Extreme concentration of wealth in US economy has led to central planning(plus.google.com)
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Extreme concentration of wealth in US economy has led to central planning
https://plus.google.com/107033731246200681024/posts/D6SwChze4Vd
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Additionally, market discipline means that even if you do get into a situation of Stalin managing Apple (or more realistically, Fiorina managing HP), it doesn't hurt me.
If HP makes crappy computers (or simply too few), I'll buy Lenovo. In contrast, if Stalin makes too little food, I'm hungry.
The entire purpose of corporations in a capitalist society is to get the benefits of central planning (technocratic experts engaging in central planning to achieve results better than free markets) without the harms (nowhere else to turn if the technocratic experts screw up). So far, they seem to be doing a great job of this.
If HP makes crappy computers (or simply too few), I'll buy Lenovo. In contrast, if Stalin makes too little food, I'm hungry.
The entire purpose of corporations in a capitalist society is to get the benefits of central planning (technocratic experts engaging in central planning to achieve results better than free markets) without the harms (nowhere else to turn if the technocratic experts screw up). So far, they seem to be doing a great job of this.
That's only really true if you also support antitrust laws, though (i.e. don't support laissez-faire capitalism). If you end up in a situation with entrenched whole-sector monopolies and high barriers to entry, it becomes much harder to buy an alternative, so the owns-all-computer-manufacturing HP could get away with shitty management for years or decades, and buy up or drive out of business (e.g. through temporary dumping) any nascent competitors.
I don't disagree, but monopolies are generally unstable. HP and Microsoft are hardly dictating terms anymore. Their ability to erect barriers to entry is weak, unless they are getting help from the gov't. See telecoms & utilities.
Antitrust is often ineffective in practice. Sounds great in theory, but it is also a form of central planning. The best the gov't can do, in my opinion, is reduce the barriers to entry that it itself erects. Highly regulated environments, for example, usually protect incumbents.
Antitrust is often ineffective in practice. Sounds great in theory, but it is also a form of central planning. The best the gov't can do, in my opinion, is reduce the barriers to entry that it itself erects. Highly regulated environments, for example, usually protect incumbents.
I agree when it comes to the headline enforcement actions (breakups, etc.), which are done in a pretty haphazard way with questionable effectiveness. But I think the existence of the body of law does discourage the most egregious types of monopoly-protection activities. For example, few companies will do things that look too much like outright dumping, stuff like giving your product away for free for 12 months in order to crush your new startup competitor who's secured 12 months of funding.
That example doesn't bother me too much, though there are plenty of smart folks who would disagree. I don't like IE's dominance, which dates back to exactly what you describe (vs Netscape).
But the outcome is that the Internet became a mass phenomenon. I don't think it would obviously have been so if Netscape and MS charged for browsers. Heck, companies used to charge for TCP/IP stacks. Dumping looks pro-consumer in this context.
But the outcome is that the Internet became a mass phenomenon. I don't think it would obviously have been so if Netscape and MS charged for browsers. Heck, companies used to charge for TCP/IP stacks. Dumping looks pro-consumer in this context.
In theory, that is indeed an issue with natural monopolies.
In practice, however, the only areas I can think of where actual monopolies exist are areas with government granted monopolies, e.g. telco/cable or patent trolls. I'm sure there are a few natural ones, however.
But you did catch me - I'm not a laissez-faire capitalism purist. I just think it's a pretty good first approximation.
In practice, however, the only areas I can think of where actual monopolies exist are areas with government granted monopolies, e.g. telco/cable or patent trolls. I'm sure there are a few natural ones, however.
But you did catch me - I'm not a laissez-faire capitalism purist. I just think it's a pretty good first approximation.
Then again, if Countrywide and Lehman and many others are allowed to make many million fraudulent mortgages, which end up blowing up trillions of dollars of wealth, it really hurts a lot of people. Unregulated markets, and the uses fraudsters can put them to, can really screw over an economy.
You seem very confused.
a) Mortgage issuers tended to be the victims of fraud, not the perpetrators. The people committing fraud were mostly mortgage brokers and and home borrowers.
(Mortgage issuers are now using fraud to cover up lazy paperwork after the fact, but that's a separate matter.)
b) The mortgage market doesn't even come close to being an "unregulated market". While you can dispute the extent to which the regulators played a role, it's indisputable that the regulators were solidly on the pro-bubble side of the fence.
a) Mortgage issuers tended to be the victims of fraud, not the perpetrators. The people committing fraud were mostly mortgage brokers and and home borrowers.
(Mortgage issuers are now using fraud to cover up lazy paperwork after the fact, but that's a separate matter.)
b) The mortgage market doesn't even come close to being an "unregulated market". While you can dispute the extent to which the regulators played a role, it's indisputable that the regulators were solidly on the pro-bubble side of the fence.
Confused?
re
a)Tell me again, how much money did Angelo Mozilo and Dick Fuld lose due to the mortgage fraud their companies engaged in? Go listen to William K Black on the subject of control fraud, and tell me that the issuers were the victims. Some of the stockholders and bondholders were victims, but the guys who ran the companies made out like bandits.
re b) "Unregulated" is perhaps an overstatement. Would "substantially less regulated" or "Markets where the regulators regularly turned a blind eye to rampant fraud." work better for you? Greenspan has a lot to answer for, as do the OCC, OTS, and Congress. Go read about the FBI report in 2004 of "rampant mortgage fraud" and the total lack of interest on anybody's part of taking any action on it. Note that they just issued another report that it's still going on.
re b) "Unregulated" is perhaps an overstatement. Would "substantially less regulated" or "Markets where the regulators regularly turned a blind eye to rampant fraud." work better for you? Greenspan has a lot to answer for, as do the OCC, OTS, and Congress. Go read about the FBI report in 2004 of "rampant mortgage fraud" and the total lack of interest on anybody's part of taking any action on it. Note that they just issued another report that it's still going on.
