What is the Matter With the Labor Market?

Labor's share of the economy has rarely been lower- what is going on?

We will start with a graph of share of income, to labor, vs capital. Note that labor here includes all the highly paid executives- all those fat salaries. The share has been going down for decades, while the profit and capital share has been going up. The seventies were the high-water mark, when unions reached their apogee, and after which the Reagan revolution put business and management back in the driver's seat. 

Labor's share of national income is at an all-time low.

The neoclassical theory of labor is that businesses will hire as many employees out of a perfectly liquid labor market until the last hire is exactly as productive as her labor cost. Every worker would be hired into their most productive possible job, with the commensurate pay. Over the economy as whole, this mechanism would mean that everyone who can be productive will be employed, and that every company produces as much as it can sell. And also that wages grossly equal the productive capacity of the workers, as judged by what buyers are willing to part with. 

In a very rough sense, there is logic to this model, which at least has the virtue of generally equating what is being spent by buyers with what companies are making as revenue and paying out for their inputs, including labor. But there are a lot of problems when you get into the details, making the whole topic of labor market operation and wage-setting far more complicated, and far less fair, than capitalists and their favorite economists envision. It is a bit like the market for medical care, which has grievous flaws. One wouldn't want to go to a Stalinist system of state job assignment and wage-setting, but that doesn't mean the market mechanisms are operating fairly and efficiently.

One would have thought that the internet, enabling rapid and nation-wide job posting and hunting, would have fundamentally changed the job market, in favor of workers. But the graph above disagrees- things have gotten worse instead of better. One thing that internet job boards do not mention is pay. That remains a closely held secret, never discussed with workers or with prospects, until the moment when they have already been reeled in and gone through numerous interviews, and the low-ball is offered. There are many other structural asymmetries and power dynamics. Productivity is extremely hard to gauge, and ends up being whatever one's manager gets into her or his head. The whole job-finding process is extremely averse, full of humiliation, uncertainty, and pain, enforcing inertia in current employees, and thus power for employers. 

For example, a paper from a few years back shows that, when women enter a profession and change its composition, the pay across that profession goes down. The scholarly language is restrained, but the lesson is obvious. Pay is set by intuition and power relations, not by an analysis of productivity, or the magical workings of a fair labor market. The 80's started the greed-is-good movement in American business, as executives were empowered to take pieces of the business for themselves. Before, managers were employees, often well paid. Now, their pay became increasingly an expression of power rather than productivity- how much they could extract from the business as rent. Naturally, the more money from the business (whether via salary, stock, or other benefits) went into executive's pockets, the less was left over for workers. Similarly, the whole theory of business underwent a change as well, from an organization with multiple stakeholders and purposes, including civic ones, to a singular focus on profit and rewarding investors. Labor ceased to be involved as a stakeholder, but was demoted to an input, to be paid as little as possible. 

One additional influence is the idea of the sufficient wage. Most people are most keenly interested in having income sufficient to live on, in some style considered in their social sphere to be decent. When wages across society fall below this level, revolutions occur. But do wages ever rise above it? Employers are sensitive to these dynamics, and as part of their wage setting know what workers will put up with, regardless of productivity, fairness, revenue, etc. This is particularly relevant with the addition of women to the workforce. What used to be regarded as a decent wage, in that it supported a family, now only has to support half a family, since most families have two earners. The perverse effect of women entering the workforce is thus, on this admittedly vague social theory, not only to subject them to outright socially based discrimination, but to lower the general level of wages, insofar as employers can get away with that without generating an insurrection. 

The value of the federal minimum wage over time.

Now we are at a dramatic point, where a soaring stock market rides on ever-higher profits taken by US businesses, while a vibe-cession and plunging consumer sentiment show that most Americans are struggling, unhappy, and underpaid. Billionaires are sprouting like mushrooms, each of whose dollars is taken from the hands of labor. So what is fair, and what do workers deserve? We need to take a whole-society view here, rather than confining ourselves to what pure capitalism sees as an ideal. Much of income inequality comes from a minimum wage that simply has not kept up, not even with inflation, let alone with worker productivity. A recent book outlines much of the evidence, but it is well known that raising minimum wages is hugely positive, increasing economic activity and helping low-power workers get a fairer deal out of the system, at very little cost to job creation or profits. The authors suggest (very modestly, one must say) generally keeping minimum wages at sixty percent of the median wage, which is currently 64,000 per year, thus would work out to about $18.50 per hour. Lower pay than that generally reflects power dynamics of oppression, and feeds into bad working conditions and the maintenance of low-value industries.

At the upper end, a new social contract needs to be drawn up to re-orient the corporation to a more socially positive role. Competition, which is the most important discipline on businesses, needs to be fostered. Taxation needs to be raised and made fairer, removing escape hatches, offshore shelters, conduits, etc. Capital needs to be taxed at least equivalently with labor, not less, as is shamefully done now. The chances of any of this taking place in the corrupt environment of the current administration and congress is nil, obviously, but if they won't do it, then the workers they are so blatantly betraying have the votes to forge a new path.

• More on the debt.
• How can this staggering loss be sold?
• When labor gets out of hand.
• When companies become tax cheats. We all should have a Carribean subsidiary!

Dalio on Debt

Review of Ray Dalio's "How Countries Go Broke". 

It is difficult to focus on important policy issues, as the national media is led around by the president's revolving fixations like a cat by a laser pointer. But focus we must, if we are not going to decline faster than we already are due to incompetent and corrupt leadership. One looming area is the federal budget. As a card-carrying acolyte of MMT economics, it is hard to say this, but there are limits to federal borrowing. 

A recent book by super-investor Ray Dalio lays out a set of patterns, which he calls the big cycle, that tracks government solvency over roughly eighty year cycles, which typically start out tight and solvent, using relatively hard money, and end up overextended and in crises that are resolved by some mix of inflation, depreciation, and restructuring / reneging on debts. It is a perpetual and international set of cycles. As an investor, he is not much of a writer or economist, so the book is repetitive, poorly written, and markedly incurious about the origins of the patterns he finds. But still, it makes some significant points. 

First is that the cycle happens for all monetary systems, whether fiat and borrowing domestically, or hard currency and borrowing in foreign currencies. But the consequences are far more severe for the latter than the former. Having your own currency, as MMT economists well know, is a blessing when you want to borrow and manage a domestic economy. Second is that even with a fiat currency, the limits are different, but there still are limits to government borrowing, which we are gradually running into. 

Trajectory of US government debt.

Trajectory of interest compared to other US government spending.

At the beginning of a big cycle, the foregoing crisis has scared everyone into hard currencies, like gold, or some properly revalued local currency backed by a solvent government. Probity is everything. Later on in the cycle, the money is softened up due to increased borrowing and laxer standards. Eventually, there are private debt crises, where the central bank is obliged to take on a large part of the private debt and expand its balance sheet. Eventually, the central bank no longer bothers to unwind its balance sheet after such crises, and holds on to both private debts and government debt that it monetizes. And at the far end of the cycle, the debt service paid by the government threatens to become so onerous that a crisis develops- investors flee, interest rates go up, inflation goes up, and the debts, fiat though they are, become unsustainable. There is "restructuring".

