A Small Insight About Power, Markets, and Post-capitalism

recent documentary about Bill Gates:
https://www.youtube.com/watch?v=TY-vLrz9XCc

From what I can tell industrialization was the engine for capitalism and that engine was swapped out for finance. And we basically ran an economy on “formulas” not “things” until the engine died in 2008. After that we changed the engine to debt instruments fueled by money created by the FED. So now the debt engine is overheating and we need more fuel from the FED than ever.

I think the next engine will be all money from the FED/Treasury after a massive wave of bankruptcies hits and the markets shrink. That will last for at least 8 years or so. We will probably be at war because the west will try to steal from others to offset it’s damaged markets.

What comes next is a command economy protecting industries lead by oligarchs. Might have a few minor conflicts but most of the security apparatus will be focused inwards on its own populace. This phase will last a long time and it’s unclear to me how it ends. My guess is that a patch work economy of small scale markets/projects comes after it ends.

My big insight (not at all original with me) about capitalist “markets” was that there are not many. Actual capitalism is organized by administrative hierarchies, but “free markets” theory and ideology prevents people from talking realistically about the structures of the political economy within which they live and work. As Hannah Arendt observed, strength originates in muscle, but political power originates in social organization: bureaucracy generates and embodies political power, enabled by money and property rights and “technology” (applications for and means of hierarchical command-and-control). It was a powerful insight for a young economist to realize that his theory did not apply to the phenomena he purported to study.

Theoretically any system could work if it wasn’t for power-madness and the games those players rig. How do you design a system that sweeps the power-mad out of power and then keeps them out? I suspect that re-educating the mob would have to be a continuously ongoing project. But even that system would be a target for the power-mad.

You can’t.

Well there’s eugenics. But I suspect the human race would need a really bad hit bottom before that ever happened.

Maybe education from an early age? Theoretically, when bullying impulses show up other more socially temperamental kids would be taught to gang up on the bully in some socially responsible way. Stranger danger! But some bullies are smart and most kids can be pretty dumb, easily duped.

@Ian Welsh

Sadly Ian, if COVID-19 cannot put a dent in climate change then we are probably fried and dried.

https://www.washingtonpost.com/weather/2020/06/04/carbon-dioxide-record-2020/

Certainly there will be those who offer hopeful calls for political mobilization. But hope is often a form of denial. The first stage of the grieving process.

As far as civilization\’s spot on the economic spectrum is concerned, we\’ll likely be back in the middle ages. As nations compete over dwindling resources to survive, the elites will finally get to pull out their nuclear toys and have a go at it. This is it boys, Armageddon…

The average lifespan for humans will go back to 40-50.

The gunners are getting antsy. We really shouldn’t discount the effect that a mass shooting incident could have on the course of events. The gunners’ longed for “boogaloo” isn’t necessarily a pipe dream. For the most part, they have the police on their side, too.

Meanwhile, as “Yves” at NC has discovered, cities are becoming unpleasant to visit, unlivable, and quite possibly unsustainable. I’m sure she’s aware that the process of de-city-ing has been going on for many (many!) years, and many US cities have become just as unpleasant and unlivable as New York and have seen significant population declines. In the US’s various War Theaters, cities, towns and villages have been routinely destroyed and depopulated. It’s an ongoing process accelerated by the untamed virus and economic collapse.

We’re still in the first phase of the shake out.

As many have pointed out, people are very adaptable. What’s happening is forcing survival adaptations — except at the upper end of the economic and social ladder where it seems everyone is going on as if nothing (much) were amiss. Visions of the Romanovs, the Bourbons, and the other dispossessed aristos haven’t quite penetrated their bubbles. Not quite yet.

It’s right to be on edge. It’s right to think of what comes after. It’s right to question the past.

You kind of have a similar issue with bottom-up collective power. We decide with our little moneys that we want quick cheap food, even if it’s not great, or even good, let alone healthy, sustainable, and so on. We give money to terrible candidates because they make us feel good. “Oh, it’s marketing that made that happen”, and yeah, somewhat, maybe. And in the moment we’re constrained by the available choices. But still, those choices came into being because we wanted what they offered, at least to some degree. Maybe that all comes down to rich people making deals with each other, I dunno.

