Will Capitalism Survive/Fix This?

[Ed Breen]

Ok, as much as I enjoy the pie metaphor, it may be getting tired. Help me understand from your perspective; how does the pie currently work, and/or how is it supposed to work?



Duly noted; I do have a strong assumption about money circulation. Is it immaterial to the health of an economy?
I'd assume all citizens would be recipients, not just low earners.
If I had to speculate on the effects on entrepreneurship, I assume it would at least have a positive, nonzero effect.
How much money depends, as it would definitely not start as a full-income replacement, but supplementary.

All else being equal, what is median wealth's correlation with the health or productivity of an economy?
Also, could each citizen be considered a potential asset?

You have good questions; let me try to deal with them each in a basic way, you can ask more questions for nuance if you want.

1. "Is [money circulation] immaterial to the health of an economy?"

The issue is whether it is a driver of economic growth. Let me answer this way: Are people fat because they eat too much, or do they eat too much because they are Fat? (See John Taube, "Why We Get Fat" for answer; not a diet book; provides basis to understand why so many think consumption drives the economy when it does not).

2. "All else being equal, what is median wealth's correlation with the health or productivity of an economy?"

First tell me what you mean by 'wealth'; based on what you have written here, I see that you conflate wealth with money, with income measured as money, probably using an AGI income tax metric so, it appears to me that you are referring to median income related to economic health or productivity. Here again, I wonder what you mean by and how you would measure 'economic health'; we have productivity measures such as they are.

I will say that you want to know how median (why not average?) income impacts the 'wealth' of an economy. Quick answer is see above.

But let me digress, can you wrap your mind around the idea that money, income, is not wealth. Rich people know this intuitively even if they don't know how to articulate it. Precisely, individual wealth, is the possessory right to a future after tax stream of income. Wealth can be measured by applying a risk adjusted discount to that cash flow to produce a present value.

In every day parlance, you are only as wealthy as what you can borrow (because what you can borrow is itself a risk adjusted discount of your future income).

The thing about money is that it is simply a unit of account for transaction and a unit of measure to articulate notions of relative value. Money is a wasting asset that is maintained because it is liquid, of itself it does not have a growing future income stream. What we use as 'money' today is an unsecured non-interest bearing demand note issued by the Federal Reserve; a debt instrument issued by our government that says right on it "Federal Reserve Note." We use debt as money.

By law we use this debt owed to us by our government to pay taxes, tender exchange, and settle debts. We pay debt with debt (a lot of that going on all over the world).

The 'money' we would hand out under UBI is an IOU issued by the Federal Government which is only as good as the Federal Government’s ability to borrow from third parties in an international government bond market. As goes the 10year bond, so goes the dollar.

So, to bring this back to the question, median income is not a measure of economic health, if you mean aggregate wealth. The fact that it is high or low is symptom of other factors; it is not a cause.

What you want for economic health is an increase in the aggregate real assets under the jurisdiction of that economy. This is the base that underwrites that economy and the government which issues paper money debt backed by longer term interest bearing debt. When the real asset base declines, so does the credit risk of the Government, and then so does the value of the money...which begs the question of whether you want adjust your notion of 'median wealth', income, to be adjusted for inflation.

3. "Also, could each citizen be considered a potential asset?"

Absolutely, the investment in capital that is required to maintain and create real assets, includes human capital, intellectual capital, innovation.

 

[Ed Breen]

That you are starting to make some sense to me should worry you.
Don't the two, production and consumption have to go hand in hand?

I have not changed my view; maybe I am getting better at articulating it, and I see it more philosophically now with out losing sight of discrete human experience.

Of course production and consumption are proximate and related processes.

On an atomistic level, production creates the possibility of consumption as an inevitability, both in human sense as production rises to create a surplus that calls for consumption to arise and expand in society, and in a material sense as it actually brings the subject of consumption into reality.

 

[piezoe]

I have not changed my view; maybe I am getting better at articulating it, and I see it more philosophically now with out losing sight of discrete human experience.

Of course production and consumption are proximate and related processes.

On an atomistic level, production creates the possibility of consumption as an inevitability, both in human sense as production rises to create a surplus that calls for consumption to arise and expand in society, and in a material sense as it actually brings the subject of consumption into reality.

