Category: Economics Page 16 of 89

Ricardo’s Caveat

On September 21, 2021

Ricardo

In 1817, David Ricardo formalized the Law of Comparative Advantage. Since then, it has stood the test of time as one of the very few laws that an economist can point to and say: “This is indisputably true.” It’s because of this law that you only rarely find an economist who doesn’t believe in unrestricted free trade. But Ricardo added an important caveat when he discussed free trade and comparative advantage, and it’s one that most modern economists seem to have forgotten…

Let’s quote straight from Ricardo:

In one and the same country, profits are, generally speaking, always on the same level; or differ only as the employment of capital may be more or less secure and agreeable. It is not so between different countries. If the profits of capital employed in Yorkshire, should exceed those of capital employed in London, capital would speedily move from London to Yorkshire, and an equality of profits would be effected; but if in consequence of the diminished rate of production in the lands of England, from the increase of capital and population, wages should rise, and profits fall, it would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia, where profits might be higher.

This is the Achilles heal of comparative advantage — the flaw in the foundation of free trade that causes outsourcing woes. Those who say that the law of comparative advantage proves that free trade is good are absolutely right, but they’ve forgotten his caveat.

Because, in Ricardo’s world, it was true that capital was not particularly mobile. It is not true in our world, and it wasn’t true in the Victorian world.

In a world in which I can move my capital freely between locales, in which I can also move my profits freely, and in which I don’t have to live where my capital is working, there is no reason to invest in any productive activity in my home country if I can make more money elsewhere.

The higher surplus locale is going to get as much free capital as it can soak up and as is available. The logic behind this is simple: Let’s say I have one million dollars to invest, and I can invest it in two different locales. In one place, I’ll get five percent return, in another a ten percent return. In both locales, I can take my profit and do what I want with it. I can live in either locale and, in both places, my money is secure from being seized by the government or destroyed by violence. Obviously, I’m going to put my money into the place with the higher returns.

When I get those profits, I’m going to sink any reinvestment into the place with the higher returns again. It’s a virtuous circle — if you’re the place with the higher returns, and it ends when returns even out or there is no more excess capacity.

If the higher-return country runs out of investment opportunities that pay higher than the low-return country, it makes no sense to invest in it. What matters here is the marginal rate of return — that is, the return on the next dollar of my investment. In principle, there ought to be diminishing returns; people snap up the good opportunities and, over time, the opportunities get worse and worse until returns equalize (this happens faster when currency values are decided independent of government intervention, but it doesn’t always happen — even in the long term, when we’re all dead).

Profit is just how much surplus you’re receiving. Let’s say my workers are capable of producing $5 of goods for every hour they work and my costs are $3/hour for everything (property, taxes, capital costs, and wages). I’m making $2 an hour for every worker I have working for me.

That’s Country A. In Country B, the average worker produces $10 an hour, but my costs are $9, so my surplus is $1. This is half the profit of Country A, even though my workers are more productive.

That’s why US workers are more productive and people are shipping jobs to China and India. Costs in the US are higher for property, wages, and taxation.

To stop capital (and jobs) moving from Country B to Country A, you have to increase surplus. There are two ways to do that: You can reduce costs (most easily by cutting taxes or wages), or you can increase productivity. If the average worker produces one more dollar of goods while costs stays the same, and Country A’s worker’s productivity doesn’t increase, then you’re even.

Or Country A could increase wages, taxation, or property costs and become less competitive.

In a world without mass capital flows, there was another way. You could have lower capital costs. But having the Fed set lower capital costs than another country means little — borrow in the US, invest it where the ROI is higher.

More than that, money you can’t use is, well, useless. Let’s say you’re investing in a factory in China, but you want to live in Europe or the US — and Europe and the US won’t let you use the money you have in China in their countries (or will only let a fraction back in). In this scenario, you’re not likely to invest in China, are you? In addition, money that can’t move is captive to political unrest and other such events, which gives mature, stable countries a big leg up. If moving money is hard or slow, then you’d better be sure that where you have it is stable because if something goes wrong, you can kiss it goodbye.

A key problem right now is demand. Capital flows to low-production-cost/high-surplus domiciles. But there’s only so much demand for goods and only a limited amount of growth in demand for goods. So you’ve got your profits, and you have to figure out what to do with them. You can’t plow all of it back into productive investment, because you’d wind up with more productive capacity than there is ability to buy the goods. As a result, the excess money has to go into nonproductive uses.

The money that does go into productive uses will go to the domiciles that produce the greatest surplus (profit). Many people have pointed out that the US hasn’t lost jobs to outsourcing, that’s only true in a technical sense. What has happened is that the new jobs have been mostly created overseas (in cases where they can be done overseas). Old jobs haven’t been moved (mostly) because of sunk capital costs. Once you’ve paid ten million dollars to create a factory, spending another ten million dollars to relocate the factory usually doesn’t make sense. But if you have to build a new factory anyway (either because you need more capacity or because the old factory would have to be replaced for some reason), then it makes sense to build it in the domicile with the higher surplus production. That’s exactly what we’ve seen over the last few years: China and India getting the new jobs in non-protected sectors. It’s not rocket science, it’s just ROI (Return On Investment).

