Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Class Warfare Page 21 of 36

A negative interest rate world? Why?

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On March 4, 2015

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Umair Haque writes:

Why are we approaching the new normal of a negative interest rate world? Simple. There’s nowhere good left to put all the money.

Umair is referring to all the countries who are now offering bonds with negative real interest rates.  You get back less money than you put into the bond.  People are buying these because they have nowhere better to put their money.

Now this isn’t entirely accurate.  There are still some better places to put money, but there aren’t enough of them.  And there is a ton of money out there chasing returns.

Why there is too much money chasing returns is important, however, so I’m going to tease apart some of the reasons.

Central Bank Policy

Look, the ECB is buying bonds.  The BOJ is buying bonds.  The US was doing so.  This is demand.  It pushes the yield of bonds down.

China is printing piles of money, Japan is printing it, etc…  That money isn’t staying in those economies, it is hunting through the world for returns or even just security.  Federal Reserve policy has put a floor under losses from various securities by accepting that at near par, and Fed policy of free money has underwritten an epic bull market in securities.

No cleanup of the banking or shadow banking systems.

Most money is created by private actors.  Banks, shadow banks (brokerages, etc…)  There is no effective oversight of these organizations, still (you’d think after 2007, but you’d be wrong.)  In fact, not only is there not enough oversight, but in most cases they’ve been effectively encourages to create more money.  We have another derivatives bubble underway, we have housing bubbles in multiple countries (e.g. Canada and the UK), and while the US doesn’t have one, parts of the US, like Manhattan, do.

Oligopolistic profits.

US broadband profits are almost 100%-annualized.  Every app store takes a 30% cut (a level which would have been shut down by regulators of the post-war liberal period.)  Copyright law makes it difficult to impossible to create generic alternatives to common items.  These have all led to very high profit levels, and those profits have largely been plowed back into stock buy backs (most corporate borrow is matched by stock buy backs).  But much of the economy is not available to be bought on the stock market, many large investors can’t invest on the stock market by law (they have to invest in high-grade bonds), and much of those profits are now priced into stock prices anyway.

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Inequality

In the United States more than all the gains of the last “recovery” have gone to the top 10% (really the top 3% or so.)  There has limited broad based demand for new goods.  Luxury goods, investment art, and London and Manhattan real-estate do not scale.  Without widespread demand, opportunities for new businesses, with new employers, are limited.

Barriers to Entry

Much of this came under oligoplistic profits. Draconic “intellectual property” laws make it difficult to compete, bringing prices down and increasing volumes while freeing up money for people to spend on other things.  30% cuts from app stores and other virtual marketplaces make many businesses simply unprofitable—first they must make 30% for Apple or whoever, then they get to make a profit for themselves.  But if you aren’t on those virtual marketplaces (and there is usually one which controls most of the business) you will not make enough sales to be viable.  This sort of “you make no money without us, so we’ll take all the profits” behavior is little different from what the railroads did to farmers in the late nineteenth and early 20th centuries.

And while there’s tons of credit for big business and people who are already rich, a new business trying to get funding faces huge barriers to getting money. It’s boutique investment, it requires a lot of time, and most investors would rather just buy bonds, structured securities, or play the stock market.  Money may be cheap, but not for you.

Supply Bottlenecks

In a larger sense the issue is that we still haven’t dealt with supply bottlenecks like oil. Get a roaring economy going again, oil will spike to $150/barrel and the economy will crash.  The solar roll-out is underway, along with the wind one, but it hasn’t (yet) changed that reality.  The same is true of many other commodities.  If we want distributed growth in a world with constrained commodities, well, we can’t have it.  We have to remove or avoid those bottlenecks.  This requires deliberate government policy, but we have dodged the issue since the 70s (solar should have been where it is today 15 years ago, but Reagan chose an oil play, not a solar play, and chose to crush wages to crush demand.)

The absolute obsession with inflation is really about wage inflation, and the obsession with wage inflation is about widespread consumer demand causing commodity inflation.  We’re moving towards a deflationary world (for ordinary people, there is vast inflation in goods and services the rich consume), but our policy makers are still in asuterity “crush employment and wages” mode.

No Future Till The Current Rich Can Monetize It

We could have had a lot of what we have today many years ago.  But the rich control the politicians, and the politicians won’t allow it to occur.  There was great squealing for years about subsidies for solar, and corruption in how they were given out, but they were always a rounding error compared to subsidies for oil, let along the military-industrial complex, big agriculture, pharma, health insurance, and so on.  All of those industries were powerful enough to strangle subsidies to competitors (solar, generic drugs, whatever) and strong enough to insist on new laws which strangled startups and competition (every copyright extension is nothing but an anti-competitive measure intended to keep profits coming to incumbents.)

Bottom Line

We have too much money chasing too few returns because we’ve spent 40 odd years making sure that ordinary people get less and less money; the rich get more; and that oligopolies are nurtured and protected.  The rich control government, and they intend to make sure that all the money goes to them.  Unfortunately, in a mass market economy, that means the economy becomes lousier and lousier.  This doesn’t matter to the rich because they are comparatively better off. Better a Czar amidst serfs than the CEO of General Motors in 1955.