This is a big cycle because it is superimposed on the regular business cycle that takes much shorter time- something like five to ten years. And it concerns the government's management of the money, not the private sector's vacillating enthusiasm about business conditions. Turkey is currently in the far end of such a cycle, plunged into high inflation and struggling to find a way to put itself back on a sound basis after massive mismanagement. And obviously the US is somewhere late in the same continuum. The issue is not the size of the federal debt, or its relation to GDP, but the amount we have to pay in interest from the annual budget. That is heading towards one trillion dollars, and if interest rates remain where they are, (given the inflationary pressures from the current administration's bad policies such as tariffs, oil shortages, and tax cuts), there is danger of a growing spiral of higher revenues going to interest, and less money available for government functions, increased monetization by the central bank, and ultimately, loss of faith in the currency. 

A fascinating case is that of Japan, which both Dalio and MMT economists focus on for its unique approach to monetary policy. Since its debt bubble in the 90's, Japan has shifted lots of private debt and public debt to the central bank's balance sheet, which stands at about three times GDP- far beyond what other countries would deem acceptable. This can be sustained because the bank of Japan has kept interest rates very low- in the zero to one percent range. Thus the cost of all this debt is manageable, and will remain so unless and until interest rates go up. But this also means that the bank can not use interest rates to manage the economy and foreign exchange. In consequence, Japan's currency has weakened enormously on the international currency markets, making imports (such as of oil, significantly) much more expensive, while improving the competitive position of Japanese export manufacturers. Additionally, Japanese banks and businesses have been reluctant to unwind bad debts, which leads to the stagnation and lack of overheating that the low interest rates would otherwise foster. Everyone kicks the can down the road, waiting for either a crisis, or a resolution, neither of which seem in the offing. 

But more interesting than the economic drama is the larger cultural cycle which Dalio alludes to as well. For this is not just an economic big cycle, but something deeper. For the US, Dalio starts with the civil war, but I think it is much more instructive to include the cycle before, which started with the Revolutionary War. These wars, plus World War 2, mark the three big cycles that the US has been through. Each started with war, and with currency disruption. The Continental Congress issued reams of Continental currency that had, by the end of the war, become worthless. So, one big objective of the ensuing constitutional order was to put the newly minted dollar on a sound footing, as also the finances of the federal government. This led to decades of growth, prosperity, and (the war of 1812, and various Native American extermination campaigns aside) peace. The middle of this period also saw a progressive cultural flowering, with the transcendentalists, various experimental communes like Brook Farm, and the Great Awakening. All this stability allowed people to envision a better society. However, what happened instead was increased division and conflict, leading to the Civil War. 

Here again, paper money was issued and resulted in significant inflation, as the accumulated hatred tore the country apart. But in its wake, prosperity again reigned, with rapid technological advancement, peace, and, eventually, and progressive movements for women's suffrage, temperance, anti-corruption and anti-monopoly, and the Settlement movement. All this was reset in the Depression and ensuing world war, which then began a new cycle of conflict avoidance enshrined by the US role in the UN, NATO, and a very sedate and conventional media environment. As peace and stability took hold, a new progressive movement rose- the hippies, the anti-war, civil rights, and feminist movements. Did these foster peace and togetherness? Not exactly. One can sense that the culture was eager for truth, for not sugar-coating things anymore, for honesty and, indeed, for conflict. Humor shows became more cutting, movies more biting, tinged with horror and apocalypse. And here we are, in a country where the two parties can't stand each other and are headed towards something that smells distinctly martial.

All this conflict has smothered discussions of actual policy, which anyway has gone to the dogs in the new administration. For example, a high level of federal borrowing is more defensible if it builds US productive capacity, through investments in future-oriented technology and education. But the current adminstration is spending billions to cancel renewable energy contracts that had already been entered into. This is money not just down the drain, but subtracted from future productive capacity. 

Is Dalio sanguine about our prospects? Not particularly. But nor does he view them as terribly dire. In the first place, the gulf between sovereign, fiat-issuing countries and others comes out starkly in his many graphs and analyses. The latter get into much more difficult straits when they borrow too much of someone else's money. Secondly, rather modest adjustments now, to federal spending, to taxation, and to interest rate policy, can change the trajectory we are on, from spiraling to sustainable. I would focus particularly on the tax side, which has so egregiously been attacked by the current administration, in its contempt for making the rich pay anything. Dalio mentions, however, that the most consequential lever is that of interest rates, which, as Japan shows, can, if low enough, make eye-watering debts quite easy to carry. But given a system where we want to retain the interest rate as a lever of macro-economic policy, (and capitalist motivation), it would be best to approach rates not by fiat, as Japan has done, but by good policy on the other fronts, which will naturally lead to lower interest rates, if properly handled. 

• Are we headed into the China century?
• A pathetic spectacle of weakness and decline.

Peak Carbon?

Are we at peak oil, perhaps even peak burning? Thanks to Donald Trump, renewables are looking better than ever.

It turns out that using the oil weapon opens people's eyes to the alternatives. The Saudis have recognized for a long time that stability in oil pricing and supply was the way to keep the world addicted. But in the current wars, Russia has used the natural gas weapon, and Iran has used the oil weapon. Now the addicts realize what a thin needle it is that brings them the fossil fix. After two months of closure on the Strait of Hormuz, the economic responses around the world have been surprisingly muted. While Paul Krugman rang the alarm of $200/barrel oil, prices have stabilized around $110 or so. It turns out that demand is more elastic than anticipated, at least it has been while supplies are still in transit. However, as physical shortages begin to hit, prices may rise again.

As a matter of strategy, the US administration is clearly flailing, unwilling to recognize a loss, and callous about the worldwide harms being imposed by its fruitless dithering. Is a blockade of Iran going to break its government? That is highly unlikely. They have been through much worse, such as during their war with Iraq. Trump's attacks and insults have rallied the population, entirely contrary to the administration's intention, but entirely foreseeably. Iran's sensitivity to economic pain is much lower than ours. And, as the administration was already doing on an ongoing basis prior to its war, it continues to make enemies of the US around the world, more so with each passing day that shipping in the Persian Gulf is stalled.

Paul Krugman bemoaned the "demand destruction" that continued shortages and high prices would cause, which may lead to economic slowdowns, perhaps recession. However I welcome it. It represents conservation of this precious resource, and, one might say, more realistic pricing that brings in, at least to a small degree, the widespread harms of fossil fuels. When one adds volatility and geostrategic dependencies, on top of the gross environmental harms, and what is now an economic disadvantage of fossil fuels when compared with renewable energy, the solution is clear, if not easy. The transition to renewable energy is going to accelerate.

Trend of world-wide carbon emissions.

Currently, the world is at the cusp of still-rising carbon emissions. This means that, even after all the climate conferences, and the reports, the activism, and the technological development, humanity as a whole is still burning more fossil carbon every year than the year before, and thus increasing the CO2 concentration in the atmosphere ever faster, and driving the climate crisis to ever-accelerating harms and disasters. Is it possible that this strategic-economic crisis, brought on by the blundering of a demented US administration- one that has done all in its power to deny climate change and scuttle the energy transition- will finally turn the tide? Could we be at peak carbon? And if so, will the downslope of emissions be faster than the upslope, in this slow-motion catastrophe? One can see that the US is already past peak carbon, and the state of California stands at 75% of the peak carbon emissions, which happened back in 2004. The upslope has been driven by highly uneven, and gradual, technological development and increased population. The downslope will be driven by the much more globally integrated rise of renewable technologies, so it has a chance of happening at a faster pace, despite the challenges of transitioning difficult economic sectors like trucking and aviation.

