Breakfast at Tiffany's (Updated)

Earlier this year, after I mentioned the ghost that prowls the Federal Reserve building in Washington after midnight, Sleepless in St. Louis asked if I'd known this by contacting the ghost through my famous Ouija board. No, and I'm afraid my relationship with the Spirit World has not been too good in recent years.

There was the time I was trying to investigate the Burned Korans Incident at Bagram Airfield on account of an unnamed NATO official had insisted to the Associated Press, at the conclusion of an official inquiry, that no Korans were burned.  While pursuing a line of speculation I asked Ouija to tell me the temperature and amount of snow on the ground at Bagram on the date of the alleged Koran burning.

My spirit contact, a dipsomaniac Prussian general, replied with the number of frostbite victims in Napoleon's army at the Russian Front.

From this I gathered the Spirit World doesn't appreciate being used as an intelligence asset. Then there was the unfortunate business with Charlotte. It turns out that a rule for getting along with the Spirit World is never leave a possum alone with an Ouija board.

"I was just trying to contact my departed mother." More like her departed bookie. But then I never told you about the dark side of the possum member of my foreign policy team. As to what a possum can possibly do with unorthodox gambling proceeds -- I have no idea, unless a possum inveigles a softhearted human to hire a limousine to drive her to Tiffany's in Chevy Chase.

As soon as they see the limo: Quick, get the velvet pillow and the donut!

They stock up every morning on her favorite, Krispy Kreme lemon donuts, just in case she decides that today is the day she'll have breakfast at Tiffany's.

Awright, Pundita. Stop it. Just stop it. Back to work. Oh but wait, I see I've run out the clock on researching banking regulation issues, at least for one day.  What a shame. 

Update

Charlotte was a bit put out with me after she read that I'd termed her gambling "illegal" in the first version of this post.  (If you've never heard of a possum who can read, well you're hearing of one now. How else could she work an Ouija board?  She told me her wagers were "unorthodox."  You know where she got that from, right?  Of course, from reading that IMF chief Christine Lagarde had termed Ben Bernanke's massive quantitative easing program "unorthodox" monetary policy.  [sighing]



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War by another name. "Goodbye, globalization. Hello, Balkanization."

Financial Times, March 23, 2013:

Apple tax probe helps drive to build consensus on global regime

"... He said: “It is a trade war by another name – fought with income tax policies rather than tariffs. You can't assert leadership in moving to a more economically neutral and appropriate paradigm if you are knee deep in the game.” ... Big companies with well-known brands are exposed to the risk of a consumer backlash if they pay little corporate tax in countries where public opinion is running strongly against tax avoidance. In extreme cases, changing their business models in a way that exposes them to larger tax bills ..."

Miyanville via USA Today, September 27, 2013:

Amazon, Apple face more international taxes in Europe

It's no day at the plage operating a giant, successful, multinational American company, once you've run up against some very un-American notions about tax policy from abroad. Such as the "data tax" on Amazon, Apple, Facebook and Google, about to be proposed by France for adoption by the European Union.

Apparently, France would like to impose a data transmission tax on those companies -- and only those companies -- because they are the dominant platforms for Internet usage in Europe just as they are in the US, but they are "non-European," that is, American. Their dominance therefore prevents European competitors from emerging from obscurity. (How taxing the most popular sites will make other sites more popular with consumers is not clear.)

A French member of the European Parliament tells the Wall Street Journal that a data tax should be imposed because the European nations have become "just the puppets of financiers and multinationals." [...]

Bloomberg/Business Week, September 19, 2013:

The Fed wants bigger cushions for U.S. units of Deutsche Bank and others

The world’s biggest banks paint on a vast canvas. Many operate with a single, global balance sheet, raising money where it’s cheapest and investing it where it earns the highest return. So in certain countries, banks can have more liabilities than assets. Regulators allow them a free hand on the assumption that if one of their national operations runs into trouble, the home office will quickly route it all the funds it needs.

Daniel Tarullo doesn’t think that’s such a good idea. And as the point person for regulation on the Federal Reserve’s Board of Governors, he has sway in saying no. Tarullo is part of a wave of national regulators who are “ring-fencing” national banking operations -- insisting that they have a thick cushion of capital locally. The Fed doesn’t want to have to beg other central banks for help if a foreign bank in the U.S. suffers a funding crisis. Goodbye, globalization. Hello, Balkanization.

In December the Fed proposed a rule, shaped by Tarullo, that would require the U.S. units of foreign commercial and investment banks to have assets on their books well in excess of their borrowings as a buffer against losses. They can still lend and invest abroad. But the value of all the subsidiaries’ assets, whether inside or outside the U.S., has to be greater than their liabilities such as bonds, repo borrowings, or bank deposits they’ve taken in.

Although the U.S. wasn’t the first country to propose ring-fencing, the move stirred opposition because the U.S. is a vital market for global banks and, traditionally, a defender of the free flow of money across borders. Michel Barnier, the member of the European Commission who oversees financial services, wrote to Fed Chairman Ben Bernanke earlier this year that the plan could trigger an international backlash and “fragmentation of global banking markets.” What seemed to bother him most was that the Fed didn’t trust its foreign counterparts. “Trust among regulators,” he wrote, is “essential.” [...]

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Ya mean there's no currency war?

Responding to a critic who disputes my claim that Ben Bernanke's quantitative easing experiment is a form of currency war. I'll grant there are different schools of thought on the issue. In February, when the issue heated up, The Economist jumped into the fray with the headline Phoney Currency Wars: The world should welcome the monetary assertiveness of Japan and America. The World Socialist Web Site retorted with G20 Issues Empty Declaration Against Currency War

But the G20 confab in Moscow in February settled the debate. The G20 members decreed that it's not currency war if a currency's value is driven down by a government in the effort to address purely national needs. That shut up the ASEAN members who were complaining that Japan's massive QE program, which copies the Fed's, is currency war.

Now let's see how we can amplify on the G20 clarification of currency war by putting it in a sentence. The Nazi annexation of Poland was not war; it was simply that Germans needed more space.

[flipping a pen in the air] My critics can do better than this.

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Thank God for Bach

Whatever possessed me to take on the chore of explaining the new era in plain  English?  Next time, Pundita, why don't you try something simple, like organizing an expedition to Mars?  My poor brain; all it wants to do is go outside and play.  The only way I'm keeping it from staging a rebellion is by piping in Johann Sebastian Bach's compositions. Such an orderly man. Such an orderly life. Do you know why Bach  lived an orderly life? Because he was smart. He never took on more than he could chew.

Yet what use is whining at this stage?  In the immortal words of Dave Ronfeldt, onward.  Where's the link to his blog?   But then I'm sick of links; I have them piled to the ceiling.  It's the Two Theories Blog. Why not four theories?  Awright, Pundita, don't take out your bad mood on Dave.  Do you know what people are doing right now my city, in Washington, DC?  Smart people?  They're sitting in outdoor cafes, sipping margaritas and enjoying the glorious Indian summer evening. 