 

The Problem with Basic Income

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On February 27, 2015

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Basic income—just giving everyone a certain amount of money, is an idea with a lot to recommend it.  In any society which isn’t willing to just let people suffer or die because they don’t have money, there is a “social welfare net” with a vast bureaucracy.  Why not just give everyone enough money to live on, and wipe out most of that bureaucracy?  If you’re going to give poor people money anyway, it’s more efficient, and vastly less humiliating.

There’s a great deal of controversy around the idea of technological unemployment (economists sneeringly dismiss the idea on aggregate as the “lump of labor” fallacy), but even if you don’t believe in it en-gross, changing technology does cause specific people, often large numbers of them, to lose their jobs, and many of them never work again, or if they do, work at terrible jobs.  A basic income deals with this issue, at least somewhat, and, again, far more efficiently than welfare and unemployment insurance and so on.  And if you believe that there will be widespread technological improvement as AI and robotics improve, this will mitigate against it.

In a demand based society; a consumer society, where the economy is based on large numbers of people buying things, a basic income makes sense.  People with no (or too little) money, don’t spend it (obviously) and that’s bad for the economy.  Every dollar you give a poor person gets spent; it immediately goes to someone else, and that means that even those who are well off have reason to be for a basic income: most of it is going to wind up in their hands, and if it doesn’t (because you have a basic income which goes to everyone, not just those below a certain income), well, they still get theirs.

One might point out that we’re moving away from a demand based society, however, at least in the West. More than all the productivity gains of the last business cycle in the US, for example, have gone to the top 10% (really the top 3%).  Consumer inflation is flat, and in many countries verging on deflation, while the goods that the rich buy (investment art, Manhattan and London real-estate) are booming.  Moving away from a broad-based demand society, such as we had in the post-war liberal era was mainly done because it benefited the rich, but it also solved another problem—increased demand fed into oil and other commodity prices, and as the 70s  and early 80s showed, that lead to huge inflation and economic dislocation.

So basic income, at any level that would be equivalent to a living wage (aka. letting people live a decent life, not just barely scrape by), can be expected to spike inflation in various commodities, including oil.  This is a problem, but it’s not a huge problem, because we finally have the technology which allows us to move off oil (not completely, but enough to mitigate the effect of demand increases), and because, hey, we’re flirting with deflation anyway.

The real problem with basic income has to do with who controls our economy—with the fact that we are sold what we need, by and large, by oligopolies.  A few large companies control most industries, and effectively price set.  (Broadband profits in the US are almost 100% a year.)

This is known as pricing power. When someone needs what you sell more than you need to sell it to them; when they have little choice but to pay what you ask, you can demand a premium.  If something is scarce, either naturally or artificially, those who control it get more of the share of national income than otherwise.  In a society whose economy is not controlled by oligopolies this is usually a good thing—prices go up, more people enter the industry, prices drop.  That’s the what the economics textbooks tell you happens.  But it doesn’t happen in an oligopolistic economy where the oligopolists control government and where barriers to entry are very high.

So those who are in an oligopolistic situation, whether telecom companies, health insurers, pharmaceutical companies or landlords, are generally able to set prices: you must have medicine, you must have shelter, and in a modern economy, try and get by without a phone and internet.

What this means is that increases in income, especially at the lower end, tend to be simply taken away by those who have what you must have.  Everyone will know what the basic income is, and they will know who is surviving on just that, or just that plus a low-wage job.  And they will raise prices so that money goes to them.

Basic income which does include either oligopoly busting or regulation (or having the government, oh, just provide broadband and/or housing itself) will help many people, to be sure.  But in a not very long time, most of the gains will be eaten by those who have pricing power.

This, by the way, is far from a “socialist” theory. This comes out of bog-standard neo-classical economics.  Non-competitive markets tend towards concentration of wealth, and those who have pricing power use it (they act in their own self-interest, precisely as economics says they will.)  Markets are wonderful things. They are extremely efficient at allocating money.  And they will do exactly what they are set up to do.  In an oligopoly situation, with capture of government, they will allocate that money very quickly to the oligopolists.

So if you want basic income to work, you must also make capitalism work. You must create actual competitive markets, you must-trust bust, you must regulate and you must move, as government, to ensure that the important things people will spend that basic income on are not scarce—either naturally or artificially.

This extends far beyond basic income.  A market economy; a capitalist economy, works to the benefit of the majority only when it is competitive and when scarcities are actively managed, ideally to remove them, and when they can’t be removed, to ensure that those who provide scare necessities, do not reap outsize profits which allow them to buy up the rest of the system, including government and civic society.

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Sneering that there is no runaway inflation misses the point

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On February 11, 2015

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A lot of people though that unconventional monetary policy (aka. printing huge amounts of money) would lead to runaway inflation.

They were wrong, and the fact that they were wrong is a cudgel used to beat them.

But the reason they were wrong is important, as I noted last week: they thought that all that money would get to ordinary people rather than virtually all of it going to the rich and corporations.

In retrospect, and perhaps even at the time, naive.  But what the critics are castigating them for is believing in the good faith of policy makers: thinking that those policy makers actually wanted an economy that worked, if not for all people, then for more than the top one, five or ten percent.

