Where Does Surplus Value / Profit Come From in Capitalism?

Marxists say it is stolen from the worker. Capitalists say it comes from risk-taking and managerial work. Who is really doing the work?

One of the pillars of Marxism is that capitalists steal labor from workers. All profits come from excess labor done by workers by the sweat of their brow, which capitalists, through various nafarious means, appropriate for themselves. The workday, for instance, is an artificial construct. What if all the necessary work could be done in three hours? Well, the labor agreement means that the employer has the right to eight. Therefore, employers extract as much value as possible from that time regardless was really needed to fulfill the actual job- value that ends up as profit in the pockets of owners, who do no work at all.

On the opposite side, Chicago school economists hold to a theory of marginal value, where every factor in production is fairly paid for its individual contribution, through the magic of the various markets- commodity, labor, financial, etc.- that they come from. Each of these markets is assumed to be efficient, thus rendering each input to production fairly bid for its contribution, and leading also to a dynamic re-ordering of production systems when conditions change, such as when some inputs become scarce (and their price goes up), or new technologies expand the availability of other inputs, like, say, computation power.

It should be obvious that each of these theories is a fairy tale, (a panglossian one in the neoclassical case), heavily motivated by ideology, while carrying grains of truth. Labor markets are not efficient at all, and businesses work night and day to keep them that way. At the same time, businesses capture profits from countless other streams than the exploited labor of their workers. And in fact, the whole purpose of business is to exploit miss-priced market opportunities- otherwise profit could not exist.

A recent pair of posts on Bill Mitchell's blog delved into the Cambridge controversy- an economist's spat of the early 1960's which was formative in left-wing economics. Many tangential issues came up, such as whether economic growth is more demand-limited or supply limited. But it also dealt with issues of the value of capital, the source of profits, and the accuracy of marginal value theory. To summarize rather brutally, left-wing economists from Cambridge, England argued that business profits were not market-based, but based on social and power relations, cultural tradition, and many other factors besides the markets. Economists from Cambridge, Massachusetts (MIT) argued a classical theory that profits were based in marginal theory on all the market ingredients, and particularly could be approximated by the current interest rate, representing the default alternative to business investment- that is, the marginal value of capital.

The result of the controversy was that the British school successfully pointed out some flaws in the American analysis, which the Americans admitted, to the effect that the general profit rate does not always follow capital intensity, and nor does the individual firm's investment schedule necessarily follow the logic of interest rate-driven margins either. From this molehill, the left made a triumphant mountain, while the mainstream regarded it as a minor hiccup from their ever-more baroque modeling of perfect markets and ideal economies.

Joan Robinson, principal proponent of the Cambridge England end of the Cambridge controversies.

All that said, it is worth being more specific about where profit comes from, and here I confess to going off the reservation of economic convention. While stealing extra labor is surely one of the time-honored methods of making a profit, it is far from the only way. Indeed, businesses can be seen as miners, always on the hunt for those special gems in the environment that cost less than they should, or can be sold for more than they cost. And the opportunities of this sort are endless in variety and scale. 

• difference between supply and demand
• difference between efficient producers and inefficient
• difference between using family members and paying workers from the labor market
• difference between dumping toxic waste and disposing it properly
• difference between hiring an amoral accountant and a lawful one
• difference between buying lower grade inputs for manufacturing
• difference between lying to customers, or not
• difference between running marketing campaigns, or not
• difference between paying taxes, or not paying taxes
• difference between suing competitors successfully, or not
• difference between buying competitors or competing with them
• difference between doing research to find new technologies, or not spending that money, or stealing that technology
• difference between lobbying the government successfully to make protective laws, or not

The scope for finding  money and making profit goes far, far beyond the conventional notion of arbitrage between capital goods and interest rates. Labor is also only part of the picture. Being a typically large part of most company's costs, its treatment and mistreatment is, however, an endlessly fruitful area for losses and gains, not to mention wider social tension. Money and profit can be found under any number of rocks, which is where the mantra of a "business model" comes from. Everyone and every business has some angle by which they make a living.

Are these gems of profit fairly priced in their factor markets? Don't be ridiculous. A coal company only makes money because coal is free. The earth makes no contracts, and nor does the air for the pollution sent up by the power plant that burns the coal. Turning free things, like enslaved or cowed labor, or personal data, or natural resources, or computer power, or shady accounting, or corrupt laws, into money, is the essence of "business models". Finding a way around markets, by collusion, by substitution, by doing without, by corruption, even by clever new technologies, are a business person's top priorities. So not only are markets, when they are used, hardly "fair" in any financial or social sense, but they do not begin to address all the sources of business profit or return to capital.

We can grant that most of this work of finding profitable gems is done by the capitalist or her managerial minions, thus should be accounted to the returns of capital, not to wages stolen from workers. Only in the classical mass industrial enterprise where the raw material costs are negligible and labor is the overwhelming factor would these converge into the same thing as envisioned by Marx. (Though the modern fast food industry, and gig "economy" come to mind as well.) Some of these gems can be valued financially, and can be regarded as capital, obtained via savings and investment and even competitively priced in a marginal accounting. But many cost nothing, and characterize the pursuit of business as more than a dry exercise in accountancy or economics, but rather as a cultural mode, descended from a long tradition of opportunistic ownership / exploitation / employment of others, of technological innovation, trade, and plunder.

Not to put a fine point on it, business is about greed, and in its natural state reverts to rapine and pillage. The Vikings were consummate businessmen, converting earnings into capital- long-boats and other weapons-, which were the backbone of their centuries of pillage all over coastal Northern Europe. Today, we can see a similar process in Afghanistan. The Taliban leverages ruthless terror into power., plundering as it goes along. They can then tell everyone how to live, collect the taxes, and run their many businesses, corrupt or not. 

Whether their state is "business-friendly", their example points to the intertwined nature of state systems and business systems of exploitation. States set the rules, in the ideal case driving business from brutal mafia and gang activities, which are generally socially destructive, if not entirely zero-sum, towards level and transparent playing fields that are at least somewhat constructive, pulling their profits from the mute vaults of nature and its resources instead of from social oppression. But all this depends on the wisdom and foresight of the state. Many "business model" gems mentioned above involve skirting the law, or engaging in activities the law has not even (or yet) contemplated, to make a buck. There is a constant arms race going on, between the "innovation" of private greed, and the capacity of the state to conceptualize, measure, and legislate against new areas of long-term harm. When the business class and Republicans bleat about taxes and "freedom", they (and their pet economists) are explicitly taking one side of this conflict, the side of irresponsible regression to unregulated, irresponsible, and destructive styles of "business". 

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Competition

Balancing collaboration and competition for a healthy society.

The ongoing discussions about race and caste in America are plumbing the depths of who we want to be as a society, and of the human psychology of hierarchy and competition. As Darwin taught, competition is inherent to life. Winners don't just feel good, they live to fight another day and reproduce another generation. Competition is naturally at the core of human psychology and development as well. We only learn to know our selves against a backdrop of challenges overcome, and people to compare ourselves with. We celebrate the winners in art, music, politics, sports, business. Excellence only exists in comparison.

America was conceived from the first as a winners versus losers project. White Europeans, already sailing all parts of the known world in search of treasure and plunder in competition with each other and the other great Asian cultures, found a virgin land. At least virgin in that it hardly offered any competition, with peoples who were summarily exterminated or enslaved. That this domination was transferred to Africa as a convenient source of losers to be utterly dominated, and ultimately branded as an inferior caste in perpetuity, is at once spiritually shameful and also a natural consequence of the competive drive that inheres in all people.

