Bradel's New Economics II – New Solutions to Old Problems · 11:56pm Sep 7th, 2015
After my blog post about economics and crowdfunding a week and a half back, I promised you guys I had more to say on the topic. Now that <shameless plug>Vimbert has jumped on the Patreon bandwagon</shameless plug>, I figure I should deliver. So here we go—I'm back to discuss eco-economics, the Mondragón Cooperative Corporation, and post-capitalism.
I hate Kim Stanley Robinson.
No, really. I've read five of his books, and listened to two others in audio format (on 1.5x speed to spare myself some pain). With a single exception ("The Years of Rice and Salt"), I've been disappointed with all of them. His characters are unlikeable and lack distinct voices. He can't plot his way out of a paper bag. His prose is gaudy and obtrusive.
But many of his ideas are solid fucking gold.
There's a lot to love (and more to hate) about the Mars trilogy, but only one idea really stuck with me through all the time since I finished reading it: eco-economics. Put succinctly, eco-economics locates economic decision-making in an ecological framework and focuses heavily on sustainability. KSR's exploration of eco-economics considers how it applies to a society developing on a new planet. (If you want to know more about traditional eco-economics, here's the wikipedia article—but be forwarned that it's really dense, and you don't really need to read it.)
I may lose a few of you here, but I think the easiest way to think about eco-economics is through the lens of the video game "Civilization". Civ is designed to give each player a roughly equal starting location, but anyone with much experience playing the game will be aware that starting location can have a tremendous effect on how the game goes. Certain resources and luxuries are more valuable than others. Having access to rivers and oceans can be a big deal, as can even non-economic terrain features like mountains, which may contribute to a civilization's ability to defend itself.
What does this have to do with eco-economics? Well, consider one society based on Earth and another based on Mars. Water has a much lower value to an Earth-based society than a Martian one, where it's a considerably scarcer resource. On the other hand, rare minerals are probably much less valuable on Mars, because the lack of any previous mining means that obtaining them is a relatively low-cost operation.
The idea that ties this together is one of putting a price on energy. How much energy does it take to get water on Mars—either by mining, by construction from constituent atoms, or by import from other bodies in the solar system? How much energy does it take to get rare minerals, on Earth and also on Mars? KSR, at his most utopian, tries to extend this energy pricing to all of human activity (with unsurprisingly mixed results, that rarely get the detail they deserve). What is science worth? Well, how much can science defray civilization-level energy expenses? In a sense, KSR trades in fiat currency for the joule standard.
Fancy idea. Interesting, though not necessarily practical. Why do I care?
A lot of what I talked about in my last economics blog boiled down to my belief that markets do a bad job reflecting the value I put on different products and services. By (tautalogical) definition, markets do accurately reflect the value "society" places on those things, but I strongly suspect that most individuals would disagree with a lot of that normative valuation, and that we've wound up with markets that are essentially controlled by powerful economic actors looking to sustain their privileged status. Basically, the emergent system that results from the set of pressures we've put in place is not the system I want, and I suspect it's not the system a lot of people want.
To me, the biggest problem with capitalism—and for clarity, I'm talking about capitalism-as-philosophy here, not capitalism-as-economic-system—is the profit motive. I'm not alone in viewing this as a problem; nor am I alone in worrying about how overlooked this issue seems to be. (And if you're going to read any two links I post in this blog, I strongly encourage you to make it those last two.) Corporations are legally required to maximize profits (or possibly shareholder value). Sen. Al Franken took some heat for saying this at Netroots Nation a few years back, but the legal system has upheld the principle since then. Corporations are not free to make large-scale business decisions based on social or cultural considerations. They can usually make small-scale decisions like this, because the effect on their bottom line is less pronounced, but if they could be making substantially more money than they are, and they choose not to, their shareholders have the right to sue for a change in business practices.
Basically, to cite an example, the only reason Starbucks can get away with their "ethical sourcing" programs rather than buying coffee and tea on the cheap is because they're using it as a marketing ploy. If they didn't advertise the fact that they were being a "responsible" corporation, they wouldn't be able to pay more money for those sorts of programs. The fact that their market presence is tied to the image of responsibility is what allows them to be responsible.
Which brings me to the Mondragón Corporation.
Mondragón steps into that gap between what we want and what we create by laying out a series of principles that define the role it wants to play. These organizations are committed to worker participation, social responsibility, and innovation. Mondragón cooperatives don't have to face the legal problems corporations do, when those corporations try to place elements of corporate culture above the profit motive. Their structure allows them more freedom to provide higher education to workers or potential workers (they run their own university), to focus on providing benefits for their employees without worrying about costing (e.g. paid leave, workplace safety), and to encourage labor participation in decision-making. And they're still plenty profitable.
This isn't to say traditional corporations are all terrible—obviously not. But legal requirements to maximize shareholder value are a dicey social proposition, and it's quite obvious that shareholders aren't the only people with a stake in the success or failure of many corporations. Mondragón isn't necessarily the be-all and end-all. But it does demonstrate that you can still be perfectly successful working in a system that focuses on social welfare rather than pure profit. (If you want to know more about Mondragón, feel free to check out the wikipedia article or better yet their own website.)
