Month: March 2014 Page 2 of 3

The Tyranny of Money

On March 14, 2014

For much of the Medieval era money was hardly used by most people. Serfs owed their lords service and the products of their hand. They would work for their liege for a set number of days a year, they would give him grain, or animals, or clothes they had spun, or some other product of their labor and the land. In exchange they had the right to work a piece of land and to live on it.

As time went by, nobles would prefer money, and would try to have their tenants and serfs pay them in coin, but this was resisted, and often violently. Allowing people to pay in kind, not coin, was considered generous, and often bought peace.

Given a choice to pay your taxes by working for the government for a few weeks, how many people would take it? What if you could do the same for the utility company: 2 days work a month for electricity and water? Cable?

We think of serfdom as horrible, and in many ways it was: but wouldn’t it be nice to have the right to just pay in labor sometimes, and forget the cash? Certainly in those times when jobs have been scarce, millions would take such a deal.

The point here is that distributing goods and services through paid labor wasn’t the way things were done in many societies. Indeed, though hunter-gatherers certainly had trade, if they wanted to eat they went out and gathered some food, or hunted. If they wanted clothes, they made them themselves.

But money is more than a way of distributing goods, it is a way of ordering our behaviour.

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Those people who have more money tell those of us without money how we will spend our days. With modern technology they keep us on a leash even at home, through texts and emails and cellphones. We spend more time working for someone else than any other activity save sleep.

The simplest way to think of money is as permission. Money allows whoever has it to determine how other people spend their time. This can be directly, by hiring them, or it can be indirectly, by buying the proceeds of their labor, which economists call demand. (If you want something, and you don’t have the money to buy it, you are not demand.)

Money lets you do what you want: start a library, start a company manufacturing electric cars, start a think tank; fly by private jet. Money is freedom for those who have it, and servitude for those who need it.

This is the theoretical power of the consumer: moving in large groups, ordinary people can effect large shifts in demand, and thus have power. This can be a great power, but in the modern world it is rarely used effectively because most of what you need you must buy from a small group of firms who offer essentially the same goods or services. There is little difference between health insurers, less difference between telecom companies; there is usually only one newspaper per major city; the supermarkets all offer the same food at about the same prices; credit card companies all offer about the same rates to the same people, and so on.

When the prices are about the same, the product is about the same, and the services are about the same, consumer power fades. You may buy your internet from company A or company B, but public broadband or open Wifi networks aren’t available. You may buy health insurance from company A or B, but in America universal health care isn’t available. And you can elect party A, or party B, but they will both institute neoliberal policies.

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Putin’s RT Interview

By Ian Welsh

On March 12, 2014

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I’m going to suggest that my readers listen to this. I couldn’t find a full transcript, and I usually don’t listen to interviews myself (too inefficient), but this is worth your time. To be sure, RT is English language, most of its audience are Americans, and Putin is speaking directly to Americans. This is, to a large extent, propaganda. But it is vastly interesting propaganda and, as usual, it is a reminder that Putin is a smart, well-read man and skillful politician. This isn’t a dunce, this is one of the most adroit politicians and leaders on the planet today.

Especially amusing is his (I suspect accurate) description of the “liberal opposition” as wanting less wage increases and less social spending (aka. pensions and so on.) How stick a shiv in. You have to understand, in the Russian context (and in most country’s context) reform and liberalization means “fucking ordinary people”. Russians who are old enough to remember the 90s are especially aware of this.

One day Americans and Europeans may figure it out.

Your Theory of Human Nature Predicts Your Policies

By Ian Welsh

On March 12, 2014

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Conservatives were right when they said that ideas have consequences.

What you believe, what we believe, determines much of how we act.

Every economic theory, every political theory, is ultimately a theory about human nature.

If you believe that humans are selfish and greedy, you will believe that the best way to get them to do what you want is through monetary incentives and you will provide those incentives. This includes, in the modern context, not taxing people, because taxes are seen as reducing the incentive to work.

Combine this with a belief that the system is meritocratic, that those who have more money have it because they deserve it and are “value creators” and “job creators” and you logically should reduce high-end taxes, because the most productive people in the economy should not be discouraged from working more.

