Ian Welsh

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

Category: Economics Page 7 of 89

Problems of Capitalism: Power Accumulation

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On August 30, 2023

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Capitalism has a lot of problems, a lot of ways it can go wrong. But power accumulation is baked in. Capitalism is the centralization of capital in a few private hands. This is justified in the ideological literature (mostly economics), because it allows for scale, and thus economies of scale, and allows for development. If capital doesn’t accumulate in a few hands it is hard to build factories, huge mines, and so on. (This is the theory, there are obviously other ways to do large scale tasks.)

Now, power accumulation is a problem in all systems. You need some to get things done, but doing too much always leads to dysfunction.

In capitalism, money controls capital (labor, land, resources, etc.). That’s what makes it different from communism, feudalism, despotism, or centralized monarchy. This is so true that the pre-conditions for capitalism include being able to buy labor and land and resources with money. This is because in, say, feudalism, you can’t — in feudalism, people mostly aren’t for hire, land is controlled by nobility and clergy, and free farmers who don’t (and in many cases can’t) sell much.

Money, in a capitalist system, is power. Power is the ability to decide what other people do. At the lowest level, this is known as demand. If you buy a chicken, it sends a signal to someone to keep producing chickens. If more chickens are bought, it says “breed more chickens.” If you’re an ordinary individual, you have this power only in aggregate.

The more money you have, the more demand you control, but you also gain the ability to not just signal; you can rent people to work for you, and they’ll do what you say.

At a certain point, you gain political power because you can hire people to influence politicians, or give them things they want, or help them get elected, and pretty soon they tend to do what you want.

The problem is that capitalism is a money accumulation system. Unless the tendency is carefully checked, money flows to the top, and so does power. Whatever secondary system is in control, be it representational democracy or the CCP, they stop making decisions based on democratic or party principles and start making them based on money.

But capitalism, to the extent it works, works because of good price signaling and semi-competitive markets. For markets to deliver, no one must have market power except a government which is acting out of motives other than profit motives.

Competitive markets are dynamic: it’s hard to keep your money over the long term, let alone for you children and grandchildren, who did nothing to deserve it, to keep it.

So capitalists on winning want to change the rules so that markets aren’t competitive.

They also want to expand capitalism into areas it should not control: roughly anything that is a natural monopoly (all of which should be run by government) or a fundamental welfare service (health, education, etc…) or which runs better when vastly dispersed.

So capitalism becomes a cancer: not only does it grow further than it should, it destroys the proper functioning of markets and of anything else it takes over which should never be part of capitalism.

The further effect is a fairly simple mechanical one: the more money is concentrated, the weaker is demand for non-luxury, non-investment goods. Back in the 2010s people were crowing about how low inflation was, but it wasn’t: the price of arts, collectibles, yachts, real-estate and so on soared: all the things rich people want. This causes general demand collapses which lead to recessions and eventually depressions.

They also distort price signals so that what the majority of the population wants and needs is under-produced and what the elites want are over-produced.

So the general rule for capitalism is that the rich have to be kept poor, which is a specific instance of the general rule across all society types that the powerful must be kept weak if the people are to prosper.

JFK was the first post-war break: he dropped high marginal tax rates significantly. Estate, income and capital gains taxes all need to be quite high on those with the most.

As for oganizations, the corporate socialists are more or less correct. We organized control in the wrong ways: large businesses must be controlled either by their employees or by their customers, or perhaps both, with the community  also having some control and a veto over destructive actions. Small business are fine in the control of a single person, large ones are not. We’ve proved that over and over again.

Every good thing about capitalism is based on keeping markets relatively competitive and keeping capitalism out of the parts of the economy it shouldn’t control (about 60% of it.) And doing that means keeping the rich poor and weak.

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Declining Population Thru Lower Birth Rates Is GOOD, Mmmmkay?