This, really, gets at my only problem with capitalism—the system of perverse incentives it creates. A profit motive doesn't sound like an intrinsically bad thing. I certainly like the idea of making lots of money more than I like the idea of not making lots of money. But as a categorical imperative for economic actors, it leaves a lot to be desired. There are plenty of times I'd happily give up some amount of profit in exchange for non-economic benefits. Markets make sense. Trying to get consumers to vote with their money makes sense. And for all its problems, emergent capitalism has still improved the standard of living in much of the world. But the idea that profit should be the criterion on which all actions should be judged? Thank you, but no.
Enter Paul Mason's new book, "Postcapitalism", which is really the thing that got me writing these blog posts. To be fair, I haven't read it (the book isn't available in the US until next year) but Mason wrote a nice piece on the Guardian that sums up his thesis. In effect, his argument is that information is the most critical commodity in the modern world, but information doesn't obey scarcity-based rules because we're always creating more of it. Even accounting for Sturgeon's law, the internet has created so much quality content that we don't know what to do with it. Services like YouTube fiddle around the edges by generating advertising revenue off that content, but the content itself just doesn't make much sense from an economic perspective. Huge numbers of YouTube videos (or songs, or pieces of art, or works of fanfiction) are being created by people with no expectation of monetary return.
In the end, I suspect I'm going to fall in line with the book reviewer more than Mason himself—he seems to have a lot of interesting ideas about economics in the internet age, but his work seems more thought-provoking than prescient. I don't know that services like Uber challenge the market so much as they correct it, by eliminating some largely artificial obstacles to competition. And I don't know that the Greek crisis is in a position to show the success of any economic notions at this point, though I think it clearly demonstrates the failure of some others. Capitalism may not be dying, but it's getting faced with some interesting challenges right now, and I'm very curious to see how we respond. Are we heading for a grim meathook future, or something more in the vein of pastel, post-scarcity ponies?
For this week, though, I'm going to leave things there. I know this has been a bit of a link-fest without me providing as much commentary as I probably should, but I want to save the pony notions and utopian idealism for my next blog (where you all can crucify me on a cross of gold joules for being a naive idealist). I do want to give a quick shout-out to Themaskedferret, though, for helping me make sure this blog post was readable and less clicky-clicky than I'd originally had it. Thank you, Ferret!
Hope you all have fun, and see you next week(-ish?)!
I give awesome help n_n That is all.
You could still order it from the UK Amazon site.
I'm in the UK and I order stuff from the US site all the time, it just takes a few more days to arrive, is all.
In fact, check out this, look at the top entry "Dispatched from NY, United States."
It just occurred to me that there's a Kindle version.
I'm looking forward to seeing what you've got to say now that the buildup is finished. Is a subject I spend quite a bit of time idly thinking about and it's always interesting to see how other people approach the same concepts. Mostly to double-check my own isolated thinking against.
So does this mean I should read "Rice and Salt" and nothing else?
It isn't tautological. That's like saying the definition of blue is tautological.
Moreover, the idea that "we wound up with markets that are essentially controlled by powerful economic actors looking to sustain their privileged status" is... well, not a particularly useful statement. Some markets (housing, for instance) are pretty bad in many locations, while other markets (food, computers, internet advertising) are quite good (for consumers). The housing market is pretty blatantly manipulated in very negative ways in favor of present owners of real estate. Were the market not manipulated, real estate prices in many areas would decline dramatically.
It is hard to argue that Google is bad for the average consumer. But it is every inch a capitalistic corporation.
Powerful economic actors seeking to sustain their privileged status by advantaging consumers are good. It is when they attempt to do so by sabotaging markets that things get bad.
This isn't actually true (though many MBAs will tell you otherwise, because they don't know any better). Not only is it not true of all corporations (there are, in fact, many corporations which are explicitly not allowed to make profits - hence the term, non-profit), but it doesn't even mean what people think it means.
Someone who owns a corporation is legally required to ensure that the corporation prospers and that they are not taking advantage of the corporation to benefit themselves.[1]
Maximizing profits or shareholder value is not actually required, mostly because that's impossible - there's no way for someone to know whether or not a specific decision is going to maximize shareholder value. You'd have to be psychic. And the courts would have to be psychic to determine whether or not one choice or another was best. Holding someone legally accountable for this is just not possible.
What you are required to do is make choices which are (or at the very least, a reasonable person might believe to be) good for the company/its trustees. Looting a company to line your own pockets (but not those of other shareholders) would be a violation of your fiduciary responsibility to the company. Likewise, changing the company bylaws in order to dilute other shareholders' shares while increasing your own shares would be a breach of your responsibility to your trustees. Blatantly destructive actions are also banned. But making poor business decisions isn't a breach of your fiduciary responsibility - you might be fired for it, but you didn't do anything unlawful or illegal unless you did it on purpose.
Otherwise, Carly Fiorina would be in jail right now, not running for president.
One of the most common complaints I see is that people are sacrificing the future of a company for profits in the near term.