You come to this web site, and you may think that these ideas are mistaken at best, and more likely ludicrous.

They are widely held. Every time someone attacks a rich person, some fool can be counted on to pipe up and say: “He earned that money, he should keep it!”

Ideas have consequences.

Economic ideas, have consequences. Your conception of human nature determines your economic philosophy, and that economic philosophy will have an effect on actual policy. If you believe, as did those who lived through the Roaring ’20s and the Great Depression, that markets do not distribute goods or wealth fairly, or to those who deserve them, or in a way that is either sustainable or wise, you will make different policy decisions. You will tax high incomes at 90 percent or so, you will engage in policies which distribute income, you will work to keep wages and prices high, you will implement a safety net, and so on.

If you believe that human personality and abilities are not the result of some sort of metaphysical willpower, but a matter of genetic Russian roulette and upbringing, neither of which anyone chooses for themselves, you will not believe that even those who genuinely do contribute more (a very distinctly different thing from “get more money”) necessarily deserve more, since there is little merit in winning the lucky sperm lottery.

The fact is this: Incentives work.

The second fact is this: Using strong incentives is usually idiocy, because they do work.

What happens with incentives is that people’s behaviour is warped by them. A normal doctor who does not get paid more per test he orders, orders fewer tests. A doctor who owns the facility which does the testing, does more tests. Management has a saying: “What gets measured, gets managed”. Yeah—and nothing else does.

Paying people enough, and trusting their own judgment about what is important, tends to produce better results, because then people don’t ignore everything else to leap for the incentives and to meet the measurements some doofus is managing. And they don’t go out of their way to manipulate the measurements, which is what happens when reward and punishment are linked to metrics.

But saying “trust people” comes from another model of human nature, one which says, “Most people will do the right thing–as long as they’re not given a good reason to do the wrong thing.” (This doesn’t mean all people will, just most people.)

The bigger problem is the push towards tying all human behaviour into one rule. “We just want to spread our genes.” “Everyone looks out for number one first.” “Everyone is selfish and greedy.” “Humans are inherently sinful due to the fall.” “Everyone seeks to increase their power.”

No. Humans have multiple drives, and how much of what drive is expressed in each of us is different and changes based on the context. Put people in a world where people are cruel to them, and they will become cruel. Put them in a world where people are kind, and most of them will become kind.

None of us is just one thing; each of us changes and changes quickly, from day to day, year to year, sometimes even minute to minute. We are capable of expressing cruelty sufficient to make demons weep and kindness that would awe an angel. Which we will do and when, depends so much on who we believe we are, how we are treated, and what we are told our nature is.

If we want the better angels of our nature to soar, we have to admit that they exist. If we insist that we are all devils, all selfish bastards, we will build our societies based on that expectation, and we will make our prophecies come true.

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Economic Theories are Prescriptive, not Descriptive

By Ian Welsh

On March 10, 2014

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One of the advantages of studying anthropology, sociology and archeology is that you know that while there’s probably such a thing as “human nature” it has a vast range of expression. Some societies are cooperative, sharing and kind, with virtually no hierarchy. Others are hierarchical, cruel, domineering and full of people who ruthlessly compete with each other, and screw the hindmost. And still others are in-between, with a vast spectrum of possibilities.

These societies have different ways of distributing goods. In many hunter-gatherer societies, for example, they decide who gets the animal killed by looking at whose arrow killed it. Seems very “screw the hindmost” until you find out that the hunters freely share the arrows they make. The arrow that killed the animal probably didn’t come from the person who made the arrow. And, in any case, they share much of the kill.

Every economic system, every way of distributing goods and services, requires a different ethic and it elevates a different ethic. While merchants might have been wealthy, in many agricultural societies, including China and Japan through much of their history, they were considered parasites: they created nothing, after all. Peasants might be poorer, but they were given higher status, including legally, than merchants. In the European Middle Ages money made from trade was considered dirty, and strictly speaking, if a noble engaged in mercantile activities or took up a trade, they would lose their noble status. Perhaps this honored more often in the breach, but history is full of nobles who did lose their status through working with their hands, or engaging in trade too openly. (This was also true of Roman Patricians, by the way.) Honorable wealth came from land, war or gifts from other nobles for service.

