Ian Welsh

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

Category: Economics Page 32 of 93

Modern Meritocracy Isn’t Worth Having

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On September 27, 2019

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Meritocracy is the simple argument that the best person for the job should do it and that our system tends to put the best person for a job in the position.

Some jobs are more important than others, and should be paid more as a result, both to get the best person to do it, and because the best person will contribute more.

The problem with these arguments is simple: It ain’t so.

The best paid people in our economy, generally speaking, are those in the financial industry: bankers, shadow bankers, brokers and so on.

They caused a world economic crisis with their venal and idiotic behaviour in the 2000s. They currently can’t find enough good things to do with all the money they control, so interest rates are moving negative.

They are manifestly incompetent at their jobs–if the job is to do anything but enrich themselves. They cannot be the best people for the job, because they would all be out of the job if governments hadn’t bailed them out, and indeed most of them would probably be in jail if the law had been enforced.

They are paid better than those who managed the financial industry in the 40s, 50s, and 60s, who manifestly created a better economy, including higher growth rates.

Paying them more, then, has been correlated with them doing a worse job at everything except making themselves richer, and they only even managed that by corrupting the government to bail them out of their mistakes, and with endless government support, with Greenspan, Bernanke, Yellen, and so on endlessly doing whatever was necessary to keep financial markets growing in size. (The Greenspan Put.)

Studies, meanwhile, have found that the higher a CEO’s pay, the worse their company performs.

It seems that perhaps the best paid people in the world aren’t the most meritorious, except by the rules of jungle. If one wants to argue that you “eat what you kill” as Wall Street does, then all merit constitutes is the ability get a lot of money.

Merit = money is the actually state of meritocracy in the world today. Oh, there are exceptions, you can say “surgeons” or something, but they aren’t the best paid people in the world, are they?

Meanwhile, as I like to point out, if the janitor doesn’t show up, people get really, really upset, while if the CEO takes a week off most people won’t notice or care.

Seems people really, really don’t like cleaning toilets, but doing so is really, really important, and we don’t pay, errr, shit for doing it.

But, you cry, “Ian, any idiot can clean a toilet.”

Well, I’m not so sure about that, but what is true is that most janitors are competent at their jobs and most banking executives are good only at making themselves rich. They are net drain on society, massively, while janitors provide real value and are able to do their jobs.

Teachers, nurses, garbage men, civil engineers, construction workers, etc, etc., all do things that matter. When they don’t do them or do them badly, we’re fucked.

Bankers do something that matters, too. The problem is that we clearly pick completely incompetent or corrupt bozos to do the job, who then pretend they are the best of the best, destroy the economy and the environment, and reward themselves with money that would make 19th century robber barons blush.

Meritocracy is a wonderful idea. We all want the best person for each job to be doing the job, or at least, someone who is competent at the job doing the job.

But that’s not what we have. What we have is a Kakistocracy: A society run by the worst, most corrupt people. Bush, Obama, and Trump weren’t the best at running society, they were just the people best at getting into office. The people running Wall Street aren’t the best at allocating money for social benefit, or even for creating the largest actual economy, they’re just the people who fought their way to top and then appropriated the largest share of money for themselves while shattering the world economy.

They are the best only at seizing positions of power, which give them access to money. That is all.

If meritocracy is just, “The more money you have, the more you deserve to have more money,” which it is at the moment, it’s nothing worth having.

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.

Should NATO Exist? Will It?

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On September 20, 2019

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One of Trump’s constant cries is that American allies aren’t spending enough on their militaries and that the US is, thus, carrying them.

While there is a temptation to scorn this argument because it was made by Trump, it has a fair bit of truth to it, as Matt Stoller suggested today:

The American military umbrella is a bad deal for America and a good deal for our “allies.” Japan gets protected channels to Middle Eastern oil, for free. Germany gets protection from Russia, for free. They all export to us at terms unfavorable to our own industries/middle class.

The problem with this is that it is, well, true.

And that Europe “needs” America for defense against Russia is absurd:

Let us be clear, the EU’s population is 508 million. When the UK leaves, it will be 447 million.

Russia’s population is 143 million.

