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Capitalism Fail: Why We Need A New Populist Economics

February 27, 2015 by Jimmy Midnight

Thomas Piketty, author of "Capital in the Twenty-First Century," speaks at a microphone in Harvard Book Store in Cambridge, Massachusetts on April 18, 2014. Piketty's book argues that only a redistribution of global wealth can reverse the growth of inequality. (Wikimedia / Sue Gardner)

Thomas Piketty, author of “Capital in the Twenty-First Century,” speaks at a microphone in Harvard Book Store in Cambridge, Massachusetts on April 18, 2014. Piketty’s book argues that only a redistribution of global wealth can reverse the growth of inequality. (Wikimedia / Sue Gardner)

The Populist economics I’m advocating are to be contrasted with the Rich-ist economics as currently and globally practiced. Like the plague of industrial pollution and greenhouse gasses, or the genetic pollution plague likely engendered by these chimeric artificial plasmids as shed by GMO crops, our Richist economic management is plaguing us with debt.

Maybe it really did happen. Maybe a muse really did climb up on ‘ol “Jemmy” Madison’s shoulder, when he wrote the immortal words of our Ninth Amendment, “The enumeration of certain rights shall not be construed to disparage others …” Our fourth president thus authored a compelling, nearly perfect, dichotomy, between Children of the Enlightenment, and Construers of Disparagement. (It’s much like psychology’s Sick Freaks and Happy Freaks.)

In the same historical context, another of the founders of our great but troubled nation, and fellow child of the enlightenment, Thomas Paine, wrote that, “We have it in our power to make the world anew.”

He was wrong. It turns out that, even in Paine’s time and continuously ever since, every socially, environmentally, macro-economically, artistically, and every other imaginably way progressive, initiative will just evoke resistance—resistance that will of course come from those Construers of Disparagement.

American History is more understandable framed as a struggle between Children of the Enlightenment and those Construers, or between the two types of “freedom.” Type One Freedom is the Enlightenment view—license to go, say, do, and be whatever; while Type Two means being freed from interference with, or opposition to, the basically sick, unmistakably human, compulsion to own, control, and decide everything for everyone. It should be obvious that the prototypical manifestation of Type Two Freedom was the slavery period as experienced in the old Confederacy.

It was the Faustian bargain indispensable to our founding and the creation of our Constitution, with the South’s planter aristocracy saying to their Yankee compatriots, “We’d laike to hep yew throw off the yoke-a th’ British colonial ovahlord—yew’ll let us keep our slaves, raight?”

And the Yankees, understanding, as everyone did, that the slave system was enabling all our burgeoning development, were like, “Well … uh … sure!”

What’s changed since Paine’s and Madison’s time is our collective capacity to abolish scarcity, to provide for everyone’s basic needs as a human right. That would include the proverbial food, clothing, and shelter; the oh-yeah-that’s of water, power, transportation, human interaction, and health care; and the “we’re producers, too” three-e’s of education, employment, and entertainment. I don’t think there should be any controversy about whether it’s now possible to produce the necessary stuff.

What hasn’t changed since the 18th Century is the way economics, money systems, actually work. It’s all about the political power to monetize human labor and nature’s abundance. We’ve all heard about the necessities, “food, clothing, and shelter,” but the industrial world reality is that, as a result of the Industrial Revolution, clothing is easy. (Many do obsess over it as a fashion statement, but as far as covering ourselves with something or other, it’s not a problem.)

But in days of old, when clothing, like everything else, was handmade, spinning, weaving and sewing were every family’s daily task — the original “woman’s work.” Then came the Industrial Revolution, when, powered by slave-grown American cotton, and British coal dug up by brutally exploited miners, cloth became almost as cheap as words.

And the first great modern fortunes also date to this period, because human labor and nature’s abundance, the only sources of new real wealth, could be exploited more thoroughly and more massively than ever before. But even older fortunes, as accumulated by royalty, came from tax revenues, all of which were, and continue to be, gathered under threat of violence.

In fact, it’s very easy to imagine the roots of political power dating from moments when, in the dawn-of-recorded-History period, armed gangsters would show up at lonely farms and villages and just take whatever they wanted. In a subsequent phase, these gangsters would offer protection from other armed groups to those who paid them off. Now, this is called taxation, and if taxes aren’t paid, eventually armed people will come to collect.

