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Musings Report 2017-43 10-28-17 We Need a New Mode of Production
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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.
Welcome to October's MUS (Margins of the Unfiltered Swamp)
The last Musings of the month is a free-form exploration of the reaches of the fecund swamp that is the source of the blog, Musings and my books.
We Need a New Mode of Production
I think we are all aware that our Mode of Production--the entirety of the current economic, financial, social and political realm--is irrevocably broken. It’s broken in so many ways that repair via the usual policy tweaks is not going to work this time around.
The following is an excerpt from my new book which attenpts to explain how the inner logic of the current system will lead to its collapse.
Many people believe that free markets are the solution to most if not all of the planet's problems. My view is free markets have a positive role, but the key issue is how we create and distribute money. If we don't change this, we won't change anything.
Needless to say, the current system is not a free market. While certain sectors have some characteristics of a free market, the current system is far from Adam Smith's idealized arrangement and his moral philosophy that was embedded in his idealization.
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Why can’t we create more paid work and more profits in the current system? Why can’t the state tax these profits to pay millions of permanently unemployed people Universal Basic Income as a permanent entitlement? Advocates of the current Mode of Production fail to grasp the self-destructive logic of the current system and its many intrinsic limits.
This internal logic of the current Mode of Production is straightforward: an infinite expansion of credit and credit-money funds an infinite expansion of consumption that then powers an infinite expansion of production which generates an infinite expansion of profits which then funds Universal Basic Income, which is the teleological (i.e. ultimate) end-state of the system’s internal logic: infinite consumption funded by an infinite expansion of credit that funds an infinite expansion of production which generates an infinite expansion of profits.
This internal logic has no use for positive social roles, meaningful work, social cohesion and functioning communities; these foundations of human happiness are implicitly assumed to magically arise out of the infinite expansion of credit, consumption, production, profits, tax revenues and state-controlled distribution of some of the profits.
But these foundations don’t magically arise out of the infinite expansion of credit, consumption, production and tax revenues. The Mode of Production must yield these foundations as a direct output. In the current system, these foundations aren’t recognized, measured or valued; they simply don’t exist within our program of infinite expansion of finance-based consumption.
Here are the core dynamics—each with a specific internal logic—of the current Mode of Production:
Infinite expansion of consumption on a finite planet. The internal logic of the current system requires infinite expansion of everything, including extraction of resources and the production of more goods fashioned from those resources. If consumption falls, credit falls, profit falls, tax revenues fall and the system collapses under the weight of debts and obligations that cannot be met.
Planned obsolescence and waste is more profitable than DeGrowth/using less. Durable products that don’t require replacement are profit-killers. Services that don’t need to be renewed are profit-killers. Since maximizing profits by any means available is the Prime Directive of the system, the internal logic demand the optimization of planned obsolescence and waste.
Over-investment, over-capacity, competition and commoditization destroy profits, even as the internal logic of maximizing profits demand over-investment and commoditization as the means of expanding market share and sales.
There is no differentiation between BS work and meaningful work. All that matters is that the work is profitable or that it is performed at the behest of the central state.
Money is created and distributed at the top of the wealth-power pyramid; the only possible output of this system is rising wealth and income inequality. As I have described many times in previous books, money in the current system is borrowed into existence by central banks that create currency out of thin air and buy interest-bearing bonds with the new money, or it’s borrowed into existence by private banks that create new money via the origination of new loans.
I will have more to say on this is the following section on money, but the internal logic of this system is two-fold: all new money is credit-money and thus interest must be paid by borrowers, and all new money is created and distributed by banks.
The internal logic of interest is that it sluices income from borrowers to the lenders. Over time, interest payments impoverish borrowers and enrich lenders and those who own the debt, i.e. the financial elite.
The internal logic of lending money into existence is that the new money is most profitably and safely lent to those with abundant collateral and income to support the new loan, i.e. the wealthy. The wealthy thus have the credit needed to outbid everyone else for productive (income-producing) assets, including debt: bonds, mortgage-backed securities, and so on.