[flipping a pen in the air]

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Remember: economics is bloodless. A lesson from the U.S. Federal Reserve's role in the uh, "Arab Spring"

Law professor and political scientist Stephen F. Diamond was clearly unaware that there's no blood in economics when he lit into the Wall Street Editorial Board this July for recommending (on the Fourth of July, no less!) the installation of a Pinochet knockoff in Egypt to stabilize the Egyptian economy.  After summarizing the atrocities committed by the Pinochet regime Steve wrote:

"Either the Journal has been struck by some kind of severe cognitive disorder that allows it to paint over the history of one of the most brutal regimes to have ever ruled or they really mean it. If the former, they owe their readers and the Chilean and Egyptian people an apology and should retract the statement. If the latter, then they are in fact the leading edge of a new fascism emerging here in America."

Steve needs to get with the program. In the new global order there is no such thing as fascism. As I explained in 
the Brave New Global Economy post, the only types of government are a) economically stable ones and b) unstable ones.  Secondly, the WSJ board was just trying to be helpful, as this passage from the editorial indicates:

"Washington can also do more to help Egypt gain access to markets, international loans and investment capital."

That's the ticket!  Emerging economies can't prosper unless you first provide them with enough jobs, and you can't create enough jobs unless the economies increase their "foreign direct investment."  From that viewpoint it makes sense to recommend the installation of a leader who will delete statistical anomalies that make a big deal about not wanting to accept economic prescriptions that are good for their economy.

If Steve wants to argue that it wasn't statistical aggregates Pinochet deleted, it was people -- ah, but if those people have no real existence apart from the economic collective, well, you hire workers from the low-income demographic to mop up the blood, then you talk about the benefits of applying your mathematical models to the next generation of statistical aggregates.      

I don't think it's much of a digression to mention that if the Wall Street Journal is actually interested in helping Egyptians, it would ask Federal Reserve Chairman Ben Bernanke to stop his quantative easing experiment to stabilize the U.S. economy -- or as IMF chief Christine Lagarde calls it, "unorthodox monetary policy." 

Now why would stopping QE help the Egyptians?  QE is not all that unorthodox; only the huge dollar amount and long duration of Ben's version of QE is unorthodox. QE is known by another name: exporting your government's debt. This practice can have all kinds of weird consequences, as happened in the region that in the old era was called MENA -- Middle East North Africa. Take one example, summarized in Stephen Maher's November 2011 piece for Monthly Review titled The Political Economy of the Egyptian Uprising:

"In the year leading up to the revolutionary uprising, food prices in Egypt jumped another 30 percent, despite increased government subsidies put in place after the 2008 riots. This rapid rise in prices was at least partially driven by the decision of the United States Federal Reserve to undertake a nearly $2 trillion Quantitative Easing program, flooding the market with liquidity and inflating the prices of assets valued in dollars. This meant a sharp rise in commodity prices, which hit poorer countries the hardest.
[...]
Seeking to stabilize the system in the midst of the 2009 crisis, Western financial institutions simply relocated it: the uprisings that spread across [MENA] were partly fueled by this spike in inflation (the inflation rate in Egypt doubled in 2009)."

So to bring the Wall Street Journal Board up to speed:  Augusto Pinochet didn't have to deal with Bernanke's QE experiment; if he had, whatever improvements in Chile's economy that came from his ramming through economic reforms wouldn't have happened. Instead, he would have found himself in the same boat as the Gamalists: frantically trying to bail out an ocean of liquidity spewing from the Federal Reserve.

While I'm on the subject of Egypt, I might as well mention another point to the WSJ Board.  There's a widely held theory in Egypt (and here at Pundita blog) that the Gamalists were booted out of the government just because they were devotees of the very same economic prescription that the WSJ now recommends for Egypt.(1)  The Gamalists had to go because their "neoliberal" economic practices (and the cronyism that evolved from it) were threatening the land holdings and business enterprises of Egypt's generals. From that point of view, which is also my point of view, the ouster of Gamal's father, Hosni Mubarak, was just collateral damage in the purge of the Gamalists. 

After the coup the generals reinstalled in Egypt's government those neoliberals who'd learned to play ball. However, they're still up against the Fed's QE program, which hasn't abated ostensibly because it still hasn't met the Fed's economic targets.

Exporting your government's debt is another way of saying that you're driving down the cost of your nation's currency so that other countries will import more of your goods. The theory is that this practice will bouy your stricken economy.  However, the theory was never meant to be applied during a catastrophic financial crisis that engulfs many of the world's nations.

Bernanke overlooked this striking fact, with the result that his experiment bouyed not the U.S. economy but the U.S. dollar and specifically currency and commodity speculators here and around the globe. The result was that the U.S. dollar became a hot commodity fueling a U.S. stock market boom -- and the collapse of more than one government in MENA.

Ironically both the Tunisian and Egyptian regimes at the time of their ouster were pursuing the very economic policies that the Wall Street Journal wants an Arab version of Pinochet to ram through in post-Gamalist Egypt.  The WSJ Board might want to put that bit of recent history in their pipe and smoke it. 

The grim reality is that the Gamalists had been caught in a vise of events. Even as early as 2010 they'd realized they had to ease up on the pace of neoliberal reforms -- not to placate the generals but because the reforms hadn't translated into enough jobs fast enough, leaving many Egyptians still stuck in dire financial straits.  Yet the Gamalists found themselves frantically bailing water as Egypt (along with many other emerging economies) took the full brunt of Federal Reserve monetary policy.

One more point:  The passage I skipped over in the Maher quotes mentions an argument by David Harvey, author of The Enigma of Capital, which is that "capital cannot solve its crisis tendencies but merely moves them around," as Maher puts it.  I haven't read Harvey's book but if he (or Maher) is trying to pin Bernanke's manic quantitative easing on capitalism, he'd get an argument from me.  The huge size of Ben's experiment tags it as straight-out currency warfare gussied up in fancy economic jabber.

1)  DON'T click on that link unless you know a lot about the controversies surrounding neoliberal policies or else you'll get completely confused. I just grabbed that illustration at random, for readers who're unaware that the real target of the 'revolution in Cairo' was the Gamalists.

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Housekeeping Notes

Last night I mistakenly posted a draft of O Brave New Economy! instead of the final version. The mistake was corrected at 2:20 this afternoon. The post has a linked list of all the earlier ones in the economic collectivism - police state series. The grand total for the series is 7.

A few days ago I revised From Tofu to Police State; with regret I deleted most of the discussion related to the foreign policy team because it distracted from the theme of the post, which was to expand on the definition of economic collectivism. I also gave the post a place (#4)in the ECPS series.

I reopened the comment section and it was immediately hit by waves of spam. I've kept the section closed for most of this blog's existence, which has spared me a great deal of hassle, and I might have to close it again, or else set up a lot of hoops to jump through, which discourages many readers from posting a comment. For now the section is open.