They were wrong because they weren’t cynical enough or weren’t realistic enough to realize that developed world elites are so depraved that they are willing to print trillions of dollars to give almost exclusively to people who are already wealthy, in order to ensure they stay wealthy.

Monetary policy, at this point, has no other actual aim in most countries. It is meant to bail out indebted securities firms, to keep the rich rich, and to make them richer. If it happens to do anything else, that’s most likely an unfortunate side effect, since poor governments sell off crown assets cheap; and poor people work for almost nothing.

One can (and did) point out this a short-sighted policy likely to rebound on the rich, but they do not really believe it, nor do they really believe any one else deserves money.  They are the “value creators” and they are worth what they are given.  They, after all, bought up government fair and square.  Now they want a return on their investment.

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The nature of a corporation and how it changed in the 1980s

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On February 8, 2015

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By Matt Stoller

Let’s start with Pfizer, which announced the acquisition of generics maker Hospira for $17B this week. Pfizer isn’t a drug company.  Pfizer is a financial company that happens to own some labs and drug factories.  Pfizer’s business model is to acquire small companies who innovate, lay off their scientists, and ride the patent or other monopolies.  Former employees of acquired companies explain this clearly. So does Pfizer itself.

Pfizer is telling Wall Street that the acquisition will be ‘accretive to earnings’ and it will cut $800M in costs. Laying off scientists.  What this means, in reality, is that large pharma companies are actually innovation destroying machines. How did we get here?

Prior to the 1980s, Americans understood that corporations were private governments of resources and people.  Large corporation consolidations in the 1890s were done under the auspices of rationalizing the economy.  Then antitrust from the 1930s to the 1970s was done to force these private governments to act in the public interest. RCA, GE, Alcoa, Dupont, Xerox, etc – all were forced by antitrust actions to put their patents into the public domain.  The US gov’t structured markets as a way of ensuring that these political entities had checks and balances on their activities.

Antitrust was a Madisonian solution to the monopoly problem of the 1890s-1920s, which was understood as political NOT economic.  This had an incredible effect. Large companies, like Dupont, were forced to spend more on R&D instead of acquiring innovation.  Because they had to compete against smaller firms and they couldn’t acquire (due to merger scrutiny).  Pfizer’s business model, in other words, would have been illegal prior to the 1970s.

Most of the laws that forced this state of affairs are still on the books. The were just reinterpreted by Reagan.  Any President can simply go back to the pre-1981 model through executive action. Every merger is still reviewed by DOJ.

In the 1980s, an intellectual revolution took hold. Corporations were no longer private governments. They became property.  They weren’t political entities, but economic entities pursuing ‘efficiency’. Corporations exist only for shareholder benefit.  This idea was radical. Prior to this, few thought large shareholders were the only stakeholders, or even the most important ones.  Eliminating all other interests – workers, managers, customers, communities, national security, small shareholders – was truly radical.

It was a political fight, but the Reagan conservatives along with Wall Street Dems of the early 1980s won.  Liberal Democrats had focused their energies on important social questions, rather than the nature of the corporation.  The result was Wall Street primacy and a massive merger boom in the 1980s. Layoffs, offshoring, globalization, monopolies, etc.

This idea that these private governments – corporations – exist solely for shareholders has led to a dangerous unbalanced politics.  In which the industrial base, worker rights, small businesses, consumers, don’t matter. Even China’s strategic threat is irrelevant.

This is changing. Net neutrality is the first significant antitrust concept to emerge and take hold since the Reagan revolution.  Because tech companies and citizens intuitively understand but can’t articulate that telecoms are private governments, not just property.

Which brings us back to Pfizer. The ability to create/sell medicine is of deep public interest. Pfizer has a state charter to do this.  That Pfizer instead is full of financial engineers who generate cash by destroying access to medicine is increasingly understood.  Same with hospital monopolies. These should not be run to maximize cash generation over patient well-being. This is a consequence of the Reagan revolution in corporate governance. It is unsustainable. And the ideas behind it are stale and bad.

All it will take to reorganize our culture is relearning that corporations are part of our political system and need to be managed through a Madisonian checks and balances system of ensuring competition and the public interest as mattering.

Antitrust is popular, Zephyr Teachout got huge applause lines on it when she ran a shoestring campaign in NYC.  Net neutralit generated 4 million comments to the FCC. People get it. It’s simple stuff. The liberal lawyer elites aren’t there yet.  But we’re beginning to understand the importance of the government protecting private property from corporate predators.  And Citizens United is opening up a new (or rather old) way to understand how political corporations really are.

And that is why these ideas are coming back. And why our political system feels deadened, but is on the verge of renewal.

(And to make the point another way: In 2008, Pfizer/Wyeth spent $13B on R&D. 2009, Pfizer bought Wyeth. In 2013, the combined company spent $6.55B on R&D. Down 50%.)

Yes Virginia all that money printing did show up as inflation

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On January 22, 2015

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One of the great “mysteries” of the last 7 years or so is why all the money from unconventional monetary policy hasn’t shown up as inflation.  Many analysts thought that printing that much money must surely increase prices, but inflation indices in most of the developed world are barely up, and in many cases are flirting with deflation.

The answer is obvious, but you’ll hardly see anyone point it out.

First, who was the money given to?

Rich people and corporations.

