Wednesday, July 18, 2018

John Atcheson - Let's Just Admit It: Capitalism Doesn't Work

"In the Soviet Union, capitalism triumphed over communism. In this country, capitalism triumphed over democracy."—Fran Lebowitz



In almost every way you examine it, capitalism – at least the relatively unconstrained, free- market variety practiced here in the US and supported by both parties -- has been an abysmal failure. Let’s take a close look some of its worst failings.  But first, it must be admitted that when it comes to exploiting people and the planet for the purpose of generating apparent wealth for the few, it has been a smashing success.  More about that notion of “apparent wealth” in a moment, but now, the specifics.

The logical end-point of a competitive system is an oligarchic monopoly

A recent report  by UBS reveals that the global march of economic inequality is accelerating.  The report found that the billionaire’s share of wealth grew by nearly 20 percent last year, reaching a level of disparity not seen since 1905, the gilded age.  Interestingly, the first gilded age followed decades of uber-free market laissez-faire policies, just as today’s gilded age has.

Not surprising, really. Empirical evidence shows that without constraint, markets will proceed toward a winner-take-all status. In short, monopolies and oligopolies. For example, the United States has had three periods of prolonged laissez-faire economic policies, and each was followed by extreme wealth inequality and the three biggest economic crises in US history, such inequality causes.

Oh, but the magic of competition makes companies compete for our dollar, so they can’t afford to exploit us, right? Not so much.

The magic elixir of competition doesn’t work—for the simple reason that there isn’t much competition anymore. Having convinced folks that regulation is bad, the Oligarchy is in the midst of a frenzy of mergers that is giving a few large conglomerates control of many of the major market sectors.

Derrick Thompson, in a recent article in the Atlantic, lays out some of the grim statistics that illustrate the trend. As Thompson writes,

To comprehend the scope of corporate consolidation, imagine a day in the life of a typical American and ask: How long does it take for her to interact with a market that isn’t nearly monopolized? She wakes up to browse the Internet, access to which is sold through a local monopoly. She stocks up on food at a superstore such as Walmart, which owns a quarter of the grocery market. If she gets indigestion, she might go to a         pharmacy, likely owned by one of three companies controlling 99 percent of that market. If she’s stressed and wants to relax outside the shadow of an oligopoly, she’ll have to stay away from ebooks, music, and beer; two companies control more than half     of all sales in each of these markets. There is no escape—literally. She can try boarding an airplane, but four corporations control 80 percent of the seats on domestic flights.

The consolidation of the media is yet another example; just six corporations now control 90 percent of the market. And of course, there’s the inconvenient fact that the “too-big-to-fail” banks that were a major cause of the 2008 Great Recession are now bigger and fewer.

This concentration of market power translates into lower wages, fewer jobs, and higher prices – exactly the opposite of what the neoclassical economic theory embraced by capitalists tells us will happen when we remove regulatory constraints – and exactly the opposite of what the Republicans’ trickle-down myth says will happen. Or what the neoliberal Democrats tell us, for that matter.

But it also gives the wealthy control over our political system, and the people have gotten wise to it.  That’s why a little over a quarter of the eligible voters were able to put Trump in power – most of the rest of us are completely turned off by a political system that’s clearly for sale and so, increasingly, many do not show up to vote.

That control has expressed itself in policies that result in extreme income disparities between the increasingly few haves and the expanding have-nots. Today, just five people have as much wealth as the 3.8 billion people comprising the least wealthy half of the world’s population, and nowhere in the developed world is the problem as acute as it is in America.  The system is rigged, and our belief in capitalism and the power of the magic markets is what allowed that.

Now, about that “apparent wealth”

We measure our wealth in currency.  But currency is simply a surrogate for real wealth, which is based on natural capital and labor.  The problem with this is that natural capital is limited, while the amount of currency is limitless.  For example, the value of the derivatives has been estimated to be as high as $1.2 trillion, or nearly 20 times the size of the global GDP.  So what?  Well, since:

currency is merely a claim made against real wealth, not wealth itself; and
currency has the capacity to grow infinitely; but
natural capital, the source of real wealth is finite …
That means we are creating claims on natural capital that exceeds the planet’s capacity to provide it.  In short, we are essentially creating debt for future generations and calling it wealth creation.

More here on externalities - 

15 comments:

Bob Roddis said...

I thought what we had was our marvelous system of modern money. That's what doesn't work.

