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Economics: Root Causes

by techno Sat Jan 20th, 2007 at 10:23:47 AM EST

When I took economics at the University of Minnesota in the early 1970s, one of my professors was Walter Heller. Heller was President Kennedy's Council of Economic Advisors chairman and would claim, quite seriously, that he taught Kennedy Keynesianism.

In those days, the Keynesians were utterly dominant in academe and government.  There were so many of them, they had subdivided into various schools.  It could be argued that Heller represented the right wing of the Keynesian school.  His economics department used the Neoclassical Samuelson text and his primary accomplishment in the Kennedy administration was his tax cut suggestion.

But even from the right wing of the Keynesian impulse, Heller was quite clear that he thought folks like Milton Friedman were at best mistaken and quite possibly insane.  Yet by the time I graduated, the acolytes of Friedman were running the economy of Chile with their sights set MUCH higher.  And yes, they would set the economic operating assumptions for planet earth for a generation.

From the diaries -- whataboutbob


There has been a lot of invented terminology to describe the change in fortunes of the Keynesians and the Friedmanites.  But the MOST descriptive was that it marked the change from Industrial to Finance Capitalism.  If River Rouge was the defining symbol of Industrial Capitalism, then the archetypical example of Finance Capitalism was Enron.

Enron embodied the major flaws of Finance Capitalism--it was only possible because of economic deregulation, it relied on a willing suspension of disbelief in all reasonable measures of prudence, it sold cotton-candy products like weather futures, and it relied on industrial sabotage to make its fantasy profit targets.

All of these maneuvers were done in public with the main movers featured prominently on the covers of the business press.  Phil Gramm, who shepherded Enron's enabling deregulation through the Senate, was a regular talking head on the television news shows because he was a true believer who preached, as a trained economist, that deregulation was necessary and virtuous.  This was not some sort of invisible conspiracy, this was a seizure of the intellectual high ground.

But, scream the apologists for Finance Capitalism, we are not industrial saboteurs, vandals, and rip-off artists.  We are SCIENTISTS and one of our members has been rewarded with a Nobel since 1968.

And sure enough, the defenders of Finance Capitalism have erected an awesome intellectual apparatus to justify their crazy ideas and when all else fails, they point to rising numbers at their Meccas--the trading pits of the various stock exchanges world-wide.

The problem is that under the rules of Finance Capitalism, stock markets become a measure of economic destruction.  If the strategy of wealth accumulation is plunder, then the higher the markets, the greater the destruction.  This fact highlights the most obvious difference between Finance and Industrial Capitalism.  When the Capitalist strategy is to profit from creating complex and difficult products, markets actually measure (if not produce) real growth.  Otherwise they are as economically useless (and destructive) as any other casino.

No sane person believes the faith-based economic explanations of Finance Capitalism any longer, because it cannot deliver on its promises.  The list of its failures is almost infinite but some highlights include: the collapse of the Russian economy into an orgy of corruption and plunder with the arrival of the high priests of Finance Capitalism; the rejection of neo-liberalism in nine countries (and counting) in Latin America; the rejection of Finance Capitalism's one-sided EU constitution in of all places, France; and the fact that the economists who preach Finance Capitalism must now gather behind squads of armed police because millions of people have realized that whatever these intellectual prostitutes decide in their closed-off meetings, their lives are about to get much worse.

When it comes to delivering generalized prosperity, Finance Capitalism is an utter failure no matter how high the stock markets may climb.  In fact, the soaring markets in a world where misery grows daily is the perfect condition for open and violent class warfare.  But even worse than creating pre-revolutionary conditions, Finance Capitalism's penchant for destruction has now reached the stage where the survival of the biosphere is at stake.

Why this is so

Whenever a "progressive" politician wants to prove his gravitas in USA, he or she will say something like, "what this country needs is an Apollo-like program to ensure energy independence."  As a self-confessed space nut as a child, I think the metaphor is pretty damn good.

The Apollo metaphor is apt because any complex or long-term space mission must be able to power itself with the energy it can gather on the fly.  This dictates a strategy of solar collection combined with a hyper-efficient use of the precious energy that has been captured.  Scale this up to a planetary scale and the scope, direction, and the magnitude of the energy problems facing us all become abundantly clear.

The Apollo metaphor also applies because it was a stunning example of an incredibly complex project done successfully in a short time.  Yet it is here where the differences between Finance and Industrial Capitalism are especially manifest.  Just because the original Apollo project could be done under the rules of Industrial Capitalism does NOT mean a much more complex project like energy independence could be accomplished under a regime of predatory finance.  In fact, it almost certainly cannot.

Folks forget that Apollo was an act of industrial whimsy.  At best, it was an exercise in a `my rockets are bigger than yours' show of force.  But mostly it was a demonstration of industrial potential--we went to the moon because we could.  The space race was the world's largest air show and folks from every corner of the planet enjoyed it.

The key component of space travel was the liquid-fueled rocket.  It was invented by a good Yankee named Robert Goddard. Poor Goddard was forced to raise private funding for his experiments so essentially his life was wasted creating demonstration projects.  Even during the Great Depression when public works became official government policy, public investment in aerospace was stingy.  Rocketry requires too much expensive experimentation to be funded privately so Goddard remained a sideshow freak.

