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Capitalism: ‘Its Own Worst Enemy’ (And Yours, Too, But Who Cares?)


We’ve got a live one!

A pair of corporate CEOs have decided capitalism is ailing. They start their Project Syndicate commentary off in a super original way that isn’t cliche’ed in the field at all, riffing off Churchill’s famous quote about democracy being the worst system “except for all the rest”. The writers opine that capitalism is the worst type of economy, except for all the others they’ve no doubt researched exhaustively.


Paul Polman of Unilever and Lynn Forester de Rothschild of E.L. Rothschild are joining the ranks of liberal capitalists concerned that capitalism, after saving all the poor people from the very poverty it consigned them to, might at long last harm something that really matters: capitalism itself.

Capitalism has guided the world economy to unprecedented prosperity. Yet it has also proved dysfunctional in important ways. It often encourages shortsightedness, contributes to wide disparities between the rich and the poor, and tolerates the reckless treatment of environmental capital.

If these costs cannot be controlled, support for capitalism may disappear – and with it, humanity’s best hope for economic growth and prosperity.

Let’s break this down. First of all, Polman and de Rothschild think two of the most upsetting problems with capitalism are “shortsightedness” and its contribution to “wide disparities between rich and poor”.

The dominant economic system on Earth is apparently just one reason some people are rich and some are poor. The other reasons must be those invisible reallocation pixies that come in the night to transfer wealth to the haves, like reverse Robin Hoods.

Financial disparity is a problem in many ways that are getting lots of deserved attention lately, but I’d have to say the abject poverty that capitalism keeps much of the world in by depriving it of a sensible system for allocating basic goods and services to those most in need (instead sending them to those most able to pay), is a much bigger problem than the wealth gap. That is, a gap between super-rich and comfortable would be one thing; however, the actual canyon we’re saddled with is from a super rich elite to a massive underclass of billions who lack consistent access to basic necessities.

(Polman and de Rothschild do at the end of their article take a stand against extreme poverty in and of itself, but throughout the piece they maintain that capitalism is the savior from, not the cause of, such poverty.)

It’s not entirely obvious what is meant by “shortsightedness”, but in context of the piece, it seems to refer back to the main thesis: that capitalism will engender its own demise. They advise businesses to “look beyond profit and loss to maintain public support for a market economy”. Be less profit-driven in order to make sure the system that drives your profits remains intact.

Capitalism is of course also shortsighted in that the profit motive leads firms to eat their future lunch by eschewing long-term product and market planning to suit short-term returns. This seems to be another of the writers’ concerns, but it’s not inherent to capitalism, as Polman’s Unilever claims to demonstrate. (The other problems – inequality and environmental destruction – are indeed inherent to capitalism.)

And, yes, the writers really did cite “reckless treatment of environmental capital” – not devastation and unsustainability, and not the environment per se, but mere mistreatment of that portion of the natural world that is useful to capitalists – as the final of the three things capitalism does wrong.

Problems with markets and capitalism not cited by Polman and de Rothschild, most of them externalities not accounted for in the prices we pay for products and labor:

  • climate change
  • class antagonism
  • inhumane working conditions
  • alienated labor
  • animal exploitation
  • undermining democracy
  • absurd privatizations (schools, prisons, etc)
  • fiat currencies (and black markets)
  • debt
  • un(der)employment
  • intellectual property
  • limitless growth on a finite planet
  • crass consumerism
  • commodification of life

I’m probably missing some.

Anyway, what do Polman and de Rothschild say is the risk of not minding the problems that matter to them?

If these costs cannot be controlled, support for capitalism may disappear – and with it, humanity’s best hope for economic growth and prosperity. It is therefore time to consider new models for capitalism that are emerging around the world – specifically, conscious capitalism, moral capitalism, and inclusive capitalism.

Again, I would love to see the array of noncapitalist alternatives Polman and de Rothschild have familiarized themselves with in order to support their claim that (modified) capitalism is our best hope. It surely is a very dismal hope as it stands, but sure enough, these glass-half-fullers hold out that capitalist elites can save us from the certain disaster that would result from us shedding the yokes of concentrated capital, exploitative markets, and dehumanizing hierarchy.

These preferred “models” all

share the assumption that companies must be mindful of their role in society and work to ensure that the benefits of growth are broadly shared and do not impose unacceptable environmental and social costs.

Polman and de Rothschild don’t go into specifics, but these are basically mindset protocols, not actual economic structures or institutions; they’re not systemic models, just enterprise models. That is, business leaders are supposed to just do the right thing out of the goodness of their heart, with faith that in the long run, their bottom line will reflect the sensibility of prudent past decisions. Nothing to structurally incentivize or enforce changes, aside from a belief that doing the right thing will pay off.

Addressing the failures of modern capitalism will require strong leadership and extensive cooperation between businesses, governments, and NGOs. To begin creating a path forward, we are convening key global leaders in London on May 27 for a conference on inclusive capitalism. Top executives from institutions representing more than $30 trillion in investable assets – one-third of the world’s total – will be in attendance. Their aim will be to establish tangible steps that firms can take to begin changing the way business is done – and rebuilding public confidence in capitalism.

So after noting that the effort will have to involve governments and NGOs, though not necessarily any grassroots representation of civil society or apparently even organized labor, the authors brag that their conference will involve a staggeringly disproportionate representation of wealth. Advocates of “inclusive capitalism” will have the ears of elites representing a massive amount of capital, and presumably those representatives will have the ears of the government and civil-society do-gooders, as well. What could possibly go wrong?

The list of speakers at the conference includes representatives of such humanitarian institutions as the IMF, GlaxoSmithKline, UBS, and Dow Chemical, plus elites like Bill Clinton, Larry Summers, and fellow Titanic deck-chair rearranger, Jeremy Grantham. Apparently just one person from organized labor will be given a microphone, along with nobody from an environmental group or a consumer advocacy organization. The only identifiable progressive on the roster is Chrystia Freeland. But somehow, this meeting is expected to yield progress, without even having key stakeholders represented.