I suggest you go read that FBI report. It warns of homebuyers and mortgage brokers committing fraud against loan issuers.
And if Angelo Mozilo and Dick Fuld hadn't approved of it, Countrywide and Lehman would not have been making liars loans. And if regulators had been doing their jobs, the mortgage brokers originating those loans would have been prosecuted.
So in effect the main problem with the Soviet system was that the wrong managers were in charge? What if they were selected meritocratically, e.g. if the Soviets had put the best scientists in charge of central-planned science/tech companies, instead of party stalwarts? You might argue that that's hard to do, but is that really the only problem with the Soviet system, that they didn't do a good job picking the right technocrats to put in charge of a command economy? Most critiques argue that command economies are inherently inefficient. But if it's really just a matter of doing a better job picking the technocrats to head a command economy, maybe communism can work after all, if it just develops a better assessment method for picking technocrats...
You have read so much on HN about how hard it is for a non-developer to hire a great developer, and how hard it is for an office culture to survive the loss of a great leader. Why do you think any other field is different? How could Stalin dependably hire the world's greatest ag planner if he is not a great ag planner himself, and even if a great planner was chosen, how could he reliably ensure his office remained great after his tenure there?
That's not the only problem, but it's the main practical problem, and a serious one.
Edit: and that's even assuming a qualified person exists to fulfill some of these dreams -- definitely questionable.
That's not the only problem, but it's the main practical problem, and a serious one.
Edit: and that's even assuming a qualified person exists to fulfill some of these dreams -- definitely questionable.
This is definitionally backwards. It assumes that it can be known ahead of time who the "best" are.
"Picking better technocrats" is impossible a priori. We don't know who the best are until they have been selected by the market. It's like determining ahead of time what the best species are.
"Best" is not defined, it is discovered. Until then, we don't even know the meaning of the term.
"Picking better technocrats" is impossible a priori. We don't know who the best are until they have been selected by the market. It's like determining ahead of time what the best species are.
"Best" is not defined, it is discovered. Until then, we don't even know the meaning of the term.
We could define it, if you define what you want your outcomes to be. For example, if we want to scientifically manage steel production in a way that maximizes steel output per given cost, then we need highly skilled statisticians and logistics supply-chain people in charge. Presumably it's possible to develop objective tests for someone's skill at statistics or supply-chain management (that's why we have technical education, right?), and then put those skilled people in charge, rather than someone like Brezhnev. Or, if you want to develop electric cars, then put the country's top engineers on the project, rather than someone who happens to be the brother of the oblast governor's wife.
(I'm not sure I actually believe that. But I'm not sure I believe the market answer either, since on the scale of large companies, there are so many factors involved, that luck and timing more than skill tend to be huge ones determining who ends up in top management positions of successful companies.)
(I'm not sure I actually believe that. But I'm not sure I believe the market answer either, since on the scale of large companies, there are so many factors involved, that luck and timing more than skill tend to be huge ones determining who ends up in top management positions of successful companies.)
Well, I think that the most objective test is a market. Efficiency only matters if we know what the goal is, and we don't. Why are electric cars the correct outcome, a priori? Our choice of electric cars as a goal is instinctual.
This is why we have ethanol subsidies. We "knew" the right outcome and tried to make it so.
This is why we have ethanol subsidies. We "knew" the right outcome and tried to make it so.
It is questionable whether the market really determines what is best. Worse is better.
It's worse than that. Many Soviet bureaucrats were very smart people who believed in what try were doing. But "merit" in the context of a system that is just wrong on many levels results in a warped perception of "merit".
> So in effect the main problem with the Soviet system was that the wrong managers were in charge?
Just one of the problems. The other problem is that managers did not have knowledge that is available in a free market, because of what they were expected to make decisions about. If you fix the price of something then it's harder to know its real market value.
Just one of the problems. The other problem is that managers did not have knowledge that is available in a free market, because of what they were expected to make decisions about. If you fix the price of something then it's harder to know its real market value.
Good stuff... TFA would make sense if they said concentration of wealth leads to oligopoly, or highly imperfect competition, or rent-seeking. But those are different from central planning. In the 50s, when a vertically integrated GM or Ford controlled 3% of GDP, that was as close to central planning as we got. But back then, interestingly, wealth and incomes were less concentrated than today. The link between concentration of wealth and the form of industrial organization is not very clear.
In the 50's the managers of GM and other successful companies paid over 90% marginal tax on income. I am sure that had an effect on their decision making process; i.e. Should I pay myself a $1000 bonus and be able to spend less than $90 of it? - or should I re-invest that $1000 in the company?
or should I build an empire with lots of perks for me, and just make sure shareholders do well enough that I don't get fired, and who cares if the company goes down the tubes 20 years after I leave.
The G+ link just lifts out some choice paragraphs. It links to the full article at the end. For your convenience: http://globalguerrillas.typepad.com/globalguerrillas/2011/07...
