Ian Welsh

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

Category: Economics Page 26 of 89

Why Western Elites Are So Incompetent and What the Consequences Are

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On April 2, 2020

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The Course of Empire by Thomas Cole

The Course of Empire by Thomas Cole

The coronavirus has been striking for the fact that Asian societies have mostly handled the crisis competently (though there’s been variation in how competent), and Western elites, with some exceptions (Germany, for example) have not. At the extreme incompetence level are the US and the UK.

Let’s chalk this up to aristocratic elites. Aristocrats, unlike nobles, are decadent, but don’t stop with that word; understand what it means.

Elites who are not aligned with the actual productive activities of society and are engaged primarily in activities which are contrary to production, are decadent. This was true in Ancien Regime France (and deliberately fostered by Louis XIV as a way of emasculating the nobility). It is true today of most Western elites; they concentrate on financial numbers, and not on actual production. Even those who are somewhat competent tend not to be truly productive: see the Waltons, who made their money as distributers–merchants.

The techies have mostly outsourced production; they don’t make things, they design them. That didn’t work out for England in the late 19th and early 20th centuries and it hasn’t worked well for the US, though thanks to Covid-19 and US fears surrounding China, the US may re-shore their production capacity before it is too late.

We also have a situation where Western elites are far removed from the actual creation of the systems they run. This is most true in in the US, and to a lesser extent in the UK, which did not suffer the massive bombing and destruction of most of the rest of Europe (the Blitz was minor compared to the bombs dropped on Germany, for example). Of course, reconstructing bombed societies is not the same as pulling oneself out of poverty.

The best handling of the coronavirus crisis in the world was possibly Vietnam, who are run by a generation that just pulled themselves out of poverty. Other excellent handling has happened in societies which still remember times of poverty or which were conquered and set free (Japan/Germany). China’s Xi, probably the most incompetent, also managed the crisis badly, but still better than the US/UK: Once he got serious, he got really serious. Xi, while a princeling, had a hard early life and was forced to work on the communes and so on.

This is all standard three-generation stuff: The first generation builds, the second generation manages, and the third generation wastes and takes it for granted because they’ve never known anything else. Sometimes that extends to four generations or more, but that requires a system which properly inculcates its elites, plus something to force the elites into at least some of the same experiences as the peons. We do not have that kind of a system.

Nobles, as Stirling Newberry explained to me years ago, are elites who make a point of being better than the people below them: better fighters, better farmers, and so on. Aristocrats are people who play court games, which is what financialized economies supported by central banks and bought politicians are. These people aren’t even good at finance. They were actually wiped out in 2008, but used politics to restore their losses and they were/are wiped out by this crisis, but are using politics (the Fed/Congress/the presidency) to restore their losses. The Fed is doing one trillion of operations a day.

So our elites are fantastically incompetent even at finance. The vast majority are completely disconnected from actual production, at best they are distributors. All they are good for is playing court games, i.e., politics. They can’t manage the real economy, they don’t run it, they don’t live in it, and they aren’t subject to its rigors. They live in a Versailles, almost completely disconnected from society except in crises, when they print money to save themselves, and download costs onto the peasantry.

A society such as this cannot survive in this form. Eventually there is an existential crisis which cannot be papered over by the printing of (virtual) money. Perhaps it is a real economic collapse, perhaps it is a natural catastrophe of near-Biblical proportions, or perhaps it is simply the peasants revolting and paying a visit to Versailles.

The vast spread of guillotine memes over the past four years should alarm our elites, but mostly, they seem to feel invulnerable and are still working to preserve their position in the system rather than fix the system and the society. You can see this in how Democrats are standing up a clearly senile Biden and denying the peasantry health care, even in the face of pandemic.

An elite which refuses to manage the economy will either cause its own end, the end of its country’s prosperity and dominance, or both.

Often both.