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On August 21, 2023

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Alright, let’s cover this again, with a bit more explication, since the idiots are really doubling down on “oh no, decreasing population.”

If you want to see it on a map, here goes:

Even India has dropped to about replacement rate.

Now, let’s deal with this.

First, to the extent the plummet in birth rates is because of decreased biological fertility, like reduced sperm counts, it’s bad.

Second, despite this, we are well over the world’s carrying capacity and you are seeing it in the collapse of other life forms (ecological collapse) and climate change.

Third: the world’s carrying capacity is variable in a sense: what matters is number of people times the average per capita carrying cost of each person.

Fourth: the more population we want to have, the lower our per capita carrying costs have to be.

Fifth: a lot of people whine about this and to a certain extent rightly so. It is associated with austerity.

Sixth: imagine a world in which you bought a phone and used it for 20 years with modular upgrades; a car and used it for 50 (with modular upgrades); a washer and dryer and used it for 75 years, and where all of those things, when they finally ended their lives, were carefully recycled as much as possible.

Imagine a world in which almost nothing was made out of plastic. (In the 70s almost all bottles were glass and we used paper bags and grocery items were not individually wrapped in plastic and fuck “germs!” Covid has proven we don’t really care about that.)

Imagine a world in which we work half as much, create stuff that lasts for decades or even half a century or more.

Seventh: “but how can we afford this?” We can afford anything we can actually physically do. Each individual item would be more expensive, but last far longer and be cheaper overall. Yes, we would have to change how we distribute permission to have things, but we need to do that already.

Eighth: even in capitalist terms the “oh, without population gain how can we have economic growth” stuff is incoherent. Capitalism is supposed to increase productivity massively, so you should still be able to have growth, certainly per-capita growth. If you can’t, you’re a bad capitalist.

Ninth: that particular issue is related to oligarchs wanting to funnel all the money upwards and instead of relying on customers, rely on government, including central bank, subsidies. (Neither Tesla nor SpaceX would have made it without massive government subsidies.) In actual capitalism capitalists want high wages, because “everyone else’s employees are my customers.” The cost of high wages is more than made up for by people being able to afford their goods. This is why the economy of the post-war era was so good: high wages and lots of consumptiong.

Tenth: of course this sort of capitalism has to go away, we can’t afford a planned obsolesence economy in a world over carrying capacity and with limited stocks of key resources (the way we’re burning thru lithium should be literally criminal). But even in capitalist terms “oh no, population decrease” is an admission of failure.

Eleven: the dependency ratio is how many working people are supporting non-working (old, young, disabled and not allowed to work) people. Yes, a lower ratio makes things harder, but again, productivity is what matters and capitalism keeps claiming it’s good at raising productivity. Plus the actual percentage of people working for wages in high prosperity periods has often actually been lower than in high prosperity periods.

Twelve: oh, and worker compensation is likely to go up as population decreases and as the carry ratio decreases (or at least, be higher than it would have been otherwise, civilization collapse is also in the mix.) After the black death, welfare increased massively. We’re already seeing some of this effect due to the pandemic (one of the only good things to come out of it.)

***

We need less population. The world’s population has over doubled just in my lifetime (I’m 55). That’s ridiculous. And minus the internet and a few good medical improvements, I’ll tell you that life wasn’t worse then. (Even Africa had higher growth rates in the 50s and 60s and the dire poverty numbers are bullshit, because subsistence farming was far more common, but that’s another article.)

We have no problems we can’t adapt to, minus a few scenarios like the Venus runaway, a full ecological collapse which eliminates the apex species (that’s us) or polluting the world so much we can’t survive (which includes nuclear war.)  We can, in theory and even in practice, if our politics wasn’t so screwed up, even make most people better off at the same time. But it will take time, and the most important problems are made simpler by population reductions.

