A graph showing the end of America as we know it.

Summary: This is third in a series showing that we’re losing America. This post examines rising inequality of income, one of the major forces reshaping our society and politics. It’s not a class war if we don’t fight back.  {2nd of 2 posts today.}

The one graph that ties together the strands making a New America.
Click to enlarge.

The Great Decoupoling

Andrew McAfee, 12 Dec 2012 — Click to enlarge.

This one powerful but dense graph shows the transformation of what we know of as America — born in the fires of the New Deal, WWII, and the civil rights revolution — into the America of the Gilded Age. The top 2 lines (blue and grey) show America’s increasing economic strength: rising labor productivity and GDP. The bottom two show what we get from that (private sector jobs and median household income).

Here you see the slowly widening break in the early 1980s — the Reagan years, an inflection in so many American political and economic trends — as the 1% siphoned off an increasing fraction of America’s income. That growing gap gives them ever more power, allowing them to restructure America’s institutions to better serve them.

Labor unions were crushed. Workers increasingly became contingent, disposable — either “independent contractors” (often de facto employees without the protections of formal employment), or temps, or just pawns to be fired as needed to boost profits. Open borders brought in more workers to drive down wages (e.g., H-1B visas for skilled workers). Enforcement of labor regulations were gutted, allowing growing exploitation of workers, such as illegally treated cheerleaders in professional sports, plus dubiously legal “managers” (no overtime), unpaid interns, and not-independent independent contractors.

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Stories about a rising tide of black mob violence!

Summary:  Obama’s election brought hope for a new era of race relations in America. Instead we appear to be starting another downward part of the long cycle. As usual, these things just don’t happen — and bad relations work well for the 1%. Today we look at some of the ugly propaganda that guides American in the 21st century (so similar to that of the 19th and 20th C).

This is the 2nd in a series of posts showing how we’re losing America.  {1st of 2 posts today.}

The aide {Karl Rove} said that guys like me were ”in what we call the reality-based community,” which he defined as people who ”believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism.

He cut me off. ”That’s not the way the world really works anymore,” he continued. ”We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.”

— Karl Rove, as quoted in “Faith, Certainty and the Presidency of George W. Bush” by Ron Suskind, New York Times Magazine, 17 October 2004.

Divide and Rule

One of the momentous and astonishing aspects of our time is that conservative leaders have erected a Potemkin village for their followers, and gotten them to move in. A fake history (e.g., the failures of FDR, we won in Vietnam excerpt for a “stab in the back” by peaceniks). A fake economics (e.g., cutting taxes usually increases tax revenue).  A fake science (e.g., creationism, climate science is fraud).  Over time they’re moving further away from reality. Divorcing people from mainstream and authoritative sources is a reliable tool of social control (effectively used, for example, by cults).  This probably will not end well for America.

διαίρει καὶ βασίλευ.
— ‘Divide and rule’, attributed to Philip II of Macedon (332-386 BC)

Today we look at an example showing they build myths in the minds of their flock, and lead  them. In this case, playing on people’s deep fear of the “other”. The  economic stress on blue collar demographic creates pressures with no outlets, as they don’t see the 1% in its protected enclaves — and have been taught that their gradual impoverishment is just — as their ancestors believed in the divine right of Kings. If the pressure grew without outlet we might get new political alliances and perhaps even change.

So they’re given myths (ideally based on exaggerations instead of fiction) creating enemies to fear. Such as Islamic fundamentalists abroad (rebelling against their corrupt, oppressive western-backed governments), so they can feel vicarious satisfaction from our bombing and killing.

But who to use as enemies at home? We don’t have the long deep history of antisemitism that’s served European elites so well. But America has an almost as deeply rooted racism, that’s served the same role as well for so long. It’s easily exploited using tried and proven methods, but the process is not pretty.

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More evidence that we’re losing America. It’s not too late to act.

Summary: I have long discussed what might make Americans rouse themselves to retake the reins of the Republic and reverse its evolution into a new regime. Clear warnings, descriptions and diagnosis of the problem? Anger at ourselves and what we’ve allowed America to become? None of these seem plausible. Perhaps fear will do it, produced by recognition that there is a class war — and we’re losing. A few posts will review the depressing news.