The Germans, on the other hand, understood the benefits of public funding in aerospace.  So when their rocketeers set about to build their liquid-fueled boosters, they had government backing AND total industrial cooperation.  While Goddard was an inventive genius, Von Braun was like an orchestra conductor whose players were the research departments of the finest schools and most accomplished industrial firms in the land.

Needless to say, Von Braun made MUCH more interesting rockets than Goddard.  That's what happens when the support system is a government rather than charity.  So when the great conductor fell into the hands of US Army, the systems that helped build the V-2 had to be duplicated as well.  And they were.  Public money invested in aerospace made 1945-1970 the golden age of American aviation.

By 1970, American aerospace had not only figured out how to land men on the moon, it had produced the best subsonic airliner (747) and the fastest airplane (SR-71).  Since then, the economic forces that have crippled the rest of industrial America have produced a generation of stagnation.  On Dec 17, 2003, a replica of the Wright Flyer was scheduled to re-enact the first flight on the 100th anniversary.  100 years of American aerospace wound up stuck in the sands of Kitty Hawk, propellers flailing uselessly.

And an economic system that can do that much damage to rocket science is somehow going to figure out a way to scale up the Apollo program to a planetary scale?  Impossible!!  A system that pays a $54 million dollar year-end bonus to a money changer will not hire 540 top-notch engineers at $100,000 a year to figure out a way to power planet earth on its solar income.  Unless there are economic conditions similar to those that enabled the original Apollo program to happen, the idea that we can design our way out of the energy trap we built for ourselves with a mega-Apollo program is an absurd fantasy.

Removing the ultimate roadblock

When my mother was 87, she was watching some stupid blowhard pontificating about the wonders of economic deregulation on the McNeil / Lehrer report.  She turns to me and snorts, "FOOL! doesn't anyone remember what the economy was like before regulations?!!"

My mother is now dead.  So are most of the people who really remember why we gave up on Finance Capitalism in the first place.  In the end, this isn't about Milton Friedman, or Alfred Marshall, or David Ricardo, or any of the other defenders of Finance Capitalism.  Their appearance is so predictable, one could easily believe they grow such folks in vats.  Why would it be otherwise?  Money-changers hire these "economists" to justify their existence--it is no surprise there is a profession of hacks dedicated to promoting the interests of the investing classes.

The problem is, their theories never work.  Finance Capitalism should have been discredited in 1873 or 1893 or 1921. It actually WAS discredited in 1929. But it never really died.  By 1974 when Finance Capitalism made its comeback, it resumed its place at the head intellectual table overnight.  It was like it had never left.  And the key to its comeback was the death of folks who could remember why it had been discredited in the first place.

The reasons that the operating assumptions of Finance Capitalism simply must go are many.  But two related problems--peak oil and climate change--are SO far from being meaningfully addressed by current economics that all other problems are trivial by comparison.

Al Gore is currently catching flack from the scientifically illiterate over his harmless and childishly upbeat film on climate change.  But the biggest flaw in Inconvenient Truth is how it trivializes the problems. We are already in uncharted waters so far as it relates to atmospheric carbon, EVEN IF we were to douse all fires worldwide tomorrow.  Fire has been essential to human existence and we have spent the last 10,000 figuring out ever more clever ways to start fires.  Dousing ALL fire on earth in 10 YEARS is an astonishingly huge task (and even THAT might not help much for decades.)

Of course, we will probably not have much to say about how many fires must be quenched because supplies of the MOST wonderful fuels of all time are about to start drying up.  The difference between modern life and a junkyard is liquid fuels.  The difference between 21st century and 19th century reality is gasoline.  The designs of our cities, our methods of transportation, our means of providing food--are all based on the assumptions of cheap petroleum products.

The idea that someone who has dedicated his life to explaining the "economic" reasons why a hedge-fund operator is qualified to address problems of the sweep and scope of climate change and the end to the Age of Petroleum is fundamentally absurd.  These are problems of industrial design and Finance Capitalists are almost, without exception, economic Luddites.  A lot of industrial skills have been destroyed in the last 30 years by these people.  To expect these same people to become builders overnight is delusional.

What is even worse, our schools of economics have been churning out clones who actually believed that the strategies of the Finance Capitalists were virtuous because they led to prosperity.  To get an advanced degree in economics at an American university, you not only have to drink the Kool-Aid, you have to be willing to mix it up and serve it.  The key ingredient in the Kool-Aid apparently made it impossible to differentiate between growth and destruction.

To take on a mindset that well entrenched seems hopeless.  The Finance Capitalists own the schools, the journals, and the awards.  Even though they possess no evidence, they believe they have been successful.  NOT a crowd likely to roll over and play dead.

So they must be circumvented.  If we wish to mount an Industrial Capitalistic response to the large economic problems, we need three sorts of modern economists:

  1. Those who specialize in understanding which of the rules of Industrial Capitalism worked best when last tried (this group can include anyone over about 60 who learned industrial economics, the French who were taught the principles of dirigisme, etc.)

  2. Those who can expand on previous wisdom to create a new Industrialism designed to convert our societies from ones that burn energy capital to ones that allow us to live on our energy income.