In any case, the argument here is that microeconomic adjustments by concerned CEOs and boards at major corporations, usually fighting the wishes of greedy shareholders every step of the way, will save capitalism from the litany of contradictions and abuses that threaten humanity, the environment, and yes capitalism itself. This notion is quite simply absurd.

But don’t take my word for it – read the Project Syndicate piece, and this one by de Rothschild, and this one on “moral capitalism”, and this one on “conscious capitalism”. Then decide for yourself if they (a) address the full host of problems with capitalism; (b) take the problems they do address seriously enough for the right reasons; and (c) even remotely meet a burden of proof required of a solution to be considered realistic.

Banner reads: "Capitalism isn't working - another world is possible"



End-of-the-world Profiteering

the end of the world offers profit opportunities

the end of the world offers profit opportunities

This reminds me of a couple of posts from last year, particularly my reviews of “doom-and-gloom” financiers Jeremy Grantham and Nouriel Roubini.


Capitalism Makes Us Sick


I often enjoy reading Harvard economist Kenneth Rogoff’s commentaries. He strikes me as someone who kind of “gets it” about capitalism but who is unable, for whatever reason, to draw the logical conclusions. The final paragraphs of his column entries that point to some serious flaw in capitalist economic arrangements are almost always anticlimactic disappointments.

His latest piece, a brief exposé of how capitalist forces contribute to bad diets and poor health titled “Coronary Capitalism”, serves as a great example of his unsatisfying lessons. The piece starts off digging into an important economic matter. After noting that decreased life expectancy is bad for economic growth, he explains that making people fat and sick is probably a net boon to the economy, all aspects considered. Here’s the nut:

Highly processed corn-based food products, with lots of chemical additives, are well known to be a major driver of weight gain, but, from a conventional growth-accounting perspective, they are great stuff. Big agriculture gets paid for growing the corn (often subsidized by the government), and the food processors get paid for adding tons of chemicals to create a habit-forming – and thus irresistible – product. Along the way, scientists get paid for finding just the right mix of salt, sugar, and chemicals to make the latest instant food maximally addictive; advertisers get paid for peddling it; and, in the end, the health-care industry makes a fortune treating the disease that inevitably results.

Coronary capitalism is fantastic for the stock market, which includes companies in all of these industries. Highly processed food is also good for jobs, including high-end employment in research, advertising, and health care.

So, who could complain? Certainly not politicians, who get re-elected when jobs are plentiful and stock prices are up – and get donations from all of the industries that participate in the production of processed food. Indeed, in the US, politicians who dared to talk about the health, environmental, or sustainability implications of processed food would in many cases find themselves starved of campaign funds.

Okay, all of this rings true. But doesn’t it sound like the problem is pretty deep? Doesn’t the problem even seem inherent to capitalism?

Not for an economist steeped in the religion of markets — “free” or otherwise. For these cats, the market — regulated or not — has to form the basis of any solution to an economic problem… even when the market causes the problem in the first place. Rogoff is so conventional in his mindset, he seems to think market forces are actually an excuse for problems, rather than ever being able to draw the conclusion that markets are the problem. Look at the way he almost gives food pricing a pass:

True, market forces have spurred innovation, which has continually driven down the price of processed food, even as the price of plain old fruits and vegetables has gone up. That is a fair point, but it overlooks the huge market failure here.

[emphasis added]

Let’s explore the first sentence, which is so strangely structured as to imply that lowering food prices through subsidies, monocropping, and over-processing is a positive in any way — like, cheap food = good, so it counts for something. But let’s give Rogoff the benefit of the doubt. I think it’s fair to define “innovation” as developments that make something more economically efficient or profitable but not necessarily “better”. Still, I’d bet most people think of innovation as inherently “good”. It would make sense to take pause here and consider that in capitalism, innovation is something that helps capitalists. It may incidentally help workers, but usually it does not. And it doesn’t necessarily help consumers at all; it might even harm them. So finding cheaper ways to get junk food out to people is an innovation — one that is killing us.

But Rogoff acknowledges the “market failure” — so why am I picking on him for allegedly not recognizing that markets are the failure? Am I just nit-picking? Rogoff goes on:

… [P]roducers have few incentives to internalize the costs of the environmental damage that they cause. Likewise, consumers have little incentive to internalize the health-care costs of their food choices.

As far as I can discern, producers have no incentives to internalize the costs of environmental damage of their economic activity. I would love to see Rogoff’s list of the few incentives he thinks they do have. But where is this division coming from, concerning who has what incentives to internalize “externality” costs? This divide between producer and consumer is very real in our society, but how unimaginitive does an economist have to be — or how logically manipulative — to divvy up who bears what costs of bad economic behavior? Rogoff seems to be suggesting, by implication, that producers should have to internalize environmental costs and consumers should have to internalize health care costs of bad agricultural, food-processing, and dietary practices. Consumers somehow aren’t responsible for the production of their food, and producers aren’t responsible for the consumption of their goods (even though previously he notes that advertising is a significant force in the equation). This is the best analysis a conventionally “progressive” orientation on economics produces: bizarre, irrational surface conclusions drawn about a system that is fundamentally flawed at its core.

So what are Rogoff’s disappointing, vague, intangible suggestions for addressing the latest problem he has rightfully (if not rightly) exposed? Well, you can bet he will suggest reforming the “pathological regulatory-political-economic dynamic that characterizes” the food industry, for starters. It isn’t the market, you see; it’s our failure to regulate that pesky rascal. Indeed, Rogoff insists,

We need to develop new and much better institutions to protect society’s long-run interests.

That’s the only sentence we get on the matter, so we’re left to presume he’s talking about regulating bodies of some sort, to rein in the market, or manipulate it so that it works the way centuries-old magic-imbued dogmas suggest it should… you know, intervene to make markets do what they’re supposed to do precisely as long as we don’t intervene.

But even this cop-out directive comes with a familiar warning.

Of course, the balance between consumer sovereignty and paternalism is always delicate. But we could certainly begin to strike a healthier balance than the one we have by giving the public far better information across a range of platforms, so that people could begin to make more informed consumption choices and political decisions.

