Ian Welsh

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

Category: Economics Page 39 of 91

A Middle Class Which Aligns with the Rich Cuts Its Own Throat

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On May 9, 2017

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This was explained to me by Stirling Newberry years ago.

The middle class, can, broadly speaking, align with the rich or with the poor.

If it aligns with the rich, the policies it favors benefit the rich exponentially more than they do the middle class. Tax cuts went primarily to the rich, by magnitudes, for example. Real estate prices rising faster than wages made some middle class families rich, but benefited the rich magnitudes more than the middle class.

Money translates almost directly to power in capitalist societies and even more directly in capitalist democracies without adequate corruption controls (which is almost all of them). The rich become powerful faster than the middle class and ultimately the policies they favor do not include keeping the middle class healthy: The rich want low wages, “flexible” labour laws, bankruptcy laws that favor their interests but not that of the middle class, plenty of financialized rent streams, and so on.

The first generation to make the devil’s bargain with the rich can benefit, maybe even some of the second, mind you. A lot of “Reagan Democrats” won–they sold their houses, and they retired to some place sunny with cheap brown labor to wipe their bums in their senesence. But their kids are saddled with huge debt, make less money than their parents at every stage of their lives, and can’t afford to buy houses or even pay rent anywhere decent.

If the middle class sides with the poor, on the other hand, almost everything they do also helps the middle class. Poor people with money spend that money, and wage increases are much more useful to the middle class than capital gains because they are durable. And policies which reduce the size of the working class and poor, make the middle class bigger and stronger. The working class, absent a huge swell in their numbers, are no threat to the middle class.

Ironically, the working class and poor are a threat to the middle class precisely when the middle class aligns themselves with the rich, because that swells the number of the poor and makes them desperate. It also knocks a lot of middle and upper class down (the upper class is not the rich, they are its direct servants, plus a few others), and those people are angry and know how the system works.

The middle class not only justifies its existence ethically by helping the poor, doing so safeguards its own existence.

The right thing to do, ethically, is almost always the right thing to do in policy terms. Those who believe otherwise almost always pay a frightful price for their attempt to be clever in service to their greed and selfishness.

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.

A Modest Proposal to Fix the World

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On May 1, 2017

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Image by TW Collins

Fire every non-commission employee making more than seven times the median national income (all income included).

Put a 100 percent tax on all income over seven times the median, no exceptions for any type of income.

Put a 100 percent tax on on all inheritances over 50 times the median (that’s enough of a head-start on life for winning the lucky sperm contest).

Promote those who were earning less.

Secret: The people running the economy are not the best, and if they are brightest, we need stupider people. I base this on their results.

Going forward, the top income level will increase, as a percentage, equal to the average income of the bottom five percent and the median income.

This will sort out a lot of problems quickly.

First, it gets rid of the people running the economy today, who are obviously either hopeless fuck-ups or completely uninterested in results for anyone but themselves and a few cronies.

Second, it concentrates the minds of those at the top on the problems of those at the middle and bottom. They want that seven-times-the-median to be higher, so suddenly, they care about the poor and the middle class. A lot.

Third, it rather quickly deals with people with too much money now (yes, there is such a thing); if their seven-times the-median income doesn’t support their lifestyle, they will have to dip into their capital to pay for it. Because all capital gains will be treated as income, well, that should be fun.

Yes, there are all sorts of ways people can try to get around this. Plug them as fast as you find them and write the initial laws in very generous ways, like money-laundering laws. (Were you obviously trying to get around money laundering laws? If so, you’re probably going to jail. That’s how they’re written.)

Why seven times? Why not. It’s enough that no one can say they shouldn’t still feel very rich, and if they don’t, then something is deeply wrong with the median.

The general rule of policy is that policy which is good for the rich and the middle class is bad for the middle class because the rich get so much more from it. For instance, the housing bubble looked good for the middle class (and a few people won), but, really, it was so much better for the rich in that it gave them so much power along with other financial shenanigans, that they were able to gut the middle class.

