Ian Welsh

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

Category: Economics Page 27 of 89

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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It’s Not OK to Think Everything Is OK or Getting Better and Better

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On November 13, 2019

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Globe on FireI’ve discussed the “better-than-ever world” argument before. I find it questionable, for a number of reasons and if that interests you, read the linked article and the articles to which it links.

What I’ve been paying attention to lately is WHO likes and buys into this argument.

They fall into two groups: the first are techies, the second are neoliberals.

We’ll start with neoliberals first. Neoliberals want to claim that everything’s going great so they don’t have to make serious changes. If even the poorest are getting better off rapidly (50K a week, I saw as a recent claim, for improvements in “dire poverty”), then all that is required to the current system are tweaks: It’s working.

More importantly for the neoliberals, if the world is better than ever, the people who have the most don’t have to give anything up–not money, or power, or the way they do things. What they’re doing is basically working, their being rich and powerful isn’t hurting the poor; in fact, it’s lifting the poor up!

So statistics have to show that poor people are getting better off, and if a few show that the poor in parts of the first world aren’t (like certain groups in the US having decreased life expectancy), well that cost has been far outstripped by all the people lifted out of poverty elsewhere and why care more about Americans than people objectively worse off in other countries?

The world order is basically fine. No need to do more than “bend the curve,” as Obama famously said.

Techies have some of the same reasons, especially those who are doing well, like the ones who run Silicon Valley, or who are very well paid. The world is fine, no need to change what’s working.

But there’s something deeper to it for the techies. While neoliberals want to defend neoliberal capitalism–which is why they get offended when one points out that China used mercantalist capitalism to lift people out of poverty. Almost all poverty gains, no matter how you slice the numbers, have been made in China and China DID NOT do what economic orthodoxy says you’re supposed to do.

Techies don’t care about that. Instead they want to defend their legacy and current actions. Forget capitalism, communism, fascism, and all that guff: Really, virtually all the gains of the last 250 years come down to using hydrocarbons to power various engines.

Technological progress is the actual driver of what’s happened. Modern techies identify with the engineers and scientists of the past, especially now that programmers like to call themselves engineers.

Likewise, the computer/internet/telecom revolution which has been driving new industries (I wouldn’t quite say “growth”) since the mid 70s or so is their child, their project. They either worked on it or are still working on it. The world must be doing well because they created it or are creating it, or are maintaining the technology it runs on, the technology that is really responsible for supposed welfare gains.

They believe they are good people, who do good work, and therefore the results of their work must be good.

We all want to believe that the order for which we are responsible, the work we do, and the economics that works to our benefit, is justified, because we want to believe we are good people.

Neoliberals, elites, and techies feel they have created this world. Therefore, this world must be a good one.

Techies also want to think that technology can solve everything, because it’s what they’re good at. And hey, it does demonstrably work. It’s just not clear that it can do everything, or do everything soon enough, since we all will, well, die.

Anyway, the larger point of this is simple: We argue over these things because they are about legitimacy and people’s self-esteems and self-images.

Of course those (like myself) who oppose the current neoliberal order want these figures to be BS. We want to be able to argue that change is urgent, and needed, and that the existing order has failed.

It’s good to understand that, no matter what side you’re on. What do you WANT to believe. Then see if you’re still justified.

Of course, I think I am. This doesn’t mean there’s been no progress, there has. I just think the numbers are wildly over-inflated outside of China, and the progress is unsustainable due to climate change and the impending environmental collapse. I can live like a king if I have a ten million dollar credit card limit, but if I can’t pay it back, eventually that ends.

Also I grew up in the development community. My father worked for the UN’s Food and Agriculture Organization (FAO) in Bangladesh, and had worked before in various other developing countries. I spent time in India, and so on. I listened to development workers talk about what worked and (mostly) what didn’t. There are more cynical (or rather, realistic) groups in the world, but not many.

So there’s always been an off-smell to these numbers to me. I know what works for development (mercantalist policies with the cooperation of the current hegemonic powers, and virtually nothing else, unless you’re a city state) and what doesn’t (anything orthodox development economists tell you to do).

I know who’s been allowed to actually bootstrap up and industrialize (American allies and China–because they bribed American leaders), and who hasn’t (almost everyone else).

And I know something else: If you’re forced off your land into a slum, you make more money, but you’re worse off. The economic and Western obsession with $$$$ as a measure of quality of life is unwise. Even calories (though better) are not great, because for example, when NAFTAs tortilla manufacturers were bought out after NAFTA, their nutritional content plummeted.

