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

A Small Insight About Power, Markets, and Post-capitalism

Last week I wrote a brief post about the process of having insights: How we don’t control what insights we get, or when–we can only do the preparatory work, and then sit back and wait.

The insight I was writing about was really “Oh, this isn’t up to me, it happens when it happens,” but there was also an insight related to markets, capitalism, and really, post-capitalism.

A lot of what I’ve spent the last 30 years thinking about could be considered to be collective action problems–who, as societies, we let make decisions about what we’ll do. Feudalism did that one way, capitalism does it another; there have been other systems, and even within capitalism there are sub-ideologies: neoliberalism is very different from New Deal capitalism with its emphasis on increasing wages, decreasing inequality, and keeping prices up.

But the real issue is about power. Money is a type of power, it gives whoever controls it (not has it, but controls it), the ability to tell other people what to do. When you buy something or hire someone, that’s power.

There are so many issues with using markets to determine who gets power that you could write multiple books about them, but let’s review the positive argument for markets.

If someone pays you for something, they want it or need it. It has utility to someone.

The more people pay you, therefore, the more utility you are providing. Coincidentally, the more they give you, the more utility you can provide, as more money gives you more power to control people and resources. It’s a nice, positive feedback loop.

But one simple problem with it is that money can be used for things other than what people paid you for. Say you’re Bill Gates and you masterminded an operating system and productivity suite people use. (You did this using ethically suspect tactics, but let’s assume you still did more good than harm.)

Now you have a ton of money, and you use it to change how the US organizes education.

That’s what Bill Gates did.

Then it turned out, and Gates himself admits it, that his plan didn’t make things better. Arguably, it made things worse.

So the simple insight was only this: Money is too general a power. We want people who do something good to be able to do more of it, but to assume that, because they did one thing that other people want, means they are qualified to decide how people do other things is unwarranted.

We wouldn’t take the best teacher in the world and say, “Okay, Thelma, now you design the next universal operating system!” We wouldn’t ask the best surgeon in the world to design environmental policy.

We generalize the ability to make money doing one thing to assume it means you’re good at doing everything.

Maybe money shouldn’t be the sole metric we use to decide who will lead. Maybe Gates shouldn’t have been making education policy. Maybe the Koch brothers shouldn’t have decided what half the Republican party policy program should be.

Not a very startling insight, I’m afraid.

But I’m less interested in fixing capitalism than I am in thinking about post-capitalism. So what’s interesting about this isn’t the insight that this is one of the many ways capitalism fails, which I already knew, BUT that a feature of post capitalism needs to be avoiding power creep; just because someone is good at one thing doesn’t mean you hand him control of unrelated things. At most, you then put the best surgeon on the world on a committee to improve surgery, then maybe they start influencing hospital management, then maybe drugs, etc., etc.

A small movement to a related sector, without great power, but with influence, makes sense. Handing them huge power is stupid. A successful businessman isn’t necessarily good at anything but the specific business they were in, and generally isn’t good at economic policy beyond saying what’s good for him, or maybe, what’s good for their industry if what’s good for the industry isn’t also bad for them. (What was good for computers and software in the 90s was not, in my opinion, what was good for Bill Gates, and he wasn’t trying to make the best industry, but the richest Microsoft and Bill Gates.

Communism, with its central planners, had this same problem. Central planners didn’t know much about almost any of the industries they were planning.

Which leads us to a final note: I’m tired of people acting as if communism, social democracy (socialism in modern discourse), and capitalism are the entire acceptable spectrum.

Capitalists want this to be the conversation because they can say, “Hahaha, the USSR failed and Stalin was evil so you have to stick with us, there is no other alternative.

But all three systems have failed, because all three failed to handle climate change. They knew about a catastrophe for over 40 years and did nothing. That’s failure.

So the question isn’t, “Where on the communism to capitalism spectrum should we land?” The question is: “How do we create a third pole? Something new and better which avoids the known problems of previous systems?

And, along with, “It’ll come when it comes, and I’m not in direct control,” is the bigger insight I had while shopping for trout.

Something different, truly different, is needed.

Or we’re all cooked.

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  1. ben

    recent documentary about Bill Gates:

  2. krake


    Small objection: Not communism that failed. Leninism, Stalinism and Maoism failed. Syndicalists and council communists had small instances of power (Ukraine, Spain, Paris, Bavaria, St. Louis and Seattle), during wartime interregnums, and didn’t centralize or industrialize the way foundational Leninist thought demanded. There is not enough of a sample to predict how those projects would have evolved, because Lenin and Trotsky crushed the free soviets, and set the template.

    But we do know that Cuba, which struck a balance between Havana centralization and local councilism, has not contributed to ecologic collapse, and is still quite innovative in several knowledge-intensive sectors.

