Ian Welsh

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

Category: Economics Page 31 of 89

So You Want to Be the Next Silicon Valley? One Thing You Must Not Do.

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On April 17, 2019

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Recently I’ve been re-reading Peter Hall’s magisterial “Cities in Civilization.” It’s a huge doorstopper of a book, the majority of which is histories of cities’ Golden Ages. Artistic, technological, civic, and so on.

One of the histories is of Silicon Valley.

And if there is anything which is clear from that history it is that Silicon Valley could not exist if California allowed non-competes. Silicon Valley’s history is of people working for one firm, leaving and starting up a new company which directly competed with that firm. Fairchild Semiconductor was famous, or infamous for this, and among its children is the company Intel.

Non-competes are, well, non-competitive. The idea that someone should be locked out from doing what they know best just because it might hurt a previous employer is radically non-capitalistic.

Oh, there’s other stuff, of course. Like a lot of technological golden age cities, SV is a child of government and university. At the key stage of computer development, government was buying about half of all computers, and in effect paying the entire R&D budget of Silicon Valley. Likewise, without Stanford, there is no Silicon Valley.

But the engine that kept Silicon Valley going was that anyone could leave their current employer and start up a firm competing with them.

If your laws allow non-competes, you will not be the next Silicon Valley. Doesn’t mean you can’t be the next, say, Berlin (the core of the electrical revolution), or the next Detroit (er, back when that meant something good), but you won’t have what Silicon Valley did.

I do wonder, myself, if Silicon Valley can survive after having off-shored most of its production. Historically, that doesn’t tend to go very well. At first it doesn’t matter, as when Britain off-shored production to the US, and still produced the majority of new inventions. But eventually there is a drop off. Having the factory where the designers are seems to matter.

Perhaps that’s changed, but real change of fundamentals like that is rare.

We’ll see.

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.

Veblen’s Idea of Business Versus Industry

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On April 5, 2019

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THIS POST IS BY TONY WIKRENT
I had wanted to reply to comments in the thread of Economics as Cultural Warfare: The Case of Adam Smith, where Bruce Wilder makes an important correction to my view of Smith: “Smith’s central argument rather famously is that the division of labor is the primary source of wealth!” Which of course is perfectly true, given that one of Smith’s most famous passages is that describing the impressive productivity of the machines Smith found in a pin making factory.

But my design is to utterly annihilate any respect for Adam Smith by showing that he is little more than an apologist for the imperial looting, immiseration, and devastation the British empire exacted on its colonial subject populations. In my world view, there is nothing about any apologist for the British empire that is worth salvaging. Was it possible that here was an anomaly for which I would have to bend my rules?

As I pondered this over the past week, I realized that tossing Smith’s division of labor argument into the trash bin of history is more easily accomplished by referencing the arguments made by Thorstein Veblen regarding the differences between business and industry. I was not very surprised to find that I could find nothing on the internet about Veblen’s argument worth linking to. Veblen has always been  persona non grata in the mainstream economics profession — which means he probably has gored one or more of the profession’s sacred cows. Which of course makes Veblen all the more attractive in our day, when the stench of the intellectual rot among economic academicians has reached an overpowering level. Modern Monetary Theory may have some weaknesses and faults, but I would rather have it blowing through the academy to dispel as much of the bad air as it can, than leaving the brain dead body to continue rotting and fouling the air.

Researching my attack on Smith, I had taken off my bookshelf Joseph Dorfman’s The Economic Mind in American Civilization. I now opened Dorfman’s book again to see what he had written about Veblen. I was surprised but delighted to find the best summary I had yet read of Veblen’s separating business from industry. In case readers don’t know it, Dorfman wrote a book in 1935 entitled Thorstein Veblen and His America. And what readers certainly do not know is that the descendants of Veblen loathed the book, and spent years trying to persuade, then force, Dorfman to change the book, mostly the parts in which he described Veblen’s personal traits and peccadilloes, including the controversies Veblen stirred up at every university that ever hired him. Veblen’s descendants were unsuccessful. The source for this is Jon Larson, who worked with Veblen’s descendants in the restoration of the Veblen farm.

Despite this sad history, Dorfman’s explanation of Veblen’s ideas on the differences between business and industry are extremely useful today. I hope to see in the comments someone expressing their “eureka” moment — yes, let us bury Adam Smith once and for all, and never hear of him again.