There has been some progress since armed bands, roaming the countryside, were a significant hazard. Today, the violence upon which the money system is necessarily predicated is a more distant possibility. Instead, growing inequality is an inevitable result, rather than an immediate cause. Even when there’s growth, it’s immiserative growth, and of course recessions are immiserative by definition. And the misery can take environmental or financial form, but all produced by an inequality industry. It’s easy to see in the growing number of non-working able adults, amount of money in overseas tax shelters, and masses of poor people—idle labor, idle capital, idle demand.

Of course, in the Third Millennium, we understand that there is a third possible source of new real wealth—finance. Briefly, it works like a residential mortgage. If society can get more value out of the money system than it has to pay to keep projects going—well, it’s like net free money.

In discussing these topics we quickly arrive at the dialectic represented by Keynes and Hayek, two early 20th century theorists who are thought of as representing, respectively, the public intervention and free-market style of macroeconomic policies. But both of them understood that finance had the power for either real benefit or terrible damage. Keynes is thought of as inventing deficit financing, but he also emphasized the necessity of raising tax rates and paying most debt off in boom times to augment credit availability. And Hayek, a figure who has gained prophetic status among free market advocates, at least understood that speculation for its own sake could be counterproductive, and would correctly have seen today’s accounting rules as unwarranted state intervention..

And now we apparently have the worst of both worlds. Nobody raised taxes during the ‘90’s boom — the US was actually on track to go into surplus before the Bush tax cuts — so when the hard times hit, the US national debt quickly soared to near the s’posed-to-be-scary 100% of GDP. Would even a Hayek want loan rehypothecation, at today’s level, to be allowed? Or would he see it as the form of government intervention that it actually is? How many of us would like to be able to lend the face value of our mortgages, and collect payments on them until settlement date? Oh, and if our speculations went badly, and our mortgagees couldn’t pay, we wouldn’t really care because the national government would cover our losses.

What a new world we’re seeing, in which only investment banker types can afford to speculate on sovereign debt issues; and that’s just what they do, in preference to lending for useful projects of any kind, even though sovereign debt carries a nominal zero interest. No wonder very wealthy people are taking great wads of money to tax shelters.

They’re also funding and creating the new industry of propaganda mills—foundations, think tanks, for-profit post-secondary and charter elementary and secondary schools, standardized testing, drug testing, and political advertising. I like to joke that such things are the only new employment opportunities actually engendered by recent tax cutting.

It’s pretty clear that very little of this sort of thing will bring immediate returns on investment, but that’s not of immediate importance, particularly in a context where it’s very difficult to get great returns. Might as well just make a long-term play in confusing ordinary people of modest intellectual means. Swamping low-information people with Richist propaganda is something great wealth can easily afford.

A possible question is, how can we make returns on investment, productive investment, better? My populist proclivities suggest consumer demand, spurred by better overall wage compensation, is the obvious place to start. There’s a current proposal to raise national minimum wage from $7.25 to $10.10 per hour over two years which would be a useful, but clearly inadequate step in a necessary direction. I hear the high-water mark for minimum wage buying power occurred in 1968, when it would amount to $10.68 in 2014 money. So two years on, we’re not even back to square one. If somehow we added another 7 percent per annum to the required minimum, it would still take four years to get back over the high-water mark, presuming a two percent inflation rate.

But this does nothing to account for the rise in worker “productivity” that has taken place since the late ‘60’s. It’s a funny word, basically a reflection of technological and methodological innovation. (Although, as a measure of value out per dollar in, it can also be about exploitation. For example it’s been duly noted that the productivity of prison labor is off the charts.) It is not a uniform thing, but overall it has more than doubled.

Are we really going to wait until employers again bring fairness to our great but troubled nation, out of the goodness of their hearts? It will never happen and, in our history, it has never happened because the immediate profitability of low pay is too powerful a consideration for bosses, and employees have too few alternatives to, “Takin’ what they’re givin’ cause I’m workin’ for a livin.’” The notion that boss and potential worker can actually engage in “price discovery” in a situation like this laughably defies useful comment. The government, the source of political power, simply must step in to force employers to compensate people appropriately, even adequately.

Against an overcast sky, the flag of Denmark blows in a strong wind. Could other nations benefit by implementing Denmarks policies of ending inequality through high tax rates and a guaranteed social safety net? (Wikimedia / Per Palmkvist Knudsen)

Against an overcast sky, the flag of Denmark blows in a strong wind. Could other nations benefit by implementing Denmarks policies of ending inequality through high tax rates and a guaranteed social safety net? (Wikimedia / Per Palmkvist Knudsen)

Denmark is likely the country with the world’s best-compensated workers, who are right now, in February 2015, said to be making $20 an hour. If some consideration is given to the legally-mandated paid vacations, certainty about working hours, and socialized health care that are guaranteed for them, Danes are being compensated 3 times as well as our people. Presuming, or speculating, that we could start with a raise to $10.10 in two years, and add 7% per year after that, and that inflation will be 2% throughout (I did say this was speculation) it would still take nineteen or twenty years before the buying power of a minimum wage here reaches what it is in today’s Denmark.