Idealists then came up with a competing dream of socialism and communism, which was to be a sweeping antidote to all these racial, economic, and social injustices. But competition inexorably reared its ugly head, moving the field of play from its traditional moorings to the political and existential levels, even to the very nature of reality and truth, as seen in the Stalinist systems, and the numerous appalling dictatorial systems that copied it. There was no getting around the need to prove that some are more equal than others.

However we run our formal systems of government and economics, we live in countless competitive settings- socially, economically, sexually, in families and outside. No one loves unconditionally, or serves without reward. So the genius of civilization has been to tame and channel competitive structures and impulses to positive ends. Fairly rewarding work, or setting a standard of one sexual partner in marriage, are examples of rough attempts to forge stable, just, and positive social outcomes out of competitive instincts that if given freer license would destroy us. 

Slavery was a system that, while mostly stable and marginally productive, was also profoundly unjust. One tribe simply declared itself dominant, and used every insidious tool of indoctrination, oppression, and violence to maintain that position. Over time, the original source of the competitive superiority, (whether that was just or not), became irrelevant, and the disparity became as unearned by the oppressors as it was undeserved by the oppressed. It served in no way to expose the natural talents of either in a fair environment of self-expression and actualization through competitive effort. 

So over the history of our country, we have fitfully been waking up to this injustice and expression of erstwhile competitive success, and fighting over how to forge a new social contract. That is perhaps the main reason our political system is so bitterly divided right now. "Freedom" rings from the mouths of both sides. But for one it is typically the freedom to continue enforcing their inherited inequities and privileges. For the other, it is the quest to escape exactly those inequities, which have reified, (as they have similarly in India's caste system, over centuries), into a vast network of debilities, social dysfunctions, ingrained or instinctive attitudes, artistic modes and motifs, economic and geographic patterns.

The new social contract is obviously modeled on modern meritocracy, where all are educated as far as possible, all participate freely in the many markets that pervade our lives, from mating to consuming to job-finding and politics, and all benefit in proportion to their contributions as regulated by those markets. Historical inequities would have little influence in this world, while individual talent and character count for all. This assumes that such a meritocracy is a fair ideal, which many dispute, as the fate of the losers remains uncertain, and in our current version, unbelievably harsh.

But there is no ridding ourselves of competition, however blessed we are with countervailing instincts of empathy and cooperation. It is a rock of human nature, and of our personal development. The best we can do is to regulate it to be fair and moderate. That is, expressing the competitive success of the individual, not her forebears or tribe. And allowing enough benefits to winning to provide motivation towards excellence and success, without destroying the portion of society that necessarily will be losers in various markets. This is the perennial conflict (and competition) between right and left, Republican vs Democrat.

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• FOX- another reason to cut the cable cord.

Domineering Freeloader Decides Communism is the Answer

General, executioner, economic development czar, and head of the national bank of the Cuban revolution: the biography of Che Guevara, by John Lee Anderson.

Ernesto Guevara began life as a reckless, adventurous, and very intelligent kid. His first inspiration was medicine, indeed medical research on leprosy and other diseases common in South America, and he got a medical degree. But toiling away on small problems in the lab didn't fit his temperament, and he decided to bum around South America instead, living off the generosity of others, running up debts, fast-talking his way out of jams, and building up an implacable hatred of the US. A common thread through his travels from Argentina through Chile, Bolivia, Peru, and points north was the overwhelming influence of the US, usually corrupting the local political system for the benefit of mining interests in the south, and for the benefit of agricultural interests in Central America. Eventually he got caught up in the liberal quasi-socialist reforms of Jacobo Arbenz of Guatemala, later fleeing to Mexico after a US-supported right wing coup.

It was there that he fell under the spell of Fidel Castro, eventually becoming, despite his evident non-Cuban origins, Castro's right-hand man at the head of the communist revolution in Cuba. Not that it started as communist. No, Fidel was a master politician, and started as an anti-communist, currying favor with the Cuban population and the US. But both his brother Raul and Che were dedicated communists by that point, in thrall to Stalin and Mao, and their influence, combined with the logic of perpetual, one-party / one-person power, brought Fidel around to a gradual process of revealing, after the revolution had already gained power and Che had executed resistent elements of the army and police, their new (red) colors. Then came feelers to Moscow and the rest of the eastern bloc, the Cuban missile crisis, and that is pretty much where things stand still today.

Che and Fidel, when times were good.

Anderson's biography is definitive- fully researched, well written, and judiciously argued. He portrays Che as a seeker- a youth on the prowl for good times, but also for a purpose, which he ultimately found in full-on socialism. He found himself most fully during the early fight in the hills of Cuba- a trial by privation, exhaustion, and blood- where he put revolutionary principles to work organizing his men, making alliances with the local peasants, and executing deserters and traitors. Che's socialism was a pan Latin-American Bolivaran ideal, where all the countries of Central and South America would band together- possibly even unite- under state socialism as inspired by the peasant revolutions of Russia and especially China. It was both austere and visionary- a whole continent escaping from under the yoke of the great oppressor- the US.

It is clearly a religious conversion- the epiphany of a wholly captivating ideal. Che became Castro's second in command by his great intellectual and leadership talents, but even more by his absolute dedication to the cause- the cause of liberation from oppression. Unfortunately, after cleansing the army and securing Fidel's rule, Che was assigned to make the economy run, and here he came up against the immovable obstacle- reality. Socialism is healthy in small doses, but communism has not, in Cuba as elsewhere, been able to run an economy. Motivation to work needs to be supplied somehow, and if it is not by the lash of money and its lack, then terror will have to do the job, and poorly at that. Che did what he could, but the system he had fought so hard to establish was impossible to operate, and his thoughts turned back to his first love- revolution.

It is here that we see mostly clearly the religious nature of Che's motivations and of communism generally. If he were a rational researcher in the template of medical or other research, he would have sat back and realized that communism was not working in economic and social terms, let alone in terms of personal individual liberation. And then he would have adapted intellectually and tried to figure out a middle way to preserve Cuba's independence while running a realistic economic system. Possibly even elections. Unfortunately, by this time, Cuba had settled into a dependent relationship with Russia, which bought its sugar and gave aid, preventing either economic or political independence. Cuba is today still relatively poor, in the middle to lower ranks of GDP. Not as poor as Haiti, however, (or North Korea), and therein lies a message, which is that the Cuban revolution remains relatively humane, despite its many debilities and lack of political, social, and economic freedom. The collapse of the Soviet Union shocked the communist government into slight openings for private business and a heavy dose of tourism from Europe, which sustain it today.

But instead of recognizing the errors and failures of his dream, Che fomented more revolutionary cells all over Latin America and Africa, paying special attention to one sent to infiltrate Argentina, one that he was to join himself and die serving in 1965. One can not fault his dedication or consistency, but one can question the intellect that took him and so many other idealistic freedom fighters over the twentieth century into communism only to author monumental disasters of political and economic mismanagement. To think that dictatorship would resolve the class struggle, and produce washing machines and military might ... it had to be a religious movement, which unfortunately, once in power, became incredibly difficult to dislodge.

The motive force obviously was the US. We, through our callous and greedy treatment of our backyard over the nineteenth and twentieth centuries, and our betrayal of the paternalistic impulse of the Monroe Doctrine, not to mention similar failures of principle in the Middle East and Vietnam, motivated the intense anti-Yankee hatred of idealistic men such as Che Guevara, and the peasant resistance that, at least in Cuba, gave him and Castro support. It is a fascinating history of what the US has wrought, and how our failure to hold to our own ideals has come back to haunt us over and over again.