Below excerpted from Chapter XIX, “The Disturbing Voice of Thorstein Veblen,” The Economic Mind in American Civilization, Joseph Dorfman (Viking Press, 1949). 

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The Argument for Capitalism

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On April 3, 2019

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It is often worth stating an ideology’s argument in pure form. Let’s do that for capitalism, not because we necessarily agree, but because understanding why people believe in an ideology is important.

If someone buys something, it is because they want or need it. Giving people what they want or need is a good thing. Capitalism produces the most utility of any system because it makes limited judgments about what people want or need and because every time someone does buy something that gives whoever provided it more money. The more people who buy something, the more resources those who provide those things have.

This simple message is: “Do more of this.” If, on the other hand, not enough people want something at a high enough price, a simple signal is sent: “Do less (or none) of this.”

Thus, capitalism has a feedback system which makes sure that society produces more of what people want or need the most, and less of what they don’t want or need.

Capitalism makes no judgments about what people want or need except, “Will they pay enough?” (Other systems, like government, will make some judgments, capitalism does not.)

Capitalism thus requires nothing of people but that they act in their own self interest: Buying what they want or need and selling whatever they have to sell for the most they can get.

This means resources, including people, will be used in whatever people are willing to pay the most money for, and thus will be allocated to what people want and need most.

Thus, capitalism, compared to other systems, creates the most good, and (if done right) avoids coercion and the need for a lot of central authorities making decisions.

Of course this argument is wrong. Anyone with sense can pick it apart.

But, to paraphrase Churchill on Democracy, capitalism’s boosters say “Capitalism is the worst system, except for all those others which have been tried.”

Capitalism isn’t perfect, it doesn’t work close to the “ideal type” described above, but, what else is there?

That’s the argument for capitalism in a nutshell. It’s a powerful argument, and while its flaws are evident, it can’t be dismissed out of hand because due to the problem of alternatives. So far, the best alternatives appear to have been mixed economies, with markets in charge of part of the economy, and government and non-profits in charge of the rest. But those economy forms appear to break down in time, as the post world-War II liberal (not neoliberal) economy did.

Today, we look to the Scandinavian model of social democracy, but even there we can see some problems beginning (in particular in Sweden, as best I can tell), and, after all, a large part of the economy is capitalist and enmeshed in a global capitalist network.

So, is there genuinely an alternative? Boosters say no, and it’s a real problem. That doesn’t mean there is no alternative (Thatcher’s famous phrase) but that too few people–especially powerful people–accept that there is. Indeed, our debates are mostly about forms of capitalism, and under how much and what type of control markets should be, not about capitalism itself.

An ideology which can make it look like it is the only way to do things is a powerful ideology.

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 Lyft and Uber Endgame: Oligopoly Prices, Impoverished Workers

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On April 2, 2019

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The problem with ridesharing is simple.

Lyft and Uber are losing a lot of money.

They are doing so to increase market share: To drive taxis out of business.

That they are losing money, and the fact that they are highly valued means that they, and all their investors, expect that they will eventually stop losing money and start making it hand over fist.

In other words, having driven their competitors largely out of business, they will now raise prices.

Once they are an oligopoly, they will charge oligopoly prices.

They may be slightly lower than taxi prices in the end, because unlike taxi owners and drivers they don’t have to pay the capital costs (obviously not using that term in the way Silicon Valley does) of their vehicles, and they can pay near-starvation wages to drivers as long as the job market at the bottom end remains loose (ie. for the forseeable future. Despite the unemployment rate, the truth is, it’s still hard to get jobs near the bottom).

In other words, Uber and Lyft will squeeze additional profits out of their drivers and provide a very small decrease in prices (perhaps).

This, in manufacturing, is known as dumping: Providing something at less than the cost in order to drive competitors out of business, with the intention of then raising prices later. It’s generally illegal, though often not enforced, just as the simple fact is that most of what Uber and Lyft have done is straight up illegal–against most municipal tax regulations and much labor law.

So we’ll get cheaper rides, for now, in exchange for accepting an oligopoly which crushes it workers and provides little price benefit (and a lot less safety), later.

Doesn’t seem like much of a deal, or progress.

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 as Cultural Warfare: The Case of Adam Smith

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On March 29, 2019

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**This Piece Is By Tony Wikrent**

Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.—John Maynard Keynes

For over a century now, professional economists have taught that the ideas on which the US economy was built were those of Adam Smith.