With the economic tailwinds of cheaper energy storage technologies, coupled with other advances in geothermal, solar, and wind power collection, the transition is inevitable. But public policy can make it faster or slower. The Biden administration worked towards the future, while the current administration works against it. Outside the US, China is enabling both its own transition and those of all other countries by leading extremely efficient solar and storage manufacturing. Those economics are going to eliminate new coal plant construction, and eventually use of all fossil fuels. China now sells more EV than fossil-based automobiles. While it has a prodigious fleet of coal-burning power plants, and is still building new ones, the overall level of coal power generation has leveled off, as it closes plants close to reduce pollution in sensitive urban areas.

While ironies abound, the important part of the story is that the biosphere is baking and needs help as fast as possible. If that help comes through the narcissism of small-minded tyrants, so be it. 

• Caesar, King, tomato, tomahto.
• Coding is toast.
• Renewable energy has beaten methane in the US electricity generation.
• Krugman chimes in.

Dreaming Our Way Out of Capitalism

Review of "Understanding Capitalism", by Richard Wolff.

When I picked up this book, I thought it was going to be a sober analysis of capitalism, by a real economist. But what I was met with was something quite different- a Marxist screed with the most flaccid intellectual grounding, disingenuous and dishonest by turns. Wolff apparently has been paid to teach economics at liberal institutions, but this book is evidence that they have little idea what they are buying. 

Not that I am unsympathetic. Capitalism is a highly problematic system. But it hardly helps to make statements like: "Given China's huge influence on poverty measures, one could claim that reduced global poverty in recent decades results from an economic system that insists that it is not capitalist, but socialist." Note the squirrely way this is phrased, not defining the economic system, but noting only the wholly outdated self-description. China is one of the most capitalist countries in the world right now, having harnessed naked capitalism (and a lot of stolen IP) to raise its industries and living standard dramatically. 

Or how about this, in a discussion of why the idea that capitalism is highly innovative is a myth: "Yet the USSR, for example, exhibited much small business formation on its collective farms, in its service sector, and in its black markets, all replete with competition and innovations." If black markets are evidence of the innovative capacity of socialist economies, then the US is surely headed for Marxism forthwith.

It is almost funny how poorly this book is argued, and how formulaic its critiques and nostrums. But it provides a jumping-off point for a discussion that is a bit more grounded. Wolff casually describes capitalism as just another system, like feudalism and mercantilism, having its day and sure to pass on to some other, better system. He ends up promoting worker-owned cooperatives that are democratically run, where every action is voted on. Needless to say, such ideas have not, and will not, go anywhere. They are simply not practical. For we are, at base, dealing with human nature and the imperatives of existence. 

The state of nature (in larger societies) is organized crime- the strong rule the weak, and call themselves noble. Workers are managed by aristocrats (and priests), who make a fetish of not doing any work themselves. The feudal system was an attempt to give some order to this system of relations, by raising the serfs from mere slavery, and mandating some notional reciprocal duties. Capitalism, as even Marx appreciated, was an enormous advance over feudalism, putting the workers and businesses both on firmer legal footing, with a (labor) market intermediating between them. Labor markets have all sorts of problems and biases, but with advances in regulation and labor agitation, it has become for most people a relatively civilized way to exchange labor for money. 

Is capitalism still unfair? Yes, grossly so. But let's look two of its most basic injustices. First is that it takes money to make money. If one is born rich, one can be a capitalist and not work a day on one's life. Capitalism puts a high value on using that money to take risks and create businesses. But most rich people are content to buy bonds and sit on their money. What kind of capitalism is that? On the other hand, there is a large industry of venture capital that exists to lure money from the pockets of dentists and other rich people, promising high returns from risky ventures. This is the kind of essential engine that classical capitalism envisions- a tireless hunt for new business opportunities and technologies that will, in the end, make the economy more efficient and raise the standard of living. 

Wolff offers a telling example of capricious unfairness in management, where a business brings in a machine that replaces half of its workers, who are fired. He decries the loss of jobs, and suggests that the machine be used instead to fund continuing pay for all the workers. But just in the section before, he had decried the much-vaunted efficiency of capitalism as a myth. It does not sound like a myth here, where more work is done by fewer workers, and those fired workers are then freed to go off into other (presumably) productive forms of work.

Maybe China does a better job using state capitalism to deploy large amounts of capital. Maybe the USSR did a reasonable job, for a couple of decades, in deploying capital to build its heavy industry and arm for World War 2. And maybe free capital markets tend to vacillate between over-enthusiasm and credit contraction. But over the long term, it is clear that relatively free capital markets (with lots of government regulation!) do a good job of finding innovative business prospects and driving efficiency increases over the whole economy. So ... we should definitely think about taxing wealth, and finding ways to make the rich use their money in socially beneficial ways. But the idea that voters, or the state, can do a better job of general capital deployment is not realistic.

A second gross unfairness is management and surplus production. Why are workers still treated like slaves, told what to do, and then underpaid? Sadly, the fact is that management is a difficult job too. We had a worker-run bakery down the street in our city, and it only lasted a few years, because of the inherent problems of not having someone in charge of a business organization. The leading methods of worker-owned corporation now are oriented to giving workers ownership (like the Publix supermarket chain), but not management roles. Workers are on the board, but they do not run the day-to-day operations, because there simply has got to be decisiveness, accountability, and responsibility up the chain of a productive organization. Whether these roles have to be paid a lot more is open to question. But they do have to exist. Even in socialism, political commissars were part of management.

It is worth noting here that while management and unemployment are the disciplining factors for workers, competition is the disciplining mechanism for capitalists (in addition to government regulation). Without competition across the gamut, for labor, for markets, and for inputs, capitalists can abuse their workers and their customers. That is why a renewed focus on antitrust enforcement is an essential part of any progressive program of state oversight over the capitalist system.

As the example of black markets shows, market capitalism is a natural way of organizing human activities and satisfying our desires. But capitalism has plenty of problems. Capital and credit markets can not be left to their own devices. Glaring market failures, like in medicine, show that whole sectors of the economy have no business being capitalist businesses. Capitalism is an engine for turning "externalities", like minerals, air, and creativity, into money, heedless of destructive effects. So capitalism needs heavy regulation and continual reform to tame it into something that provides us with a civilized life. But at its core, it merely expresses our desires, needs, and ambitions, and that core engine needs to be preserved as well.

• When your Tesla crashes, it's your fault.
• Cheap e-vehicles are all the rage.. scooters, bikes, trikes.

Students Deserve Mentors

The best form of education is personal mentoring. More of our educational and work system should get back to that model.

We learned some important things from the Covid pandemic. One is that fiscal stimulus really works. Another is that mRNA vaccines are highly effective, and their rapid and flexible development cycle makes them a superior platform for future vaccines. And another is that social interaction is deeply important, especially for young people. We all got used to Zoom, but for school children, that was a poor substitute, when it was even possible. Children were left significantly behind both academically and socially.

A recent segment on the PBS NewsHour touched on this in a discussion of adolescent development. Its message was that learning requires challenging opportunities and human relationships. Adolescents are going on a heroic quest to become adults. They thrive on active engagement with the world and need models of successful adulthood to learn from. How to provide these key functions in an optimal way? We know how to do this- by apprenticeship and mentorship. This model has been understood forever, from the schools of Athens to the medieval trade guilds to the graduate schools of contemporary academia. My grandfather was a baker in Germany, and in his turn trained many apprentices and journeymen to be bakers. I went to graduate school, which turned out to be a glorified apprenticeship under a renowned researcher, then went on to a journeyman position (aka post-doc) with another mentor. This model is an education in many dimensions- the technical ingredients of a craft, the management practices that make a successful organization, how to participate in a larger community that pursues socially important goals, and the discipline and moral integrity it takes to be a competent adult, capable of leadership.