• It has been abusive, unnecessary, toxic, and we will need some time to work it out of our system.

An American Economic History, Through Farming

From plantations to free soil, and back to plantations.

Today, farming is a small part of our economy. But it remains existentially important, and politically and culturally significant far beyond its share of GDP. The family farm evokes the heartland, the honest toiler, the communal and salt-of-the-earth values of rural life. The United States was founded on the promise of land- ever more land taken from Native Americans for ever more white people to till. Land was the original job guarantee. Anyone disgruntled with their current condition could go West. Some created vast plantations or ranches, while most founded family farms. When some of the last arable land on the frontier became available in Oklahoma, it resulted in the notorious land rush of 1889, typified by "Sooners" who jumped the gun into this so-called unassigned territory. A generation or two on, they authored the dust bowl by their enthusiasm and negligence.

The late 1800's were a pivotal period. The frontier was closing, industrialization was changing the workforce and mechanizing farming. It was perhaps the high point of the family farm, as so movingly portrayed in its perils, pride, and community, in the film version of The Wizard of Oz. One underappreciated cause and purpose of the Civil War was to preserve free soil and free labor as the guiding principle in new territories and states. The plantation system of labor was the alternative, just as firmly rooted in American soil as the small family farm, and just as greedy for new frontiers. Plantations were the original corporate agriculture, driving an army of employees (i.e. slaves) over vast acreages of market-crop monocultures, typically cotton, tobacco, and, in the Carribean, sugar cane.

But, despite winning the Civil War for free labor, and adapting to progressively greater levels of mechanization, the family farm is dying, and has been dying for decades. A recent piece in the New Yorker describes the situation in Wisconsin, which has seen a steep decline in family dairy farms, driven out of business by the inexorable efficiencies and amorality of corporate farming. Capitalism is the remorseless agent, setting up new plantations on rebooted principles of cheap labor and enormous scale. Instead of slaves, the labor is now an unending flood of poor and undocumented hispanics, ready to work for less, and under poorer conditions, than "free" labor.

Is this the kind of capitalism we want more of? Is the kind of rural America we look forward to? It is more than a little ironic that rural America voted overwhelmingly for the Republicans, who offered nostalgic nostrums while being the foremost purveyors of capitalist fundamentalism, cheap oppressed labor, and rural decline. Thus some might say, they deserve what they are reaping. But that is merely spite speaking, not policy. It is clear that government policy has had a great deal to do with this evolution of farming, from lax labor policy to trade policy and growing regulatory and bureaucratic complexities, and explicit farm support systems that support corporate farms foremost.

So, we have been divided from the outset, between a corporate, plantation model of farming, and a small-holder, family model of farming. The memorialized plantations of Mount Vernon and Monticello are fascinating examples of the former, each originally worked by an army of slaves to create in this new land a rich, even refined existence for the lords of the manor. It was Jefferson's dream that America would be overspread by small family farms, even as he himself ran a brutalizing corporate operation. It was just one more of his romantic dreams, along with a discomfort with slavery that did not extend to emancipating his own slaves. But the US did indeed make his dream real across the Midwest by eradicating slavery and accepting floods of immigrants to run their own farms and found rural communities. 

The silo-inspired Emerald City. Was it a storage and processing cooperative?

It is clear that it will take deep changes in policy to preserve family farming, and humane and ecologically sound farming. Not just cash payments to farmers, as the current administration is attempting to save its political position, but a much more thorough rethinking of how rural America should operate. We need far stiffer rules for labor and ecological practices on large farms, so that the playing field is leveled. We need better support for cooperative processors, buyers, bankers, equipment supply, transporters, and extension systems so that small farms have the long-term support they need to survive. We need to edge away from stark capitalism towards a mixed model, for instance maintaining some price supports with intelligent government planning, so that farmers are not whipsawed by lethal market forces. And making those price supports graduated against farm size, to recognize the unique value, and unique challenges, of the small farm.

• "There can be no permanent disfranchised peasantry in the United States."- from the inaugural address of James Garfield, 1881.
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Young Americans for Freedom

Is Bernie the next Ronald Reagan?

My father was an enthusiastic Reagan supporter, and contributor to many of the right wing organs of the day, one of which was Young Americans for Freedom, or YAF. As one can imagine, its idea of freedom was freedom from government regulation, freedom to found businesses, freedom to rise as high as one's talents allow. Freedom to use one's money to go to private schools, freedom to hire workers on any basis they are willing to work, freedom to discriminate, to contaminate the environment, among much else. Reagan led a long campaign in the wilderness of the Republican right, on these ideas which became and remain the foundation of the right, of FOX, and of our current government. The Reagan revolution was far more influential than observers at the time (and from the left) anticipated, viewing the aging actor and his gouche entourage with distain. Reagan repaid that distain in spades, doddering through the Iran-Contra scandal, and finally leaving office with imminent senility. But he also was on occasion remarkably articulate- in marked contrast to our current virtually illiterate executive- and even inspiring, and was decisive at key moments. The ideology that Reagan brought into the mainstream, which now seems so stale and self-serving, was at the time taken as a significant and intellectually advanced critique of a system that had over the preceding decades so carefully balanced the public and private interests.

YAF was a melding of libertarians and conservatives, hardly hip even in its own day, but with an intellectual case to make. Today, things have changed substantially, as we are living in the world that the YAF-ers grew up and built, notably as part of the Gingrich revolution, the Tea party revolution, and the advanced propaganda organs that have succeeded the paltry efforts of YAF and its ilk. It is a new gilded age, where Mitt Romney can run for president as a "job creator", where Trump can win on the backs of the dispossessed, then turn around and give the lion's share of the spoils to the rich, where billionaires  clog our political system, where employees are routinely underpaid and abused, climate heating is denied and ignored, and homelessness and despair are rampant.

The youth of today look at this world, and find a significant lack of freedom. Freedom is not a simple concept, and changes dramatically with one's situation and with the times. Is being homeless the epitome of freedom? In our world, money buys freedom, and poverty is a sentence of servitude and shame. With enough money, one can become president if one wishes, while without money, one can not even eat. This is the world that the Reagan revolution has sharpened, if not created- one of staggering and shameless inequality, where our communal humanity is being drowned in desperate competition and fealty to corporate overlords, and where we are presumed to be worshipful towards the blizzard of vanity foundations they sponsor in lieu of nuns and priests to chant their prayers.

The great task of society is to impose order and discipline, but also to inspire shared values and commitment, so that all members work towards the greater good, according to their respective abilities. There is a place for capitalism and hierarchy here, to supply the former. But the latter has been sorely lacking of late, systematically denigrated by the political right, in favor of an ideology of division, greed, and, frankly, hate. It is clear that the happiest societies strike a more compassionate balance, recognizing (and funding, with various public services) a baseline of common humanity and dignity (and freedom), while leaving plenty of room for ambitious achievement in the hierarchical, capitalist mode as well.

It is high time for the pendulum in the US to swing the other way, but how is that going to happen? I have been struck by the symmetries between Bernie Sanders and Reagan. Bernie is far from a lock on the nomination, but his accession would be a fitting bookend to the Reagan revolution. Both are outside politicians, who took over their party with a grassroots / insurgent campaign and pushed it away from the center, after decades of lonely ideological battle on the political fringe. Both have strong support among the youth of their parties, indeed a curiously militant sort of support, despite themselves being, by virtue of their long-march campaign, quite old.