What is going to make everything harder, actually, is our refusal to deal with Covid and our “New Emperor’s Clothes” insistence on pretending it’s over, while it continues as a mass disabling event. Yeah, we can handle a lower dependency ratio, but crippling hundreds of millions of people and making hundreds of millions more sicker is an unnecessary self-inflicted wound.

As before, as so far always in this crisis, the most important thing we have to do is replace our leadership class: political and private, en-masse, so that the correct decisions can be made. And yes, capitalism as we understand it is going to have to go away.

But this weird idea that population reduction right now is bad is breathtakingly stupid, and people who believe it have been fooled, or are fools

Folks, it’s your donations and subscriptions which make it possible for me to keep writing (since I need to eat and pay rent and the cost of both have skyrocked) so please (if you aren’t struggling) DONATE or SUBSCRIBE.

At a Societal Level “Can’t Afford” Is Bullshit

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On July 27, 2023

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John Maynard Keynes – “Anything we can do, we can afford.”

Money tells you how much of society’s resources you can command. Can you use that building, that land or that person?

It’s more than that, of course, but this is its most fundamental use.

But we are all familiar with the fact that often there are empty buildings, unemployed people and land which is not being used productively. We also know that often what people, land and buildings are being used to do is a bad: a net negative.

99% of Wall Street, for just one example. 85% of the US military, for a second.

We use money so much that we forget that it’s only a proxy. What matters is the actual resources: do we have enough, epople, land, buildings, oil, steel, and other resources to do something or can we get the resources we need, either by moving people and other resources away from bad stuff to good stuff, or by creating more resources.

If we have enough or can create enough or can redistribute enough resources, we can do that thing, whatever it is. The limit isn’t money, the limit is actual, real resources.

Estimates of bullshit jobs are at about 40% or so. I’d personally put it higher: jobs that either are pointless or actively harmful are the majority of what we do.

We can do plenty, any time we really, as societies, want to.

There will come a time, and that time is not so distant, where we can’t. Where real and painful decisions will have to be made, but we are still, in most of the developed world, in a surplus situation, with a lot of resources mis-allocated. Reallocate them and we can fix many of our problems and mitigate almost all the rest, while actually improving human and animal welfare massively.

“Afford” is a word for people, not a word for governments who can print money. For them, the question is “does the country have the resources and can they be mobilized?”

We can make the world and ourselves better when we want to, at least for now.

 

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How To Reduce Inflation And Create A Good Economy

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On July 25, 2023

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Right now we have central banks attempting to control inflation by crushing wages. But wage-push demand isn’t the primary driver of inflation, it is corporate profit taking (increasing prices much faster than their costs) and some genuine supply bottlenecks.

This cannot be fixed by central banks except by smashing ordinary people flat, and in certain senses not even then, since it will lead to long term maldistribution of resources which will lead to real economic problems in the future: problems not based on distribution or finance, but on lack of physical ability to create what we need.

If we want to fix this we have to make it so that those who control economic decision making can only do well if the population as a whole does well. That means politicians who want to help the population (not 90% of European or American pols) and corporate leaders who need the population to do well.

We’ll concentrate on the corporate/private side.

Take public all natural monopolies. Monopolies and oligpolies can charge more because people have to buy what they have. Private enterprise is only better than government at providing differentiated goods. If everything is the same (and a joule is a joule and a liter of safe water is a liter of safe water and a cheap, fast train trip is a cheap, fast train trip) then government can do it cheaper and better than private enterprise, since it doesn’t have to make a profit.

Excess Profits Tax or Max Profits Tax. You can only make 5% profit + inflation. Anything more is taxed away. Money invested, is not taxed, however.

No Stock Buybacks, No Stock Options. If a company has excess money, it can only increase profits and stock prices by producing more or better.

Executive and Board Salaries Linked to General Welfare. All compensation is treated as wages. Wages above 10x median are taxed at 95%. They are only allowed to increase by the average of the median individual income, and the median income of the bottom 5%.

