Originally Posted by Brian Rush

Investors seldom see that they are creating demand; what they normally do is respond to demand that they can already perceive. Then other investors come behind them and respond to the demand that is created by investment.

What about when someone is creating a new product or adding new product features? Investment doesn't follow what demand is, it follows what demand is expected to be. Sometimes people guess wrong, but to explain a depression one has to answer why people were guessing wrong en masse. Distribution of income doesn't fully explain this, since one would expect investors to be aware of the buying power of the great mass of consumers. One has to explain why investors are creating products as if people had more wealth than they really have, and the reasonable explanation for that is credit expansion.

Now that doesn't mean distribution doesn't matter -- in fact a major effect of credit dependence is to distort pricing in a way that benefits three groups (owners of expensive capital goods, owners of substantial real estate and lenders) that then are likely to gain increasing share of overall resources. This in turn creates an increase in firm size and hierarchical decision making which feeds into the misallocations of the boom.

Essentially, you're seeing the distribution as the causal factor, while I'm seeing it as a particularly visible symptom of the boom-bust cycle.

Originally Posted by Brian Rush

That doesn't mean there's no difference. If your income were double what it is now, wouldn't the same words describe your condition -- that is, wouldn't there still be a great many things that you would want and could not afford to buy? But you would be buying more than you are now, nonetheless.

Probably I would, but more income wouldn't just change how much I bought, it would change what I bought. For many categories of goods, my pattern of purchasing would be quite different (larger, newer features, more frequent replacement, etc).

Consider the market for televisions. They all have similar core functions, but no retailer could possibly stay in business without recognizing the differences between them. Some are larger, some have better resolution, some have more inputs, some are more reliable, etc. Now at the peak of a boom, TVs are being produced in a particular distribution, but that distribution is relative to boom incomes distorted by credit availability. When the credit glut turns to drought, the actual incomes are revealed and its not just that there are "too many" TVs -- it's the wrong distribution of TVs. Say, 40% of the market was for TVs in the 40" range, but a properly balanced economy would see only 30% of the market buying that size. That means there are capital goods somewhere which were overproduced and other capital goods that were underproduced.

This is why simply adding more income on the low end of the distribution doesn't fix the problem. That new wealth will change demand and there is no way to ensure that the new demand in any way matches the perceived demand at the peak of the boom. In fact, given the tremendous complexity of the economy I'm inclined to say that it's actually impossible to determine this. In other words, there's no going back. The McMansion fantasy land existed for a brief moment and now it's vapor.

Originally Posted by Brian Rush

Well, avoiding values statements for the moment, what we certainly have is an imbalance between production and demand. But let's think about outcomes for the moment. What happens if we decide (by whatever collective decision-making mechanism we employ -- set that aside for the moment, too) that we were producing too much and that's why the economy crashed. What will we do? Recover to a lesser level of economic activity, right? And that means we accept a permanently depressed state of the economy. On the other hand, if we decided that we were producing the right amount, but didn't share the wealth enough for people to buy the stuff produced, then what we will want to do is to recover to the same (or a higher) level of economic activity, but at higher wages and narrower income gaps. One way or the other, demand and production will come into balance with each other. But I know which way I like better.

That's the choice I would make too, except that we're not actually facing that choice. Per above, it's not the amount of production that is anomalous, but the precise content. In order to maintain roughly the same content as before the collapse you would need to maintain many of the features that prevailed in the boom period. In other words, a stimulus strategy is inherently a bailout strategy, where the dominant economic actors maintain their positions of dominance.

Originally Posted by Brian Rush

Your link seems to be broken.

NRA (This should work.)

I'm going to skip over the various side points and get to the bottom of your post:

Originally Posted by Brian Rush

The positive function is to provide investment capital. By selling shares, a big corporation is able to raise money without directly borrowing it at interest. Without this mechanism, there is a practical limit to how large a company can become.

So we have two follow-up questions, it seems to me.

1) What good is provided to the economy by big corporations? What can be done by a single huge economic entity that can't be as effectively done by many smaller ones?

2) Assuming the answer to #1 isn't "nothing," is there another, alternative way to achieve the same results?

My answer to #1 is, "not nothing, but a whole lot less than most people probably expect." (It's interesting that you bring up stockholding as crucial, since a major problem in recent years has been an explosion in corporate debt -- i.e. a failure of the corporate structure to actually provide this benefit.) There are some benefits to large pools of resources, I am not denying the existence of economies of scale. Rather, I'm contending that the primary effect of the rules that we typically call "capitalism" is to enhance economies of scale.

For example: do we really need, say, the same stores in every town in the country? Could that even be sustained absent a subsidized transportation system? I don't know for sure, but I suspect that a free economy would be much more localized than the present one, with greater regional diversity of products and better energy efficiency.

Part of my answer to #2 might surprise you and that is that the worker cooperative is artificially less competitive in the present environment. I would expect a much greater degree of self-employment or collaborative ventures in a free economy. (This is a hard prediction to prove, but for a heavy duty argument in that direction I'd recommend Kevin Carson's book on Organization Theory.)

In addition, I don't think shareholding is particularly noxious. It certainly creates better incentives than credit, since the buyer of a share is sharing risk with the firm to a much a greater degree. The really odd phenomenon is that people can frequently take out loans in order to purchase shares and have this be net profitable. This clearly indicates that loan interest is systematically lower than return on investment which wouldn't be happening if the availability of loans was directly linked to available savings. (Right now, the situation has reversed in the other direction and investment banking has imploded.) Essentially, I think a lot of the negative effects that you attach to shareholding are actually credit problems (i.e. people buying shares without any real desire to share in that enterprise).

So, my questions to you would be:

1) If the present economy is characterized by skewed income distribution, shouldn't we expect a free economy to also have a more diverse distribution of firm size?

2) If so, then shouldn't the main thrust of economic reform be to remove artificial enhancements to economies of scale?

Originally Posted by Kurt Horner

What about when someone is creating a new product or adding new product features? Investment doesn't follow what demand is, it follows what demand is expected to be.

Well, yes; investors do have some ability to practice foresight. But that's not a major modification, because it's still true that demand isn't generally expected to be high (for much of anything) when the economy is doing badly and people don't have money to spend.

Essentially, you're seeing the distribution as the causal factor, while I'm seeing it as a particularly visible symptom of the boom-bust cycle.

Without maldistribution, I don't believe we would HAVE a boom-bust cycle; certainly there is variation in how severe the boom-bust cycle is based on distribution of wealth.

Probably I would, but more income wouldn't just change how much I bought, it would change what I bought.

All right, but it's still true that you would buy more. Now, think in terms of people who are living on a working-class income, which today varies from state to state, but let's say $10 an hour ($20,800 a year). Such a person is not going to buy a new car, will minimize clothing purchases, won't eat out much (except maybe fast food), won't go to many movies, won't travel much and spend tourist money, etc., etc. In many cases, this isn't a choice between spending on a more or less expensive alternative, it's a choice not to spend money at all on a non-essential in order to make sure there's food on the table.

That's why you're mistaken, I believe, when you say:

This is why simply adding more income on the low end of the distribution doesn't fix the problem. That new wealth will change demand and there is no way to ensure that the new demand in any way matches the perceived demand at the peak of the boom.

You're thinking short-term instead of in permanent changes to the way we do business. I also suspect you're thinking in terms of ham-handed wealth redistribution (e.g. government welfare payments) rather than in measures designed to drive up wages.

The benefit of a decentralized economy, whether capitalist or socialist, is that it responds to changes in market demand rapidly and efficiently. A change of this nature is much less problematic than a sudden shift of consumer whim, and so would be very easily accommodated.

In any case, as I pointed out above in many respects it's not a difference between buying one thing and buying another but between buying and not buying, which undercuts your entire argument.

NRA (This should work.)

Thanks. I see no support there for your contention about the effect of the NRA on the economy. Looking at the embedded graph, I see a fairly smooth increase in industrial employment from 1932 (the bottom of the Depression's first wave) until 1937 (the beginning of its second). There is no sharp downturn after the NRA's implementation, and no uptick after it was declared unconstitutional in 1935 (nor vice-versa).

For example: do we really need, say, the same stores in every town in the country? Could that even be sustained absent a subsidized transportation system?

