Zomb eCon oMe (oh My)

 

What's wrong with the American economy that it can't be restarted no matter how much money they pump into it? This is my analysis.  Others might not agree, but what is clear is that expert economic analysis is failing and that indicates that they are not using the right parameters in the right framework.  This is my attempt to define conditions that will reveal the framework and the parameters that should be looked at for any analysis of the problems that are preventing the American economy from restarting. 

One of the root causes of our economic problems began with efficiency:   

Cumulative, progressive corporate and government efficiency gains due to breaching logical walls through the use of computers, communications facilities and standardization of transactions.   Call it ‘Process Linking’. 

Process Linking

The earliest example of process linking that I know of was around 1970 when the federal government was doing electronic deposits for the federal payroll at the Atomic Energy Commission Laboratory in Idaho Falls, ID.   The way it worked was that the payroll was calculated, somebody phoned in the amount to the Feds, and an electronic “check” was issued from the federal government – over the Fed Wire and was deposited in the bank.  That made possible automatic deposits of payroll checks into the customer accounts of the bank.  The efficiency gained was that the entire process of payroll was automated by linking the processes of the bank with the processes of the federal government.  Anytime efficiencies are gained, jobs are lost.   (Note: in the early days of automation, jobs were being created in automation to replace the jobs lost by automation but in the latter days of automation, the job losses were real and permanent.)

Professional organizations were the carriers of the ideas for greater efficiency so ideas like the above were implemented for both government and corporations – large ones first, but progressively to the smaller corporations as well.  In the early 1980’s I designed and implemented a similar process for claims payment processing at a small health insurance company for a large corporate customer.  Claims were processed throughout the month and were held.  At the end of the month, the Vice President of Finance would call the large corporation to tell them the amount of money to deposit electronically to pay for the claims.  An electronic transfer of funds would then be made to the account of the insurance company and the checks for claims would then be printed and mailed.  

The efficiency for the large corporation in this case was the efficiency of their capital.  Before the change was implemented, the corporation would write a large check at the beginning of the year and the non-profit health insurer would pay claims out of that account.  They used the interest on the account as an offset on the price of the health insurance policies.  After the change, the corporation kept the float on their money and the health insurance company had to make up the loss by raising premiums. 

The next example of process linking was lock boxes.  It started in the late 1970’s or early 1980’s as well.    A bank and a corporation would make a deal for the bank to receive the corporation’s customer payments at a special post office box.  The bank would deposit the money to the corporation’s account and would give a tape of the transaction information to the corporation so that they could update their accounts and reconcile their books. 

It was probably in the 1970’s when the standard transactions began to be defined.  Today, the standard transactions are collectively known as Electronic Data Interchange formats (EDI).  There are hundreds of formats for every nearly every type of transaction between corporate and government entities.  They (ISO?) continue to define new ones and refine the old ones. 

Sometime in the 1980’s (if not earlier), processing linking went to a new level and “just in time” inventory was introduced.  “Just in time” meant that suppliers for manufacturers were linked into the production schedule of the manufacturer to the extent that the manufacturer no longer had to maintain warehouses for inventory.  The suppliers coordinated the delivery of supplies to match the production schedule of the manufacturer.

Also, it wasn’t just in the manufacturing process that ‘just in time’ systems were being designed and implemented.   In the 1970’s computerized retail sales systems were designed and implemented.  For grocery stores, electronic scan systems were developed that maintained the store’s inventory, decremented the inventory when an item was sold and generated orders for replacements when inventory level triggers were reached.   The retailers had the same kind of process linking that manufacturer’s had. 

Across the entire economy, process linking was taking place progressively.   I would guess that with the market saturation of a developed country and the automation of production and administrative process, the return on investments for increased efficiencies were greater than returns on investments by increasing sales in saturated markets.

