QE 'Achieves' What Close-the-Border Activists Could Not

According to the Washington Post, QE has performed a bit of magic. Though it is not spelled out as such, this is likely welcome news for QE proponents who have had a rough time trying get a handle on what it actually did in more tangible terms than the unemployment rate's overshadowed numerator. By count and estimation of the Pew Research Center the illegal immigrant population has declined by about 1 million. Up to 2007, an especially poignant demarcation, that population by their numbers had tripled to 12.2 million.

The trick of QE, apparently, is in more recent years. It is unquestionable that much of the decline (if it exists) as well as the diminished flow since are attributable to the Great Recession's clubbing of any opportunity. So it was not unexpected that there would be fewer illegals in the immediate aftermath, with the idea that we would see a return to pre-recession patterns during the recovery. What the Pew figures show is that that has not happened, so a number of assumptions have been put together to try to explain the absence.

Border "security" is singled out the most, but without ever explaining why it was so ineffective prior to 2007 and how it became so very effective somewhere around 2012. The reason for the gap is simply that it is assumed, without actual question despite the very topic under consideration here, the economy has, indeed, picked up. Thus, we enter a bit of Freakonomics territory whereby QE, QE3 and QE4 together especially, have apparently had the magical effect of making border security radically more effective.

"What's increasingly clear is that the shifting fortunes of the U.S. economy account for less of the ebb and flow of illegal immigration. Even as the economy bounces back from recession, illegal immigration flows, especially from Mexico, have kept declining, ¬according to researchers and government data. Since the 1990s, the opposite was true: The better the economy, the more people tried to come.

"'Every month or quarter that the economy continues to improve and unauthorized immigration doesn't pick up supports the theory that border security is a bigger factor, and it's less about the economy and we have moved into a new era,'' said Marc Rosenblum, deputy director of the U.S. immigration program at the Migration Policy Institute."

Border security, by this view, played no role in either the migration before 2007 or its absence during and immediately after the Great Recession, but now since the economy is supposedly back on its way patrolling and security suddenly attained great effect and efficacy? Using such specious logic we can equally conclude that since QE was responsible for this economy that it must also be responsible for border security with illegal immigration as the statistical correlation. There seems to be a much easier proposition that doesn't resort to flights of logical fancy - the economy has never come back, so the illegals haven't either.

The article itself gives away that interpretation. In describing the typical pre-recession attempted immigrant, it was a young male in search of work, mainly from Mexico. Now, most attempted illegal crossings are made by, as the Washington Post notes, those 35 and over who have lived here before; i.e., those who already made prior connections. Why would you assume that people who used to come for work and economic opportunity alone would suddenly stop from border security (and only within the QE timeframe)?

In direct connection to the "supply" of illegal immigrant labor is itself the domestic labor issue. It is no secret that the US economy, despite its assumed robust rebound, has a participation problem. Here, too, economists and mainstream observers tie themselves in knots trying to make that reconciliation. Supposedly, aging Baby Boomers picked the Great Recession as the perfect time to start retirement, even though participation rates among the older generation is rising while falling, significantly, among those in their prime working ages (who are, curiously enough, the very parallel to the young male Mexican who somehow doesn't like the look of today's border). But the only way to maintain the idea that the economy is on the right track is to say that demographics that don't pass common sense must be to blame.

The logical twisting is ubiquitous. Prior to 2007 (there's that year again) fossil fuel carbon dioxide emissions in the US were rising steadily at +0.7% per year according to a recent study published in Nature. During the Great Recession, as all those Baby Boomers swept off into retirement probably, emissions declined about 11%, an enormous number, to 2013. About 9.9% occurred during the recession itself, which would be expected. What was not was how CO2 levels continued to decline, by about -0.2% to the 2013 cutoff. Up to the point that this study was published, it was just assumed gained efficiency was the primary factor because it just couldn't, couldn't be a permanently shrunken economy - the recovery just has to be because it was in all the news with every economist in good standing saying so.

