#102: The great divide

THE EMERGING SCHISM IN CAPITALISM

In comparison with most articles here, this discussion is unusually lengthy. It has also taken longer than usual to put together, and covers some complex issues. It does, however, highlight an emerging split within the “capitalist” world – a split that we cannot afford to ignore.

In essence, it describes how a fanatical extreme has controlled “free-market” or “capitalist” economics for far too long. This fanaticism is described here as “laissez-faire”, to distinguish it from the more moderate, “popular” form of capitalist thinking which recognizes both the value of the private-public “mixed economy”, and the importance of regulation and of a strong ethical code.

If you want a shorthand term for “laissez-faire”, ‘junglenomics’ is suggested. It describes a form of near-anarchic, “survival of the fittest” thinking which is close to “law of the jungle”.

It puts its faith in “caveat emptor” rather than regulation.

It argues that private ownership (rather than free and fair competition) is the essence of the market economy.

And it scorns government (except when it needs to be rescued by the taxpayer, of course).

This thinking, manifested through deregulation, created the debt explosion and the escalation in risk which caused the global financial crisis (GFC) of 2008. We are still paying for that crisis, and should anticipate a sequel, especially if the supporters of laissez-faire succeed in repeating the recklessness of deregulation.

Given President Trump’s deregulatory agenda, such a repetition seems increasingly likely.

This time, however, some perfectly decent “capitalists” are likely to pursue a very different course, with Europe providing the lead. In the European Union (EU), the emphasis increasingly is on macroprudential regulation, enforcement of competition, and the protection of consumers and workers.

As this schism widens, the previously-consensus “Anglo-American economic model” could become exactly that – a model supported only by America and Britain (and, conceivably, by the United States alone, if British voters oust the economic “liberals”).

In memoriam

Perhaps because so many of my forebears went off to fight in the First World War – though fewer returned – I’ve been more than usually interested in the commemorations that have been taking place since 2014. Last year we had the Somme and Jutland, and this year, Passchendaele.

But another anniversary looms a couple of years ahead, and it’s to be hoped that this one is celebrated to the full, not least because of its huge contemporary significance. That anniversary is the bicentenary of the first Factory Act, which became part of British law in 1819.

The scope of that law was extremely limited, and its enforcement left a great deal to be desired. It’s important, though, because it is established the principle that the state has a duty to protect working people from the worst excesses of unscrupulous employers.

Over the intervening years, in Britain and around the world, this principle has been extended, to the point where workers in most advanced economies enjoy substantial protection from exploitation and unfair treatment, as well as from hazards in the workplace. In parallel with this, we have enacted a great deal of legislation to protect customers from unscrupulous practices.

The result is that, today, both workers and consumers benefit from extensive protection. Safety at work is part of this, as are entitlements such as sick-pay and paid holidays, and provisions guarding against unfair dismissal. On the consumer side, protection is equally extensive. For example, the roadworthiness of taxis is generally tested to levels more demanding than those which apply to private cars, and the licensing of drivers includes criminal records checks. Hotels, too, are extensively inspected, over vital issues such as food hygiene and fire precautions.

All of this adds costs, which taxi firms, hoteliers, and employers in general, must pass on to their customers. We pay a little more, but what we get in return is worth it. We can step into a taxi knowing that its brakes work properly, and the driver isn’t a convicted rapist. The hotel that we choose for our holiday or city break mightn’t be perfect, but we can be pretty sure it isn’t a twin of Grenfell Tower.

For the proprietor, this regulation can be irksome – but is made less so by the knowledge that all his competitors, too, are regulated in exactly the same way. If some players could evade the regulations, of course, they could cash in, offering lower prices to attract unwary customers, and putting the law-abiding supplier at an unfair competitive disadvantage.

A further stage in the protection of the consumer has become topical in recent years, and that is the regulation of financial services. When we buy a fridge or a car, we have the assurance that the product is safe, but, beyond that, most of us also have a pretty good idea of what the product does, and how it does it. Even the most informed lay person has much less knowledge of financial products, though, so additional protection is required. This extends into macroprudential regulation, because a dishonest or reckless financial firm can endanger, not just the customer, but the broader economy as well.

