Sunday, September 05, 2010

Economic ramblings

Whether we knew it or not, the task that faced humanity at the beginning of the 18th century was to vastly increase our social productivity. While some, I suppose, have a nostalgic affection for the "pastoral" life, to me it seems like a lot of dangerous, hard work, for the dubious pleasure of having barely enough to eat, at least in a good year. Any surplus the people created was appropriated one way or another for the feudal ruling class. I'm not really judging the feudal ruling class (it's a waste to spend too much time judging the past); until the invention of the steam engine there wasn't much else to do with the surplus.

To increase our social productivity, we had to concentrate as much surplus as we could manage into investment, spending our labor time creating not things that people could consume (commodities with intrinsic value) but rather creating machines, technologies, processes, procedures and political and social constructs that increased our long-term efficiency (capital, which has instrumental value). And, with all the incompetence, inefficiency, errors and outright assholiness of the capitalists, it cannot be denied that they achieved this task in only a couple of hundred years: blindingly fast by the standards of even human history, and instantaneously by cosmic standards.

Could humanity have done better than the capitalists? Probably: there's a lot to be said for socialist primitive accumulation; the economic growth in the early Soviet Union and China was unparalleled by even capitalist standards. But societies evolve, and the one lesson we learn from evolution is that it's not about the best; it's about the barely good enough. And there's no denying that capitalism was at least barely good enough. Here we are, with a mighty engine of production that really can at present provide for all the reasonable, moderate material wants and needs of all the people in the world.

There's a trope in business that entrepreneurs make lousy CEOs. The skills, talents, attitudes and ethical beliefs that allow a person to build a company from nothing are completely different from the skills, etc. needed to maintain and operate a middle- to large-sized corporation. And much the same is true of capitalism: there are a lot of reasons to believe that the social/political constructs and economic relations that allow a society to build an enormous industrial infrastructure are very different from the constructs and relations necessary to operate that infrastructure.

Capitalist economic relations are predicated on material scarcity; now that we no longer have (or, more precisely need to have) material scarcity, these relations — and the social/political superstructure built on these relations — are no longer relevant. The tail is wagging the dog: capitalism is no longer a response to real material scarcity; capitalism creates and perpetuates material scarcity because capitalism is irrelevant without it. The most obvious evidence for this conclusion is that every severe capitalist crisis (including both Imperialist Wars) has been fundamentally crises of overproduction. The capitalists have been rather clever at solving these problems, from the abominable (but still clever*) concept of killing tens of millions of workers (twice!) to the more humane concept of reallocating aggregate demand after the Great Depression and the Second Imperialist War to promote production for the needs and desires of at least some ordinary people.

*I'm not particularly impressed with cleverness, especially cleverness without compassion or wisdom.

A lot of progressive economists are wondering whether present-day unemployment is cyclical or structural.

Structural unemployment occurs when there's a substantial shift in what people want, what "ought" to be produced. If people want substantially fewer cars and substantially more computers, we have to shift our productivity from cars to computers. This means (among other things) that workers, managers and even capitalists who are skilled at producing cars have to learn new skills and techniques, and they have to create new social/political constructs to move to the new industry. Unemployment will increase as the workers and managers are laid off from automobile production until computer production increases enough to absorb them.

Cyclical unemployment occurs because market economics is a feedback system with a substantial time lag between production and consumption; it's not a purely rational system (although it can be modeled as a rational system). Businesses increase production until it's clear that they're producing "too much", but they don't know they're producing too much until after they've produced way too much; they then cut back production (laying off workers) until it's clear they're producing too little... way too little.

Looking back at capitalist economic crises — the Long Depression, the Great Depression and the recessions of the 20th century — we see that capitalism is very good at correcting underproduction, but that they're terrible at correcting overproduction. All the economic relations of capitalism — especially laissez-faire capitalism — work on the supply-side: the right way to correct underproduction is by producing (supplying) more. But the right way to correct overproduction is not to produce less, but to consume more. The great success of the Keynesian regulatory government in the latter half of the 20th century was in their ability to mitigate both sides of the business cycle, correcting underproduction by encouraging more investment and correcting overproduction by stimulating consumer demand.

But capitalists, strongly habituated to sacrificing individual consumption for investment appear to loathe "arbitrarily" increasing consumption. It's not a rational response: it's completely visceral. I don't judge the capitalists too harshly for this attitude: it's the attitude that built our industrial economy. Once people adopt some moral principles, and especially when those principles are effective under particular circumstances, they start thinking those principles are objectively and universally true, regardless of the particular circumstances. (That's why a primary theme of this blog — besides communism and atheism — is meta-ethical subjective relativism, which denies that ethical beliefs can have objective and universal content.)

