The very well respected Judge Posner, of the 7th Circuit Court of Appeals and who mediated the US Government v Microsoft case, is about to rule on the validity of the banking industry’s employer arbitration clause within the employment agreement.  And the interesting piece here is that it appears the appeals court panel is about to force the banks outside of arbitration by suggesting the arbitration clause within the employee contract is actually not an obligation.

Such a ruling has the potential to overthrow the banking industry’s many decade old hold over its employee and customer disputes.  That is, if the ruling goes as it looks it will, thousands of employee and customer disputes may be pushed outside of arbitration and in front of public juries.  This creates an extraordinary amount of risk on the banking industry.  You see the arbitration clause the banking and many other industries force upon their customers and employees are meant to protect the them against litigation as these arbitration hearings are incredibly one sided in favor of the corporations (refer to the NY Times expose on these corrupt arbitration courts).  However, in front of a jury, the banks face a tremendous amount of reputational and settlement award risk.

While the claimants have been very open to settling these suits prior to, and thus vacating, a ruling by Judge Posner, Jefferies has decided to roll the dice on behalf of the entire banking industry.  The problem is that shareholders will eat the cost of Jefferies’ hubris and not only Leucadia shareholders but shareholders across the banking sector. Jefferies has decided to roll the dice on what could become a ground shaking case for the banking industry and perhaps many other industries like healthcare who have relied upon these kangaroo arbitration courts to prevent even the most justified suits against them.

Karl Marx, the famous Socialist philosopher, discussed the idea of class consciousness.  The theory of class consciousness has two distinctions, “class in itself”, which is defined as a category of people having a common relation to the means of production, and a “class for itself”, which is defined as a stratum organized in active pursuit of its own interests.  Now Marx saw the working-class as slaves to the producing class.  But he felt that through a revolution of consciousness (a class for itself), the oppressed could confront the economic mechanisms of exploitation.

Marx saw real power in the collective of the working class oppressed through organized revolt against the producing class.  While the unions were able to achieve a great deal of leverage at given points through the 19th and 20th centuries, the ‘free’ trade agreements have all but diminished any power once enjoyed by the collective of the working class.   The producers have simply moved labour offshore to undeveloped economies where working class members of society have no collective voice.  Problem solved for the producers.

But what if Marx had the concept right but the details wrong?  That is, what if I told you that in a capitalist economic model the working class are the gods and the producing class are the slaves?  You’d think I’d finally lost the plot.  But let me explain why this is in fact true.  And because it is true all that is required is a revolution of consciousness and a bit of technology to reverse the roles of owners and slaves.

It is really very simple.  As working class members of society we are receivers of money.  That is, we trade our labour for money, which is our means of survival.  And so we are reliant on the producers to distribute capital to our labour income.  But producers have a choice between allocating to labour income, capital expansion and profit.  And what we find when we look at the historical observable data is that of the available capital, producers have been allocating less and less to labour income and capital expansion while allocating more and more to profit.  Let’s look at the data.

And so clearly the issue that Marx and other socialists have with capitalism is that it always seems to deteriorate into a system of greed and corruption where wealth and income become concentrated among fewer and fewer.  What we find is this is not just a morally corrupt strategy but is a mathematically unsustainable economic strategy.  The reason is that labour income and capital expansion have very high economic multipliers while dividends and buy backs have almost no economic multiplier.  Logically then when capital is shifted to low or no economic multiplier allocations the economy will eventually slow to a halt.  This is exactly what we’ve seen over the past 40 years and the period around the Great Depression.

But what I believe has been missed by almost everyone, including Marx, is the fact that while we the people are slaves in our roles as laborers we wear another hat.  People are also consumers and in this role we are gods.  You see producers are providers in their role as employers but they are receivers in their role as investors.  That is, shareholders and corporations are receivers of profit and that makes them reliant on those gatekeepers of profit.  But who then are the gatekeepers of profit?  Consumers.  You see you can increase earnings through cost structure ‘efficiencies’ but only given you have a top line.  More bluntly stated, if a business has no customers it has no sales and if it has no sales it has no profit.  That is absolute for all businesses.

