Posted by: Dr Pano Kroko Churchill | July 17, 2014

Modest Views on Modern Era Economics

In the back of social change lie many atavistic forces.

Climate, natural resources, agriculture, industry, finance, consumption, social norms, government, services and manufacture, all serve to set in operation movements, influences, and trends, that tend to change people’s lives in ways small and large. Slow and fast.

Sharply rising income and wealth inequalities characterize the new centers of capitalism as well as the old. Globalization and distributed capitalism’s deepening inequality throughout the world, likewise spread the usual effects of such inequality. Rampant unchecked speculation of resources, real-estate bubbles, gross conspicuous consumption by the wealthy and the diminishing upper middle class, vile political and banking corruption, and so on — drive the opposite societal teams to frothing contest.

A remarkable historical parallel to this latest stage of capitalism suggests where it is leading us. After the 16th century, the contradictions of European feudalism led it to transform a centuries-old localized, decentralized manor system. Force served as midwife in amalgamating many feudal manors and gave birth to a few nation-states organized around highly centralized, absolute feudal monarchies (such as Britain, France, Spain and Prussia). That centralization process gave feudalism more decades of life. But it also generated those extremes of wealth and poverty exemplified by the palace at Versailles,and the Marie Antoinette lifestyle [see early Kim Kardashian] versus the abject slums of pre-revolutionary Paris.

You see today these disparities everywhere, and those extremes are the signs and the causes that have provoked revolutions against feudalism that eventually yielded that system’s demise.

One has to think of today’s extremes produced by a globalizing capitalism  — Detroit versus San Francisco, Manhattan versus the Bronx, Germany versus Greece, China’s new billionaires versus many millions of poor workers and peasants, —  where they might be leading us…

Surely CHANGE is upon us.

But what kind of change?

Change comes in all shapes and colours, like kitty cats. A tabby, a ginger, and a black & white one. Yet sometimes change comes like a tiger — a rather large cat — roaming through your house.

That can be slightly unsettling. The big cat chasing you that is…

We accept change when it is the glacial and mostly technological type as well as the diminutive social type of change, that we all accept as good for the middle classes and a boon to the economy, until such time that it doesn’t serve us any more.

Yet when radical change happens, like the proverbial tiger running after us inside our own house — it is always first a throwback to an “ancien regime” of fight and flight simplistic behaviour, instead of considering cooly the progressive evolutionary leaps, we need to take as smart agents of the species. Saving your life and slaying the tiger is the first order of the day and we are not thinking about building a better house with home theatres, swimming pools, and escape hatches and safety pods for when large predatory cats come inside from the wild.

We simply run for the exits cradling the pitchfork — if you have such ancient gardening instruments handily hanging in the back of the garden shed. Or maybe you start carrying around the large rolling pin hiding in the pantry.

But these are your options. And these two elemental directional forces are at work here too in our modern economic lives. Take Flight or Stay and Fight.

What would you do?

Would you adopt the flight of Capital to safe harbours, as a sound policy?

Or you prefer to put down stakes and join the fight of Labour to save their own harbour?

Two distinct and contradictory if not downright inimical perspectives govern the debate, and Life choices of our modern era and they both come from surprisingly similar quarters:

1) On the one hand we have the theorists that the problem rests with Labour. Namely that what really happened in our recent modern era, was that the unskilled and semi-skilled labour in Western Europe, Japan and specially in the United States, overplayed their hand vs capital.

The vaunted 40-hr work weeks, overtime pay, somewhat higher wages, and vacation pay, and health insurance and benefits, were all fine and healthy. But they couldn’t resist themselves, specially in the US with 4 decades of Democratic controlled Congress to run into excess. So it became impossible to fire union workers. They had inflexible work rules. They had feathered pensions that were unsustainable. They had to be paid in job banks even when they were not needed for work.