  3. GlassHammer

    From what I can tell industrialization was the engine for capitalism and that engine was swapped out for finance. And we basically ran an economy on “formulas” not “things” until the engine died in 2008. After that we changed the engine to debt instruments fueled by money created by the FED. So now the debt engine is overheating and we need more fuel from the FED than ever.

    I think the next engine will be all money from the FED/Treasury after a massive wave of bankruptcies hits and the markets shrink. That will last for at least 8 years or so. We will probably be at war because the west will try to steal from others to offset it’s damaged markets.

    What comes next is a command economy protecting industries lead by oligarchs. Might have a few minor conflicts but most of the security apparatus will be focused inwards on its own populace. This phase will last a long time and it’s unclear to me how it ends. My guess is that a patch work economy of small scale markets/projects comes after it ends.

  4. Joan

    Very interesting. I imagine the future will be much more local by necessity, and that we’ll see a lot of different flavorings of governance at this smaller scale.

  5. bruce wilder

    My big insight (not at all original with me) about capitalist “markets” was that there are not many. Actual capitalism is organized by administrative hierarchies, but “free markets” theory and ideology prevents people from talking realistically about the structures of the political economy within which they live and work. As Hannah Arendt observed, strength originates in muscle, but political power originates in social organization: bureaucracy generates and embodies political power, enabled by money and property rights and “technology” (applications for and means of hierarchical command-and-control). It was a powerful insight for a young economist to realize that his theory did not apply to the phenomena he purported to study.

  6. I completely agree with your words that all three systems are out of order because all three could not cope with climate change.

  7. Willy

    Theoretically any system could work if it wasn’t for power-madness and the games those players rig. How do you design a system that sweeps the power-mad out of power and then keeps them out? I suspect that re-educating the mob would have to be a continuously ongoing project. But even that system would be a target for the power-mad.

  8. Mel

    Yeah. The logic of it suggests that any situation that creates a top and a bottom: educators and masses, for example, encourages power-hungry people to get themselves to the top. The Tao Te Ching has some line about the people saying “We did it ourselves.” If I could unpack my copy, I could probably also find the line that says “This is easy advice to give, but nobody can follow it.”

  9. Stirling S Newberry

    You can’t.

  10. krake

    “You can’t”


  11. Willy

    Well there’s eugenics. But I suspect the human race would need a really bad hit bottom before that ever happened.

    Maybe education from an early age? Theoretically, when bullying impulses show up other more socially temperamental kids would be taught to gang up on the bully in some socially responsible way. Stranger danger! But some bullies are smart and most kids can be pretty dumb, easily duped.

  12. Ian Welsh

    Central banks have been engines since 2008.

  13. Tommy Malthus

    @Ian Welsh

    Sadly Ian, if COVID-19 cannot put a dent in climate change then we are probably fried and dried.

    Certainly there will be those who offer hopeful calls for political mobilization. But hope is often a form of denial. The first stage of the grieving process.

    As far as civilization\’s spot on the economic spectrum is concerned, we\’ll likely be back in the middle ages. As nations compete over dwindling resources to survive, the elites will finally get to pull out their nuclear toys and have a go at it. This is it boys, Armageddon…

    The average lifespan for humans will go back to 40-50.

  14. Gunther Behn

    I may not have been the only person to wonder what your insight was, but thanks. Hopefully, not too much will go haywire all at once, and we’ll all live to see what flavor of system we get (assuming it’s positive here, which may not be so), because many of us are curious.

  15. Ché Pasa

    The gunners are getting antsy. We really shouldn’t discount the effect that a mass shooting incident could have on the course of events. The gunners’ longed for “boogaloo” isn’t necessarily a pipe dream. For the most part, they have the police on their side, too.

    Meanwhile, as “Yves” at NC has discovered, cities are becoming unpleasant to visit, unlivable, and quite possibly unsustainable. I’m sure she’s aware that the process of de-city-ing has been going on for many (many!) years, and many US cities have become just as unpleasant and unlivable as New York and have seen significant population declines. In the US’s various War Theaters, cities, towns and villages have been routinely destroyed and depopulated. It’s an ongoing process accelerated by the untamed virus and economic collapse.

    We’re still in the first phase of the shake out.

    As many have pointed out, people are very adaptable. What’s happening is forcing survival adaptations — except at the upper end of the economic and social ladder where it seems everyone is going on as if nothing (much) were amiss. Visions of the Romanovs, the Bourbons, and the other dispossessed aristos haven’t quite penetrated their bubbles. Not quite yet.

    It’s right to be on edge. It’s right to think of what comes after. It’s right to question the past.

  16. Adam Eran

    On whom should we depend for insights? How about a child, or a fool (the traditional sources). It was a child who pointed out the emperor had no clothes.

