Ian Welsh

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

Category: Economics Page 32 of 91

It Is Impossible to Control Corporations Without 90%+ Progressive Tax Rates

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On May 10, 2019

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Probably 95 percent on any income over about a million, 90 percent on anything over 500K, honestly.

Dick Fuld earned about $69.5 million in 2007, the year before Lehman Brothers filed for bankruptcy in Sept. 2008. From 2000 to 2007, he was awarded about $889.5 million and cashed out about $529 million of that before the company went bankrupt.”

Why would Fuld, or any other executive earning millions of dollars a year care if their company went bankrupt?

The man walked away with 529 million dollars for seven years. It’s irrelevant to him that Lehman went bankrupt.

You cannot have a good economy, where executives plan for the future, unless they need their companies to continue to do well.

That means high, progressive tax rates on income, on capital gains, AND on unrealized capital and wealth, with no loops.

Taxes on unrealized capital gains and wealth are necessary because, without them, rich types don’t cash out capital; instead, they use loans to pay their bills. When you’re worth 500 million or even just a 100 million, banks are happy to lend, at under 2 percent.

Now, obviously this doesn’t apply to people who have all their securities in one company, but most rich diversify.

The larger point, however, is just that the rich are too rich, and that people who can get rich in a few years don’t care much if everything crashes after they’re rich.

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.

Happiness, Love, and Terrorism

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On May 8, 2019

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So, we’re seeing more attacks by motorists. (edited since the Japanese attack turned out to not be an attack. Woops.)

Many years ago, decades ago, I used to wonder why people didn’t use cars and trucks directly in terrorist attacks, not just as vehicles for bombs. Automobiles are one of the only things government can’t take away from people, because our entire society is set up to require them.

John Taylor Gatto, amusingly, used the fact that everyone had cars and almost never deliberately hit anyone as proof that people could, basically, be trusted.

That’s breaking down.

Look, this is simple enough. Our lives suck ass. Despite Abe’s manipulated stats, living in Japan is hellish, even if you are in the system. If you aren’t in the system, it’s beyond hellish.

As for most of the West, most people haven’t had a raise in 40 years, and while inflation stats say, “Hey, that’s okay, because wages have slightly exceeded inflation,” that’s BS, especially in the US, where prices for everything you MUST have, like food, medicine, and housing have increased far faster than wages.

The culture has also moved increasingly to a surveillance culture. This isn’t just about government (cameras everywhere) or private companies who try to track everything we do and are pretty successful; it’s about us–with parents, for example, turning into helicopter parents who basically never let their children have unsupervised time without adults around.

And if you do try, well the cops and children’s services will take your children away from you.

In workplaces more and more electronic devices track what workers do minute by minute and in some cases, like Amazon warehouses, by seconds.

Meanwhile, we have an ideology which says that if you have money you deserve to have it, and if you don’t, you don’t deserve to have it. So not only do you get to be poor, you get to feel bad because you weren’t enough of a psychopath to climb the corporate ladder. (Yes, yes, a few people get rich without engaging in psychopathic behaviour. Maybe you’re one of them. You are an exception.)

Back in the 70s and even 80s, which I remember well, there were no security guards in most buildings. Most governments did not have blast barriers. You could just walk into legislatures. This is not an exaggeration.

We have created a hell world, then we wonder why people eventually freak out and do hellish things.

Why they take what little power they have and kill.

Oh yes, they shouldn’t, blah, blah, blah. Why you are in just as bad a place as they are and you haven’t, so they shouldn’t, because you are the measure of all things.

But human nature resides on bell curves. There are always going to be some people at the ends of the curves. Move the center 10 percent over and you get a lot more than a 10 percent increase in violence.

Who doesn’t commit violence?

Happy people who love the people around them and are looking forward to their future. Those people only commit violence when they or their loved ones are attacked, or if their government tells them to (the last one is rarely to their credit).

It isn’t more complicated than that. If you create a dystopian surveillance society, raise prices on things people need faster than wages will provide for and tell people they are bad people for not being successful when your society makes it harder and harder to be successful and worse and worse for those who fail, some of them are going to flip out.