So it all smells off, to me.

But even if it didn’t, even if it was all true–that the world was “never better,” radical change is needed because climate change and ecological collapse are on their way, with the leading edge already causing problems. We can’t even keep industrializing the way we have been. If every developing country was allowed to industrialize properly, and we gave them what they needed to do it, we’d just bury ourselves deeper.

The fundamental WAY we have run our economies, both in terms of any type of capitalism (and communism back when, but they’ve been gone for 30 years now, so grow up) and in terms of technology is fucked. Fucked. It cannot continue or we risk civilization collapse. Worse case scenarios are great die-offs which take us down too. Good case scenarios are one or two billion deaths.

No matter what, we are past the point where we aren’t going to be able to change the environment in a way that prevents the climate from being fundamentally warmer and different from the environment and climate which has existed for the entirety of human civilization.

That’s not an economic or technological system which is more or less OK, or producing more or less good results even IF the triumphalists were right about everything.

It requires change, and radical change, if we are to avoid, not disaster (we’ve already had those), but multiple catastrophes of civilization-shaking levels.

It’s not OK to think everything is OK.

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.

 

 

There Are No Good Billionaires (Bill Gates Edition)

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On November 7, 2019

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So, Elizabeth Warren has a two percent wealth tax plan with three percent on people with more than a billion dollars. She’s suggested raising the over a billion percentage to six percent… And Bill Gates says….

I’m all for super-progressive tax systems,” he said. “I’ve paid over $10 billion in taxes. I’ve paid more than anyone in taxes. If I had to pay $20 billion, it’s fine.

“But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over,” he added. “You really want the incentive system to be there without threatening that.”

Mr. Gates is the second-richest person in the world, according to Forbes magazine, with a net worth of $106.2bn.

Well, of course, she didn’t say that, she said six percent. A little over six billion in the first year. Bill’s 64, and of course, the actual nominal amount will decrease each year unless he can grow his money faster than six percent, in which case, what’s the problem?

Elizabeth Warren

He’ll never, ever be anything less than a multi-billionaire, in other words. His bullshit about 100 billion is just that, fear-mongering bullshit.

And if he’s paid ten billion on 106 billion, well his tax rate was about ten percent. Most middle class families would love to have that low a tax rate. (Yes, I know it’s on income, not wealth, but the point is he obviously paid very low income taxes. Which, actually, is what the data shows–the middle and working classes pay a higher percentage than the rich.)

Bill, of course, is the “good” billionaire.” But he’s the guy who gave straight-up fascist Modi a reward. He’s the guy who spent millions to change the educational system in the US, then admitted that the model he successfully pushed doesn’t actually work. He’s the guy who used brutal, monopolistic practices to build Microsoft.

And he doesn’t want to pay a six percent wealth tax that will be used to provide universal healthcare.

Billionaires are bad, and, as an even more radical and willing-to-take-on-billionaires candidate, Bernie Sanders, said, they shouldn’t even exist.

As for Billy, he thinks he deserves to be one of the richest people in the world because he created the Wintel monopoly and crushed rivals with practices which were, under black-letter law, illegal.

But one can understand why he might prefer a Republican president. After all, it was George Bush, Jr. who withdrew the anti-trust suit which would have broken up Microsoft and left Bill worth a lot less than a 106 billion dollars.

Trump, of course, massively dropped tax rates on the rich.

Money comes first, ethics come second. Bill’s always understood that.

Republicans have been pretty good to Bill. Performative wokeism and his good image aren’t worth a six percent wealth tax. As for people without healthcare, welll, better they die than he pay taxes which would leave him a multi-billionaire for the rest of his life.

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.

Is California a Third World State?

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On October 31, 2019

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So, there are fires again in California and it turns out the largest fire was caused by a downed PG&E power wire–despite the fact that PG&E cut power from vast swathes of the state to try and make sure that didn’t happen.

What’s hilarious about this is that PG&E has, ummm, a record:

As early as 1990, years before worsening drought and higher temperatures began pushing wildfire season into apocalyptic overdrive, PG&E was facing criminal charges for failing to trim the trees growing alongside its power lines as required by state law. In 1997, the utility was convicted of no fewer than 739 counts of criminal negligence for a fire that burned 500 acres and leveled 12 homes in the High Sierra town of Rough and Ready. State regulators later charged PG&E with more than 500,000instances, between 1994 and 1998, of failing to trim trees near their electric lines. (my emphasis)

This is mind-boggling. The sheer fucking incompetence, venality, and stupidity of both the government and PG&E. Half a million times they were fined, so obviously the fines weren’t working; PG& simply viewed them as part of the cost of doing business. This was going on in the 90s and the government DID NOTHING.