Example of a certificate of attainment of mastery, 1927, for a bricklayer, attested by his mentors and examiners.

However, as a society, we are reluctant to make these kinds of investments in children and adolescents. Efficiency demands that class sizes be large, colleges impersonal, and money squeezed out of the system. Companies clamor for fully trained job candidates, expecting students to go into debt in trade schools before being hired into a paying job. Few young people get the kind of lengthy, personal training that they would most benefit from. Mentorship becomes a hazard of chance, if a boss in an early job takes an interest, or a teacher decides to make extra time.

Principally, I fault the corporate system, which has sloughed off its civic responsibilities to train people and propagate cultural knowledge. The economy is full of interesting and important jobs representing exquisite technical knowledge and other expertise. As a culture and economy, we are not going to maintain a high standard if we keep losing these skills and knowledge with every generation. Just look what has happened to the industries we have ceded to China. Innovation hubs like Silicon Valley are successful in part because training becomes a shared enterprise. New companies benefit from a large pool of experienced workers, who can switch between organizations with ease. No individual company carries the whole burden of training, but as companies become larger and more specialized, they have to take on the costs of training a larger proportion of their incoming employees. Yet they still benefit from the cross-fertilization of being in a highly skilled employment ecosystem.

To better serve young people, we need to make integration into corporate skills training more accessible and normal. The idea that students should be battling for unpaid internships is absurd and insulting- all internships should be paid, and they should be longer as well. The German trades system is an example, where companies and government cooperate in providing training to young people. The companies get a much better familiarity with future hires, who are also better trained. Many trades/sectors have a communal "training tax", which all companies pay, and which funds salaries to trainees and other training costs. This is one accomplishment of the union system in Germany, which is much stronger and better integrated into their industries than that in the US.

This model could be made more general in the US as a federal program, crossing all organizations in the public and private sector, funding internships and training for more students than is now done, setting up a more lengthy and regular apprenticeship system. The training/salary costs would grade over the first few years of employment from tax-supported to company-supported. Lowering the burden of a young first hire, both in financial terms and terms of knowing the candidates better, should encourage more hiring and more training by employers. 

Companies are often citadels of hermetic wisdom, when they are not going off the rails as predatory enterprises. Integrating more young people and an additional purpose of training into US corporate culture would counteract both of these problems, while helping the youth and preserving / propagating cultural knowledge more effectively.

• Mentoring, Shanghai style.
• Surrender Dorothy!
• Mini-me and the future of Ukraine.
• Free buses work.
• Crypto, on the other hand, remains a criminal enterprise.
• Biology is not so easy. Really.

The Problem of Desire, Part 2

What is the future of capitalism?

Last week, I discussed how capitalism is a natural way for many of our desires to organize economic activities, though leaving important other desires out in the cold. The philosophical work to come up with alternatives to capitalism appeared, in the end, to be a practical dead end, however appealing to idealists. But what comes next? Once we have settled on the mixed political / economic system that is the rule over most of the modern world, how can we envision it serving humanity into the future? Is it sustainable?

The answer to that is: obviously not. We have far higher population, and use far more resources than the earth can supply sustainably. We might blame capitalism, but that is just the ugly packaging covering our own desires. There was a nice article in the NYRB recently about "degrowth communism", promoting the ideas of Kohei Saito, another provocative self-labeled Marxist. It makes of Marx some kind of prophet of green, which frankly could hardly be farther from the truth. Marx wanted workers to own the means of production so that they could all share in the fruits of modern technology, not to make them return to the idiocy of rural life. So, while degrowth is an important idea, its connection with Marxism is specious, other than the catastrophic degrowth unintentionally induced by the various implementations of Marxism through the last century.

If we excercised our wisdom, we would desire, first and foremost, a sustainable form of life. Unfortunately, our technologies and forms of pillaging the earth have ranged so widely by this point that we hardly have any idea of the harms we are causing and the shortages that are building up. Who would have predicted that plastics and forever chemicals would turn into a growing plague? Who has the answer to climate change? The key thing to realize, however, is that we have the power. We do not need a revolution overturning capitalism, because we have the state. The state can regulate, it can nationalize, it can utility-ize, it can crush companies or create them. It can make the rules and change the rules. It is through the state that we can express our larger desires for sustainable and decent living. 

For example, states can (and have) set up a carbon tax to move the transition away from fossil fuels. California has done so, as have many other countries. Just because we in the US are at a corrupt and mean political moment where short-term (at best) thinking rules the roost does not mean that people's deeper and longer-term interests will forever remain submerged. Indeed, this moment has provided an instructive (if appalling) window into how powerful the state can be. 

The article cited above also maintains that growth is inherently tied to capitalism, and that degrowth requires a revolution of some kind. Again, I beg to differ. Capitalism simply is a way to satisfy our desires. If we want to live simply, it will still serve us. Whether growing or contracting, capitalism marches on doing its best to satisfy our desires. Companies compete for business and growth, but there are plenty who have stable business models, such as, to take one example, the toothpaste business. 

More interesting is the popular revolt against growth that is expressed in declining birth rates. All over the modern economies, people are having fewer children, and causing a great deal of head-scratching and alarm. Is this due to the death of patriarchy? A fear of the future? The death of boredom? I think it has a lot to do with the fundamental contraction of our frontiers and a sense of limits. After a couple of centuries of breakneck growth, when large families were common and there were always new territories to occupy, we in the US hit the ceiling in the 1970s. Cities stopped growing, housing construction slowed, zoning enforced stasis. The expense and complexity of raising children in this environment grew as well, becoming subtly more competitive than cooperative. 

So, growth is slowing already, but not enough to save us from extreme ecological harms. We do need a more conscious degrowth strategy, encompassing accommodation of lower population, slowing down of lifestyles in some regards, strong movement through the sustainable energy transition, expanding natural habitats instead of degrading them. In all these issues, capitalism is not the problem. The problem is figuring out what we really want. In Europe over the centuries, there was a gradual transition from building with wood to building with stone. Which is to say, the value of sustainability gradually won out over wasteful short-term solutions. We need to start building in stone, metaphorically, thinking of the next hundred and thousand years, not just our own brief lifetimes.

• Bearing witness to the unconstitutional court.
• Krugman points out that Brazil is way ahead in crypto... specifically their central bank coin, Pix. In the US, banks, crypto, and Republicans are ideoidiotically opposed.
• Continuously unconstitutional.
• Is nothing sacred?

The Problem of Desire

We got what we want... are we happy now?

I have been enjoying a podcast on philosophy, which as is typical for the field, dances around big questions and then pats itself on the back for thinking clearly. What really got to me was a discussion of why Zizek, who calls himself a communist, couldn't be bothered to frame a positive system for how the world should be run. No, he is merely the philosopher and critic of the screwed up system we are in. Plenty of hard work there! Asking for a way forward, well, that would be like making the visionary have to build the rockets and recruit the astronauts to build the new world. That is someone else's work ... grubby details!

Whoa! The thinker who is just a critic is leaving the job almost wholly undone. Everyone is a critic, after all. The paying work should be in thinking up better worlds and solutions, and standing behind them in the face of the inevitable, yes, criticism. A major obsession of the show and these philosophers (around the 200 episode mark) is capitalism- why it is so terrible, the many critiques and complaints about it, and throwing some love at the anarchists, communists, and other outré comrades ... on the highest philosophical plane, of course. 