But Reagan never had to face the kind of propaganda organs that the right marshals today. He benefitted from a much more decent, and unified, world. Today our fellow citizens are living in a starkly separate reality, which has bled strongly into the mainstream media. It is hard to fathom how Bernie's movement is going to make serious inroads other than over the dead bodies of FOX and its copycats. And the irony is that these outlets thrive even more in opposition than when their own party is in power, making it doubly difficult to imagine how our cultural conversation is going to change, no matter how momentous the Bernie movement is. Yet, all that said, hope springs eternal, and here we have to hope in Hegelian fashion that the forces of history, or of a timely leader, are able to break the witch's spell on the right, and bring our country back to a semblance of decency and rationality. And that that someone might just be the next Democratic nominee for president.

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Hyperdemocracy or Oligarchy?

What can China teach the US about governance? Does it point to more democracy or less? A double book/essay review.

We are at a low point in the US democracy, with the Senate having covered itself in shame over the last week, and sure to do so again next week, courtesy of one party that is in thrall to its president. But the whole world is headed in the same direction, as rightist, "strong" leaders pop up all over, from Brazil to China. The whole idea of democracy is under threat world-wide from the a new authoritarianism, which has evolved out of the old communism and more traditional feudal arrangements. And from the lust for power generally. The US misadventures in Iraq and Afghanistan, trying so blindly to implant democracy in societies woefully traumatized and unprepared for it, followed by the appalling handling and aftermath of the Arab spring, seem to have cancelled any hope of an end to history in the form of democracy triumphant across the globe.

Two decades ago, Hugh Helco wrote a prescient jeremiad titled "Hyperdemocracy" diagnosing the ills of a shallow and ill-educated democracy in the US, titillated with constant "news" (fake and otherwise) and oversharing, but lacking true deliberation and veering towards ungovernability. One ironic consequence of everyone, every corporation, and interest group having their say is that no one can be trusted. Eventually government is bereft of the basic civic faith and common narrative that the social contract relies on. His critique was acute, but his suggested treatments were afterthoughts and the problem has amplified dramatically in recent years, with foreign countries like Russia weaponizing so-called "free speech" against us.

"For the making of public policy, hyperdemocracy presents three general problems. Policy debate occurs without deliberation. Public mobilization occurs without a public. And the public tends to distrust everything that is said. " "... good policy argumentation is bad political management"

A book relevant to the question came out in 2013, from billionarie Nicolas Berggruen, who argues in Intelligent Governance for the 21st Century that some sort of convergence between the non-democratic methods of China and our rather chaotic and hyperdemocratic methods is called for, to merge China's effectiveness in public management with our respect (such as it still is) for individual rights and democratic legitimacy. Berggruen has set up a series of vanity foundations and Davos-like talk shops to solve the problems of Europe, the world, and California. The solutions focus on meritocracy- trying to insulate decision makers from the political winds by appointing Berggruen's friends to influential commissions and special bodies that would advise the politicians who may not benefit from proper think-tank training. For California, his solutions ended up recommending taxing the poor more and the rich less- which says alot about his version of meritocracy.

Nevertheless, these arguments raise interesting questions at this perilous time. Does being in a hyperdemocracy mean that we have too much democracy and deserve less? Or do we really live in a hyperdemocracy at all? And does China have some kind of secret sauce for public management and institutional far-sightedness and continuity that we could learn from, seeing as they are a rising power with confidence and in some cases, outstanding public services? I think hyperdemocracy is a bit of a misnomer, since it is hardly an acceleration of democracy to replace reasoned discourse with propaganda and corporate interests, and to give up our politicians to utter corruption. The lack of a civil and civic discourse formed around truth and mutual respect is an unmitigated disaster, not some hyper form of democracy. The fact that Facebook allows those with money and psychological skills of a nefarious or pathological nature to implant viral falsities into our body politic is not "democracy", or "free speech", but is abdication of the most basic role of publishing- that of standing behind what you publish and standing for a level of discourse that befits our culture.

The fact is the America is hardly even a democracy at this point. The public routinely stands behind significant public policy advances that are as routinely stymied by a minority that is funded by rich ideologues, both directly through political corruption and through myriad propaganda outlets. Far from a hyperdemocracy, we live in a oligarchy, one that is slowly morphing into an even more concentrated fascist regime before our eyes. The convergence is taking place, but not in a good or intended way.

A high-speed train to nowhere. California's rail plan is in crisis.

So the prescriptions that Berggruen touts, allowing that they were authored before our current administration, hardly meet the crisis of our times. Yes, we need more competent public administration. Just look at California's high speed train fiasco, and its public pensions crisis. Yes, we need longer-term strategic thinking. But the elites that have been serving us over the last couple of decades have not done such a good job, particularly from Republican administrations. Where have the truly momentous foreign policy disasters come from? Where has the denial of climate change come from? From one region in our political spectrum. And that is no accident, being the region that has antidemocratic tendencies, and seems dedicated to some sort of aristocracy of class and money. Replacing it with a slightly more centrist aristocracy of class and money, with an intellectual patina, is not likely to alter our course very much.

Berggruen proposes an ideal republic that is extremely indirect, such that a small community of a few thousand people elect ten representatives, and then those representatives elect a next level that represents about 100,000 people, and they elect another body, and so forth until the top layer of some kind of president or council is elected in a pyramid of representation that is four levels deep. This hearkens back to what the American founders were trying to accomplish with their indirect elections of Senators, and the electoral collage for the Presidential election. But then later in the book, he bemoans the out-of-touch-ness of the European administration in Brussels, which has so little democratic legitimacy. It is a curious conflict in a book full of them, and of airy ideas.

Nevertheless, the idea of a more vibrant local politics is a very important one. We are overly focused on national politics, about which the average person can do nothing but get upset. Voting is great, but participation is better, in face-to-face settings. One way to enable this is to mandate one day per month holiday for political functions. This could include voting, but also encompass neighborhood meetings, town council events, etc. The way our culture values work over civic obligations and participation is extremely unbalanced. Participation would not be manadatory, but all levels of government would obligated to open their doors, hold relevant meetings on these days, and foster public participation.

Secondly, the idea of some insulation from the political winds is also important, for many policy makers, particularly those oriented towards the long-term. Berggruen points to institutions like the Federal Reserve, the civil service, and many other regulatory bodies, which have purposefully been separated from the political fray in a way that balances accountability with the freedom to think calmly and for the long-term. We should have more such bodies, even perhaps modeled on the 5-year plan system of China, to think carefully about our future infrastructure, our future social policies, and our future politics. The state of California could certainly use a bit more organized foresight, which used to be provided by business leaders like Leland Stanford, but now is more likely to be corrupted by business than served by it.

Berggruen bemoans the state of the California referendum system, originally a gem of democracy, which has been captured by business interests which regularly compete against each other in offering rival propositions which are engineered to sound as anodyne and contrary to their actual intent as possible. Here there is an easy solution, which is to outlaw paying people to collect signatures. The currency of the referendum system is signatures, and collecting them is arduous. No one would do so unless they either cared a great deal about the issue or were well paid.

Lastly, there is the media (leaving out general corruption, which can be addressed by public financing of elections and prohibitions on corporate meddling in political affairs). Here we get to the to a truly difficult issue- how to re-establish a shared culture of truth and civic pride from our dispirited current state of Twitted discourse. Here we could learn a few lessons, not from China, but from Europe, which carefully, but legally, disables some extreme forms of speech to set guardrails on the society. We might consider making false claims grounds for suit and penalty, (proportionate to the audience), not only in commercial speech where this is already the case, but in political and policy speech. Propaganda outlets like FOX are a cancer on the Republic, that trade in lies as the foundation of their bizarre narratives. Block the lies, and the narratives are much more difficult to maintain. This is very fraught policy to propose, as our largely free speech standard has served the US quite well most of our history, (excepting several phases of extremely partisan presses), and any kind of censorship can be twisted to nafarious purposes. But this legal standard would not be enforced in some star chamber, rather in open court, presumably with evidence, experts, scholarly apparatus, etc. There is far more to do to re-establish a productive fourth estate, which is such a crucial participant in a functioning democracy, but the truth is one place to start.