I am going to debunk that, and I expect it will cause some people to freak out. For some reason there are many educated people in the US who take it as a personal affront to attack Adam Smith. It’s not that hard to understand–they have had “successful” (read: well remunerated) professional careers based on the fundamentals they were “taught” (read: indoctrinated with) in college. Adam Smith, as the Brahma of modern “scientific” economics, is one of those fundamentals. So allow me to begin by presenting what one of the recognized giants of professional economics thought about Adam Smith.

Joseph Schumpeter, one of the most influential economists of the twentieth century, in his last book (which was never finished) History of Economic Analysis (pdf), conceded the importance of Smith’s work, while also eviscerating it (pages 171-184). Schumpeter basically damned Smith’s actual ideas with faint praise, while acknowledging that Smith obtained enormous influence as a peddler of specific economic doctrines. (Much like Milton Friedman and his neoliberal Freedom to Choose of our current national nightmare.)

Schumpeter begins his evaluation of Smith by noting that Sir James Steuart‘s An Inquiry into the Principles of Political Economy (1767) had “more originality and deeper thought than does the Wealth of Nations.” So, why do we remember Smith today, and not Steuart? Schumpeter concluded that Steuart “was never much of a success in England,” as a result of the elite disfavor Steuart faced for being a Jacobite (an adherent of restoring the Catholic Stuarts to the throne of the United Kingdom). In fact, Steuart was forced to live in exile from 1745 to 1763.

Schumpeter then noted that Adam Smith’s greatest contemporaneous academic achievement was not Wealth of Nations,but A Dissertation on the Origin of Languages, which was appended to the 1767 third edition of the Theory of Moral Sentiments. “Moreover,” wrote Schumpeter, “Smith’s philosophy of riches and of economic activity is there and not in the Wealth of Nations…. the Wealth of Nations contained no really novel ideas and… it cannot rank with Newton’s Principia or Darwin’s Origin as an intellectual achievement…”

Schumpeter concluded that Adam Smith’s undeniable success in Great Britain was due to English elites’ favor for “the policies he advocated–free trade, laissez-faire, colonial policy, and so on.” In other words, Adam Smith was crowned with success for being a prominent apologist for the exploitative brutality of the British empire:

….it was Adam Smith’s good fortune that he was thoroughly in sympathy with the humors of his time. He advocated the things that were in the offing, and he made his analysis serve them. Needless to insist on what this meant both for performance and success: Where would the Wealth of Nations be without free trade and laissez-faire? Also, the ‘unfeeling’ or ‘slothful’ landlords who reap where they have not sown, the employers whose every meeting issues in conspiracy, the merchants who enjoy themselves and let their clerks and accountants do the work, and the poor laborers who support the rest of society in luxury–these are all important parts of the show. It has been held that A. Smith, far ahead of his time, braved unpopularity by giving expression to his social sympathies. This is not so. His sincerity I do not for a moment call into question. But those views were not unpopular. They were in fashion.

In fact, as Smith biographer Salim Rushid details, Adam Smith very carefully and deliberately went about currying favor with Scottish and English ruling elites. Rushid writes”

Smith’s involvement in politics was neither marginal nor ineffective. Strange as it may sound, in today’s parlance he would have been called “street-smart.” He was considered a good judge of what would sell; despite the radicalism of his personal sympathies, Smith tailored his views and his life to be acceptable to the established order. There is little surprise in finding that this cultivation bore fruit and that Smith’s ideas proved serviceable in the defense of conservatism.

Elsewhere, Rushid writes, that during his time: “Adam Smith was not hailed as a new prophet except by some few, but very influential, persons such as Lord Shelburne and William Pitt.” Adam Smith was merely a paid apologist for the ruin and misery Great Britain imposed on millions of colonial people in Ireland, Africa, China, India, and elsewhere. As Philippine economic historian Erle Frayne Argonza wrote in September 2008:

To continue on the theme of laissez faire, a doctrine started by the French physiocrats and systematized further by the Scots, let it be known that the principle of ‘free trade’ generated by physiocracy was largely a doctrinal defense of slave trade…Adam Smith was an ‘intellectual prostitute’ whose services were procured by the British East India Company, precisely for the purpose of crafting in theoretical form the ‘free trade’ doctrine that was to justify, though subtly, the slave trade of that historic juncture.