Konrad said...

Capitalism does work. (For the rich.)

Incidentally, discussions of MMT are entirely separate from this.

MMT facts are universal. They remain facts whether we apply them to capitalism, communism, or whatever. For example, it is a fact that a dollar has no physical existence. Indeed no one has ever seen a dollar. All we see are symbols that represent dollars.

Any child can understand this. However it is beyond the grasp of adult morons.

AXEC / E.K-H said...

MMTers make capitalism work
Comment on John Atcheson on ‘Let’s Just Admit It: Capitalism Doesn’t Work’

John Atcheson summarizes: “In short, we are essentially creating debt for future generations and calling it wealth creation.”

That, of course, is true because Public Deficit = Private Profit. But who is “We”?

“We” that are the Deficit Owls on Twitter, that is Stephanie Kelton et al. in the yellow press#1, Warren Mosler et al. in the financial community,#2 Bill Mitchell et al. in academia,#3 that is the philosopher Tom Hickey in the econoblogosphere, one Konrad in the spiritual parallel universe, that are the deficit-spenders/money-creators from the history of economic thought,#4 and many others. “We” that are first and foremost the MMT agenda pushers.#5

Capitalism works because of the macroeconomic Profit Law Qm=Yd+(I−Sm)+(G−T)+(X−M) which, oddly enough, economists do not understand since the founding fathers.#6, #7 The Profit Law tells “Us” also that capitalism will eventually break down.#8

The MMTers’ assertion that debt does not matter and that the sovereign money creator cannot go bust is somewhat beside the point. Capitalism lives literally on borrowed time.

Egmont Kakarot-Handtke

#1The Kelton-Fraud
https://axecorg.blogspot.com/2018/07/the-kelton-fraud.html

#2 MMT: The one deadly error/fraud of Warren Mosler
https://axecorg.blogspot.com/2017/11/mmt-one-deadly-errorfraud-of-warren.html

#3 Bill Mitchell, MMT’s fake scientist
http://axecorg.blogspot.com/2018/03/bill-mitchell-mmts-fake-scientist.html

#4 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html

#5 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

#6 Truth by definition? The Profit Theory is axiomatically false for 200+ years
https://axecorg.blogspot.com/2018/07/truth-by-definition-profit-theory-is.html

#7 Wikipedia and the promotion of economists’ idiotism (II)
https://axecorg.blogspot.com/2018/07/wikipedia-and-promotion-of-economists.html

#8 Mathematical Proof of the Breakdown of Capitalism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375578

Andrew Anderson said...

That's what doesn't work. Bob Roddis

Inexpensive fiat is the ONLY ethical money form for government use - otherwise the taxation authority and power of government is misused to benefit private interests. Of course fiat creation should only be for the common welfare and that does not include interest on reserves(IOR) or asset purchases from or lending to the private sector. Note this also rules out gold purchases by the Central Bank.

And the SUPPLY of fiat isn't the only concern but also the DEMAND for fiat - which is currently being suppressed in that the non-bank private sector may not even use fiat except for unhygienic, risky, totally inadequate for modern commerce physical fiat, aka "cash."

edzimmer said...

Egmont Kakarot-Handtke - yet another philosopher thinking they're a scientist. A model reflecting reality simply CANNOT be built from variables that cannot be precisely defined and accurately measured — so one more philosopher with a useless model convinced that their's is scientifically derived.

Kaivey said...

Hi Egmont,


What do you mean by this?


'Capitalism lives literally on borrowed time.'




Tom Hickey said...

A model reflecting reality simply CANNOT be built from variables that cannot be precisely defined and accurately measured

Exactly.

As I have been saying, the two big issues in gaining knowledge are conceptualization and measurement.

In short, what is to be measured and how has to be set forth operationally, and what is to be measured has to be measured properly in terms of the criteria established for there to be scientific knowledge.

Simple to state but difficult to accomplish.

The the knowledge gained has to be applied practically to specific design problems, which presents its own challenges involving competence.

This is what distinguishes philosophy as speculation based on reasoning from science as knowledge in terms of data-based theory.

Issues arise when scientific method is not easily application to current problem that must be addressed. Then, the fallback is on reasoning using fuzzier assumptions and boundaries.

To paraphrase Richard Feynman, the purpose of science is to keep us from fooling ourself, and the easiest persons to fool is oneself.