Probably not, but there are many benefits to a subsidized transportation system that argue for keeping it. As to the first question, that's exactly what I'm asking.

Part of my answer to #2 might surprise you and that is that the worker cooperative is artificially less competitive in the present environment.

I suspect it is, and it would be interesting to consider what measures are used to dampen its competitiveness. But a worker cooperative would not, I think, be able to reach the scale of a modern publicly-traded corp. It's not a way to raise capital on the scale that stock sales do.

So, my questions to you would be:

1) If the present economy is characterized by skewed income distribution, shouldn't we expect a free economy to also have a more diverse distribution of firm size?

2) If so, then shouldn't the main thrust of economic reform be to remove artificial enhancements to economies of scale?

Well, the thing is, I don't have the same aversion to artificial enhancements to economics of scale that you do, merely because they are artificial. I may agree with you, or I may not. I was asking the above questions to try to look at whether these enhancements (such as the facilitation of publicly-traded corporations) have a public-good function. I don't think we've adequately answered that question yet.

If the answer is "no, we're better off without enhanced economy of scale," then yes, of course we would do best to simply remove these enhancements. But if the answer is "yes, we're better off WITH enhanced economy of scale, although there are problems with the way we do it now," then instead we should be looking at alternative ways to do it.

Originally Posted by Brian Rush

Without maldistribution, I don't believe we would HAVE a boom-bust cycle; certainly there is variation in how severe the boom-bust cycle is based on distribution of wealth.

I think that connection is fairly easy to substantiate, but that's just correlation. You're contending that this relationship is also causal. If it were the cause, you'd still need to explain the cause of systemic maldistribution in the first place. That causal explanation is provided by the Austrian credit cycle theory. (Although, a lot of Austrian school fans seem to ignore the income distribution effects implied by the theory. I suspect this is driven by aesthetic dislike of a "socialist" conclusion.)

Originally Posted by Brian Rush

All right, but it's still true that you would buy more. Now, think in terms of people who are living on a working-class income, which today varies from state to state, but let's say $10 an hour ($20,800 a year). Such a person is not going to buy a new car, will minimize clothing purchases, won't eat out much (except maybe fast food), won't go to many movies, won't travel much and spend tourist money, etc., etc. In many cases, this isn't a choice between spending on a more or less expensive alternative, it's a choice not to spend money at all on a non-essential in order to make sure there's food on the table.

This doesn't quite work. If this hypothetical working class person is purchasing non-essentials on credit during the boom, then adding income will help convert credit purchases to cash purchases and that should work out. However, if they were not buying at all, then raising their income changes the optimal pattern of production (by creating a purchase that previously didn't exist). Which suggests that the optimal stimulus would actually be debt forgiveness. Otherwise, any substantial income adjustments will invalidate the current production structure.

Originally Posted by Brian Rush

You're thinking short-term instead of in permanent changes to the way we do business. I also suspect you're thinking in terms of ham-handed wealth redistribution (e.g. government welfare payments) rather than in measures designed to drive up wages.

The latter is certainly preferable, but either way the production structure will need to adjust over time. In the case of rising wages, the adjustment process would likely be more gradual though. I'm not sure whether either of those would necessarily require more capital goods to be retooled or scrapped.

Originally Posted by Brian Rush

The benefit of a decentralized economy, whether capitalist or socialist, is that it responds to changes in market demand rapidly and efficiently. A change of this nature is much less problematic than a sudden shift of consumer whim, and so would be very easily accommodated.

This is very true, and ties into my argument below.

Originally Posted by Brian Rush

In any case, as I pointed out above in many respects it's not a difference between buying one thing and buying another but between buying and not buying, which undercuts your entire argument.

The only way your argument for redistribution as a recession cure will work (per above) is if you're converting credit purchases into debit purchases. If you actually trigger a new purchase such that (using the TV example) some people buy new TVs who previously weren't -- then you've increased the demand for low-end TVs which changes the demand signals to TV retailers. This in turn will alter the availability and price of many, if not all, types of TVs. This still means the boom production structure is non-optimal, just non-optimal in a different way than before.

Originally Posted by Brian Rush

Thanks. I see no support there for your contention about the effect of the NRA on the economy. Looking at the embedded graph, I see a fairly smooth increase in industrial employment from 1932 (the bottom of the Depression's first wave) until 1937 (the beginning of its second). There is no sharp downturn after the NRA's implementation, and no uptick after it was declared unconstitutional in 1935 (nor vice-versa).

There was a) a drop in production per the text, b) a decrease in the rate of employment recovery. I claimed no sharp downturn, just that this program stymied recovery. See for example the Industrial Production Index. Note that production jumps up from the Depression bottom, flat-lines for exactly the duration of the NRA system, and then begins increasing again afterward.

Originally Posted by Brian Rush

Well, the thing is, I don't have the same aversion to artificial enhancements to economies of scale that you do, merely because they are artificial. I may agree with you, or I may not. I was asking the above questions to try to look at whether these enhancements (such as the facilitation of publicly-traded corporations) have a public-good function. I don't think we've adequately answered that question yet.

Without bringing in rights talk (which tends to quickly turn liberal/libertarian debates nasty) this is a hard question to answer, and perhaps too easy to answer if we start discussing rights. Instead, the best argument would be that economies of scale should not be boosted because of the kind of organizations that arise to take advantage of them. These organizations are inevitably hierarchical and because they are command-control systems rather than networks, you begin losing the benefit of the market adjustment process that you mentioned above. So, the short term gains from the bigger project that you can undertake are undermined by the long term drag generated by the resulting organization. This is to say nothing of the dehumanizing behavior that comes along with any organization larger than Dunbar's number.

Removing the artificial enhancements means that any organization formed to take advantage of scale will be limited and will shrink if those advantages decline.

Originally Posted by Brian Rush

If the answer is "no, we're better off without enhanced economy of scale," then yes, of course we would do best to simply remove these enhancements. But if the answer is "yes, we're better off WITH enhanced economy of scale, although there are problems with the way we do it now," then instead we should be looking at alternative ways to do it.

Although I mostly would favor the former approach to the latter, there may be exceptional cases. To the extent that we do boost economies of scale, such subsidies should be temporary in nature -- i.e. limited to specific defined projects rather than a systemic effect. In other words, setting up an alternative to the corporate form that achieves the same macroeconomic effect will probably end up no different in practice from corporatism. Objections aside, though, do you have any suggestions for your second question?

Also, to the extent that the economy continues to feature subsidies to large scale I can't really oppose programs that offset the negative effects of those subsidies (income assistance, regulation, etc.). I will certainly criticize those programs as ineffective, overly complex, unnecessarily disruptive of the price system or, in some cases, outright fraudulent. But, I'll take capitalism with a welfare state over raw capitalism any day.

Originally Posted by Kurt Horner

I think that connection is fairly easy to substantiate, but that's just correlation. You're contending that this relationship is also causal. If it were the cause, you'd still need to explain the cause of systemic maldistribution in the first place. That causal explanation is provided by the Austrian credit cycle theory.

A rather better explanation, and one you and I have already implicitly agreed upon, is a combination of human greed and government action in service to it.

It's a fact of history that the capitalist economy functioned to suppress labor aspirations, keep wages down, and promote the accumulation of private fortunes. It's another fact of history that the government did many things to enhance and encourage this trend. Whether, and to what extent, capitalism would have done the same without these government actions is a good question; I think we may safely say that it would not have done so to the same degree. But this in turn raises the question of which government actions we're talking about, because the whole of any industrial economy is state-dependent, and it's quite doubtful that capitalism would or could even exist without these government actions.

At the most basic level, the government defines and protects property rights and contractual obligations. The law affirms the right of individuals to own capital property, as well as the personal property whose existence is as old as our species (or older). The law defines what is and is not a valid and legal contractual obligation and under what circumstances contracts are legally binding, and what recourse is available for remedy of breach of contract. The government also issues currency and establishes basic rules of banking and monetary value. It's completely clear to me that neither capitalism nor any other form of industrial economy would be possible without these bedrock services of the government.

On a less basic level, the state establishes the existence of the corporation in all of its forms. It enacts tax law, immigration policy, trade policy, and labor policy, all of which either widen or narrow income gaps depending on the specifics of what is done.