This dichotomy about the economy of the media and the one leaving so many behind is only confounding if you think GDP represents all that there is. Despite a surge in purported jobs, that don't, apparently, lead to actual wage growth and thus spending as even Janet Yellen will publicly admit, the appeal of socialism is on the rise still. If true recovery affords no opportunity for advance, this actually makes sense. In other words, if you believe the news that there is a recovery, a very good one recently no less, and you can't find it anywhere you might well assume that it is quite tainted and in need of government adjudication and leveling.

We know this because the minimum wage continues to be a primary topic and consideration. The fact that New York and many other cities and places have adopted this stance is a bright spotlight on the very single deficiency that denies economic progress as it should be. This kind of economic "equality", or at least what is thought about the ideal, is not an accidental substitute for equality of opportunity; in the genuine absence of the latter it is no wonder the former.

Back in April, a company called Gravity Payments became a hot, national topic as its CEO established a minimum $70,000 per year salary. To make a "difference", Dan Price decided, as the New York Times chronicled:

"His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000."

There was, as you would imagine, and it is all on video, quite a bit of excitement among his employees - at first. Mr. Price had heard from his friends and acquaintances that even making as much as $40,000 per year was tough going, especially in a "high rent" location like Seattle. The city is already doing "its part" by engineering its $15 per hour minimum wage, so in many respects Gravity's policy is an extension on the reach of this type of "equality" philosophy and parameters.

The name Gravity was brought back to the public eye just this week, as there isn't as much fanfare now that the reality has set in. The company is being sued by Mr. Price's brother, who was also a founder but until now silent partner. The increased cost of wages leaves the business with little margin to fight off the legal challenge. Worse, two of Gravity's top employees have left and in doing so exposed the fallacy at the heart of this version of "equality."

"Financial manager Maisey McMaster liked the idea at first - until she thought about it.

"'He gave raises to people who have the least skills and are least equipped to do the job,' she told The New York Times. Meanwhile, ‘The ones who were taking on the most didn't get much of a bump.'

"She thought it would be fairer to give smaller raises, with the clear chance to earn more with experience. Price brushed off her doubts; she quit.

"Also out the door: Web developer Grant Moran. He says, ‘Now the people who were just clocking in and out were making the same as me.'"

There is here a great disconnect between money and value, as if the former can simply overcome the latter. That is even the economic theory behind the minimum wage hypothesis, that paying people more leads to a better economy overall even if certain business owners bear the brunt more directly (redistribution). It's absurd by all measures, and exposes the great lie of the modern math: that economy should be money rather than value.

The appeal of the socialist egalitarianism isn't just the purview of wages. There was always Occupy Wall Street which was a poorly disguised Marxist/anarchist grouping, but tapping in to this great and growing discontent building within the labor system. That broke out last year in the fury and frenzy over Picketty's neo-Marxism about equality that actually came closer to proving the Fed's (and other central banks) involvement as primary perfunctory organ (housing bubble financialism = inequality) than it did anything else more lasting.

Just a few weeks ago, also in the New York Times, another article appeared, directing toward these utopian ideals. Suggesting there is another way to do it, a "red state socialism", the piece laid out an argument for nationalization of industry in at least small amounts as a sort of tax abeyance strategy if nothing else for such hard times. While the tactic was an interesting spin, the conclusion was this same general lack of opportunity and how the dispirited are searching for answers:

"With skepticism about capitalism growing among minorities and young voters, will we see more such endeavors in the future? Pendulums have a way of swinging, sometimes very sharply, when big economic tsunamis hit. It is possible that in the next big crisis, both sides might see the wisdom and practical benefits of public ownership, and embrace Joseph Schumpeter's point even more boldly than they do today."

If there is any such thing, "skepticism about capitalism", it is this "recovery" that proposes it. Economists are supposed to be experts on the markets and the capitalist economy, and they have been saying for years that everything is getting better but most people just don't see it - the connection, in blame, is made right there. It doesn't matter that capitalism is in quite rare supply and has been for two generations now; orthodox economists call themselves good capitalists and pretend very much that they are. Even the high priests of the dominant ideology do as much, as central bankers, despite controlling every market they can possibly subsume, keep at least the name alive and accessible for any applicable PR.

