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Wednesday, January 20, 2016

The Rise of the Predator/Parasite State

How con artists turned the New Deal into a Predator State Part II

In a previous post "The sabotage of the New Deal" I shared some observations, mostly gleaned from James Galbraith's book "The Predator State" talking about the resilience of New Deal Institutions and how that resilience derived from their mixed private and public character. I then segued into discussing how the cons realized they couldn't repeal the New Deal because they had no alternative that worked. The cons decided instead to corrupt them. In this post I want to share some broader concepts. But it starts with a simple fact. James Galbraith was talking about Roosevelt, but could just as easily be talking about our incipient Oligarchs when he said:

"private economic activities supported, leveraged, guaranteed, and regulated by public power," coupled with "public institutions aided, abetted and buttressed by private money."

When folks call what is going on socialism for oligarchs, they aren't kidding. To acquire fortunes in the Billionaires one has to have to factors going. One is "de-regulation" -- and the other is private control (ownership) of public resources. Socialism is supposedly public ownership of private resources. But what is private ownership of public resources? It is not just oligarchy, it is aristocracy. And when carried to it's logical extreme it is Monarchy.

Continued review of James Galbraith's "The Predator State"

At the End of Chapter 7 of the Book "The Predator State" James Galbraith wrote in 2008:

"...public policy can move wealth around in spectacular ways. It can create oligarchs, and it can destroy them"..."one can only expect that the beneficiaries, and potential beneficiaries, would pay attention to the behavior of the State. They will even devote themselves to using and abusing the state, turning its instruments to their own purposes if they can."

In this current election, in which so many wannabe, and actual, oligarchs are trying to influence, game, even buy the system -- demonstrates the reality of the axiom that economic power translates to political power. [See Salon Article]. However, this prescient observation was a segue to Galbraith explaining the genesis of the Predator State.

The Corruption of the New Deal

The rise of predator states reflects two moods of elites. In phase one elites try to -- or at least give lip service to -- concepts like virtue, duty, common good. They recognize they need the common people and try to accommodate them, enlist them and make life easier for them. This is what happened during enlightened periods like the Republican days of Rome, the reign of Queen Elizabeth or the Glorious Restoration of William and Mary of Orange -- or in modern Society the New Deal.

Paradoxically, treating common folks well generates increased wealth, Paradoxically treating common folks well generates increased wealth, and generates opportunities for getting their hands on that wealth for the elites who are involved in providing those services. More importantly, it provides those relaxed "soft constraints" on accounting and budget rules that the Hungarian Economist Janos Kornai described, and that enable folks to turn small amounts of their own money, using pseudo-money and Other-Peoples-Money, to generate vast amounts of loot.

There would be no Koch Brothers, Waltons, DeLay's, etc... without the public-private partnerships that give privateers command (market power = partial monopoly, or complete monopoly) over what is and should be public property. So, it becomes a trivial matter for officers of a public good to divert some or all of that wealth to their own pockets. And the attitude of elites is "I'm special and I earned my money" -- and tends to be predatory. They call themselves "capitalists" even when their "capital" is what Henry George would call "spurious capital" and not "actual capital" at all. This leads to an attitude of privilege. Such Predatory elites really hate to see wealth go to waste by improving the lives of common folks. Thus the original focus of a public good or institution (such as much of our New Deal programs) tended to be hijacked as soon as it is possible by corrupt operators who turn their public private partnership for the greater good to their own good. Or worse privateered entirely.

Inequality and Parasites

These people style themselves "predators", but their piracy involves little personal risks. They wear Armani suits, carry briefcases rather than cutlasses and most of what they do seems legal til they get caught, and then is rubber stamped as legal by the pet lawyers and regulators they own. But it's all aimed at seeking to collect rents. What Henry George called "spurious capital" and what Piketty calls "return on capital" -- most of which Piketty concedes would not be considered capital by critics like George or Marx. By shifting the burden of taxation from unearned income and inherited wealth to labor. By shifting the costs for programs aimed to help the working poor to the working poor. And by privateering all sources of unearned incomes the rich have created a system where the "return on capital/wealth" ('r') is greater than the growth rate (g), and that benefits them through public policy. This isn't inevitable. It is public policy. And it is fought by shifting from "Tory" style Predator state, to one based on principles of commonwealth. And part of that is to install policies that make capitalists invest in "actual capital" rather than collect rents from what George called "spurious capital". [see Disamibuating Capital from simple wealth]

Further Reading

Sabotage of the New Deal:
The Federal Reserve's corruption of the Economics Profession
Salon Article:
Understanding Social Dominance:
Reading Dave Stockman's "Deformations
James Galbraith:
JK Galbraith:
Created Unequal: The Crisis in American Pay:

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