    Incidentally, the emperor could have said “Thanks child, for pointing out my mistake. I’ll go home and put on some clothes”…and he might have been more comfortable.

    But Hans Christian Anderson’s tale says he “grimly continued the parade.” All too common.

  17. tatere

    You kind of have a similar issue with bottom-up collective power. We decide with our little moneys that we want quick cheap food, even if it’s not great, or even good, let alone healthy, sustainable, and so on. We give money to terrible candidates because they make us feel good. “Oh, it’s marketing that made that happen”, and yeah, somewhat, maybe. And in the moment we’re constrained by the available choices. But still, those choices came into being because we wanted what they offered, at least to some degree. Maybe that all comes down to rich people making deals with each other, I dunno.

    You have to have some decisions that aren’t for sale. Bill Gates could only set education policy because everyone involved wanted his money, or answered to someone who wanted his money.

  18. Ché Pasa

    As for power, who really has power in the United States right now? After the military brass decoupled from the White House ordered clearance of protesters at Lafayette Square and the White House promises to “send in the military” wherever the protests weren’t properly dominated by the locals, the Trump crew came across as pathetic losers. If they don’t have the military backing they’ve counted on, they’re almost powerless. Ever since, it’s been one foul-up after another with any and everyone standing up to them, and mostly winning. They can’t even slap around any gay people anymore. Trump himself is coming apart at the seams.

    But they’d pretty much abandoned using powers they had during the early phases of the pandemic. It was up to the governors. It was up to the mayors. It was up to individuals. They took no responsibility. Power? What power?

    They’re yielding to the people in the streets. This is almost like any second or third world regime disintegrating. Who really holds power now? The squillionaires holed up in their bunkers and on their yachts? Congress? A congress which isn’t functioning, and hasn’t for a long time? How about the courts. They can rule all they want; they don’t have enforcement power. The police? I think if they faced a real confrontation they’d run away. They’re mostly bully/cowards. And public officials all over the country have made plain they’re not on the cops’ side when it comes to violent confrontations.

    So who really has power? The people in the streets? In some cases, yes, but in most cases they have no ability to rule and no interest in doing so. They may have power momentarily in the abstract, but for the most part they can’t use it. How about the “militias?” Some of them are ready to seize power, and when they see an opening, they’ll do it. But can they hold it? Depends on where they are. In some localities, I’ll bet they can. But nationally? Nope.

    Power or terror?

    What will the next phase look like?

  19. bruce wilder

    Getting back to Ian’s point about money and power, we really are in an end game situation with regard to the power of a central bank to unleash money creation in the service of amplifying and diverting income to Capital and away from Labor. For more than 20 years, right thru major recessions in 2001 and 2007-9, which should have been resets but were not, the Federal Reserve has redeemed bad loans and propped up asset prices and provided “free” money to invest, while slowing employment recovery to a glacial pace by the standards of the 1950’s and 1960’s and ending wage increases relative to consumer inflation.

    Now they are stuck. Any sensible policy would have the immediate consequence of the worst financial crash in history combined with a mega-massive wave of corporate bankruptcies and dissolutions.

    By “sensible” policy, I mean any policy that used public fiscal policy to put people to work doing something worth doing (like adapting to climate change with a de-carbonized energy structure). Paying people to “do” something would be an exercise of power in itself. And, it would (as Ian’s insight has it) have the by-product of putting the flow of money thru the economy in the hands of Labor and business that served the doing or wage-based consumption.

    By idling most of the work force, and putting money as “investment” financing in the hands of Capital, they have inflated the bubble of bubbles: a structure of business as empty shells follows. No workers and no product.

    NC brings the news that Hertz a bankrupt company is floating a billion-dollar bond issue. (Did I get that right?)

    Money is power. Yes. It is also insurance, an insulater against the reality of loss and a means of restoring without adapting.

  20. Stirling S Newberry


    I am sorry for you that you don’t understand biology, neurology, or basic logic. But that is not my problem.

  21. krake

    “I am sorry for you that you don’t understand biology, neurology, or basic logic. But that is not my problem.”

    Neurology, biology and logic preclude fictional explorations of the problem of power and the corollary problem of its centralization? Neurology doesn’t allow people to conceive of methods for “design[ing] a system that sweeps the power-mad out of power”?

    Fascinating premise.

  22. Some Guy

    Your project here is the same one Plato took on in writing ‘The Republic’

    He eventually concluded that it wasn’t possible to build something that would last indefinitely, sketching out a trajectory of downfall in morality/civilization that seems eerily reminiscent of what we are experiencing now.

    Another of his conclusions was quite similar to what you have sketched out above, with him ultimately defining justice as each person sticking to their own role and not trying to do things outside of their remit.