And that’s it. It’s all he offers. I don’t know Rogoff so I won’t presume to know what goes on in his mind, but it wouldn’t surprise me if the constraints of a neoclassical economics education, a current gig at Harvard, and a couple of stints at the IMF, have limited Rogoff’s imagination so that he can’t fathom there might be another way to manage production, consumption, and allocation in a modern society. Standard forms of centrally planning are too “paternal” to consider; I’d agree with that. And I’d even suggest that having a thoroughly undemocratic government like the United States republic intervene to coerce policy in a major sector of the economy would be rashly paternalistic, with mixed and confusing impact.

So what does that leave us with? Oh, if only there was a way to plan production, consumption, and allocation in a democratic manner, averting the paternalism problem altogether. Information for consumers is indeed a good start. But short of people actually organizing in their dual capacities as consumers and producers, let’s not pretend we can change much just by making smarter purchases. The idea of using the blunt instrument that is “voting with our dollars” to affect the agricultural and manufacturing policies of the handful of conglomerates that dominate our food supply is just plain ridiculous. Change will require collective action to tear down existing institutions and replace them with a foundation of alternatives.


Capitalism… Ugh… What Now?


One of the more disturbing examples of a prestigious economist foolishly phoning in his views on prospects for the future of economics came in the form of a recent interview with Nobel Prize winner Edmund Phelps. It serves to show us once again that a grasp of the real world or the ability to communicate effectively is not necessary for one to be academically successful in the field of economics. (Also not required: a heart.)

This barely coherent piece is so bad, I actually checked to see if it was a translation originally conducted in another language. I normally would never be moved to comment on something of such utterly poor quality. But a website I very much respect, The Browser, featured the interview, and a good friend cheered it on Google+, so I feel compelled to tear it to much-deserved shreds.

Questioned by the interview blog Thought Economics, the Phelps piece is called “Capitalism — What Comes Next?” The response, in case you couldn’t guess, is more capitalism. Interviewer Vikas Shah sets the stage early, lest we get up our hopes that what’s next is something not awful:

As the blinkers of egoism have been lifted, we (as a society) have realised that capitalism — while ostensibly responsible for the vast majority of our civilisation’s advances in the past quarter millennia [sic] — has also been responsible for creating vast inequality, conflict, and potentially irreparable damage to our planet. With no viable alternative to capitalism, however, the time has come to discuss “What happens next?….”

As is par for the “no alternatives” course, Shah doesn’t show his work, so we can’t evaluate how he’s assessed all the alternatives for viability, by what criteria, and so forth. These folks want us to consider their field a science of sorts, but they excuse themselves from the inconvenient duty of scholarly rigor. Bold assertions are allowed without scrutiny so long as they uphold accepted views that favor the privileged classes. And notice how open ended is the treatment of the future of capitalism — economists are encouraged to wildly speculate, and pretty much no one presses them on their pipe dreams, so long as they don’t challenge key facets of capitalism such as markets, hierarchies, and private ownership. Contrast this to the skeptical scrutiny any non-capitalist alternative faces, even from people who admit capitalism has been or has become a veritable train wreck.

So… since we can’t evaluate their no-doubt painstaking (if secretive) evaluation of all possible alternatives, let’s take a look at how Professor Phelps sees capitalism’s downsides.

The downside? Well… of course there’s always a downside to everything. Modern capitalism is a system in which some people are very lucky — they just happen to be at the right place at the right time… and can cash in big-time; while other people aren’t! Some people are very unlucky- they make decisions which turn-out to be ill-fated.

I guess I should be thankful that Phelps doesn’t say all advantages and disadvantages in capitalism boil down to merit, but I can scarcely imagine how he could otherwise present a worse understanding of the system. How could anyone be so out of touch as to suggest that the primary problem with capitalism is that some people are “unlucky”? How is “luck” even a concept acceptable in serious discourse? This guy won a Nobel Prize, but his view of inequity in capitalism is that it’s a matter of chance? Phelps implies that everyone has an opportunity, and some people have bad luck — he says their decisions are “ill-fated”. The supposition that everyone has an opportunity to roll the economic dice is reprehensible.

No, Prof. Phelps, capitalism ensures that most people are born in the wrong place at the wrong time. Most people have less than the average share of wealth and opportunity; the vast majority live in the same poverty they were born into and that all their neighbors live in. This isn’t making a decision that turns out unlucky. Billions have no turn at rolling the dice; the dice were long since rolled for them. They suffer deprivation induced by markets that shift material well-being — including necessities such as food, shelter, health care, and education — to those who can place valued economic demand on those resources, irrespective of moral influences. And let’s not forget, the resources are only scarce in the first place because the prevailing economic system allows some people to accumulate and horde vastly more wealth than they and their children and their children’s children’s children could ever hope to spend, while others languish in squalor for generations, including huge swaths of people condemned by class or geography to have no real opportunities.

Phelps admits that “there is naturally a huge amount of inequality within capitalism” (emphasis added). That is in response to a question about why there is poverty (not just inequality). He goes on to advocate a solution:

Capitalism can, to a degree, address that inequality by subsidizing — in one or more ways — the employment of workers at the bottom… low wage workers. It also helps to pull up their wages.

It is not at first clear what Phelps means about subsidizing low-wage work, or what “it” is in the second sentence that is so helpful to raise wages. But later he seems to be suggesting traditional subsidy in the form of government intervention. (Phelps never lists the “more” ways capitalism can address inequality.) It’s very weird to suggest a government subsidy is capitalism addressing the inequality it causes. The economy gets the credit for requiring government intervention to stave off poverty; how clever of capitalism.

So what good are these subsidies?

This helps increase economic inclusion and reduce inequality so that low-wage participants in an economy can feel that they’re not receiving unnecessarily low-wages and low-rewards… that society has addressed their situation and done something about it.

You see, it makes people feel like they’re not being screwed over. They are receiving “unnecessarily low wages”, because capitalism suggests employers keep the largest possible share of revenues, but the government can come in and make people feel like society has addressed this inequity. Phelps offers no concrete suggestion as to the form these subsidies should take, but he does at least advocate higher taxes to pay for them.

