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The Dangers of Intelligence without Creativity or Judgment

2015 March 11
by Ian Welsh
Larry Summers, 2013

Larry Summers, 2013

A friend once said to me “once you’re at a certain level of intelligence, most people you meet are either about as smart as you, or stupider.”

I’m at that level of intelligence, I suspect many of my readers are as well. If I go into a 10,000 person organization which doesn’t select primarily for intelligence, I expect to either be the smartest person in the room, or as smart as the smartest person in the room. In an org that does select for intelligence, I still expect to be able to keep up, and to be smarter than most, even if they know more about the subject than I do. (Plus, lots of very high IQ people have terrible intellectual judgment).

Divide intelligence into three parts, (yes, you can divide other ways):

1) processing power and pattern recognition (measured pretty well by IQ)

2) Creativity

3) Judgment

A lot of people only have the first, they are very smart ordinary people, they will get to the same solution a modestly bright person would, just a heck of a lot faster. The folks who put up their hands first in class, whose self-worth is based around #1.

(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.)

High IQ people without 2 or 3 and preferably both, are extraordinarily dangerous if the problem isn’t straightforward. They are the brilliant people who can completely fuck things up. Think Larry Summers — he really is VERY high IQ, I know people who know him. Brad DeLong has very little of #3 either, though he’s very very smart. (He’s very good when his emotions aren’t involved, his historical economic work is excellent). #1 is much more common than #2 and #3.

It isn’t primarily intelligence based, but empathy also has a multiplicative effect in certain circumstances.

Around about 4 standard deviations IQ starts to go really off tracks without #3, because at that IQ level people can make connections between almost anything, the pattern recognition is in overdrive.

To use a metaphor, think of processing power and pattern recognition as the engine of a motorcycle.  Think of creativity and judgment as the rider.  In a straightaway, powering down the highway, no other vehicles on the road, what matters it the engine.  As long as the rider can stay on the bike, the guy with the highest IQ will win any race.

But the more difficult the road conditions, or when you go off road, the more the rider matters.  The guy with the big motor, faced with erratic drivers and lousy weather is likely to get himself, and possibly others, killed.  The good rider will make it thru.

Learning how to think is, in many ways, more important than raw processing power.  The raw processing power will hold you back (to an extent, there are accounts of people raising their IQ by over a standard deviation thru concentrated intellectual effort), but too much power and too little judgment will get you killed, and too much processing power and no creativity will just get you where everyone else would have gone, but faster. Better hope that’s the best place to go.

(Adapted from a comment from 2013.)

What the Melian Dialogue tells us about the End of Empire (Venezuelan security threat edition)

2015 March 10
The Course of Empire by Thomas Cole

The Course of Empire by Thomas Cole

I’ll just point out that in no way can Venezuela be considered a security threat to the United States.  And the “human rights violations”, while some are real are far less than routinely committed by many US allies, including Saudi Arabia, while Venezuela is more democratic, again, than many countries the US has not imposed sanctions on.

This sort of bullying is exactly the sort of thing which will lead to the end of American hegemony.  Though less severe, one is reminded of the Melian dialogue.  The Athenians argue that the powerful do as they will and the weak as they must, and that the Melians should surrender.  If they do not, the Athenians will slaughter the men and sell the women and children into slavery.

The Melian reply in part, is thus:

But do you not recognise another danger? For, once more, since you drive us from the plea of justice and press upon us your doctrine of expediency, we must show you what is for our interest, and, if it be for yours also, may hope to convince you: Will you not be making enemies of all who are now neutrals? When they see how you are treating us they will expect you some day to turn against them; and if so, are you not strengthening the enemies whom you already have, and bringing upon you others who, if they could help, would never dream of being your enemies at all?

(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.)

The irony of the Melian dialogue is that both sides are right: the Melians are destroyed, and would have been better off if they submitted.  But the destruction of Melos is indeed one of the contributing factors to the eventual fall of Athens, because while Sparta may be nastier internally, they are also less dangerous to other city-states than Athens is.

The analogy is not perfect, because even with all of Venezuela’s problems, much of the population is better off resisting the US than it would be conceding (the poor and the darker colored citizens have benefited immensely under the Bolivaran revolution).

