Framing the Market

Market failure diagram showing deadweight loss

Market failure diagram showing deadweight loss (Photo credit: Wikipedia)

I’m tired of  the market hype from the right and the left. The 1% relentlessly pushes a free market (invisible hand) mythology and the left has begun pushing a post-market (new-age invisible hand) mythology. Each form of market/anti-market fundamentalism will fail for the same reason: denial and wishful thinking (two sides of the same coin).

Is the market guilty as charged, or has it been falsely framed by both sides?

MYTH: The Free market.

FACT: There is no such thing as a free lunch or a free market. Every market is manipulated by the strongest players. The private sector cheats, steals, lies, and bullies. The state regulates according to a mixed set of public and private interests. If those interests get out of balance, either the public or private sector (or both) will suffer.

“Markets are not provided by nature. They are constructed — by laws, rules, and institutions. All of these have moral bases of one sort or another. Hence, all markets are moral, according to someone’s sense of morality. The only question is, Whose morality? In contemporary America, it is conservative versus progressive morality that governs forms of economic policy. The systems of morality behind economic policies need to be discussed.”    AlterNet / By George Lakoff and Elisabeth Wehling

MYTH: The Invisible Hand.

FACT: There is no such thing. There are only real, material “hands” that we either cannot or will not look at.

MYTH: Government is the problem, not the solution.

FACT: The solution is maximizing utility through appropriate checks and balances. Government has a role in 1) providing regulatory counter-balance to private concentrations of power which amplify the cheating, stealing, lying, and bullying; and 2) socializing some of the costs of education, R&D, infrastructure, public safety, national defense, etc.

MYTH: Markets are the problem, not the solution.

FACT: Ecosystems behave like economies with markets. Natural markets tolerate large amounts of power asymmetry (aggression) and information asymmetry (deception). What is not found in a natural ecosystem is an externality. They do not exist there. Externality in human economics is an entirely abstract fiction. An externality is where someone gets something for nothing and gets away with it indefinitely. That doesn’t happen in an ecological economy. If it did, all life would probably be extinct.  Instead, nature is stubbornly resisting and postponing its extermination at our hands. It actually doesn’t happen in the real human economy, either. It only happens in human economics, which is riddled with a variety of naive or intentional accounting errors which are generally explained by economists as externalities or market failures. Naturally, externalities and other accounting errors inevitably produce market failures.

MYTH: Living systems are not machines.

FACT: Living systems are at least in part machines, or they are at least in part LIKE machines. So living systems and machines have some things, if not everything, in common.  They need inputs, they have outputs, and they have interlocking working parts, many of which are essential for their continued operation. Living things may not be 100% material, if you like, but they are material enough to be subject to the laws of nature. Whatever else they may be, living systems work much like machines of comparable complexity.

Post-market theology

I won’t dwell on the myths of “economics as if only the 1%  mattered,” because they are now fairly well understood by many. We have given the invisible hand a very long trial. It’s had some episodic success but it is now failing badly. But there is lately a “new age” invisible hand that some are appealing to as an alternative.

I recently published a piece with the alternate title of  “Escape from the Planet of the Economists.” In that piece I made a case for “economics as if people mattered” and “economics as if the biosphere mattered.” I drew from writers like E. F. Schumacher who argue that the human economy is part of the ecosystem, not vice versa. This is currently being called sustainable or ecological economics. I completely agree with the particular arguments of the particular authors I cited. But some economic pundits are embracing this general framework without adequate understanding of what the ecosystem is or how it works, and without adequate understanding of what markets are or how they work. They seem fairly sure that you can’t shoehorn nature into a marketplace, and fairly sure that that one idea explains everything.

The premise seems to be that since the market has not historically conserved and enhanced the biosphere, the biosphere must work on non-market principles. The problem is that the second conclusion doesn’t necessarily follow from the first. It is a non sequitur. First, the nebulous thing we often call “THE market” doesn’t exist. Instead, the economy is an aggregate of many markets. Because many (or nearly all) of these markets are distorted or flat-out broken, it appears that markets per se are unworkable. Its as if someone in the middle of a vast junkyard of broken cars concluded that all cars were inoperable. In fact, with the right knowledge and tools, many of those cars could be fixed. But my imaginary character doesn’t have that knowledge. He doesn’t have the right tools, either.

If the first error is a false analysis of the problem, a second error inevitably follows–a false solution. The reason all the old cars (and old markets) in the economic junkyard are broken is that they were not maintained in a responsible fashion because they were only on temporary lease to their operators. Lets say all those irresponsible operators were just following the example, and sometimes the advice, or direction, of their betters, the 1%.

And now this two-faced 1% is getting caught in the act of green-washing their activities. They are pulling the strings of their politician manikins, sending them to international summits on hunger or the environment or global warming, campaigning for austerity or resource management schemes full of tricks and loopholes big enough to drive a fleet of deep-water drilling platforms through.

Many conclude that these amoral capitalists have nothing to offer but more waste, fraud, exploitation and abuse. Which is pretty much the case. So its only natural for a movement to gravitate around respect for the 99% and for the environment, and then go looking for post-market methods for shaping society and finding harmony with nature. They turn to gift economies and sacred economics drawn from mankind’s romanticized past, or imagine societies that function on harmony and good will instead of greed and accounting. They may be inclined to imagine bountiful commons that manage themselves the way nature manages itself. I’m sympathetic to the sentiments and the philosophy, but that doesn’t satisfy me. I want the skills and the tools to get broken markets and broken ecosystems back on the road to thriving.

GB.MEX.10.0143

GB.MEX.10.0143 (Photo credit: balazsgardi)

Of course what goes by the name green often isn’t (including some versions of “green economics“), and the only solution for that  is eternal vigilance against green-washing. “Big Green” would be dumb not to appropriate certain language from Natural Capitalism, for example–its just so easy.

“When plunder becomes a way of life for a group of men, they create for themselves, in the course of time, a legal system that authorizes it, and a moral code that glorifies it.” – Political economist Frederic Bastiat, The Law [1850]

We are well-advised to be wary of giant green snakes and wolves in green clothing sneaking into the people’s garden; but not to be prejudiced against all applications of  market thinking in ecological economics. Is there any reason the 99% cannot “occupy” and democratize markets?

I can believe that the United Nations Environment Programme (UNEP) and the Reducing Emissions from Deforestation and Forest Degradation (REDD) projects are (or are not) clever tricks to disguise continued exploitation. Either way, the effort to scientifically quantify natural systems, as in  approaches to sustainable or Natural Capitalism, is not in itself a sinister scheme. It is required for good management of any system, whether fishery, forest or farm. No doubt the language of pending high-level agreements may be obfuscating some ulterior motives. I’m very skeptical of trading permission-to-pollute credits. But what is often proposed as the alternative is not exactly transparent, either.