It seems clear that we've returned to true cyclical depression economics precisely as the efforts of the capitalist class to dismantle the Keynesian regulatory government have achieved substantial fruition. Indeed, several steps in the dismantling of Keynesian government has been associated with some severe cyclical crisis, notably Reagan's savings and loan crisis.

I'm coming to the belief, however, that although there are some components of cyclical and structural economics, the present depression (and it is indeed a depression, characterized by specifically depression economics rather than cyclical recession economics, which require substantial government intervention) is predominated by "paradigmatic" unemployment.

The problem is primarily not that we are unsuccessfully trying to correct cyclical overproduction by consuming less, leading to a vicious deflationary spiral (although that is happening), nor that there is a surplus of workers with one skill set and a shortage of those with another (there don't appear to be substantial shortages in any industry, at best a few industries are holding more-or-less steady), but rather we have fundamentally shifted our paradigms about labor in general.

Prior to the 21st century, we pretty much needed everyone to work. We more-or-less arbitrarily divided up the population into the "top" 10%* and the "bottom" 90%, and gave all the considerable grunt work of an industrial economy to the bottom 90%. But in order to grow the economy, we had to actually produce commodities that the bottom 90% could consume. Reallocating this demand was the big idea of the New Deal.

*10% is a more-or-less arbitrary number. The point is not the exact value, but that we divide the population and say that some segment is inherently worthy of increased economic demand. Furthermore the top 10% (or whatever percentage) is more-or-less arbitrarily subdivided into the top 1% in the actual capitalist ruling class and the next 9% into the professional-managerial middle class.

However, we see today that there's just not enough grunt work to occupy the bottom 90%, especially when we consider the bottom 90% of the whole world, which globalization has afforded us. A company can now produce more efficiently not by using less labor, but by allocating less demand to labor. Every company has a enormous short-term incentive to cut labor cost, even though removing this demand makes all companies worse off, a classic prisoner's dilemma situation. Having destroyed the Keynesian government regulatory and financial apparatus that provided at at least some global incentives for mutual benefit, businesses must respond to the dominant strategy to everyone's detriment, even their own. No individual business can unilaterally increase labor cost (and thus aggregate demand); because other firms are free to cut labor costs without penalty, the firm that raised labor costs would simply go out of business without much increasing aggregate demand.

We have not just radically increased the bottom 90% with globalization: the pace of technological improvement in producing more stuff with fewer workers, using robotics, computers, and other forms of advanced technology. Companies — to the extent that they're spending at all — are spending not to hire more workers, but to invest in technology and machinery to produce more with fewer workers.

For these reasons, I'm skeptical that even a much larger temporary stimulus would have simply corrected the depression and put us back on track to a "normal" growing capitalist economy. Even a pure demand-side stimulus ("dropping money out of helicopters" or paying people to dig holes and fill them in) would have produced only a temporary improvement in conditions, as individual businesses invested the increased revenue in hiring more "cheap" overseas workers and buying more labor-saving technology. Once the stimulus ran out, we'd be back where we started.

The problem is that there's just not enough work — at least not enough work that will grant individual capitalists enough differential power to justify doing — for the bottom 90% of the population.

Until the present day, an individual's economic demand was justified by her supply: she received commodities because she produced them. This connection makes sense when there's an overall shortage of commodities: we can't afford "free riders". But when there's a surplus of commodities, it no longer makes as much sense to closely correlate consumption with production, and it makes no sense at all to correlate consumption with privately profitable production, i.e. production that leads directly to increased investment.

The two big problems are that the capitalist system does not account for the value of leisure, and has a very hard time accounting for profit-competing general good. You can trade time (indeed that's what all workers do: trade their time for commodities), but you can't trade leisure. No matter how much I enjoy sitting around in my bathrobe watching Monty Python's Flying Circus, I can't trade that enjoyment with someone who enjoys hiking in the mountains. You can't make a profit from something that can't be traded. And by definition, you can't make a profit from fulfilling an unprofitable general good: contributing to the general good by definition does not afford a private advantage, and capitalism is all about using private advantage to allocate capital. As much as a well-meaning individual capitalist might want a general good, he cannot act to achieve it unless he can be reasonably confident he won't be undercut and eliminated by some other bastard who just doesn't give a shit if people breathe dirty air, or drink polluted water, or if 20% of the population is un- or underemployed.

