It really shouldn’t be that you can follow so closely in agreement with a good deal of a person’s commentary yet end up on opposite ends. Can it be, like the DNA commonality of gorillas and humans, that the last 1% or less of a system or argument can make all the difference? There is much to admire in the intellectual capacity of some mainstream observers, but that only serves to reinforce the frustration that they cannot go that last mile, that final inch, to the big picture or true governing dynamic.
Such is how I would describe Martin Wolf of the Financial Times. In truth, I heartily and angrily disagree with his conclusions like those of nearly all the orthodox faithful. The last time I had occasion to comment on one of his pieces was to declare him the true descendant of George Fitzhugh. In arguing for a guaranteed minimum income for all adults (not explicitly workers), run by government taxation, it was nothing less than the modern adaptation of Fitzhugh’s brand of non-racial slavery.
It takes a drastically dim view of humanity’s capacity for growth and innovation to affix to such an idea as government guaranteed income. It is the last gasp on the rise of civilization as it screams, “this is the best that can be done.” Anyone who accepts a guaranteed income is also one that has given up on self-actualization and attainment, and rising participation of such slovenly attitudes will mark the end of rising living standards – it is the epitome of economic sclerosis. It is wholly apparent that Wolf’s idea sets out to prove Fitzhugh’s calculation correct; that nineteen out of twenty people are fit for nothing but slavery.
To get from A to B, though, requires a detour out of private property. That includes, as any slavery comparison would, the fruits of your own labor. I can already hear the Piketty brigade warming up their scorn, as they assume (wrongly) that is already the case under the capitalist system that has been left wanting since at least 2008. Capitalism has failed – it has been in all the papers.
The pathology of failure runs down to “rentiers.” That is a term “invented” by John Maynard Keynes in his attempt to attract attention from the “conspicuous consumption” crowd of psychological economists. It runs very much into “rent theory”, as it was assumed that society’s interests were not being served by the behavior of the high capitalists of the Gilded Age.
Because, in Wolf’s formulation, the world suffers from an acute (and apparently chronic) shortage of aggregate demand, low interest rate policies are the best that can be offered (again that theme). As Wolf says, “additional savers are now useless.” The condition renders the economy one in which the return on savings are low, leading to less risk taking. Since these savers, rentiers, are overwhelmingly wealthy and serve no purpose right now, policy needs to follow Keynes advice and “euthanize” them.
I’m sure that was Keynes being metaphorical in policy construction, but with that cult you never know. It would certainly fill the idea of aggregate demand to begin shooting and pillaging. But to Wolf’s primary point – that savers need to be pushed or replaced by risk takers. It seems to be a half construction of the world in which we actually inhabit, not the one in which spreadsheets dominate. Am I missing the lack of risk-taking?
Last I checked, there was no shortage of demand for small cap stocks, PIIGS bank debt or cov-lite (and now cov-free triple CCC). The savers are “reaching for yield” in the mother of all risk-fests. Yet the economy suffers by a lack of investment, as Wolf’s article makes plain. But in a world of incentives and choices, there are tradeoffs, and savers and even nonfinancial companies are making them consciously. They are actively eschewing productive investment in favor of financial investment. The only way in which you can logically lay blame here is to invoke ceteris paribus and impart dastardly motives combined with pure stupidity.
It is more than a little hypocritical for Wolf and his compatriots to decry the lack of investment in one breathe while proclaiming central bank activism in interest rates in the next. One of the foundational pillars of capitalism builds on a true market for money, yet central banks allow no such thing. Interest rate targeting is an explicit interruption of free market capitalism in the name of PhD’s estimations about “aggregate demand.” Yet the cost of money, more precisely known as the cost of risk, ultimately determines the incentives toward financial or productive investment. Interrupt the market cost of risk and you predictably destroy any productive balance between them (markets need both, but in an industrious proportion that can only be revealed by decentralizing information streams, i.e., true price discovery).
With savers preoccupied by financialism, Wolf advocates the old Keynesian solution,
But cautious rentiers no longer serve a useful economic purpose. What is needed instead are genuinely risk-taking investors. In their absence, governments need to use their balance sheets to build productive assets.
Again, the societal interest in the economy override and demands a social response. So, Wolf’s verdict here is rendered on the evidence that “rentiers” will not take true economic risk, due to the low return environment, which is itself created via a glut of savings.
In a world of abundant savings, the available returns ought to be low; this is a consequence of market forces to which central banks are responding.
And there it is. The predicament is one of the marketplace, a flaw in search of a government solution. Where did “abundant savings” come from? Was it a natural reaction to economic conditions of these past several decades?
Such commentary is delightfully passive-aggressive to the one wielding it: the economy won’t act as it is told so someone has to pay. Never is the command aspect of monetarism and risk intrusion examined. It is a featured bug, but curiously absent from every single mainstream diagnostic routine. Such narrow focus inevitably stops short, instead calling for the ratchet to spin tighter once more on further and further intrusion. In Wolf’s fairy tale, the 20+ year Japanese catastrophe is too much savings! That itself apparently justifies exoneration of all central banking in all time (an infinite loop of circular logic).
In this telling, the markets are the villains fighting against the heroes of the bureaucracy. The highly educated priests of the PhD class “know” what is best and must have the authority to take and redistribute as needed. The only villains that protest are the “rentiers”, the wealthy 1% that nobody really likes anyway. The good little slaves welcome openly their economic overlords because this is the best that can be done.
Maybe Americans can see through the transparent attempts to redefine the economy, but that is as far as it gets right now. The only real hope is that such widespread disfavor becomes channeled into true retribution when the next crisis ravages the system, as it surely will without any real opposition now to stem the cresting tide. Maybe that will even occur before, pace Orwell, recession is redefined as recovery.
Rentiers are literally banking on it; but don’t call it a market.
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