And so what we discover is that consumer spending, by way of consumers, is the air by which producers breathe and without which they die.  This makes consumers the gods and producers the slaves.  From this comes an extraordinary revolution of consciousness.  Specifically that the proletariats are in fact in control of the capitalistic model but have simply failed to recognize it and perhaps never had a mechanism to apply it.

I have spent the past year working through a non profit called the Institute for Sensible Economics where we have developed a mechanism by which the proletariats can control the capitalistic model.  That means, they will, at a very high level, determine how and why capital is being allocated by the producers.  We have built out and continue to expand the development of technology platforms that will activate the existing but currently passive power of aggregate consumption.

Because we as consumers are 70% of the economy and because we are the deliverers of profit, when we begin to apply our power there is simply no other force in the economy potent enough to withstand what we are demanding.  And so the role of slave and owner will soon reverse.  What we have essentially done is tied together the mathematical viability with the moral justifiability to create an entirely new macroeconomic policy platform controlled and enforced by we the people.  The econometric basis of our model has been has been substantiated by various studies done at the best economic schools in the country.   We expect to unleash these technologies this summer.

This is how Marxist theory will save capitalism for true capitalism is a social economic model whereby no stakeholder in the economy can prosper unless all stakeholders prosper (profit can only exist without income if it is subsidized by debt and welfare – which is no longer capitalism but corporatism).  Capitalism has existed very rarely in human civilization and gets a bad rap because of the misuse of its name.

So today on CNBC Cisco CEO, Chuck Robbins explained that if they were to repatriate their offshore cash back to the US he would use the money to reward shareholders through buybacks and dividends and then do some M&A.  He claims cash distribution to shareholders in lieu of actual economic stimulating investments creates jobs by way of mutual funds, which make the soon to be out of work Americans from his M&A activity feel good about their income….

I mean where does one even begin picking apart this absurdity of logic??  It probably is not even worthy of a detailed response.  But I wanted to note, on record, that these are the type of moronic and asinine thought processes coming out of corporate America that are killing the American middle class and will destroy even most on top unless the bottom 80% are handed a stipend to go out and buy products produced by corporations.  If Chuck truly believes what he says, well he is an idiot.  If he has even a shred of economic acumen then he is a liar.  I’ll leave it to you to decide.

But before you decide let me show you a few charts.  First chart below depicts real total wages and salaries (i.e. labor income) as a multiple of real corporate dividends paid.  You will notice the multiple peaks at 24x in 1975, averages 20x from1950 through 1990 and bottoms today at 8x.

But remember cash distributions don’t just reallocate capital from labor income they also reallocate away from domestic private investment.  So let’s take a look at the multiple of domestic private business investment to corporate dividends as well.

Clearly we see a pattern of forsaking economically stimulative investments for cash payouts of which 85% get reinvested into secondary financial markets that have zero economic stimulative effect i.e. never hit a corporate balance sheet or income statement.

Now Cisco CEO Chuck Robbins suggests that this phenomenon of shifting capex and labor income to dividends is actually a positive thing for the economy.  So let’s have a look.  The next chart depicts a 5 year moving average of per capita real GDP growth over the same period.

What we find is that average real economic growth per capita (this is an important measure of individual prosperity) has fallen by more than 50% over the same time period.

Over the past 6 months I have provided a library of research proving that reallocating capital from domestic private investment and labor income in favor of cash distributions has not only resulted in massive deterioration of economic growth but has necessarily relied on private and public debt to fund the deteriorating growth that remains.  I’ve had several prominent PhD experts call me names but I’ve had none of them challenge my research and argument.  I challenge any and all economists to attack my assertion that this secular trend of reallocating capex and labor income to profit (which is the most economically inefficient use of capital) is destroying the long term US economy.  I’m sincerely looking to receive the strongest arguments as this only helps us at the Institute for Sensible Economics refine our research.