Well, Denmark, recent “lone wolf” terror incident notwithstanding, is a very fortunate little nation, and its location insulates it from many problems being experienced elsewhere in the world even elsewhere in Western Europe; but the USA, which so often styles itself the World’s Greatest Country, really ought to be able, in the fullness of time, to catch up with Hamletland. In Denmark, it’s possible to be forced to pay as much as 57% of income as national income tax. Maybe that could be a global standard for the very most.

In the USA 39 or 40 percent is the ultimate, and hardly anyone pays it, because loopholes and exceptions so abound. Almost all of our very richest people pay around 15% by qualifying their income as capital gains through our grotesque “carried interest” provision. I think it’s appropriate to tax the proceeds of the sale of a longtime personal residence at a lower capital gains rate, so let’s leave the lower rate possibility in place, but limit the amount to which it could be applied. Then these big bourgeois could just be taxed at a 15% rate on their first half-million or one million or whatever, and pay the ordinary income rate on the rest.

“Social democratic paradise” Denmark has the world’s highest taxes, something that has both good points and bad points, but overall the non-Denmark world would be well served by emulating them to some extent. Now it is possible, as our Ricihist friends would remind us, that higher taxes will make less money available for investment; but there’s also a countervailing dynamic in which the big bourgeois say, “Well, if they’re just gonna tax the bejeebers outta me anyway, maybe I should plow the money back into business—even if it’s just hiring additional household staff.”

Now, everyone with a basic understanding of economics will agree that there is some amount of minimum wage rise that, if implemented entirely and immediately, actually would hurt employment prospects. It’s both tragic and maddening to understand that, if we caught up to Denmark in one stroke, it really would be economically deleterious. Isn’t it pathetic, to realize that the great USA would need at least a decade of programmed progressive steps to get anywhere near what Hamlet-country has?

Over the years, people have advanced a variety of mathematical models in economics. Probably the best known is analogy to the Ideal Gas Law, which talks about a total amount being proportional to a pressure by volume product. This is compared to a grand total of prices and sales volumes adding up to Gross Domestic Product. From this, we can immediately see the limitations in economic modeling, since everyone knows that raising the price of everything will not result in higher GDP, but only in decreased demand.

The Ideal Gas Law also has a temperature term, which would correspond to “money velocity.” It’s something we can understand intuitively, and we might also guess that it would be desirably enhanced by putting more money into the hands of people whose basic needs are not yet met, because they’ll spur overall demand by spending it right away. As far as measuring “money velocity,” we’ll quite possibly have to wait until Hayek or Keynes or some yet-to-be-named economic demigod brings us a meter from beyond the grave. It’s clearly beyond the capacities of today’s mortals.

Such a transcendently informative meter would be much like the “black box” often invoked in Calculus texts, that is imagined as being capable of solving all differential equations. In Chemical Kinetics, a subject that derives from the Ideal Gas Law, we quickly come to expressions that are second order partial differential equations, that only a “black box” could solve, although today’s high-power computers could likely approximate solutions. Of course such expressions also abound in economic analysis. For example, some term corresponding to the recent auto industry bailout might change signs. Then, to really make sense of it, we’d have to integrate twice, such that boundary conditions can become non-linear functions; and our grand equation would contain dozens of such terms.

Another possibly illuminating analogy could be with the “Fundamental Axiom of Molecular Biology.” “DNA to RNA to protein,” is another phrase many people have heard. In this system, a financial transaction tax would correspond to an epigene down-regulating speculation. Transportation and delivery would be like messenger RNA, various industries would correspond to enzymes, and day-to-day business and consumer demand, steady state biological life, or GDP.

In an under-appreciated Alfred Hitchcock film, “Torn Curtain,” Paul Newman plays an American physicist, caught up in a cold-war spy drama. In one memorable scene, he meets a respected Russian counterpart. They immediately start scribbling various equations that presumably are about novel ways of causing nuclear explosions. All of them are written in the capital letters that economists and physicists and physical chemists are so fond of. At a certain point, Newman grabs the slate, and writing his own formulation, asks, “What about this?” And the old Russian Nuke hand is like, “We tried it. Doesn’t Work.”