Policy which is good for the middle class and the poor, or even just the poor, is good for the middle class. Poor people spend their money, and poor people who get better off become middle class people. A middle class which identifies with the poor and not the rich, will be secure, because they will support the wellspring of their own success.

There’s a bunch of moral and ethical arguments that should go into a piece like this, but it comes down to this: Every social welfare statistic worth mentioning tracks inequality, not absolute wealth, once you’re beyond the point of “enough so I’m not starving.” (See “The Spirit Level” for the nailed-down, stupidly overdetailed proving of the obvious.)

The rich are rich because society makes it possible, through aggressive enforcement of totally artificial property laws and massive infrastructure which benefits them far more than anyone else. The idea of ideas being property is completely artificial, contracts of adhesion that are standard in software are social bullshit, corporations are bundles of hugely valuable rights to avoid responsibility for losses, and all of that is before we even get to 20 trillion dollars (in the US alone) to bail out bankers who had genuinely lost everything, and that includes Goldman Sachs, because winning bets with counterparties who are bankrupt is worth ten cents on the dollar, and at that rate, Goldman is bankrupt too.

The people in charge have done a terrible job. It is a moral imperative to take that job from them and give it to people who will do it better than they do. (If they do it well, then the world and the economy won’t be so fucked.)

The people not in charge who are familiar with their jobs/businesses deserve a try.

There are bunch of things to add to this, but they all basically come down to two simple rules:

  1. Keep the rich poor.
  2. Never let money or power buy anything that matters.

A better education than normal, a jump in the healthcare queue line, avoiding airport security, flying on a private jet, avoiding traffic in a helicopter, not staying in the same hotels as anyone else. Nothing that matters. They can have nicer consumer goods, as long as they don’t matter, and that is all.

When the people running something are complete fuck-ups, you take away their power. That means their position, and as money is power, their obscene wealth. You replace them with someone else. It is that simple.

Eat the rich, or the rich will eat you.

And they have been dining 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.

Rentiers vs. Capitalists, Yahoo CEO Edition

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On April 28, 2017

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We tend to think of rentiers as being property owners, but a rentier is anyone who uses control of position to extract monopoly profits. CEOs appoint boards, boards determine CEO compensation, and corporations can pay obscene amounts of money, even when they aren’t making a profit. Heck, even if they’re being taken over.

Corporate America prides itself on rewarding success and punishing failure. Yahoo CEO Marissa Mayer does not fit comfortably into that narrative. During her five-year tenure at the once-proud tech firm, user levels stagnated, ad revenue dropped, acquisitions cratered, layoffs accelerated, product quality floundered, and hackers stole the personal information of more than one billion users.

But when Yahoo’s sale to Verizon becomes official in June, with the restructured company renamed Oath, Mayer will walk away with $186 million, according to a regulatory filing released this week. That includes shares of Yahoo stock Mayer owned, stock options, and a $23 million “golden parachute” of cash, restricted stock units, and medical benefits. Mayer did relinquish $14 million while taking responsibility for the Yahoo Mail data breach, but she’ll get 13 times that amount just to no longer remain part of the company.

I should point out that the first part–“priding itself on rewarding success and punishing failure”–is pure bullshit when it comes to executives and CEOs, pure mythology. Ordinary workers may (sort of) live in that world, though they get little reward for success, but high ranking executives are compensated irregardless of how their companies are doing. The worst performing CEOs get higher compensation.

If you want to be well paid as a CEO, perform like shit. Science backs it up!

This is not capitalism. This is rentierism. The value of all the loans taken by pbulic corporations in the 2000 run up to the 2008 crash was equal to the stock buybacks made by public corporations.

Why? Because most executive compensation is through stock options!

It’s good to be the Queen/Duke. Ahhhhh…what a life.