  3. Those who can come up with simple explanations to be used in public for why Industrial Capitalism ALWAYS outperforms Finance Capitalism.

We have the technology and institutions to fix major problems but cannot because of corruption in the political sector, intellectual laziness in education and the media, and runaway greed in the financial sector.  The problems caused by political corruption and runaway greed can be handled by political will, taxation, and stricter regulations.  The intellectual disintegration brought on by 35 years of Finance Capitalism is a much more serious problem.

John Maynard Keynes, one of the architects of Industrial Capitalism in the 1930s, understood the problems of intellectual inertia so well.  He claimed that "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than it is commonly understood.  Indeed the world is ruled by little else. Practical men, who believe themselves quite exempt from any intellectual influences, are usually slaves of some defunct economist."

The interesting question is, Can we dethrone the Finance Capitalists in time to save planet earth for human habitation?  The Industrial Capitalists provided the institutions that gave us the Internet.  It should be used to finally and completely discredit Finance Capitalism.

Notes.

I have already started a personal attempt to bring back the sort of economic thinking that enables the LARGE projects--such as a conversion from a fire based economy to a solar-powered one.  

This attempt includes a book entitles Elegant Technology dedicated to reassembling the values, sociology, and political economy of the mega-builders.

It includes a 10 minute video (in many sizes and formats, scroll down) called "Creating Prosperity" which highlights the differences between the current economy and the one some of us fondly remember from 1970.

I have also built an intellectual tribute to Thorstein Veblen (1857-1929)--a towering figure in political economy and a critically important inventor of Industrial Economics in the USA.

Notes 2.  

I have posted this first at Eurotribune.  It will be posted later at Kos.  Suggestions on making this diary more effective are most welcome.  I must respectfully decline to engage in debate with the Marxists (I am a Veblenian and yes, we are very different from Marxists) or the various gradations of Finance Capitalists (I have been hearing your message for 35 years--there is little to add.)

I think this is the place to launch this essay because even though we use different terminology, it is obvious that I agree with Jerome on a LOT.  Dirigisme meets a Midwestern Keynesian, I guess ;-)

Display:
"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than it is commonly understood.  Indeed the world is ruled by little else. Practical men, who believe themselves quite exempt from any intellectual influences, are usually slaves of some defunct economist."

Keynes' tip jar brought to us by Walter Heller

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Fri Jan 19th, 2007 at 03:02:24 AM EST
I am a Bear of Little Economic Brain, but I found this discussion on the comparative philosophical foundations used by Samuelson and Friedman difficult, but interesting

http://finance.groups.yahoo.com/group/gang8/message/11220

For my own part, my intuition is that the Metaphysical assumptions underpinning all schools of Economics simply do not reflect Reality.

So no matter how wonderful an intellectual edifice is erected upon them, if the foundations are weak, it won't stand up.

And as far as I can see, none of them do since all are based upon defining Value in one way or another, usually as Price.

In my untutored view it is only possible to proceed on the assumption that "Value" is indefinable, or definable only in relative terms.

My view of Economics is that it may be described as the "Physics of Value" (as opposed to Energy) and if we take such a Metaphysics of Value as a starting point then we might get somewhere.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 05:05:02 AM EST
[ Parent ]
Value is quantified using Money-as-a-Unit-of-Account as the measure in Absolute and Relative dialectic or analysis.  

Some economists, as you say, take that and make the unwarranted jump to 'Value = Money.'  

But look at it another way. IF we take Quality as the metaphysical basis of Reality and we assert 'Value is an individuals response to Quality as embedded, or reflected, in a specific object¹' AND, in order for an Actor or Agent to gain physical possession of that object they have to fork over $3 THEN the Economic Value of that object has to be at least $3 to the Valuer.

Using this, we can go further since the Economic Value of the object is $3 to the seller and worth {$3 < x  >y} to the buyer.  By stating '{$3 < x}' we correctly, IMNSHO, symbolize the Value of an object, expressed as Economic Value, to the buyer is a range of measuration of all possible numbers x and y can take.

Looking at the seller, there is a minimum at which the object will be sold, the asking price, and the top price of the object which is infinity!  If you're selling something for $3 and someone offers $2,000 would you refuse?  Neither would anybody else!  

So a (more) complete equation, note the lowest buying price is zero, is:

x < sp > Infinity = 0 < bp > y

Where:

x is the lowest selling price
sp is the actual selling price
bp is the actual buying price
y is the highest buying price

BUT!

When we take about Quality and Value we cannot make use of the '=' sign.  Why?  Because for the transaction to take place the seller has to Value (MOQ) the buying price more than the object and the buyer has to Value (MOQ) the object more than the selling price.  Thus, it is an asymmetrical transaction -- in more ways than one.

So let's restate:

(x < sp > Infinity) > (0 < bp > y)  -- Seller's Side

(x < sp > Infinity) < (0 < bp > y) -- Buyer's Side

And it is obvious my little mathematical description is unsolvable unless the variables are taken as Second-Order (minimum) AND Statistical AND Probable.  

So, unless I screwed-up somewhere -- the fox is in the henhouse.  