In short, government actions and policies and laws and regulations are like the sea in which the economic fish swims, or the air in which the economic bird flies. It isn't an add-on to something pre-existing, but part and parcel of the beast itself. To actually remove all state influence on the economy would be impossible; if we did that, there wouldn't even be an economy to speak of (although presumably, after the massive die-off, the remaining marginal population would continue to trade by some sort of barter system just as our distant ancestors did).

This doesn't quite work. If this hypothetical working class person is purchasing non-essentials on credit during the boom, then adding income will help convert credit purchases to cash purchases and that should work out. However, if they were not buying at all, then raising their income changes the optimal pattern of production (by creating a purchase that previously didn't exist). Which suggests that the optimal stimulus would actually be debt forgiveness. Otherwise, any substantial income adjustments will invalidate the current production structure.

There's nothing wrong with invalidating the current production structure. The current production structure is invalidated on a daily basis, as the market fluctuates. That's the whole reason why a decentralized decision-making system is superior; it's a chaotic response mechanism for a chaotic circumstance. As for debt forgiveness, I'm reminded of what John Dillinger said: "We only stole from the banks what the banks stole from the people."

But I believe I've isolated a confusion between us; we're not talking about the same thing here, quite:

The only way your argument for redistribution as a recession cure

Ah! Now I see.

Kurt, I'm not arguing for redistribution as a recession cure, but as a depression preventative. A permanent restructuring of government policy to narrow income gaps rather than widen them would not only be morally sound, but also would enhance the performance of the economy, by lessening the chronic shortfalls in consumer demand which have plagued classical capitalism. A recession is always temporary and "curing" it, although worthwhile trying, is less crucial (to my way of thinking) than is changing the rules by which we do business to reduce the suffering and to free people from servitude.

As for credit purchases, my take on this is that it is a way of continuing to float an economy past its time. From the standpoint of the banks and capitalists, that is. The straightforward way to have a sustainable system of wealth production is to keep wages high enough that people can make the economically necessary purchases without borrowing, or with borrowing only for big-ticket items such as cars or homes where it makes sense to spread the cost out over time. But this is not compatible with the goal of getting as rich as possible; wages are after all a cost of doing business. A less straightforward -- indeed, downright duplicitous -- approach is to extend underpaid people a generous line of credit and encourage them to borrow the money to make their purchases, then requiring they pay it back down the road with interest. It's even more duplicitous to do this and then expect a bailout with tax money once the predictable borrowing limit is reached and the loans start to go into default.

The problem of such irresponsible borrowing and lending is severe, but not at the root of our difficulties. If wealth were not maldistributed, the borrowing and lending would not have been necessary and would not have been done on such a scale.

Instead, the best argument would be that economies of scale should not be boosted because of the kind of organizations that arise to take advantage of them. These organizations are inevitably hierarchical and because they are command-control systems rather than networks, you begin losing the benefit of the market adjustment process that you mentioned above. So, the short term gains from the bigger project that you can undertake are undermined by the long term drag generated by the resulting organization.

All right, that's a good point, and since the hierarchical nature of such organizations is a function of their size rather than any other aspect of their nature, the same would hold for any form of socialist corporation (although certain other problems with them would not).

But the question then must be asked, Are there some kinds of production that require such a large-scale organization structure, warts and all? Candidates: the automobile industry, the railroads, the highways, military production, long-range freight shipping. (Note that in our economy some of these are privately owned and market-based while others are socialized and/or centrally planned.) I ask this not as a rhetorical question; it's possible given modern production techniques that the automobile industry could be decentralized to a much greater degree than it is currently, for example. Although I can think of no way to do the same thing with transportation infrastructure or military production.

To the extent that the answer to this question is "yes," the question then arises: Is it worth it? Would we be better off doing without the benefits of this large-scale production and so eliminating the certain hierarchical organization affecting some people and potential corrupting effect of concentrated power? Again, this is not a rhetorical question. But if answer is again "yes" -- it's worth it -- then the third question is how we can best mitigate or minimize the dire effects.

To the extent that we do boost economies of scale, such subsidies should be temporary in nature -- i.e. limited to specific defined projects rather than a systemic effect.

That's a good general suggestion. One thing, though, is that some of these projects are necessarily ongoing rather than short-term.

Objections aside, though, do you have any suggestions for your second question?

Several ideas, but I'd like to reserve them for the moment. You've given me a number of things to think about and I would like to resolve them in my own mind; it may be that some of the things I was thinking of will need to be reformulated.

Originally Posted by Brian Rush

That's different from saying that wealth destruction is required before we can recover from a recession.

Well this is the marketing for the idea. You cannot expect people to embrace massive wealth destruction with enthusiasm (particularly if its their wealth that's to be destroyed). Hence the idea that it is necessary for prosperity.

Originally Posted by Kurt Horner

Whether the spending qualified as stimulus, spending did increase and the perception was of vast increases in federal influence on the economy. Then, as the increase occurred, the economy improved (somewhat). This reinforced the perception that said policy direction was the correct one.

You are making a common error. Although the New Deal is often discussed as THE government response to the Depression, it was not. It was the second attempt to deal with the Depression. Administration policy* during WW II was the third (and successful) attempt. Hoover had made the first attempt; it was viewed as a failure. The New Deal was the second attempt. It was initially perceived as effective, particularly in 1934 and 1936, when Democrats made serious electoral gains.

After 1937 it was no longer seen as successful. And than came WW II which meant death and deprivation. Over the 1938-1942 period the Dems lost 18 Senate seats and 111 Congressional seat. By the 1946 election they had lost 12 more Senate seats and 34 more Congressional seats. This is not what happens to a ruling party who are believed to have ruled successfully.

Following the stock market crash of 1946, the electorate was bracing for hyperinflation (inflation rose in 1946 and reached double digit levels the next year) and the return of the Great Depression. They dealt out their frustrations on the party that had ruled over them for 14 years. After all, economic theory argued that the enormous debt created by the New Deal and WW II mandated inflation and the unprecedented government involvement in the economy meant that the Depression must return after the war was over.

And then a curious thing happened. The Depression didn't return. Instead the postwar economic boom began. In the next ten elections, Republican gains (losses) in the Senate were (9) 5 1 (1) 0 (13) 2 (3) (1) 4 for a net loss of 16 seats from the 1946 Republican landslide to Richard Nixon's 1968 victory. The postwar experience resulted in a Republican admission of defeat with Nixon's proclamation "We are all Keynesians now".

Roosevelt's New Deal was not perceived as successful based on what happened in the 1930's, but based one what happened in the postwar period.

*The Roosevelt administration not only set prices and wages, but also engaged in overt central planning over the war years. It was, by modern standards, pure socialism.

I guess that provides a test, then. I'm expecting the situation to go right back into panic within the next year, probably sooner. If that doesn't occur, then in all likelihood Keynesian policy will persist during the Crisis.

Precisely. Since the Democratic gains over 2006 and 2008 are much smaller than those over 1930 and 1932, they need a rapid response to the stimulus to stay in power. However as the size of the stimulus is about 2-3 times that of the New Deal, and the severity of the recession is about a third of the Depression, it is virtually certain that they will get their response. After all the stimulus is crafted to provide its maximum impact in 2010 and 2011, which should set the stage for a more rapid than expected recovery right in time for the 2010 and 2012 elections.

Many people are bearish. A peak S&P500 in the 1200's and unemployment north of 6% at the next expansion peak is best one can expect. If unemployment falls below 5% and the S&P500 rises above 1400 during the next business cycle, people will be surprised and they will likely reward those in power.

Such a reward will be short lived (as it was in the thirties) and unless the Dems can restart the historical trend of rising quality of life for all Americans, they will be swept from power after 2012.

Originally Posted by Brian Rush

But it never grew back to 1929 levels until the 1940s, when a combination of rule-changes and stimulus spending did it.