The EU minus Britain has a GDP of 18.1 trillion (purchasing power parity), Russia has an economy of 3.5 trillion (ppp). Germany alone has a GDP (ppp) of four trillion.

If Europe “needs” the US, it’s because it can’t be bothered to raise a proper army. That’s all. It is genuinely free-riding.

Chinese and American flags flying together

But then NATO is a large part of why Russia is a “threat”. The expansion of NATO, which Bush Sr. promised Gorbachev would not happen, is a large part of why Russia has armed up.

It’s not clear that NATO should even exist. Its purpose was to resist the Warsaw Pact and the USSR, neither of which exist. Russia has a lot of nukes, and is relatively strong militarily, but it is no USSR and has no grand alliance facing NATO. It is not a threat unless terribly mismanaged. (Which, I suppose, it has been.)

Disband NATO. Let the Europeans take care of their own defense, or lay prostate before the Russians as they choose.

Japan is a trickier proposition. What American military presence there does is simple enough: It prevents Japan from needing its own nuclear weapons. The same is true of American bases in South Korea. Leave and those two countries have to nuclearize or become Chinese satrapies (and Japan will need a much larger navy).

It’s also worth noting that the US didn’t start protecting “Japan’s oil.” The US needed foreign oil too; it is only recently, under Obama, that the US has again reached petrocarbon self-sufficiency and is able to say, “We’re protecting other people’s oil.”

WWII was won by the powers who had access to more oil. Generals and admirals at the time understood the war was, to a large extent, about oil.

America may not need foreign oil now, but it did for decades and that is why it protected maritime oil trade.

In general, however, a US withdrawal from its forward bases will be a good thing. A rebalancing of trade will also be a good thing, though it will hurt as it happens (Trump is not doing it well). Deliberately offshoring and outsourcing the US (and Britain’s) industrial base led, more or less directly, to Trump and other social ills. It created a group of people who have lost for 40 to 50 years. Their parents had better lives. They had better lives. They know it. You cannot lie to them with BS statistics and pretend otherwise.

So they are willing to vote for and support anyone who seems like they will wreck a system which doesn’t serve them. Maybe what happens will be worse, but what’s happening right now is shit.

This is not contradicted by Trump’s support from red-state elites. They are also scared, because they also know their situation is precarious and that power and wealth has flowed away from them. And they rule over Hell. It isn’t always better to reign in Hell.

So the world is changing. It was changing before Trump: The Trans-Pacific Partnership was intended to be a trade bloc AGAINST China.

Note carefully Stoller’s hostility to China. It is constant. The American elite is finally reorienting. They don’t see Russia as a primary threat. They’re moving away from caring about the Middle East as they now have enough oil of their own and see a post-oil future coming. They know the rising great/super power is China.

They want to reorient their alliances against China. The price of keeping NATO will be keeping China OUT. When Germany said they wanted to do more business with China, Stoller was angry and said it was an argument against NATO. No Huawei, no China.

The world is very likely to divide into trade blocs–probably two, maybe three.

China rises. The US moves to protect its position.

Great power politics continue, as they ever have.

There is no end to history, save an end to humans. Only fools ever thought so.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The Cruelty and Stupidity of Trumpian Homelessness Rhetoric

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On September 18, 2019

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From a study by his officials:

In the report, “The State of Homelessness in America,” even shelters get some of the blame for increasing the number of people who are homeless. The argument: Some people would be able to find their own housing if they were turned away from shelters.

“While shelters play an extremely important role in bringing some people off the streets, it also brings in people who would otherwise be housed, thus increasing total homelessness,” the report states.

So tiresomely stupid. Shelters are shitholes, and unsafe, and most people hate them. Many homeless people refuse to sleep in them, and even die of exposure. They are simply too dangerous.

Or:

homelessness could be dramatically reduced by slashing restrictions on housing construction and being less tolerant of people sleeping on the streets.

In which case, more condos which poor people couldn’t afford would be built. Developers don’t want to build for poor people in “world cities,” it’s just that simple. It’s a market failure, and there are solutions; simply slashing regulations won’t do it as the current market preference is for expensive homes and apartments.

