Will the Greatest Scam of All Time Ever Come to Light?
Gordon Gekko: Stop telling lies about me and I’ll stop telling the truth about you.
Wall Street: Money Never Sleeps (2010)
Scams and rackets, hoaxes and frauds … are as old as humanity itself. The Federal Trade Commission estimates that over 25 million Americans lose in excess of $2.5 billion to fraud each year. Con artists call, posing as IRS officials or as lottery agents. Nowadays, emails are sent asking for bank accounts to send prize money to. Phone scams, even the horrifying “your child has been in a car crash/ kidnapped/ is being held at gunpoint” to induce panic, are still alive, causing many to delist their numbers from the phone book.
Science, the exemplar of the taming of Nature by Reason, is not exempt from swindles.
Science, the exemplar of the taming of Nature by Reason, is not exempt from swindles. Indeed, the cloak of respectability facilitates longer-running rackets that ensnare the good, the bad, and the ugly (of character).
After WWII, a German scientist, Ronald Richter, claimed he could make endless energy from nuclear fusion. The then Argentinian president, Juan Peron, fell for it. For years, he gave Richter colossal funds and free rein to undertake secret experiments on a beautiful lake-island, even calling for a worldwide media event when Richter claimed success.
The Piltdown fossils were claimed to be half ape, half man. If only. The Berenger “mating fossils” were all pre-planted to fool Berenger. The remains of the ten-foot-tall Cardiff Giant, an exhibition that attracted enthusiasts from afar, were carved out of stone.
Then there was “Towards a Transformative Hermeneutics of Quantum Gravity,” a prank (known as Sokal’s Hoax) by a physicist—a willfully nonsensical paper that a then-respected journal published. Sokal was only having an inside laugh at his own profession.
There are even “peer-reviewed” scientific journals that charge its authors a fee, and then make the content free. Guess what their game is?
To combat them, we have an automatic scientific research paper generator, SCIgen, to deliberately produce scholarly gibberish for publication, like this: “… In our research we explored TriflingThamyn, a method for virtual methodologies. To accomplish this ambition for unstable models, we constructed new metamorphic algorithms. Continuing with this rationale, our algorithm has set a precedent for suffix trees, and we expect that systems engineers will analyze TriflingThamyn for years to come.” And yes, even that paper was published.
Some fields are so open to a corruption of the mind, that the con artists themselves can be made unaware that they are scamming anybody. Now that’s the swindler’s utopia.
In 2005, two American students wrote a paper titled “Get me off Your Fucking Mailing List”—have a quick read of the first few lines if you want a laugh. Now stop laughing as I inform you that, in 2014, this paper, too, was accepted by the International Journal of Advanced Computer Technology. Apparently, there are half a million such predatory journals. One hopes that Science can fight back with the truth.
But some fields are so open to a corruption of the mind, that the con artists themselves can be made unaware that they are scamming anybody. Now that’s the swindler’s utopia.
A Corruption of the Mind
A lust for power and Science can also intersect on the gravy-train bound for glory. Academics, once brainwashed to a state beyond repair, serve up a lie so often to well-respected journals that the lie becomes the norm, and the norm then becomes the judge, the jury, and the executioner.
Academics, once brainwashed to a state beyond repair, serve up a lie so often to well-respected journals that the lie becomes the norm, and the norm then becomes the judge, the jury, and the executioner.
Meteorologist John Coleman, who passed away on January 20 this year, called the carbon racket the greatest scam in history: “It is a hoax. It is bad science. It is high-jacking public policy. It is the greatest scam in history.” This racket could start costing the world $1.5 trillion a year.
Yet, Coleman was wrong. “Carbon Racketeering” is the second-biggest scam in human history. The largest will tip the scales at over $100 trillion when its proverbial finally hits the fan, and even then, the tricksters will get off without so much as an accusation. Lesser cronies will be convicted in the court of public opinion by a public baying for blood and may be incarcerated by a justice system that knows not what it is doing.
The game we are about to unveil had been in play since Karl Marx, but it really took off in the 1930s. When the worst of Charles Ponzi and Bernie Madoff is orchestrated behind the façade of graphs, equations, and the peer review of the brainwashed, the game can end in destruction, not just of one major corporation, but of entire economies.