*******************
¹  So I can avoid getting into Being and Action (Verbs.)  ;-)

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Jan 19th, 2007 at 02:04:10 PM EST
[ Parent ]
Oh, and as an afterthought, I therefore do not believe that either Industrial or Financial Capitalism stacks up. We need a new synthesis, for which I prefer to use the term "Open" Capitalism.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 05:08:10 AM EST
[ Parent ]
I'm going to chime in here w/CC, that neither Industrial capitalism, nor Industrial socialism or communism, is going to get us out of the fix we're in -- because Industrialism still confuses production and destruction,   as in the canard that coal and oil are "produced" when what we really mean is that they are extracted and then destroyed.  Industrialism also requires, structurally, that core/periphery dynamic which can't be maintained w/o inequity, unequal exchange, and the liquidation of peripheral resources to feed the machineries at the core.  whether this destructive quality can be tamed by conscious policy is an interesting question -- perhaps the only really interesting and crucial question there is, in whatever time we have left as a semicoherent polity to think about it.

while finance capitalism is even more insane than industrial capitalism -- insanity of an even more abstracted, refined, and goofy order -- the fundamental disconnect where little details like entropy and thermodynamics are ignored, where the technomass is privileged over (and esterminates) the biomass, happens in the industrial model itself, whose materialist Utopian promise underlies both capitalism and communism.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Fri Jan 19th, 2007 at 09:42:37 PM EST
[ Parent ]
damn.  exterminates.

The difference between theory and practise in practise ...
by DeAnander (de_at_daclarke_dot_org) on Fri Jan 19th, 2007 at 09:43:09 PM EST
[ Parent ]
It's not a hard problem. There are three things wrong with the 19th century formalisation of economics.

Firstly price and value are quantifications of individual desire. They can be time-based in the futures market sense. But they lack any wider social or ecological context. No system which is based on gimme gimme can be worth much, except possibly to children.

Secondly the concept of price is meaningless when relationships are assymetric. If a corporation decides that an object will cost £x, individuals have no bargaining power to change that cost. In the grossest sense they can either buy or not buy, but the price is not only set for them, but desire is artificially stimulated using media brainwashing techniques.

Economics in the real world is based almost entirely on these assymetrical power relationships. Convenient fictions about markets and rational agents are delusional, because all markets include a bias that favours some traders over others.

Finally, economics reduces all human transactions to a price and states that this price is the only important consideration.

The horror of this system isn't only that it's outdated and obsolete, or even that it's a major factor in the coming eco-crash.

The true horror is that so many humans seem to take the monster at face value, treating it affectionately, and accepting its diktats without questioning them.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jan 21st, 2007 at 12:40:21 PM EST
[ Parent ]
Brilliant...

I have been working on a diary like this one about possible interpretation/explanations of ecopnomic reality but instead of having a clear outcome it was just bits and pieces. I am amzaed how you managed to transmit an excellent idea: economic structures were pursued from economic departments.. so economic visions determined the outcome structure.

As you may know I have long defended that the only (or well the most) relevant force, the  main driving force, are myths, discussions , anaratives about realitites.

Symbolic anthropology shows that reality adapts to symbols and myths .. because there is no other way to understand reality.. so an economic shift and paradigm can change reality but the mere fact of looking at from a different perspective (Friedman vission was a self-fulfilled prophecy)..Unfortunaltey economic reality has other effects on the human structure.

Maybe this statement is too strong for a reality-based community, but at least I think it is very important that we recall that at least economic thinging and mythology can indeed change reality structures.

I am amazed... a diary which is very good food for thought. I loved it.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Jan 19th, 2007 at 12:41:46 PM EST
[ Parent ]
Can we get this moved to the Debate box?

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Jan 19th, 2007 at 12:51:41 PM EST
[ Parent ]
If you mean this particular subthread, a front-pager would have to take Keynes' quote and make a "story", not a "diary" out of it.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 12:53:29 PM EST
[ Parent ]
The diary


Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Jan 19th, 2007 at 02:05:16 PM EST
[ Parent ]
only "stories" (i.e. front page posts started as such) can be put in the Debates box.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jan 19th, 2007 at 02:23:55 PM EST
[ Parent ]
Sounds like PERL has struck again!

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Jan 19th, 2007 at 03:19:48 PM EST
[ Parent ]
What does PERL have to do with it? It's clearly a flaw in the class hierarchy.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 03:23:05 PM EST
[ Parent ]
Exactly.  Unless they've changed the compiler it is extremely difficult to dynamically process real-time information with real-time qualia.

Plus I loathe OOL's.  

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Jan 19th, 2007 at 03:41:59 PM EST
[ Parent ]
The phrase "object-oriented PERL" is an abomination: PERL is a scripting language best suited for single-line programs to be used as filters.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 04:13:28 PM EST
[ Parent ]
into spending an entire evening reading the history of aerospace technology.  

Not sure why I did that.  Most of it will be obsolete soon.  

If I understand you rightly, I have to agree:  Financial Capitalism has moved us into an era of economic degeneration--"looting" is the word I usually use--as formerly productive infrastructure is liquidated, in which solutions to our environmental and economic problems can not be implemented, even if solutions exist.  

The earlier era of Industrial Capitalism was indeed productive, and technically competent, although it had other faults.  

Can we get those two virtues back?  