Therefore, Capital found a solution in global trade and is in the process of implementing it – and mind you, we are just in the second or third inning. If your job is to put 5 bolts on an assembly line on some item (washing machine, or car) in front of you, that job has a given market value. If it can be done at $1/hr in China, $2/hr in Mexico, $10/hr in South Carolina, it can’t (for long) be forced to be done at $28/hr in Michigan. They rationalize that You can slow down the inevitable, just like the Soviet Union hung on for 4 decades — past it’s expiration date… But eventually there will be a convergence of unskilled and semi-skilled wages worldwide – with adjustments for location (proximity to markets), energy costs, needed language skills, etc. Meanwhile, capital that had to be (mostly) deployed locally, can now be deployed globally. A travel agent used to apply capital to serve and profit from a few hundred customers in a neighborhood. Priceline, Expedia, Travellocity, etc can deploy capital to serve a global audience, with no local presence, therefore being able to hire at the absolutely most cost-effective labour markets.  That is why concentration of income and capital is happening and will continue. Capital is profiting from global markets while at the same time arbitraging for lower wages and costs globally. All else (taxation, immigration, etc) is noise…

2) The labour perspective is that we’ve gone too far and already see signs of imminent collapse that are enumerated as the vast unemployment pools, the  rising and large percentage of hungry people, the complete lack of congressional action to address this (the last Farm Bill gave tens of billion in subsidies to the private agricultural monopolies while cutting four billion in food stamps), the inequality rising to levels which have historically always led to revolution, the rise of demagogues, populism, and increased tribalism and fragmentation of our society, the unequal application of the law to incarcerate minorities at the highest rate on the planet since in the US we have 4% of population and 25% of prisoners, and the rise of a class of super-rich who control our governments and look upon workers as inferior subhumans.
This unchecked corporatism and financialization which continues to maximize profits at the expense of workers when their wages are the fuel that drives our economy, coupled with the rise of financial behemoths who are picking over the bones of worker assets and future income will bring a French type of Revolution to America and Europe all over again. And Labour claims that our economic system can only survive if worker wages rise to track productivity. This was the case from 1945 to 1972 and the unions were a big part of everyone’s success by ensuring this. Since 1972 wages have flattened while productivity has continued to rise which has imposed a four-decade tightening of an economic vise on the working class. Today corporate earnings are at historic highs and payrolls at historic lows as a percentage of GDP. We are bound to quickly encounter economic/political collapse unless we reverse this. Unions are one way, tax and redistribute another. labour prefers federal limits on a corporation’s earnings to wages ratio based on their prior history.

There is of course a lot of noise in this debate….

But we need to see the light.

We need to discern the TRUTH between these two adversely advocating stories, because none of them are entirely true — when observed through the microscope of economic sentiment.

One thing is certain CHANGE must come sooner rather than later.

It is therefore part of Good Governance, Proper Public Administration, and Elemental Leadership, to observe, deduce, and adjust all these forces in such a fashion that changes are balanced and rational experience is not left at the mercy of varying conditions of change.

But the economic life of a whole People, is so complicated that complete adjustment is beyond human power.  Individual people all around tend to agree that a stock market crash is right around the corner. People never understood how wealth can evaporate into thin air like we have seen in 2008-09.  The assumption by middle class people is that if it can vanish into thin air, than it wasn’t real to begin with.

Now you have the real economy with real wealth that is hurting, yet the finance sector with gains apparently pulled out of thin air is booming. How can you sustain an economy on phantom wealth? It all doesn’t make sense to the middle class people, and needless to say they don’t have any money in the stock market. So who is driving the bubble of equity valuations?

A self serving oligopoly. A tiny percentage of the 1%. Much like communism where the Middle Class was squeezed silly. The decimation of the American Middle Class is intentional and not accidental. The AMC has been the fuel for the US economic engine. If the fuel (AMC) evaporates, then who is going to fuel the engine? Is American Big Business wanting to replace American consumers with non American consumers?

In Bangladesh when I go to visit, I see those sweatshops workers having mobile cellphones, LCD televisions, bank accounts, and are able to buy and wear local designer clothes, they can definitely afford to eat 3 times a day, go watch movies after work, and send their kids to foreign countries for higher education and then they even dream of owning a car and buying a decent home….

Well then isn’t this is how capitalism works? Narrowing down to jobs moving overseas is a poor excuse, for the reason American and European consumers are dead, because for too long they have voted with their feet, their supermarket choices of what they are buying every day, their consumption of news and entertainment, and through their wallet — always placidly bestowing the power to let the uber-greedy 1%  to have too much power and wealth, and now that the 1% are in control of every thing, people are discovering that they are kind a like serfs. Modern day serfdom is when you give up your Liberty to become a pawn in a stitched up game. Kind a like communism in the good old Soviet days. You have no rights and you know it….