    In his ideal republic, this was enforced through class separation in which there was no mingling allowed between the ruling class who would put the interest of state ahead of self-interest and the commercial class who would pursue their own self-interest, but were walled off from anything relating to maintaining the state such as war or education.

    It sounds far-fetched in some ways, but is actually quite similar to the feudal system in Europe or Japan, or the caste system in India, etc.

  23. Zachary Smith

    Capitalism isn’t a bad deal for some people. For example:

    Breaking down this ‘miracle’ COVID-19 survivor’s $1.1 million hospital bill

    The 181-page book — sorry, bill — includes almost 3,000 itemized charges, averaging about 50 a day. The greatest expense by far was his 42-day stay in the ICU, totaling $408,912. His room had to be sealed, and was accessed only by medical staff wearing plastic suits and headgear, which cost $9,736 a day.

    The Insurance company may not be happy, but for all I know they’ll get a pile of money from the last Government Corporate Handout. Even if they don’t, somebody there has decided the negative publicity from stiffing the guy would cost more than paying up. Anyhow lots of people the patient’s age die fairly quickly and inexpensively.

    Other insurance companies won’t be bothered much at all, for many of their plans are Employer Based. No job, no insurance = no problem for anybody except the sick guy.


    Trying to find any Covid death totals is now an adventure. A search found numbers ranging from 115.9k to 119.5k. That range suggests to me the reporting is being fudged – big time!

    I suspect the more intelligent of The Leader’s subordinates are working furiously to get an outdoor/open air stadium for his Tulsa campaign rally. Thousands of roaring/screaming true believers with or without masks (and most won’t be wearing one) is a recipe for disaster. Not only for the many soon to be sick and dead true believers, but for the Republican office-holders in general and The Leader in particular.

  24. Mark Pontin

    Bruce Wilder: “Now they are stuck. Any sensible policy would have the immediate consequence of the worst financial crash in history combined with a mega-massive wave of corporate bankruptcies and dissolutions …”By “sensible” policy, I mean any policy that used public fiscal policy to put people to work doing something worth doing (like adapting to climate change with a de-carbonized energy structure). Paying people to “do” something would be an exercise of power in itself.”

    Yes. It’s fascinating. Till recently I thought it was simply a congenital inability to do anything but loot. But– for the Fed, at least — there’s a central structural paradox, beyond the obvious reality that the Fed’s pumping ‘printed money’ into financial assets increases inequality.

    You had/have a career as an economist, I believe? Check my theory out, if you’d be so kind, and see if it makes sense. As follows —

    [1] Fed money printing keeps asset prices very high even as wages (and the price of some ‘stuff’) fall. This disconnect can continue to grow as long as money printing continues. But when corporations can survive in this manner, they’ve no reason not to fire half the workforce and to cut the wages of the other half. We’ve seen this already, with some corporations laying off large slices of their workforce even as they received billions from the CARES act. Yet laying off workers and cutting pay creates more deflation and depression in the real economy. And that in turn means that the Central Banks must print yet more money to keep those asset and share prices high.

    [2] So far, so obvious. But at some point, of course, even the American masses will rebel, as we’re also seeing the beginnings of now. The U.S. government will come under pressure to divert some income to them. But this will *deflate asset prices,* defeating the point of the Fed’s whole money-printing campaign. At that point, according to capitalist theory, as those assets are the collateral for the loans the corporations take out to stay afloat, they would lose access to liquidity. A sequence of corporate failures would commence.

    [3] Which is why the Federal Reserve did away with the Reserve Requirement Ratio RRR on March 15 2020, effective March 26 2020 and is now buying junk bonds. Now, even if the corporate assets that corporations use as collateral deflate, they will no longer automatically lose access to liquidity. Lowering the RRR basically makes it easier for banks to lend. And so as you say, for example, Hertz — a bankrupt company — can float a billion-dollar bond issue.

    [4] If you were an insider who asked Powell or any other Fed official what they meant to do, how they rationalized this, one presumes that in all honesty they would tell you: “With a zero reserve requirement, we are trying to reflate again.” But the reverse direction to zero is infinity, since this train only runs two ways. And so what the Fed is doing now, at least theoretically, is heading in the direction of unlimited, *infinite* lending

    [5] And so in reality, of course, you’ll have banks lending to any type of project their executives can book bonuses on. Even more than in the run-up to 2008, the door is now open the door for ever more fraudulent lending and borrowing. A bank can be busted and it *won’t matter because they can still lend.* That’s the reality of a zero requirement. And indeed the Fed’s actively supporting that — it’s buying junk bonds. Thus U.S. corporations can now be complete zombies, and theoretically issue junk bonds to infinity on zero in assets for collateral.