I think not, because it was just the web of interconnectivity of technical competence in the service of production that the era of finance Capitalism has so effectively destroyed.  We still have science, but it is science for hire--for example, leading edge genetic research is devoted to destroying and thereby monopolizing the human food supply.  It will never do a thing to ameliorate the food famines we will be facing.  

Those who wish to do good, rather than open evil, are like Goddard--in your story--not von Braun.  

But Industrial Capitalism met its end for a reason, and that reason goes back to the 1970s, with the decision in 1980.  Reason?  Just this:  Industrial Capitalism was based on ever-rising energy use, and by 1980 it was clear that that trend would end.  

That meant Industrial Capitalism must end.  

The alternatives?  1)  Find a way for the economy to reward--"incentivize," as they like to say--efficiency of resource use and de-consumption, or  2) loot it all out in a final binge.  

Hate to say it, we did not choose option # 1.  

So now some of us realize that it was all a mistake, an even bigger mistake than we perhaps knew at the time, and we want to change the choice.  

It can't be done.  

What can be done?  I am not sure.  Two things go immediately together:  Wake up people if you can, and start thinking about food--gardening, community gardening, community supported organic agriculture, and the like.  Food comes before everything else, and food is going to be a problem.  

What about the grid?  What about water?  These things are going to be problems as well, but I am not yet seeing answers.  The main difficulty in thinking about these things is that too much of our existing infrastructure depends on tecnologies that have already been or are being gutted--that are already beyond us, and lie in the past.  What will actually be available as technical tools for solving problems?  Less than we think, is the only sure answer.  

Strategically, I think creating small groups that can evolve new solutions and recover old knowledge are key.  But solutions will have to be more low tech than high, because the supporting infrastructure is not there.  They will have to be simple and reproducible.  

The Fates are kind.

by Gaianne on Fri Jan 19th, 2007 at 08:37:08 AM EST
I am happy that you got into look at the history of aviation.  I wasted my youth on this subject (be born in a hospital about 2km from Lindbergh's childhood home, live in the American Midwest, have two cousins and a brother-in-law with important jobs at Boeing, build several dozen flying models, and have membership in the Experimental Aircraft Association and you have little choice in the matter ;-) and am ALWAYS happy to introduce folks to this fascinating subject.

I understand Industrial Capitalism crashed after the 1973 and 1979 spikes in oil prices but this was FAR from a necessary or predictable outcome.  In England and USA, the cultural biases against technology and industrialization made it MUCH easier to just "give up" on an industrial solution.

In Europe and the Nordic countries, where engineering is treated with far greater respect, there have been successful rear guard actions against the plunderers (the penchant for the Nobel Committee to award prizes to the Finance Capitalists notwithstanding).  I have not seen good numbers, but I would make a serious bet that a vast majority of successful green technologies are designed and engineered in Northern Europe / Scandinavia.


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 03:29:18 PM EST
[ Parent ]
I think you have summarized the economic history of much of the 20th Century pretty well. How to change this is a subject that has gotten much discussion here since the site started.

One of my key themes is to point out that there are no influential politicians (with the possible exception of Al Gore) who are willing to discuss changing the current economic model. This model is built upon the assumption that capitalist societies need continual growth and ignores all the externalities, especially resource depletion and pollution.

The needed reformulation has been undertaken by a small group of ecological economists led by Herman Daly. He has been arguing about the fallacies of the unlimited growth model for 35 years without much visible affect. There seem to be a small number of younger economists now following in his footsteps but they still don't have much "traction".

If you are not familiar with his work here are a few links (shortest to longest):
http://dieoff.org/page88.htm
http://www.earthrights.net/docs/daly.html
http://www.feasta.org/documents/feastareview/daly.htm

He has been good at discussing the problems, but less successful at proposing solutions.

I write on this frequently myself from the point of view that changing from a growth model to a steady-state economy will eliminate most of the mechanisms of finance capitalism that you have highlighted.

Here's a sample of one of my essays:
Planning for a Steady-State (No Growth) Society

As to posting on dKos, please do, but one can never tell what will catch on, my discussions of issues like this get little notice while Jerome's are a big hit. Perhaps you will be one of the popular ones. The issue certainly needs to be brought to as large an audience as possible.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Jan 19th, 2007 at 09:29:32 AM EST
Excellent diary.

I wonder if in theological terms it's possibly more the difference between Practical Capitalism and Symbolic Capitalism - Symbolic Capitalism being the purer and more holy of the two, because it's untainted by the dirt and sweat of physical reality.

Symbolic Capitalism is Platonic Capitalism - rule by numbers and rarefied abstract concepts. The numbers are defined by the rules of the game. They define the aims of the game. They're purely theoretical.

I found a fascinating and disturbing quote by a UK rail boss this week, in which he said that it was 'nonsense' to criticise the UK's insane franchising and privatisation system because the UK has 'the best growth of any railway in Europe.'

That quote is so wrong in so many ways that I really have no idea where to start with it. But it's indicative of the 'growth above all else' mind set that underpins symbolic capitalism.

As long as there's growth, nothing else matters. Not only is nothing more important than growth, but nothing else can even be considered as a factor - except possibly grudgingly if the 'costs' make enough noise that you have to throw them a bone to get them to shut up for a while.