Of course am inclined to ask: What would be the benefit at home and abroad of going back to serfdom unless we embark on a global system of Good Governance and we use this period of malaise as the journey time and the penalty to suffer while we sue for a long lasting global Peace?

But nobody is thinking at this level of systems complexity yet…

The Emergence of this kind of Life has not occurred to the leaders yet.

Therefore, if we are dragged into a global hierarchical system Pell mell with utter lack of logic on the part of Big Politics, Big Finance and Big Business, we shall fail miserably.

People will not follow that and mob rule will ensue and that will set us back Millennia. It might come a time when the Dark Ages would look like a picnic and heads will be carried on poles through the streets a la the French Revolution… with the guillotine working overtime. Not a good prospect to see… and certainly not the route to Enlightenment.

Whereas if we can educate people and ask them to come along… nudge them through behavioural economics; then we might win their hearts and minds —  albeit reluctantly.

At the root of the problem though, is still our political system and to fix the economic system first we must fix the former. In other words if money can buy our elected officials we will never experience democracy at work because the influence will stop any reform of the banking system that is at the root of this problem because the banker-wankers control the economy and the laws that govern them. The banks have to be regulated back to what they were under Glass Steagall Act, or suffer another collapse…

A still deeper problem is the very idea of economic growth, which is seen by the people today as a typical fiction based on turning something “worthless” into something “valuable” by fiat. Bubbles are an overt example. More subtle are the false economies created by bad accounting, such as what happens when profits are privatized and costs are socialized, giving the appearance of “wealth creation” in what is actually a zero-sum game. Or the cases, where value is simply moved from where it was, to where it can be guarded as private property. In both these cases, “wealth creation” is really just theft from the Commons. Commons can be natural resources, the earth, the trees, the atmosphere, the air, the water, the land and food.

Viewed globally over long spans of time, sustained economic growth — particularly exponential growth, which is what x-percent annual growth means — is physically impossible.

Wealth destruction must, in the end, exactly equal wealth creation.

Any apparent exceptions to that are at root some form of bad accounting. We get away with bad accounting when the only things to complain about the forest you are cutting down and turning into TP, soggy newsprint, paper goods, cardboard boxes, etc — are the ancient trees, the spotted owls, special threatened species and primitive people habitat, and unusual frogs.

Complaints arise only from the NIMBYs when the logger shows up in your “back yard” to cut down your trees. When the cutting reaches a scale where it impacts the carbon cycle of the global atmosphere, which affects even the wealthiest capitalists’ ability to breathe, the neglected “externalities” in the economic equations become overwhelming, and give lie to the fiction of “wealth creation.”

Seems to me that unfortunately we will have the General Collapse before anything is done because the government is being systematically neutered by the people who are benefiting from lack of oversight.

Since governments are store bought — then the people deserve what they get.

Unfortunately…

People who want Liberty & Democracy are now called anti capitalists or big government supporters. .

Across the 19th and 20th centuries, expanding populations eventually required capitalism’s concentrated industrial centers to draw raw materials, foods and laborers from beyond their original national boundaries. Accordingly, formal and informal colonialism transformed large parts of Europe and much of Asia, Latin America and Africa. They became the “underdeveloped” global countryside for the “advanced” industrial capitalist centers.”

Expanding populations eventually required some form of colonialism. Same as today. Are you ready for the Mars colonies yet ?

Ever-expanding capital accumulation that is at the heart of capitalism which “requires” colonialist exploitation of the periphery cannot be contained in Earth any longer, because the logic failure is this: If the populations in the old centers had not expanded, wouldn’t the periphery still have been exploited by capitalists for raw materials, land, labour, arbitrage and general expansion?  Isn’t that the dynamic of the accumulation of capital — expansion where ever possible regardless of anything else?

Even reluctant old-center capitalists in the late 20th century flocked to the periphery to profit from the exploitation of ‘cheap’ labour. So was the case with exploitative colonialism of the early 19th and 20th centuries, similarly about expanding capital accumulation and not something that was determined by population expansion.