You have two acceptable choices in this case: You either nationalize the utility, or you change the law from requiring the imposition of fines to require criminal sentences for executives and board members (and probably anyone earning more than X dollars, so they don’t try and silo people from criminal penalties).

As with bankers, where the fines for widespread fraud (including stealing people’s houses by falsely signing documents), were far less than the gain, PG&E had no reason to stop.

This was especially exacerbated by an ideological choice: The decision that the only responsibility corporations had was to their shareholders, and not to anyone else. (This choice also wound up enriching executives far more than shareholders.)

Corporations are bundles of vastly valuable rights, the most important of which is that shareholders and executives are largely insulated from both bankruptcy and the law. In every case, it should be necessary for a corporation to make clear what the public gets in return for granting these rights.

But in the case of PG&E, only a moron would think that the proper solution is anything other than nationalization. Utilities are, in fact, natural monopolies.

But more to the point, they are critical infrastructure. How can California, the home of Silicon Valley, be so fucking incompetent as to have power outs because they aren’t doing basic maintenance? This is third world shit. This is Nigeria. This is pathetic.

In any actually functional society, this shit would get sorted out ASAP and heads would roll, metaphorically or literally.

Instead, we have California governor Gavin Newsom whining about how he’d like Warren Buffet to buy PG&E. Pathetic doesn’t cut it. He’s the governor of a state with an economy larger than most countries. Take it over and sort it out.

Frankly, this is the sort of incompetence that ought to have him thrown out of office, if he isn’t lynched–along with PG&E’s executives. But Americans have become the sort of people who just take abuse by their “betters” lying down, so I’m sure everyone involved will stay rich and important and live in a house with backup generators.

Pathetic.

(Note that this is categorized under “class warfare.” And yes, I know some rich people are getting hit too. Maybe they should realize they aren’t /that/ rich.)

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.

Profit Is Just Another Word for Destruction

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On October 11, 2019

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Here’s the basic proposition of capitalism: If something can be done for a profit, it creates more value than the sum of its inputs.

But here’s the thing: This is an unproven assertion. In fact, in many cases, it is not true.

Worse, over the not-very-long run (a couple hundred years) it is almost certainly false.

You chop down the forests, you kill the animals, you loot and destroy entire cultures, you run your economy on planned obsolesence, and you pollute massively, causing runaway climate change (now effectively unstoppable) and ecosystem collapse.

All the value we have produced will be eaten up by this, and then some. If the carrying capacity of the Earth crashes anywhere between 50 to 80 percent (the current most likely scenario), then what we’ve accomplished is absolutely, almost unbelievably, a huge destruction of value, and nothing we have created is worth it.

Yet that is the current scenario.

It is isn’t all “capitalism,” of course. Communism couldn’t handle industrialization either. Democracy hasn’t handled it. Autocracy hasn’t handled. No one has handled it.

But this is the real situation, the odds that we will run into a collapse scenario are now very high. Because Sanders is the only candidate in the US with an adequate Green New Deal plan (Warren’s is not large enough), there’s only one chance to avoid worst case scenarios, because another four to eight years will put us even further behind. (In Britain, Corbyn is who you want if this is your priority. In Canada, no one is suggesting anything adequate, but Singh is the best candidate.)

Value isn’t just what you create. Value must also be measured by what you consume, what you pollute as a result of that consumption, and what you destroy.

Fools who go on about how this is the best time ever to be alive miss the point, even if they are right (this claim is dubious for billions of people). They are right in the same way as if, you sold everything you owned, then borrowed as much as possible, and then partied until you ran out of money, well, that may be the best time of your life…

Profit is not a proxy for adding value. The correlation is questionable, if it ever held any merit, and since the industrial revolution it has diverged more and more from being true.

We can’t afford “profit” as it is constituted today.

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.

California Power Company Cuts Power to 800,000 Homes to Avert Wildfires

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On October 9, 2019

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PG&E.

The region’s utility company, Pacific Gas and Electric (PG&E), has warned the shutdown could last several days.

The company’s transmission lines started the deadliest wildfire in California’s history last year.