Eventually, enough may lose patience and stop believing they are the ones who suck, and cause a revolution instead.

I just hope they kill the right people when the time comes. Because don’t think they won’t kill.

A reminder to any members of the elite reading this: Those who have more power have more responsibility. Your subjects are largely what you made them. You will eventually reap as you have sowed.

Indeed you are already, but so far most of this violence hasn’t hit you.

Don’t expect that to continue. More flip-outs are going to target people with power as time goes on.

Bank on 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.

The Coming War with Iran?

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On May 7, 2019

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Image by Yuan2003

It may turn out that the worst thing Donald Trump ever did was hire John Bolton as his National Security Advisor.

Trump was already deranged on the subject of Iran, possibly because Jared Kushner is his son-in-law, and Jared is having a (presumably) platonic love affair with Saudi Crown Prince (and de facto ruler) Mohammad Bin Salman Al Saud. Saudi Royals both hate and fear Shia Islam, in part because the regions of Saudi Arabia with the oil are Shia.

So Trump unilaterally left the nuclear weapons treaty with Iran, and the Treasury department has made it illegal for any country to buy oil from Iran. Since almost all finance in the world goes through US banks, the Treasury can do this. Only firms which don’t use the SWIFT system can avoid the Treasury’s grasp.

These sanctions are having a terrible effect on Iran, and one which will grow even greater as the final waivers expire. There will be smuggling, but even so, Iran will be starved of foreign currency.

The US has also declared the Iranian military to be a terrorist organization, the first time part of a foreign government has ever received that designation.

And a carrier task group has been sent to the region, specifically as a warning to Iran.

It is well known that the NeoCons, of which Bolton is a prominent member, want a war with Iran, to remake the Middle East. (This is part of the same project which saw Iraq destroyed, and which fuel US-led regime change aspirations in Syria. A little further afield, Libya, while not in the Middle East, was similarly dealt with.)

The issue, as Escobar points out, is that a new alliance is rising. Its key members are China and Russia, but Iran is part of it as well. The Chinese Belt and Road Initiative is meant to create routes to Europe and a Chinese-led trade zone. It is meant to bypass the straits of Malacca (which the US can shut down at any time to strangle China), and the land parts will be a lot faster (though not cheaper) than sea transport.

Iran is a key part of this system.

Because other countries aren’t cooperating with the US when it tries to stop the B&R system (indeed, Italy just signed on), the US needs to actually destroy part of it.

Thus Iran.

This isn’t the only reason, needless to say, the NeoCons have wanted to destroy Iran for far longer than the B&R system has existed, but it is now an important consideration.

But what if Iran survives the sanctions? No one except the US is happy about the sanctions. Others may submit, but they don’t like it. The Chinese will do a huge end-run, as with the Russians. Even the Europeans are angry, and have created a “special vehicle” to avoid sanctions. (Consensus seems to be that it doesn’t do a good job and that if they’re serious they need to improve it.)

Because no one is happy, there’s going to be a lot of oil still sold. It may be enough to keep the Iranian government in power.

Then what?

Well, war, maybe.

The problem with that is that Iranians can shut down the Strait of Hormuz. There is no situation, short of nuclear glassing, in which the US can keep it open. That spikes the price of oil to hundreds of dollars a barrel, because, at that point, a quarter of the world’s oil cannot get to the market at all.

And that causes an economic and financial crisis, likely even larger than 2008, because it involves economic fundamentals.

So the question is whether or not Bolton, who is a true believer, can talk Trump into it.

And the answer is… I don’t know. Just don’t know.

But that’s a serious precipice on which we’re walking.

Even without war, this is a serious situation. The US’s continued abuse of its privileged position in the world payments system to sanction countries like Iran and Venezuela, even when other great powers disagree, means that the loss of that privileged position through the creation of alternatives is inevitable. It is already happening and only a matter of time before they become viable enough that major countries will simply be able to ignore the Treasury’s sanctions.

This is also true because other markets are large enough that access to the American market is no longer required. Especially if the EU comes onside with this, the ability to sanction is basically finished if the other great powers (and especially China), don’t agree.