Ok then, what do rich people and corporations spend their money on?  Stocks, and real estate—high end real estate.

In America as a whole, let alone New York, housing prices have not returned to pre-financial crisis values.  But luxury apartment prices now exceed pre-financial crisis prices.  Real estate prices, period, in London, are now higher than pre-financial collapse.

Meanwhile, the Dow Jones Industrial Index is up about 175% off its lows of 2009. The annualized gain is therefore about 29% a year.  GDP has not risen anything like that, neither have wages.  Corporations, however, are flush with money, and they have spent a great deal of it on stock buy-backs, while rich people, of course, have bought stocks.

Inflation has, then, shown up exactly where one would expect, in the assets bought by the people who were given money.  Ordinary people did not receive the largesse from unconventional monetary policy, rich people and corporations did.

This is not hard, this is not difficult, this is not complex.  The fact that mainstream analysts and pundits do not connect the dots on this is because they do not want to.

That inflation has not shown up in much (though not all) of the rest of the economy is simply based on the fact that no one else except the rich and corporations has received (I can’t call it “earned”) more money.  Nothing more, nothing less.

This economy is entirely artificial. It is based on giving money (in various ways) to those who already have a lot of it.  This is in no way a competitive market, certainly not a free market, and barely deserves to be called a market at all.  It is pure oligarchical abuse of the power of printing money in all its modern guises.

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In Light of Eric Garner

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On December 5, 2014

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Understand this, if you understand nothing else:

the system is working as intended.

It is true that a prosecutor can get a grand jury to indict a sandwich, and it is tempting to blame the prosecutor, Donovan.  Certainly he made a decision, but he made the decision that the system wants: police are almost never prosecuted for assault or murder and on those rare occasions that they are, they almost always get off.

Donovan did what the legal system wanted him to do.

As for the police in question, well, they did what the legal system wants them to do, as well:

“Get away [garbled] … for what? Every time you see me, you want to mess with me. I’m tired of it. It stops today. Why would you…? Everyone standing here will tell you I didn’t do nothing. I did not sell nothing. Because every time you see me, you want to harass me. You want to stop me (garbled) Selling cigarettes. I’m minding my business, officer, I’m minding my business. Please just leave me alone. I told you the last time, please just leave me alone. please please, don’t touch me. Do not touch me.”

” I can’t breathe. I can’t breathe. I can’t breathe. I can’t breathe. I can’t breathe. I can’t breathe. I can’t breathe. I can’t breathe,” he said, as officers restrained him.

What you will hear defenders of the police say is “he was non-compliant.”

Non-compliant.

If a police officer tells you to do anything, you do it immediately.  If you do not, anything that happens to you, up to and including death, is your problem.

The legal system exists, today, to ensure compliance.

Graph of incarceration in the US over time

From Wikipedia

American oligarchical society rests on people not effectively resisting.  All gains now go to the top 10%, with the rest of society losing ground.  Incarceration rates blossom in 1980, which is also the year that the oligarchical program is voted in and becomes official.  (Trickle down economics can be understood no other way.)

Any part of the population which is inclined to resist, must be taught that it cannot resist.  Get out millions to demonstrate against the Iraq war: it will not work. Protest against police killings of African Americans, it will not work.

Nothing you do will work.

You will comply, and you will learn that resistance is futile.

strikes over 1000The more outside the mainstream you are, the more you will learn it.  African Americans, Latinos, poor whites (in that order.)  Those who are fundamentally authoritarian, but somewhat opposed to the system (like the Bundy ranch) are treated more carefully (though the militia movement has its martyrs).  But the fundamental lesson of life is to do what your lords and masters tell you to, and to not protest any law or order, no matter how nonsensical, trivial, or unjust it is.

Three strikes laws and the end of judicial discretion are about this.  During the 80s the legal system was taken away from the judges and given to the prosecutors and the police. Almost all sentences are plea-bargained: the person with almost all the power in the system is the prosecutor.  He or she is judge and jury for the vast majority of cases, and even when a case does go in front of a judge, the judge’s discretion is extremely limited.  Your third crime stealing a bike?  Too bad, we’re throwing the key away.

Compliance when given specific orders and learned hopelessness about protest or organizing are the aims.  Ordinary citizens must understand that they cannot change the system if elites do not agree with the changes they want made.  If they try, they will be arrested and receive a criminal sentence, meaning they can never again have a good job.

In this system the wolves or goats identify themselves.  An injustice is committed, people protest and the most aggressive protestors (which doesn’t always mean violence) are arrested.  Certainly the organizers are.  Those people are, as a result, usually destroyed economically even if they aren’t locked up for years.

The system is doing what it is meant to do.  It teaches compliance, it teaches hopelessness and it identifies those who will not obey laws that don’t make sense (marijuana possession, for example), or who will fight or organize against the system and then it destroys them economically and often psychologically through practices like solitary confinement and prison rape.

The system will not change until those who want it to change have the raw power to force it to change, because it does serve the interests of its masters by destroying or marginalizing anyone who is actually a danger to oligarchical control of the system.

Race is an effective tool in this system, dividing the lower classes (and almost everyone is lower class now) against each other.  No matter how bad a poor white’s life is, well hey, he ain’t black.  He or she can feel superior to someone, can have someone to kick down at.