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Economic Consequences of the Pandemic

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On March 25, 2020

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Or, I should say, rather, of the Fed and Congress’s actions.

The Federal Reserve has spent one trillion a day for 30 days (when this is over, they’ll have spent more) to prop up markets and financial firms. They’re buying debt, and making non-recourse loans (non-recourse means there is no penalty for not paying the loan back).

Congress’s deal, includes $350 billion for small businesses, and $1,200 for individuals, +$500 per child, and some excellent provisions for laid off workers–but this is a one time payment, and if things go on, how many more be passed when business has their bailout? It also has some fairly stringent restrictions on stock buybacks and executive compensation.

But most of the bailing out, in this crisis (as in 2008), will be done through the Federal Reserve, whose operations dwarf those of Congress and the Treasury department.

Assuming this crisis goes on for months, in waves, which is what the science seems to say, predicting the end result is simple: A lot of small businesses will go out of business. A lot of people will lose their homes, and a lot of small landlords (not large ones) will lose their property.

Companies which are bailed out, and companies and individuals with strong cash positions going in, like private equity, will then do what they did after 2008: They’ll buy up distressed assets for dimes on the dollar and wind up owning more of the economy than they did going in. Industries will consolidate, as smaller firms go under, and the remaining companies will be even too-bigger-to-fail.

Must it be this way? No. Will it be this way? Assuming the policies continue as they are, yup. But there’s a lot of road to go, and when people start dying in droves the calculus may change if the politics change. In particular, if people truly can’t afford to eat or pay rent, in large numbers, things may get nasty. It’ll be interesting to see just how whipped Americans are: Are there circumstances under which they’ll actually revolt in a way that hurts elites?

A lot of this depends on how the pandemic plays out. If Trump and idiot governors can be convinced to stick out isolation, probably they’ll be able to slide by. If not, things will get ugly.

Much will also depend on whether Republicans want more bailouts through fiscal policy for corporations. If they don’t, they will resist sufficient money for ordinary people, which will make things worse (and cause people to break isolation).

It’s going to be an interesting few months.

But basically, nothing has changed in ruling lass ideology: Every crisis is to be used to increase the share of the economy, national wealth, and the income that the rich control.

So for this crisis is no exception.

(Update: Matt Stoller reports there’s trillions more dollars of giveaways:

So that’s the stuff that’s been reported. Here’s what hasn’t, and why the bill goes up in value to $6-10 trillion.

  • An additional $4 trillion from the Federal Reserve in lending power to be lent to big corporations and banks.
  • Authorization to bail out money market funds, multi-trillion dollar unregulated bank-like deposits for the superrich.
  • Authorization for the the government through the Federal Deposit Insurance Corporation to guarantee trillions of dollars of risky bank debt.)

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

How to Save the Economy and Not Kill Millions

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On March 24, 2020

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So, Trump and others, including New York Governor Cuomo and Thomas Friedman (possibly the most overrated public intellectual alive today), are musing about restarting the economy to “save” it.

The Lieutenant Governor of Texas put this more clearly, if inaccurately:

“No one reached out to me and said, ‘as a senior citizen, are you willing to take a chance on your survival in exchange for keeping the America that all America loves for your children and grandchildren?’” Patrick said. “And if that’s the exchange, I’m all in.”

First, people younger than 60 or so do die from the Coronavirus, especially if they have any health problems. Viral load also matters: The more of the virus you have the more likely you are to die, and this can kill people even in their twenties. The morbidity charts we have are based on China, where after some initial fumbling, they went hard into isolation.

If you send people back to work too soon in the US you will kill millions, and they will not all be old, not that Americans are necessarily willing to kill their parents and grandparents.

Second, as I noted yesterday, this misunderstands the economy.

The economy is the people in the economy, not the numbers in ledgers. It is people who make and consume every single service and product. Capital goods and real-estate are not killed by the coronavirus.

