economic growth

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The DeFazio Bill: Reducing the Financial Industry’s Tax on Retirement Savings

Published by Anonymous (not verified) on Sat, 16/01/2021 - 8:21am in

Representative Peter DeFazio, along with seven House co-sponsors, introduced the “Wall Street Tax Act” today. This bill would impose a tax of 0.1 percent of sales of stocks, bonds, options, and other derivatives. According to the Congressional Budget Office, it would raise almost $800 billion over the course of the next decade. This would be more than enough to cover the entire food stamp budget over this period. It would be almost enough to fully replace the annual research spending of the pharmaceutical industry, which would mean that all new drugs could be sold as cheap generics from the day they approved by the Food and Drug Administration. In short, this is real money.

The financial industry is already screaming bloody murder over this bill for an obvious reason – it comes out of their hide. The financial industry has been ripping off retirement savers for decades with exorbitant fees and excessive trading. It’s not uncommon for an insurance company or brokerage house to charge people 1.0 percent a year or more for the privilege of letting them host your 401(k) or IRA. Just to be clear, this is simply what they charge for hosting the account. They charge additional fees for the various funds (e.g. stock or bond index or value fund) in which people actually invest their money.

This means that a person with $100,000 in a 401(k) may be paying $1,000 a year to an insurance company or a brokerage house, for essentially nothing. Then we add in the fees for the individual funds. If they actively trade your account, these can easily run to another 1.0 percent annually, and often considerably more. It would not be uncommon for someone to be handing the financial industry 2.0 percent of their 401(k) every year, or $2,000 for this person with $100,000 in their account.

The DeFazio bill will take a bite out of the industry’s take. The story is a simple one. It will make it more costly to trade financial assets. The industry will be hyping the additional trading cost as the end of the world.

Some simple arithmetic shows that the additional costs are not much for retirement savers to get excited over. Suppose our investor with $100,000 in their account trades 25 percent each year. This would be $25,000 in trades. The DeFazio bill would tax these trades at a rate of 0.1 percent. That comes to $25 a year, assuming the industry fully passes on the tax to investors. That doesn’t sound too devastating and in fact is trivial compared to the $1,000 to $2,000 that the financial industry might be pocketing off this person’s account.

But wait, it gets better. When the cost of trading goes up, people do less trading – sort of like when the price of apples go up we expect people to buy fewer apples. Most research indicates the decline in the volume of trading will be roughly proportional to the percentage increase in the cost. This means, for example, if the DeFazio bill raises the cost of trading by 30 percent, then the amount an account is traded will be reduced by roughly 30 percent.[1]

If each trade costs the account holder 30 percent more, but they reduce their trading by 30 percent, then the total cost of trading will be essentially unchanged. That means the $25 cost to this investor that we just calculated is actually close to the zero. The $25 comes out of the pockets of the financial industry, since it will be collecting less money in fees and commissions on trading. And now you understand why they hate the DeFazio bill.

There is a part of this story that always leaves people uneasy. If accounts are trading less, then won’t investors be earning less money? The answer to this is no.

Every trade has a winner and a loser. If I was lucky enough to sell shares of stock before the price fell, then I ended up ahead on the deal. But there was some sucker who had the misfortune to have bought the stock just before the price drop. On average, we end up winners half the time and losers half the time, so no, on average we don’t gain from trading and we won’t suffer from less trading.[2] (Yes, there are some very astute fund managers that consistently beat the market, you don’t have one.)  

The financial industry doesn’t like it when people point out that investors don’t make money from trading, since it makes it clear what the real tax on retirement savings is – the industry’s fees. But that is the reality, and DeFazio is proposing a bill that will substantially reduce the size of the financial industry’s tax on our savings.

And, we can use this money for important public purposes, like providing child care or combatting global warming. This is a tax we need.

[1] I realize most people are not directly trading their account. This means that fund managers will reduce the amount they trade by roughly 30 percent.

[2] There is of course a value to being able to trade stocks, bonds and other financial assets, so there would be a problem if trading fell to zero or something close to it. But we don’t have to worry about that story. Trading volume today is more than twice what it was in the 1990s, when almost everyone would agree we had very robust capital markets. This means that even if we saw sharp declines in volume we need not be concerned about being able to cash out of our 401(k) when we retired, or if we needed the money for an emergency.

The post The DeFazio Bill: Reducing the Financial Industry’s Tax on Retirement Savings appeared first on Center for Economic and Policy Research.


Challenging the Pro-Growth Market: Mark Carney’s Reith Lectures and the Need for a Radical Approach

Published by Anonymous (not verified) on Thu, 07/01/2021 - 4:34am in
By James MacGregor Palmer

“Society won’t settle for worthy statements followed by futile gestures. It won’t settle for countries announcing plans in Paris five years ago for 2.8 degrees warming, far too high, that they don’t even meet. Society won’t settle for companies that preach green but don’t manage their carbon footprints, or financial institutions who can’t tell us whether our money is on the right or wrong side of climate history.”

Mark Carney (climate crisis)

Mark Carney, coming around but still a green growther. (Image: CC BY-SA 2.0, Credit: World Economic Forum)

These are not the words of an environmental activist, Green politician, or concerned steady stater. These are the words of a neoliberal former investment banker. A former governor not only of the central bank of his native Canada but also the Bank of England.

Mark Carney is the latest “significant international thinker” to be invited to deliver the BBC’s flagship annual lecture series: The Reith Lectures. In his four-part series, entitled “How We Get What We Value,” Carney eloquently identifies many of the problems with the model on which many of the global West’s and North’s economies are based. But the solutions he proposes fall woefully short, offering more of the same when the changes we need will have to be more radical at this stage.

The Deity of the Market

Carney begins his first lecture with a story, spinning a narrative to shine a light on a fundamental truth:

At some point every North American child learns a sentimental story by an American writer, O. Henry. It tells the tale of a newlywed couple one Christmas Eve. Penniless and frantic to find a gift for her husband, Jim, Della sells her long tresses of hair and uses the proceeds to buy a chain for his beloved watch. When they are reunited for dinner in their small apartment […] she discovers that Jim has just sold his watch to buy a set of combs for her hair. He has no watch, she’s cropped her hair, and although they are left with gifts that neither can use, they realize how priceless their love really is. Now, when I first heard that story, it had its desired effect. I momentarily forgot about the hockey stick I’d been coveting and thought more about my mother’s need for new slippers. It’s in the giving that we receive.

Henry’s The Gift of the Maji, Carney laments, teaches a moral truth that has been eroded from our collective conscience as neoliberal values escape the confines of the market and seep into our social lives. Delivering his lectures in Glasgow, the birthplace of capitalism’s founder Adam Smith, Carney argues that our current economic hegemony is a far cry from what Smith envisioned. Whilst Smith warned of “the mistakes of equating money with capital and divorcing economic capital from its social partner,” we have blurred the lines between economic and social value since the rise of Thatcherism in the UK and Reaganomics in the USA. The pandemic has illustrated the ugly effects of this conflation in horrific detail. If we do not learn our lessons, the climate will be an even less forgiving teacher.

Carney provides a rather terrifying insight into just how powerful the market has become. He recounts how, upon joining the G7 in the early 2000s, he discovered an environment where “policymakers like [himself] had nothing to tell the market—they only had to listen and learn.” This mindset led to a poignant observation from Carney’s colleague Tommaso Padoa-Schioppa: “When we grant an entity infinite wisdom, we enter the realm of faith.”

Tommaso

Tommaso Padoa-Schioppa: “When we grant an entity infinite wisdom, we enter the realm of faith.” (Image: CC0, Credit: Stephen Jaffe)

If the market has become a deity, then it is not a benign one. When we remove the agency of policymakers and replace it with blind faith in the entity of the economy, we forget that it is an entity we constructed. It must work for us, or it does not work at all.

The Incentive of Civic Duty

The intrusion of market values into the moral sphere is the core problem that Carney identifies, and it is one of the key issues that a steady state economy would aim to set straight. However, Carney also offers insight into an interesting phenomenon that may hold the key to gaining mainstream acceptance of steady-state ideas.

Despite the increasing inference of economic value on noneconomic activities, devaluing them when there is a lack thereof, monetization of an activity can actually decrease its perceived value. Carney raises several examples. In the UK donating blood is a voluntary activity, whereas in the USA blood donors are compensated, and the former yields far greater participation. Fines for late pickups from childcare are viewed by parents as simply the financial cost of being late and not as appropriate chastisement. And in a study (which Carney sadly does not cite), children were shown to be more incentivized to raise money for charity when they were not paid for their troubles. In other words, a sense of civic duty is a powerful motivating tool. But when we allow the market to infringe upon civic life, it ascribes financial value to civic actions, and slowly we begin to see only the financial value and not the intrinsic one.

This logic can be mapped onto the climate crisis, though Carney stops short of doing so. In a consumerist society, the environment is framed as an asset to be exploited. If it is worth protecting, then we only protect our ability to extract value from it in years to come. This is a long-term financial motivation which, as Carney argues, is inherently weak and will always be superseded by the short-term financial incentive to exploit the natural world as quickly as possible, no matter the damage caused.

Advancing the steady state economy fundamentally changes the way we frame the environment, and we must begin changing that frame before we have any hope of achieving our economic goals. Framing the environment as intrinsically valuable—a social good or even a good thing in its own right rather than merely an economic good—is essential in order to incentivize people to protect it. Once we begin to see protecting our environment as a civic duty—to both the environment itself and our fellow human beings—the incentive is far greater. But in order to create this sense of civic duty, we must first redefine the lines between economic and social value.

The Solution Is Not Tinkering

Though the problems Carney identifies in his first lecture are sound, the solutions he identifies in his fourth fall short of the mark. He recalls the moment he sat in the UN General Assembly and heard Greta Thunberg stand up and address the room:

“You’ve stolen my dreams and my childhood with your empty words. And yet I am one of the lucky ones. People are suffering. People are dying. Entire ecosystems are collapsing. We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”

Greta Thunberg

Greta Thunberg to the Mark Carneys: “…all you can talk about is money and fairy tales of eternal economic growth.” (Image: CC BY 2.0, Credit: European Parliament)

Whilst Carney acknowledges the “power of Greta Thunberg’s message,” he refuses to accept her analysis. “The market is not the answer to everything, but it can play a critical role in solving many of humanity’s greatest challenges,” he argues. “Continued growth isn’t a fairy tale—it’s a necessity.”