Our problems cry out for reform, not revolution. Our democracy is under extreme pressure, but has not yet broken down completely. It is an index of our problems that Democrats need typically to find the perfect candidate, pristine in speech and spotless in record and demeanor, in order to have any hope of winning, while Republicans can put up virtually any grifter or mysogyinst with a fair chance of success. It is a reflection of the unfairness of our current system, ridden as it is with dark money in the service of extreme and retrograde ideologies. But there is hope, especially in demographic change, that California, dysfunctional though it may be in many ways, represents the imploded future of the Republican party, which would unleash enormous energies for national reform, towards a democratic, not an oligarchic, future.

• Delete everything: the new normal in corporate obstruction of justice.
• An update from Mr. Sloth.
• Oh, the perils of crime.
• When grifters are in charge.
• Guess who cashes in on climate change?

Power

And lack of power.

The recent power shutdowns in California were maddening and disruptive. They also showed how utterly dependent we are on the oceans of fossil fuels we burn. With every convenience, gadget, trip, comfort, appliance, and delivery we get more enmeshed in this dependence, and become zombies when the juice is suddenly cut off. Not only is our society manifestly not robust, but every drop of fuel burned makes the problem still worse: the biosphere's decline to miserable uninhabitability. The children are right be be pissed off.

Do we have the power to kick this habit? This addiction makes opioids look like amateurs.  It won't be a matter of checking into rehab and going through a few weeks of detox. No, it is going to take decades, maybe centuries, of global detox to kick this problem from hell. Living without our fix of CO2 is impossible on any level- personal, social, political, economic, military. And the pushers have been doing their part to lull us even further into complacency, peddling lies about the risks and hazards they deal with as an industry, their own research into climate change and what our future looks like, not to mention our complicity in it.

Do we have the moral and political power to get off fossil fuels? Not when half of our political community is in denial, unwilling to take even one step along the 12 step path. I am studying the Civil War on the side, which exhibits a similar dynamic of one half of the US political system mired in, even reveling in, its moral turpitude. It took decades for the many compromises and denials to play themselves out, for the full horror to come clear enough that decent people had had enough, and were ready to stamp out the instution of slavery. Which was, somewhat like the fossil fuels of today, the muscular force behind the South's economy and wealth.

Do we have the technical and intellectual power to kick this habit? Absolutely. Solar and wind are already competitive with coal. The last remaining frontier is the storage problem- transforming intermittant and distributed forms of power into concentrated, dispatchable power. And that is largely a cost problem, with many possible solutions available, each at its price. So given a high enough price on fossil carbon, we could rapidly transition to other sources of power, for the majority of uses.

A 300 MW solar power plant in the Mojave.

Does the US have the power to affect climate change policy around the world? We don't have all the power, but have a great deal. If we were to switch from a regressive laggard to a leader in decarbonization, we would have a strong effect globally, both by our example and influence, and by the technical means and standards we would propagate. We could amplify those powers by making some of our trade policy and other relations more integrated with decarbonization policy.

Do individuals have the power to address these issues? The simple answer is no- all the virtuous recycling, biking, and light-bulb changing has little effect, and mostly liberates the unused fossil fuels for someone else to use at the currently criminally low prices. Individuals also have little power over the carbon intensity of the many products, services, and infrastructure they use. Maybe it is possible to eat less meat, and avoid fruit from Chile. But we can not unplug fully from this system- we need to rewire the system. It is fundamental economics that dictates this situation, which is why a stiff carbon tax and related regulation, with the associated political and moral will are so important.

Finally, does the State of California have the power to take responsibility for the PG&E mess? Absolutely, but probably not the will. The power shutdowns led to a common observation that the state should just buy PG&E at its bankrupt price and run it in the public interest. But keen observers have noted that the state's politicians would much rather have someone else to blame, than be saddled with a no-win institution that puts the blame on them. Power lines are going to cause fires in any case, unless we cough up the billions needed to put them underground. Customers will always complain about the price of utilities, so it is hard to see the state stepping up to this mess, or even reforming the public utilities commission, which has been so negligent as well.

• Why did the GOP nominate, and the American people elect, a Russian asset to the White House?
• Battle lines on health care.
• Point to Bernie.
• The church and psycho-social evolution.

Meritocracy

Is meritocracy intrinsically bad, or good for some things, not so good for others?

A recent book review in the New Yorker ruminated on the progress and defects of the meritocracy, a word born in sarcasm, now become an ideology and platitude. I am not sure that the review really touched on the deeper issues involved, so am motivated to offer a followup. The term was coined by a British sociologist, which is significant, as it describes a fundamental shift from the preceding system, the class system, as a way of allocating educational opportunity, professional work, military grades, and social status in general. It would be natural for someone of the British upper class to decry such a change, though the coiner, Michael Young, was generally a socialist and egalitarian, though eventually made into a Baron for his services ... ironically.

The book review focused mostly on the educational establishment, where the greatest sea change has occurred. Where elite schools used to lazily accept their students from elite prep academies, from certain rich families and class backgrounds, now they make a science of student selection, searching far and wide, high and low, for the most meritorious candidates. Are SAT scores useful? Not very, the new consensus has it, especially as such tests unconsciously reproduce various cultural biases, instead of rendering the true grail- a score of merit, whatever that really might be. But anyhow the slicing is done, higher education is now an intense, mostly meritocratic sorting process, granting opportunities and education on the basis of qualifications, intent on funneling the most capable people into the higher rungs of the ladder of professional activities and status.

One question is whether all this laborious sorting of students has been a good thing, overall. Do we get better staffed hospitals, better filled jobs throughout the economic system by virtue of this exquisitely and remorselessly selective weeding system? Yes we do, perhaps at the cost of some social serendipity, of finding CEO material in the mailroom, and the like.

But the deeper question is whether all this selection has been good for our society at large. There is answer has to be more guarded. If economic efficiency is the only goal, then sure. But it isn't, and some of our social atomization, and creeping class-ism and despair in the lower rungs of society comes from the intensification of meritocratic selection, which spills over to many other areas of society, directly through income and wealth, and indirectly through many other mechanisms of status, particularly politics. Much of Trump's support comes from people sick of the "elites"- those selected by SAT scores, course grades, and the like to rule over the working class. It is not clear that grubbing for grades and mastering standardized exams have done such a good job at selecting a ruling political class. That class has not done a very good job, and that poor performance has sapped our social solidarity. The crisis is most glaring in the stark cost of losing out- homelessness and destitution- the appalling conditions that are the mirror of billionaires also produced by this Darwinian system.

The problem is that we need areas of our lives that are not plugged into the rat race, for both psychological and sociological reasons. Such areas are increasingly scarce as this new gilded age gobbles up all our social relations under the rubric of the market, paticularly with its newly internet-extended capabilities. Religion has traditionally been a social locus where every one is worth the same- many classes come together to share some profound feelings, and occasionally explicit anti-establishment messages, (though also often a message of exalted status vs some other sect, faith, or unbelievers). But religion is dying, for good reason.

