December 20, 2017

The Age Warfare Era Has Officially Begun

Economics has always assumed that Capital (K) and Labor (L) are complementary factors of production (Y).

Look how pretty and sophisticated this economic abstraction looks

Meaning, roughly, that you can't produce something with K if you don't have a bunch of people (L) pulling K's levers and buttons. Alas. As is the case with many things economists have cooked up in their simplistic, impossibly abstract assumptions, this is not even close to reality.

K and L are fundamentally different. L is human; K isn't. K might be owned by a human (the Capitalist), but K does not function the same way as L does. K doesn't go to restaurants. K doesn't buy gifts for its family on Christmas.

Any income K receives, it recycles it back into itself, compounding its power; into reinvestment, and away from restaurant dinners and Christmas shopping for the family because, well, K doesn't have a family.

There used to be a time in the past when K and L formed a successful symbiosis. Despite K's technological advance back then, L was not kicked out of the equation. It was the famed "goldilocks" period of post WWII. Back then, technological progress was helpful for the economy because tech was, in reality, "crippled tech": it needed the arms, hands, and muscles of L to function. And in needing so, L partook in the profits, recycling in turn their wages into an economy that employed more L.

"K creates jobs!" Say the trickle-down economics evangelists, anchoring their minds to the "goldilocks" post WWII era.

If only this was true. The world has evolved. Automation has kicked L out of the process, and deprived them of sustenance wages. Anyone who still believes that money in the hands of K's owners means more jobs for humans is either trapped in a time capsule or flat out lying.

And yet. Somehow, we can't bring ourselves to hate K, its owners, or automation, the same way we do foreign Labor, Globalization or Offshoring. More than that: some even trust K and its owners to redistribute their profits for the benefit of the economy, even though by definition K is designed not to do it. That K's intrinsic quest for profit maximizing is behind every single automation effort shattering job opportunities for L everywhere is of no importance at all, it seems. It's as if we are incapable of assigning blame on a factor of production because it is faceless, even though we all know it isn't.

All this is to say, at risk of stating the obvious, that Capitalism is not compatible with Labor, and that technology (K's ally) will inexorably keep exacerbating inequality, evaporating jobs, and undermining the broad-based consumption needed for a market economy to function. The confiscation of purchasing power out of the hands of those who would spend it in the economy will continue unabated.

Shareholder value maximization (K's mechanism to compound itself) is, thus, also against Labor. Any populist promise to create jobs by enlisting the help of K and/or K's owners is a scam. Will more money in the hands of Corporations (K's legal personification) create some economic growth? Perhaps. Share repurchases might push equity levels up (thru artificial accounting engineering), creating a wealth effect for that minority of equity owners (K's owners), who already carry the lyon share of consumption in the economy, but who can't possibly replicate (even if they wanted) the mass consumption that L's wages make possible.

Is the economic jolt of this measure worth $1.5tn of debt? I don't think so. Political myopia has driven the latest attempt to jump start the economy, pushing the time of reckoning for another generation. One that already has $1tn in student loan debt, and who will also bear the burden of the cost of retirement of the baby boomer generation to boot.

The anachronistic view that conceived this tax cut, one still enamored with the goldilocks era of technological progress and Reaganistic tax cuts, has handed over $1.5tn in debt to this young generation.

We've officially begun the era of Age Warfare.

July 30, 2017

Eunuchs vs. Civil Servants

You and I, inhabitants of the Americas, should all speak Chinese (or a derivative of it) instead of a European language.

We don't, of course, because it was the Europeans who "discovered" (for the second time) this continent in 1492 and sparked a rat race among European States to stake a territory in the "virgin" lands of the "New World".

China had all in its favor to beat the Europeans in the early 15th century. They led the world then in technological innovation: cast iron was first invented in China; the compass was invented there; gun powder was first concocted there. Not to mention printing; the umbrella, porcelain, the wheelbarrow, hot air balloons, and even seismographs to measure earthquakes.

How can you be that advanced and not attempt to conquer other lands to extract their resources? Well, they did. And succeeded. Decades before Columbus "discovered" La Hispaniola, the Chinese had reached as far as East Africa. Before Vasco Da Gama went around the Cape of Good Hope and reached Kenya, the Chinese had already sent voyages "consisting hundreds of ships up to 400 feet long and total crews of up to 28,000"; taken African emissaries back to China, and established tributary states in Africa and South East Asia.

And then, they stopped their colonization expeditions. 

Turns out the Chinese, then the most advanced power in the world, had a very confrontational political class. The faction leading the colonization expeditions, the Eunuchs, had a recalcitrant counterpart within the imperial system: the civil servants. They clashed and never agreed on the matter of the voyages. When the Yongle Emperor died in 1424, the civil servants gained the upper had in government, and shut down the colonization program led by the Eunuchs, effectively setting China back to the geopolitical backwaters of the world for hundreds or years.