Then Phelps gets crude on a kind of magnificent level:

That will, of course, leave the Bill Gates’ of the world who are very rich because, besides being very bright and driven, they got extraordinarily lucky. Wealth inequality of that sort doesn’t cause me concern- It doesn’t matter to me that the Rockefeller’s may own half of Maine (for example) or that Ted Turner may own half of Montana… What does it matter? I think Ted Turner did a great thing with CNN and he’s very rich! so what? I just don’t get it. I just never understood why there was such an aesthetic revulsion to outsized rewards for people who had a big idea and- generally speaking- worked their heads off to develop that idea. I don’t have any problem with it. [SIC!]

So the revulsion to outsized remuneration is aesthetic, not moral or ethical? A single family owning or controlling massive amounts of property, thus restricting everyone else to share the remaining portion among themselves, is not a moral matter? It’s not immoral to deprive vast numbers of people of the basics in order to permit some to accumulate and horde extreme amounts of wealth? My objection to that is just a matter of personal taste?

And we see again that there’s nothing wrong with an economy valuing luck, perhaps because we all had an equal chance of being born a Rockefeller, and it’s tough luck if we were not.

Phelps then states that “there are plenty of leftist billionaires”. This is a curious claim. I wonder what he means by “plenty” and “leftist”. He does at least admit there are more on the Right. But that kind of calls into question, since the issue is political influence of capital, how one side having fewer can still have “plenty”.

When the conversation turns to the Arab Spring, Phelps staggers boldly into the land of the bizarre, redefining capitalism to suit his peculiar slant. This part is barely coherent, so read carefully:

I think Egypt and Tunisia were examples of yet-another economic system… namely the system which, for a lack of a better word, we call ‘Corporatism’. This system has private ownership… one of the things that Egypt did, for example, in the last ten or fifteen years was privatise a lot of enterprises. Those enterprises became owned by people in the military. Corporatism doesn’t mean social ownership… that’s socialism. Corporatism means that there is a great deal of central control, directed by the government, of the private sector. A great deal of regulation… a great deal of two-way communication occurs with the private sector seeking favours from the government and the government seeking the same from the private sector…. In Egypt and Tunisia, you had a very rudimentary corporatist system which was being exploited all-out by the rulers who took advantage of their powers to put their cronies in place as managers and owners of various enterprises. The bulk of the population, many of whom who- by this time- have college or university degrees of some sort.. cannot break into the system! They can’t get jobs in those enterprises.. they are strictly for the insiders. They can’t even sell their fruits on the streets without a license- and there aren’t very many of those [licenses] distributed. It’s a very closed system… a system that’s about as far from modern capitalism as you can get! Well functioning modern capitalism allows anybody to start-up a company, to go into business for himself, and start coming up with new ideas, and working on their development.

Okay, for starters, I think Phelps’s assessment of the situations in Egypt and Tunisia are generally sound, if a bit elementary. That’s not where my gripe is.

I’m slightly more concerned with the near-useless label “corporatism” for a heavily regimented private-ownership economy. It sounds like fascist corporatism in the European sense, but in the US, corporatism is understood to be when private enterprises dominate society, not when the government strong-arms corporations. Basically, the term is close to meaningless, even as Phelps defines it. (The Thought Economics blog appears to be UK-based, but Phelps is an American US-based economist.)

Yet this semantic gripe pales compared to how odd it is that Phelps describes a model that is essentially identical to that of the US in structural description — the US being an economy he says is truly capitalist, not “corporatist”. Phelps basically describes the US “modern capitalist” system (when describing Egypt/Tunisia), then says it’s as far from modern capitalism as an economy can get. Jobs for insiders only, licenses required for fruit vendors, private sector and government in bed with each other — how is this not precisely what we have here, let alone the farthest thing from it? While I think it’s safe to say corporate influence on government is far stronger than the reverse in the US, that hardly makes it the polar opposite of a scenario where the reverse is true but the effect on everyday people is nearly identical.

Granted, in Tunisia and Egypt, these noted obstacles are in some ways much more severe, but the difference is one of degrees, not fundamental or structural. What a strange way to make a case that an economic system is not like that of the United States.

Finally, skipping lots of other weirdness that’s simply too depressing/obtuse to critique, we get to the big question of interest to FuturEconomy.com. Shah asks Phelps, “What is the future of economics as a discipline?” After prattling on about his own past contributions to the field of economics, which I won’t comment on here because I’m admittedly unfamiliar with them, Phelps provides his response:

Economics has contributed to the march away from these principles by reducing economies to ‘stochastic steady-state models‘ in which prices are the entire interest. Prices, in these models, ‘vibrate’ in some way. I find this incredible…. This thinking began seeping into the financial sector so then the banks started importing French mathematicians to work out how to price various assets as if anyone could possibly know what these assets are worth? We live in an uncertain world… not just a vibrating one! Economics will (and should) always have a scientific side… but it has to remember that no piece of evidence is ever decisive on its own… we have to understand that our subject is human creativity. That will be a very different kind of science from what we have had before. There hardly is any science of creativity yet- yet alone a science of individual or societal creativity which understands the interactions of people- that’s the next giant-step.

Now, I admit I don’t really have a clue what he’s talking about. I could guess, but I don’t think I should have to. He should just explain it, or his interviewer should if he thinks it’s worth publishing at all. Excluding the ironic polemic on the importance of science in economics, I want to focus on the one real declarative statement that I can at least understand syntactically.

Phelps says the field has reduced economies to “stochastic steady-state models”. I think perhaps this is a somewhat astute observation about the world of finance. Wall Street and its in-house economists and consultants and analysts seem to have done this. And you’ll notice, Shah has linked to the Wikipedia entry for “steady state”, the scientific modeling concept, not the economic concept, which is also referenced in that entry.

Now, if you think about it, the academic and broader field of economics has really done the opposite with regard to everything outside of Wall Street. Almost nobody is looking at the US or global economies as “steady state”. They’re instead hanging onto the ages-old notion of infinite growth. A steady-state economy is fundamentally different from a dynamic growth economy. Have you seen a trend among economists to declare that consistent growth is no longer (or even should not be) desirable and possible? For the most part, liberal and conservative economists fully agree that growth is the way forward; their only dispute is over how to grow the economy (and to some much lesser extent, for whom). Only a few people are talking about steady-state economies that are fixed to population size and do not grow via fiat currency and financial leveraging.