So customary are these protections that we take them for granted. They’re not perfect, of course – nothing can be. But, when something does go wrong, the focus immediately falls on regulation, and three questions tend to be asked.

Did someone break the law?

Was enforcement faulty?

Or do we need to tighten the rules?

The fact that the focus automatically turns to regulation shows quite how ingrained our assumptions about the benevolent role of oversight have become.

Turning back the clock

There are, however, some who don’t share the widespread acceptance that regulation is a good thing. Bizarre though this may seem, it doesn’t seem to matter to these people whether your hotel is safe, your taxi is driven by a convicted criminal, your employer tramples all over you, or a bank or insurer exploits your comparative ignorance of financial products. Neither, it seems, are they much concerned about practices which create a systemic threat to the system.

This viewpoint, which we can label “laissez-faire”, is the fanatical end of the capitalist spectrum. It states, mistakenly, that private ownership (rather than free and fair competition) is the core principle of market economics, and that government is, in effect, a necessary evil, to be minimized wherever possible. This makes advocacy of privatization a matter of principle, coupled with a sometimes visceral dislike of the public sector.

With private enterprise, always and everywhere, labelled “good” – and the public sector labelled “bad” – this is a very black-and white worldview. In fact, if capitalism can be likened to a faith (which, for extremists, it can), the “laissez-faire” persuasion is a hard-line sect within that faith. Though philosophically a sect, laissez-faire puritanism has long since ceased to be a fringe group. Indeed, it has dominated capitalist thinking for far too long.

To extend the faith analogy a little further, the laissez-faire domination of capitalism is equivalent to the Inquisition taking over the sixteenth-century Vatican. That never happened, of course. But, if it had, Protestants would not have been the only victims of Torquemada’s wrath – equal venom would have been directed at “compromisers”, meaning anyone having the temerity to suggest that the Lutherans might not be wholly bad, and that an accommodation could be reached with the followers of Calvin.

Where this is particularly relevant right now is in the field of regulation. For the zealots of laissez-faire, minimizing government also means minimizing regulation.

In particular, they argue that no good can ever come of government interference in contractual arrangements between employers and employees. Customers, meanwhile, don’t need the sort of protection they have today, because self-interest, in the form of caveat emptor (“let the buyer beware”), is a better defence than regulation.

Over an extended period, the hard-line laissez-faire persuasion has taken over the commanding heights of capitalism. Sometimes known as “the Washington consensus” and “the Anglo-American economic model”, it has long been established as orthodoxy, not just in America and Britain, but in many other countries, and in important transnational organizations as well.

Trump and the zealots

The United States has long been the home of laissez-faire extremism, and never has this been the case more emphatically than under Donald Trump. The wave of deregulation which rolled on under Bill Clinton and George W. Bush was stemmed by the Obama administration, which favoured a more proactive role for government. To the zealots, this was tantamount to betrayal, and many of them regard “Obamacare” as something not far short of treason.

With Mr Trump in the Oval Office, economic zealotry is back – with a vengeance. Most significantly, the emphasis is on weakening regulatory oversight, including rolling back the 2009 Dodd-Frank Act, and the related “Volcker rule”. Instead of doing something really useful – like, for example, “trust-busting” market-dominating players in the tech space – the focus is firmly back on “deregulation”.

In anyone who understands how economics and finance really work, hearing gleaming-eyed fanatics talking about “deregulation” provokes a frisson of fear – because it means that the lunatics, far from being chastened by past experience, are on the loose again.

Because, of course, we’ve been down this road before.

We’ve heard all the gibberish about “light-touch” regulation.

We’ve heard how banks can be trusted to be the wisest custodians of their shareholders’ best interests.

We’ve heard the rabid advocacy of “animal spirits”.

Worst of all, we’ve heard the rants about how all things government are bad – rants which didn’t stop until the laissez-faire zealots found themselves on their knees, begging for rescue from the very same state which they had spent a decade and more denigrating.

The peril of extremes

If there is a single lesson that we should all have learned by now, it is that all forms of economic extremism lead to disaster.

After collectivism crippled the Soviet Union and its eastern bloc satellites, most sensible people thought we’d learned a decisive lesson about the dangers of fanaticism. It turned out, however, that the laissez-faire extremists were plotting catastrophe on a scale dwarfing the localised disaster of Soviet communism.