You have to have some decisions that aren’t for sale. Bill Gates could only set education policy because everyone involved wanted his money, or answered to someone who wanted his money.

https://caitlinjohnstone.com/2020/06/17/on-maintaining-perspective-in-the-year-20-fucking-20/

“BuSab.”

I am sorry for you that you don’t understand biology, neurology, or basic logic. But that is not my problem.

Your project here is the same one Plato took on in writing ‘The Republic’

He eventually concluded that it wasn’t possible to build something that would last indefinitely, sketching out a trajectory of downfall in morality/civilization that seems eerily reminiscent of what we are experiencing now.

Another of his conclusions was quite similar to what you have sketched out above, with him ultimately defining justice as each person sticking to their own role and not trying to do things outside of their remit.

In his ideal republic, this was enforced through class separation in which there was no mingling allowed between the ruling class who would put the interest of state ahead of self-interest and the commercial class who would pursue their own self-interest, but were walled off from anything relating to maintaining the state such as war or education.

It sounds far-fetched in some ways, but is actually quite similar to the feudal system in Europe or Japan, or the caste system in India, etc.

Bruce Wilder: “Now they are stuck. Any sensible policy would have the immediate consequence of the worst financial crash in history combined with a mega-massive wave of corporate bankruptcies and dissolutions …”By “sensible” policy, I mean any policy that used public fiscal policy to put people to work doing something worth doing (like adapting to climate change with a de-carbonized energy structure). Paying people to “do” something would be an exercise of power in itself.”

Yes. It’s fascinating. Till recently I thought it was simply a congenital inability to do anything but loot. But– for the Fed, at least — there’s a central structural paradox, beyond the obvious reality that the Fed’s pumping ‘printed money’ into financial assets increases inequality.

You had/have a career as an economist, I believe? Check my theory out, if you’d be so kind, and see if it makes sense. As follows —

[1] Fed money printing keeps asset prices very high even as wages (and the price of some ‘stuff’) fall. This disconnect can continue to grow as long as money printing continues. But when corporations can survive in this manner, they’ve no reason not to fire half the workforce and to cut the wages of the other half. We’ve seen this already, with some corporations laying off large slices of their workforce even as they received billions from the CARES act. Yet laying off workers and cutting pay creates more deflation and depression in the real economy. And that in turn means that the Central Banks must print yet more money to keep those asset and share prices high.

[2] So far, so obvious. But at some point, of course, even the American masses will rebel, as we’re also seeing the beginnings of now. The U.S. government will come under pressure to divert some income to them. But this will *deflate asset prices,* defeating the point of the Fed’s whole money-printing campaign. At that point, according to capitalist theory, as those assets are the collateral for the loans the corporations take out to stay afloat, they would lose access to liquidity. A sequence of corporate failures would commence.

[3] Which is why the Federal Reserve did away with the Reserve Requirement Ratio RRR on March 15 2020, effective March 26 2020 and is now buying junk bonds. Now, even if the corporate assets that corporations use as collateral deflate, they will no longer automatically lose access to liquidity. Lowering the RRR basically makes it easier for banks to lend. And so as you say, for example, Hertz — a bankrupt company — can float a billion-dollar bond issue.

[4] If you were an insider who asked Powell or any other Fed official what they meant to do, how they rationalized this, one presumes that in all honesty they would tell you: “With a zero reserve requirement, we are trying to reflate again.” But the reverse direction to zero is infinity, since this train only runs two ways. And so what the Fed is doing now, at least theoretically, is heading in the direction of unlimited, *infinite* lending

[5] And so in reality, of course, you’ll have banks lending to any type of project their executives can book bonuses on. Even more than in the run-up to 2008, the door is now open the door for ever more fraudulent lending and borrowing. A bank can be busted and it *won’t matter because they can still lend.* That’s the reality of a zero requirement. And indeed the Fed’s actively supporting that — it’s buying junk bonds. Thus U.S. corporations can now be complete zombies, and theoretically issue junk bonds to infinity on zero in assets for collateral.