But what it all boils down to for me is the problem of desire. The capitalist system is one natural and highly refined way to get what we want. We pay into the system with our toil, and get back the products of everyone else's toil. Fair and square, right? The system is wholly shaped by desire. What the consumer wants out of the system, what the worker knows they need to do in order to be that consumer, and what the capitalist and managerial classes need to do to put the two together, and make a killing for themselves in the bargain. This system is a wonder of labor allocation, providing the most varied and productive forms of work, and of products, ever known.

A still from Chaplin's Modern Times.

And yet... and yet, this system doesn't really give us everything we want, because, well, there are other desires that aren't met in the capitalist market. Desires for love, for community, for a virtuous and just political system, for a wholesome environment. There are a lot of other desires, and letting capitalism gobble everything up and sell itself as the end-all of social organizing principles is obviously not a healthy way to go. Though we have surely tried! Not to mention the warped psychology of pitting everyone against each other in the many competitive planes of capitalism- the labor market, the exploitation by capitalists, assaults of marketing and advertising, and the resulting inequality of income and wealth. There is plenty to complain about here.

The problem is that we have many desires, of which many conflict with the desires of others, and many conflict with each other. Even for the individual person, prioritizing one's own many desires is an excruciating exercise of tradeoffs and negotiation. Imagine what that is like for a whole society. That is why figuring out what is "good" is such a chestnut in philosophy. We all know what is good at some very abstract level, but the variety and relationship of goods is what does us in. 

So it is easy enough to say that the capitalist system is evil, and we would like a new and better system, please. Much more difficult to frame a replacement. Following our desires makes it clear that capitalism is an element of the good life, but far from the only element. Even something as simple as providing toothpaste can not be left entirely to the capitalist system. Our desire for effective toothpaste can easily conjure up fraudulent business "models", where the fluoride is left out, or lead contamination gets in. The government has a role in this most humdrum of capitalist goods, to provide a legal framework for liability, perhaps direct regulation of medical / food products, not to mention guarding against monopolies other forms of business regulation. 

We end up, as we have in practice, with a mixed system where natural capitalist motivations are fostered to provide as much organization as they can, but our many other, often much more lofty and significant, desires lead us to regulate that system extensively. To put a larger frame around this, consider what the good life is in general terms. It is a life where each person is educated to the extent they wish, and contributes in turn to society in some useful way, building a life of mutual respect with others in their community. It aligns very strongly with the American dream of work, striving, and self-reliance, at least once the genocidal clearance of the original inhabitants was taken care of. The Civil war was premised on the abhorrence of slavery, not only on behalf of the abused Blacks, but also as a philosophical system of life where people thought it their right to live parasitically by the sweat of other people's brows. 

This has strong implications for our current moment, where inequality is higher than ever. A well-organized society would reward work with the kind of pay that supports a respectable life. It would not tolerate immiseration and abuse in the labor market. At the same time, it would not allow the incredible concentration of wealth we see today. And especially, it would not allow the intergenerational transfer of that wealth, nor the complexity and laxity of a tax system that provides the majority of work that the rich appear to engage in- that of avoiding taxes. In order for everyone to live a good life, children should neither be born to so much money that they fritter their lives away, nor to so little that their whole futures are immediately wiped away. All this requires a strong and moral state, working in collaboration with a strongly regulated capitalist system.

It has been abundantly proven that neither anarchism, nor communism, nor libertarianism provide the basis for practical societies. No amount of reframing, or consciousness raising, or struggle sessions, will bring such systems to pass. Only theocracies and autocracies have shown a comparably durable basis, though of a distinctly unpleasant kind. Therefore, philosophies that dabble in such utopianism should recognize that they are dealing in abstractions that can be instructive as extreme ends of a spectrum, as well as object lessons in failure. It is simply malpractice to tease people with glimmering alternatives to our communal realities, rather than doing the gritty work of reform within them.

• Case in point... jeans in the DDR.
• Bill Mitchell on the commodification of leisure.
• The Supreme court continues abetting clearly illegal activities.
• Science, schmientz
• Gullible prove resistant to further gulling.
• Yes, this gullible.

Party Of The Future

Not the past ... what the Democrats can do to succeed.

The Democratic party has gotten a little lost, perhaps led a bit too well by Joe Biden, who wandered out of a more civilized and decent time. But focusing on personalities would be wrong- there are much deeper currents at work. While it remains hard to believe that billionaires have successfully hijacked the US government on the back of demogogic appeals to the uneducated, resentful, and bigoted, that is pretty much where we are. Those billionaires are dismantling the US government as fast as humanly possible, so it is imperative for the Democratic party to regain its grip on reality, and on a winning coalition.

One of the more remarkable aspects of the new administration is just how retrograde it is. Its obsession with tariffs comes out of economics at least a century out of date. There was the weird fetishization of William McKinley, and of a replay of our colonial interlude from the late 1800's vs Greenland, maybe even Canada. There is the rollback of the regulatory state, the literal gilding of the oval office, and blithe dismissal of the last hundred years of public health advances. Rather than making America great again, it is making America backwards again, waging a bitter war against the universities and any elites not bending the knee. At this rate, we are heading backwards by the week, to perhaps before the Revolution and onwards to the depths of the royal prerogatives of Henry VIII. Who everyone says was a very great king, by the way!

It is fine to complain, (while we still can), but the more important task is to come up with a better message and coalition, so that the US can get back to looking forward, instead of backward. One way to look at the electorate is in very broad thirds- one elite third, rich and business-centric, another elite third, college educated and liberal, and one third working class. 61% of the population have some college, and 45% have a college degree of some sort. The Democratic party has increasingly moved from its base in the working class to this educated portion of the electorate, and we should own up to what is in essence a battle between two elites- the business elite and the educated elite. These have very different ethics, at least at this late phase of capitalism, when business leaders (if we can call the president that) seem just as interested in business models of grift and fraud (subprime loans, lying about fossil fuels, crypto) as those that build the country. 

Face the past

This diametric difference in ethics is why the divisiveness is at such a fever pitch now. But Democrats made a lot of mistakes as well, of which I can mention four. First, immigration. The utter loss of control at the southern border was highly unpopular. It was unfair to everyone who participated in the (highly unfair, and punishing) legal immigration system. It showed scenes of chaos and lawlessness. And it was an economic threat to everyone on the lower end of the economic spectrum- exactly those demographics the Republicans were aiming at. Second, extreme woke. With the best of intentions, liberal elites set up increasingly abstruse and extreme theaters of correctness, demanding oaths of DEI adherence from faculty, celebrating every deviance from tradition- in the political sphere, in children's literature, and the ever-extending letters of the LGBT... etc. community. All this strenuous virtue signaling was highly distracting and estranging from the bedrock of political coalition-building: unity and common sense. Third was foreign policy, principally the disastrous Afghan withdrawal. For all of the Biden administration's competence in policy over a vast gamut, this was handled very poorly. Granted, it was a cake that was baked by the Trump administration's bad deal with the Taliban, and the management on the ground was run by the military, not the White House, but whatever the cause, it looked bad to catastrophic for US standing the world. And fourth is regulatory gridlock, sapping our ability to build anything, driving up housing costs specifically.

Democrats can not just wait out the madness in Washington, and expect to be elected as the default governing party. They have to face up to ways they have strayed from a winning coalition, and think deeply about fixing it and offering a narrative and program that is both responsible and welcoming to most Americans. 

