The Message Is Seeping Through

Oh dear. The Financial Times has decided to make a fool out of me. There I was explaining to a friend of mine – a moderate Republican, perhaps the only one left – that I like reading the FT because it is far superior to the Wall Street Journal, when twice, in two days, it came up with extraordinary examples of why my recent colic is justified.

First was the editorial “Capitalism and Its Global Malcontents”; second was today’s Market Insight column by Ray Dalio entitled “Risks on the rise as politicians give in to mob rule.”

Mob rule?

Huh?

I take it that the elite is finally recognizing that the 99% are a touch out of sorts. Like they’re in a hell of a bad mood. Today’s consumer confidence report from the Conference Board paints a grim picture: the index, which is usually in the 90 range during a period of healthy economic growth, slumped to 39.8 in early October, down from 46.4 in September. This caught the experts by surprise – they had been expecting no change. On what basis the so-called experts call for the forecast of consumer confidence I don’t know, but clearly they don’t get out and about much. Ask anyone on the typical street and they will tell you: the economy sucks. And, more to the point, so does our entire leadership core. In fact, if there’s one thing worse than the current state of the economy, its the quality of our leadership. That’s saying something.

When this crisis erupted the elite seems to have imagined it would pass by quickly. They expected a sharp downturn followed by an equally sharp upturn. They calibrated their policies accordingly. The widely held notion being that all they needed to do was to provide a backstop to prevent all out depression. After that market magic would bring us back rapidly and all would be well. They could get straight back on with the pleasant task of extracting rents from their various vantage points.

This was absurd. It was absurd even more so because our two prior recessions had both been long slow affairs with elongated and shallow recoveries. Unemployment may not have plumbed the depths we have recently, but the return to normalcy was dramatically different in tenor and trajectory than any of the other post-World War II recessions and recoveries. Something has changed. Worse was the abundant information that recessions caused by financial collapses and reckless banking lunacy are always – always – tougher and longer lasting. The process of debt reduction, debt work out, and balance sheet repair is a difficult one. Toss in the significant fact that wages are stuck in a historic period of stagnation, and the recipe is one for disaster, not one for a nice neat “V” shaped recession.

Yet our entire elite got it hopelessly wrong. The only conclusions I can draw from this epic intellectual failure is that they are either spectacularly ignorant, or they are catastrophically myopic. Maybe both.

So divorced from the real world has the elite become, as it operates within its gated communities, plush clubs, swanky restaurants, and upper class colleges, that it has no idea what’s going on around it. No idea at all. This occurred to me when I first heard one of our great – millionaire – senators explaining why he was upset that so few people paid income tax. It was unfair, he thought, that the tax burden falls on a fairly small percentage of potential taxpayers. The notion that the non-payers are non-paying because they have insufficient income just didn’t dawn on him at all. How could that be? After all this is the US, land of opportunity, greatest nation on earth and all those other platitudes fed to us daily. How, in the midst of all this self-proclaimed greatness, could so many people be avoiding income tax?

Because they’re poor.

The elite has a really hard time understanding that concept.

The folks at the top of the wealth ladder are inoculated against economic collapse. They have resources to fall back on. The rest don’t. Even a well off middle class family is close to the edge. Less well off families sink more quickly. The long and steady shift of wealth upwards, away from the lower strata of our economy and towards the elite has, as we all know, skewed the economy. It exposed many more households to the downdraft of the recession, especially when we consider that much of the so-called growth in wealth was an illusion because it was funded with debt.

And let me inject an antidote to the morality laden lectures I keep hearing about how people ought not to have borrowed if they could not afford to repay the debt. People borrowed because their preferred option for raising their standard of living was eliminated: wages did not grow. The shift in wealth towards that top 1% came about, in part, because profits took an ever increasing share of the productivity improvement in the economy. Wages were left behind in the dust. Debt thus became the only viable, albeit dangerous, recourse for supporting a rising standard of living.

Our collective failure to keep the wage and profit mix in balance was a major factor in our decline. The rich got greedy. They tilted the boat too far over. It has turned turtle on them. And yet they are only now realizing their error.

Back to the FT.

The editorial refers to “malcontents”. If ever there was a paternalistic word to describe people who are upset at being marginalized by the elite and its pillaging of the economy, malcontents is it. It reeks of an elitist view. It describes those who are asking to be taken into account – this is supposed to be a democracy after all – as malcontent just because they have had to raise their voices in order to be heard.

