Ian Welsh

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

Category: Class Warfare Page 23 of 36

147 Companies control 40% of the World Economy

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On February 18, 2014

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Wealth and income are important, but power trumps. What matters is control, and control is even more concentrated than wealth.  This study found that control was about ten times more concentrated, in fact. (PDF)

Most of the companies on the list are financial companies.

Why?  Because financial companies can create money. It’s hard to make more money than people who can make money.  The only folks who come close control bottleneck resources like oil, or have what amounts to oligopoly control over something people need (pharma, for example.)  Money is permission: you can’t do squat in a market economy without it.  Those who can create it, or who have excessive profits, control what other people can do.

It is for this reason that Jefferson said that banks were more dangerous to democracy than even standing armies.

Money making and differential profits lead to differential power. Over time, if your rate of return is higher than everyone else’s you will gain so much more money than them that you can buy them out, or out-bid them.  The first thing you will do, if you have any sense, is take control of government, because government, which controls the rules of the game (legislation) and violence, is the only other power which can destroy you.  Once they are under control (and the bailouts proved Western governments are under the control of financial institutions), the only remaining threats are your own ability to drive yourself off a cliff, and the very small chance of revolution, which is likely to happen only after you’ve destroyed yourself in any case.

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The Disposable Economy

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On February 3, 2014

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The most important fact about modern economies is rarely remarked on: they are job societies. The vast majority of the population works for someone else. For those without jobs, poverty, homelessness, and in some cases death, is a real prospect. Members of modern societies cannot support themselves if someone doesn’t hire them.

This is, in human history, unusual. For most of American history, most people lived on farms, in the country, and grew much of the food they ate, made their own clothes, raised their own homes. They often lived lives we would consider horribly deprived, but they were able to provide for many of their own needs. The craftsman and professional, while they worked for others, had clients, not bosses, and while they had employees many of those employees were training so they might go out on their own.

We take for granted that industrialization, and moving off the farm has improved human welfare, but that is not true in all places, nor in all times. Industrialization in the Britain is synonymous with land enclosure: pushing feudal tenants off land they had previously had the right to use. Supposedly land enclosure vastly improved agricultural output, but it has been shown that communal fields were almost as productive as enclosed ones. Enclosure was done not to grow more food, but to make more profit, and the people who were displaced flooded into England’s cities, where they were compelled by the real prospect of starvation and death, to work in the new factories, six and a half days a week, 12 hours or more (check the ).

These factory workers lived worse than they had as tenant farmers and serfs. They worked more hours, had less food, died younger, and during their lives suffered more from disease because of the horrible sanitation of European cities at the time. Their lives were virtually unending misery. This is the reason for the idea of Jeffersonain farmer’s democracy: because Americans were aware of the misery of industrialization.

In Mexico, after NAFTA, small farmers lost their farms because they could not compete with subsidized American agriculture. They flooded into Mexican cities, or they headed north to America to work as illegal immigrants. Again, though in some cases they earned more money, the vast majority of them were worse off than when they lived on the farms, and Mexicans as a whole suffered because after American interests bought Mexico’s food industry, the price of food soared, and the quality of that food dropped.

After World War II Americans flooded from the farms into the new cities. For this generation, the GI generation, it was a straight upgrade: their lives were better. They worked less hours, they had more food, they had access to power and indoor plumbing, and good jobs with good pay.

Those Americans were treated very well, and if you weren’t black, the 1950s and 1960s are looked back on as the heyday of American prosperity. Good jobs were plentiful and easy to find and they came with healthcare and good pensions. Life was good.

Today, millenials and Gen-Xers don’t have such a good deal. Unemployment is high, if you lose your job you will have a hard time finding as good one, or a job at all, and good pensions and healthcare plans are more and more uncommon, and increasingly restricted to the executive class.

Why? Well, one reason is this, the family farms are gone. The first generation had to be treated well because they had options: they could go back to the family farm. So their jobs, and their lives as consumers had to be clearly superior to being on a farm.

I’ve spent a lot of time discussing how to make job economies work in the past, because we live in them, and even if we decide to transition away from jobs as our primary method of distribution, it will take time. But never forget: as long as you need a job to survive, you are at the mercy of those who provide jobs, and for most, the only way you are treated well is if you are not easily replaceable. That lack of replaceability is in most cases a social attribute, not a personal one. You are not replaceable if the job market for your set of skills is very tight. As programmers found out, even if you think ahead and master a skill set that is in short supply, that can and will change, because it is not in the interest of employers for you to be hard to replace.