When the world was at the cusp of a new revolutionary epoch (imperialist mercantilism), China had already beat Europe to the punch. But internal petty politics prevented China from truly realizing that geopolitical advantage, allowing a less advanced, significantly more fragmented region (Europe) to kick-start its own era of global domination.

As in the 1400s, we are now at the cusp of a revolutionary epoch. AI threatens to sow chaos, upending the role of labor in the world. The fossil fuel civilization lives its last stage, as market forces exert themselves in favor of clean energy. The internet is killing and remaking entire industries at record speed.

The tectonic plates are moving. A new world order is in the making.

In the middle of all this uncertainty, today's global hegemonic power is in voluntary retreat. And its factions, like China's Eunuchs and Civil servants in the 1400s, refuse to cede or compromise, quarrel constantly; "getting nothing done".

Like Europe in the 1400s, China seems ready to take advantage of the opportunity that falls on its lap. In trade, the environment, and more crucially, in science.

Will today's Eunuchs and Civil Servants keep fighting here while the rest of the world keeps looking forward?

June 08, 2017

The Search for a New Order

The search for a new social and economic world order continues in the middle of all this madness. At least in my head. Growth and its power-law dynamics brought us to a place where the losers can't hold it together any longer. Rage engulfs the developed world. Irrationality reigns supreme.

Capitalism (coupled with rule of law and property rights) had provided the avenue to exercise our self-determination. The principle that material success is entirely (or at least mostly) dependent on our effort had proven a quasi-religious mantra for many. And it was alluring. More than that: self-vindicating. The idea that I'm the architect of my destiny and that nothing can hold me back can be an inebriating, hypnotizing force that arms us with untold amounts of discipline and resolve to over-perform. Forget for now about the fact that that over-performance can be easier to achieve in the fast lane of that avenue. Or that a government has to build the actual avenue for said achievement to occur.

But what happens when, despite being positioned in the fast lane of that avenue --and armed with the ambition to excel-- competition occurs against someone who can perform astronomically faster than you? Someone doesn't sleep at all? Or worse, someone who does not demand money in return for their work? 

It's when the avenue fails to take us to our meritocratic self-realization that problems arise. When failure to achieve despite putting in the sweat --despite the merits-- becomes widespread, the self-determination illusion evaporates. Desperation sets in. Despair destroys your world.  

If we fret about technology upending the productivity model of Capitalistic societies --on the supply side of the economy-- its effect on the consumption (demand) side should be chilling. It's been a long, surreptitious process. Technology --in its mechanical form-- first destroyed the physical value provided by humans (our ability to physically create objects/services of value) when it substituted it through mechanization. Now that human value has retreated to informational capital contained in the brain, technology is in the process of taking over (most of) those functions as well. All what's left for us is to be reduced to mere consuming entities who give up our preferences so internet companies monetize them

Is the last refuge of value as humans to become consumer automatons to be groomed online and harvested for profit?

Maybe the promise of a fulfilling life through the cul-de-sac house with the trimmed front-yard in the gated community was overrated. Maybe it is true that the promise of Capitalism was an elusive state --a never-ending thread-mill. Maybe transcendence beyond this life is more fulfilling, and therein lies the "allure" of religious fanatic, apocalyptic radicalism. But one thing is for sure: the sick "satisfaction" a suicide bomber gets from the heinous act of killing innocent little girls at a concert can't be measured in utils. And the enlightened, stylized microeconomic models of neoclassical economists trying to describe that kind of "human" behavior are rendered useless

Or maybe we need to question the model of the Liberal Democratic State as the unit of social cohesion. It has, after all, many flaws: Fanatic allegiances that drive tribalism and catastrophic wars; arbitrary borders that exacerbate infighting (just look at the middle east and the serendipitous partition which spawned it); assimilation issues that alienate entire subgroups; and a self-defeating proneness to elitist capture. Could this rarefication of the air we breathe (i.e. hateful "free speech") be nothing but a manifestation of the obsolescence of the Liberal Democratic State? 

Are Liberal Values paradoxically self-destructive

Is it really fair to ask this question only after the current string of attacks in developed countries has occurred? And why did I not reflect about these issues after the the harrowing, unending, hearth crushing, mind numbing, terrorist attacks in developing countries? 

Perhaps the truly unit of social cohesion is the Multinational Corporation in this weird New Order and we simply haven't realized yet. After all, they have the same characteristics of a Nation: a Citizenry (employees), and an out-sized influence over economic activity (more so than governments). They even provide subsidized healthcare to their "citizens". Yes, they're the ones subjecting us to the implementation of human-substituting technologies, but how can they not? They're programmed to do it. Shareholder Value Maximization tells them so

Maybe we should tax the actual robots "stealing" human jobs (as if they could consciously intend to "steal" them), or rather, the Corporation profiting from their automation. How about imposing a "society tax" at each IPO to fund a Universal Basic Income? After all, Society --and by extension the governments which represent it-- did provide for many of the networks that allowed them to flourish. 