The FT then rolls out a string of vacuous comments. It references the downward pressure on wages being exerted by the information revolution, and by globalization of the workforce. It says that concern about rising inequality is hardly new. And that people are dismayed that politicians have not ensured the decline has been shared fairly. This has, the FT tells us, all been made much worse by the global financial crisis.

No kidding.

My reaction is succinct: if all this is “hardly new” where the heck has the elite been and what has it been doing?

And to say the notion that wages have been held down by all these ills, even while profits clearly haven’t, simply begs the question. This is not an accident. Someone made this all happen. We need to know who they are so we can target them when we seek to redress and rebalance.

Oh. Wait. That’s called class warfare.

When the mob rises up it’s called class warfare. When the top folks press down it isn’t. That’s just the way of the world. The way it’s always been. The malcontents are knocking at the door. How simply rotten.

Sorry that doesn’t work for me. Not one bit.

Speaking of mobs.

The extraordinary bilge of Dalio’s article is a sight to behold. He exhibits a very special mix of elitism, indifference, and class war based snobbishness that I find hard to describe. He references Plato and Hitler in the same paragraph. The first, presumably, to establish his intellectual heft. The second to signify the toxicity of unleashed mobs and their likely extreme opinions. Hide the silverware the Hitlerites are on the march!

I shudder to engage Dalio. But here goes.

Plato, as we all know, was an authoritarian snob. He disdained, abhorred, and generally ranted against democracy. His very being shook at the prospect of majority rule. He warned against the outcome: it might mean the elite and its pleasant existence would be overcome by the uncouth manners of the mob. It was far better, he explained, that we leave the business of ruling and policy making to a class of educated folks who knew how to get things done. In a gentlemanly way of course. It is no accident that Plato has subsequently been beloved of all authoritarians. His intolerance and disrespect for the common people is legendary. He defines elitism.

And the reference to Hitler is just beyond the pale. Trying to color opposition to the excesses of Wall Street as an incipient neo-nazi movement is plainly stupid. It is a sign of panic. The financiers are truly worried if this is where they are willing to go in their argument. To describe the Occupy Wall Street folks as analogous to legions of brown shirted thugs simply calls into question your intelligence.

Evidently the nerves are fraying somewhere.

Good.

I should note for the record that Dalio runs a hedge fund. But then I imagine you could figure that out from his comments.

What do we make of all this?

The elite is getting worried. The prospect of democratic action against them is finally settling in. Their cozy explanations for why the rest of us should suck it up and endure rounds of austerity while the top, and therefore clever, people try to fix things are no longer resonating that well. The mob people seem to have figured out that the clever people aren’t that clever. Those cliched answers and slick consulting style homilies about market adjustments, global competition, and the consequences of interconnectedness have been exposed as a thin veneer for a profound ignorance, and an excuse for pillaging by those at the top. They were smart enough to get away withy it for three decades. Now the gig is up.

It’s odd, isn’t it that? that the so-called global market for CEO talent – I should say “talent” – has driven CEO incomes through the roof; whereas that exact same force has driven worker wages through the floor. One law for the rich? And somehow CEO’s get paid even when they screw up vastly and publicly, while the average joe just gets his walking papers. I suppose I would be called cynical, and definitely not Platonic, were I to point out the little fact that most CEO’s have their pay set by boards of directors stuffed full with other CEO’s. Perhaps shop floor workers should have their pay set by shop floor workers. They didn’t teach me that at business school. I wonder why?

To round this all off I am now looking at the latest edition of the Economist magazine. I bought it this morning. The front page screams at me:

“Rage against the machine … Capitalism and its critics.”

Really?

I hadn’t noticed.

Yes the message is sinking in.

Something is horribly wrong in society. It isn’t just the economy. It’s the collapse of democracy. It’s the corruption. It’s the excesses, unpunished excesses, of Wall Street. It’s the indifference to decades of stress signals from the middle class. It’s the arrogance of arguing for austerity for the masses in the face of continued gluttony at the top. It’s the ongoing incompetence of leadership. It’s the collapse of confidence that this is one country and not two.

Above all the anger of the mob of malcontents is no longer silent. It has a voice. And to the ear of the elite, in its comfortable surroundings and self absorbed bubble of sycophants and hangers on, that voice has a harsh and dangerous edge.

The elite will have to get its drivers to circle the limousines. The help is getting antsy. And that’s upsetting for those nice philanthropic people at the top.

Too bad.