Ponzi Schemes
A Ponzi scheme, named after Charles Ponzi, is a con wherein a money manager pays a high rate of return, say 15% per annum, while investing part of the money raised, and using the principal itself to reward investors with 15% “returns” every year. The curtain should go up when the time comes to return the original principal. But, enticed by the 15%, new investors are lured into a sister-scheme. Now the new, incoming money is used to pay off the original investors’ principal in full, thereby creating a mask of end-to-end diligence and a final payoff—that’s the Ponzi nature of it. At times, some money is siphoned away as well, but fraud and criminality are already in place by its Ponzi nature; siphoning funds off for private use only adds to the charges.
If the pool of funds continues to get bigger with further schemes, the snowballing effect can hide the Ponzi nature from discovery by an eventual collapse for decades. A proper audit, of course, would illuminate the problem at first occurrence.
There is, today, a global epidemic of government-instituted Ponzi schemes.
But the lie we shall unmask is much deeper, and wider in scope, because human nature is not so duplicitous that millions will carry the water for evildoers.
But the lie we shall unmask is much deeper, and wider in scope, because human nature is not so duplicitous that millions will carry the water for evildoers. The game needs millions of clever—even brilliant—students and professors, journalists and businessmen, politicians and activists, to wrongly, but truly, believe in the goodness of the hoax that facilitates it. This level of brainwashing calls for backing from the Holy Grail of Science.
The Game
The classic foundation is a theory, enthusiastically supported, replete with millions of published “peer-reviewed” research papers, its high-priest proponents rewarded with commendations, promotions, tenure, acclaim … the Nobel even, and its token detractors not silenced, but elevated to a distant number two to assuage conspiracy theorists that academe has in fact continued a free flow of ideas. Which allows the true detractors to be likened to flat-earthers, their research diminished as belonging to the sorts of predatory journals that will publish wild, unsubstantiated conspiracy theories. Or gibberish like—“Get me off Your Fucking Mailing List.”
However, the complete reversal of truth and falsehood has one Viking it cannot vanquish: Reality. When reality strikes, as it must, the lie needs a set of ready-made fugitives, villainized by Hollywood and the media, in place to take the blame when the vicious cycle intermittently implodes into crises, as it must. Meanwhile, some good must be done that counteracts the deluge of evil that the scam unleashes, so that the tricksters can take credit for such good … nay, they must truly believe they facilitated it so they bask in glory with the clearest conscience.
Every element of the Greatest Scam of All Time is now deeply entrenched: An exalted “science,” a society indoctrinated with the false narrative, a bunch of Fall Guys in place and demonized by the culture, token detractor theories that seemingly oppose the new orthodoxy, a coalition of governments the world over from all dominant sides of politics backing and using the scam, and a productive, innovative few that unknowingly slow the Titanic down as it hustles full-steam-ahead toward the iceberg. What is this racket?
But first, a little about the rationality that the racket hides.
Rational Economic Science
In the Nineteenth Century, economic science was simple. However, as George Reisman noted in his magnum opus, Capitalism: A Treatise on Economics, the field now known as Classical Economics did not come with zero defects. But it at least hinted at an easy solution to everything: “free markets.”
The foundations of economic science were accessible to the lay, and could be grasped in a few evenings of learning, if one only held fast the holy phrase: “free markets.”
Let’s state a few commonsensical paradigms of real economic science:
- When markets are free, prices of goods and services are discovered in the process of voluntary negotiation. Price discovery is a frequently occurring process—prices must reset to bring supply and demand into equilibrium repeatedly. High prices that continue to attract demand while delivering profits, entice new entrants into the industry. Low prices do the opposite.
- Interest rates are the price of credit. Creditors need a reward for deferring consumption, as well as for taking the risk of losing their money. This price can be different, even when expressed as ‘percent per annum’, for different periods: a month, a year etc. Thus we have a term structure of interest rates. Like all other prices, the term structure of interest rates is best discovered by the free market.
- Economic growth is primarily driven by scientific progress and innovation. In turn, this drives up the supply of investible capital. Capital when invested wisely in profitable ventures, begets more capital, and aids more innovation.
- The real economic arrow is unidirectional. Production comes first. Producers, including workers who receive wages, use their compensation to demand other available goods and services. Merely demanding a motorcycle will not produce one.
- Investments must come from savings. No investment can arise from thin air. An investment forced by decree (say, on a high-speed train project—a politician’s dream) must deprive some other investment of savings. The politician’s dream is the capitalist’s nightmare. Capital will most likely be wasted.