[6] This petri dish of “liquidity to infinity” on zero assets is the perfect culture to completely crash the flawed global financial system as it stands today. Other countries — China, Russia particularly– have to be aware of this. Furthermore, the visible collapse of U.S. social order on the streets, in D.C., in terms of healthcare outcomes, corrupt police, etcetera, in 2020 has given notice to the rest of the world that the U.S. empire is collapsing.

[7] Nevertheless, a lot of us have wondered what it would take — what the actual mechanics of the trigger would be — for the U.S. dollar to cease to be the global reserve currency — for all its “exorbitant privilege,” as De Gaulle put it, to vanish. Because quite a lot of pain would have to be endured by the rest of the world to shift to another system, and no other country currently either possesses a currency with the necessary credibility or even wants — given the Trifin paradox and the necessity to run trade deficits, etc. — to provide the global reserve currency.

[8] The Fed’s doing away with the Reserve Requirement Ratio RRR on March, 2020, is probably that trigger. *For their own survival* the rest of the world’s economies now have no other option but to start decoupling from the dollar as global reserve currency.

Doubtless, the Fed will try the same thing as it did in 2008 with massive currency swap lines to international banks to preserve the dollar’s global reserve currency status. But the U.S. no longer has the credibility it did in 2008, its economy is far more visibly hollowed out by corruption, and the current collapse of its social order and governance is internationally visible. If you look at foreign media, there’s a tone of “we’re witnessing the end of an empire.”

[9] Is there evidence in the real world to support this theory that the world is now going to start decoupling from the dollar? Well, this post is overlong, so see forex —

https://wolfstreet.com/2020/06/16/but-who-bought-this-huge-pile-of-us-government-debt/

“…All foreign investors combined – “foreign official” holders such as central banks, and foreign private-sector investors – dumped $44 billion in US Treasury securities in April, which took their total holdings down to $6.77 trillion, according to the Treasury Department’s Treasury International Capital (TIC) data. And their share of the incredibly ballooning US Treasury debt ($24.97 trillion at the end of April) dropped to 27.1%, the lowest since March 2008 ….”

And so on.

I would say the rich and elites have the power. Who’s doing well despite everything that’s going on? Who gets bailed out and made whole and a lot more than whole when things go seriously wrong? Whose agenda gets acted on no matter who wins an election, no matter how much destruction it wreaks on the rest of us?

Class war is the way the rich and elites use to keep all the power they have usurped and wealth they have stolen from the rest of us. Their principal weapon in that war is distraction. It takes the attention off them and their depredations and sets the rest of us against each other. To combat them, we need to stay focused. We need political consciousness, that is a clear vision of what we want and a coherent message in how to get it.

I probably cannot say much more than I have, without proving myself a fool.

Most people tend to confuse the economy with a morality play of some kind, succumbing to a just world theory in which good policy works its magic thru being virtuous.

“Printing money” is a bad metaphor. Currency, not money, is printed and a good policy is to print as much as people want to use. The quantity of currency, as long as there is enough of it, and it is without inherent value or cost, is irrelevant.

Money is a score-keeping device and a means of making deals with an uncertain future, a way of making bets and hedging bets. You cannot play a game, if you cannot keep score.

That “uncertain future” part is the key. Uncertainty is pervasive, writ large and small. We know some things, are in the process of learning more and in complete ignorance of where the boundary lies beyond — the vast not knowing what we do not know. Money papers over uncertainty in bets placed on the future and dampens the volatility due to what turns out to be noise in the signal, so to speak.

It all goes terribly wrong when we fail to accept that uncertainty invites fraud and Money can be used to create volatility or to dampen the signal with the noise.

The quantity of money does not matter. The lies told in the fictions that Money as language allows us to write do matter.