Good arguments but limited interpretation in this article - namely the fact that growth in Soviet bureaucracy correlated strongly with a decline in overall (real) productivity, while growth in US bureaucracy comes during a time in continued GROWTH in productivity, not decline. Then the author mixes in this observation/fact that the US experiences a quickly growing income gap between rich and poor, and it's hard for most readers to realize that that fact doesn't necessary support the idea that central planning is taking place. Central planning is top-down (the central leaders have most say over what industry does) and I'd argue that it's the opposite in the United States - namely business has more political sway than our elected officials when it comes to making policy and changing laws.
...and I'd argue that it's the opposite in the United States - namely business has more political sway than our elected officials when it comes to making policy and changing laws.
I think you missed the main point of the article. This isn't about business vs. government having more power, it's about few vs. many.
I think you missed the main point of the article. This isn't about business vs. government having more power, it's about few vs. many.
Yeah, it's actually a fairly old (but still interesting) observation that very large corporations are a form of top-down central planning. In fact many old-school communists first got inspired by late-19th-century capitalism's trend towards managed technocracy. There was a large movement in business that argued that production could be scientifically optimized using statistics, data collection, scientific management, etc. The communists just took it to its logical conclusion and asked, why not organize all of society in the optimal manner, using principles of technocratic scientific management? Even that argument was more or less originated by capitalists; some of the large industrial trusts argued that there was no problem with monopolies, because they were simply the most efficient, scientifically managed form of industrial production, unlike the messy, inefficient web of competing small businesses they had replaced. So really the only thing they disagreed on was how the profits of the centrally managed monopoly should be distributed.
There's an odd amount of borrowing in the other direction, too. Many large businesses do realize that they internally are basically inefficient, bureaucratic command economies, mirroring some of the problems with the Soviet system. So they introduce some of the same attempted solutions that the Soviets tried: intra-corporation pseudo-markets, competition and awards, recently the trend of "gamifying" workplaces, etc. (At the risk of self-promotion, I recently wrote a bit on the latter similarity: http://www.kmjn.org/notes/soviet_gamification.html)
There's an odd amount of borrowing in the other direction, too. Many large businesses do realize that they internally are basically inefficient, bureaucratic command economies, mirroring some of the problems with the Soviet system. So they introduce some of the same attempted solutions that the Soviets tried: intra-corporation pseudo-markets, competition and awards, recently the trend of "gamifying" workplaces, etc. (At the risk of self-promotion, I recently wrote a bit on the latter similarity: http://www.kmjn.org/notes/soviet_gamification.html)
Well, there are also companies that use full on market based systems internally. For example Alcoa has an 'internal market structure' for sourcing materials, and shuttering inefficient subsidaries if they cannot compete on price internally.
Well, nobody is talking about "business versus government", so please don't just cherry-pick or take parts of these comments out of context. We're talking about key concepts in Political Economy (PE) and I'm clearing saying that I disagree that Central Planning takes place in the way the author implies. The author tells us that the widening income gap is leading to ... central planning. And I say that's totally not true, it's a false causality. A terrible income gap exists, but Central Planning = Government decides and industry follows, like in China. Our system is the opposite, with industry deciding and government getting out of the way. That's Corporatism, not Central Planning. I'm saying that Corporatism creates the income gap, so Central Planning, if it exists, has nothing to do with it. Here's another way to say it: a circular block will fit into a much larger square hole, but that doesn't make it a square ;)
I'm not trying to quote you out of context, sorry if it came across that way.
Central Planning = Government decides and industry follows, like in China.
If you want to take this as a definition, then fine, we have nothing to argue about. But if you just give the phrase its literal meaning, I believe the article is arguing that: One form of central planning is what you described. Another is a very small number of entities controlling a very large amount of money.
Central Planning = Government decides and industry follows, like in China.
If you want to take this as a definition, then fine, we have nothing to argue about. But if you just give the phrase its literal meaning, I believe the article is arguing that: One form of central planning is what you described. Another is a very small number of entities controlling a very large amount of money.
Well, if it's a definition it's a crappy 2-second one so I apologize for that.
I hear what you're saying here and I agree. In any effect, we can probably all agree that the end result of all this is overwhelmingly negative for the long-run productivity growth of the US economy, and that means more stagnating real wages, more structural unemployment, and more hardship for a lot of families. Some would argue that we need MORE central planning to lead the economy out of this hole, and there was a good op-ed in the NYTimes about why this probably isn't possible with our current government.
See Link: http://www.nytimes.com/2011/08/07/opinion/sunday/what-happen...
I hear what you're saying here and I agree. In any effect, we can probably all agree that the end result of all this is overwhelmingly negative for the long-run productivity growth of the US economy, and that means more stagnating real wages, more structural unemployment, and more hardship for a lot of families. Some would argue that we need MORE central planning to lead the economy out of this hole, and there was a good op-ed in the NYTimes about why this probably isn't possible with our current government.
See Link: http://www.nytimes.com/2011/08/07/opinion/sunday/what-happen...
> while growth in US bureaucracy comes during a time in continued GROWTH in productivity, not decline.
A growth which has massively slowed. That it hasn't actually been outright negative is cold comfort.
Look at total factor productivity in the US: http://macromarketmusings.blogspot.com/2011/02/great-stagnat... (Notice all the supporting citations to other productivity measures in the comments.)
