Hi Guys,
Anonymous sources say history repeats itself; others claim the opposite. History doesn’t precisely repeat itself, but often offers a very close resemblance. Knowing and understanding the tipping point events of history are important.
To illustrate, consider this sequence of events. A relatively new political entity comes into existence during times of considerable upheaval, stress and duress. The going is uncertain and filled with potholes, and, consequently demands tough measures.
The surviving or the challenging regime develops a seemingly workable plan and executes it with some partial successes and some disappointing failures. However, alternate action plans are proposed which heighten internal strife and distrust. To unify the body politic, the time-tested remedy has been to identify and vilify an external enemy. If no external enemy is available, some regimes have pursued a policy of “negative integration”.
What is “negative integration”? In order to advance an internal policy that does not enjoy universal support from a skeptical population, a ruling party identifies an internal villainous enemy that the main body politic will rally against. Predictably this internal enemy is a powerless, minority group.
Propaganda is the tool of choice to keep this minority on the defensive. The propaganda attack agenda is constant over time, and is vicious by design, and is emotionally supercharged.
Frequently these trying times are characterized by economic depressions and hyperinflation. Unemployment is high to further enhance the distrust and unhappiness of the population. It is easier to blame someone else than yourself under this scenario. Scapegoats are identified and targeted.
Most recessions are exacerbated by overspending made easy by low interest rates and even lower lending standards. The spending is financed by leverage excesses among all segments of the population: by the government with deficit spending on misguided projects; by the business community with heavy borrowing for irrational expansions; by the financial sector as it manages low cash reserves; and by private citizens with their overextended credit card balances. In this environment, charlatans flourish so trust erodes.
One approach often recommended by economists is to combine the better parts of the Keynesian and the Austrian economic orthodoxy. A common prescription is to eliminate the government’s annual deficit (universally a noble goal), raise interest rates (like Paul Volcker did in the 1980s), and eliminate government jobs (done in Germany and the US in the 1920s).
Nouriel Roubini does an excellent job of detailing the effectiveness of these methods in his 2010 book titled “Crisis Economics”. Roubini believes that our boom and bust cycles are a byproduct of the capitalistic system. He argues that such a cycle does not qualify as a Black Swan event because it is totally predictable. Therefore, he concludes that recessions are “White Swans” because history teaches us to recognize them well in advance of their arrival. Roubini acknowledges that depressions can not be totally prevented since they are an integral part of our economic system, but they can be muted in severity.
In these chaotic crisis circumstances, often a strong man rides to the rescue. Eric Hoffer wrote about such a man in his most famous book “True Believer”. Things don’t always turn out well for either The True Believer or for the folks he supposedly rescues with his short-term solution. The success of such an episode must be measured over a long-term timeframe.
In this emergency scenario, The True Believer seeks powers that exceed his constitutional rights. The argument is that the “End justifies the Means”. This is not usually true; in fact, it is rarely so.
If these emergency powers are not forthcoming, The True Believer usurps them by force (which frequently fails), or by more surreptitious methods (which more often succeed). In this manner, The True Believer can circumvent a legally elected legislative branch.
This has happened many times in the past; there is persistent danger that it will recur in the future, even the near future. Diabolical politicians seek and find loopholes to evade constitutionally required constraints. Remember that The True Believer and his organization are committed activists so this mission-oriented team is in a perpetual campaign mode.
Does all this seem vaguely familiar?
I am not summarizing our Nation’s current dilemma. In fact, this is a description of the German Republic from its unification in 1871 and into the 1930s.
Key players and events in its chronology include giants like Otto von Bismarck and Paul von Hindenburg; it was tragically fathered by WW I and the resultant Weimar Republic; it was abetted by private US investors who withdrew financial loans as our own recession collected momentum; and finally, a Germanic True Believer arrived on this volatile scene with a devastating impact.
Many of my insights about this period are derived from The Great Courses lecture series developed by history Professor Thomas Childers and in the economic arena by Professor Roubini. I have supplemented their inputs with observations from Charles Kindleburger’s classic book “Manias, Panics, and Crashes” and from Eric Hoffer’s insightful book “ The True Believer”. These varied sources guided me through these tipping point events using the eyes of economists, historians, and philosophers.
