Monday, September 29, 2014

Sustainable Capitalism?

Capitalism will implode or evolve.  The present trend is clear...

To narrate - the above shows how the fruits of economic growth have been distributed to the bottom 90% of the populace and the upper 10% of the populace.  More and more benefits of economic growth are going to the upper 10%. Remember the idea that the rising economic tide floats all the boats? It simply isn't true. The boat of the lower 90% has a hole in it, and it was put there by the Capitalists [1].

What this graph tells us is that our Capitalism has a fatal flaw - when the government is captured the economic growth does not benefit all, but slowly directs all benefits to the privileged few.  If the extraction of profits stopped at 0%, you could make the argument that the wealthy "Makers" have a right to be the "Takers." But that isn't the case. Capitalism isn't satisfied simply with all the profits of growth to the privileged. Once all the growth goes to the privileged (2001-2007) there were two possibilities: (1) the growth rate of incomes of the upper 10% could be limited to the growth rate of the economy, or (2) the Capitalists could continue to get their expected rate of return by extracting income (not growth in income) from the middle class.  The evidence is in, and Capitalism doesn't seem to have a "stop" button.

An undeniable truth is that "something that is unsustainable will not be sustained."  There are three possibilities for our future:
  1. Capitalism evolves to allow some growth to be directed to the middle class.
  2. Capitalism continues strip income from the middle class until just before a "tipping point" that leads to revolt of the peasantry - and thereafter only extracts the rate of growth.
  3. Capitalism blithely crosses the tipping point and is dramatically modified or thrown out by the peasantry.
Personally, I believe in the power of free markets - I just don't equate free markets and our Capitalists.  I'd like to think that capitalism can evolve, but I'm worried that it depends on our plutocrats recognizing long-term costs associated with short term gains.  Our Capitalists disdain possibility 1 and think they can avoid possibility 2, which will lead inexorably to possibility 3.

You cannot get blood from a turnip.
You can get it by squeezing peasants - but it might be yours.

The chart above was produced by Pavlina Tcherneva and posted online by Christopher Ingraham

[1] Here let's distinguish between "Capitalists" of our present system and "capitalism" as a theory of organizing economic activity so that business owners and investors are rewarded/punished depending on how well they invest and encourage economic activity. Our system rewards Capitalists whether or not they invest soundly, and refuses to punish those who either invest stupidly (bankers) or break the law (oh yeah, bankers again).

Wednesday, May 21, 2014

Catch 23?

Let's see if I understand our justice system correctly.  We charge court fees on fines for misdemeanors so that taxpayers don't have to pick up all the costs of processing tickets and the time that judges take to handle a case.  Then, if a person cannot pay we send them to jail ( ). Net cost to the taxpayers is more than the original court costs and fine.

How about community service for unpaid fines and fees?  If we're going to regress as a society, it seems like part-time indentured servitude is cheaper than debtors prison.

Tuesday, April 1, 2014


"The underlying financial problem that most Americans have isn’t that they buy too many lattes or pick the wrong stocks. It’s that they don’t make enough money...  This ... is the fundamental reason why many people won’t be prepared for retirement."

James Kwak at

Tuesday, March 4, 2014

A sustainable burger and fries

It has become de rigueur for conservatives to oppose a livable minimum wage but support the Earned Income Tax Credit. Why?

I see there's a consistent philosophy opposing both - i.e. a fervent belief in the absolute power of markets. But what's the philosophy that says employers should be able to pay a wage that is unsustainable, while the taxpayers pick up the slack?  Perhaps pragmatic conservatives recognize that a large percentage of adults making an unlivable wage is, by definition, unsustainable and might eventually result in starving peasants with pitchforks and torches (or AR-15s and cell phones). There are two options to prevent the rise of the unfed mob: market-based government intrusion, or redistributive government intrusion.

If you believe in the power of markets, then an unlivable wage is a market distortion.  Why shouldn't McDonalds' prices reflect the true costs of a sustainable burger and fries? The costs and poverty impacts of an unlivable wage should be priced into  products to prevent these problems in the first place. Every job should have the dignity of a livable wage.  It seems pretty simple. If people don't receive a livable wage they need either government handouts or will turn to crime (19 years for a loaf of bread, anyone?). These are costs society will pay, one way or another. A market-based government intrusion (livable minimum wage) forces the market to correctly cover, rather than socializing, costs.

Granted, if all fast food restaurants raised prices their business would drop, but so what? People would decide to spend money elsewhere (or perhaps save it) rather than spend on a state-subsidized burger and fries.  Realistic pricing of fast-food and retail service isn't likely to collapse our economic system (and the jobs aren't going to China).  Maybe we'd see some healthier life-style choices if burgers, fries and Walmart's cheap plastic crap weren't being subsidized.

On the other hand, if you believe that the purpose of government is to help our Galtian overlords at minimal costs to them, then the EITC is your favorite solution. The EITC is inherently a redistributive government intrusion that is used to reduce the pressure for a sustainable wage. The EITC allows particular services and products to be provided at less than sustainable wages, and shifts costs to the broader set of taxpayers. The irony is that the progenitor of this idea in the US was Milton Friedman (Free to Choose your corporate subsidies?). The EITC is at its heart redistribution - but not redistribution for the good of society, but for the benefit to the few at the top. Keep the peasants just a bit above starving while spread the costs as wide as possible.

Why is the EITC popular on the right when it is inherently redistributive? It's all about government debt and tax cuts.  We are subsidizing burgers and fries with debt, not by taxing today's plutocrats.  The free market philosophy goes out the window if you can get the government to cover some of today's costs with government debt paid (most likely by someone else) in the future.

I suppose the EITC is better than nothing - but it's simply crumbs brushed off the table of the 1%.  Anyone who really believes in the dignity of work should support the dignity of a livable wage.  There's no dignity in working at less than starvation wages and getting a government handout to survive.

The EITC isn't compassionate conservatism - it's simply cheaper than a livable wage.

Sunday, March 2, 2014

Stop me if you've seen this before.

Western Europe and the US encourage protests against a corrupt regime backed by Moscow that borders Russia.  The tanks begin to roll. The West does not (and cannot) do anything but posture.

Ukraine 2014.

Hungary 1956. 

I'm not sure who forgot this lesson.

Monday, February 17, 2014

Monopoly anybody?

If inequality is irrelevant, why does the game Monopoly end when one person owns everything?