August 10, 2017 (San Diego) The first question that always needs answering is what is this thing we are talking about? While we all live in an economic system, it is rarely defined. So there are two points about what the economy is:
At the most basic of levels, the economy is how a society distributes resources. It is also an ideological construct. Nor is Capitalism the only way societies have organized themselves to achieve this goal. Perhaps, and this may be heresy for some of you, it is not the best way either. It is one way, however.
A healthy economy will produce surpluses that can be used to benefit the whole society, or at times rulers in a society. Whether it is the work and harvest levies of ancient societies, used to support a royal household and build projects such as water systems, or Ziggurats, or the modern-day taxes. The latter is used to build roads, water systems, and other infrastructure. In that sense, we are not that different from ancient Mesopotamia, Egypt or the Maya. These three used work levies to construct complex irrigation systems used to grow the crops needed to support everybody. We use taxes that will ideally get those mass projects built.
Monuments such as statues to leaders, or pyramids, are also paid that way. Economic systems also developed some form of exchange soon after the rise of agriculture. Mostly, exchanging lambs for wheat could be a little overwhelming. Systems of coinage were developed, as well as records of who paid their levies. The earliest Sumerian records are not grand pieces of poetry, but tax records.
Economic systems have evolved as societies have evolved. They are systems that have become increasingly complex and are meant to serve a ruling elite. We have gone from a barter system, early in human history, to a global system with the exchange of goods and services done with efficiencies of scale, and informatics. Trade is still essential for the well being of societies, and efficiencies of scale are critical to the system we have developed.
The first economic system with global reach came out of the age of discovery. This is mercantilism. It was supported by a mature banking system, and what today we call a professional middle class. It was doctors, and lawyers, who invested in far flung expeditions in the hope that they would become wealthy with their return in investment. If this sounds like you going to a broker to invest in a fund in a far away land, it is because essentially you are doing the same. The tools are different, and they are using the efficiencies of the 21st century, but mechanically it is very similar to the investment houses of 17th century London.
Mercantilism had a very serious problem though. You and I could not start a company to trade in foreign goods, or for that matter locally produced whiskey. All those companies needed to have a Royal Mark. These Marks were not cheap to buy and trended towards natural monopolies. This led to natural inefficiencies. Why would a company bring goods to market that seemed risky, for example?
This was one of the main bones of contention in “The Wealth of Nations.” This is that these large monopolies prevented an efficient economy. This is partly where the hand of the market place comes in, However, Smith did not believe what today we would call market forces, would be able to avoid errors or were infallible. There were many things that could change this. Among others, cooperation among business owners to set prices and wages. He was also against the maximum wage laws that kept guild members wages down in his era. He even argued for a living wage, and given his writings, he would likely favor Universal Basic Income.
Given that he was critical of mercantilism, I believe he would not be a fan of this late form of capitalism that we live under. Why? Among other things, monopolies are back. We also have practices that suppress wages. Smith was all for increasing efficiency in competition, not for transnational corporations controlling trade. He had one good example. This is the East India Company.
The Future of Economics
I am about to commit heresy and I realize it. The economic future of the United States and the world does not lie in Capitalism, Marxism, or any other past ‘ism. We need a new political economy and a new way to distribute goods and services. What we need is one that will move away from the central concept of modern economic life. A healthy economy is a growing economy.
A growing economy has been with us since civilization rose. This is why it is so hard to accept that a new path might be needed. But there are a few things that tell me we are there.
The first and most obvious is the Fourth Industrial Revolution. This will increase efficiencies to the point that millions of Americans will lose their jobs. It is not because they are bad, or they are clueless. It is simple, automatization has taken many jobs away and will take more. Among the targets, truck drivers, fast food workers. paralegals.
Other jobs on the chopping block, construction, fishermen, agriculture, these are whole sectors. And this is just the tip of the proverbial iceberg.
Incidentally, journalism is already been hit. And it is about efficiency. A robot can competently do the job of day to day story writing. Feed the relevant data, and it will spit out a piece.
