Archive for the ‘Capitalism’ Category

Addiction as a successful business model

August 2, 2018

The problem is not just pornography.   Promoting addictiveness is a widespread business model.

A venture capitalist named Paul Graham, writing in 2010, said it is the nature of free market capitalism to make products addictive.

He wasn’t speaking of pornography in particular, but of everything from tobacco to gambling to compulsive viewing of the Internet.

The logic of the marketplace is that the person who makes the most addictive product wins the largest market share.

More recent Jaron Lanier, a famous virtual reality pioneer, wrote a book giving 10 Arguments for Deleting Your Social Media Accounts Right Now, which is about addictive social media companies.  The business model for companies such as Facebook is behavior modification, he wrote; they cannot give that model up and stay in business.

Their artificial intelligence systems use personal information, social science information and psychology to create “engagement” — which laymen would call “addiction” — by means of advertising and propaganda.  The systems are constantly at work to increase the power of their algorithms.

Stanford University has a Persuasive Technology Laboratory, which learns how to design interactive technology to alter human thoughts and behavior in the interests of advertisers and politicians, not the individuals targeted.

Richard Freed wrote about B.J. Fogg, the head of the laboratory, and how psychological research is used not to liberate people from addictive and compulsive behavior, but the opposite.

Click to enlarge

The “Fogg Behavior Model” is a well-tested method to change behavior and, in its simplified form, involves three primary factors: motivation, ability, and triggers.

Describing how his formula is effective at getting people to use a social network, the psychologist says in an academic paper that a key motivator is users’ desire for “social acceptance,” although he says an even more powerful motivator is the desire “to avoid being socially rejected.”

Regarding ability, Fogg suggests that digital products should be made so that users don’t have to “think hard.”  Hence, social networks are designed for ease of use.

Finally, Fogg says that potential users need to be triggered to use a site.  This is accomplished by a myriad of digital tricks, including the sending of incessant notifications urging users to view friends’ pictures, telling them they are missing out while not on the social network, or suggesting that they check — yet again — to see if anyone liked their post or photo.

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Is a non-BS economy even possible?

May 26, 2018

What would the U.S. unemployment rate be if all useless or harmful jobs were eliminated?

It would probably be equivalent to the Great Depression of the 1930s.

Barack Obama, in an interview in 2006, stated the problem:

“I don’t think in ideological terms. I never have. … Everybody who supports single-payer healthcare says, ‘Look at all this money we would be saving from insurance and paperwork.’  That represents 1 million, 2 million, 3 million jobs of people who are working at Blue Cross Blue Shield or Kaiser or other places.  What are we doing with them?  Where are we employing them?”

Source: The Nation

David Graeber, in his new book, Bullshit Jobs: a Theory, quoted public opinion polls that found 37 percent of UK employees and 40 percent in the Netherlands thought their jobs made no meaningful contribution to the world.

Now maybe that is exaggerated.  Maybe some of them think they make a contribution, but that it’s not “meaningful.”

Offsetting this, the inherent bias of people is to think we are accomplishing more than other people think we do or the objective facts indicate.

For example, public relations, advertising, lobbying, consulting and even speculation on financial and commodities markets have their uses.  It is just that they play more of a role in the economy than they should.

I myself think the U.S. military and intelligence services are much greater than necessary to protect the homeland from attack.  Of course, if the mission is to make the United States the world’s only superpower, no number could be great enough.

The question is: What would happen if all these people were thrown on the job market, all at once?

It would be a catastrophe, unless there were some sort of basic income guarantee (which Graeber advocates) or basic job guarantee.

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BS jobs, sh*t jobs and moral envy

May 25, 2018
  • Huge swaths of people spend their days performing tasks they secretly believe do not really need to be performed.
  • It’s as if someone were out there making up pointless jobs for the sake of keeping us all working.
  • The moral and spiritual damage that comes from this situation is profound.  It is a scar across our collective soul.  Yet noone talks about it.
  • How can one even begin to speak of dignity in labor when one secretly feels one’s job should not exist? 
  • David Graeber: On the Phenomenon of Bullshit Jobs (2013)

David Graeber, in his new book, Bullshit Jobs: a Theory, describes the frustrations of people doing jobs that they know are useless or even harmful, because the meaningful jobs are either unavailable or low-paid.

He said that forcing people to engage on tedious activities that serve no useful purpose, or, worse still, pretending to work when they actually aren’t, constitutes a kind of spiritual violence.

Not all useless or harmful jobs are BS jobs. Graeber defines a BS job as one you know is useless, but you have to pretend is necessary.

I think many of the people who invent BS jobs, or invent useless tasks for the useful workers, are under the impression they are making a positive contribution.  Graeber said his strongest critics are business owners who deny the possibility that they could be paying anybody to do anything useless.

A certain number of people think the world is divided into predators and prey, and pride themselves on being successful predators.  An example would be the bankers and financiers who, prior to the 2008 financial crash, made subprime mortgage loans to suckers who could never pay them off, then collateralized the mortgages and sold them to other suckers.

What all these jobs—hedge fund managers, telemarketers, diversity consultants, receptionists who never get phone calls, consultants whose advice is never heeded, supervisors with nothing to supervise—is that, if they went on strike, nobody would notice.

What Graeber calls the sh•t jobs are just the opposite.  Food service workers, health care workers, trash collectors, janitors and cleaners—all these workers labor under worse conditions and for lower pay than in BS jobs, and, contrary to reason and justice, they get less respect.

Coincidentally or not, the sh•t jobs are disproportionately done by black people, Hispanics and immigrants.