But America, and the West’s continued insistence that nations will kneel or suffer is very similar and is already damaging American power.

The Quick and Clean Guide to Fixing the Economy (Keynesian Stimulus #2)

2015 March 10
by Ian Welsh

dawnHow would one do a Keynesian stimulus properly today?  Remember, the preconditions for Keynesian stimulus to work are that it not overly aggravate bottlenecks (not send oil to $150/barrel, for example); that it not aggravate overused sinks (carbon); and that the money not pool uselessly at the top.  Keynesian stimulus must create widespread demand.  Further, in a world with bottleneck constraints, sink problems and overuse of even renewable resources, it should help resolve those problems.

Create Widespread Demand While Mitigating Sinks and Bottlenecks

1) Every federal building in America to go to energy neutral at least, or energy surplus ideally.  That’s a massive stimulus.

2) In order for a house to be “conforming” and thus qualify for federal loan guarantees it must be energy neutral at least, as well.

3) A subsidized waiver system for retrofitting civilian buildings to be energy neutral—the cost of which is paid back by savings, so homeowners pay nothing, and commercial guys pay little.  You can create a securities market for the certificates to bring private money online.

4) No mortgage can be conforming if any laws or homeowner agreements forbid the homeowner from growing their own food or selling it.

5) All new condominiums and apartment complexes must provide for growing food, through hydroponics or other means.  Without it, they are, again, not conforming or the income from them gets taxed higher.

6) Substantial tax breaks for telecommuting. (See section below for how to make corporations do this.)

7) Move to a high speed rail system, subsidize electric cars with certificates (buy one while turning in a non-electric car and the government pays half), and so on.

These actions give you a massive renewable buildout, fast.  Most of the jobs are domestic (even if panels are bought from China).  They reduce energy use significantly, including peak turbine oil use and they enable people to grow food when needed, reducing pressures on various carbon sinks and renewable resources.

(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.)

Reform the Tax System

8) Move back to high marginal income tax rates.

9) Move back to high marginal corporate tax rates, to force companies to start spending their money and to make tax incentives work again: at 80% tax rates the corporations will be very happy to do whatever the government wants them to do in exchange for a 20% tax rebate.

10) Reform the tax code so money earned in the US cannot be moved overseas to avoid said taxes.

11) Make stock buybacks rare (again, to force corporations to spend their money or give it to shareholders).

12) A punitively high inheritance tax on any inheritance over 5 million or so, with no loopholes.

13) A carbon tax.  Imports from any country will be charged that carbon tax at the rate of their carbon expenditure. Countries which will not allow proper inspections to determine said tax rate will be hit with the highest rate.These actions both stop money from pooling at the top and bring money off the sidelines.  The rich can spend it or have it taxed away.

There are many other things one could (and should) do (property taxes being at least partially based on carbon production and energy use, for example), this is just an outline and high-points.  It doesn’t include “how to get there”, but it is important for people to know that there are other options that would work other than status-quo neo-liberalism. If people don’t believe better worlds are possible, they won’t fight to get to those worlds.

Nor would this program work for every country, it requires a powerful country with the ability to impose conditions.  It would, however, work for the US.

When Keynesian Stimulus Works

2015 March 9
by Ian Welsh
John Maynard Keynes

John Maynard Keynes, 1933

It has become fashionable in many circles to denigrate Keynes and Keynesianism because unconventional monetary policy hasn’t worked.

I’m not going to mince words, people who make that argument are idiots.  Unconventional monetary policy is not Keynesian stimulus.

Keynesian stimulus is about widespread demand: giving money to rich people is not Keynesian stimulus.  The government spends, or even just gives money to people to increase their spending.

Unconventional monetary policy is not Keynesian stimulus.

Further, Keynesian stimulus only works where there aren’t supply bottlenecks. If you were to do (actual) Keynesian stimulus today it wouldn’t work, because oil would rocket past $150/barrel and the economy would immediately collapse.

Keynes did not concentrate on this issue because it wasn’t a problem in his time period: the world, and more importantly, the world’s keystone economy, America, was awash with the stuff.  It wasn’t a bottleneck.  The only bottleneck, before the US went off gold, was the gold-standard.