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O Brave New Global Economy! Part 7 of "From Economic Collective to Police State" (REVISED 2:20 PM 9/26)

The Language of the New Order

The first thing about surviving the new order is to learn the basics of the lingo.  This is so you don't stick out like a sore thumb from the economic collective and get mistaken for a statistical anomaly:

1. The U.S. republic is now the economy. By the way it's gauche for an American to put "U.S." before his own economy; only demographics in other economies should do that.  To distinguish your demographic's economy from others you can refer to it as "the domestic economy."  

2. There is no more "world." There is now the global economy.  The only people who can use "world" are high caste demographics who must dumb down explanations about the new order for lower castes.  (It is out of bounds to ask why there are castes in an economic collective.) 

3. Global economic regions are no longer referred to by their geography. There are now only two regions: mature economies and emerging economies (or emerging markets if you're talking fast.)

4. There are no more countries or nations; there are economies, which in a nod to convention can keep their old national designations; e.g., Canadian economy, Mexican economy.

5.  Because there are no more nations there are no more political definitions for types of government; e.g., democratic, fascist, socialist, absolute monarchy, etc. There are financially stabilized economies and financially unstable ones.

6. It's rude to refer to a demographic as "people."

To make sure you know how to use the basic phrases, here is an example of how they can be used in actual sentences.  The following is from an official statement by U.S. Director of National Intelligence James Clapper. He was responding to published evidence that the U.S. government is using NSA surveillance to conduct "economic espionage" against other countries. James explained that the government does no such thing:

We collect this information for many important reasons: for one, it could provide the United States and our allies early warning of international financial crises which could negatively impact the global economy.  It also could provide insight into other countries' economic policy or behavior which could affect global markets.

So one of the nice things about the new order is that no matter what kind of compromising situation you're caught in you can draw yourself up to your full height and say, 'I didn't do that.  I'm doing research to help stabilize the global economy.'
 
Another example, taken from a profile of economist and undersecretary for international affairs at Treasury, Lael Brainard:

Brainard has since served as the principal policy adviser to Secretary Geithner on international economic matters at the Treasury Department. Treasury describes her role as advancing the Administration's agenda of strengthening U.S. leadership in the global economy to foster growth, creating economic opportunities for Americans, and addressing transnational economic challenges, including development and climate change.

If you want to learn more of the new lingo and how to use it in sentences you can plow through the Dodd-Frank Act, provided you have a team of attorneys specializing in financial regulations to translate for you.  Or you can study the transcript of Lael's recent analysis for the Council of Foreign Relations of the global and domestic economies. 

The brass tacks of the new era

For any reader who should ask whether this new lingo is the way they always talked at the IMF -- yes, and at central banks and other economically oriented institutions that have clout with governments. It's just that the IMF's traditional way of dealing with underdeveloped nations is now the way, period. The catch, as I explained in the last post, is that the IMF way is famously ruthless -- famous among underdeveloped peoples as they used to be called.

And so this March we saw the developed peoples of Cyprus staging protests when they found to their bewilderment that their bank accounts had been frozen without warning. They thought things like that are only supposed to happen to underdeveloped peoples. And we saw BBC news anchor Katty Kay demanding of economist Larry Summers that he explain whether the Cypriot Solution would be applied to Americans.  As I recounted in the August 21 post, after a fling at playing Zen Master Larry got down to brass tacks:

In a world where my spending is your income -- if every person, if every nation, tries to save more it just lowers everyone's income.

Those who read the August 21 post know Larry's reply is straight out of the Federal Reserve's playbook of reverse-engineering the 300-year old Paradox of Thrift. But if Larry's words also sound familiar to readers of dystopian fiction -- does this ring a bell?

To maintain the World State's Command Economy for the indefinite future, all citizens are conditioned from birth to value consumption with such platitudes as "ending is better than mending," "more stitches less riches", i.e., buy a new item instead of fixing the old one, because constant consumption, and near-universal employment to meet society's material demands, is the bedrock of economic and social stability for the World State.

That's from a synopsis of Aldous Huxley's Brave New World, written in 1931 and published in 1932, just as the Great Depression was hunkering down for the long haul. 

Huxley didn't see himself as a prophet, from what I read about the novel in Wikipedia; he wrote it to poke fun at H.G. Wells' rosy view of humanity's future.  I'll bet that once totalitarian dictatorships gained steam in the 1930s readers of Brave New World stopped chuckling and so did Huxley.

The totalitarian states were in great measure a panic reaction to the Great Depression. Then, as now, it all comes down to the simple fact that by any which way a government must maintain social order in the face of perceived chaos arising from financial catastrophe.

To expand on Larry's answer he was saying two things:

1.  Damnation visits those who hoard money in savings accounts instead of spending or investing it to help their economy weather a recession.

You will notice he said nothing about the laundering of ill-gotten money or about Russian oligarchs stashing loot in Cypriot banks; it could have been a bunch of Princeton professors for all he cared. Nor did he mention anything about offshore accounts or tax havens. Offshore or onshore makes no difference to Guardians of the Sacred Cow.  Sin is sin, no matter who commits it or why. And the greatest sin is harming so much as a hair on the Sacred Cow's hide, this cow being known as the Paradox of Thrift. To be precise, the cow is the belief that it's possible to perpetually stave off an economic depression by fiddling with the monetary policy to reverse-engineer the paradox.

Makes no matter that the paradox is nonsense or as it's known to attorneys and logicians a reductio ad absurdum argument.  Nor does it matter that reverse-engineering the paradox did nothing to stave off a second Great Depression, which the Fed recast as a Great Recession by shifting around a few percentage points and fiddling with statistics.  What matters is if you kill a sacred cow the world will end and then we'll all go straight to hell. 
     
2.  Larry was also signifying that a new global order had launched.  In the new order no distinction is made between developed and underdeveloped peoples if actions by either demographic threaten to upset the global apple cart, which economists are trying with all their might to keep from toppling again.

(That the same basic monetary policies in force prior to 2007 helped topple the apple cart in the first place and are still in force today -- don't try to confuse a Guardian of the Sacred Cow with facts.)  

Yes, Americans will be treated in the same way as the Cypriots if they have deposits in a 'bad' bank that's considered by a domestic or international regulatory agency to be Too Systemically Important to Fail or Too Globally Systemically Important to Fail. And the authorities for treating everyone the same are right there in Title II of the Dodd-Frank Act and buried somewhere in its international version, if the G20 Financial Stability Board ever gets around to writing up the manual. 

Closing Thoughts

Well, there's nothing left for me to do except give Shakespeare almost the last word in this series on the economic collective and the police state. The title of Huxley's Brave New World is a play on a hilarious scene in The Tempest: having been raised on an island isolated from Civilization Miranda cries out in joy at her first sight of it, which happens to be drunk sailors piling out of their shipwrecked vessel: 


O wonder!
How many goodly creatures are there here!
How beauteous mankind is! O brave new world,
That has such people in't.

And so we find, at the end of all the charts and graphs, that the brave new global economy is the same as the brave new global economy of the Bard's day: a bunch of rascals putting on airs

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Earlier Posts in the Series

America is becoming a police state. What's the solution?