Face the future

The basic problem of US politics is that we have some unpleasant truths to face. The frontier is gone, the climate is rapidly heating up, US international power is declining. We have rapidly switched from a rising, expansive, and optimistic power to a conservative and somewhat crabby power. Our last tango with a new frontier, that of space, ended up cruelly fruitless. Robotic scientific missions have been spectacularly productive, but manned spaceflight has gone from the height of optimism to another rote exercise in great power sclerosis. There is no there there, in terms of any economic, let alone demographic, frontier. And on top of that, the planet we are thus stuck on is becoming increasingly uncomfortable, even hostile. The future is looking a bit constricted, and more so because the rich elites have lost any sense of collective dedication, and devote themselves to screwing everyone else.

Republicans have addressed these issues by lying, denial, and fantasy, powered by their rabid media sphere. Obviously, Democrats have done and will do better. The current administration makes it clearer than ever what the regulatory state is about, and it is about helping people and restraining the powerful. Democrats need to keep beating the drum that financial protection, drug regulation, food inspection, securities fraud investigation.. these are all aimed at keeping the system fair for the regular citizen. They are not "the deep state", they are not very expensive, either. They are hated only by their antagonists- fraudulent businesspeople. More broadly, inequality is culturally corrosive and calls for taxing the rich more, not less. It is insulting to working people that income from capital gains (let alone carried interest) is taxed less than labor. Everything should be taxed the same- investments, labor, estates, changes in trust membership ... everything.

Build the future

At the same time, practicality has to take a front seat. Democrats need to alter course to promise that regulators keep their eye on the ball of efficiency- fulfilling their mission without tying the economy in knots. This applies particularly to building and zoning. The most liberal areas of the country are also the most conservative, in terms of real estate. The dread of "sprawl" has excused total stasis and lack of building, even as immigrants are allowed to flood in. The result is predictable enough. 

Next, the environment. Democrats did the responsible and foresighted thing with climate bills of the Biden administration. And that helped to build up the green transition. Too little, too late, but these were broadly popular, and need to be continued. The problem is that we are still facing a difficult transition, particularly from gas cars, and on a wide spectrum of other harms such as plastics, habitat loss, resource scarcity. Democrats need to take the long view here that sustainability is the ultimate goal. Everyone can see that our current practices are not fundamentally sustainable. Catastrophes ramp up in frequency and intensity. Democrats have to be the truth-tellers here, while pointing out that building green is beneficial across the board.

Lastly, education. Our education system lays the golden eggs, powering the future of better living standards and international competitiveness. It should be easy for Democrats to make the case against the war on education being carried out by the current administration. Yet, some rebalancing is needed. We have neglected the working class end of the system, and should strengthen community colleges to provide more low-cost trades education. It is appalling that the poor are preyed upon by fly-by-night trade schools in a rich country that supposedly has high standards of education and workmanship. 

Additionally, Democrats might address the deeper malaise among the young and in the culture at large by calling for national service. Two years for young people spent on serving others would be highly beneficial. Choices could range from military to conservation corps, and medical assistance. The main condition would be that these would be non-specialized, mixed groups so that participants work with people from all walks of life in the US, (or in the Peace Corps), broadening their experience and vision of what it means to be part of this country. Call this a form of civic education, essential to a democratic society.

Democrats have the tools, and need to reach out a bit to form a bigger coalition. The right wingosphere has successfully demonized learning, knowledge, and regulation, and it is all coming home to roost in the current administration. But the regulatory state was built originally not out of a college educated coalition, but a progressive working class movement, revolted by the corruption and inequality of the gilded age. Republicans can't help themselves but serve the rich and powerful. Democrats can re-align with their natural coalition.

• In many cases, going backwards requires lying.
• A brief history of environmental law.
• Wingnuts and lies in Poland.
• Thune and the utter dereliction of congress.
• Trampling all over whatever is left of the constitution.
• Hospice, or tax cuts?
• We are leaving the global stage.
• And carrying water for Russia.
• The next frontier, after zero carbon.
• FDA as a fully captured regulator.
• Another reason why crypto is so great.

Making America Great: First Quarter Report Card

Are we great yet? I give some grades.

Enhancing the rule of law, and adhering to the constitution: F

This administration is characterized by contempt. A juvenile contempt for its enemies, and thorough contempt for the law, separation of powers, and the constitution. In asserting its royal prerogative to eviscerate legislatively created agencies, it is taking more power from congress, as if congress weren't sufficiently neutered and ineffective already. We are watching a replay of the transition of Rome from a republic to a monarchy, though in much more ham-fisted fashion, as its senate was sidelined. So far, the Republicans in congress do not see the danger, as they cheer on the mayhem. But it will come for them more directly in due time, maybe in Trump's third term, as he grooms Eric to be next in line.

Economic growth: F

The markets have given their verdict, which is thumbs down. The trade war this administration has started, in royal fashion, is bad for us and bad for everyone else. Even putting aside the short-term insanity, the long-term implications are lower living standards and lower growth. To take one example, what is going to happen if people in the US are effectively confined to buying US-built cars? We will be going back to the 60's and 70's, when cars were poorly built, and the captive market meant that US car makers did not have to innovate. We should focus on strategic industries, to preserve base-line capacity to build things, but otherwise let foreign trade work its economic magic.

Peace on earth: F

The new administration is siding with aggressors all over the world now, especially Russia and Israel. China is the only exception, though its support for Taiwan is quite a bit more tepid than that of the last administration. Siding with aggressors is a recipe for more war. More broadly, the US has lost its moral high ground, such as it was, and is losing friends at a rapid clip. I mean, how can one alienate Canada? That really takes some serious stupidity. Trump was angling for a Nobel Peace Prize, by ending the Ukraine war. But predictably, Putin plays him for the fool he is, and keeps on doing what he wants to. The instability and madness of the current administration is another factor all by itself, leading to international instability and higher risk for war, not to mention driving countries around the world into the arms of the truly stable genius... China.

Education and innovation: F

Of all the things that make our country great, it is education that has the greatest long-term implications. That is where the human capital comes from, and the technological innovation. We can grant that Republicans rely on less educated voters, so logic dictates that they make voters less educated. And that is what this administration has been doing with determination, eviscerating the department of education, cancelling and slashing funding for research, and ultimately promoting the destruction of public schools, through vouchers and other long-standing hobbyhorses of the right. This may make a country more amenable to royal rule, but is unlikely to make the US anything other than a diminished and declining power with lower living standards, less attractive to foreign students and foreign investment. China will shortly be the leading nation in high-level scholarly research.

Health and Safety, Pro-worker Policy: F

Here as well, the administration has spoken loudly through its actions and appointments. Putting an anti-science vaccine denier in charge of HHS, and slashing personnel throughout the health agencies, and OSHA, and immediately kneecapping the labor relations board. Medicaid is slated to lose a trillion dollars, in favor of tax cuts for the rich. It all says that business and the rich are the true constituency of this administration, not people, let alone workers. Workers, indeed, are the evident enemy. How different this is from the campaign rhetoric! But that is how grifters work. And they will be gone before the real costs sink in.

Safeguarding democracy: F

Honestly, is this even a subject?

Culture and style: F

White Potus. Also, the Zelensky meeting. 

Drain the swamp: F

The inauguration set the tone, as Trump introduced an eponymous meme-coin, which his friends and insiders stocked up on before the public offering, in a naked pump and dump, even if the dump part of the operation has been delayed. Much bigger, however, is the tariff-palooza, which has the world "kissing my ass". No possibility of corruption there! If there were a lower grade than F, it would be awarded here.