Carney’s view is that net-zero carbon emissions will only be achieved by manipulating the market to favor businesses who are environmentally conscious. By forcing businesses to work toward carbon neutrality by making it more profitable for them to do so, the climate crisis could be solved whilst growth continues to soar. Mark Carney wants to have his cake and eat it too.

In making this argument, Carney completely undermines his analysis from previous lectures. What his solution amounts to is a financial incentive, the likes of which he laments the limits of earlier in the series. It is a far easier fix than initiating a fundamental hegemonic shift, but it is also far less sufficient. If financial incentives are weaker than civic ones, why would we not aim for the latter?

Carney seems to also assume that the only issue with endless growth is that it causes carbon emissions. This is far from the truth. A society centered around GDP growth can make our vehicles less efficient, our commutes more stressful, our work more time consuming, our healthcare more expensive, our family time more scarce, and our civic calling short-changed. In other words, not only the environment but our personal and social wellbeing suffers from the obsession with GDP.

When it comes to the environment, the climate crisis is not just what we’re putting into our atmosphere, it’s what we’re taking out of our ecosystem. A carbon tax would do nothing to address the exploitation of other natural resources, the destruction of habitats, and the attitude that everything on the planet is ours for the taking. To follow Carney’s lead would be to leave the clock ticking indefinitely, solving one crisis but awaiting the inevitability of the next.

The climate crisis, just like our wellbeing and inequality crises, will not be solved by economic tinkering. In identifying that the structure of our economies has a role to play, Mark Carney has come halfway to realizing what is required. Old habits die hard, but it is time for him to let go of the notion that “the market knows best.”

James MacGregor Palmer graduated from Newcastle University with a BA in Music with Politics in 2019 and is pursuing a master’s degree in International Journalism at the University of Stirling.

The post Challenging the Pro-Growth Market: Mark Carney’s Reith Lectures and the Need for a Radical Approach appeared first on Center for the Advancement of the Steady State Economy.


Christ Didn’t Shop for Christmas Presents (Much Less Jets and Guns)

Published by Anonymous (not verified) on Thu, 24/12/2020 - 2:31am in
By Brian Czech

With Christmas two days out, folks are making tough decisions about Christmas presents. Unemployment rates in 2020 have reached their highest rates since the Great Depression, and gift-giving is a real strain for many. My advice for anyone stressing out over Christmas presents is: Don’t be too hard on yourselves. It’s not like you need an excuse to temper the shopping, but if an excuse was needed, the COVID-caused recession would be it!

It’s true that little kids galore are expecting presents from gramma, grampa, and Santa Claus. But is that a good thing to encourage? This year provides a chance for children to learn about the real meaning of Christmas. If you’re a Christian, the meaning should be simple enough to convey. Even if you’re not a Christian, Christmas 2020 is still an opportunity for teaching kids about material scarcity and the need to conserve. They’ll need such lessons for the 21st century!

With or without COVID-19, isn’t it high time for a re-set on the material expectations of Christmas? Christmas lights, reindeer ornaments, inflatable Santas, lit-up geese, larger-than-life snowmen, Big Dots of Happiness…and that’s before we even step inside! Then in the house we have Christmas trees (chopped down or plastic), another set of lights, presents under the tree, and basically the whole set of lawn ornaments in miniaturized form, on and about the tree. Half of this junk is thrown out and replaced the following year.

consumption

What happened to the little, sustainable Nativity set? (Image: CC0, Source)

What happened to the little Nativity set, re-used for decades? It told the real story of Christmas, or Christ’s mass. Made out of wood, no electricity needed, and possibly even hand-carved, it also told a story of sustainable consumption. I like to believe there’s no coincidence here. I believe, in other words, that Christianity and sustainable consumption are supposed to go hand in hand.

Christ Wasn’t Much of a Consumer

I’m no theologian, but I was born and raised a Catholic. I read the Bible and learned the Catechism. All that teaching left me with plenty of uncertainty that plagues me to this day. Yet there’s one thing I’d bet the farm on: Christ was no conspicuous consumer.

The New Testament—supplemented by biblical archeology—has a lot to say about Christ’s lifestyle, starting with food, clothing, and shelter. His diet was typically at the subsistence level, with plenty of fasting. He probably wore a mantle (a type of shawl), sandals, and a one-piece tunic; “extremely basic.” It’s unclear whether Christ ever owned a home. As a child, he lived in a house with Mary and Joseph. A passage in the Book of Mark suggests he might have had a house as an adult. Yet he spent much of his life on the road—on foot—teaching whoever would listen, giving little thought to living quarters.

consumption

Jesus wasn’t into shopping. (Image: CC0, Source)

If Christ had a house at all, I’m guessing it lacked a swimming pool, wine cellar, and gold-plated bedroom.

Let’s face it: Jesus wasn’t much of a shopper. The one time we find him interacting in the marketplace, he’s driving the moneylenders out! This we read in the Book of John:

“In the temple he found people selling cattle, sheep, and doves, and the money changers seated at their tables. Making a whip of cords, he drove all of them out of the temple, both the sheep and the cattle. He also poured out the coins of the money changers and overturned their tables. He told those who were selling the doves ‘Take these things out of here! Stop making my Father’s house a marketplace!’”

Of course, those were the days long before the study of “political economy” and debates over laissez-faire capitalism vs. socialism (democratic or authoritarian). It would be crazy to call Christ a Keynesian, a Georgist, or a Marxist. But he sure didn’t find much redemption in the peddling of goods. That’s enough to know with regard to Christmas shopping.

“Prosperity Gospel”— A Theological Oxymoron?

Despite all we read in the Bible about Christ living frugally, we have (primarily in the USA) televangelist pastors who preach a so-called “prosperity gospel,” the notion that Christian faith will lead to material wealth. So, when you give to the church (such as for building a bigger church), it’s sort of a financial investment mixed in with your witnessing for Christ. Theoretically, then, you’d have more money for Christmas presents later.

This prosperity gospel goes back to the late Oral Roberts, and disciples today include the likes of Joel Osteen, Kenneth Copeland, and the unbelievably named Creflo Dollar. Dollar owns two Rolls-Royces, a private jet, and multi-million dollar mansions. Another prosperity preacher is Jesse Duplantis, known for inspiring his followers to buy him private jets. Evidently he’s had four of them—“just burning them up for the Lord,” he says. His latest ride is the Falcon 7X. It flies near the speed of sound with noise-limiting acoustic technology, a Bluetooth-enabled entertainment center, and an in-flight shower.

Whatever happened to the teaching of Christ, “it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God” (Matthew 19:24)? Maybe with a jet, you can just blast your way on through there before anyone notices.

That reminds me of a little story. One time I was giving a talk to a small group of faith leaders in Washington, DC. They’d asked me to talk about limits to economic growth and provide a synopsis of the steady state economy. We then went around the group, maybe ten people in all, and discussed the issues. One minister stroked his chin for a moment and then, deep in thought, stated matter-of-factly, “The steady state economy; now that’s the Kingdom of God.”

As I recall, he was an Episcopalian pastor. While he didn’t elaborate with a theological argument, I think he was getting at the fact that Christians wouldn’t be conspicuous consumers. Instead, they would conserve, caring for creation and leaving room for future generations and non-human species. That resonated with me, and it seems consistent with the life of St. Francis and the teachings of Pope Francis, most notably in the Laudato si’, the Pope’s encyclical on “Care for Our Common Home.”

When it comes to consumption and consumerism, who should we put more stock in: Pope Francis or Creflo Dollar?

St. Francis and consumption

St. Francis of Assisi established a Catholic tradition of caring for creation, a tradition underpinning the theology and teachings of Pope Francis. (Image: CC BY 2.0, Credit: Enrique López-Tamayo Biosca)

Which Collection of Semi-Automatic Rifles and Handguns—Plus Designer Ammo and Shooting Accessories—Would Jesus Haul Out with the Hummer to the Thousand-Acre Moving Target Range?

As you might guess from the heading, I’m going full-preacher mode here. Normally I’d have little standing for preaching purposes, but the notion of “God and Guns” is some of the lowest-hanging fruit I’ve ever seen for an ethical critique. It makes as much sense as “Broccoli and Buns.” It’s a pair that just doesn’t fit. That’s relevant here because guns and ammo—and copious paraphernalia—are increasingly common Christmas presents.

I could use any number of sectors or products to illustrate how ludicrous it is to think of conspicuous consumption as congruent with Christianity. Maseratis, mansions, McMansions, fancy furniture, thousand-dollar bottles of wine…let’s keep them all in mind. Yet something is particularly, exceptionally, ridiculously ludicrous in the case of guns, and more broadly the “shooting sports” sector.

Don’t get me wrong: I’m not against guns per se—far from it. The NRA likes to point out that guns don’t shoot people: people do. Well, by that logic, I’d like to point out that guns didn’t coin the idiotic slogan “God and Guns.” Neither did God. Gun nuts did.

And of course, a lot depends on the type of gun. I’m not against mufflers either, but I don’t like those outlawed mufflers designed to make the most noise. Not many of us do; that’s why they were outlawed! Similarly, assault rifles with hundred-shot drum magazines are obnoxious as hell and let’s face it: they reek of evil.

I grew up in a hunting and fishing culture and I’ve always had a rifle or two (for deer hunting mostly) and a shotgun or two (for turkeys and such). One good firearm lasts a lifetime and more. I take a certain amount of pride, too, in the lost art of using a single rifle shell per year for venison (maybe two if the freezer is low) and maybe a handful of shotgun shells. I don’t mind hearing a few shots in the distance during deer season. In other words, I’m still not against inconspicuous consumption of guns and ammo. I also understand the country-boy resistance to Second Amendment infringement.

But we’re not talking about the Second Amendment here. We’re talking about a 21st-century cultural phenomenon of conspicuous consumption in the shooting sector. It will play out over the holidays in counties across the country.

Most city dwellers know little about this, but we have an entire subculture out in the countryside these days, including weekenders from the city, driving out with Hummers and SUVs, then jumping onto 4-wheelers and spending countless hours pumping out rounds—hundreds per hour—from semi-automatic assault rifles, shooting targets spiked with Tannerite and leaving a nasty footprint specific to the shooting sports. It may not always be visually conspicuous, but if you’re within a mile, your ears will be polluted with the sound of wanton waste of time, energy, and lead.

When gun nuts get rambunctiously political, the visuals can be uglier still.

God and Guns

Google results from “armed protesters” search, 12/22/20.