Because you can’t put all the money back into production, you’ve got to stick some of the money elsewhere. And what we have going is a nice, reinforcing trend. Oldman has called it strip mining the US economy. The money is used to buy your customers’ assets or lent to your customers. In exchange, they put up as collateral either the full faith of their government (we’ll see how good that is in a few years) or their assets, which in the current case means mortgage-backed securities, bonds, and common shares in companies (which represent ownership of assets). They then use that money to buy your goods, and the cycle continues.

This vicious cycle (or virtuous if you’re the one getting rich, and you get out in time) results in excess productive capacity, a slow decline in employment in the low-surplus domicile, and an increase in debt in the low-surplus domicile. It also pushes costs in the low-surplus domicile lower (meaning wages and taxation, primarily).

In the meantime, if the developed world (and specifically the US) were to stop borrowing to buy, the entire engine would collapse. This is not a sustainable development; if the US were to buy only what it could afford, based on its own exports, there would be an economic shockwave — not just in the US, but in China, India, and other high-surplus/low-cost domiciles. And right now, the dynamic is being funded by taking money out of the US and other high-cost domiciles, which must ultimately end in a reduction of demand. If the low-cost domiciles, which have been getting the capital investment, are not capable of soaking up the excess capacity when the US’s consumption comes in line with what the US can afford, then you will have a worldwide recession at the least — and likely a depression.

Economics views systems as moving towards equilibrium. But it’s more useful to view systems as subject to multiple different tendencies. At any given time, different tendencies may be stronger than others. What should be happening is that US costs should drop and developing country costs should rise. It is happening, but it’s not happening very fast. Where these costs meet is going to be somewhere a lot south of the current US standard of living. In the meantime, the dynamic has the US shipping its capital and its growth in productive capacity to lower-cost/higher-surplus domiciles. This will continue until the conditions enabling it end and not before. The conditions which can end it are increased shipping costs (favouring more localized production), the evening out of surplus production, a political decision to discourage either trade or capital flows, or an unwillingness or inability of either the US to borrow or its creditors to lend (the end of the housing bubble strikes directly at this). Until then, capital will go to the higher returns, and since the highest returns on production are mostly not in the US, capital that creates production jobs will flow disproportionately away from the US while asset bubbles form in the United States in order to pay for imports. (And the assets they have bought, or allowed the US to borrow against, are likely to crash in the final days of this system. A suckers’ game all around, but the only thing worse than playing is trying to stop playing.)

(Originally published years ago at BOP news, I put it back up here because this is what is at the heart of problems with globalization and why comparative advantage no longer works. April 25, 2015 — and back to the top again, in honor of the Trans-Pacific Partnership Trade Agreement. Sept 2021, and again, twice a decade seems appropriate.)

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The Age Of Assassination

By Ian Welsh

On September 20, 2021

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It’s forgotten now, but the invention of effective pistols created a period with a lot more assassinations. Effective portable bombs made assassins even more effective. Archduke Franz Ferdinand, whose assassination started World War I, is the most famous victim, but hardly the only one.

We’re in the start of a golden Age of assassination. It has gone largely unremarked because the victims have been nobodies, and mostly in the developing nations like Iraq, Afghanistan, Pakistan, Libya, Syria and so on, though hardly limited to those war zones.

A large group of assassins have been drones (special forces hit squads are the other group.) Drones are not, as I have noted before, a technology of the rich and strong: a good mechanic can make a drone easily enough in their garage. Hezbollah has its own fleet of drones. Iran has invested in them. Turkey, while certainly a powerful nation is not a technological leader overall, but has become a leader in drones and especially autonomous drones.

Drones will get smaller, more deadly and harder to stop. More and more will become autonomous, so that they can’t be jammed.

Meanwhile, the NYTimes has a story about how Israel assassinated Iran’s top nuclear scientist:

Israel’s Mossad used an AI assisted 1 ton machine gun robot. Its parts were detached, smuggled into Iran and assembled inside Iran. The robot used facial recognition to recognize the target.

All of this tech is going to come back to bite our elites in the ass. As Dan points out, there’s no reason these types of technologies can’t be used to kill Western elites, and they will be. The reaction to then try and then clamp down on the technology will do huge harm to tech development, because the items needed to create a drone or stationary robot are simple, not complicated, and will become simpler and less complicated over time.

Ages of assassination aren’t pretty, and they increase political instability substantially. That isn’t always a bad thing, it depends if what’s on offer is better that the status quo, but it’s always a mess.

Technologies are never neutral and that is nowhere more true than technologies of violence. Firearms put a decisive end to the age of the knight, and allowed for the creation of mass democracy. Knights, when they became predominant did the opposite: they entrenched an age of aristocracy, because Knights were expensive as hell, and training to be a knight almost had to start in childhood.

How a technology starts is also not necessarily how it winds up being used predominantly. Consider the machine gun. For the first decades of its existence the machine gun was an offensive weapon: it was used by the Brits and then other colonial militaries to absolutely butcher native forces that dared to oppose them. It helped expand the British Empire and other colonial regimes.