 

Supply Chain Management

If you were to look at the Bill of Materials for a car, you would see that the car is comprised of many parts also known as assemblies.  Within the assemblies there are other assemblies comprised of parts, right down the line to the smallest screw in the smallest part.  The car manufacturer buys some of the parts from other suppliers of parts and they assemble them into the parts they sell to the manufacturer.  That supplier of parts may buy some parts for the assembly from other suppliers.   All of the suppliers for all of the parts are integral to the manufacturing process to produce a car.  Collectively, the manufacturer and all of the parts suppliers are called ‘the supply chain’.  

It doesn’t matter whether you are assembling cake mixes or whether you are building cars or whether you are an airline selling tickets.  There is a supply chain for every product for every aspect of business right down to the guy sweeping the street who has to buy a broom, a dustpan and trash bags for the “process” of his job. 

Proximity of production becomes important for ‘just in time’ supply chains – especially for small suppliers because transportation costs are high and they are an overhead that can be easily eliminated.   

By definition, the largest manufacturer in the supply chain that either finishes the product or is close to the end purchaser of the product is the manager of the supply chain.  Since proximity is important to ensure delivery and to reduce costs, it causes suppliers to cluster around the location of the supply chain manager. 

Participation in the supply chain of large corporations causes the demise of competition at the supplier level.    What happens is that smaller suppliers become dependent satellite subsidiaries of the supply chain manager corporation.  The dependency gives the power of life or death over smaller suppliers.  This was how Walmart was able to inflict the tyranny of price reductions to meet the China price or die.  You could call this, “Supply Chain Pull”.  And Walmart might claim that the choice was up to the supplier but it really wasn’t.  The Supply Chain Pull is what caused the mass exodus of production from the United States to China in order to meet Walmart’s demands as the supply chain manager for a retail chain.
  

The Internet and Efficiency of Capital

In 1991, Senator Al Gore succeeded in getting legislation passed that made the Internet available to the public and to provide funding for the build out.   Logically, the Internet is a corporate backbone for the entire country.   In 1994, they (G8) decided to make it a global system rather than just national.   This reduced the cost of communications for large corporations and it made possible for process linking to occur globally including service (knowledge) jobs.  The biggest beneficiary of global process linking is India because they are the largest, poorest English speaking country.  When this started, around the mid 1990’s, India’s wage rates for what were classed as professional jobs in the United States was probably less than 20% of the salary for the same position in the United States.  The financial services industries were the first to export jobs to India because they were the leading proponents for building the “Global Information Society”. 

Knowledge jobs were the price of market access to India.  Around the year 2001, I remember a headline for some companies that profits were up 60%.  Those profits weren’t from increased sales.  They were from reductions of overhead by the export of jobs from our country.   Of course those were one time profits and they killed their home markets by exporting high value jobs, which has a multiplier effect throughout the entire economy. 

Another strategy that was no doubt employed was that when Indian Consulting firms came to the United States to bid on contracts, they had an advantage of remote programming while maintaining the image of a higher productive workforce than American workers.  That advantage allowed them to underbid American companies.  The way I believe that it works – is that every Indian employed in the United States is actually a team leader for programmers in India.  So when the Indian firm bids a contract with a team of 10 people, they actually have a team of 50.. one here and 5 in India.  The illusion is that the one Indian here is five times more productive than an American for roughly the same amount of money.   So what the employer gets out of this is efficiency of capital – more work for less money. 

 

Central Planning for Globalized Economies

 

When the government, technology and financial services industry leaders decided to globalize our economy in the early 1990’s  by connecting it via the Internet, they knew that our domestic economy was going to be crippled.  I’m not sure they realized that it was going to be fatal but nonetheless, there is ample evidence that they knew by virtue of the documentation produced from the G8 Summit meetings and the meetings of the World Economic Forum at Davos.

The broadbrush of the plan was that the multinational corporations would be allow to fully globalize their business operations which required the deregulation of banking, securities and other laws.   The government would shift it’s focus to small businesses – funding startups on the theory that the Internet was going to make everybody an entrepreneur.  The small businesses would buy on the Internet from the global suppliers and either sell on the Internet or in their local communities.  Sounds great in theory but it wasn’t workable in the real world for many reasons. 

