Wholesome Rage: Breaking the Bankers Part II - LIBOR · 2:59am Jul 11th, 2018
Another voiced episode. I'm getting some good practice in.
EDIT: Okay, because I don't feel like I did this one enough justice, I want to take some time here to explain why I love this subject so much.
LIBOR is perhaps the transparent that world finance has been about showing itself as an eternal frat party that doesn't do anything for anyone. The global derivatives market is an incestuous whirlwind of banks trading exclusively with other banks, writing losses off on taxes and pocketing profits in the name of investment, something I talked about last week.
The derivatives market, in the sense I talk about it here, is known to economists as "rent-seeking". There are three ways in our economic model to get money (note I distinctly do not use the word 'earn') - Wages, profit and rent. Wages are obvious, and profit distinctly means the money earned from improving a good with labour. That is to say, the value added to raw materials through either skilled or unskilled labour.
Rent, then, is the odd one out. It is the only one of the three on the list that is a purely parasitic transaction; that is to say, it takes from the economy with no value added. It is also the one type of income entirely divorced from the labour of the recipient: You don't have to do anything, just own something. Modern investment, especially by banks and private equity, comes largely down to new and exciting ways to exploit rent-seeking.
It's an important concept to understand, because it's one of the fundamental reasons that wealth collects in the hands of a priviledged few. It's one of the reasons why, while the self-made man is an elegant mythos, it's largely at odds with reality. People who already own things have access to that third, uncapped income stream that operates purely at the expense of wage and profit labourers. And because they can earn faster, they can own faster too.
The LIBOR scandal strips bare and makes laughable the idea that these people earning seven figure plus salaries produce anything for society, do societal good. It emphasizes how much money they make from acting as a broker and an economic leech, but as the owner of the vast majority of resources society can afford, they are treated as the benefactors and benefitors of all good that investment could bring.
And it shows just how easy it is for the banks to blame individuals for acting badly in the system, as an excuse to not look into, analyze, or police that system. The retroactive assumption that if money is owned, it has been earned, so if they have a lot of money, it must be for a good reason.
There is no good reason a man can move the entire world's economy over the promise of day-old sushi.
[Original blog]
I tried doing pitch shifting for the quotations. Probably going to regret that, but I didn't anticipate just how jarring quotations were going to be in something like this. The unmodified voice just didn't... a lack of audible formatting was a problem.
It's something I'm going to have to keep in mind for future articles. I'll probably just have to let a friend of mine borrow my nice new microphone and record quoted bits, or write around quotations as much as possible.
Next week's article, going up on Patreon now, is going to be Ben Pearce (or Pearple Prose) on worldbuilding, and it's a nice one. Frankly, this one took too long to do, and I spent four days longer on it than I should have, even working twenty hours a day to do all the research I needed to do on what happened here. Pear has been a fantastic, wonderful, charming help in giving me a week off, so that I've been able to... well, sleep. Be human.
Koen sent me six liters of homebrewed mead. I might have cracked a bottle of it when I wrote that edit.
jrnlst.ru/sites/default/files/img-right-paragraph/r1-2_0.jpg
You’re doing God’s work MrNumbers, and when I’m financially able to I’ll throw a bit in to support you.
Sometimes I wonder if I should be drunk for this.
You know, I'd agree with you entirely about the evils of rent-seeking were it not that you're defining "profit" much more narrowly than Adam Smith, who coined that tripartite division, did - because he was quite clear about including capital as one of the factors of production giving rise to profit not rent, not limiting it to just labor.
Which is to say: I saw you palm that card.
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It was somewhat intentional, but as a means of preventing confusion, not from intellectual dishonesty. Namely, that capital is a thing that can be invested -- giving a tractor to a farmer, for instance, is a capital investment -- and the banks largely conflate those two types of investment -- rent-seeking and capital endowment -- when justifying their place in the economy.
By focusing on the labour aspect, it emphasizes how capital is utilized from investment. Namely, while it can be spent on making better tools to make profit more efficient -- a man operating a sawmill is going to be a lot more profitable than a man with an axe and plane -- it is often only used to 'tax' the increases in productivity you provide. For instance, giving the man the sawmill makes him more profitable, but buying a sawmill and paying the man minimum wage to work it, while flooding the market with cheap wood to ruin the man with the axe and plane, only increases productivity.
In the latter case, value has been added to the economy, and GDP per capita has increased -- which is why investing capital is seen as an important factor of productivity -- but it has still been a parasitic relationship to the participants relying on labour for income.