Yes and no. What the administration did in the 1940's was FAR beyond mere "rule changing" and stimulus. The government essentially took control of the economy and engaged in overt central planning. An employer needed permission from a central authority to give a raise to high-income employees. Since this was hard to do, high income workers did not get raises. Employers were free to raise the wages of low-income workers without any checked--so they did. For middle income workers employers needed permission from a local authority, who was much more likley to grand requests than the central authority. This was deliberate. The purpose was quite explicitly to flatten the wage structure in the US. Taxes on top earners were raised to 80-90%, and kept there for decades after the war. The result of these policies enacted in "second New Deal" in the 1940's was to, quite deliberately create a world where CEOs earned 40 times what their workers did and income gains for people in the lowest quintiles was the same as growth rates for those in the top quinitile.

This was the world of your childhood, the world of the Cleavers and 1950's conformism. It was a highly artificial construct of 1940's liberals and was destroyed by one of their own in the 1980's.

Originally Posted by Kurt Horner

One might argue that actually existing capitalism (as opposed to the free market ideal) has been defined from the very beginning by upward redistribution.

Actually existing capitalism is real capitalism. The free market ideal is not capitalism. Libertarians don't really understand capitalism. For one thing they assume it is the same thing as free or private enterprise. It's not. Free enterprise has existed since the time of the Phonecians, if not before. Capitalism is less than 500 years old. The reason why capitalism is called CAPITALism and not "free enterprise" is because capital plays a central role in capitalism. Capital does not necessarily play a key role in free enterprise.

Capitalism just about always will involved a upwards redistribution of wealth. Unless some external factor (e.g. government) intervenes, such a resdistribution must happen in a capitalist economy, or it is not capitalist.

First, pension systems don't work in a perpetually aging society.

Of course they can. You are either (1) assuming that history is a boundary condition or (2) applying unsubstantiated theory.

Originally Posted by Brian Rush

It's a fact of history that the capitalist economy functioned to suppress labor aspirations, keep wages down, and promote the accumulation of private fortunes. It's another fact of history that the government did many things to enhance and encourage this trend.

Or created it in its entirety. If human greed were, by itself, sufficient to cause widespread social harms then I sincerely doubt we would ever have had civilization, let alone industrial civilization.

Originally Posted by Brian Rush

At the most basic level, the government defines and protects property rights and contractual obligations. The law affirms the right of individuals to own capital property, as well as the personal property whose existence is as old as our species (or older). The law defines what is and is not a valid and legal contractual obligation and under what circumstances contracts are legally binding, and what recourse is available for remedy of breach of contract. The government also issues currency and establishes basic rules of banking and monetary value. It's completely clear to me that neither capitalism nor any other form of industrial economy would be possible without these bedrock services of the government.

The state does these things, but one has to ask to what extent is the government codifying basic human concepts of justice and to what extent it is subverting them for private gain. Society doesn't need written laws to have concepts like theft and murder -- it needs laws to clarify those concepts and put them into practice.

Originally Posted by Brian Rush

In short, government actions and policies and laws and regulations are like the sea in which the economic fish swims, or the air in which the economic bird flies. It isn't an add-on to something pre-existing, but part and parcel of the beast itself.

I am not contending that government actions are an add-on. There has never been a society without injustice, the world in which we live is inherently bound up with the laws we have, just or not. However, that does not mean that there is not an underlying conception of justice that acts as an organizing principle. In other words, government activity isn't the sea, it's another fish.

Originally Posted by Brian Rush

To actually remove all state influence on the economy would be impossible; if we did that, there wouldn't even be an economy to speak of.

We probably shouldn't go in this direction, as it will entail a discussion of anarchism. While I am very sympathetic to anarchism, I view anarchy as the asymptote of social development, not a here-and-now goal.

Originally Posted by Brian Rush

There's nothing wrong with invalidating the current production structure. The current production structure is invalidated on a daily basis, as the market fluctuates. That's the whole reason why a decentralized decision-making system is superior; it's a chaotic response mechanism for a chaotic circumstance.

I agree, that's why I don't like the idea of trying to "save" the economy. The production structure must change regardless, and attempts to preserve it are flawed. Of course, this leads to your astute observation . . .

Originally Posted by Brian Rush

Kurt, I'm not arguing for redistribution as a recession cure, but as a depression preventative.

This clears up a lot, as I'm sure you can tell that a lot of my critique above was directed against the pop-Keynesian idea of "restarting" a "stalled" economy -- an idea that necessarily views the economy as a single cohesive entity that grows or shrinks (and don't anyone trouble themselves with the actual contents of that economy!).

It seems we're closer to the same page on this; that the priority needs to be on the prevention of future unsustainable booms, not the amelioration of the effects of the present bust.

Originally Posted by Brian Rush

As for credit purchases, my take on this is that it is a way of continuing to float an economy past its time. From the standpoint of the banks and capitalists, that is.

It's interesting that we appear to have reduced the maldistribution and malinvestment theories of the business cycle into a chicken-and-egg dispute. You see maldistribution driving a credit cycle, while I see a credit cycle driving aggregation and disaggregation of wealth.

Now, it's possible that you're right, that the financial system just amplifies a maldistribution problem that would exist even in a relatively free monetary environment. Nonetheless, I don't see a way for systematic maldistribution to develop without those artificial economies of scale that we've been discussing.

Originally Posted by Brian Rush

But the question then must be asked, Are there some kinds of production that require such a large-scale organization structure, warts and all? Candidates: the automobile industry, the railroads, the highways, military production, long-range freight shipping . . . I ask this not as a rhetorical question; it's possible given modern production techniques that the automobile industry could be decentralized to a much greater degree than it is currently, for example. Although I can think of no way to do the same thing with transportation infrastructure or military production.

Military production is very easy to decentralize -- actually easier than cars probably. To have a defensive military requires very little centralization. With present technology, you'd pretty much need a small heirarchy to build and maintain some nukes, and then some sort of militia system. Centralization is, however, necessary for an offensive military. But since I don't support that, I don't feel particularly bothered by advocating a social system that makes imperialism impossible.

As for transportation infrastructure, I don't think the top-down implementation of this is necessary for an industrial economy so much as it is necessary for the one we presently have. Railroad subsidies made mass marketing cheaper, thereby increasing the distance over which a factory could ship its goods in a cost-effective manner. This, in turn, promoted a smaller number of larger factories over a more distributed production system. So, transportation subsidies increased centralization throughout the economy.

Originally Posted by Brian Rush

To the extent that the answer to this question is "yes," the question then arises: Is it worth it? Would we be better off doing without the benefits of this large-scale production and so eliminating the certain hierarchical organization affecting some people and potential corrupting effect of concentrated power? Again, this is not a rhetorical question. But if answer is again "yes" -- it's worth it -- then the third question is how we can best mitigate or minimize the dire effects.

You're certainly putting a serious burden of proof on economic centralization here. This seems appropriate. My question would be, how would you determine which projects needed hierarchies other than by subjecting them to a dynamic price system that fully internalizes the costs of hierarchy within the organization itself? In other words, I can't see a way for a business venture to prove it needs a certain amount of centralization other than to centralize to that degree and demonstrate success.

Originally Posted by Brian Rush

That's a good general suggestion. One thing, though, is that some of these projects are necessarily ongoing rather than short-term.

A certain class of projects might be long-term (say "roads" in general). But individual roads are short-term, and thus I don't see a need for an ongoing road building hierarchy. (This is not to say that there can't be road-building experts, but those are tradespeople, not to be confused with the firms they may belong to from time to time.)

Originally Posted by Mikebert

Yes and no. What the administration did in the 1940's was FAR beyond mere "rule changing" and stimulus. The government essentially took control of the economy and engaged in overt central planning. An employer needed permission from a central authority to give a raise to high-income employees. Since this was hard to do, high income workers did not get raises. Employers were free to raise the wages of low-income workers without any checked--so they did. For middle income workers employers needed permission from a local authority, who was much more likley to grand requests than the central authority. This was deliberate. The purpose was quite explicitly to flatten the wage structure in the US. Taxes on top earners were raised to 80-90%, and kept there for decades after the war. The result of these policies enacted in "second New Deal" in the 1940's was to, quite deliberately create a world where CEOs earned 40 times what their workers did and income gains for people in the lowest quintiles was the same as growth rates for those in the top quinitile.

This was the world of your childhood, the world of the Cleavers and 1950's conformism. It was a highly artificial construct of 1940's liberals and was destroyed by one of their own in the 1980's.

