Ian Welsh

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

Category: Economics Page 35 of 89

The Right Stuff: What Prosperity Is and Isn’t

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On October 25, 2017

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Is a society prosperous when everyone has an abundance of goods, the usual definition of prosperity? Are you prosperous if you have an abundance of goods, but no time to enjoy them? Are you prosperous if you have an abundance of goods, but you’re sick? Are you prosperous if you have an abundance of goods, but you live in an oppressive society? Are you prosperous if you have an abundance of goods but are desperately unhappy and feel you’ve wasted your life?

This falls flat: more goods don’t necessarily make us better off, nor more services. More foods that make us sick aren’t better. More health care doesn’t mean we’re healthier, it often means we’re sicker. More prisons mean our society is producing more criminals and more crime.

Just increasing economic activity doesn’t make people better off. It doesn’t increase prosperity.

Perhaps the best example is the change from hunting and gathering to agriculture. It would seem self-evident that learning how to grow more food would make us better off. In fact, however, moving from hunting and gathering to agriculture lead to worse lives for most people. People were shorter in most agricultural societies, which indicates worse nutrition. They suffered more from disease and had far more chronic health conditions. Most people also had less free time and didn’t live as long as the hunter-gatherers who preceded them.

Nor was this a short term decline, it lasted for thousands of years. Height is a good measure of nutrition, and we are still not as tall as our hunter-gatherer ancestors. Pelvic depth, which measures how easily women give birth has never recovered. Median lifespan was not higher for around 6,000 years. And even after it recovered, it declined again in large parts of the world. Members of the Hellenic world, from 300 BC to 120 AD, had longer lives than westerners before the 20th century.(1)

Our lives can get worse, and stay worse, for hundreds or thousands of years, despite having more goods.

If prosperity means having more stuff, but being sicker and dying sooner, do we want it?

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A better definition of prosperity is about having, not more goods and services, but the right goods and services in the right quantity.

We should want goods and services that make us healthier, happier, smarter, more able to do great works and to live well. Instead of more work, we should want right work, enough work to make the right stuff, but not so much work we have no time for our loved ones, friends and doing the activities we love, whatever those might be. And, as much as possible we should want health instead of medicine and low crime rather than prisons.

All other things being equal more productive capacity is better. The more stuff we can make, in theory, the better off we’ll be. But in practice, it doesn’t always work that way.

Part of the problem is due to hierarchies and inequality. Inequality is undeniably bad for us. The more unequal your society is, the lower the median lifespan. The more unequal the society, the sicker, in general. More heart attacks, much more stress. The more unequal, the more crime. These links are robust.

The links run two ways. On the one hand, humans find inequality stressful. The human body, if subject to long term stress, becomes unhealthy and far more likely to be sick. People who feel unequal act less capable than those who feel equal. This is true for the rich and powerful in unequal societies and the poor. Everyone suffers. Though the poor and weak do suffer more, even the rich and powerful would be healthier and live longer in equal societies, most likely simply due to the stress effect.(2)

The second part is distribution, or rather, the question of who gets to decide the distribution. The more unequal a society, the less stuff the poor and middle class have, comparatively. Some technologies tend to lead to more inequality, some tend to lead to more equality. In most hunter-gatherer societies there isn’t enough surplus to support a class of rich powerful people and their servitors, in particular their servitors who enforce the status quo through ideology or violence. With little surplus, there is equality. This doesn’t mean hunter-gatherers live badly, most of them seem to have spent a lot less time producing what they needed than we do, they certainly didn’t work 40 hour weeks, or 60 hour weeks, closer to 20. (3) The rest of the time they could dance, create art, make love, socialize, make music or whatever else they enjoyed.

Agriculture didn’t lead immediately to inequality, the original agricultural societies appear to have been quite equal, probably even more so than the late hunter-gatherer societies that preceded them. But increasing surpluses and the need for coordination which arose, especially in hydraulic civilizations (civilizations based around irrigation which is labor intensive and require specialists) led to the rise of inequality. The pharoahs created great monuments, but their subjects did not live nearly as well as hunter-gatherers.