One example that is demonstrative of one of the reasons is a software, hardware and parts company that I used to do business with over the Internet in the mid 1990’s.  This is from faded memories so I might have the name and location wrong but I believe the company was called CompuWare and I think they were in Wisconsin.   They had a great selection of all kinds of software and hardware coupled with a nice website and really great service for processing orders.   I did business with them for a couple of years until the last time when there was a problem with an order and as I recall, I had to get an RMA (return number) from UPS.  I realized at that point, that UPS was actually processing the orders (efficiency) and that CompuWare had become just a façade.  UPS was part of the supply chain for the vendors of products that CompuWare was ostensibly selling.   I stopped buying from them because I felt like I was tricked but the bigger point is that what happened with CompuWare is something you could call ‘Supply Chain Roll-up’. 

With process linking and supply chain management, efficiency dictates that a process should be done at the point where efficiency is maximized.  In the case of CompuWare, since they were simply a retailer with a website, it was more efficient for the orders to go directly to UPS and for UPS to process the order through the supply chain direct to the vendors with probably a small commission going to CompuWare.  Succinctly, CompuWare was rolled up into the supply chain leaving just the façade of an independent business.

That same phenomenon was revealed a couple of years ago when Mattel toys were discovered to have lead paint and some of the pieces of another child’s toys were actually ecstasy pills.  They got the shipments mixed on that one.  But what was revealed was that Mattel was no longer an American manufacturer.  They were just a façade for toys manufactured in China.  Once they joined a supply chain in China, their business was rolled up into the supply chain leaving only the façade – the brand name of Mattel in the United States. 

 

Cannibalization and Illusions

The effect of globalization and the Internet on the American economy has been cannibalization of the “innards” of the economy.   It’s the “innards” that provided the incomes for the middle and lower classes.  As corporations gutted their American operations from the inside out, the middle class began – and continues to collapse and consequently, collapsing the bottom with it.

So now, you are probably asking why didn’t the government’s statistical reports reveal the cannibalization of the economy?   Recall that the government and corporate leaders engineered the globalization of the American economy and they planned for a new economic model for the middle and lower classes.  Never mind that the plans were delusional, the game plan was facilitated by government and the government statistical reports were rigged to “hide the decline” which they thought would be temporary until their plan for SME’s kicked in.  SME’s being small and medium sized enterprises.  I have no doubt that in the halls of government – particularly in the Treasury, the incentive of reduced social security liabilities due to the elimination of middle class workers at the top of their pay grade was a consideration in the justification for the statistical fraud they were committing. 

Recall that all through the 1990’s the Y2k propaganda filled the airwaves.  The specter of a Y2k meltdown was used within the government to justify redesigning and rewriting government systems.  Also, one of the initiatives of the G8 Global Information Society was eGovernment – replacement of traditional government functions with Internet based processes wherever possible. 

Another factor in the 1990’s was the initiative for the ‘Free Trade Area of the Americas’ (FTAA).  The FTAA was more than just lowering border barriers to goods and services, it was the merger of administrative functions of the governments of Canada, Mexico and the United States.  The effort to do that included harmonization of the code tables used in the statistical reports.  Consistency of the code tables in any system is a critical detail that seems to have been “overlooked”.   In 1997, the Standard Industrial Classification (SIC) tables were replaced with the North American Industry Classification System (NAICS). 

NAICS was part of a new system for economic reporting.  The name of the system is “Economic Census”.  Essentially, they moved to a system of modeling the economy rather than reporting on actual statistics.  A model can be tweek’d to show whatever the results the modeler wants to show. 

In early 1991-1992, the tax treatment for CEO stock options was changed to tax them as wages.   When I was researching the NAICS tables, I discovered that the profession of computer programmers had been folded into the executive category and new categories for software professionals were defined:  software engineer, network engineer, etc.  What this allowed them to do was to claim that there were shortages of professionals in those and related fields to get congress to increase the number of visas for foreign “professionals” from India (American Competitiveness Act of 2000), while hiding the decline of employment for American professionals in the field.   It was statistical fraud using code table definitions (categories). 