Here is a fairly typical example from a writer who rejects Natural Capitalism and similar approaches because he fears a slippery slope to green-washing. He proposes an economic system based on:
  • peace, harmony and balance among all and with all things;
  • complementarity, solidarity, equality and social and environmental justice;
  • collective well-being and the satisfaction of the basic necessities of all;
  • recognition of human beings for what they are, not what they own;
  • elimination of all forms of colonialism, imperialism and interventionism
There are lots of ambiguities there. Such ambiguities can easily morph into obscurities and obfuscations which can provide cover for abuse and exploitation of people or natural capital or both. Not even the ban on colonialism and interventionism really holds up to analysis unless we go back to being hunter-gatherers and stop colonizing or intervening in nature. As one of my peers pointed out to me recently, appeals to optimality are really arguments that we’re living (or will be)  in the best of all possible worlds; or would be if only we’d regulate or deregulate or something.
Inquisition 2.0?

How will we draw the lines between good-faith green economics and green-washing? No simple answer, but that’s the kind of thing that empirical science, at its best, can be good at. The alternative to science may be a kind of post-market fundamentalism whose dogma demands belief in a new-age invisible hand. I am already seeing omens of an Inquisition 2.0 which will torture disciples of sustainable capitalism until they confess to sins of  green-washing and recant their faith in science.

An ecological moral philosophy is useful, but a new version of the invisible hand (even a spiritual one) is not. A real science of sustainable economics is needed regardless. Such a science won’t be achieved just by good will and wishful thinking. It will require deep observation, painstaking metrics, statistics, and very complex accounting.

Confusion of tongues

The original Green Revolution was guilty of so many sins it may have cast a permanent cloud over the word “green”. Modern corporate and political green-washing darkens that cloud even more.

The battle for the soul of the word green reminds me of the confusion of tongues (confusio linguarum), the fragmentation of human languages described in the Book of Genesis 11:1–9, as a result of the construction of the Tower of Babel.  And George Orwell charicatured the authoritarian appropriation of language with  Newspeak in the novel Nineteen Eighty-Four. In the novel, it refers to the deliberately impoverished language promoted by the state. (Wikipedia)

I’m not convinced that the left is not impoverishing the conversation on sustainability in another way with its glittering generalities about sacred economics and effortless abundance.

In a nutshell, without the rhetoric, the  moral or spiritual approach to economics boils down to:

  • reducing the scale and scope of markets
  • expanding the scale and scope of the commons
  • putting more emphasis on the public sphere

All that really means to me is there is no unitary, all-encompassing market and certain things aren’t on the auction block. Markets shall have circumscribed scope or boundaries, including appropriate regulation and no more archaic, grandfathered externalities. But the notion that everything should evolve from markets toward something else is pure speculation. Well-regulated, democratically-managed markets might be natural and desirable even within many local commons. An agricultural land trust might want a big, bustling produce market, and why not?

What we must add to the moral philosophy is an ability to mimic the balance between steady-state and development in living systems.

We need to start seeing markets, commons, and ecosystems alike as complex adaptive systems requiring appropriate (e.g. transparent, dynamic, and democratic) constraints and regulatory mechanisms both internal and external. We need to see them as layered, overlapping, recursive, and locally differentiated by environemntal niches.

These systems are almost unfathomably complex and I wager that all our current models and subjective interpretations barely begin to scratch the surface of the objective reality. Any notion that we can re-engineer the whole market ecosystem from the top down is the height of hubris. Instead it will take a great deal of inspired trial and error from the bottom up and from the inside out.

In our efforts to upgrade our economic consciousness, plenty of kumbaya will be essential, but it won’t be sufficient. Humanity cannot live on love and peanut butter alone.  I think many of the innovators  who will fertilize the science and technology of sustainable markets may come from the highly experimental (and less theoretical) hacker, re-mix, peer-to-peer (p2p), and open source cultures.

Ecological economics can also be thought of as integral economics, a framework that includes but transcends existing fundamentalist market frameworks, integrating local econo-diversity with global interdependence–i.e. reinventing economics for people and place.”

Neither markets nor economic anarchy seem to scale well by themselves. But I think they might scale indefinitely in balanced proportions.

Poor Richard


“They want us to believe the choice is the “free market” or government, when in fact it’s one system because government sets the rules of the market. And the real choice is between a system that works for the many or the few.

They want us to think people are paid what they’re “worth,” when in fact people are paid according to how the moneyed interests have organized the market — to their benefit and against most of the rest of us.

They don’t want us to see the upward pre-distributions hidden inside the market that give them a big chunk of our paychecks, as we pay more than we should for everything from drugs to Internet service to food.

They don’t want us to know how much their pollution is sickening us, their devastation of our lands is imperiling us, their sacking of our communities is ruining us, and their takeover of our democracy is robbing us of our capacity to set things right.” 

~Robert Reich

ADDENDUM

Robert Ryan is a Graduate Student Assistant at the University of Pittsburgh. Class of 2013 · PhD · Structures and Foundations · Business Environment, Ethics, and Public Policy · Strategic Management

This is my online interview with Robert Ryan on 5/22/2012:

Poor Richard: Robert, I’m curious what you think of my very unscholarly take on markets and green economics in “Framing the Market.”

Robert Ryan: The simplest way to summarize this problem is “optimization under constraint”. In the same way that engineers perform constrained optimization problems, it is generally assumed in markets that individuals do the same, each using the same rationale as an engineer of their own personal consumption functions. Markets (here we are referring to idealized, perfect ones) are non-coordinated mechanisms for spot transactions to optimize utility under budget constraint. What this generally means is that the only two important variables are individual level preferences and budgets. As you have mentioned, this doesn’t hold true if you have more important variables like information, time, transaction costs, bargaining power, etc. Simply put, there is no “environment” in traditional market models, period, which is what separates them from evolutionary ecosystems. Ecosystems aren’t just individuals. There are group level dynamics where individuals interact with “BOUNDARIES” of the system. For example, consider how tides in a sandbar ecosystem is a boundary condition for the survival of a population of sandbar-dwelling animals. The very existence of tides shapes behavior. The list of natural system boundaries for markets include, but are not limited to: Rationality (what Herbert Simon called bounded rationality)…environmental entropy and finality (in the sense that some resources tend to be not only scarce, but decaying and non-renewable, and that some resources have critical inflection points where they pass between sustainable in supply and not……power (which is delineated by human institutions, including knowledge, law, etc.)…technology (which is the level of possible combinations of resources to create final goods)….etc…..notice that all of these constraints can be put into the economic system, but economists struggle to do so because of the complexity problem causing indeterminacy (the mathematics of chaos takes over, essentially, when everything ids dependent on everything else recursively). The simplest way to escape the problem of chaos is to hold some things constant over time. So, this is what people do to solve problems- hold things constant that may or may not BE constant. Their biggest error in the modern age occurs when hey hold constant essential SUPPLY SIDE problems, such as pollution externalities being ignored. An externality as you defined it is not quite right. An externality really is when one individual’s action that maximizes THEIR preferences impacts the entire economy negatively. For example, if a polluter pollutes, everyone else picks up the tab. The simple way to deal with externalities is to regulate against them, but that requires common agreement among everyone in the regulation.