This really got under way in the second half of the late 1990s, and the tragedy is that so many were taken in by the fanatics.

We accepted the nonsense that low wages could make an economy prosperous, an imbecility addressed in the previous discussion.

We believed the gibberish which said that there was no danger in using cheap and easy credit to fill the gap between high consumption and low wages.

We listened open-mouthed, in the midst of the biggest credit-fuelled bubble in history, to declarations that “boom and bust” had finally been buried.

And we watched as the fanatical pursuit of debt-financed “growth” brought the world financial system to the brink of catastrophe.

No-one should be in any doubt that “deregulation”, and related excesses, caused the global financial crisis of 2008. Deregulation undermined the monitoring of what banks were up. A more robustly-regulated system simply wouldn’t have tolerated sub-prime mortgages, the packaging of toxic debt products, and other techniques for driving a wedge between risk and return. “Cash-back” mortgages, and excessive loan-to-value and debt-to-income ratios, would not have been acceptable in an earlier era of more robust oversight.

As we now know, taxpayers around the world had to step in to rescue the laissez-faire fanatics from the consequences of their own hubris. This showed up their self-serving hypocrisy for what it was, because, if they had really put their faith in market forces alone, they would have accepted the wipe-out of banks and bankers as the logical consequence of “animal spirits”.

Instead, of course, they ran for whatever cover the much-derided state could provide.

The continuing high price of folly

Moreover, the billions spent by governments rescuing banks was just the tip of an iceberg of consequences created by deregulatory madness. Worst of all, the sheer scale of the debt burden created by these fanatics has forced us into an era of unprecedented low interest rates, with no prospect whatsoever of restoring normality any time soon.

By ‘normality’ is meant interest rates that are at least two percentage points higher than inflation, giving investors a real return on their capital. Anything less than that is both abnormal and destructive – and an unacceptable price to pay for allowing the lunatics to take over the asylum.

Of course, policies of ultra-cheap money have pushed debt to levels far higher than they were in 2008 – but the damage has extended very much further than that. For a start, cheap money has stymied ‘creative destruction’, keeping alive businesses which really ought to have disappeared to free up both capital and market space for new, more dynamic players.

The effect on saving, and on the broader issue of futurity, has been devastating. Just as debt has escalated, pension provision has collapsed. According to a recent report, the aggregate pensions shortfall in eight economies – Australia, Canada, China, India, Japan, the Netherlands, the United Kingdom and the United States – stood at $67 trillion in 2015, and is set to reach a mind-boggling $428 trillion (at 2015 prices) by 2050.

The eight-country pension shortfall is growing by $28bn per day, and, in the United States alone, is expanding at the rate of $3 trillion per year, roughly five times what America spends on defence.

Essentially, what this means is that the recklessness of the past fifteen years has made it impossible for people to save sufficiently for retirement.

Calculations for this paper indicate that the collapse in returns on investment has multiplied savings requirements by about 2.7x. So, to get the same return that he or she would have earned by putting aside 10% of income before the crash, someone now has to save 27% – and that’s simply impossibly unaffordable.

The shortfalls in provision which have arisen so far represent just the slump in returns on investment made previously, during the pre-crash era. The dramatic rate at which shortfalls are escalating, on the other hand, reflects the sheer impossibility of saving enough in an environment in which returns have been crushed.

Economic distortion

Another dire consequence of the policies forced on the authorities by previous madness is the distortion of the relationship between assets and income. Because asset values have soared – into, and arguably beyond, bubble territory – whilst returns have crashed, the balance of incentives has tilted dramatically, in favour of speculation rather than innovation and investment.

Given the sheer inability of many governments to understand this concept, it needs to be spelled out.

Imagine you have, say, $500,000 to invest. If you put this into a business, you’ll struggle to earn a decent return in a depressed economy in which demand is dependent on ever-expanding credit.

In certain pivotal sectors, the struggle is made even harder, for two reasons. First, cheap money is keeping afloat competitors who really ought to have gone under.

Second, some governments are unwilling to break up either cartels or market-controlling giants, which – amongst other negatives – have enormous predatory pricing power. To cap it all, if you do make a success of your investment, you’ll be taxed pretty heavily on the income that it generates.