A town meeting

Civic associations and volunteer life have in the US been a frequent antidote to class-ism, with people of all classes coming together to make each others' lives better. But modern transportation has enabled the definitive sorting of classes by socioeconomic level, rendering civic activity, even when it occurs, poor at social mixing. No longer does a geographic community have to include those of all professions and walks of life to be viable. We can have lilly-white suburbs and gated communities, and have any tradespeople and retail employees commute in from far away. That is a problem, one caused ultimately by fossil fuels and the freedom that they bring. The civic sector has also been invaded by an army of vanity foundations sponsored by the rich- a patronizing and typically futile approach to social betterment. Volunteerism has also been sapped by lack of time and money, as employees throughout the economic system are lashed ever more tightly to their jobs, stores kept open at all hours, and wages for most stagnate. Unions are another form of civic association that have withered.

All this has frayed the local civic and social connections, which are the ultimate safety net and source of civic solidarity. While Republicans bray about how terrible government is at replacing these services with top-down programs, (with some justification), they have at the same time carried out a decades-long battle to weaken both government and civic life, leaving a smoldering ruin in the name of a new feudal overlordship of the "job-creators"- the business class. That is the ultimate problem with meritocracy, and while appreciating its role in spreading social justice in the distribution of educational and professional opportunity, (a promise that is far from fully realized), we need to realize its cost in other areas of our national culture, and work to restore community diversity, community institutions, and community solidarity.

• Are corporations amoral and evil?
• Is market manipulation part of the story?
• Don't go to the hospital.
• Japan vs MMT.
• Amazing Chopin.
• Quote of the week:

Where love rules, there is no will to power; where power predominates, there love is lacking. The one is the shadow of the other. – Carl Jung

Investing in the Future

People's Capitalism- the economics of James Albus.

A curious thing happened on the way to a recent post about the cerebellum. One of its primary theorists was not a neurobiologist, but an engineer, roboticist, and control system designer. It turned out that James Albus, mild-mannered government employee all of his career, had several side projects, another one of which was an odd blend of libertarian and communist economics, which he called peoples' capitalism. It incorporates some unconventional monetary theory, and throws in a proposal for oceanic algae harvesting as a bonus. All in all, Albus is clearly a fellow crank.

This book "Path to a Better World" is not easy to find, probably for good reason. Putting aside its lengthy self-encomiums and visions for a peaceful and problem-free future, the basic proposition is that the government should issue credit to everyone for the purpose of setting up a personal investment fund, which over time would then generate on everyone's behalf a steady and growing stream of income that will replace that lost from the automation revolution to come (and pay back the original loan). He estimates that if the annual increment is $5,000, the portfolio would be worth $1.5 million after 50 years, generating $55,000 of income. This would all be invested in government-approved vehicles like mutual funds, thereby increasing total capital investment. And lastly, to offset inflation, he proposes a payroll deduction-style system whereby some proportion of each person's income could be forcibly diverted to savings when inflation threatens.

One of the core justifications of these schemes is gaining a higher rate of overall capital investment. Albus recounts some of the interesting literature in economics that shows that productivity growth, overall growth, and an increased living standard all come mostly from capital investment. It is capital (as opposed to straight consumption of short-lived items like food and services) that funds the machinery, education, and training that continues to give back, year after year, productive services like roads, new inventions, manufacturing plants, and housing. We all know that the US has had a low rate of capital investment, which Albus contrasts with China's extraordinarily high rate, and thus high growth which is overtaking us.

Albus shows fanciful graphs going far into the future of the US maintaining a 9% economic growth rate, which would enable us to stay ahead of the Chinese indefinitely. The problem is that not all investment is productive. We learned from Japan that the dizzying rates of capital formation and investment in a developing economy that is committed to catching up with the first world do not last forever. As long as one is behind the technological frontier, productive investments are easy to find- just steal them from more advanced cultures. But once one reaches the technological frontier, the search is far more difficult. Much more investment is wasted in exploratory research, and it is less attractive to rip out current sunk investments to keep up with every tiny increment on the slowly advancing frontier. This explains why China's growth will inevitably slow, as did Japan's and ours.

This is not to say that we should not raise our capital investment rate, but that we need to be more judicious than simply shovelling more money into mutual funds. Since the value of the stock market is based on a relatively coherent estimation of future income flows to corporations, pouring in more money on behalf of passive small investors will mostly just nudge out other, more liquid, investors, keeping the overall level of investment stable (with the caveat that price/earnings ratios have indeed risen (perhaps doubled) over the last few decades as a larger pool of investors has flooded the market). This would be a good thing from an economic justice standpoint. One of the points of Albus's plans is to distribute capital ownership more widely, in preparation for the time when none have jobs, but all need income. But it is unlikely to raise net capital investment much or raise economic growth rates.

The ironic thing (given Albus's government career in the highest levels of its research enterprise) is that he is so focused, perhaps due to libertarian leanings, on pumping money into the private capital markets, that he neglects the real capital shortfall- that of public investment. It is now a common mantra that our infrastructure is crumbling, and that education is too expensive. Both are areas where government investment is the most productive way we have to build for future economic and social returns.

Otherwise, there are some positive aspects to these ideas. What goes unmentioned is that the personal investment scheme will have to be heavily controlled by the government, since most people getting that kind of money are going to spend it. That is why so many poor people exist, after all, and so few capitalists. And the inflation control scheme is also rather heavy-handed, if effective, though one has to ask where this savings would go so as to not be inflationary. Putting it into mutual funds would put it into the markets again, and thus be ultimately inflationary. It would probably have to go into newly issued government bonds, which is to say, into a money black hole.

But the idea of spreading around capital and its income stream is very interesting. It is a far better idea than a simple UBI, which is structured as a sort of pittance handed out to keep the jobless from gathering into mobs with pitchforks. As we enter an economic era where capital is ever more dominant, through its comprehensive ability to generate economic value with ever fewer workers, the whole economic system needs to be rethought, with an eye to the middle class, not just the homeless and jobless. We already have vast pension funds and mutual funds, which have spread around the income flows from capital, if not taken effective control of the system from capitalists of the traditional variety. We already tax income and capital gains and inheritances to divert some of those gains to the common good. More of that kind of redistribution, of both capital and its proceeds, needs to happen in order to achieve the economic justice and stable future that Albus seeks.

• A criminologist takes a look at our president ... the dark triad.
• Who are the oligarchs?
• MAGA movie.
• Steps to fascism.
• Oligarchy in business isn't so good either.
• What does a financial risk manager say about climate change? $120 per ton of carbon.
• Economic democracy.

Cancel the National Debt

Elizabeth Warren or Bernie Sanders should stand up and say that they will eliminate the national debt.

National debt clocks seem to go in and out of style with the political fortunes of Republicans. When they are in power, the bond vigilantes are at bay, clocks get put away, and tax cuts and wars blow up the deficit with hardly a finger-wag. But when tables turn, watch out! The debt becomes a national emergency, and think of the children, who will have to pay it all back!

After a few cycles of this nonsense, many have realized the mythical nature of the whole construct, first and foremost the school of MMT economics. Conventional conceptions of the debt are significantly out of date. For one thing, no one is going to have to pay this debt back. It is continually rolled over, and if we attempted to pay it back out of a fiscal surpluses, it would be disastrous, contracting the economy for lack of net spending from the government, which is the source of money for net economic expansion. (Ignoring the banking sector for the moment.)

Back when our money was not made and managed by the government, but rather based on some commodity like gold or silver, the Federal government was as constrained as anyone else- to match spending with income. It had two choices to pull money out of the larger economy for its own needs- taxation or borrowing. Taxes tend to be broad-based and quite unpopular. Borrowing, via bonds, (which were, in a way, the original fiat money), on the other hand, targets quite specifically those who have money to spare - the rich - so is politically efficient. But borrowing also indebts the state to the ongoing interest payments, which may temporarily come from further borrowing, but must ultimately come from taxation (or increased inflation, if the government can influence the monetary system and wishes to abuse its credit). Thus we had war bonds during the Civil War and the World Wars of the last century.