I don’t know about you, but I can’t picture Jesus Christ with an AR-15. No way. Not for hunting, protesting, or anything at all. Branded as “America’s rifle,” this phenom of the market hits the bullseye only if you’re shooting for a noise-making, peace-wrecking, lead-polluting, obnoxia-producing Christmas present!

In the Name of God

If you’re a Christian—and maybe if you’re not—you have to be really careful with the name of God. That’s the Third Commandment! The “God and Guns” crowd might want to stand down and reload with new rhetoric. Or the God crowd, at least, might want to separate themselves from the gun nuts.

It’s one thing to pair, for example, “God and Guts” (for bravery) or “God and Grits” (for salt-of-the-earth sensibility). Or even something vaguely (very vaguely) geopolitical, like “God and the Grange.” But for God’s sake, “God and Guns?” That’s about as edifying as “God and Gambling” or maybe “God and Gossip.”

Just because you have a right to gamble, gossip, or bear arms doesn’t pair it with God. You have a right to shell peanuts in church, too, but that hardly makes it godly. In my opinion, when you start hearing “God and Guns” chatter, the country’s on the road to perdition.

Similarly, the “prosperity gospel” reeks of “green growth” deceit. It’s just an excuse for extravagant living and greed. I bet Christ would have nothing to do with it.

He wouldn’t be buying many Christmas presents, either. (He might donate to Smile Train, though.)

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

The post Christ Didn’t Shop for Christmas Presents (Much Less Jets and Guns) appeared first on Center for the Advancement of the Steady State Economy.


American Totalism: Technology, Economy, and Nationality

Published by Anonymous (not verified) on Thu, 17/12/2020 - 2:26am in

By Brian Snyder

“Orthodoxy, Autocracy, and Nationality.” Those were the principles that underlaid most of the Tsarist governments in the final 80 years of Romanov rule. It was a slogan and a belief system, Russia’s version of “liberté, égalité, fraternité.” Eventually, under the leadership of a poor autocrat, Nicholas II, it would lead to the Russian Revolution and the brutal murder of Nicholas and his family. Yet between its coining in 1832 and the Revolution in 1917, “Orthodoxy, Autocracy, and Nationality” established a framework for a nascent totalitarianism.

Romanov and totalism

Nicholas II and his family unaware that their totalitarian state would rise against them. (Image: CC0, Source)

The nascent totalitarianism matured under Lenin and was “perfected” under Stalin, but the Soviets used a different tripartite slogan: “Peace, Land, and Bread.” Despite its less reactionary tone, the Bolshevik’s slogan was even more effective in creating a totalitarian state, perhaps because of its more positive spin. After all, who could oppose peace, land, and bread?

State totalitarianism never emerged in the West. Yet totalism is alive and well in the USA, and it is underlaid by its own tripartite foundation: “Technology, Economy, and Nationality.” These three concepts may not be an explicit slogan (yet) in the way “Orthodoxy, Autocracy, and Nationality” was, but they are the aims of American totalism.

Totalism and Totalitarianism

First, we must differentiate between totalitarianism and totalism. Totalitarianism is the control of individuals by the state. As defined by psychologist Robert Lifton, totalism is the control of individuals by other individuals or groups. Thus, a cult is totalist but not totalitarian. Furthermore, unlike totalitarianism, totalism does not require leadership in a single person or governing class. Totalism can be an emergent characteristic of the group. In this case, totalism is not monitored by a Gestapo-like police state but by other members of the group.

The USA and other Western societies are not totalitarian, but they are totalist. Rather than autocratic leaders dictating and enforcing cultural norms, we enforce these norms ourselves. Yet without autocratic leaders, who benefits from this totalism? In the short term, we all do via an increase in the number and diversity of our material possessions. Yet, like nearly every totalitarian regime in history, our totalism is not sustainable and will collapse as the costs of our prosperity and possessions erode the ability of the totalism to function.

Technology

One of the most insightful thinkers on the role—or rather control—of technology on modern society is Wendell Berry. His recent compilation of essays, The World-Ending Fire, is full of critiques of technology in the modern world, but one is particularly interesting. In the late 1980s, Berry wrote an essay describing why he preferred to write with a pencil rather than use a computer. It was a short essay that described his work habits, some of his rules for replacing an existing technology with a new one, and whether new technology actually improves our lives.

We might think that one person’s decision to eschew the computer would not be controversial, but Berry’s publisher, Harpers, received dozens of letters from readers outraged that a person would criticize computer technology. They argued about how useful a computer was, called Berry a misogynist because his wife typed his writing on their typewriter, and labeled him a hypocrite for using other technologies. But why would anyone care?

They cared—were outraged in fact—because Berry had violated the expectations and norms of society. Berry spoke out against technology, one of the pillars of the totalism. While they did not send Berry to the Gulag for his transgression, they effectively policed his thought.

Yet the debate about Berry’s writing tools is the result of a well-established technological totalism. The age of the personal computer did not mark the dawn of technological totalism but rather an already-established totalism that was first noticed by the French sociologist and philosopher Jacques Ellul in his 1954 magnum opus, The Technological Society. According to Ellul, technology, or what Ellul called “technique,” was not subservient to humans. Instead, humans became subservient to technique. Indeed, Ellul’s distinction between technique and technology is instructive. Technique is the system that prizes efficiency above all else. It is technology, but it is also sociology underlying its use and the cultural movement toward efficiency. Thus, technology is a subset of technique. When Berry’s detractors criticized his rejection of the computer, they were criticizing his failure to uphold the technique.

According to Ellul, “Technique cannot be otherwise than totalitarian […] Totalitarianism extends to whatever touches it, even things which seem, at first sight, very remote from it. When technique has fastened upon a method, everything must be subordinated to it” (125). And, “No technique is possible when men are free […] Technique must reduce man to a technical animal, the king of the slaves of technique. Human caprice crumbles before this necessity; there can be no human autonomy in the face of technical autonomy” (138). Or, in the more straightforward language of Ellul scholar Darrell Fasching, “Modern technology has become a total phenomenon for civilization, the defining force of a new social order in which efficiency is no longer an option but a necessity imposed on all human activity.” [Emphasis added.][1]

Bobby Kennedy

Bobby Kennedy campaigning for civil rights, 1963. (Image: CC0, Source)

In the intervening decades, I would argue that Ellul’s thesis and Berry’s pencil have been proven correct. Technology continues to advance, but (to borrow from Robert F. Kennedy’s famous 1968 speech at the University of Kansas) these advances have done nothing to improve our children’s education or the quality of their play. They have not improved our poetry or marriages, the intelligence of public debate, or the integrity of public officials. They improve neither our wit nor courage, neither our wisdom nor learning, neither our compassion nor devotion to our community. They improve everything in short, except that which makes life worthwhile.

Economy

The totalism of the economy is discussed by Herman Daly, although, to my knowledge, he does not use the term. Nonetheless it is an underlying theme of his, and of many other anti-growth economists. Here, the argument is that the “health” of the economy has become a cult, and we all worship at its altar. As if it was our own child, the health of the economy is measured by its growth, and when our economy’s growth slows or reverses, people become alarmed.

The economy and its wellbeing exert vast control over our public policy, from local decisions about zoning to global decisions about free trade agreements. At the local level, we sacrifice our children’s literal health for the economy’s metaphorical health when we offer tax incentives to polluting industries to expand in our cities and states. At the global level, we sacrifice our employment to technology or globalization because it increases efficiency and thus GDP growth. At the national level, we cut taxes on the wealthy and corporations to stimulate growth, and then borrow money from the same wealthy individuals and corporations to pay for our military-industrial complex.

Our personal lives are just as motivated by economic growth, yet we are unaware of its control. It is pernicious. Thirty years ago, if you were settled down to dinner with your family and your boss called your phone, you would assume that something terrible had happened, such as a fire at the office or the death of a co-worker. Yet ten years later, a generation of workers were given Blackberries in the name of “progress,” and they became tethered to their bosses and coworkers 24 hours a day. This progress was not for the workers, nor was it for the bosses, who became no less chained. It was for the economy. Today, I am listening for the ping of my email every moment I am awake. Undoubtedly, I am more productive for my employer than I could have been three decades ago. But why? At what benefit, and at what cost?

Equally concerning is the fact that no one planned any of this. It is not some conspiracy by a cabal of industrialists in a smoke-filled back room. The distribution of Blackberries was not the result of a secret government agency. It simply happened because we are embedded in a totalist society, all happily playing our part in the industrial economy and believing that some of the expanding mammon will trickle down to us.

As is the case with technology, we police those who blaspheme our economy. For a time, admitting you were a socialist was a greater sin than belonging to the Ku Klux Klan. Today, even those who criticize economic growth from a capitalist perspective are considered to be naïve, misinformed, and an impediment to progress. Totalism does not require that its critics be silenced, but it does require that they be thought of as kooks. Economic totalism, with its hundreds of thousands of neoclassical economists, is quite adept at that.

Nationality

While Jacques Ellul may be the great prophet of technological totalism, and Herman Daly plays the same role for economic totalism, we might consider Stanley Hauerwas to be seer of nationalist totalism in the USA, although he had plenty of forbearers. Hauerwas, a theologian and scholar of Christianity, argues that America has a civil religion which revolves around the flag and war. This civil religion has its sacred holidays (the Fourth of July, Veterans Day, Memorial Day, etc.), a sacred text (the U.S. Constitution), near mythical ancestors and saviors (for example, George Washington and Abraham Lincoln), and even divine miracles (July 4, 1826).

Eugene V. Debbs

Eugene V. Debbs, Socialist U.S. Politician, leaving prison in 1921 after being jailed for nearly two years for criticizing the U.S. government during World War I. (Image: CC0, Source)

In 1918 Eugene V. Debbs observed, “In every age it has been the tyrant, who has wrapped himself in the cloak of patriotism, or religion, or both.” Our civil religion is both, patriotism masquerading as religion, but it is not the tyrant who has deceived us; we have only ourselves to blame. The same civil religion that binds us together is also a way we enforce totalism. Criticism of the flag, the troops, or whatever war we happen to be in today is thought to be un-American and prohibited by the group.

Hauerwas would argue that this civil religion reinforces militarism and war, but that is not my immediate concern. Instead, the primary fruit of our civil religion is understood to be our freedom. We are told that we could not have our freedom without the sacrifices of generations of soldiers. I do not intend to dispute that, especially given the prohibition I just mentioned, but what is this freedom that is so critical to us?

