Sunday, February 15, 2009

The Shape of Things to Come -- Part 8

The complete self-destruction of our monetary and financial systems would be a lot like the process by which cancer is usually treated through chemotherapy. The power of the oligarchs who have ruled us, both covertly and overtly, for so many years will, like the cancer cells, be destroyed. As with chemotherapy, which attacks both malignant and healthy cells alike, a great many innocent people will also be damaged in the same process. But, as with an effective cancer treatment, what is good for the organism as a whole can be nourished back to health -- but only after what is harmful has been completely eliminated. And by eliminated I do not mean the super-wealthy themselves -- I am NOT advocating violent revolution -- but only the inordinate power they have been allowed to wield, since their power lay in their great wealth, which they themselves have foolishly squandered, in a wild orgy of greed and corruption. At bottom they are humans like the rest of us, and not necessarily evil -- maybe the better term would be "spoiled." And since these spoiled children have literally destroyed their own world of privilege, there would be no need for violent revolution in any case -- the revolution will, thank God, be entirely bloodless. Unless you insist on equating money with blood, in which case we could characterize it as a bloodbath -- of epic proportions.

How can an economy whose monetary and financial systems have been destroyed be nurtured back to health? As I see it, the only viable treatment would be some form of what is called "socialism." And it's important to remember that there is really no such thing as socialism in itself, as a rigidly defined socio-economic system. Strictly speaking, in fact, any government that is truly of the people, by the people and FOR the people, would entail some form of what could be called "socialism." And would, of course, be a democracy.

There are many possible ways in which such a democratic socialism could be instituted, but as I see it, one thing seems very clear: it can succeed only to the extent that it involves a high degree of international consultation and cooperation. I am not necessarily advocating "world government," though that too can be implemented in a great many different ways, and certainly need not be "totalitarian," as many might fear. Since the problems will be international in scope, any attempt to implement solutions based on competition between one nation and any others is bound to fall apart, with consequences that could be dire in the extreme. It is capitalism that promotes zero sum competition in any case. Socialism is predicated on cooperation for mutual benefit and it is in that spirit that socialist procedures should be implemented -- on every conceivable scale, from the neighborhood all the way up to the international community as a whole.

Is it possible for an economy of international scope to exist in the absence of a monetary system? I.e., without money? This may be the most fascinating question of all and it would be interesting to solicit suggestions from imaginative people everywhere as to how this could be done. I'm sure there are many possible options, all the way from pure, face-to-face barter, to a complex system of international exchange monitored by computers. Whatever form it takes, it will have to be what is called a "managed economy," i.e., an economy based on some sort of planned management scheme, rather than the free flow of money and credit.

Many people are suspicious of socialism because they fear any system based on large-scale management. Until recently it was generally assumed that a system based on the "free" flow of money, credit and capital would be more in line with democratic principles than an economy managed by "big government," via a complex bureaucracy. In the light of current events it has become all too clear that this is NOT the case. It was, as we now know, the lack of bureaucracy, in the form of regulation and regulators, that contributed to the problem. If government bureaucracy can be associated with bothersome "red tape," it must now be admitted that red tape is not always such a bad thing.

Returning to the issue of money, and whether or not it is necessary, I'd like to offer the proposition that money was already becoming a thing of the past long before the current crisis. Not only is our monetary system being destroyed, but it may have ultimately become obsolete in any case, as anyone who regularly carries a credit card can easily see. One possible solution to the problems we'll be facing when money (inevitably) loses all meaning, is the possibility of basing an economic system on a practice that was prevalent during World War II (and may in fact have contributed to the economic upswing associated with the aftermath of that horrible event): rationing.

Instead of credit cards, everyone could be issued plastic items that resemble credit cards, but that would actually function as ration cards. Ideally every adult in the world would get one. When you went to make a purchase, you would present your ration card, which would then be electronically connected to a computer system that would determine whether or not you are entitled to make the purchase. Everyone would be entitled to a baseline of ration "points" that would enable that person and his or her children to live in reasonable comfort, i.e., to eat adequately, be adequately clothed, purchase reasonable amounts of gas or other fuel, etc. (Under such a system housing, health care, education, etc. would already be covered, so the rationing system would not apply in such areas). Workers would be given additional points according to the nature of their work, how many hours they work, how difficult or strenuous the work is, how much education is required for their job, etc.

I'm not advocating such a system at this point, just tossing it out for consideration. And also demonstrating that we do have alternatives to money and to the highly destructive "free market" capitalist financial system everyone now seems to think is absolutely necessary.