Childers’ recounting of that crucial period is bone chilling. The parallels between that bit of sad history and our present status share some disturbing similarities. These similarities are indeed troublesome and worrisome.
As is usually the case, the devil is in the details. In today’s complex, interconnected world, politics and economics are inextricably intertwined in an enigmatic Gordian Knot.
On the economic front, heavy debt, oversized leverage, high unemployment, tariffs, isolation, complex regulations, uncertainty, political unrest, inflexible workforce, and trade wars are all disrupting factors.
On the political front, negative integration (scapegoats), propaganda, constant campaigning, assembling minority support groups, suspending legislatures or making them dysfunctional, empty promises, establishing plausible deniability, and postponing difficult decisions are standard techniques.
To illustrate just one of these points, in post-WW I Germany, the National Socialists German (Deutsche) Workers (Arbiters) Party (the NSDAP) apparatus effectively used a Rule 48 that was embedded in the German constitution. Rule 48 permitted the Chancellor to make his own regulations under emergency conditions, thereby bypassing and neutering a now dysfunctional and ineffective Reichstag.
The NSDAP’s rapid rise to power was basically completed with Germany’s 1932 election cycle. Although the NSDAP only collected about one-third of the vote, they colluded with other minority parties to secure the Chancellorship. The ineffective Weimar Republic collapsed with this event. By early 1933, the Enabling Act gave full dictatorial powers to the Chancellor. Before the Reichstag representatives could be formally sworn to initiate the legislative sessions, it was summarily disbanded when the NSDAP and the Communist party momentarily joined forces to defeat representative government and freedom.
When President Hindenburg died in 1934, the Chancellor appointed himself the President. Within a decade, Germany had been transformed from a democratic state to a totalitarian state. That transformation was completed when The True Believer was granted a permanent position as Der Fuhrer and the Third Reich was now an entrenched reality. So was the true believer, Adolph Hitler.
Unfortunately, it is not possible to decouple politics and economics.
Is this us? What is your assessment?
Best Regards.
Comments
Well, there were 21 U.S. recessions in the 20th century (22 if you count the one ending in 1900). I guess one test of the case would be to look at political stability or instability in the midst of, or wake of, those. While you could argue that "the Great Recession" is unique, it's also true that (1) they're all unique in some way and (2) a fair number in the early 20th century were worse.
Hitlerology is always treacherous. Hitler's the subject of over 20,000 books and the Nazis are in 18,000 (use the Observer's Amazon link!). The argument made in Rosenbaum's Explaining Hitler is that most of those books tell us more about the needs and beliefs of their authors than they do about Hitler. Professor Childers does really good work. That said, Nazi popularity peaked at 32% of the electorate in July 1932 and they lost 2 million voters by the November 1932 elections. Most historians attribute Hitler's success to tragic bad luck (Hindenburg's death and the Reichstag fire), rather than any great plan on the Nazis' part or rush of support.
The challenge of drawing "lessons" is increased by the fact that Germany was a parliamentary democracy, with 30 political parties dividing the vote.
As to his propaganda, there's very little evidence that it galvanized the mass of the German people, nor was it intended to. It seems to have had two goals: reassuring the German people that their government was alert and acting responsibly in their interests and drawing relatively small numbers of committed anti-Semites into the part organization. As Hitler notes in Mein Kampf, propaganda just attracts attention to one's cause, political organization (that is, government policies) is what gets the work done.
David
I think your picture is not reflective of our situation. I agree to the part that during difficult times politicians seek an enemy to deflect and diffuse the pressure upon them and try to unite the nation. If you are looking for a scapegoat right now, probably latino population may fit the target. Did you notice the proliferation of state laws targeted to this population. I am not saying that these laws have or do not have merit but this population was not targeted in better times.
I would like to make a couple of comments on Weimar republic and Hitler's rise to power. After WW I, Germany had to pay reparations to France in gold. The payment terms were too heavy and did not leave any possibility of growth to Germans. They were squeezed under this heavy load. Under this environment, hatred of foreigners and extreme nationalism was born and allowed a person like Hitler to come to power. The high inflation of Weimar republic is also due to these war reparations. Germany could not fund the basic needs and had to print money and over time confidence on the government to pay its heavy and increasing debt load waned resulting in a situation like what Greece is going through with the exception that Greece cannot inflate and make its goods and services cheaper. Under expensive money, Greece now has to make much more painful adjustments as its exports cannot increase as its money lose value. In other words, Greece does not have the monetary tools to deal at least part of their problem and euro is a problem for greece.