The bottleneck issue is also relevant to sinks and renewable resources: spending money indiscriminately in a way which leads to more commercial fishing, say, would be moronic, given collapsing fish stocks.  Spending it in ways which lead to vastly more carbon or methane would also be idiotic.

(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.)

We are facing challenges Keynes did not, but that doesn’t mean he wasn’t right, that means that the policies he suggested need to be modified for the changing times. If you cannot do so, you do not understand either Keynes, or your own time.

This is the great problem with the work of the great political philosophers; of the sages: they come up with a solution specific to a time, and fools think that it should be applied verbatim for all of time, while other fools think “if it doesn’t work verbatim, it’s all crap.”  Doing Keynesian stimulus would be simple, if it was desired. You just make sure the money gets to ordinary people and is used to reduce carbon emissions and uses of other bottleneck resources, while making sure that money doesn’t pool at the top.  (Stopping money pooling at the top is mostly a solved problem. Start with 90% tax rates on all income over 1 or 2 million or so, close loopholes, and don’t privilege any income.)

But Keynesian stimulus hasn’t been done, either smart or stupid: not even the widespread demand part has been done.  So people who rag on about “Keynesianism” are ragging on about a straw man: a policy which has not even been pursued.

Keynes wouldn’t have any problem prescribing solutions for today’s economic problems, and neither should anyone who understands his work.  And those who deride Keynesianism either don’t understand it, or don’t actually want to see widespread prosperity.

Fundraising Update: 2 articles a week reached, with a push can make 5 articles a week

2015 March 9
by Ian Welsh

In the first week of fundraising we’ve raised $334 in recurring donations, and $2,808 in one-time donations.  Multiplying the recurring donations by three puts the total raised to $3,810, which is over the $3,000 needed for two articles a week for three months.

The next threshold is $6,000 for 5 articles a week—$2,190 away.  If you haven’t already given, and you value my writing, I hope you will consider doing so.


If you haven’t read it already, there’s a new article on the problems with non-fiction today, and I’ve kicked my most popular, ever, article, on the difference between ethics and morals to the front page.  That might seem like an esoteric topic, but the difference is the difference between a good society to live in, and a lousy one.

Problems with Non-Fiction Today

2015 March 7
by Ian Welsh

I’m not exactly old yet, but I’m no spring chicken, and as a child and teenager in the 70s and 80s I read a lot of books from previous generations.  I still read a lot, though not so much as when I was younger, and the non-fiction has changed.  This isn’t surprising as writing changes with the times, but I think it’s generally become worse.

Oh, writing is smoother, as a rule. It’s Gladwellian.  Contemporary non-fiction has lots of anecdotes and fuzzy feelings, lots of profiles of the people affected by whatever they’re writing about, lots of little details about the key thinkers.  Many would argue contemporary books are better written, because they connect with people by making the stories personal.

I suppose they do.  But they’re also disconnected.  Most books today should have been 10,000 word magazine articles.  There’s not enough meat: there’s fluff and detail on one issue or a small cluster of issues, but there is very little wide-ranging intellectual context.  You can read a book on how important it is that everyone share in economic gains, or how people are risk averse, or how smart crowds are (or aren’t), or how people can’t think properly in time and how bad most people are at statistical thinking, or you read a book about how just a few resources can make a difference in history, and it’s all very well, but there’s no context.  There is no world view.

(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.)

As a result, these books become factoids.  Because they either don’t sit a coherent world-model, or because they don’t state their world model, most people can’t really integrate these books usefully, because they don’t read enough books, they don’t spend enough time thinking or talking about what they read, and they don’t understand the premises underlying the world view.  They have no model of cooperation or competition and how the two go back and forth, they don’t understand generational trends, they don’t understand the rhythms of technology; they understand neither conditioning (nurture) nor nature, nor how those two interact.

This isn’t people’s fault.  This stuff isn’t taught in school, and it’s barely taught in university; when it is taught in university it’s rarely taught well or with proper attention to the assumptions of models.  The disciplines which teach this stuff best, only do so rarely and are either despised (sociology), ignored (anthropology) or the discipline itself despises those who do integrative work (history).