8 comments:

  1. Interesting stuff, Mole! A few things to think about:

    First, money *is* tradeable ration points. The real question is who allocates the ration points, and in practice this allocation is disastrously hard to determine. If your society allocates ration points poorly, you get tons of useless goods and services (e.g., Soviet-era concrete apartments), rather then the goods and services your society needs. It's tempting to suppose that a committee (of bureaucrats or legislators) or one smart and ruthless man (like a dictator) could do better at allocating society's output than capitalism's crazy hodgepodge of banks, venture capitalists, individual consumers, and government funding.

    But the most indispensibly glorious achievement of capitalism is its utter reliance on failure: businesses that produce less than they consume eventually run out of credit and go under. Society is thus cleansed of a bad idea or a mismanaged organization. This is a regular occurrence in healthy markets.

    But no corresponding cleansing process exists in command economies, and in fact the opposite occurs because government allocation rewards failure (look at the Department of Homeland Security's massive growth after its failure on 9/11). No command economy, from FDR's public works administration to Mugabe's Zimbabwe, has escaped this ruinous wasteful growth of useless activity.

    Not even our own. The current crisis was fundamentally created *by* government regulation, not despite it! The government guarantees bank deposits against failure, so bank executives can make bets with no downside: if the bet pays off, the bank wins big; if the bet fails, and so does the bank, the government will pay off the depositors. The government distorts the housing market by providing tax writeoffs for mortgage interest, underwriting Fannie and Freddie to the tune of trillions of dollars, and since the 1970's virtually demanding that millions of bad loans be made in poor neighborhoods--the housing bubble was NOT the free market at work!

    My perception is that the only way out of the quagmire is for the feds to let the bad banks fail (virtually all of them, from what I can tell), let the inefficient and ailing industries trim down (losing at least one of GM or Chrysler), and to let the many smaller and still vibrant businesses expand to take their place. The feds, however, have neither the desire nor the intestinal fortitude to let this happen, so instead we get the continuing living-dead zombie economy.

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  2. Thanks for your thoughtful comments, orion. I'll take them one at a time:
    "First, money *is* tradeable ration points. The real question is who allocates the ration points, and in practice this allocation is disastrously hard to determine."
    That first sentence intrigues me, but sorry I don't get it. Money is primarily a medium of exchange, not a rationing system. It's allocation was, until recently, determined by something called "the market." (Now it's being determined mostly by governments as part of an effort to fix that market and get the money back into private hands -- i.e., the hands of the privileged few, as before.) What I'm proposing is not a medium of exchange based on the flow of commodities in a "free" market, but a system of rationing based on an assessment of worldwide resources and how to allocate them efficiently in the most equable and fair manner. The assessment would be made by a bureaucracy, yes, but a bureaucracy appointed and regulated by a democratic government (or cooperating group of such governments), empowered by their citizens to act on their behalf. And since the assumption is that these would be democratic governments, then they would be empowered to act democratically, i.e., on behalf of the welfare of all citizens, not just a privileged few (as in the oligarchy we presently have in the USA and most "free world" nations). Money is used to facilitate the free flow of commodities in kind of free-for-all benefiting those controlling most of it. Ration stamps would be used to fairly apportion those commodities among all peoples, on the basis of need, ability, training, willingness to work, etc.

    "But the most indispensibly glorious achievement of capitalism is its utter reliance on failure: businesses that produce less than they consume eventually run out of credit and go under. Society is thus cleansed of a bad idea or a mismanaged organization. This is a regular occurrence in healthy markets."

    The above was a widely accepted view of capitalism until roughly last summer, when it was exposed as a grand illusion. Or delusion. Or hoax. The problem is that successful businesses cannot be prevented from getting bigger and the bigger they get the more entwined they become with one another and with the economy as a whole. So at a certain point they become too big to fail. And when that happens, the fundamental complicity between "free" market capitalism and what could be called "socialism for the rich" is revealed. Giving rise to the well known formula: privatize the gains, socialize the losses -- in other words, legalized swindling at the expense of the general public.

    "The current crisis was fundamentally created *by* government regulation, not despite it! The government guarantees bank deposits against failure, so bank executives can make bets with no downside: if the bet pays off, the bank wins big; if the bet fails, and so does the bank, the government will pay off the depositors."

    There WAS little to no government regulation, so I don't know what you're talking about here. Yes, the FDIC guarantees bank deposits to a limited degree and for very good reasons. But that has nothing to do with the current crisis.

    "The government distorts the housing market by providing tax writeoffs for mortgage interest, underwriting Fannie and Freddie to the tune of trillions of dollars, and since the 1970's virtually demanding that millions of bad loans be made in poor neighborhoods--the housing bubble was NOT the free market at work!"

