Ian Welsh

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

Category: Economics Page 15 of 89

Meat Packer Profits Up 300%

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On December 16, 2021

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Reuters:

This isn’t caused by supply chain shortages, it’s caused by pure greed operating through an oligopoly which is sure that governments won’t stop them.

When we let insulin prices go up to hundreds of dollars for a vial that costs under $4 to produce, something we knew would kill a ton of people, when we let them raise prices on a bevy of drugs which cost almost nothing to produce, we let every businessman know that, no matter what the consequences, price-gouging was A-OK. If it’s okay to kill sick people with price gouging, what’s off the table?

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The solution to this is to break up the oligopolies and to charge executives with conspiracies under RICO, which allows all their money to be removed as the product of a crime and forces them to use public defenders. (If it’s okay to do this to serial killers, who kill a lot less people than most oligopolists, then I don’t see why the real criminals should be spared).

As I’ve written in the past, modern capitalism is simply predators feasting on herd animals.

Our era is built on three ideological assertions:

  1. There is no such thing as society.
  2. Greed is good.
  3. There is no alternative (TINA).

Whatever makes a profit, according to this assertion, is good. There is no society, and, therefore, no social goals. There are only competing people and whatever they get is fair. And this is the only way to run society; there is no alternative.

Your lords and masters, for that is how they see themselves, hurt, impoverish, and kill you for money they don’t even need. You are the sheep, and they are the herders, and the cops are the sheepdogs, just like the cops say.

They have even less regard for you than most farmers, though, since they figure there are more of you than they need, and thus, they see no need to care for you the way a good farmer cares for his animals until he kills them for food.

Remember, everything evil they do and are rewarded for simply leads to the question, “What else can we do to make even more money?”

Until the consequence of them hurting and killing “sheep” is that they start dying, or have something worse than dying happen to them (time in ultra-max’s counts), they’re going to kill and hurt more and more, because they are rewarded for it, and most of them get off on it.

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Privatization Is Always A Ripoff

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On November 11, 2021

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Water edition, from the UK

Analysis in 2020 found that privatised (sic) water companies paid £57bn in dividends to shareholders since their foundation in 1991 to 2019. Now they say they need better infrastructure to stop piping sewage into rivers, lakes, and sea.

Up here in Toronto, Canada, we privatized half our trash collection, dividing the city in half. The West has private collection, the East has public. When it went into force, the arguments were strong: private was cheaper. Now, a few years later:

Oh, hey, what a surprise. It costs more and they pay workers less than the City does.

Let’s keep this simple, as free market fundamentalists who usually understand nothing about markets often say, “There is no such thing as a free lunch.” TANSTAAFL.

Private companies have to make a profit. Public companies do not. Private companies are not miraculously more efficient, to be cheaper than public companies, they have cut costs. Often that is wages, other times it is not paying to maintain or upgrade infrastructure required to keep sewage out of the water.

For anything where we know how to do it; where there is actually little room for innovation, and where the service provided is about the same for everyone (this includes almost all universal or near universal insurance, all utilities including water and power and internet) public provision is more efficient and private provision can only be cheaper by cutting costs you don’t want cut. That includes, of course, pushing costs into the future: the trash company in Toronto knew it’d raise prices in the future, it undercut for a few years to get its foot in the door.

Once you do privatize it can be difficult to take something back public. You’ve sold the assets, and the people you sold them to are making money and don’t want to sell back. Especially at lower levels of government you may not be able to force them to, or force them to at a reasonable price. In addition, they now have a constituency of rich people who need them to continue (investors, executives) and who can use their money to lobby and bribe officials.

As a rule, most privatizations are fraud, and the politicians who do them are corrupt, helping out friends and donors and doing well out of the process. Most politicians who do this should be treated as criminals and thrown in prison for defrauding the public, corruption and fraud.

(About half of the neoliberal agenda initiated by Thatcher and Reagan was and is just “privatize everything you can so the rich can get richer.” It’s not capitalism, it’s rentierism and corruption and makes economies weaker, not stronger.)

TANSTAAFL. There is no free lunch, if a private company can make money off a public asset, it’s been sold to them for less than its worth, and the people who will pay in the end are taxpayers.

If it is a public good, it should be provided publicly.