What happens when production rises beyond demand but prices are sticky because of labor contracts?

 

[CyJackX]

You have good questions; let me try to deal with them each in a basic way, you can ask more questions for nuance if you want.

1. "Is [money circulation] immaterial to the health of an economy?"

The issue is whether it is a driver of economic growth. Let me answer this way: Are people fat because they eat too much, or do they eat too much because they are Fat? (See John Taube, "Why We Get Fat" for answer; not a diet book; provides basis to understand why so many think consumption drives the economy when it does not).

2. "All else being equal, what is median wealth's correlation with the health or productivity of an economy?"

First tell me what you mean by 'wealth'; based on what you have written here, I see that you conflate wealth with money, with income measured as money, probably using an AGI income tax metric so, it appears to me that you are referring to median income related to economic health or productivity. Here again, I wonder what you mean by and how you would measure 'economic health'; we have productivity measures such as they are.

I will say that you want to know how median (why not average?) income impacts the 'wealth' of an economy. Quick answer is see above.

But let me digress, can you wrap your mind around the idea that money, income, is not wealth. Rich people know this intuitively even if they don't know how to articulate it. Precisely, individual wealth, is the possessory right to a future after tax stream of income. Wealth can be measured by applying a risk adjusted discount to that cash flow to produce a present value.

In every day parlance, you are only as wealthy as what you can borrow (because what you can borrow is itself a risk adjusted discount of your future income).

The thing about money is that it is simply a unit of account for transaction and a unit of measure to articulate notions of relative value. Money is a wasting asset that is maintained because it is liquid, of itself it does not have a growing future income stream. What we use as 'money' today is an unsecured non-interest bearing demand note issued by the Federal Reserve; a debt instrument issued by our government that says right on it "Federal Reserve Note." We use debt as money.

By law we use this debt owed to us by our government to pay taxes, tender exchange, and settle debts. We pay debt with debt (a lot of that going on all over the world).

The 'money' we would hand out under UBI is an IOU issued by the Federal Government which is only as good as the Federal Government’s ability to borrow from third parties in an international government bond market. As goes the 10year bond, so goes the dollar.

So, to bring this back to the question, median income is not a measure of economic health, if you mean aggregate wealth. The fact that it is high or low is symptom of other factors; it is not a cause.

What you want for economic health is an increase in the aggregate real assets under the jurisdiction of that economy. This is the base that underwrites that economy and the government which issues paper money debt backed by longer term interest bearing debt. When the real asset base declines, so does the credit risk of the Government, and then so does the value of the money...which begs the question of whether you want adjust your notion of 'median wealth', income, to be adjusted for inflation.

3. "Also, could each citizen be considered a potential asset?"

Absolutely, the investment in capital that is required to maintain and create real assets, includes human capital, intellectual capital, innovation.

1. Can't find the book; is it by Gary Taubes?
I'd assume that circulation, on some threshhold, is at least required for economic growth? And that it can be optimized?
Not sure about the fat metaphor; as the technical answer seems obvious (calories in vs calories out), but too trivial to take in all the variables of the subject.

2,3. Ok, I understand that money, currency, does not equate to wealth. But, money at least improves the odds of accessing individual wealth, right? And if the endgoal is improving aggregate wealth, wouldn't improving median income be considered an investment in the asset that is our human capital?

 

[Ed Breen]

What happens when production rises beyond demand but prices are sticky because of labor contracts?

You lose money on your over production and you might need to lay off some labor to reduce expense.

There is no contract that guarantees you will make money and there is no labor contract you can perform for very long if you don't.

 

[Ed Breen]

1. Can't find the book; is it by Gary Taubes?
I'd assume that circulation, on some threshhold, is at least required for economic growth? And that it can be optimized?
Not sure about the fat metaphor; as the technical answer seems obvious (calories in vs calories out), but too trivial to take in all the variables of the subject.

2,3. Ok, I understand that money, currency, does not equate to wealth. But, money at least improves the odds of accessing individual wealth, right? And if the endgoal is improving aggregate wealth, wouldn't improving median income be considered an investment in the asset that is our human capital?

Yes, it is Gary Taubes, sorry, I mangled his name.

On circulation, you have your cart before the horse; deal with growth and circulation will take care of itself.