From Economic Collective to Police State: Once Americans ceded control over their financial affairs they lost control of everything else

The Guardians of the Economy make their move

From Tofu to Police State (More about economic collectivism)

Modern U.S. lawmaking and the original police state

The Financial Stabilizers  

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The Financial Stabilizers: Part 6 of "From Economic Collective to Police State"

"An engraving of Robespierre guillotining the executioner
 after having guillotined everyone else in France"

Robespierre with a smart phone

In The Weavers, published Saturday, I took a break from examining the dark side of the new era to pay tribute to its bright side.  To invoke Charles Dickens' view of the French Revolution, the dawn of a new era is always the best and worst of times.  The new era of his day, the Age of Industrialization, was still unfolding in the tumultous "Springtime of the Peoples" that swept across Europe in 1848, which gave rise to the first police state. 

The dawn of a new era can't be ordered, controlled or contained. This doesn't stop guardians of the old era from trying to wrest order out of all the perceived chaos, at least until the new era settles down and aquires some manners. The attempt invariably translates to the "Nobody moves, nobody gets hurt" approach to keeping order -- an approach that has produced the nuttiest (and often the most brutal) regimes imaginable. 

So then the problem is always how to make nuttiness work, at least well enough to prevent a putsch or revolutionary regime from immediately collapsing under the sheer weight of its lunacy.  In this effort luck plays a large role because people who can make nuttiness work aren't around in large numbers.  All the planets have to be properly aligned to produce, say, a Robespierre. 

These types are the enforcers, whose first day in office is always a pile of memos that read the same:  Think of something, before they break down the doors and hang us from the nearest tree. Thinking of something usually translates to a) identifying who has enough money to mount a counter-revolution, b) designating these people as the cause of everyone's problems, and c) making grisly examples out of them.  Thusly, the famous reign of terror, by which vast numbers of disgruntled people are terrorized into putting up with a nutty regime. 

Unfortunately for Robespierre he overshot the mark by ignoring the #1 rule of keeping a reign of terror going, which is to do the grisly example-making mostly out of the public eye and let people's imagination substitute for graphic illustrations of what happens to enemies of the people.  The French populace became so grossed out by Robespierre's Show and Tell method of example-making that it was he, not the executioner, who was marched to the guillotine.

Thanks to modern technology there's no longer a strict need in many parts of the world for mass executions to impose order.  If electronic banking had existed during the French Revolution, Robespierre could have gotten control of the aristocracy with far less gore by relying on a smart phone instead of a guillotine.

That was the lesson of the historic events that unfolded in Nicosia, the capital of the tiny island nation of Cyprus, this March.  Tens of thousands of bewildered Cypriots took to the streets to protest the sudden and unexplained freezing of their bank accounts.  Given the paltry sum of money at issue, the protesters weren't the target; they were collateral damage in a message the enforcers of the new global financial regulatory regime had designed to be read by everyone, not just the Cyprus government and the world's major banks and bondholders.  

The message was the essence of simplicity:  From now on, we're in charge.

In charge of what?  Ostensibly they're in charge of establishing financial stability in the world so there's not another global financial catastrophe. But of course there's no way to guard every gate, to predict and head off every financial crisis that could morph into a steep worldwide recession.  There is a way, however, to protect the Guardians of the Economy here in the United States and in various major trading nations from being brought down by their bad monetary and economic theories.  The way is for a small group of people, unelected by the populaces, to establish a globe-spanning regulatory regime that stabilizes the position of the Guardians in the chaotic new era.

In short, there's a way for the Guardians to avoid having to face the consequences of decisions they made in the service of the state or, in the case of the IMF, in the service of several states. The truly historic aspect of the Cyprus Solution is that it represented the first time the IMF's famously ruthless approach to helping troubled 'developing' governments was used on a 'developed' government.  (Well, the ruthlessness is famously known in developing countries that have been on the receiving end of IMF policy.)

So the historic event also represented what's known as the chickens come to roost. 

But again it came down to luck, to the configuration of the planets. The draconian U.S. financial regulatory regime envisioned by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (which contains in Title II the template and rationale for the freezing of Cypriot bank accounts not to mention American ones), is so complex, so nutty, that no one who initially plowed through the 848 pages of the original bill believed it would get off the ground.  

No one, that is, except those who knew about Daniel Tarullo and his pivotal role in the bill's creation and crafting.

Meet a Chief Financial Stabilizer

In his own words Daniel Tarullo has been in and out of government for years, going back and forth between academia and government, where he mastered the mysteries of international financial regulations. He's presently serving as a Federal Reserve Board Governor. But Tarullo isn't any old Fed governor.  He was not only the brains behind how to make the Dodd-Frank Act work, he's also President Barack Obama's brain when it comes to financial regulatory matters. And he headed up Obama's economic transition team when Obama first went to the White House.  

In addition to his duties at the Fed, this March Tarullo was named to a two-year term as chairman of the Group of 20 Nations Financial Stability Board's Standing Committee on Supervisory and Regulatory Cooperation.  And, with Federal Reserve Chairman Ben Bernanke, "Tarullo regularly participates in principal-level meetings of the U.S. Financial Stability Oversight Council and the Group of Governors and Heads of Supervision, the oversight body for the Basel Committee on Banking Supervision." (1)

There is some dispute about how much power Tarullo has gained at the Federal Reserve.(1) I think the dispute is misleading in that he isn't interested in directing monetary policy -- at least, not up to this time. He's a stabilizer, not a guardian.  Yet he's amassed so much power in the regulatory end of international and national financial matters that the only reason I don't characterize him as "the" chief financial stabilizer is that there may be other stabilizers whose names will only gradually become known to the public. Tarullo himself only became well known to the American press this summer. As to how that happened --

On July 11 Tarullo gave testimony before a Senate committee on the status of Dodd-Frank's implementation -- not an easy feat because the regulations for the act, which are expected to be at least 30,000 pages on completion, are little more than a third written at this point.  Then it was time for him to talk turkey to the American public, which was still blithely unaware it was living under a new regulatory regime that when push came to shove could shove aside virtually all existing U.S. laws and democratic processes in the name of maintaining financial stability.  And it was time to get down to brass tacks with the American Financial Community, which closely follows the progress of the new regime because it knows that when grisly examples must be made they will be chosen from amongst the community. 

For both those tiresome communication chores with the masses, on July 15 Mr Tarullo elected to chat with Ben White, the chief economic correspondent for Politico, on Ben's morning talk show.  The audience was top reporters for the financial press.

Daniel Tarullo's chat was mostly to explain the status of implementing the Dodd-Frank Act as it's currently written.  But he also reminded the reporters that the United States is "a nation of delegated powers" and that "those of us charged with financial stability in the USA" have a very weighty burden.