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Graeber said many of us have come to accept the idea that work consists of following somebody’s order to do something we dislike.  It follows, then, that if you want good pay, job security and benefits, you are lacking in moral character.  He calls this rights scolding.

It takes two forms.  Among right-wingers, if you think you are entitled to anything that working people in the time of Charles Dickens didn’t have, you are a fragile snowflake.  Among left-wingers, if you think you are entitled to anything that the most oppressed person alive today has, you are told to check your privilege.

It also follows that people whose jobs are fulfilling, such as school teachers, are not really working.  The idea is: You get to do work that is pleasurable, useful and respected.  How dare you want good pay and job security in addition?  Graeber calls this moral envy.

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Managerial feudalism and BS jobs

May 23, 2018

BULLSHIT JOB: A form of paid employment that is so completely pointless, unnecessary or pernicious that even the employee cannot justify its existence even though, as part of the condition of employment, the employee fells obliged to pretend that this is not the issue.  [David Graeber]

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Huge numbers of people work in jobs that they themselves think are completely unnecessary.  Many of them would prefer to do something useful, but useful jobs on average pay less.  Sometimes they quit and take a lower-paying useful job anyway.

Some five years ago, David Graeber, an American who teaches anthropology at the London School of Economics, wrote an essay for an obscure left-wing magazine called Strike!, about the phenomenon of bullshit jobs.

The article struck a nerve.  It got more than a million hits on the Internet, crashed the Strike! web site several times and was translated into more than 10 languages.

A YouGov poll soon after found that 37 percent of full-time employees in the United Kingdom thought their work made no meaningful contribution to the world.  A survey in the Netherlands put the number as high as 40 percent.  I imagine a survey in the United States would be much different.

Graeber himself communicated with hundreds of unhappy, useless employees via e-mail.

The result is his new book, Bullshit Jobs: a Theory.

He learned about a museum guard whose job was to report if a certain empty room ever caught on fire; a military sub-contractor who drove more than a hundred miles in order to give a German soldier permission to move a piece of equipment from one room to another; a receptionist who, to fill her time, was tasked with jobs such as sorting paperclips by color.

But most of his reports are about people who worked in offices—making studies that were never read, making proposals that were never acted on or not doing anything at all, but doing their best to look busy.

How can there be so many admittedly useless jobs?  We live in a time of austerity and layoffs.  Full-time jobs are being replaced by temporary jobs.  That is true of government as well as the private sector.

One thing that free-enterprise advocates and Marxists agree on is that competitive capitalism produces economic efficiency.  Free-marketers think everybody benefits and Marxists think that only the capitalists benefit, but they agree on the drive of business to maximize profit.

Maybe this is wrong.  Maybe competitive capitalism is a myth.  Maybe we live under what Graeber calls managerial feudalism.

Back in the days before the French Revolution, the peasants, who were the main producers of wealth, paid so much in taxes and rent they could barely live.  They supported an aristocracy, who, in turn, supported an economic class of coachmen, door keepers, lace makers, dancing masters, gardeners and the like, who were generally better paid than the peasants.

Just like the aristocrats of old, the prestige of managers in organizations is based on the number of people they have working for them.  Prestige is not based on whether they are useful or not.  In fact, employees whose work is essential are a threat.  They have the power to quit or go on strike or to unexpectedly reveal they know more than the boss.

So the incentive is to diminish the role and power of those who do necessary work while inventing new jobs whose existence depends on the discretion of the job creators.

A large number of new jobs are administrative staff.  They are different from administrators who make actual decisions.  Their job is collect quantitative information about the work of the useful employees on the principle that “you can’t manage what you can’t measure.”

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Book note: The Making of Global Capitalism

May 30, 2017

International financial organizations such as the International Monetary Fund and the World Trade Organization have come to be a kind of world government, dictating policy to supposedly sovereign governments.

I recently read a book, The Making of Global Capitalism (2012) by two Canadian leftists named Leo Panitch and Sam Gindin, on how this came about.   I thank my friend Tim Mullins for recommending it.

It’s quite a story.  It is not well understood.

The first part of the story is the U.S. New Deal.   President Franklin Roosevelt and the Democratic Congress gave the U.S. Treasury Department and the Federal Reserve System the authority they needed to stabilize the crumbling U.S. financial and banking system.

The second part is the 30 years following World War Two.   Under the leadership of the U.S. Treasury and Federal Reserve, international financial institutions were created that duplicated the U.S. system.  They presided over the era of greatest peace and prosperity that North Americans and Europeans had ever since.

The third part is what happened after that.  The world’s financial system endures a series of ever-greater financial crises.   To deal with them, international financial  institutions demand the surrender of gains made by American and European workers and the middle class in the earlier era.

The irony is that a financial governing structure created by American power is now stronger than ever, while the actual American economy is rotting away beneath it.

Panitch and Gindin described in great detail how this happened, step-by-step,.

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An SF writer’s diagnosis and cure for capitalism

April 27, 2017

In the opening of Kim Stanley Robinson’s new SF novel, New York 2140, two unemployed financial software engineers known as Mutt and Jeff—unemployed because they refuse to design a possibly illegal program for high-speed trading—contemplate a flooded lower Manhattan from atop the former Metropolitan Life building.

One of them says he has figured out what’s wrong with capitalism.

The basic problem with capitalism, he says, is that the forces of the market forces producers to sell products below cost.

How can you sell below cost and survive?  By offloading your costs onto someone else—onto customers, onto neighbors, onto taxpayers, onto the wider community and onto future generations.

This enables an individual enterprise to survive (sometimes), but, in the long run, leads human society into bankruptcy.

