Monday, October 31, 2011

Overcoming the flaws in Capitalism – an outline for Reform

This is difficult topic because our cultural programming tells us that Capitalism = Freedom. We are also hardwired to be suspicious of any “government interventions in the market”, and we have entire schools of great thinkers telling us that “the free market knows best”.

Who could be against Freedom, right? However…. The question I am addressing is the “rules” that underlie our “free” system.

First of all, we can dispense with the intellectual fiction of “government vs free market”. The so-called “free market” is entirely dependent upon the laws that are created and enforced by government. The government establishes the rules of the economic game, that is just a fact. The only question is, “What rules shall we have?”

Complaints about “government intervention” are nothing more than the attempt to avoid rule changes by those who are advantaged by the current rules. If you are ideologically opposed to “market intervention”, because of some philosophy (such as Libertarianism, say), then you are simply brainwashed. [The definition of brainwashed is being taught to willingly support a political position that is contrary to your own self-interests.]

The crucial question of Ownership & Private Property

One of the key flaws of the current capitalist laws is the way profits are channeled to legal “ownership groups”. Absentee owners provide the clearest demonstration of this principle, as people who have literally nothing whatsoever to do with the economic process nonetheless receive the lion-share of the profits.

Clearly, there is no “natural law” basis for absentee ownership. In the natural world, such relationships are known simply as parasitism. Legally, they are a vestige of the conquest and exploitation of the feudal system, in which armed conquerors took legal possession of the land, informing its inhabitants that could “share the wealth” or be put to death.

A key feature of Reformed Capitalism is declaring null and void any practice of “absentee ownership”. You are either directly and intimately involved in the productive process, or you are not, and if you are not, you have no right to share in its profits. “Passive investment” is a legally-sanctioned oxymoron, and it should be done away with.

[Obviously, doing away with all manner of passive investment schemes will introduce large changes in the way business is done. Many people will wonder if business can be conducted at all under those conditions. This is a natural reaction people have when they face the unknown, when the rules of the game have changed. I will address these very real question in a subsequent essay, limiting my concern here with first principles only.]

The essential communality of Profit

In our current system, “ownership” implies both “control” and “reward”. The reason why the system I am detailing is called Reformed Capitalism, not going by some other or new name for an alternative economic system, is that the essential coupling of “private ownership” and “control” of Capitalism is still being maintained.

However, one of the central reforms of Reformed Capitalism is in redefining the scope of “reward” that accompanies “ownership”. Specifically, in recognition that all profit is essentially communal, Reformed Capitalism rejects the idea of “unlimited reward” for private ownership. Rather, private ownership conveys the privilege of limited reward.

The essential communality of profit is a recognition that all profit is built upon our common heritage of natural resources as well as the combined efforts of masses of people throughout time. It is a recognition that no one creates profits on their own, but depends upon hosts of others who are also doing their part.

This host of contributors includes not just the hired workers in that specific business, but all their suppliers and partners, including the people who make the computers, desks, pencils, airplanes, cars, phone lines, roads, etc that make economic activity possible, PLUS the police, teachers, firemen, judges, engineers, social workers, technicians, hospital staff, soldiers, nurses, etc that keep the social order running smoothly, not to mention all the people in the past who “tamed the land” through their hard work and dedication and who built up the capital base upon which all of our economic efforts are made.

In short, because of the fact that all profit is social and communal, no individuals will be allowed to monopolize profits under the legal fiction of ownership. Profits will be shared, by law, first with the workers in the specific business, secondarily with society as a whole. Extremes of individual profit-taking will be legally eliminated. This aspect of economic reform is not actually that radical, being partially implemented by a progressive income tax, although the scope and power of such taxation would be increased, especially to focus on parasitic economic activities such as financial trading and banking.

Friday, October 7, 2011

Real Estate Collapse Causes and Lengthens Economic Depression

This is not a conclusion of ivory-tower academic researchers, this is the common sense on exhibit in The Guardian's financial pages, read it here
The author quotes the IMF as recommending partial debt cancellation to get the economy going again, and brings up the Objection #1 to any Jubilee plan: the "moral hazard".  
I think it is funny how the "moral hazard" objection always gets trotted out when you hear anything about debt forgiveness, but you never seem to hear "moral hazard" mentioned when they are discussion bailouts for banks.... Funny how that works, isn't it? 
Choice quotes:
The stagnant housing market continues to erode families' wealth and saddle them with ever more unpayable debts.
It's unlikely to deliver a permanent solution to the economic malaise unless the housing market can be stabilised and the legacy of mortgage debt resolved.
The underlying problem in the US housing market is that the debts run up in the years of plenty will be a millstone around the neck of the economy for many years – and may ultimately be impossible to repay.

Even the IMF, hardly known as a champion of aggressive government intervention, said in its latest world economic outlook that Washington should try to find ways of writing down the value of some of these overblown loans.

"The large number of 'underwater' mortgages poses a risk for a downward spiral of falling house prices and distress sales that further undermines consumption and labour mobility," it warned,

Each of these [proposals to write down debt] would be controversial, and they carry a risk of "moral hazard": the fear that reckless borrowers will in future feel they can take on eye-watering loans and assume the state will bail them out. But the alternative may be years of stagnation.