Anyway, back to Weimar republic, the resulting high inflation was not the cause but the result. The victors of the WW II recognized the mistake of WW I and avoided this sort of war reparations.
I hesitated for 4 days before submitting the “Is This Us?” piece. I debated if it was an appropriate posting for this forum. I finally rejected that argument because of the highly interconnected nature of economics and politics.
Also, I feared that the piece would provoke to much unconstrained annoyance and to much emotional vitriol from persons who are fully committed to a single point of view. I’m pleased that my fears were largely exaggerated and unwarranted. I’m glad that I made the decision to post. I admit that I underestimated your respect for a fair and honest exchange of challenging perspectives.
I want to extend a warm thank you for your respectful replies, for your varied insights, for your courage to participate, for your polite commentary, for your deep knowledge of this subject matter, and for your carefully crafted positions. All your recountings, your observations, your assertions, and your conclusions have merit. Congratulations. You constructed your positions with considerable skill and, coupled that with precise and stimulating prose. It was a pleasure to read your postings.
As a minimum, you matched my assessment with an equally detailed analysis of your own. It was a fine effort by everyone who elected to join the battle on this controversial subject. You did yourself proud.
I probably hold Propaganda in higher esteem than most of you fellows. Perhaps that’s because I equate Propaganda with Advertising and Public Relation campaigns. I suspect that I rate them more effective then most of you do. From a pragmatic position, if propaganda/advertising/public relations did not influence decisions and loyalties, I doubt that the huge sums of money, uncounted surveys, and organized preparation time would be committed by private citizens, corporations, nonprofit institutions, and government agencies to such unproductive tasks.
All these disparate groups are intelligent and understand economic incentives. They fully expect the benefits to exceed the costs. They know what they’re doing, and experts have refined the techniques to yield maximum results. The 24/7 media news cycle has magnified propaganda’s multifaceted impacts. We are constantly exposed to it.
Many experts credit Edward Bernays as the grandfather of current Public Relations/Advertising methodology. I recall reading (source unknown) that Joseph Goebbels practiced his approach and discipline as Nazi Minister of Propaganda and Enlightenment. Goebbels studied the teachings of Bernays.
Bernays wrote a widely influential book titled “Propaganda” in 1928. It is available without cost on the Internet. Even today, eight decades later, some of its assertions and findings are relevant, and currently practiced. You might be interested in glancing at it; it is a short book at 153 pages. Bernays was employed by corporations and governments alike, and is credited with many successful campaigns that changed the way we see the world and use its generous products.
It is a pleasure to share this Forum with you guys. I appreciate your enthusiasm.
Be safe, be healthy, and be successful investors.
Best Wishes.
I must confess that I'm a little surprised by your concerns regarding the ability to have an intelligent and respectful exchange of economic/political ideas in this forum. Given the incredibly decent track record of the overwhelming majority of FundAlarm/MFO posters, I should have been very surprised if your subject had provoked a shouting match.
I didn't comment personally, even though the time frame and history which you referenced are one of my favorite subjects, because I wanted to wait and see what sort of responses you received. As it turned out, anything I could have added would have been superfluous, as the subject got pretty darned good coverage. I was particularly pleased to see David jump in, as I am aware that he is an expert in this area. I remember that Roy seldom if ever commented, as he evidently felt that would somehow exert undue influence. A shame, I thought, as he undoubtedly would have had some very interesting thoughts to share had he been so inclined.
I know that a lot of folks still miss the old FA format, and I do too... no more one-liners. But the MFO OT playpen goes quite a way to compensating for the somewhat awkward format, and I really appreciate David's giving us the opportunity to share opinions and information that might not strictly speaking be primarily financial in nature.
It was well worth reflecting on "Is This Us", because even if we can agree that we aren't in that situation at the moment, there are those with strident voices who would happily lead us there, and it is a possibility that we must be ever vigilant in guarding against.
Best regards to you sir!