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India Is Not The Next China

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On November 2, 2021

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One of the main reasons I took some time to read the smarter members of our international elite was to learn what their assumptions are. The smart ones disagree on the consensus in some places, but what is most interesting to me is where they don’t.

India is one of those places: almost all assume that since China modernized, India’s modernization is inevitable and it will be the next great power.

I don’t see it. India still doesn’t have the necessary government capacity to run the country. Despite the attempt to clean up corruption with demonitization, the civil service is still immensely corrupt, but it is also incompetent. Whatever one thinks of the CCP, they had state capacity; they could make things happen and discipline local elites. The central government in Delhi still mostly lacks the ability to carry out complicated actions in the regions; heck, often enough they can’t even manage the capital region well.

Next, the Indians haven’t taken the right lessons from China. They see that China was involved in global value chains, but they haven’t understood how China used dual currencies and currency restrictions, along with currency purchases to control subsidize exports. They don’t understand, that is, that China’s rise was Mercantalist and not Neo-liberal. Certainly China liberalized certain sectors, but they didn’t neo-liberalize monetary policy and they kept government firms in charge of large amounts of the economy, including much of the banking sector, which they used to direct loans where they wanted. Despite criticisms and problems, this worked.

Chinese liberalization was always within the context of a centrally controlled monetary and fiscal policy, ntended to create the necessary conditions for international competitiveness and to direct capital towards sector the government prioritized. Regional governments were allowed vast latitude to purse centrally chosen goals, but the center did determine the goals and keep an eye on what regional officials were doing.

Third, even if India modernizes faster than I expect, they aren’t beating climate change. India is one of the major countries which will be hit hardest. Crude effects like pure heat increases, potential problems with rainfall, increased extreme weather events, and loss of water from the Himalayas can all be expected to harm India. Since the Indians have also vastly overused their groundwater, they will be hit by serious water issues very early compared to much of the rest of the world.

Then there is Bangladesh, one of the lowest lying countries in the world: it will be one of the first nations to collapse under climate change, and it will send literally tens of millions of mostly Muslim refugees into India.

India isn’t making it. They still only have a small middle class, they regularly have food problems, their government is corrupt and incompetent and they don’t understand how modernization actually happens so they aren’t pursuing the right policies. Ironically they really should sit down with the Chinese and cut a deal through the Belt and Road initiative to be the nation which primarily receives industry China is offshoring but is suitable for India’s stage of development, but tense Chinese/Indian relationships are preventing making an arrangement which would benefit them.

(The Chinese cut deals with America, who they have many historical grievances with, and overlooked America’s primary support for Taiwan, when they needed what America offered. They weren’t over-proud, they did what they had to to get strong first.)

Unless climate change effects happen far slower than I expect (and so far my predictions have been far closer to what’s happening than consensus forecasts, but still slightly optimistic) and the Indian government gets a clue about how the world actually works and manages to actually fix their civil service, there’s no way India makes it before global value chains start collapsing under climate change and having to be re-engineered. At that point India will have so many problems that industrialization will be off the board, and only an extraordinary government and leadership would be able to take advantage of changed circumstances to build up India. Much more likely is government collapse and loss of effective control of huge swathes of the subcontinent as mass famines killing at least 10s of millions of people (and quite possible hundreds of millions) and mass migrations occur.

I wish my analysis indicated otherwise. I’ve spent time in India, I have family who stayed after independence, and I like the Indian people.

But I’m just not seeing it.

 

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China’s Economic “Miracle” Was Normal

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On November 1, 2021

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Over the last few weeks I’ve been reading books by some of the smarter members of the international elite. One thing they all seem to agree on is how amazing and unprecedented China’s economic rise was.

It wasn’t.

China industrialized and modernized the way almost all nations have:

  1. Through mercantalist policies. In China’s case, keeping the value of the currency low, taking advantage of low wages, and starting with the oldest parts of industrial value chains.
  2. By exporting to large external economies which let them: the US and Europe.
  3. By grabbing as much intellectual property as possible.

This is how America did it in the 19th century. This is how Japan did it twice (Meiji, post WWII, Taiwan and South Korea did it. This is how virtually everyone did it.

Americans got greedy and stupid, from a geopolitical point of view. They believed the nonsense “End of History” bullshit about how capitalism and democracy are intertwined and capitalism inevitably leads to democracy and they were salivating over the profits they could make in China. So they traded and they let China into the WTO.