If you want to protect the economy what you do is protect the people. If the people are still there at the end of the pandemic you can have the economy back, if they aren’t, to that extent, you lose the parts of the economy which relied upon them as consumers and producers.

The ledger numbers are easy to manage. You simply freeze all normal payments: mortgages, loans, rent, interest, etc., until the end of the crisis. Give a UBI to people sufficient for them to pay non-payment expenses. The Federal Reserve or other central banks can keep other markets going as necessary, and a few targeted bailouts can be offered.

I want to talk a bit more about what is actually happening to the economy, and what it is going to mean in the future, but I’ll leave that for a later article, perhaps tomorrow.

For now: People, land, and capital goods (what we use to produce goods and services) ARE the economy. The coronavirus will not kill capital goods or land (mortages, leases, rent) unless we decide to let the ledgers run when we don’t have to. It will, however, kill people if we send them back to work in a misguided attempt to “save” an economy which will actually be killed by people dying.

This sort of category confusion is constant: Money is a fiction. We made it up. It’s a convenient fantasy used to keep track of the economic “game.” We can change how we use money any time we want to, in any way we want, for as long as we want. (Yeah, there are some consequences to the changes, but the fundamental precept remains true.)

Right now we should be halting a large chunk of the money game, then giving people the money they need so they can isolate and not get dead.

Money exists only to serve the needs and promote the welfare of humans. We already die for it far more than necessary, but sacrificing ourselves to a pandemic to “preserve” it is insanity. Money is a fiction, humans are real. Save the humans.

(I know this is in part a repeat of yesterday’s post and I apologize, but as this “save the economy by killing millions” idea gets traction I felt the fact it’s stupid and does the exact of opposite needs re-emphasis.)

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Protect People, Not Financial Ledgers

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On March 23, 2020

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Or, as the original title said, “The Real Economy vs. The Fictional Economy.”

You may have heard that the Federal Reserve intends to create a trillion dollars a day for thirty days to support the financial markets.

This is a grim and determined attempt to make sure that at the end of this crisis, the same people control the economy that control it today.

The correct action is mostly legislative: A halt to all mortgage payments, rent, utility bills, and other bills due for the duration of the crisis. Then give a UBI to everyone. Businesses which need to keep running and need help can be given enough money (given, not loaned, not market operations) to continue for the duration. Those that don’t shutter, and their fixed costs like rent, mortgages, loans, etc. are all simply put on hiatus. For the duration that they are not operative, no interest is accrued, etc.

Those businesses which cannot survive on this basis, and which are not needed during the isolation period, are therefore obviously not critical. Let them go bankrupt. The shareholders will be wiped out, the bondholders will become shareholders. That’s how capitalism works.

This may seem unfair, as an epidemic is an act of God, but the industries asking for bailouts are ones that instead of putting aside a rainy day fund, spent all of their profits on stock buybacks, then in many cases also took out loans and made stock buybacks.

Stock buybacks are ostensibly to “return value to shareholders,” but really they are done in such large amounts because executives are granted share options, and they want the price to go up so their shares are worth more. If they wanted to return value to shareholders, they would simply pay dividends or perhaps reinvest. Companies which have been smart, for example Apple, have huge warchests and can survive a long period. Companies like Boeing who thought their job was to enrich their executives and who cares if planes fall out of the sky because they have gone to the cheapest engineers possible, well, they deserve to die. Same is true of Airlines. GE is a shell of itself, and should be allowed to go into receivership.

Companies that are important once isolation is over, and which the government doesn’t want broken up or consolidated can simply be bought up by the government. “If we’re giving you a bailout, you belong to us.” Give it a few years, sell them back for a profit, or keep them if they are natural monopolies.

But let’s move back to the original question of real economies vs. fictional ones. The real economy is the people, the buildings, and the capital equipment. The fictional one is the financial ledgers which determine who owns what and owes what. These are entirely made up by us, by rules we created and we can change those numbers and rules any time we want, as the Federal Reserve is illustrating yet again.