So in the case of rail, high growth for the last couple of years trumps that the fact that the shiny new market-driven symbolic system relies on public subsidies that are five times greater in real terms than when the railways were nationalised, and provides a service that offers poorer service availability and longer travel times.

The whole thing really is quite mad.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 19th, 2007 at 10:23:30 AM EST
Oh, and despite the growth,  they are seriously floating the idea of making people stand in commuter trains. People are quite upset, and so are the tabloids in fact.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 10:33:26 AM EST
[ Parent ]
But of course. It's not service growth he's talking about.

And it's a stupid canard anyway, because passenger figures plummeted after a few high profile accidents. So a big part of the 'growth' is really just the process of returning to pre-disaster levels.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 19th, 2007 at 11:30:11 AM EST
[ Parent ]
Disasters which were attributed to the decoupling of infrastructure and service in damning reports.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 11:32:57 AM EST
[ Parent ]
Yep. Easily avoidable.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 19th, 2007 at 12:20:20 PM EST
[ Parent ]
At the radio studio where I was yesterday, some guy (I don't remember who right now, but a right wing guy, I think) said that Anglo-Saxon capitalism focused on doing more, while the French (dirigisme and/or population) focused on doing better - better quality of life, better infrastructure, etc...

Self-serving and partial, but the insight is not completely silly.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Jan 19th, 2007 at 10:41:38 AM EST
[ Parent ]
Aka Quantity vs Quality. If only we could do both.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 11:14:18 AM EST
[ Parent ]
If only economists accepted that sometimes the best answer is not a unique point on a single scale but an indifference surface in a multi-dimensional space...

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 11:17:12 AM EST
[ Parent ]
You are asking for economists to become true Bayesians, I guess :)
by Sargon on Fri Jan 19th, 2007 at 02:21:42 PM EST
[ Parent ]
Bayesianism is the only way to make sense of the "market expectations" underpinning mathematical finance.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 03:06:03 PM EST
[ Parent ]
May I suggest the "market," lacks a neuro-physiology or schemata and cannot "expect" anything.  Agents and Actors within the "market" (Fitness Landscape) have one or both and it is there expectation occurs.

I know the phrase is a commonplace in the Finance 'biz' but it's sloppy terminology leading, as laboratory experiments have shown, to neo-liberalism in rats.  (lol)

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Jan 19th, 2007 at 03:33:24 PM EST
[ Parent ]
Prices satisfy the axioms for  a mathematical expectation [i.e., expected value, or mean value], so no anthropomorphism there. Besides, individual market participants do have expectations which collectively give rise to the market expectation (two different meanings of expectation in the same sentence)

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 04:10:45 PM EST
[ Parent ]
But that's not the problem. The problem is - as usual - that the wrong variables are being measured for the wrong reasons and modelled using the wrong techniques.

What's the impact on GDP of guaranteeing every citizen who wants it a high quality post-18 education?

What's the influence on GDP of a Van Gogh painting which was practically worthless while he was alive but now changes hands for tens or hundreds of millions?

What's the impact on GDP of the homeless?

Without a concept of cultural value, to balance out book value, conventional accounting is socially meaningless.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 19th, 2007 at 04:36:31 PM EST
[ Parent ]
The problem is that GDP is calculated not in "Value" - whatever that is, and I think there are many types of intangible and unmeasurable Value - but in "Claims over Value" aka IOU's issued by Banks.

It's exactly the same relationship as that between Matter and anti-Matter: we have Value and anti-Value.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 04:52:33 PM EST
[ Parent ]
How can "price" be the wrong variable to measure for the wrong reason? It's just about the only measurable thing in economics. And how did GDP get into the discussion?

Socially irrelevant, I'll give you that, to an extent.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 05:51:12 PM EST
[ Parent ]
Dunno where GDP came from.

"Price" and "Value" Oscar Wilde had the measure of when he defined the Cynic.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 19th, 2007 at 06:18:02 PM EST
[ Parent ]
I don't understand why any of this is supposed to be controversial.

'Price' means nothing, except that someone is prepared to pay X for an item or service at a particular point in time.

GDP comes from aggregating all of these transactions with some rather nominal national weightings and producing a measure of something which supposedly correlates to wealth.

But if a social relationship or physical process can't be reduced to a transaction with a price, it doesn't appear on the books, and in economic terms it's invisible.

The big problem - the one that I haven't seen any economist try to tackle, from Keynes downwards - is how to explicitly include these relationships so that they do appear as factors.

Most people when asked will tell you that it's these social and cultural relationship that define real value - in the sense of what makes life worth living.

So where are these values in economic theory? There's occasionally a bit of handwaving about quality of life, but there's no explicit concern with these relationships. In fact they're often considered a dangerous distraction.

This is why businesses allowed to lay people off to pump up the bottom line. The social costs are very real. But they're only calculated indirectly. And even then, it's not the businesses that pay for them.

The point is that these costs are real. You can't dismiss them as subjective because the concept of price is equally subjective - it's one microscopically narrow view of one very tiny subset of human interactions. And if anything these other transactions are more real to people's experience than anything in classical economic theory.

So not including them in a theory of wealth is dysfunctional. Saying they're hard to measure is irrelevant if there's no serious attempt being made to measure them and include them in policy decisions at all.

