Posts tagged economics

Global Corporate Capitalism is an Economic Ouroboros


Though capitalism is meant to be based on competition, those at the top of the food chain have also shown themselves to be capable of inclusiveness and solidarity. The great Western Capitalists have done business with fascists, socialists, despots and military dictators. They can adapt and constantly innovate. They are capable of quick thinking and immense tactical cunning.

But despite having successfully powered through economic reforms, despite having waged wars and militarily occupied countries in order to put in place free market “democracies”, Capitalism is going through a crisis whose gravity has not revealed itself completely yet. Marx said, “What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.”

The proletariat, as Marx saw it, has been under continuous assault. Factories have shut down, jobs have disappeared, trade unions have been disbanded. The proletariat has, over the years, been pitted against each other in every possible way. In India, it has been Hindu against Muslim, Hindu against Christian, Dalit against Adivasi, caste against caste, region against region. And yet, all over the world, it is fighting back. In China, there are countless strikes and uprisings. In India, the poorest people in the world have fought back to stop some of the richest corporations in their tracks.

Capitalism is in crisis. Trickledown failed. Now Gush-Up is in trouble too. The international financial meltdown is closing in. India’s growth rate has plummeted to 6.9 per cent. Foreign investment is pulling out. Major international corporations are sitting on huge piles of money, not sure where to invest it, not sure how the financial crisis will play out. This is a major, structural crack in the juggernaut of global capital.

Capitalism’s real “grave-diggers” may end up being its own delusional Cardinals, who have turned ideology into faith. Despite their strategic brilliance, they seem to have trouble grasping a simple fact: Capitalism is destroying the planet. The two old tricks that dug it out of past crises—War and Shopping—simply will not work.

Inequality may lead to rage against the machines

By Sebastian Mallaby

Citigroup just hired a brilliant consultant called Watson to build out its digital banking. This very same Watson also advises healthcare companies such as WellPoint and, in his time off, took the top prize last year on Jeopardy!, the television quiz show. According to his friends, Watson has other corporate gigs that he is coy about, and will soon earn more than $1bn annually. His astronomical income puts him in the top 1 per cent of the top 1 per cent of all American workers. Or rather, it would if he were human. He is a machine.

It is worth contemplating the rise of this IBM supercomputer amid a fraught election season. Out on the campaign trail, Republicans promise to bring jobs back by reining in the government and bashing China. Barack Obama counters with a mirror-image populism, blaming the super-rich for the troubles of ordinary workers. Watson stands as a reminder that something more profound is happening. We are in the midst of a technological upheaval; and financial rewards are flowing to the elites who create and control the new machines. Almost everybody else is threatened – including sophisticated bank executives at Citi and WellPoint’s healthcare analysts.

Watson is the standard bearer of a formidable army. Thanks to the relentless arithmetic of Moore’s law, the latest Intel chip contains 2.6bn transistors, a million times more than the path-breaking Intel 4004 of four decades ago. The cost of computer storage has fallen about 90 per cent in just six years, according to Martin Barnes of BCA Research; today’s transistors are so tiny that you can fit 3,000 of them into the width of a human hair. As a result, companies can store and analyse information on every aspect of the world around them. The era of Big Data is at hand.

The Second Economy

by W. Brian Arthur

Business processes that once took place among human beings are now being executed electronically. They are taking place in an unseen domain that is strictly digital. On the surface, this shift doesn’t seem particularly consequential—it’s almost something we take for granted. But I believe it is causing a revolution no less important and dramatic than that of the railroads. It is quietly creating a second economy, a digital one…

With the coming of the Industrial Revolution—roughly from the 1760s, when Watt’s steam engine appeared, through around 1850 and beyond—the economy developed a muscular system in the form of machine power. Now it is developing a neural system. This may sound grandiose, but actually I think the metaphor is valid. Around 1990, computers started seriously to talk to each other, and all these connections started to happen. The individual machines—servers—are like neurons, and the axons and synapses are the communication pathways and linkages that enable them to be in conversation with each other and to take appropriate action.