As for being less tolerant of people sleeping on the street: What? These fucktards think more than a tiny minority of the homeless want to sleep on the street? It’s a positive choice they make?

The sheer stupidity and blind ideological thinking is tiresome.

As study after study has shown there are two ways to get the homeless housed: Give them money or give them homes. For those with the most mental and physical problems, some social assistance is also needed. But if you want people housed, house them.

That requires housing which they can afford (or the government can afford) to pay for for them. That doesn’t mean luxury condos.

This isn’t rocket science. It’s been studied repeatedly. We know what works. The question, as always, is whether we care enough to bother.

I mean, rich people need more tax cuts and subsidies. You can have that or take care of poor people.

That’s the choice, and Trump is on the wrong side of it.

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.

 

 

 

Capitalism Requires Loss of Money and Power

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On September 10, 2019

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Capitalism existed before widespread limited liability–for instance, the textiles revolution (a.k.a., modern industrial capitalism started before it, even). We’ve been running on forms of capitalism in parts of the world for hundreds of years. There was, in fact, violent opposition to limited liability from some capitalists when it was introduced. They thought it unfair.
 
In this case, of course, one should have very robust bankruptcies — in the sense that people are not destroyed. You keep a house, a car, basic resources. You are not made destitute. (This also means a robust social safety network.)
 
What is desired is simply that failure does not destroy people, so they can try again. It should, however, remove their power — money in excess of what is needed to support themselves. They used that money/power incorrectly, and what capitalism actually requires for correct functioning is that people who fuck up lose the ability to command other people’s labour and resources.
 
To be explicit, all the bankers and all the broker dealers and so on should have lost all their money in 2007/8/9. They fucked up. They put massive resources into the wrong things. This is not “socialist,” this is pure capitalist reasoning. Without people actually losing the resources they have fucked up, it is NOT capitalism.
What is MOST important is that those who made the decisions lose their power and money. If you invested money in something, OR you made the decisions, you must lose a proportional right to make such decisions at such a scale.
 
I find it odd that I continually have to explain Capitalism 101, when I don’t much like capitalism.
 
But the real fix goes beyond limited liability. Most of those bankers should have also wound up in jail and lost all the money they earned during the financial bubble. They had committed mass fraud (no, don’t even, it was my job to cover this stuff, and I have no time to waste on BS) and were liable under the laws as they existed then. A political decision was made to NOT indict them, but rather, to immunize them, which was done by levying fines against them. This decision was made by Obama and his senior officials, and the equivalent in the UK, etc.
 
Dividing this question bewteen government vs. corporations is about 70 percent a category error. They are in bed together; the corporations own the politicians (yes, yes, they do, this is not hyperbole). Right now, any serious fights are between elite factions.
 
Democracy does not operate when you allow these levels of inequality. Capitalism does not run at this level (again, capitalism ended for a large part of the economy when the bailouts happened).
 
Capitalism and Democracy 101. Capitalists must be held accountable, and control of government by other forces, as FDR pointed out, is not democracy. Right now, what we have are the appearances of capitalism and democracy and very little of their substance.
 
That most people defending capitalism or democracy can’t recognize this indicates a particularly bought or propagandized set of intellectuals.

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.

How Economic Decisions Are Made

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On September 5, 2019

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Image by TW Collins

Let’s talk money. Everyone’s favorite subject, perhaps after sex.

Money does a lot of things, but one of the most important things it does is signal “Do this, do that, don’t do that.” It says, “We need more of this, we need less of that.”

As a result money moves people around. It compels them to do things. Or, if you prefer, “profit” does. How much you can make doing something. You have to at least break even, and the more profit you make, the more you should do of something.

This is completely vanilla economic theory. This is how capitalism is supposed to work.

Right now, we have a situation where there are things we need to do, but the price/profit/wage signals are saying, “Build super yachts. Optimize selling ads. Build more weapons. Play financial games instead of building things, because financial games make more money.”

That’s the reality. That’s what money is saying, and people are responding to it.

So we have a vast explosion–not of nurses, but of health administrators. We aren’t sinking carbon to prevent climate change, because there’s no money in it. We are creating palliative medicines rather than cures, and monetizing medicines like insulin ($300).