There are a few people who are their own brands. There is only one Madonna, and you cannot easily replace her. There are a few people who are supremely fitted to the current world, for whom making money is easy. But most of us aren’t in one of those positions, and we need to stop thinking that we are. We aren’t special, we aren’t a unique snowflake, and we are replaceable. We will be prosperous together, or not at all.

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Increasing the Minimum Wage

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On January 30, 2014

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Ontario is considering tying minimum wage increases to the consumer price index.

This is an ok idea, but the CPI is systematically fiddled to decrease stated inflation, because a lot of costs are linked to it.

A better way is to link it to productivity increases.

But the best way is to link it to increases in the top 1%’s or the top .1%’s income.

(There are better ways in a different, fairer economy.  The one I favor is to start it where the person who is at the bottom 10% is.  From then on increase it by the average of non-fiddled inflation, average income, and the top 10%’s income.)

Living in a rich society

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On December 20, 2013

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We, in the West, live in scarcity economies.  The key bottleneck resources are scarce, and the decision has been made to keep them scarce.  Our entire economic policy from about 1979 can be summarized as follows: ordinary people cannot be allowed to have a real raise which translates into spending on oil.

When Bush screwed up the second part of that, and oil went to 150, it was one of the major causes of the financial collapse.

In a rich society, like the one we had in the 60s and 70s, big projects get completed.  The interstate freeway system; the moon shot; the huge build-out of the university system.  Artists and musicians sprout everywhere, good jobs exist in abundance, it’s not hard to make a living, so you can do what you want most of the rest of the time, and you can tell your Boss to go screw himself if he treats you badly.  (Even in the mid eighties, I could do this.  I knew I’d be employed the next day, and I had no special skills, NONE.)

When you live in a scarcity society, it’s almost impossible to receive permission to do anything real, and you have to put up with how your boss treats you, unless you have a very in-demand skillset, because the next job isn’t a sure thing.  Infrastructure isn’t maintained, new institutions aren’t built, and every old institution tries to create a rental stream (thus the huge increases in tuition and the huge decreases in grants.)  You can’t build high-speed rail, heck you can’t even maintain the freeways properly.  Bridges start collapsing, and so on.

(I am fundraising to determine how much I’ll write this year. If you value my writing, and want more of it, please consider donating.)

This isn’t just about resource shortages.  A resource shortage may start the sequence, but it is the deliberate refusal to deal with the resource shortage which turns it from a challenge into an era, which turns a rich society into a scarcity society.

When America and the West turned away from Carter (as flawed as he was) and turned towards Reagan (a disciple of Thatcher), they made a choice not to deal with the oil bottleneck except through scarcity rationing.  The deliberate policy of the 80s and 90s all centered around NAIRU – the non accelerating inflation rate of unemployment.  The idea was that if the unemployment rate was too tight, wages would increase, spiking inflation.  So unemployment had to be kept high enough so that inflation would not occur.  This is one form of inflation – so-called wage push inflation.

So whenever ordinary people started to get raises higher than the rate of inflation, the Fed would say “this rate of unemployment is lower than the NAIRU” and crush the economy and wages.

This is because wages went to doing things which increased oil prices, and Fed wanted oil prices crushed and inflation in general crushed.

The unemployment rate is, thus, not a measure of how many people are out of work, it is a measure of how close the labor market is to being tight enough to allow ordinary people to get a raise that is higher than the inflation rate.

There are a bunch of concomitants to this policy, too many to go into, but just note that is part and parcel of creating the richest rich the world has ever seen and creating asset bubbles.  Money can only be created IF it won’t do anything that really matters, because anything that matters will cause oil prices to spike.

(It is also for this reason that despite all the problems fracking causes, your Lords and Masters will despoil as much of the country as necessary to continue to do so, it’s another way around the oil bottleneck.)

Note that there were other choices: massive investment in renewable energy; massive investment in energy conservation; massive investment in public transit, and a move from the suburbs back to the cities, with walkable cities.  In the 90s the move should have been to telecommuting.  A national income which pays people not to drive to work every day, insistent carpooling and so on, could have mitigated this problem extremely.  Call the early parts of this the “super analog future that never happened.”

If you do all those things, though, the rich don’t get insanely rich, and the middle class doesn’t get to run away from black people to the suburbs.  Americans voted for suburbia and against black people (and don’t tell me otherwise, I remember Reagan’s campaign, and it was based on racism).  The people who made those votes, the Reagan Democrats, mostly won their bet: their house prices went up, they didn’t have to live near people with melanin, and they retired wealthy and went to live in the south, where brown people wiped their butts.