Poor Richard: Robert. I appreciate and agree. Could I add your remarks as a comment to my blog post? (I was being a little flip with my definition of externalities. Maybe I should tweak it.)

Robert Ryan: Many people don’t know that economists indeed do solve such problems. The most popular field of economics for dealing with this problem is the economics of contracts. A market is a special case of contracts where all tricky bits are held constant. However, contract economics is generally specified so that you can account for ANYTHING. But, the math is really tricky for even the simplest of contracts. Contract economics presumes a bunch of agents are trying to negotiate a solution to an economic problem, and at least one of them is a principal. This is basically the mathematical representation of social contract problems: “we all get together before birth, or before the veil of ignorance, and devise a social contract to solve problems” – is how my professor Lawrence Ales puts it. For example, there may be some golden ratio of consumption of farmland that if you pass beyond you begin destroying future farm output. In order to prevent this, the principal is granted the ability to distribute to farmland (forming your constraint) and then the agents can auction for their slice of production. In this fashion you cap the use of farmland. Easier said than done, because it is hard to know exactly how this problem works in the real world–the chaotic inter-dependencies of the precise use of farmland and the precise use of other kinds of resources (water, air, etc…what technical combinations are employed in production, etc. ) are hard to know, and the equations of their interdependency are recursive. Carbon caps are an attempt to do exactly this, and the logic for it comes from contract economics, not market economics. To summarize again, you can solve these problems one at a time by holding other problems constant, but you get the “law of unintended consequences” even in contract economics in a complex world. Solving one problem can often pass the problem into another domain. Solving carbon problems can, for example, pass the problem on to other kinds of supply issues, rent-seeking behavior, arbitrage, etc. However, we can still do some of this with economic engineering (combinations of market and contract rules) if we use a kind of Pareto efficiency rule– start with the biggest problems first and work backward– permit the little inefficiencies to exist and simply engineer human solutions to the tough problems. When the problems of the world are explained thusly, then it becomes obvious that ethical solutions to market economic problems are certainly obtainable, and only ignorance or immoral behavior can explain why we don’t engineer problems of public goods of such nature. This means our real problem is NOT economic but political/social. Ironically, everyone keeps blaming economists when the real blame lies in the power structures of political reality.

AS a general rule, one would say that markets should only be the appropriate mechanism where externalities and supply side inter-dependencies are trivial. When they are major problems, markets will inevitably destroy whatever environment you are dealing with. They eat themselves. They are cancerous. However, if you can contain and isolate markets from the ecosystem so that they are in “remission” essentially, then they are optimal. Ecosystems do suffer from cancerous market-like problems, too. The main reason why ecosystems tend to survive in the long run is that the entire system adapts to starve the cancer. Human markets aren’t designed to adapt to starve the cancer efficiently. They will in the long run, but in the long run we’re all dead. A troublesome species like humans can simply write themselves out of existence. Well, if that’s not an acceptable endgame solution, then we have to constrain our own cancers before we eat ourselves. This is why we need social contracts, and if we cannot make adequate ones, we need to break into subspecies (tribes, etc.) and exterminate the cancerous subspecies that are indigenous to the problem in order to save the species. That sounds awful, but true.

Poor Richard: I agree with you about the difficulty of the math. Fortunately massive data collection and pattern detection may soon give us a new way of doing science, and replace a lot of difficult mathematical modeling. I think we should take about 10% of all scientists and mathematicians and put them on that critical path.

Robert Ryan: We are reaching a state of the world that definitely calls for a technocracy in the similar sense that Plato wanted us to have philosopher kings. Truly the smart people of this world could be put to work solving our problems in a fashion far superior than is currently being done, and this is a big part of my political platform I advance. I call it the Pragmatist party (or New Bull Moose).

Poor Richard: I like the sound of the Pragmatist party. How would it handle the 1%?

Robert Ryan: By appealing to the top 20% instead. One of the big fallacies is that the 1% can out-bully the entire middle class. They can’t. No middle class and there is no economy, no military, no institutions to exploit. The middle class has not really shrunk. Its the lower middle, or working class, that has been getting worse off and shrinking as more people are falling to the lower class. The real middle class is really the professionals, intellectuals, entrepreneurs, petite bourgeoisie. There is no political party designed to appeal to them directly. In fact, both American parties preserve power by going around them completely. Most of the real middle class are independent and non-extremists. The pragmatist party basically says: enough is enough. These are the real job creators, the innovators, the creatives of society. Without them there would be no economic growth. So, let’s appeal to them pragmatically and say they can deflate the 1%, and in exchange for gaining more representation, they must take better care of the lower classes than the 1% has. Our target audience is thus the people who truly dominate campaign donations, charity donations, and our communities, but have been so fractionalized and “suburbanized” so as to think of themselves as independent instead of a class. If they were to think of themselves as a class again of sane people of balanced reasoning, then the middle class could save us.

Poor Richard: How can you appeal to such a class without insulting or alienating the rest of the 99%? And isn’t there a good reason that the middle class doesn’t make waves?

Robert Ryan: Yeah– I’ve had this discussion many times before. Well, we are reaching a point where, for the first time in American history, their prospects are not looking to get better, and they all mostly know that their nation is crumbling slowly, and that there is no good reason for this to happen. There are already plenty of instances of these people getting together to get the job done on a smaller scale. Typically you see this in university/business/local govt. cooperation. Various entities have gotten together to plan to save Detroit, for example. And they’re already on the right track. These sorts of cooperative efforts to socially contract new, smarter solutions do happen, and when they do, they tend to be more localized. This is part of the sensibility of the authors out there writing about the urgent need to revitalize our cities– cities are the places where, historically, the top 20% collaborate to make great places to live for everyone. The 1% typically help finance everything and provide resources flowing into these cities. But the very history of the city is the history of the yeoman specialists and master tradespeople getting together and making economies tick. The role of the larger federal system is to provide resources to these self-organizing activities on a more local level– such as infrastructure banking, research grants, development money, etc…but the activities have to be more local and less centrally planned. There seems to be an optimal scale efficiency of central planning, and it is when you have diverse interests willing to throw their hat into a common state interest– in the US, this has never been the federal level because of a lack of common identity. Regions and states are more apropos. Richard Florida is one man who understands this and would be an ideal candidate for such a party.

Richard Florida | Creative Class Group

How Detroit Is Rising

You’ve heard the story of the city’s downfall. This is the story of its comeback.

Multimedia showcase | Creative Class Group

mimicking the balance between steady-state and development in living systems

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The Economical Bestiary

Mythical Beasties of Economyland

The world of economics and economists is a world populated with many mythical and fantastic beasties. This Bestiary or Bestiarum vocabulum is a catalog of some of the most familiar as well as some of the most exotic and bizarre!

