Wednesday, November 3, 2010

Nominal Man

From the Automatic Earth website, Dan Weintraub has offered a two part essay on what he calls: The Nominal Man. I offer it here complete as I find his tone or resigned acceptance a lesson for all of us as we enter what I beleive to be a period of increasing costs and decreasing expectations. This gap between the belief that our economy will be round after round of ever increasing expansion and prosperity and the reality of shrinking wealth and dimming prospects has to be faced rather in the way we face the imminence of death, by passing through stages. Much of the population is in denial and has yet to deal with anger and bargainaing etc before reaching Weintraub's stage expressed here of acceptance. It has occurred to me that as we slip back into poverty we lose our status as middle class consumers, people whose spending drives 70 percent of the US economy (we are told). Instead we become serfs and our rights as citizens are curtailed by unemployment, actual or threatened, homelessness and insecurity. Those features of impoverishment that we have attributed to life in the lower classes, generally defined by a color bar, will now be features of life among unemployed and unwanted whites, people with useless skills and no value to the classes that run the country. Our credit fueled wealth is gone, real estate has lost meaning and jobs are restricted to the few who provide services for the rich. Weintraub's response is patient, resigned acceptance. His guru might be proud of him. I'm not, but I have no better solutions to offer him in his terminal dilemma.

I am a nominal man living in a real world. Yesterday, I spent $16 on a bag of whole-grain rice, a bag of beans and a hunk of cheese.

One goal of the Federal Reserve’s quantitative easing policies is debasement of the dollar. It is often argued that a weak dollar – relative to other currencies – promotes our supposed export-based economy. Lest we forget, however, our $14-trillion-plus economy is 70-percent consumer-dependent. The most productive capital in the U.S. was shipped overseas long ago. Economic growth over the past three decades has been predicated not on the creation of productive capital, but on access to cheap credit, and thus on consumer spending. The United States, despite beliefs to the contrary, is no longer an export-driven economy. And I remain a nominal man living in a real world.

While the world operates on numbers, I subsist on the relative value of those numbers. For several months now, commodity prices have been rising – and not just those of precious metals. The price of wheat, of cotton, of coffee, of cocoa: all rising sharply. But why would the price of commodities rise when a contracting global economy should equate to a decrease in overall demand (and thus to falling prices)? Commodity prices are rising because investors increasingly believe that the relative value of their financial assets is no longer assured. In a global financial system rife with fraud, in a system teetering precariously close to the brink of an all-out currency conflagration, investors and speculators are abandoning financial assets in lieu of commodities because these same investors believe that the world’s central banks are bent upon destroying the purchasing power of their money. And still I remain a nominal man living in a real world.

I am a middle-class citizen. I make a modest wage teaching history at a local independent school. Like many in the middle class, my nominal monthly income purchases less of the real goods and services that I need in order to get by. I understand that the federal government ultimately must increase its tax revenues in order to subsidize its growing debt-service obligations and to pay for an ever-expanding pool of necessary social services (unemployment insurance, food stamps, etc.), but the real impact of these tax burdens hits those of us in the middle class the hardest. For members of the shrinking American middle class, a seemingly modest nominal tax increase of perhaps $100 a month is, in real terms, far more expensive than the numbers convey.

I understand why economists like Paul Krugman are calling for trillions more in government spending. Fiscal austerity disproportionately hurts the middle class and working poor, and political extremists and opportunists are famous for promoting their nativistic and self-aggrandizing agendas while skyrocketing unemployment hurls millions of citizens toward the abyss. But in our credit- and debt-subsidized economy, virtually all stimulus monies are created, either directly or indirectly, by the Federal Reserve through its open-market operations – in this case, through the monthly purchase of billions of dollars in government securities.

And while such actions may increase systemic liquidity in the near term, these policies of debt monetization also further destabilize the world’s already shaky currency markets. As more people lose trust in the long-term viability of the world’s currencies, more people “buy” commodities. In other words, you may not be able to trust the value of the dollar from one day to the next, but you can always rely upon the hard value of such assets as food and energy. And so, one by one, investors abandon financial assets and move toward commodities, and as they do the price of commodities goes vertical. In nominal terms, this is disastrous for the majority of Americans who subsist on fixed incomes. In real terms, it is far worse. This is but one of the unspoken impacts of our government’s stimulus policies.

I am a nominal man living in a real world. In the real world, trillions more in government stimulus has no substantively positive impact upon my life. In the real world, a 2-percent cost-of-living (wage) increase for someone earning $40,000 per year, in terms of cost inflation, more closely resembles a 2-percent reduction in pay than it does a “raise.” In the real world, the majority of government stimulus monies are used by the largest and most powerful financial institutions to drive up the cost of those very commodities that the majority of us find increasingly difficult to afford. In the real world, as access to credit contracts (real deflation) and as the prices of food and energy increase, austerity arrives regardless of the Federal Reserve’s policy decisions.
I am a nominal man living in a real world, and in my world the numbers just don’t add up.

I graduated from college in 1985 with a degree in history. In 1991 I received my Master's degree in Education. Since that time I have worked as both a teacher and a principal in public and private schools in Massachusetts, New York, Texas and Oklahoma.

In my history classes in Oklahoma City we are studying and discussing the “Panic of 1873”. In a nutshell, the economic collapse of 1873 was caused by years of loose railroad financing, at the end of which time too much speculative investment and credit chased a limited amount of capital. The results were disastrous. Financial and social chaos ensued. Amazingly, today’s credit crisis, in both scope and number, is far more dramatic. As a result, tens of millions of Americans are increasingly forced to confront the twin and daunting phantoms of staggering cost inflation and a simultaneous lack of access to money and credit.