Two important points can be gleaned from this. First, scientists and economists and statisticians write capital letters when they talk about intuitively understandable total quantity concepts that actually can’t be directly measured. Second, many economists have bamboozled people with their capital letter phantom quantities, and their second order differential equations, managing to put “supply-side” policies, with de-regulation and tax-cutting for their own sake, and austerity fiscal management in place that, thirty-plus years on, are now proven useless. We did try it, and it doesn’t work. If supply-side economics, I’d like to rename it, “Richist economics,” was a bomb, it’d be a dud.

In real-world economies, it’s actually wrong to say, “Everything affects everything else.” That’s oversimplifying. However, everything does affect many other things, and the number of affected things would be another of these capital-letter phantoms. In view of the number of useful models, which however are not, and cannot be, fully descriptive, perhaps we should develop analog computing in our attempts to understand it better. Think of a bunch or slide rules geared to one another every whichway, including not at all. Today’s digital gear can actually be programmed to cover this sort of stuff. In the world of research, they now call it experimenting “in silico.”

There’s an old song by Nick Lowe and Rockpile, called, “When I Write the Book.” It will, “Climb to the top of the best-seller list.” The French academic Thomas Picketty really has written such a book, “Capital in the Twenty-First Century,” in which he proves, in currently-accepted economics terms, that a radical redistribution of wealth, accomplished through a — right now politically and legally impossible — graduated global gross wealth tax would be the only way to fix the world’s growing inequality and idle capital problems.

In addition to phantom capital letters, people who work with equations use lower-case letters to stand-in for sought-after solutions. Almost all of us have solved for x. In Gas Law analogy economics, v would be money-velocity; and in Picketty’s work, r is overall return on investment, and g, growth. He proves that when r is greater than g, inequality is the inevitable result. But since all of this is intuitively true, we knew it anyway.

He also complains that future growth prospects are likely to be, at best, one and a half percent, as opposed to the four or five that financial markets have come to expect. Well, I dare to hope that gradual stepwise raises in wage compensation, tax rates, and tariff walls, if needed, will make an ambience of lower overall returns matter a lot less as everyone’s basic needs are met. We also dare to hope that poverty will turn out to be unanticipated idle demand.

“A rising tide lifts all boats.” Is a phrase often heard in economic discussions. It’s all about the idea that more money coming into the system eventually benefits everyone. However, it appears some big bourgeois has had drains installed at the bottom of the nice little harbor and, no matter how much water comes in, it’s just pumped over into Idle Capital Reservoir.

And all the little boats are still stranded, occasionally catching a spray of debt plague.

Controlling political authority accomplishes big things economically every day, through both action and inaction. Some of these big things are predicable, some aren’t. What’s totally predictable is that our people will never be compensated adequately until controlling political authority mandates it. Of course that means the national government.

We need a real Third Millennium economy, with a built-in basic needs guarantee, and we can get there in a decade or so if we get real about the fact that in today’s world, national governments are buyers, employers, educators, and healers of last resort, whether anyone likes it or not. A program of community volunteers on stipend is something we’ll need to look at eventually—after we do at least one trillion of the three trillion in needed infrastructure repairs.

Meanwhile let’s not lose sight of the reality that money is just a means to an end, that it is possible to have the money system work for us, instead of being forced to work for it. On a global basis, that end is unleashing our human creativity on worthwhile and fun things, rather than being driven more or less to distraction by day-to-day exploitation and overwork. Making growth bigger than return will advance Type One Freedom at the expense of Type Two, and that’s Populist as opposed to Richist, economics.

Content posted to MyMPN open blogs is the opinion of the author alone, and should not be attributed to MintPress News.

Filed Under: Media & Culture, National News Tagged With: capitalism, economics, inequality, populism, populist economics

Comments

  1. Kenji Katsuragi says

    March 3, 2015 at 4:55 am

    Denmark is the model of which is supported and preferred for “the high tax burden with high state of welfare”. The United States keeps the profits of the balance of international payments of various countries such as China and Japan and makes their funds as a key currency country. Japan depends on national debt for the part where tax income isn’t enough, for enough domestic funds. I propose to make “more currency issue profit” funds.

    Reply

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  1. 2015 WEALTH TAX RETURN FORM says:
    February 27, 2015 at 8:21 pm

    […] Posted on February 28, 2015 Capitalism Fail: Why we want a new Populist Economics And the first nice modern fortunes additionally date to this era, as a result of human labor and nature's abundance, the only sources of recent actual wealth, might be exploited extra totally and extra vastly than ever ahead of. but even … Or would he see it as … read extra on Mintpress information (registration) (weblog) […]

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