People are doing what money tells them to do. It’s that simple.

But, as I’ve said before, money is a social construction, and price signals are not given by God and nature: They are choices. Political choices. That isn’t to deny some physical reality behind what they signal as “worth,” but that reality has obviously been elided, when, in America, the life spans of some demographic groups are dropping while super-yachts and luxury condos are hot to trot.

All systems have to do only one thing: Whatever is required to keep the system in power.

That’s all they have to do. Whether or not human welfare is advanced, whether or not we care about animals or nature is irrelevant to the raw calculus of power and staying in power. Until it effects staying in power.

If the hoi polloi can be kept from revolting or demanding (remember demands are based on “or else,” they are not requests) well then, the powerful will not do anything that does not increase their power or money. They will only care about human welfare outside of their own group if they feel they must, or if, as happens occasionally, they see their group as being something other than the elite group.

Right now, elites don’t care about other humans enough to reshape the money and political systems (the same thing, ultimately) to prioritize human welfare, avoid a great-die-off, or stop climate change. This is clear. It is not arguable, it is a fact, based simply on their actions.

If money isn’t saying, “Do the right thing,” then money is failing. The argument of capitalism was simple: “Markets will do the right thing, if we mostly get out of the way and let them operate.”

That’s just not true. Markets only do the right thing if they are properly managed. That management may look light at times, but it actually has to be ferocious because the first thing that anyone who wins a market fight does is try to stop the market operating properly; they don’t want price signals that would take away what they’ve won.

In 2007/2008 those price signals were given. They said: “The entire banking and shadow banking system has allocated resources to the wrong things. All of their money and power needs to be taken away from them. They need to go bankrupt and that power and money needs to go to other people.”

We ignored that signal. We pretended that ignoring that signal was the right thing to do by propping up failures and incompetents–who had not only massively mis-allocated resources, but engaged in mass fraud.

It wasn’t the right thing to do. Capitalism requires both outside management and an insistence on market discipline. It is most important that market discipline is exercised on the large actors, not the small ones, because the large ones set the market terms and make most of the allocative decision. When you offer people too-cheap loans, they will take them. YOU are the one offering them; YOU are the one in the wrong.

Price signals must encourage doing the right thing. When those with market power either misbehave or mis-allocate money, they must lose their power to do so.

This is fundamental, and no society which relies on money to determine allocative decisions will prosper if it is not managed properly.

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.

When the Ideas that Run the World Change

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On September 3, 2019

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Real political change happens infrequently. The cycles are decades long. So, most recently, there was the crisis of the 70s which led to the rise of neoliberalism: Thatcher and Reagan. Everything that has happened since then, in the Western world and Japan, has been an unfolding of that. There are some important sideshows, but this is a neoliberal world.

Before that the Crisis of the Great Depression and WWII led to the post-war era. In the US, that runs from 1933 to 1980, essentially, but it was in crisis from about ’68 or so.

There are other such cycles, for example, in the early 1900s there was a collapse of support for Imperialism in Britain. It disappeared in a few years (I know a lot less about this). Everyone had to support it for decades, and suddenly they didn’t.

During a period where a sub-ideology reigns (all of these were capitalist periods, but they were very different forms of capitalism) it’s almost impossible to do things against the trend. The best you can do is grip on for dear life and try not to lose too much. You can, alternatively, go orthogonal: Neoliberals are basically okay with identity politics, so you can make gains there. Doesn’t mean it’s easy, but it can be done.

But the real fight is over the NEXT period, the transition. Key ideologues created neoliberal thought long before Thatcher and Reagan. When things go to hell (stagflation is the end point of the 70s) for long enough, people become willing to change ideologies.

They choose from the available ideas. Ideas with muscle and money, or which appeal to elites (if the elites aren’t being changed), have a better chance. But the key point is that if your ideas aren’t there, and being considered in the crisis period, you’ve already lost.

The conservatives were and are right: Ideas have consequences. Ideas are powerful. Next to physical facts, they are probably the most important factors in human existence (every invention is an idea first).

