Starving economy

When exploitation overtakes creation, and investing is trampled by gambling with someone else's money, what you have is the modern form of cannibalism that used to be attributed to ‘some isolated South Pacific tribes or certain pre-colonial African cultures'. In truth, the existence of cannibalism among aboriginal peoples has been greatly exaggerated by the conquistadors and other colonialists to justify their aggression, notes Michael Hill in ‘ Cannibal Capitalism: How big business and the Feds are ruining America' ( www.wiley.com ). Cannibal capitalism, he says, encourages dreams of a better life, and then exploits every aspect of the lives of the ones who believe in honest, hard work and ideals. “Like any Ponzi scheme, you pay off a few to lure in the many. Some infinitesimal few see their dreams come true, enough to perpetuate the fantasy and keep the masses believing. The overwhelming majority is duped, doomed to serve as food for the cannibals or become cannibals themselves.”

Empty calories

Rather than extol the notion of survival of the fittest, we must ask, who is eating whom, urges the author. He rues that in our system, where we devour one another, to our own demise, we cannot win a game fighting our own teammates. “Like a novice skier so transfixed on a tree that he invariably crashes into it, time after time the nation steers right into the economic disaster it is dreading. Instead of accepting the system for what it is, a perverse blend of fear, self-interest, and idealism causes the players in the system to pick each other to death.”

Using the analogy of kwashiorkor, a form of malnutrition that occurs when there is not enough protein in the diet, and the victim consumes only empty calories while the body eats itself to death, the author explains that inflating cash by trading derivatives and diluted equities, arbitrage, and the like may result in trillions of dollars of financial activity and may even make up a substantial portion of GDP, but these are empty calories. “The body is starving of real nourishment.”

A service economy depends on the liquidity that is only possible with cheap money, observes Hill, and cautions that liquidity creates subjectivity in the valuation of commodities, and worse still, the circumstances for arbitrage. “Then we find that too many prefer to play around with the numbers than invest in the real economy.”

Middle class

Hill reminds that the only real things in the economy are labour productivity, commodities, and real estate; and he argues that these must be tenaciously defended, not debased to prop up the artificial value of paper. Describing the middle class as the body of the country, the author informs that this class does not directly benefit from the empty calories of the paper economy. “Middle-income workers cannot borrow against their man-hours to make exponentially more than their actual wages. It doesn't even make sense. No, the masses have to be in touch with realities. Thereby, they provide an anchor for the bubble economy.”

To emphasise that the middle is falling below the middle, the book cites a finding from the US Census Bureau report, ‘Income Distribution Measures Using Money Income and Equivalence-Adjusted Income: 2008,' that 50 per cent of all income is made by the top-earning quintile (20 per cent of the population), while the middle quintile earned only 14.7 per cent.

Sobering read to anchor oneself in the harsh economic realities.

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