Free speech? Freedom of the press? Of religion? I do not mean to imply that we do not value those freedoms, but I do think that the freedom we hold most dear is the free market. At least once in our history, we have abrogated every freedom in the constitution from at least one segment of our population (e.g., slavery, Jim Crow, the Alien and Sedition Acts of 1798, the Sedition Acts of 1918, Japanese internment, etc.), but we have never violated the free market. Because the free market is taken to be a result of American civil religion, it is sacrosanct. Because the “health” of the economy depends on the free market, the economy becomes sacred, and so our nationalism and economy are intertwined.

American Totalism

Ellul argued that as totalitarian regimes develop, their control becomes less obvious and more sophisticated.[2] For example, early totalitarianism in the Soviet Union was brutal and public (e.g., the Red Terror, the Great Purge, etc.). By the end of Stalin’s life, he had created a complex system of propaganda, fear and domestic espionage that controlled the population without resorting to genocidal purges. Indeed, Stalin’s totalitarianism was so effective that it went unnoticed by many of his citizens.

In the same way, we should not expect to easily discern the totalism of “Technology, Economy, and Nationality,” but nearly every part of our lives is controlled by the totalism. What we get our children for Christmas is controlled by marketing and keeping up with the Joneses (a phrase that tacitly accepts this totalism). The jobs we accept are decided by the paycheck, as are the extended hours we work. The houses we buy, as well as the cars, televisions, cellphones—none of these decisions are dictated by what we need or what will bring us actual joy, but by a need to fit in with the totalist group. We are both the oppressor and the oppressed.

Totalism is not totalitarianism, and being in the thrall of a growth economy is not equivalent to the Red Terror. Yet over the long term, totalitarian systems typically collapse or become less totalitarian to adapt to changing circumstances. I am not sure if the same will be true of American Totalism before it is too late.

[1] Brueggemann, W. 2018. Tenacious Solidarity: Biblical Provocations on Race, Religion, Climate, and the Economy. Fortress Press, Minneapolis, Minnesota.

[2] Fasching, D. 1981. The Thought of Jacques Ellul: A Systematic Exposition. Edwin Mellen Press, Lewiston, New York.

Brian F. Snyder is an assistant professor of environmental science at Louisiana State University and CASSE’s LSU Chapter director.

The post American Totalism: Technology, Economy, and Nationality appeared first on Center for the Advancement of the Steady State Economy.


The Impact of Evolutionary Pressures on Economic Narratives

Published by Anonymous (not verified) on Thu, 10/12/2020 - 7:15am in

By Carey W. King

People use narratives to support their position, and narratives can serve three purposes. First, they tell a story of belonging. If you meet a stranger and realize you are from a common area, you more easily engage in conversation than otherwise. Second, they describe norms that guide our actions. Most people in society follow certain norms such that by doing so, they are accepted as part of the group. Third—and most relevant to advancing the steady state economy—we use narratives to describe and learn about how the world works.

Unfortunately, most narratives don’t serve all three purposes effectively. A narrative around an economic theory can help facilitate conversation by creating a common vocabulary (the first purpose of narratives), but that narrative might inhibit accurate explanation of the natural world around us. Some problems with economic policy derive directly from the fact that our economic narratives, perhaps useful for belonging and norms, are not useful in their ability to describe how the world works.

I decided to write a book about such narratives to explore some of the outcomes that affect our prospects for environmental and economic sustainability. In The Economic Superorganism, I’ve explained how and why people disagree about the role of energy in the economy. I realized that these disagreements weren’t entirely about the characteristics of energy technologies and resources. Far from it. The disagreements are more about why we consume energy in the first place, and how much energy consumption does or does not relate to economic prosperity and social livelihoods.

Energy and Economic Narratives

In Superorganism I break down narratives along the two axes of energy and economics. Because people disagree about the costs, capabilities, and benefits of different energy technologies and resources, proponents of different visions use narratives to convince stakeholders of the validity of their positions. At opposite ends of the energy axis are the fossil fuel and renewable energy narratives.

Economic narratives

The fossil fuel narrative is getting old—and dangerous. (Image: pink dating app, Credit: Richard Hurd)

The fossil energy narrative starts with the fact that fossil fuels enabled us to achieve what we have today because the physical fundamentals of fossil fuels—most notably high energy-density and portability—ensure high utility and low cost. A proponent could say, “Fossil fuels, and the technologies we have developed to burn them, enable us to shape and control the environment.”

The renewable energy narrative is that we can use renewable energy technologies and resources to sufficiently and cost-effectively substitute for the services currently provided by fossil fuels. A proponent might say: “Thank you, fossil fuels, but we’ve modernized. We don’t need or want you anymore. Fossil fuel production and consumption create environmental harm both locally in the short term and globally over the long term to such a degree that their continued unmitigated use ensures environmental ruin that leads as well to economic ruin.”

We cannot fully understand a proponent (or detractor) of the fossil or renewable energy narratives without also contemplating their position within the economic narratives. At one end of the spectrum is technological optimism and perpetual GDP growth, and at the other end is technological realism and the need for a steady state economy or even degrowth toward a steady state economy.

The techno-optimistic narrative is a story of unbounded substitutability for anything before we run out of it in the faith we can invent our way to a solution for any and all economic, social, and environmental problems. Both the fossil and renewable narratives are usually paired with some degree of techno-optimism, and this year the combined narrative of renewables and techno-optimism was challenged in the film Planet of the Humans.

The techno-realistic economic narrative is the story of biological and physical constraints. Its narrators agree we are inventive, but that we can neither break the laws of nature nor access an infinite supply of natural resources for perpetual physical growth. This narrative underpins the CASSE position on economic growth, the signatories of which comprise a narrative community (or a significant portion thereof).

Which economic narratives, and subsequent mathematical models, should we be following, and are there some unspoken reasons why we might expect one to become more prominent than the other?

Can a System Understand Itself?

Economic narratives

The renewable energy narrative—too often coupled with the techno-optimistic narrative. (Image: CC BY-SA 3.0, AleSpa)

To think about this question, consider that in 1977 ecologist Howard T. Odum argued that a system cannot fully understand itself (or its purpose), but by making models of itself the system can achieve some understanding.[1] One extension of this idea is that we humans, in being a part of this system we call “the economy,” cannot fully understand the function or purpose of the economy, but we can try by making our economic models as accurate as possible. Biophysical economic models with realistic dynamics, finite resource constraints, and a direct representation of natural resource flows among parts of the economy (including the original model used within the original Limits to Growth book from 1972) have proven more capable of representing long-term trends of the economy, such as population and energy consumption, than have the conventional economic growth models that rely on equilibrium principles and either exogenous or endogenous “technological change” without directly accounting for flows of biological and physical resources.[2] Given the obvious fact that economic activities involve machines and information processing that in turn require energy consumption to function, and thus that every economic activity is supported by natural resource consumption, why would the predominant economic models fail to account for biophysical resource flows?

A follow-up question is: “Would an economy that uses a more accurate economic model of itself generally be more fit, in an evolutionary sense, and prevail over an economy with a less accurate economic model of itself?”

I propose that a biophysical model of the economy is a more accurate construct than the conventional or “neoclassical” models, and we should be working on models that integrate biophysical flows with flows of money, including debt. For example, my “HARMONEY” model helps us understand how the 1970s OPEC oil crisis (and the constraint in energy consumption) could concur with rising GDP, but also with rising income inequality and debt levels, evidence for what Herman Daly calls “uneconomic growth.”[3]

However, I recognize the continued dominance of the neoclassical growth paradigm, even as it’s increasingly challenged due to its failure to anticipate the 2008 Global Financial Crisis, much less the outcomes of the OPEC oil crises. Hence my question as to why a given economic paradigm may be more evolutionarily “fit” than another.

In ecology, the maximum power principle is that, in the sense of natural selection, more “fit” organisms are those that acquire higher rates of energy consumption from their environment. (For non-ecologists, “fitness” redounds to the ability to survive and reproduce.) Now assume that more reproductive economies better propagate their technologies and organizational characteristics just like more fit biological organisms better propagate their genes. Pursuant to the maximum power principle, then, the economy that accesses more energy, and transforms it more efficiently into new structures, is more fit to survive and propagate its narratives.

Maximum Power Principle

Maximum power principle translated into economic production terms. (Credits: Brian Czech)

Do We Want the Truth?

But how do biological organisms or economies know which options enable higher power consumption? Do they know that energy input makes them more fit? Can they actually, consciously “seek” the inputs that increase their reproductive rates? We don’t get any sense that they attempt to model themselves via scientific and economic calculations. Donald Hoffman, a professor of cognitive science, has studied the evolutionary impact of an agent (organism or society) having “truthful” and often complex—versus simple and less accurate—representations of what is really happening in the world around it.

Consider the following excerpt from Hoffman’s 2010 article:

Seeing more data takes more time. So, in the simplest version of this game, simple chooses first when competing against truth. […] Similarly, seeing more data takes more energy, so truth requires more energy than simple. We subtract the cost of energy from the utility that each agent gets. (Emphases added.)[4]

Here, lower utility is the same as lower evolutionary fitness. In addition to the necessity of consuming energy in order to extract energy from the environment, an agent (for example, an economy) must also invest some amount of time to learn more about the environment. Hoffman also emphasizes that it takes energy just to gain more knowledge. His argument is that simpler rules take less time and energy to make a decision.

Thus, in the context of evolution, organisms with simple decision-making rules based on relatively inaccurate descriptions of the environment can be more fit than organisms with more complicated rules based on more accurate descriptions of the environment.

What might simple decision-making rules look like for an economy? Prices, the study of which is the summum bonum of neoclassical economics.

Not only do neoclassical economics and neoliberal politics focus on the derivation of prices in the market, but in reality, prices that plague the market lack full and accurate information about the costs (especially the environmental and social costs) of production. Prices can even be determined by reckless whims of buyers and sellers. Even in well-structured markets, where short-term whims play little role, prices often reflect only a portion of the full costs.

Nevertheless, by focusing simplistically on markets and prices, neoclassical economics provides a relatively simple and teachable method to make economic choices in an expedient manner. All else equal, then, neoclassical economics could have an advantage in fitness over steady-state economics.

Thinking About What We Are Doing

The possibility of greater fitness for neoclassical economics (including perpetual growth theory) is a bitter pill to swallow for steady staters. I for one have a hard time thinking that neoclassical economics might have some enhanced usefulness over more biophysically based approaches to economic modeling. But, at this time, neoclassical economics is winning the evolutionary game of self-replication. That won’t necessarily always be the case, though.

