning.

Do you think Exxon Mobil really cares about protests?  Not really.  They would care however if a measurable percentage of their customers stopped buying gasoline because they were commuting by bike.  How many?  Enough to flatten their growth curve and cause investors to panic.  Looking at the current state of oil markets a drop in demand of 5-10% is enough to cause major perturbations in price.  Could you reduce your personal consumption of gasoline by 5-10%?  Heck, all of us could probably do that without thinking.  No one is saying that you need to stop driving entirely, just reduce it by 5-10%.  The upside is that it costs nothing to do less driving.

Do you think WalMart really cares about anything other than its quarter versus quarter results?  Not really.  However, given that the counties that supported Hillary Clinton account for ~64% of the nation’s GDP if those voters were to stop patronizing WalMart the results would be staggering.  Remember, the game is now about growth and if companies cannot show a path toward growth the market will punish them.  Look at coal companies.  Once these companies could no longer show a clear path to growth, never mind declines in demand, the market punished the companies by withholding capital and the coal companies began declaring bankruptcy.  It costs nothing to not shop at WalMart.

Political activists constantly harp on us to “vote with our wallets,” but it is much more effective to vote by not opening our wallets.  Just shifting our spending from one faceless corporation to another is not going to create any kind of meaningful change.  If over a short period of time there was a measurable decline in consumer demand for stuff you would see some real change.  Granted, Republicans would probably start trying to pass legislation that guaranteed WalMart a certain amount of income because they love welfare when it is for corporations.

Doing nothing when it comes to consumerism is subversive because it goes against the dominant paradigm in modern America.  Heck, when we were facing the greatest existential threat to the United States in a generation George W. Bush implored us to go out and shop.  A stirring call to action this was not, but it does represent what passes for action in the minds of modern politicians.

Step back from the cash register and do nothing.  Put that book down and check out something from your public library.  Avoid that trip to the mall and see what unused items lurk in your closet that would be better served as a donation to the Salvation Army.  Resist the urge to go out for dinner and be truly revolutionary by cooking dinner for a group of people.  Heck, that may be the most revolutionary thing you could do because nothing smacks of “commie socialism” like sharing a meal with a group of people and expecting nothing return save for good conversation.  I can read the tweets from Donald Trump already “Sad.  Dinner without tableside service so un-American.  Mar-a-Lago will always be tremendous.”

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You Must Read—Flash Boys

The haves enjoyed a perfect view of the market; the have-nots never saw the market at all. [Page 69]

There was a moment in business school when I realized that I looked at the stock market different from almost everyone I would every meet in the hallowed halls of future MBAs. In a discussion with our first-year finance professor I made the assertion that the appearance and behavior of modern stock exchanges appeared to be strikingly similar to sports books populated with degenerate gamblers. There was never a compelling counter argument and as the financial crisis in 2008 unfolded I felt somewhat vindicated after taking some major heat for the rest of that semester. Not that I am bitter.

Flash Boys Mech 3p_r3.REV.for cat.inddWhat we did not know in 2008, but is strikingly apparent now is that the way modern stock exchanges work is rigged against the average investor and even the large institutional investor for the express gain of a class of predatory traders. Michael Lewis, the author of Moneyball and The Big Short, details the nature of high frequency trading (HFT) and one exchange’s efforts to circumvent the trend in Flash Boys.

The lens through which the evolution of exchanges as tools to serve the interests of HFT is Brad Katsuyama and the exchange he founded, IEX. This is not a happy story in that you will be stunned at how certain firms are given a no risk way to extract money from financial markets, essentially a tax on capital formation, for nothing more than the cost of high speed computers and transmission equipment. Furthermore, many firms will make choices counter to the best interests of their clients in the name of making commissions and kickbacks. In essence, HFT has distorted the market to make it incredibly inefficient.

Proponents of high frequency trading will make all sorts of arguments trotting out Wall Street boilerplate about liquidity and capital flow. It’s all bunk because they are motivated to make money, not make the markets liquid or provide you a way to amass capital for business purposes. If they could make the same amount of money slapping themselves on the internet you would see a flood of well-dressed Ivy League pukes posting short videos of slapping themselves silly. Too often pundits and commentators get lost in the processes of Wall Street when they need to realize that all that matters is the result of making money. All decisions are made with that in mind. It is the prime directive.