No Capital Flows To Other Except For Resource Extraction: Comparative advantage does not work with free capital flows. This was noted by Ricardo when he created the comparative advantage. Companies need to reinvest at home. They also need to not be able to run away with capital because they don’t like being only 10X as rich as the rest of the population.

No Free Central Bank Money: The central bank doesn’t get to just give people money, like it has been since 2008. That’s a legislative decision and one which the legislature should not be allowed to give away to other bodies except in relatively small amounts (perhaps a max of 1% of GDP.)

Break Up the Banks and Regulate Them Properly: Banks decide who gets to do what. If you want the advantages of a free market you need lots of them: easy enough, create them by breaking up the big banks. As for regulation, go back to an equivalent of Glass-Steagall.

Break up Monopolies and Oligopolies in General: either it’s a natural monopoly, in which case the government should run it, or it isn’t, in which case it’s broken up. Go back to prices rising in unison being enough evidence by itself of an oligopoly.

Retailers Either Sell Only Their Own Stuff Or Only Other People’s. No store brands, no Amazon basics, none of that. It’s vastly anti-competitive. Nor can retailers mandate that they must get the lowest price or any other such thing.

***

The general principles here are just to move the market back towards a free market and to “align” incentives so that rich people can’t get richer without everyone prospering.

There’s much more required, of course: these policies require politicians to want to implement them, and for them to last for any length of time, changes need to be made to politics to also make sure politicians self-interest is aligned with the general population. (The other method, which might better is to remove self-interest from these decisions entirely. You don’t always need skin in the game in a material sense—doctors with no financial stake make better decisions for patients than those with and endless measurement aligned with incentives warps measurements.)

None of this is really complicated in the broad strokes. We know what creates good economies and societies, we just rarely do it and those with the most power, whether people or countries, try to keep other countries or people down.

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Utilities As Mutual Companies

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On July 3, 2023

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One of the big constant news stories recently has been about UK water utilities constantly flushing untreated sewage into the rivers and oceans near the UK, while raising prices, paying huge salaries to their executives and massive dividends. One solution is to take them back into public ownership.

But another possibility is to make the mutual companies. I worked for a mutual insurance company for a while, and helped it de-mutualize, at which point its prices went up, employees were treated worse, executives made more money and so on.

In a mutual companies, customers own the company. Dividends are paid to the customers. Prices tend to be lower than in stock companies (there’s plenty of research on this), employees are treated well and executives make less. Since customers own the company, they have a say in what the company does, and since customers of, say, water companies wouldn’t want sewage in the water or forest fires (for electrical companies like California’s PG&E) they might prove better for environmental concerns and also for customer service. Also a lot less likely to get situations where the customers water is full of lead and other pollutants.

There used to be a lot of mutual companies, but most of the de-mutualized because executives wanted to pay themselves more, especially thru stock grants and so on, but if a law was put in place that utilities and other public companies like railways and public transit are either public or mutual and can’t be stock companies, that might cure a lot of problems, especially if the owners(customers) have to approve executive salaries.

Worth a try, at any rate, though I’m aware of the political problems.

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Capitalism’s “Invisible Hand” Is Prescriptive More Than Descriptive

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On May 22, 2023

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The invisible hand is the idea that people operating based on their own self interest in a market economy will optimize “value” and by doing so will increase human welfare. If a person runs a company which makes something that people are willing to buy, they must want or need that thing, and the person will want to make more of that thing so that they can become richer. They do it out of greed, but the richer they get the more they improve the common weal, as it were.

So even though they aren’t doing what they do because they care about the welfare of others (Adam Smith is very clear about that) operating from greed leads to increase human welfare.

Works, except when it doesn’t.

Descriptive statements describe how the world objectively is. Prescriptive statements describe how the world ought to be.

It is certainly possible for someone to get rich doing good. It is also possible for them to get rich doing evil, and it is quite common for them to get rich doing both good and evil things.