Clear and elevated rhetoric: F

Again, the Zelensky meeting. I recently watched a documentary series on John F. Kennedy, which demonstrated that one needn't go back to the 19th century to encounter well-written, coherent, and civil political discourse in America. While admitting that the Biden administration was hardly a high point of forceful communication, at least it was civil- domestically and to our friends and partners abroad. Trump and his toadies compete for juvenile putdowns, unthinking meanness, and large helpings of lies. When actual policy is needed, elliptical "the weave" expressions clear the field of coherent thought, to make room for more chaos and cons.

OK, other than in these areas, things are going great. If your metric is owning the libs, destroying the government, giving away the store to the rich and to Russia, and having people line up to kiss the president's ass, then everything is going very well. 

It is important to understand that, generally speaking, the government exists to protect people from each other, especially protect the little people. The rich can take care of themselves, at least until things get really bad. It is the little people who need the Bill of Rights, the consumer protection bureau, the SEC, the FDA, the VA, OSHA, and all the other regulatory agencies that keep the rapacious wolves of capitalism on their leashes. Everyone benefits from civil service protections, transparency, rules, and law. But the little people benefit the most, because they are beset the worst in the capitalist system. All men are created equal, but not really. The insanity of giving up our government to the people with the most money is truly astounding, and we are seeing the fruits daily.

• Gary Kasparov gives some advice.
• Law, schmaw.
• The three-toed sloth posits AI is not intelligent, but another cultural technology, maybe a regurgitation machine. Or a feral card catalog. But does it help us think better?
• The barriers to knowing thyself.
• Making China great again.
• Gosh, if RFK wanted to get to the bottom of autism, did he attend this talk downstairs?

A Housing Guarantee

A proposal for an updated poor house.

I agree with MMT economists who propose a job guarantee. That would put a floor on the labor market with an offer to anyone who wants to work for a low, but living wage, probably set below the minimum wage mandated for the private sector. State and local governments would run cleanups, environmental restoration, and care operations as needed, requiring basic discipline and effort, but no further skills. But they could use higher skilled workers as they come along for more beneficial, complex tasks.

Similarly, I think we could offer a housing guarantee, putting a floor on homelessness and misery. In the state of California, homelessness is out of control, and we have not found solutions, despite a great deal of money spent. Housing in the private market is extremely expensive, far out of reach of those with even median incomes. The next level down is housing vouchers and public housing, of which there are not enough to go around, and which is extremely expensive. And below that are shelters, which are heavily adverse settings. They are not private, chaotic, unpleasant, meant to be temporary, can be closed much of the time. And they also do not have enough space. 

A local encampment, temporarily approved during the pandemic under the freeway.

As uncompassionate as it sounds, it is unacceptable, and should be illegal, for public spaces to be commandeered by the homeless for their private needs. Public spaces have many purposes, specifically not including squatting and vagrancy. It is a problem in urban areas, because that is where people are, and where many services exist at the intersection of public and private spaces- food, bathrooms, opportunities to beg, get drugs, etc. Just because we have been, as governments and citizens, neglectful of our public spaces, does not mean we should give them over to anyone who wants to camp on them. I was recently at San Francisco city hall and the beautiful park surrounding it. But at lunch time, I realized that there was nowhere to sit. The plague of homelessness had rendered park benches untenable. We deserve to keep these public spaces functional, and that means outlawing the use of public spaces by the homeless. At the same time, provision must be made for the homeless, who by this policy would have nowhere to go in fully zoned areas. Putting them on busses to the next town, as some jurisdictions do, is also not a solution. As a rich country, we can do more for the homeless even while we preserve public spaces.

I think we need to rethink the whole lower end of housing / shelter to make it a more regular, accessible, and acceptable way to catch those who need housing at a very basic level. The model would be a sort of cross between a hostel, an SRO (single room occupancy hotels) and army barracks. It would be publicly funded, and provide a private room as well as food, all for free. It would not throw people out, or lock them in.

This poor house would not demand work, though it would offer centralized services for finding jobs and other places to live. It would be open to anyone, including runaway teens, battered women, tourists, etc. It would be a refuge for anyone for any reason, on an unlimited basis. The space and the food would be very basic, motivating clients to seek better accommodation. It would be well-policed and its clients would have to behave themselves. The next step down in the ladder of indigent care would not be homelessness, which would be outlawed in areas offering this kind of poorhouse, but would be institutionalization, in increasingly stringent settings for either criminal or mental issues. 

Such a poor house might become a community center, at least for the indigent. It would be quite expensive, but given the level of inequality and lack of care for people in various desperate straits, we need to furnish a humane level of existence between the market housing system and institutionalization. Why not give everyone a house? That is neither financially practical, nor would that co-exist well with the market housing system. Certainly, more housing needs to be built and everything done to bring prices down. But to address the current issues, stronger housing policy is needed.

Why not go back to a public housing model? It turned out that public housing was somewhat unrealistic, promising far more than it could deliver. It promised fully functional neighborhoods and housing, pretty much the equivalent of market housing, but without the ongoing discipline from the market via private financial responsibility by the residents or from the programs via their bureaucratic structures and funding, to follow through on the long term. The public authorities generally took a hands-off approach to residents and their environment, in line with the (respectful) illusion that this was the equivalent of market housing. And the long-term is what counts in housing, since it is ever in need of repair and renovation, not to mention careful use and protection by its residents. Building is one thing, but maintaining is something quite different, and requires carefully though-out incentives. 

With a public poorhouse model, the premises and residents are extensively policed. Individual rooms may descend to squalor, but the whole is built, run and maintained by the public authorities with intensive surveillance and intervention, keeping the institution as a whole functioning and growing as needed for its mission. There is going to be a sliding scale of freedom vs public involvement via financing and policing. The less functional a person is, the more control they will have to accept. We can not wash our hands of the homeless by granting them "freedom" to thrash about in squalor and make dumps of public spaces.

• Or you could join the squid game.
• Economic policy should not be about efficiency alone, let alone rewarding capital and management, but about long-term cultural and environmental sustainability.
• Could AI do biology?
• Carter was an evangelical. But that was a different time.

Money For Nothing: Two Views of Crypto

Is crypto more like gold or a simple scam?

I have to confess some perplexity over crypto. Billed as currencies, they are not currencies. Billed as securities, they are not securities, either. They excite a weird kind of enthusiasm in libertarian circles, in dreams of asocial (if not anti-social) finance. From a matter of fringe speculation, they are migrating into the culture at large, influencing our politics, and becoming significant economic actors, with a combined market cap now over three trillion dollars. For me, there are two basic frames for thinking about crypto. One is that they are like gold, an intrinsically worthless, but attractive object of fascination, wealth storage, and speculation. The other is that they are straight Ponzi schemes, rising by a greater-fool process that will end in tears.

Currencies are forms of money with particular characteristics. They are widely used among a region or population, stable in value, and easy to store and exchange. They are typically sponsored by a government to ensure that stability and acceptance. This is done in part by specifying that currency for incoming taxes and outgoing vendor and salary payments. They are also, in modern systems, managed elastically, (and intelligently!), with ongoing currency creation to match economic growth and keep the nominal value stable over time. Crypto entities would like to be currencies. However, they have far from stable value, are not easy to work with, and are not widely used. Securities, on the other hand, have a basis in some kind of collateral (i.e. the "security" part) like business ownership, a contract of bond interest payments, etc. Crypto does not have this either. Crypto has only its own scarcity to offer, a bit like cowrie shells, or gold. Crypto entities are not investments in productive activity. Indeed, they foster the opposite, as their only solid use case has been, at least to date, facilitating crime, as demonstrated by the ransomware industry, which asks to be paid in Bitcoin.