And in the meantime we're seeing endless, and quite possibly terminal, examples of that dysfunctionality happening today.

The corollary is that if you measure the right things, many problems become simpler because you have a direct handle on them. What we have now is rather too much energy expended on one-dimensional measures like inflation and unemployment and GDP and interest rates, papering over a lingering sense of unease that something isn't right in our culture, but it's impossible to clarify or quantify what it is.

A saner system would reverse that.

More than that - my guess is that a healthy culture is far less likely to have problems like inflation and unemployment anyway.

If relationships are functional and inclusive rather than predatory, a lot of the supposed problems in economic theory will very likely vanish, because the system as a whole will be operating at a much more intelligent and spontaneously organised level.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 19th, 2007 at 07:59:34 PM EST
[ Parent ]
The idea of Pareto optimality does include the idea that "better-than" relationships create only a partial order of value, which leads to a kind of indifference that is, in a mathematical sense, even more radical.

Words and ideas I offer here may be used freely and without attribution.
by technopolitical on Fri Jan 19th, 2007 at 02:47:37 PM EST
[ Parent ]
I think it's more that the Anglo-Saxon mindset believes there's something rather naughty about enjoying life and playing. And something heroic about working and accumulating stuff for its own sake.

It's not that the work has to be truly productive. It's more that it has to be busy. And the more busy the better.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jan 19th, 2007 at 12:23:51 PM EST
[ Parent ]
Seems like a case of obsessive-compusive disorder.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 12:26:25 PM EST
[ Parent ]
Much like posting on blogs.

Words and ideas I offer here may be used freely and without attribution.
by technopolitical on Fri Jan 19th, 2007 at 02:41:56 PM EST
[ Parent ]
An overemphasis on growth follows, in part, from the mistaken (largely tacit) premise that increase in quantity leads to increase in quality. The opposite direction of causality is strong: increase in one sort of quality, efficiency and productivity, is an essential enabler for growth. The reverse, however, is weak: past a certain point, increases in quantity are less and less important to increases in quality. I will focus here on a technological aspect of quality that is already narrower than general quality of life (though it can help support it).

The reason for this declining return to scale that gross material wealth°, past a certain point, isn't the chief limit on the innovations and refinements that constitute increasing (technological) quality. Cultural support for these, and available educated brains, are stronger factors. Research budgets are largely spent to pay for those brains, and their number doesn't increase in proportion to gross material wealth per capita. Cost of equipment is more relevant, but much of the important work isn't greatly equipment-intensive -- it involves designing and modifying things that are being made anyway.

The weakness of causality in one direction is masked by the strong correlation that results from causality in the other direction. That is, creativity and innovation may seem to follow from high levels of gross material wealth, when they instead enable it (for better or worse).

------------
° By "gross material wealth", I mean a measure of wealth that gives little weight to quality of life in a broad sense.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Fri Jan 19th, 2007 at 02:41:01 PM EST
[ Parent ]
If you are discussing the actual output of goods and services, this is a pretty interesting description.  But I must admit to a serious anti-Brit prejudice that I have had since an Austin-Healy sports car made me walk home because its axle twisted off while driving straight and level.  So far as I know, the British version of capitalism has no meaningful industrial output any longer and is based solely on moving electronic manifestations of money inside some computer chips.

On the other hand, the French gained control of goods that defined the "good life" sometime during Louis XIV and have managed to maintain their hold on most of this market since.  So designing an economy to produce excellence is obviously a superior strategy.

But since we are touting national economic characteristics--allow me to add a few.

The Japanese believe that there is no detail too small and that nothing is ever finished and that improvement is always possible.  This makes for incredible products--especially complex ones like cars and video cameras.

The Germans and Nordics seem to concentrate their economic energy on being excellent at the invisible details.  If you have never heard of the product, have no idea what it does, and it is somehow critically important for an industrial society--these guys probably build it better than anyone.

And of course, how can we ignore USA industrialization.  In 1971, I heard a guy shout to a group of volunteers who were trying to organize a production of HMS Pinafore, "People! TRY to do this right!  But if you cannot do it well, do it BIG!" I have never heard the USA philosophy of everything said better.


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 03:30:25 AM EST
[ Parent ]
We have to stop mucking with the Money Supply.  

As long as the money supply is growing British Rail, or whatever, has to grow at the effective rate of the increase just to stay the same - in PPP.  

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Jan 19th, 2007 at 02:12:29 PM EST
[ Parent ]
Incredible insight--Platonic Capitalism.

This concept requires far more thought and energy to digest that I can give in a quick comment.

But I really like it!


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 03:34:26 AM EST
[ Parent ]
diary, despite the needless dig at the EU Constitution ;-)

I think your distinction between Energy Capital and Energy Income is a fundamental one that deserves more exposure.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Jan 19th, 2007 at 10:26:40 AM EST
Needless?

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 12:33:11 PM EST
[ Parent ]
"Needless ;-)"

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jan 19th, 2007 at 01:11:32 PM EST
[ Parent ]
;-P

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 01:20:44 PM EST
[ Parent ]
Sorry about the EU constitution dig ;-)

Actually, from many thousands of kilometers away and sketchy information, my take on the EU constitutional vote was that it wasn't so much a rejection of a necessary (?) constitution, but rather a rejection of Maastricht and Nice.  Of the two, Maastricht was by FAR the worse--it was nothing less than the end of modern Europe--no WONDER people were so angry.