The problem with this complaint is that it doesn't recognize reality - this is, by and large, incompetence (or in some cases, malfeasance). When you buy a stock, you should have an eye for its future, not for its past; if a company's high profits are coming at the expense of future competitiveness and growth, you should be pricing down the stock. Sometimes companies are participating in outright fraud in these cases, where they project profits which are mythological in nature, or hide the true status of the company. In other cases, though, the stock price going up is because people are stupid. If someone is looting a company, that company's stock value should go down commensurate with the damage being caused, which should offset the gains from looting. If it does not, though, you can't legally require people not to be stupid for the same reason that you can't legally require people to maximize profits.
If people are willing to pay a premium for a company that is being looted - and the company doesn't lie about its growth potential - it is hard to say they're doing wrong. Spending money irresponsibly isn't something which is easily prevented, especially private money.
Corporations are allowed to make large-scale business decisions based on stakeholders - which includes cities they are located in, their employees, ect. Shareholders are not the only stakeholders in a corporation.
Also, again, corporations are varied beasts - it depends on the nature of the corporation on what it is allowed to do. The thing is, companies designed to make money are the ones people will invest in - most people aren't going to invest money in a non-profit company and hope for profits from it, and if they are, they're behaving illogically.
I don't buy shares in Halliburton because I think they're good for the environment, either.
As far as communal ownership goes, it actually has a lot of problems. The single largest problem lies in the fact that what is good for the corporation (and for consumers) may not be what is good for the employees. Imagine, for a moment, that you had a car manufacturer who ran on communal ownership. How many people have lost their jobs in car manufacturing to automation?
A lot.
But here, you end up with a direct conflict of interest - the people in the company obviously don't want to lose their jobs, but if you can automate away 50% of the unskilled labor, you need 50% fewer workers.
This sort of thing leads to very negative situations for obvious reasons.
[1] Technically speaking, this is only true of companies where the shareholders are in disagreement. If you have multiple shareholders, and all agree to drive the company in the same direction, even if it is a bad one, they cannot be argued to be violating their fiduciary responsibilities because they all agreed to do whatever the thing was. You can't violate your responsibility to yourself, after all.
Oh man, Years of Rice and Salt is probably my favorite alt-history novel ever. It's just plain wonderful.
Everything else by KSR I've tried, though, I've found kind of meh. So it seems that we share the tastes here!
I wish I had studied closer the image I saw once, because I'll never see it again.
It dealt with landmark corporate court cases, and the one that stands out to me -- again, I don't remember what it was called; it was in a Michigan appellate court, in the late 1800s -- declared that corporations have no obligation to consider the public good in decision making. And I kind of feel like that's what set us on this path to slowed economies, enormous profits and unequal distribution of wealth. It's kind of scary to think that such a declaration wasn't even made at the highest level of the nation's courts, yet it's been guiding corporate policy for over a century now.
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It sounds like you might be talking about the Ford Motor Company case that got settled in the Michigan supreme court, where the court basically told Henry Ford he couldn't run the company the way he wanted. It's mentioned briefly in the Wake Forest Law Review article I linked to (Section II.A), right before that article digs into the more recent Craigslist vs. eBay fight.
That article, again, is probably the thing I'd most encourage people to read out of everything I linked. It's certainly the thing I'd most encourage 3377059 to read, since I think it makes good arguments against most of his points. Which I've been avoiding responding to myself, because TD has a real tendency to argue by filibustering, which just demotivates anyone from responding to him, but maybe I'll make an exception this morning since I just woke up.
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1) Fine, your semantic point on the use of 'tautological' with 'definition' stands. The point I was trying to make is that you can't argue with the outcome of a market on the grounds that the market incorrectly values something, given that the market by definition values it at exactly what it should be valued at, conditional on the restrictions faced by that market. The reason I wanted to make this point is because market valuations are routinely stupid, if not necesessarily incorrect—see, for example, bubbles.
2) Let's look at:
To me, this seems to kind of utterly miss the point. Yes, like I've said, capitalism has caused a net improvement in quality of life for a lot of people. Google is good for the average consumer. It's also a solid model for how corporations can avoid the ideology trap, since it's able to write off just about everything it (or more correctly Alphabet) does on the innovation front as a push for new markets.
But the fact that a system works the way people would like it to work sometimes doesn't mean the system is, then, good. Take as a counterpoint the privatization of the health insurance industry in the US. Twenty, thirty years ago, health insurance was largely the purview of a bunch of non-profits. In the 1990s and 2000s, that started to change as for-profit corporations gobbled them up. In 2007, 62% of personal bankruptcies stemmed from medical problems, even though three quarters of those filing for bankruptcy were insured at the time of filing. I could do a whole blog post ranting about this, but I can sum most of my thoughts up with the following: Why would anyone think it's a good idea to get insurance from a group motivated by profit, whose profits are directly tied to paying out as little as possible against insurance claims?
This is the sort of catastrophic stupidity that floors me where the economy is concerned. So yes, you're right, it's generally not a problem when corporations fudge markets to the advantage of consumers (or it's a very different type of problem, anyway). But your argument here sounds like it amounts to: "Don't get mad at the system—it's only horrifying some of the time," which strikes me as a pretty poor defense.