Then came World War I, and it turned out that machine guns were actually a weapon of defense when both sides had them.

Drones have started as weapon by which elites terrorize the weak, and autonomous robots, especially, seem like a dream come true for the powerful. The great problem of power is always the Praetorian one: you need enforcers, and the more you insist on being far richer and out of touch with the commons, the more you need them, but the less you can trust them: whatever the pretense, they become mercenaries, and people who fight for money or for the right to loot and hurt people are never reliable.

Robots seem like the perfect solution, allowing elites to have a much smaller enforcement class; just the people who create and repair them. The real dream is that eventually loyal AIs will design and repair themselves, and non-elite humans will be completely unneeded. The elites will rule alone, with loyal robotic servants and no Praetorian problem or fears that in a revolution, the troops won’t shoot.

But an age of drone and autonomous robots, some of them as small as insects, but still deadly and operating in swarms, is not an age that seems likely to actually favor elites as much as they think, because, as noted earlier, it isn’t actually a hard tech: it’s hard to pioneer, yes, just as were early gunpowder weapons (which were used by Kings to destroy the power of the feudal nobility, since only they could afford enough cannon, and cannon trumped Medieval castles) but once it is pioneered, it will spread and it will be used against elites.

The only way to avoid that is to crack down, hard, on all the precursors, but since the precursors are so simple and basic to a technological society, doing so will make you backwards, and as with Japan completely controlling firearms, this only works if everyone does it everywhere in the world, otherwise one day the “White Ships” show up and you realize you’re helpless before them.

Simple, cheap, effective autonomous or semi-autonomous killing machines are an epochal military technology which is going to change everything if we can maintain societies capable of fielding them. Even in a semi-collapse, we may be able to do so, because they are, actually, simple.

The results are in the air, to be sure. No one in 1500, even, could predict all the results of firearms and the printing press.

But elite who think this will all to their way may find out, as they bleed out their last, just how wrong they were.

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The Lack of Belief in Good

By Ian Welsh

On September 16, 2021

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Are humans good, bad, or neutral?

It’s an old philosophical debate and not just in the West. Confucius thought they were born neutral, for example, while the later Confucian Mencius felt they were good, noting that everyone who saw a child fall into a well would be horrified. Others, including many Confucians and the Christian church, with original sin, have felt that humans are born bad, and they have to be made good.

This is also the general view of the ruling ideology of the West: Ecnonomism. Humans are greedy, selfish, and only care for themselves. Popular biology, derived from books like Dawkins “The Selfish Gene” and 19th century social Darwinism has led to similar views.

If you think humans are bad, the question becomes how do you get them to do good? Traditional Christianity’s answer was, “Hit them while they’re kids, a lot, that’ll make them good.” (spare the rod, spoil the child), which can be judged fairly by Christianity’s record: “judge by the fruits” being reasonable when dealing with people who claim to follow Jesus.

Economism’s answer is, “If they’re greedy and selfish, give them rewards for doing what you want.”

Strangely, giving lots of rewards to bankers, CEOs, executives, and politicians has not made them better.

Now, of course, a pure selfishness/greed/incentives disciple might reply, “But they are the ones who decide what they get rewarded for, and that doesn’t make them good. You have to reward people for doing good!” But those same disciples are the folks, or descendants of the folks, who argued that the only thing corporate executives were responsible for was raising stock prices, and that giving them stock options was how to do that.

Didn’t work out. Teaching greedy people to be more greedy by rewarding their greed had the results one would expect: even more greed, in a lovely spiral upwards, while the middle and bottom of society had its heart cut out.

My own observation has been that when incentives are removed people are more likely to do the right thing. You don’t want doctors to own stock in drug companies, or make more money the more surgeries they do. Conversely, punishing surgeons for bad results actually lead to surgeons being unwilling to do risky surgeries which were still medically indicated: they wouldn’t want their success/fail rate to go down.

I’ve written in the past that I consider most humans neither good nor bad, but weak. They do more or less what their group wants. But really I’d say that humans, absent fear and incentives, have a slight bias to good. Most people like helping people, don’t like hurting people, and so on, as long as they themselves are not hurting or blinded by greed.

The moment a lot of people become chronically scared or greedy, however, that goes away. The scared are defensive and ready to be angry and hate, the greedy become sociopathic or even psychopathic, concerned only for themselves and, sometimes, a few people around them. Furthermore, incentives always cause tunnel vision — people pursuing incentives ignore everything that doesn’t get them to the incentive, and even well designed incentives leave out much that should be done.

As horrible as the idea is to us, the best thing to do with people is for leaders to be selected because they are kind and good, to set goals for oganizations without significant incentives (this doesn’t mean don’t track and correct), and remove fear from people. Make sure they know their needs will be met, and that no one wants to hurt them, and that help is available.

In such circumstances, strangely, people blossom. Happy people are more productive. About half of business literature can be summed up as, “If you treat employees well, they are way more productive, but most bosses are cunts who don’t want to do this, despite a huge preponderance of evidence.”