Thus, the necessity for a balance between creative and critical thinking.

Matt Franko said...

“In short, what is to be measured and how has to be set forth operationally,”

We have the Accounting science to do that already... the Feds use “Modified Accrual” Basis...

Dean said...

Economists make assumptions on what it is that drives human beings.

Those assumptions, are such things as:

- humans have unlimited wants
- humans are rational maximizers
- humans set goals
- humans make knowledge based choices
- humans are naturally competitive
- humans have an inherent desire to truck and barter

and yet, all these so-called attributes define a capitalist to a tee

In reality, most humans do not have unlimited wants, are not rational, do not set goals, and make choices based on emotion not intellect. Most are not competitive by nature, and although many say they like to truck and barter, it is only true to the point where it doesn't turn into litigation.

Capitalism doesn't work because most of us are not capitalists by nature but who have been educated to become capitalists by character in order that we fit into a capitalist based model which is perpetuated by economic thinking which treats humans as capitalist in nature.

Economic models which handle the whole process of production to consumption have to fit the human type which means multiple models must co-exist (which is so distant from anyone's thinking and imagination), instead of trying to make every person on earth fit the 'one' economic model. Even if society was to phase out capitalism and replace it with a full blown non-property based socialist system it still wont work because not everyone is built biologically to fit that model either.

Tom Hickey said...

Right. Conventional ecnomists create a model based on homo economicus, which is an idealization in possibility space, and they they proceed without justification to assert that their model applies in actual space.

When evidence is cited that humans generally do not behave as such, they say that this is irrational, so they "should" behave that way.

Then the model takes on a normative form in addition to a putatively descriptive one that fails as a general explanation.

That is irrational and it is based either on ignorance, cognitive-affective bias, such as ideological bias, or persuasion through rhetoric posing a logic.

In other words, BS.

Actually, it is a form of gaslighting psychologically.

AXEC / E.K-H said...

Tom Hickey

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

The true theory states that macroeconomic profit is given by Qm=Yd+(I−Sm)+(G−T)+(X−M).#1 Because all variables are measurable with the accuracy of two decimal places the Profit Law is testable.

The Profit Law is free of all Human-Nature factors.

The minimum condition for the monetary economy ― Capitalist, Socialist, Communists does NOT matter ― to work is that macroeconomic profit is greater zero. Otherwise, the monetary economy breaks down.

According to the axiomatically correct Profit Law, one way to produce profit is deficit-spending/money-creation, i.e. Qm=(G−T), i.e. Public Deficit = Private Profit.

MMT’s economic policy guidance boils down to deficit-spending/money-creation.

MMT agenda pushers promote the production of profit.

Ultimately, MMT policy is causal for the unequal distribution of income/financial wealth.

It does not matter how MMTers see or present themselves in public ― that’s all in the imagination ―, objectively they secure the self-financing of the oligarchy.

Egmont Kakarot-Handtke

#1 Wikimedia, Profit Law and Balances Equation
https://commons.wikimedia.org/wiki/File:AXEC143.png

edzimmer said...

Egmont Kakarot-Handtke - Give us your definition of each of your variables. Without definitions, free of any ambiguity, any reference to "measurability" is meaningless.

Kaivey said...

That is a great post, ANC Driver. I remember when I was young and I made such great friends. We'd shared everything even to the point that if my mate had one spare sweet left over he would throw it over the fence because our friendship was more important. I believe this is how we would have lived in more primitives societies, and rather than be competitors we would have had great friends. Sure, there would be competition in our games, sports, and chasing woman, but our friendships would have remained strong. I still have friends like that today.



Dean said...

Egmont Kakarot-Handtke - Give us your definition of each of your variables. Without definitions, free of any ambiguity, any reference to "measurability" is meaningless

This paper should have all those variables

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375578

More here:

https://www.axec.org/identity

Dean said...

The minimum condition for the monetary economy ― Capitalist, Socialist, Communists does NOT matter ― to work is that macroeconomic profit is greater zero. Otherwise, the monetary economy breaks down.


Spot on.

Maybe there is a case for suggesting that those who don't actually understand the monetary economy and how it all comes into existence, shouldn't be permitted to participate in it... the whole political economy is like those internet sites which make claims of healing cancer and other serious illnesses, which are then followed by debates over who we should be listening too, and yet very few if any spend any energy on trying to find the causes of them to begin with.