Perhaps we will agree to disagree, Hugh. I do not know what “a medium” means in this context. Is it a metaphor? Access and distribution are not the problem money solves; risk* attendant on the sunk-cost investment in schemes and systems of production and distribution are. Capitalism is about capital and Money and finance make it possible. I tried several times to write a short comment about the implications of Capital investment being sunk-cost investment and I could not make myself understood adequately even in my own imagination.

On some deep and profound level, organizing the economy by means of sunk-cost investments is itself a response to pervasive uncertainty: we make sunk-cost investments in schemes that make use of what little we do know to apply that knowledge in controlling error and waste. A return on a sunk-cost investment, though, can only be obtained by an exercise of political power to extract an economic rent. In certain common political ideologies, “rent-seeking” is a pejorative and the ideal of competition is to eliminate “economic rents”; this is sheer nonsense. All capitalist business is rent-seeking and economic rents are necessary and even essential to the process of organizing to obtain a return on sunk-cost investments. I fear no one who reads this paragraph is prepared to make heads nor tails of it.

I can only agree with you that the moral is integrated into the economic: the economy is organized to produce and distribute “goods”(!). I only mean to point out that the myths of the free market economy obscure the actual mechanics to the great disadvantage of democratic discourse on public policy. In reality, whether an investment is worth making in a social welfare sense (cost-benefit) is unrelated to whether a business model can be devised to generate the return on investment necessary to finance hearing costs now for benefits later. Ideologues of the “free market” ignore the mechanics of money and capitalist enterprise alike to avoid confronting the essentially problematic and paradoxical nature of organizing an economy.

Bruce W. wrote: “Printing money” is a bad metaphor.”

For heaven’s sake. Well, just to be clear ….

“Printing money” means in the Fed’s case that when it buys Treasuries, it first creates electronic dollars. Then it buys Treasuries from its primary dealers and pays them with these newly created electronic dollars. Now these newly created dollars are out there and need to go somewhere (other assets), and the Fed holds Treasuries.

(Treasuries are also electronic entries. The Fed receives the coupon payments that the US Treasury Dept. sends out to holders of Treasury securities.)

More generally, 93-97 percent of the money that exists in our economy has been created by the banks in an analogous way. When you get a loan from a bank and they tell you they’re moving funds into your account, they are really doing no such thing. They are selling you a promissory note crediting you with that amount of money based on your signing that promissory note — promising to pay them back with added rent — and the money comes into existence at precisely that point.

I think I understand all that. But it’s a mouthful and there’s no convenient short nomenclature I can think of that everybody will understand at some level besides ‘printing money.’

On to the issue of rent now you’ve brought it up ….

Bruce W: “In certain common political ideologies, “rent-seeking” is a pejorative and the ideal of competition is to eliminate “economic rents”; this is sheer nonsense.”

In certain common political ideologies like capitalism, as those obscure ideologues Adam Smith and John Maynard Keynes frame it?

Keynes calls for ‘the euthanasia of the rentier’ in, forex, chapter 24 of THE GENERAL THEORY–

“it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital….

“…Thus we might aim in practice … at an increase in the volume of capital … so that the functionless investor will no longer receive a bonus…”

Here’s Adam Smith similarly dissing the rentier in, forex, Chapter 6 of THE WEALTH OF NATIONS —

“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces.”

Smith has more like this in Chapter 11 —
“… [the landlord leaves the worker] with the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more.”

“[Landlords] are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind…”

Yeah, I’ve had this discussion before. The *point* is that it’s not a question of all rent being either bad or good. It’s a matter of trying to distinguish, as both Smith and Keynes do, between ‘productive’ (i.e. industrial) capitalism and ‘parasitic’ rentier capitalism (i.e. in its most extreme form, indentured servitude unto chattel slavery).

Bruce W: “Writing blog comments no one can understand since 2002.”

With all due respect, I can usually understand them. But I just don’t see where they get either me or you given that they’re so mistily unspecific and qualified (at the same time!).