Schumpeter also very briefly, and very significantly, noted: “that which I cannot help considering relevant, not for his pure economics of course, but all the more for his understanding of human nature–that no woman, excepting his mother, ever played a role in his existence…” In 2012, Katrine Marçal, lead editorial writer for the Swedish newspaper Aftonbladet, published Who Cooked Adam Smith’s Dinner? (English translation: Pegasus Books, 2016), based on one of the most famous sentences in Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” One reviewer, Ed Walker, Assistant Attorney General of Tennessee for consumer protection and securities, explained how the question posed by Marçal devastated Adam Smith’s economic ideas, and all systems of economics based on them.

 

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World Poverty Is NOT Decreasing

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On January 31, 2019

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I’ve said before that world poverty isn’t reducing, but let’s say it again.

The trend that the graph depicts is based on a poverty line of $1.90 (£1.44) per day, which is the equivalent of what $1.90 could buy in the US in 2011. It’s obscenely low by any standard, and we now have piles of evidence that people living just above this line have terrible levels of malnutrition and mortality. Earning $2 per day doesn’t mean that you’re somehow suddenly free of extreme poverty. Not by a long shot.

Scholars have been calling for a more reasonable poverty line for many years. Most agree that people need a minimum of about $7.40 per day to achieve basic nutrition and normal human life expectancy…

…So what happens if we measure global poverty at the low end of this more realistic spectrum – $7.40 per day, to be extra conservative? Well, we see that the number of people living under this line has increased dramatically since measurements began in 1981, reaching some 4.2 billion people today.

We also know, for example, that Indians have been eating less calories than 30 years ago (and having traveled in India in the 80s, I can tell you they weren’t overfed.)

As Hickel also points out about the earlier parts of the graph, and as I have pointed out previously, most of the “people are making more money” comes from “people were forced off their subsistence farms so that they had to use money to buy what they got from their own labor before.”

So, for example, when NAFTA went into place, millions of Mexican susbsistence farmers were forced off their land. This lead, directly, to the massive increases in immigration to the US that occurred in the 90s and early 2000s, by the way.

People miss the essential point: it’s not how much money you have. It’s whether or not you have enough food, shelter, clothes and so on. It’s whether you have what you need and some of what you want.

Only a moron (or someone as disconnected from the realities of life like Bill Gates) could think that being able to buy as much as $1.90 a day, in the United States of 2011, would qualify as enough money. I have been poor. I have been very poor, by first world standards. I can tell you that even back in the late 80s, $1.90 wasn’t enough (I could have barely eaten on that, I could not have saved up and paid rent.) Today it is completely inadequate, and the diet it would barely allow is basically starch and sugar.

(Which, again, anyone who actually has tried to shop cheaply would know. That won’t include Bill Gates.)

These people who say with certainty how poverty is massively decreasing make me sick. They are either ignorant, very stupid and disconnected from reality, or they are very evil.

Essentially all of the poverty reduction of the past 30 years comes from one source, and one source only. China. Which industrialized by classic protectionist policies which the IMF, World Bank and poverty ghouls do their best to make impossible.

And as for China, what is also clear from their experience, and in the data, is that the Chinese who moved to the cities to get those great new jobs are less happy than the people who stayed in the villages. Further, great amounts of force have had to be used to move peasants off the land, because they know the new factory jobs suck even worse than being a peasant. (As they did in Britain during the Industrial revolution.)

What made some parts of the world better wasn’t capitalism, per se. It was steam power and oil power. Those parts of the world then used that power, along with gunpowder and whatnot, to conquer most of the world and take what they wanted.

Today we do it different ways, but the bottom line is simple enough: measured by any semi-reasonable standard (would you want to try to live on $7.40 a day, including paying your rent?), poverty is not getting better. It is getting worse.

If you say poverty is decreasing, what you are saying is “it is ok to keep doing what we’re doing.”

If you’re wrong, you’re a monster, because you’re saying “we don’t really need to do more.”

And you’re wrong.

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 Problem with Banning Huawei 5G Tech

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On January 27, 2019

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So, the Huawei saga rolls on. The executive arrested, the daughter of the CEO, will probably wind up released, as it’s been made clear this is a political arrest.  (Trump has said so, and it’s over Iran sanctions. Breaking Iran sanctions is clearly political, and probably even the ethical thing to do in many cases.)

But something else is more important to note. Huawei genuinely has the most advanced net tech in the world. It’s that simple.