And this, folks, is why you don’t have nice things: Because these people run your society and make most of the important decisions. To say that they are parasites is to be generous; many parasites shade towards symbiosis, these people make the economy and their companies perform worse than it would if they did not exist. Restrict compensation to up to seven times the median, fire everyone who earns more, and promote those below them and I guarantee that in ten years the economy would be much better.

You can have lots of really rich people or a good economy; you can have lots of rich people or a democracy.

Those are the choices.

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.

Punishing People in Pain

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On March 30, 2017

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So, now reliable pain relief is only available from illegal sources?

The Ohio governor unveiled a plan Thursday that targets the place where experts say many opioid addictions begin — the doctor’s office.

Gov. John Kasich’s order limits the amount of opiates primary care physicians and dentists can prescribe to no more than seven days for adults and five days for minors…

…The new limits, which have gotten the blessing of the Ohio Board of Pharmacy, the State Medical Board, and the state’s dental and nursing boards, do not apply to patients who take prescription painkillers for cancer treatment or to dying patients who are already receiving hospice care, Kasich said.

There are plenty of reasons other than cancer and hospice care. It’s a little unclear how strict this will be,

“Health care providers can prescribe opiates in excess of the new limits only if they provide a specific reason in the patient’s medical record,” the state said in a statement.

Nonetheless, I find this crazy and punitive to people who actually need pain medication. Many doctors are already reluctant to prescribe painkillers due to crackdowns, and this will drive people even further towards buying illegal drugs. You certainly want people on codeine or morphine in preference to various synthetic opioids, which can be far more dangerous.

Ohio doesn’t have an opioid addiction problem because of availability; it has one because of deep socioeconomic problems which manifest as personal despair and breakdown. Some people will always use drugs, but “epidemics” of drug use happen when people don’t have better options.

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.

Ideology Precedes Policy Which Determines Outcomes

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On March 23, 2017

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Ok, so…

The results are rather worse than that, actually, and anyone who reads this blog regularly is aware that, for example, working class white male wages peaked in 1968, in real terms. It’s not as if every other demographic has gotten off, either. Slowly the scourge has worked its way thru the demographic and socioeconomic classes, till practically everyone but the top 5% or so is being hit to some extent or another, even if they haven’t lost lifespan—yet.

Marcy Wheeler asks:

Which got me wondering: to the extent this is driven by a failure in ideology — by the failure of the American dream — which comes first, the failed ideology or the rising mortality rates?

…

. But as we try to figure it out, we ought to be focusing at least as much on how to roll out life and meaning that can sustain Americans again as we are on blaming Putin for our recent failures to do that.

Ideology tells tells you how the world works, what to do, how to do it and why you’re doing it. For example, NeoLiberal ideology has an axiom that “jobs are created by those who have money.”  On the face of it, this seems obvious: nobody without the ability to pay you has ever given you a job, I’d bet.

The corollary of this is “the more money that rich people have, the more jobs there will be”. So, under Neoliberal ideology, you funnel money to the rich and corporations and they create jobs.

Doesn’t actually work, mind you, but that’s what the ideology says.

The ideology also says “money is earned by people because they fill the needs indicated by the market, which represent what people and society want.”

Which means “if you have a lot of money, you deserve to have it because you got it filling other people’s needs”.  It also then follows that people with a lot of money are the sort of people who are good at providing what other people want, so therefore they should have more money so they can provide even more.

Poor people, by this ideology, do not deserve to have much money, because if they were doing something that other people wanted a lot of they’d have a lot of money.

Etc, etc…

Ideology tells people what policies to pursue. Those policies then create results.  With different ideologies, you get very different results.  FDR’s New Deal and the Keynesian consensus after WWII had as its thesis “the more money ordinary people have, the more they will buy, creating demand for products, which will create more jobs.” It also had “money in the hands of rich people doesn’t create demand and does create political problems which damage markets, therefore we should keep them from having too much money.”

The result of those propositions was the best economy in American (and European history), with growth rates higher in the middle and lower classes than in the upper and the rich classes (rich is not upper class, it is beyond.)