Contrary to the idea that democracy and industrialization/modernization are intertwined; Japan and Germany did most of it under authoritarian governments and with massive government direction. Even post-WWII, Japan was a one-party state, not a real democracy. Germany’s industrialization was based on Prussia’s command economy, and the great companies were practically state organs even if they were nominally civilian.

Japan didn’t become a nominal democracy because “capitalism” it became one because it lost WWII. The Kaiser had a parliament, but still a great deal of power and he didn’t step down voluntarily, he lost power because the Germans lost WWI.

But the emphasis on authoritarianism misses what is actually interesting and almost unique about China: it has the most decentralized government spending of any major country, with over 70% of spending decisions made below the Federal government. As a rule, the center made and makes goals and guidelines, but leaves it up to regional and municipal governments to figure out how to achieve them. China has a dynamic government, and there is a lot of competition between governments, as much as between firms.

It is also easier and cheaper to start a new business in most of China (free in Beijing to incorporate) than it is in most of America or Europe.

Meanwhile, the great danger to capitalism is capitalists being too successful, and buying the system, and then getting rid of necessary oversight and regulation. China has largely avoided that (though real-estate wealth is still a problem) and Xi Jingping has cracked down repeatedly those he considers bad actors. In one recent example he forced delivery app companies to treat their employees much better (better than in America). In another he got rid of the College prep industry almost entirely, which a lot of western observers thought was bad, but the industry was a pure “Red Queen’s Race” situation, because it existed everyone had to do it, and as with all such college prep industries it favored those with money over those without. Xi was entirely right to end it.

Democracy used to serve this purpose in the West. Almost everything FDR did, economically, was to stop capitalism from destroying itself.

Further, all evidence I have seen indicates that contrary to what I thought in the past, the Chinese Communist Party (CCP) goes out of its way to recruit smart, competent people and has thus, so far, been able to avoid the generational nepotism and degradation cycle.

To bring this back to Western elites, a lot of the mistakes come from drinking their own Kool-aid. While virtually no country larger than a city state has ever modernized without mercantalist policies, the orthodox economic position of the West for decades was laissez-faire, and that’s what the World Bank and IMF made most countries do. Those policies are vastly destructive and don’t work IF you want a country to modernize, but if you really want it to become a helpless satellite state they work well. (Bad Samaritans, by Ha-Joon Chang covers this well.)

“Free” trade is not what America did, Germany did, France did, Japan did or even England did to industrialize, and it’s not what China did.

What it is truly unique about China’s industrialization is its size: it’s a subcontinental power with a huge population. Japan was never really a threat to the US, for all the screaming in the 80s, because of its population size and limited geographic extent. China is by some measures already a larger economy, and the only thing might stop it from becoming the world’s greatest power and eclipsing the United States is that climate change will  hit it hard somewhat earlier than it will hit the US, as best I can tell.

So, what matters about China is just that it’s not Western, and poised to become the first Eastern hegemonic power in about 200 years. Of course the US doesn’t like that, and of course Europe (still an American satrapy) is uneasy.

This could have been avoided easily enough, though it probably shouldn’t have been, simply by refusing to cooperate with Chinese mercantalist policies and certainly, if the US didn’t want a rival who would probably eclipse it, letting China into the WTO was insanity. (This was clear at the time, and many people objected.)

The other issue is that the West no longer has a veto on who gets to industrialize. For various reasons Japan, South Korea and Taiwan couldn’t serve as the necessary markets for mercantalist expansion, but China can and that’s what they’re offering many other nations the West never let develop. The European/US monopoly is broken.

The lesson is not to believe your own lies and bullshit. Fukuyama was obviously full of shit about “The End of History” and developed world suggested “development” policies in the last half of the 20th century were meant to stop nations from developing, which was their record, and anyone with  sense who spent a few hours examining the policies of countries which actually industrialized, could know it.

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I Was Shocked To Find Out How Many People The Terror Killed

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On October 29, 2021

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Twenty-seven thousand. Seventeen thousand executed, ten thousand died in prison.

This is slightly less than 1/1000th of the French population.