America no longer manufacturers telecom equipment – Cisco got out of the business several years ago – and Huawei’s two Scandinavian competitors are too little, too late, and too expensive…

the Shenzhen firm is spending $20 billion a year on R&D, about four times as much as either Ericsson or Nokia, its only important challengers in the telecommunications equipment market.

Huawei’s internal assessment holds that its technological lead in 5G mobile broadband is so wide that the competition has no effective chance of catching up. In late February, Huawei will introduce its Balong phone, with a chipset that can handle downloads ten times faster than the best 4G LTE speeds, while operating with 4G networks as well.

Or:

“China’s largest tech company makes high-quality networking gear that it sells to rural telecommunications operators for 20 percent to 30 percent less than its competitors do, says Joseph Franell, chief executive officer and general manager of Eastern Oregon Telecom in Hermiston…”

This is hopeless. It’s probably true that Huawei stole a lot of technology, especially in the 90s and the 2000’s. One of its victims was Nortel, Canada’s telecom giant, which makes me angry.

So what?

They have the technology. It’s cheaper and more advanced than anyone else’s and, hilariously, the US doesn’t even compete in this type of telecom equipment any more.

If this is a strategic matter, then the US has fallen down completely. If an industry is strategic, a country must make sure it, or a trusted ally, stays in the lead. Not only did the US not do that, but US policies from the 80s onwards effectively off-shored this sort of production and research, as a deliberate policy choice.

Now they cry?

5G is lost. If the US, or the US and its allies, want a shot at 6E they’d better figure out how to do industrial policy. That might, indeed, mean banning Huawei, but only if they’re willing to put up with worse, more expensive internet for a decade or so. (But then US and Canadian internet is already not nearly as good as the best.)

One of the key tenets of neoliberal economic policy is that it doesn’t matter where something is manufactured, or done. Let the cheapest domicile do it, and everyone will benefit.

This is bullshit, and always was. Making and designing new things is where economic strength, the good life and military power all come from.

Nations which forget this wind up in the dustbin. Free trade, as an ideology, is the deathknell of great powers, including Great Britain, and likely to include the US. It does work for smaller powers, and should be the default policy mode for all city states, but great powers are not small powers, let alone city states.

So, if the US wants to ban Huawei, it’d better figure out how it’s going to support Huawei’s competitors enough so that they at least catch up, or even consider making sure the US has its own telecom manufacturers. If it can’t do that, this is a band-aid on a wound.

(Oh, and there’s a reason the US, whose technology is used in most of the older telecom equipment, especially cables, thinks that China might use that to listen in. Mmmmm. What would that be?)

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 Rule of Alienation and Stability

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On December 16, 2018

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One of my favourite sights is people complaining that marginalized people don’t understand that their support for Bad Politician-X results in fucking themselves.

“Sure,” runs the line, “their lives suck now. But they’ll suck even worse if this guy gets into power.”

This is often (but not always) true. It is also irrelevant.

The rule is simple: Alienated people are always targets for alternative political movements. Sometimes those movements are good, sometimes bad. But if you don’t want this to happen, your society has to give alienated people genuine expectations of a better future when they play within the system.

When a huge number of people, a plurality, feel that they have little hope for a better future, and a realistic expectation for a worse future, they are willing to roll the dice, even if the odds are bad. After all, they already know that the current world is shitty and the future is worse.

It does not matter if this seems irrational on cost/benefit scales; what matters is the chance, rather than what they see as a certainty.

Now, understand always, that sometimes what is offered IS better. FDR was better. So was Huey Long. Corbyn in Britain will be better than the status quo. (This is why the voting gap for youngsters disappeared for him. Young people vote when they are offered what they need.)

Sometimes it is worse, if not in the short run, then in the long run. Or, if not for you, then for other people in your society (see Hitler and Mussolini for cases of both).

People who love the status quo, who want it to continue, have to make it work for most people. If their policies, no matter how reasonable they seem to the beneficiaries of the current system, whatever it is (Ancien Regime France, for example) plunge a plurality into despair, that plurality will always be ripe for turning on the system.

It really is that simple? Love your system? Okay. Make it work for almost everyone. In excess of 90 percent. Not because you are moral or ethical, most of you probably aren’t, but out of sheer self-interest.

If you don’t, don’t whine when those you left behind decide to take almost any chance to change things.

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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