3 November 2011

Why I don't believe in capitalism

Politics has been a great interest of mine for as long as I can remember and so it is no surprise that I tweet about it regularly. Which makes it even more of a surprise that I do not blog about it that often. That's about to change.

There are a few themes that I have evolved positions on over the years that tweets can only expose part of but a longer blog can give them the space to grow to their full size. I'll start with economics.

We've been in an economic mess for several years, at least from 2008, and every day since then we have been bamboozled by armies of economists with their suggestions for what we need to do to get out of this mess. Broadly speaking, the right wants to cut taxes and spending to encourage supply while the left wants governments to inject cash in to the system to promote demand. There are as many different point of view between these two extremes as there are economists.

And that's the point. We simply do not know how to make capitalism work. We have invented a monster that we do not understand and cannot control.

There are things like the weather and earthquakes that we cannot understand either but they are natural systems and so have an good excuse for being chaotic but capitalism is a man-made phenomenon and so its chaos is of our making.

That chaos leaves government with just a few weak economic levers that they can pull, e.g. tax rates, and they pull them with little certainty of whether they will work or not and even less certainty of any other impacts they may have, the problematic law of unintended consequences.

Even the impact of a simple measure like the 50% tax rate on those earning above £150,000 in the UK is disputed with some claiming that it brings in more taxation because the rate is higher and others claiming that it brings in less taxation because it has scared top-rate tax payers oversees.

I have my view on which argument is right but that does not matter, what matters is that even on a very simple measure like that we simply do not know what the effect will be. Nor is there any way that we can run a test to see.

I don't think it makes any sense for us to live in a system that we cannot control. Seriously, why would we do that?

Capitalism controls everything that happens to money and that has a major impact on everybody's lives. So we need to rein it in. I don't mean rein in the fat-cats etc. but rein in the system that allowed them to be created in the first place.

I'm not sure how to do that but we have to do it and I'm sure that we will one day. Places we could start, and that would only be a start, include banning all automated trading, setting maximum wages, abolishing tax havens, abolishing casino banking, mandatory transparent cost-plus pricing, etc. etc.

The only purpose of these changes would be to introduce more levers in to the system so that it can then be controlled to a greater extent, though those unintended consequences would still be there. Who then controls these levers and to what end is a separate conversation in the world of real politics.

Until we have these controls then any debate on the economy is false as we really do not know what we are talking about.

3 comments:

  1. My view: the world is complex, no matter what system we use to run it.

    In theory we could keep it simple - split up into small villages, live self-sufficiently in them, have no national or global media, travel, communications or trade. But that would be a regression to the lifestyle, and standard of living, of hundreds of years ago. There's no way to maintain the quality of life we now have without complex national and international systems.

    If we abandoned capitalism for some other system, it would still be complex and would still have opportunities for parasitism and exploitation.

    If we restricted capitalism in the ways you've suggested, it'd be like squeezing a balloon on one side - other complexities would pop out elsewhere. You'd be able to control the levers that you've mentioned, but unintended and unforeseen consequences would be rife.

    One small example: let's say you ban automated trading, as you suggest. Can traders still use computers to trade, or do they have to use open outcry and write all the transactions down on paper? Are they allowed to sell 50,000 shares of British Gas and have their computer automatically find the buyer who's offering the best price? Or do they have to manually look through the list of buyers and choose some? What if someone makes a program that can sort the buyers in order of offer price, to make this process easier. Is that allowed? It's pretty hard to draw the line here, and wherever you draw it, there are likely to be opportunities to find loopholes, bend the rules or cause other problems.

    If we were to set a maximum wage, might that encourage people who own family firms to have large families and employ them all in the family company? Would that be a good thing? Let's say that a company (Apple?) makes very high profits one year but is not allowed to pay them out to its executives because they've hit the maximum wage limit. Is it allowed to pay out to its shareholders instead? What if someone owns a million shares and the dividend would take them over the maximum wage? Would it be held back till next year? Or would all the small shareholders have to give up their dividends as well? What if the CEO hits maximum wage, so the company decides to put up its CEO in luxurious hotels, hires her a chauffeur and flies her first class everywhere? Does that count towards the salary? What if they are genuine business trips, should she have to pay those out of her own pocket? I don't mean to pick on these specific rules, just to show that there are always complexities and I don't think you can legislate them away.

    (I would definitely agree with shutting down tax havens though!)

    Yes, there are debates about many of the particular complexities of our society, but if you look past these details there's a lot of consensus. Even in highly polarised debates about tax rates and quantitative easing, you can look past the rhetoric and see that they come down to some relatively simple questions which actually can be answered, with the right patience and research.

    The ones that can't be sorted out like that are basic conflicts between interest groups. Inevitably rich people will want lower taxes, and poor people will want to receive more public services - this is an essentially dispute between the two groups. But by bringing it out explicitly like that, we are able to debate it and use political means to resolve it - if not to everyone's satisfaction, at least in a legitimate way.

    No system will ever be perfect. But my optimistic opinion is that we have a decent society which has good ways of solving most of its problems. I think the society we have is quite close to being as good as it could get, maybe not in theory but in practice.

    ReplyDelete
  2. One last thing: I am not saying, Pangloss-like, that all current laws and policies are correct. I'd rather see higher taxes, more redistribution, more public investment, more QE, fewer cuts - but also more efficiency in public services, partly through competition in the NHS and education. But I think the basic frameworkss we make these laws in - both the market system and the democratic system - work pretty well.

    ReplyDelete
  3. The most complex system on the planet is people. They are wilfully diverse and unpredictable yet we (more or less) manage to control society with some simple rule, like thou shalt not kill. There are some boundary issues here (e.g. assisted suicide) that we have to play with but the basic rule is well understood.

    There are a raft of positive rules too, such as recognising the value of, and right to, education.

    I'm not sure what the economic equivalents of murder and education are so the examples I gave initially were more trivial and, therefore, more open to question.

    Perhaps we need to go straight to the big things like a single global currency and complete transparency so that, for example, when I buy a coffee in Sarbucks I can see where every penny I send goes.

    ReplyDelete

All comments are welcome. Comments are moderated just to keep out the spammers and all valid comments are published, even those that I disagree with!