“Bestiaries were made popular in the Middle Ages in illustrated volumes that described various animals, birds and even rocks. The natural history and illustration of each beast was usually accompanied by a moral lesson. This reflected the belief that the world itself was the Word of God, and that every living thing had its own special meaning.” (Wikipedia)

Click to enlarge

Detail from the 12th century Aberdeen Bestiary (Wikipedia)

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“If all the economists in the world were laid end to end, they wouldn’t reach any conclusion.”George Bernard Shaw

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“For every economist, there is an equal and opposite economist”. –Source?

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“The first refuge of a scoundrel is economics” — Poor Richard

_________________Φ __________________

Economyland Safari Contributors:

Poor Richard: Safari Guide

Lori : Mythical Exo-taxonomist

“Natural Lefty” : Super-Natural Historian

This is an open-source peer-2-peer project owned by its contributors
Please see details here.

You are invited to leave content suggestions in a comment.

Creative Commons License

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Preface

Both liberal and conservative economists and economic partisans seem to have difficulty separating reality from fantasy.  “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” (Upton Sinclair)

In the culture war each side relies heavily on propaganda or spin (a mixture of valid and false reasoning with a mixture of fact and made-up bullshit); both sides tend to reason backwards from conclusions to any facts that might confirm them while studiously ignoring inconvenient truths. That’s generally known as confirmation bias.

I hope that the reality-based community may find something in the Economical Bestiary that they can use, or at least something that will amuse.

Introduction to Economyland: Reductio Ad Absurdum

(Alternate title: Escape from the Planet of the Economists)

Economyland is a place on the flat world of Reductio Ad Absurdum where the Economical Bestiary’s mythical beasts run wild in a free state of nature. Economyland is the true center of the universe around which the sun, planets, stars, and all the rest of the universe revolves. Economyland was created by God and placed under the dominion of man, a sort of Disney-esque theme park for economists of all species. In ancient times Economyland was known as Economia:

In the Eastern Orthodox, Greek-Catholic Churches, Latin Catholic Church,and in the teaching of the Church Fathers which undergirds the theology of those Churches, economy or oeconomy (Greek: οἰκονομία, oikonomia) has several meanings. The basic meaning of the word is “handling” or “disposition” or “management” or more literally “housekeeping” of a thing, usually assuming or implying good or prudent handling (as opposed to poor handling) of the matter at hand. (Wikipedia)

War of the World-views

Pius conservatives are fond of accusing science of being reductionist, of reducing the divinely-wrought human being and the world of nature to an oversimplified, materialistic machine. This is, as always, the conservative pot calling the kettle black.

Liberal economists don’t do much better. Most economists share a model of the economic world that is simplistic, reductionist, and naively anthropocentric.

<– click on the image for a closer view of Economia

Capitalism defines the economic system in terms of the dynamics of capital and labor; production, distribution, and consumption; or as it is often framed, the supply and demand of goods and services. The natural world is seen only as a supply depot for raw materials. The production and consumption of goods and services of and by the biosphere , is treated as a giant externality. And that view is a giant existential blunder.

Of course, it is a conveniently self-serving (if short-sighted) blunder in some quarters; and we need not wonder too hard about how and why this oversight has persisted for so long.

In contrast, “economics as if people mattered” (see below) has to begin with economics as if the biosphere mattered. The biosphere can not be treated as a free supply depot and waste dump. The ecosystem cannot simply be seen as a magical black box that God put here to provide for all human wants and dispose of all human garbage. You’d have to be either a moron or a person with serious conflicts of interest skewing your judgment (or both) to hold such a view. Yet that is just the view of most economists, for whom nature is simply a part of the human economy rather than vice versa.

One of the first widely respected economists to correct this misapprehension was E. F. Schumacher who published Small is Beautiful in 1973, which placed the study of economics where it belongs, inside the study of the ecology of the biosphere. His ideas were of course treated with contempt by most conservative economists and they are generally still ignored by or unknown to most liberal economists.

Small Is Beautiful: Economics As If People Mattered by E. F. Schumacher.

Schumacher was a respected economist who worked with John Maynard Keynes and John Kenneth Galbraith. For twenty years he was the Chief Economic Advisor to the National Coal Board in the United Kingdom, opposed the neo-classical economics by declaring that single-minded concentration on output and technology was dehumanizing. He held that one’s workplace should be dignified and meaningful first, efficient second, and that nature (and the world’s natural resources) is priceless.

Schumacher proposed the idea of “smallness within bigness”: a specific form of decentralization. For a large organization to work, according to Schumacher, it must behave like a related group of small organizations. Schumacher’s work coincided with the growth of ecological concerns and with the birth of environmentalism and he became a hero to many in the environmental movement. (Wikipedia)

The Happiness Index (E.F. Schumacher Society/New Economics Institute)

The E.F. Schumacher YouTube Channel

Another writer, Richard Heinberg, a Senior Fellow of the Post Carbon Institute, is making an effort to put the study of economics into a modern scientific perspective. Following are a few excerpts from a pre-publication version of his book The End of Growth:”

The classical [economic] theorists gradually adopted the math and some of the terminology of science. Unfortunately, however, they were unable to incorporate into economics the basic self-correcting methodology that is science’s defining characteristic. Economic theory required no falsifiable hypotheses and demanded no repeatable controlled experiments. Economists began to think of themselves as scientists, while in fact their discipline remained a branch of moral philosophy—as it largely does to this day.

…For help, we can look to the ecological and biophysical economists, whose ideas have been thoroughly marginalized by the high priests and gatekeepers of mainstream economics…

The ideological clash between Keynesians and neoliberals (represented to a certain degree in the escalating all-out warfare between the U.S. Democratic and Republican political parties) will no doubt continue and even intensify. But the ensuing heat of battle will yield little light if both philosophies conceal the same fundamental errors. One such error is of course the belief that economies can and should perpetually grow.

But that error rests on another that is deeper and subtler. The subsuming of land within the category of capital by nearly all post-classical economists had amounted to a declaration that Nature is merely a subset of the human economy—an endless pile of resources to be transformed into wealth. It also meant that natural resources could always be substituted with some other form of capital—money or technology. The reality, of course, is that the human economy exists within, and entirely depends upon Nature, and many natural resources have no realistic substitutes. This fundamental logical and philosophical mistake, embedded at the very heart of modern mainstream economic philosophies, set society directly upon a course toward the current era of climate change and resource depletion, and its persistence makes conventional economic theories—of both Keynesian and neoliberal varieties—utterly incapable of dealing with the economic and environmental survival threats to civilization in the 21st century.

Another giant of economic empiricism and innovation, though not an economist per se, was W. E. Deming.

William Edwards Deming (October 14, 1900 – December 20, 1993) was an American statistician, professor, author, lecturer, and consultant. He is perhaps best known for his work in Japan. There, from 1950 onward he taught top management how to improve design (and thus service), product quality, testing and sales (the last through global markets, through various methods, including the application of statistical methods.