Ideology Determines Policy.

Policy Determines Outcomes.

(One might ask “what determines ideology”. Part of the answer will be in the upcoming “Creation of Inequality booklet” I’m about three-quarters finished.)

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.

Brazil’s Economic Tumble

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On March 8, 2017

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No surprise, but…

Brazil’s economy has fallen further into its worst ever recession, contracting by 3.6 percent in 2016…

…Brazil’s economy is now eight percent smaller than it was in December 2014.

Recently, there was a legislative coup in Brazil, but that was a symptom, not a cause, as are Venezuela’s problems, the electoral reversal in Argentina, and so on.

All that is required to understand what is happening is this chart of commodity prices.

Bloomberg 5 years commodity index March 8 2017


Bloomberg 5 years commodity index March 8 2017

We have a very foolish economy. The developed world has been in austerity since 2008, China does not have a rich enough middle class to take up demand. Without demand for goods and services in the developed world, commodity prices have crashed.

Our lords and masters don’t want growth they can’t capture, and they value low wages and debt-slavery more than they do a thriving economy. As a result, the economies which prospered by supplying commodities to China and other manufacturers have stumbled and crashed out. This simple fact is behind many headlines which seem unrelated to it, including virtually every change of government in South America.

A globalized economy is moronic. It makes countries dependent on policies over which they have no control. There is virtually nothing that Brazil’s government can do about this (though engaging in austerity of their own is stupid); nor was there a damn thing Venezuela could do about it (though, yes, the Bolivarian economy was mismanaged, something I said as far back as 2004).

This is by design. Our elites don’t want national elites to be able to make policy. As a result, there are only two nations which approach full sovereignty in the world: the United States and China. Only they are powerful enough and rich enough to make unilateral moves without suffering vast consequences (and maybe not even them). The EU could almost be sovereign, if it wasn’t run by ideological morons, but it isn’t, and Russia has enough resources and military power to have some sovereignty, and that’s basically it.

And so, the Brazilians will suffer what they must, because however large and rich they think they are, they are still a non-sovereign state in the ways that matter in our world.

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.

Immigration and Wages

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On February 22, 2017

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Wages are partially determined by supply and demand. The tighter the labor market, the higher the wages. There is a very direct relationship.

People who dislike immigrants for economic reasons think that if there are less immigrants, there will be less people competing for jobs, and therefore wages will be higher.

The alternative argument is that immigrants spend money. They are consumers. The more money being spent, the more demand there is for goods and services. Therefore, the more demand there is for workers, and therefore wages are higher.

Which of these is true varies by society and time period, but also depends on what jobs you’re talking about. Immigrants compete for low-end jobs, and they compete for some high-end jobs as well (in particular various tech jobs, especially in programming, engineering, and science). The latter tend to come in visas, often worker visas which give them limited rights. The former are often undocumented; these are the folks Trump wants to deport.

A lot of older programmers (coders) can’t get hired. If there were fewer work-visa immigrants, perhaps they could.  If there were fewer undocumented workers, perhaps there would be higher wages for low-paid manual labor jobs.

I support immigration, but I recognize that making immigration work means having policies which generate domestic work from domestic demand. If an immigrant makes money and spends most of it on Wal-mart goods made in China, it might well be that he or she is producing less local demand for workers than the job or jobs that immigrant has.

There are ways of making it so that immigrants produce more jobs than they consume, but this takes political will, and it hasn’t been a priority for most nations for decades. Heck, it hasn’t even been a consideration, much less a priority, because policy has been run to keep wages from increasing as fast as inflation, let alone as fast as productivity.

In this environment, it is not unreasonable for low-wage workers who are directly competing with undocumented workers to see them as competition. They are competition.

The right way to fix this, as with almost everything, is to make sure it’s a clear win/win, and not questionable which way it goes. Low-wage workers, and tech workers, need to see a tight labor market where there’s plenty of work and wages rising faster than inflation. In such an environment, they won’t care about immigration.

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.

