Ian Welsh

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

Category: Economics Page 4 of 85

At a Societal Level “Can’t Afford” Is Bullshit

By

On July 27, 2023

Comments

John Maynard Keynes – “Anything we can do, we can afford.”

Money tells you how much of society’s resources you can command. Can you use that building, that land or that person?

It’s more than that, of course, but this is its most fundamental use.

But we are all familiar with the fact that often there are empty buildings, unemployed people and land which is not being used productively. We also know that often what people, land and buildings are being used to do is a bad: a net negative.

99% of Wall Street, for just one example. 85% of the US military, for a second.

We use money so much that we forget that it’s only a proxy. What matters is the actual resources: do we have enough, epople, land, buildings, oil, steel, and other resources to do something or can we get the resources we need, either by moving people and other resources away from bad stuff to good stuff, or by creating more resources.

If we have enough or can create enough or can redistribute enough resources, we can do that thing, whatever it is. The limit isn’t money, the limit is actual, real resources.

Estimates of bullshit jobs are at about 40% or so. I’d personally put it higher: jobs that either are pointless or actively harmful are the majority of what we do.

We can do plenty, any time we really, as societies, want to.

There will come a time, and that time is not so distant, where we can’t. Where real and painful decisions will have to be made, but we are still, in most of the developed world, in a surplus situation, with a lot of resources mis-allocated. Reallocate them and we can fix many of our problems and mitigate almost all the rest, while actually improving human and animal welfare massively.

“Afford” is a word for people, not a word for governments who can print money. For them, the question is “does the country have the resources and can they be mobilized?”

We can make the world and ourselves better when we want to, at least for now.

 

This is a donor supported site, so if you value the writing, please DONATE or SUBSCRIBE.

How To Reduce Inflation And Create A Good Economy

By

On July 25, 2023

Comments

Right now we have central banks attempting to control inflation by crushing wages. But wage-push demand isn’t the primary driver of inflation, it is corporate profit taking (increasing prices much faster than their costs) and some genuine supply bottlenecks.

This cannot be fixed by central banks except by smashing ordinary people flat, and in certain senses not even then, since it will lead to long term maldistribution of resources which will lead to real economic problems in the future: problems not based on distribution or finance, but on lack of physical ability to create what we need.

If we want to fix this we have to make it so that those who control economic decision making can only do well if the population as a whole does well. That means politicians who want to help the population (not 90% of European or American pols) and corporate leaders who need the population to do well.

We’ll concentrate on the corporate/private side.

Take public all natural monopolies. Monopolies and oligpolies can charge more because people have to buy what they have. Private enterprise is only better than government at providing differentiated goods. If everything is the same (and a joule is a joule and a liter of safe water is a liter of safe water and a cheap, fast train trip is a cheap, fast train trip) then government can do it cheaper and better than private enterprise, since it doesn’t have to make a profit.

Excess Profits Tax or Max Profits Tax. You can only make 5% profit + inflation. Anything more is taxed away. Money invested, is not taxed, however.

No Stock Buybacks, No Stock Options. If a company has excess money, it can only increase profits and stock prices by producing more or better.

Executive and Board Salaries Linked to General Welfare. All compensation is treated as wages. Wages above 10x median are taxed at 95%. They are only allowed to increase by the average of the median individual income, and the median income of the bottom 5%.

No Capital Flows To Other Except For Resource Extraction: Comparative advantage does not work with free capital flows. This was noted by Ricardo when he created the comparative advantage. Companies need to reinvest at home. They also need to not be able to run away with capital because they don’t like being only 10X as rich as the rest of the population.

No Free Central Bank Money: The central bank doesn’t get to just give people money, like it has been since 2008. That’s a legislative decision and one which the legislature should not be allowed to give away to other bodies except in relatively small amounts (perhaps a max of 1% of GDP.)

Break Up the Banks and Regulate Them Properly: Banks decide who gets to do what. If you want the advantages of a free market you need lots of them: easy enough, create them by breaking up the big banks. As for regulation, go back to an equivalent of Glass-Steagall.

Break up Monopolies and Oligopolies in General: either it’s a natural monopoly, in which case the government should run it, or it isn’t, in which case it’s broken up. Go back to prices rising in unison being enough evidence by itself of an oligopoly.

Retailers Either Sell Only Their Own Stuff Or Only Other People’s. No store brands, no Amazon basics, none of that. It’s vastly anti-competitive. Nor can retailers mandate that they must get the lowest price or any other such thing.

***

The general principles here are just to move the market back towards a free market and to “align” incentives so that rich people can’t get richer without everyone prospering.