This is, for the US, a late Imperial period. Don’t mistake it as anything else. And remember, very few countries manage to regain their pre-eminence or Empire. Britain lost one Empire and gained another, but it is an exception, and driven by a specific situation (first mover in the Industrial revolution) which has no modern parallel (no, the information revolution is not even a rounding error on the industrial revolution.)

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.

Disney Explains that the Reason Poor Working People Are Poor Is Executives

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On April 25, 2019

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One of the most extraordinary threads I’ve read recently is Abigail Disney doing the math on how the Disney corporation could raise the income of its bottom tier workers.

The poor are poor because the rich are rich.

Disney was interviewed a while back, and these two questions and answers are germane to this conversation.

In what ways did your dad change, other than having a jet?Actually, having a jet is a really big deal. If I were queen of the world, I would pass a law against private jets, because they enable you to get around a certain reality. You don’t have to go through an airport terminal, you don’t have to interact, you don’t have to be patient, you don’t have to be uncomfortable. These are the things that remind us we’re human…

How did the jet change your dad? It wasn’t just the plane, but it’s not a small thing when you don’t have to be patient or be around other people. It creates this notion that you’re a little bit better than they are. And for the past 40 years, everything in American culture has been reinforcing that belief. We say, ‘Job creators, entrepreneurs, these are the people who make America great.’ So there are people walking around with substantial wealth who think that they have it because they’re better. It’s fundamental to remember that you’re just a member of the human race, like everybody else, and there’s nothing about your money that makes you better than anyone else. If you don’t know that and you have money, it’s the road to hell, no matter how much stuff you have around you…

See, here’s the thing, as I’ve pointed out in the past. Airport security is awful for one simple reason: No one who matters goes through it. They fly on private jets. On the rare occasion those people go first class, well, first class security is far less unpleasant than what the peons go through.

Any problem that does not affect elites, they do not act on, unless they can make money on it. (In which case, their solution is likely to make things worse.)

This is exacerbated by the fact that elites effectively live in bubbles: They don’t have ordinary people as friends. They don’t identify with the middle class or the poor, and if you don’t identify with someone, their pain doesn’t bother you. (This is why, in wartime, the enemy is demonized. It is also why slave owners mostly believed that blacks were were inferior, and subhuman.)

Iger is a bad, even evil man, for the same reason most high-level American executives are. He could easily make his employees lives better and give up nothing that matters (see Disney on what executives would sacrifice) but they don’t do it, because they don’t care about the pain of their “lessers.”

This is a matter of the structure of modern capitalist society, but it is also an affirmative choice by the executive class. In the 50s and 60s these sorts of executive excesses were both illegal and frowned on ethically. It was felt that earning so much more than regular people was actually immoral.

Later generations of executives didn’t see it that way. They felt that “greed was good,” that they “earned it” and that anyone who didn’t earn that much was a loser who was getting what they deserved. If they deserved more, the market would give it to them!

So they worked very hard to change corporate culture, buy government and change laws. For example, stock buy-backs, which are very good for executives with stock-option bonuses, used to be illegal. Then there’s the reduction in top marginal tax rates, the refusal to enforce antitrust laws and on and on.

It took a lot of work, by a couple generations of US executives and other rich people, to get here.

And now they’re rich, and  a lot of Americans are poor. And the reason other Americans are poor is that the rich are so rich. (Yeah, this isn’t the full argument, but the argument is easy enough: Buy the government and have it represent your class interests and everything else follows easily.)

And Bob Iger is evil, though I’m sure he thinks he’s a good person. But a lot of people are poor so he can be rich, and he and his executives could make their employees’ lives a lot better and give up nothing that matters to their own lives. When the situation is “I can help and I won’t even notice it” and you choose not to, well…

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.

So You Want to Be the Next Silicon Valley? One Thing You Must Not Do.

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On April 17, 2019

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Recently I’ve been re-reading Peter Hall’s magisterial “Cities in Civilization.” It’s a huge doorstopper of a book, the majority of which is histories of cities’ Golden Ages. Artistic, technological, civic, and so on.