I’m not being snarky, just trying to comprehend. You were admirably specific and precise when it came to the history of the Muslim conquests in India, for instance. And yet you were/are involved in economics professionally, if I understand correctly, but you come up with these misty, qualified generalities in that context. (Good thing you were never a journalist!)

Well, I asked. I thought you’d be able to say more is all. Again, I’m not trying to be snarky — there are contexts where I myself feel that the more I know, the less I understand.

“Printing money” means in the Fed’s case that when it buys Treasuries, it first creates electronic dollars. Then it buys Treasuries from its primary dealers and pays them with these newly created electronic dollars. Now these newly created dollars are out there and need to go somewhere (other assets), and the Fed holds Treasuries.

I think the central bank, acting together with its primary dealers, has made a highly liquid and very deep market in securities of various durations of the monetary sovereign. Those Treasury bills, notes and bonds become near zero-risk financial instruments. At least there is zero risk of illiquidity and practically zero risk of nonpayment. Treasury securities become another form of money and a reference for all other financial securities marketed in the same unit of account. Also, a reliable hedge and means of capital security for banks making up the payment system. I fail to see how the “printing” metaphor does anything to identify the significance of making a highly liquid market work to make the marketable securities making up the national debt into near-zero-risk instruments, useful as references, benchmarks and hedges.

Bruce W. : “Tell me, Mark, do you imagine that we could somehow reduce the “scarcity” of capital? I would be surprised honestly if you told me that statement made sense to you when applied to recent experience.”

You won’t be surprised. I too find it at best opaque and — in the context of what we actually see in 2020 — not at all the problem with markets. I too surmise it made a lot more sense if you were an Englishman experiencing the 1920s-30s.

It is not necessarily a zero-sum game — the contest between Capital and Labor over the distribution of income — but it is a contest over the fruits of cooperation: it is never going to be the case that Capital income is independent of Labor income. The rich man does not become rich independent of the worker. Finance does not generate income independently from commerce, industry or agriculture, either. But, it also isn’t a simple game of tug of war: collapse a financial bubble and aggregate demand drains away wages too.

Mechanism matters to effective policy.

There are several channels that have driven the huge gains to Capital’s share of national income and the plummeting share of Labor. I, personally, doubt that robots are anything much more than a convenient cover story.

A big policy choice was the deregulation of finance and banking. The system of financial repression devised in the New Deal by Carter Glass and many others, was based on creating many small privileges, many small sources of defensible economic rent, which created a diverse and numerous ecology of specialists: savings and loans, mutual insurance, local banks, stock brokers, investment banks, et cetera, with conflicting political interests. The neoliberals used the rhetoric of competition to destroy those evil rents, promising competition would deliver efficiency. Ultimately, we got BIG. Universal bank holding companies of enormous (and obviously inefficient if anyone was looking, which they were not — I gave up on Mark Thoma on this issue of his refusing to look) size and scope and centralized strategic control destroyed the integrity of FIRE as a sector and not incidentally the integrity of politics.

China adopted a policy for financing industrial development that delivered big bucks to commercial and financial interests in the U.S. for stripping the U.S. of industrial capability.

Reducing the marginal income tax rates on top executive “compensation” enabled an alliance between the mega-wealthy and the sociopathic cream of the professional managerial class, able to assume top executive posts and use those sources of power to destroy rather than build.

There is more, but let us skip ahead to whether what goes up must come down.

Some of these channels have end-games of collapse attached. They run out of road, of businesses to dismantle. The game with China ends with China reneging on the deal. Isn’t that obvious?

MC4all would collapse the only major sector of the U.S. economy with growth in “good jobs”. You don’t think that is a political problem? Financialization has driven up the cost of dental care and vet care.

Prolonged low interest “free money” at the Fed feeds stupid schemes of “risky” investment, but take away the spiked punch bowl and the party ends as that spending flows out of aggregate demand. Investor financing of Uber or WeWork or fracking creates huge sources of wage income at the margin of employment, yet those hugely unprofitable “enterprises” cannot continue forever sucking up investor funds.

Interesting times, eh?