There’s much more required, of course: these policies require politicians to want to implement them, and for them to last for any length of time, changes need to be made to politics to also make sure politicians self-interest is aligned with the general population. (The other method, which might better is to remove self-interest from these decisions entirely. You don’t always need skin in the game in a material sense—doctors with no financial stake make better decisions for patients than those with and endless measurement aligned with incentives warps measurements.)

None of this is really complicated in the broad strokes. We know what creates good economies and societies, we just rarely do it and those with the most power, whether people or countries, try to keep other countries or people down.

This is a donor supported site, so if you value the writing, please DONATE or SUBSCRIBE.

Utilities As Mutual Companies

By

On July 3, 2023

Comments

One of the big constant news stories recently has been about UK water utilities constantly flushing untreated sewage into the rivers and oceans near the UK, while raising prices, paying huge salaries to their executives and massive dividends. One solution is to take them back into public ownership.

But another possibility is to make the mutual companies. I worked for a mutual insurance company for a while, and helped it de-mutualize, at which point its prices went up, employees were treated worse, executives made more money and so on.

In a mutual companies, customers own the company. Dividends are paid to the customers. Prices tend to be lower than in stock companies (there’s plenty of research on this), employees are treated well and executives make less. Since customers own the company, they have a say in what the company does, and since customers of, say, water companies wouldn’t want sewage in the water or forest fires (for electrical companies like California’s PG&E) they might prove better for environmental concerns and also for customer service. Also a lot less likely to get situations where the customers water is full of lead and other pollutants.

There used to be a lot of mutual companies, but most of the de-mutualized because executives wanted to pay themselves more, especially thru stock grants and so on, but if a law was put in place that utilities and other public companies like railways and public transit are either public or mutual and can’t be stock companies, that might cure a lot of problems, especially if the owners(customers) have to approve executive salaries.

Worth a try, at any rate, though I’m aware of the political problems.

This is a donor supported site, so if you value the writing, please DONATE or SUBSCRIBE.

Capitalism’s “Invisible Hand” Is Prescriptive More Than Descriptive

By

On May 22, 2023

Comments

The invisible hand is the idea that people operating based on their own self interest in a market economy will optimize “value” and by doing so will increase human welfare. If a person runs a company which makes something that people are willing to buy, they must want or need that thing, and the person will want to make more of that thing so that they can become richer. They do it out of greed, but the richer they get the more they improve the common weal, as it were.

So even though they aren’t doing what they do because they care about the welfare of others (Adam Smith is very clear about that) operating from greed leads to increase human welfare.

Works, except when it doesn’t.

Descriptive statements describe how the world objectively is. Prescriptive statements describe how the world ought to be.

It is certainly possible for someone to get rich doing good. It is also possible for them to get rich doing evil, and it is quite common for them to get rich doing both good and evil things.

Oil companies produces something people want. Oil, natural gas and coal have lead to a large chunk of the world being much better off. But the oil companies knew about climate change and not just suppressed the information, they funded denialism, for the obvious reason that they would make a lot less money if there was a political consensus that less oil and gas and coal had to be used.

Every company wants cheap labor, to reduce their costs, but wants consumers to buy their goods. This led to the Great Depression, in effect (the story is a bit more complicated but this is the essence), and was only fixed when the government forced them to give good wages to employees, and provided price and wage supports along with social security and medicare for old people who couldn’t work, but could continue consuming.

All companies who provide necessities, things people must have, have the ability is they are a monopoly or an oligopoly acting in a collusive matter (which doesn’t require meeting) to raise prices much higher than is good for human welfare. This includes food, water, housing and medical services, among others.

Many companies produce what economists call negative externalities: they do something which hurts other people, but don’t pay the cost. Right now in Britain, privatized water and sewage companies are paying record dividends while dumping record amounts of waste into Britain’s waterways.

Walmart and Amazon both tell their workers how to apply for food stamps and other benefits: they take the profits from cheap labor and dump much of the costs onto the government.

Positive externalities are as big a problem: you do something good and someone else gets the profits, so you have trouble doing more good or even continuing to do good. I like to use the example of the British Museum: without them many people wouldn’t come to London or stay as long, but almost all of the money is spent in hotels and restaurants and the British Museum gets almost none of it, even when you consider the government funding based on taxes it receives.

Universities are another classic: they produce a great deal of value, but are able to capture almost none of it. A good government keeps them well funded and emphasizes teaching and research not administration because they know that universities create value the government will eventually capture.

In dozens of ways markets actually incentivize acting in ways that don’t lead to human welfare, but they can improve human welfare. That’s the issue. It isn’t automatic. Sometimes it works that way, sometimes it’s nothing but oligopolies grasping an excess share and companies dumping their costs on society while taking the profits.