Will these spur you to act? Time is not our ally. Lots of groups talk about building a New America; the people doing so act in the shadows — visible only if you look. But the results of their work have become obvious.

Despair at losing

We discuss the progress of our foreign wars in great details, just as we track every vibration of the economy and the political machinery in Washington. The big things get less attention, such as the class war by the 1% against us. We’re losing. It’s like slowly boiling a frog; it’s happening so slowly that we don’t notice. But there’s still time to act.  {Also: zoologists consider this a myth; please don’t test it at home.}

(1)  COIN comes to America

As I and so many others warned for so long, the techniques of surveillance and oppression developed during our occupations of Iraq and Afghanistan would eventually come home. As we see at the crushing of the Occupy protests and on the streets of Ferguson. Here’s another example. Even I, who has chronicled so many horrific stories about America at this website, was shocked. I shouldn’t have been surprised.

The disappeared: Chicago police detain Americans at abuse-laden ‘black site’“, Spencer Ackerman, The Guardian, 24 February 2015 — Secret interrogation facility reveals aspects of war on terror in US. Protester details 17-hour shackling without basic rights. Accounts describe police brutality, missing 15-year-old and one man’s death.” Excerpt:

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About the disturbing disconnect between markets and the real economy

Summary:  Today we have a guest post about the often discussed but still mysterious disconnect between the US risk markets and the US economy — between Wall Street and Main Street. Since the crash, economists and investment strategists have confidently predicted it will close soon, certainly when the economy accelerated back to near normal speed. So far neither has happened. Today’s guest post by Lance Roberts examines this important phenomenon.


Markets Vs Economy – The Great Disconnect

From StreetTalk By Lance Roberts
23 February 2015
Posted with his generous permission.

Since Jan 1st of 2009, through the end of 2014, the stock market has risen by an astounding 148.8% (based on Fed Reserve quarterly data). With such a large gain in the financial markets we should see a commensurate indication of economic growth.

The reality is that after three massive Q.E. programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which total to more than $33 Trillion and counting, the economy has grown by a whopping $1.9 trillion since the beginning of 2009. This equates to just 13.5% growth in real GDP during the same period that the market surged by more than 100%.

What do stock prices tell us today?

Click to enlarge.

However, as shown in the chart above, the Fed’s monetary programs have inflated the reserve balances of member banks by roughly 403% during the same period. The increases in reserve balances, which the banks can borrow for effectively zero, have been funneled directly into risky assets in order to create returns. This is why there is such a high correlation, roughly 85%, between the increase in the Fed’s balance sheet and the return of the stock market over that period.

Unfortunately, while Wall Street benefits greatly from repeated Federal Reserve interventions – Main Street has not. Over the past few years, while asset prices surged higher, personal consumption expenditures have remained mired at levels typically associated with very weak economic expansions. This is reflective of continued weak income growth which has been a function of a large amount of slack in the labor force.

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The Best Defense Is a Strong Defense. Never Fight a Land War in Cyberspace.

Summary: Why defense experts obsess about the relative advantages of different military hardware (e.g., the A-10 vs the F-35), the US has unleashed the tools of cyberwar on Iran. We can expect more in the future, begun by friends and foes. So let’s learn the rules. Today Marcus Ranum explains the nature of attack and defense in cyberwar, and the advantages of each.  {@nd of 2 posts today.}

Cyber Warriors


My 2014 presentation “Never Fight a Land War in Cyberspace” compared key elements of warfare in the real world with warfare in cyberspace, exploring the interchangeability of tactics and strategy in those domains. I expected that “cyberwar” would have similar underlying principles as regular war, but found that “cyberwar” bears no resemblance to warfare at all — tactically or strategically. Of course it fits in the overall grand strategy of conflct and power, but our tendency to reason by analogy breaks down quickly here.

In this series I will lift some of the main themes from that presentation and give them the more detailed explanation they deserve.

I will use two terms as shorthand.