A growth which has massively slowed. That it hasn't actually been outright negative is cold comfort.
Look at total factor productivity in the US: http://macromarketmusings.blogspot.com/2011/02/great-stagnat... (Notice all the supporting citations to other productivity measures in the comments.)
Yes, greatly slowed and that's troubling considering all the cash that American corporations are sitting on right now. That said, the indicators are still vastly different from what we saw in the last 20-30 years even of the Soviet economy, so the main point was that soviet bureaucracy worked hard to make up for a structural decline in productivity, while American bureaucracy seems to just grow with time despite productivity growth.
The slower rate of TFP growth occurred before the concentration of wealth, not after. So it's hard to argue that it is related at all to the phenomenon under discussion.
Why can't it be related? I see plenty of ways for the TFP to be related to the concentration.
For example, here's one model which nicely matches the TFP lack of growth and subsequent wealth concentration: 'the wealthy 1% demands a fixed additional sum per year (due to some sort of hedonic treadmill or cultural imperative - relative status seeking perhaps); while TFP growth exceeds this fixed sum, we will see the additional wealth distributed to the other 99% through wages etc. Once TFP falls below this sum, all TFP gains now go to the 1% and everyone else stagnates.'
For example, here's one model which nicely matches the TFP lack of growth and subsequent wealth concentration: 'the wealthy 1% demands a fixed additional sum per year (due to some sort of hedonic treadmill or cultural imperative - relative status seeking perhaps); while TFP growth exceeds this fixed sum, we will see the additional wealth distributed to the other 99% through wages etc. Once TFP falls below this sum, all TFP gains now go to the 1% and everyone else stagnates.'
I like the central theme, but there's not really a lot of facts and I would argue the details. For example, he claims there has been a simultaneous growth in wealth concentration and government control, resulting in misallocation of resources. But it was deregulation and lack of government enforcement in the financial markets that allowed them to misallocate capital so egregiously.
I would say that the checks and balances that kept our country strong have been steadily eroded, with the result that he describes.
I would say that the checks and balances that kept our country strong have been steadily eroded, with the result that he describes.
Deregulation is not the problem. The financial industry is highly, highly regulated. The Federal Reserve, a corrupt union of government and big banks, controls the money supply, which is always used to bail out big banks. To suggest that "deregulation" is the problem is to ignore the corrupt regulations at the very heart of the financial system--and indeed the entire free market in the US, and even the world--in the form of Federal Reserve Notes.
It's true there's a great deal of corruption. But many kinds of activity that lead to the financial crisis were impossible under the Glass-Steagall Act. You might argue that corruption is the root cause, and lead to the Gramm–Leach–Bliley Act and the Commodity Futures Modernization Act (key enablers that were deregulatory in nature). But it was still the rolling back of a successful regulatory system that paved the way.
BTW, It's interesting to look at the environment in which Glass-Steagall was enacted and compare it to our own times.
BTW, It's interesting to look at the environment in which Glass-Steagall was enacted and compare it to our own times.
Let's not overgeneralize by lumping everyone into a single "financial industry" - really some sectors like banking are highly regulated while others (like hedge funds) much less so. Despite high bureaucracy, the financial industry as a whole isn't effectively regulated in terms of the types of financial instruments that are traded. Hence our problems with massive underwriting of mortgage-backed securities.
The financial industry has too much bureaucracy and paperwork - not enough sensible regulation and with that I'm 100% in agreement. Why not treat financial instruments like drugs are treated by the FDA? Each new financial instrument would need to be studied, approved, and it's distribution controlled for the public benefit. We could reduce reporting burdens for financial houses, but increase common sense controls on the types of securities that actually serve a public benefit. That would be my vote.
The financial industry has too much bureaucracy and paperwork - not enough sensible regulation and with that I'm 100% in agreement. Why not treat financial instruments like drugs are treated by the FDA? Each new financial instrument would need to be studied, approved, and it's distribution controlled for the public benefit. We could reduce reporting burdens for financial houses, but increase common sense controls on the types of securities that actually serve a public benefit. That would be my vote.
I'd like to add to this. In addition to checks and and balances being eroded, the ever increasing technological advancement and efficiency of our economy means that welfare for the unemployed is even more important. Instead of chasing unrealistic employment goals with central planning, we should just install adequate social welfare.
We need to start accepting the fact that near 10% unemployment could easily be equilibrium in a modern economy like the US.
We need to start accepting the fact that near 10% unemployment could easily be equilibrium in a modern economy like the US.
I really hope that 10% unemployment IS NOT an equilibrium for the US, but I agree that all the major increases in US productivity lately are not being shared evenly among the working class. Capital (held ever-increasingly by the wealthy) is being used to increase productivity and grow their wealth, but those benefits are not passed on to average Americans. That happens now because you don't have to employ more people to make more money - not like 30, 40 or 50 years ago when you had to employ more workers in your factory to sell more and thus grow your wealth.
So I guess productivity going up isn't attached as strongly to more employees being hired, and that does imply the potential for larger, structural unemployment (though probably less than the current 9%). It also means that trick-down ideas of a "factory owner using his money to hire more employees" are increasingly irrelevant.
So I guess productivity going up isn't attached as strongly to more employees being hired, and that does imply the potential for larger, structural unemployment (though probably less than the current 9%). It also means that trick-down ideas of a "factory owner using his money to hire more employees" are increasingly irrelevant.