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 02:55:20 AM EST
[ Parent ]
There is a lot of truth to your argument - i.e. that people (at least on the left) voted against what they perceive to be the excessive neolib bias of Maastricht.

The problem with that vote, of course, is that in practice they voted against the new bits that they usually liked (strengthened European Parliament, charter of human rights, etc...) but in FAVOR of the Maastricht and Nice Treaty, because these remain in force in the absence of the new Constitution.

They voted against their explicit goals, something that I still am angry about. And they make euroskepticism good politics and most of our new leaders are thus weakly pro-European, which only compounds the problem, as national selfishness (which was never low, starting with the French) has vastly increased.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jan 20th, 2007 at 07:57:59 AM EST
[ Parent ]
The Energy Income vs Capital was the organizing structure of a video I wrote in 1991 that was designed to explain energy issues to 12-14 year old children.

I claimed in the movie that the energy we use is solar energy--it is just that most of it is STORED solar energy.  According to the video, the only way to get to a society where we can live on our solar income is to invest in technology built with our solar capital.

This may sound a bit complex for children but it was VERY easy to bring these ideas down to that level.


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 03:42:15 AM EST
[ Parent ]
Excellent: and what I am saying is that through the creation of "Energy Pools" using new legal "wrappers" - such as the LLP or LLC - it is possible to create a model where investment IS Energy Capital and it is actually returned AS Energy Income.

Moreover, if energy producing assets are kept in Trust/Community Ownership, with Investor and Manager Partners receiving proportional shares and the balance remaining with the Community, then we could see an "Energy Dividend" or basic Energy Income to all.

In fact I am not the only one to advocate an International Energy Clearing Union, but I believe that this is the logical candidate for the basis of global trade in the future when the dollar reaches the end of the road.

Domestic trade, I think, will be based upon the flows of property rentals.

But in both cases we are essentially talking about monetary flows - of "Dynamic Value", where "Value" is "Money's Worth" such as energy.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 20th, 2007 at 05:39:12 AM EST
[ Parent ]
I argue in my book Elegant Technology that rather than the gold standard, the international monetary system is actually based on a petroleum standard.  

This is why USA can get away with recklessly "printing" more currency.  So long as a dollar can still buy oil, it is valuable.  (If you want to read the whole argument, follow the links to the book below.)

This situation with the USA dollar is absurd, of course.  But I really LIKE the idea that money is some sort of representative of energy.  Because this means that whenever we can gather solar energy in some physically efficient manner (such as with wind turbines) we are doing more than inventing a solution for atmospheric carbon overload, we are also validating the currency.


"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 03:43:00 PM EST
[ Parent ]
This is a great diary. Just post it on DKos as it is, to spark debate and seed ideas in your reader's minds.

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Fri Jan 19th, 2007 at 12:32:49 PM EST
I completely agree. I will also have to change a diary about that. I will try to concentrate on a reality-based description of economy instead of using a pre-determined mythology to define the structure...anc I am quite convinced now  that a certain economic structure can be generated from just having a mythology.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Jan 19th, 2007 at 12:44:06 PM EST
[ Parent ]
Maybe i could post it myself, to give it a chance a better visibility?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jan 19th, 2007 at 01:17:52 PM EST
[ Parent ]
Make me an offer.  I have NO problem being linked to your efforts at explaining reality to the Kossacks--you do a hell of a job.  It is why I am here.

"Remember the I35W bridge--who needs terrorists when there are Republicans"
by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 02:57:33 AM EST
[ Parent ]
Well, I simply expected to post the full diary, while making it very explicit that you wrote it, and linking to the text here or, if you posted it on your own blog first, to that link.

The intro would basically be "techno wrote this excellent diary here (link), and s/he has kindly agreed to let le crosspost it here. Everything below is from him/her."

If you have anything else in mind, I'll be happy to do it.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jan 20th, 2007 at 07:52:59 AM EST
[ Parent ]
This is an offer I cannot refuse--mostly because it is obvious that you have forgotten more about how to game the Kos diary system than I am likely to ever learn.  Besides, working with you will be an honor.

I HAVE posted this essay on my web page so if you can link to it, I would appreciate it.  (Getting it posted is why I took so long to respond here.)

http://www.elegant-technology.com/kossack_econ_1.html

Thanks Jerome

Please give me a heads-up when you intend to do this so I can stand by to respond to comments.  And let me know if you need anything.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Sat Jan 20th, 2007 at 10:54:34 PM EST
[ Parent ]
I just came across this interesting paper:

IS HUMANITY FATALLY SUCCESSFUL? (PDF)

The arguments about humans despoiling their environment are not new, but there are some nice charts illustrating it. The author, William E. Rees, seems to have been the one to develop the concept of the ecological footprint. According to the data provided the human race exceed the carrying capacity of the world somewhere around 1970 (his figure 5).

He proposes a new "myth" to replace the current one of continual growth...

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Jan 19th, 2007 at 03:51:36 PM EST


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