3) Yes, you're right that different organizations get incorporated in different ways and have to follow different rules. I'm sort of making this point by contrasting Mondragon to other groups here. But again, I feel like you're basically mining semantics just so you can argue about something. I suspect nobody reading the blog was confused into thinking I attributed problems associated with the profit motive to non-profit corporations. And I don't think getting down into the weeds of how you can incorporate an organization really undermines the point I was making—which again is backed up by case law—that (does it help if I say 'some'?) corporations are subject to these sorts of antisocial restraints. Corporations are responsible to their stockholders—stockholders, not stakeholders, as the link discusses. I can't claim that I'm especially well versed in this topic, but I feel pretty comfortable taking the word of the Chancellor of the Delaware Court of Chancery that municipal laws trying to extend that responsibility to the sorts of stakeholders you mentioned don't work particularly well, since the underlying duty always remains to the stockholders.
As for the footnoted mention that none of these problems come up when the stockholders are all in agreement, that's all well and good for privately traded companies. I don't think I need to point out how much economic activity goes through publicly traded companies, but if I do, let's consider it to now be pointed out. And if you're running a publicly traded company, you're immediately subjected to this sort of consideration, whoever your investors may happen to be at any given time, because public trading. Again, your argument seems to be: "These problems only affect a large proportion of corporations, not all such corporations, so we can overlook them."
4) And now for this one, which I've got to admit really annoys me.
Thanks, TD, for writing an entire section devoted to refuting an argument my blog never actually made except by linking to one article that talks about it. You're right, though—this is a common complaint. And you and I (and Business Insider) agree that maximizing profits at the expense of other things is stupid. That doesn't mean it doesn't happen, unfortunately.
I am kind of amazed that anybody even thinks about long-term investing these days, though. I mean, it's nice—and if you're going to invest long-term, yes, you should think long-term. But we've got a huge segment of the financial services industry devoted to trying to exploit market volatility for profit, and that has nothing to do with long-term potential. It's all about minute mis-valuations that can be exploited on short time-frames. And past that (which is at this point really just the purview of super-fast computers and over-complicated models), on the human timescale a lot of people are still looking to gamble at the quarterly level. I'm not going to disagree that this, the casinoification of Wall Street, is largely stupid behavior—538 recently put out an article on how long-term investment really does tend to be the option that pays off for casual investors.
But I don't think it follows that just because a lot of people are acting in an economically stupid way, there isn't a problem. The reason you see the complaint you're decrying so often, after all, is because a lot of people think there's something there to complain about. Your argument here seems to be: "Despite all the smoke, there can't be any fire here because that would involve people being stupid; furthermore, if people being stupid has in fact caused a fire, we can't really do anything about it because they'll always be stupid."
5) Now, the one point where I really agree with you is about the problems with communal ownership, though I didn't want to dig into this too much in an already dense blog, since it's going against my goal of trying to lay out other options for people to think about. Your criticism is valid, and Mondragon itself has started copping some criticism for establishing a two-tiered system of workers where only some of them have a participatory role on the co-op. The system isn't perfect, but I do think it's worth more discussion and consideration as an alternate corporate structure. Chomsky (who I loathe even more than KSR) makes a valid point when he says that Mondragon suffers from the fact that it's still fundamentally tied to the system it tries to correct and can't escape all the perverse incentives contained therein.
For myself, I think we've accumulated plenty of evidence to show where some of the bigger problems with the existing system lie, and I don't find the usual Pollyanna-ish defenses of the system very compelling when you've got those issues on record. If you've seen Netflix's "House of Cards", you might remember the Winston Churchill quote inscribed on the back of one character's watch: "To improve is to change; to perfect is to change often." Let's just say I think we can improve.
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People like working for companies like Google and Wizards of the Coast, which are undoubtedly for-profit companies (WotC being a subsidiary of Hasbro). On the other hand, you have companies like Wal-Mart, which are undoubtedly evil (and I never, ever shop there).
If the profit motivation was so awful, why is it that some companies are so much better to work for than others?
I worked for Lionbridge at one point, which is a publicly-traded contracting company that provides workers for other companies. And I have to say, the profit motivations there mostly aligned with my personal welfare as an employee. Sure, I wasn’t paid all that great, and I didn’t get benefits, but at the same time, I never did unpaid overtime, I had a reliable schedule, if the company asked we do things outside of our job scope we would negotiate to change things so that I would have a new job with better pay that had that inside its job scope, and I felt like they respected me.
Was it the ideal company to work for? No. As I mentioned, the pay wasn’t very good. But I never felt like the company disrespected me as a person, and its profit motives of getting paid for the work I was doing aligned with my personal profit motive of getting paid for the work I was doing. I had a stable schedule and the work environment was quite reasonable, and no one pretended like we were married to our jobs, so if we were going to get jobs elsewhere, that’s how it was. I have no complaints about working there; they were always entirely honest and forthright with me, and when the company we were contracting with (HP) didn’t have its stuff together and contracted for the wrong services, Lionbridge acted to correct the situation.