And if you think doctors will be spared, because well doctors are highly trained. That little add from IBM and Watson is a preview of the future. Yes, a set of computer paradigms can, right now, generate a cancer treatment plan based on a patient’s genomic profile. What they are not showing you, is that this kindly looking older doctor will not be in the picture.
Step back from this information and think about this one. What happens when workers, across the wage scale, from minimum wage on up, lose their income? take as long as you need.
You might conclude that the rise of the machines is the problem. We could try, like Luddites before us, to smash the machines. I suspect some people will try. But short of a major disruption, these robots and other systems will be deployed. For the companies deploying them is a very simple equation. Less human workers, a smaller payroll, higher profits.
Medium to long term fewer consumers means fewer profits, but when all you think about is the next quarter, ten years from now it is way too distant. So we have to face a cold reality. Your job and mine are on the chopping block. How long for that to happen, is the only question that needs answering. So we need to start thinking, how are we going to deal with millions of people sliding down into a permanent economic underclass?
With the bots coming, under current economic ideology, those people will not have jobs and will not help to grow the economy. They, in time, might become so disillusioned that a revolution may come.
The 20th-century answer that we can put all the means of production into the hand of the workers, is not going to happen. Not when the means of production are run by ones and zeroes. This is why we need to get over the economic critiques of capitalism that were the vogue in the 20th century.
The second is that at the most basic of levels, we still have some market elements working at very local levels. For example, There is your locally owned coffee shop still runs on pure market principles of supply and demand, and recirculates capital locally.
However, the major players are not playing by the same rules, and they are doing all they can to drive any kind of regulations that affect them, away while they still apply to the small producers. This will drive away that completion.
We also have clear elements of monopolistic practices, and while legislation is in the books, like antitrust legislation, this is rarely, if ever used. Both political parties in the United States, as well as the World Bank and the International Monetary Fund, are committed to this “market economy,” and have shown a scary lack of imagination. You might even say denial, as they still talk in a way that refuses to even acknowledge that things like Watson are a double edged sword.
There is another reason that we should be doing this.
Limits to Growth
We live in a heating planet. Climate change is very real and can be traced, directly, to the early days of the industrial revolution.
We as a species have benefited from the industrial revolution. We cannot turn back the clock. But it is critical to understand our role in this. It is also important to address something else. The planet does not have infinite resources. Whether these are clean water, mining resources, oceans, fish, you name it. We are still treating the environment as if we did.
We need a new economic paradigm that recognizes this reality.
Sustainable development has to become a central figure in development.
You can argue that we do indeed live in a post-capitalist system. The ‘isms of the past, as well as the boogeymen, are not going to help us out of this crisis. Moreover, it is time to recognize that while Capitalism was a critique of Mercantilism, Marxism was a critique of unrestrained, no limits whatsoever, free for all, 19th-century capitalism. This is where some people, like the Koch brothers, want to go back to.
However, neither is a solution to the present problems. Nor could Smith or Marx predict the limits to growth. These have taken shape over the course of the last two generations at best.
Thomas Robert Malthus was able to envision limits. He was among the first ones to do this. Moreover, as early as the 1960s the Tragedy of The Commons by Garret Hardin offered a view of what happens when a system, any system, grows beyond real limits.
What we need is a form of steady state economics that will not require growth to serve the needs of a society, from good and shelter to medical care and infrastructure. No, taxes will not be gone. You may even generate some surplus to pay for these goods, but we need to find a way to stop pillaging the planet. Recycle must be the mantra of the day. We must become better than what we are currently doing.
But that is just the tip of the iceberg. We need to change paradigms. These range from what is the role of property, to the commons, to our common future. We also need to realize that growth, especially for the sake of growth, may not be good in the long run.
The fourth industrial revolution will force a lot of these paradigm changes, or we will face a disruption to our social systems the way we have not seen in a long time.
We also need to realize, we are in the midst of the sixth great extinction. We may very well face the kind of environmental collapse that beset both Summer and the Maya lowlands. This time it will be at a planetary level. Chiefly, we need to figure out what we are going to do with millions of unemployed in the United States alone, and whether we are going to change how we conceive of work and the economy, and what is healthy. Suffice it to say, the solutions are not in the past.