    This has become the standard conservative fallback position, yes, but very few if any professional economists endorse it -- and for good reason. I agree, by the way, that the push to provide mortgages to people at or near the poverty line was a huge mistake. But this effort was the result of the Clinton administration's desire to compromise with a Republican majority in congress bound and determined to dismantle any remaining shreds of any social safety net, from welfare to food stamps to public housing.

    What those people needed was low cost housing. What they should have gotten was a government program to provide them with low cost housing. But the conservative mantra was privatization, not "big government programs." So, in the spirit of privatization, people who could hardly afford rent were offered home ownership in the form of toxic mortgage deals, so they could become "good, responsible capitalists." I'm not trying to defend Clinton, because he went along all too readily with what was obviously a sham from the start. How do you offer home ownership to people who not only can't afford a mortgage but couldn't even afford to maintain a house even if it were given to them outright? What would they do the first time the plumbing went wrong or the roof started leaking? But the Republicans were in no mood to approve a meaningful program of public housing that might entail, God forbid, some tax hikes for the wealthy, so phony mortgage deals were the best the Democrats could come up with. BOTH parties acted like irresponsible idiots on this issue and there's no way the Democrats should get off the hook on that one, I agree.

    Nevertheless. Despite the absurdity of deregulating Fannie Mae and Freddie Mac so they could provide those absurd mortgages, that mistake in itself didn't produce the housing bubble that got us into our present mess. It was a factor, for sure, but what got us into really big trouble was the way in which the "creative" people in the financial world figured out a way to market this debt, and many other types of debt as well, so the effect of all the many debts on the economy was hugely magnified. Sub-prime mortgages offered to poor people were only a small part of a process involving a deluge of mortgages offered to speculators in both the home and business real estate markets, as well as a long standing policy of "easy credit" via credit cards, auto loans, education loans, etc., and hugely leveraged investments of every sort. None of this was regulated in any meaningful way -- thanks to policies formulated by proponents of privatization, free-market capitialism, etc. -- i.e., thanks to the pie in the sky fantasies of neo-conservatives (called "neoliberals" in Europe and elsewhere). Sure, there were plenty of Democrats who went along, I won't try to defend them. They were ALL asleep at the switch when the shit hit the fan last summer.

    "My perception is that the only way out of the quagmire is for the feds to let the bad banks fail (virtually all of them, from what I can tell), let the inefficient and ailing industries trim down (losing at least one of GM or Chrysler), and to let the many smaller and still vibrant businesses expand to take their place. The feds, however, have neither the desire nor the intestinal fortitude to let this happen, so instead we get the continuing living-dead zombie economy."

    I agree that we should let them fail. But, unlike situations in the past with failures on a smaller scale, letting them fail will NOT lead to a healthier "market" in the future. That is a pipe dream shared by conservatives and liberals alike, but it ain't gonna happen. The current set of failures is simply too huge.

    Again thanks for your comments and I hope we can continue our dialogue. After all, I COULD be wrong. :-)

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  3. You're exactly right that "too big to fail" is indeed the key problem here, the one nobody today knows how to solve. If a business is so crucial to society that the government must intervene to keep it alive at all costs, then it has indeed departed the fertile corpse-fed soil of the markets, for the sulfurous unrotting peat bog of the government agency.

    One solution is indeed to just admit that government-supported companies are fundamentally socialist, so the profits aught to go back to the government as well, and then be distributed in some relatively fair fashion.

    My take is that we just need to let 'em die with dignity. Yes, it's unsettling to imagine Michigan without GM, or New York without the megabanks, but given the accelerating and fundamentally hopeful nature of technological change, how many of those out-of-work tool-and-die or stock mongers will be happily working for Nugoogle by 2015?

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  4. Regarding rationing, I claim money is exactly the means by which we ration consumption today. For example, say I want to fill in the low spot in my driveway using a few tons of any given substance, such as gold. When I go to my local gold merchant, he'll tell me how much that's going to cost, which will be more than I have. My driveway goes without gold.

    The price of gold has thus rationed my access to it. Since there are cheaper driveway fill materials I could use, by denying me several tons of gold society has allocated its scarce resources more efficiently. So from the consumer consumption side, money acts as a rationing system (and vice versa!).

    Similarly, you've got to award ration points based on some complicated formula combining hours worked (to keep people working), productivity (to keep the work useful), and the scarcity and demand for said workers (to get best people into the most important jobs). These are the same factors that a healthy market uses to price labor. Thus from the consumer labor standpoint, ration points are money too (and vice versa!).

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  5. "One solution is indeed to just admit that government-supported companies are fundamentally socialist, so the profits aught to go back to the government as well, and then be distributed in some relatively fair fashion."