But when people are happy and not scared, of course, not only can you not get most of them to do evil, they don’t act servile and hop-to-it at your every command. For most bosses, ordering people around is the primary pleasure of the job (no, don’t pretend), even more than profit.

And since, with neoliberalism, they can be rich and have scared serfs jumping at their every statement of “frog,” recompense having almost no correlation with productivity or even profits, they can have the best of both worlds: rich and with what amounts to slaves, without the responsibility of caring for their servants.

This lies at the heart of all the screams about how Covid has made people unwilling to work at shitty minimum wage jobs, and government needs to stop giving them money, so they have no choice but to go groveling back to their masters for work they hate that may not even pay rent on a one-bedroom apartment.

If you insist on saying people are bad, then treating them badly, if you must be obeyed and show no concern for your slaves, then don’t be surprised if you live in Hell, and if the only thing keeping Hell from your own doors is having a TON of money.

There is another way, and maybe one day, having tried every evil thing, we’ll give it a shot.

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The Simplest Explanation for Western Decline

By Ian Welsh

On September 9, 2021

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Is just…this:

Similar numbers can be found in most fields.

This is related to the computer productivity paradox: Computers and the telecom revolution have not noticeably increased productivity.

The reason is simple enough — they weren’t used to create productivity, they were used to create control, to allow managers to micromanage employees without actually being in the presence of the employee all the time.

No society can stay healthy with this sort of admin bloat; admin are support, meant to help the people who actually do the job. If your tooth-to-tail ratio is higher than 2:1 or 3:1, something’s probably wrong.

In my personal life, at my last megacorp job I saw multiple waves of computer “improvements.” Every single one of them increased control and reduced the workload employees could handle. I know this for a fact because I measured it, in part because it was my job, in part because management refused to admit that their shiny new programs were actually slowing productivity, and, until I forced them to admit it, they wouldn’t hire more people.

Furthermore, each wave of “upgrade” de-skilled the job further, making the employees do what the computer said, and removing their discretion. All of this was intended to raise the bottom, but what it mostly did was lower the top; the most productive, most highly-skilled employees suffered the greatest productivity losses, were the most unhappy, and tended to leave, because the job had become semi-automated, and no longer involved actually doing the job.

As a general rule, no one should run something like a hospital who is not still involved in hands-on client care — probably a nurse or doctor. No one should run a university who is not either still teaching or an active student. This principle can be applied more generally, in that no one can properly manage anything they still don’t do. This is often recognized in the business literature, but, understandably, CEOs and executives almost never want to actually perform the real work of the business, nor will they excuse themselves from interfering with those who do and, thus, actually understand what is needed.

At most, upper management can set general goals. They should never be in charge of deciding how to achieve them. This is the opposite of how we run things, but it wasn’t always entirely so: Auto and plane companies used to be run by engineers, insurance companies by underwriters and actuaries, hospitals by nurses and doctors, and universities by Senates of Professors.

One issue is that front line workers often really want to do front line work: Professors don’t want to administer, they want to teach or do research, doctors want to treat patients, etc.

But if you give administrators power over you, you never get it back. University Senates hired administrators, and a few decades later discovered the administrators were running the show, were able to order profs around, and were the highest paid people in the university (outside of the football coach), while doing no actual teaching or research, and understanding little to nothing.

It is also important to understand that while it’s certainly better if you have done the front-line job at some point, that you lose that knowledge quickly. Ten years out, and you’re clueless — you’re just another administrator. Managers and executives have to keep their hands in, or they wind up clueless.

Bottom line: We can’t afford to let anything important be run by people who aren’t actually practitioners. They don’t know what they’re doing, and they spend most of their time building bureaucratic empires that do nothing but act as modern courtiers. In the best case, they do no harm other than sucking up resources, but in most cases they try to justify their existence by trying to tell the front lines how to do their jobs and make things worse.

If we want to fix our society we have to get rid of this admin bloat, along with the cluelessness it represents.

But what usually happens, instead, is some form of societal collapse, which strips out administrators in a more brutal and effective fashion.

That’s what where we’re headed.

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It’s Not Your Money

By Ian Welsh

On September 7, 2021

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You also didn’t earn most of it.

It seems like every time I discuss taxation, some libertarian will waltz in and say: “It’s my money, and I don’t see why the government should be able to take it.”

So let’s run through why, no, it isn’t your money. We’ll start with two numbers. In 2005, the income per capita for the US was $43,740. The income per capita for Bangladesh was $470.

Now, I want you to ask yourself the following question: Are Bangladeshis genetically inferior to Americans? Since not too many of my readers think white sheets look great at a lynching, I’ll assume everyone answered no.

Right then, being American is worth $43,270 more than being Bangladeshi, and it’s not due to Americans being superior human beings. If it isn’t because Americans are superior, then what is it?

The answer is that if it isn’t individual, it must be social. On the individual — but still social — level, Americans are, in fact, smarter than Bangladeshis because, as children, they are far less likely to suffer from malnutrition. However not suffering from malnutrition when you’re a baby, toddler, or young child has nothing to do with you, and everything to do with the society you live in and your family — two things over which you have zero influence (perhaps you chose your mother, I didn’t!).