Given this, wouldn’t it be better – and easier – just to put your capital into property or other assets? Their values are unlikely to fall – because governments shamelessly back-stop them – and the capital gains that you accumulate will be taxed at rates lower than income.

Many governments are incapable of understanding this process – let alone of doing anything about it – so are baffled by the resulting symptoms. As the centre of gravity of activity swings from the innovative to the speculative, sectors like real estate and financial services expand, whilst activities like manufacturing shrink. Because of the growth in sectors which generate money but don’t add much value, both real wages and productivity trend downwards. Debt escalates as both households and governments struggle to make ends meet. In the worst cases, the current account deteriorates as outward flows of income to overseas investors escalate.

The country’s exchange rate slumps as investors start to question the validity of a national business model based on the speculative use of cheap capital. This in turn sparks inflation – and will in due course force up interest rates, finally killing the cheap-money economic fallacy.

This is now happditening to Britain. If the dollar were not supported by the “commodity prop” of dollar-denominated commodity markets – which means you have to buy dollars before you can purchase commodities – it would probably be happening already to the United States as well.

Wisdom fights back

The good news is that some countries are beginning to recognize the folly of laissez-faire and the finance-based economy. Chief amongst these realists are the Europeans. The EU has shown itself prepared to support what really matters in free-market economics, which isn’t private ownership, or a small state, but free and fair competition. That’s why Europe’s regulators are toughening their stance over market distortion – and the investigation of alleged cartel activity between German car manufacturers underlines that this policy isn’t specifically anti-American.

The next thing that Europe is likely to do is to clamp down hard on the “gig” economy.

Its supporters like us to call it the “sharing” economy, but then the laissez-faire camp need no lessons from George Orwell on the usefulness of euphemism.

When the aim is to drive down wages and undermine working conditions, this is called “reform” of the labour market. “Liberalization” is the laissez-faire term for undermining consumer regulation, and going soft on market concentration. “Light-touch regulation” means turning a blind eye to dangerous practices in the financial sector. “Freedom”, as the laissez-faire camp uses the word, means allowing the powerful to trample roughshod over everyone else.

We should be in no doubt about what the “sharing” concept really amounts to. On the labour side, it means taking away both job security and the protections which, over two centuries, have become synonymous with working conditions in a civilized economy.

For the customer, it means circumventing regulations designed to protect the public, simultaneously under-cutting traditional businesses operating under established rules.

Though some European leaders – such as M. Macron in France – might hold out for laissez-faire, they’re unlikely to succeed.

As far as Europe is concerned, laissez-faire – or economic “liberalism” – has been rumbled.

The politics of sanity

This, of course, also highlights political choices. Voters – who are also both consumers and, usually, workers as well – have three main choices.

The first is to defy recent experience and enlightened self-interest by letting the laissez-faire camp swing the wrecking ball again.

The second is to ignore precedent and elect collectivist politicians.

The third, rational choice is surely to choose a “popular capitalist” form of free-enterprise politics which dismisses both laissez-faire and collectivism, and puts the emphasis on tight regulation, robust ethics, the mixed economy, and a fearless defence of free and fair competition.

Unfortunately, because the label “capitalist” is applied without discrimination to both the laissez-faire and the popular strands of market-favouring thought, the probabilities are likely to swing increasingly towards collectivism.

In America, it was Wall Street excess which took Bernie Sanders remarkably close to the Democratic nomination and, in Britain, it is laissez-faire fanaticism which could put Jeremy Corbyn in power.

Faced with an incumbency which wants to give the green light to undercutting wages, taking away employment rights, undermining consumer protection and scaling back public services, a vote for Labour can seem highly rational. Mr Corbyn must be cheered every time he reads an article praising the “gig economy”, or advocating yet more privatization.

Finally, in this context, the negotiation of post-“Brexit” trade deals gives the British authorities a temptingly easy way to make matters even worse than they already are. A trade deal with the United States, if slanted towards laissez-faire, could make it impossible to reach a constructive agreement with Europe.

If, for example, the British decide to admit chlorinated chicken, genetically-modified produce and hormone-treated meat – even after a transitional period – their farmers would find themselves barred from European markets.