Evolution just occurs; it is not forward-looking and thus involves no long-term planning or design. Similarly, markets focus on short-term profits and consumer utility rather than long-term societal goals. Friedrich Hayek, who perhaps more than anyone promoted markets to establish prices for guiding our choices, believed that we shouldn’t think about what we are doing: “The problem is precisely how to…dispense with the need of conscious control and how to provide inducements [prices] which will make the individuals do the desirable things without anyone having to tell them what to do.”[5]

Of course, Hayek’s “desirable things” aren’t necessarily the same as mine, yours, or anyone else’s.

My point is not that we have no choice but to react in knee-jerk fashion to prices, buy into the rhetoric of perpetual growth, or generally accept ways of economic thinking that overlook biophysical principles. Rather, my point is that those of us who try to explain limits to growth and advance steady-state policies have the additional challenge of using more complicated, comprehensive models and concepts. That—and not the merits of our analysis—helps explain why we don’t always prevail. Yet the more we try, the better our chances of reaching the threshold of success.

[1] Odum, H. 1997. The ecosystem, energy, and human values. Zygon 12(2):109–133. 

[2] Meadows, D.H., D.L. Meadows, J. Randers, W.W.I. Behrens. 1972. Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of Mankind. Universe Books, New York; Jackson, T., R. Webster. “Limits revisited: a review of the limits to growth debate.” Limits to Growth. 2016. http://limits2growth.org.uk/revisited/.

[3] King, C.W. 2020. An integrated biophysical and economic modeling framework for long-term sustainability analysis: the harmoney model. Ecological Economics 169:06,464; King, C. ” How Wages are linked to Energy Consumption: Data and Theory.” Carey King Blog. January 2, 2020. http://careyking.com/how-wages-are-linked-to-energy-consumption-data-and-theory/; Daly, H. 1999. : Uneconomic growth in theory and fact. Festa Review 1.

[4] Mark, J.T., B.B. Marion, D.D. Hoffman. 2010. Natural selection and veridical perceptions. Journal of Theoretical Biology 266(4):504–515.

[5] Hayek, F. 1945. The use of knowledge in society. The American Economic Review 35(4):519–530.

Carey King is a Research Scientist and Assistant Director of the Energy Institute at the University of Texas at Austin.

 

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NYT Wants to Talk About Higher Wages, but Doesn’t Want to Talk About the Real Reasons Wages are Low

Published by Anonymous (not verified) on Mon, 30/11/2020 - 1:51am in

It’s good to see the New York Times making the case for higher wages in an editorial. Unfortunately, they get much of the story confused.

First off, the essence of the case is that higher wages will lead to more consumption, which will spur growth. This is true, but higher pay is not the only way to generate more demand. We also get more demand with larger budget deficits, lower interest rates, and a smaller trade deficit.

But that is the less important problem with the piece. The bigger problem is the assertion that the failure of pay to keep pace with productivity growth over the last four decades is due to higher profits.

“Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning divergence between productivity growth and wage growth since roughly 1970. Productivity has more than doubled; wages have lagged far behind.”

In fact, a rising profit share only explains about 10 percent of the gap between productivity growth and the median wage since 1979. The overwhelming majority of the gap is explained by rising high-end wages — the money earned by CEOs and other top execs, high pay in the financial sector, the earnings of some workers in STEM areas, and high-end professionals, like doctors and dentists.

For some reason, the NYT never wants to talk about the laws and structures that allow for the explosion of pay at the top. This would include factors like our corrupt corporate governance structure, that essentially lets CEOs determine their own pay, a bloated financial sector that uses its political power to steer ever more money in its direction, longer and stronger patent and copyright monopolies, and protectionist barriers that largely shield our most highly paid professionals from both foreign and domestic competition. (Yes, this is all covered in Rigged [it’s free].)

Readers can speculate on why these topics are almost entirely forbidden at the NYT, but if we want to be serious about addressing low wages, we have to look where the money is, and most of it is not with corporate profits. And, just to remind people why this matters, the minimum wage would be $24 an hour today if it had kept pace with productivity growth since 1968.

The post NYT Wants to Talk About Higher Wages, but Doesn’t Want to Talk About the Real Reasons Wages are Low appeared first on Center for Economic and Policy Research.


COVID-19 in the UK: A Choice Between Life and Lucre?

Published by Anonymous (not verified) on Thu, 26/11/2020 - 8:45am in

By James MacGregor Palmer

1.8 million pounds.

That’s how much the UK government thinks our lives are worth.

Placing an economic value on a human being is nothing new. It’s standard practice in a growth-obsessed society that ascribes economic value to whatever it can. 

Boris Johnson

A servant of GDP growth. (Image: CC BY-NC-ND 2.0, Credit: Number 10)

The Economy Over All

Last week the UK’s COVID-19 death toll broke the 50,000 mark. With our own wild-haired leader of the post-truth era at the helm, Britain (or England more specifically—the devolved Scottish, Welsh, and Northern Irish administrations have taken a far more cautious approach) has followed in America’s footsteps, resisting lockdowns for as long as possible. We are nearing the end of a second national lockdown, albeit one with far fewer restrictions than the first. This could have been avoided had Prime Minister Boris Johnson followed his scientific advisers’ recommendations for a two-week “circuit breaker” a few weeks ago. Instead, he ignored the science, sacrificing common sense, expert knowledge, and human life at the altar of GDP. Ironically, the result is likely to cause far more of an economic impact than a short “circuit breaker” ever would have. Now, despite cases leveling off, the lockdown is set to end on December 2nd, with shops, pubs, and restaurants reopening.

All this begs the question: Why is economic growth more important than human life? Or, in the words of De Graaf and Batker, “What’s the economy for, anyway?”

The UK government might reasonably reply that it is not just lives but livelihoods they are charged with protecting. This is true, of course, and the pandemic has hit most of us in the pocket. Small businesses have folded. People have lost their jobs. The self-employed struggle to find work. Career-seekers have seen opportunities dry up. The thing is, all of this has happened even with the government’s insistence on protecting the economy at all costs.

The government has consistently acted upon the key logical flaw that the steady state economy aims to redress: valuing the entity of “the economy” over its real-world human impact.

“The economy” is not a number. It is not a growth rate reported on the nightly news. No, “the economy” is about us. It is about our livelihoods. Our wellbeing. Our standard of living. It’s about you.

If “the economy” isn’t a number, then you aren’t either.

You Are Not a Number

1.8 million pounds.

The UK government has built their pandemic response around that figure. Back in March, if a lockdown had been enforced just two weeks earlier, an estimated 20,000 lives would have been saved. If we treat each of those people purely as a number—that £1.8 million—then their combined worth is £36 billion. That’s a lot of value to take out of the economy. But it pales in comparison to the value lost by two more weeks of lockdown.

COVID London

CDC guidelines ignored on the crowded London streets. (Image: CC0, Credit: Lteixeira)

It should be obvious that human life has value that is not economic. But the ideology of the economy-over-all is so deeply entrenched, so advanced in the hegemonic war of position, that the government’s insistence on preserving the economy does not seem perverse until we recall that stark reality—that £1.8 million.

The net result is likely a less severe drop in economic activity than would have occurred with an earlier lockdown. The government’s “Eat Out to Help Out” scheme, which subsidized 100 million meals in August, helped the economy grow. It’s also been linked to more coronavirus deaths.

This is a government that has its economic priorities all wrong. When the first lockdown began to ease, the reopening of the non-essential retail and hospitality sectors was sold as a gift to the British people. It illustrated starkly the disconnect between what the government thought was important to its citizens and what was actually important to us. They wanted us to consume; we wanted to hug our families. The things we missed were not economic but uneconomic—the ability to socialize with our friends, visit people, and enjoy the beauty of the outdoors. To the government, the value of reopening pubs was in the money exchanged for drinks; to us, it was in having the space to be social.

The government has fallen hook, line, and sinker for the consumerist ideology that tells us “the economy” is a sacred cow that must be protected for its own sake. Not that the economy is unimportant, but it’s only important in how it affects people. What good is it when it’s killing them?

The government protected GDP, yet furlough was capped at 80 percent. They protected GDP, yet the self-employed were left out to dry. They protected GDP, yet Universal Credit was raised by just £20 a week.

What is the economy for, if not to help us when we need it most?

An Economy That Serves Us

The COVID-19 pandemic has made economic shrinkage inevitable across the world. The UK government had an opportunity to manage this shrinkage in a planned way by redistributing wealth and moving toward a more sustainable future. Indeed, this global tragedy could have been the metaphorical Big Bang that resulted in the dawn of the steady state economy. But the desire for GDP growth was too strong, it turns out.

Keir

The Labour Party needs to rethink a “green recovery.” (Image: CC BY-SA 4.0, Credit: Rwendland)

In the UK, even the rhetoric of the opposition Labour Party falls woefully short. They are championing a “green recovery”: A restoration of the economy to its former state while supposedly ensuring the growth is environmentally benign.

This is a fantasy. There is no such thing as “green growth,” especially in the huge economies of the global West and North. We are past the point where our economy can grow without damaging the environment.

Aside from this, the linguistics are off. “Recovery” implies that the economy has been damaged and must be repaired. This language is loaded with neoliberal ideology. What we need is not a “recovery” but a “reimagining.” A “recovery” is a return to the status quo, no matter what color you paint it. It would enshrine the idea that the correct response to economic crises is to minimize the hit, then build back stronger.

Instead, we must learn the lessons from this pandemic. The reason the virus has hit us in the pocket is not that the economy shrank, but that the economy is structured in such a way that it does not work for people. The logical response, then, is not to rebuild but to restructure the economy.

James MacGregor Palmer graduated from Newcastle University with a BA in Music with Politics in 2019 and is pursuing a master’s degree in International Journalism at the University of Stirling.

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Orange Cone Headaches: Construction in an Overpopulated, Pro-Growth World

Published by Anonymous (not verified) on Fri, 20/11/2020 - 7:28am in

By Karen I. Shragg

Spotting a “Road Work Ahead” sign is enough to make any driver groan or nervously clutch her steering wheel. These warnings are meant to ensure people’s safety, yet they often also come with a myriad of traffic problems: congestion, noise, car wrecks, etc. In cities especially, orange cones are littered everywhere, causing copious delays and all for the sake of further “improvement” projects.

road work ahead (overpopulation)

Warning: these signs are inescapable in cities all across the USA. (Image: CC BY-SA 3.0, Credit: josefstuefer)

While infrastructure repair is an ongoing necessity, these endless construction headaches are symptomatic of something deeper: A fruitless scramble to accommodate our growing numbers. More people means more cement. More cement means more traffic, more pollution, and higher demands on our resources. We build out and up with total disregard for the impact on our quality of life, the survival of wildlife, and the sustainability of our water resources.

