Ah! Steer, The 1%-er's Favorite White Meat

While it's both satisfying and correct to dismiss the Rand/Hayek/Wingnut lunatic fringe as evil fruitcakes, and the global oligarchs to whom they offer "intellectual" support surely are, there is a reason they've come to defend the indefensible. This missive will attempt to provide an explanation, without resorting to mere sarcasm and anger. I will do my damnedest. Marshall had this to say (he who is said to have started economics down the road of algebra, and turned 'political economics' to 'economics'): "(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in 4, burn 3. This I do often." The fruitcakes defy (1), and proceed from there. The fruitcakes assume that macroeconomics is just collective (a bit of sarcasm, what?) microeconomics; that is, the macro-economy is merely the sum of its participants. This is their pitfall; while it would be true in an anarchy without any form of government, even cavemen had leaders. While an externality, say a few gallons of water pollution, may be inconsequential in the realm of a single actor, if all actors pollute a few gallons... well, you get it. As any Good Mother has said to a bratty child: "what would the world be like if everybody behaved like you?" In the days of "be fruitful and multiply", the world was about 170 million. In the days of Adam Smith and "Wealth of Nations" (you should look it up, if only to read the full title), the industrial revolution had barely begun; Europe was still a collection of monarchies; the USofA hadn't yet happened; world population was about 1 billion, the USofA about 4 million, and the developed world (such as it was) was still to exploit the New Worlds' resources. In other words, economies weren't constrained by excess humans and waning resources; and here in the about-to-be USofA, the solution to any socio-economic problem was to send the problem off to Indian Territory to steal some land; out of sight out of mind, swept under the rug. Keep in mind, that the Dark Ages happened when the world, as experienced in Europe, was largely resource constrained. Well Dorothy, we ain't in Kansas any more. Smith's great assumption was that no actor (either singly or in combine) could affect actors other than through direct trade. Monopoly, monopsony, oligopoly, and oligopsony didn't exist. Of course, they did. The Monarch could decide by fiat. Large landholders could decide by fiat (Smith and his ilk had the least respect for landholders; he saw the distortions). His world was fantasy, even then. Much more now. As has been seen, since 1776, industrialization has "freed" labour from the farm, so it could man the factories. But by now industrialization has freed labour from factories (well, China excepted). The result, return on real investment falls, due to collapsing demand and foreshortened earning time for physical capital. We need a theory of distribution; with the wage mechanism narrowing the haves and expanding the have-nots, there's no cash in the system to buy up production. We also need population control; we don't have enough Earths to supply a 90210 lifestyle to anything more than a handful of us. Whether anyone should really live that way... The other problem with the fruitcakes is that they, along with their brethren in the coupon clipping class, view currency as commodity. Thus, we see stock trading winnings classified as "capital gains", when all that's happened is a wager. Except for IPOs and the occasional secondary offering, none of the money involved in stock trading ends up with the corporations for the purpose of building new physical infrastructure. Corporate bonds, rather more. In sum, corporate capital faces the specter of over-production whilst dis-employing its consumers. Individual greed may be good, but in the aggregate leads inexorably to global collapse. The upshot of their "analysis" is that, if all governments pay off debt, right now!, then the bond fairies (as Krugman likes to call them), will reward everybody with a better life. But what the bond fairies want, all they want, is the inflated returns they contracted for way back when. This has always been the issue. The Rand-ians merely seek to corral ill-gotten gains. With regard to The Great Recession, the problem is that banks, and the 1%-ers, got greedy. With Greenspan's cratered interest rate, they still wanted their 10% income with no risk. So, the banks manufactured a 10% product. Now that it's come a cropper, the 1%-ers still want their ill-gotten 10%. Ain't gonna happen. Pigs get fat, hogs get slaughtered. The deals were too good to be true; yes, they were. Their greed got them sucker punched. Go get an icepack and shut up. The main reason the fruitcakes embrace austerity is that's how they think they'll still get their 10% forever. Stupid. Push your debtor over the edge, and you get bupkis. Let your debtor grow income, and you'll both prosper. The Rand-ian blinders, again. The developed West has "developed" past industrialization, to service economies. So it is said. Real consumers don't buy many services; certainly there aren't but a handful of consumer services (services as defined by BLS and others from the point of view of employment data) that exist today which didn't exist in your grandfather's time. Most "good jobs" in services, IT and finance and such, exist as infrastructure for corporations, not offered to consumers. Hamburger flipping is the Consumer Direct, Other Service Economy, along with Wal-Mart greeter. As such, the USofA is far more vulnerable, strategically, today than in times past; we'd have a hard time providing the necessities to our population if our "services" ceased to be valuable. Sort of like, well, October 2008. [update] Went looking for an academic exploration of what seems obvious: that return on physical investment, particularly "high tech" capital, diminishes over time. My reasoning can be summed up thus: a steel making blast furnance from the 1920's was of constant productivity for decades (there weren't new versions being built every few years), while a wafer fab (the plant which makes raw computer chip dies) has at most a few years of exclusivity in productivity; newer, smaller size chip fabs are built every year. Thus, the return on the fab is less than the return on the blast furnance. While the fab owner may try to extract a premium for its use (most chip companies contract fab out; they don't own a fab), it will be supplanted in tens of months. Thus, I suspect strongly, the segue to financial capital. The problem there is that financial capital generates no output. Here's a study, which is focused on Japan, but no matter.