The organization of violence, and the technology behind it is also a factor. It is not an accident that classical Greece had democracy in many cities, nor that it extended only to males who could fight and not women or non-fighting males. It is not an accident that Rome had citizenship classes based on what equipment soldiers could afford: the Equestrian class was named that because they could take a horse to war. It is not an accident that the Swiss Cantons, where men fought in pike formation, were democratic for their time. Nor is it an accident that universal suffrage arose in the age of mass conscription.

When Rome moved away from citizen conscription to a professional army it soon lost its liberty. As we move away from mass armies it is notable that while we haven’t lost the vote, formally, the vote seems to matter less and less as politicians more and more do what they want no matter what the electorate might want.

Power matters for prosperity, the more evenly power is spread, the more likely a society is to be prosperous, for no small factions can engage in policies which are helpful to them, but broadly harmful to everyone else. Likewise widespread demand, absent supply bottlenecks, leads to widespread prosperity as well.

In the current era we have seen a massive increase in CEO and executive pay, this is due to the fact that they have taken power over the primary productive organizations in our society: corporations. The owners of most corporations, if they are not also the managers, are largely powerless against the management. It is not that management is more competent than it was 40 years ago, at least at their ostensible job of enriching shareholders, it is that they are more powerful than they were 40 years ago, compared to shareholders and compared to government.

Because increases in the amount we can create do not automatically translate into either creating what is good for us, or into relatively even distribution of what we create, increases in the amount we can create do not always lead to prosperity, and certainly they do not have to lead to widespread affluence. Productivity in America rose 80.4% from 1973 to 2011, but median real wages rose only 10.2% and median male wages rose 0.1%.(4) This was not the case from 1948 to 1973, when wages rose as fast as productivity.

Increases in productivity, in our ability to make more stuff, only lead to prosperity and affluence if we are both making the right stuff, and we are actually distributing that stuff widely. If a small group of individuals are able to skim off most of the surplus then prosperity does not result and if a society which is prosperous allows an oligarchy, nobility or aristocracy to form, even if such an aristocracy (like our own) pretends it does not exist, society will find its prosperity fading.

Creating goods that hurt people is not prosperity either. At the current time about 40% of all deaths are caused by pollution or malnutrition.(5) If someone you love has died, there is a good chance they died because we make stuff in ways that pollute the environment, or because the stuff we make, like much food, is very bad for us. Being fat is not healthy, and we have an epidemic of obesity. Even when we do not, immediately, die, we suffer from chronic diseases at a rate that would astonish our ancestors. As of the year 2000, for example, approximately 45% of the US population suffered from a chronic disease. 21% had multiple conditions.(6) Some of this is just due to living longer, but much of it is due to the food we eat, the stress our jobs inflict on us, and the pollution we spew into the air, land and water.

We should always remember this. Increases in productive capacity and technological advancement do not always lead to welfare and when they do, they do not have to do so immediately. The industrial revolution certainly did lead to increased human welfare, but if you were of the generations thrown off the land and made to work in the early factories, often 6 1/2 days a week, in horrible conditions, you would not have thought so. You were in virtually every way worse off than before being thrown off the land, and so were your children. A few industrialists and the people around them certainly did very well, but that is not prosperity, nor is it affluence.

Prosperity, in the end, is as much about power and politics as it is about technology and productive ability. The ability to make more does not ensure we are making the right things, or that the people who need them, get them. Productive capacity which is not shared is not prosperity.

Originally Published Jan 31, 2014.

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Could Obama Have Fixed the Economy?

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On October 17, 2017

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I want to revisit this. Obama was the last person who had a real chance to change and fix things. A crisis is an opportunity. FDR used the Great Depression to change the US. Reagan used stagflation to change the US. Bush used 9/11 to change the US.

Obama could have used the financial crisis to change the US. He did not. That was a choice.

His failure leads straight to Trump and various other pathologies. It is a straight line. Failure has consequences. Belief in the status quo (which describes Obama to the T) has consequences.

So, here’s what I wrote about this November 6, 2014 and many other times…

I’m hearing “Obama couldn’t have fixed the economy.  Wage stagnation is not his fault, it’s been going on for decades!” (For the record it’s been going on for at least 34 years, probably 39, and for some parts of the population, for 46 (that’s when wages for working class white males peaked. Which is why they’re pissy.))

This argument is, to give it more courtesy than it deserves, bullshit. I wrote about this back in 2010, and you can read that article, but let’s run through this one more time, because you will never get good leadership if you keep excusing your leaders for betraying you.