In the novel, global warming has taken place, sea levels have risen and lower Manhattan is under water.  Skyscrapers such as the Met Life building are still survive amid a kind of new Venice.  Uptown Manhattan is 50 feet higher in elevation, and is dry.  In the middle is a tidal zone, where the poor and homeless congregate.

Some environmental problems have been solved, or at least are being coped with.  Gasoline, jet fuel and other fossil fuels no longer exist.  Air travel is by dirigible, ocean travel is by sailing ship and land vehicles are electric.   But the financial structure and distribution of income are more or less like they are now.

New skyscrapers—”superscrapers”—in uptown are owned by the world’s wealthy elite, as investments or as one of multiple homes, and are often vacant.

A hurricane late in the novel leaves many homeless.  They try to storm the vacant uptown towers, and are turned back by private security forces, who outgun the New York Police Department.

Rather than attempt a violent revolutionary overthrow, the common people attempt a political and economic jujitsu.

They join in a nationwide debt strike.  On a given day, they stop paying their mortgages, student loans and credit card balances.  The financial system is go highly leveraged with debt upon debt that it comes crashing down, just as in 2008.   So the financiers go to Washington for another bailout, just as they did then.

But this time, the President and Federal Reserve Chairman, who are in on the plan, act differently.  They tell the banks and investment companies that they would be bailed out only on one condition—that the government be given stock of equal value to the bailout, as was done in the bailout of General Motors.   Those who refuse this deal are allowed to fail.

Now the federal government has the authority to force the banks to act as public utilities.  And the huge profits that once flowed to the financial elite now flow to Washington, which makes it possible to adequately fund public education, infrastructure improvement, scientific research and all the other things the country needs.

And so the American people live happily—not ever after and not completely, but for a while.

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Neoliberalism and Its Discontents (1)

April 13, 2017

What follows is notes for the first part of a talk for the Rochester Russell Forum scheduled at Writers & Books Literary Center, 740 University Ave., Rochester, NY, at 7 p.m. Thursday, April 13, 2017

Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is the primary goal of society and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity currently being imposed on governments by lenders.

Neoliberalism has its roots in classical liberalism, which arose in the 18th and 19th centuries.  Classic liberals said that the purpose of government is to protect human rights, including religious, intellectual, political and economic freedom.   They fought the absolute power of kings and the privileges of aristocrats and demanded the right of individuals to determine their own fates.

Classical liberalism came to be supplanted in the early 20th century by a belief that government regulation and welfare could, if well thought out, enhance human freedom by giving individuals more choices.   A graduate of a public school or university, for example, has more options than a person unable to afford an education, so taxing the public to pay for public schools and universities would be a form of liberation.

Neoliberalism is a backlash against social liberalism.  Neoliberalism affirms that freedom of enterprise is the only important freedom.   Its well-known adherents include Friedrich Hayek, Ludwig von Mises and Milton Friedman.

It came into widespread acceptance in the 1980s, as a reaction against the manifest failures of central economic planning and as a way to break the political gridlock of the welfare state.  Ronald Reagan and Margaret Thatcher were both strongly influenced by the neoliberals.

Neoliberalism’s strongest adherents are to be found among economists, journalists, financiers, Silicon Valley executives and right-of-center parties in the English-speaking world and western Europe, and in international institutions such as the International Monetary Fund, World Bank and European Central Bank, which enforce neoliberal policies on debtor countries.

It is more of an implicit philosophy than a credo, a series of assumptions that has come to permeate our society.

What follows is my attempt to understand the logic behind these assumptions.

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Questions to be answered

March 16, 2016

I think that the United States and other Western countries are in a political and economic crisis.

I think that political leaders in the Western world must answer these questions.

authoritarianism9fd18cDoes the economic and political crisis mean that the system has failed?

If the system has failed, is this a failure of capitalism, a failure of democracy or both?

If the failure is a failure of capitalism, can the capitalistic system be fixed, or must it be replaced?

If the failure is a failure of democracy, can the democratic system be fixed, or is it doomed?

I don’t expect these questions to be addressed this year or the next, but I don’t think they can be evaded indefinitely.  I think there will be some sort of resolution, for good or for ill, within the next 10 years.

The return of right-wing populism

February 10, 2016

During the Great Depression of the 1930s, many people in Europe and North America turned to populist radical and left-wing parties, while many others turned to populist nationalist and racist parties.

The first group blamed their troubles on the wealthy elite and a failed capitalist system.  The second group blamed their troubles on foreigners, minorities and a failed democratic system.

There were exceptions and overlaps, but I think these broad distinctions apply.  Nationalism and racism are a way of diverting public discontent away from bankers and landlords.

We have the same two kinds of populism today.  In Europe, we see Jeremy Corbyn in Great Britain, Podemos in Spain and Syriza in Greece, and, on the other hand, the United Kingdom Independence Party, the National Front in France and Viktor Orban in Hungary.

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The assumptions and logic of neoliberalism

November 14, 2015

There is no such thing as society.  There are only individuals, and their families.      ==Margaret Thatcher

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Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is society’s primary goal and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity being imposed on governments by lending institutions.

What follows is my attempt to understand the thinking behind neoliberalism.  I welcome comments, especially from those who think I am wrong or unfair.

17149339-Abstract-word-cloud-for-Neoliberalism-with-related-tags-and-terms-Stock-PhotoGovernment is by definition coercive.  All governmental authority is ultimately backed by armed force.  The role of government should be limited to protection of life and property and enforcement of contracts.   

Private enterprise is by definition free choice.  Privatization by definition increases freedom.  All income deriving from the private sector, and not involving force or fraud, is earned income.