One of the histories is of Silicon Valley.

And if there is anything which is clear from that history it is that Silicon Valley could not exist if California allowed non-competes. Silicon Valley’s history is of people working for one firm, leaving and starting up a new company which directly competed with that firm. Fairchild Semiconductor was famous, or infamous for this, and among its children is the company Intel.

Non-competes are, well, non-competitive. The idea that someone should be locked out from doing what they know best just because it might hurt a previous employer is radically non-capitalistic.

Oh, there’s other stuff, of course. Like a lot of technological golden age cities, SV is a child of government and university. At the key stage of computer development, government was buying about half of all computers, and in effect paying the entire R&D budget of Silicon Valley. Likewise, without Stanford, there is no Silicon Valley.

But the engine that kept Silicon Valley going was that anyone could leave their current employer and start up a firm competing with them.

If your laws allow non-competes, you will not be the next Silicon Valley. Doesn’t mean you can’t be the next, say, Berlin (the core of the electrical revolution), or the next Detroit (er, back when that meant something good), but you won’t have what Silicon Valley did.

I do wonder, myself, if Silicon Valley can survive after having off-shored most of its production. Historically, that doesn’t tend to go very well. At first it doesn’t matter, as when Britain off-shored production to the US, and still produced the majority of new inventions. But eventually there is a drop off. Having the factory where the designers are seems to matter.

Perhaps that’s changed, but real change of fundamentals like that is rare.

We’ll see.

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.

Veblen’s Idea of Business Versus Industry

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On April 5, 2019

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THIS POST IS BY TONY WIKRENT
I had wanted to reply to comments in the thread of Economics as Cultural Warfare: The Case of Adam Smith, where Bruce Wilder makes an important correction to my view of Smith: “Smith’s central argument rather famously is that the division of labor is the primary source of wealth!” Which of course is perfectly true, given that one of Smith’s most famous passages is that describing the impressive productivity of the machines Smith found in a pin making factory.

But my design is to utterly annihilate any respect for Adam Smith by showing that he is little more than an apologist for the imperial looting, immiseration, and devastation the British empire exacted on its colonial subject populations. In my world view, there is nothing about any apologist for the British empire that is worth salvaging. Was it possible that here was an anomaly for which I would have to bend my rules?

As I pondered this over the past week, I realized that tossing Smith’s division of labor argument into the trash bin of history is more easily accomplished by referencing the arguments made by Thorstein Veblen regarding the differences between business and industry. I was not very surprised to find that I could find nothing on the internet about Veblen’s argument worth linking to. Veblen has always been  persona non grata in the mainstream economics profession — which means he probably has gored one or more of the profession’s sacred cows. Which of course makes Veblen all the more attractive in our day, when the stench of the intellectual rot among economic academicians has reached an overpowering level. Modern Monetary Theory may have some weaknesses and faults, but I would rather have it blowing through the academy to dispel as much of the bad air as it can, than leaving the brain dead body to continue rotting and fouling the air.

Researching my attack on Smith, I had taken off my bookshelf Joseph Dorfman’s The Economic Mind in American Civilization. I now opened Dorfman’s book again to see what he had written about Veblen. I was surprised but delighted to find the best summary I had yet read of Veblen’s separating business from industry. In case readers don’t know it, Dorfman wrote a book in 1935 entitled Thorstein Veblen and His America. And what readers certainly do not know is that the descendants of Veblen loathed the book, and spent years trying to persuade, then force, Dorfman to change the book, mostly the parts in which he described Veblen’s personal traits and peccadilloes, including the controversies Veblen stirred up at every university that ever hired him. Veblen’s descendants were unsuccessful. The source for this is Jon Larson, who worked with Veblen’s descendants in the restoration of the Veblen farm.

Despite this sad history, Dorfman’s explanation of Veblen’s ideas on the differences between business and industry are extremely useful today. I hope to see in the comments someone expressing their “eureka” moment — yes, let us bury Adam Smith once and for all, and never hear of him again.