    But as I see it, capitalism itself is fundamentally socialist, in the sense that it ultimately depends for its success on society as a whole. This is why I see capitalism as a deceptive and ultimately destructive practice, because its true nature is hidden. The dirty secret of capitalism, like the dirty secret of Bernie Madoff, is revealed ONLY when something goes wrong and the inner workings of the scheme can no longer be kept under wraps. At that point the CEOs and investors come to the government begging for bailouts. Privatizing the gains and socializing the losses is what capitalism is all about. Behind its "free market" facade, it is only free when all goes well. It is not free to fail.

    It would be nice if we could simply let these huge banks and other businesses "die with dignity," and in the past that approach has more or less worked (though not without considerable pain spread among a great many innocent people, NOT just the investors and CEOs). But what we are now hearing from just about all the economists is that we can't allow them to fail without at the same time bringing the entire financial apparatus down with them. If you agree with me that this would be a good thing, then fine, we have no problem. But the destruction of that financial apparatus and the economy that depends on it can only lead to some form of socialism. As I see it, whether anyone likes it or not, there will be no other option. Fine with me -- but I have a feeling you might not see that as such a desirable outcome. In which case I invite you to come up with a better one.

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  6. "Regarding rationing, I claim money is exactly the means by which we ration consumption today. For example, say I want to fill in the low spot in my driveway using a few tons of any given substance, such as gold. When I go to my local gold merchant, he'll tell me how much that's going to cost, which will be more than I have. My driveway goes without gold.

    The price of gold has thus rationed my access to it. Since there are cheaper driveway fill materials I could use, by denying me several tons of gold society has allocated its scarce resources more efficiently. So from the consumer consumption side, money acts as a rationing system (and vice versa!)."

    If money were itself the perfect rationing system then no other system of rationing would ever be needed. During World War II, however, rationing was implemented because the financial system itself was not able to "ration" resources in a productive manner. For example, gasoline became scarce in the USA, as one might expect. If "free market" forces had been allowed to prevail, then the price would have skyrocketed and only the wealthiest could afford to drive their cars. Workers wouldn't be able to compete on that market and as a result, they wouldn't be able to drive to work, so the manufacturing of all the many products necessary for the war effort would have stalled and we would have lost the war. By rationing gasoline, the government ensured that those who needed it (the workers) got it -- and the supply to those who didn't need it (e.g., the idle rich) was restricted. In other words, we were able to win the war only through a managed economy. The "free" market in itself was not capable of doing that job.

    "Similarly, you've got to award ration points based on some complicated formula combining hours worked (to keep people working), productivity (to keep the work useful), and the scarcity and demand for said workers (to get best people into the most important jobs). These are the same factors that a healthy market uses to price labor. Thus from the consumer labor standpoint, ration points are money too (and vice versa!)."

    Again, in the "new economy" I'm predicting -- even if you want to see things in the most pragmatic and least humanistic terms -- rationing and not "free market capitalism" will be the only way that the workers whose efforts actually drive the forces keeping society afloat can be provided with the necessary fuel, not to mention food, clothing, housing etc. so they can do their jobs.

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  7. I'm a bit ashamed to say that I haven't read all the great comments, i.e. the points & counterpoints (I'm sure you can understand...the present capitalistic system leaves me drained with little personal time for reflective thought).

    The rationing system you propose did catch my eye though. Let's think this thru, shall we.

    Does it mean that if I have 6 kids, I'll have to pay penalties because I've reproduced excessively and owe the world?

    Does it mean that if I can't control my appetites (be they food, drugs, alcohol, gambling, etc) that society will nevertheless cover my expenses?

    Does it mean that if I wish to live 100 miles from my job, that I get to drive the freeway paying no more taxes than the guy who bicycles to work everyday?

    My issues with any "socialistic" system is that personal accountability usually is given short shrift. And heck, I won't even get into the subject of individualism ('cause it's well known that group think is intolerant of that trait).

    P.S.
    I like your post, there's merit in your argument...but the devil is in the details.

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  8. Anonymous, your questions seem to me to reflect a stereotyped if not caricatured view of socialism. We already live in a society with a strong centeral government that can already make the sort of decisions that worry you. If you'd rather make your own rules, then you should be advocating anarchy.

    As for personal accountability, what sort of accounability was demanded of the dunces who sold all those "toxic assets" in the first place and created the present mess? Even now they are not being held accountable. Under a socialist government such recklessness would not be tolerated. Why should it?

    In any case, the point I'm making is not necessarily that socialism is a good or desirable system (though I certainly believe it can be both), but that there is presently no way for us to avoid it. The process has already begun, and for good reason, because there are no alternatives to nationalization. Once we reach the point that either the financial system collapses totally or the value of our monetary system is totally destroyed (not only the dollar but all currencies everywhere), then what choice will there be other than a managed economy?

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