Most people are good judges of their individual self-interest and bad judges of the common good.   People generally make good decisions as consumers and poor decisions as voters.  Consumer choice is more meaningful than the right to vote.

Free markets, though the law of supply and demand, coordinate individual choices without the direction of any particular people or group of people.  The free market is more impartial and just than any system of planning or regulation could be.

A capitalist dictatorship that protects property rights is better than a socialist democracy that attacks property rights.

Economic growth is the key to increasing economic well-being.  Growth is produced by capital—that is, by investment in machines, factories and other human-made goods that generate new wealth.  

In a free enterprise economy, capital is invested by private individuals based on the law of supply and demand.  Whatever diminishes the ability of individuals to accumulate wealth or respond to the signals of the free market diminishes capital and retards economic growth.

Money spent on welfare and charity may temporarily alleviate distress, but it will not cure poverty.  Only capital investment and economic growth will do that. 

Capital investment and economic growth should take precedence over public education, public health, the environment and other so-called pubic goods, because they are the means of generating the wealth that pays for the public goods.

Banks, investment firms and financial markets are the key institutions of society.  They must be preserved in order to support investment and economic growth.

Monetary obligations are absolute.  Any person, organization or government that borrows money has an absolute obligation to pay it back, no matter what the sacrifice.  People who don’t repay their debts or fulfill their contracts are parasites on the system.

Inequality is a good thing.  To break up accumulations of wealth that have been acquired by legitimate means is not only unjust because it destroys the just reward for achievement.  It destroys the capital by which new jobs and wealth are created.

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The international record of neoliberalism

November 14, 2015

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My economic philosophy in a nutshell

October 6, 2015

When, lo, these many years ago, I studied economics in college, I learned that capital was the most important factor in a prosperous economy.

I still think this is true.  But that doesn’t mean that owners of financial assets are the most valuable members of society.

Standard economics teaches that three  are factors of production—land, labor and capital.  “Land” means all natural resources—everything of value not created by human beings.  “Labor” means all human effort, physical or mental.

 “Capital” is the most important of the three.  It means everything that increases the productivity of land and labor—railroads, machine tools, computers.  It is the force multiplier for land and labor.  It is what makes economic growth possible.

The problem is that “capital” also means also the financial resources available (but not necessarily used) to create these tangible resources.

Landlords who receive rents contribute nothing to the wealth of nations.  Laborers who earn wages contribute a fixed amount.  Capitalists who make profits have—so I was taught—an incentive to direct their capital in a way that created the most value, and thus increase the total wealth of society.

Late in life I have come to read Karl Marx’s rebuttal.  Physical and intellectual capital is not created by capitalists, he noted.  Every railroad, every machine tool, every computer was created not by money, but by the mental and physical effort of human beings.

The increase in human wealth that physical capital generates does not go to those who created it.  It goes to those who own it.

Marx denied that the owners of capital are job creators.  He asserted that workers are capital creators.

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The passing scene – October 5, 2015

October 5, 2015

Parasites in the Body Economic: the Disasters of Neoliberalism, an interview of Michael Hudson, author of Kllling the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, on Counterpunch Radio.  Highly recommended.

More Leisure, Less Capitalism, Thanks to Tech, an interview of Jacobin contributing editor Peter Frase for Truthout.  (Hat tip to Bill Harvey)

The 2016 Stump Speeches: Bernie’s Epistle to the Falwellites by Doug Muder for The Weekly Sift.

How Steve Jobs Fleeced Carly Fiorina by Steven Levy for BackChannel.  (Hat tip to my expatriate e-mail pen pal Jack)

The model minority is losing patience by The Economist.  (Hat tip to Mike the Mad Biologist)

The Second Amendment Is a Gun Control Amendment by Adam Gopnik for The New Yorker.  (Hat tip to Bill Elwell)

Reviving Shinto: Prime Minister Abe tends a special place in Japan’s soul by Michael Holtz for The Christian Science Monitor.  (Hat tip to Jack)

AP Investigation: Are slaves catching the fish you buy? by Robin M. McDowell, Margie Mason and Martha Mendoza.  (Hat tip to Jack)

Naomi Klein’s new climate change book

October 22, 2014

Naomi KleinWe know that we are trapped within an economic system that has it backwards; it behaves as if there is no end to what is actually finite (clean water, fossil fuels and the atmospheric space to absorb their emissions) while insisting there are strict and immovable limits to what is actually quite flexible: the financial resources that human institutions manufacture, and that, if imagined differently, could build the kind of caring society that we need.

==Naomi Klein, This Changes Everything

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Naomi Klein’s brilliant new book, THIS CHANGES EVERYTHING: Capitalism vs the Climate, underlines two important things I had not quite realized.

The first is that the built-in financial incentives of the fossil fuel corporations, or capitalism generally, make it impossible for corporate executives to do anything on their own that would limit the greenhouse gasses that cause climate change.

The second is that many seemingly unrelated struggles against abuses by fossil fuel companies, or abuses by corporations generally, tie in with fighting climate change.

hoax-cop15When native Americans fight to have Indian treaties recognized in law, when small towns in upstate New York pass ordinances against hydraulic fracturing for natural gas, when ranchers and Indians protest the Keystone XL pipeline, when other protestors object to corporate trade treaties such as NAFTA, when Occupy Wall Street protesters advocate economic democracy—all these things help other people in danger from the increase in droughts, floods and violent storms.

I confess that I did not see these connections, or did not fully realize their significance, until I read this book.  I had thought of the question of climate change as primarily a question of how and how much I and other people are willing to reduce their material standard of living, or give up hope of increasing their material standard of living, so that future generations will have a decent planet to live on.