And understand this, most of what police are paid in is social coin: the right to demand immediate obedience and fuck people up; the solidarity of the blue line; the feeling of belonging and power, is what makes the job worth having for (probably most) of the people who are now attracted to it.

Being a thug; having social sanction to be a thug, is enjoyable to a lot of people. Since that’s what cops get to do, those are the sort of people who tend to be attracted to the job.  The police are the biggest toughest gang around, and belonging to them has most of the rewards of gang life, without the dangers of going to jail.

Working as intended

 

 

Why the Sharing Economy is Destroying Prosperity

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On November 13, 2014

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Let us start with Uber drivers:

Uber has become like Walmart. Drivers now make less than the minimum wage when we do the math,” said Abdoul Diallo of the newly formed Uber Drivers Network, which opposes new lower fare rates set by the company.

The high-tech livery-service firm recently slashed passenger fares to compete with car services such as Lyft, Gett and regular yellow cabs, a move that drivers say takes money out of their pockets.

Some Uber drivers claimed fares — and their paychecks — had been chopped 25 percent in recent months.

Other drivers said they make less than a living wage, just $7 to $12 an hour after expenses and fees — far less than the $25.79 an hour Uber promises drivers can make by joining its fleet, protesters said.

Drivers began complaining that Uber was taking them for a ride back in July, when the company temporarily launched its less-than-taxi-rate Uber X service.

In late September, Uber ­extended those cuts permanently — outraging drivers.

Uber treats drivers like private contractors, saddling them with insurance, gas and vehicle expenses but the company has total control over fares.

In its essence the sharing economy is similar to offshoring and outsourcing in how it works.

Let us establish the basics: high income for individuals, absent government fiat, is based on a tight supply of whatever it is they are selling, and nothing else.

This can be a generally tight labor market, as in the late 90s or most of the years from 45 to 68, or it can be in a specific area.  If you have an occupation where most people can’t compete, you make more money.  This could be because you have skills they don’t have, it could be because of artificial scarcity imposed by regulation (most professions which require licensing), it could because of geography, and so on.

Hotels make decent money because any Joe or Jill can’t sell their rooms.  Taxi drivers (or, more accurately, those who own the licenses) used to make decent money because any schmo with a car couldn’t compete.  And so on.

In manufacturing terms, when those jobs pretty much had to be in a first world country, and the government enforced the ability of unions to strike by forbidding replacement workers, assembly line workers made good money.

So the sharing economy increases capacity.  It increases supply to areas which had constricted supply.

Supply increases, and the profits and/or wages of those in the old sector go down.  Spotify claims artists receive 6 cents to .84 cents per thousand plays.  That means 1 million plays will get you 6K to 8.4.  But there’s reason to doubt those numbers, Swift has refuted them, and earlier reports were lower as well, plus Indie labels get less.

All of these platforms: Spotify, AirBnB, etc… take huge margins.  Spotify takes 30%.  This is in line with what App Stores take, again, 30% being standard.

That number is one we’ve become numb to, but it’s essentially oligopoly or monopoly profits, a huge distribution rate. If you add that much to the cost of a product, it will sell far fewer copies and make far less money.  That percentage comes directly out of profits.

In most cases, one or two sites control most of the business.  Maybe three.  That makes them oligopolies or monopolies. You go through them, or you don’t make a living, and once they are established, they are essentially impossible to dislodge.

In the fifties or sixties this would have been recognized as clear abuse of monopoly or oligopoly power and they would have been busted up or regulated.

But they aren’t. Instead what they do is lower prices, vastly concentrate earnings (30% is a lot, and makes you billions if you control any reasonable platform, even if that billions is from equity), and they lower wages and earnings to everyone who doesn’t control the platform.

Now the sharing plaftorms would be ok (minus the oligopolistic abuse) in a genuinely booming economy where there genuinely weren’t enough workers, and where companies were competing for workers by increasing wages and treating them well (think how programmers were treated during the late 90s internet boom.)

Bring the extra resources online, let people earn some extra cash by driving occasionally, and move people over to the parts of the economy that are booming and need workers.

We don’t live in that world.  We haven’t, absent a few years, since somewhere between 1968 and 1980.

Instead what the sharing economy does is lower the value of specific types of labor and assets, allowing more people to compete, but reducing the actual earnings for those who are in that market.

Reduced prices might increase standards of living, and in any single case they do. The number of musicians who can’t earn a living under the new regime (not just Spotify) is much less than the number of people who can consume much more music.  People who want to be driven prefer to pay less to Uber.  AirBnB makes it cheaper to travel.  Etc… There are genuine gains.

But added to offshorng, outsourcing, oligopolistic storefronts like AppStores and Amazon, and with increase parts of the economy moving into the sharing economy, while in the meantime older jobs have been deskilled (all fast food is deskilling of cooks jobs, for example), and you reach a point where “there are hardly any good jobs”.  Prices are not dropping faster than good jobs.

The other effect of this is that because many of these trends are naturally oligopolistic or monopolistic (even fast food is, if you take a bit of time to think about all the small business restaurants they put out of business), they tend to concentrate wealth and income radically.  That leads to capture of the political process by the rich (yes, even more than already), and that leads to policies like, well, turning anti-trust law into a dead letter, or endless copyright extension, or vast numbers of anti-union policies.