But the price of this was the end of the rich society.  The end of a society where you could tell your boss to go screw himself.  And it was the end of a society in which big projects were regularly undertaken.  Oil is wonderful energy: it is highly dense and easily transportable, and lets you do what you want, where you want. Using oil to make plastics, to enable suburbia, to be incredibly wasteful, meant that all the big things could no longer be done.

The concomitant of this policy was the creation of the super-rich, and that meant the destruction of real Western democracy, as country after country found its politicians more and more controlled by the rich.  The rich do not want change unless they control the change.  Any change that already rich people can’t figure out how to control and monetize is not allowed.  The state is turned into a machine for giving money and preferments to the already rich and powerful, its oversight role is hollowed out and its taxation ability is scuppered.

The great projects of the past, even when done by private enterprise, were underwritten by government.  Poor governments (and yes, despite the trillions, the US government is poor) cannot engage in these huge projects.

With money printing and low interest rate borrowing monopolized by the financial sector, and within the financial sector,  by a rather small number of institutions, and with demanded rates of return at least in the teens, most new businesses and projects were not, and are not, viable, in the sense that they will not be funded.  Can you compete with the returns of the housing market pre 2007 (leveraged) or the leveraged returns of the stock market in the past 30 years, a stock market backed up by the Bernanke and Greenspan Puts (the knowledge that if the market goes down, the government will step in to make sure it goes back up?)

You can’t.  So money floods to the highest returns, which are financial paper returns, bubbling way off the surface of the economy, and instead of building a high speed rail system, or making every building in your country energy neutral, or going to Mars, or crashing solar technology much sooner and harder, or…. anything else you want, pretty much, you get financial bubbles and history’s richest rich.

Living in a rich society is different from living in a scarcity society. There is money to create big projects.  There is money to tell your boss where to go.  There are jobs.  Ordinary people have pricing power in a tight labor market and can get their share of productivity gains.

No society is rich in everything, there are always limitations.  But being rich, personally or as a society, is about freedom.  When you have money you can do what you want, when you want.

We could create a rich society again. It is possible.  The necessary technology is there.  What is not there are the social determinants.  As long as the public and private sphere are controlled by oligarchs, there will be no rich society.

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Mandela’s NeoLiberal Compromise

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On December 10, 2013

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South Africa may no longer have apartheid, but the majority of the population still lives in poverty, the heights of the economy are controlled largely by whites, and rich blacks are concentrated in the upper ranks of the ANC and their families.  The rape rate is possibly the highest in the world, with a quarter of men admitting to having committed a rape and a quarter of women to having been raped, while murder is rampant.

The ANC had originally intended to purse socialist policies, including taking away the wealth of the richest whites.  Nelson Mandela decided not to do that.  There are varying accounts of why, from outright bribery to being convinced, but let’s go with convinced.  The story is that once Mandela was released from prison, as he traveled the world, it was explained to him that if white flight occurred, his country would mimic Zimbabwe’s fate, and taking away the wealth of the richest whites and distributing it would cause that white flight.

So most of the redistributive part of the ANC’s program was jettisoned.  Blacks were to have political freedom, but whites would control the economy.  (Though you certainly don’t want to be a poor white in S. Africa.)  Tax rates in S. Africa are typical: low for individuals, lower for corporations.

Bear in mind that when Mandela made this decision the prices of commodities, S. Africa’s main exports, were substantially depressed.

Mandela was in a bind, take that advice as ‘warnings’ and you probably read it better: “if you do this, we will disapprove. We cannot allow such redistribution to work, so it won’t.”

Mandela chose to take what was on the table, political freedom absent redistributive justice.

Was it the right decision?

Yes.  Not because it isn’t theoretically possible to do redistribution and make it work, but because at the time it was harder, and because the ANC wasn’t up to the job.  Given how they have botched far simpler policy areas, like HIV, given their rampant corruption, the idea that redistribution could be managed by them in a fair way, while maintaining economic growth and avoiding being crushed by the outside reaction is not credible.  These are not competent people, they are noticeably incompetent.

S. Africa has significant advantages in its mineral wealth (though that can also be a curse).  Resources that the rest of the world must have give you leverage to do what you want, and tell everyone else to take a hike (see Saudi Arabia).  But pulling that off requires finesse and it is harder to do if you have a redistributionist ideology, because international elites are happy to tolerate regressive regimes but do not want fair regimes to succeed, lest they show other countries that inequality and unfair trade deals are not inevitable.