A bond, issued 1936

Now we are in a slightly different world, that of fiat money, where the federal government runs the monetary system completely and explicitly, with the power of printing money, but also the duty of controlling inflation. There is no more scarcity of gold, or scarcity of money, for that matter. It is an elastic system, under conscious control. Now the government creates money via its spending, and that money is meant to supply the expansion of the whole system- our economic growth, our hunger for imports and the matching hunger of foreigners for dollars, our savings needs, etc. Yet we still have a statutory requirement to match net spending (over taxation) with bond issuance- thus the growing national debt. (again, ignoring the banking sector for the moment). That statutory requirement is a relic of the old system and should be scrapped.

Not only that, but we should also end the re-issuance of debt, gradually exchanging it, as it comes due, for regular dollars instead. That way, we could save the hundreds of billions of dollars ($389 billion in 2019) we give to rich people and foreign countries in interest payments on their bond holdings. $30 billion alone goes to China, to reward them for the currency manipulation they engaged in back in the 2000's to take our manufacturing jobs. That is quite a deal! In this way, we could retire the national debt, not by paying it down through higher taxes, but simply by converting it to dollars, which we can create with a keystroke, just as we created the bonds in the first place.

The idea that our practice of bond issuance prevents inflation, by draining dollars from the economy, is problematic in terms of scale. Bonds are hardly a frozen form of money. For individual holders, our debt functions as the equivalent of money. They are savers, and holding dollars or bonds makes relatively little difference- they are not going to go on spending binges over the loss of 3% interest. On the other hand, on the macro-economic scale, the swap of dollars for debt would change the complexion of savings, since this rentier class will still seek income. They will seek to invest this money productively, and if safe government bonds are not available, they will tend to invest in the real economy, such as loans, real estate, companies, etc. This may drive some inflation, so we would have to be on our guard. But it would also drive real investment, which would be a good thing, and would drive down interest rates, also a good thing, especially in view of the troublesomely high rate of interest over time recorded by Thomas Piketty. The implementation would be controllable- if inflation appeared as a result, the program could be slowed down or reversed at any time. Perhaps we should start with a mere trillion dollars exchanged per year.

To get a picture of the overall scale, the US has about $100 trillion of overall wealth, of which about 20% is Federal bonds. But about a third of those bonds are held in the government, such as the Social Security accounting fiction of a "trust fund". And as noted above, the Fed owns about 10% of the debt in addition. So the remaining amount is, in the larger scheme of things, not enormous, and while monetizing it will alter investment practices, is unlikely to be catastrophic.

In conventional economic terms, this proposal would dramatically alter the money supply and bond markets, moving the LM curve (in the IS/LM model) right-wards, increasing output, decreasing interest rates, and causing inflation. The Fed spends much of its time managing the Federal bond market, selling and buying bonds in its efforts to control short term interest rates. After the 2008 crisis, the Fed accumulated $2-3 trillion, about a tenth of all bonds outstanding. It was accused of monetizing the debt by buying so much, lowering interest rates and pumping dollars into the system instead. But inflation stayed very low. We are in a somewhat more normal regime now, but over the last decade, the Fed has never attained its inflation target, so in those terms, one can say that, instead of trying to raise interest rates by selling bonds, as they have been doing over the last year, they should just continue monetizing the debt, until it is all gone, then send those bonds to the shredder.

Are there other ways to manage interest rates and inflation? This is where MMT has some problems, and fails to (to my knowledge) truly grapple with control of the monetary system. Suppose the pool of Federal bonds were 1/10 the size it is now or less, which would be much more manageable in fiscal terms. The Fed might own most of them at any one time, but might not have, in its view, the firepower, or the depth of a market to trade in, to affect interest rates across the board. It might need to trade in corporate bonds instead, which might not be the worst thing. Perhaps it should be using other tools, however, as its ultimate aim is to regulate lending and inflation, towards which control of interest rates is only a (blunt) mechanism. It is lending by banks that creates money in the private system, leading to speculative bubbles, inflation, and contractions and depressions. This money is much more labile (in the form of loans/credit that are subject to being paid back or called in, among other risks) than that coming from government spending. Thus the need for close regulation.

In China, for instance, the state owns the big banks, and can direct their lending explicity. No need to mess with the putatively free interest rate market. Similarly, the Fed regulates the banks, and could, for example, raise underwriting standards or capital requirements in boom times, lowering them in slack times. Another approach, of course, is using the government's fiscal policy. By spending more or less, or altering taxation, (such as changing the withholding rates), the Federal government can easily (if such spending alterations are easy) affect the inflation rate, which is after all the point of the interest rate control policy. In this way, interest rates can generally be kept low, bond issuance be ended, and the value of the money be kept stable. Ironically, despite MMT getting the rap of advocating fiscal profligacy, the real consequence of MMT is that the government would have to be even more disciplined and conscious in its monetary policies, (yet also more democratic), than the current system of leaving all the hard choices to a technocratic Fed, while spending more or less blindly, in policy terms (until a crisis hits, and even then, still shooting in the dark).

Getting back the debt reduction plan, would such a program contribute to the global savings glut? Yes, by discontinuing what is clearly the premier safe investment world-wide. But that is just too bad- we will benefit far more by cleaning up our books and saving ourselves the interest being paid out than we lose. At one stroke, we would free our political discourse from this charade of fiscal probity, free our government of the payment of hundreds of billions in interest- an enormous and seemingly endless stream of subsidies to the rich, and increase domestic investment.

• A contrary view on MMT.
• On the history of debt instruments.
• Baltimore- another kind of student loan.
• Impeachment, yes.
• An online ad tax?
• The academic life.. manuscript hostage negotiations.
• Remember when Republicans complained about executive overreach?

Breaking Secrets

A small way to increase labor power.

Why is inflation so persistently low? Even when the government is on a spending and tax-forgiveness binge, and interest rates have been rock-bottom for a decade? I have been spending some time with a left-inflected economics textbook from the 80's by Samuel Bowles et al., which gives a view of our situation that contrasts significantly from the mainstream free-market, neoliberal economics we have been fed for the last few decades. Perhaps its basic point is that capitalism only works when labor is exploited, yielding a surplus product. No profits = no capitalism. Thus the overarching aim of capitalists is to extract excess value from labor, over what is being paid out.

This extraction process has many dimensions, but a few of the salient ones deal with a odd role of markets in capitalism. Most people working in the capitalist system are not working in markets. They are employees, whose work is not bid on an hourly basis, who do not personally sell what they personally make, in a market. They exist in a command economy, quite divorced from this fantasm called "the free market". If they do not get along with their boss, they are fired. They are evaluated, not by market outcomes, but by subjective opinions of others around them, and are subject to a complex bureaucracy of control by the firm they are employed by. While the firm has market interactions with the outside, on the inside it is hardly different from a communist enterprise, indeed a good deal more heartless. Much of what corporations and the capitalist class lobbies for is not freer markets (heaven forbid!), but more ways to control workers, whether that is by right-to-work, weakening unions, keeping disputes out of open court, colluding with each other to not poach workers, staging "team-building" activities, stealing worker pay, reducing safety net programs, etc. So, contrary to the right-wing ideology of freedom, one of the main tasks of capitalists and their political servants is to reduce the freedom of workers.