Oil companies produces something people want. Oil, natural gas and coal have lead to a large chunk of the world being much better off. But the oil companies knew about climate change and not just suppressed the information, they funded denialism, for the obvious reason that they would make a lot less money if there was a political consensus that less oil and gas and coal had to be used.

Every company wants cheap labor, to reduce their costs, but wants consumers to buy their goods. This led to the Great Depression, in effect (the story is a bit more complicated but this is the essence), and was only fixed when the government forced them to give good wages to employees, and provided price and wage supports along with social security and medicare for old people who couldn’t work, but could continue consuming.

All companies who provide necessities, things people must have, have the ability is they are a monopoly or an oligopoly acting in a collusive matter (which doesn’t require meeting) to raise prices much higher than is good for human welfare. This includes food, water, housing and medical services, among others.

Many companies produce what economists call negative externalities: they do something which hurts other people, but don’t pay the cost. Right now in Britain, privatized water and sewage companies are paying record dividends while dumping record amounts of waste into Britain’s waterways.

Walmart and Amazon both tell their workers how to apply for food stamps and other benefits: they take the profits from cheap labor and dump much of the costs onto the government.

Positive externalities are as big a problem: you do something good and someone else gets the profits, so you have trouble doing more good or even continuing to do good. I like to use the example of the British Museum: without them many people wouldn’t come to London or stay as long, but almost all of the money is spent in hotels and restaurants and the British Museum gets almost none of it, even when you consider the government funding based on taxes it receives.

Universities are another classic: they produce a great deal of value, but are able to capture almost none of it. A good government keeps them well funded and emphasizes teaching and research not administration because they know that universities create value the government will eventually capture.

In dozens of ways markets actually incentivize acting in ways that don’t lead to human welfare, but they can improve human welfare. That’s the issue. It isn’t automatic. Sometimes it works that way, sometimes it’s nothing but oligopolies grasping an excess share and companies dumping their costs on society while taking the profits.

So the invisible hand making greed work to the benefit of all is prescriptive: it is a way that an economy with markets can work, not a way that it must work. If you want the invisible hand to do what Smith said it would, you have to stay right on top of capitalists and make sure that the can only get rich if they increase human welfare.

To a large extent, in the New Deal and post-war American period, that’s what government did. Once Reagan took over, it didn’t, it did the opposite because a rich middle class with a lot of money was like sheep in full coat waiting to be sheered for wool, then eaten.

Most economic issues are politics in drag and the vast majority of politics is just about power and coalitions. The remaining economic issues are about natural laws: ecology, geology, physics, biology: mother nature bats last and she doesn’t give a damn what happens to stupid humans or any other species.

All economic systems are prescriptive. “This is how the economy should work” and are descriptive in the sense that if the economy is organized according to the prescription, it is expected to produce certain results.

Capitalism can, for certain periods and places, produce increased human welfare. But it’s not automatic, it requires keeping capitalists under firm control. Capitalists, as it were, make fine servants, and terrible masters.

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Why The Rich Love To Crush Wages, Cut Pensions And So On To Fight Inflation

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On April 27, 2023

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The majority of price increases, of inflation, right now, are driven by price increases that are higher than increases in costs. Numbers I see tend to range from the mid sixties to the seventies.

They aren’t, then, driven primarily by wage increases.

The obvious way to solve this is to put in a surplus profit tax based on 2019 profit levels and forbid other ways of withdrawing excess profits like stock buy backs and option grants. Only after doing this would you consider trying to crush wages or cut pensions or other benefits.

That is, if your primary aim was to reduce inflation.

But it is undeniable that crushing wages will will reduce inflation somewhat, even if it is far from the best way to do so and it has a great advantage.

It makes the rich even richer by reducing their wage costs!

On the other hand, an excess profits tax would make the rich not get richer nearly as fast.

You can see why governments controlled by the rich (yes they are, let us not be tedious) would prefer to crush wages as opposed to limit profits.