I'm explaining my definitions not to be condescending, but to highlight the information I'm working from in case there's disagreement. Showing my working.
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Okay, well, here's my first issue: these two people (the sawmill-owner and the sawmill-worker) aren't equivalent at all.
If you give a man a sawmill, you've just welcomed him to Entrepreneur Club. If, for the sake of this analogy, he's doing everything himself and so isn't in the position of the owner in the second scenario, he's not just the mill-worker, he's the office manager, accountant, salesman, purchaser, customer service, legal & compliance, and probably a few more things that don't spring to mind immediately. Also, by virtue of owning the mill, he's the one whose personal assets are on the line against the mill's liabilities (if it's not an LLC, and if it is and isn't huge, odds are he had to sign a personal guarantee anyway). Also also, since he owns the asset, he's on the personal hook for all maintenance, repair, replacement, depreciation, etc., and other known costs associated with capital goods. Also also also, risk attached to capital goods, and to other such risks (say, legal risks associated with compliance, et. al.).
Which is to say: you're not only making him more profitable, you're also dropping a mountain of responsibility and risk on his head. Which works fine for some - as a serial entrepreneur, I must eat that shit up, or at least consider my freedom worth the hazard, or I wouldn't do it - but it's been my experience that most people who take a look at serious self-employment recoil like vampires from sunlight once they figure out the implications.
The mill-worker doesn't get paid what the mill-owner does, but he is shielded from all the above. He doesn't have to do or pay someone else to do all that other work that goes along with ownership; he doesn't have to provide needed capital goods or pay any costs incurred in the course of doing his job; and his downside risk is limited. He can lose his job - and this is not to understate the seriousness of that in many cases - but that's as far down as screw-ups and force majeure at work can take him. Nothing he does at work is going to hand out liens on his personal assets and future income, and almost nothing is going to land him in lawsuits for the rest of his natural. (Pro tip for would-be entrepreneurs: under the legal doctrine of respondeat superior, anything your employees do while on the job is something you're liable for, however unrelated, negligent, or downright criminal. Sleep well!)
There's a lot that capital does that isn't directly related to labor productivity, shall we say, and still isn't rent-seeking - unlike, say, regulatory capture, subsidies, unchallengeable monopolies, tariffs, and other things worth buying a politician or two for.
All of which is to say: an employee gains a lot over and above his pay, whatever it is, from his relationship with his employer and his employer's capital over and above his pay, whatever it is, even if he doesn't recognize the fact. There are various rent-seeking reasons, too - which no-one needs to explain to me, thanks - but this alone is enough to explain why there are far more people working at Taco Bell than there are people running hole-in-the-wall taco joints.
Second: is it "taxing" someone's productivity if they aren't responsible for the increase in productivity? If a machine shop replaces a basic lathe with a fancy CAM system, the guy who ran one and now runs the other deserves - and almost certainly gets - his increase in pay, because the resulting increase in productivity has to do with his upgrading his skills and the expansion in his capacities. The expansion in productivity wouldn't happen without his efforts.
But if you're, say, an Amazon picker, your job is to spend all day doing exactly what the computer tells you to. If Amazon rolls out a new placement algorithm that kicks warehouse productivity upwards... it has nothing to do with you at all, because you're still following the same instructions, just from a smarter machine. What principle entitles you to any part of that, rather than the back-end programmers at AWS who produced the algo?
The third one is with "to ruin the man with the axe and plane", if by that "to" you imply intentionality, because that would be remarkably Snidely Whiplash-esque. That's just a side-effect of the actual intent (other than making lots of lovely lucre), which is to provide the public with more wood at lower prices.
(Now, I'm not a utilitarian, or anything close to it, but I must still admit that the ruination of one man - even admitting that he can't do anything that the sawmill can't do, which seems unlikely - is very substantially outweighed by the benefit provided to the much larger number of consumers of wood in the overall picture.)
Obviously ruination is undesirable, which is why we should have a Universal Basic Income to ensure that one can never be actually ruined without working very hard at it, and can always afford the necessary to refocus on something else, but the overall effect is positive.
I think that's a very misleading way of putting it, because "parasitic" implies that the parasite is making the host worse off. Even if you have a really lousy job, paying minimum wage for hard work in bad conditions, it must be making you better off. (Otherwise why are you doing it - employment is not slavery and you can walk away? If your answer is "Because I need to eat and have somewhere to live," well, then, it's making you better off than the starving, homeless version of you.) Your legit complaint is that your mutualism isn't as advantageous to you as you'd prefer it to be, but claiming it to be disadvantageous is just plain false-to-facts.