Is this the biggest change since the Industrial Revolution? Well, without sticking my neck out too much, I believe so. In fact, I think it may well be the biggest change ever in the economy. It is a deep qualitative change that is bringing intelligent, automatic response to the economy. There’s no upper limit to this, no place where it has to end. Now, I’m not interested in science fiction, or predicting the singularity, or talking about cyborgs. None of that interests me. What I am saying is that it would be easy to underestimate the degree to which this is going to make a difference.

I think that for the rest of this century, barring wars and pestilence, a lot of the story will be the building out of this second economy, an unseen underground economy that basically is giving us intelligent reactions to what we do above the ground. For example, if I’m driving in Los Angeles in 15 years’ time, likely it’ll be a driverless car in a flow of traffic where my car’s in a conversation with the cars around it that are in conversation with general traffic and with my car. The second economy is creating for us—slowly, quietly, and steadily—a different world.

Of course, as with most changes, there is a downside. I am concerned that there is an adverse impact on jobs. Productivity increasing, say, at 2.4 percent in a given year means either that the same number of people can produce 2.4 percent more output or that we can get the same output with 2.4 percent fewer people. Both of these are happening. We are getting more output for each person in the economy, but overall output, nationally, requires fewer people to produce it. Nowadays, fewer people are required behind the desk of an airline. Much of the work is still physical—someone still has to take your luggage and put it on the belt—but much has vanished into the digital world of sensing, digital communication, and intelligent response.

Physical jobs are disappearing into the second economy, and I believe this effect is dwarfing the much more publicized effect of jobs disappearing to places like India and China.

There are parallels with what has happened before. In the early 20th century, farm jobs became mechanized and there was less need for farm labor, and some decades later manufacturing jobs became mechanized and there was less need for factory labor. Now business processes—many in the service sector—are becoming “mechanized” and fewer people are needed, and this is exerting systematic downward pressure on jobs. We don’t have paralegals in the numbers we used to. Or draftsmen, telephone operators, typists, or bookkeeping people. A lot of that work is now done digitally. We do have police and teachers and doctors; where there’s a need for human judgment and human interaction, we still have that. But the primary cause of all of the downsizing we’ve had since the mid-1990s is that a lot of human jobs are disappearing into the second economy. Not to reappear.

Seeing things this way, it’s not surprising we are still working our way out of the bad 2008–09 recession with a great deal of joblessness.

There’s a larger lesson to be drawn from this. The second economy will certainly be the engine of growth and the provider of prosperity for the rest of this century and beyond, but it may not provide jobs, so there may be prosperity without full access for many. This suggests to me that the main challenge of the economy is shifting from producing prosperity to distributing prosperity. The second economy will produce wealth no matter what we do; distributing that wealth has become the main problem. For centuries, wealth has traditionally been apportioned in the West through jobs, and jobs have always been forthcoming. When farm jobs disappeared, we still had manufacturing jobs, and when these disappeared we migrated to service jobs. With this digital transformation, this last repository of jobs is shrinking—fewer of us in the future may have white-collar business process jobs—and we face a problem.

The system will adjust of course, though I can’t yet say exactly how. Perhaps some new part of the economy will come forward and generate a whole new set of jobs. Perhaps we will have short workweeks and long vacations so there will be more jobs to go around. Perhaps we will have to subsidize job creation. Perhaps the very idea of a job and of being productive will change over the next two or three decades. The problem is by no means insoluble. The good news is that if we do solve it we may at last have the freedom to invest our energies in creative acts.

Why Poorer States Aren’t Buying What Romney’s Selling

By Walter Dean Burnham andThomas Ferguson

The county maps and polls testifying to the importance of income in predicting the Romney vote within states (the latter have been oddly missing in some newspaper presentations) all suggest that the Republican Party is now divided fairly sharply along class lines as well as religious ones.

In the general election, this may be important. Right now GOP adherents are trumpeting their confidence that the “flock” (as many evangelical ministers might say) will all return to the fold, united in their desire to defeat President Obama. Many of them, in fact, are likely to do this. But we are hardly alone in observing that turnout in the GOP primaries has been mediocre. In a few states, turnout rose above the levels of 2008, but overall, turnout is down.