The almost hilarious paradox here is that, in answering what needs to happen next for economics, the field, Phelps misses an opportunity to say we should be entertaining the school of steady-state economics because we live on a steady-state planet. Instead, he offers a vague prescription about how economics needs to get “creative” in looking at human capacities (at least, I think that’s what he’s saying).

To end on a positive note, let’s take Phelps’s advice: what could be more creative than exploring — with a firm grasp on the relevant science — ideas for steady-state non-capitalist economics? I’m going to try to do more of that here in coming weeks.


Is Capitalism Doom?


I’ve been seeing a lot of commentaries by mainstream, liberal economists and economic observers (that’s my classification) declaring, more or less, “Capitalism is dead; long live capitalism.” These presentations are typically made by people who present detailed, fact-based, rational cases why their economic system of choice is destroying our habitat and our politics, ruining life for many while ending it for many others, or at least devouring itself and spoiling everything even for the people it’s served relatively well thus far. These same people invariably then make a nonrational, largely fact-free case for why only capitalism can save us from capitalism.

The cognitive dissonance is really quit astounding, and I must confess the urge to analyze it largely inspired this blog. I knew the next couple of years would see a rash of these all-but-admissions that capitalism is a fraud and it doesn’t “work”, and I wanted to be well positioned to pounce on them.

I probably could have predicted one of the first pieces of prey to come along once I launched FuturEconomy would be from none other than liberal economist Nouriel Roubini, who over the weekend declared that capitalism was doomed… but could still save itself. Roubini makes quite a case in his commentary that the contemporary practice of capitalism has all but devoured capitalism, but he couldn’t help declaring his hope for capitalism to save itself at the last minute if the US and Europe follow his prescription.

As with other recent examples, Roubini’s case against capitalism is substantial (though missing literally dozens of points), and the case for it pathetic, lacking even a lazy attempt at substantiation or even logic to support assertions. I don’t know Roubini, but I’ve seen this phenomenon enough to suspect a religious belief in the almighty capitalism is all that’s behind his thin veneer of optimism.

Devoid of Ethics

The commentary is called “Is Capitalism Doomed?” I love this title. It is kind of a “woe are we” approach to the inevitability of social change. There’s not really a shred of ethical interest in the piece, mind you. Roubini isn’t upset that people are suffering and are going to suffer whether capitalism succeeds or fails. He is apparently just worried for capitalism, the ideology/model, per se.

The first 13 paragraphs are a cogent pre-obituary. The failings, mind you, are not that billions of humans don’t have their needs met. That’s never been something legitimate to hold against capitalism. (Fuck ’em.) It’s off the radar. Roubini is more concerned about the system’s failure to function as it has — which incidentally includes exploitation on a scale never dreamed of by emperors of old. Roubini and his contemporaries are worried that capitalism will even stop serving those it has done well for: the privileged classes. If the technical backbone of capitalism (global finance) grinds to a halt, that’s bad for the capitalists. And Roubini seems aware it comes right on the heels of other privileged groups getting pinched:

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Note this is the only mention Roubini makes of popular discontent, and he lists the concerns as evidence of a threat to capitalism, which is what he appears to actually care about. The most charitable reading is that Roubini finds this discontent to be further evidence that capitalism is on the wrong track, but I think that’s too generous.

Here’s an example of the crassness so common in these discussions. Roubini also notes that “cutting jobs reduces labor income, increases inequality, and reduces final demand”. The problem with cutting jobs and reducing “labor income”, you see, is that it decreases demand — not that it causes hardship. It’s nice of Roubini to include inequality, but we know inequality is an objective problem of the kind economists can include in their analysis. The subjective aspect of it (exploitation and deprivation) aren’t notable factors.

In a sane economy, decreased demand would be a good thing, per se. If people wanted less stuff, everyone should be able to work less, not to mention saving on natural resources and reducing pollution. But this is an Achilles heel of capitalism (it has several). Decreased demand has a “positive feedback loop” effect on unemployment and wages in a market capitalist economy, and the cure for it (increased demand) means more resource use and more pollution. It is quite simply insane. Taking into account a world in which consumption is already way over sustainable limits, contraction = bad is a very ugly proposition. We need the biggest economies to contract or humanity and its habitat are in trouble (never mind capitalism). So we need contraction = good. But capitalism doesn’t play that way.

“Capitalism is Dead, But…

Stepping away from moral matters (which I’m never going to win economists over on anyway), Roubini’s commentary amounts to a strong case portraying capitalism’s downfall impending, basically illustrating how people and institutions are running out of shipwreckage to cling to.

The conundrums are lined up:

  • an expected third round of “quantitative easing” in the US “will be too little too late”;
  • “Italy and Spain are both too big to fail and too big to be bailed out”;
  • nearly all economies “need a weaker currency and better trade balance to restore growth, but they all cannot have it at the same time”;
  • European governments “are so distressed that bailouts” of European banks are “unaffordable”, and paradoxically sovereign risk is “fueling concern” about those banks’ health, cyclically putting them at greater threat because they “hold most of the increasingly shaky government paper”.

The case goes on and on, and even if you don’t understand the particulars of all these dilemmas, you get the gist. The contradictions of capitalism are on display. It’s a tour de force of arguments why capitalism is functionally on the brink. It falls way short of a complete case, but it’s pretty damning in and of itself.

…There Is No Alternative”

This prompts Roubini to write one of the most interesting conclusion sentences I’ve ever seen. Paragraph Ten begins:

So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).