The word itself, capitalism, isn't a pliable word soup without etymology; "capital", the root of the idea and thus the system, means something tangible, almost immutable and inalienable. Private property and the fruits of labor, specifically one's own labor, are at the core of these very United States. Capital isn't some bank account, it isn't even money, but in these "modern" times it has become everything and nothing. Bank "capital" really isn't especially in the wholesale sense, and to show this corruption not just of concept but in practice one need only look across the Atlantic to examine the very common banking practice of covered bonds.

A covered bond is perhaps covered, but isn't much of a bond. A bank will sell "obligations" linked back to a pool of loans (or securities) already in hand as security. Typically, that bank will "retain" a great portion of the bond in order to fund further liabilities via the central bank. The bank "buys" its own liability funded by a central bank that in no way wishes to count that it is actually funding the bank more directly; thus the charade of liability exchanges. In reality, it is all about collateral, but the concept here demonstrates quite well the slipperiness of what passes for money, currency and, yes, capital these days. The connection of Europe and European banks is not an idle one, as they form the very basis of the "dollar."

These kinds of transformations are as old as banking and central banks, as Walter Bagehot himself, the father of the modern central bank, was adamant about collateral, but he never conceived how pervasive and encompassing the debasing might or even could become. Any form of financial liability can be interchangeable, practically, and thus capital is only what must be defined at certain points and with certain, often competing, intentions. But these are all financial forms of an accounting sense of capital, and in no way actually represent capital.

It has become so because financial affairs dominate, and so financial recreations are taken for the real thing. Even hard money was always derivative, just as wages are not actual representations of exertions. The intercession of money into that process has been a huge step for mankind, but in overcoming every boundary that basis has been lost into what passes now as money (which isn't money) as a perfect substitute for capital (which isn't capital). These are all derivative concepts of value; capital is value and capitalism is a set of arrangements dependent on value. Economists see nothing more than the transactions that arise secondarily, and thus believe that money can intercede and create economy.

Raising the minimum wage is no different, in kind, to what the Federal Reserve or any central bank tries to do - to create spending for the sake of spending as "aggregate demand" theory, well, demands. Why stop at $15, why not go for $70k a year? We already found out one version as to why, and it really boils down to the absence of value in this modern economy.

The minimum wage idea, this constant reference and appeal of socialist virtue during this "cycle", is really just a systemic groping to determine value in an economic system deprived of immediate and useful forms of it. All ideas about it are now derived, sorrowfully, from the financial versions because it has been the financial system that has been placed atop the pedestal. Dethroning hard money created a vacuum that wasn't filled by the dollar as a reserve currency, or even the petrodollar, but by a credit-based system of currency - the "dollar." It cannot even be defined, as it is everything a bank does but only when it wants to do it.

Even Milton Friedman understood this vacuum even if he still lobbied and argued for floating currencies anyway. His conception of an unanchored currency regime was never truly unanchored as is commonly misunderstood. He knew well that there would be serious problems with a totally floating circumstance, so he presented fiat as a choice between internal and external "flexibility" (as economists like to call it; really it is just a rearrangement of the power structure away from the people, and thus away from true capital). Under Friedman's version, a country could have a floating currency but a mechanistic internal monetary policy, or a discretionary domestic currency but a fixed exchange.

As it turns out, of course, having to choose was always a lie as central banks and economists always prefer discretion over everything - but that is beside the point here. The main idea, as even Friedman argued, was that there was an anchor somewhere and that not everything could or even should "float." Gold bugs (a term I use not disparagingly but in deference to the ridiculous idea that Poe's story could be used in such a way) well understand this distinction, as honest trade flows from sound money and currency and not just throwing the words "strong" and "dollar" together at the signal of global currency crises born by what looks like a rising "dollar."

The eurodollar standard turns all that sideways, backwards and around again. It offers not just floating exchange rates among all currencies and full flexibility on internal discretion but beyond even the wildest dreams of those economists arguing in that direction generations ago. It has entirely rewritten the economic system from the ground up, given official hue by central banks greedily looking to exert influence and power. The next great central banker will be the person who proves that central banks should not, and do not, matter; but that won't get you on the cover of Time or a thronging hoard of media clingers at your every speech and convention.