Exactly. We need to start addressing both culturally and politically the fact that unemployment in a modern economy is going to get progressively worse as it increasingly requires less manual labor and more intellectual prowess to create value.
The only way to deal with it is proper social welfare, because you can't just "create jobs."
We could have a freer market and near full-employment if we replaced all our social welfare programs with a single minimum living stipend (you apply if you make below it, and if you qualify, get a check for the difference), and abolished minimum wage. It would save tons of money to as so much complicated and unnecessary administration of multiple agencies would be eliminated.
Sadly, a proper social welfare system is exactly what the US refuses to implement. From healthcare to unemployment to disability.
The economy is fine. It's not booming, but companies are flush with cash. The only thing wrong is unemployment, and the only option to deal with it is some form of welfare. The other option is to let the number of unemployed get to a point that social unrest starts becoming a problem.
The only way to deal with it is proper social welfare, because you can't just "create jobs."
We could have a freer market and near full-employment if we replaced all our social welfare programs with a single minimum living stipend (you apply if you make below it, and if you qualify, get a check for the difference), and abolished minimum wage. It would save tons of money to as so much complicated and unnecessary administration of multiple agencies would be eliminated.
Sadly, a proper social welfare system is exactly what the US refuses to implement. From healthcare to unemployment to disability.
The economy is fine. It's not booming, but companies are flush with cash. The only thing wrong is unemployment, and the only option to deal with it is some form of welfare. The other option is to let the number of unemployed get to a point that social unrest starts becoming a problem.
We could have a freer market and near full-employment if we replaced all our social welfare programs with a single minimum living stipend (you apply if you make below it, and if you qualify, get a check for the difference), and abolished minimum wage.
I disagree. A minimum stipend, at least in the way that you described, would create a perverse incentive. Let's say this stipend is $20,000/year. Why should anyone who makes $5,000/year and get $15,000 free want to work harder to earn the same amount?
A slightly better take on this is to have some sort system were it always pays to earn more. For example, you get 1/3 of the difference between what you earn and $30,000. Under such a system, if you earn $10,000, you would get $6,667 for a total of $16,667. If you earn $15,000, you get $5,000 for a total of $20,000. Thus, it always pays to earn more/work harder.
Personally, I don't like either idea. In my opinion, things like the minimum wage only serve to create unemployment. By making it more expensive to hire workers, companies find other means of being more productive, such as automation or illegal labour.
I disagree. A minimum stipend, at least in the way that you described, would create a perverse incentive. Let's say this stipend is $20,000/year. Why should anyone who makes $5,000/year and get $15,000 free want to work harder to earn the same amount?
A slightly better take on this is to have some sort system were it always pays to earn more. For example, you get 1/3 of the difference between what you earn and $30,000. Under such a system, if you earn $10,000, you would get $6,667 for a total of $16,667. If you earn $15,000, you get $5,000 for a total of $20,000. Thus, it always pays to earn more/work harder.
Personally, I don't like either idea. In my opinion, things like the minimum wage only serve to create unemployment. By making it more expensive to hire workers, companies find other means of being more productive, such as automation or illegal labour.
Well they could only qualify if they were looking for work, disabled, or a senior. People who literally choose to do nothing but are able to work should be exempt.
You could abolish minimum wage if you had a system of welfare that covered everybody adequately.
You could abolish minimum wage if you had a system of welfare that covered everybody adequately.
Rather than having an increasingly small portion of the population work 40 hours (and often much more) a week to provide for the living of all members of the population, why not have more people work for less time?
I understand that there are forces at play that make this difficult, but if we are willing to steal from some people to give money to others it seems like we would be morally no more wrong to say that people may only work some smaller number of hours a week from now on, with this and that exception for emergencies.
I understand that there are forces at play that make this difficult, but if we are willing to steal from some people to give money to others it seems like we would be morally no more wrong to say that people may only work some smaller number of hours a week from now on, with this and that exception for emergencies.
It's called The New Industrial State and JK Galbraith wrote about in 1967. It's also why companies hoard cash, so their managers can stay in control.
http://en.wikipedia.org/wiki/The_New_Industrial_State
http://en.wikipedia.org/wiki/The_New_Industrial_State
It's certainly true that a lot of central planning plays a role in US housing. The income tax mortgage deduction and Fannie Mae are the two striking examples. It seems they did play a role in the housing bubble -- however, I don't see that specific example as a result from a concentration of wealth.
The concentrated wealth that influenced the housing bubble came from a variety of places:
- the building trade (obvious)
- the defense industry (less obvious... in order to "sell" an expensive war, the masses have to feel rich, thus there was pressure on the Fed to let the housing market heat up, and on the SEC to ignore Fannie and Freddie so that Joe Homeowner felt rich enough not to worry too much about extremely high gas prices. There was virtually no talk about the actual cost of the war (short or long term) other than deliberately misleading statements by the leaders trying to sell the war.
- financial services industry (heat in the housing market improves consumer credit ratings and ends up giving free money to banks (b/c the homeowner whose house appreciated now has A+ credit and lots of collateral... and the boom created lots of such homeowners)... all the while the losses are socialized b/c the government will try to prevent large scale housing market price declines.)