(Again, this is a strong argument for a UBI and turning the crappiest of jobs over to robots, which solution doesn't commit the work-is-good fallacy and doesn't rely on bad economics, but solutions are a whole separate discussion. I'm concentrating here on why I believe you're classifying lots of things as rent-seeking which aren't, and I haven't even got to Arbitrage, And Why We Need It yet.)
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So to your first point, you've essentially put yourself in the position of noblesse oblige. Stating that you're a wise and just member of the aristocratic class does not translate into justifying an aristocracy, especially when all those roles could be equally served by worker-owned co-operatives. Yugoslavia was outperforming many European nations with this economic system, until we bombed them.
All the extra roles you described are a part of the profit-income: Keeping the books, etc. etc. is part of the running of the sawmill. If doing so allows the sawmill to create more wood-per-person and effectively distribute it more efficiently, then it is profit. It is converting mental labour into increased productivity.
That, after that is done, you still take a more significant portion of payment than the workers, and their wage is fixed and hours are set and their surplus labour is still taxed.... then you're still rent-seeking.
To the second point: Yes. Yes it is.
~Prince Kropotkin
To your point about UBI; UBI needs to happen to prevent open class war, or a new feudalism the likes of which the world has yet to see. If it is implemented it will not be because it is just, but because it is necessary.
And if the underlying assumptions of capitalism are not changed with it, or by it, it will just be another form of blackmail held over the public's head to justify further injustices, with the threat of austerity measures. Unless we've learned nothing from the last, oh, sixty years of this being an unbroken trend, now?
To the third point: It's a basic tenant of modern capitalism that you undersell your cheaper goods to outcompete and shut out the market place for everyone else, and then jack up your prices when you have a monopoly.
This happens all the time wherever it is possible to do so.
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The important question is; Undesirable to who? Ruination isn't just desirable, but often extremely profitable, to those who have the power to ruin. And a desperate workforce is a subservient one, as long as you can prevent revolution.
Said what I meant and I meant what I said.
By implementing the sawmill at all, there are now two choices for the lumberjack; Work for a wage at it, or do not work at all. He no longer has the option to work for himself, as he has been priced out of the market.
Now, if the doomsaying I'm preaching was accurate at all, that would mean that GDP would keep increasing while labour's share of that GDP would shrink at a faster rate.
Well
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I have literally no idea where you came up with that from.
On the blind guess that it's something relating to the employee's gains from his relationship with an employer, there's no noblesse oblige involved. It's a beneficial economic exchange. If you don't want to be bothered with all the extra work and skills and coordination and risk involved in running your own business doing whatever you do, there are people - employers - who will relieve you of all those responsibilities in exchange for a percentage of your profit.
Indeed they could be; I've seen working examples of the type. As they could also probably equally well be handled by any number of other organizational structures. As a consensualist, I have no particular preference as to how people organize their economic affairs as long as they do so in a consensual manner. Let a thousand flowers bloom, and all that. (And I afford particular respect for and support to people who set up worker-owned cooperatives and other altsystems, as they're people who are actually trying to build a better solution to their problems rather than the sadly more typical political whining approach.)
My complaint is solely that you're offering a very slanted view here, firstly and mostly because this...
...is not the normal definition of rent-seeking that any economist would recognize.
We pretty much have entire branches of economics designed to evaluate everyone's part in the production of the world's wealth, albeit imperfectly, although those admittedly were very poorly developed as of 1898.
And regardless, it is also just, which is really more relevant when speaking normatively, as I was. (In practice, if it is implemented, it probably will be so for some reasons like the ones you mention, but that is a function of professional politics being composed of zero-sum-fallacy-addicted idiots screaming badthink at each other, then compromising on the pessimal outcome. It's contingent, not necessary.)
On the contrary, this happens basically never. Monopolies based on that sort of thing are all challengeable monopolies, which either require that you continue to serve your customers well to sustain the monopoly, or else prove evanescent the moment that you stop.
(When I'm arguing with Americans about this, this is the moment that someone always brings up Standard Oil, at which point I have to sigh and point out that if you check, customers loved Standard Oil for selling kerosene at an ongoing low price. The impetus behind antitrust was in fact other corporations, who preferred to be allowed to continue to gouge their customers; not exactly the anticorporate move that revisionists like to pretend it was.)