People don’t know how to think.  Despite all the talk about thinking, it isn’t taught because it’s hard to teach, and because employers don’t actually want employees who know how to think on their own (such people are endlessly annoying as subordinates, and executives are chosen largely for knife-fighting skills, not strategic ability, despite what the business books would have you believe).

Specialization can be useful, but before you go narrow, with rare exceptions, you need to go broad. You need context and a model, a schema into which to fit the facts.  Modern non-fiction generally wastes half of its words on verbiage—creating an “emotional connection” without actually providing that context.  As a result, in order to form a world view, one has to read a vast swath of books, throw out what isn’t useful and put what’s left into a coherent worldview, and do it largely on one’s own.

As a result you are far better off reading books like Jane Jacobs “Economy of Cities” and “Cities and the Wealth of Nations” or anything written by Max Weber, than almost anything published by younger authors in recent years.  Nineteenth and early twentieth century authors writing on Empire speak more eloquently to strategy and growth than our current “international affairs experts”, and Keynes, for all he is abused, is far more insightful than most of those who either slag him or claim to follow him while doing what he would not have done.

Of course there is a place for books on narrow subjects, a place for non-fiction books which tug the heartstrings. But the true non-fiction classics, the books that are read and re-read, right or wrong, are generally books with great grasp and reach (The Prince, the Protestant Ethic, The Elementary Forms of Religious Life).  And those books give people enough to work with, enough to understand, and speak to something large in society, something that matters: how to rule, how progress occurs, what religion is.  You may reject them, as many have rejected all three of those (or Jacobs’ work), but they had reach and grasp and ambition and they spoke large about how the world works.

A book which tries to explain any part of the world must both have integrative ability and context.  If it is not clear what is not explained by your theses, then your theses have failed.  Everything cannot be explained by any one theory, whether that be self-interest (Darwinian reproduction or Economic utility) or more ancient (but still strong) theories about the will of God.

Let magazine articles be magazine articles.  Let books be books, and let them try to shine light on enough of the world to matter.

Ethics 101: The difference between ethics and morals

2015 March 6
by Ian Welsh

EthicsThe best short definition I’ve heard, courtesy of my friend Stirling, is that morals are how you treat people you know.  Ethics are how you treat people you don’t know.

Your morality is what makes you a good wife or husband, dad or mother.  A good daughter or son.  A good friend.  Even a good employee or boss to the people you know personally in the company.

Your ethics are what makes you a good politician.  It is what makes you a statesman.  It is also what makes you a good, humane CEO of any large company (and yes, you can make money and pay your employees well as Costco proves.)

When you’re a politicians or a CEO, most of what you do will affect people you don’t know, people you can’t know, people who are just statistics to you.  You have no personal connection to them, and you never will.  This is at the heart of Stalin’s comment that “a single death is a tragedy, a million deaths a statistic.”  Change the welfare rules, people will live or die, suffer or prosper.  Change the tax structure, healthcare mandates, trade laws, transit spending—virtually everything you do means someone will win, and someone will lose.  Sometimes fatally.

Ethics is more important than morality in creating a functioning society.  This comes back to what I was discussing earlier, that it is worse to kill or harm more people than to kill or harm fewer people.

Morality dictates that you take care of your family, friends and even acquaintances first.  It is at the heart of the common admonition to “put  your family first.”  Whenever I hear a politician say “I put my family first” I think “then you shouldn’t be in public office.”

We call the family the building block of society, but this is nonsense except in the broadest sense.  The structure of the family is entirely socially based, generally on how we make our living.  A hundred years ago in America and Canada the extended family was the norm, today the nuclear family is, with single parent families coming on strong.  In China this transition, from extended to nuclear family, took place in living memory, many adults still in their prime can remember extended families, and were raised in them.  The wealthy often have their children raised by servants (I was for my first five years), tribal societies often put all male children into the same tent or tents at puberty, and so on. A hundred and fifty years ago children were taught at home, by the extended family, and not by professional teachers.  They spent much more time with family until they were apprenticed out, if they were.

(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.)