Modern economics is famous for believing in the rational economic actor, almost entirely concerned with his or her own utility. (In normal parlance, a selfish bastard). This is a model of how people behave, but it’s an oversimplification of human nature so severe as to be wrong. Most people don’t behave like that most of the time: they cooperate, and they share and most of them don’t free ride.

There is an exception, however: economics students. Multiple studies have found that economics students act as economic theory would predict far more than people not trained in economics.

Economics is, thus, prescriptive. It tells people how they should behave.

Who else behaves that way? Senior executives in large corporations and rich people. The people who control the economy, act as economic theory says they should.

Be clear, all elites in all places and times have not acted this way: chieftains in status societies do not act like this. Potlach giving native Americans did not act this way. The elders of hunter-gatherer tribes do not act this way. Roman Patricians, Chinese Mandarins, and Medieval European nobles did not act this way—at least, not nearly as much as our modern economic leaders do.

It is not even the case that executives in the 50s and 60s acted this way. When John Kenneth Galbraith investigated why executives back then didn’t pay themselves more, he came to the conclusion that they didn’t because they believed, as a group, that doing so would be wrong, and they took out anyone who tried to pay themselves more than they considered appropriate.

So why do executives act that way now?

Ideas lead culture and policy produces the outcomes one would expect. Thatcher and Reagan and intellectuals like Dawkins made being greed and taking whatever you could get, screw the hindmost, acceptable. “Greed was good” in the 80s, and has become better since. We were told this is how humans are; and this is how humans should be; and that doing this would produce better outcomes for everyone. This was legislated into law: the removal of protections from financial abuse put in place in the 30s, the lowering of top tax rates; the emphasis on consumption taxes over wealth taxes, the dropping of corporate tax rates; the “free trade” movement which allowed elites to avoid taxes and make goods in sweatshop nations.

The previous generation, those who experienced the Great Depression as adults, and who remembered the 20s and what the last great unregulated economy had wrought, were old, and out of power. Those who believed; who knew; that economic success had nothing to do with any sort of virtue, were gone. The new generations accepted a premise they desperately wanted to believe: that they could be selfish assholes, acting in their own interest and not caring about other people, and that it would all work out for the best.

This was twofold: it was the result of a concerted intellectual effort by people like Dawkins and Milton Friedman, pushed by business interests; and it was the result of a population who wanted to believe it; who wanted to be ethically lazy and stop helping other people and still feel good about themselves.

Ethics are socially bound, and are created and recreated by each generation. To be sure, they are related to the means of production and the incentive system; but we create the incentive system. The executives of the 50s and 60s, by and large, chose something different than the executives of the 80s through today.

What has been chosen, can be changed. If we want an economy which works for everyone, we can have it.

But we have to choose it, and we have convince or crush those who would chose otherwise. And for those who wince at the word crush, remember, inequality means death and illness for many people. The crushing has already happened, the class war occurred, and the rich won. And the casualties are piling up.

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Western and Russian Hypocrisy on Crimea

By Ian Welsh

On March 7, 2014

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Perhaps the most tiresome part of the Crimean move to join Russia is the rhetoric on both sides. On the Russian side, we have Putin, who has long railed against states being broken up, starting with Kosovo; on the other side we have the Americans and Europeans nattering on about how no state can be broken up when they broke up Serbia, forcibly removing Kosovo from it.

States can be broken up—when it suits the West, or Russia. But when the West does it, we hear a heck of a lot less caterwauling

I remain unconvinced that starting a new cold or hot war, or imposing significant sanctions and suffering the Russian retaliation, is worth keeping Crimea in the Ukraine, when the majority of its population most likely wants to leave and it was part of Russia for centuries. The sheer hysteria of the Western response bores me: this is not the end of the world, unless we make it such.