    [6] This petri dish of “liquidity to infinity” on zero assets is the perfect culture to completely crash the flawed global financial system as it stands today. Other countries — China, Russia particularly– have to be aware of this. Furthermore, the visible collapse of U.S. social order on the streets, in D.C., in terms of healthcare outcomes, corrupt police, etcetera, in 2020 has given notice to the rest of the world that the U.S. empire is collapsing.

    [7] Nevertheless, a lot of us have wondered what it would take — what the actual mechanics of the trigger would be — for the U.S. dollar to cease to be the global reserve currency — for all its “exorbitant privilege,” as De Gaulle put it, to vanish. Because quite a lot of pain would have to be endured by the rest of the world to shift to another system, and no other country currently either possesses a currency with the necessary credibility or even wants — given the Trifin paradox and the necessity to run trade deficits, etc. — to provide the global reserve currency.

    [8] The Fed’s doing away with the Reserve Requirement Ratio RRR on March, 2020, is probably that trigger. *For their own survival* the rest of the world’s economies now have no other option but to start decoupling from the dollar as global reserve currency.

    Doubtless, the Fed will try the same thing as it did in 2008 with massive currency swap lines to international banks to preserve the dollar’s global reserve currency status. But the U.S. no longer has the credibility it did in 2008, its economy is far more visibly hollowed out by corruption, and the current collapse of its social order and governance is internationally visible. If you look at foreign media, there’s a tone of “we’re witnessing the end of an empire.”

    [9] Is there evidence in the real world to support this theory that the world is now going to start decoupling from the dollar? Well, this post is overlong, so see forex —

    “…All foreign investors combined – “foreign official” holders such as central banks, and foreign private-sector investors – dumped $44 billion in US Treasury securities in April, which took their total holdings down to $6.77 trillion, according to the Treasury Department’s Treasury International Capital (TIC) data. And their share of the incredibly ballooning US Treasury debt ($24.97 trillion at the end of April) dropped to 27.1%, the lowest since March 2008 ….”

    And so on.

  25. GlassHammer

    “Not only for the many soon to be sick and dead true believers, but for the Republican office-holders in general and The Leader in particular.” – Zachary Smith

    Many red states lack a substantial population but still hold power due to the electoral college. Further reducing the voters may not make much of a difference.

    Keep in mind that many red states elect more conservative officials in each election. So a shrinking voter base would make it easier for more extreme individuals to hold office, it would not make it harder.

  26. Hugh

    I would say the rich and elites have the power. Who’s doing well despite everything that’s going on? Who gets bailed out and made whole and a lot more than whole when things go seriously wrong? Whose agenda gets acted on no matter who wins an election, no matter how much destruction it wreaks on the rest of us?

    Class war is the way the rich and elites use to keep all the power they have usurped and wealth they have stolen from the rest of us. Their principal weapon in that war is distraction. It takes the attention off them and their depredations and sets the rest of us against each other. To combat them, we need to stay focused. We need political consciousness, that is a clear vision of what we want and a coherent message in how to get it.

  27. Trinity


    I think we are long past sensible. Perhaps you are glancing in the rear view mirror by accident. Or to put it another way, paraphrased, is that the same thinking that created the problem is not going to solve it.

    What goes up must come down. History is cyclical. Lots of evidence of that. This means that time, and the reality of change as the universal constant must be considered and addressed for any kind of future.

    As far as leadership goes, it is really about preventing sociopaths from continually bubbling to the top and taking over. It continues to happen and has happened repeatedly in the past.

    Look to the indigenous cultures for the answers. Some of them had this same problem, but some of them seemed to have solved it culturally, not by violence.

    It all boils down to accountability, and whether the structure is hierarchical (unaccountable sociopaths with concentrated power always seem to end up at the apex) or a flatter, collective, shared, cultural accountability. The structure drives what functions are possible.

    The problem people have with collectives is that no one gets to feel extra special all the time. They have forgotten that the drive to compete is not only killing us all, it was deliberately manufactured to begin with. Competing to be the best hunter who brings home the most meat for the entire community is vastly different from competing with a neighbor you barely know over who has the best lawn, or the latest toys. Or the latest athletic shoes. Or the most equipped, latest model car. I could go on, and on, and on …

  28. bruce wilder

    I probably cannot say much more than I have, without proving myself a fool.

    Most people tend to confuse the economy with a morality play of some kind, succumbing to a just world theory in which good policy works its magic thru being virtuous.

    “Printing money” is a bad metaphor. Currency, not money, is printed and a good policy is to print as much as people want to use. The quantity of currency, as long as there is enough of it, and it is without inherent value or cost, is irrelevant.

    Money is a score-keeping device and a means of making deals with an uncertain future, a way of making bets and hedging bets. You cannot play a game, if you cannot keep score.