So how about gold? Keynes railed against gold as the most useless, barbaric form of wealth, inducing people to dig holes in the earth and cause environmental degradation. And for what? A shiny substance that looks good, and is useful in a few industrial applications, but mostly was, at the time, held by governments in huge vaults, notionally underpinning their currency values. Thankfully we are past that, but gold still holds fascination, and persists as a store of value. Gold can be held in electronic forms, making it just as easy to hold and transfer as crypto entities, if one is so-inclined. Critically, however, gold is also physical, and humanity's fascination with it is innate and enduring. Thus, after the apocalypse, when the electricity is off and the computers are not connected anymore, gold will still be there, ready to serve as money when crypto has evaporated away. 

Bitcoin barely recovered from an early crisis. 

How durable is the fascination with crypto, as a store of wealth, or for any other purpose, under modern, non-apocalyptic conditions? Bitcoin is the grand-daddy of the field, and seems to have achieved dominance, certainly the field of criminal money laundering and transfer, as well as libertarian speculation. It appears to have a special mystique, whether from the blockchain, its "mining" system, or its mysterious pseudonymous founder. The other forms of crypto range from respectible to passing memes. There is a fascinating competition in the attention space that constitutes the crypto markets. Since they do not have intrinsic value, nor governmental buy-in, they float entirely on buyer sentiment, in a greater-fool cycle of rises and falls. Crashes in the stock market are halted by fundamental value of the underlying asset. As the speculative fervor wanes, vultures step in to, at worst, liquidate the assets. But for crypto, there are no assets. No fundamental value. So crashes can and do go to zero.

There are also external factors, like the fact that many crypto entities have been outright scams, or the environmental costs of Bitcoin, or their facilitation of criminality, which may eventually draw popular and regulatory scrutiny. Boosters have been trying to get the Federal Reserve and other validating entities to buy into the crypto craze, and political contributions from newly crypto-riche holders and exchanges have transformed the landscape to one that seems increasingly sympathetic, especially on the Republican side. Thankfully, the smaller memecoins have market caps in the low millions, so do not present a threat as yet to the financial system, in the almost certain event of their evaporation once each meme passes. This blasé acceptance of "securities" that are pure schemes of speculation is a sad commentary on our current age. The sophisticated investor of today would not study corporate efficiency, market prospects, or finances. He or she would be conversant in current memes on social media, ready to jump on the newest one, and sensitive to the withering of older memes, in an endless conveyor belt of booms and busts. 

It is weird how people fail to learn the lessons of the past, from the tulip craze and other speculative booms. Where there is no value, there is likely to be a very deep crash. The libertarians among us, who may have been gold bugs in the past and now have flocked to the new world of crypto, may represent a psychological type that is ineradicable, so motivated to ditch the humdrum official currency for anything that offers a whiff of notional independence, (though being tethered to the new crypto infrastructure of exchanges and wallets is not for the faint of heart or independent-minded), that they can float these crypto entities indefinitely. But in the absence of deeper value, might their psychologies change to those of hawkers who get in at the ground floor and make out, while the schlubs who buy at the top are left holding the bag? It comes down to human psychology in the end- what is personally and socially valuable, who you think your counterparts are on the other ends of all these trades, and who (and what sort of motivation) is making up the institutions and communities of crypto.

• Star Trek was fighting the cold war.

Things Shouldn't be This Difficult in Retirement

Social Security is engineered to cheat a lot of people. Why?

Social Security was one of the great and enduring accomplishments of the New Deal. It followed European models of progressive policy, insuring old age income for what was at the time a very low cost- a 2% tax on wages. It is fundamentally a semi-progressive program, with payouts indexed to what you earned (and paid in as taxes) while working, but using a formula of sharply diminishing returns at higher income levels. As we live longer and have fewer children, the finances of Social Security have had to be shored up a few times, with higher taxes, longer waits till retirement, and other revisions. One of the most devious of these has been the offer to get early benefits for a lower payout.

Basic Social Security rules: The monthly benefit payment is constructed out of a set of tiered rates, by income level, to define the "primary insurance amount", or PIA. The income level is based on the highest ten years of earnings. The lowest level of income (here up to $774 monthly) is paid back at 90%, for example.

A recent opinion column (with followup) noted that while 90% of people would be better off waiting to take their benefits, only 10% do, missing out on a large amount of lifetime income. The deal is that full retirement age is (now) pegged at 67 years of age. If you take benefits at the earliest time, age 62, you will get 70% of the full payout, forever. On the other hand, if you wait till age 70, you will get 124% of the full payout, (plus some extra based on inflation and other factors), which works out to almost double the lowest payout, each month. The life-time payout is of course highly dependent on when one dies, and the break-even point ends up at about age 77, after which everyone would do better waiting than taking the early payout. For example, if you make it to age 85, you would be 30% ahead in lifetime benefits having waited to take payments till age 70.

This is, as the columnist notes, a fraught policy. Psychologically, it resembles some of the most classic marshmallow experiments, testing self control in children. Just as most children don't have the self-control to wait for the two marshmallows, most retirees apparently do not have the foresight to maximize their ultimate income. And this is quite understandable. Principally, the future holds a great deal of uncertainty. Who knows (or wants to know) when one will die? Even if the average life expectancy, upon reaching age 62 is ~83, well past the breakpoint noted above, it is easy to rationalize taking the money while one can. Poorer people tend to have worse jobs, that they really want or need to retire from as soon as possible. The poorer one is, the less savings one is likely to have to tide one through from 62 to 70. And the poorer one is, the poorer health one is likely to be in, with a shorter prospect of collection. All in all, it can be an attractive, even compelling, deal.

But statistically, this ends up being a regressive policy, cancelling much of the otherwise progressively engineered system. Poorer retirees are in this way snookered out of possible income, on top of getting lower payouts to begin with (due to their lower incomes and contributions), and typically having shorter lives. It seems akin to the ever-loosening restrictions on gambling, sports betting, sub-prime lending, and the like, one more way to separate the poor from their money, via financial chicanery, aka engineering. It was a policy gradually developed over several Social Security reforms, from 1961 onward, and may have seemed a fair way to offer the option of earlier benefits to workers, to meet what can be rather urgent needs. But the psychology of it is very problematic and has produced what is described above- bad decisions by most people.

Some alternative models, accentuating their progressivity. Current Social Security is shown in red. A simple pay-in/payout plan is show in dashed lines, with no progressive aspect at all. And the solid line shows a flat payout scheme, where everyone is paid the same benefit. This was done by the Social Security administration in 2009, and notes that "... the program's progressivity has declined in recent decades."

How could all this be improved? There are innumerable ways to cut this cake, but the one I see as most promising is to go back to basics. Make the retirement age 65, and make the payout the same for everyone, across the board, at whatever level retains system viability. Then perhaps a special request board could be set up to offer earlier retirement, in cases of hardship or disability, related to the SSDI system already in place. This would be a way to reduce the complexity of the existing system, reduce the bad incentives, and make it more progressive at the same time. It would also strongly increase the incentive, at the lower end of the income distribution, to attain the needed work credits to participate in the system, which amounts to ten years of work that pays Social Security taxes. Death makes us all equal in the end anyhow, so a retirement system that brings that fundamental equality forward by a few years seems not just reasonable, but even a little poetic.

• Morality is a battle.
• Liz Trussification?
• Who's a democracy?
• Jesus is Black.