Much more seriously, the British (and the Americans) already completely fail to understand European intentions on financial services, where the aim is not to rival London and New York in third-party markets.

Rather, the erection of compliance barriers to Anglo-American finance would create more than enough scope for Frankfurt, Paris and other European financial centres to expand to the point where they supply the entire internal needs of European commerce.

World-changing

What we are witnessing, then, is an emerging schism within the “capitalist” world.

Whilst America (and perhaps Britain) persist with laissez-faire “junglenomics”, Europe is opting for a “popular capitalist” version, with the emphasis on regulation, ethics, free and fair competition, and the mixed economy.

Ironically, the result is likely to be that “the Anglo-American economic model” becomes exactly what it says on the tin – a model supported by Britain, America, and hardly anybody else.

 

 

 

 

 

 

27 thoughts on “#102: The great divide

  1. “should all have learned by now, it is that all forms of economic extremism lead to disaster.”

    As soon as the medium of exchange turns into greed, and that happens much faster than economists want us to believe, that, dear readers and doc, is the first stage of collapse.

    When it sets in, there’s no way to avoid the next stages.

  2. A really good article, Tim. I’m not so sure though that the EU will adopt a more popular capitalist version of capitalism. After all they are fully immersed in neo-liberal politics, which goes hand in hand with junglenomics. I think it’s both or neither. We’ll have to wait and see.

    Regarding the Economy, you can’t fix stupid. I know MMT interests you and it is the only realistic way of looking at the economy and understanding all the lies and falsehoods backing up the status quo. Rodger Malcolm Mitchell has just put together a list of 50 lies we have been told and the brief response to each. Have a look. It’s very revealing;
    https://mythfighter.com/2017/08/06/fifty-lies-you-have-been-told-about-our-economy-do-you-believe-any/

    • I really can’t see the EU buying into Trump-style deregulation – much as Macron might favour it. I’m not altogether sure Britain will, either – the voters expect the authorities to be proactive on public safety.

  3. Britain is a junior partner, you must always remember this. It long ago ceded real power to both America and Europe, a calculated move by the British elite to maintain their influence for some time (and it worked).

    Maybe the British people understand this, maybe not. But if they want more sovereignty, they must give up power. Britain can no longer have both, as they once did in the past.

    I think the long tightrope act by Britain is coming to an end, as they are torn in three directions: sovereignty (including even regional sovereignty as evidenced by Scotland), the endless needs of the American financial and military machine for support, and the desire of the Europeans to include them in their framework, but only if the Europeans control things.

    It certainly looks that way to me. Interesting times.

    • Certainly interesting times.

      I think it’ll soon be decision-time for the UK – get closer to the US, or do a deal with Europe. Obviously, I hope it’s the latter. The government seems hopelessly divided over what “Brexit” actually means, and really needs to make its mind up and stick to one agreed plan.

      On the other side of the Channel, it’s interesting to see that M. Macron’s voter approval rating is reported to have fallen to 36% – that was a short honeymoon….

  4. Tim – thank you another well written article.

    I have a question – in seems like every day in the Guardian there’s a piece about how Government cuts are hurting all our services. Recently they have been about mental health care – especially for the young and wheelchairs for the disabled.

    Now the Government has announced £1.3bn of extra funding – which just seems to me to be an attempt to restore it to its previous levels from 2010. But in the years from 2010 – many have suffered through lack of proper care.

    With wheelchairs – many disabled people lack mobility – yet there’s no more money available.

    Now is it that our creditors would see us as an even worse risk if we borrowed more to help our own people out – yet somehow we’re going to spend perhaps over £100bn on an updated defense system.

    • Thanks, Donald.

      There are major funding challenges which, in fairness, would baffle any administration right now. The real cost of the NHS is rising more rapidly than inflation, requiring real-terms increases in spending. Demographics are pushing up the cost of caring for the elderly, a huge problem made worse by the reluctance of those with assets to bear at least part of the cost. Ultra-low rates of return on investment have played havoc with pension provision.

      One obvious solution would be to start pushing rates up, which could improve the pension position whilst shoring up Sterling to reduce inflationary pressures. This would be likely to reduce house prices and rents, but, if done gradually, this would be positive, helping the young whilst improving labour mobility. Housing costs are a big push-factor where public sector pay, and hence cost, is concerned. There has to be a limit to how long public sector workers will put up with 1% pay rises when inflation is pushing towards 3%.