This is a real and important question, but it is not the only question.  As Naomi Klein points out, the well-being livelihoods of many people are threatened by continuing on the present course.   That is because the era of easily-available oil, gas and coal is long gone, and the methods of extracting them—deep water ocean drilling, tar sands, fracking, mountaintop removal—are increasingly costly, dangerous and destructive.

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Can workers own the means of production?

September 30, 2014

income distribution

The Marxist economist Richard D. Wolff thinks that a new form of economic organization, the worker self-directed enterprise, can gradually replace the for-profit corporation.

Richard D. Wolff

Richard D. Wolff

I hope he is right because the world needs something better than predatory corporations or oppressive government bureaucracies, which are the main choices on offer now.

But successful worker-owned enterprises have been around for a long time, and yet have never reached the critical mass that would enable them to become an important part of the economy.

Advocates of worker-owned businesses cite the example of the Mondragon Corporation, which originated in the Basque country in Spain in 1956 with a half dozen people and now is a federation of 257 businesses and co-ops employing 76,000 people in 31 countries.  But why is there only one Mondragon Corporation?  Why hasn’t it become a template for other successful efforts?

One of the things that limit worker-owned businesses, as I see it, is precisely this lack of critical mass.  There is a societal infrastructure of business schools, business services and business finance to serve the new for-profit business.  Worker-owners would have to learn as they go.  This takes a level of commitment of which many people aren’t capable, unless they are in dire straits.

One of Wolff’s ideas is to provide seed money for WSDEs by giving the unemployed their compensation in a lump sum rather than weekly checks.  This shows how he underestimates the difficulty of implementing his program.

To begin with, starting a successful small business is not something everybody can do, although many people think they can.  If you wanted a pool of people with the ability to succeed in business, you probably wouldn’t choose them from among the unemployed.  You’d be more likely to find them among people who have good jobs and money in the bank.

Then again, the American Dream is to own your own business.  Generally speaking, it is not to be part of a community of comrades who share and share alike.   We Americans think of ourselves as individualists, no matter how subservient to authority we may be in practice, and we only abandon the dream of self-sufficiency for compelling reasons.

Farmers’ marketing co-ops came into existence because farmers thought they were being cheated by middle-men.  Electric power co-ops came into existence because the investor-owned utilities weren’t interested in serving them.  Savings and loan associations, and later credit unions, were formed because people were dissatisfied with banks.

Workers have been known to take over factories from bankrupt employers and restart the businesses.  Some co-ops are formed around political and social movements, such as selling organic food.  But worker-owned and cooperative businesses are not the norm.  There has to be a compelling reason to commit to starting one.

The commitment tends to fade when the compelling reason fades.  Even the successful cooperatives tend to wither away, or be bought out, or to incorporate.  Even the successful utopian communities, the Oneida community in New York state and the Amana community in Iowa, wound up as corporations.

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Is economic democracy possible?

September 30, 2014

feed-with-gdp

Richard D. Wolff, a Marxist economist, wrote in his recent books that capitalism has failed, and that it is necessary to replace for-profit corporations as we know them with what he calls worker self-directed enterprises.

Democracy at WorkBut for-profit corporations aren’t going to go away, even if—which remains to be seen—worker-owned enterprises offer a better alternative.

If economic democracy is the only means by which workers can keep the value of what they produce, then it is going to be necessary to reform existing corporate structures.

The USA needs legislation to curb abuses in corporate management, such as leverage buyouts, in which slick financial operators can gain control of a company with borrowed money and then milk it for their own benefit, regardless of its impact on the company.  We need enforcement of anti-trust laws and prosecution of corporate and financial fraud.

Beyond that, the USA needs to build up labor unions as a countervailing power.  Congress should enact the Employee Free Choice Act, aka Card Check, in which employees get the right to bargain collectively when a majority sign up to join a union.  It should repeal or reform the Taft-Hartley Act and Landrum Griffin Act.

But all of this falls short of true economic democracy.  True economic democracy would mean something like Germany’s co-determination system, in which employees of firms are represented on the board of directors.  I think this should be required of all companies whose stock is publicly traded.  If an entrepreneur doesn’t want to share control of a company,  then don’t sell its shares on the open market.

Economic democracy also would mean letting workers share in day-to-day management of the company, along the lines suggested by W. Edwards Deming.  Knowledge in any institution is widely distributed.  No small group has a monopoly on useful information.  I think a company will be better managed when workers and managers have the same information available.

Banking and finance are a separate issue.  There can be no economic democracy when financiers have a veto over democratic decisions.  Banks should be regulated utilities.  Bankers should be servants of the people, not masters of the universe.

When and if these things can be achieved, there will be a favorable environment for Wolff’s worker-self-directed enterprises.  The government would give them the same kind of support across the board that rural electric co-ops got in the 1930s and 1940s.  Otherwise, probably not.

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Is there a better way than capitalism?

September 30, 2014

20120314-graph-the-1-percents-jobless-recovery-01Marxists say that the trouble with the capitalist economy is that workers don’t get the full value of what they produce.  Whether or not that’s true as a general principle, it is a good description of the current direction of the U.S. economy.

capitalismhitsthefan_The Marxist solution is that the workers themselves should own the means of production.  A Marxist economist, Richard D. Wolff, said that where socialists and Communists have gone wrong is in promoting government ownership rather than worker ownership.

I recently read Wolff’s three latest books.  His view of the current economic crisis is the same as mine.   In the 1970s, overall American wages stopped growing.  Working people tried to maintain their material standard of living by putting in longer hours and having more family members in the work force.   When that reached a limit, they kept up their spending levels by borrowing.