What a sentence! It’s hard to tell what Roubini actually means by it. After all, he presents a case that Marx was totally right inasmuch as he said what Roubini demonstrates vis a vis capitalism, but then he declares that Marx was partly right. He never gets around to saying how Marx was not totally right about capitalism’s downfall. Roubini says “globalization, financial intermediation run amok, and redistribution of income and wealth” are killing capitalism, just as he says Marx predicted. So what makes Roubini’s rendition of Marx only partly right?*

One way to read the sentence is that Marx’s entire body of work was “partly right” because socialism isn’t better than capitalism. Marx is best known for two very broad theses. One was that capitalism would make its own demise, the other was that socialism would be better. So maybe Roubini wedges in that parenthetical statement about socialism being no better just to prove that Marx was wrong about something. Or maybe he wedges it in to remind us that we’re stuck with capitalism.

But how can Roubini suggest socialism has been proved not to have been better than capitalism? What kind of self-delusion would be required for a learned economist to write those words?

Here are some statements that could tread the waters of truth:

  1. Marx’s version of socialism, to the extent it is understood, has been largely demonstrated to be inadequate and even inferior to capitalism in some respects.
  2. Socialism as implemented by autocrats has been all but proven inadequate for meeting human needs or safeguarding basic freedoms.

One could argue the above statements either way, but at least there would be a logical case to be made. They’re not absolutist like Roubini’s dismissive socialism is no better). Having set out to implement something like Marx’s version of socialism or an autocratic version, practitioners have yet to come close to a model that could be considered clearly superior to capitalism, and in fact have largely established nightmares. It’s reasonable to believe this; I do in fact believe this. It’s just not the end of the story, except for the nonrational true believer.

I mean, how bizarre it is to declare that failed attempts to implement peculiar versions of a broad idea constitute proof that no version of that broad idea can ever work? By this logic, pre-Wright Brothers attempts to achieve manned flight would be considered proof that humans will never pilot aircraft.

It’s one thing to hear “there is no alternative” from capitalists making a case that capitalism is doing well — “…besides, there’s no alternative.” But when the capitalist apologist is up against the ropes — even admitting piles of evidence that its contradictions put capitalism three jabs and a right hook away from a self-knockout — it’s strange to see them quoting Margaret Thatcher not just to explain why they refuse to throw in the towel, but actually to somehow provide hope and rally for their cause.

Capitalist, Heal Thyself

Mercifully, Roubini doesn’t leave us hanging. He’s not saying capitalism is dead and socialism can’t work, so we’re doomed. He sort of kind of answers the title question, “Is Capitalism Doomed?” by hinting that if a bunch of changes are made just right, it is not doomed.

Now, I have major objections to this. First, as I mentioned before, Roubini entirely fails to substantiate why he thinks his recommendations will save capitalism from itself. He just says that they will, and sophisticated fanboys worldwide will take comfort in that assertion. Roubini lays out an antidote, in three paragraphs, that will miraculously resurrect his ideology. This is unsatisfying to me, because I’m a critical thinker. People who love capitalism probably find hope in Roubini’s faith.

They should not.

But what if we stipulate that Roubini’s blueprint could save capitalism? Is it a real possibility? Is it what we should hope and maybe work for?

My answer is hell no. It wouldn’t be worth the trouble, and it has profound opportunity costs.

Resurrecting capitalism mostly just means making it functional again, and this isn’t worth lifting a solitary finger for. The problems endemic to it will still mostly be there, if softened. The next crises are not financial as much as they are existential; Earth is running out of resources at an alarming rate, and the planet is cooking. So Roubini’s best case scenario puts us in position to grow economies that should be shrinking. This is not just not great, it is catastrophic. Roubini’s antidote is out of the frying pan into the fire.

Besides this, Roubini’s prescription is nearly impossible to imagine. It will mean major transformations and gargantuan policy reforms that are very hard to fathom. This is not a reason not to try, though. “Demand the impossible” is one of my favorite slogans. It doesn’t mean “act unreasonably”, it means “strive for the things they say you can’t achieve”. But as long as we’re going to try for the impossible, why should we break our backs trying to resurrect a zombie that will try to eat our brains? Why not try for something that is next to impossible but is fundamentally better in nearly every way? Why not a new economic system?

End stipulation. Now let’s review Roubini’s suggested remedies, in case you’re still thinking resuscitating capitalism is desirable.

His first suggestion is that we “return to the right balance between markets and provision of public goods.” No more supply-side economics or free-market silliness, but also do away with the “deficit-driven welfare states.” He says we need infrastructure investment, progressive taxation, “short-term fiscal stimulus with medium- and long-term fiscal discipline”, “reduction of the debt burden for insolvent households”, breaking up too-big-to-fail banks, and tighter regulation of financial markets.

These are the typical liberal solutions to the recession and the threat of increased discontent and further economic turmoil. But do they really address the host of problems Roubini himself listed as potentially dooming capitalism? Not even close! Dr. Roubini has listed numerous symptoms of multiple terminal diseases and then effectively said, “I’m pretty sure I can treat that nasty rash you’ve got.”

But this commentary was widely hailed. Bloggers and aggregators looked up at Dr. Roubini and said, “That’d be swell, Doc. This rash has been bothering me somethin’ awful!”

Then Roubini gets a little more philosophical; he departs from reality a even more.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy.

Increase productivity in order to enable workers to compete? His solution to the dilemma of international trade being one of the downfalls detailed earlier is to “be flexible”? That’s it?

In order to save itself, capitalism needs to learn to invest more in human capital. In case you didn’t hate capitalists and their rationalizing apologists before, try that statement out for size.

“But Dr. Roubini,” a rational patient complains, “I’d like to hear all the options. There must be something else we can try. I mean, I felt pretty sick before I got the rash. I’ve got cancer and congestive heart failure.”

Roubini’s answer:

The alternative is – like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

And that’s it. Hilariously, that’s where the commentary ends. Finito. There is no alternative to his prescription. It’s Roubini’s way or doom.

Roubini’s review of capitalism is like that archetypical television scene where the sheriff sits on the edge of his desk, arms folded, and declares with forlorn: “Boys, I don’t approve of what you’ve done. You’ve been reckless, you’ve endangered lives, you’ve crashed several cars and half the town burned to ashes. That said, it appears I’ve got nothing to hold you on, so you’re free to go. Now scram, and stay out of trouble.”