Bangladeshis won’t, on average, get as good an education. They won’t get as much education either, since every child is needed to help earn a living as soon as possible. For most Bangladeshis, there’s no room for the extended childhood and adolescence to which westerners have grown accustomed, which often stretches into the late twenties or even early thirties, amongst those seeking PhDs or becoming doctors or lawyers.

When a Bangladeshi grows up, the jobs available aren’t as good. If he or she starts a business, it will earn much less money than the equivalent American business. If he or she speculates in land and is very successful, the speculation will generate much less wealth than it would in the US.

I could go on and on. I trust the point is obvious: The vast majority of money that an American earns is due to being born an American. Certainly the qualities that make the US a good place to live and a good place to make money are things that were created by Americans, but mostly they were created by Americans long dead or they are created by all Americans working together and are not located in the individual.

The same is true of the really rich. Forbes keeps track of the world’s billionaires and almost half of them are in the US. This is because US society, and the US government in particular, is set up to create billionaires. Your odds of being a billionaire take a massive jump if you’re born in the US. Your odds of being a billionaire if you’re born in Bangladesh? Essentially zero. Now, one could point out that billionaires are still so rare that the odds are always essentially zero; how many billionaires are in your circle of friends? Nonetheless, in 2005, the US had 371. Coming in second, Germany had 55.

Bangladesh, you won’t be surprised to hear, had zero.

If you’re a billionaire in the US, you’re a billionaire in large part because you live in the US.

So, if you’re American, a large chunk of the reason you make a lot of money (relative to the rest of the world) is that you are American. The main cause of your relative wealth is not that you work hard or that you’re innately smarter than members of other nations (though you may be because you weren’t starved as a child). It’s because you were afforded opportunities that most people never had and those opportunities existed due to the pure accident of your birth or because you or your family chose to come to the US. The same is true of most first world nations.

Immigrants understand this very well. There’s a reason why Mexicans, for example, are willing to risk death to cross the border. Their average income is $7,310, compared to the US average income of $43,740. They won’t make up all the difference just by crossing the border, but they’ll make up enough that it’s more than worth it. They haven’t personally changed, they don’t suddenly work harder now that they’re across the border. They don’t suddenly become smarter or stronger. They just change where they live and suddenly the opportunities open to them are so much better, their income goes up.

So let’s bring this back to our typical libertarian with his whine that he earned his money and the government shouldn’t be allowed to take it away. He didn’t earn most of it. Most of it is because, in global terms, he was born on third and thinks he hit a triple. This doesn’t mean he hasn’t had to work for it, but it does mean that most of the value of his work has nothing to do with him (and Ayn Rand aside, it’s almost always a him).

Now, in a democratic society, a government is the vehicle through which the population, as a whole, chooses to organize collective action. Government, imperfect as it is, is the closest approximation to the “will of society” that we’ve got.

Because the majority of the money any American earns is a function of being American, and not the result of their own individual virtues, the government has the moral right to tax. And because those who are rich get more from being American than those who are poor, it also has the moral right to take more money from them.

More importantly than the moral right, government has the pragmatic duty to do so. The roads and bridges that government builds and maintains, the schools that it funds, the police and courts that keep the peace, the investment in R&D that produced the internet, the sewage systems that make real estate speculation possible, and on and on, are a huge chunk of what makes being American worth so much more than being a Bangladeshi. Failure to reinvest in both human and inanimate infrastructure is like killing the golden goose, and the US, for decades now, has not been properly maintaining its infrastructure, let alone building it up.

And money itself is something that government provides for its people. It’s not your money, it’s the US’s money and it’s a damn good thing too. If you don’t believe me, try issuing your own money and see how many people accept it. Some will, because when an individual issues money, it’s an IOU (which is essentially what money is). I’ve written a few in my life. In every case, the person I gave it to was less happy to receive it than he would have been to get some nice crisp dollars. And I rested my IOUs on dollars, that is, I promised to repay in my country’s currency. Barring the use of accepted currencies, you’d have to issue an IOU saying: “I will repay you with a bundle of rice.” Or gold or a service. This raises the question of enforcement (one thing even libertarians admit the government should do): What if I suddenly refuse to meet the conditions of the IOU? Even an IOU is based on the sanction of the government. If it isn’t, it’s worth only as much as the good will of the person issuing it or the strong arm of the person holding it.

So, no, it isn’t your money, and it’s a good thing it isn’t. And while you may have worked your butt off for it, you also didn’t earn most of it. The value you impute to yourself (“I’m worth my $80K salary”) is mostly a function of where you live, where you were born, and of who your parents are.

Originally published Feb 9, 2008. Republished 2010, April 15, 2015 and Sept 7, 2021.

Let’s kick this to the top another time for a new generation of readers. This one of foundational and IMPORTANT.