Now the spending power of ordinary Americans has reached a limit.  Most Americans are either broke, nearby broke or paying down their debts.  That’s why the government has failed to stimulate the economy through spending or lower interest rates.

occupytheeconomy0The solution, according to Wolff, is the creation of WSDEs – worker self-directed enterprises – in which the workers themselves are the ultimate deciders of what is done with the profits (in Marxist lingo, the “surplus”).

A WSDE would be more than worker participation in management, where corporate ownership remains the same.  And it would be more than a worker-owned business, where board of directors and the rest of the corporate management structure remains in place.   And it would be more than just a co-operative, which can be organized to serve the interests of any group, not just employees.

This would not necessarily solve all problems, Wolff wrote, but it would make other problems easier to solve.  A WSDE wouldn’t lay off workers or reduce wages merely to increase the income of managers and stockholders.  Employees wouldn’t feel alienated from their work.  A worker-owned business would be less likely to be willing to pollute the community in which they live than would a board of directors responsible to stockholders who live far away.

Democracy at WorkI am in favor of more worker-owned businesses, but I think Wolff greatly underestimates the opposition to his proposed program.   Does he think the interests that engineered the sale of the Postal Service’s assets to private businesses (such as Nancy Pelosi’s husband) or advocate replacing public schools with for-profit businesses (aka charters)—does he think these interests are going to sit still and allow Wolff’s WSDEs to push them aside?

Back in the New Deal era, the federal government fostered electric power co-operatives, which provided electricity at lower rates than the for-profit corporations.  But they did not displace the for-profit corporations, nor become a model for how to operate electric utilities.

Instead the electric power industry successfully pushed for deregulation of the industry, in which competition between electric power providers was supposed to keep rates low.  Deregulation also abolished a requirement that an electric utility have enough reserve generating capacity to prevent future blackouts and brownouts.  Nobody is responsible for keeping the lights on now.

 The fact that something is economically feasible and socially desirable does not mean that it will be politically successful.   There is no substitute for political power.

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The new normal: Links & comments 7/29/14

July 29, 2014

Soak the Rich: An exchange on capital, debt and the future by David Graeber and Thomas Piketty, translated and reprinted by The Baffler.

David Graeber is an anthropologist and radical anarchist known for his book, Debt: the First 5,000 Years, which looks at the origins of money, taxes and debt.   Thomas Piketty is a politically moderate economist known for his book, Capital in the 21st Century, which looks at the persistence of gross inequality during the past few centuries.

I admire them for their opposite virtues—Graeber for his bold and original speculation, Piketty for his research and his refusal to assert anything that can’t be backed up by data.

Graeber believes the capitalist system is doomed.  Once it goes away, people will have a chance to create a new system without fear of bosses or police, and Graber does not see any point in trying to describe the specifics of what that new system will be.

Piketty says history indicates that capitalism has proved amazingly resilient in the face of change, and that there is no reason to think this time is different.  Furthermore, he said, any society has a need for capital, the means to invest accumulated wealth into the means of creating new wealth.  (This is a different definition of capital from the one in his book).  His attitude toward capitalism is: Mend it, don’t end it.

One thing they do agree on is the centuries-old tendency for wealth to be concentrated in a few hands, and the danger this poses to a democratic society.

On the Causes of Investment Decline in the U.S. Economy by Dr. Jack Rasmus, the Green Party’s shadow Federal Reserve chair.  Hat tip to Bill Harvey.

I have long thought that increasing the earning power of average Americans would make many things fall into place.  If people had more money to buy stuff, merchants would sell more stuff and manufacturers would make more stuff, and this would be to everybody’s benefit.

Jack Rasmus suggests that maybe this isn’t so.  Maybe getting people into debt and putting the squeeze on them is more profitable that creating useful goods and services.  If that’s so, we can’t look to private enterprise to recreate a high-wage, full-employment economy.

His solution is a massive public works program, which I agree is needed, but doesn’t address the problem he describes.

Defending Trade Unions While the Justices Are Away by David Coates.  Hat tip to Labor News in Rochester, NY.

Labor unions helped maintain American prosperity in the mid-20th century by fighting for good wages and job security.  But the union movement is handicapped by laws and court decisions that increasingly restrict unions while freeing corporations of responsibility.

In Harris v. Quinn, the Supreme Court ruled that home health-care workers in Illinois could not be required to pay dues the Service Employees International Union, but they were still entitled the benefits of the SEIU contract and to SEIU representation.  It is as if the Supreme Court ruled that I could not be required to pay my Rochester Gas and Electric bill, but RG&E is still obligated to supply me with gas and electricity.

Chris Dodd Warns of Coalition Between Populist Democrats and Republicans by Zach Carter for the Huffington Post.

Ex-Senator Chris Dodd, a Connecticut Democrat, gave a speech warning against trying to strengthen the Dodd-Frank financial reform bill.   He said in a speech to the Bipartisan Policy Center that opening up the bill to amendments would open a “Pandora’s box” that would be dangerous the financial services industry.

He said warned against right-wing Republicans and left-wing Democrats teaming up against Wall Street.   He probably was thinking of a bill co-sponsored by Senator Sherrod Brown (D-Ohio) and David Vitter (R-Louisiana) to break up the “too big to fail” banks, an unacceptable type of bipartisanship.  Dodd said breaking up big banks is unnecessary.

As Court Fees Rise, The Poor Are Paying the Price by Joseph Shapiro for National Public Radio.

The criminalization of poverty by Radley Balko for the Washington Post.

