Competition was never about protecting consumers.

I became suspect of the “competition protects consumer” narrative way back in 1987. In the spring of that year I started work part-time at a gas station. On the first day my manager explained to me how the gas station determined its gas prices. I told him I was under the impression that the station used some type of mathematical pricing formula ala what I learned in college as an economics major. “Bless” his heart. I can still see the look on his face when I laid that “what I learned in the classroom” nonsense on him. “No”, he said. “That’s not how you do it. What you do is each morning look across the street and see what the other station is charging and then change our prices to reflect theirs.”

It was a rude awakening for a 23-year old: that the theoretical stuff you learned as an undergrad was so much nonsense. That consumers of gas station fuel were being taken on a roller coaster ride of gas pricing based on what the gas station across the street was charging.

Of course, there are other factors that contribute to the changes in gasoline prices at the pump; the supply of oil, the price of a barrel of oil, decisions by oil supplying cartels, i.e. OPEC, the barriers to entering the local retail gas market, and regulations against price gouging. If local regulations allowed more retail gas operations to enter the market, in theory prices should fall. And if antitrust rules are enforced, retailers would be prohibited from acting in concert to raise prices. For the past 130 years this alleged consumer centric view of competition has dominated economic and legal thinking. As Americans left the farm and moved to the city, their self-reliance values were replaced by consumerist values. Americans became targets for a progressive philosophy that replaced self-reliance with the narrative of government protection. Trusts, large monopoly firms, had to be broken up to ensure that the emerging consumer class was not taken advantage of via high prices or low quality of services. “Competition” was to be the rallying cry.

But is competition as we know it today realistic or just a coopting of a term for political gain? What are firms really competing for and who does the promotion of competition actually benefit? In a corporate-capitalist system, analysis of any economic issue should begin with a question concerning the preferences of those holding capital. The entrepreneur and investor choose an activity that may result in increasing the amount of capital they hold at the end of the day. For the investor in particular she is concerned not primarily with consumer choice but with the ability of her capital to be placed and optimized in as many markets via as many opportunities as possible.

For the holder of capital, real competition is synonymous to the wealthy person in the Book of Matthew who gave his serfs a certain amount of talents and required that each one of them maximize returns on those talents. He wanted them to compete with each other like an episode from “The Highlander” with the victor receiving a portion of the returns in exchange for the labor they expended in generating those returns.

And the consumer’s role in this vendor competition? Simply, the consumer’s role is to be “coined.” Once the consumer gave up their willingness to be self-reliant, he put himself at the mercy of the entrepreneur and the investor. The consumer protection narrative is designed to ensure his comfort with exchanging personal and economic liberty with the convenience of having his needs provided by the capitalist. The illusion of choice makes him available for exploitation in the vendor competition scenario. The greater the number of consumers available for exploitation, the greater the opportunity for the entrepreneur to demonstrate to capital that it has the ability to maximize returns on and to capital. For the investor, this means that the larger the number of consumers, the more the market can be segmented and greater segmentation creates greater opportunities for creating monopolies within sub-markets. A monopoly structure leads, per microeconomic theory, to opportunities to increase prices. Contrary to the progressive narrative that a competitive market structure is the most desirable, a monopoly market structure is the ideal for entrepreneur and investor.

Consumer protection is valid only to the extent that it makes a buyer available for entrepreneur and investor exploitation. To limit the level of exploitation, the consumer should pursue self-reliance in as many areas of economic life as possible. It will require embracing more inconvenience in return for more peace and liberty.

Can Blacks use the law of discovery to carve out new territory and capital?

One of the failures of black leadership is its unwillingness to pursue a truly self-interested agenda for the people they allegedly represent. The current narrative of assimilation does not work. It puts blacks in an unequal and weak position compared to whites and other non-white populations who have pursued a capital acquisition policy first versus a political empowerment/assimilation approach still preferred by most blacks. It never discusses in any significant way the acquisition of productive capital around which communities can be built. Rather, the assimilationist argument centers on fluffy subjects such as social justice, membership of degreed blacks on the boards of white-owned corporations, and affirmative action in the workplace and in colleges and universities.