Deming made a significant contribution to Japan’s later reputation for innovative high-quality products and its economic power. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual not of Japanese heritage. Despite being considered something of a hero in Japan, he was only just beginning to win widespread recognition in the U.S. at the time of his death. (Wikipedia)

Though still virtually unknown and unappreciated in the US, Deming was almost solely responsible for the transformation of Japanese industry from having, in my childhood, a reputation for manufacturing cheap junk goods to, by the mid-70′s, a reputation as the maker of the world’s highest quality and highest value automobiles, electronics , and many other consumer goods. Though his ideas of continuous improvement were originally widely rejected in the US until recently because they did not fit with autocratic US corporate culture, in the 80′s and 90′s US industry imported many Japanese manufacturing consultants due to the reputation for quality and efficiency that Japan had gained, ironically, as a direct result of adopting Deming’s ideas.

Demings methods, rejected by US captains of industry for decades, swept through the entire Asian world and are largely responsible for the fact that Asian manufacturers are still kicking US industry’s ass today in markets as diverse as cars, cell phones, personal computers, and solar cells.

Where would American workers be without such enlightened and visionary corporate management? Perhaps still in the middle class instead of in unemployment lines or among the the ranks of the working poor. The story of W. E. Deming proves yet again that a profit is without honor in his own land.

The US Is Becoming an “Underdeveloping Nation”

Maxneef

While President Obama tapped former corporate executives to become his top economic team, many economists question the path the United States is on. Amy Goodman of Democracy Now speaks to the acclaimed Chilean economist Manfred Max-Neef. He won the Right Livelihood Award in 1983, two years after the publication of his book Outside Looking In: Experiences in Barefoot Economics.

“We are simply, dramatically stupid. We act systematically against the evidences we have. We know everything that should not be done. There’s nobody that doesn’t know that. Particularly the big politicians know exactly what should not be done. Yet they do it. After what happened since October 2008, I mean, elementally, you would think what? That now they’re going to change. I mean, they see that the model is not working. The model is even poisonous, you know? Dramatically poisonous. And what is the result, and what happened in the last meeting of the European Union? They are more fundamentalist now than before. So, the only thing you know that you can be sure of, that the next crisis is coming, and it will be twice as much as this one. And for that one, there won’t be enough money anymore. So that will be it. And that is the consequence of systematical human stupidity.”

“First of all, we need cultured economists again, who know the history, where they come from, how the ideas originated, who did what, and so on and so on; second, an economics now that understands itself very clearly as a subsystem of a larger system that is finite, the biosphere, hence economic growth as an impossibility; and third, a system that understands that it cannot function without the seriousness of ecosystems. And economists know nothing about ecosystems. They know nothing about thermodynamics, you know, nothing about biodiversity or anything. I mean, they are totally ignorant in that respect. And I don’t see what harm it would do, you know, to an economist to know that if the beasts would disappear, he would disappear as well, because there wouldn’t be food anymore. But he doesn’t know that, you know, that we depend absolutely from nature. But for these economists we have, nature is a subsystem of the economy. I mean, it’s absolutely crazy.”

“The principles of economics should be based in five postulates and one fundamental value principle.

  • One, the economy is to serve the people and not the people to serve the economy.
  • Two, development is about people and not about objects.
  • Three, growth is not the same as development, and development does not necessarily require growth.
  • Four, no economy is possible in the absence of ecosystem services.
  • Five, the economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible.
  • And the fundamental value to sustain a new economy should be that no economic interest, under any circumstance, can be above the reverence of life.”

View the entire interview with Amy Goodman and Manfred Max-Neef.

Max-Neef’s Keynote at Zermatt Summit 2012

Keeping It Real

Modern economists need to get over their hair-splitting theories, self-serving technical jargon, and their detached, ivory-tower naïveté, and get real.

As E. B. White once aptly advised, “Bend down, Librarians, and taste the page.” I think it was also he who said “All their biology is Latin names.”

That is the message of the Economical Bestiary, which ridicules the brand of economics which persists to this day as little more than, as Richard Heiberg calls it, moral philosophy. The moral hazard for economists is succumbing to the personal, financial, and academic conflicts of interest between the cognitive corruption of their profession and the objective imperatives of reality.

Poor Richard

Ecological economics (Wikipedia)

Environment Equitable Sustainable Bearable (Social ecology) Viable (Environmental economics) Economic Social

Ecological economics is a transdisciplinary field of academic research that aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space. It is distinguished from environmental economics, which is the mainstream economic analysis of the environment, by its treatment of the economy as a subsystem of the ecosystem and its emphasis upon preserving natural capital. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing “strong” sustainability and rejecting the proposition that natural capital can be substituted by human-made capital.

(Wikipedia)

Natural Capitalism: Creating the Next Industrial Revolution is a 1999 book co-authored by Paul Hawken, Amory Lovins and Hunter Lovins. It has been translated into a dozen languages and was the subject of a Harvard Business Review summary.

Their fundamental questions are: What would an economy look like if it fully valued all forms of capital? What if an economy were organized not around the abstractions of neoclassical economics and accountancy but around the biological realities of nature? What if Generally Accepted Accounting Principles recognized natural and human capital not as a free amenity in inexhaustible supply but as a finite and integrally valuable factor of production? What if in the absence of a rigorous way to practice such accounting, companies started to act as if such principles were in force. (Wikipedia)

The principles used by Natural Capitalism Solutions are:

1. Buy time by using resources dramatically more productively.

This slows resource depletion, lessens pollution, and increases employment in meaningful jobs. It lowers costs for business and society, halts the degradation of the biosphere, makes it more profitable to employ people, and preserves vital living systems and social cohesion.

2. Redesign industrial processes and the delivery of products and services to do business as nature does, using such approaches as biomimicry and cradle to cradle.

This approach enables a wide array of materials to be produced with low energy flows, in processes that run on sunlight, emulating nature’s genius. It shifts to circular economies in which materials are reused, remanufactured and waste is eliminated.

3. Manage all institutions to be restorative of natural and human capital.

Such approaches enhance human well-being and enable the biosphere to produce more wealth from its intact communities and abundant ecosystem services and natural resources.(Natural Capitalism Solutions)

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Private Property, Taxation, and Corporate Personhood

Dear cons, neocons, and libertarians:

Your notions of private property, property rights, and taxation seem a little naive to me.

I am not a lawyer but I know something about the laws of real property (real estate law). I proposed and lobbied for the Tennessee Conservation Easement Act of 1981 and some TN legislators and lawyers considered me one of the state’s best experts on property law at the time. While my legal, historical, and philosophical knowledge of property ownership mainly concerns real property, many of the same principles apply to personal property, too.

I am a progressive, but several of my close friends have been Ayn Rand Libertarians, “lazy-unfair”capitalists (thanks to Natural Lefty for that turn of phrase), and free-market fundamentalists. If I  mis-state any of your beliefs please correct me.