The principal sword dangling over the employee is unemployment. That is the ultimate sanction, and is essential to the functioning of the whole system. Unlike other markets for goods, the labor market never clears, or settles on the stable demand/supply point. As the book comments, employers do not need to have a line of unemployed machines standing outside the gates to encourage the machines inside the factory to work harder. But they do need unemployement, both to support the command economy inside the firm, and also to keep the wages paid below the actual value given by labor. This connects additionally to one of the reasons for the business cycle- to raise unemployment and thereby "discipline" worker demands, in addition to moderating input prices and clearing out inefficient firms. It turns out that the full business cycle, including recessions, is as central to capitalism as capital itself. We can not have only good times, if corporations are going to clear profits by exploiting workers.

Which ultimately brings us back to inflation. We had a "great" recession in 2008, which led to very high unemployment and durably reduced output. Workers were very well disciplined, to the point that large numbers left the work force entirely. One consequence of all this discipline and lowered expectation has been that employers could get away with not raising pay. The trend of economic growth/benefits going entirely to the capitalists and rich, and none to workers, has continued at an accelerated pace through the period. A side effect of all this low pay is low inflation. This is in dramatic contrast to the late 1960's and 1970's, when worker power was high, unionization was high, and demands for pay were high. Workers expected not just cost of living raises, but seniority and productivity raises as well. Incidentally, the public sector, which is highly unionized and in a special position with political power over its employers, is a relic of that outdated world, resulting in bloated pay and pensions, which are now unheard of in the trenches of the real economy.

Workers have not gained from productivity increases for forty years.

So things are, from a long-term perspective, unbalanced. And what did voters in their wisdom do about it in 2016? They elected a hypercapitalist, who conned them into thinking that he wanted to do something for workers. Ha! Obviously, the progressive agenda is far more pertinent to workers, seeking to reduce instead of increase capitalist power. Progressives seek to increase worker power in a myriad of ways- regulation, a higher minimum wage, better safety net, more public services, higher wealth and income taxes. The strongest proposals so far aim at the lowest end of the scale- setting a living minimum wage, and also establishing the principle of jobs for all- a job guarantee that would set an even more robust floor for the job market and seriously impair the fear that unemployment inspires. Will capitalism survive? I think so- the Scandinavian countries have far more civilized regimes of public goods and worker protection, and seem to do OK.

But what about the bulk of workers in the middle rungs of the economy? Some additional thinking needs to be done to bolster their prospects in the fight with capitalists. While unions are highly beneficial for their members, their benefits are intrinsically balkanized and can be highly damaging to their industries- think of the car industry. A better way is to institutionalize broadly some of the benefits that unions have pioneered, such as the weekend, regulatory worker protections, and rights of political and economic organization.

One idea that I think would be very useful would be to break the secrecy on salary. One of the principal benefits of union membership is the transparency that it provides to workers- knowlege of what everyone is being paid, as a step to negotiating contracts. One of the greatest powers that corporations have, to steal pay and discriminate against classes of employees, is to keep pay secret, as though it were some kind of sacred trust. But many workplaces have transparent pay structures, such as union shops, boardrooms, and professional sports teams, and the sky has not fallen. What average workers need is government mandated transparency on pay in every workplace, so that everyone can see how they and others are being treated. Few measures would as effectively show injustice, generate fairer treatment, and give workers a more realistic picture of their prospects at a current or a future employer.

Would we get more inflation? Perhaps. But there are many ways to skin that cat, with credit, monetary and fiscal policy, rather than worker suppression. It is time for a little capitalist suppression- to right an economy, and a society, far out of kilter.

• How best to raise taxes?
• Stiglitz on the thorough-going corruption of the Trump administration.
• Lying without shame.. will it win the next election too?

Addiction, Exorcism, and the American Dream

Review of Beautiful Boy.

Why is drug addiction such a widespread and dangerous scourge? A lot has been made of the despair of the working class especially in declining rural areas- a crisis of meaning and survival at the short end of the capitalist system. But there is higher anxiety everywhere in our unequal, precarious, and atomized system. Even in wealthy Marin, where the story of this movie originates, parents are in what seems like fight to the death to get their offspring into colleges to fulfil an overwhelming set of competitive expectations. No wonder young adults, even when well-to-do, already feel themselves in a rat race which it would be pleasant to check out of, momentarily. Then add in the viciousness of modern drugs like crystal meth and fentanyl, and you have a lethal witches' brew.

Still from the movie. Timothee Chalamet playing Nic Sheff, and Steve Carrel playing David Sheff.

We used to regard Russia as a demographic basket case, with declining population riven with alcoholism in the wake of the Soviet collapse. Now we are facing a similar downward dynamic- a social rot punctuated by self-destruction through drugs and suicide. The ultimate source seems to be broad insecurity, which was precisely the point of the economic and cultural reforms of the recent Republican epoch, starting with Ronald Reagan. The benefits of competition and division were trumpeted, and the rich were feted as job creators and entrepreneurs, and given absurd benefits like a tax rate on investment profits half as high as the rate on labor income. Companies developed an ideology of serving profits to the exclusion of all other goals, which meant the destruction of stable life schedules, stable jobs, and stable communities. The Reagan era gave rise to wide-spread homelessness, the ultimate warning to labor to keep its head down. And a broad reduction of safety nets of all sorts, from corporate pensions to onerous rules for welfare, which was divided into a puzzle of ungenerous programs.

How ironic, then, that Donald Trump offered to fix all this for workers, restoring the greatness and jobs of America. Who suspected that he came from a Republican tradition whose first order of business, when given power, has been to hand money to the rich? Who suspected that his policy ideas came more from the tabloid headlines of the 80's and 90's (not to say his fascist forebears in the 30's) than from the issues the working class face today? Who suspected that the greatest epoch in American history, after World War 2, was actually our period of highest taxation, culminating in, not coincidentally, the Apollo space program, which was hardly a capitalist venture?

Reagan, George W. Bush, and Trump each cloaked themselves as shamans for an anxious society, ready to exorcise the demons of economic malaise and insecurity, as well as those of Vietnam. While Democrats offered laundry lists of melioration, Republicans could do no such thing, their object being to strengthen hierarchy and help the better-off. They have instead lighted on a more tribally / religiously tinged approach, offering a broad ideology of conservatism (however radical the implementation, and departure from the existing system) and order, which would by some mystery of compassionate conservatism redound to the benefit of all after generous payouts to the few.

On the military front, they authored a series of military misadventures that climaxed with the criminal debacle in Iraq. On the economic front, they pushed hard-line capitalism as the cure-all to bring economic growth, starving the state with deregulation, outsourcing, and bitter budget / deficit battles as a purgatorial nostrum that would rejuvenate an ailing system. Curiously, however, the treatment never worked for the middle class and poor, keeping them economically static and ever more insecure, while the rich and super-rich pocketed all the proceeds.

Economic vitality needs some dynamism and destruction. But people and communities need stability and a basic level of egalitarianism to feel human and have basic freedoms. The founders foresaw that rising wealth and inequality might make of America the same class-ridden culture they had fled in Europe. Their hopes were tied not just to the new republican structure they were building, but also, in economic terms, to the frontier- the jobs-for-all program of its day- which would continue to offer all Americans (and immigrants from all over the world) the option of a decent and hard-working living, preventing excessive inequality.

Now the frontier is gone, the population continues to rise, and the only solution from the "conservative" right is to squeeze the middle class and poor relentlessly in a spiral of anxiety that drives everyone to work and live under ever less humane conditions. We need a better balance that builds more unifying social structures and public goods, reels back the excesses of extreme capitalism, and gives people breathing space and freedom to dream of being more than cogs in a machine.