Cities throughout the USA are strangled with construction because city managers are encouraged by their councils to welcome developers into their neighborhoods. They still believe in the antiquated narrative that growth equals progress, but the truth is the complete opposite. More and more people fuel the now common vistas of sky cranes and bulldozers that are an integral part of city growth in the USA.

The Worn-Out Lies of “Open-Road” Projects

Taxpayers are consistently promised an ever-elusive “open-road” freedom when construction projects are completed. City councilmen and women trust their transportation engineers with all of their fancy graphs and charts that traffic bottlenecks will be resolved. They’re never able to fulfill their promises, and the weight of responsibility doesn’t fall on the engineers, either. Population growth hurts even the best transportation projects. This leaves us with traffic headaches, huge price tags, and no congestion relief in sight. It costs approximately 4 million dollars per mile to go from four to six lanes of highway. Taxpayers pay the bill, and the only results are poor air quality and more room for traffic jams.

Traffic jam

Some traffic jam to go with your morning news. (Image: CC BY 4.0, Credit: Abbas Shariati)

Road closures have become so prevalent that Departments of Transportation across the country have websites permanently dedicated to detours due to road construction. Local news stations also report on traffic—not just once, but multiple times daily. We accept that traffic is unavoidable, so we make do by planning trips ahead and traveling before peak times.

It’s common sense: Road construction takes time. City populations are growing rapidly. By the time one construction project is completed, more cars are squeezed onto the road and city councils are calling for another project. Yet instead of questioning this endless cycle, city councils continue to accommodate growth by introducing or updating urban development and traffic control plans every few years.

Construction woes are particularly frustrating in the Southwest where population is growing the fastest. In the Midwest, though, it’s much the same story. In my own hometown, the Twin Cities of Minnesota, the construction of Minnesota Highway 62 took four years of orange cone headaches to complete. Yet traffic was still horrible by the end of the project, and now it’s far worse!

Well, no wonder. Highway 62 was completed in 2010, and the metro population of the Twin Cities grew by 9.3 percent between 2010 and 2018. What happens in a city with limited mass-transit choices? Thousands of residents are forced to drive, of course, erasing the “open-road” promises of highway improvements.

Cost overruns and delays due to weather events are also incredibly common in road construction projects, and yet they are readily accepted as business as usual. This whole merry-go-round of building roads to accommodate growth remains virtually unchallenged by citizens and politicians who accept these failures as a part of “progress.”

Growth is the Wrong Medicine for Progress

Progress is supposed to make things better. High rise-developers make promises that their projects will be key to a better future for all. In turn, city councilors offer TIF (tax increment financing), which allows governments to invest in public infrastructure and pay at a later date—as much as 25 years away! There is no full-cost accounting of such developments. The projects are meant to line the pockets of city councilors who perpetuate the myth that they are helping their city’s vitality. What these councilors don’t account for is a dense population, which creates more traffic and crime and less of a sense of community among residents.

Furthermore, the construction of high-rise apartments threatens our environment and resources. Densely populated areas light up the night sky with light pollution, destroying the chance to see stars. Hundreds of residents in high-rise buildings put a concentrated demand on water for showers, cooking, and laundry.

All of these developments require fossil fuels and raw materials. The earth is a limited place, and developers treat these materials as if they can be extracted for forever. For instance, sand would appear to be an unlimited resource. However, due to our ever-growing population’s need for glass and concrete, sand is being extracted at a faster rate than it is renewed. The problem also lies in the type of sand being used: Marine sand is too full of salt, and desert sand is packed with crystals, making it poor for creating concrete. Therefore, all sand used in the making of glass and concrete must be mined.

Sand mining

Most people don’t consider the resources needed for construction, such as sand. (Image: CC0, Credit: RitaE)

To break the cycle of growth, we must first accept the limits of the earth’s resources and that development pollutes our life-giving biosphere. This is particularly true in the developed world, which is hooked on growth, much like an addict is hooked on drugs. The benefits of growth, like illicit drugs, are temporary and always end up creating more damage in the long run.

For example, the world has added over 5.5 billion people in the last century and continues to add over 80 million per year. The US population just hit 330 million in 2020 and is still growing by over one million per year. So, why aren’t more people concerned by these numbers? For one, more growth means more profit. Politicians and business leaders equate a growing economy to the “progress of mankind,” when in reality, the only thing it advances is their positions of power.

Another problem is that the conflict between economic growth and environmental protection is ignored by the media, and even by most environmental groups. If the conversation doesn’t start there, it’s not going to get far.

Catastrophic mortality rates can ultimately be depended upon to take care of the overpopulation problem, but in ways no one wants to experience. It is lazy and evil to allow nature to take such a course for us. It’s not inevitable, either.

Warning: Paradigm Shift Ahead

Accommodating GDP growth in our hyper-capitalist, overpopulated world is like putting out a welcome mat for cancer, or thinking we can get around it with chemotherapy and radiation. Breaking free from the grip of growth is much easier said than done, but it all begins with changing our worldview. We’ve been led to believe that growth is our salvation, when clearly it is just the opposite.

Thankfully there are activists and NGO’s dedicated to clarifying this. Aligned with CASSE principles, for example, is the Overpopulation Project, which in turn lists 37 national and international groups that are dedicated to working on the critical issue of population growth. These organizations have given plenty of thought about what to prioritize. Should the focus be on total fertility rate? Do we need to tighten our immigration policies? Is it wiser to start by amending the Employment Act? Taken together, one thing is clear: These organizations amount to advancing the steady state economy as the sustainable alternative to growth.

I propose that each of these organizations and efforts have their merits; we should appreciate them all. Meanwhile, we need to start seeing the orange-coned construction zones for what they really are. They represent not only short-term headaches but long-term migraines. The only cure is a detour from the highway of growth.

Let the warning signs read: Paradigm Shift Ahead!

 

Dr. Karen I. Shragg is a retired nature center director, author, and overpopulation activist. She runs her own environmental consulting LLC in Bloomington Minnesota.

The post Orange Cone Headaches: Construction in an Overpopulated, Pro-Growth World appeared first on Center for the Advancement of the Steady State Economy.


A Steady-State Analysis of the 2020 Presidential Election

Published by Anonymous (not verified) on Fri, 13/11/2020 - 3:30am in

By Brian Czech

We now have a 46th President-Elect, with Joe Biden promising to restore the soul of America. What does it mean for advancing the steady state economy as the sustainable alternative to growth? And what did we learn in the process?

Donald Duck Trump

Donald “The Duck” Trump. (Image of Donald Trump: CC0, Credit: White House)

I for one ended up with egg on my face, if not a whole omelet, by calling Trump a lame duck way back in early August. Although such labeling was largely for purposes of engendering a meme (“Donald ‘The Duck’ Trump”), I’d also hypothesized that a fairly resounding majority had had enough of Trump World. Enough of a majority, perhaps, to dampen Trump’s tirades with a tinge of temperance. Turns out I was as wrong as the pollsters. Trump kept right on strutting and preening for another three months; not a lame duck at all but a spring gobbler on steroids, surrounded by loyal broods of hens and jakes.

Omelet fully on face, I also had to eat some crow from November 3–5 or so. I’m just relieved to have picked the winner—happy as a lark actually—even if Biden won by the down of a chickadee’s breast. Why there was so much drama, I ran out of bird metaphors. (Never mind the albatross of Trump’s legal challenges).

Like so many others, I’m not convinced the closeness of the election reflects well upon the American body politic. How could such an arrogant, greedy, conniving ignoramus manage to impress, loyalize, and even endear 72 million of us? Most surprising to me is that the 72 million were largely scattered around the countryside—in places like where I came from. Heck, I thought the rural folks were still common-sense, modest, honest, hardworking countrymen and women that preferred an Honest Joe over a Dishonest Donald every time.

Hey, here’s a thought: Maybe the 72 million were actually voting for Mike Pence!?

While I tend to jest, there’s no thumping of chest. The election was close enough that no overwhelming mandate can be claimed. Besides, Biden is no steady-state miracle worker in his own right. Let’s take a look at what we’ve won and what we’ve lost, not from the perspective of Politico or The Hill or the National Review, but through the lens of advancing the steady state economy.

What We Lost

What we lost—“we” meaning steady staters—was a wealth of bad-growth education. Trump was the single best example—possibly in history—of the obsession with GDP. He was the dark underbelly of economic growth, the epitome of economic asininity, the posterchild of pro-growth philistinism. The examples he set with trashing the planet, scrapping international agreements, denigrating “shithole countries,” etc., illuminated the chambers of a mind that was hellbent on growth. Greedy growth. Soul-less growth. Growth at all costs. But soon he’ll be out of the limelight. While he may remain on a mural here and there, serving as some sort of cult figure, he’ll be increasingly discredited and his policy relevance will be nil.

So, while Biden’s victory is a step toward healing the country’s psyche, our learning and teaching opportunities will ironically suffer. The steady stater losing Trump is like the criminologist losing Ted Bundy. One of the most-studied serial murderers in history, Bundy was executed in 1989. Suddenly there was nothing left to study! Similarly, Trump won’t be “bad-growthing” any longer, at least not after Inauguration Day, and we won’t be able to teach, “That’s what we get with a GDP growth obsession.”

Yet we had quite an educational ride with Trump, no? As he announced upon taking office, GDP growth was his single greatest policy concern. Now it’s true that he knew little about public policy, so what else could he announce? Aside from GDP growth there was wall building, getting rid of Obamacare, and regulatory rollbacks (designed primarily for GDP growth).

Why didn’t Trump know anything about other policies? Largely because of his obsession with growth, which went back to his pre-president days, and possibly even his pre-pubescent days. It kept him so busy, he found no time for learning about higher pursuits. First there was the growth of his own income and assets, and later of the entire GDP.

GDP growth was like Trump’s personal ego trip as the “CEO” of USA, Inc., a subsidiary of the Trump Organization. Trump loved to boast about setting records for this or that: GDP growth, the stock market, military buildup, audience size, conservative judges appointed, Twitter followers, etc. But in Trump’s mind and rhetoric, the greatest of these was GDP.