The arguments I have seen  in support of absolute private property ownership fall into two categories: appeals to natural law and appeals to utility.

I. The appeal to “natural law” and “natural rights“. Libertarians and some conservatives view private property rights as the foundation from which all other natural rights extend. There are several problems with this:

 

From The Jungle Book by Rudyard Kipling. (Click image for full quotation)

 

A. Despite the musings of many erudite (if old-fashioned) philosophers, in the state of nature there is but one right: “might makes right” (Vae victis). Any other right can only be the result of imposing positive (artificial) law.

B. In the state of nature there is but one law: “might makes right” (Vae victis), again. Any other result can only be:

1) another case of imposing positive (artificial) law, or

2) the “law” of unintended consequences (this includes all biological and physical laws such as gravity, etc.)

C. In nature, possession is 100% of the law. The only private property is that which one can take and hold by force. If you can take it from someone else it becomes yours. If they can take it back or induce you to give it back it is theirs again. Natural social behavior might seem to introduce more laws, such as in the “law of the pack” and “pecking order”, but in nature these are simply either:

1) proxies for force which must be regularly backed up by force–there is no court of law, or

2) they are the product of genetically encoded, involuntary, instinctive responses to chemical or physical signals as in the case of social insects and bacteria.

D. Without the rule of law, predictably and impartially managed by society, property is nothing but a temporary possession maintained by private force. If the existence and persistence of private property depends upon a public legal infrastructure, then private property as we know it is a public creation. The public, which creates the “privateness” of the property and preserves it by force of law, always has a proprietary interest in any such property–by the principle of natural law! If this is too hard to wrap your head around, consider this–in any contest between private force and state force, the state wins. The only exception is a successful revolution or coup (Good luck with that!).

E. Many of the philosophers who have argued for “natural law” have conflated it with divine law, nature simply being a proxy for the divine creator. This attitude has passed by inheritance to modern-day conservatives and libertarians. Property, once the divine right of kings, is now the divine right and manifest destiny of whoever has the latest legal claim. In this tradition, the owner has an absolute (thus divine) right to his property which supersedes all other claims. The public interest, the interests of future generations, or the survival of the planet be damned. There are two problems with this argument:

1) This is thinly veiled religion which, in the possible absence or indifference of the necessary deity, amounts to little more than anarchy.

2) This “absolute” natural right can be magically dissolved by signing a piece of paper, just as any other so-called natural right of man can be signed away or even automatically abdicated simply by accepting casual employment. This reveals that the natural right, just like the natural man (the supposed “king of his castle”), is actually nothing more than chattel (from the word cattle–in law, any movable property; also used to refer to slaves, wives, and minor children).

 

Many of the categories above include additional rights or attributes not listed. (Click image for article on “Bundle of rights”)

 

II. The appeal to utility

A. Proponents of the absolute right to private property claim that it promotes the common good in the same way that greed supposedly promotes the common good in the “free market”. They rely on an  “invisible hand” to make everything work out for the best even if each person acts purely out of greed, ambition, paranoia, malice, delusion, or any other form of vice, depravity, or pathology.

B. To be fair, they assert that an owner will always act in his own best interest and that the utility of absolute private ownership follows from this (with a little invisible helping hand still required). They assert that an owner will rarely fail to act in his own self-interest. However, only if every property owner acted in his fully enlightened self-interest could the appeal to general utility succeed. That test is clearly unmet. Most owners are not only unenlightened they are predictably irrational. The “rational agent” theory has been fully discredited in psychology, sociology, neuroscience, and even in economics (which tends to fall somewhat behind the curve in theories of human behavior).

C. Science has debunked the invisible hand  for failing to deal with irrational agents, externalities, and information asymmetry:

1. Nobel Prize economist Joseph E. Stiglitz wrote:

“Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new

book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there.

Whenever there are “externalities”—where the actions of an individual have impacts on others for which they do not pay, or for which they are not compensated—markets will not work well. Some of the important instances have long understood environmental externalities. Markets, by themselves, produce too much pollution. Markets, by themselves, also produce too little basic research. (The government was responsible for financing most of the important scientific breakthroughs, including the internet and the first telegraph line, and many bio-tech advances.)

But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.

Government plays an important role in banking and securities regulation, and a host of other areas: some regulation is required to make markets work. Government is needed, almost all would agree, at a minimum to enforce contracts and property rights.

The real debate today is about finding the right balance between the market and government (and the third “sector”—non-governmental non-profit organizations.) Both are needed. They can each complement each other. This balance differs from time to time and place to place.[11] (Wikipedia: Invisible Hand)

 

(click image for article on “Invisible Hand”)

 

2. Noam Chomsky, while acknowledging the intelligence of Smith’s thesis, wrote:

Throughout history, Adam Smith observed, we find the workings of “the vile maxim of the masters of mankind”: “All for ourselves, and nothing for other People.” He had few illusions about the consequences. The invisible hand, he wrote, destroys the possibility of  a decent human existence “unless government takes pains to prevent” this outcome, as must be assured in “every improved and civilized society.” It destroys community, the environment, and human values generally—and even the masters themselves, which is why the business classes have regularly called for state intervention to protect them from market forces.[12] (Wikipedia: Invisible Hand)

3. The political economist E.K. Hunt:

[Hunt] criticized markets and the externalities emerging from market exchanges as being a route for self-advancement at the expense of social good. Hunt helped contribute to the literature on heterodox economics, helping to coin the term “invisible foot” in contrast to a presumably beneficient “invisible hand”. Hunt wrote:

“If we assume the maximizing economic man of bourgeois economics, and if we assume the government establishes property rights and markets for these rights whenever an external diseconomy is discovered [the preferred “solution” of the conservative and increasingly dominant trend within the field of public finance], then each man will soon discover that through contrivance he can impose external diseconomies on other men, knowing that the bargaining within the new market that will be established will surely make him better off. The more significant the social cost imposed upon his neighbor, the greater will be his reward in the bargaining process. It follows from the orthodox assumption of maximizing man that each man will create a maximum of social costs which he can impose on others. D’Arge and I have labeled this process “the invisible foot” of the laissez faire … market place. The “invisible foot” ensures us that in a free-market … economy each person pursuing only his own good will automatically, and most efficiently, do his part in maximizing the general public misery. “(Wikipedia: Invisible Hand)

D. Without an invisible hand, the only interested party left around to represent the common good, the public interest, future generations, and the planet, and “to promote the general welfare” (as per the Preamble to the US Constitution), is (no big surprise to progressives) the public. The public interest is a proprietary interest in a portion of the bundle of rights which make up ownership. The public owns this proprietary interest by virtue (as stated before) of natural law!

