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

How To Reduce Inflation And Create A Good Economy

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.

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Week-end Wrap – Political Economy – July 23, 2023


The Distributed Nature Of Collapse


  1. Carborundum

    I’m not so sure about this. This strikes me as an example how people get into trouble trying to engineer complex / discontinuous systems. Take a group of things you want to change and start pulling multiple levers. Not infrequently one ends up with excursions and potentially even systemic collapse. (Yes, we are already seeing similar grace of the intersection of demographic / economic super-cycles and that humourless thing known as physics, but no sense adding to our already very considerable challenges.)

    Bottom line, many of these strike me as having significant unexpected consequences, particularly when they interact – for example, cap profits at a hard 5% and watch what happens to risk management / capital allocation as wildly divergent businesses and industries head to that hard floor/ceiling; similarly, hand natural monopolies over to government and watch headcount go through the roof and capital spending tank as they cope with a massively less productive economy (see the intersection of 5% profit and overly-aggressive capital controls).

    It seems to me that a lot of what you’re attempting to address here is symptomatic, in the sense that it can be addressed by a handful of interventions seeking to address root causes. My view, these may well boil down three major things:

    1) excess size is bad and the curve is such that as things get big, unwieldy and maladaptive the slope of the curve describing the yield of bad gets ever steeper (i.e., it has an exponential component);

    2) not regulating things effectively is bad and the bigger the entities you are regulating get, the worse the consequences of under-regulation are and the more likely you are to be regulating ineffectively;

    3) not having uniform taxation, in the sense that like entities get taxed similarly in like situations is bad (this isn’t to say that taxation, even corporate taxation, shouldn’t be progressive – it should, to help control excess size if absolutely nothing else) and the effects get worse as the inequality of the entities being taxed increases (see multigenerational trusts, the double Irish and tax lawyers).

    Discontinuous systems tend to function as the result of a comparatively small number of rules / forces – it stands to reason they can be modulated by even fewer. The rub, of course, is understanding what those forces are and how they function; whether my pet three are really the core ones, who knows.

  2. Ian Welsh

    This is an updated version of what worked from 33-79 or so, but intended to also deal with inflation. Regulation was not mentioned, but is assumed. In general, experience doesn’t support that natural monopolies aren’t usually cheaper in government hands, though what I would suggest in a longer piece is give the government about 60% and let private compete for the 40%, with certain exceptions like water and power and any type of insurance everyone must have (auto, for example.)

    Utilities were essentially run, up to the late 70s or so, with regulated profits and reinvestment and it worked well. Apparent price gains from deregulation were illusionary, they were a result of under-investment in maintainance and capacity and led to massive losses, like all the fires PG&E’s refusal to remove brush and update power poles and lines have cost. It’s just that those losses were primarily born by non shareholders and non-executives at PG&E.

    There is no free lunch and most of the profits of the last 40 years are going to be paid back with interest because they were almost all a result of externalities.

  3. Steve

    This is clearly not socialism. At least not Marxist Leninist. What would you call this? Brandeisian liberalism?

  4. Ian Welsh

    It’s intended to be do-able in a capitalist system, since it’s not very far from what was done during 33-79. Brandeism liberalism isn’t a terrible name for it, though it could also be considered a form of Kensianism.

  5. Willy

    You can go to Prager U to learn about capitalism. But if you’re more perceptive, intuitive, and insightful than an eight-year-old, you’ll need to augment what little education you might get from these Wilkes brothers funded cartoons, to understand capitalism more fully. For one thing, a lot can go wrong.

    You won’t get a PhD in medical science after watching a Disney show about the miracle of the human body. Sure, it is a miracle. But there are so many things that can go wrong with these miracles, with lots of ways and means to fix and repair them, that many people spend many years studying up on various medical disciplines.

    At least that’s what I try to tell conservatives after being called a Marxist / John Lennonist for suggesting mixed economy ideas.

    I blame our so-called “Economists”. It seems that this science (or what should be a science) can be bought. Sorta like all the trinkets and toys painted with big pharma logos I’ve seen my osteopath in-law come home with (if you know what an osteopath is supposed to practice you’ll get the joke).