The only possible result of these dynamics is that the productive capital of the bottom 90% is replaced with debt as the capital and income of the bottom 90% flow to the top 10%. Since the rewards of financialization—the financial legerdemain of debt, leverage, securitization and the asymmetrical concentration of speculative expertise concentrated in the very apex of the wealth-power pyramid—flow to the top .1% of households, the immense profits created by financial engineering and speculation are distributed in a power-law curve, with the vast majority of these profits flowing to the top .1%.
It’s important to note that speculation and financialization don’t expand the pool of goods, services or jobs; their extraction generates no new productivity, goods, services or jobs. Speculative profits are predatory and parasitic.
These dynamics have only one output: the impoverishment of borrowers and the expansion of the wealth and income of lenders and the financial elite. There is no other possible output of this system.
There is no mechanism to differentiate between speculative gains and productive gains, between profits earned by financial speculation, exploitation of labor and resources or productive activity. While the real-world economy benefits from profits earned by sustainable activity that fills real-world scarcities, these profits are not identified as being different from profits gained by poisoning ponds to maximize production of shrimp, exploiting workers with the misfortune to live in regions with little paid work or financial trickery, such as reaping billions of dollars from the buyback of corporate stock.
Capital flows to whatever maximizes profits. There is no mechanism in the current Mode of Production to measure the productive investment of capital other than the maximization of profit. As Marx observed, the most profitable arrangement is a privately owned monopoly enforced by a compliant or complicit central state. The internal logic of monopoly is to destroy competition and transparency, and buy political protect from the government.
The most profitable arrangement is to buy the protection and complicity of the central state. The internal logic of a system in which the state controls the marketplace is for private-sector wealth to buy whatever political influence is necessary to protect private profits.
The only possible output of this logic is a pay-to-play form of democracy in which wealth casts the votes that really count in terms of extending and enforcing the state’s power over the marketplace.
Consumption, income and profits must expand at rates higher than the expansion of interest payments. As noted, all new money in the current system accrues interest. If the income (wages and profits) being generated within the system don’t outpace the expansion of debt and interest, then the only possible result is default and insolvency, that is, borrowers cannot pay the interest and the debt collapses.
Since debt is an asset and thus collateral, default destroys debt-based wealth such as bonds, mortgage-backed securities, and so on. Once collateral is destroyed, the pyramid of debt erected on the collateral collapses.
Financial capital is mobile. Financial capital is free to flow through the global economy, seeking the lowest-risk, highest yield investments. The internal logic of mobile capital is to get in, maximize profits and then get out before profit-killing factors such as the costs of environmental degradation (often referred to as external costs) or demands for higher wages arise.
The internal logic of mobile capital ignores whatever damage is left behind by capital’s exploitation of resources, markets and people. The only directive of capital is to maximize profits and grow capital; nothing else matters. Whatever impinges on this directive is jettisoned, abandoned, crushed or bribed into complicity.
There is no mechanism to differentiate between capital that is embedded in a community for the long-term and capital that floods into an economy, financializes the local assets, beggars the residents and then leaves once profits have been reaped via the sale of the newly commoditized assets on the global market.
Isn't it obvious we need a new Mode of Production?
From Left Field
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Insectageddon: farming is more catastrophic than climate breakdown
Wall Street found a parasite growing in the US economy that could spur the next recession--Big Pharma....
What Harvey Weinstein tells us about the liberal world-- the perfection of hypocrisy, arrogance and hubris....
Big data meets Big Brother as China moves to rate its citizens -- China leading the way...
We’re treating soil like dirt. It’s a fatal mistake, as our lives depend on it
Deus ex machina: former Google engineer is developing an AI god-- apparently this is not a parody....
The AI That Has Nothing to Learn From Humans
A Field Guide to Thoughtstoppers-- all we have now is thoughtstoppers...
Google’s plan to revolutionise cities is a takeover in all but name -- Googleplex convenience...
Coin stash that puts new spin on China’s 100 years of humiliation
Inside a nondescript Hong Kong warehouse sit seven tons of Qing dynasty coins – proof, their owner says, that it was the imperial monetary system, not the opium trade, that brought China low in the 19th century
Facebook moving non-promoted posts out of news feed in trial
New system could destroy smaller publishers if implemented, after journalists report drop in organic reach
"Only the shallow know themselves." Oscar Wilde
Thanks for reading--
charles |
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