- the building trade (obvious)
- the defense industry (less obvious... in order to "sell" an expensive war, the masses have to feel rich, thus there was pressure on the Fed to let the housing market heat up, and on the SEC to ignore Fannie and Freddie so that Joe Homeowner felt rich enough not to worry too much about extremely high gas prices. There was virtually no talk about the actual cost of the war (short or long term) other than deliberately misleading statements by the leaders trying to sell the war.
- financial services industry (heat in the housing market improves consumer credit ratings and ends up giving free money to banks (b/c the homeowner whose house appreciated now has A+ credit and lots of collateral... and the boom created lots of such homeowners)... all the while the losses are socialized b/c the government will try to prevent large scale housing market price declines.)
A large chunk of international free trade is actually centrally managed transfers within multinational corporations.
The bigger they get, the more central planning we have... And they're gettin' pretty big.
The bigger they get, the more central planning we have... And they're gettin' pretty big.
One very glaring example of this phenomenon is how entrenched power (mostly those getting rich from prisons, law enforcement, alcohol and tobacco, etc.) have managed to create drug laws so at odds with the free market forces that the entire country of Mexico is profoundly unstable... and it may come crashing down.
Umm, Mexico's border city stability has such more more to do with our illegal immigration policies than our war on drugs. Sure these thugs are funded by our addictions, but should we legalize drugs tomorrow, they'll just find a new revenue stream.
That's like saying if the internet were shut down tomorrow, Google would just find a new revenue stream.
Yeah, maybe they would, but it would be about a million times smaller.
Yeah, maybe they would, but it would be about a million times smaller.
> they'll just find a new revenue stream
I find it interesting to model gang violence as a market. If drugs are made legal, the demand for thugs will go down. If the supply of thuggery is elastic, then former gang members will leave gangs and find other work. If it's inelastic, they'll find other revenue streams.
I find it interesting to model gang violence as a market. If drugs are made legal, the demand for thugs will go down. If the supply of thuggery is elastic, then former gang members will leave gangs and find other work. If it's inelastic, they'll find other revenue streams.
I've heard that simply decriminalizing weed in many states has had a material, and in some cases profound negative effect on revenue for mexican drug cartels. Furthermore, many consumers of narcotics are "moving upstream" to prescription drugs. But with less revenue, comes more violence initially as the factions squabble fiercely over a bigger slice of a smaller pie. Eventually this will reach an equilibrium and enough producers will drop out or realize it's not worth it and we'll end up with a few kingpins for the CIA to take out (a la Noreaga, Escobar, et al.).
For reference, here's a study that was recently conducted that compares Americans' perception of the wealth distribution against the actual wealth distribution. Surprisingly, participants of all stripes badly estimated the current distribution and proffered an "ideal" distribution even more out of whack with reality.
Before clicking, take your guess. What percent of total American wealth does the top quintile control?
Summary: http://danariely.com/2010/09/30/wealth-inequality/
Paper: http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...
Before clicking, take your guess. What percent of total American wealth does the top quintile control?
Summary: http://danariely.com/2010/09/30/wealth-inequality/
Paper: http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...
I saw this a while back - REALLY interesting! I definitely give this a +1 to anyone who has time to read it.
Intriguing... if true, I wonder if the 'central planners' could use this for good, as China did in http://news.ycombinator.com/item?id=2875800 ?
The Taxpayer Theorem
The finding that extreme concentration of wealth within the United States in the hands of a few thousand people amounts to central planning is empirical evidence in favor of the application to the US economy of a theorem in the Theory of Games and Economic Behavior.
In Chapter 11 of The Theory of Games and Economic Behavior (TGEB), Morgenstern and Von Neumann attempt to reduce the general theory of n-person games to the theory of (n+1)-person zero-sum games through the introduction of a fictitious (n+1)-st player. The payoff to the fictitious (n+1)-st player in the new game equals the negative of the sum of of the payoffs to the n players in the original n-player game. This defines the (n+1)-player zero-sum extension of a general n-player game. In the discussion, Morgenstern and Von Neumann observe that the introduction of the fictitious (n+1)-st player requires some analysis to ensure that the zero-sum extension of an n-player game does not create additional possibilities for interaction among the original n players–that the ‘”fictitious” player does not influence the game in any way. They rule out the absurd possibility of receiving payments from a fictitious player, but have to consider the possibility of self-denial among the n real players in the zero-sum extension.
In the reduction of a general n-player game to an (n+1)-player game in which a fictitious (n+1)-st player is introduced with no ability to form coalitions with the n real players, and whose losses pay for the winnings of the real players, Morgenstern and Von Neumann captured the plight of the lower 99.5% of the population (the "taxpayer"), which collectively serves as the fictitious (n+1)-st player in modern capitalism. The taxpayer is unable to influence the outcome of the games of the real players–the upper one half of one percent of the population (the "central planners"). The taxpayer's role is to passively fork over whatever funds are needed to ensure the maximum winnings for the real players, and the least for himself.
This outcome is established in a proposition on page 513 of TGEB, in which the possibility that the n players may choose self-denial to exploit some coalitional advantage is ruled out. The real players will never deny themselves in any imputation to the advantage of the fictitious (n+1)-st player, who always receives the minimum.