But capitalism is not the moral equivalent of Bo and Luke Duke; it’s not a good-natured country bumpkin just trying to get by in a confusing world. It is the confusion.

What we’re really seeing from Roubini and others is self-interested terror combined with a dearth of ethical concern finally infused with a profound lack of imagination. It’s typically presented in a fashion that is practically self-conscious; the critic will make a strong case using facts and reason to explain why capitalism is to blame for our current condition… and then he or she will make what amounts to a religious case, lacking facts and reasoning, to argue that capitalism can or will turn everything around, if we’ll just tinker here and there.

This is remarkable, if you think about it. It requires a dual failure of imagination that is close to pristine in its self-delusion. The critic must fail to carry market capitalism’s structural implications to their logical conclusion, usually by ignoring all but a subset of problems that are in and of themselves pretty damn damning. It’s like showing how a plastic bag will rise and fall on the wind but then claiming it will never finally hit the ground or get stuck in a tree. This requires nonrational faith.

Roubini starts off with the wrong question: Is capitalism doomed? Who cares? There’s just one question worth asking: Is humanity doomed? My answer is, If we stick with capitalism, humanity is in deep trouble.

Roubini and the unimaginative see these questions as one and the same. They want to stay on the ship with the massively compromised hull on the off chance that some Sisyphus will come along and bail out the bilge indefinitely, despite a lack of apparent interest in the endeavor. They cling either because the ship is the only place they’ve ever called home and they can’t bear leaving it, or because on this ship they’re in first class, and on the lifeboats or the rescue vessel, class disappears.

Just imagine the near certainty of a figurative death by drowning frightening you less than the idea of having to live in a society that offers everyone roughly equal dignity. That’s the only impetus I can figure is behind these ridiculous declarations that there is no alternative to a system pretty much everyone from center leftward knows is a pile of garbage.


* I actually disagree that capitalism eating itself in the ways that it is now demonstrates that Marx was totally or even largely right, but in presenting a limited, carefully distilled sample of Marx’s claims, Roubini makes Marx seem positively ingenious in his forethought! (For people with religious beliefs in the predictive capacities of markets, the bar on predictive capacities is so low even 19th Century meteorology must seem positively prescient).


Will the New York Times Profit Off an Elitist Profile?

very fat cat

It never ceases to amaze me how disconnected, or just plain unconcerned, the privileged can be when it comes to worrying about the future of the world. Believing they’re safe from the worst pains of anthropogenic climate change and contrived resource scarcity, their main concern tends to be how they are going to continue to grow their personal wealth when the shit hits the fan…

Long-term business analyst Jeremy Grantham has been noticed recently for what some see as economistic doomsday predictions, usually in the form of open “letters” to the investor class. In these communiques, Grantham says the same thing progressive economists and scientists have been saying for decades, citing roughly the same evidence (if far less of it!) and drawing essentially the same mid-term conclusions, with updated numbers. But Grantham has credibility because he’s not remotely radical, or really even progressive — he’s a late-to-the-game mainstream financial analyst… and more importantly, he’s got the interests of elites in mind, which means the New York Times will perk its ears up and give unconventional observations the kind of attention only a Magazine feature profile can provide.

Grantham and some fanboys drive the conversation of an August 11 NYTM piece titled “Can Jeremy Grantham Profit From Ecological Mayhem?” In a way only the extraordinarily privileged could swallow with a straight face, source after source lavishes Grantham with praise for looking out for the vulnerable, neglected investor class. Unless you’re made of money, it would be hard not to get outraged by the cavalier attitude of this whole story. But if you are a big investor, how “objective” and “unbiased” the feature must seem.

Let’s start with writer Carlo Rotella’s gushing treatment of Grantham:

Doomsayers are always plentiful, and the economic and environmental news has encouraged even more doomsaying than usual of late, but Grantham compels attention, in part because he’s not simply prophesying doom. […] And, crucially, the consequences will be unevenly distributed, creating angles for you to make money and look out for your interests, however you define them.

[emphasis added]

The New York Times is saying a man deserves attention not because he is pointing out how much trouble lies ahead (however inadequately); it’s because he inspires us to call our stockbrokers rather than run to the woods. In other words, it’s newsworthy because he can help people with capital exploit volatility, the rest of us be damned.

Bailout Nation author and prolific business blogger Barry Ritholtz, whose work I have followed for a couple of years now, appreciates Grantham as a fellow straight shooter. But with praise like the following in the NYTM story, it’s easy to see which side these guys are shooting for:

He’s not telling people to stockpile water and dehydrated food. He’s saying this asset class will underperform or not.

And what about those of us who can’t invest in assets of any class? (The ugly irony, of course, is that if a major collapse happens, it’s unlikely all the asset holdings in the world are going to keep these guys and their families fed and protected, but on the way to “doomsday” they can get filthier rich on paper!)

The whole piece is such a fawn fest, the Times even quotes sources with financial conflicts of interest. We’re treated to praise of Grantham from the head of the Environmental Defense Fund, a group backed by the Grantham Foundation for the Protection of the Environment. We also hear from the executive director of that same Foundation, whose job no doubt depends on Grantham’s good graces. On what planet is that legitimate journalism?

The article includes no critics of Grantham or his attitude. In fact, the only bit that could be conceivably construed as criticism is mixed praise of the quarterly letters, coming from another employee of Grantham, who notes some investors complain that Grantham’s advice isn’t immediately applicable enough for them to exploit!

No source points out how bizarre it is that someone notes potential suffering only to dismiss or distract from it, making no real mention of current suffering. No one offers alternative analysis. No one even challenges Grantham’s numbers from any perspective, Left, Right, or Martian.

Enough views about Grantham. What about Grantham’s views? Let’s start with a zinger. In Rotella’s words from the Times piece:

The world’s population could reach 10 billion within half a century — perhaps twice as many human beings as the planet’s overtaxed resources can sustainably support, perhaps six times too many.

We aren’t told that this is only true if we assume the planetary elite — that tiny percentage of the global population that consumes a massive share of resources that could otherwise be used to feed, clothe, heal, shelter, and educate the 60 percent or so that live on less than $2 a day — is permitted to maintain its sickening dominance of global wealth and resources. This status quo is a given for the Times and people who look at Grantham as a prophet of profit angles.