Cyberwar“, which I do not think is a real thing, as shorthand for “conflict in cyberspace” — which I consider real. This series continues my attempt to explain why “cyberwar” is not a useful concept; unfortunately, the term has taken on a life of its own. Caveat Emptor.

Topological warfare” as shorthand for the idea of warfare that is bound to a real-world existence. The real-world-ness of topological warfare is the basis for what we know as military strategy and tactics; it’s an environment in which armies have to eat and cannot move at light speed, etc. The topological nature of warfare deeply penetrates virtually all of our thinking about strategy and tactics.

“The Best Defense is a Strong Offense”

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We see a stock market bubble but prefer to close our eyes.

Summary:  Bubbles in the information age differ from those of simpler times. Now we have real-time data showing our folly. Here’s a brief review, another in our series of posts about this mad cycle. Listen while you read and you’ll hear the stock market roaring to the moon.  {1st of 2 posts today.}

“You can’t cheat an honest man.”
— Title of W. C. Fields movie, describing the essence of bubbles (1940). Bubbles are consensual hallucinations. Each participant chooses to join.

Soyuz TMA-12M Prepares To Launch

(1)  Goldman tells the story

As usual, Goldman gives us clear analysis, in mild professional language — seeing events earlier than the rest of the pack. (Via Zero Hedge). The 21st century differs from anything seen before. We see it as distinct phases; future generations will see it as one event (as we’ve combined what participants saw as separate events into the War of the Roses and the Napoleonic Wars).

Stocks with attractive valuation are rare in the current environment of stretched share prices. The aggregate S&P 500 trades at 17.3x forward EPS and 10.2x EV/EBITDA. The only time during the past 40 years that the index traded at a higher multiple was during the 1997-2000 Tech Bubble. The median stock sports a P/E and EV/EBITDA of 18.0x and 11.0x, respectively. These valuations rank in the 99th percentile of both P/E and EV/EBITDA multiples since 1976.

Goldman: valuations

Valuation ratios are deceptively simple, as their interpretation relies on larger factors such as interest rates and the economy’s expected future growth rate. If fears of secular stagnation prove correct, people today pay big money for growth that will not arrive. Also likely to be disappointed are people hoping to sell at valuations like those of 1999-2000. Those were based on GDP growth rates almost twice ours. From 1996-2000 GDP grew at ~4.5%; it was 7.4% in Q4 1999 — fueling dreams of our economy roaring like never before.


(2) The biotech bubble

Every bubble has a heart from which the euphoria is pumped out into the wider society. In this cycle it’s the biotech industry. Like the railroads in 1840s and the internet in the 1990s, the biotech industry has a great future. But like its predecessors, valuations have grown beyond realistic bounds. For news from the front see this: “Forget the tech bubble. It’s the biotech bubble you should worry about“, Max Nisen, Quartz, 19 February 2015. — Excerpt:

Big pharma firms and investors have been showering billions on speculative companies that have never produced a viable drug. For four years running, biotech stocks have risen faster than any other sector of the market in the United States. Health care set new records last year for both IPOs and M&A spending. … Cheap debt, a frenzy of publicity for research that hasn’t yet led to any products, and obscenely high pricing for the medicines that make a difference are all adding fuel to the fire.

As usual, the extreme madness appears in the paper-manufacturing business: the people creating new companies and doing Initial Public Offerings. Fortunes are made by farming gullible investors. Drugs go through five phases from conception to approval: preclinical work, 3 rounds of testing on people, and getting FDA approval. The number of IPOs having only drugs in the first 3 phases has grown to insane levels.

Why are these bad investments? The odds are better at Las Vegas than for early stage drug development projects, and at Vegas you get free drinks served by pretty ladies. Look at the probability of success:

Biotech: Success rates by phase

Biotech: Success rates by phase. By KMR, 8 August 2012.

Printing paper for gullible investors

Bubbles just don’t happen even in the most favorable climate; they’re made. Creating start-ups in a hot market is easier than drilling for oil, and more profitable. Investors give up their money more easily than the Earth yields its treasure. The complex of venture capitalists, attorneys, and investment bankers have constructed a money magnet.