    That “uncertain future” part is the key. Uncertainty is pervasive, writ large and small. We know some things, are in the process of learning more and in complete ignorance of where the boundary lies beyond — the vast not knowing what we do not know. Money papers over uncertainty in bets placed on the future and dampens the volatility due to what turns out to be noise in the signal, so to speak.

    It all goes terribly wrong when we fail to accept that uncertainty invites fraud and Money can be used to create volatility or to dampen the signal with the noise.

    The quantity of money does not matter. The lies told in the fictions that Money as language allows us to write do matter.

  29. Hugh

    Money is not a scoring device. It is a medium which allows access to the goods, services, and resources of a society and a way for a society to distribute and direct them.

    As a societal enterprise, the economy, like all social activities, is moral in nature. Aristotle recognized this 23 centuries ago. Modern economics denies it in order to justify huge and unproductive concentrations of wealth as well as other generally harmful and destructive practices.

  30. bruce wilder

    Perhaps we will agree to disagree, Hugh. I do not know what “a medium” means in this context. Is it a metaphor? Access and distribution are not the problem money solves; risk* attendant on the sunk-cost investment in schemes and systems of production and distribution are. Capitalism is about capital and Money and finance make it possible. I tried several times to write a short comment about the implications of Capital investment being sunk-cost investment and I could not make myself understood adequately even in my own imagination.

    On some deep and profound level, organizing the economy by means of sunk-cost investments is itself a response to pervasive uncertainty: we make sunk-cost investments in schemes that make use of what little we do know to apply that knowledge in controlling error and waste. A return on a sunk-cost investment, though, can only be obtained by an exercise of political power to extract an economic rent. In certain common political ideologies, “rent-seeking” is a pejorative and the ideal of competition is to eliminate “economic rents”; this is sheer nonsense. All capitalist business is rent-seeking and economic rents are necessary and even essential to the process of organizing to obtain a return on sunk-cost investments. I fear no one who reads this paragraph is prepared to make heads nor tails of it.

    I can only agree with you that the moral is integrated into the economic: the economy is organized to produce and distribute “goods”(!). I only mean to point out that the myths of the free market economy obscure the actual mechanics to the great disadvantage of democratic discourse on public policy. In reality, whether an investment is worth making in a social welfare sense (cost-benefit) is unrelated to whether a business model can be devised to generate the return on investment necessary to finance hearing costs now for benefits later. Ideologues of the “free market” ignore the mechanics of money and capitalist enterprise alike to avoid confronting the essentially problematic and paradoxical nature of organizing an economy.

  31. bruce wilder

    *risk – I put an asterisk in my comment above, because I wanted to make a pedantic point about not following Keynes’ distinction between risk and uncertainty in my use of the terms.

    Writing blog comments no one can understand since 2002.

  32. Mark Pontin

    Bruce W. wrote: “Printing money” is a bad metaphor.”

    For heaven’s sake. Well, just to be clear ….

    “Printing money” means in the Fed’s case that when it buys Treasuries, it first creates electronic dollars. Then it buys Treasuries from its primary dealers and pays them with these newly created electronic dollars. Now these newly created dollars are out there and need to go somewhere (other assets), and the Fed holds Treasuries.

    (Treasuries are also electronic entries. The Fed receives the coupon payments that the US Treasury Dept. sends out to holders of Treasury securities.)

    More generally, 93-97 percent of the money that exists in our economy has been created by the banks in an analogous way. When you get a loan from a bank and they tell you they’re moving funds into your account, they are really doing no such thing. They are selling you a promissory note crediting you with that amount of money based on your signing that promissory note — promising to pay them back with added rent — and the money comes into existence at precisely that point.

    I think I understand all that. But it’s a mouthful and there’s no convenient short nomenclature I can think of that everybody will understand at some level besides ‘printing money.’

    On to the issue of rent now you’ve brought it up ….

    Bruce W: “In certain common political ideologies, “rent-seeking” is a pejorative and the ideal of competition is to eliminate “economic rents”; this is sheer nonsense.”

    In certain common political ideologies like capitalism, as those obscure ideologues Adam Smith and John Maynard Keynes frame it?

    Keynes calls for ‘the euthanasia of the rentier’ in, forex, chapter 24 of THE GENERAL THEORY–

    “it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital….

    “…Thus we might aim in practice … at an increase in the volume of capital … so that the functionless investor will no longer receive a bonus…”

    Here’s Adam Smith similarly dissing the rentier in, forex, Chapter 6 of THE WEALTH OF NATIONS —

    “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces.”

    Smith has more like this in Chapter 11 —
    “… [the landlord leaves the worker] with the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more.”