In the general election, moreover, Romney will have to reach well beyond his base, to independents and those less predisposed toward all things Republican. By contrast with past GOP nominees Romney’s appeal looks modest, limited largely to affluent voters. One may doubt that his endorsement of the Ryan budget will do much to broaden that appeal, either. To win in November, he is likely to need a stupefying large amount of money and a really good Etch-a-Sketch.

Who ate my job?

It is tempting to think of the globalisation of the labour market as a zero-sum game in which Mrs Kamal in Pakistan is benefiting at the direct expense of Ms Vetter in America. But economists point out that such calculations suffer from the “lump of labour fallacy”—the belief that there is only a fixed amount of work to go round. A better explanation, they say, is the theory of comparative advantage, one of the least controversial ideas in economics, which suggests that free markets make the world better off because everyone can concentrate on doing what they are best at.

All the same, a global labour market will not make every individual in the world better off: there will be losers as well as winners, and they may put up stiff resistance to change if the losses prove too painful. For instance, total global GDP could double if all barriers to the free movement of labour were removed, argues Michael Clemens in a recent paper, “Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?”. Yet the political implications of such mass migration make it improbable that governments, especially in rich countries, would unconditionally open their doors.

Compared with previous bursts of global integration and technological upheaval, the changes now taking place in the labour market may produce an unusually large number of losers, partly because they have coincided with a particularly deep recession and partly because they are happening exceptionally fast. The priority for policymakers must be to keep the number of losers as small as possible.

How Wealth Reduces Compassion

Who is more likely to lie, cheat, and steal—the poor person or the rich one? It’s temping to think that the wealthier you are, the more likely you are to act fairly. After all, if you already have enough for yourself, it’s easier to think about what others may need. But research suggests the opposite is true: as people climb the social ladder, their compassionate feelings towards other people decline…

But why would wealth and status decrease our feelings of compassion for others? After all, it seems more likely that having few resources would lead to selfishness. Piff and his colleagues suspect that the answer may have something to do with how wealth and abundance give us a sense of freedom and independence from others. The less we have to rely on others, the less we may care about their feelings. This leads us towards being more self-focused. Another reason has to do with our attitudes towards greed. Like Gordon Gekko, upper-class people may be more likely to endorse the idea that “greed is good.” Piff and his colleagues found that wealthier people are more likely to agree with statements that greed is justified, beneficial, and morally defensible. These attitudes ended up predicting participants’ likelihood of engaging in unethical behavior.

Given the growing income inequality in the United States, the relationship between wealth and compassion has important implications. Those who hold most of the power in this country, political and otherwise, tend to come from privileged backgrounds. If social class influences how much we care about others, then the most powerful among us may be the least likely to make decisions that help the needy and the poor. They may also be the most likely to engage in unethical behavior. Keltner and Piff recentlyspeculated in the New York Times about how their research helps explain why Goldman Sachs and other high-powered financial corporations are breeding grounds for greedy behavior. Although greed is a universal human emotion, it may have the strongest pull over those of who already have the most.

What Export-Oriented America Means


It’s not just that Silicon Valley and the Pentagon and our universities give the United States a big edge with smart machines. The subtler point is this: The more the world relies on smart machines, the more domestic wage rates become irrelevant for export prowess. That will help the wealthier countries, most of all America. This logic works on both sides. America is using less labor in manufacturing, but China is too, even as its manufacturing output is rising. The fact that Chinese manufacturing employment is falling along with ours means that both our higher wages and their lower wages are becoming less relevant for the location of manufacturing decisions. The less manufacturing has to do with labor costs and relative wage levels, the greater the comparative advantage of the United States…

The new export-based prosperity may not translate into higher wages for everyone, or even most people, in the United States. Skilled laborers who work with smart machines or even hold advanced managerial jobs will continue to make big gains, as the numbers have been showing for some time. Capital will do well too, especially if it is geared toward export success. The class of elite labor will grow, and protest against the “one percent” will seem anachronistic. Expect something more like, “We are the ninety percent.” That will still fall well short of the median, so significant segments of the American workforce are likely to continue suffering falling real wages, even in a time of rising export prowess. 