Part of the argument is that Obama couldn’t do almost anything because Obama only controlled the House, the Presidency, and didn’t quite have 60 votes in the Senate in his first two years. Because this is the case, I’ll deal with this argument in two parts.  In part one, we will discuss something that needed Congressional approval.

The Stimulus: Negotiating 101, people, is that you always ask for more than you want. Obama asked for too little, and a huge part of his stimulus was tax cuts. Worse than this, his stimulus was structured terribly. What you do with a stimulus package in a recession and financial collapse is you use it to restructure the economy. That means things like moving the entire federal package of buildings over to solar, and buying from American companies. (Don’t even try to natter on about trade deals, the US is more than happy to ignore trade rulings it does not like.) That means putting aside a huge amount of money to refit every American house to run on renewable energy, which are jobs which cannot be off-shored or outsourced; they must be done in-country.

That also means building high-speed rail, and using eminent domain to get it done. It further means moving money off the sidelines which would otherwise sit there by providing a clear direction for the economy so that private actors invest hire and invest.

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Note that, while Obama did not negotiate properly, he did include a huge amount of tax cuts (right-wing ideology), and he produced a stimulus which did not restructure the economy or get private money off the sidelines. I wrote extensively about this at the time. None of this is post-facto judgement:

January 5, 2009: The day the news leaked that 40 percent of the stimulus was tax cuts, I wrote it wouldn’t work.

January 17, 2009: The full details are out. I write: “For ordinary people however, there will be both wage deflation and real asset deflation…”

Now, all the things Obama could have done which DID NOT require Congressional approval:

Prosecute the Bankers: This is an executive decision–entirely an executive decision. There was widespread fraud, and no senior executive on Wall Street could credibly claim to not know about it. Seize their emails, indict them under RICO statutes (i.e., take away all their money and force them to use public defenders), and throw them in jail. Do not let them get off with fines that are less than the profits made, effectively immunizing them. This means they will keep doing fraudulent and destructive things, because doing so made them personally rich.

Oh, also, there are now fewer, bigger banks.

Take Over and Break Up the Banks: The Federal Reserve had trillions of dollars of toxic sewage on its books which it borrowed at par, which could not sell on the market at par. But Ian, you cavil, “the Federal Reserve is independent of the President.” No. The President can fire any member of the Board of the Federal Reserve except the Chairman for cause and replace them. Letting the financial collapse happen might qualify as cause. Even if Bernanke refused to leave, he could have been outvoted on every issue by Obama’s people. Once you control them, you return all the toxic sludge to the banks. They go bankrupt. Which leads to:

Make Stockholders and Bondholders Take Their Losses: Yes. This will wipe them out. That’s the point.  The problem with the rich isn’t primarily that they are rich, it is that wealth allows them to largely control the government (I trust this is non-controversial. If it isn’t, I hope you’re on a payroll and required to believe such sewage.) Making them take their losses breaks their power. Once their power is broken, it’s a lot easier to get everything else done. This is also a popular move. (There are ways to fix the pensions which go bankrupt, another time on that.)

Using the Banks You Took Over and Broke Up, Lend! These banks are now under Federal control. They do what the President wants, when the President wants it done. They start lending to create small business, rebuild the nation’s infrastructure, move to renewable energy, and so on and so forth. (Read THIS, for what the US needed to do at the time. Again, it was written at the time.)

This article is not exhaustive

There are many other things Obama could have done, that he chose not to do. It is entirely fair to judge Obama on the economy because not only did he never do what was needed to fix it, he did not even try. Everything he did that was supposedly to fix the economy was insufficient, and he was told so at the time by people who had been right about the oncoming financial crisis, in advance.

Even in small things, like aid for homeowners, the Obama administration chose to do as little as it could–even when it had both the authority and the money for it (which it did).

Obama is a Right-Wing President. That is all. He is a Reaganite, and to the right of Reagan, but somewhat to the left of the Tea Party, which puts him in spitting distance of Atilla the Hun (his record on civil liberties is, according to the ACLU, substantially worse than George W. Bush’s. He deported more Hispanics than George Bush ever did, etc.) Obama had plenty of power to make more of a difference than he did, and he chose not to. In the small things, in the big things, when it came to economic policies and to non-identity-based civil liberties, he virtually always did the right-wing thing.