To be sure, children must be born and raised for society to continue, men and women must come together to get that done, but there are many ways to do it, and God did not come down and mandate the nuclear family.

This may seem like an aside from the main point, but it is not.  Family is not fundamental, it is not first.  Society is first, and family is shaped by the needs and ideology of the society.

For a large society, a society where you can’t know everyone, to work ethics must come before morality, or ethics and morality must have a great deal of overlaps.  By acting morally, you must be able to act ethically.

Our current ethical system requires politicians to act unethically, to do great harm to people they don’t know, while protecting those they do.  This can hardly be denied, and was on display in the 2007/8 financial collapse and the bailout after.  The millions of homeowners and employees politicians and central bankers did not know were not helped, and the people the politicians and central bankers and treasury officials did know, were bailed out.  Austerity, likewise, has hurt people politicians don’t know, while enriching the corporate officers and rich they do know.

The structure of our economy is designed to impoverish people we don’t know.  For developed nations’ citizens this means people in undeveloped nations.  For the rich this means cutting the wages of the middle class.  For the middle class it means screwing over the poor (yes, the middle class does the day to day enforcement, don’t pretend otherwise.)  We are obsessed with “lowering costs” and making loans, and both of those are meant to extract maximum value from people while giving them as little as they can in return.

We likewise ignore the future, refusing to build or repair infrastructure, to invest properly in basic science, and refusing to deal with global warming.  These decisions will overwhelmingly affect people we don’t know: any individual infrastructure collapse won’t hit us, odds are, and global warming will kill most of its victims in the future.  The rich and powerful, in particular, believe that they will avoid the consequences of these things.  It will affect people other than them.

To put the needs of the few before the needs of the many, in public life, is to be a monster.  But even in private life if we all act selfishly, as our reigning ideology indicates we should, we destroy ourselves. If we all put only ourselves and those we love first, and damn the cost to everyone else, our societies cannot and will not be prosperous, safe, or kind.

The war of all against all is just as nasty when it is waged by small kin groups as when it is waged by individuals.

(Reprinted from 2013: this is the most popular article, by traffic, I ever wrote.)

Fundraising Update: Three-quarters of the way to 2 Significant Articles a week

2015 March 5
by Ian Welsh

Since Monday we’ve raised $1,397 in one-time donations, and $305 in recurring donations.  Multiplying the recurring by 3, we’re at 2,312, about three-quarters of the way to the first goal of $3,000 and 2 articles a week.  And we’re about a third of the way to the second tier, of 5 articles a week.

I am vastly appreciative of everyone who has donated.  We did well last year, but I’m always unsure about such things.


If you haven’t read them, I have also put up a new article on the influence of geography on society, as well as an article on why the world is trending towards negative real interest rates on bonds.

How We Can Change Our Destiny As A Society

2015 March 5

Globe on FireI have written in the past of how the nature of everyday life creates the character of commoners and elites.  What we do, the habits we lay down, is our character.

Now our everyday life is created by our technology, where we live (geography), and our culture—how we choose to use our technology and interact with our environment.

A Russian in one of Lee Blessing’s plays once said “History is Geography Over Time.”  This is a near pure form of 19th century romantic nationalism.

Assume that humans are basically the same.  Go to different countries, or even different locales within a large country.  Notice that they are different from other people in ways which are similar—southerners have characteristics in common, bedouin have characteristics in common, Italians have characteristics in common, but within Italy where they come from also changes their character.

This is a common-sense observation, and before the modern era it was even more true: people were very different depending on where they lived.


Well, the simplest explanation is geography: to live in the tropics is to live a different type of life than to live in cold climes.  To live a rain forest is a different type of life than to live in a desert.

This is a hard argument for rich moderns to entirely understand: with our air conditioning and heating: with food delivered from all over the world to our supermarkets; with our travel being almost entirely inside mobile boxes; with almost everyone now wearing western style clothes; with every office looking more or less alike and everyone using the same few word-processing programs;, we can drop half the world away and feel somewhat at home in many of the essentials.  A certain type of life has been exported to as much of the world as can afford it, and most of the rest of the world, familiar with western media, aspires to that life.