With weather forecasts predicting high winds, the move is intended to prevent the risk of fallen power lines igniting more wildfires.

So, of course, PG&E could have and should have upgraded their infrastructure so this would not be necessary, but they didn’t. They gave large dividends to their stockholders instead.

PG&E is also, well, bankrupt, because of the previous fires it caused, so it isn’t in a position to make necessary improvements now.

But let’s not pretend this is a one company issue. The US has needed massive power infrastructure upgrades since the 80s. Most of PG&E’s infrastructure is 60 to 80 years old. They need to cut back trees around the poles and they need to replace old poles.

This is also a public issue. San Francisco, for example, has had 12 ballot initiatives to create a public utility and refused to do so.

Image by Admit One

People wanted tax cuts, deregulation and overpriced houses. that’s what they got, and a 5 day power outage is one of the prices.

This isn’t a difficult problem. In the 30s through the 70s, utilities were regulated. They were guaranteed a certain profit and required to spend a certain amount of money on upgrades and repairs. Dividends were fixed, and investors knew what they would get every year.

In other words, they were treated as critical infrastructure which needed to be maintained and built properly, and it was worth a bit more cost do so.

You can do this publicly, you can do it privately, you can do it as a combination but you must regulate and inspect them.

Or you can have “cheap” power until there’s a crisis, like massive wildfires, or brown and blackouts, etc.

Waving one’s hands and saying, “The market fairy will make it all happen by the actions of an invisible hand,” gets the usual results.

As for PG&E, the only solution likely to work is to just have government take it over and pay for the necessary work. Once that’s done, don’t privatize it.

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.

 

Modern Meritocracy Isn’t Worth Having

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On September 27, 2019

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Meritocracy is the simple argument that the best person for the job should do it and that our system tends to put the best person for a job in the position.

Some jobs are more important than others, and should be paid more as a result, both to get the best person to do it, and because the best person will contribute more.

The problem with these arguments is simple: It ain’t so.

The best paid people in our economy, generally speaking, are those in the financial industry: bankers, shadow bankers, brokers and so on.

They caused a world economic crisis with their venal and idiotic behaviour in the 2000s. They currently can’t find enough good things to do with all the money they control, so interest rates are moving negative.

They are manifestly incompetent at their jobs–if the job is to do anything but enrich themselves. They cannot be the best people for the job, because they would all be out of the job if governments hadn’t bailed them out, and indeed most of them would probably be in jail if the law had been enforced.

They are paid better than those who managed the financial industry in the 40s, 50s, and 60s, who manifestly created a better economy, including higher growth rates.

Paying them more, then, has been correlated with them doing a worse job at everything except making themselves richer, and they only even managed that by corrupting the government to bail them out of their mistakes, and with endless government support, with Greenspan, Bernanke, Yellen, and so on endlessly doing whatever was necessary to keep financial markets growing in size. (The Greenspan Put.)

Studies, meanwhile, have found that the higher a CEO’s pay, the worse their company performs.

It seems that perhaps the best paid people in the world aren’t the most meritorious, except by the rules of jungle. If one wants to argue that you “eat what you kill” as Wall Street does, then all merit constitutes is the ability get a lot of money.

Merit = money is the actually state of meritocracy in the world today. Oh, there are exceptions, you can say “surgeons” or something, but they aren’t the best paid people in the world, are they?

Meanwhile, as I like to point out, if the janitor doesn’t show up, people get really, really upset, while if the CEO takes a week off most people won’t notice or care.

Seems people really, really don’t like cleaning toilets, but doing so is really, really important, and we don’t pay, errr, shit for doing it.

But, you cry, “Ian, any idiot can clean a toilet.”

Well, I’m not so sure about that, but what is true is that most janitors are competent at their jobs and most banking executives are good only at making themselves rich. They are net drain on society, massively, while janitors provide real value and are able to do their jobs.

Teachers, nurses, garbage men, civil engineers, construction workers, etc, etc., all do things that matter. When they don’t do them or do them badly, we’re fucked.

Bankers do something that matters, too. The problem is that we clearly pick completely incompetent or corrupt bozos to do the job, who then pretend they are the best of the best, destroy the economy and the environment, and reward themselves with money that would make 19th century robber barons blush.

Meritocracy is a wonderful idea. We all want the best person for each job to be doing the job, or at least, someone who is competent at the job doing the job.