A majority of U.S. states have recreated the equivalent of debtors’ prisons.  They are trying to make their criminal justice system self-financing by charging fees for public defenders, the cost of a jury trial, room and board for jail and prison time, and parole and probation costs.   Poor people who can’t pay these fees go to jail, even though this has been ruled unconstitutional.

 

What capitalism can dispense with

June 23, 2014

Capitalism can dispense with democracy more easily than with profits.  A question for the century ahead is how far it will minimize the former in seeking to maximize the latter.

via Benjamin Kunkel · LRB.

Thomas Piketty on democracy and capitalism

May 16, 2014


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Sustainability, ZPG and Piketty’s equation

May 1, 2014

If environmentalists achieve their dream of a sustainable, steady state economy and zero population growth, and if nothing else changes, then wealth will become more and more concentrated in a tiny wealthy elite.

populationgrowthoriginal

Source: Piketty, Capital in the 21st Century

That’s a logical conclusion from Thomas Piketty’s formula of r > g in his book, Capital in the Twenty-First Century.  His simple but powerful idea is that if the rate of return on investment is a higher percentage than the rate of economic growth, then an ever-higher percentage of income will go to investors and a ever-less percentage to workers.  At some point this wold level off, but it could be at high levels of inequality, just as in the past.

Now what is economic growth?  It is the product of the increase in output per person and the increase in the population.  Birth rates are falling in many parts of the world, including North America, Europe and China, and the rate of economic growth can be expected to fall to the extent that high growth in the past has been based on cheap coal, oil and natural gas.  If through all this the rate of return on investment remains at historic averages, then the rich will get richer at a faster rate than the economy grows (if it grows at all) and increasing amounts of wealth will be concentrated in the hands of a tiny elite.

piketty12growthrate

Source: Piketty, Capital in the 21st Century

Now this could play out in a number of ways.  There could be a sudden collapse, wiping out investments in the fossil fuel industry and the industries dependent on it (such as the auto industry).  Another Great Depression would be a very bad thing, but, like the previous Great Depression, it would be an example of what the economist Joseph Schumpeter called “creative destruction”.  By wiping out capital invested in obsolete or declining industries, it would open the way for new industry.

Unfortunately the known sustainable energy technologies are capital intensive.  That is to say, it is relatively cheap, for example, to build an oil-fired or natural gas-fired electrical generating plant, but the fuel itself is expensive.  With hydroelectric generating plants, windmills or solar energy, the source of energy is virtually free, but it costs a lot to make the equipment, and this requires capital.

Then again, maybe high technology will not be feasible.  Maybe a sustainable economy will be based on earlier types of technology.  If so, this will not necessarily mean less inequality.  Inequality in ancient and medieval Europe was greater than it is now.

A bleak equation.  But there are answers.  I’ve mentioned some of them in a previous post.  A more radical solution would be a redistribution of property so that return on investment would benefit everyone and not just a few.  There might not be a role for limited-liability, for-profit corporations in a slow-growth or no-growth economy.  Credit unions, consumer-owned cooperatives, employee-owned corporations or other forms of organization might work better.  As the Bible says, new wine belongs in new bottles.

Environmentalists will have to face up to this one way or another.  If birth rates fall to a zero population growth rate, this will mean an increase in the elderly population relative to the working-age population.  This can only work if there is an increase in the productivity of the working-age population, and this would have to be accomplished without technologies that burn up fossil fuels at a faster rate.

I don’t pretend to know the future, and I don’t pretend to know what a sustainable economy would be like.  Maybe some miracle technology will be invented that will resolve this issues, and all these concerns will have been for naught.  I wouldn’t count on it

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Protecting wealth vs. promoting growth

April 30, 2014

piketty,mattbors5_n

There’s no single principle that explains everything, but there is great explanatory power inn the French economist Thomas Piketty’s idea that inequality always increases whenever the rate of return on investment exceeds the rate of growth of the economy, that is, when r > g.

piketty-saez-top10aThis is not something that results from impersonal economic forces.  During the past 30 years, the policy of the U.S. government, and of governments that follow the U.S. lead, has been to prioritize return on investment over economic growth.

The U.S. Congress and many state governments are in the process of cutting back scientific research, education, maintenance of public works and other things that are needed for our nation’s economic future, in order to keep tax rates low for corporations and upper bracket taxpayers.

These are the same “austerity” policies being enforced by the World Trade Organization, International Monetary Fund and European Central Government on vulnerable governments, which are forced to sacrifice the well-being of their citizens in order to satisfy powerful financial institutions.   In both cases, there is a tradeoff to sacrifice economic growth in order to maintain returns on investment.

top1%sharechart-02One part of austerity is to sell off government property at bargain rates and delegate public services to corporations.  Most of the time this amounts to a transfer of wealth from taxpayers to well-connected business owners, who have no financial incentive to maximize service.

Some other ways that government policy fosters investor income at the expense of economic growth are (1) bailing out banks that have failed due to reckless financial speculation, (2) refusal to prosecute financial fraud by the “too big to fail” banks or claw back profits due to fraud, (3) expansion of patent and copyright monopolies, (4) failure to regulate cable and telecommunications laws, (5) failure to enforce antitrust laws, (6) the ban on student loan refinancing or bankruptcy …. The list goes on.

Increasingly corporate management seeks profit not by increasing the size of the economic pie, but by giving investors and executives a larger part of the pie — through financial manipulation and excess fees in the case of banks, through driving down wages and increasing executive compensation in the case of corporations in general.  I don’t say all corporate managers behave in this way.  I say that this has become common and acceptable.

the-top-01-of-americans-get-a-near-record-amount-of-income-at-around-10The result has been a concentration of wealth and income in a tiny minority of the population, and economic stagnation for everybody else.   So the first step in reducing inequality is to stop promoting it.