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As Employers Cut Their Own Throats: How They Could Save Themselves

By Ian Welsh

On September 6, 2021

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From the Washington Post:

You will remember that employers squealed they were having trouble finding workers, so Republican states ended extra EI benefits.

The end result? No more workers, but businesses were harmed by reduced spending.

Whoops?

One of the many fundamental “errors” in neoliberal thinking is that you want workers and recipients of government aid to not have a lot of money. After all, they’re a cost.

But every business’s employee is a bunch of other businesses’ customer, and every aid recipient is also a customer. Smart businessmen, or ones who have learned from experience (a.k.a., those who remembered the Great Depression) know this, and want high wages. It’s not a competitive disadvantage if everyone has high wages. Likewise, generous government benefits are good for business.

So smart businessmen want a high minimum wage without exceptions, and generous benefits.

One of the few real insights of modern economics is “marginal” thinking. For decision making, it doesn’t matter what the average cost of something is; what matters is the cost of the next unit — the next widget you make or the next employee. This means that supply matters a lot. For a job for which 100 people are applying, every open position puts employers in the cat seat.

If there are three, a lot less so. If there is one job-seeker per three open slots, well, you’re going to have to raise wages, both to compete and to increase the pool. I recently read an article where a homecare business was complaining that there was one person per ten open positions, but they also noted they paid a couple dollars less an hour than retail and menial labor jobs.

Anyway, even if the Covid death toll seems large, it’s the effect on marginal workers that matters. Add to that that many workers who kept their jobs are not going back to offices and the geography of jobs has also changed. People who run businesses in fancy, high-priced suburbs without any real transit, can’t expect nearly as many cheap workers, because they can’t afford to live in that suburb and traveling to it is hard. You create enclaves that price out blue collar and service workers, you need to go to them, and not vice-versa.

In the larger picture, an ongoing pandemic that just keeps killing and killing, and is killing the poor and minorities in much higher numbers, is naturally going to lead to a tighter job market. While the rich have gotten a lot richer because of Covid, the long-term affect is going to be higher wages.

There will be attempts to avoid this, as with making homelessness illegal, mass-evicting people, then throwing them in prison and using prison labor, but even that has its limits, when there are just less people.

This is a lesson Europe learned during the Black Plague (the people who survived were treated much better than those who lived before), but Europe didn’t fuck up the Black plague deliberately because it was making rich people richer.

Our wealthy are fundamentally stupid in fairly awe-inspiring ways, because they’ve spent the last 40 years destroying the very environment they will need — social, economic, and physical — for their own future prosperity, and indeed, survival. They think their money will protect them from the wasteland they’re creating, but that’s a bad bet.

Oh, I guess the older ones weren’t stupid, but if you’re filthy rich and not at least 60, I wouldn’t be fucking up Covid, destroying the social fabric of the West by encouraging right-wing authoritarianism, destroying democratic legitimacy, and crashing biodiversity while screwing up the climate.

Might come back to bite you on the ass. If you actually care about your kids (obviously you hate everyone else’s kids), you might find all this foolish, too, if you weren’t someone whose only talent is making money by hurting other people.

Anyway, one of the few silver linings coming out of this will be increased wages, unless the rich and their politicians can move hugely to forced labor. Understand that forced labor is the play: That’s why they’re cutting benefits, to force people back to work. It just didn’t work. That’s why they’re criminalizing homelessness, and there will be more policies along this line.

You’re a unit of production, expected to work for poverty wages, and they want to keep it that way even during a plague, even if they have to force poor people to keep working and send your kids back to schools w/out masks or proper ventilation.

This is who the rich are. Who we are, as a group, is people who accept this or even support it.

Meanwhile, employers of low-wage workers should be asking governments to increase the minimum wage significantly ($24/hour in the US, minimum, with automatic increases based on cost of living), not to help workers, but to help themselves. They could ask for transition subsidies for a couple years, and most of them would be fine, and making more money.

But we’ve trained our employers to be idiots, concentrating only the bottom line and not the top line.

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Three Simple Policy Heuristics

By Ian Welsh

On August 31, 2021

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A number of people (and most of those who run our societies) don’t understand the policy default: “Be kind.”

There is a widespread belief that life is shit, “hard choices” have to be made, and those hard choices usually involve someone else suffering and dying.

Life may well be lousy, but most “hard choices” don’t have to be made, and those hard choices are one of the main reasons why life is lousy for so many people.

The most important thing to understand is this: Harm ripples, kindness ripples. People you hurt go on to hurt other people. People who are treated with kindness become better people, or more prosperous people, and go on to help others. Yes, there are exceptions (we’ll deal with those people), but they are exceptions.

First: Do no harm.

Again, people who are abused, go on to abuse others. Rapists were often raped before they raped others. People who have no money can’t buy other people’s goods. People who are crippled physically, mentally, emotionally, or socially cannot contribute fully to society and tend not to make those around them happier or more prosperous. Rather the reverse.

While it is necessary to imprison some people for committing crimes (though far fewer than most societies imprison), it is not necessary to make having been convicted an economic death sentence. People who can’t get living wage jobs (or any job at all) when they get out of prison gravitate back to crime.