To be fair, a number of grass roots advocates do bring up the topic of access to capital by black-owned firms, but the problem is that business capital, whether in the form of loanable funds or equity investment is small compared to the number of black businesses in need of funding. Also, there is the risk that terms and conditions underlying the funding of black enterprise firms may not representative of the black population primarily because the boards that direct these underwriters are probably not members of the community in the first place. Just take a look at the names and faces of the members of the typical executive committee or board of directors and you see my point.

Blacks, as a people, simply are not calling their own shots. If you listen to the rhetoric of current black political leaders, liberty and freedom as it pertains to capital, are not a part of the lexicon. Black political leadership is more concerned with keeping blacks available to vote for white Democratic Party candidates as opposed to self-reliance. Probably in the minds of black political leadership, self-reliance would be akin to self-determination or nationalism and these leaders are afraid that such an approach would sever their attachment to America. But the attachment to America is false one, as I have argued before, because blacks did not come here voluntarily and apply the law of discovery.

To summarize Chief Justice John Marshall, the European came to North America but while acknowledging its Native American occupants, the law of discovery, of showing up first, gave title to the country making the discovery. That Native Americans were there first was irrelevant. Once, say England, made its discovery of what would later become the United States, it created a title that excluded claims by any other European power. Establishing this “title” over the land meant of course establishing control over its natural resources; land, air, water, minerals, the stuff that supports production, transportation, communications, energy generation and distribution.

To the activities that land, water, air, minerals, paid, indentured, and enslaved labor supported, the European was able to attach “coin”; to monetize. He would later create a centralized banking system to underwrite his government’s issue of debt as well as serve as the lender of last resort to commercial banks. The European’s financial system would, in conjunction with public sector investment, underwrite technological innovations that would further spur the design and production of consumer goods and services.

Blacks have been left largely out of the ownership of productive capital in the American political economy and as I have discussed in previous posts, it is too late and probably impractical to attempt any action under the laws of discovery for the purpose of acquiring the natural resources that underpin an economy that would support 43 million people on a self-sustainable, self-reliant way. But I do not think this is impossible.

Cyberspace provides “territory” that blacks can conquer and extract capital from. From the time I immigrated to the mainland I have always believed that blacks had the intellectual resources to construct their own vibrant economy. It boils down to a willingness of the black population to use broadband technology to connect to and import resources from outside of the United States and mixing those resources with the access to land, air, minerals, and water that blacks have here in the United States. It means the black population using its engineering skills to build a renewable energy infrastructure that provides electricity to its population. It means building communications networks using unlicensed to spectrum to tie black households to basic services. It means using the black population’s legal talent to advocate for laws that protect the importation of items into the United States that can be processed by plants designed and built in the U.S. by black engineers. It means using financial talent to reinvest these proceeds back into the black population and further growing its resources and income.

The great thing about applying the “law of discovery” to cyberspace is that no one has to be kicked out or enslaved. There is still plenty of territory to carve up; to reverse colonize but this time with equitable results.

What Woodrow Wilson left out of the definition of public administration: capital

Back in 1887, Woodrow Wilson wrote an essay on the importance of the study of administration of government. Mr. Wilson, who would go on to become president of the United States, is usually referred to as the father of public administration. By his definition:

“Administration is the most obvious part of government; it is government in action; it is he executive, the operative, the most visible side of government, and is of course as old as government itself. It is the object of administrative study to discover, first, what government can properly and successfully do, and secondly, how it can do these things with the utmost efficiency and the least possible cost either of money or of energy.”
Other scholars have offered their tweaks on the definition. Charles H. Levine, B. Guy Peters, and Frank J. Thompson define public administration as:

“[T]he implementation of government policy and an academic discipline that studies this implementation and that prepares civil servants for this work.” It is “centrally concerned with the organization of government policies and programs as well as the behavior of officials (usually non-elected) formally responsible for their conduct.”