(I don't recall whether this reminder was given during his chat with Ben or during the Q&;A session with reporters at the end of the chat. I saw the live broadcast of the chat on C-SPAN. I haven't reviewed C-SPAN's archived version to learn whether it includes the Q&A; if not, perhaps Politico's video of the event, which is posted on the internet, includes it.) 

Now what is financial stability supposed to mean, exactly?  It's supposed to mean whatever the U.S. Financial Stability Oversight Council (created under Title I of Dodd-Frank) and the G-20 Financial Stability Board say it means, if they ever get around to defining it exactly. 

For those irrational types who just can't stand not knowing what something means if people with delegated power are charged with maintaining it --

Behind all the math, behind all the economic statistics that the Guardians of the Economy refer to when the U.S. economy is faced with serious problems, there have existed since the Great Depression two iron rules for warding off financial calamity:

Rule #1:  Terrorize the banks
Rule #2:  Terrorize the banks some more

These rules worked reasonably well up until the rise of the shadow banking system, which quite understandably was launched by banks in an attempt to evade said two iron rules. When this shadow system crashed in 2008, the Guardians added another iron rule:

Rule #3: Terrorize everybody who deals with money

Thusly, the Dodd-Frank Act, which by the time of its complete writing and enactment will regulate every single type of financial transaction in the United States and have global reach, and will coordinate with regulations in similar acts written into law in other G20 nations.

Which is to say that sometime between the years 2015-2017, when all the planned regulations in Dodd-Frank are expected to lumber into existence, we're all going to find out exactly what financial stability means.

Governor Tarullo also said that the Federal Reserve's newfound transparency (e.g., talking more to the press) is in part a monetary tool; this so that the most knowledgeable members of the financial press (that would be the reporters invited to hear him speak) could in turn explain Fed thinking to the Financial Community and the public; in this way the masses could better adjust to the realities of the Fed's monetary policy in the post-2008 era.

Tarullo also fell back on his professor's role to give the financial reporters in the audience a few history lessons, so they could better understand why all this new regulation was necessary.  However, I would take with a grain of salt his explanation about how the U.S. banking system got into trouble in the 1970s. While it's true that American depositors fled their banks as more lucrative interest-paying options became available, Tarullo forgot to mention why the banks couldn't compete with the nonbank options.  It was because they were prevented at the time from doing so by regulations.

I don't recall whether Tarullo told the reporters that he personally planned to continue tightening the stranglehold on American banking practices, but as chair of the Federal Reserve Board's Committee on Banking Supervision, he's already pursued his duties in that regard with such zeal that he's gotten a reputation for being a bully. 

Remember: the Federal Reserve Bank isn't exactly a bank 

If Mr Tarullo's attitude toward banks seems a little unfriendly for a banker, he's not a banker; he's an attorney.  In fact there are no bankers sitting on the Federal Reserve Bank's board; the token banker on the board, Elizabeth Duke, exited on August 31.  Unless one wants to claim that board member, attorney, and former government official Jerome H. Powell could be considered a banker because he once worked for an investment bank.  But let's not split hairs over Powell's work history; he's not a banker in the way you and I would conceive of one and his credentialing is in the area of law, not banking.

As for the rest of the Fed's board of governors:  Ben Bernanke, Janet Yellen, and Jeremy Stein are economists; Sarah Raskin Bloom is an attorney.

If it strikes you as odd that the Federal Reserve Bank's governing board wouldn't be loaded with bankers: the Fed is a bank in the way the World Bank is a bank. As with the World Bank, the Fed has a banking function in that it makes loans to banks (the World Bank loans to governments) but you can't open a savings account with the Fed or ask it for a loan.  The Fed is not a banker to individuals any more than the World Bank is.

Another similarity shared by the Fed and the World Bank is that the governments that control them (and the Bank's sister organization, the IMF) fell prey to the same temptation.  Through the process of loan writing the World Bank-IMF found it could influence and even in many cases control foreign governments; by this route the Bank could greatly impact entire populations in foreign countries. In the same manner, the U.S. federal government found that through the Federal Reserve Bank it could influence and even direct the course of the U.S. economy via the mechanism of the Fed's loan-making to banks.

The Real World of Statistics vs the Actual World

There is a catch, however, for the IMF-World Bank and the Federal Reserve -- and for the populations affected by their policies:  these institutions are dependent on their reading of economic statistics to rationalize loan-making policies. These readings are fraught with oversights and errors due to the nature of data collection and analysis and human nature's shortcomings.

An example of the latter was the Fed's infamous Hamburger Cost of Living Indicator.  When one Fed chairman (it might have been Greenspan) found that his reading of U.S. inflation was considerably lower than some Labor Department statistics indicated, he smoothed over the discrepancy so he didn't have to adjust his monetary policy to fit with facts. He did this by figuring that when the skyrocketing price of beef had put steaks out of reach of most Americans, the steak eaters had naturally switched to eating hamburger. Voilà! The increased price of beef did not reflect an increased cost of living for Americans and so was not inflationary!  

(The Fed chairman's self-serving chain of reasoning prompted one econometrician to snap that this wasn't a cost of living indicator; this was the cost of survival.)

Aside from fudging there are the simple oversights. An example of such from earlier this year was a statistic that showed increasing housing purchases in the U.S., which is a leading indicator of an improving economy. This indicator works on the reasoning that as finances improve for American wage earners they'll stop putting off a house purchase.

The positive housing statistic set off a panic among "investors" (read, speculators)  playing the booming stock market -- a boom which the Fed's quantitative easing policy had gone a long way to creating and sustaining.  The investors figured that if the U.S. economy was actually improving, this would cause the Fed to scale back or end QE; just the fear that this might happen panicked the investors, who began dumping stocks. 

And so Wall Street analysts practically ran in front of TV cameras at CNBC to wave another statistic -- one that hadn't showed up in the government and Fed's analysis of housing stats.  Everybody could relax!  It turned out the improved housing purchase statistic was due to BlackRock and other big Wall Street investment firms buying up large numbers of houses and turning them into rental properties (to rent to Americans who were still too poor to buy a house, or still not employed, and/or whose credit wasn't good enough to buy a house).  This fresh data indicated QE wasn't going to end any time soon!  

The stock market immediately resumed its boom.  

(Another reason for the runup in housing purchases, it turned out, was that foreigners were buying U.S. houses for all cash -- houses that were already selling at distressed prices and going for a song to anyone who could finance the entire purchase price with cash.)

In short, reliance on economic statistics to give a reading of the pulse of an economy can cause governments and their central banks (and the World Bank, IMF, etc.) to miss galaxy-size chunks of reality. This has led to the claim that these institutions don't analyze the real world. That's not quite true because the statistics they rely on are real enough. It's just that they aren't actual.

Another catch to dependence on economic models to direct loan-making policies: it created a powerful economic collective entity, the Economic Statistical Person, which as I've pointed out in earlier posts is an abstract phenomenon. 