It is also not about whether Obama is “tough enough to stand up to Putin”. As Sean-Paul Kelley has repeatedly pointed out, that’s infantilizing. There are actual issues here, around NATO expansion, around whether States can be broken up and when, around Russian economic ties to Europe; around the fact that Ukraine is practically a failed state; around the strong neo-Nazi presence in the new Ukrainian government; around the IMFs intention to impose terrible austerity on the Ukraine; on whether protesters have the right to overthrow a government and expect the rest of the country to accept it; and so on.

There interests at play here: oil and natural gas for Europe; Russian money for London; Russian military orders for France; American access to Afghanistan through Russian territory; Syria; the implicit deal for the Russians not to arm insurgents around the world with SAMs which can take out American drones; and so on.

These are issues that should be discussed, not whether Obama is “tough”. What is in America’s interest, Russia’s, the Ukraine’s, Crimea, and the people in the Ukraine who don’t want to be part of a Ukraine run by the protesters?

Oh, and were the snipers who killed all those people and led to the fall of the government actually government snipers?

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The Chinese Solution to the Ukrainian Problem

By Ian Welsh

On March 5, 2014

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The Ukraine was a mess even before the crisis:

Massively in debt. 35 billion needed over the next two years.
Aging industrial sector, located primarily in the east, which produces steel goods that no one but Russia is willing to buy.
Massive inequality, and a private sector controlled almost entirely by oligarchs.
A genuinely split population, politically.
Vast corruption.
Unable to provide enough energy for its own industries and citizens.
Not able to sell enough to foreigners to pay for what it needs to import.

The IMF had offered 4 billion dollars, contingent on ending energy subsidies and opening the economy up. Ending energy subsidies would double price of energy, which would mean that the aging industries would go out of business and many Ukrainians would freeze next winter, because they can’t afford the higher prices. The EU trade deal was nothing special either: they don’t want Ukraine’s steel or lousy, Soviet era goods.

The Ukraine has almost nothing going for it. But it does have one thing: it’s a breadbasket. The Ukraine exports a ton of wheat.

There are growing food shortages, and food prices have been rising faster than inflation for years. They will continue to do so.

The country which has expressed the most interest in Ukraine’s wheat is China. They offered, at one point, to rent fully 5% of the Ukraine’s land to farm.

China is the country in the world throwing off the most money right now, their money creation dwarfs even the United States. They cannot grow enough grain to feed their own population. China is also the only great power which still offers development to its partners: the Chinese have built roads, ports, airports and factories in Africa and Asia. Further, so long as deals are kept with them, the Chinese do not care what is done internally: they don’t consider it any of their business. Their money is not contingent on other countries engaging in the sort of austerity that the IMF, Europe and the US like to force on anyone who goes to them for money.

China is also willing to lock into long term deals, and to pay somewhat more than the market rate to insure a guaranteed supply of whatever commodity they need, whether that be oil or food.

The Ukraine has two problems which cannot be tackled under the West’s aegis: inequality, and debt. The West simply will not allow a massive restructuring or default of debt and still give the Ukraine money. Does not happen: oligarchs are sacred in the West. But what the Ukraine needs to do is restructure its debt: turn it all into 100 year bonds at 1% and tell investors to take it or leave it. And they need to expropriate the oligarchs: take away their money, power and holdings.

Neither of these things, again, can be done under the West. And once done, the West will generally refuse to trade the Ukraine what it needs.

So the obvious play is to expropriate the land needed to make a deal with China. Cut a deal with China to take virtually all of the Ukraine’s grain exports, to develop the Ukraine’s land and make its farming even more productive, and to sell the Ukraine the goods the West will stop selling them.

Meanwhile, since Russia and China are on great terms, you don’t take the Western/IMF deal, you take the Russian offer, because in addition to food the one thing you MUST have is oil and natural gas, and Russia will give you a discount on those. The only people whose debts you don’t roll over into 100 year bonds are the Russians (though you do renegotiate with them, and yeah, you can probably get great terms if you swing back into their sphere of influence and join their trade area.)