I honestly don't know. I'm not sitting here pretending to know any of the answers. But clearly, the sense that we need to come up with a solution is pressing. 

April 20, 2017

Grow, (just not that much)

Face it. We're all still playing catch up to the reality that this election laid bare. Our collective recency bias kept us blind, thinking that what held true in the recent past (a corrupt, skewed political system serving a ring of cronies) would simply keep happening going forward. Never mind that the world's interconnectedness had made things inherently unstable. Or that it had already fed revolutions all over the middle east.

That was them --it seemed we thought. We're different. 

Turns out, we're not.

Now that the fire has reached home, we're scrambling for solid ground amidst this tectonic plate rearrangement. The Liberal World Order is under siege --fascists are at the gates!-- and Fukuyama had it all wrong. The sense of loss and drifting is palpable.

It's clear --by now-- why we missed it. But is it really clear why we got here?

Interconnectedness may have been the spark, and our yearn for belonging may have exacerbated it, but the reality has to do more with our very human "need for growth". After all, growth is --alas-- an inexorable, numbing, --and most dangerously-- misunderstood crushing force that sneaks up on our way of life --until it is too late.

At the risk of stating the evident, growth is exponential. It assumes the immediate past as the new base. And that base always shifts. Higher, building on top of the last one. Every time. But here's the crucial part: we --wrongly-- assume growth happens within an infinite environment. When you have multiple entities (people, companies, groups) growing in parallel, it always gets to a point where growth happens at the expense of others'. The consequence is that growth spawns a winner(s)-take-all dynamic --given enough time, of course.

Clusters are the prime manifestation of growth. The virtuous co-dependency of its individual parts begets more growth --at the expense of other regions. We all know Clusters by their more mundane name: Cities. We barely stop to think about it this way, but this election was the culmination of the "success" of the Cluster over SmallTown, USA. The Cluster ate SmallTown's lunch at recess because... something something capitalism. But fret no more! Some thinkers are already suggesting we break Clusters down (the way they did with Ma' Bell) and re-direct jobs to SmallTown, USA, because... Liberals.

Wealth is another example of exponential growth. Piketty saw this fundamental aspect very well and based his entire book on the pernicious aspects of Capital's exponential growth (whether his prescriptions are adequate is a matter for another post). The benefits of starting accumulating wealth early are sweet (if you're part of the in-group, that is), and this can be neatly seen in the U.S. wealth distribution by race:

Different waves of immigrants look different (after all, they hail from different places), each one joining this party called the U.S. of A. at a different stage with the goal of accumulating wealth. Since wealth accumulation is exponential, when you start (as a lineage) accumulating wealth matters more than how much you save or your life decisions/habits* (meaning, for example, that you can still be a drunkard, but if you're white and smart/lucky enough you could technically still marry into old white money and be ok). The power of compounding roughly accumulates transgenerationally by race because same-race marriages are still (although less so lately) more likely than interracial marriages, (Black folks, for reasons all known to us, were locked out of the wealth accumulation race --no pun intended-- until the Civil Rights Movement, which accounts for their catastrophic late start). So, the earlier your immigration vintage, the more the transgenerational wealth compounding worked (very well) for you.

The pattern repeats and repeats. With huge winners and small losers. Here's the case of firms. Under pressure from boardrooms to make stockholders richer (that wealth accumulation thing again), companies dutifully deliver:

If the environment where firms grow was infinite, they'd be able to grow without creating "losers", right? The proverbial pie would expand for all! Well, if that was the case, mergers and acquisition wouldn't exist.

And the loser, as usual, is the small little guy...

None of this would of course be a problem if growth didn't negatively affect those outside the virtuous circle that's doing the growing, but as I've shown above, that rarely is the case. "Losers" (surprise!) don't like being crushed. And exponential growth eventually --and inexorably-- gets unbearably unequal. That is a recipe for instability, which is exactly what we're witnessing now.

Am I advocating for no growth at all? No. Living standards wouldn't improve if we didn't aspire to some sort of growth. Am I arguing that Capitalism has failed? Hell no! But it is evident that it breeds inequality, and that inequality breeds instability (despite the fact that people say they can withstand inequality as long as there's "equality of opportunity"). Clearly, a new approach needs to sink in people's minds when defining what is it that makes us happy with regards to our standards of living.

Growth needs to occur, but with an eye on the "losers", because, if this election has taught us anything, it's that anger can be destructive.

* There's also the element of advantage if you moved in early to a place of untapped resources to make them grow. Meaning it was statistically easier to hit gold in California's goldrush than it is pulling a unicorn in Silicon Valley nowadays. Just because we glamorize the Zuckerbergs of the world doesn't mean you can make it big in the Valley. For each Saverin there are literally a thousand brogrammers living in their Honda Civics in Palo Alto.