As Stirling Newberry once pointed out to me the more humans are fungible; that is one human can replace another and do whatever that person is doing, the less they have value.  That doesn’t mean that fungibility is necessarily bad, it increases efficiency, can increase economic capacity, and so on, IF we choose to distribute the gains properly.  But absent trends moving in opposite directions it decreases the amount everyone except those who control the points of coordination of the economy make while vastly centralizing wealth, income and power.

The Sharing Economy really isn’t.  Sharing is the wrong word.  And for now, while some of us many win and get income we need for it, overall we’re losing.

The way we distribute resources; the way we distribute necessities and the good stuff of life is going to have to change.  Ultimately a market which  clusters into oligopolies;  deskills jobs; makes humans interchangeable; is not one which can produce widespread prosperity, let alone well being.  If we continue to distribute goods and power primarily by market success, even if we manage a fix, it will only last a few decades at most—and there is no guarantee, this time, that we will manage a fix.

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The Technology of Violence and its effect on prosperity and freedom

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On October 21, 2014

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Picture of a Greek Phalanx

A Greek Phalanx

 

Prosperity is two things:

1) How much you can produce with your technology and social organization;

2) Who gets how much.

 

The second is determined by a number of factors, but the simplest is the structure of violence.  Those who aren’t good at fighting, don’t get as much of the surplus created by society as those who are.  Who is good at violence is determined to a remarkable extent by the interaction between the technology of violence, geography and the everyday life of different classes of society.

It has long been noted that in polities where warfare requires a large, organized chunk of the population, more widespread affluence and democracy are more common.

So we have Athenian Greece, where free males fought either as infantry or in the fleets, and where the franchise extended to those who fought.  We have Republican Rome, whose legions were originally raised from the citizenry, and which became an Empire when the armies were no longer raised primarily from those close to the city of Rome and when soldiers became more loyal to their generals than to the state.  We have the Swiss Cantons, where men fought as close order pikemen and were free, while most of the rest of Europe was ruled by mounted nobles and most ordinary people were serfs.  And we have the age of conscript armies in the 19th and 20th centuries, also coincident with a vast increase in democracy and prosperity.

Note that in many of these cases democratic rights extended almost exactly to the fighting class.  Women in Switzerland received the vote later than in most of the European subcontinent.  Athenian women were infamous for the lack of rights, and the same is true of Republican Rome at its height: the society which defined patriarchy.  In Rome there was a separate, higher class, the Eques (Equestrians) based on having enough money to afford to fight on horseback.

All of these places were well known for their prosperity in the heyday of their use of citizen armies.  Men too poor to take care of themselves properly (by which we mean eat a nutritious diet) make poor soldiers, and just as poor rowers in a galley navy.  There were always rich, and Republican Rome can be understood as partially oligarchical and partially an aristocratic oligarchy depending on what time period you’re looking at, but still, Romans were free, had access to relatively reliable law, and were prosperous.

When they stopped being prosperous as a group, when inequality soared, the Republic went through a series of convulsions (recognized as class wars even at the time), and eventually ended in rule by an Emperor.

The relationship between fighting as infantry, even close order infantry, and prosperity and democracy is not a sure thing.  Many of the Greek Polis were not democracies and had frightful inequality, Sparta most famously.  Rome fought using close order infantry well into the period of the Emperors, and so on.

Nonetheless, if the method of warfare involves men who must cooperate together and trust each other implicitly, they are much more likely to be free, prosperous, or both.  Saxon and Norse England, before the arrival of the Normans is a place where ordinary people have far more rights than the Normans (a Norse offshoot) allow (in part because of Norman forts, meaning that local revolts can rarely succeed, and in which a small number of men can hold off a vastly largely number.  It is largely because of forts that Wales, for example, is permanently subdued.)  The wealth is also much more evenly spread in pre-Norman England.  English history books often start with the Norman conquest, it should be understood that, overall, that conquest was a disaster for the inhabitants of England.

The price of armaments is one of the key factors in prosperity and democracy. If a group of individuals is effective and can win using cheap armaments over those using expensive armaments, again, expect more widespread prosperity and greater rights for the poor.  The cutoff point for effective armaments if the cutoff point for widespread prosperity in most cases.  If a rifle with a bayonet is all someone needs to be effective, expect the franchise to spread.  If it does not spread, expect the first nation to spread it, to be wildly successful on the battlefield: the French revolution is the paradigmatic case.

Of course reactionary regimes can conscript too, but Germans in the late 19th century are more prosperous, even the poor, than those before widespread conscription.

If, on the other hand, effective warfare requires significant wealth, as with Medieval knights, who require a multitude of serfs to support even one fighter, well, expect that those who aren’t good at fighting won’t be prosperous.  People today don’t realize how many peasant revolts there were.  What is instructive about them is the slaughter involved: the slaughter of serfs and peasants. Often huge rebellions would be put down with only a handful of casualties.  Knights were very good at killing peasants armed with makeshift weapons.

If you can kill them and they can’t do anything about it, how much of what they produce is really theirs?