      Trident replacement makes very little sense, given the run-down of conventional defence. I’ve no idea how even one of the new carriers can be protected properly, with an active escort (destroyer and frigate) strength of just 17, meaning at most 6 available after allowing for transit times, refits and training. Trident, like the carriers, seems more a prestige than a practical proposition.

    • This is where an understanding of Modern Monetary Theory is able to figure out a solution.
      The” Household Analogy” so beloved by politicians and their cronies would have us believe taxpayers have to foot the bill for future pensions and that we will leave a huge debt for our children to bear into the future. If you believe this you have drunk the Kool-ade too!

      In fact paying pensions and other entitlements is quite divorced from taxation and borrowing.
      The federal government is uniquely able, through constitutional laws, to create dollars [or pounds in the UK]. Everyone else is a user of the currency and they have to get money before spending any, including paying tax. Not so for the federal government.

      The government can buy all its debts as it has infinite liquidity. As long as there are goods and services for sale they can be purchased. So the Trident, or the pensions, can be funded simply by the act of approval by Congress or Parliament. The sum is simply written up into the customers reserve account held at the Fed.Tomorrow’s pensions are treated the same way, tomorrow!

      Cutting services etc is a con perpetrated by the LNP [and Labour!]. It is quite unnecessary. The very idea is bad economics.

  5. The age of solutions is now closed. To be honest it was probably already closed by the time the problem became articulated in the seminal book Limits to Growth in 1972. The World chose to go for broke. Rather than decelerate we went full bore, foot to the metal, towards the cliff edge. Neoliberal economics were implemented by Reagan in the US and Thatcher in Britain.

    Driving this forward was the growth in plunder from developing countries, neoliberal style. Overthrowing democratic or left-leaning governments (27 countries on 81 occasions), installing compliant dictators/corrupt governments, deregulation of their economies, getting them into unpayable debt by dodgy infrastructure spending. and forcing them to sell national assets and relinquish control of their natural resources to western corporations.

    I’ve got news for you. We live in a world with finite fossil fuels and when they’re gone, they’re gone. We are in fight for the last nation standing now. A population of 65million with a long term carrying capacity of under 20million isn’t a strong position for Britain to be in.

  6. Thanks Tim – I had mentioned a gentle increase in rates in an earlier post and it would be very sensible to start now.

    I think People with assets will have to bear more of the costs – my mother sold her flat and now lives in rented accommodation. The proceeds mean that she can fund her own home help for quite a time.

    I’m not sure how you’d persuade others to do the same and get elected.

  7. Your last paragraphs were interesting, Tim. You highlight the possibility of the Anglo-American economic model being marginalised. We are talking about is the “reserve currency” of the world here. Britain’s pound and the US’s dollar have had the honour of being the reserve currency of the world since the beginning of the 19th Century. Ultimately this is backed by military might and the US out-spends everyone else in the world put together. Other Nations (Russia, Iran) may have more energy and resources but can they defend them? My hunch is yes, but may bring us to the brink of world war. Much will depend on which side China and Germany back.

    Let see how Germany reacts to the US efforts to stop Russian gas infrastructure from being built into Europe.

    • Well, there are two issues here – the model, and the reserve currency.

      In a saner world, the “Anglo-American economic model” should have been discredited once and for all after 2008, when we saw the consequences of “finance capitalism” – something for which we continue to pay an unacceptable price. In reality, I suspect it will take a second spectacular failure to demonstrate that running an economy on ever-expanding debt isn’t a great idea.

      As for the dollar, it really depends on something that’s been called the “petro-prop”. In other words, because oil (and other commodities) are priced in USD, anyone wanting to buy oil (etc) has first to buy dollars.

      This in-built demand for dollars enables the US to keep expanding its debt without the value of the dollar falling sharply. Indeed, it has been speculated that it was Saddam’s published plan to price oil in other currencies which may have tipped the balance in favour of invasion in 2003.

  8. Hi Tim

    Thanks for another very perceptive article on a vital subject.