We have to somehow fundamentally change aggregate demand so that both leisure and general goods are promoted, at the expense of private profit. It's a trade-off, and the old paradigm of pretty much sacrificing everything else to grow the industrial economy is just not going to work. We can't just push a couple of trillion dollars one time into aggregate demand to "prime the pump"; we have to fundamentally restructure aggregate demand to give real economic power to the desire for general goods: clean air and water, good health care, education, culture, art, and most importantly general leisure.

It's a non-trivial task. We haven't yet reached the point where we can turn on the completely automated and perpetually self-maintaining factories and all sit around smoking dope and watching cartoons, or even discussing philosophy, writing literature and doing physics. And it's not at all clear that we ever want to go that far: it's a damn big universe out there, and it would be nice (in my opinion) if people were to keep some of the "capitalist" ambition, drive and self-discipline to actually explore the universe. I'm skeptical of the claim that if we simply let people do whatever they want, that some people will "naturally" have the ambition to explore the universe and the self-discipline to achieve that ambition; I suspect that ambition and self-discipline requires considerable active social support.

Even if we had a good sense of where we want to go, it's also a non-trivial task to actually get there. The capitalist ruling class has a set of habits, attitudes and beliefs about how the world "ought" to be, and they have enormous social and raw coercive power to preserve their privilege to maintain those attitudes. They believe — as would most anyone who rationally correlated their attitudes with their success — that their attitudes are not just pragmatically effective under particular circumstances but objectively true and universally applicable. It's not just pure greed or lust for power: we offend the sensibilities of capitalists when we say that economic demand should be distributed without regard (or with considerably less regard) for individual privately-profitable productivity. We offend their sensibilities in exactly the same sense that we would offend the sensibilities of a biologist to say that we should believe that evolution is false. (Of course, the scientist is correct, and the capitalist is making a category error. But the feelings are the same: both consider the respective positions to be offenses not just against their interests but against the truth.)

Maintaining their power and privilege is obviously part of the issue, but the capitalist class will resist a fundamental shift in allocating economic demand because they honestly believe that doing so is objectively wrong, and that doing so will lead to horrific consequences. They are inherently privileged to rule, and their past success (which we must grant to some extent) proves they are inherently privileged to rule, and the habits, attitudes and beliefs by which they have achieved their rule are the right attitudes every ruling class must have. By definition, any alternative ruling class will have different attitudes, and will therefore be inferior.

This meta-ethical attitude is important. Until human beings radically change their general nature, any kind of human society will somehow sort itself, define the "top", and the top will have some kind of privilege (although the privilege might not be specifically material or coercive). And pretty much the more intelligent, creative, ambitious, hard-working and lucky people will find themselves with that privilege. Individual capitalists will not, by and large, actually lose their privilege. If it were simply a matter of maintaining some conception of privilege for the intelligent, etc. we wouldn't ever need to have a revolution to change our economic relations: the intelligent people at the "top" would simply apply their intelligence to the new economic relations and enjoy whatever new privileges afforded by the new relations.

When a person is in (and especially when he achieves entry into) whatever class happens to rule at a particular time, he becomes emotionally attached to the values, attitudes and habits predominant in that class — more attached than he is to his own children: note the pervasive literary trope of the king or captain of industry disowning or punishing his child because they fail to adopt or live up to the dominant class values. (This attachment to particular values is not, of course, unique to the ruling class; the attachment to tradition for its own sake is prevalent in humanity in general, and we appear to need enormous social support to effect changes in values.)

Well... it looks like I have to leave these ramblings more or less inconclusive. Where are we going? How can we get there? What will it cost in human suffering to change? I dunno. I know only that something has to give: "The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew."


  1. The overproduction was due to the state intervention that distorted the picture of economy. Free market can reach over production for very short period of times because overproduction implies lower prices and businesses going bankrupt. Only the state can maintain overproduction for a period long enough to create big crisis, by keeping alive businesses that shouldn't stay alive and creating businesses that need not be created.

    I lived in a communist country where some "smart tyrants" dictated what "ought" to be produced. Sugar and oil was rationalized.

    It's your right to hire someone else to tell you what you "ought" to consume (you can only consume what it is produced and some decides what "ought" be produced) but I can do it for myself.

    The road to hell is paved with good intentions (like you may have) but I've been to the communist hell. After that hell I've been living for 20 years in the state-ruled capitalism hell, but I had the fortune to visit the semi-state-ruled capitalist hell countries in the West. I can tell you only one thing, the smaller the state, the fewer the "smart decision makers" at the center, the more bearable hell you get. Observations would say that the state is the problem and if you would get rid of the problem you would be able to freely associate with your commarades to create your little heaven. Because sometime, those that you give the right to say what you "ought" will say what you "ought not".


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