- A society’s productivity is inextricably linked to its intellectual capital, and, barring vicious accidents such as war, will tend to go up more or less continuously. This will cause prices to fall if the money supply is stable and reactive to its actual cost (e.g. of mining, if gold is money), and the standard of living to thereby rise.
- Businessmen are human and make errors sometimes. There is no intrinsic force that snares millions of unrelated business people not in communication to make the same mistake. There is no business cycle except as caused by governments.
We can go on, but the point is made … except for one problem.
How can something this obvious morph into a scientific hoax that has run for over 80 years and is still growing? Because all the elements of a great fraud fell into place.
The Big Lie
In the 1920s, a once-brilliant mathematician became a delusional economist, arguing for government spending to create jobs. At the time, many of his colleagues disagreed, but buoyed by the promise of eminence in political circles, he persevered. A lust for power intermingled with mathematics on a gravy-train bound for glory.
In 1936, John Maynard Keynes published his magnum opus, using false premises to get to his preordained conclusions (see also Was Keynes a Quack, and Was Keynes a Keynesian).
Keynes assumed that labor markets do not adjust to restore full employment. Among other things, his approach is also a vicious attack on the holiness of price discovery, sound money, and the reward for saving. His solution, government-stimulated demand to take advantage of idle capital and labor, came through as a perfect symphony to the ears of political megalomaniacs craving the blessing of scholarly nobility.
A series of euphemisms like fiscal policy, monetary policy, and quantitative easing became folklore in peer-reviewed journals, then part of an everyday lexicon of generations of bureaucrats, economists, journalists, and finance professionals. As the lie morphed into “mainstream economics,” it became the Big Lie. What does the Big Lie euphemize?
A series of euphemisms like fiscal policy, monetary policy, and quantitative easing became folklore in peer-reviewed journals, then part of an everyday lexicon of generations of bureaucrats, economists, journalists, and finance professionals. As the lie morphed into “mainstream economics,” it became the Big Lie. What does the Big Lie euphemize?
Money supply manipulation, interest rate bastardization, crony project funding, incessant stealing from savers to let borrowers borrow cheaply, an absurdist reverence for inflation as though it’s needed for economic growth, setting up false convictions (the Fall Guys), extolling the issuance of paper money unlinked to value, subsidizing and interfering with banking … are only some of the preposterous realities that hide behind these euphemisms.
Government-instituted Ponzi schemes are the indirect result of the Big Lie becoming ubiquitous—in education, in the media, and in Hollywood.
The Greatest Scam Ever
The Game is a perfect set up for politicians, mainstream economists, and their cronies to take credit for whatever good happens to the economy via its innovators, while taking action that undermines the economy. The regulators will blame their Fall Guys like “Shadow Banking” or unregulated money managers for causing each new financial crisis, and issue a clarion call for more power: deeper and wider regulation. The politicians will seemingly blame their own crony donors—but only metonyms like “Wall Street,” and “Big Oil,” will be thrown under the bus, without incarcerating flesh-and-blood people.
The Big Lie makes The Game’s key players believe that they are doing the noble thing. And that’s how this game becomes the greatest scam ever.
In future essays, using a rational free-market perspective, we will deal with some of the specifics: the sovereign debt problem of titanic proportions ($71 trillion and growing), worsened by other unfunded liabilities, the now-gigantic balance sheets of central banks (around $16 trillion in the G4 central banks at the end of 2017), and the absurdities of a GDP calculation that rewards “expenditure” no matter how wasteful.
The daft inference that maturity transformation is a must for banking, and that a monetary authority be constrained by some credit-expansion rule (thus conceding that a monetary authority ought to exist) are promulgated by iconic individuals and institutions associated even with free markets or libertarianism. There you have it—the last of the pieces of the puzzle in place—the token defenders of free markets elevated to be the intellectually competitive alternative, as the Fall Guys are lined up to take the fall.
Every economic crisis from the Great Depression to the 2008 financial crisis, was set up by interference with the free market. But over the last 80 years, the swindle got buried much too deep under the auspices of mainstream, “neo-classical” economics.
Humanity has never known a greater scam. Trying to end this one, if it can be ended at all, will result in the fight of the century.
This essay benefited from comments made by Donna Paris and Brishon Martin on prior drafts.
About the Author: Vinay Kolhatkar
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