Obama is the first President in post-war history (and maybe all of history) whose economy gave more money to the top 10 percent than the entire value of all productivity gains in his Presidency. Even George W. Bush didn’t manage that.

Yes, stagnation of wages and wealth, and even the drop of both in many sectors while money concentrated in the hands of the rich is something which has been going on for decades. It is hard to stop.

But, because of the financial crisis, Barack Obama had the opportunity. Calls against TARP were running, according to my sources, 200:1 to 1200:1 against. It failed to pass the first time. Nancy Pelosi said she would not pass it if an equal proportion of Republican House members would not vote for it also. They refused to do so.  It would have died except for one thing: Obama twisted arms to make it happen. As the Presidential candidate (and likely future President), he had the ability to do that, and he did.

Again, Obama did not fix the economy because he did not want to. Or rather, keeping rich people rich was more important to him. You can argue, if you wish, that he was not willing to break up the banks because it would have been catastrophic. That argument cannot be dealt with fully here, without doubling the length of an already long essay, but I will be gauche and quote myself, once more, from 2008:

Now, it’s the US. They can try and sweep this crisis under the carpet and pretend there isn’t a huge overhang of bad loans and worthless securities. If it does so, the best case scenario is that the next twenty years or so will be America’s Bright Depression (Stagnating economy). Best case.

I will tell you now that the best case has not happened. As the charts in this post show, the economy stagnated for ordinary people through the recovery and boom of this business cycle. During the recession, there will be job losses again. Most of them will not come back in the next recovery and boom, and neither will wages.

This is Barack Obama’s legacy. Those like Paul Krugman (what happened to Paul?), who pretend that Obama is a great president are laughable. History does not grade on a curve; “Well, we aren’t all chewing on our boots.” Obama had a historic opportunity to be the next Franklin Delano Roosevelt. Instead, he chose to save the rich, and let them eat everyone else. This was a choice. He could have done other things.

Nor is this a noble failure; he did not even try. He did not use the real tools he had at his disposal.

I note, finally, again, because I know most readers will have heard over and over again that Obama saved you from Armaggedon, that the US economy cannot be fixed until the wealth, and therefore power, of the very rich is broken. It cannot be done. However bad you think it would have been if that had been allowed to happen, this economy will continue to get worse because it was not done.

The Federal Reserve has printed trillions of dollars, and given them to the rich. Imagine another world, where it had printed that money and used it to restructure the economy for prosperity and growth.

That, my American friends, is the future Obama stole from you. Indeed, because the rest of the developed world would have followed his lead, he also stole the same future from all of us.

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Corbyn Wants to Destroy the Current Economic System

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On October 15, 2017

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Take it right to them:

Responding to Hammond’s warning in his speech at this month’s Conservative conference, Corbyn will say the chancellor is “absolutely right” to say that Labour is threatening to destroy the current economic model, adding that the current system “allows homelessness to double, 4 million children to live in poverty and over a million older people not getting the care they need”.

Picture of Jeremy Corbyn

Jeremy Corbyn

The reason the establishment hates him is that he threatens them. He will re-nationalize power and railways, institute rent controls and ownership limits on multiple homes and overseas owners, and build new council housing.

And there’s this:

Corbyn will say Labour is not opposed to technological advancement, but digital giants such as Uber and Deliveroo have built their success not on their technological advantage, but by “establishing a monopoly in their marketplaces and using that to drive wages and conditions down.”

“Imagine an Uber run co-operatively by their drivers, collectively controlling their futures, agreeing their own pay and conditions, with profits shared or re-invested,” he will say.

“The biggest obstacle to this is not technological, but a rigged economic system that favours wealth extractors, not wealth creators.”

This, by the way, is basic economic theory. Markets work for the benefit of most when they are competitive, and bounded by safety nets and regulations. They do not work for the benefit of all when they form monopolies or oligopolies. The latter have to be regulated to the max, broken up, or turned into public utilities.

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Or, perhaps, to change who owns them.

The current economic system is not good capitalism: It is not competitive or regulated or bounded by proper safety nets and guaranteed minimums, let alone proper high-end taxation.

To make capitalism, or rather, markets, work, requires strong government intervention and always has. Thatcher and Reagan were just wrong, and it shows up in virtually all the numbers.