Venezuela, though good has been done, is botching their experiment; so is Argentina.  S. Africa could never have pulled it off.

Much of this is probably also down to Mandela’s age: he was in his late seventies when he was President.  He did not have ten good years left to finesse through this sort of change, he did not have competent heirs or time to create them; instead he had the ANC, whose leaders were corrupt at best.

When the attempt is made at real redistributive justice, as it must be, it will be easiest done if a number of countries do it at about the same time, supporting each other, and acting as a bloc. If key resource nations like Canada, Russia, much of South America and S. Africa were to get together, it would be very difficult to bully them, because they control key resources which cannot be substituted away from except at great cost, and in some cases, at all.

Trade is key in the sense that countries must be able to buy certain key things they can’t make.  If producers work together, in solidarity, they can gain policy independence internally.  But this can only be done as a group, or great costs will be inflicted by the oligarchical forces of the developed world who do not want to, ever, see 90% tax rates create good economies ever again.

 

Too Much Money Chasing The Wrong Returns

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On November 26, 2013

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There is too much money in the world being invested in all the wrong ways.

The amount of money being created by the Federal Reserve, Bank of Japan and the ECB is dwarfed by the amount of money being produced by Chinese banks and shadow banks.

This money is being spent on unproductive enterprises.  About 70% of all sales of Brooklyn homes, for example, are going to hedge funds, investors and international buyers, who are looking for income.  In Australia much of the real-estate is driven by Chinese buyers, so Australians buy in the US, because the US is cheaper, and so on.

Money creation is out of control, we are creating vast amounts of money, and then spending it either unproductively or harmfully.  As I noted earlier, virtually the entire run up for the Dow can be explained by “Federal Reserve giving rich people money.”  In China the money is also going into real-estate, most of it shoddy, and entire rural communities are being forced off their land and into the newly built slums (because, very quickly, that is what they will become.  We have a lot of experience with what happens with these sort of planned prebuilt cities: and virtually all of it is bad.)

Money is permission to do things.  It allows you to control what people do.  Vast leveraged financial games and real-estate purchases intended to create income streams are not productive, all they are doing is moving money around, they are not creating new real services or goods which improve people’s lives.  Instead they are meant to concentrate money and power, permanently, in the hands of a small class of people and make it so that everyone else has to pay those people to survive: this is about permanent extraction of virtually all value from the majority to the minority.

This is not a sustainable economic model.  It is creation of money from thin air without underlying economic growth to justify that creation of money.  The money is used to buy up control of the system and future revenue streams, but it does so by damaging the real economic health of the majority of people, making them economic cripples.  People who live paycheck to paycheck cannot create demand for new products and services, cannot themselves create new products and services, are unhappy and increasingly unhealthy and generally unpleasant to be around, because their lives are unpleasant.

Almost all new job creation in the past seventy years has been in services: aka, McJobs and administrative jobs which create little to nothing of value.  What is happening now is accelerating that trend.

When catastrophe hits, and it will, we will be unable to respond effectively, because we will have created billions of economic cripples, of people who, never having been allowed to do anything of significance, never having had any economic agency, and never having worked at a job which wasn’t meaningless, will not easily be redeployed to do what is useful, and needed.  The real economy is what people do to create services and products which are good for other people.  A de-skilled, demoralized population, in the face of climate change and economic collapse, while it will respond as best it can, will be very hard to mobilize, not least because there will be nobody with the legitimacy to  mobilize them.

A basic rule of economic governance is this: when the “private” sector is not doing productive things with money, you must either change the incentives so they are, or simply take the money away from the people who are using it in unproductive ways and spend it yourself.  Make every building at least energy neutral, build the smart power-grid, fund electric cars and 3D printers in a big way, create high speed trains, go to Mars, radically decrease carbon emissions, provide a basic income for everyone, fund advanced research, and so on.

The first step to getting out of our current mess, then, is 95% marginal tax rates  on all income over 5 million, 90% on all income over 1 million, and a huge increase of corporate tax rates to over 70% unless they are doing what is in the public interest.  (Tax breaks on 20% corporate taxation rates do not affect corporate behavior.)

There are more fundamental fixes, mind you, but these are the basic, brain dead fixes that are doable within the current system, without radical changes.  This is what basic economics, as understood in the 1950s  with slight updates for an understanding of sinks and supply bottlenecks, tells you to do.

Do not give money,  free money, to people who are not spending it in ways beneficial to society as a whole.

And take away money from people who are spending it in harmful ways.