But it was not always thus.  To live in Bengal was to live a vastly different life than to live in London. Heck, to live in northern Scotland was to live vastly different from living in London.  To live in the country vastly different from living in a city, but to live in Canton was massively different than in Tenochtitlán (one of the largest cities of its day.)  Being a rice farmer in southern China was much different from being an Iroqois farmer in the Great Lakes area.

What you did, each day, was very different.  Much of this difference was based on the simple requirements of making a living from that type of land.  Much of the rest was the difference in technology: the tools you had available to work with.  Some would include social organization in that toolkit, but let’s spin that off to culture.

Culture: the catch-all for the rest of it.  But how does culture arise?  Given the same pre-modern technology, and dropped on the Pacific Northwest or into Great Plains or into the Russian Taiga, you will live differently.  Start off with people with the exact same culture, give it a few generations and you will be different people, because you will have grown up doing different things.  And your technology will have changed, because what works best in each of those place is different.

Those differing lives become character, character is reified into culture, and soon you have tradition.

(And all this is before discussing the role of geography on such things as warfare, access to key resources like iron and copper, the role of geography in encouraging or discouraging diseases, natural trade routes, the difference between ocean and land transport, and so on.)

So, Geography is a big deal. It’s a big deal even today: Saudi Arabia cannot be understood without understanding its geography, including the (happy?) coincidence of vast oil reserves.  Canada’s population clusters along the southern border, with spars out into areas with resources worth exploiting.  Siberia is vast—and underpopulated, for good reasons based on its soil, climate and resources.

(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.)

But it’s also true because of the way cultural drift works: culture is not a completely dependent variable.  Drop different people with different cultures into the same approximate geography and they will develop differently: there will be clear similarities (intensive rice agriculture in multiple SE Asian societies), yet the cultures will not be identical.

So, even in the modern world, with our ability to denature the environment, there are geographical effects: but there are also the more than residual effects of culture developed in the pre-modern era.  These all swirl about to create our daily lives, and that forms the character of the commons, that point about which, despite our individuality, we coalesce.  That mass-character determines how we react to the events of our lives: to how active or passive we are, what we’ll fight for, and how we’ll fight.  Change is constrained and channeled by character, by who we are.

Character is destiny, both personally and en-masse.

Does that means some warped form of Panglossian: our character is our destiny, and we cannot escape our destiny because our character is formed by forces beyond our control (usually when we are children, and under the control of others similarly formed)?

I would suggest this is not the case.  Oh, it’s hard to change character and destiny, but it can be done, especially for the future.  We need to decide what destiny we prefer, what character is required and work to change our every day lives to create that character.

This is possible.  Huge swathes of the population despise their own characters: guilt and regret and self-contempt are part of humanity as much as smug self-regard.  We look on these things ill, but a better way to look on them is as fuel for change: if we do not like who we are, we can change.  And we can change as societies. If we don’t want to live in vastly unequal societies, we can change that: it has been done before. If we want to live in a way that doesn’t destroy the environment, we can do that.  And if want to live in actually free societies (i.e. not police and surveillance states), we can do that as well.

Within the matrix of what is made possible by technology and geography are vast social universes.  What is required to seize them is not despair at how we are conditioned by our lives, but an understanding that that conditioning can work for us as much as against us.

A negative interest rate world? Why?

2015 March 4

Umair Haque writes:

Why are we approaching the new normal of a negative interest rate world? Simple. There’s nowhere good left to put all the money.

Umair is referring to all the countries who are now offering bonds with negative real interest rates.  You get back less money than you put into the bond.  People are buying these because they have nowhere better to put their money.

Now this isn’t entirely accurate.  There are still some better places to put money, but there aren’t enough of them.  And there is a ton of money out there chasing returns.

Why there is too much money chasing returns is important, however, so I’m going to tease apart some of the reasons.

Central Bank Policy

Look, the ECB is buying bonds.  The BOJ is buying bonds.  The US was doing so.  This is demand.  It pushes the yield of bonds down.

China is printing piles of money, Japan is printing it, etc…  That money isn’t staying in those economies, it is hunting through the world for returns or even just security.  Federal Reserve policy has put a floor under losses from various securities by accepting that at near par, and Fed policy of free money has underwritten an epic bull market in securities.