We are probably in a transition period. If we aren’t, we will be soon. Take this into account: Whoever wins this transition period will rule, if not the world, then a significant chunk of it. Everyone else will either be working out their ideas, resisting them, or trying to do something orthogonal to avoid them.

Finally, there are different types of ideas. Technological ideas are one subset. They aren’t as determinative as we moderns think. They determine the possibilities, but possibilities can lie fallow for a long time. Certain societies are possible with the steam engine, or the internal combustion engine. Composite bows and stirrups make other societies possible. The stirrup and composite bow were around for a long time before Genghis Khan showed what they could truly do. The Chinese invented gunpowder, the Ancient Greeks had toy steam engines.

So beware of over-determination, and also beware of the idea that histories and societies which didn’t happen–or have not happened–were therefore impossible.

Meantime, transition period, ho. Get to work, your enemies (and you have enemies) are.

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.

Why Labour Unions Matter(ed)

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On September 2, 2019

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Since it’s coming up on Labour Day weekend here in Canada, I thought I’d write a basic post on labour unions.

There’s been a vast effort, funded by huge amounts of money, to discredit unions and say they’re bad for workers.

That’s simple nonsense, but as with things like climate change denial, nonsense backed with billions of dollars is effective.

So, let’s run through the simple logic.

When we negotiate to get a job, or for a raise, in almost all cases we are negotiating with a group–the people who control a company, who are more powerful than us. They have more money (d’uh), and we need the job more than they need us. There are exceptions, of course, and it’s a lovely position to be in, but the number of exceptions is minute in a job-based economy like ours.

Corporations hire workers to do something which, combined with the effort of other workers, will make money.

The amount of money they make from a worker is “what the worker produces,” or “what the worker is paid.”

In other words, a corporation wants to make as much money as possible from your work, while paying you as little as possible, because that is their profit: That’s what they make.

You want the opposite.

This is a straight up conflict of interest. There can be a compromise which satisfies both, but really, the group hiring you wants you to make as little as possible so they can make as much as possible.

And they are more powerful than you. Also, you need the job, more than they need you. Without a job, you will be homeless and probably die; without any individual worker, they can usually just hire someone else.

So there is an imbalance of both power and consequences: Your BATNA (Best Alternative To A Negotiated Agreement) is often shit.

Now, it isn’t always shit. In a really tight economy, which most western countries haven’t had since the early 70s, you can just get another job. There are less workers than jobs. But that hasn’t been the case for a long time–except for brief periods in specific locations or jobs, for decades. Where it is the case, companies work to change that, as fast as possible because they don’t want you to have alternatives.

This stuff is important for people who are not in management (which, in the old days, included bottom-level supervisors.) It is unimportant to senior executives, who are usually the people really running the company, and who are in effect negotiating with themselves for compensation. You’ll notice that they reward themselves well.

So, people who don’t control the company, and who are easily replaceable (again, most of us, despite many people’s over-inflated sense of self-worth), need to group up in order to have power. One person, or a few, are easy to replace.

If every line worker walks off the job and then pickets to prevent any other workers (scabs) coming in, the power equation changes.

Because most of us don’t study history, we have forgotten what unions won. At the start of the industrial revolution, people worked 12 hour days, 6 1/2 days a week. The jobs were dangerous, with maiming common, and badly paid. Peasants resisted being thrown off the land because being a feudal tenant with rights to the commons was vastly better than going to a city and working in a factory job (or even most clerk jobs). You worked less, controlled your own work, were less likely to be maimed and had a ton more days off.

It took over a century to turn jobs into what they are now, with the 40 hour week, a lot less maimings, and so on.

Corporations are groups. When they negotiate against an individual they have an advantage.

Corporations almost always have more resources and power than any individual or small group with whom they are negotiating over a job. If you were richer, or more powerful than them, you probably wouldn’t be going to them for a line job.

So what corporations want is to negotiate as a group, with more money and power, against individuals.

Only a complete bloody moron would find it either smart or fair for workers to acquiesce to this. It is not in their interests. The people who control corporations (not own, control) want to make the most money possible, so do workers.

Corporate officers, notoriously ruthless, understand this. Workers should too.