How armaments are made also matters. Even cheap weapons, if they must be made in centralized factories and cannot be made by individuals and small groups, will not be as useful to widespread prosperity as otherwise.  The Jeffersonian style yeoman farmer society takes a serious blow in the war of 1812, when it becomes clear that the British centralized manufacture of weapons is more effective than making weapons locally.

The technology of violence interacts with the terrain. Note that in three of these cases we are talking about societies which were born in hilly terrain.  Greece, Rome and Switzerland are not flat land.  Cavalry is far less effective.  Cities have mobs that are effective, even communes, in the Middle Ages, because of how they are laid out.  Not only is cavalry useless inside a city, but the narrow streets mean that men can only fight one or two abroad, so even organized infantry has very little advantage in a city.  The great broad boulevards of Paris, the wide streets of other cities were created first not for the convenience of the citizens, but so that they could easily be killed in large numbers if they revolted.  Medieval cities were free in part because they were very hard to conquer: fortifications, enough money to equip soldiers and streets in which a knight could easily be hauled from his horse and have a knife shoved into the eye-holes of his helmet.  And, of course, cities paid a great deal of money for the privilege of being free, often directly either to the king or the equivalent of a Duke; thus putting them under the protection of the most powerful noble in the realm.

Terrain where cavalry can operate freely; where infantry can be bypassed, tends to either be ruled by states or, historically, by nomads, depending on whether it is good for growing crops or for pasture.

Nomads and barbarians, but especially horse nomads, should also be discussed.  Much of history can be viewed as a cycle of Agrarian civilizations expanding, being conquered by barbarians or nomads, expanding till they have no surplus due to administrative overload, then being conquered by barbarians or nomads again.

From a population point of view, this is absurd.  The Manchu, when the conquered China, probably had 1 to 2% of the population of China.  The Mongols were a miniscule fraction of the population of the territories they conquered.  But Barbarians have something going for them; every fighting age male who isn’t a thrall or slave is a warrior, and often a very good one.  It has long been noted that healthy rural or wilderness people make the best soldiers: Roman recruiters wanted the sons of free farmers.  Canadian and Australian soldiers in WWI were far better than English soldiers because they grew up on the farm, well fed as a rule, and shooting a gun.

Unfree or other impoverished rural types are generally not much use in a fight.  If they didn’t have proper nutrition as children, they’re worthless.  But free rural males are tough, and in a culture where they use weapons, already skilled, generally to a level no “basic training” for conscripts can possibly reach.  All basic training teaches such people is how to fight as a disciplined group: the weapon skills are already there.

The Mongols hunted in large, indeed army sized groups, driving the prey before them.  They were expert horsemen, master archers using one of the best bows in the world, and they were used to working in organized groups.  The Mongols, it is said, hunted like it was war, and made war like it was a hunt.

The specific technology they used was also perfect in an important sense: horse archers choose their battles against slower armies, and can withdraw effectively taking few losses. If the Mongols didn’t want to fight, they didn’t.  They only fought, during their heyday, when they had the advantage and as a result they racked up victory after victory.

The everyday structure of Mongol life thus provided most of what they needed to be extraordinarily effective soldiers: it took only uniting them and making some strategic and tactical doctrine changes to turn them into a force that conquered the largest land empire in history, and allowed them to conquer nations which were far, far more populous than they.  Note, again, however, the interaction of terrain and technology: the Mongols’ initial conquests were generally in relatively flat lands.  (Though not exclusively. Genghis Khan was the last person to really crush the Afghans, after all.)

So we have our trifecta: the Mongols had excellent technology (bows, horses and stirrup); the terrain was suited to their style of warfare; and their way of life made them tough and taught them almost all the skills necessary to be effective soldiers.

BOOM.  World Conquest.

Another major factor might be called “not worth conquering”, or (related, but not identical) “area denial”.

This is an important consideration in today’s world.  The Coalition attack on Afghanistan was all very fine and good, and they easily conquered the cities, but they couldn’t control the countryside.  Guerrilla warfare, to be sure, has been used for millennia (the Romans fought a nasty guerrilla war in Spain.)  But modern technology, specifically explosives in the form of mines and their easily made irregular counterpart the IED, make it easy to do area denial.  NATO troops in Afghanistan and Iraq had their mobility and their ability to control the country severely curtailed: they couldn’t drive their vehicles down most roads without risk.

The Taliban and the Iraqi freedom fighters thus could not defeat the US army in open field battle, as a rule, but they could bleed them and deny them the fruits of conquest.   Much of Afghanistan could not be effectively taxed by the puppet government in Kabul; the same was true in Iraq.  In the end, in Iraq, the US military had to pay militias in order to be allowed to withdraw.

This, then, is the question of how effective irregular warfare is.  How much loss can under-equipped troops inflict?  An American infantryman is expensive; an American tank is more expensive. An American helicopter pilot is precious.  An insurgent with an grenade launcher is not.  Your expensive troops may inflict higher casualties on the enemy, but they are more expensive and harder to replace.

If the Chinese had been able to reliably inflict one loss on the Mongols per five Chinese losses, they would have won, at least in the early part of the war.

For much of history many areas were simply not worth conquering: the natives were dangerous and had no wealth that anyone else wanted.  The fall of the British Empire can be viewed in part as “why are you conquering huge chunks of the world that offer nothing worth the cost of subduing and then administering them?”