Corbyn is the actual realist here, not those who celebrate the current mode of “capitalism.”

And this is going to be fun to watch.

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Four Laws for Protecting Capitalism from Itself

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On October 14, 2017

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Right. So, boosters of free trade like to use Singapore as an example.

It’s a bad exemplar of the policies such people actually want for a pile of reasons, but Singapore does contain lessons for how to do trade and capitalism right (other than “be a city state,” which isn’t usually an option).

About 90 percent of the land in Singapore is state owned, and 85 percent of the housing is.

The point here is that trade is important to Singapore BUT the population is largely insulated from the effects of free money flows. Their living costs are stable because the state ensures that stability.

Likewise, Hong Kong, renowned for free trade back in the day, had a huge amount of the real estate owned by its government.

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Free trade is not free financial flow, and real-estate markets should not be subject to foreign money flows or the vagaries of an economy run through trade. You make trade work by sharply limiting what it affects, not by letting it affect everything.

This means stable costs for the native population and workforce and stable costs for people doing business in the country, which means that trade can do its work without destroying its own foundation.

This is true of capitalism in general. Capitalism, due to its inherent flaws, destroys itself in a number of ways. For capitalism to work, policies need to be in place for it to actively avoid these pitfalls:

  1. It must not be allowed to form unregulated monopolies and oligopolies.
  2. It must not be allowed to run bubbles; it must not be allowed to engage in mass fraud.
  3. The money gained from it must not be allowed to turn into power which controls government.
  4. Money must not, generally speaking, be allowed to buy anything that matters; from health care to a good education.

Capitalism, as the standard saying runs, is a good servant, and a terrible master. Only fools let capitalists actually control anything in their society that truly matters.

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Gas Companies Manipulated Pipeline Capacity to Rook New England Customers 3.6 Billion

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On October 12, 2017

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Shades of Enron:

The systematic withholding of pipeline capacity, particularly on the coldest days, has cost New England electricity consumers $3.6 billion…

…

On the worst days, including during the Polar Vortex of 2013-2014, up to seven percent of Algonquin’s capacity could be artificially constrained.

“When you relate that back to gas-fired generators, that’s about 28 percent of the gas that would be demanded,” Zaragoza-Watkins said.

This “capacity withholding,” researchers wrote, “increased average gas and electricity prices by 38 percent and 20 percent, respectively, over the three year period we study.”

These sorts of manipulations are always ongoing in any sphere where they can be done with a reasonable chance of success. This is similar to Enron’s price manipulation in the California market, yes, but it is typical of any industry where a few people can finangle prices. The LIBOR (London Interbank Rates) scandal was similiar: A few people could manipulate the rate and cost ordinary people billions of dollars.

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There are always key points in the economy where a few people have disproportionate power. Anything that people must have, that someone else controls, is a leverage point which can be used to extract disproportionate profits.

People must have heating during the polar vortex. People must have loans and credit (and money). People must have houses (during the housing bubble and, indeed, various housing bubbles happening right now.)

If people must, and there is a resource bottleneck, that bottleneck can be squeezed. A pipeline is an obvious bottleneck, but that only some people can create money out of thin air is also a bottleneck. That some people set effective interest rates and profit from them is a bottleneck, and so on.

Careful construction of an economic system limits resource bottlenecks, and assures that those who control the remaining resources can’t profit from squeezing them, if possible, and regulates and inspects the hell out of those bottlenecks that remain profitable to squeeze.

We do not live in such an economy. Rather, our economy has mostly been constructed to encourage such squeezing. Cases where it is genuinely punished are rare (as with virtually all the financial executives getting off in the financial crisis).

This pipeline squeeze looks like it might be the rare exception. But only maybe. Remember, if the executives come out clean, and richer than they would have been otherwise, any fines or punishments will not stop it happening again.

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The Growing Puerto Rico Disaster

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On October 11, 2017

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The number of people without power on the Island is increasing, not decreasing, up 6% from yesterday, to 90%. A third of the island doesn’t have running water. Half the people don’t have cell phone coverage.

Aid has been slow and largely ineffective. There is reason to be worried about disease outbreaks, and medical care is severely handicapped.

