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Musings Report #4 1-23-15 The Self-Liquidating Limits of the Market and the State
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For those who are new to the Musings reports: they are basically a glimpse into my notebook,the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
The Self-Liquidating Limits of the Market and the State
I don't think we can truly get a handle on the global economy's malaise until we understand the intrinsic limits of the state (central government) and the market. This is the starting point of my next book, because we cannot alleviate entrenched poverty without understanding why the state and the market are not the solutions as so many believe.
In the socialist view, the state is the solution to essentially every problem. In the neoliberal capitalist view, every problem can be solved by turning it into a market.
As with so many things in life, that the state and the market offer solutions to some problems in specific conditions does not imply they are universal solutions, but humans gravitate to ideological solutions because they are simplistic and appeal to our idealism.
What I see is a world-system of the global market and the state that depends on that market for revenues spiraling down as a result of profound systemic technological trends.
1. Not every productive activity is profitable. The neoliberal faith in markets presupposes that every productive activity can be profitable, but this is not true. The benefits of paved, safe bicycle pathways are measurable--in improving health and increasing economic activity, etc.--but there is no way to make bikeways profitable except to charge bicyclists a fee for using them. The only way this could remain profitable is if there is no free alternative routes, and the state makes it illegal to use these alternatives--in other words, if the bikeway becomes a monopoly.
There are thousands of other productive activities that will never be profitable short of a state-imposed monopoly, for a variety of reasons. So the idea that the solution to every problem is to turn it into a market is false.
2. The rise of cheap software, networked intelligence and robotics is making it increasingly difficult to make a profit. In a global economy, capital and technology are both mobile, and capital will flow to where it is most likely to earn an outsized return.
As the cost of technology plummets, the cost barriers have fallen to the point that a great many enterprises can afford to produce competing goods and services. As a result, technology lowers profit margins across the board. A few outliers such as Apple are touted as examples of strong profitability, but the Apples and Googles are outliers. For the 99%, the reality is diminishing profitability across regions and product lines.
Local providers find that global corporations can make goods cheaper elsewhere. This reduces profitability across regions. Pricing power is increasingly dependent on fleeting monopolies or marketing.
3. The state lives off the jobs and profits generated by private enterprise and markets. The state lives off taxes extracted from private jobs and profits. Even state-owned enterprises (SEOs) ultimately depend on the market for its revenues and profits. SEOs that lose money become drains on the state, absorbing tax revenues from still-profitable companies.
4. The inevitable result of cheaper technologies is a permanently declining demand for costly human labor. While many cling to the idea that technology always creates more jobs than it destroys, this is simply not true, given the systemic trend to higher labor costs everywhere and lower technology costs everywhere.
Thus the foundation of both the market and the state--profits and jobs--are in structural decline.
5. The state and central bank have attempted to counter these trends by lowering the cost of capital (lowering interest rates) and extending credit to marginal borrowers. Ironically, lower interest rates make substituting technology for human labor even more financially compelling, and extending credit to marginal borrowers only locks in defaults and banking crises as the marginal borrowers soon default and the consumption driven by this marginal borrowing disappears.
So the "fix" to declining profits and jobs--cheaper credit and extending credit to marginal borrowers--is a self-liquidating solution, meaning this "fix" contains the seeds of its own destruction.
6. The state's solution to declining profits and jobs is to borrow money and issue social welfare. But borrowing vast sums eventually reaches built-in limits of what the state can afford to pay in interest, and social welfare does not create jobs or capital, or provide meaning and opportunity. In these ways, it is a dead-end that fuels dependency and stagnation. To say these are solutions is not just absurd--it is cruel and destructive.
Next time, I'll discuss the ignored Third Economy--the Community Economy that is neither neoliberal nor statist.
Summary of the Blog This Past Week
Oil Dinosaurs Face Extinction: State Oil Companies and the Meteor-Strike of Low Oil Prices 1/23/15
Do We Want Solutions, Or Just What's Easy? 1/22/15
Asset Ownership and Our System of Deepening Debt-Serfdom 1/21/15
How Do You Unmanipulate a Manipulated Economy? 1/20/15
Who Benefits When Bubbles Burst 1/19/15
Best Thing That Happened To Me This Week
Recorded a new song with my friend and musical mentor Coconut Cosmos, 16 chord changes in each verse, many complex jazz-type chords (flatted fifths, etc.) The song isn't ready for release but it was exhilarating to stretch myself to the maximum of my (limited) ability.... see the Kafka quote below.
Market Musings: Gold - Oil Ratio is 28
Historically, the gold-oil ratio has a wide range--above 30 is an extreme where oil is cheap and gold is expensive, and under 10 is an extreme where oil is expensive and gold is cheap. As this chart shows, the ratio has shot up recently, reflecting oil's 50% collapse in price.
The consensus is still very bearish on oil; targets of $30 or even $20/barrel are still being bandied about as targets.
The gold-oil ratio can return to its average around 14 in three ways: either oil can shoot up in price, gold can plummet, or each makes moderate moves in these directions.
As a contrarian, when the majority are confident that the market will move in one direction, I am skeptical that the majority will be granted the easy profits of being right.
From Left Field
Sierra Nevada Founder Grossman Becomes Billionaire on Pale Ales (via U. Doran)
“I didn’t get into the business to try and make a ton of money and I’ve made enough money that I am totally comfortable and don’t want for anything,” he said. He plans to let his son and daughter Sierra, 37, run the company when he’s done. -- imagine a family business that didn't sell out...
Nadezhda Popova, WWII ‘Night Witch,’ Dies at 91 -- fascinating and largely unknown in the West story of the Eastern Front in WW2...
A New Theory Of Energy & The Economy, Part 1 -- high energy costs are a trap, but so are low prices....
Aid for Peace: Does Money Buy Hearts and Minds? -- worth a read: Big Aid destabilizes nations....
What Do Weak Oil Prices Mean for the South China Sea? (via Joel M.)
Price Collapse Hits Scavengers Who Scrape the Bottom of Big Oil's Barrel (via Joel M.)
Watch This Haunting 7-Minute Film About China’s Insane Air Pollution--yikes...
ENVIRONMENTAL STAFF IN CHINA SPRAY AIR QUALITY MONITORS WITH WATER TO MAKE READINGS MORE ACCEPTABLE (via Maoxian)
Ruth Chang: How to make hard choices | Ted.com Video
Strange Visions of the Hyper-Congested Megacities of the Future -- interesting photos...
Antarctica: A Year On Ice International Trailer (video) (via John S.P.)
Medicare Institutes New “Gratuity-Based” Compensation Plan (via Ishabaka)
"Productivity is being able to do things that you were never able to do before." Franz Kafka
Thanks for reading--
charles |
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