    “[Landlords] are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind…”

    Yeah, I’ve had this discussion before. The *point* is that it’s not a question of all rent being either bad or good. It’s a matter of trying to distinguish, as both Smith and Keynes do, between ‘productive’ (i.e. industrial) capitalism and ‘parasitic’ rentier capitalism (i.e. in its most extreme form, indentured servitude unto chattel slavery).

    Bruce W: “Writing blog comments no one can understand since 2002.”

    With all due respect, I can usually understand them. But I just don’t see where they get either me or you given that they’re so mistily unspecific and qualified (at the same time!).

    I’m not being snarky, just trying to comprehend. You were admirably specific and precise when it came to the history of the Muslim conquests in India, for instance. And yet you were/are involved in economics professionally, if I understand correctly, but you come up with these misty, qualified generalities in that context. (Good thing you were never a journalist!)

    Well, I asked. I thought you’d be able to say more is all. Again, I’m not trying to be snarky — there are contexts where I myself feel that the more I know, the less I understand.

  33. Hugh

    A medium is a means to do something. Money allows for access to and distribution of goods, services, and resources. It is we who should determine how this happens in order to build and maintain the kind of society we want to live in. In our current perverted system, sustained and justified by the weight of history, it is the rich and elites who are deciding what kind of a society they want to live in even though their choices are unsustainable and destroying the rest of us.

    Frederick Soddy distinguished between wealth (wealth derived from a productive activity) and virtual wealth (wealth from rent-seeking, i.e. non-productive activities). But the line between the two is not absolute, and there are caveats. For an activity to be productive, it must fulfill some societal good. It can return a profit but that profit must be reasonable. So making meth is not a productive enterprise because there are real harms associated with it. And our understanding of what is harmful can change over time. Take the internal combustion engine, for example, and climate change. Or cheap goods from China at the cost of American jobs and livelihoods. Indeed the hallmark of our current neoliberal system is to produce the crappiest products and sell them at the highest prices.

    Virtual wealth is also epitomized in using money to make money non-productively as in “investing” in stocks or via our intellectual property laws, or as above in excessive profits. I should point out that while uncertainty exists, there is no risk in stock markets. The Fed guarantees the action. It is rather like shooting craps in Las Vegas where the house not only will pay out on your wins but make good your losses and then some.

  34. bruce wilder

    “Printing money” means in the Fed’s case that when it buys Treasuries, it first creates electronic dollars. Then it buys Treasuries from its primary dealers and pays them with these newly created electronic dollars. Now these newly created dollars are out there and need to go somewhere (other assets), and the Fed holds Treasuries.

    I think the central bank, acting together with its primary dealers, has made a highly liquid and very deep market in securities of various durations of the monetary sovereign. Those Treasury bills, notes and bonds become near zero-risk financial instruments. At least there is zero risk of illiquidity and practically zero risk of nonpayment. Treasury securities become another form of money and a reference for all other financial securities marketed in the same unit of account. Also, a reliable hedge and means of capital security for banks making up the payment system. I fail to see how the “printing” metaphor does anything to identify the significance of making a highly liquid market work to make the marketable securities making up the national debt into near-zero-risk instruments, useful as references, benchmarks and hedges.

  35. bruce wilder

    Keynes:there are no intrinsic reasons for the scarcity of capital….
    “…Thus we might aim in practice … at an increase in the volume of capital … so that the functionless investor will no longer receive a bonus…”

    I think Keynes was badly misconceiving the nature of capital, when he supposed that it was something that has a “volume” such that the volume would be inversely correlated with claims on income or rates of return. It was a common enough view at one time. It is not one widely shared today as far as I can tell.

    Tell me, Mark, do you imagine that we could somehow reduce the “scarcity” of capital? I would be surprised honestly if you told me that statement made sense to you when applied to recent experience. (I think I understand what he was trying to say in the context of his own views and experiences. Schumpeter’s take on Keynes might be relevant.)

  36. Mark Pontin

    Bruce W. : “Tell me, Mark, do you imagine that we could somehow reduce the “scarcity” of capital? I would be surprised honestly if you told me that statement made sense to you when applied to recent experience.”

    You won’t be surprised. I too find it at best opaque and — in the context of what we actually see in 2020 — not at all the problem with markets. I too surmise it made a lot more sense if you were an Englishman experiencing the 1920s-30s.

  37. Mark Pontin

    Bruce W: “I fail to see how the “printing” metaphor does anything to identify the significance of making a highly liquid market work to make the marketable securities making up the national debt into near-zero-risk instruments, useful as references, benchmarks and hedges.”

    I used the phrase not really as a metaphor, but as a shorthand term for money creation that anyone can understand, while sidestepping explanation of the mechanics and history (and bypassing ideo-religious discussions about MMT, chartalism, TINA, gold standards, etc.).