So the invisible hand making greed work to the benefit of all is prescriptive: it is a way that an economy with markets can work, not a way that it must work. If you want the invisible hand to do what Smith said it would, you have to stay right on top of capitalists and make sure that the can only get rich if they increase human welfare.

To a large extent, in the New Deal and post-war American period, that’s what government did. Once Reagan took over, it didn’t, it did the opposite because a rich middle class with a lot of money was like sheep in full coat waiting to be sheered for wool, then eaten.

Most economic issues are politics in drag and the vast majority of politics is just about power and coalitions. The remaining economic issues are about natural laws: ecology, geology, physics, biology: mother nature bats last and she doesn’t give a damn what happens to stupid humans or any other species.

All economic systems are prescriptive. “This is how the economy should work” and are descriptive in the sense that if the economy is organized according to the prescription, it is expected to produce certain results.

Capitalism can, for certain periods and places, produce increased human welfare. But it’s not automatic, it requires keeping capitalists under firm control. Capitalists, as it were, make fine servants, and terrible masters.

My ability to write these articles depends on donors and subscribers so if you value this writing, please DONATE or SUBSCRIBE

Why The Rich Love To Crush Wages, Cut Pensions And So On To Fight Inflation

By

On April 27, 2023

Comments

The majority of price increases, of inflation, right now, are driven by price increases that are higher than increases in costs. Numbers I see tend to range from the mid sixties to the seventies.

They aren’t, then, driven primarily by wage increases.

The obvious way to solve this is to put in a surplus profit tax based on 2019 profit levels and forbid other ways of withdrawing excess profits like stock buy backs and option grants. Only after doing this would you consider trying to crush wages or cut pensions or other benefits.

That is, if your primary aim was to reduce inflation.

But it is undeniable that crushing wages will will reduce inflation somewhat, even if it is far from the best way to do so and it has a great advantage.

It makes the rich even richer by reducing their wage costs!

On the other hand, an excess profits tax would make the rich not get richer nearly as fast.

You can see why governments controlled by the rich (yes they are, let us not be tedious) would prefer to crush wages as opposed to limit profits.

For the elite to support the sort of policies which would not crush wages and which would appear to reduce their profits, they would have to be like a good chunk (but not all) of the post-war elites. Having seen what happened when demand collapsed in the Great Depression, they knew they needed wages to rise and were thus willing to share and to pursue some policies which they didn’t like.

After all, while the fastest way to deal with inflation is an excess profits tax, the structural way is breaking up control of industries and re-regulating anything that even sniffs like an oligopoly or monopoly, plus slamming on huge estate taxes, wealth taxes and 90% top marginal tax rates, while putting a Glass-Steagall analogue back in place and re-nationalizing key parts of the economy.

Now, as it happens, the post-war economy was the best we’ve known since we were keeping records. High growth, reducing inequality but still plenty of profits. The rich had to live with only getting 20X or so as much as the middle class, though, and that’s just unacceptable to them.

Now never let it be said that the rich don’t learn: they do have a dim understanding of “demand collapse bad” and they have a solution, which they’ve been trying since 2008.

“What if we just print tons of money!?” Trillions and trillions of dollars were produced and are currently being produced out of thin air, with no increase in the underlying economy, and given to rich people to bail them out and even when they don’t need bailing out.

Who needs to actually grow customers and have customers having increased real incomes when you can just give yourself money?

This is why things will only improve when current elites lose power wholesale.

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.

Declining Birth Rates Are Good & Bad

By

On April 4, 2023

Comments

So, there’s constant talk about the problem of declining birth rates and how much of a problem they are. There’s some truth to this, but a lot of it is based on the argument that more people lead to growing economies and that argument is terrible. The part that is reasonable is the rising increase in infertility, including plummeting sperm counts. That’s not bad because it leads to less children, precisely, it’s because it indicates how badly we’ve poisoned ourselves.

But the simple fact of the matter is that the world is well past its carrying capacity for the type of society we have. The Club of Rome predictions from 1968 have almost all tracked the real world, and we’re just past the hump: we’re into decline, but barely.

Notice that population decline happens about 30 years after the peak of food, industrial and services per capita. That’s bad and it’s part of what is going to make this so ugly. Check out the food per capita line for some real ugliness, though there’s going to be a lot less fat people.