No cleanup of the banking or shadow banking systems.

Most money is created by private actors.  Banks, shadow banks (brokerages, etc…)  There is no effective oversight of these organizations, still (you’d think after 2007, but you’d be wrong.)  In fact, not only is there not enough oversight, but in most cases they’ve been effectively encourages to create more money.  We have another derivatives bubble underway, we have housing bubbles in multiple countries (e.g. Canada and the UK), and while the US doesn’t have one, parts of the US, like Manhattan, do.

Oligopolistic profits.

US broadband profits are almost 100%-annualized.  Every app store takes a 30% cut (a level which would have been shut down by regulators of the post-war liberal period.)  Copyright law makes it difficult to impossible to create generic alternatives to common items.  These have all led to very high profit levels, and those profits have largely been plowed back into stock buy backs (most corporate borrow is matched by stock buy backs).  But much of the economy is not available to be bought on the stock market, many large investors can’t invest on the stock market by law (they have to invest in high-grade bonds), and much of those profits are now priced into stock prices anyway.

(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.)


In the United States more than all the gains of the last “recovery” have gone to the top 10% (really the top 3% or so.)  There has limited broad based demand for new goods.  Luxury goods, investment art, and London and Manhattan real-estate do not scale.  Without widespread demand, opportunities for new businesses, with new employers, are limited.

Barriers to Entry

Much of this came under oligoplistic profits. Draconic “intellectual property” laws make it difficult to compete, bringing prices down and increasing volumes while freeing up money for people to spend on other things.  30% cuts from app stores and other virtual marketplaces make many businesses simply unprofitable—first they must make 30% for Apple or whoever, then they get to make a profit for themselves.  But if you aren’t on those virtual marketplaces (and there is usually one which controls most of the business) you will not make enough sales to be viable.  This sort of “you make no money without us, so we’ll take all the profits” behavior is little different from what the railroads did to farmers in the late nineteenth and early 20th centuries.

And while there’s tons of credit for big business and people who are already rich, a new business trying to get funding faces huge barriers to getting money. It’s boutique investment, it requires a lot of time, and most investors would rather just buy bonds, structured securities, or play the stock market.  Money may be cheap, but not for you.

Supply Bottlenecks

In a larger sense the issue is that we still haven’t dealt with supply bottlenecks like oil. Get a roaring economy going again, oil will spike to $150/barrel and the economy will crash.  The solar roll-out is underway, along with the wind one, but it hasn’t (yet) changed that reality.  The same is true of many other commodities.  If we want distributed growth in a world with constrained commodities, well, we can’t have it.  We have to remove or avoid those bottlenecks.  This requires deliberate government policy, but we have dodged the issue since the 70s (solar should have been where it is today 15 years ago, but Reagan chose an oil play, not a solar play, and chose to crush wages to crush demand.)

The absolute obsession with inflation is really about wage inflation, and the obsession with wage inflation is about widespread consumer demand causing commodity inflation.  We’re moving towards a deflationary world (for ordinary people, there is vast inflation in goods and services the rich consume), but our policy makers are still in asuterity “crush employment and wages” mode.

No Future Till The Current Rich Can Monetize It

We could have had a lot of what we have today many years ago.  But the rich control the politicians, and the politicians won’t allow it to occur.  There was great squealing for years about subsidies for solar, and corruption in how they were given out, but they were always a rounding error compared to subsidies for oil, let along the military-industrial complex, big agriculture, pharma, health insurance, and so on.  All of those industries were powerful enough to strangle subsidies to competitors (solar, generic drugs, whatever) and strong enough to insist on new laws which strangled startups and competition (every copyright extension is nothing but an anti-competitive measure intended to keep profits coming to incumbents.)

Bottom Line

We have too much money chasing too few returns because we’ve spent 40 odd years making sure that ordinary people get less and less money; the rich get more; and that oligopolies are nurtured and protected.  The rich control government, and they intend to make sure that all the money goes to them.  Unfortunately, in a mass market economy, that means the economy becomes lousier and lousier.  This doesn’t matter to the rich because they are comparatively better off. Better a Czar amidst serfs than the CEO of General Motors in 1955.