And so, whenever the actual world and actual people sprung a surprise on the IMF, things got terribly messy, as an American World Bank chief economist named Joe Stiglitz finally realized to his horror. However, the consequences of Joe's criticism of IMF and Bank policies point to another catch. Economist Larry Summers, at that time U.S. Treasury Secretary, reportedly ordered the Bank to fire Joe; i.e., to publicly humiliate him instead of quietly ordering him to resign.(2)

The catch is that the democratic process itself was gradually supplanted, even in the most democratic countries, by a de facto rule of economists.  

The rule of economists became less de facto and more -- actual -- with the signing of the Dodd-Frank bill into law, and by the luck that there exists someone who can actually make that nutty law work.

1)  From the American Banker's July 28, 2013 profile, The Increasing Leverage of Daniel Tarullo

2) Joe eventually got even, and then some. See the report I linked to in my "famously ruthless" comment above.) 
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The Weavers

On August 7, 2012, a very rare snowfall took Johannesburg, South Africa by surprise, delighting the residents of the city. There to capture the magical moment with a camera was Associated Press reporter Jon Gambrell; from the kind of office I.D. she's wearing the woman dancing in in the snow could be a coworker of his. But [laughing] is that a can of Coca-Cola she's holding, or a local version?


"It's not coming back"

Shortly after the financial meltdown I was channel surfing for news on the crisis and came across an interview that a gaggle of 30-Something panelists on CNBC financial cable were reverentially conducting with a Sage of Wall Street. I didn't catch his name. He looked to be in his early 90s and had a face like a road map and a mane of snow white hair. With understatement he was not a TV interview-friendly type, never having cared to learn the technique of appealing to a Demographic Cross-section.

I think he must have been born on Orchard Street and working at his family's garment pushcart by the time he was five. In any case, he worked his way up through the ranks of New York's garment industry, which in that era was the center of the trade, eventually became rich, then a very successful Wall Street investor who specializes in retail clothing stores with emphasis on the high end stores.

The CNBC crew wanted him to explain the import of the financial crisis for the garment trade. He replied in a Yiddish New York accent so thick it could butter a bagel, "It's not coming back."

The 30-Somethings exchanged glances then one asked, "What's not coming back, sir?"

He raised his voice, as if the listeners were deaf, and repeated, "It's not coming back."

"Wha-wha-what's not coming back?" ventured another panelist.

He thundered, "None of it! It's not coming back! Saks, Neiman Marcus, none of it. It's over! Gone!"

After a station break the 30-Somethings recovered by assuring each other that things wouldn't be that bad, and while they didn't outright say, ' The Fed will save us,' their conversation implied that hope.

The Federal Reserve did save Wall Street, and in the process created a 'wealth effect' that saved some of the high end stores. But the sage was right about the big picture. An era that had launched more than a century earlier had come to an end. So while the financial crisis had specific triggers, chief among them tsunamis of money flooding the planet, the crisis was on track to happen in one way or another.

It was an ending that no government, no central bank, and certainly no industry or public had been prepared for. This, even though everyone had been predicting since the 1990s that a world era was coming to end. However, only a few -- the 'oil patch' salesmen whose passport visa pages are as thick as the Bible, the key midlevel managers in far-flung global enterprises, the currency traders for the biggest banks and oil companies -- knew for certain the era had already ended. For the rest of us, the present era would end someday, somehow, just not right now.

When the historic financial crisis of 2008 signaled that now had finally happened, it came as a terrible shock.

Since then governments and central banks have struggled to pick up the pieces even though they know that Humpty Dumpty can't be put back together again. Meanwhile some kind of order must be established and maintained as the world adjusts to the new fact of its existence: the rise of middle classes all over the globe, all clamoring for the same things that the American middle class had laid claim to for more than half a century. And with nouveau riche in umpteen languages making markets in everything you can think of and touching off speculative bubbles in the process.

"There's too much liquidity in the world, " intoned a German finance ministry official recently, stating the obvious.

The Triumph of the Entrepreneurs

By this year the United Nations was reporting that obesity, not malnutrition, was world's number one health crisis, as middle classes all over the globe wolf down the same kind of stuff that turned the American middle class fat.  So if you want to get a real feel for the new era, a good intuitive grasp of what it's like, watch the cable Travel Channel's rollicking, globe-trotting series, Fast Food Gone Global.

With urban workforces the world over no longer content to simply eat Kentucky Fried Chicken, Domino's Pizza and Mickey D's burgers, the franchises for those American fast food companies and others have added refinements to their food to suit the tastes of the local food consumers. The results are often so delicious to any palate that American tourists who eat in those places are now telling U.S. versions to carry the same menus.

And local entrepreneurs in Asian, African, European, and Latin American countries have come up with their own takes on the classic American fast food joint. Many of their improvisations on American fast food are so mouthwatering to look at I swear you can put on pounds just watching the series.

And Coca-Cola! Remember the Superbowl Coke ad that was so weird Americans couldn't figure out the point? The point was revealed in a segment of the Travel Channel show. The company hasn't only been selling standard Coke brands to foreign consumers; it's been going around the world, asking people in different cultures, 'What's your favorite nonalcoholic drink?' then making Coke versions, several of which are actually [lowering her voice] healthy. 

Some of the concoctions are also delicious to American taste buds, and now that Americans have gotten a look at them via the travel show there will surely be clamors in this country for them. Of course the locals are countering with their own improvisations on Coke's improvisations on local drinks.

So Fast Food Gone Global is not just about fast food and soft drinks. It's also a reiteration that peoples the world over have taken up much of the American way and are adding their unique refinements to make it their own. Yet all of this has been happening in a natural, unforced way. It's just millions upon millions of people saying 'I like this,' or 'I don't like that,' and 'I like this but with this addition or that change.' And it's millions of entrepreneurs from every culture you can think of, figuring ways to profit from preferences.

Weavers, all, weaving the ancient ways of the world into the fabric of the present.

The show reminded me of a National Geographic photo essay that showed how over the centuries African and other ancient tribes had woven 'modern' materials into traditional tribal ornamental patterns. From a distance the weave patterns look as they looked thousands of years ago; it's only when the camera comes in close does it reveal that the weaves are made of, say, bottle caps from the 19th century. Extraordinary essay, extraordinary photographs -- works of art in themselves. It was published decades ago.

I'm very sorry I lost my copy of the issue so I can't tell you the year it was published. But my recollection of the weaves prompts me to voice a caution to my government. It is just because the American Way has been taken into so many hearts that now America's government must tread very lightly in the world. The financial crash exposed the many severe weaknesses in our society. This is an era for Americans to work on themselves and trust that the rest of the world is watching and taking notes.

It never went away

My recollection of the weaves also reminds me that nothing we humans value can be lost beyond finding. Many things are not coming back, but all that's right and good about our race never went away, never will go away.
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Modern U.S. lawmaking and the original police state: Part 4 of "From Economic Collective to Police State"

Would you know a police state if you tripped over one?
Not if the standard reference works had anything to say about it

In the post that introduced this series I wrote that the United States is becoming a police state. In this I wasn't referring to a future event; I think it's happening now and happening as much in the name of financial stability as national security. I've also argued that the path to the American police state is through widespread acceptance in the USA of what I've termed economic collectivism. But how would this path end in a police state?