The odds of this happening, are, of course, exactly zero. The Ukraine’s west, and the current government are caught in this weird delusion where they think that, like Poland, they can get prosperity by orienting to Europe. They can’t, those days have passed, and Poland is not the Ukraine (among other things, it has very low inequality.) And the current government is in bed with the oligarchs: they turned on the last government at the right time, and the new government is appointing them to key posts.

However, things change: Europe and the IMF will wreck the Ukraine (that’s what they do), and things will get worse for ordinary people (there may be a hiatus where things get better due to a land bubble, we’ll see). When it does, Ukrainians will have another chance to realize that Western nations aren’t their friends, and only care about them as a took to screw with the Russians, or to the extent there is something of value left to loot.

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“Consequences” for Russia over the Ukraine

By Ian Welsh

On March 3, 2014

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Obama and Kerry have both told Russia there will be consequences for their actions in the Ukraine.

The question is “what consequences?” The only thing the West can do which would really hurt Russia and Putin is strong financial sanctions: freeze Russian accounts, institute a trade embargo, etc—the full Iran treatment.

The problem is that Europe needs Russia’s natural gas and oil and Britain, aka. London, aka. The City, needs Russian money. London is awash in Russian cash, and the London Real Estate market would most likely crash if real financial sanctions were put on Russia. Since real-estate and financial games are the only thing keeping Britain afloat, this is a total no-go: completely unacceptable to Britain.

Germany, meanwhile, will find any sanctions on energy completely unacceptable. They can’t replace all that natural gas before next winter, even if the US agrees to sell American natural gas to Europe.

The Russians, to put it crassly, have paid their bribes. They have made the right people in England, and Europe, rich. On top of that they supply something Europe absolutely must have: hydrocarbons.

Further, if real sanctions, like the Iranian ones were applied to Russia, the price of oil and natural gas would spike so high the world economy would go into a tailspin, even before one considers the spin-off financial effects. Russia would then orient hard to China, who in no way would go along with such sanctions, and while the initial affect would be massive, in time, all that would happen is that Russia would now firmly be a Chinese client state.

Many have noted that the ruble is dropping relative to the dollar and the Euro and say that “markets” are punishing Russia. They aren’t, because oil and natural gas prices have increased, and Russia doesn’t get paid for hydrocarbons in rubles. In fact, the crisis will probably make Russia money.

The intermediate sanction would be Visa restrictions on Putin’s closest associates, along with freezing their accounts. The problem with that is that Putin has plenty of ways to retaliate, starting with not letting the US get its gear out of Afghanistan when the Afghan government kicks the Americans out. (Getting that gear out through Pakistan will be much harder, dangerous and much more expensive.)

China, of course, is the actual threat to American hegemony. It is also the country that the Ukraine should actually be going to for help, not to the West. More on that in future posts.

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The 2012 IMF/Ukraine Negotiations

By Ian Welsh

On March 2, 2014

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These are the reform the IMF wanted for a 4 billion dollar loan:

the IMF demanded that Ukraine double prices for gas and electricity to industry and homes, that they lift a ban on private sale of Ukraine’s rich agriculture lands, make a major overhaul of their economic holdings, devalue the currency, slash state funds for school children and the elderly to “balance the budget.”

This is what the IMF does to your country. Note that 4 billion doesn’t even come close to covering Ukraine’s debts. Moscow offered 15 billion and a one-third reduction in natural gas prices.

If the Ukraine wants something close to prosperity, this is a sideshow. The first thing they have to do is destroy their own oligarchs: take away their money and power.

But remember how the West squealed when Putin brought his oligarchs to heel? Or at Venezuelan redistribution? Oligarchs are even more sacrosanct in the West than the East. The IMF would never allow the Ukraine to destroy their oligarchs and throw them all in jail.

The next step after that would be solidly reorient to China. They want Ukraine’s food, and the Chinese are willing to pay a premium for the resources they buy, at least by developing world standards (and that this point, that’s what Ukraine is.) What, exactly the Ukraine thinks it will sell the West is beyond me: their Soviet era factories don’t make anything we want, and the West heavily subsidizes its own agricultural production.