While Trump was an extreme example, I suspect that many of those preoccupied with GDP growth have a need to feel bigger and more powerful than peoples and nations without the capacity or concern for huge GDP figures. I propose, then, that the preoccupation with GDP growth says something about the soul of America. It’s a soul that’s been tarnished with greed and a false sense of accomplishment, accompanied by an intellectual laziness where “success” boils down to the simple measurement of materialistic activity. Without Trump providing such a telling example, we steady staters will have a harder time shining a light on this blotch in the soul. Let’s hope Biden and Harris have already spotted it.

Will Democrats Ever Catch On?

Aside from our growing band of steady staters, a much larger group of Americans will be losing a once-in-a-lifetime opportunity. These would be Democrats. If they’d thought a little harder outside the box, they could have seen the stupidity of “GDP Trumpism,” the phrase we use to describe a growth-at-all-costs mentality coupled with Trump-like levels of dishonesty. If Democrats had caught on quickly enough, they could have re-set the political landscape and tilted the board toward a bluer shade of purple.

Correct quadrangle

GDP Trumpism: Shortsighted and greedy, dishonestly so. (Credit: CASSE.)

To refute Trump specifically on grounds of his GDP obsession would have provided a systemic and long-lasting advantage to the Democratic Party. That’s because, ever since the contrast between Jimmy Carter and Ronald Reagan, Republicans have jockeyed visibly harder than Democrats to prove their ability to grow the economy. For anyone old enough, it’s hard to forget Jack Kemp and his unhitched rant, “We should double the rate of growth, and we should double the size of the American economy!”

For their part, Democrats have argued from a severely disadvantaged position. Instead of taking the high road—morally and intellectually—and stating “that’s enough” of the GDP growth phase in American history, they’ve sacrificed themselves on the altar of political expediency. Instead of truthful steady statesmanship, they’ve been running with the devil and the win-win rhetoric, “There is no conflict between growing the economy and protecting the environment.” Many Democrats have even tried to compete with Republicans for the title of GDP growth champion, doubling down on the wrong message for environmental sustainability and economic wellbeing.

The Democratic Party missed a golden opportunity to break out of their win-win rhetorical rut with Trump in the White House. It may never again be so easy to counter the stupidity and repulsiveness of the GDP growth obsession. The analogy is stark, but Democrats failing to provide steady-state leadership during Trump’s stay in the White House is like the failure to ban assault rifles in the wake of the Las Vegas shooting spree. The biggest difference is that the number of lives endangered by GDP Trumpism is orders of magnitude more than the 60 killed and 411 wounded by Stephen Paddock and his arsenal.

Just as the gun control movement struggles onward—striving for assistance from a Democratic establishment of limited power and milquetoast tendencies—steady staters will struggle onward as well. The biggest difference is that, at least among the rank and file party members (as opposed to party hacks funded by Wall Street), limits to growth will become increasingly evident on both sides of the aisle. In fact, the steady state economy will find a special resonance with many conservatives out in “the grange” who’d like to see their farming, hunting, and fishing maintained instead of undermined by developers, higher taxes, and no-trespassing signs.

Yet, as long as the Republican Party remains the party of growth at all costs, the Democratic Party has the opportunity to forge a victorious electoral path in the climate-changed, limits-to-growth landscape of the 21st century. 

What We Gained

What did we gain, in steady-state terms, with the election of Joe Biden? First, of course, is the end of GDP Trumpism. But that’s only a “gain-by-loss” accomplishment. To solve the problems caused by economic growth, problems that built up before and during the Trump Administration, we need a more proactive approach then merely removing Trump.

The gold standard would be a president-elect who is loud and clear about limits to growth and the need for a steady state economy. This is one of the top reasons CASSE maintains a signable position on economic growth: to give politicians (and everyone else) the opportunity to demonstrate their understanding of steady-state economics, and to better inform voters about who’s who in steady statesmanship.

Joe Biden

While he’s no steady stater, Joe Biden will put an end to “GDP Trumpism.” (Image: CC BY-SA 2.0, Credit: Gage Skidmore)

We do not have a steady stater in Joe Biden. In fact, we have a decidedly pro-growth politician. Yet he is better than most, if only by virtue of maintaining strong interests and concerns with other policy goals that conflict with growth. The best example is Biden’s position on climate change. He seems serious and sincere about the goal of net zero greenhouse gas emissions by 2050.

Steady staters understand that the odds of maintaining GDP growth while phasing out fossil fuel combustion are about the same as having your cake and eating it too. Ultimately the key question arises: What do you want more, your cake or eating it? Likewise, Biden will encounter the question of what he wants more: a stable climate or GDP growth?

At least Biden respects science and will listen to scientists about the dire consequences of global warming. Being less obsessed with GDP—far less than Trump—he will at least attempt to balance his priorities. Balancing priorities is a far cry from growth at all costs, so the rate of GDP growth will at least decline. Alas, that won’t be enough to stave off environmental and economic crisis, but it will buy us some time to develop real steady statesmanship, which can stave off such crises (or at least certain levels thereof).

Biden’s position on COVID-19 follows much the same script, and with even greater urgency. Because of the immediacy of a pandemic, we’ll see his position play out in real time. Trump was so obsessed with GDP growth, he opposed common-sense protections (such as temporary shut-downs of eating and drinking establishments) because they slowed the rate of commerce. Biden cares more about public health; he will support or enforce certain shutdowns as guided by the scientists on his already-appointed coronavirus task force. Again, though, as a pro-growth politician he will couple these shutdowns with the point that shutting down for the sake of public health allows for faster and higher GDP growth upon recovery. He’ll be right about that, but it will be another unsustainable, pyrrhic GDP “victory,” and a failure to practice steady statesmanship.

What’s Next for Steady Staters?

Advancing the steady state economy is destined to be an ongoing struggle, perhaps for the remainder of the human run on Earth. Limits to growth in the 21st century—ultimate, global limits never encountered before—will make the steady state economy one of the most important goals. Yet, as soon as a certain degree of stability might be achieved, you can bet the obsession with growth will come out of the woodwork to haunt us. The effort to maintain a steady state economy, then, will be similar to the effort required to maintain democracy. It’s going to take alert citizens to see through the corrupt efforts of greedy CEOs and politicians obsessed with power, personal assets, and GDP growth.

Using the terms of drama, the stage has been set for advancing the steady state economy. The exposition has already been performed with Dalyist scholarship and CASSE-like activism. The bulk of the show will play out in the coming decades. Public education on limits to growth, re-branding of the environmental movement, conscientious consumerism, steady-state legislation, and even religious re-focusing; these will be some of the major acts in the drama for a sustainable USA and world. GDP Trumpism amounted to the “inciting incident,” with crises brewing in the environment, the economy, and international diplomacy. Heroes are badly needed for a denouement of wellbeing, which absolutely entails the steady state economy.

Kamala Harris and Joe Biden

Given her unique upbringing, Kamala Harris might have a steady-state mindset. (Image: CC BY-SA 3.0, Credit: Gage Skidmore)

Joe Biden may not amount to a steady-state hero, but a Biden Administration can open doors for such heroes to appear. The emphasis on sound science, with climate change and coronavirus as precedents, should allow for serious questioning of GDP growth as a policy goal. Who might these heroes turn out to be? Might they include a Secretary of the Interior who recognizes the fundamental conflict between economic growth and environmental protection? A Secretary of Energy who gets it about limits to renewables and the perils of nuclear and fossil options? A Secretary of Defense who assesses the spreading landscape of resource wars as an inevitable outcome of pursuing GDP growth?

One thing is for sure; our list of heroes cannot be confined to the halls of academia, the airwaves of talk shows, or the electrons of social media. The list has to include men and women of action and policy, bringing their knowledge of limits to growth into steady statecraft.

Which brings us almost full circle (with the option of resurrecting the ornithological metaphors). While we’d have to be crazy as a loon to think that 72 million Americans voted for Mike Pence, by no means was Kamala Harris an insignificant element of the Biden ticket. Presumably millions—possibly many tens of millions—of Americans voted as much for Harris as for Biden. Birds of a feather flock together, and many Americans may have voted partly for a woman, a black woman, a woman of South Asian descent, or simply a non-Caucasian regardless of gender. Yet in most cases I think they voted primarily for a smart, courageous person to help guide the country, not only as a back-up plan for an elderly Biden but as a potential presidential candidate for the coming cycles.

Steady staters should take a special interest in Harris. Her parents separated when she was five years old, and afterward she lived primarily with her mother. Her Jamaican-born father, though, was a Ph.D. economist with a specialty in economic growth theory. While his education was neoclassical, he was a critic of conventional growth theory. Despite the separation of her parents, the Vice President-Elect may have taken some interest in what her father did for a living. For all we know, she might be well aware that neoclassical growth theory—which tends to support notions of perpetual growth—has been discredited for various reasons.

Harris’ Indian-born mother was a Ph.D. biomedical scientist, and one doesn’t garner such a title without a broad-based education in the biological sciences. It’s not a stretch to think the Vice President-Elect absorbed some basic scientific principles during her upbringing. She also spent significant amounts of time in India where limits to growth are readily observed by anyone looking for them—or by those with formative thoughts about growth and the sciences.

Yes, Joe Biden’s been a pro-growth politician, but let’s give the Biden Administration a chance. Let’s see what Kamala Harris brings to the table of macroeconomic discussion. Let’s see who ends up comprising the Cabinet, especially in those key roles at the Interior, Energy, and Commerce departments. Let’s see, too, what kind of big-picture, long-term central intelligence is brought to bear.

And let’s do more than see. Let’s weigh in on these pending appointments while it’s still relatively early in the game. Call and write Biden, Harris, and your elected representatives in Congress, and tell them you want a Cabinet that acknowledges the conflict between economic growth and environmental protection, economic sustainability, national security, and international stability. Tell them you want long-term planning for a steady state economy to begin with this administration. Tell them you want steady statesmanship in international diplomacy. Tell them your vision of a steady state economy is one of the main reasons you voted for them and rejected GDP Trumpism.

Bald eagle

Strong, steady, and soaring: the bald eagle as a metaphor for an American steady state economy. (Image: CC0, Source)

Tell them you want an economy that soars like an eagle! Not frantically flapping ever upward like some foolish phoenix going up in flames, nor plunging downward like an inglorious coot into a polluted lagoon. Soaring, rather, like a bald eagle: steady, strong, and sustainable.

Now that would be an exceptional America—for a long, long time.

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

The post A Steady-State Analysis of the 2020 Presidential Election appeared first on Center for the Advancement of the Steady State Economy.