E. For the appeal to utility to succeed, owners must put their property to its “highest and best use”. This condition is clearly not satisfied. The proponents of absolute private property rights often argue that it is government interference, (zoning, environmental regulation, nuisance laws, etc.), which prevents private owners from achieving the highest and best use of their property, and that such interference is a “taking” of their property. There is law on both sides of this argument and owners are free to file their claims in the proper court of jurisdiction– the venue which they argue is the only proper source of remedy.

Corporate ownership of property

Corporations are chartered by state law. Originally, the justifications for corporate existence were 1) to carry out a specific, narrow set of activities which the state agreed would serve a public need, and 2) to limit the personal legal liability of the investors and operators which might otherwise inhibit achieving  that public good for which the corporation was chartered. Classic examples are the early railroad corporations and hospitals. These served fundamental public needs and the liability issues acted as serious impediments to private developers and operators.

Today, the typical corporate charter includes a catch-all “or for any other legal purpose” article. Now, if corporations were intended to operate “for any other legal purpose”, the entire idea of a charter listing the intended purposes is entirely superfluous. Obviously, a corporation was originally intended to operate only for a very limited set of explicit, pre-defined purposes and those purposes were expected to serve an explicit, pre-defined public need, not simply any private purpose that a corporation might improvise from day to day.

In addition to limiting liability (thus removing a disincentive to meeting a critical public need) the state grants certain other privileges (not rights) to the corporation which are essential to conducting its business:

1. The privilege of acting as a party to such legal contracts as may be necessary for the conduct of its explicit, pre-defined business activity.

2. The  privilege of owning such tangible and intangible property (such as cash, real property, and intellectual property) as may be necessary for the conduct of its explicit, pre-defined business activity.

Now, unless an explicit pre-defined public need is to be served, what is the incentive for the state to specially limit the normal legal liabilities of the corporate investors and operators, including the liabilities incurred by its power to enter into contracts, and to grant it the privilege to hold property in perpetuity without any of the taxes that natural people and families must pay to transfer property among themselves and their successive generations? There are none. Such a charter, uncoupled from any explicit, pre-defined, compelling  public need, would serve no legitimate purpose for the state, and could only be considered a form of fraud, graft, or corruption.


Any extra grant of rights to a corporation beyond those described above, or any post hoc, improvised expansion of its scope of operation, is a direct contradiction of the core raison d’etre of corporations and is blatantly contrary to the public interest.

The privilege of corporate property ownership is subject to an explicit lien held by the state in the form of the corporate charter and the explicit Constitutional duty of the US Government, whose boss is the We The People,  to serve the public interest and to promote the general welfare.

Nevertheless, over the years government was motivated to liberalize the purposes for which a corporation might be granted a charter because it could impose double taxation by taxing both the corporate income and the dividends paid to investors. This was little more than institutionalized bribery–the state granted perpetual property ownership and limitations of liability in exchange for double taxation.

It has not been a fair exchange. In the intervening years since chartered purposes were broadened to include such things as “making shit loads of money” and “any other legal purpose”, corporations have grown increasingly powerful and the contribution of corporate taxes to the public treasury have steadily eroded away.

The Corporate Tax Dodge

By Cassandra Q. Butts, April 10, 2004

The news that more than 60 percent of U.S. corporations failed to pay any federal taxes from 1996 through 2000 when corporate profits were soaring and that corporate tax receipts had fallen to just 7.4 percent of overall federal tax revenue in 2003 – the lowest since 1983 and the second-lowest rate since 1934 – is an outrage. But it should come as no surprise to anyone who has been paying attention to national tax policy over the past few years. The General Accounting Office (GAO) report also found that an astonishing 94 percent of corporations reported tax liability of less than 5 percent of their total income during the same time period…

With Tax Day (April 15) fast approaching and the Bush administration continuing to make the case that the Bush tax cuts have benefited American families, the GAO report could not be timelier in painting a far less rosy picture. Both the GAO study and the historical record support the conclusion that any benefit working families have received from the Bush tax cuts has been more than offset by the additional tax burden they must bear because corporations no longer pay their fair share of taxes.

As the GAO study documents and the historical record proves, corporate tax dodging is directly linked to the reduction of corporate tax revenues. Corporate tax receipts dropped from an average of 4.8 percent of GDP during the 1950s to 1.3 percent of GDP in FY2003. Treasury Department figures show that actual corporate income tax revenues fell 36 percent from FY2000 to FY2003. And while the statutory corporate income tax rate is 35 percent, the effective corporate tax rate – the actual share of corporate taxes paid on corporate profits – has averaged just 26 percent since 1993, according to the Congressional Research Service…

Estimates of the cost of corporate tax loopholes have been projected at upwards of $50 billion a year, according to Citizens for Tax Justice.

As corporate tax receipts decreased, payroll taxes, the most regressive of all taxes, increased dramatically. Specifically, payroll taxes increased from 1.6 percent of GDP in FY1950 to 6.8 percent of GDP in FY2002, surpassing both corporate income taxes and excise taxes in their contribution to total federal receipts. This rise in payroll taxes represented a 30 percent increase in the contribution of payroll taxes to overall federal revenues.

At the same time, individual income taxes also increased in the past half century as both a percentage of GDP and in their relative contribution to total federal tax receipts. Individual income taxes rose from 5.8 percent of GDP in FY1950 to 8.3 percent of GDP in FY2002.

During the Bush-Cheney years, the largest corporations (now transnational entities with no allegiance to the US) completed the process of taking the US Government (at its own invitation) captive, as both Thomas Jefferson and President Dwight Eisenhower had predicted they would.

The original reasons for corporate existence and corporate privileges have gradually dwindled away. The only justification that remains, according to conventional wisdom, is jobs. That justification is false. The corporate enterprise has no inherent advantage as a creator of jobs other than its advantage in destroying unincorporated employers and self-employment by leveraging its special advantages of perpetual life, limited liability, market monopolization, and corrupting political influence to force out competition. This is diametrically opposed to the long term public interest and maintaining a balance of power between popular sovereignty (democracy) and rule by the wealthy (plutocracy).

“The word plutocracy is derived from the ancient Greek root ploutos, meaning wealth and kratos, meaning to rule or to govern.”

“Before the equal voting rights movement managed to end it in the early 20th century, many countries used a system where rich persons had more votes than poor. A factory owner may for instance have had 2000 votes while a worker had one, or if they were very poor no right to vote at all. Even artificial persons such as companies had voting rights. In the US, it would take until 1945 before persons living on welfare and persons in personal bankruptcy would get voting rights.” (Wikipedia)

Michael Moore’s recent movie, “Capitalism – A Love Story” mentioned secret reports that Citigroup circulated to their wealthiest clients explaining a concept they called “plutonomy” –a blend of pluto– (wealth) and economy. A plutonomy is a system in which economic growth is both powered by and consumed by the rich. In other words, a plutonomy is a society of the rich, for the rich, and by the rich.

The Secret Citigroup Plutonomy Reports:

“We [Citigroup]… posit that:

➤ The world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest.