The job is not to preserve the fictional numbers, or to preserve incompetent ownership and control. The job is protect the real economy: people, buildings, and capital equipment.

These are two separate things. As long as the people and the stuff is still there, we can reconstitute the economy any time we decide. So we protect the people first, and the numbers last, if at all.

This crisis is also making clear who actually is important: grocery workers, logistics workers, farmers, utilities workers, people maintaining the internet, doctors, nurses, garbagemen, health assistants, etc.–people who maintain the actual goods and services we need or really, really want up at all times (like the internet).

Most of the work we do, most of the economy, is unnecessary, and a lot of it is filled with people who hate their jobs.

So perhaps this is an opportunity to see what jobs matter, make them into good jobs that people like (because essential jobs should not be done by miserable people), and then look at the other jobs and get rid of the ones that mostly create misery or pollution or goods or services we really don’t need.

This is a chance to see what actually matters, and reorient our society towards that.

More one what that would look like in future articles.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Lessons of the Virus: Who Creates Value and What the Good Life Is

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On March 18, 2020

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So, we’re going into a recession, and will likely soon be in a depression. Why? Because the workers have to stay home. It seems that the workers, do, after all, create the value.

Marx giggles in his grave.

We notice also who actually matters, who is actually necessary in society. The people who grow food. The people who take care of sick people. The people who make medicine. The people who distribute food and goods. The grocery and drug store workers. The garbage men. The people who work in sewage, water, power, and keeping the telecom backbone up.

Everyone else? Might be nice to have, but they aren’t necessary, and that includes most of the bosses. Some coordination is needed, yes, but it’s not as rare a skill as bosses like to pretend.

Meanwhile, we have makers making ventilator valves, as firms threaten to sue them stop them. It turns out that a valve which can be made for $1, normally costs $11,000.

There’s your capitalism, children: Ghouls who vastly overprice goods so they can get rich off of other people’s death and suffering.

Nations are scrambling to give workers forced to stay home money, because if they don’t, the economy will slide off a cliff. It turns out, as we should have learned in the Depression (and did, but forgot) that it is people who buy things; the demand, that matters if you want a great economy.

Over in China, it has been calculated that seventy-seven thousand lives were saved by the decrease in pollution caused by all the factories shutting and taking the cars off the road. Coronavirus may have saved more lives than it killed.

Now, some of what those factories produce we need (ventilators, for one, but remember the price markups), but a lot of it we don’t. We could work half as much, not have stuff we don’t need, and spend time with our friends and families. Maybe even see our kids. Wouldn’t have to have school babysit them for most of the day, because parents are away.

Just do less, divide the money more equally, and do without shit we don’t actually need.

We’d be healthier, guaranteed, as the pollution dies down and stress drops through the floor. We’d be happier, and in their spare time a lot of people would make the cool stuff they always wanted to make, but couldn’t, because they were doing corporate drone jobs.

Coronavirus is going to suck more than anything most people still alive in the West can remember (though older gays will understand.) But there’s a lesson here, if we’re willing to take it.

This is going to be a hard lesson to take, because central banks and politicians are moving to bail out the rich (they did so first, and are still doing so), and so they will retain their money and power and try to use it to buy up assets on the cheap after smaller business go bankrupt, but focus on the problem. Everything the rich have they have not because they “earned it” or because they actually create more value than a janitor or nurse, but because the laws are written to allow and the politicians and central banks funnel them endless money, while picking them up every time they fall, wiping the boo-boos off and giving them trillions of dollars.

It’s all politics, in the end. It’s all power.

Now the politicians they own, in their incompetent handling of the coronavirus, are going to be responsible for the death of millions.

These are unnecessary deaths. Countries which acted promptly and competently did not and are not seeing large numbers of deaths.

This means the politicians are guilty, at best, of negligent homicide. Death from incompetence, by corrupt, venal politicians owned by billionaires and mega-corps.