Changes that Would Make a Difference in the Biden Administration

Published by Anonymous (not verified) on Sat, 31/10/2020 - 2:19am in

I’m not going to get too into mapping out an agenda for the Biden administration. I still remember speaking at the zombie conferences (stealing that line from my friend, Josh Bivens) in November and December of 2016. We had all sorts of great plans for the Clinton administration. But there are still some points that can be usefully made even if Biden doesn’t win. (Okay, I realize the world will look pretty scary if Trump gets four more years and can let lose the fury of hell on anyone who doesn’t kiss his rear.)

The key point is the one I make all the time: the bad guys have deliberately structured the market in ways that redistribute income upward. While it is understandable that the right likes to pretend that the rich getting all the money was just a happy outcome of the natural forces of globalization and technology, it is malpractice for a progressive to go along with this charade.  

It is also important to reduce the huge flows to the top. While proposals to raise the minimum wage, drastically improve welfare state provision of items like child care and health care, and make it easier for workers to organize, are hugely important, there is a limit to how much we can improve living standards at the bottom and middle if we don’t take a whack at the top.

I realize many folks think we can do this with more progressive taxes. While we can and should make the tax system more progressive, we rarely collect as much from taxing the rich as we expect when we pass the taxes. The rich are very good at evading and avoiding taxes. Some will argue that we just need better enforcement. We do need better enforcement, but the idea that we will somehow succeed in collecting taxes on the rich, in a way that all previous generations have failed, seems more than a bit far-fetched.

It makes much more sense to not structure the market in a way that gives the rich so much money in the first place. This seems a much better approach both practically and politically. As a practical matter, it is far easy to alter the structure of the market so that it is not generating so much inequality than trying to tax back the excessive fortunes that we dropped in rich peoples’ laps.

On the political side, the market does enjoy tremendous legitimacy. This is for good cause; it is a very effective tool for generating wealth. It should be an easier political sell to propose changes that both make the market more efficient and generate less inequality than to propose taxing away the vast fortunes that the rich earned because of the way we structured the market.

 

Three Market Reorienting Baby Steps for Biden to Reduce Inequality

Over the last four decades, we have altered market structures in numerous ways that have had the effect of shifting more income to the top. (This is the point of Rigged [it’s free].) I’ll hit on three of the themes in that book:

  • a corrupt corporate governance structure that allows CEOs to rip off the companies they work for;
  • the system of patent and copyright monopolies, which transfers over $1 trillion a year from everyone else to beneficiaries of these rents;
  • a bloated financial system that allows some people to get tremendously wealthy while providing no service to the real economy.

I have a maximalist agenda in all three areas, most of which I discuss in Rigged, but I know that Joe Biden is no radical. So, I will instead lay out some simple steps that hopefully will be politically feasible, and can be a foot in the door for further changes later.

Giving Corporate Boards Incentive to Do Their Job

I will start with the corporate governance structure, in part because I think this problem has been horribly neglected by progressives. As I have argued many times, CEOs rip off the companies for which they work. They get their $20 million paychecks not because they produce $20 million in value for shareholders, but because the boards that set their pay primarily owe their allegiance to the CEO and top management, not to shareholders.

While it is standard to say that companies are run to maximize shareholder value, this claim is hard to reconcile with the fact that returns to shareholders have not been particularly good over the last two decades. And, the relatively modest returns of the last two decades enjoyed a substantial boost due to the large reduction in the corporate income tax over this period, not the hard work of CEOs.

It is more than a bit bizarre that the fact that CEOs work to maximize their own pay, rather than shareholder value is not more widely recognized. We routinely see CEOs manipulating stock prices to maximize the value of their options or walking away with huge severance packages after they have nearly wrecked the companies for which they work. This is not maximizing shareholder value.

This is not an argument for crying for shareholders, since we all know the enormous skewing of share ownership. Nonetheless, a dollar in the pocket of shareholders, which includes pension funds and middle-class people with 401(k)s, is better than a dollar in the pocket of CEOs, all of whom are in the top 0.001 percent.

But more importantly, the exorbitant pay at the top contaminates pay structures throughout the economy. If CEOs got paid $2-$3 million, as they did before the enormous upward redistribution of the last four decades, we would see much lower pay for the second and third-tier executives as well. And presidents of universities and non-profits would likely get closer to $500k than the $1-$2 million many now pocket. Other top-level administrators would see their pay correspondingly reduced. And, as fans of arithmetic everywhere know, less money for those at the top means more for everyone else.

The fact that shareholders stand to gain from reining in the pay of CEOs and other top execs means that they are allies in this effort. To my mind, the big issue is changing the incentives for corporate boards. As it stands now, they have little incentive to rein in the pay of their friend, the CEO.    

My plan on this is to add a little bite to the “Say on Pay” provision that was part of the Dodd-Frank financial reform bill. This provision requires companies to submit their CEO pay package to a non-binding vote of the shareholders every three years. The vast majority of packages are approved since it is hard to organize shareholders and there is not much consequence to having one turned down.

My proposal is to change the rules so that directors lose their annual stipend (which is often in the range of $200,000 to $300,000) if a CEO pay package is voted down. My guess is that if even one or two packages go down, we will see boards start asking the questions they are supposed to be asking, like “can we get away with paying our CEO a few million less?” or “is there someone just as qualified who would do the job for half the pay?”  

The job of directors is first and foremost to keep top management in check by asking questions like this, but it is a safe bet that almost none ever do. If we could change incentives, so they did start putting serious downward pressure on CEO pay, we might be looking at a very different pay structure in the not distant future.

I also like the logic. Will the right call people socialists for proposing that shareholders have more control over the companies they own? 

Playing with a Post-Patent World

It is amazing how many people, including progressive-type people, view patent and copyright monopolies as just part of the natural order of things. These government-granted monopolies are quite explicitly forms of government intervention in the market. They hugely raise the price of items like prescription drugs, medical equipment, and software. They also redistribute an enormous amount of income upward, likely more than $1 trillion a year (half of all corporate profits). But no one would expect Joe Biden to make a frontal assault on this bulwark of inequality and waste.

But, we can maybe envision a modest step that could end being a big foot in the door. Suppose the National Institutes of Health were to substantially ramp up funding in one specific area, with the explicit condition that all the results would be fully open and all patents in the public domain. (Cancer research would be an obvious candidate since Biden’s son died of cancer and he seems to feel strongly about developing effective treatments and cures.)

In this case, new treatments would be available at generic prices from the day they were approved by the FDA. Instead of the next breakthrough cancer drug selling for hundreds of thousands of dollars for a year’s dosage, it might sell for hundreds of dollars, or at worst a figure in the low thousands. Drugs are almost always cheap to manufacture and distribute. It is government-granted patent monopolies that make them expensive.

If we could get some serious funding for open-source cancer research and it paid off with successful treatments, it would set a great example. This would likely lead to enormous pressure to do the same with the development of drugs to treat other conditions. Ideally, we would have gone this route with developing vaccines and treatments for the coronavirus, but the idea of collaborative research was obviously alien to Donald Trump and his team. 

Making the Financial Sector More Efficient

The financial sector is also an enormous source of waste and inequality. While we need a well-functioning financial sector to make payments and allocate capital, an efficient financial sector is a small financial sector. Unlike sectors like health care and housing, which provide direct value to people, finance is an intermediate sector, like trucking. While we need trucking to get goods from one place to another, but if our trucking sector increased five-fold relative to the size of the economy over five decades (as has finance), it would likely mean we have a very inefficient trucking system.

Not only is the financial system inefficient, but it also has also generated many of the great fortunes in the economy. It is hard to argue that these great fortunes were earned by producing great value for the economy, rather they are a story of being able to game the system to get money at the expense of others.

I have long argued for a financial transaction tax as a great way to downsize the financial sector and get a large amount of revenue. Biden has also indicated his support for a FTT. I hope that he does push for one, although he will certainly have a difficult fight in Congress.

While a FTT is hopefully on the table, there are two smaller, but nonetheless, important measures that Biden can look to pursue. The first is to have the IRS prepare tax returns for people, instead of forcing them to do it themselves or pay hundreds of dollars to tax preparers.

This should be a hugely popular measure. No one enjoys filling out a tax return or paying money to a tax preparer. The idea here is that IRS would fill out a return for every taxpayer, based on the information it already has from W-2s and other tax forms, and mail it to everyone for their review. If people were satisfied that their taxes were calculated accurately, they would just accept the calculation and either pay what they owe or get the refund the IRS had calculated.

If they were convinced the IRS had erred, they would have to complete their own return, with the necessary documentation. In the vast majority of cases, people would likely accept the IRS calculation, meaning that they did not have to do anything.

This should not be rocket science, many European countries have had this sort of system in place for more than two decades. This would save people a huge amount of grief, as well as tens of billions paid each year to tax preparation services. The only losers in this story are H&R Block and the other companies that provide these services and/or software.

In the same vein, Biden could look to establish a national system of low-cost 401(k)-type accounts that people could contribute to on a voluntary basis. The idea here is that the current system is often complicated and expensive. Many accounts charge people over 1 percent annually just to hold their money. (Individual funds, held through these accounts, charge additional fees.) This means that someone with $100k in a retirement account is paying $1,000 a year or more, for essentially nothing.

The government already offers this sort of account for government workers through its Thrift Savings Plan. The cost is less than one-tenth of one percent annually. Illinois, California, New York, and other states are setting up these systems at the state level. The federal government can do this at an even lower cost and allow people to remain in the same system throughout their whole working lives, even if they move across state borders.

Here again, the only losers are the financial industry players that made a fortune gouging workers. If $2 trillion were shifted from high-cost accounts to a government account, the savings would be on the order of $20 billion a year. Also, since roughly half of all workers do not even have the option to contribute to a retirement account at their workplace, we would likely see many more workers contributing to retirement accounts.

There are of course other areas in finance where a Biden administration could and should look to crack down on the industry. Private equity has a whole bag of tricks that largely depends on tax games and running up debts that can be dumped off on other parties, like workers and suppliers. Reining in these abuses should be on the administration’s agenda. Simplifying the tax code, ideally by changing the target of the corporate income taxes from profits to returns to shareholders, should radically reduce the resources devoted to tax avoidance and evasion.

There are other ways in which Biden can and should look to rein in finance, but this should be a very good beginner’s list for a moderate president. Besides, I don’t want to spend too much time writing up proposals for a second Trump administration to ignore.

We’ll see what happens next week. Let’s hope we can have some great battles to fight with the Wall Street Democrats. 

The post Changes that Would Make a Difference in the Biden Administration appeared first on Center for Economic and Policy Research.


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