And there is no one who is more profit-oriented than a company like that. I was being paid to replace HP employees, and frankly, the contracting company – which paid people worse than HP did – provided better services. Which is just sad on many levels.
Indeed, Lionbridge was rated one of the most trustworthy companies in the US in 2014.
The profit motive is entirely reasonable. As the Wake Forest Law Review cynically but correctly noted:
The article very correctly notes that the proper thing to do is not to attack the profit motive, but rather to prevent companies from externalizing costs onto society via legal restrictions on such things. Minimum wage laws, environmental controls, ect. are all examples of such things. And I totally agree with that.
That article is not an anti-capitalist screed, but rather a note that corporations are going to be maximizing profits within the rules of the game. The solution is not to attack their goal, but to make sure the rules don't encourage them to do unacceptable things.
Incidentally, as far as health insurance goes:
Health insurance, as it is implemented today, isn't insurance. ACA prevents insurance companies from charging more money or denying insurance to people who have preexisting conditions and are going to 100% get more benefits than they are paying in. That's not insurance.
The primary driver of rising costs has been the health care providers and the government, the former of whom are gouging and the latter of whom have dumped tons of money into the market and established rules which promote gouging.
The insurance companies haven't been helpful - they're pretty much universally opposed to socialized medicine for obvious reasons - but the rise in health care related bankruptcies can be far more easily blamed on the fact that we've gone from spending 9% to spending 17% of our GDP on health care.
Health care isn't a free market in many meaningful ways, and needs to be very heavily regulated by the government, but it is not. Part of the problem lies in the fact that the Republican party is evil and wants the US government to be inefficient, and therefore bars it from negotiating down some costs. Part of the problem is lobbying. Part of the problem is simple incompetence.
One interesting thing is that right now, a lot of countries are externalizing their health care costs to the US. If the US socializes healthcare, or enacts proper cost controls, the companies will no longer be able to dump their money making in the US, and other countries will end up paying more for many drugs and medical devices.
People will always be stupid, which is why one attempts to design policy that will give them incentives to not be stupid, or control or limit the damage when they are stupid anyway. Market failures are generally the result of a perverse incentive, as you say, but it's amazing how often we skip trying to modify the incentive in favor of trying to take a blunt hammer to the behavior itself.
I love these blogs. I learn so much!
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I agree with almost everything you say here, and I think that (quite obviously) the way to get capitalism to work is to have governments use regulations to force certain behaviors we want to see, like I said in the first blog. Or... let me modify that slightly. When I use the word 'force', I'm thinking more in line to what 3378423 is saying: restructure the incentives so that economic actors choose to behave in the way you want, rather than just telling them "don't do that". This is why I love ideas like cap-and-trade, but it's also why I think the whole reaction to the Deepwater Horizon spill was a farce. No punishment we were ever going to hand down to the involved parties would have been a legitimate disincentive for their behavior. Similarly, auto recalls don't (or logically shouldn't) happen because a part is defective, they (should) happen because the company judges the expected loss through court cases and negative publicity following failures would outweigh the usually prohibitive cost of ordering the recall. On the auto recall front, though, I think most people are probably pretty happy with how things are going, which suggests that the incentives have come to match what society at large would like them to be.
So to be clear, in my book well-regulated capitalism is double-plus good.
The problem I see is that capitalist actors don't want to be well-regulated, because being well-regulated sucks. I mean, some of them are going to be fine with it, because the owners/shareholders aren't jerks. That's the sort of thing you can get away with as a corporate entity—it's not like any court is going to demand that you be putting money into subverting government regulations as a way to maximize profit/value. But if somebody wants to generate more profit (which is, after all, what the system is designed to do), externalizing costs is one of the hands-down best ways to do that.
So we know what it takes to make capitalism work in a socially acceptable way. Basically everybody who's looked at the issue knows what it takes. And we've got huge amounts of money getting thrown around to try to make sure the government can't do the things it takes to make capitalism work, because that'd hurt profits. I don't feel at all bad calling out the Republican party for this, because they've been saying stupid shit on the matter for at least 20-30 years, and while I do think they're the worst offenders, it's completely worth pointing out that a whole lot of Democrats in government are also on board with the same sorts of destructive policies.
And one thing I think a lot of people don't get is that much of the governmental fight for/against regulations has nothing to do with legislation—it has to do with funding. If memory serves, when the Deepwater Horizon spill happened, the relevant monitoring and regulatory agencies were so understaffed and underfunded that they couldn't monitor the rig more than once every few years, and the regulations governing it were largely written by people within the offshore drilling industry, because the agencies didn't have employees with subject matter expertise. Even when we've got regulatory structures in place, they've often been subverted. Which isn't to make light of the laws—we didn't have a big banking collapse during any of the 66 years it was in effect, and it took less than a decade for us to have one after it was repealed—but there's a lot more to what's going on than just those laws, since we usually have some good ones on the books.