Note that carrying capacity is not purely about population. Different global societies have different carrying capacities per capita. If we had not gone with planned obsolescence (there was a fight over near the end of the 19th century, managers vs. engineers and the engineers lost); if we did not have suburbs and exurbs but only urban, rural and wilderness; and if we had seriously started our transition from fossil fuels in the 80s instead of electing Thatcher and Reagan, our carrying cost would be much less and the world could support a much higher population. But under current circumstances, the world maximum population is probably about two billion, and once climate change runs amok it will be less.

So our population is going to reduce. It’s not “we have to reduce our population” it is “we are animals who exceeded the carrying capacity of our environment and our population IS going to drop, whether we like it or not.” That’s going to suck.

There was a window to avoid this. It is a result of our own decisions: to go with planned obsolescence, to have suburbs and massive numbers of cars, to pollute like maniacs, to destroy the forests and the swamps and the jungles, to not transition away from fossil fuels and dozens of decisions based on greed and “I won’t be here when it gets bad, so who cares?”

As for economies, high dependency rations (fewer working age people supporting people who can’t work) will be a drag. But because we have legitimately already overshot carrying capacity and because of resource and sink constraints (sinks is where we put our pollution, like CO2 and methane) reduced overall population is going to be more good than bad.

How much population will be lost is, in some sense, up to us. We left doing all the right things too late to avoid this, but the faster we transition to societies built around not exceeding planetary limits and working with and for the environment, the less people will die.

But even in a very optimistic scenario I have trouble seeing our population not winding up down two to three billion.

It is what we, as a species, chose through our decisions. That doesn’t mean you or I chose, we mostly didn’t, but at the species level, our decisions lead here.

It is what it is, and it will be what it will be.

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 Should CEOs And Politicians Be Punished For the Evil They Do?

By

On March 28, 2023

Comments

Came across this tweet about the Philadelphia water spillage the other day:

So, shit happens and sometimes truly, no one is really to blame. But a lot of bad things which happen are a result of deliberate negligence or direct action. A good example is PG&E, the California power utility, which hasn’t been bothering to clear the areas around power poles and transmission poles or replace or repair old power poles. They knew this would lead to more forest fires and it did and people lost everything, including their lives, in some of those fires. PG&E had the money to do the maintenance but preferred to pay larger dividends and give more stock options to executives.

So the chemical spilled into Philadelphia’s water supply were spilled by a private company. We don’t know if negligence was the issue, but if it was, what should be the punishment?

Lately we tend to just fine companies, but that does nothing, especially as the fines are often less than the amount of money they made thru being negligent, and in any case, fines don’t remove the massive money executives already made from their actions, nor the money the owners made.

Clearly fines don’t work.

The first issue is the question of limited liability for shareholders and the use of corporations as shields for executives. There were sound reasons for limited liability for owners who really don’t control corporations, with unlimited liability people wouldn’t want to invest in companies and when primary issue of stock was a major, or the major source for creating new companies, new corporation creation would have collapsed without limited liability.

But the disadvantage of limited liability is, indeed, that corporations tend to do evil acts knowing that their owners won’t pay the full price for them, and the way corporate executives and decision-makers tend not to go to jail for actions that an individual would go to jail for (or be liable for personally in civil court) is causing huge problems.

I think we’re going to have to remove these shields, in the case of anything where a reasonable person would know that harm was likely to occur. If you make the decisions or get the benefits, you are on the hook, and you need to be on the hook for more than you made.

But there’s another question. What is the correct punishment beyond financial, because a lot of the crimes aren’t crimes where money can make the victims whole?

Perhaps with respect to polluters, for example, the executives might be made to partake of their pollution. “This is what people drank, you will drink the same.” Or “this is what people breathed for days that caused cancer, you too will breath it.”

There’s a certain eye-for-an-eye beauty to this, but I dislike doing evil to people even when they have done evil because it’s still doing evil.

I would suggest instead a simple rule. Take back all the money them made while in charge, then take enough to bankrupt them. Next, since they have shown they can’t be trusted, forbid them from any position of authority in any organization: no management or executive or board positions, no legal ability to control anything. All their possessions in the future must be controlled by an executor appointed by the government.

For truly significant harm, we might say that they are no longer allowed to work, but must subsist on whatever welfare or other provisions are provided for the indigent. Given background checks, this is often what happens to criminals: no one will hire them.

(Doing this to important people would likely lead to a significant improvement in the welfare system.)

These should probably be time gated. Ten years minimum, thirty year max, with the possibility of “parole” where they’re allowed to have a low level responsible positions, like foreman or control over their own assets while someone watches over their shoulder to see how they do.

All such rules, of course, must be done with the presumption of control. If you’re CEO or a board member, you don’t get to dodge any decision you should have known about. You don’t get to blame managers or grunts.