Meanwhile, Puerto Rico has a massive debt overhang, and is crippled by it.Trump has suggested a 4.9 billion dollar bridging loan to help them over. The people who actually hold Puerto Rico’s debts, of course, have not been forgiving. They weren’t forgiving to Argentina, or to the Congo, and they aren’t going to be forgiving to Puerto Rico.

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The disaster relief has been bungled. It shouldn’t primarily be a matter of money in any case; the island should be flooded by work crews from all over the US with the materials they need to do the repairs, and the necessary heavy equipment to clear blockages, while large airlift is used to get to areas that are more remote.

This is a logistical exercise, the US has the capacity, and the US has chosen not to use the capacity. It is that simple.

As for the debt, most of it should simply be forgiven. The US government has the ability to do that.

We have a weird idea that debt is sacrosanct in our society, an idea which is totally out of whack with what makes good societies or good economies.

Good economies are based on easy debt forgiveness. People who lend money have a responsibility to not over-lend, and if they do, they deserve to lose their money. If you lend money to deadbeat Uncle Bob, you don’t expect to get it back. If you lend money to someone already in hock to three other loan sharks, well, you’re probably not getting that money back.

Excessive debt cripples people and economies, making them unproductive. Easy bankruptcy removes the debt so they can move on, and it also removes lending ability from people who have proven they have bad judgment about to whom they should lend.

Easy bankruptcy doesn’t mean “keep everything,” but it does mean keep everything necessary for economic and personal viability. In personal terms, tools a primary residence, a car, and so on. In government terms, all the lands, buildings, equipment, and so on required for the government to do its job.

Puerto Rico is an economic cripple. It doesn’t have the resources to fix itself, DC refuses to send sufficient help, and more debt isn’t going to fix its problems–any more than more debt has helped Greece.

Pathetic.

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The Destruction of the Third World

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On October 7, 2017

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The first thing to understand is this: 3rd world GDP growth in the post-war liberal period (roughly 46-68 or so), was good.  It was above population growth in most cases.  That changed around about the time OPEC grabbed the West by short and curlies, squeezed and wound up with tons of money they didn’t know what to do with.  This is an act in three parts:

ACT 1: Banks Loan Money to Third World Countries

Lots and lots of it. The pitch is this: we know how to develop countries. You’ll borrow this money, invest in development and have more than enough money to pay off the loans. Except that they didn’t know how to develop countries and even those countries in which the leaders didn’t steal the money, the loans grew faster than the tax base, leaving governments less and less able to administer their own countries.

ACT II: Money, Money, Money and Cash Crops

So, you need $.  Foreign dollars.  How do you get them?  You could do what Japan, Korea, the United States and Britain all did, and develop real industry behind trade barriers, of course, but that’s not what the experts are telling you to do.  What they’re saying is “you have a competitive advantage in certain commodities: cash crops and maybe minerals. You should work on that.”

Most cash crops are best grown on plantations, so if you want to move your economy to cash crops, you have to move the subsistence farmers off their land.  That means they will go to the cities and need food that you no longer grow (since you’re growing cash crops to sell to Westerners.)  But hey, that’s ok, because with all the foreign currency you’ll be getting from bananas, coffee and so on, you’ll be able to buy that food from Europe and America and Canada.  Right?  Right!

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Except that everyone is getting this advice, and everyone is growing more cash crops, and the price drops through the floor and you have a thirty year commodities depression.  You can’t feed the people you’ve shoved off the land without taking more loans; there are no jobs for those people, so now instead of self-supporting peasants you’ve got a huge amount of people in slums.  But, on the bright side, while not enough hard currency has been created to develop, or even stay ahead of your loans, enough exists so that the leaders can get rich; the West can sell grain to you; and you can buy overpriced military gear from the West.  Win!  For everyone except about 90% of your population.

ACT III: The IMF

The above was standard IMF and World Bank advice, of course.  Don’t let anyone tell you that the World Bank or IMF want a country to develop; their actions say otherwise.  What they do need to do is push neo-liberal doctrine.  So, now that your country is vastly in debt and can’t feed itself without foreign food which must be bought in hard currency, the IMF says “well, we could give you more money, BUT”.