Just out of curiosity, are you speak of Reagan as "one of their own?" Seems the obvious choice given the decade, but I'd like to be sure.

"I didn't leave the Democratic Party. It left me."

Originally Posted by Mikebert

Well this is the marketing for the idea. You cannot expect people to embrace massive wealth destruction with enthusiasm (particularly if its their wealth that's to be destroyed). Hence the idea that it is necessary for prosperity.

It's not marketing. Once you accept the idea that not all things that the state calls "property" are justly so, then the idea that some people will lose wealth in order to alleviate that injustice necessarily follows. If you don't like the idea of wealth destruction regardless of context, then you are essentially embracing whatever arrangement of wealth already prevails and opposing any attempt to change it. I dub this theory the Divine Right of CEOs.

Originally Posted by Mikebert

You are making a common error. Although the New Deal is often discussed as THE government response to the Depression, it was not . . . Hoover had made the first attempt; it was viewed as a failure.

I'm well aware of this. However, popular mythology has Hoover doing "nothing" and FDR doing "something." My comments derived from public perception which need not correspond to reality in order to have major social effects.

Originally Posted by Mikebert

After all, economic theory argued that the enormous debt created by the New Deal and WW II mandated inflation and the unprecedented government involvement in the economy meant that the Depression must return after the war was over.

I've never heard of anyone predicting inflation in that period, let alone a widespread fear of such. In addition, the economists warning of renewed depression were the Keynesians who feared "too quick" of a demobilization. Keynes was already well-established as the top dog in economics at this point.

Originally Posted by Mikebert

Since the Democratic gains over 2006 and 2008 are much smaller than those over 1930 and 1932, they need a rapid response to the stimulus to stay in power. However as the size of the stimulus is about 2-3 times that of the New Deal, and the severity of the recession is about a third of the Depression, it is virtually certain that they will get their response.

Good, at least you're willing to make a prediction. If, in fact, things are worse a year from now, will you then re-consider the wisdom of stimulus?

Originally Posted by Mikebert

Actually existing capitalism is real capitalism. The free market ideal is not capitalism. Libertarians don't really understand capitalism. For one thing they assume it is the same thing as free or private enterprise. It's not.

Except that I, and several other, libertarians on this forum and elsewhere do make this distinction. Those of us that do are highly critical of the "conserv-atarians" that conflate these two.

Originally Posted by Mikebert

Of course {pension systems can work}. You are either (1) assuming that history is a boundary condition or (2) applying unsubstantiated theory.

Any discussion of this should probably occur on the Social Security thread where I made the same point.

Originally Posted by Kurt Horner

Once you accept the idea that not all things that the state calls "property" are justly so, then the idea that some people will lose wealth in order to alleviate that injustice necessarily follows.

You are trying to sell this idea. That requires marketing.

I'm well aware of this. However, popular mythology has Hoover doing "nothing" and FDR doing "something." My comments derived from public perception which need not correspond to reality in order to have major social effects.

You missed my point. I was talking about public perception at the time. FDR's party orginally did well at the polls due to the luck of an expansion happening over 1933-1936. After 1936, they were gradually destroyed at the polls, leading to Republican take over of Congress in 1946 and a virtually certain takeover of the White House in 1948.

As I said the expected Depression did not recur; Harry Truman fought the GOP effort to roll back the New Deal tooth and nail, earning his nickname "Give em hell" Harry. The GOP suffered a crippling defeat in 1948 that put rolling back the New Deal on hold for many decades.

The mythology of the New Deal arose after the obvious success of the postwar era. This era resulted from non-legislative policies made during WW II, which had long-lasting effects. The legislative policies of the New Deal have had far more modest economic effects. What "supplysiders" actually sought to overturn in the 1980's was not the New Deal, but what had been wrought during WW II. That they have been successful is shown by the restoration of many features of the pre-1929 economy (such as old fashioned financial panic) even though the New Deal is still here.

I've never heard of anyone predicting inflation in that period, let alone a widespread fear of such.

I have a little book at home called "When Inflation Comes" that was written in the early 1940's. I think it was by Babson, but I cannot remember for sure, I'll have to see if I can find it.

Except that I, and several other, libertarians on this forum and elsewhere do make this distinction.

So you are anti-capitalist then?

Originally Posted by Mikebert

You missed my point. I was talking about public perception at the time. FDR's party orginally did well at the polls due to the luck of an expansion happening over 1933-1936. After 1936, they were gradually destroyed at the polls, leading to Republican take over of Congress in 1946 and a virtually certain takeover of the White House in 1948.

It took ten years for public skepticism about the New Deal to translate into electoral success for the GOP. Clearly this is because the apparent success in 1933-36 had a lasting effect on the public's view of economic policy. And the GOP's gains were short lived as the public mood only allowed for modification of the new programs, not their abolition.

Originally Posted by Mikebert

As I said the expected Depression did not recur;

Yes, but who was expecting it? You gave the impression that gloomy predictions were solely the domain of New Deal opponents.

Originally Posted by Mikebert

So you are anti-capitalist then?

Yes, although I don't generally describe my views that way since it tends to generate confusion. Capitalism is a very loaded word and different people use it to describe vastly different concepts. The word socialism has similar problems (and I could just as well describe myself as a socialist -- although an idiosyncratic one). If someone is using capitalism as a synonym for free markets, a practice I don't encourage, then to them I am pro-capitalist. If someone is using it to describe a system where concentrated ownership of capital is a defining feature, then I am anti-capitalist because such a system can only be maintained on the basis of systematic oppression.

Originally Posted by Kurt Horner

The state does these things, but one has to ask to what extent is the government codifying basic human concepts of justice and to what extent it is subverting them for private gain.

Not so difficult to answer; we merely need to ask ourselves whether human societies have varied in the ways they have organized ownership of property. Looking back on the history and prehistory of the human species, I can see the following constants:

1) The right of a person to personal dwelling space is always recognized.
2) The right to own personal property for one's own personal use is always recognized.
3) The right to dispose of personal property by bestowing it on another (either gratis or for consideration) is always recognized.

Everything else is variable. In precivilized hunter/gatherer communities, all capital property (which meant land, exclusively, in those simple days) was communally owned by the group, and food and some personal property was shared on a communal basis. In civilized times, different arrangements have been made, but the right to own capital property outright with full right to trade and sell has not been constant. Perhaps the most unusual arrangement was that of pre-monarchic Israel, where an institution called the Jubilee redistributed all land ownership on an egalitarian basis every 50 years. In many societies, all land was technically owned by the state, but it could be leased or otherwise assigned to private individuals. In Republican Rome, a large part of land was ager publicus, leaseable by private persons for periods of time (this system was abused badly but originally intended to limit private economic power). In medieval Europe, large landholdings were typically crown owned, but granted in fief to titled lords who (in effect) exercised ownership rights, except that they had no right to sell.

So it actually varies widely, especially with regard to ownership of capital property. I would say that laws recognizing the three universals above are "codifying basic human concepts of justice." Other property laws are not, although that's not to say automatically that they are "subverting them for private gain." That judgment has to be made on a case-by-case basis.

It seems we're closer to the same page on this; that the priority needs to be on the prevention of future unsustainable booms, not the amelioration of the effects of the present bust.

I agree that retooling the economy to prevent a recurrence is more important overall. That doesn't mean I think efforts to jump-start the economy aren't important, too -- just that I don't think that's enough by itself.

Now, it's possible that you're right, that the financial system just amplifies a maldistribution problem that would exist even in a relatively free monetary environment.

That's not really what I'm saying. I recognize that a lot of what we see is artificial and the result of government policies favoring concentration of wealth. I just don't believe that those policies are reducible to ones implementing or affecting the credit structure.

To have a defensive military requires very little centralization. With present technology, you'd pretty much need a small heirarchy to build and maintain some nukes, and then some sort of militia system.

This might be worth discussing if we could have a militia system that avoided the problems with the one we used to have -- problems that led to 600,000 casualties two 4Ts ago. Which is, of course, the reason we no longer have a militia-based defense system.