    This was on the way to making the crass point — not to get away from it — about *who* under our previous system the money creation consistently happens *for* and *why.*

    It’s always for the purpose of maintaining the existing wealth structure i.e. the value of capital assets owned by elites that was in danger of evaporating, so they can continue with the yachts, private planes, fancy education for their children, nice new cars, travel, staff like dog walkers, massage, plastic surgery, drivers for Grandma, the best food, real estate and serf-rent producing things.

    So when you say that fail to see “the significance of making a highly liquid market work to make the marketable securities making up the national debt into near-zero-risk instruments, useful as references, benchmarks and hedges,” that’s the significance.

    And where we’ve arrived at today as a result is that wealth today isn’t made by saving money, it’s not made by investing in factories, it’s made by buying stocks and bonds that the Federal Reserve inflates in price by these trillions of quantitative easing that’s all spent into the stocks and bonds, not into the real economy. In Michael Hudson’s phrase, “Profits are for the little people, it’s about capitol gains.”

    On the subject of serf-rent producing things. Where I was looking for pushback was in subsidiary point [2] of my original post where I made the claim that “of course, even the American masses will rebel, as we’re also seeing the beginnings of now. The U.S. government will come under pressure to divert some income to them. But this will *deflate asset prices,* defeating the point of the Fed’s whole money-printing campaign.”

    Is that true? Will the U.S. government diverting income to the American population necessarily deflate asset prices? It’s obviously the stock market’s tendency to reward situations (offshoring, cutting labor costs) that privilege capital over labor. But does that amount to an economic law?

    More cosmically — more on the Bruce Wilder level — when money is created in our system as debt (the other side of credit is debt) what does it mean that the money supply has expanded so that the economy is now worth X trillions of dollars, and that we have Y number of billionaires, and will soon have our first trillionaire (Bezos)?

    Because if money is debt — and it is — and there’s that much money out there that there are now Y number of billionaires — and there are — does it mean that in order for there to that much notional debt out there to support the existence of Y billionaires the rest of us have to be consequently that much immiserated, debt-laden, etc?

    I’m starting to suspect that *is* the case. That in order for all the billionaires to exist, the corollary *is* the enormous growth in personal debt borne by Americans over the last few decades. At least in part, that *has* to be true, doesn’t it?

  38. bruce wilder

    It is not necessarily a zero-sum game — the contest between Capital and Labor over the distribution of income — but it is a contest over the fruits of cooperation: it is never going to be the case that Capital income is independent of Labor income. The rich man does not become rich independent of the worker. Finance does not generate income independently from commerce, industry or agriculture, either. But, it also isn’t a simple game of tug of war: collapse a financial bubble and aggregate demand drains away wages too.

    Mechanism matters to effective policy.

    There are several channels that have driven the huge gains to Capital’s share of national income and the plummeting share of Labor. I, personally, doubt that robots are anything much more than a convenient cover story.

    A big policy choice was the deregulation of finance and banking. The system of financial repression devised in the New Deal by Carter Glass and many others, was based on creating many small privileges, many small sources of defensible economic rent, which created a diverse and numerous ecology of specialists: savings and loans, mutual insurance, local banks, stock brokers, investment banks, et cetera, with conflicting political interests. The neoliberals used the rhetoric of competition to destroy those evil rents, promising competition would deliver efficiency. Ultimately, we got BIG. Universal bank holding companies of enormous (and obviously inefficient if anyone was looking, which they were not — I gave up on Mark Thoma on this issue of his refusing to look) size and scope and centralized strategic control destroyed the integrity of FIRE as a sector and not incidentally the integrity of politics.

    China adopted a policy for financing industrial development that delivered big bucks to commercial and financial interests in the U.S. for stripping the U.S. of industrial capability.

    Reducing the marginal income tax rates on top executive “compensation” enabled an alliance between the mega-wealthy and the sociopathic cream of the professional managerial class, able to assume top executive posts and use those sources of power to destroy rather than build.

    There is more, but let us skip ahead to whether what goes up must come down.

    Some of these channels have end-games of collapse attached. They run out of road, of businesses to dismantle. The game with China ends with China reneging on the deal. Isn’t that obvious?

    MC4all would collapse the only major sector of the U.S. economy with growth in “good jobs”. You don’t think that is a political problem? Financialization has driven up the cost of dental care and vet care.

    Prolonged low interest “free money” at the Fed feeds stupid schemes of “risky” investment, but take away the spiked punch bowl and the party ends as that spending flows out of aggregate demand. Investor financing of Uber or WeWork or fracking creates huge sources of wage income at the margin of employment, yet those hugely unprofitable “enterprises” cannot continue forever sucking up investor funds.

    Interesting times, eh?

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