George J. Gordon and Michael E. Milakovich define public administration as:

“… all processes, organizations, and individuals (the latter acting in official positions and roles) associated with carrying out laws and other rules adopted or issued by legislatures, executives, and courts.”

And Melvin J. Dubnick and Barbara S. Romzek provide the following take on this branch of political science:

“The practice of public administration involves the dynamic reconciliation of various forces in government’s efforts to manage public policies and programs.”

Looking back on my public administration studies and my time as a practitioner, I can say that the above definitions capture the various facets of the discipline; that academics and practitioners do not vary much from these definitions when either studying the administration of public policy or carrying out public policy and managing institutional systems. The problem, however, with the study and practice of public administration in a market-oriented political economy is that the study of public administration rarely if ever addresses public administration’s impact on private capital, specifically, how management of public capital positively impacts returns to private capital.

In getting to his description of public versus private capital, Thomas Piketty first describes national capital “as the total market value of everything owned by the residents and government of a given country at a given point in time, provided it can be traded on some market.” National wealth includes land, dwellings, commercial inventory, other buildings, machinery, infrastructure, patents, bank accounts, mutual funds, stocks, bonds. Mr Piketty found that public capital or public wealth are assets and liabilities held by government and other social entities including towns and other social insurance agencies while private capital or wealth is made up of assets and liabilities held by individuals.

One question that public administration does not address is how best to deploy public capital to boost returns to private capital. While there is literature discussing how public sector spending can boost gross domestic product or even productivity, the study of public administration silos itself by discussing fiscal policy, infrastructure, and public goods, and leaving the discussion of private capital to the markets.

Why is this discussion necessary? Public sector spending needs discipline. How many of us have asked the federal government to provide a cost analysis of each tax dollar we spend and then provide some data on returns on that tax dollar? I wager none. But if public spending on the public goods that act as inputs for private sector production was done at low cost to the tax payer while providing a low cost input for the private sector, could public administration play a more meaningful role in the production of returns on private capital?

It is a question worth pursuing.

A Black political strategy for debt markets. Stay out of them.

You cannot resolve poverty within the black population by attempting to put more blacks into credit markets. Poverty is a function of capital: the less capital you have, the greater the likelihood that you that you will be poor.  Specifically, the more income-generating capital you own, the less likely that you will be poor.  The black political elite believe that if more middle income and poor blacks can borrow money, they would be able to purchase homes, cars, appliances, and the other trappings of consumer life; thus, living the American dream while claiming a stake in assets.  This approach is wrong because it fails to properly address the first act that was necessary for capital acquisition in America and also fails to reconcile the original acts of acquisition with the current barriers to capital acquisition and the alternatives available especially to non-affluent blacks.

Original capital acquisition in America was the result of theft.  This may sound cynical unless you have looked at the history of capital acquisition in America from the beginning of its colonization by European countries.  Take for example the language used by U.S. Supreme Court chief justice Marshall in Johnson v. McIntosh when discussing the principle of acquisition of discovery:

“While the different nations of Europe respected the right of the natives, as occupants, they asserted the ultimate dominion to be in themselves; and claimed and exercised, as a consequence of this ultimate dominion, a power to grant the soil, while yet in the possession of the natives.  These grants have been understood by all, to convey a title to the grantees, subject only to the Indian right of occupancy. The history of America, from its discovery to the present day, proves, we think, the universal recognition of these principles.”

Chief Justice Marshall then goes on to describe how England went about implementing this universal law:

“So early as the year 1496, her monarch granted a commission to the Cabots, to discover countries then unknown to Christian people, and to take possession of them in the name of the king of England. In this first effort made by the English government to acquire territory on this continent, we perceive a complete recognition of the principle which has been mentioned. The right of discovery given by this commission, is confined to countries ‘then unknown to all Christian people’; and of these countries Cabot was empowered to take possession in the name of the king of England.  Thus, asserting a right to take possession, notwithstanding the occupancy of the natives, who were heathens, and at the same time, admitting the prior title of any Christian people who may have made a previous discovery.”