Proof of statistical fraud can be found in the social security tax receipt reports produced by the Social Security Administration.  The tax receipts increase at what is transparently a formula rate during a time when job losses were beginning to accelerate in the years following 9-11. 

 

Recently, on the floor of House or Senate, one of members of Congress said that at least 10 percent of the job listings for an online listing service were fraudulent – phantom jobs.  If it was known by a member of Congress that at least 10% were fake, then chances are that even more than that are fake.  Add to that, the standardization of job definitions, which includes skill sets defined to allow certification checking with certifications being the method for computerized filtering of qualifications and resume selection, it would be a simple thing programmatically to filter out the resumes of American professionals and to give the resumes of Indian professionals preferential selection. 

 

The Logical View

As I stated earlier, the Internet is effectively a corporate backbone for the entire country.  The eGovernment initiatives included designing government systems in the corporate model meaning that the designs of the new systems are corporate systems for managing the assets and processes of a corporation.  Networked systems are linked systems

Examples of systems to look at are:

  • Human Resource Management:  Integrated school, workforce (state employment office) systems.  America’s Job Bank, America’s Talent Bank, eVerify. 
     

  • Asset Inventory -  NAIS Animal Tracking, American Community, Census survey and farm survey’s that include property and equipment lists.   (Recall Nancy Pelosi:  ‘we’re going to inventory everything). 
     

  • Centralized databases for medical records, drivers licenses, etc.
     

  • Integrated smart border systems combined with freight tracking and “security”.
     

  • Food Safety – Farm to Table tracking.  

The effect is that we have a government that doesn't know whether it's a government or a corporation with the result being that it is a bastardization of both and is competent at neither.

Why do I say that the U.S. government is trying to become a corporation?  Because collectivization is an inherent property of computer systems.  That is the purpose of information management systems – to collectivize and manage the process. 

The power to manage exists at a level higher than the systems you are combining.  As the collectivization of information occurs, the systems you are combining become redundant.  As the redundancies are eliminated, the power to control/manage processes disintegrates.  The reason I say disintegrates is because we are talking about government systems – and what is happening at the systems level doesn’t immediately transfer to the rest of the country as it would in a true corporation (totalitarian system).  

 

           North American Combined eGovernment Systems

                                        

___________             ________________             _____________

Canada                                 Mexico                              U.S.

 

   

Financial System

 

This analysis wouldn’t be complete without mentioning the financial system that is centered in New York City’s Wall Street area – and in particular Goldman Sachs. 

A key figure in the implementation of the corporatized eGovernment systems was Treasury Secretary Robert Rubin. 

 

 

 

Robert Rubin was involved with financial system changes for eGovernment and corporate takeover of the finances of government.  He was responsible for establishing the community reinvestment and community development funds; small business loans through the SBA to meet the SME goals; he was involved in the program to provide online entry of tax return data and refund requests; the modeling of tax receipt data through the Treasury Depart and most importantly, he was involved in deregulating the banks and financial institutions to allow the derivatives market to flourish.  And why did he do that?   The derivatives market provided financial instruments to allow the financial corporations to make economic war on – and bet against the American economy.  And when you understand what is happening to the United States politically, socially and economically betting against America was the smart bet and the people on Wall Street knew it because they were at the center engineering it. 

So that’s the framework from which to analyze the economy.  They can’t inflate the economic balloon because American businesses have been gutted from the inside out.  They are Zombies in the economy.  Government systems have been privatized and corporatized and the reports coming from the corporatized systems paint a picture of the economy that is different than reality.  The actual statistics don’t exist.  The Internet and eGovernment systems provided the means to create an illusory economy.  Congress and businessmen in the private sector made business decisions based on government reports that were of the modeled economy and as a consequence, those decisions were wrong decisions.  

What is the solution?  The answer to that would require a book but a good beginning would be: Auditing, an exit from the virtual reality, returning to a reality based world with hardcopy backup for everything. 

Vicky Davis
December 31, 2009