The funny thing about HFT is that it is perfectly legal for these firms to manipulate the market to extract their financial tax. If you or I acted on a piece of information that the rest of the market did not have access to then it would probably end up being insider trading. If an HFT firm does the same thing in millisecond and nanosecond time frames then it is considered perfectly legal. It helps that there is a veil of secrecy about the exact mechanics of HFT and regulations are byzantine enough to provide cover for the activities. Always be suspicious when a guy in a five thousand dollar suit puts up his hands and says, “Hey, I’m just following the law.” No one believed it when the people doing the same thing had names like Al Capone or Meyer Lansky and there is no reason why we should believe the people doing the same thing on Wall Street.

What Flash Boys really turned me onto was the idea, not promoted in the book by the way, that we should not trust our future, primarily 401Ks for most of us, to the vicissitudes of Wall Street greed. Our financial future needs to have a foundation built on something other than the gussied up sports books breathlessly promoted by CNBC. I believe that future looks like a place where people rely less on debt and achieve security through community. Sure, it’s a little utopian but spend a couple nights reading Flash Boys and you might be selling out to join a commune.

By the way, since cancelling pay television I have been cranking through the books.  My reading list went from long to wanting.  Sweet.

You Must Read—Cornered: The New Monopoly Capitalism and the Economics of Destruction

Did you pay attention during macro-economics your freshman year of college?  Not really, because you were too busy reading a copy of the student newspaper or checking out someone two rows down in the giant lecture hall assuming you even made it to the lecture…oh wait, that was me during macro-economics my freshman year.  Whoops, my bad.

9780470928561Regardless, you should read Barry C. Lynn’s Cornered: The New Monopoly Capitalism and the Economics of Destruction.  Why?  Because it is absolutely frightening on so many levels.

If you remember 2008 and “too big to fail” and the fact that many people thought we were on the precipice of economic Armageddon you need to read this book.  Sure, it’s dense and filled with passages that seem to evoke the semantic stylings of the worst of academic prose.  But, at the core, the book is telling a compelling story about the fundamental flaws in the structure of the modern economic system.

The problem, as the title of the book implies, is monopolization of the global economy.  Essentially, the efforts to restrict the concentration of economic power in the hands of very few entities has been resisted since the founding of the United States but recently has been undone as a founding bedrock principle.  Thus:

That’s why we have never before seen such power to govern our industries concentrated in so few hands.  That’s why we have never before seen such physical concentration of production—be it of vitamin C, wheat gluten, heparin, or aspirin in China, of semi-conductors in Taiwan, or of package sorting capacity in Memphis.  That’s why we have never before seen such a lack of compartmentalization of our systems and therefore such a socialization of the risk in these systems.  That’s why we have never before seen such top-down competition and thus the destruction of so many real assets, skills, and products enclosed within the fences of these corporations.  That’s why we have never before faced such a lack of real options. (Page 12)

The concepts of the free market have been corrupted by the very people who claim to practice at its altar.  You cannot question the CEO of a Fortune 500 company because he, and it is mostly still a he, is the CEO of a Fortune 500 company.  Of course he is an ardent proponent of the free market.  Hogwash!  Corporations love monopolies.  Why?  Because monopolies are fantastically good for the company that possesses the monopoly.

The scary thing is that even the patron saint of the free market, Adam Smith, was abhorred by monopolies:

Monopolists, he wrote, raise prices, suppress wages, distort investment, unsettle international relations, pervert the functioning of markets, and are “enemies of good management.”  Then, his eyes fixed squarely on the East India Company’s predations in India, Smith wrote that monopolists sometimes destroy men, governments, and nations.  Any law, he concluded, that aids the monopolist—and all monopolies are direct or indirect products of law—“may said to be all written in blood.”  (Page 100)

Damn, Adam Smith layeth the smack down upon the head of the monopolist.  Too bad the current crop of free market acolytes did not get the message.  Maybe actually reading the texts they parrot was too difficult, so they trusted ALEC to come up with an abbreviated version for legislators.  Trust us, the lobbyist said, we love the free market.

The silver lining in all of this is that monopolies can and do fail.  Does anyone buy product from the East India Company anymore?  Nope.  The excesses of monopolies, a natural outcome of having complete control, are in many ways the seeds of their own destruction.  If power corrupts, then absolute power corrupts absolutely.  The challenge in the modern era is that so much of our economy is intertwined between various monopolies that a failure of a single entity threatens ruinous calamity upon the whole of the system.  Thus, too big to fail.

Cornered can be a bit of a downer—don’t read it after watching Game of Thrones—but the message is compelling.