Market Failure, Epinephrine Injections, and Societal Failure

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On February 13, 2017

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This is not a competitive market:

Pharmaceutical company Kaléo – already under fire for raising the price of an overdose antidote – now plans to put an alternative to the EpiPen on the market for more than seven times the cost of the leading $608 drug.

Kaléo’s epinephrine injector, used to stop severe allergic reactions, will go on sale for $4,500 for a pack of two beginning on February 14. The auto-injector’s innovative audio instructions walk caregivers through administering less than $5 worth of epinephrine.

Remarkably, because of a system of coupons and discounts, Kaléo’s epinephrine injector Auvi-Q may have the lowest out-of-pocket costs for patients, a strategy some critics say may help some customers, but leads insurance companies to redistribute the cost of the drug through insurance fees to remain profitable.

The materials in such epinephrine injectors are worth about $8.

This is market failure. In a free market without collusion, if something is this high-priced, the price drops to more closely match the cost of production as other producers move into the market. It does not radically increase. As it stands, if you need an epinephrine injector and don’t have one, you stand a good chance of dying.

The rational reaction to these sorts of market failures, increasingly common in pharma, would be: (1) to either restructure the market to prevent them, which would require breaking up big pharma companies, streamlining approval processes, and allowing reverse-engineered knock-offs, or; (2) more simply, for the government to just manufacture them itself and charge a fair price.

There are some government services which should be kept entirely in-house. (The military, for example. Mercenaries are failure mode for any government.) There are many other services for which the government should be one provider among a number. The government stays in the business, providing about a third of the service; because if you aren’t in the business yourself you can’t always know if you’re being rooked by private companies and if you are being rooked, it’s very difficult to do anything about it because you don’t have the expertise to provide the service yourself.

At the same time, you want private companies involved to keep the in-house providers honest. You have multiple contractors, and those who do the best for the least are rewarded, so they have incentives to improve. You swap out the lowest performing ones on a regular basis, especially allowing a few upstarts in at the lowest viable level, so that radical new ideas can be tried.

If those new ideas work, everyone, government and private, adopt them.

At any rate, the market failures in pharma, with price markups in the thousands to tens of thousands of percents, are now so common that it’s clear that a radical solution is needed. The simplest solutions are price control and government getting into the business. Ideally, both should be done at the same time.

Note that price control includes forcing companies to take a profit. Dumping is (theoretically) illegal for a reason. If the government was to get into epinephrine injectors, for example, the logical solution for private enterprise would be to undercut their prices until the government pulled out because, “The private sector is more efficient.” Then, once the government was out of the business, they would jack their prices back up.

So you mandate a healthy profit, and because you’re in the business, you have a decent idea what a healthy profit is, not just for manufacturing, but also for distribution, sales, and so on. “You will make inflation +X percent on this.”

None of this is particularly complicated to do, in theory or in practice, though that isn’t to say that the technical details of setting it up are easy. But pharma is full of scientists and engineers who hate their jobs, and there have been vast waves of lay-offs as well; there’s plenty of expertise lying around.

I should add that this is a solved problem. It is simple to fix. This sort of price-gouging simply wasn’t tolerated in the past, and it is now, and pharma executives know it. Stop tolerating it, and it will go away.

But private pharma is a stupid way to invent and produce drugs anyway. They spend more on advertising than on research, they sponge off publicly-funded research, and they have vast incentives towards palliatives because a pill a day for life is far more profitable than a cure.

Medicines in the public interest, such as new antibiotics, receive little research because they are not profitable, and medicines long out of patent are subject to horrific price-gouging, and so on.

If you’re sick, you’ll pay almost anything for a cure. Medicine, drugs, and medical devices are one of the last things which should be provided through the private sector. If they are, they must be very highly regulated or in an engineered market with careful oversight–one from which the profit motive is largely excised at any level where decisions of patient care are being made.

The fact that our societies can no longer manage something as simple as drug prices is yet another sign of deep social failure.

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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