For the elite to support the sort of policies which would not crush wages and which would appear to reduce their profits, they would have to be like a good chunk (but not all) of the post-war elites. Having seen what happened when demand collapsed in the Great Depression, they knew they needed wages to rise and were thus willing to share and to pursue some policies which they didn’t like.

After all, while the fastest way to deal with inflation is an excess profits tax, the structural way is breaking up control of industries and re-regulating anything that even sniffs like an oligopoly or monopoly, plus slamming on huge estate taxes, wealth taxes and 90% top marginal tax rates, while putting a Glass-Steagall analogue back in place and re-nationalizing key parts of the economy.

Now, as it happens, the post-war economy was the best we’ve known since we were keeping records. High growth, reducing inequality but still plenty of profits. The rich had to live with only getting 20X or so as much as the middle class, though, and that’s just unacceptable to them.

Now never let it be said that the rich don’t learn: they do have a dim understanding of “demand collapse bad” and they have a solution, which they’ve been trying since 2008.

“What if we just print tons of money!?” Trillions and trillions of dollars were produced and are currently being produced out of thin air, with no increase in the underlying economy, and given to rich people to bail them out and even when they don’t need bailing out.

Who needs to actually grow customers and have customers having increased real incomes when you can just give yourself money?

This is why things will only improve when current elites lose power wholesale.

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Declining Birth Rates Are Good & Bad

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On April 4, 2023

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So, there’s constant talk about the problem of declining birth rates and how much of a problem they are. There’s some truth to this, but a lot of it is based on the argument that more people lead to growing economies and that argument is terrible. The part that is reasonable is the rising increase in infertility, including plummeting sperm counts. That’s not bad because it leads to less children, precisely, it’s because it indicates how badly we’ve poisoned ourselves.

But the simple fact of the matter is that the world is well past its carrying capacity for the type of society we have. The Club of Rome predictions from 1968 have almost all tracked the real world, and we’re just past the hump: we’re into decline, but barely.

Notice that population decline happens about 30 years after the peak of food, industrial and services per capita. That’s bad and it’s part of what is going to make this so ugly. Check out the food per capita line for some real ugliness, though there’s going to be a lot less fat people.

Note that carrying capacity is not purely about population. Different global societies have different carrying capacities per capita. If we had not gone with planned obsolescence (there was a fight over near the end of the 19th century, managers vs. engineers and the engineers lost); if we did not have suburbs and exurbs but only urban, rural and wilderness; and if we had seriously started our transition from fossil fuels in the 80s instead of electing Thatcher and Reagan, our carrying cost would be much less and the world could support a much higher population. But under current circumstances, the world maximum population is probably about two billion, and once climate change runs amok it will be less.

So our population is going to reduce. It’s not “we have to reduce our population” it is “we are animals who exceeded the carrying capacity of our environment and our population IS going to drop, whether we like it or not.” That’s going to suck.

There was a window to avoid this. It is a result of our own decisions: to go with planned obsolescence, to have suburbs and massive numbers of cars, to pollute like maniacs, to destroy the forests and the swamps and the jungles, to not transition away from fossil fuels and dozens of decisions based on greed and “I won’t be here when it gets bad, so who cares?”

As for economies, high dependency rations (fewer working age people supporting people who can’t work) will be a drag. But because we have legitimately already overshot carrying capacity and because of resource and sink constraints (sinks is where we put our pollution, like CO2 and methane) reduced overall population is going to be more good than bad.

How much population will be lost is, in some sense, up to us. We left doing all the right things too late to avoid this, but the faster we transition to societies built around not exceeding planetary limits and working with and for the environment, the less people will die.

But even in a very optimistic scenario I have trouble seeing our population not winding up down two to three billion.

It is what we, as a species, chose through our decisions. That doesn’t mean you or I chose, we mostly didn’t, but at the species level, our decisions lead here.

It is what it is, and it will be what it will 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.

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