Capitalism was not designed or adopted based on its effectiveness at serving society. It may now be framed as such, claimed to be “the best system ever tried”, but the fact is, capitalism is destroying itself, and probably humanity in the process. Not only does it depend on inequality, which is socially unsustainable, it also depends on the exploitation of resources, which is ecologically unsustainable.

Capitalism is outstanding at making products available, and most of the rebuttals to anti-capitalist arguments basically center around this idea–that because we (the richer countries among the rest of the world) have more products than we did 100 years ago, everything is just fine and life will continue, business as usual. Supposedly, capitalism is great because we are all rational, self-maximizing, greedy individuals and the system is able to harness that rational self-maximizing greedy individualism, and turn it into rational community-maximizing efficient communitarianism using the invisible wizard hand. However, capitalism is clearly just an upgrade to feudalism, a way to justify existing hierarchies and strengthen them.

There is no reformist solution to this problem. We can’t just redistribute wealth or create a better welfare state. The situation we are in now, or one which is basically the same, will always happen. The capitalist class will always put themselves far above the working class, whether the capitalist class is composed of private organizations, state organizations, or what have you. Private ownership, individualism, quid pro quo exchange, and all other basic elements of the trade-based paradigm are the real problem. Until we rid ourselves of trade and egoist self-interest, we are forever going to be a society of Bill Murrays, and Ayn Rands, all caught in this same loop, wondering why it’s happening.

Yet unbeknownst to us, the real Libertarian Revolution is coming whether we like it or not.

But what we do will make the difference if this is going to be an Evolutionary Adaptation or a radical transformation. And the difference between the two is like night and day. Huge and bloody important to choose the light of day…

It does not matter what economic system we choose to employ (feudalism, communism, or capitalism) if our basic class structure is not deconstructed from the administrators, the wealthy, and the workers. This recurring and absolute class structure is the source of inequality for each economic system utilized throughout human history. Here we see the effects of dominance and submission inherent in our biology: alpha and beta. While it is true some folk are good at leading and some at supporting, this should not translate into absolute hierarchies of value.

Yes, true leaders are better and far more useful and rare, than supporters, thus they should receive larger benefits of mutual enterprise, and their wills should be incontrovertible. Yet we cannot administer collective social, economic, physical, pain for these transgressions. Because we have done this in all economic structures throughout time, and we have created the inequality that has dogged and doomed all human civilizations for millennia.

And maybe now we are better than that. So are we finally ready to see this and move beyond this destructive dynamic?

Therefore when we embark on a speculation of what comes next, we see a couple of choices. Either we embark on a voluntary narrowing of the growing economic disparities — or we are FORCED towards the narrowing of the growing economic inequalities.

If capitalism is to work it needs consumers and a strong middle class. If American and European good jobs are moved to Asian sweatshops, then who are going to be the consumers? Long term this seems to be irrational. Henry Ford paid his workers enough to be able to afford to buy the cars they were building.

The genie is out of the bottle and the FEELING along with the KNOWLEDGE of what is happening will be a driving factor.

The chasm cannot be widened without communications and communications opens the potential for change as more people learn about this.

Ultimately I suspect that there will be efforts to suppress the revolutionary  knowledge of extreme iniquity, and to divert attention from the disparities of living wealth. Much like the Roman Coliseum — those “games” are being played out on “reality TV” and in the Mundial soccer fields, and along all the other entertaining bread and circuses.  And all that is provided with a thousand channels of shit on demand, but poverty leads people to drop the unnecessary and entertainment access is another one of those that things that are income based, and therefore easily dismissed.

In the long run the disparity is unsustainable. The question then is will it smooth out earlier by cooperation and good stewardship – or will it smooth out later by chaos and disaster?

Poverty in itself is seldom the cause of revolution. It is the sense of inequality in the distribution of wealth that breeds discontent. When wealth increases and
at the same time tends to become monopolized in some class or group,
this discontent is always keen.

And, above all, when the rich are indifferent to the inequalities which economic change increases, and when the burdens of the economic life are not lifted from those least able to bear them, the consciousness of inequality grows into enmity.

And now the second wave of corporate tax free domicility hits, we are woken up to a new reality. When Google, Apple, Microsoft and all majors like Exxon, Mobil, Chevron and all favour tax avoidance regimes we smirk at the erstwhile profits and corporate gains, but as a rash of corporations like Walgreen hurry to relocate overseas through tax-inversions, we need to examine the local market effect on the abandoned community that benefits from their tax base along with the consequences of global capitalism’s lack of touch with the Moral Sentiment.