    I wonder to what extent your views would be changed when looked at through the prism of technological change. By this I mean that we are grinding down the route where AI and robotics will become major issues in society in fairly short order and both of these have the possibility of up ending all our arrangements and in themselves largely determining the economic and political landscape.

    An Oxford study of a few years ago said that it would be possible to replace about half of all jobs by 2030 with AI/robotics. Now even if you accept that this is unlikely to happen as fast, it could be fast enough to causes what amounts to a revolution in society in which case it seems that a lot of this type of discussion becomes rather redundant and the issues become much larger and indeed take us nearer to “extreme” solutions. Would this render laissez faire capitalism redundant? I think it might in which case the collectivist solution may move somewhat nearer. By this I mean that you can’t have firms employing robots to produce goods no one can afford because they’ve been put out of work by those robots; you would need rules concerning the redistribution of income for example. You see the sort of issues that would arise and I raise this matter because it is neither science fiction nor is it something that is far away in the future.

    • Thanks, Bob, for some very good points.

      The question of AI and robots is a fascinating one, and touches on many issues.

      We wear two hats, as consumers and workers, and that’s in line with the energy economy as an in/out cycle (energy in, work out, and so on). Robots can produce, but not consume. So, theoretically, we find ourselves with robots producing, and people consuming. The only way to finance this, that I can think of, is to tax the robots, and that’s something only government can do. So, in that direction, we trend towards collectivism.

      But taxing robots obviously means taxing the owners of the robots. These owners won’t want that. They’d rather (in a theoretical, 100%-robot economy), that all profits went to the owners of the robots, who then dole out a grudging minimum to humans, who they need as consumers. This tends the other way, i.e. towards ultra-laissez-faire.

      Sanity must lie somewhere in the middle, but conflict seems likelier. Historically, when a minority accumulates too much wealth and power, it is dispossesed or destroyed by the majority.

      There’s another version, where the profits don’t go to the owners of the robots, per se, but to those who lease the robots to those who actually “own” (meaning use) them. That’s “financial capitalism”, or the “Anglo-American economic model”.

      So we have a number of possible permutations, and a lot of possible conflicts. Personally, I’m convinced that the “A-A” model of finance capitalism is self-destructive. Logically, then, the UK economy collapses, and the US economy is crippled, leaving China and Europe in pole position.

      This isn’t as outlandish as it might at first sight appear. The US could be submerged under its own debt – which is how “finance capitalism” destroys itself – and ravaged by political unrest caused by widening inequalities, plus the failure of Trump (and maybe future Trumps) to restore the living standards of “middle America”.

    • I think I should add that collectivism is pretty likely in Britain. The Conservatives have three main weaknesses.

      They depend on an ageing voter demographic.

      They are influenced by some bizarre economic ideas; and

      They’ve no idea how to finance burgeoning costs such as health, and are for the elderly.

      On top of this, they are extremely polarised, as we’re seeing in the “hard Brexit” vs “transition” division.

      Add in the impending economic slump and they begin to look remarkably like Labour in the years immediately before 1979.

    • At the moment I feel that the elements of the “4th Industrial Revolution” are things that are being done “to” rather than “for” the population.

      The “Revolution” was announced at this year’s World Economic Forum, which intuitively makes me distrust the motives behind it.

      If its impacts were just on low-salary workers then I guess it would just be implemented, without thought to the consequences for those workers and indeed whole communities (as per the coalmine closures for example).

      But to take AI as an example, it is intended to use it amongst other things to progressively replace accountancy and the legal profession – something accountants and lawyers might vocally and collectively object to. Also, doing this may result in a 2-tier approach for both of those professions – a franchised AI-based service sold via your local supermarket and (for those who can afford it) a much more traditionally expensive service staffed by humans.

      Many of the UK Parliamentary Select Committee proceedings have wound up saying a “national conversation” is needed on multiple topics, however I’m unaware of any that have happened. Yet this Revolution even if partially implemented will have huge impacts on society.

      I think what Governments lack is future vision, one which extends beyond (in the UK) their 5-year Parliaments.