Circulation (Velocity) is simply the increase in total debt in the aggregate banking system which is caused by more debt formation than debt extinction, very little circulation is accounted in the transfer of physical specie.

A growing economy will produce a demand for private debt collateralized by real assets that exist or that will be created subject of the investment; this in turn will show up in the St. Louis Fed Data measure of velocity and you might say that circulation increases. But, you see that the circulation does not create the growth, the growth creates the circulation.

In answer to 2/3, No, money flows from wealth; wealth is created by investment.

Entrepreneurial wealth brings an idea, know how and money together; depending on the nature of the idea, the idea and the know how create the money.

Giving people money will support their immediate well being; in an of itself it will not sustain an increase in their individual wealth. Its like the old saying about giving a man a fish or teaching him how to fish.

There are character and cultural issues, an attitude of deferred gratification, hard work, self sacrifice, good judgement, initiative, intelligence, perseverance that are conducive to building individual wealth; its not just a little money; that can go away quickly. People need mentors, family, positive encouraging relationships in order to build wealth, and they will have to overcome failure on the way.

Take a look at George Gilder's classic book "Wealth and Poverty;" or look at Charles Murray's book "Coming Apart."

You might like Murray's most recent book, rewrite of an old book, "In Our Hands"; its about UBI.

 

[java]

My problem with Marx and his followers is they always start right in the middle after the wealth has already been created and then come up with novel new ways to divvy up the spoils. I have yet to hear anybody explain it so I can understand how we can socialize profits if there is no capitalism to first generate the profits. Socialists need capitalists for their redistribution scheme to work. Capitalists on the hand don't really need socialists that much. You know, each according to his need. If I'm trying to run a business I can think of other things I probably need more than another socialist. A customer would be nice, but they don't have any money because wages are too low. If I could just get the government to take money from my profitable competitor and give it to my customer then I could have a cozy little business. Speaking of books "How to Make Millions in the Socialist Revolution." With a complete guide to turning UBI into your very own personal goldmine.

 

[CyJackX]

Ok. I understand what you are saying re: circulation, now. Growth causes circulation, not the other way around. But, if demand prompts growth, wouldn't increased consumer buying power create demand? Perhaps I conflated circulation with consumer buying power.

As far as the latter bit, I guess this comes back to the classical debate of welfare, that the idea of "effort" is simply enough to overcome circumstantial disadvantages.

I'm not so naive to believe nobody would spend supplementary income frivolously, but I think it's proportionally cynical to think everybody would.

To use the fish analogy, which I also think is too trivial, some people have broken poles, no poles. Soon there will be no fish. Can't fish today, gotta watch the kids and I can't afford a sitter. The fishing instructors don't work for free either. Mildly facetious examples, but just that the fish analogy assumes equal circumstances for the fishers and the fishing conditions. A UBI, however, would be doing just that, ensuring that everybody at least has a pole.

I think the amount of labor affected by UBI would depend on implementation. Pay enough to provide tangible benefits but not enough to diminish work. Assuming you have a job that pays well, I'm assuming there exists a supplementary threshold where you'd keep working the job anyways.

 

[java]

Nothing constricts circulation like a good regulation tourniquet.

 

[CyJackX]

My problem with Marx and his followers is they always start right in the middle after the wealth has already been created and then come up with novel new ways to divvy up the spoils. I have yet to hear anybody explain it so I can understand how we can socialize profits if there is no capitalism to first generate the profits. Socialists need capitalists for their redistribution scheme to work. Capitalists on the hand don't really need socialists that much. You know, each according to his need. If I'm trying to run a business I can think of other things I probably need more than another socialist. A customer would be nice, but they don't have any money because wages are too low. If I could just get the government to take money from my profitable competitor and give it to my customer then I could have a cozy little business. Speaking of books "How to Make Millions in the Socialist Revolution." With a complete guide to turning UBI into your very own personal goldmine.

I wouldn't call myself a Marxist, I don't really know what I am.

I do agree, though. Socialism requires a healthy capitalist machine to work, and I theorize that failed socialist states are simply those that didn't have the proper capitalistic structure to support it.

I've always conceptualized capitalism as a great fire, a source of energy and production. Regulation is the barrier around the fire; you want it to keep it from burning everything down but without extinguishing it. Once the fire hits it's peak, socialism is the forge built around it to concentrate it's energy.