Below excerpted from Chapter XIX, “The Disturbing Voice of Thorstein Veblen,” The Economic Mind in American Civilization, Joseph Dorfman (Viking Press, 1949). 

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The Argument for Capitalism

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On April 3, 2019

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It is often worth stating an ideology’s argument in pure form. Let’s do that for capitalism, not because we necessarily agree, but because understanding why people believe in an ideology is important.

If someone buys something, it is because they want or need it. Giving people what they want or need is a good thing. Capitalism produces the most utility of any system because it makes limited judgments about what people want or need and because every time someone does buy something that gives whoever provided it more money. The more people who buy something, the more resources those who provide those things have.

This simple message is: “Do more of this.” If, on the other hand, not enough people want something at a high enough price, a simple signal is sent: “Do less (or none) of this.”

Thus, capitalism has a feedback system which makes sure that society produces more of what people want or need the most, and less of what they don’t want or need.

Capitalism makes no judgments about what people want or need except, “Will they pay enough?” (Other systems, like government, will make some judgments, capitalism does not.)

Capitalism thus requires nothing of people but that they act in their own self interest: Buying what they want or need and selling whatever they have to sell for the most they can get.

This means resources, including people, will be used in whatever people are willing to pay the most money for, and thus will be allocated to what people want and need most.

Thus, capitalism, compared to other systems, creates the most good, and (if done right) avoids coercion and the need for a lot of central authorities making decisions.

Of course this argument is wrong. Anyone with sense can pick it apart.

But, to paraphrase Churchill on Democracy, capitalism’s boosters say “Capitalism is the worst system, except for all those others which have been tried.”

Capitalism isn’t perfect, it doesn’t work close to the “ideal type” described above, but, what else is there?

That’s the argument for capitalism in a nutshell. It’s a powerful argument, and while its flaws are evident, it can’t be dismissed out of hand because due to the problem of alternatives. So far, the best alternatives appear to have been mixed economies, with markets in charge of part of the economy, and government and non-profits in charge of the rest. But those economy forms appear to break down in time, as the post world-War II liberal (not neoliberal) economy did.

Today, we look to the Scandinavian model of social democracy, but even there we can see some problems beginning (in particular in Sweden, as best I can tell), and, after all, a large part of the economy is capitalist and enmeshed in a global capitalist network.

So, is there genuinely an alternative? Boosters say no, and it’s a real problem. That doesn’t mean there is no alternative (Thatcher’s famous phrase) but that too few people–especially powerful people–accept that there is. Indeed, our debates are mostly about forms of capitalism, and under how much and what type of control markets should be, not about capitalism itself.

An ideology which can make it look like it is the only way to do things is a powerful ideology.

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 Lyft and Uber Endgame: Oligopoly Prices, Impoverished Workers

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On April 2, 2019

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The problem with ridesharing is simple.

Lyft and Uber are losing a lot of money.

They are doing so to increase market share: To drive taxis out of business.

That they are losing money, and the fact that they are highly valued means that they, and all their investors, expect that they will eventually stop losing money and start making it hand over fist.

In other words, having driven their competitors largely out of business, they will now raise prices.

Once they are an oligopoly, they will charge oligopoly prices.

They may be slightly lower than taxi prices in the end, because unlike taxi owners and drivers they don’t have to pay the capital costs (obviously not using that term in the way Silicon Valley does) of their vehicles, and they can pay near-starvation wages to drivers as long as the job market at the bottom end remains loose (ie. for the forseeable future. Despite the unemployment rate, the truth is, it’s still hard to get jobs near the bottom).

In other words, Uber and Lyft will squeeze additional profits out of their drivers and provide a very small decrease in prices (perhaps).

This, in manufacturing, is known as dumping: Providing something at less than the cost in order to drive competitors out of business, with the intention of then raising prices later. It’s generally illegal, though often not enforced, just as the simple fact is that most of what Uber and Lyft have done is straight up illegal–against most municipal tax regulations and much labor law.

So we’ll get cheaper rides, for now, in exchange for accepting an oligopoly which crushes it workers and provides little price benefit (and a lot less safety), later.

Doesn’t seem like much of a deal, or progress.

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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