OJ
Earlier, I referenced the work of Edward Bernays, especially in the first half of the 20th century. He planned and executed successful campaigns for political, for newspapers, for tobacco, and for the food industries among many others.
His success at getting America to eat a bacon and eggs "healthy" breakfast demonstrates his skill at turning an entire nation around on a daily basis. He managed the data and our exposure to it in a very selective way. He knew his craft.
I mentioned that his "Propaganda" book is available on the Internet as a pdf. Here is a Link to Bernays' classic.
http://sandiego.indymedia.org/media/2006/10/119695.pdf
Enjoy.
Best Wishes.
My word for the past and current situation is:
Oligarchy (from Greek ὀλιγαρχία, oligarkhía[1]) is a form of power structure in which power effectively rests with a small number of people. These people could be distinguished by royalty, wealth, family ties, corporate, or military control. The word oligarchy is from the Greek words "ὀλίγος" (olígos), "a few"[2] and the verb "ἄρχω" (archo), "to rule, to govern, to command".[3] Such states are often controlled by a few prominent families who pass their influence from one generation to the next.
Throughout history, most oligarchies have been tyrannical, relying on public servitude to exist, although others have been relatively benign. Aristotle pioneered the use of the term as a synonym for rule by the rich, for which the exact term is plutocracy, but oligarchy is not always a rule by wealth, as oligarchs can simply be a privileged group, and do not have to be connected by bloodlines as in a monarchy. Some city-states from ancient Greece were oligarchies.
I note past and present; as there are times when this monster may be in "check" by the people; or a few well positioned people who have high standards and are of the best ethical and moral values, and not playing the system for their own gain.
When "things" get out of hand from the pendulum of power moving into directions that do not fit my and perhaps your meaning of "common sensical"; one should expect problems.
I have not witnessed common sense in many of the very critical political machinations in recent years; the machinations that may cause real problems and/or problems into the future because the thought process did not take the future into consideration.
I will note a few recent events that cause to me have this view; and it does not matter where these folks are from or who they represent, as I would have the same problem with their thinking had I voted for them in hopes of "clear thinking". I am not biased towards any one political party or person, I am, however; biased when I think I see and know stupid !!!
Nancy Pelosi, when she was the at her high seat of power and commenting about passage of the "health care" legislation and uttered that "lets pass this bill and see what is in it." Give me a break here please. Is this the kind of person I want to be running even the local Dairy Queen?
And as with so many of the 2,000 page length legislative pieces winding there way through congress and no one can read them; let alone get a legal opinion on all of the language...........well, the system is broken badly and "badly" things come from such a system.
A "Cap and Trade" bill that got killed....thankfully; was so full of crap and trash. Some of the early language and propositions were plain stupid.
As for Mr. Obama, well; I have concluded that he is either full of himself, gets a lot of poor input and can't make a clear decision about the input or really is nothing new and wonderful as he and many others had expected. Or sadly, has he been and continues to be just part of the money game of power and control.
Why did he decide to chase the health care first, and not focus on the real problem of a very sick country? Why does he think there is real value in building a high speed rail system from Tampa to DisneyWorld?
Mr. Obama is only picked upon (by me) now, because he is the current president. Mr. G. Bush was a barrel of fun and clear thinking, too.
As for the common sense, well the below are supposed to be Thomas Jefferson quotes, and pages of this may be found on the net. Whether these are all pure quotes or adjusted I do not know, as I have not the time to research the full extent. But, the words do have sense. If corrections to the below are warranted, please indicate this.
The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.
It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.
I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.
My reading of history convinces me that most bad government results from too much government.
To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.
Thomas Jefferson said in 1802:
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered.
I have used the word stupid here several times. We have taught our daughter that using the word stupid is very harsh and generally should not be used in casual conversation. The word is very common among the young ones and especially during the earlier years of schooling. We have always been careful as to when this word may or could be used; but I use it today, as the word fits the subject matter.
Power, well; I place this link for PPD51, which was fully posted at the WhiteHouse.gov web site during G. Bush's era. You may be the judge as to what the meaning and the move away from a balanced government may imply. I fully expected some of these measures to be put in place during the market melt. Do not be concerned about the web site where the document is placed; there are many sites with this document for reference; as the PPD was removed from the whitehouse site when Bush left office.
http://www.infowars.com/articles/ps/bush_nspd51_gives_bush_dictatorial_power.htm
This is all from this Mr. Rant today. Back to the chores before the rains come.
