Since the dawn of human settlement, being rich has been a process, not an end point. In order to accumulate capital, you need to figure out a way to organize people in such a way that their extra becomes your extra. Ideally, you leave a little for them so they think helping you grow rich is to their benefit. But, 1,000 years of feudalism proves it is not a requirement. With the right system, you can grow rich and powerful at the expense of others.
That’s the other part of the process though. To keep the peasants, slaves, servants, workers and associates from revolting, you either invest some of your extra back into them or you invest it in men with weapons who will keep the order. Recently the former has been the preferred method, but the only proven way to keep order is the latter. That’s why gun laws are enforced by men with guns.
This is not how most Americans look at economics. I’m sure a few reading this are thinking I have been reading too much Marx. But, that’s the thing. Marx was not wrong about everything. He made some excellent observations. His recommended solutions were insane, but many of his observations were spot on and hold up well even today.
Marx observed that capitalism, as he defined it, destroys and reconfigures previous economic orders, but also that it must ceaselessly devalue existing wealth. We see this today with Uber. The old order of state run cab companies is under assault from the new order of distributed contractors linked by a public information network paid for by people who don’t use it.
Joseph Schumpeter argued that this process was not pure destruction as Marxist claimed, but a reordering that eventually added value to the old stock of capital. The automobile did not entirely obliterate the horse and buggy industry. The carriage makers moved to the car business. The property employed in keeping and raising horses did not go away. It was re-purposed for car maintenance. While some value was lost from the end of horse travel, much of it was retained and a whole new layer of value was added onto it.
Both men were working from the perspective of rapid material progress. Events seem like they favor Schumpeter as opposed to Marx as we have seen whole industries grow up in one generation, displacing an old industry from our parents’ generation. The example I love using is the fax machine. In my lifetime, I saw it created, dominate and then replaced with something different. My parents could not imagine it and the kids today have never heard of it.
When I see stories like this one, I wonder if rapid material progress has reached an end or at least a lull. This looks like techno-feudalism to me. Amazon is trying to arrange things such that they can get writers to work for the benefit of Amazon, rather than their own benefit. Amazon gets the benefit of being the world’s largest bookstore, without incurring any risk. Get halfway through some book and decide you don’t like it? No problem. The author will refund you the difference! Amazon looks like a hero and the writer is looking for food in neighborhood dumpsters.
Amazon is not the only billionaire operation running these scams. Apple is trying to screw performers out of royalties. They backed off this time, but you can see where they are headed with this. These new “rental” services are about locking up the pipeline between the creator and the customer. Once they gain that edge, they will stop paying royalties. The next step will be that small acts get nothing but the benefit of “advertising” themselves on Apple or Amazon. It’s classic rentier behavior.
These are two recent examples, but the entire financial system is nothing but feudalism these days. Banks charge people for savings accounts. That forces everyone to put their savings into equities where smart people charge fees on investment funds. This arrangement means that when the economy is strong, everyone gets richer, but the rich get very rich. When the economy falls, everyone gets poorer, except for the rich, they keep getting richer. It is heads they win tails you lose.
The reason for wondering if these are symptoms of systemic stagnation is that when the pie is expanding, the rich guys are rushing to get the lion’s share of the new pie. When the pie is not growing, they look to expand their share of the pie at the expense of the weak. The new business from expansion is always the most profitable. Cannibalizing the existing market is low margin. When big players like Apple and Amazon are slumming this way, it suggests they have nowhere else to turn for profit.
It’s what appears to be at the heart of the massive new trade bill that just passed. The point of it is not to expand the US market, letting a rising tide lift all boats. No one believes that anymore. This bill is about making it easier for global players to loot the American middle class. William the Conqueror imposed feudalism in the English speaking world after the Battle of Hastings. Silicon Valley and Wall Street are imposing it on America a millennium later.
Monopoly has always been the Name of the Game for Elites. It’s technology that allows them to do it globally. But no empire lasts forever. Elites will do as they always do and cause their empires to collapse out of greed.
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“The truth is, globalization is good for rich people in rich countries and poor people in poor countries. It’s disastrous for poor people in rich countries.” – The Zman
This is one of the best sentences that the Zman has ever written.
It succinctly captures the real problem of so-called ‘free trade’.
Since IQ differences and HBD remain unaccepted inside the cathedral.
The dreadful effects of free trade on those on left side & middle of the bell curve are never recognized.
Economists and policy makers fantasize that people who spent their whole lives
working in a factory will now suddenly be retrained a ‘knowledge workers”.
A worker in a textile factory who once took pride working for Fieldcrest, or Cannon, once unemployed, can now only find part-time work in a convenience store, or a Walmart. Without a productive job, the self worth and self esteem of the working class collapses and all manner of dysfunctional behaviors become the norm.
The cost of this dysfunction is then transferred to the middle class.
thru: out-of-wedlock births, WIC, EBT cards, Section 8 housing, drugs, SSI, etc.