We don’t want people raped in jails, because many become rapists themselves and virtually all are damaged by it. When they get out of jail, we have to deal with that damage. We don’t want them stuck in solitary confinement for long periods of time because brain scans show this inflicts traumatic brain damage, and, yeah, we wind up having to deal with those people when they get out.

If someone runs out of money, we don’t want them to lose their primary residence. Even if you are soulless, you shouldn’t want a society that creates homeless people; it takes far more money to support someone on the street than it does to pay for almost anyone’s mortgage or rent. We don’t want people who are sick to be denied health care because they become pools for disease. We’re treating these people eventually anyway (when they turn 65 or become so poor they qualify for Medicaid), which is far more expensive than dealing with their illnesses when they first present themselves.

We don’t want to destroy other countries (Iraq, Afghanistan, Syria, Libya, etc.) because their people become refugees with whom we must then contend; this produces scads of angry people, some of who may wind up killing us, and it further ruins their economies, rendering them unable to buy our goods (except our weapons).

Damage to others who live on the same planet as you can comes back to haunt you. Damage to others in your own society will come back to haunt you.

So, first, do no harm. Yes, there are exceptions, but they are radically rare. Almost every bit of harm we do to others through government policy is a bad idea. The only common class of exception is covered in rule three.

Second: Be kind.

As the harm you do others comes back to you (insofar as you are “society”), so the good you do comes back to you. I almost don’t know what to say about this, as it is so brutally obvious. Happy people are better to be around. Prosperous people are better to be around. Healthy people are better to be around.

Only when goods are legitimately scarce is there reason not to help make other people better off, and, in those cases, it is only applicable to the scarce goods, and only until you can make the goods no longer scarce. Short on food? Ration and plant more crops.

But in today’s society, all the significant shortages of the goods which matter most are artificial; we have more than enough food to feed everyone. The US has five empty homes for every homeless person. Europe has two empty homes for every homeless person. Clothing is cheap as hell. Access to the internet is vastly overpriced. Our main sink is just carbon: We need to spew less of that, and we can do that. Our second main limitation is the destruction we are imposing on biodiversity, but we could produce our food with far less impact on the environment if we wanted to, and, even in the short term, we’d be better off for it.

People need stuff: food, housing, safety, education. None of these things should be in shortage anywhere in the world, including safety. They are in shortage because we choose to act greedy, violent, and selfish when we do not need to.

Third: Remove the ability or reason for people to do harm.

Humanity is not a race of saints. It does not need to be. Most people are neither good nor bad, they are weak. They do what the social and physical environment disposes them to do, with the social environment being far more important in the modern era.

Still, some people are bad. The hard core is probably around five percent of the population. And many other people are damaged, because our society has damaged them. They take that damage out on others.

The most dangerous class of malefactors are incentivized to do evil. Think bankers, corporate CEOs, billionaires (almost all of whom do evil as routine). These people do evil because they profit greatly from it, BUT (and most of you will not believe this) what makes a profit in the modern world is overwhelmingly a social choice. The government chooses who can create money, what counts as profit, who is taxed how much, who is subsidized how much, what is property, how much it costs to ship by rail vs. road, etc., etc.

There are independent technological and environmental variables, but they are overwhelmed by social variables. Change the variables and you change the incentives.

The policy is simple: Take away incentives for people to do evil. Take away their ability to do evil (a.k.a., their excessive access to money.)

Those who continue to do evil, lock them up. Do it completely humanely, no rape, no violence, no solitary confinement. But make it so they can’t do evil. While they are in prison, try to rehabilitate them. Norway has half the recidivism rate of the US for a reason: Rehabilitation does work for some people.

When they get out, bring them back into society. Make sure they have housing, food, clothing, and so on. If they do evil again, lock them up again.

None of this is complicated, in principle. This is simple. This is straightforward. It is work, mind you, we must stay on top of incentives and ability, and not allow anyone to become so rich or so powerful that they are able to buy the rule-makers or be above the law.

None of this should be controversial, though it is. None of this is new, these strands of thought go back to Confucius, Ancient Greece, and beyond. They are only controversial because it is in the interest of many for these ideas to be painted as such. And many people, having done evil, develop a taste for it.

Running a society well is hard, in the details it is complicated, but in principle, it is simple. Do the right thing. Make it so that people do well by doing the right thing. Make it so people who do things that are harmful to others stop doing them.

When you want a good society to live in, inculcate these principles. Until then, know that you will only live in a good society briefly and by chance.

Originally Published September 3, 2015. Back to the top for a new generation of readers.

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Humanity’s Completely Broken Feedback Systems

By Ian Welsh

On August 10, 2021

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If you want to understand how we got where we are, it’s simple: our strongest feedback systems to our decision making people are telling them “everything’s great, stay on course!”

For over 40 years now the rich have gotten richer. Politicians have gotten richer. Corporate officers, CEOs and executives have gotten richer.

Money is reward, and the reward centers for our elites are going off like a slot machine that constantly pays millions. BLING! BLING! BLING!