The problem with the old one was that it was state-based. The federal government prescribed the training regimen and had the authority (but not the declared duty) to arm the militia, and could nationalize it at need, but it was organized at the state level. So when certain states seceded from the U.S., they had ready-trained and equipped armies available to fight a civil war with. President Lincoln instructed the state of Virginia to raise a number of militia units. Virginia thereupon seceded, and did raise those units -- to fight for the Confederacy under General Lee.

Can you have a militia system of defense that avoids this problem? If you did, would it not have the same centralized nature as the professional military we have today? (Although it might avoid certain other problems, and be less amenable to use for offensive purposes.)

As for transportation infrastructure, I don't think the top-down implementation of this is necessary for an industrial economy so much as it is necessary for the one we presently have. Railroad subsidies made mass marketing cheaper, thereby increasing the distance over which a factory could ship its goods in a cost-effective manner.

Yes, but, speaking as a consumer, I like that. I like being able to buy goods from around the country, even around the world, at a reasonable cost. In itself, I don't see this as a shortfall.

I am rapidly coming to the conclusion, however, that the economies of scale we have been discussing aren't worth it. Let me give you a recent example:

http://boortz.com/nealz_nuze/2009/05...ge-dealer.html

This came up on another discussion forum, and here is what I said about it:

"Some of you seem to be confusing the question "is it fair?" which IAM asked, with "is it legal?" which he didn't. Chrysler has, I'm sure, competent lawyers on retainer, so odds are it's legal.

Fair? No way.

The author of the article asks:

"HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?"

Well, dude, I'm sorry to break it to you, but there IS no free market in the USA, as you're finding out right about now. A market that is controlled by big corporations is no more "free" than one controlled by the government. And there are few corporations that are bigger, or with more control, than the Big 3 automakers (despite their current difficulties). You entered into an agreement with Dodge that gave them (almost surely) the legal right to do this, and because the market was NOT free -- because it had controls on it placed there and maintained by huge corporate entities -- you had the illusion of freedom to run your own business only so long as that suited your corporate masters. You were not free, ever. You were just on a long leash -- which has now been shortened.

Welcome to capitalism, bro. Don't EVER confuse that with a free market.

Capitaliism is all about consolidation of economic power. It is not a free market. It's a free market's antithesis. If we really want economic freedom in this country, we are going to have to change the laws that allow companies to get so big, like the laws which treat a corporation as a person with full rights of a person, and the institution of the publicly-traded corporation which allows single companies to grow to such powerhouses.

Freedom doesn't just mean being in a situation where the government can't control you. It means being in a situation where no one can control you. We have all sorts of checks and balances in our political system to keep any one person from getting too much political power, but in our economic system we allow -- even encourage -- the concentration of economic power, which is no less destructive of liberty."

Originally Posted by Brian Rush

Looking back on the history and prehistory of the human species, I can see the following constants:

1) The right of a person to personal dwelling space is always recognized.
2) The right to own personal property for one's own personal use is always recognized.
3) The right to dispose of personal property by bestowing it on another (either gratis or for consideration) is always recognized.

Everything else is variable . . . especially with regard to ownership of capital property. I would say that laws recognizing the three universals above are "codifying basic human concepts of justice." Other property laws are not, although that's not to say automatically that they are "subverting them for private gain."

Quite a lot of property arrangements seem consistent with the underlying principles of possession. There is a tendency among radical property theorists to over-think the "right" way to organize property. (As anyone whose ever witnessed a forum argument between a collectivist and a market anarchist can attest.)

On this topic, here is an interesting article demonstrating how the typical arguments used to support private property are just as effective for common property. The upshot of the essay is that any of those variations on property arrangements you mentioned are acceptable, so long as they're freely competitive with each other.

Originally Posted by Brian Rush

Can you have a militia system of defense that avoids this problem {of competing armies}? If you did, would it not have the same centralized nature as the professional military we have today? (Although it might avoid certain other problems, and be less amenable to use for offensive purposes.)

Probably not. Although, even if a National Guard system had existed beforehand, the Civil War would still have happened, perhaps with more guerrilla tactics, but more likely the South would have just put their own forces together and fought in much the same way. Also, there's no need for militias to particularly conform to state boundaries or be a unified force. All you really need is for a fair amount of the population to be trained in arms, such that an invader will have a hard time keeping the place. With the advent of nuclear weapons, even the need for this kind of force is limited.

Originally Posted by Brian Rush

Yes, but, speaking as a consumer, I like that. I like being able to buy goods from around the country, even around the world, at a reasonable cost. In itself, I don't see this as a shortfall.

Nor do I, but I do object to who is actually paying these transport costs. Because the cost of, say, shipping oranges from Florida for me to consume in California, is not fully internalized in the orange purchase, I can't tell whether that particular long-distance purchase is worth it. Part of the cost of shipping that orange is reflected in taxes spread over dozens of jurisdictions and a whole army of bureaucrats. Moreover, since the cost of producing that Florida-orange-in-California is not entirely borne by the producer, they have perverse incentives to send me that orange, even though there are tons of them right here.

Originally Posted by Brian Rush

I am rapidly coming to the conclusion, however, that the economies of scale we have been discussing aren't worth it. Let me give you a recent example:

http://boortz.com/nealz_nuze/2009/05...ge-dealer.html

This came up on another discussion forum, and here is what I said about it . . .

Well, dude, I'm sorry to break it to you, but there IS no free market in the USA, as you're finding out right about now. A market that is controlled by big corporations is no more "free" than one controlled by the government. And there are few corporations that are bigger, or with more control, than the Big 3 automakers (despite their current difficulties). You entered into an agreement with Dodge that gave them (almost surely) the legal right to do this, and because the market was NOT free -- because it had controls on it placed there and maintained by huge corporate entities -- you had the illusion of freedom to run your own business only so long as that suited your corporate masters. You were not free, ever. You were just on a long leash -- which has now been shortened.

Exactly. Why is it that there are only three suppliers of automobiles and they can dictate conditions to dealers to this degree? Perhaps he should consider how that ever happened in a "free" market. (The quick route would be to send him a copy of Tucker.)

Speaking of private property, I've been reading Karl Popper's famous work The Open Society and It's Enemies and Popper, in the chapters pertaining to Marx, drives home the point constantly that the brutal Victorian Age lassez faire "Capitalism" Marx so justifiably hated as a result of what he saw in the England of Dickens in fact no longer exists in the Western world and all the good points of his Commie Manifesto have, in fact been enacted to a greater or lesser degree throughout the West (Right-Libertarians who think Popper is on their side take note, he gives Sweden a thumbs up). But the fact that private property is still around has, according to Popper, blinded Marxist ideologues from seeing what was happening right in front of them. Essentially, it has come down to whether the will of economic power controls political power or whether political will controls economic power. The Marxist would say that economic power always means political power, something Popper rejects, the political power of liberal democracies can control economic power and should if economic power threatens people's freedom.

Hey, Kurt, where would Popper be on your Political Archetypes chart? True Left because he was the great critic of Totalitarianism and deference to authority?

Originally Posted by Kurt Horner

Quite a lot of property arrangements seem consistent with the underlying principles of possession.

Not really. Remember that those three principles that seem to be universal apply only to a home space and personal property.

There are three types of property, as I see it: personal, commercial, and capital. Personal property is stuff that one intends to keep and use; this computer, for example, is my personal property. Commercial property is stuff that one intends to sell. Capital property is stuff used to make other stuff (usually to make commercial property). The archetypal capital property is land, but in an industrial/information economy other things besides land can become capital property.

If you want to assert an instinctive or natural idea of private property, the only such that can be justified by the evidence of history showing that ALL human societies have done it that way, and especially that the hunter-gatherer societies that we evolved for did it that way, is recognition of personal, and to a lesser extent commercial (but not capital) property, plus possession of a home space.

The problem here is that capital property is finite, and that it is the source of all wealth. Control of capital property is control of all wealth-production (labor is useless without something to apply that labor to in order to produce wealth), and so leads to the kind of economic tyranny that we see today. This puts capital property into a separate logical category from personal or commercial property. My ownership of a computer does not in any way prevent you from owning a computer, too. (It prevents you from owning that particular computer, but big deal.) My ownership of all the resources in the county, however, prevents you from making a living here except by working for me.