Piketty’s preferred solution to undue concentration of wealth is a progressive tax on capital, sufficient to prevent the wealth of the economic elite from expanding at a faster rate than the economy as a whole, along with progressive taxes on income and inheritance.  I don’t object to any of these, but higher taxes on the rich do not, in and of themselves, benefit the middle class, wage-earners or the poor.   I think it is more important to  strengthen labor unions, raise the minimum wage, maintain essential public services and invest in the future.

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Defenders of wealth push back against Piketty

April 29, 2014
piketty12growthrate

Source: Thomas Piketty, Capital in the 21st Century

If things go on as they are now, there’s nothing to prevent wealth from becoming more and more concentrated and economic inequality returning to the levels of England and France 200 years ago, according to French economist Thomas Piketty in his new book, Capital in the Twenty-First Century.

But many economists say this is not a problem.  They say concentration of wealth is a good thing, not a bad thing, and benefits us all in the long run, not just a tiny elite.   In this post, I will consider this argument, and state it as fairly as I can, then explain what I think the argument leaves out.

Concentrations of wealth are necessary to a capitalist free-enterprise economy.  They provide the means to invest in machinery, technology, education and the other things that increase society’s total wealth.   Capitalism has generated more economic growth than any alternative system and, without capital, there is no capitalism.

The chart above is illlustrates Piketty’s conclusion, based on his research,  that, most of the time, r > g – that is, the rate of return on investment exceeds the rate of growth of the economy, which, as a matter of logic, means that the income of investors grows faster than the income of wage-earners.

Now the chart should be read with discretion.  The parts prior to 1820 are no more than an educated guess; the parts from 1820 to the present are blends of different national economies; the future projection is possibility, not a prediction.  That’s no criticism of Piketty.  He did the best he could with the data available, and what he shows is reasonable.

According to the chart, r > g by a great deal on average prior to 1913.   Nevertheless there was an increasing rate of economic growth.  Inequality was just as extreme in 1913 in France and Britain and more extreme in the USA compared to 1820 or 1700, but that doesn’t mean the average person got no benefit from that growth.  It just meant there was just as much of a gap between rich people and the rest of us.

Not all rich people did things that promote economic growth, but the famous economist Friedrich Hayek argued that an idle rich class is of benefit to society.  They are pioneers in consumption, he said.   Once automobiles were a luxury for the upper class, for example, but now almost every family in North America owns one.  If rich people hadn’t provided an initial market, automobiles would never have developed.   Medical treatments which once were affordable only to rich people are now available to the general public.

Rich philanthropists finance good works, including, as economist Tyler Cowen pointed out, Belknap Press of Harvard University, publisher of the English translation of Piketty’s book.

A final argument is that the problem of excessive returns on capital is self-correcting.  When you have too much capital, the rate of return on capital falls.  If too many houses are built, rent falls.  If capitalists invest too much in building railroads or making personal computers, railroad tickets or computers become a glut on the market, and profits fall.  The economist Joseph Schumpeter called this “creative destruction,” and he said this is how the capitalist system renews itself.

I don’t think these arguments are completely wrong, but they leave a lot out.   Let me explain.

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The Nazis were good for business (until the end)

April 25, 2014

Nazi is an abbreviation for “National Socialist” which is a short form of “National Socialist German Workers Party,” but they were not, in fact, a left-wing or socialist party under any reasonable definition.

The Nazis were opponents of free enterprise.  They did not believe in the unregulated free market.  But they were not opponents of capitalism.   The capitalists did very well under the Nazi regime.

Source: The Wages of Destruction, by Adam Tooz.  Click to enlarge

Source: The Wages of Destruction, by Adam Tooze.   Click to enlarge

I have read The Wages of Destruction, and it refutes the notion that Hitler was a madman — evil, yes, but not without reasons for what he did.  Hitler’s idea was that Germany could be a great nation only if it had access to resources equal to the great continental nations, the United States and Soviet Russia, or the great overseas empires, Britain and France.

To accomplish this, after coming to power in 1933, he planned to conquer and depopulate Poland, Belarus, Ukraine and Russia in order to create “living space” for the Germans.  Ukrainians and Poles were starved so that the German population could be fed.  Even Hitler’s anti-Semitism, even though it didn’t have an economic motive, served an economic purpose.  Confiscation of Jewish property helped to finance the Nazi regime.

Click to enlarge,

Source: Thomas Piketty, Capital in the 21st Century.   Click to enlarge,

This chart shows that, in Germany under Hitler, holders of financial assets received about a third of the national income, while in the United States under the New Deal, they received less than one-fourth.   Piketty’s statistics only go through 1938, but the German capitalists did very well in the early days of the war, when they were able to buy up property and companies in conquered countries at bargain rates.

Of course in the end the Hitler regime ended disastrously for everybody, including the Nazis themselves.   Germany later achieved prosperity and a dominant position in Europe in the way it always could have done — but developing its industry and its human resources.

The Hitler and Stalin regimes were both one-party dictatorships exercising absolute power, and both were among history’s greatest mass killers.  But instead of being regarded as two examples of the same thing, they have been regarded as opposite extremes, both in their time and the present.

The explanation is in the charts.   Under Lenin and Stalin, capitalist wealth was confiscated.  Under Mussolini and Hitler, the capitalists lost their power, but continued to enjoy their incomes and affluent ways of life.  That is the difference.

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I took the charts from this post and this post on Corey Robin’s web log.