Another note from the front lines: “Look at how quickly the values of multi-billion-dollar startups have multiplied“, Nitasha Tiku, The Verge, 20 February 2015 — “A quick note on how profitability relates to valuations: it doesn’t! At least not yet.” See the following graphic; see the bubbles grow over time! Size of the circle shows the dollars raised in each deal. Go to the article to see this as an interactive graphic, where you can click on each dot for details. Click to enlarge.

Startup Sizes

Startup sizes by year. From The Verge, 20 February 2015. Click to enlarge.

Other articles about the bubble

  1. Stock market bubble warnings grow louder“, CNN, 19 August 2014 — “Some of the brightest minds in finance are sounding the alarm about a stock market bubble.”
  2. US equity markets in ‘dotcom style’ bubble“, The Telegraph, 28 November 2014 — “The UK’s top professional investors think most asset classes are overvalued after years of easy money conditions.”
  3. {CEO Elon Musk} Says Tesla’s China Sales Fell, No Profit Until 2020“, Bloomberg, 13 January 2015 — My personal favorite bubble stock.
  4. The billion-dollar companies Silicon Valley investors ought to fear“, Financial Times. 20 February 2015 — “Late-stage private companies have not endured the scrutiny of the IPO process.”

For More Information

Other posts about our new and strange world:

  1. Will 21st Century USA have a surprise boom, as did the 19th Century UK? — About the 1840s railroad boom.
  2. Four graphs showing a nation in decline. An unnecessary and easily fixed decline.
  3. The new tech bubble takes us to a new world. A mad world.
  4. Watch corporations strip-mine their future (and ours).
  5. America enjoys a time of sunshine in Hell. Let’s use the time wisely.
  6. A guide into the weird numbers that run our world, describing both financial bubbles & climate change.
  7. Let’s ignore another warning from the BIS. Do we enjoy paying for burst bubbles?
  8. How we’ve become accustomed to bubbles bursting the economy, instead of fighting them.

The Secret Life of Walter Mitty is the secret life of many Americans

Summary:  We’ve broadened our geopolitical analysis to include film criticism by Locke Peterseim, today discussing “The Secret Life of Walter Mitty”, a 2013 remake of a 1947 escapist movie based on a 1939 short story by James Thurber almost exactly opposite in tone and meaning from the films. Hollywood transforms everything it touches, either to keep us shallow — or because we fear seeing the depth of life.

The Secret Life of Walter Mitty


The Secret Life of Ben Stiller

By Locke Peterseim
Posted at the film blog of Open Letters Monthly, 29 December 2013
Reposted here with his generous permission.

There are a million reasons (about $100 million budgetary ones, to be exact) that I should hate Ben Stiller’s new adaptation of James Thurber’s The Secret Life of Walter Mitty, written by Steve Conrad and directed by and starring Stiller.

For this latest update (following the 1947 Danny Kaye version), Walter Mitty (Stiller) is now a modern-day photographic archivist, a physical negative handler for LIFE Magazine at a time when both the magazine and its photography are going all-digital.

Of course Mitty still spends half his time lost in elaborate daydreams fueled by Hollywood hero fantasies, but Walter’s own flat, grey, carefully calibrated life is upended on multiple fronts when he simultaneously develops a crush on a winsome co-worker (Kristin Wiig) and learns (from a hilariously hirsute Adam Scott as his new digital-asshole boss) that the magazine (and most likely his anachronistic job) are morphing away into the Internet ether.

That one-two punch spurs Walter to impulsively set off across Greenland, Iceland, and Afghanistan by helicopter (drunkenly piloted), ship (complete with shark-infested waters), car (outrunning an erupting volcano), and skateboard in search of a mysterious missing photo from a ruggedly elusive star photographer (Sean Penn, nicely both embracing and mocking his own self-serious image). Along the way, we learn how Walter’s loss of his father at a young age deferred his plans, goals, and dreams for a not-so-wonderful dull life of George-Bailey-esque responsibility (sans the loving family and friends).

The Secret Life of Walter Mitty is a deep-pocketed Hollywood movie that wears its “big ideas” on its oversized, glossy, movie-star sleeve and proudly tosses out not-so-subtle winks about our current human existence.

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