A better way is possible. But not if these people stay in power. They must be removed.

If we don’t remove these politicians and business leaders more of us will die. Many, many more.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Economics of a Flu Pandemic: Part II

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On March 15, 2020

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Republication of this article from 2010

I just finished reading the Nesbitt Burns Investors Guide to Avian Flu. It’s a good report, but the advice to investors is limited (basically, expect a flight to safety such as gold and US treasuries and keep money on the side to buy up distressed properties after the pandemic.) They do a very good job of detailing the history of flu pandemics, the current state of preparedness and the likely consequences. (They’re essentially the same as the ones I discuss in my essay in the FluWiki, but Sherry Cooper and Donald Coxe run through them in much more detail and style.)

The more I look into this the more pathetic it all seems. Our society, as a whole, has no surge protection – no ability to take shocks. We have no excess beds, no excess equipment, no excess ability to produce vaccines or medicines, nothing. Everybody has worshiped at the altar of efficiency for so long that they don’t understand that if you don’t have extra capacity you have no ability to deal with unexpected events. And now some people are suing the Ontario government for their SARS handling, which I fear will perversely make the government less willing to do what needs to be done when a crisis hits.

Public healthcare in a pandemic or epidemic is a triage operation. You isolate people and you shut things down deliberately, and people are going to die because of the decisions you make. If nurses and doctors decide that their own lives are more important than those of the sick, or if ordinary citizens decide to break quarantine or travel restrictions, then there could be complete disaster. The moment of the SARS outbreak that caused me the most fear was when there were reports of people fleeing Beijing. In a real pandemic situation, all that would do is spread the disease further and kill even more people.

In a pandemic, no one should be out and doing things who doesn’t need to be. Take food – it should be delivered to each person’s door and left there, once the delivery person leaves, the occupant comes out to get the food. No interpersonal contact other than that which is unnecessary.

When I was approached to write about the economics of a pandemic, my first thought was: “Find out what happened during the Spanish Flu pandemic.” Apparently, Coxe thought the same thing and his conclusion is that because our society and economy is so much more integrated and so much more connected (for example the flu had to spread by ship back then), and so much more “just in time” that it isn’t really a model you can use. We’ll likely get hit harder, faster, and because many locations have such limited inventories, relying on getting it as they need it, the supply disruptions are likely to be much worse. I can’t find any flaw with his argument.

The lack of urgency on the part of governments is rather distressing:

It is hoped the Canadian studies will begin late next summer. February’s federal budget set aside $34 million for production of trial batches of an H5N1 vaccine. But Canada’s flu vaccine manufacturer, ID Biomedical, still has not been given the go-ahead to do the work.”We’re close to entering into a contract. Hopefully it will be done shortly,” Health Minister Ujjal Dosanjh said Monday.

The company has said it would take 12 months from contract signing to vaccine delivery, because it must build and license a special high-biosecurity facility within its existing vaccine plant.

Now, I don’t know the details of what is required to set up such facilities, but I’m not getting a huge sense of urgency from the government here. The contract should be signed now and whatever is necessary to build extra facilities should be done, as well as whatever is necessary to get them up and operating faster. I do understand that biosafety is an absolute necessity, but getting these facilities up too late is as good as “never.” Let’s be frank, 34 million is peanuts. How much money did they lose trying to create the gun registry (a database no larger than many commercial databases successfully brought in for much less)?

I would suggest to politicians that if an influenza pandemic does occur, and people decide you didn’t do everything you could have to prepare for it, that, at the very least, you will no longer have a political career. At the worst, well, you won’t be alive to worry about it.

There aren’t enough respirators, there aren’t enough hospital beds, there isn’t enough vaccine production capacity or antiviral production capacity. There is so little being done to deal with those deficiencies that there might as well be nothing being done. Doubling production isn’t what is necessary, production needs to be ramped up by orders of magnitude. If it’s never used, oh well, it’s better than building a bridge to nowhere in Alaska which even Alaskans don’t want.