We need to get back in touch because originally globalization meant above all a sudden increase in the global supply of labour power, yielding an historically unprecedented buyers’ market for labour. By relocating production facilities out of their old centers, capitalists drastically cut labour costs and increased production.

Globalization distributed capitalism’s deepening inequality throughout the world. It likewise spread the usual effects of such inequality: speculation, real-estate bubbles, gross conspicuous consumption by the rich, political corruption and so on. …But it also generated those extremes of wealth and poverty exemplified by the palace at Versailles versus the abject slums of pre-revolutionary Paris.

Everywhere, those extremes provoked revolutions against feudalism that eventually yielded that system’s demise. Today’s extremes produced by a globalizing capitalism — Detroit versus San Francisco, Manhattan versus the Bronx, Germany versus Greece, China’s new billionaires versus many millions of poor workers and peasants — where might they be leading us?

Today’s wildly padded corporate balances derived from speculation are not “real” in the old sense of the word.

They are simply a gamble with no promise of any return. What Wall St. has not taken into consideration is the fact that foreign markets have not seen the kind of growth which would be equivalent to those markets abandoned in the U.S. Because so many good-paying jobs were lost in the U.S., that market has collapsed.

But what about being rather proactive and through studying complexity and chaos we place simple forward rules to allow the emergence of Great Society through the stresses that this present debate and societal pressure cooker yields?

Am thinking of the evolution towards the Personal Democracy that I advocate and also towards the “Dry Feet Democracy” that arose in the lowland countries of the Netherlands and specifically Amsterdam and other Dutch cities of happy children and content adults.  In both cases it is a consensus based “polder model” that is so far meta from the American notion of Laissez-Faire capitalism as Detroit is from the Moon. It is not just about welfare and public housing, or food and agriculture, but it is about the sharing economy and the Liberty at hand. Am basically observing the Dutch system because I knew that building a city in lowlands “below sea level” gave rise to strong “Commons” and an efficient government and happy children.

The Dutch government supports child bearing. It supports young families. It even sends you vacation money. They mandate that everyone gets a minimum of four weeks vacation per year. They offer universal health care without the labyrinthine system of deductions, and encumbrances we accept as necessary.

You will need to really understand the social benefits and the high productivity of the Dutch people and the highly effective and efficient system in order to make sense of why the 52% tax rate in the Netherlands is actually a better deal than what we have in the US and in the UK. Also, it helps if you understand that this is capitalism at it’s best and we need to rectify our lockstepping and negative labeling of that type of Government Commons system as socialism.

We need this kind of Personal Democracy and Direct Rule of Commons.

Because…

Capitalism as unbridled rapacious exploitation has come to an end.

The rear guard of course does not see this but the Vanguard has already admitted as much. And after all — things that begin, must have a middle and an end. For this style of system to “exit stage left” is not just the Director’s orders, but simple historical necessity, and habit at the end of the play. Any Play and any living thing has a beginning,a middle and an end.

Today, we’ve fallen out of balance. We lapsed in our controls. We’ve been asleep on the switch and therefore we lost count of the trains derailed.

And today, maintaining disequilibrium although desirable to few, terrible to many and painful to most of us is considered proper government policy.

Yet am here to tell you that maintaining disequilibrium is unnatural, and cannot last long.

It is far easier to help a young elephant stand up than to try to support a dying one from falling down. In the latter case chances are you will be crushed under the falling pachyderm and they’ll need a crane to just retrieve your flattened self world view…

So let’s abandon the Flat Earth belief and get a new view that will help us cope with change and progress as we need to adjust massively and quickly.

Because today’s inequity can only be tolerated until it becomes unbearable.

So instead of maintaining the paradox, and living through a suspension of disbelief, we need to adopt a new paradigm because what develops from becoming balanced can be a better future for all.

A better Future for all…

All that are still living — shall benefit — that is.

Because in the long run we’ll all be dead.

Yours,

Pano

PS:

And this leads me to believe that what we are about to witness is a stock market crash. That depression may last until a new market has developed in the areas which benefited most from moving production overseas.

It could take an entire generation to develop new buying habits.


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