The term "police state" has been invoked a great deal since Edward Snowden's revelations about NSA's draconian clandestine surveillance programs and their rubber-stamping by the FISA secret court. Yet given that the first English translation of the German term Polizeistaat was to describe totalitarian states that arose in 1930s, and that the best known English-language fictional treatments of the police state follow this view of the police state (e.g., George Orwell's Nineteen Eighty-Four), it's hard to entertain that the USA's 'liberal' democracy and adherence to a rule of law could produce a police state in this era.

However, the original police state was a far cry from a totalitarian state, a fact that the modern standard reference works don't make clear. Indeed, the definitions of the police state provided by references such as Wikipedia, Merriam-Webster and Oxford English dictionaries, which refer to modern ideas of the police state, are vague, confusing, or even contradictory. To provide just one example of how much confusion has arisen around the term, here is Merriam-Webster's definition of a police state:

"A political unit characterized by repressive governmental control of political, economic, and social life usually by an arbitrary exercise of power by police and especially secret police in place of regular operation of administrative and judicial organs of the government according to publicly known legal procedures."

The Encyclopedia Britannica Online discussion of the totalitarian state flatly contradicts Merriam-Webster:

"Police operations within a totalitarian state often appear similar to those within a police state, but one important difference distinguishes them. In a police state the police operate according to known, consistent procedures. In a totalitarian state the police operate without the constraints of laws and regulations."

The upshot of all the confusion, as bluntly noted by the Wikipedia article, is that "it is impossible to objectively determine whether a nation has become or is becoming a police state."

So while the original meaning of some terms is best left in the ash can of history, in the case of the police state it pays to trek back through time and study the original police state. Yet this is easier said than done. The paper I quote below mentions in passing that it wasn't until the closing years of the 20th Century that scholars obtained two key source documents that provide several missing pieces about the original police state.

(As to what took the scholars so long -- the paper doesn't say, but it's likely that many records of the original police state were lost, destroyed, and/or locked away in vaults until declassified.)

The Original Police State

One scholar who made great use of the source documents is a sociologist named Mathieu Deflem. His revelatory paper International Policing in Nineteenth-Century Europe: The Police Union of German States, 1851-1866 was published in 1996 in the International Criminal Justice Review (6:36-57)

The first police state was launched in imperial Austria in early 1851, but this was by no means a totalitarian state -- totalitarian being a term derived from dictator Benito Mussolini's totalitario form of government, which aimed to mold the entire Italian populace into a singular body animated by the dictates of the government.

In 1851 the Austrian Crown was far too busy trying to prevent a replay of the yearlong protests and rebellions that exploded in the kingdom (and across most of Europe) in 1848 to attempt to mold anyone. The tiny Austrian police force had simply been caught flat footed by the mayhem. The last time the police forces across the Germanic kingdoms had been modernized was in the 15th Century.

Although Mathieu doesn't mention the term "police state" he explains how such a state came into being: as part of a concerted attempt by beleaguered police forces in Austria and other Germanic kingdoms to modernize their surveillance methods in response to a new and very unsettled era, one that spilled across borders in the Germanic kingdoms and beyond. That the police went overboard in their modernization drive there is no doubt, as these passages from Mathieu's writing indicate (emphasis mine):

The [Police] Union's centerpiece was the elaboration of a secret system to gather and transmit information (Siemann 1990:46-50). In the first instance, information was exchanged during police meetings. These took place every year between 1851 and 1866, with two meetings in 1851, 1853, and 1855, and three in 1852.

The discussed information especially concerned the so-called leaders of the revolutions, German as well as French, Italian, Polish, and Hungarian political opponents.

Referring to themselves explicitly as "political" police, the Union's agents did not focus on "regular or ordinary crime", directing their activities primarily to matters that could threaten the stability of the political order (Siemann 1990:50-52). Importantly, however, political activities were defined in an expanded way.

Therefore, for instance, also controlled by the Police Union were migrants, religious groups, Freemasons, gymnastics groups, labor organizations, and student movements -- in sum, everybody who was believed to possibly, but did not necessarily, organize political opposition.

The paper also mentions that the press and publishing houses were monitored. And we can learn from Wikipedia's history of the 1848 revolutions that the aristocracy must have also come under police surveillance. Basically everyone and his uncle had a grievance of one kind or another with the state, which meant that basically everyone had come under suspicion for crimes.

And so, in the name of protecting the populace, the police had in effect criminalized it!

Here we can finally see the chief characteristic of a police state and thus its objective definition: It's one in which the government considers the governed to be criminals.

If a society is composed of criminals this certainly explains why it's necessary to police it rather than administer to it. But as Wikipedia's article on the police state indicates, how and under what circumstances the state carries out its policing can vary widely. This has fueled disagreements about whether a particular nation is a police state. And it's led to a confusing scoring system in the effort to determine how far a government has gone toward becoming a police state. (See the Wikipedia article.)

The definition I've extracted from Mathieu Deflem's research leaves no wiggle room for sliding scales. Either the government has criminalized the population or it hasn't. If a government hasn't done this, then I'd say no matter how unlawfully it might act, no matter how brutal its measures to enforce order, it can't be considered a police state.

At the same time the definition implies that a police state can develop under any type of government, including a democratic one. But how could a police state happen in a 'liberal' democracy -- one with a generally law-abiding population, one not in rebellion?

The answer is chillingly simple: Through the creation of so many laws that the citizens can't help but be in violation of the law at one time or another. Voilà! A society of criminals.

Just such a society is being created in the United States because of a glitch in the way our republic has evolved:

Rule of Law vs Government by Lawmaking

There is a difference between the principle of a rule of law and the practice of governing through lawmaking. Somehow, over the passage of time, the difference got blurred in the United States.

(This article clearly explains the principle of a rule of law and how it was interpreted by the framers of the U.S. Constitution.)

As to where the blurring has led: even with a large harem an absolute monarch can only produce so many offspring within his lifetime -- and monarchs die, leaving the next monarch free to sweep away many of his predecessor's laws. But there is no limit to the number of laws that can be created when a country's duly elected governing body exists to write laws, and which is a perpetual process not relieved by the death of any legislator. And the horror, the stuff of nightmares, is that much of the legislation requires the creation or expansion of regulatory regimes to implement and oversee the laws.

And so, after centuries of government by lawmaking, Americans inadvertently backed into the very situation that the U.S. Constitution's framers sought to avoid, a rule not of law but of men: men (and women) charged with enforcing ever-proliferating regulations arising from ever-proliferating laws.

From there it only requires the right conditions before government criminalizes the entire population, for when a law governs even minute aspects of individual behavior there are an ever-proliferating number of law breakers. That is how a democratic nation, a republic without a history of being ruled by kings or a military, can become a police state.

What are the "right conditions" in the USA?