The tenet of modern crony capitalism is that you should buy enough politicians to attain legal monopolies, preferential subsidies, tax breaks, tariffs, or simply jack up compliance costs enough to close all smaller competitors out of the market in order to attain an unchallengeable monopoly. We have lots and lots of those, which is a form of rent-seeking and should be stomped on very hard indeed.
But your simple undercut-and-overprice strategy? Never happens, never happened, never can happen. Scratch a successful monopolist, and you'll invariably find cronyism, 'cause you can't do it through market action alone.
Undesirable to anyone with a functioning brain. The only people who think like the above are the world's shittiest capitalists - and straw chaps set up to represent the mode with the lower bound - who also tend to be the world's shittiest human beings (hello, Donald Trump!). And when I say they're the world's shittiest capitalists, I mean they suck at capitalism, they suck at greed, they suck at cooperation, and they even suck at competition.
That thinking right there? It's negative-sum thinking that invariably hurts you, too; at best, all you can do is achieve a paltry relative gain by hurting other people more than you harm your own prospects. All you get from that is being the fattest dung-beetle on the resultant shit-pile, which isn't an ambition worth having.
And I stand by my position that it is entirely false-to-facts.
He no longer has the option to work for himself as a generic lumberjack making generic lumber, 'tis true. However:
1. If you're inclined to look at the big picture, all customers of the sawmill now have access to more wood, more cheaply. Net prosperity has increased. If we look at it from what one might consider a more socialist view than mine - well, what do we say to someone who puts their personal preferences with regard to how they should labor over the general good of the community?
2. Yes, we put the lumberjack out of business. As we did maybe 90% of the farmers, and the people who used to screw the caps on toothpaste tubes on assembly lines, and the computers (original sense), and the buggy-whip makers, and the barber-surgeons, and the ditch-diggers and a whole lengthy list of other professions all the way back to flint-knapper and stick-pointener - and I think everyone except the anarcho-primitivists would agree that in the process, we've improved the hell out of the human condition.
3. Not to put too fine a point on it, and here I'm going to digress a little, eliminating labor should be a goal.
I mean, I'm not a religious man myself, but has everyone forgotten that "In the sweat of thy face shalt thou eat bread" was a curse?
Labor isn't a virtue, or a desire. (If you enjoyed doing it, they wouldn't have to pay you; and the Puritan work ethic is, shall we say, complete bollocks.) Labor is a price. It's the inconvenient, tedious, strenuous, third-of-life-consuming bullshit we have to go through because the universe wasn't nice enough to arrange for all our desires to be satisfied otherwise, and we haven't yet been smart enough to figure out how to increase capital efficiency to the point at which it fixes that particular issue. Among the major virtues of a UBI, or citizen's capital endowment, or however you choose to implement it is that it's entirely divorced from labor, because we shouldn't want there to be any required labor anywhere, ever.
The most wonderful quality of a free market is its trend of driving down prices to the minimum and then looking for ways to drive them down more, with the limiting case being that eventually we can afford everything for nothing, and we end up with Culture-style abundance from the opposite, but I would deem substantially more likely, direction.
This is a problem for those whose income is based in labor, because labor's income is everyone else's price.
But while we need to solve that issue, doing so via labor is solving exactly the wrong problem in exactly the wrong way. It's making things less affordable for everyone in order to promote the less-efficient doing of things that people only do in the first place because they have to in order to live, and if that sentence didn't sound like an incredibly stupid proposal, it's because I've written it wrongly somewhere.
tl;dr and IMEAO: The optimal state of the economy at present for all participants, and for incentives, would be pure laissez-faire - including co-operatives and other forms of organization, obviously - coupled with a generous UBI. Virtually all other options are not only worse per se, but are actively optimizing in the wrong direction.
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I think your TL;DR would be nice if regulatory capture weren't so complete, which it unfortunately is and, as Thomas Piketty heavily goes into, is an inevitable end result of the capitalist model as it stands.
Like, we live in a world where 8 people have the same amount of access to resources as 4 billion. It's not realistic to propose that those 4 billion can concert their resources in the same way the 8 can to achieve desired goals.
It's not that I don't share the desire, it's that I'm saying capitalism creates utility monsters, and the utility monsters happen to have the power to ensure that any laissez-faire system would be a ladder they would climb, then kick out from under them.