➤ We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality…”

Full report:  Citigroup-Oct-16-2005-Plutonomy-Report-Part-1

“Revisiting Plutonomy: The Rich Getting Richer

➤The latest Survey of Consumer Finances, for 2004, has been released by the Federal Reserve. It shows the rich continue to account for a disproportionately large share of income and wealth in the US economy: the richest 10% of Americans account for 43% of income, and 57% of net worth. The net worth to income ratio for the richest 10% of Americans increased from 7.4x in 2001, to 8.4x in the 2004 survey. The rich are in great shape, financially.

➤We think the rich are likely to get even wealthier in the coming years. Implication 2: we like companies that sell to or service the rich – luxury goods, private banks etc. Favored names include LVMH and Richemont.”
➤RISKS — WHAT COULD GO WRONG?
Our whole plutonomy thesis is based on the idea that the rich will keep getting richer. This thesis is not without its risks. For example, a policy error leading to asset deflation, would likely damage plutonomy. Furthermore, the rising wealth gap between the rich and poor will probably at some point lead to a political backlash. Whilst the rich are getting a greater share of the wealth, and the poor a lesser share, political enfrachisement remains as wasone person, one vote (in the plutonomies). At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich. This could be felt through higher taxation on the rich (or indirectly though higher corporate taxes/regulation) or through trying to protect indigenous laborers, in a push-back on globalization — either anti-immigration, or protectionism. We don’t see this happening yet, though there are signs of rising political tensions. However we are keeping a close eye on developments.

According to Jamess at the Daily Kos Blog on 10/04/09

“Those [Citigroup] reports, since leaked, plainly discuss the power of the Plutonomy in America, and how it would only strengthen, as long as the “the rest us” (the non-plutonics) could be kept in the dark about the Plutonomy existence, its role, and its over-arching control in the American Economy”

Even though the Plutonomy (the top 1%) control over 50% of the net worth in America — they don’t control the Votes!

The thing they most fear is the principle of “one person — one vote”.

You see despite their extreme wealth and power, they only have 1% of the vote; “the rest us” control the other 99% of the votes.

We, the People

Plutocracy and plutonomy are not the same as democracy and they are not compatible with democracy. They are antithetical to democracy and the liberty of  “We, the People“.

The Preamble to the US Constitution reads:

“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Plutocracy and plutonomy produce ever greater concentrations of wealth (private property) in fewer and fewer hands. If one wanted to design a system or process by which a democracy would gradually be subverted and transformed into an aristocracy or oligarchy, (society dominated by small elites) plutonomy would be perfect for the job.

Wikipedia: Oligarchy

The word oligarchy is from the Greek words “ὀλίγος” (olígos), “a few” and the verb “ἄρχω” (archo), “to rule, to govern, to command”…  Oligarchies have been tyrannical throughout history, being completely reliant on public servitude to exist. Although Aristotle pioneered the use of the term as a synonym for rule by the rich, for which the exact term is plutocracy, oligarchy is not always a rule by wealth, as oligarchs can simply be a privileged group, and do not have to be connected by bloodlines as in a monarchy.

Economic Inequality

Economists and political scientists tend to agree that a certain amount of economic inequality and disequilibrium is good for a society. It stimulates fluidity, creativity, competition, and motivation. Most economists and political leaders have also come to agree that too much inequality is bad. Monarchy, monopoly and plutonomy represent too much inequality.

Beyond some point, the greater the disparity of income and concentration of wealth (private property) in a society, the greater the degree of servitude of the masses. Mass servitude is not what the US was founded for. That was not the original meaning or original intent of the Constitution. No version of originalism dares claim such an intent.

At some point, the greater the inequality of income and concentration of wealth (private property) in a society becomes, the less healthy, happy, and free the people of that society are.

A study published in 2009[1] has shown that negative social phenomena such as shorter life expectancy, higher disease rates, homicide, infant mortality, obesity, teenage pregnancies, emotional depression and prison population correlate with higher socioeconomic inequality. (Wikipedia: Economic Inequality)

Thus, almost every aspiration expressed in the Preamble of the US Constitution is directly thwarted by the unlimited concentration of wealth.

The principle tool the public has to prevent the excessive concentration of wealth is taxation.

Taxation

 

Law and Taxation: balancing public and private interests

 

The natural, proprietary interest which the public retains in all private property is the basis of the people’s right to tax income, property, and inheritance. If tax rates are too high, the burden may stifle economic activity. If rates are too low, especially in the top tiers, concentrations of wealth may grow large enough to stifle activity in the lower economic tiers (plutonomy). Democracy can not endure if we abuse the power of taxation, nor can it  endure if we use this power too little.

At big holiday gatherings at my grandparents’ house, meals were eaten at two tables–the grown-ups’ table and the kids’ table. There is a social parallel:

At the kids table, political conversations are ideological–ideals are black and white and principles are expressed as simplistic clichés, such as “Government is not the solution, government is the problem”, and “Taxation is theft”. For every complex problem there is a simple solution.

At the grown-ups table, ideals are tempered by reality, complexity, and  pragmatism. Simplistic ideologies and sophomoric theories are subjected to historical and empirical criticism. Black and white values become shades of gray when seen in terms of complex trade-offs between various competing interests. At the grown-ups’ table, the social confiscation and redistribution of wealth through taxation is not an evil in and of itself. It is founded on natural law and it can be used to establish justice and balance. It is an evil only if carried too far.

The potential for evil lies equally in taxing too much or too little.

Well-regulated taxation is as fundamental to the preservation of democracy as the rule of law.

Corporate Personhood

The 14th Amendment of the US Constitution says:

Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

Corporations are neither born nor naturalized and thus are neither people nor citizens. They are also not citizens in that they are not issued passports and they do not have the right to vote.

If corporations were persons, then by virtue of the “equal protection” clause of the 14th Amendment, all rights and privileges afforded to corporations, such as immortality and limited liability, would have to be extended to all natural persons as well.

Corporations are not persons. They may act as artificial or virtual persons for the purpose of contracts and holding property, period. This is a limited, artificial, legal device created by statutory law–not one created either by natural law or the US Constitution.

There are a few narrow ways that corporations may act similar to persons. But there are many ways in which corporations, special interest groups, and rich persons are all very different from ordinary working persons.

As the Citigroup plutocracy reports correctly point out, the money is on one side and the votes are on the other side. To remain free and democratic, we must steer the bus of state between the ditches of public tyranny and private tyranny.

Anyone is free to argue, with their speech or their vote, that any particular exercise of taxation, zoning, environmental regulation, or other public-interest restrictions on the absolute ownership of private property are bad public policy. However, the argument that all such exercise of law is categorically evil is patently absurd and has no place at the grown-ups’ table. And when wealthy corporations, big associations, or rich people bribe or buy politicians or spend millions on propaganda designed to trick average working Americans into acting against their own enlightened self-interest, that kind of behavior is un-American.

That is not speech. That is not democracy. That is information warfare, and those who commit such acts are enemy combatants.

Poor Richard

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