Our precivilized and protocivilized ancestors were aware of this distinction. In precivilized times, no individual owned land at all. All land was public property. (At that time, land was the only form of capital property.) In protocivilized settlements, collective ownership was preserved for quite a long time. One saw it in the Iroquois and (to a lesser extent) in the Cherokee societies, and in many other societies that, while no longer hunter-gatherer, were not fully transitioned into civilized life. Even in civilized societies, the fiction of public land ownership was often preserved, even while land entered into de facto private ownership.

I'm not arguing here that we ought to go back to capital property all being held in common; there's a reason why all civilized societies have dropped that feature of property organization. But I am saying that we need to recognize the difference between personal and capital property, and not apply feelings, values, and a conception of rights to the latter that should only belong to the former. And thus, it's acceptable, morally, to make arrangements that seem to violate private property rights, when the private property in question is capital property.

Probably not. Although, even if a National Guard system had existed beforehand, the Civil War would still have happened, perhaps with more guerrilla tactics, but more likely the South would have just put their own forces together and fought in much the same way.

I disagree. Part of the reason why the south seceded was that the southern states thought they could get away with it. They had all the makings of a nation ready to hand: government at all levels except the central (which was not too difficult to put together), and an army. It was reasonable to believe that, faced with organized military forces equal to their own (in the beginning), the Union might elect not to contest the secession, or if it did, that the seceding states might be able to defend themselves. Those beliefs turned out to be wrong, but the fact that it took so much effort and blood for the Union to win the war proves that they were not obviously false. If the southern states had had no organized military forces available, if the balance of military power between the federal government and the states were as clearly lopsided as it is today, I don't believe the states would have seceded. It would have been obvious to everyone that the war, if one developed, could not have been won.

It's common, I find, among libertarians to exaggerate the effectiveness of non-organized, non-standard resistance. A guerrilla military is, as part of the definition, weaker and less capable than its opponent (otherwise it would not be necessary to adopt guerrilla tactics). It can continue to exist, and to inflict casualties on the enemy, but it can never defeat the enemy in the sense of destroying his forces and seizing controlled territory. Guerrilla forces win in only two ways: they can increase in power until they become able to face the enemy as a conventional army (as Washington's Continental Army did in the Revolutionary War), or they can inflict damage on an enemy whose will to fight is not great, and who has little at stake in the conflict, until the enemy wises up and sees that the game isn't worth the candle (as the Viet Cong did to us). If there really were any vital American interest at stake in Vietnam, we would have won the war. (Yes, it could have been done -- but it would have involved a greater commitment of forces, a willingness to invade North Vietnam, and a willingness to go on taking casualties for a long, long time -- and there was nothing there that was worth that to us.)

When Saigon fell, it fell to the regular forces of the North Vietnamese Army, not to the Viet Cong.

If the southern states had been forced to rely on civilians with their private weapons engaging the U.S. Army in guerrilla actions, and had not had regular military forces of their own ready to hand, they would not have seceded in the first place. It would have been obvious that defeat was inevitable.

Nor do I, but I do object to who is actually paying these transport costs. Because the cost of, say, shipping oranges from Florida for me to consume in California, is not fully internalized in the orange purchase, I can't tell whether that particular long-distance purchase is worth it.

You're using a particularly silly example, because we grow oranges in California, too. We don't grow apples, though, or winter wheat, or pineaples and mangos. We don't make cars, or much in the way of clothing. On the other hand, Hollywood is here, and the heart of the computer industry, and we grow a lot of other things that people might want in other places. Also, we don't have the Statue of Liberty, or the Grand Canyon, or my relatives in Texas, Wyoming, Montana, or Arkansas. Subsidized transportation helps people move from one place to another as well as moving goods.

I'm just saying that trying to cripple the power of megacorps by cutting out their access to subsidized goods transport is cutting off our collective nose to spite their private faces.

Ah, but IS all capital property finite? Land is. My computer, with which I could make a living by creating spreadsheets, websites, or manuscripts to sell, you've already covered; it's not; everybody has one. My brains and skills, if I were in one of those professions, are unique to me and eminently portable.

Now, extremely heavy and expensive and immovable machinery is akin to land, but the tools of an artisan are akin to my computer, or even better, to my bicycle or cell phone.
And innovation keeps turning up new varieties of capital property, so that a monopolist may own the only railroad in town, but freight is being hauled by individuals in trucks, for just one example.

So it varies.

Originally Posted by The Grey Badger

Ah, but IS all capital property finite? Land is. My computer, with which I could make a living by creating spreadsheets, websites, or manuscripts to sell, you've already covered; it's not; everybody has one. My brains and skills, if I were in one of those professions, are unique to me and eminently portable.

Yes, capital property remains finite. Since I'm in an "intangible" business myself (insurance), and also have aspirations to be a professional writer, I am in a position of first-hand knowledge about things like this. Let's talk about the insurance business first.

I work presently for a brokerage firm, but there's nothing to stop me (now that I'm licensed) from working out of my home as a completely independent insurance broker. I could do my own advertising, find my own clients, and sell them insurance policies. And in the not-too-distant future, I may well do just that.

BUT -- I am not an insurance company, and could not be. This is where the capital property comes in. (Most of it.) An insurance company must have substantial financial resources in order to be able to cover claims arising from the policies it issues. The carriers I work with have assets in the millions of dollars, minimum; if they fail to do so, they get in lots of trouble (as AIG did recently). Without the capital resources of insurance companies, I don't have a product to sell, and my knowledge and skill become worthless. This gives the insurance companies a lot of leverage over what I do. Technically, I'm semi-independent (working as an indepencent contractor even now), but at no time will I ever be able to offer people a valuable product in the insurance field all on my own.

Now in terms of writing -- It's true that all I need in order to write are time, my computer, and a word processing program. I have the latter two, and can usually squeeze in some of the first. This is enough for me to produce stories and novels. But it's NOT enough for me to make money doing so. I don't have the resources to print and distribute my work myself; I must rely on a publishing house for that, and so must enter an agreement with one to accept a payment per volume sold.

All informational business is of this ultimate nature. In order for any of the information to become wealth, capital property must be invested. An invention must be produced. A movie must be made. A book must be published. A business plan must be implemented. And so on. What information businesses and jobs do is to separate the informational portion of wealth creation from the nuts-and-bolts material portion. This creates the illusion of capital-free wealth creation, but an illusion is what it is. Without a material process to inform, information by itself is devoid of value, and the material process always requires capital.

All right! Thanks for the explanation. I understand now.

Originally Posted by independent

PW

Sorry for the delay on the post,

Now it is my turn to apologize to you for my tardiness, and I wasn't ill either (unless you count occasionally being inebriated )

Originally Posted by independent

You don't actually believe that giving $5 Trillion to NASA will return an equal benefit as giving $5 Trillion to Goldman Sachs? Well, neither do I!

Eek, just about any private institution other than financials, generally, and GS, specifically, and I might have given some recognition to your point. Even if you allow for some innovations in the financials (e.g. securitization), i don't think its been worth it. I would much rather have preferred that $5T going into the gov't (perhaps not most into NASA, but some) than going into CDSs, CDOs and huge bonuses for these greedy bastards.

Now if you had mentioned firms pushing e-cars or feasible e-generation, I would be much more willing to accept your point. However, there is one big reason why I would still not - we are 4T, not 1T. I believe that the full utilization of available investment funds does not come until the 1T. The 4T is for setting the foundation - target research but much more importantly setting up the desperate straits to make the political, social, cultural, and economic leaps that will allow for tech innovation to be applied and distributed - soaking up all those dollars and leading to a real and sustainable increase in the markets.

Those dollars in the fading 3T led to asset inflation with increasingly bigger bubbles developing and being popped. Using those dollars now will just ‘reflate’ the next bubble and make the burst even worst. Those dollars need, and can be, soaked up now by taxation and govt investment in infrastructure until the time is rip for huge private investment in real production based on real demand. I think e-cars alone could do this, but I don't think even if the tech was perfected that this is the time for that to happen. I say we're 5-7 years away from it taking off for real.