What sort of solution do you think would work to stop corporate malfeasance (or political)? Put it in comments.

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.

Remembering Who The Nazis Killed First

By

On March 14, 2023

Comments

Niemoller:

First they came for the socialists, and I did not speak out—because I was not a socialist.

Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist.

Then they came for the Jews, and I did not speak out—because I was not a Jew.

Then they came for me—and there was no one left to speak for me.

So, the list isn’t exhaustive, there’s no mention of gays and Gypsies/Roma, for example. No one ever seems to talk about the Roma but as a percentage of their population they got it worse than the Jews did.

But forget that. It seems all we talk about is the tragedy of the Jews, but notice they weren’t killed first. First it was the socialists, then it was trade unionists.

This is because the Nazis first killed those who were an actual threat, then went on to kill those they hated (and who money they could steal without upsetting the majority of the population.)

Liberals always make deals with fascists or reactionaries who take over their countries. They generally do quite well out of them, corporate officers saw their incomes soar under Hitler. The argument between liberal and fascist is an argument over brothers about who should rule their father’s house: fascists treat capitalists and business well, they just need to know their place.

The left can’t make deals, because they are in fundamental opposition. This is true of fascists, who kill left-wingers, but it is also true of making deals with liberals. As Corbyn and Lula recently proved, even the mildest of leftists can’t cut a deal with liberals, because liberals don’t see the left as legitimate.

It should be pointed out that this was true of FDR, as well. The rich and the right never forgave him, always hated him, and spent generations undoing what he had done. Every time you see an attack on so-called entitlements,  understand that is part of the right’s long war to destroy FDR’s legacy.

I would put FDR on the left, though some wouldn’t and I understand why. FDR saved capitalism from the capitalists, who had no idea how to fix it and wouldn’t listen to those who did, like Keynes. If your left-wing beliefs mean the absolute destruction of capitalism, and quite possibly they should, then FDR was an enemy, though I see him a different way.

FDR created a system under which capitalism could work and could raise all boats. It did that until the 70s and then failed. FDR was the “can this system work?” attempt.

The answer, for a number of reasons, many of which I’ve written about other places (see “The Decline and Fall of Post War Liberalism and the Rise of Neoliberalism” to start) is NO, capitalism can’t actually work to raise all boats over the long term. What looks like capitalism raising all boats isn’t, it’s industrialization. Under FDR’s policies and those that continued to the late 60s or so, though diluted, inequality fell and fell and fell. Those policies had issues, but as we’ll discuss in my series on the great ideologies, the solution was to fix those problems, as with the 60s civil liberties movement, not to get rid of the system wholesale.

But we did because capitalism, even carefully controlled, always allows a few people to control too much money and thus power and those people always want more and are able to work to get more since they can hire and sponsor large numbers of people to work to destroy any egalitarian system. This is what the rich did with, among other things, their sponsorship of business schools and economics departments. Though forgotten by most today, few men did more to destroy equality and an economy which distributed wealth and income more than the economist Milton Friedman.

The rich—remember. They remember 90% tax rates. They remember estate taxes which broke up their wealth. They remember the period in which they had to give up their estates and their servants. They remember. And they hate.

And so even a mild left winger like Corbyn or Sanders, who’s want 60s economic policies with a side of social justice and think that maybe you shouldn’t run Apartheid states are seen as a mortal threat and that’s because, well, they are. Ninety percent top marginal rates, estate taxes and re-nationalization plus re-regulation of industry and breaking up the huge conglomerates would be absolutely disastrous for those who run our economy and control our politicians.

Remember that when Corbyn looked like he might win the UK Prime Ministership, there were actual threats of a military coup.

Understanding this relationship is important for anyone on the left, even those who are on the very moderate FDR fringe. Liberals will never accept you in power and will do everything they can to stop you. Notice the assassinations of the 60s: two Kennedy brothers, MLK and Malcom X. The liberals won’t mass murder, but if they must they will kill leaders and they will mass deport as they did after World War I. The fascists, well, they’ll just liquidate as much of the left as they can find and anyone who thinks this can’t happen in their country is whistling past their grave.

Finally, let’s point out that markets and capitalism are not the same thing. Markets are useful and have existed for thousands of years.  One solution set for destroying capitalism involves finding a way to get the good out of markets without the evil, turning them into servants, rather than the mechanism by which we choose our masters.

Another is to find a way to make economic decisions and distribute goods which doesn’t require markets. That one attempt to do so failed does not mean it is impossible, simply that we have not yet done it at scale in a way which works.

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.

Page 4 of 85

Previous

Next

Powered by WordPress & Theme by Anders Norén