As the number of American jobs in manufacturing has fallen dramatically, it is often forgotten that American manufacturing output has continued to rise, even during some slow times. In the past decade, the flow of goods coming from U.S. factories has gone up by a third as capital has increasingly become a greater share of input over labor.

If more Americans sought care abroad, it wouldn’t just save them money; it could also help control medical costs at home. Medical tourism can be considered a kind of import: instead of the product coming to the consumer, as it does with cars or sneakers, the consumer is going to the product. More medical tourism would increase free trade in medical services, something there has not been much of in the past. The U.S. has been religious about breaking down barriers to free trade, especially in manufacturing and service industries, exposing ordinary workers to foreign competition. But health care has been insulated from the forces of globalization. This has been great for hospitals and doctors, but less good for consumers. It’s one reason that the cost of health care has risen so much faster than that of almost everything else.

'Big Government' Isn't the Problem, Big Money Is

Robert Reich

Conservatives love to rail against “big government.” But the surge of cynicism engulfing the nation isn’t about government’s size. It flows from a growing perception that government doesn’t work for average people but for big business, Wall Street and the very rich—who, in effect, have bought it. In a recent Pew poll, 77 percent of respondents said too much power is in the hands of a few rich people and corporations.

That view is understandable. Wall Street got bailed out by taxpayers, but one out of every three homeowners with a mortgage is underwater, caught in the tsunami caused by the Street’s excesses. The bailout wasn’t conditioned on the banks helping these homeowners, and subsequent help has been meager. The recent settlement of claims against the banks is tiny compared with how much homeowners have lost. Millions of people are losing their homes or simply walking away from mortgage payments they can no longer afford.

Homeowners can’t use bankruptcy to reorganize their mortgage loans because the banks have engineered laws to prohibit this. Banks have also made it extremely difficult for young people to use bankruptcy to reorganize their student loans. Yet corporations routinely use bankruptcy to renege on contracts. American Airlines, which is in bankruptcy, plans to fire 13,000 people—
16 percent of its workforce—while cutting back health benefits for current employees. It also intended to terminate its underfunded pension plans, until the government agency charged with picking up the tab screamed so loudly that American backed off and proposed to freeze the plans.

Not a day goes by without Republicans decrying the budget deficit. But its biggest driver is Big Money’s corruption of Washington. One of the federal budget’s largest and fastest-growing programs is Medicare, whose costs would be far lower if drug companies reduced their prices. It hasn’t happened because Big Pharma won’t allow it. Medicare’s administrative costs are only 3 percent, far below the 10 percent average of private insurers. So it would be logical to tame rising healthcare costs by allowing any family to opt in. That was the idea behind the “public option.” But health insurers stopped it in its tracks.

The other big budget expense is defense. The US spends more on its military than China, Russia, Britain, France, Japan and Germany combined. The “basic” military budget (the annual cost of paying troops and buying planes, ships and tanks—not including the costs of actually fighting wars) keeps growing. With the withdrawal of troops from Afghanistan, the cost of fighting wars is projected to drop—but the base budget is scheduled to rise. It’s already about 25 percent higher than it was a decade ago, adjusted for inflation. One big reason is that it’s almost impossible to terminate large military contracts. Defense contractors have cultivated sponsors on Capitol Hill and located their facilities in politically important districts. Lockheed, Raytheon and others have made national defense America’s biggest jobs program.

“Big government” isn’t the problem. The problem is the Big Money that’s taking over government. Government is doing fewer of the things most of us want it to do—providing good public schools and affordable access to college, improving infrastructure, maintaining safety nets and protecting the public from dangers—and more of the things big corporations, Wall Street and wealthy plutocrats want it to do.

Some conservatives argue that we wouldn’t have to worry about this if we had a smaller government to begin with, because big government attracts Big Money. On ABC’s This Week a few months ago, Congressman Paul Ryan told me that “if the power and money are going to be here in Washington…that’s where the powerful are going to go to influence it.” Ryan has it upside down. A smaller government that’s still dominated by money would continue to do the bidding of Wall Street, the pharmaceutical industry, oil companies, agribusiness, big insurance, military contractors and rich individuals. It just wouldn’t do anything else.