We might call that proposition the Taxpayer Theorem. Its application to contemporary capitalism, in which the taxpayer insures the central planners against losses, seems not to have been noticed.* In the case of the taxpayer, unlike the fictitious player of the (n+1)-st zero-sum extension of a n-player game, there is some slight possibility of influencing the n real players, but in practice this effect is negligible, and in the strict terms of cooperative game theory, irrational. In the case of the lower 99.5%, side-payments to the upper 0.5% are ruled out because taxpayers are effectively unable to form coalitions, since the concentration of wealth in the upper 0.5% is too extreme. To almost any approximation, the taxpayer is the fictitious player in the zero-sum extension of whatever game the important players in the upper one half of one percent happen to be playing.
*It is inconceivable that Von Neumann would not have foreseen this application, but it is conceivable that he would chose to leave its rediscovery to posterity.
The finding that extreme concentration of wealth within the United States in the hands of a few thousand people amounts to central planning is empirical evidence in favor of the application to the US economy of a theorem in the Theory of Games and Economic Behavior.
In Chapter 11 of The Theory of Games and Economic Behavior (TGEB), Morgenstern and Von Neumann attempt to reduce the general theory of n-person games to the theory of (n+1)-person zero-sum games through the introduction of a fictitious (n+1)-st player. The payoff to the fictitious (n+1)-st player in the new game equals the negative of the sum of of the payoffs to the n players in the original n-player game. This defines the (n+1)-player zero-sum extension of a general n-player game. In the discussion, Morgenstern and Von Neumann observe that the introduction of the fictitious (n+1)-st player requires some analysis to ensure that the zero-sum extension of an n-player game does not create additional possibilities for interaction among the original n players–that the ‘”fictitious” player does not influence the game in any way. They rule out the absurd possibility of receiving payments from a fictitious player, but have to consider the possibility of self-denial among the n real players in the zero-sum extension.
In the reduction of a general n-player game to an (n+1)-player game in which a fictitious (n+1)-st player is introduced with no ability to form coalitions with the n real players, and whose losses pay for the winnings of the real players, Morgenstern and Von Neumann captured the plight of the lower 99.5% of the population (the "taxpayer"), which collectively serves as the fictitious (n+1)-st player in modern capitalism. The taxpayer is unable to influence the outcome of the games of the real players–the upper one half of one percent of the population (the "central planners"). The taxpayer's role is to passively fork over whatever funds are needed to ensure the maximum winnings for the real players, and the least for himself.
This outcome is established in a proposition on page 513 of TGEB, in which the possibility that the n players may choose self-denial to exploit some coalitional advantage is ruled out. The real players will never deny themselves in any imputation to the advantage of the fictitious (n+1)-st player, who always receives the minimum.
We might call that proposition the Taxpayer Theorem. Its application to contemporary capitalism, in which the taxpayer insures the central planners against losses, seems not to have been noticed.* In the case of the taxpayer, unlike the fictitious player of the (n+1)-st zero-sum extension of a n-player game, there is some slight possibility of influencing the n real players, but in practice this effect is negligible, and in the strict terms of cooperative game theory, irrational. In the case of the lower 99.5%, side-payments to the upper 0.5% are ruled out because taxpayers are effectively unable to form coalitions, since the concentration of wealth in the upper 0.5% is too extreme. To almost any approximation, the taxpayer is the fictitious player in the zero-sum extension of whatever game the important players in the upper one half of one percent happen to be playing.
*It is inconceivable that Von Neumann would not have foreseen this application, but it is conceivable that he would chose to leave its rediscovery to posterity.
Umm, this "central planning" theory always comes after a great economic boom period. It's just a collection of wealth at the top that will take a lot of political might to break up and distribute more evenly. I think we all hoped Obama was going to be the president to do it and unfortunately we will just have to wait for the next guy.
I don't foresee any future guy doing any better. The reality is the president doesn't have much power to improve it but as we've seen with the last president they do have a great amount of power in making it worse.
Good insight. I would just add that the concentration of wealth has a lot to do with fractional reserve banking and the Federal Reserve. Since these are highly regulated institutions, it's not as simple as saying the concentration of wealth created the central planning. The central planning also created the concentration of wealth.
Non logarithmic graphs of money, how I hate them!
This entire premise would go out the window if he only knew how to graph money correctly.
This entire premise would go out the window if he only knew how to graph money correctly.
A logarithmic graph is the right way to graph money? Why is that?
Because you almost always care about proportional changes not absolute changes. If you buy at stock a $1 and it goes to $10, you have made a ton of money. But if I then buy in at $10 and it goes to $20, I have merely doubled my investment. Logarithmic graphs convey this clearly. Linear graphs make our returns look too similar.
It is very common for inflammatory articles to use absolute numbers that (intentionally or not) ignore inflation, changes in GDP, etc... because it is both simpler to explain and more effective for inciting outrage.
It is very common for inflammatory articles to use absolute numbers that (intentionally or not) ignore inflation, changes in GDP, etc... because it is both simpler to explain and more effective for inciting outrage.
?I don't understand why there would be a need for a logarithmic graph in this case. The author is not discussing proportional changes or even absolute changes, unless you want to consider income as a change in wealth, but that's not quite accurate and adds an unnecessary layer of complexity.
The author's main goal is to show how a proxy for decision making power (viz. household cash income) is highly concentrated.
I don't think the author's graph is the best visualization of his point. I would like to see a graph of the proportion of national wealth owned by households at each percentile. The would deliver the point the "power is highly concentrated" in the top percentiles. Wealth is a better proxy than income and understanding the proportion of wealth each percentile holds claims to is better than seeing the absolute amount of wealth held by that group.