Take care of you and yours,
Catch
Seems to me that to expect any one man, whoever, to fix in a year or two the "sickness" of a country that took all of us some twenty or more years to incur is pretty optimistic and unrealistic.
To attempt to do this when faced with an intractable and almost fanatical opposition, many of whom are in fact responsible in large measure for much of the sickness, makes curing the sickness all that more difficult. Note that this opposition crosses all party lines, and the politics are in fact financially driven by every self-interest that can afford to buy a piece of Washington. But the Supremes think all this is just fine, thanks- don't forget free speech and that money talks, after all. If money talks, it must be protected, yes? (And by the way, stuff is just plain more expensive... could we Supremes please have a little raise?)
The patient isn't being too cooperative either, demanding some sort of magic pill that will allow him to keep right on doing everything that he wants while somehow taking care of all problems that the behavior is causing. Running short of electricity? Well, don't build no damn power lines through MY yard! Running short of oil? Well hell, let's just use our corn and stuff instead. Running short on money? Well jeeze, get out the old credit card Ma- that's what they're for!
In the treatment of some medical problems the problems are obvious but there is no clear-cut answer, so judicious manipulation of the suspected causative factors is about all that can be done. The medical care situation in this country is rapidly degenerating into a situation where only the very well off (dare we say "oligarchy"?) will be able to afford decent care: it might just be more effective to try to manipulate the more obvious causative factors than to just pretend all is well. Again, a good-faith cure attempt in the face of the same intractable and almost fanatical opposition which thinks that doing nothing is just fine and the patient will surely get better if we just keep on doing what we have been doing.
Of course recently the curtain got moved a little and we've seen what some of the wizards really have in mind: get rid of all community effort in the health area and issue worthless paper "credits" to all of the non-wealthy sick, and then throw them to the well- documented mercies of the medical insurance industry. What the hell, if they haven't got the bucks they're just cannon fodder anyway. And besides, they must be stupid if they are sick and can't afford decent care.
Stupid. You want stupid? How about all of us, including me, who just sit here and complain and pontificate? You see any of the middle classes organizing for a massive march on Washington? Won't happen until there is no more middle class, then maybe. Turned 72 yesterday... at the rate things are deteriorating I might just live long enough to see people starting to march...
Regards- OJ
Yes, you are correct. Lots of folks with the rules and laws changes going back many years that have caused the train to be derailed. As I stated, there are plenty of folks to pick upon, but I still believe Mr. Obama has traveled directions that the many who voted for him, did not expect the path(s) chosen. I just get so P.O.'d. I do write the fed and state levels politicos....but, I sure don't feel assured by the responses.
The machine is too big and complex and therefore when the animal eats, it no longer knows what is leaving the other end (ya, know the poop) and can not adjust the diet and/or eating habits properly.
As always, you indeed cut through the crap.....thank you for this !
Take care.....gotta catch an appointment.
Speaking of animals, we'll be off to the Russian River as usual later this afternoon. Bound to pass quite a number of large, lazy, happy cows being allowed to fatten up before getting eaten. But then, who ever heard of cows marching on Washington?
Have a good weekend!
OJ
I did not reread my quick write before this write to you. I believe some are well intentioned at many gov't. levels. I also believe the core fiber of the majority becomes perverted by whatever means and methods and likely is a result of and the final outcome to be what many (elected) feel to be a true calling to the side of power and control; perhaps at first with good intent, but the very nature of the give and take for those to accomplish "their" mission(s) also requires them to become beggars of their fellow neighbors to get "favored" legislation in place. The end results may generally be considered as a most complex and basically related co-mingle of terms for a given piece of legislation that remains in the end a very misguided, misdirected and perverted from the original beginning; and many times with unintended outcomes. This all takes place before the true language of legislation is set in place by the official word scribes.....where the howevers, therefores and related legal words may cause a true meaning to change its colors. The final fix.....the wordsmiths; perhaps the most powerful post-legislative group.
Thanks for the comment sharing.
Regards,
Catch