    That’s why I come here. I can be educated at levels deeper than an episode of Teenage Mutant Ninja Turtles. With these mixed economy ideas broken down simply, maybe I can better try to explain to MAGAs about that time when America was great (minus the racism, sexism, cronyism, military interventionism, oil dependency, and a few dozen other foibles).

  6. different clue

    Between Carborundum and Ian Welsh, I more agree with Ian Welsh. A lot of these things were done. In America specifically, they were called the ” New Deal”. And they worked well enough that the anti-NewDealers had to buy Congress and buy Politics so they could buy the laws and buy the rules needed to dismantle the New Deal by many discreet and definite steps and actions. So re-instating some of these things could be called ” reNewing the Deal”.

    One of the most powerful set of anti-NewDeal destruction and dismantlement toolboxes was the toolbox full of wrecking tools known as Free Trade Agreements and Free Trade Organizations. America would have to reject all the agreements and defect from all the organizations to have any hope of being able to re-institute this stuff over the next few painful decades. And the International Free Trade Conspirators would not surrender America without a fight. The International Free Trade Conspiracy would place the same kind of blockade on a Fair Trade America that the current Free Trade America currently places on Cuba.

    Steve up above asks what to call it. Well, when we had it, we called it the Mixed Economy. Roosevelt, after all, was not trying to abolish privatist capitalism. He was trying to preserve it over the long run, by making it livable and endurable for the majority of its subjects. Perhaps we could view Roosevelt as having been America’s Dubcek, a Dubceck who succeeded at the time and whose legacy the Brezhnevian Capitalist Reactionary Totalists needed decades of overt and covert action to destroy.
    So if we wish to refer to FDR as ” America’s Dubcek”, then we could refer to the Mixed New Deal Economy as ” Capitalism with a human face.”

  7. mago

    Resiste resiste resiste
    Persiste persiste persiste

    Some day a real rain’s gonna fall . . .

    Ain’t we got bad ones, ain’t we got dumb ones, ain’t we got fun?

    Victoria Joe Trudeau Anthony and George I bow down to you, brown down to you. . .

    Anybody having fun yet?
    Life is a cabaret my friend.

    Who’s going to change the system and police the brain police?

    And the economy and theories about the same?

    More questions than answers per usual.

    Enjoy the waning summer if you inhabit northern latitudes. . .

  8. StewartM

    I agree with some of the others. We’ve done some of this.

    Carborundum, I can tell you what corporations would do. They would simply spend money to get profits down to 5 %. Back in the day, corporations like Eastman Kodak and Bell Labs ran pure R&D labs (not even doing R&D related to company business, on pure science). And they’d continually update and replace aging capital. Finally, employees would get more—yearly bonuses would return.

    Most of these things would grow the economy, and in the long run, lower costs.

    What I’m interested in are more on Ian’s ideas to lower housing costs. He’s gone into some of it (disallow distant ownership where the house sits empty). I have long wondered if all ‘rent’ should include a payment towards buying and ultimate ownership, with the goal of diversifying ownership.

  9. Thomas Tany

    I’d also put make private rental properties illegal, which is pretty much what they did in Singapore. All rental housing is state run and subsidised.

  10. Ian Welsh

    Thomas: now that’s interesting. I know another good housing market is Japan’s, which is not all public. Do you know much about the comparison between the two?

  11. Thomas Tany

    Ian: Sorry, this is incredibly embarrassing: I was convinced Singapore had made general private rentals illegal and had for some time, but in looking it up to try and answer your question, I couldn’t find any evidence of that.

    Short term letting is illegal, and if a private landlord has a tenant who illegally sub-lets then they’re on the hook for it if they didn’t do due diligence.

    Also, they’ve made heavy investment in public housing since the 30’s, and until the 90’s operated a leasehold system, which had very strict regulation of sub-letting.

    But that’s not nearly as dramatic. Sorry to have misled you.

    I think making private residential rentals illegal is a potentially good idea though.

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