Millionaires and billionaires aren’t donating to politicians out of generosity. They consider these expenditures to be investments, and they expect a good return on them. Experts say the 2012 elections are likely to be the priciest ever, costing an estimated $6 billion. “It is far worse than it has ever been,” says Senator John McCain. And all restraints on spending are off now that the Supreme Court has determined that money is “speech” and corporations are “people.”

Kiva makes warehouse operations significantly faster, of course, but it’s more than that: using the robots means that Amazon can pack more stuff into a given space, they don’t have to waste lots of money on heating or air conditioning or lighting, they don’t have to spend lots of time training people, and they don’t have to worry nearly as much about theft. Robots don’t need overtime, healthcare, or 401(k).

That’s all great news for Amazon, but they’re buying Kiva, not just hiring them. We can only assume that it’s obvious to this gigantic warehouse company that  Kiva Systems are the future of warehousing in general, and they want a piece (or all the pieces) of the action. 

Amazon Adds That Robotic Touch

In the battle between man and machine, the robots just scored a victory in the world of e-commerce. Inc. AMZN +0.25% said Monday it is buying Kiva Systems Inc., which makes robots used in shipping centers. The $775 million acquisition comes as Amazon continues its heavy spending on fulfillment centers to help fuel its business.

While the Seattle-based retailer has used some automation in its fulfillment centers in the past, it has depended heavily on people, hiring thousands during the holidays to cruise through football-field sized warehouses to pick items from shelves.

With Kiva, Amazon is now looking at a more automated approach. The robots are already used by two websites that Amazon has acquired: shoe-retailer and baby-products site

Kiva’s robots bring the product shelves to a warehouse worker, rather than a worker walking to the shelves. The robots locate the items in a customer’s order, move the products around warehouses and help get packed boxes to a final loading dock.

The robots—squat, orange cubes—zip around shipping centers loaded with inventory shelves stacked several feet into the air above them. The robots can be tailored to each particular client, with customized software.

Super Rich: The Greed Game

Legitimization of the Access Economy


“Sharing is caring,” or at least that is what they teach you in kindergarten.  With the advent of such service platforms as Craigslist, Netflix and ZipCar, one might say that tech and social entrepreneurs took this lesson to a whole new level.  But the idea of sharing the commons for the common good is nothing new. Community development resource-sharing initiatives like bike coops, food banks, book exchanges, clothing swaps, tool trades and community gardens have been around for decades.

So while the internet didn’t reinvent the wheel here, social networking tools make bartering, sharing, swapping and renting out our own goods more widely acceptable and accessible.  Now start-ups can harness these alternative resource-distributing communities using supporting technology, making “people power” a real game changer financially, environmentally and socially.

As of 2012, the concept of sharing has moved from a community practice into a legitimate business opportunity. This increasing legitimacy is reflected in the more polished terms used to describe the phenomenon like peer-to-peer (P2P) networkscollaborative consumption or the access economy.  Some advocates wax philosophical that this emerging sharing economy has come about because society has collectively arrived at a more altruistic place in our evolution.   Others simply attribute it to Clinton’s old adage, “it’s the economy, stupid,” with trying financial times forcing us to reevaluate the way we interact with one another and with the resources we have at hand.  Whether it is a monetary or social paradigm shift, Timeconsiders the access economy to be one of “10 Ideas That Will Change the World.” We agree.

Shedding the outdated model of antagonistic individual competition for personal gain, this system flourishes on communal resource sharing for mutual benefit.  When asked in an interview why collaborative consumption is budding, What’s Mine Is Yours: The Rise of Collaborative Consumption authors Rachel Botsman and Roo Rogers expound, “The convergence of peer-to-peer social networks, a renewed belief in the importance of community, pressing unresolved global environmental concerns, and cost consciousness is moving us gradually away from the old top-heavy, centralized, and controlled forms of consumerism towards one of sharing, aggregation, openness, and cooperation.”