Rotella quotes Grantham’s open letter from July:

We humans have the brains and the means to reach real planetary sustainability. The problem is with us and our focus on short-term growth and profits, which is likely to cause suffering on a vast scale. With foresight and thoughtful planning, this suffering is completely avoidable.

The above statement is just plain wrong. First, it ignores the “suffering on a vast scale” that is already underway! On Day Zero, we’ve got suffering on a vast scale. Who can look around and consider that the horrors already caused by “scarcity” that is in turn caused by market capitalism’s wicked misallocation of goods and resources is anything other than “vast” — I’d rate it as “epic”, even.

Worse, it’s absurd to suggest by implication that the suffering of the world’s poorest can be averted. Some of it can be curbed — perhaps much, even — but the trajectory we are on offers no option for sparing a great many, no matter what radical changes are made. (See, for instance, the recent work of fellow market optimist Paul Gilding, who at least has the integrity to admit widespread suffering caused by climate change and scarcity will be hellish and is inevitable and underway.) And make no mistake, Grantham is not advocating radical changes anyway, least of all those with the most vulnerable in mind.

It isn’t actually clear what “suffering” Grantham is referring to. But even if he’s talking about the “suffering” of wealthy investor class that risks losing its $300 shirts if they don’t play their dollars right, that hardship can be but delayed as Grantham and his friends trample to the aft rim of the Titanic.

Grantham does give some indication of who he’s looking out for, noting that a drastic change in economic priorities will likely come “too late in the sense of failing to protect much of what we enjoy and value today.” By we, he probably doesn’t mean the world’s poorest.

Grantham wisely wants to tie the issue of climate change to that of resource depletion, which he thinks will have a greater impact on the American conscience than that abstract bogey man of global warming. “Global warming is bad news,” Grantham tells the Times. “Finite resources is investment advice.” Again we’re back to those real interests. You’re not going to ride out Grantham’s storm on your 401k.

Cynics like me will have to agree with Grantham to an extent: it’s true that Americans are more interested in their short-term concerns than looking down the road. But Grantham goes a step further; he considers this unfortunate attribute a strength, saying Americans “respond to a market signal better than almost anyone.” How great that we don’t care about those who will be first and most severely affected by climate change — by gosh, we’ll respond when it puts the economic pinch on us… after all, we’re Americans. Meanwhile, the Global South is collectively begging us to respond for their sake (and our own), but the virtuous Americans are awaiting the proper signal.

The Times feature ends unsurprisingly on a note of praise for Grantham.

But I’m not done with him yet.

Grantham’s most-recent letter — the one that has garnered him cult-like attention (that I contributed to because his numbers are very interesting) — is a moral disgrace.

Grantham is extremely smart and insightful. He has a keen eye for some of the limitations of the system he lives by.

Capitalism does not address these very long-term issues easily or well.  It seems to me that capitalism’s effectiveness moves along the spectrum of time horizons, brilliant at the short end but lost, irrelevant, and even plain dangerous at the very long end.

Again, how capitalism can be considered brilliant in the short term when billions of humans are food-insecure or at risk of dying from curable diseases is kind of hard for us non-elites to understand. But it’s important for business analysts to comprehend, as Grantham does, that capitalism isn’t even good at keeping their interests steadily shaping up, because markets have extremely limited predictive capabilities.

Grantham tentatively advocates reducing the human population of Earth in such a way that “might leave us with a world population of anywhere from 1.5 billion to 5 billion.” Well, we certainly could go a long way toward solving our resource problem by eliminating the wealthiest billion humans, but something tells me that isn’t who Grantham is thinking about. (I don’t advocate it either, for the record.)

We could more palatably solve many of our resource concerns by knocking out excess consumption by the wealthiest 15 percent of the global population, even while raising the standard of living for the lowest 60 percent or so. But of course that’s not a serious option for the Paper of Record or anyone they’d herald in a praise piece.

Grantham’s letter is devoid of the following words: hunger, poverty, refugee, famine, disease. These are hazards that even the most cynical of elite analysts doesn’t take seriously. Malnutrition and starvation are both mentioned, but one is a historical reference. One use of the terms is in a bullet point glancing over the fact that there will be “increases” in Africa and Asia, and nothing will be done about it. Another mention is used to crassly bolster Grantham’s case against US ethanol subsidies.

Grantham’s letter focuses heavily on agricultural issues, lending some very good analysis of soil and water problems that are worth reading. But it conspicuously ignores the root causes of the soil and water problems he notes: factory farming, livestock dependence, and monocropping. He’s either just learning about the cornucopia of deep-seeded oh-shit crises already facing humanity, or he’s burying most of them for whatever reason. Either way, his agricultural analysis is embarrassingly amateurish.

Perhaps worst of all, Grantham naively exhibits symptoms of a very typical chronic optimism disorder that is virtually religious in nature. This is not uncommon among elites trying earnestly to look down the road. After lamenting (while the Fukushima crisis is still at a high simmer in Japan) that humanity probably won’t make a revolutionary switch to nuclear fission energy, Grantham brightens up:

I believe that in 50 or so years – after many and severe economic and, possibly, social problems – we will emerge with sufficient, reasonably priced energy for everyone to live a decent life (if we assume other non-energy problems away for a moment) even if we don’t radically improve our behavior and make true sustainability our number one goal. In other words, current capitalist responses to higher prices should get the job done.

I’ll stick to the worst of this quotation’s many offenses: the belief, based on nothing but faith, that markets and humanity will somehow, magically, make everything peachy again mid-century. No need to switch economic systems or do anything too radical; after some undisclosed “social problems” that we can assume away, we don’t even need to “radically improve our behavior” in the meantime — everything will fix itself.

Substantiation of such a bizarre claim is unnecessary, because Grantham is telling the financial elite what they want to hear. Worst case scenario: everything will sort itself out after some problems. No worrying about that whole screwing-over-future-generations conundrum. Even the chief doomsayer says they’ll be fine.

That must be comforting for the kind of people the Times finds relevant.