In short, we came and discovered the place. The natural capital lying above and below the land is ours and you leave when we say so.  Chief Justice Marshall said as much when he continued:

“Discovery gave an exclusive right to extinguish the Indian title of occupancy, either by purchase or by conquest … The title by conquest is acquired and maintained by force.  The conqueror prescribes its limits.”

This acquisition by discovery drove, in my opinion, the philosophy of manifest destiny; that white America was destined to spread western civilization and republican democracy to unoccupied territories from whence Native Americans had either been eliminated or removed. The Homestead Act of 1862 and resulting grants of land, this time from the American government, put into the hands of people of European descent more natural resources including land and access to minerals and fuel sources for little or nothing.

Americans of European descent had a considerable head start. But other than establishing that original land acquisition in America is mostly the result of theft, what does this have to do with capital and credit markets? Because land and other natural resources are the anchors for debt markets. They serve as the collateral that backs up loans that are invested into the debt markets. In other words, they create the funding used to underwrite consumer and other debt.  Make the wrong bet and you could lose the family farm. Make the right bet and you have expanded your commercial enterprise from farming into other lines of business.  Occupying the credit generator/underwriter portion of the debt market is where the wealth creation takes place. Asking blacks to occupy the consumer portion of this market, especially when blacks do not have substantial land or mineral resources ownership is the same as putting blacks back on the plantation.

The black political elite cannot take the black population back in time where blacks can set up their own system of original theft in North America.  The black political elite could discourage blacks from entering a credit system that charges them an interest rate on loans that exceeds those as whites, that treats a black couple looking for a mortgage as a credit risk even when that couple has more than sufficient income to qualify for a loan.

One policy recommendation is that while blacks pursue as many income opportunities as possible that they avoid credit markets.  Blacks do not have the political power nor does the rest of America have the political will to offer up another “Oklahoma land rush” specifically tailored for black Americans.  Blacks do have more control over their spending. Paying off debt (much easier said than done) and not purchasing any more money not only leaves more money in the pocketbooks of black people, but sends a message to the bond markets and eventually the U.S. government that if either the markets or the government want blacks to get back into the consumption game, then there will have to be major changes in capital allocation policy.

Understanding your country as a payment system

A macroeconomy is a payment system. Historically, the first payment system was the one where an individual paid himself. His effort i.e. getting up in the morning, finding something to eat, killing it and cooking it, was exchanged for survival i.e. eating, housing, and sex. As he sought comfort, convenience, or security, man decided to enter into an extended payment system called trade with people outside of himself. The results of his efforts represented by a portion exceeding the amount necessary for his survival could now be exchanged for additional comfort, convenience, or security.

The payment system has expanded with trade, becoming local, then regional, now global. The value of the trader’s effort is now represented by hard and digital currency.  But the system is also imbalanced.  It is bloated having been converted into an extraction conveyor belt excavating more out of natural and human resources.  The bankers depicted in Pieter van der Heyden’s The Battle about Money have programmed the conveyor belt to extract more from one’s effort in exchange for access to units of survival that have been increasingly expensive.

This imbalance has led to a widening of the income and wealth gap. The imbalance has also led to a macro payment system that intrudes on the privacy and civil liberties of the individual in order to extract more of his effort and more of his financial resources. It surveils him in order to market items to him that will persuade him to spend more of his coin.

The imbalance has spawned political, social, and economic factions based not on familial ties or lineage but on artificial classes of haves and have nots. Why do I say artificial? Because the reasons usually presented by the political elite for the existence of these classes never takes into account the hoarding of capital, an activity political elites take a heavy hand in.  For if the political elites were truly concerned about reducing these gaps, they would promote initiatives that promote getting into the hands of current consumers the technology that would make them self-sufficient.