But that’s not what we have. What we have is a Kakistocracy: A society run by the worst, most corrupt people. Bush, Obama, and Trump weren’t the best at running society, they were just the people best at getting into office. The people running Wall Street aren’t the best at allocating money for social benefit, or even for creating the largest actual economy, they’re just the people who fought their way to top and then appropriated the largest share of money for themselves while shattering the world economy.

They are the best only at seizing positions of power, which give them access to money. That is all.

If meritocracy is just, “The more money you have, the more you deserve to have more money,” which it is at the moment, it’s nothing worth having.

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.

Should NATO Exist? Will It?

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On September 20, 2019

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One of Trump’s constant cries is that American allies aren’t spending enough on their militaries and that the US is, thus, carrying them.

While there is a temptation to scorn this argument because it was made by Trump, it has a fair bit of truth to it, as Matt Stoller suggested today:

The American military umbrella is a bad deal for America and a good deal for our “allies.” Japan gets protected channels to Middle Eastern oil, for free. Germany gets protection from Russia, for free. They all export to us at terms unfavorable to our own industries/middle class.

The problem with this is that it is, well, true.

And that Europe “needs” America for defense against Russia is absurd:

Let us be clear, the EU’s population is 508 million. When the UK leaves, it will be 447 million.

Russia’s population is 143 million.

The EU minus Britain has a GDP of 18.1 trillion (purchasing power parity), Russia has an economy of 3.5 trillion (ppp). Germany alone has a GDP (ppp) of four trillion.

If Europe “needs” the US, it’s because it can’t be bothered to raise a proper army. That’s all. It is genuinely free-riding.

Chinese and American flags flying together

But then NATO is a large part of why Russia is a “threat”. The expansion of NATO, which Bush Sr. promised Gorbachev would not happen, is a large part of why Russia has armed up.

It’s not clear that NATO should even exist. Its purpose was to resist the Warsaw Pact and the USSR, neither of which exist. Russia has a lot of nukes, and is relatively strong militarily, but it is no USSR and has no grand alliance facing NATO. It is not a threat unless terribly mismanaged. (Which, I suppose, it has been.)

Disband NATO. Let the Europeans take care of their own defense, or lay prostate before the Russians as they choose.

Japan is a trickier proposition. What American military presence there does is simple enough: It prevents Japan from needing its own nuclear weapons. The same is true of American bases in South Korea. Leave and those two countries have to nuclearize or become Chinese satrapies (and Japan will need a much larger navy).

It’s also worth noting that the US didn’t start protecting “Japan’s oil.” The US needed foreign oil too; it is only recently, under Obama, that the US has again reached petrocarbon self-sufficiency and is able to say, “We’re protecting other people’s oil.”

WWII was won by the powers who had access to more oil. Generals and admirals at the time understood the war was, to a large extent, about oil.

America may not need foreign oil now, but it did for decades and that is why it protected maritime oil trade.

In general, however, a US withdrawal from its forward bases will be a good thing. A rebalancing of trade will also be a good thing, though it will hurt as it happens (Trump is not doing it well). Deliberately offshoring and outsourcing the US (and Britain’s) industrial base led, more or less directly, to Trump and other social ills. It created a group of people who have lost for 40 to 50 years. Their parents had better lives. They had better lives. They know it. You cannot lie to them with BS statistics and pretend otherwise.

So they are willing to vote for and support anyone who seems like they will wreck a system which doesn’t serve them. Maybe what happens will be worse, but what’s happening right now is shit.

This is not contradicted by Trump’s support from red-state elites. They are also scared, because they also know their situation is precarious and that power and wealth has flowed away from them. And they rule over Hell. It isn’t always better to reign in Hell.

So the world is changing. It was changing before Trump: The Trans-Pacific Partnership was intended to be a trade bloc AGAINST China.

Note carefully Stoller’s hostility to China. It is constant. The American elite is finally reorienting. They don’t see Russia as a primary threat. They’re moving away from caring about the Middle East as they now have enough oil of their own and see a post-oil future coming. They know the rising great/super power is China.

They want to reorient their alliances against China. The price of keeping NATO will be keeping China OUT. When Germany said they wanted to do more business with China, Stoller was angry and said it was an argument against NATO. No Huawei, no China.

The world is very likely to divide into trade blocs–probably two, maybe three.

China rises. The US moves to protect its position.

Great power politics continue, as they ever have.

There is no end to history, save an end to humans. Only fools ever thought so.

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.

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