This was the Terror? A higher percentage of Americans died in WWII, the Civil War, this pandemic (1 in 500) and nothing compared to, say, the Great Irish famine or hell, tons of other geopolitical events.

Now I’m not saying it was good, but the shadow it throws over our imagination is HUGE and I genuinely thought far more people had died because of it.

Perhaps it’s who mostly died: first aristocrats then various radicals (largely bourgeois) as they fought among themselves. Mostly somewhat important people. That must have terrified everyone of importance in every other European country: if it spread, they were for the chop. They wrote the first edition of history, and their personal terror has come down to us.

Napoleon, now his wars killed a vast number of people, somewhere between 3,250,000 to 6,500,000, but the Terror itself? No.

Mark Twain probably said it best in his “The Other Terror”, which I’ve quoted before and will quote again today.

THERE were two “Reigns of Terror,” if we would but remember it and consider it; the one wrought murder in hot passion, the other in heartless cold blood; the one lasted mere months, the other had lasted a thousand years; the one inflicted death upon ten thousand persons, the other upon a hundred millions; but our shudders are all for the “horrors” of the minor Terror, the momentary Terror, so to speak; whereas, what is the horror of swift death by the axe, compared with lifelong death from hunger, cold, insult, cruelty, and heart-break? What is swift death by lightning compared with death by slow fire at the stake? A city cemetery could contain the coffins filled by that brief Terror which we have all been so diligently taught to shiver at and mourn over; but all France could hardly contain the coffins filled by that older and real Terror—that unspeakably bitter and awful Terror which none of us has been taught to see in its vastness or pity as it deserves.

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The Perceived Self-Interest Of The Rich And Powerful

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On October 28, 2021

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Yesterday I had a brief article, which noted a general rule, “only things the rich and powerful believe will benefit them will be done” and applied it to shortages, suggesting that if the rich and powerful are benefiting from them, no serious action will be taken to end the crisis in countries where that is true.

I wanted to note that this is a general rule. It applied to Covid (70% increase in the wealth of billionaires) and it applies to climate change: most powerful people are old, they’re going to die before climate change gets bad, or that’s their bet, and for those who aren’t, they seem to assume their money will protect them. In Britain there’s a debate over forcing private water companies to stop spewing sewage, but so far, the government is resisting making them do so: after all, because dividends and stock option are more important.

Without a change in who runs government, who’s rich, and who runs the big firms, this sort of calculus, “does it affect we few powerful and rich?” will continue and I’d suggest using it as a heuristic for if something will be done. Sometimes it’ll be wrong, but the vast majority of the time it will work out.

It’s not impossible for this rule to get you something you might like. For example, there’s a push in some corporate circles towards a guaranteed income, simply because they need customers and are aware that too many people are becoming poor. Those businesses which want to sell mass quantities of goods without extreme markups thus need the working and middle class not to be completely impoverished.

But, overall, the rich and powerful are different, in the sense that they don’t see their interests as the same as those of ordinary people, and they have the ability to act on those perceived interests.

Take it into account. Build it into your worldview.

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How To Predict If The Shortages Will Be A Priority To Fix

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On October 26, 2021

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Covid has not been a priority to fix in many countries for a simple reason: it’s making the rich a lot richer. U.S. Billionaires have seen their wealth increase by 70% during the pandemic.

Man, people dying and getting sick and having to buy much more online is good for Billionaires! What a time to be a peon!

So, as for the shortages, the question is how much they are inconveniencing people with power. If shortages are actually making the rich, richer, how can they be a problem politicians or anyone else with any power in most Western countries will take seriously?

I don’t know the answer to this, but so far what I’ve seen is that large customers are receiving limited goods first. Walmart fines supplies for late deliveries, small and medium size businesses can’t do that.

So my guess is that this will lead to further consolidation, wiping out more small and medium firms and allowing many to be bought up by their bigger brethren, and on top of that will make the big boys more money at the same time.

Of course, some industries will be losers, but overall it seems likely that at least for a time shortages will redound to the benefit of those with more money, and that they will see no urgency in ending them.

Hopefully I’m wrong (quite possible, not my area of expertise) on the shortages being good for most of the rich, but I’m sure I’m not wrong that if they are, the rich and powerful won’t give a damn how much other people are hurting, and won’t feel any urgency in ending the shortages.