As a matter of practical reconstruction, this redefinition does not exactly explain the serial asset bubbles and the very means by which radical alteration to the economic dynamic occurred, but it does explain how those processes were able to become so engrained as to be thought now as a full part of capitalism. You don't need to understand the technical evolution of banking from depository to wholesale to appreciate how Alan Greenspan co-opted markets to become what he thought were tools to a managerial relationship - and then watched as they turned against him.

Anyone who appreciates such distinction has to laugh at the idea of Greenspan and Bernanke (or now Yellen) controlling the global economy through quarter point adjustments to the anachronistic federal funds rate as if it were both effective and consistent with capitalism. The Federal Reserve bought its own lie well enough that it sat out the real process, even aided it by its own apathy and hubris. The institution's first mandate is stable currency, to which it has supplied the definition wholly narrowed to somehow just consumer prices. No account for anything else is ever offered or even considered even now to this day.

The eurodollar standard, which has no real bearing of an actual dollar, was, again, a total rewrite of global currency and money; an upsetting of the entire financial order as credit-based currency became that idea entirely. Bank balance sheets became, in essence, modern money which, as you don't need much imagination to realize, is a highly unstable arrangement. That has been the running ideal since around 1995 when the transition became fully realized (having been at least more dormant from the late 1960's through the early 1990's). Banks rapidly expanded (so much for the stability mandate) from 1995 through 2007 no matter what the Fed was targeting or how, a quarter point up, a quarter point down, which is why Greenspan looked like and considered himself a genius.

No matter what the Fed did prior to August 2007 it seemed to work (though there were signs they were under full illusion; particularly Greenspan's "conundrum" and how truly inefficient it was all even in GDP terms). Consider the opposite after 2007; no matter what the Fed does now nothing seems to work; not during the panic nor any of the four QE's has even a passable economy been admitted on "Main Street." Even in generality, the condition is easily understood in that it was never the central bank as Freidman's ideal of an anchor but rather the eurodollar streaking unfettered toward inevitable destiny. The only constant has been grand financial imbalance, to the point now that orthodox thinking embraces the whole idea of asset bubbles in a ludicrous effort to try to rekindle the "magic" of the 2000's. They have proved Freidman's warning and his folly, that central banking would be no anchor at all and without one there was no limitation on how far true inflation would penetrate.

It is no coincidence that the idea of stagnation has returned, as a parallel classification to this continued absence of opportunity. In the 1970's, it was consumer prices and stagnation that consumed a decade and a half; stagflation. In the 2010's it is coined as secular stagnation but it is no less of inflation; this time of serial asset bubbles but with unsurprising the same results, perhaps, especially globally, much, much worse (if the "dollar" is right about where this is all going in 2015).

The eurodollar standard stopped expanding in August 2007, but it is supposed to be coincidence that illegal immigration did as well, as did labor participation among the native population and even pollution? In effect, that financialism actually provided, in the absence of true monetary value, the missing anchor for economic formulation except that it was a bad one and prone to great instability against the primary mandate of those who stopped progressing ideologically long before the internet. We are back to a condition with no systemic means to provide that value, and so individual economic agents are groping for a substitute the best that they can; without the opportunity of real capitalism a huge increase in the minimum wage might look like it. Paying everyone $70,000 a year no matter their true labor input, the "egalitarian spirit", might not seem at this barren surface so destructive.

In reality, the minimum wage is a technocratic response to a problem created by the technocracy itself. Everything discussed here is really one form of technocratic "solution" or another that have all had the practical effect of fostering the great and sustained instability that is creating such disparate rebellion. It was judged a few generations ago that markets were too untrustworthy and that the "best and brightest" knew how to do it better. They imposed themselves in exactly that manner, rewriting the entire system to do it (true inflation), turned everything upside down embracing what used to be universally derided as folly (debt, more debt, and some asset bubbles), and failed; spectacularly. As I mentioned above, the next great central banker is the one who will admit it and return to the agency's primary mandate of actual, rather than mathematically-imagined, stability.