The reason I think a lot of this stuff merits discussion is precisely because of the forces arrayed against regulation. If regulation was working great, we'd be in a veritable capitalist utopia. Regulation is not working great, and large parts of the US government are opposed to it, usually "on principle". And judging from some of the idiotic behavior inre Greece and the Euro, it seems like stupid attitudes toward capitalism aren't limited to the US—though I suppose that's perhaps less about capitalism and more about plain, old-fashioned startlingly dumb economic policy.
My point: I don't think most of these issues are likely to fix themselves if things keep going as they are. I don't think we necessarily need to go all Mario Savio about it (though I do occasionally feel that way), but I do think we need to think about other ways to get ourselves to where we want to go, societally speaking. And when I say 'we' here, I actually mean 'us', like, people reading this blog. But I'll say more about that in my wacky utopian post next week.
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Incidentally, while cap and trade sounds like a brilliant idea, in practice, the better solution is a simple straight-up tax on pollution - cap and trade creates the situation where producing up to the cap has no disincentive whatsoever, and can actually increase pollution in some cases, especially when some companies can easily cut their emissions while others cannot.
A straight up tax creates the situation where any reduction in pollution results in an improvement for your bottom line.
Well, punishment isn't necessarily just to disincentivize behavior, but also to punish it and try and mitigate the results. The reality is that no amount of punishment is going to stop people who think they can get away with it.
It is also worth noting that externalizing a lot of costs is only really plausible in some industries.
A big part of the opposition to regulation is also ideological - basically, the "you're not my dad!" argument, that the government shouldn't be able to tell people what to do. And a lot of business owners resent the idea that they aren't entirely self-made men who are at all reliant on society around them.
Part of it is also the nature of the regulations - people tend to be much more okay with logical, rational regulations than irrational ones. Some regulations really are knee-jerk and make no sense, or aren't really based on anything practical. Applying the same regulations across different scales is one example of something that can get you into trouble - someone who is dumping 10 gallons of water and someone who is dumping 10,000 gallons of water would logically have different regulations applied to them, but this is not always the case.
And that sort of thing tends to sour people towards other regulations which are, in fact, reasonable.
To be fair, we had a pretty big collapse back in the 1980s in the Savings & Loans crisis, it just didn't end up impacting the rest of the economy too badly. And in all fairness, in reality, the Great Recession wasn't actually caused by the banks so much as it was that the banks made things wose via massive amounts of stupidity; the economy would have been in trouble regardless, as the housing bubble was a bunch of made-up on-paper capital that never existed in real life, and it was the only thing really driving the economy. It is just that we would have had a long period of relative economic stagnation, as opposed to what looked to be a boom followed by a bust when it turned out that, no, that house in Detroit WASN'T worth $500,000.
The sad thing is that Alan Greenspan outright admitted that in the course of all of his push for deregulation and his fiscal policy he had never even considered the possibility that the banks might not act in their own rational best self interest (which, let's face it, they weren't - the moment the bubble burst, anyone who was still playing that game was going to be burned, and badly, and the banks knew or should have known that they were going to lose a LOT of imaginary money). This is a common problem amongst far too many economists: rational actors are great for economic models, but in real life, people are dumb.
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There are a dizzying number of laws and regulations that should be recorded as formulas and aren't. This is one of my perennial frustrations.
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That would make them easier to understand, and that's the last thing most people[1] who write laws and regulations want.
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[1] People who are usually not legislators and regulators, BTW.
3379471
Sometimes, yeah, but I think in a lot of cases it's plain innumeracy. Hanlon's razor and all that.
3379475
I had a professor a while back whose son developed some sort of serious heart problem. They needed to medicate him, and none of the doctors had any clue how to do it. Eventually, the professor got so fed up with them he went and got the dosage information himself, did the necessary body-weight conversions (this was a body-weight type drug, not a fixed dosage drug), and just told them what they needed to prescribe and how he'd handle it. They (thankfully) realized the professor knew his shit and went along with what he said.
I think the usefulness of Hanlon's razor can't be understated. I also think it's fundamental to why I consider brainstorming about economics on a pony fanfiction blog to actually be a worthwhile use of my time, because I have the overwhelming impression that Hanlon doesn't give a very close shave to most folks here.
3379535
That's exactly the kind of thing I'm talking about. Math scares people, and I don't know why. Not in an indignant sense, just--it's too far out of my realm of experience. I can only tell that innumeracy is out there, and that it's weirdly (to me) common.
3379634
Have article!
3379634
)
I parsed "math scares people" as "people are afraid of the truth" because math is the only way to get to the actual, bedrock truth of anything! (Excuse me for channeling my inner Twilight Sparkle, there.
But as for legislation being incomprehensible on purpose, when a lobbyist hands a senator a pre-written piece of legislation that will significantly benefit the organization that employs the lobbyist, the fact that it is hard to analyze is not the result of incompetence. And the scenario described above is not an uncommon occurrence.
Yes, there are all sorts of idiotic laws passed (some obviously unconstitutional on even a cursory glance), but a lot of those are sops to extreme constituents and are expected to be overturned by the judiciary.
And... some new laws are actually good and necessary!
That leaves only about 50% of new legislation that is the result of sheer stupidity, and that's really a pretty good proportion.