Our political leaders promise recovery. But history tells us that the hard times that follow the collapse of credit “booms” do not end overnight. Over 41 million Americans currently receive “food stamp” subsidies, and an estimated 1 in 5 American children lives in poverty. America is entering an era which will be defined not by economic recovery, but by ever-expanding and increasingly rigid class distinctions. The line between those in the “monied” class and those in the “non-monied” class is becoming increasingly stark, and we who comprise the so-called middle class are quickly finding that we must dramatically alter our vision of the future.

I have two children: a daughter who turns 9 this week and a son who is 7. My daughter is brilliant. She enjoys poetry suffused with alliteration and metaphor. My son has quite significant special needs. He likes Thomas the Tank Engine. My wife and I agree that, all things being equal, he will never be capable of living on his own. My children attend public school. My son receives significant special education support: costs that are primarily borne by middle class taxpayers in our town.

At some point that support is going to end. Either the federal government will end it by scaling back (or eliminating altogether) the fiscal demands placed upon communities via the Individual with Disabilities Education Act, or the citizens will end it by refusing to subsidize the exorbitant special education costs associated with helping such children. People in my home town love my son. At some point however, with their backs against the financial wall, people in my home town may well refuse to hand over their increasingly precious money to pay for educational services for my son.

And frankly, who can blame them? In a world in which 500 trillion dollars in counter-party obligations vis-à-vis trading scams in derivatives and other exotic financials lurk in the shadows of the financial industry, and in which government subsidized gambling casinos most euphemistically referred to as “stock markets” are juiced by cheaters employing HFT software applications, and in which the sham of the Federal Reserve System and the disaster of Friedmanite thinking and policymaking are worshipped on the alter of avarice by men of great wealth who are the sole beneficiaries of such a system, and in which the declining availability of credit and the perversion of fractional reserve banking threatens to destroy any middle class savings that might remain intact, and in which the total and complete failure of fiat currency is an inevitability, and in which all of the banks of the world are, essentially, bankrupt, I can understand why people might find themselves incapable of subsidizing my son’s special education needs.

In fact, I can understand why an entire generation of formerly middle class wage earners might balk at funding anything promoted by a government that treats the “rule of law” like a running inside joke. In a world in which virtually all real capital in the U.S. has been summarily destroyed, while the CEO’s of Wall Street have reaped their billions through rampant bond speculation and governmental check-kiting, fraudulent accounting, fraudulent valuation, and fraudulent mortgage under-writing, I can understand why the middle class may very well balk at participating in this ongoing charade that we so casually refer to as our Constitutional Democracy. But I digress.

This year I’m working in Oklahoma. I spent 18 months looking for work closer to home, but jobs are tough to find. Public school systems have to contend with significant cuts to their operating budgets. Teachers who may at one time have considered early retirement are holding onto their jobs, particularly in light of shrinking pension and 401K funds and plunging home values. The few vacancies that exist are generating hundreds of inquiries and applications. With my twenty plus years of experience, and in light of union labor contracts that stipulate strict pay levels for educators, I am seen as being far too expensive for public school systems to afford. Why hire a seasoned professional for $45,000 when an exuberant, bright college graduate can be paid $20,000 to do more or less the same job? (It’s a fair question.)

Our political leaders tell me that my job outlook will change as the stimulus takes hold. The primary problem with debt-subsidized government spending, however, is that it does little to actually stimulate real productive growth. Government spending may keep critical lifelines for the poor in place for a time, but these monies do nothing to increase the nation’s productive capacity. They do nothing to fix a system that has witnessed the largest credit and debt expansion in the history of civilization. The economic realities that we face today are quite chilling. And despite claims to the contrary, our fraudulent and fatally flawed money-as-debt economic system---of which QEII is but a logical and nefarious extension---benefits an increasingly small percentage of citizens. The overwhelming majority of money created through the Federal Reserve’s policies of quantitative easing makes the rich richer and middle class poorer.

And so, what now? I recently purchased 13 acres of wooded land in far Northern Vermont for $4,000. My plan is to find a used mobile home or camper to place on the property. I will grow some vegetables. In today's economic environment, in which the Scylla and Charybdis of cost inflation (food and energy costs in particular) and lack of access to money (cash and/or credit) puts the squeeze on the middle class, modest monthly paychecks do not go far. Housing costs, food costs, energy costs---it all adds up quickly. This summer my son will come to the woods of Northern Vermont with me. There he will learn how to wash his clothes by hand and how to dry those clothes on a line. He will learn how to plant and harvest carrots and zucchini and radishes. He will not go to camp. We can no longer afford camp. Instead he will come with me to the farmer's market, and he will watch me barter our vegetables for meat and eggs and cheese.

Don’t get me wrong. While it may sound like it, I’m not complaining. Perhaps I will find such a lifestyle comfortable and fitting. The thing is, I didn’t choose this path. And neither are millions upon millions of middle class citizens who are watching their future plans disintegrate before their eyes. I didn’t plan upon living in a trailer in the woods of Northern Vermont. I didn’t expect my job prospects to evaporate in a haze of financial fraud and government duplicity. But my experience is in no way unique. We who comprise the American middle and working classes are getting poorer by the day, and the futures that we imagined for ourselves and for our families are fast becoming far flung fantasies.

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