Would economists and economic professors so eagerly support ‘free trade’ if it was their jobs that were being outsourced?
I would change Zman’s second sentence to:
‘The cost of this disaster is then borne by the middle class who are saddled with maintaining the now unemployed & underemployed poor.’
Karl Denninger has often pointed out that ‘free trade’ is simply a way for multinational companies to arbitrage US labor and environmental laws.
Thanks again for that great sentence Z.
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U———–V————–P————–C—————Null
I kind of see it this way, Z-man. Technology should act on V (Value) and C (Cost) pushing them towards U (Utility, kind of the platonic ideal of what a good or service could do) and Null, respectively. I think there is ample evidence to show that real unit costs continue to decline while stuff just keeps getting better… it’s not uncommon for even your $20 Chicom, sweatshop-made microwave to last ten years these days.
Capital Pi sub Producer (Price – Cost or producer surplus) and Capital Pi sub Consumer (Value – Price or consumer surplus) are functions of culture and society. In a perfectly just society, producer surplus should equal consumer surplus. Honest government, a culture that values fairness, and a free information environment that limits arbitrage opportunities would all work together to ensure that consumer and producer pretty much split the surplus. Corruption, an amoral culture, and an “insider” information environment would bring about the opposite outcome, where producers gobble up nearly all of the surplus: producer surplus =~ V – C.
Free trade is another cult. In the 50’s we eliminated tariffs on ceramics, shoes, and clothing. And shazam, Italy, Japan, and a couple of other countries rose from the ashes. We destroyed the mill towns of the Northeast and shut down urban manufacturing from Baltimore to Boston, but we stabilized some key allies and all was good. In the 60’s we reduced or eliminated tariffs on steel, tires, cars and a bunch of other stuff. Europe and Japan were economically miraculous and the other Asian Tigers began their rise from the ashes. The manufacturing towns of the Midwest were economically devastated, but the elites could pat themselves on the backs for making hundreds of millions affluent and further strengthening our allies.
The 70’s were kind of a malaise, in no small part because of the free trade initiatives of the 50’sand 60’s. But in the 80’s we were back at it, proposing free-trade areas and eventually enacting them via treaty and law. By the time NAFTA came into effect, there wasn’t too much manufacturing to destroy, so the free trade cult had to settle for mass, unregulated immigration, that undermined our tradesmen and pretty much eliminated the possibility of a teenager getting a job in much of urban or suburban America since they were going to be underbid by illegal immigrants every time. Now we are trying to bring the same “creative destruction” to the white-collar job market by importing hundreds of thousands of indentured servants to work IT and other STEM jobs.
We are way past the point of diminishing returns. Going back to my contention that most utility functions are inverted-U shaped, we are well into the zone of reduced returns. (The stagnation then fall of real middle class wages being the prime supporting evidence.) Yet the cult of free trade keeps teeing up yet another industry on the sloped arms of the idol, rolling it into the flames, hoping the sacrifice will bring Prosperity.
THE math is slippery, agreed. I tend to be a free trader, although Z’s idea that free trade should mostly be between similar countries makes sense to me
I grew up in the 1950-75 era (born 1954) I could be wrong, but seems to me that we are MUCH better off now than we were in 1955- not sure about the numbers, but think about things like how many times people eat food not prepared at home, number of TVs and cars and stuff per household, etc. Does free trade figure into that somehow? On the other hand our poor neighborhoods seem to be much worse- worse from a physical point of view, and from the point of view of what goes on there.
In per capita GDP, we are richer, but things have flattened out since deals like NAFTA and others. It’s been a great age to be upper middle class or higher. How much longer this trend can continue is unknown to me, but it has some end point.
One has to ask whether free trade actually increases economic output. We’ve been on this for some time, but over the last 30 years or so, the real income of workers has fallen substantially, middle class incomes have declined somewhat, labor force participation has declined, etc. The rich, of course, have gotten richer.
It seems that despite freer trade, the US GDP is rising more slowly than population, and that there is less stuff per caput to go around.
The math of free trade has always been a bit slippery. The fanatics will hoot about how cheap crap from abroad means you have more money to spend on other cheap crap from abroad. That’s certainly true. If you can save $500 on the TV, you can maybe hire a landscaper for the summer to tend your lawn. he’s not making TV’s anymore, but he’s got a new career in grass mowing.
The truth is, globalization is good for rich people in rich countries and poor people in poor countries. It’s disastrous for poor people in rich countries. That disaster trickles up as the cost of tending to the poor rises on the middle-class faster in a relative sense. Real per capita GDP has increased less than 1% over the last 15 years in America. When you net out the top-5%, there’s probably been contraction.
“The carriage makers moved to the car business.”
Studebaker chuck wagons.
The buggy whip/saddle makers simply moved on to the S+M industry.