3379655
You know, I believe I've seen that article, actually. It describes a pretty common outcome of politics in the US: someone wants to do something, someone else doesn't want to do it, and the compromise is that we do the thing, but don't give it a budget.
3379701
Oh, I know it happens--American Legislative Exchange Council is a thing to google for anyone following this conversation who isn't familiar. They don't tend to rely on pretending to innumeracy, though--they just plain go for what they want. I'm thinking more specifically of benefits cliffs and that style of thing.
3379740
Yes, I suppose that sort of thing was more common way back when I was truly interested in politics. Nowadays, naked self-interest is something to be celebrated rather than disguised.
I think what you mean is, you hate science fiction.
This has been a standard idea among transhumanists for decades. I could claim it was my idea, but it's obvious enough that I'm sure others came up with it earlier. The other obvious contender for natural currency for an advanced civilization is bits of information, and I wrote a story using that about 20 years ago, but that's more problematic.
All elected officials should be required to play one game of Civilization.
What is capitalism? One definition says it's when the means of production are controlled by private individuals rather than by the state--but then feudalism, anarchy, and hunter-gatherer societies are all capitalistic. Another is that it's when the means of production are out of the hands of the workers--but then communist states are the ultimate capitalists!
I'm not convinced the term "capitalism" has any use other than as an ideological target or rallying cry. Where can you use "capitalism" where the phrase "free market" wouldn't be more precise?
3387937
Part of me wants to respond to this with a long discourse explaining my attitude.
But I'm confident we both know exactly what I'm thinking and what I'd say, so I think I'll save myself the next 30 minutes of writing and do something else with it.
3379029
The problem with cap-and-trade in practice is that it is implemented as "cap each existing company at their present levels." When enacted, a company's pollution quota becomes a large part of its value; companies buy other companies to get their pollution rights. Worse, this gives a strong monopolistic advantage to existing big companies, who are getting big subsidies (the right to pollute a lot equals giving them a lot of money). Worse, if the legislation isn't proposed carefully, each company may start polluting as much as they can so they get a bigger quota.
3379471 3379082 I agree emphatically that legislation should have equations in it. Ideally, a political entity's constitution should be a piece of code designed to achieve an equilibrium, and legislators should argue over how to set its parameters.
Corporations are free to make large-scale business decisions based on social or cultural considerations, as long as the stockholders are consulted. This is only a problem with publicly-traded corporations, which I expect comprise a tiny minority of corporations, but a huge majority of the market capitalization.
Profit is the criterion by which profit is judged. Companies that profit, do so because that is what they want to do. Nobody is being forced to make a profit in order to be judged virtuous. If somebody wants to be judged virtuous, or noble, or cool, they're free to do virtuous, noble, cool things.
Think what you're really saying. The "profit" system means that anybody who wants to sell a book can stamp a price on it and see who will buy it. That is all it means. Any other system means that somebody decides who is allowed to sell a book, or what kind of books can be sold.
3387973
Actually, I think you may be hitting your own nail on the head here. If you want to talk about the mechanics of the economic system in question, "free market" is probably a better term, since it's a more direct descriptor. But (at least to me) "capitalism" refers more to (a) the philosophy that says free markets should be the organizing principle of economics (which is pretty non-objectionable), (b) the associated patterns of thought generated by that philosophy, and (c) the system that results in practice from (a) and (b). I think that capitalism in practice (c) is in many cases a bit antithetical to capitalism-as-philosophy (a)—though I don't think this should come as a big surprise given the phenomenal precedent for this sort of thing (c.f. communism, Christianity, democracy).
That all said, I think I'm basically agreeing that "capitalism" is mostly useful as an ideological target or a rallying cry, in a way that "free market" wouldn't really be useful. If you want precision of thought, "free market" is probably a better term. But language isn't purely about precision of thought.
3387998
And they should hand over the "penultimate" draft to a group of munchkins to break. After three or four more iterations in their hands, it might have a chance of doing what it intends rather than providing a buffet for the downstream lawyers.
3387988
This is so phenomenally stupid I don't even know how to process it. Thank you for telling me about it.
3388034
The point I'm trying to make here, which I'm sure I could have made more explicit, is that profit is virtue in a lot of people's minds. I think that's insane. I suspect you think that's insane, too. I'm sure a lot of people think that's insane. But I'm also quite confident that it's an observable, testable reality.
Though in perhaps a similar way, I think a lot of people are prone to seeing intelligence as virtue (my younger self included). There's definitely some amount of halo effect going on in both cases, but I think the conflation goes deeper than that. Both profitability and intelligence are given a high valuation by society. I don't think it's a big journey from "valuable" to "good" to "virtuous" in a lot of people's minds. I'm aware this is one of those areas where I'm kind of elitist, but I don't think most people spend much time thinking about the accuracy and applicability of the descriptors they use in their thought processes. I'm still unsure how much most people (myself included) even use language in their thought processes.
3388067
I think every adult does, but it feels (introspectively) tacked on. I always hear my thoughts in words, but I know what they're going to be long before the words finish. If only I could shut up my inner monologue, maybe I could think much faster.