Money is a social creation, it is permission to tell people what to do.  You do not give money, and permission, to those who use it badly.

Why The Republicans Shut The Government Down and Threaten the Debt Ceiling

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On October 6, 2013

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HBR has an article by Justin Fox on the government shutdown in Washington in game theory terms.  It’s good as far as it goes, but it amounts to this:

  1. It works, they get some of what they want
  2. People keep doing what works.

Let’s add some more specifics.

The article mentions that the freezing of redistricting in most Republican states means that Republicans can’t lose the House.  What it fails to mention is this: they can lose their seats by losing the primary.  The Tea Party (unlike progressives) is very good at winning primaries.  Even if they don’t succeed in a primary challenge, their challenges are serious, and politicians don’t want to chance it.  Fighting a challenge is expensive, risky and time consuming.

Fox notes that Obama has repeatedly given in.

But has he?  Remember the famous FDR comment, “I agree with you, now make me do it?”

Obama has a long record of statements and actions which indicate he wants a lower deficit, wants to cut back on entitlement and spending and desires a grand bargain.

Were Republicans making him do things he really didn’t want to do?  Perhaps he might have chosen to do things somewhat differently (he wants mostly spending cuts but at least some new taxes, they want no new taxes).  But the goals of the Republicans (cut entitlements and the deficit) and Obama’s goals (cut the deficit and entitlements) aren’t that far apart.  What they differ on is the exact way in which it should be done.

Obama agreed to past debt negotiation events because he wanted to. He did have other options.  He could simply declare that the constitution says that debts must be paid, argue that one law (the debt-ceiling) does not outweigh another (the budget) and tell the treasury to keep on keeping on.  There is nothing the House, alone, could do about that.

Obama, in other words, to use a game theory term, has a unilateral move: something he can do that cannot (or will not) be stopped by other actors.  His BATNA (best alternative to a negotiated settlement) is to simply tell the House to suck it and keep spending.  He chose not to do so.

When you’re dealing with game theory you have to consider all the players possible moves and their goals.  Obama and the Republicans have been in an extended negotiation over not whether to do a Grand Bargain cutting entitlements or whether to cut the deficit, but what that bargain will look like and how the deficit will be cut.

Add in one more player: Democrats.  Obama cannot, using just Democratic votes, get the entitlement cuts he wants, this was true even when Democrats controlled the House.  Republicans can vote for entitlement cuts and get reelected, too many Democrats can’t.  To slash Social Security and Medicare Obama must have Republican votes.

In other words, this multi-year session of threats about the debt limit, the government shutdown, the furloughs, is a multi-year negotiation between Obama and Republicans.

The Beauty of Obama’s Clapper Appointment

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On August 13, 2013

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As you’ve probably heard, Obama has appointed James Clapper (the man who lied under oath to Congress about NSA spying) to review NSA spying.

I am in awe, few things have impressed me this deeply.

This isn’t just a middle finger to everyone to everyone who is against blanket surveillance (aka. the majority of Americans), it is Obama saying “Kiss My Ass.”

It’s really hard for most people to understand just how much contempt our lords and masters have for us.  They really don’t give a fuck what’s good for us, what we like, or what we think.  They are rich, or powerful, or famous because they deserve it, and if we aren’t any of those things then they don’t give two fucks what we think.  By not being rich, powerful or famous we have proven we don’t deserve any say.  After all, if we had any qualities that were worthwhile beyond the sort of qualities you praise in a dog, we wouldn’t be peons, would we.

In this, Obama is very similar to Bush, actually, but in general it’s a characteristic of everyone near the top of our current society.  Starting at about the Senior VP level, people decide that they deserve everything they’ve got and everyone else doesn’t.  If they did, they’d have it.

The media is full of studies showing that power decreases empathy, and I’ll bet that’s true throughout history. But I’ll also bet this, the degree to which it is true is social, and in many times and places it has been less true.  Over the last couple generations we’ve seen a significant, measurable fall in the general level of empathy in the population as a whole.  If you have an ideology which glorifies greed and which claims that society is a meritocracy when there is copious evidence to the contrary, those who win will believe they “deserve” what they have, and everyone else “deserves” what they have.  Add to that objective circumstances which amount to dog-eat-dop (there simply are not enough good jobs to go around) and people will either band together, or turn on each other.  Generally, we’ve chosen, for ideological reasons, to turn on each other.

This isn’t necessary: it isn’t what happened in the US in the Great Depression, for example.  It’s a choice, and our choice is to be bastards to each other.

 

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