I don’t know when there will be an influenza pandemic. No one does. It’s an odds game. But right now, the odds aren’t so good. It’s time to spend some money and buy some insurance against the possibility. Put the facility in your riding and tell your constituents how you just got them some jobs.

But do it.

(This is a reprint, at a reader’s request. You can find part one of Economics of a Flu Pandemic here.)

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The Justification for Great Wealth

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On February 27, 2020

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Great wealth is great power. If you have money, many people will do what you want them to do. This should be uncontroversial: Most of us have spent our lives doing tasks we wouldn’t do unless someone was giving us money.

Well, that and being scared of losing everything and dying on the street.

Great wealth is a matter of law. Property rights beyond, “What I can carry” are not natural. They require force and a series of professional classes–from accountants to cops–to maintain. Property rights, then, are actually a drag on the economy; they come with a cost. They doubtless have some benefits, but whatever those may be, they are not pure benefit. Whether any particular set of property rights is a net benefit is unclear; it might be the economy would do better with less.

Property rights are justified because they are supposed to lead to better outcomes. So are wealth and income differentials. If someone is earning more, they supposedly do more good in the economy.

The Wall Street bankers who crashed the world economy say “Hi!” and remind you that if they don’t get bonuses bigger than the rest of the country’s raises, they may not keep working.

So, let’s simplify this.

If you have a lot of money, say $64 billion, the question is “Are you doing more good with that money than would be done by simply splitting it up and giving it to everyone else in society.”

Or, better yet, what if you took that income and equalized it among all citizens?

Seems like the cost of having an overclass is rather high, isn’t it? Are they producing enough human welfare (any net human welfare?) to justify all that income they are taking?

When, of course, they actually crashed the economy in 2008 and when economic performance has been inversely proportionate to the amount we’ve taxed them?

Anyway, is having this elite worth $50K a year to you?

Hope you’re getting your money’s worth.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

New Hope for a New Year

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On January 6, 2020

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This post is by Tony Wikrent.

I do not remember the New Deal, even though it’s probably what has had the greatest impact on my political memory. I’m 63 now, so I wasn’t even alive during the First Great Depression and the presidency of Franklin Roosevelt. For me, memory of the New Deal was transmitted by those who had lived it and embodied it: My foremost, formative experience of government was John Kennedy beckoning the nation to put men on the moon.

In Chicago, the Democratic Party took pride in getting things done. The construction of O’hare Field was completed while I was a toddler, as well as the Kennedy expressway connecting ORD to the Loop downtown. Construction of a new home for the University of Illinois at Chicago began in 1963; the 244 acre campus opened two years later. Today, UIC is the largest university in the Chicago area, with more than 33,000 students enrolled in 16 colleges. As a kid, I got to watch construction crews working to extend the CTA subway line down the middle of the Kennedy to O’Hare.

John Kennedy said, “The American, by nature, is optimistic. He is experimental, an inventor and a builder, who builds best when called upon to build greatly.”

Unlike conservatives and libertarians, I have always had faith that government can be an active force for good.

But over two thirds of my fellow citizens are younger than I. They have not had the same experiences. They have not, I fear, the same long-term optimism, which I think may have been the greatest achievement of the New Deal. In the world I grew up in:

  • Interest rates were strictly regulated
  • The average holding period in the stock market was eight years.
  • There was no retail means for investing in foreign economies.
  • The only futures contracts in existence were based on physical commodities.
  • Foreign exchange trading was only for individuals actually traveling overseas, paying the US military and for base leases, and companies importing and exporting.
  • the Cayman Islands were basically unknown: there were no tens of billions of dollars of dirty money scrambling around the globe for a place to hide.

In other words, well over 200 million of the 327 million Americans alive today have no idea what a well regulated financial and monetary system looks like.

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