As for those not in a union, and jealous: Unions raise the wages of workers around them. Plus, get in a union if you can.

Don’t be a bloody sucker. Corporations hate unions because when unions are effective, they make less money and workers make more. That is all.

And if you want to know why workers keep having shittier and shittier lives in the US, well, here’s a lovely chart for you.

Strikes involving more than 1,000 workers

Strikes involving more than 1,000 workers

Support unions. Unless you’re a greedy, asshole boss, who thinks CEOs should earn 300x more than workers, in which case, rot in Hell.

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.

What Negative Interest Rates Mean and What We Should Do

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On August 21, 2019

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Alright, so Germany has now introduced a zero interest bond. That means, given inflation, people will get back less effective money than they started with.

At this point, outside the US, the average interest rate is negative.

As Stoller pointed out, that means that people with money can’t figure out anything productive to do with it which will make a profit.

That means that capitalists and banks, including central banks, have failed. It is their function, in a capitalist society, to allocate resources. Money represents resources: people, stuff, and land.

Now if we lived in a utopia, with no real problems, this would make sense, but we don’t. There are tons of real problems which need solving, lots of money floating around, and other capacity indicators show there are people and resources which are not being used, or which could be redeployed.

So capitalism is failing to do what it’s supposed to do, and so are capitalists.

The correct action in a situation like this is to get that money working. The government could borrow it massively, and do what needs to be done. It could (and I would suggest this is the better option) tax it away, and then spend it.

If capitalists absolutely insist on private enterprise doing the work, then they should massively raise taxes on any income or capital gains not used productively, and not count less productive things like loans–they should stipulate that the money must be invested into business activity. They should make stock option grants, stock buy-backs, and all similar activities intended to allow cash-outs impossible. They should get rid of private equity; just make it illegal. Almost all of its activity destroys viable business to create a pay day for a few people.

Heck, you should do away with all those things anyway.

People are very confused about profit. Profit is mostly socially constructed. It is not an independent variable. Taxes, laws, and regulations determine what is profitable and what isn’t. Billions of subsidies, tax breaks, and favorable land deals make extraction industries profitable, for example. Banks get to print money. Media companies like Disney rely on characters and ideas which, in the past, they would long have lost control over. Companies are allowed to pollute for free, to use vast amounts of water for nominal prices, and so on.

Meanwhile, a vast array of regulations and nickel and dime costs makes it impossible for small business to compete. Try starting a bank. Yeah, good luck with that.

This, too, is by design. Before Reagan, regulations were set up to make small businesses easier to start and keep running.

The point is that if investors can’t find anything in which to invest, government has failed to tweak profits correctly. You shouldn’t get rich in land speculation unless you’re building stuff that should be built. You should get rich in alternative energy, but mostly you don’t. You should get rich in making homes that are healthy and energy neutral, but instead we keep building unhealthy and environmentally-degrading housing.

You should make money rebuilding infrastructure, or building high speed trains, or reducing carbon, or reforesting, or making fish and phytoplankton stocks recover.

Yet, you don’t, so these things which need to be done in order to, like, avoid a few billion deaths, don’t get done.

That’s government failure.

Capitalism does not work without effective government control, if it is the dominant economic mode in a society.

So. We have lots of stuff that needs to be done. We have lots of resources and money which aren’t doing those things and, indeed, resources and money which apparently can’t find anything to do

Only a moron can’t look at those facts and know what to do.

Oh, and the 2008/9 bailouts made this situation far, far worse than it should have been. This endless printing of money is only to keep the useless rich afloat when they serve no useful, productive function. They are actually counterproductive, as they are actively stopping productive activity from happening.

Tax them. Stop propping them up and let incompetents die. Destroy, utterly, those members of the ruling class who are actively destructive, like Private Equity. Alter the rules so that productive activity is profitable, and while you’re doing all that, just have governments do the most important stuff themselves, with negative real interest rate loans.

None of this isn’t obvious to anyone who pays any attention.

Yet we don’t do it, because governments have been captured by failed rich people.

Normal. But not acceptable when the cost of inaction could be billions of dead people.

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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