In the meantime, we need to deal with this -



Now the denominator here (GDP) is based on linear thinking without regard to cycles, let alone the S&H Turnings. My belief is that the tech-driven 1T will begin to drive both these curves down in the late 20-teens, keeping the A-F Scenario under 100%. which would still be staggering to our economy, and the E-B scenario below 25%, which would be historically very good for our economy. While health care (i.e., physician compensation) and fixing the AMT plays some significant minor roles, the real difference between these two scenarios is whether you let the Bush tax cuts sunset or not.

Let those tax cuts sunset and you have set the stage for a successful tech-driven 1T. Don't let them sunset, and it won't matter if we get the tech, we be 4T for much longer than anyone anticipated, and likely become a 3rd-world country.

I have faith we will make the right choice.

Originally Posted by Kurt Horner

It took ten years for public skepticism about the New Deal to translate into electoral success for the GOP. Clearly this is because the apparent success in 1933-36 had a lasting effect on the public's view of economic policy.

Why should the GOP be preferred to the Democrats? Just because the Democrats solution to the Depression came to be perceived as less than successful doesn't mean that people would suddenly favor the Republicans who were still perceived as having caused the mess to begin with. FDR was more adroit politically than Hoover. When the bonus marchers descended on Washington Hoover dispatched Blackjack Pershing to deal with them. When they returned in 1933, Elanor Roosevelt went out them them, listened to them and lent a sympathetic ear. They eventually left Washington with no bonus, the same as what they got from Hoover. But the optics were far different. People said that when desperate Americans petitioned their government for aid, Hoover sent the army while FDR sent his wife.

Yes, but who was expecting it? You gave the impression that gloomy predictions were solely the domain of New Deal opponents.

Any no Keynesian economist believed that the Depression would return after the war. The key Keynesian claim was that governmental stimulus could have a "pump priming" effect that would persist after the stimulus was withdrawn. Non-Keynsians denied this was possible and so when the war spending ended they expected the prewar economy would return. Nobody besides the Keynsians, had a working theory for why the post-1929 economy was the way it was; they said prosperity would come after the war.

So it was possible that things could be different in a good way after 1945 just as things were different after 1929 in a bad way. All things are possible to God or Chance. But if you are an economist, someone who claims to understand something about how economies work, you cannot say something like this when asked what will the postwar economy look like:

The Depression will return, unless it does not, in which case the economy would be prosperous, unless it is not.

That's a good way to become unemployed.

So if you did not subscribe to Keynesian views you would tend to think the prewar status quo would resume after the war spending subsided.

If someone is using capitalism as a synonym for free markets, a practice I don't encourage, then to them I am pro-capitalist. If someone is using it to describe a system where concentrated ownership of capital is a defining feature, then I am anti-capitalist

You cannot simultaneously be pro-free market and anti capitalist. Free market economics and capitalism are not the same thing because the former once existed without the latter.

However capitalism has been invented, and like nuclear weapons it is not ever going to be uninvented. Any free market economy in which capital is one of the things subject to market exchange will be a capitalist economy and will necessarily feature concentrated ownership of capital.

This is because in a capitalist economy, capital seeks to grow and does so through a first order process, like a living organism. Those who are "hosts" to significant amounts of capital (rich people) will tend to become richer through the process of capital growth.

For example, suppose my and my wife's parents had invested $1000 in a general stock index when each of us were born. By the time we reach 70 that investment would be worth about $1 million. That two million plus our own savings would be mean we would be rich enough to not have to work. But we would have also been rich as babies (most babies down have $1000). By having that capital bestowed upon us, we would passively have become rich. And if we did not need it then after we die it would go to our heirs and by the time thy were 70, it would be worth about $9 million for each of them. Each generation would get righter and richer simply by being "hosts" for capital. By the time our great great grandchildren reached 70, each share of capital would be something like $15-20 billion.

Kurt, to clear up confusion here is what I mean by capitalism

Start with the three classic factors of production, Resources, Labor, and Capital.

A Capitalist economy is one in which investment decisions (ideally) seek to maximize the return to Capital. That is growth in capital is the "goal" of a capitalist economy.

A Socialist or collectivist economy is one in which investment decisions (ideally) seek to maximize the return to Labor.

A Traditional economy is one in which investment decisions (ideally) seek to maximize the return to Resources (usually land).

Now economic growth (in the modern sense of the world) usually means growth in output per person or worker, often expressed as increase in GDP per capita or productivity (GDP per worker per hour worked). Since it is normalized to population, economic growth does not reflect increases in amount of Labor, but rather in labor productivity which comes from application of Capital, both tangible (e.g. plant and equipment), and intangible (e.g. worker education) to workers.

To the extent that the sort of capital that is tradable is responsible for increased productivity, then growth of market tradable capital means economic growth. That is, market-tradable capital = Capital. When this is true, Capitalist economies are economies that seek to grow all by themselves. This is why Capitalism is such a popular choice for economic system.

A free market capitalist believes that letting capital grow spontaneously will give the most prosperous (fastest growing) economy. Built into their belief in markets is that tradable capital is far more important to prosperity than any other kind. If this is true, then the "market solution" to the question of how to invest will the one that generates the most prosperity.

A liberal capitalist believes that letting market-tradable capital grow spontaneously does not give the best results. Liberals believe in pruning the growth in market-tradable capital through high levels of taxation and using the proceeds to invest in non-market trading capital like public infrastructure, education and social maintenance functions.

A socialist wishes to do away with capitalism all together at some scale. Capital (profits) are allocated (ideally) in such a way as to maximize the productivity of Labor, in sort of the same way parents invest in the education and development of their children to maximize their success (productivity) in life. Profit is also allocated for social maintenance functions.

Originally Posted by Mikebert

Any no {sic} Keynesian economist believed that the Depression would return after the war. The key Keynesian claim was that governmental stimulus could have a "pump priming" effect that would persist after the stimulus was withdrawn. Non-Keynsians denied this was possible and so when the war spending ended they expected the prewar economy would return. Nobody besides the Keynsians, had a working theory for why the post-1929 economy was the way it was; they said prosperity would come after the war.

Sorry, but the real situation was the reverse -- the Keynesian influenced planners in Washington predicting a slump, with the business oriented economists being the sole optimists. See here (especially pages 286 and 321 onward). The "pump-priming" idea was a post-hoc explanation for an anomaly, not a unique prediction.

Originally Posted by Mikebert

You cannot simultaneously be pro-free market and anti capitalist . . . Any free market economy in which capital is one of the things subject to market exchange will be a capitalist economy and will necessarily feature concentrated ownership of capital.

This assumes that capital goods in the capitalist economy are predominantly subject to market exchange, when in fact, they are the type of good most insulated from such forces.

Originally Posted by Mikebert

This is because in a capitalist economy, capital seeks to grow and does so through a first order process, like a living organism.

Only because we've created institutions whose existence is independent of the persons involved which transfers effective ownership of capital goods not just from those using them (workers) to those purchasing them (stockholders) but even further removed to those managing them (executives). As such, the managers have strong incentive to maximize capital intensity, and re-invest earnings rather than paying dividends (which would disperse the returns from capital much more widely). The centralization of capital is not a market process at all, but a factor of the particular firm structure that arose from collusion between the state and certain business interests.

Originally Posted by Mikebert

For example, suppose my and my wife's parents had invested $1000 in a general stock index when each of us were born. By the time we reach 70 that investment would be worth about $1 million.

I'm not sure what you're trying to prove here. Obviously one can accumulate wealth by spending their resources on the creation of capital. However, doing this by passively purchasing shares of giant, immortal institutions and holding those shares until desired retirement is not the only way to do so.

Let's take a deeper look into CBO's two long-term scenarios -

Letting the Bush tax cuts sunset scenario -



and keeping them around to wreck havoc scenario, eek! -



Now in addition to the primary message that the Bush tax cuts will kill us, there are some other interesting things we can pull from these charts.

First, in both cases, if you are still listening to morons about the 'SS crisis,' well, this discussion might be a little too over your head - go back to watching Kendra's new show (at least you don't have to look at Hef any more!).

Next, notice the revenue line doesn't do much. Gee, you think, linear thinking?

And notice the Stimulus blip (brought to you by both Bush and Obama) looking more and more like the pimple on the flea of the dog?

And. other than the Bush tax cuts, what is going to kill us? Hint, it might have something to do with getting our health care system back to some sanity, hey?