The author's main goal is to show how a proxy for decision making power (viz. household cash income) is highly concentrated.
I don't think the author's graph is the best visualization of his point. I would like to see a graph of the proportion of national wealth owned by households at each percentile. The would deliver the point the "power is highly concentrated" in the top percentiles. Wealth is a better proxy than income and understanding the proportion of wealth each percentile holds claims to is better than seeing the absolute amount of wealth held by that group.
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true that
Unfortunately, this is the beauty and the beast of a capitalistic economy. One the one hand, you have incredible opportunity to achieve success. While on the other, you end up with a concentration of wealth and power to a small group of individuals or corporations.
Every industry in the US is highly regulated. The worsening economy has correlated with more regulations and bigger government. I don't think this is a coincidence. It is the decrease in capitalism due to an expansion of government that is creating our present problems. Capitalism is not the problem. Government is.
Don't forget about the bailouts. The wealth conentration in the finance industry would be much lower without the government bailout of AIG and others.
What the country really needs now, more than ever, is coming together to solve problems and less hyperbole, or convenient political rhetoric.
There is no central planning in the US. There is nothing even close to central planning. Our politicians cannot agree on anything - the political parties are almost as divided as they've ever been - and we are only beginning to see the effects of that. How is this central planning? The examples the author gives at the very end of the article (the main article on globalgorillas), is the result of the free market at work. The political situation we were in in 2008 and we are in today, is the response to that. That's democracy and, as gut wrenching as it seems right now, it will eventually work itself out.
There is no central planning in the US. There is nothing even close to central planning. Our politicians cannot agree on anything - the political parties are almost as divided as they've ever been - and we are only beginning to see the effects of that. How is this central planning? The examples the author gives at the very end of the article (the main article on globalgorillas), is the result of the free market at work. The political situation we were in in 2008 and we are in today, is the response to that. That's democracy and, as gut wrenching as it seems right now, it will eventually work itself out.
On a side note there is Cybersyn
http://en.wikipedia.org/wiki/Cybersyn
The Chilean attempt at realtime computer controlled planned economy.
http://en.wikipedia.org/wiki/Cybersyn
The Chilean attempt at realtime computer controlled planned economy.
If anyone is interested in this stuff try reading Hayek's "Road to Serfdom."
He wrote it in the 30s as a response to the push for more central planning.
He wrote it in the 30s as a response to the push for more central planning.
It's an interesting idea but ultimately weakly supported with very few numbers. Just another ideologically driven fact-less polemic.
Images of smoke-filled rooms secretly steering our lives may speak to the imagination, but it all sounds a bit too much like silly conspiracy theories to me.
There are simpler models if you want to explain the current economic malaise. Just look at the fundamentals: we've run out of cheap energy!
There are simpler models if you want to explain the current economic malaise. Just look at the fundamentals: we've run out of cheap energy!
? Who mentioned "images of smoke-filled rooms secretly steering our lives"
Again, who?
How is this relevant to the article above? Did you read O'Reilly's article?
It would be really cool if folks read the article before commenting. Sehr kool.
Again, who?
How is this relevant to the article above? Did you read O'Reilly's article?
It would be really cool if folks read the article before commenting. Sehr kool.
Yes I did read the article.
The article doesn't literally mention "smoke-filled rooms". It is an expression: http://en.wikipedia.org/wiki/Smoke-filled_room
The article does show a graph of the concentration of wealth according to a power law. It also mentions that "All it will take is is one extremely bad decision and the cascade of failure that follows will catch everyone off guard."
So the article is suggesting that the decisions of a small group of a powerful elite have a large influence on our lives. Unless you are saying that these people don't talk to each other, that's what the "smoke-filled rooms" expression is all about.
The article doesn't literally mention "smoke-filled rooms". It is an expression: http://en.wikipedia.org/wiki/Smoke-filled_room
The article does show a graph of the concentration of wealth according to a power law. It also mentions that "All it will take is is one extremely bad decision and the cascade of failure that follows will catch everyone off guard."
So the article is suggesting that the decisions of a small group of a powerful elite have a large influence on our lives. Unless you are saying that these people don't talk to each other, that's what the "smoke-filled rooms" expression is all about.
First, you get people who don't know about a profession trying to dictate to people who do know about it. EX: Hitler and Stalin managing farm production, even though they didn't know anything about farming - agricultural production goes down leading to famines.
Second, you lose the price signal which says what people really want enough to act on, given scarce resources. This leads to a feedback loop where goods priced below the equilibrium have demand far in excess of supply. EX: Everyone would love to buy a subsidized steak instead of a hamburger, so if steak is subsidized to hamburger prices, there'll be shortages and you'll need to impose rationing and coupons and things (which becomes a dual currency system where the coupon/ration becomes the real constraint currency, and then those become blackmarketed until an equilbrium is reached - but only with a lot of hassle).
Third, central planners generally have incentives that diverge widely from the people they're supposed to be planning for - ex, making sure those new centrally planned jobs go to your political supporters. This has happened in the majority of centrally planned economies.
You wouldn't expect a high concentration of wealth to have these same problems. Steve Jobs having central planning ability over Apple, and by extension, over a lot of the high quality glass and semiconductor industries isn't the same as Brezhnev having that power. Jobs, of course, is much more competent at building high end consumer technology than Brezhnev and not prone to make some of the common errors.