Whenever someone says “you should do less of this thing that makes you more money and power”, which is essentially everything that needs to be changed from Covid (making them richer) to climate change (still more oil to pump, baby) to ending pharma patents (Bill Gates says NO) to fixing inequality or feeding hungry people or housing the homeless, well, their fortunes (or bribes) come from making these things worse.

Capitalism is supposed to provide a feedback system. It isn’t the best feedback system, but if forced or allowed to work (and only government can enforce it, which is why rich people can’t be allowed, as they always purchase the government) it makes individuals and corporations who can’t even make a real profit go bankrupt.

But in 2008, Bernanke, whose entire intellectual opus was “how do we make sure another FDR doesn’t happen by making sure the rich never lose their money and power again” started the process of shoveling money down the gullets of the rich. (Greenspan had been piping it in too, but maintained some pretense he wasn’t and tried not to actually print money obviously.)

Every major central bank in the world followed course and all the economic feedback systems broke. No matter what rich idiots did, they would never as a class be allowed to go bankrupt, or even not keep getting richer. Vast money funneled to the rich and inflation showed up exactly where one would expect it, in things the rich were bidding up (yachts, art, luxury apartments) and in whatever they were buying up to get a new revenue stream (housing, most recently, so rent will soon /really/ go thru the roof.)

Now, as I pointed out at the time, the problem with all of this is that the real world exists, and so does a real economy in which items must be manufactured, food grown and products delivered. All of that has to be done in a world with weather, climate, animals, plants and an atmosphere.

Since all the feedback systems put in place by humans had broken (no one in power cared or cares about UN climate reports), we then had to wait for the world to start smacking us around.

That has started, with wildfires and northern hurricanes and so on (and Covid, to some extent), and the logistics system has proven itself to be fragile and easily disrupted exactly as many of us pointed out, while power and water systems and so on show their fragility as well.

But it’s not enough yet, this is all stuff the rich can ignore: have more than one home, have them off the grid, travel by private jet, etc, etc…

So the feedback will continue until it becomes so severe either the Proles do a Versailles on unresponsive elites or the elites feel more endangered than their bank accounts can make up for. (A hundred million+ dollars can buy a LOT of immunity. You may be dead before they feel it.)

This story isn’t new to regular readers, though, but I want to splice it with another thread.

Incentives.

I hate incentives. Loathe them. Every place I ever worked, the incentives did more harm than good. But it’s the mantra, the mindless ideology of our age that incentives work and you should align incentives.

Since we re-engineered our entire society to appear to do that, our societies have gone to shit for everyone but the one to three percent or so, but since feedback to anybody but them doesn’t matter, we continue.

I recently read John Ralston Saul’s “The Unconscious Civilization.” Or, rather, re-read it, but last time I looked at it was in the nineties.

Saul wrote a bunch of non-fiction books and they’re all bad except “The Unconscious Civilization”, which is brilliant. (They’re bad because Saul is of the old humanist tradition that insists on putting in as many references to the greats of the past as possible.)

But Unconscious Civilization is the publication of a series of five lectures by Saul and the limited time forced him to get to the fucking point. So, read it. (It’s scarily right about almost everything.)

One point Saul makes over and over again is the “value of disinterest”. Social decisions cannot be made properly by people who have an interest in them. Cannot be. We have run a 40 year (arguably 200 to 500 year) experiment on this, and it has failed and failed and failed. Elites need moderate negative feedback and to be insulated from the effects of their decisions which benefit groups.

Our society, as Saul points out, is all organized into interest groups, which half the audience is probably thinking is insane, because they think of interests group as things like environmentalist and people who want food aid, and not as corporations. (Though NGOs are definitely corporatist by Saul’s definition.)

People who have a strong interest can’t make good decisions for anyone but themselves about anything they have a strong positive interest in. It’s that simple.

If we want out of this mess, we have to break strong positive incentives. No stock options, for example. No surgeons flying around in private jets.

When someone’s interest is so strong it makes sense for them to burn the world down (and be clear, it did, because most wouldn’t still be here, and many figure their wealth will protect them), interest has failed. Incentives have failed.

Elites must be subject to the effects of their decisions, yes, but primarily on the downside.

It’s hard to see a way out of this now, because there isn’t one.

Instead the way out will be forced. When fear rises to the necessary level, those who betray society as a whole for their own interest will be dealt with. If they’re lucky it will be thru democratic norms, if they aren’t lucky, it will be the justice of the mob. In either case it will be too late to stop the worst of climate change and ecological collapse.

For you, a reader, the point is to internalize what went wrong and why, so you understand the conditions in which it will change and do not waste time on actions which won’t help. Moral ‘suasion will not work. The elites will respond to power and fear and nothing else.

If you can’t apply enough of that, or any movement asking for your help indicates their strategy doesn’t involve power and fear, then you need to prepare in other ways. In fact, as an ordinary person, you just need to prepare, because while you can do your bit you do not have enough power to be determinative.

Politics is unlikely to save you and what you do will not determine if it does. So you must, with others, save yourselves.

(My writing helps pay my rent and buys me food. So please consider subscribing or donating if you like my writing.)