    • Hi have a read of ‘The Midas plague’ by Frederik Pohl which offers one scenario of a robot future that produces wealth – and how we humans deal with it. There was a television version made around 1965 for the BBC2 series – ‘Out of the Unknown’

    • Jim

      I agree with what you’ve said above but this is all proceeding under the radar as it were and I can foresee a situation where we are some way down the road with AI/robotics but have yet to have that “significant conversation” that you mention. I think we could then well be faced with an economic political and social situation that is chaos in all but name and chaos generally is not a good founding principle for anything.

      Following the laissez faire solution here seems to me the one thing that will guarantee the dissolution and disintegration of society as we know it and bring about a dystopia that we can only imagine.

      I actually find anarcho-capitalistic theory (similar in many ways to laissez faire) quite interesting and it has a lot of valid points but imagining it as a viable system of social organisation is much more difficult and I do question whether it is a practical solution at the end of the day.

    • There was a good program on the BBC yesterday ‘The secrets of Silicon valley’ One system being developed can scan thousands of X-rays looking for cancer and actually beat a panel of experts.

      An experienced radiographer can take 15 or so minutes of analysis work while the neural net A.I system did it in fraction of a second.

      Then of course there’s the self driving trucks. One person who was interviewed in the USA is preparing for an apocalypse as people lose their jobs. With 300 million guns in the US there could be quite a battle.

      On the positive side imagine the massive efficiency gains in our NHS starting with the analysis of X-rays. Your results would be ready immediately with the diagnosis sent to your family doctor and the specialists who can provide treatment.

      Perhaps we’re going to have to change the definition of work. And of course how will all the extra wealth created by any future A.I. and robots be distributed.

      As mentioned in my previous post Frederik Pohl provided an amusing answer – sometimes you can have too much of a good thing.

    • Another set of books to add to your reading list. Iain M Banks’ Culture Sci-fi books. A future society who have discovered an infinite space-time energy source and is run by A.I.s for the benefit of humans.

      Back to reality, can you run A.I. computers in a wood burning society, which is our destiny after we have burnt through our fossil fuel ? LOL

    • ED – I don’t think we’re going to run out of fossil fuels – rather they simply won’t be needed in the not too distant future. Our standards of living may become lower – but I think we’ll be a lot happier.

  9. Donald

    Many thanks, your example demonstrates the beneficial use of AI to enhance capabilities, which are clearly beneficial, however as currently expressed the plans for AI will result in a partial (and perhaps with time a complete) replacement of capabilities, without it appears any regard for the socioeconomic implications and consequences.

    The guardians of the latter are our elected representatives, however given the incapabilities demonstrated thus far over UK Brexit I’m seriously questioning whether they’re aware of potential issues, let alone capable of exerting constraint on our behalf.

    • Hi – well the program did actually focus on the dark side of Silicon valley with some fearing an apocalypse.

      It comes down to a question of what are we to do with our lives if a machine can do most jobs better than a human – plus how the wealth will be distributed.

      I suspect there will be some major social unrest in the not too distant future – some generated by severe economic problems – others by the A.I revolution we’ve been discussing.

      I spoke to my neighbours a short while ago and they are worried about their young children’s job prospects in 10 – 15 years time. So the rise of A.I and robots is – if you like – already causing social concern.

      Regarding our politicians capacity in dealing with the future – I’ve written to my MP several times over the past few years – and sometimes just get a generic reply back.

      I suspect I’d get a pre-written response if I asked about their future policies on A.I. :-

      Dear Donald – thank you for your letter about the rise of artificial intelligence and robots.

      We in the Government see a future full of new opportunities for young people seeking employment – A.I and Robots will turn our country into a land of plenty.

      Thank you for your letter.

  10. A name everyone has forgotten, except by a few Worcestershire hicks, is Charles Fitzclarence, Brigadier. His defense of Gheluvalt, Oct 28, 1914, something celebrated hugely at that time although virtually in the memory hole today, prolonged the war by 4 years and killed 9 million more Europeans, while opening the door to various nonEuropeans.

    Britain has gone all the way to screw Europe since the battle of Blenheim, if not before, and it will continue to do so and try to undermine whatever Europe is doing.

  11. Interesting piece in the Guardian which mentions the economist Steve Keen and his book ‘Can we avoid another financial crisis?’ Keen says that Australia, Canada, South Korea, Sweden, Norway and China could become future debt zombies.

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