Such promotion may result in getting the individual off of the payment system plantation, an end result the elite is not interested in.

Is cryptocurrency beneficial to poor Blacks? No.

Yesterday the Bank of International Settlements issued an annual report with a 24-page chapter discussing cryptocurrencies. The report is critical of cryptocurrencies and the premise of decentralization. It argues that cryptocurrency lacks the stability in value and pricing brought about by a centralized payments system. While I am not surprised by the report’s bias toward centralization (BIS is after all the central bank of central banks), I appreciated the detail the report went into when describing decentralized ledger transactions and comparing that system to a centralized, central bank-based system.

The volatility of cryptocurrencies like Bitcoin experience may be enough for most consumers to ignore cryptocurrency as a store of value or a medium of exchange.  As was a little perplexed last year when I saw a number of black Americans pushing cryptocurrency as the next big and best bet for achieving wealth. The sidewalk marketing was being done in an environment of unexplained rising Bitcoin value. I am not lying when I say I felt good about Bitcoin falling from highs of about $20,000 end of last year to around $7,000 today.  These people I saw riding buses through Brooklyn telling people to get onboard something so bloody technical that most never understood it needed a reality check, and the relative quiet I experience on social media from the silence was refreshing.

More importantly a pullback invites putting cryptocurrency and money in the proper perspective. First, analyzing new currency spawned by financial technology requires separating ourselves from the emotions.  In the American black community, the first cool dude with swag that can push the right emotional buttons on a people who are over-indexed on emotions will win the day, at least temporarily. Sheep, as Jim Cramer is fond of saying, get slaughtered.

Second, analyzing currency should come with the realization that we understand little about currency, money, markets, and economics. We conflate markets with consumerism and that is a mistake. Consumerist activity is low hanging fruit; easy to grasp because we are quick to meet our emotional needs with a gift bag. Meanwhile, those pushing Bitcoin on us didn’t have a clue as to the economic justifications for the increase. They asked us to view crypto the way we go out and buy houses and cars: come on down because the price is right. That kind of thinking, like the show, is corny.

Currency, whether digital or real, contains a message about an underlying economy. Cryptocurrency has no underlying economy. It cannot transmit messages about the value of an underlying economy because there is no underlying economy to begin with. The realities of an underlying economy keep a currency in check with market transactions providing consumers and producers with information as to how well the economy is doing and whether it is viable enough to project the “good faith” backing of a currency. Crypto does not have an underlying economy. While more vendors are using it, its use is nowhere near the use of real currencies.

For black people to push crypto on poor black people was abominable.

What the high price for a Bitcoin tells us is that if an underlying economy is developed, it will not be a world where the poor will be allowed to play. The price is transmitting a prediction about exclusivity. For example, urban cores like Atlanta, New York, and San Francisco are pricing the poor and middle class out of housing and other amenities. Why not develop a currency that reflects that new reality? Has it ever really been about inclusion or does the reality reflect exclusion?

Fiscal policy is about the bond markets not you

Fiscal policy isn’t about growing the economy. That’s a lie we tell you in chapter six of the $200 economics textbook you buy for your delusional kids during their second semester of college.

Fiscal policy is about manipulating the bond market in such a way that bond holders are happy about the capital gains they experience in the assets they hold while experiencing stable prices upon which to plan and make purchases. As titular head of the political economy, the only success rating that matters for a president is how well he manages fiscal policy. In other words, how well he mitigates the level of piss-offness bond holders endure.

Reagan, Clinton, Bush, and Obama understood this and it’s the only reason they can say they were successes. Whether or not they, as candidates, whispered sweet nothings about Medicaid, food stamps, public schools, gay rights, national defense, or taking America back to “Leave it to Beaver” days is immaterial bullshit.

And once you realize that unless you make a living off of interest paid by your treasury notes that economic policy has nothing to do with you to the extent that you feed the machine by paying your taxes, then you learn to ignore politics and go your own way.