Remember: in a lot of countries now, certainly the US and Britain, you cannot expect the government to act in your interest or care for you, unless it is in the interests of the powerful and rich that it does so. It may, if there are still existing programs not yet privatized but you should never expect it. You, your family and your friends, should make plans assuming that when bad things happen, there will be little help.

It’s ugly that this is so, but acknowledging the truth makes you more likely to survive.

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The Totalizing Principle Of Profit, and the Death of the Sacred

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On October 13, 2021

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The UK is experiencing some of the worst shortages of oil. One contributing factor is that the old strategic reserve of oil was privatized, then when it was considered unprofitable to keep it running (repairs and maintainence were needed) most of it was gotten rid of.

A totalizing principle, or system, reduces every part of society to one value, or relationship.

In capitalism, the principle is profit.

In capitalism the assumption is that if something is making a profit, it’s also providing value. You should only do things that provide value and the more money something makes the more value it has. So, the strategic reserve wasn’t providing profits, and had to go, since it provided no value.

The next piece of logic is that someone who is making a profit obviously knows how to provide value. The more money someone has, the more control they have, and the more money they should have. The tendency of capitalism to lead to money concentrating in a few hands is good: those are the people who know how to create money and thus value.

Capitalism, like other totalizing systems, works best when it’s kept in check by something else: religious values, democratic values, enlightenment values, or whatever, backed up by forces powerful enough to resist totalization: governments or churches, for example.

When it doesn’t it tends to destroy the conditions for its own functioning: all the wealth goes to the top, for example, and you get a Great Depression due to a demand crash, as happened in the 30s.

Or capitalism makes massive profits based on damaging the environment, and you have an environmental collapse — ongoing and upcoming.

Capitalism tries to reduce all relationships to monetary ones. When you privatize trains, or healthcare, you’re following the profit motive. When you make everyone work, then have their childrens raised by strangers (daycare, and to an extent school) you’re totalizing it. When people say domestic and emotional work should be paid, they’ve bought into a totalizing system: since they’re creating value, money should pass hands.

Capitalism thus reduces everything to money: if it has value it should involve money, and if it pays little or nothing it obviously doesn’t have value. So if you’re low paid, and you want to be seen as valued, you want money.

Even when we try to fix the problems of capitalism we try to do so thru money: so we have carbon offsets (paid), and there is a movement for a carbon tax, and so on.

It doesn’t seem to occur to us that some things just shouldn’t be allowed: don’t dump more than X amount of carbon into the atmosphere, period, or you go to prison. Or make sure that insulin doesn’t cost $400, or you, yes, go to prison.

In properly functioning societies there are sacred objects: things which money is not allowed to control. Perhaps this is our relationship with God; perhaps it is “don’t cut down all the forests”, perhaps it is access to healthcare for all no matter how little money they have; or perhaps it is access to law, so we provide lawyers to those who can’t afford them (and not overworked lawyers who can’t represent well.)

Perhaps we have public financing of election and limits of private spending to influence elections, since we value democracy and don’t think that rich people should control the government.

When a totalizing systems destroys other values, and degrades sacred goods and values and items, it destroys the circumstances required for its own existence, but in so doing it also brings catastrophe upon the society is totalizing.

You can see this today, not just in the shortages (cause by over-optimizing supply chains to increase profit), or in the environment, or the lack of access to law for most of the population, or in huge prices for health care and a refusal to share vaccines throughout the world, but in almost everything that is causing our societies to degrade. Since nothing is sacred except money to us any more, nothing survives unless it makes maximum profits for the rich.

But the things we need most, like clean air and water, a liveable climate, affordable healthcare, healthy food, and loving family relationships not destroyed by the stress of overwork and poverty, are more valuable for short to mid term profits when sacrificed than when protected and strengthened.

The “solution” of trying to give everything a price and micro-managing incentives doesn’t work. The problem isn’t so much incentives, it is that some things have non-monetary value which cannot and should not have a price put on them. Some things are sacred: democracy, love and unspoiled nature, among many others.

Treated as sacred, these things allow markets to work. Treated as part of markets, their degradation eventually destroys the very environment capitalism needs to continue, and to be more beneficial than harmful.

A world where nothing is sacred, and where no value stands above profit, is a world that will be destroyed.

As it is being.

 

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