Category: Economics Page 28 of 90

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.

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.

Image by TW Collins

Let’s talk money. Everyone’s favorite subject, perhaps after sex.

Money does a lot of things, but one of the most important things it does is signal “Do this, do that, don’t do that.” It says, “We need more of this, we need less of that.”

As a result money moves people around. It compels them to do things. Or, if you prefer, “profit” does. How much you can make doing something. You have to at least break even, and the more profit you make, the more you should do of something.

This is completely vanilla economic theory. This is how capitalism is supposed to work.

Right now, we have a situation where there are things we need to do, but the price/profit/wage signals are saying, “Build super yachts. Optimize selling ads. Build more weapons. Play financial games instead of building things, because financial games make more money.”

That’s the reality. That’s what money is saying, and people are responding to it.

So we have a vast explosion–not of nurses, but of health administrators. We aren’t sinking carbon to prevent climate change, because there’s no money in it. We are creating palliative medicines rather than cures, and monetizing medicines like insulin ($300).

People are doing what money tells them to do. It’s that simple.

But, as I’ve said before, money is a social construction, and price signals are not given by God and nature: They are choices. Political choices. That isn’t to deny some physical reality behind what they signal as “worth,” but that reality has obviously been elided, when, in America, the life spans of some demographic groups are dropping while super-yachts and luxury condos are hot to trot.

All systems have to do only one thing: Whatever is required to keep the system in power.

That’s all they have to do. Whether or not human welfare is advanced, whether or not we care about animals or nature is irrelevant to the raw calculus of power and staying in power. Until it effects staying in power.

If the hoi polloi can be kept from revolting or demanding (remember demands are based on “or else,” they are not requests) well then, the powerful will not do anything that does not increase their power or money. They will only care about human welfare outside of their own group if they feel they must, or if, as happens occasionally, they see their group as being something other than the elite group.

Right now, elites don’t care about other humans enough to reshape the money and political systems (the same thing, ultimately) to prioritize human welfare, avoid a great-die-off, or stop climate change. This is clear. It is not arguable, it is a fact, based simply on their actions.

If money isn’t saying, “Do the right thing,” then money is failing. The argument of capitalism was simple: “Markets will do the right thing, if we mostly get out of the way and let them operate.”

That’s just not true. Markets only do the right thing if they are properly managed. That management may look light at times, but it actually has to be ferocious because the first thing that anyone who wins a market fight does is try to stop the market operating properly; they don’t want price signals that would take away what they’ve won.

In 2007/2008 those price signals were given. They said: “The entire banking and shadow banking system has allocated resources to the wrong things. All of their money and power needs to be taken away from them. They need to go bankrupt and that power and money needs to go to other people.”

We ignored that signal. We pretended that ignoring that signal was the right thing to do by propping up failures and incompetents–who had not only massively mis-allocated resources, but engaged in mass fraud.

It wasn’t the right thing to do. Capitalism requires both outside management and an insistence on market discipline. It is most important that market discipline is exercised on the large actors, not the small ones, because the large ones set the market terms and make most of the allocative decision. When you offer people too-cheap loans, they will take them. YOU are the one offering them; YOU are the one in the wrong.

Price signals must encourage doing the right thing. When those with market power either misbehave or mis-allocate money, they must lose their power to do so.

This is fundamental, and no society which relies on money to determine allocative decisions will prosper if it is not managed properly.

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.