The but is that they want you to stop subsidies of food and let food prices float.  Then they want you to reduce tariffs on goods, even though tariffs are a huge source of tax revenue, because your government is crippled and your people have tiny incomes, so you really don’t have the ability to tax them.  Then they want you to open up your economy to foreigners buying it up, so foreigners can own every part of your economy worth having (anything that generates hard currency, basically.)

FINIS

After all this your country is a basket case.

Win, Win, Lose.

(This was the great commodities depression. It ends about 1998, but the vast debt overhang remains in most cases.)

Originally published October 10, 2014. I can’t write this any more succinctly than this.

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The Control and Continuation of Capitalist Societies

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On September 30, 2017

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Image by Admit One

Markets have existed for millennia. Capitalism has existed for millennia. The Romans had markets and capitalism; the Greeks did; the Assyrians did, and so on.

(This is Part Two of a series. Read Part One: Will Capitalism and Democracy Survive?)

But none of these societies, despite having capitalism and markets, were capitalist societies.

Capitalist societies use capitalism as their primary method for controlling economic activity.

Weber called this “rational capitalism.” What he meant was that capitalism transformed, according to its reason, other relationships so that they became capitalistic.

A capitalistic relationship is one that is determined by money. It is traditional to say it is controlled by price and the profit motive, but that’s not quite true.

Uber is losing money. A lot of money. It might never be profitable. Elon Musk’s companies do not make money, though they may in the future. The banks and brokerages of the 2000s went bankrupt.

In a capitalist society, people do what gets them the most money.

What is important about this is that in capitalist society, money equals power, much more so than in other societies.

In a capitalist society, money buys people and their time. It buys virtually everyone. It allows you to decide what those people do. (Read: The Tyranny of Money.)

What is important about this is that it means that people who do what the system requires are the people who get power.

If you don’t respond to monetary incentives in a capitalist society, you usually don’t get power. Not only that, you are generally deprived of power.

So a capitalist society ensures its continuation by making sure those with power are those who do what a capitalist society requires: Pursue money.

(Speaking of money, I am fundraising to determine how much I’ll write this year. If you value my writing, and want more of it, please consider donating.)

It’s hard for us moderns to really grasp this. In the Dark and Middle Ages, most societies were not capitalist societies. Most people were tied to the land. They did not work primarily for money, they worked for their lords for X days a year, or during a call up for war. But the rest of the time, they worked for themselves or their families.

You could buy some people with money, but you couldn’t control most people with money. What mattered was a system of allegiance, and military force.

Power got you money more than money got you power. People who forgot that lost both.

This is generally true in most agricultural societies for most of history, though it’s not an absolute.

In the Roman Republic, most rich men were rich because they were aristocrats with land or because they were successful generals who had looted their wealth. Only one of the great men competing to be Empire and end the Republic, Crassus, had most of his power due to wealth and he did not win.

The extent to which a society is capitalist can be determined by how many people you can buy, and how much of them you can buy. A peasant may do letting out labour in the evenings or odd jobs, but you can’t buy most of his or her labour. A nobleman may do some things for money, but not most, and the official ethos of nobility was that to engage in manual labor or mercantile activity was to de-grade yourself and lose your noble status.

In our society, you can buy virtually everyone, including the most powerful politicians. (For all that people deny it, much of Obama’s policies could be predicted by “wants to be rich after office”–I said that long ago, and its predictive utility was high.)

Your ability to do that to high nobles was often limited: If they got upset enough at their bankers they would just kill them or exile them, and seize their assets. This happened over and over again. At best you rented kings and high nobility: Lending to them was a privilege, you did not own them, and if you thought you did, that worked out badly for you pretty often, though, of course, this was not the case in all places and times.

A social system perpetuates itself when it gives power to people who act as the social system thinks is correct.  Capitalism perpetuates itself as long as power goes to those who pursue money first. Feudal societies were about the ability control fealty, especially of militarily capable men. And so on, you can analyze most societies this way.

This breaks down in three circumstances: when the society selects people who don’t respond how they are supposed to (late Communist leaders not believing in Communism); where leaders are incapable of running the society even if in power, or; if the basis of power changes (if military power is no longer based primarily on fealty relationships, for example).

This can, and should, be applied to capitalism.

(Read Part 1: Will Capitalism and Democracy Survive?)

The next part of this essay series will look at the question of system flaws: What systems, in particular capitalism, do badly, and which must be managed lest those flaws bring the system down.

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