The conditions are evolving from two draconian laws, the Dodd-Frank Act -- aimed at "financially stabilizing" the USA -- and the Affordable Health Care Act, which together are generating virtually countless regulations. These are converging with all the other laws piled up in the United States.

Some U.S. states are mounting a constitutional challenge to Dodd-Frank, which should have as much success at the Supreme Court as the challenge to the health care act. But even in the unlikely event the challenge succeeds this will not stop the criminalization of American society. So before racing ahead with more constitutional challenges, more political action committees, I think Americans need to confront the fact that they've reached the outer banks of managing their affairs through lawmaking.

That's just my view, that's just what I've confronted as an American about myself. After all, I was born and raised in the USA. It wasn't easy for me to get my head outside my cultural paradigm, so to speak. But how I think now explains why the solutions I'll offer in later posts aren't concerned with politics and the legislative process.

How, then, would I propose Americans back away from a police state? Same way one rows out of the marshes back to solid land. Carefully. And with emphasis on "I" doing the rowing not "Them."

Untold billions of dollars have been poured into changing Washington, yet it's remained the same. It will remain the same until Americans change themselves -- specifically, as I noted in an earlier post, change their view of money and wealth.

But before I discuss solutions there is more slogging through the lay of the land. In the next post I'll talk about Dodd-Frank and the Financial Stabilizers. That will round out the series on economic collectivism and the police state. Then I can return to the series I started earlier this year under the title "Money, Wealth, and You."

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From Tofu to the Police State (More on the concept of economic collectivism): Part 3 of "From Economic Collectivism to Police State"

A debate broke out in Pundita-land about my use of the term "economic collectivism" in my series of posts on economic collectivism and the police state.  One of my critics (in my dour moods I refer to these as "my enemies") told me I can't use the term because it's a redundancy; that is, collectivism can't be divorced from the term economics because collectivism is an economic theory.  Before the debate proceeded to the pie-throwing stage I visited a few authoritative resources to learn what the heck collectivism means anyhow.

(The problem with language is that it's been around so long by now that definitions tend to get piled in top of definitions, to the point where people can actually be in agreement without realizing it when they debate.)

Wikipedia states flatly that collectivism is "any philosophic, political, religious, economic, or social outlook that emphasizes the interdependence of every human."

Not so, counters Merriam-Webster dictionary, which puts Wiki's definition second to the main definition:

"1: A political or economic theory advocating collective control especially over production and distribution; also : a system marked by such control.

"2: Emphasis on collective rather than individual action or identity."

That first definition gives some weight to the critic's argument. In an attempt to end the impasse I turned to Britannica Online:

"Collectivism: any of several types of social organization in which the individual is seen as being subordinate to a social collectivity such as a state, a nation, a race, or a social class. Collectivism may be contrasted with individualism, in which the rights and interests of the individual are emphasized."

This means I win, although from my reading of an article at the Anarcho-Syndicalist [don't ask] Review titled The Collectivist Tradition, which naturally doesn't define collectivism, I'll grant that the first widely known use of the term referred to ideas of European labor union organizers in the mid-1800s, who did seem to interpret collectivism in economic terms.

But  in an attempt to mollify the critic I reconvened my foreign policy team to discuss alternate terms for economic collectivism. Once the team had established that the term referred to a bad thing, the squirrel hopped onto the conference table, which I've asked him many times not to do, and said, "What not call it something nobody likes?"

The vote more or less split along nocturnal and diurnal lines, with the raccoon and possum weighing in for one name, the squirrel predictably not being able to concentrate on the voting process long enough to make up his mind, and the Peregrine Falcon and two crows voting for another name.  (Da and Nyet, who hang out at the grounds of the Russian embassy, always vote as a bloc despite their constant bickering with each other.)

This left me to cast the deciding vote. Because I refuse to term anything Rabid Batism, I sided with the daytime vote. And so the new name for economic collectivism is Tofuism or simply Tofu -- unless the critic would like me to get nit-picking and term it Econo-stasticalism. (I know for a fact that this critic is a martini drinker and that after two he wouldn't be able to say econostatisticalism.)

What I can also do is expand on the definition I gave to economic collectivism, which is a radical departure from any known definition, and hope that eventually I'll think of a better way to term the concept. Readers who want to contribute to this task are welcome to do so.

I am saying that the very nature of data analysis can create a statistical person, such as The Consumer, or a statistical entity, such as The Economy. The potential for the creation of a statistical person or entity exists in every field that relies on data analysis, in particular analysis of large amounts of data on human behavior.

In itself this statistical phenomenon can't be termed collectivist. It would be ridiculous to term a structural engineer a collectivist because he includes a statistical person in his analysis of, say, stresses on load-bearing bridge materials. It would be equally ridiculous to term a person a collectivist because he refers to people in the collective; e.g., 'A good thing about Americans is...' As I noted in an earlier post, thinking in terms of groups is simply part of being human.

But I'd say that thinking in terms of a statistical person, or viewing an entire society of individuals as a singular entity, becomes collectivist in nature when it's institutionalized in some fashion; e.g., used in mass marketing techniques, or relied on by a government to guide policy decisions. When that happens, such thinking risks becoming an occupational hazard for those who use it as a guide to problem solving and policy making.

Given that many governments now rely in the extreme on massive data collection and mathematical analysis of such data in administering to megapopulations, both the benefits and risks of the approach have come to characterize this era of governance in the most globalized societies.

I realize that "statistical collectivism" is a more accurate way than economic collectivism to convey the basic concept I'm discussing. However, it's the economic type of statistical collectivism that concerns me and is the subject of my series of posts.

Hidden in plain sight

As to how economic collectivism, as a distinct phenomenon, has flown under the radar for so long, I think because it's blended so well with a vast array of political concepts.

Many times I've noted that when people speak about the evils of globalization and capitalism, often they're reacting to the ruthlessness that can evolve from economic collectivism when it's fashioned into, say, International Monetary Fund policies. Conversely, many times when people speak about the evils of socialism or communism they're actually criticizing the very same economic collectivist thought that anti-capitalists and anti-globalists do!

Of course there are criticisms about all these systems that are quite distinct from economic collectivism. But my point is that it can apply to any type of economic agenda, whether socialist or capitalist; it can instill a way of thinking that's the same no matter what its political or economic application.

And it's the mindset itself which can be dangerous if unchecked and then translated into government policies. Policies that treat large numbers of people as a singular phenomenon risk dehumanizing not only individuals but also entire populations of individuals. The economic prescriptions that follow from this, when backed by the force of the state, can have horrific consequences.

Yet the worst aspect of unchecked economic collectivism is not what it does to the thinking of government officials but to the thinking of the governed. Americans have come to accept fiscal and monetary policies that are blatantly destructive to their finances because economists decree these measures to be beneficial not to people but to the economy.

Not a monarchist, fascist or communist among them

The dangers of collectivism associated with totalitarian rules during the 20th Century have been well documented. I am pointing out a danger associated with collectivism that gathered force in the latter half of the 20th Century, and which is lodged in the benign social science of economics and presided over by economists and mathematicians.

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