Most of 20th century philosophy is built on the assumption that thought is language, and that you lose nothing by assuming mental concepts have a 1-1 mapping with words.
3388008
According to Forbes, somewhere between 36 and 59% of sales - and possibly as much as 50% of profits - come from privately held companies. According to the same article, privately held companies invest more in growth than publicly held ones do. That would suggest to me that private companies probably constitute the majority of capital in the US.
This makes sense, on balance, thinking about how many small businesses there are, and how many store locations are rented and not owned by the people running the place.
3389192 I'm surprised, but I wouldn't have been if I'd looked up the numbers. According to The Internet, the US has 32 million companies, only 4000 or 5000 of which are publicly traded.
Those 4000 might still have a large majority of the capital, though.
3389192
3389764
These comments, incidentally, go a long way toward explaining what it is I find so frustrating about the system as it exists. Not that a huge amount of capital gets held by a small number of companies—in the abstract, I don't think I've actually got a problem with that. It's kind of a natural part of the system, I think.
No, the issue I have is that a lot of folks seem to want to treat all corporations roughly equally, whether they're tiny, local things or among the heavy hitters. TD's earlier comment about waste regulations treating everyone the same—whether you're trying to dispose of a couple gallons of a substance or a couple supertanker-loads—fits into this, too. Most corporations, by raw numbers, are not in any way problematic. They're not necessarily models of efficiency, but they exist in world where the idea of free markets actually has some meaning. They have direct competitors, and they have to compete on a relatively level playing field where they don't get to set the rules. This is all awesome, and IMO a model for how capitalism should function.
But while the number of mega-corporations is relatively small, they control a huge amount of capital. And they're not bound by the same rules of competition as smaller businesses—they have the money to lobby for legislation, to soak legal challenges, etc. Basically, they can min/max over a whole set of dimensions that smaller businesses can't even think about because the pay-to-play costs are so high. I'll admit I'm probably coming off as biased against small businesses; I think that would be a fair criticism of some things I've said. But at the same time, although small businesses are a huge part of the US economy, the amount of capital held by the biggest companies (whether or not it's actually a majority) puts those companies in a position to effectively wreak havoc on the system. (And then they seem to get to hide behind "Oh no, but small businesses!" an inordinate amount of the time.)
3390212 The Patent Office recently moved from first-to-invent to first-to-file patents. The excuse they gave was that that's how Europe does it. But when you consider that Europe sucks at inventing stuff compared to the US, one would think that would be evidence against rather than for it. I think the real reason is that big companies want first-to-file, because small companies can't patent things quickly and can't afford to patent many things.
In biotechnology, if you look who supports various "bioethics" studies, it's evident that large companies and large organizations (notably the American Medical Association) push for more and more regulation of their own industries because it effectively shuts out competition from startups. You can't start up a new pharmaceutical company in the US; your business plan must lead to being bought or partnering with a big company.
3390212
The thing is, small businesses tend to be much more heavily hit by regulations than big ones precisely because some regulations more or less require a flat amount of time plus some scaling over size. And it isn't unreasonable to apply a lot of regulations to small businesses, either - just because your company runs one mine rather than fifty doesn't mean that the environmental regulations for mines don't matter or don't apply to you.
On top of that, if your company runs a lot of mines, you might have some folks whose entire job is to deal with regulatory stuff. If you only run one mine, though, it might take, say, a quarter or a third of a person to do it - meaning you've now got to hire someone who is good at dealing with that stuff, and who can do other things, and you have to divide their job duties out. In a small company, what might scale up to whole people on the larger corporate level might only take a fraction of your time, but it is a fraction that you need to spend and you probably need to subsume into something else.
I had to do environmental quality monitoring at Energ2 on top of my QA lab duties, for instance, and it could be a real distraction at times because I had to learn a whole bunch of stuff to deal with something that only took up a small number of hours of actual work most of the time. And if there ever was an issue, I had to spend a lot of mindspace on that instead of QA stuff.
And the thing is, it does make sense to at least watch out for those things - the reason that Energ2 produced essentially no waste water was precisely BECAUSE of regulations. Basically, the company's waste water would have contained huge amounts of carbon, which would have required lots of special treatment to prevent algal blooms... so instead, the company changed how it dealt with its waste, and thus it didn't produce hardly any waste water at all other than boiler water, leading to the weird situation where, because the company was avoiding producing hardly any waste water, nearly 100% of the waste water came from the boiler, which is not a normal situation for a factory.
3390251
Are you quite sure?
3563901 I'm pretty sure. That MITI study must have been a historic retrospective. If you count all inventions of all time, yes, Britain would come off very well. If you count major inventions over the past couple of decades, or money spent on research, or number of science & engineering doctorates, or patents, or anything anybody has yet thought to count, I believe you'll find the US produces roughly as much as all of western Europe. (That's not surprising; the US has about the same population as western Europe.) The US currently gets about 10 times as many international patents per year as England, though patents are a crude indicator of science. I just counted Nobel winners in science for 2010-2014: 33 for the US, 41 for the rest of the world.
oecd-ilibrary.org/sites/sti_scoreboard-2011-en/images/graphics/g2-1-03.gif
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