Timing is Everything: On The Limits of Presidential Power


The reputations of our Presidents often turn on economic factors beyond their control. The Great Depression was a global event. The contractions in the early nineteen-eighties and in the early nineteen-nineties were driven by the Federal Reserve, as Paul Volcker sought to bring down inflation and Alan Greenspan sought to head it off before it got established. Sometimes changes in the financial markets—changes that aren’t under anybody’s direction—can prove decisive.

President Obama (in contrast to the Presidential candidate Obama) was a victim of unfortunate timing. When he entered the White House, in January, 2009, the gross domestic product and employment were both declining alarmingly, and his term in office has been largely defined by efforts to right the economy.

Setting aside a collapse in spending and an alarming rise in unemployment, the country faced at least five major economic problems when he took over: a bombed-out real-estate market; an oversized, risk-riddled financial sector; a voracious demand for fossil fuels that had to be met by imports; stagnant wages and rising inequality; and a looming entitlements crisis that threatened to swallow the budget and bankrupt the country. All these problems had been long in the making, and none of them offered up ready solutions.

As a Presidential candidate, though, Obama was not averse to raising great expectations. Talking to the Times in the summer of 2008, he noted that Ronald Reagan “ushered in an era that reasserted the marketplace and freedom.” The next President would need to bring about a similar shift, Obama said, one that reasserted the role of an activist government, “laying the groundwork, the framework, the foundation for the market to operate effectively.”

Inevitably, many progressives—including such critics as Robert Kuttner and Joseph Stiglitz—were bitterly disappointed when Obama, in his first two years in office, backed away from positions they favored in health care, financial regulation, climate change, energy policy, and taxation. But they missed the fact that Obama was never really one of them to begin with. Despite his references to establishing a new paradigm, he wasn’t intent on facing down the malefactors of wealth, creating a Canadian-style welfare state, or forging a German-style social compact between labor and capital. In truth, Obama was a moderate young technocrat, whose first instinct was to seek the middle ground. The moment power beckoned, he tilted instinctively toward the establishment, and, in the Democratic Party that Obama had grown up in, the establishment was pro-Wall Street.

Fun with Trends

by Richard Heinberg

Because projecting future magnitudes according to current trends requires relatively simple math, and because doing so sometimes enables analysts to make accurate short-term forecasts of things like population, sales volumes, and commodity prices, trend watching can confer a sense of mystical power. We can predict the future—and maybe even profit by doing so!

 But, as Benjamin Disraeli famously said, “There are three kinds of lies: lies, damned lies, and statistics.” Indeed, projecting existing statistical trends out over long time periods often leads to absurd conclusions. Hence the necessity, when observing trends, of knowing (or at least being able to guess successfully) which ones are important or trivial, and which ones are likely to persist longer than others. A skilful trend watcher will note not only the rate of change in a given magnitude, but the rate of change to the rate of change: for example, while world population is growing at a rate of about 1.1 percent annually, its pace of growth has diminished in recent years, and that’s an important factor in forecasting world population for, say, 2050 or 2100.

 In addition to generalized critical thinking skills, citizens need the ability to assess statistics-based claims in order to arm themselves against people with a political axe to be honed, or buck to be made, by hawking a particular trend. Unfortunately, policy makers don’t always have (or use) these skills, and so it’s common to encounter unrealistic assumptions about our future based on trends unlikely to continue for long. Often this is not just a matter of sloppy thinking: policy makers want certain trends to go on—because if they didn’t, there’d be hell to pay.

 The obvious example is economic growth. Government officials assume (based on trends over the past few decades) that national economies will continue to expand forever, just as transportation planners assume that automobile traffic will always proliferate. Therefore more highways and suburbs are justified, and more public debt—because of course tax revenues will increase. Never mind that, in the US, there’s little basis for further real economic growth in light of debt levels and demography; or that vehicle miles traveled have actually declined significantly in recent years. Those are inconvenient trends that politicians and road-builders hope will simply go away. But will they? Certainly not if global oil supplies continue to tighten (another inconvenient trend): scarce oil will discourage both economic growth and driving.