The more the locals can resist; the more they can have a good life without creating portable wealth; and the more they are lucky not to be sitting on gold, silver, or oil, the more likely they are to be left to their own affairs.  If the wealth of a nation is its people, profiting from its conquest is tricky: if its wealth is a resource that a few people can extract, profiting from conquest is easy.

Being conquered, some exceptions aside, is rarely good for those conquered. India before the Mughals and the British was one of the most prosperous areas in the world.  Afterwards it was known for its poverty.  India had more manufacturing ability than the British before the British started conquering it, for example.  And British India had frequent famines, while independent India does not.

For those involved, this can be a lose/lose proposition: Iraq has been devastated. Afghanistan has been devastated.  Some Americans definitely got rich (mostly by stealing from the American government through vast corruption); but both societies lost.  Nonetheless, those who will not resist, gain only and exactly what those who win will allow them to have.  Republican Romans were not taxed.  Their conquests were.

The effectiveness of personal violence also matters.  The concealed dagger, the concealed revolver, make assassination possible, even easy.  They restrict the mobility of those who oppress. It is not accidental that Nixon, who is President when American inequality is still low and world inequality is declining, goes to see protestors at night with only one aide, and no bodyguards, while Clinton, Bush or Obama would never consider such a thing and Washington DC is disfigured by huge concrete barriers; constant weapon checks and so on.

The more ruling requires the rulers to actually be amongst the ruled, the more the effectiveness of personal weapons matter. Obama can rule behind a cordon of guards; rulers who need to be in contact with the people cannot.

Finally we come to the balance of terror.  Weapons that devastate are weapons of terror.  Aerial bombardment is about terror, drones with hellfire missiles are about terror.  “We can kill you, and we can destroy your infrastructure, and there is nothing you can do to stop us.”

Terror begets terror.  Those who are terrorized (and bombing is a terror weapon, let no one tell you otherwise) begets attempts to retaliate.

Terror is remarkably ineffective against non-elite societies until it scales.  If you can destroy entire populations, your terror will work.  If everyone fears your kidnap and torture squads; it may work.  But it doesn’t win actual wars: even World War II strategic bombing was found to be largely ineffective at stopping German production, what it was good at was killing large numbers of civilians.

What terror is good at is dealing with out of touch enemy elites.  If you can swoop in, kill the elites, and they cannot stop you, they are more likely to give you what you want without ever having to fight.  This is also what conventional military supremacy is good for.  Imagine the following scenario: George Bush invades Iraq, publishes a proscription list, and elevates a competent Colonel to be the new leader of Iraq and leaves within 6 months.

That would send a message to elites with ineffective conventional armies all through the world: “we can kill you, personally.”

It does not work against highly motivated ideological organizations.  Killing the man in the Taliban more times than I can remember has not stopped the Taliban.  Vast waves of assassination throughout large parts of the Muslim world have not stopped the rise of al-Qaeda affiliates or similar organizations.  Terror works against people who have something left to lose, or who value their life more than anything else.  Against those who are willing to die for their beliefs and who lead an organization or society which agrees with them, it matters little: they will be replaced and their replacement is just as likely to be more competent than less.

But if your elites fear for their lives and do not have strong beliefs they are willing to die for your society will be run, in effect, by the foreign nation which they fear, and while your elites will probably do well enough from bribes, ordinary people will not.

From the point of view of those with an advantage in terror, then, it is best used either as wholesale slaughter, or as very occasional examples. Once people have nothing to lose; or once you have radicalized them, it is almost completely ineffective, and can even be counterproductive, with each new atrocity simply making the masses more determined to resist.

If terror is your weapon, use it sparingly, or make sure your enemies’ ability to resist in destroyed utterly.

Wars of terror are devastating to prosperity.  Waves of torture; mass bombing campaigns; serial assassination, destroy either the infrastructure of society or the cohesion and trust required for prosperity. If one side feels it can destroy the other with impunity, you wind up with Gaza.

Those who want prosperity must be able to retaliate effectively. If you can be fined millions for “stealing” a few dozen songs; if you can be jailed for, in effect, going bankrupt (the case in America today); if the police can easily defeat the masses; then those who control government and thus control the police can and will take as much of the surplus of society as they want.  Those who doubt this proposition are invited to note that the top 10% of society (really the top 3% or so) in America are now taking more than the entire gains of the recovery while America has created a paramilitary police; and an unprecedented in American history surveillance network and has put in prison the largest % of its population in history.  These three facts are not unrelated.

Concluding Remarks

There are many in the world today who want to change technology to make the world a better place.  If they are concerned with prosperity for the masses let me suggest to them this: cheap weapons that make groups of men and women effective fighters; which require them to trust together and work in groups; are in the long run likely to lead to prosperity.  Nor can this empowerment be in area denial alone. IEDs are great at ensuring the writ of the government cannot extend to an area: but they destroy prosperity.  Technologies like drones (and effective ground combat robots are about 10 years out), will do the opposite.

By itself technologies that empower organized groups are insufficient.  But they are virtually a requirement for widespread prosperity. Without them those who have the advantage in violence will use it to take what they can, and those who cannot resist will live in the conditions their superiors allow.

(Update: reference to droit du seigneur removed.)

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