The King Is Dead

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

-Adam Smith, Wealth of Nations

    In Anatomy of a Depression I explained the proximate cause of the ongoing depression. Of course, when I correctly predicted the current economic trainwreck, I gave much too optimistic an impression by exploring only the most immediate source of the present trouble – that is, an extreme inequity in the distribution of income which has led to an economy driven by untenable consumer borrowing. That’s plain old-fashioned Keynesian economics. Conceivably we could salvage the economy, at least for a while, by redistributing wealth (the pork stimulus won’t work, as you already know because I explained it in Why the “Stimulus” Will Fail). But the underlying problems go deeper than Reagan’s tax cuts for the rich: for several reasons, capitalism itself is no longer viable.

    I can already hear the whining: “Those Commie Pinko Socialists have been saying for a hundred years that capitalism was obsolete, and they were wrong! Capitalism has to last forever, because it’s still around!” Bullshit. The Commie Pinko Socialists were right. Capitalism was obsolescent more than a hundred years ago. Economic history ever since the Industrial Revolution has been a history of struggling to find solutions for the problems caused by capitalism. In the first Great Depression, in the Thirties, it failed completely and did not recover. Capitalism isn’t dying; it’s long since dead.

    But what about the boom period of the Forties, Fifties, and Sixties? Didn’t FDR save capitalism from extinction? No, he didn’t; what he did was put the terminal patient on life support. The American economy since the New Deal has been modeled on Mussolini’s Corporatist plan – a close partnership between industry and government, with a huge chunk of GDP directly ordered by the government and the rest tightly regulated. Sometimes it’s hard to even tell where the government ends and the corporations start. It’s a sweet deal for the big corporations, who are supported by government contracts and subsidies, protected by regulations that smother competition, and bailed out if they somehow manage to fail anyway. Even the big unions get in on the action, skimming a share from the surplus provided by the remainder of the workforce that is still productive.

    What keeps this government/corporate Frankenstein going is war. The high spending and high taxes (or prodigal borrowing) necessary to keep the masses employed have to be justified to the sub-literate public and the greedy corporate execs. “Emergency” economic measures may be acceptable during a collapse, but as soon as things have recovered somewhat, people start complaining about the impositions of “big government”. The underlying problem, though, has not been solved; massive government spending is the only way to keep aggregate demand high enough and stable enough to sustain the economy. Without it, any flicker in public confidence could lead to a swift and total shutdown.

    World War Two was a necessity for America, as FDR realized; support for the New Deal couldn’t last much longer. Soon after the war was over, the economy had come apart again, and a new war (Korea) had to be found. After that, the economy slid again but the Korean war was replaced by escalation of the Cold War, which provided a good excuse to keep military spending high even in peacetime, and then there was Vietnam on top of that. Times were good; except for a couple of brief interludes where military spending declined, the economy soared for three decades. But it wasn’t a capitalist economy; it was a wartime corporatist economy.

    Then some misguided people with insufficient knowledge of macroeconomics got the heretical idea that wholesale killing with no compelling political justification was a bad thing, and, even worse, that colossal peacetime preparations for total war were unnecessary and even dangerous. The Vietnam stimulus plan was cancelled; the economy went in the crapper and finally collapsed. It only recovered (sort of) when Reagan reinvigorated the Cold War stimulus plan. After it broke down again in 2000, it had to be restarted with the Iraq stimulus plan…

    There are a couple of problems with this way of doing things, aside from the fact that we can’t seem to keep the American economy functioning without bombing anyone. One of them is that Reagan’s regressive tax cut not only left the government ultimately insolvent but undermined the effectiveness of the system. Another is that we’ve created a monstrosity of government that has made democracy meaningless. But even if we were to continually fight big enough wars to keep things moving, and tax the rich enough to prevent the gradual concentration of all wealth in a few hands, it wouldn’t keep us afloat much longer. The historical conditions that enabled capitalism (even our bastardized modern corporatism) to create so much wealth (and it did, indeed, create a vast amount of wealth) are disappearing.

    Capitalism is based on certain fundamental assumptions, some of which are no longer valid. Among them are:

  • Competition among producers. Most of the purported benefits of capitalism come from competition, both between businesses and workers. Competition is supposed to regulate business profits, eliminate products that people don’t want, and encourage workers to be productive. In reality, genuine competition between businesses is a rare exception (competing advertising is not competition in any useful sense). Monopolism and collusion are problems that have long been recognized but never successfully dealt with. Even workers sometimes manage to beat the principle of competition by forming unions, allowing them to leach off of a non-competitive industry or the government (i.e., the taxpayers). But should we even want businesses to compete? The pressure of short-term competition encourages them to do irresponsible things ranging from long-term degradation of the industry to deliberate environmental contamination. The modern world requires a level of integration and planning that are inconsistent with ruthless competition.
  • Boundless growth is both possible and desirable. Continual growth is necessary for capitalism to work. A growing economy creates new industries that haven’t been monopolized yet, invents novel products that people will buy even though they don’t need them, and provides opportunities even for people who aren’t already rich and connected. Without growth, there are never enough jobs, competition disappears from the stagnant economy, and only the rich can get richer. But it should be evident to any sane person that growth cannot go on forever, at least not without a declining population to compensate. The Earth can only handle so much waste, only produce so much food, only provide so much energy. Every technological fix we find for an environmental problem or resource limitation creates more problems. Even when solutions are found in time, there is no guarantee of them being used. (See Hippies Cause Global Warming for example.) If we try to sustain infinite growth in a biosphere that isn’t growing at all, sooner or later we will make a fatal stumble. But even if we don’t, do we really wish to live in a world every square foot of which is overrun with people, superfluous consumer junk, and waste?
  • Consumption is unlimited. Implicit in the concept of capitalism is the assumption that people will always want to purchase more stuff, no matter how much they already have. However, most people (in the West) now have everything they actually need to live, and many people have so much crap that new crap has little marginal utility. It takes hundreds of billions of dollars of advertising every year to keep people buying, and most of them can still very easily cut their purchasing dramatically (for instance, if they are uncertain of the future and want to save). This is why a depression like the current one can happen so swiftly – the whole card castle depends on nearly everyone spending money as fast as they can borrow it, but there’s little or no real need for much of the spending and it can stop at any time. The mere expectation of hard times can cause total collapse.
  • Human labor is valuable. Capitalism is a cycle of production and consumption in which people freely exchange their own production for that of others; that is, they are only able to consume if their production is valued by others. This system worked great in the era when human labor was the key factor in production (i.e., before machinery) and was relatively scarce (i.e., before modern medicine) – it was certainly a huge improvement over the slavery that preceded it. But in the modern world, most human labor has very little value. The supply of people in the world is much larger than could ever be efficiently employed, and most kinds of labor can readily be replaced by machines. The price of labor in the world market accordingly can be no higher than the cost of mere subsistence; any deviations from this are due to national markets being protected from competition against nearly-free Asian labor, and these protections are crumbling. Once, automation was widely believed to be the future of manufacturing; now, an endless supply of arbitrarily cheap labor has mired us firmly in the sweatshop era.

    Better-educated workers are not a solution to this problem. A large supply of skilled workers would just drive the cost of skilled labor down to the same starvation level. Even now, the high incomes of the most intensively trained professions (medicine, law, engineering) are maintained only by artificial barriers to entry (see Education is Class Warfare) and strictly rationed education. If we produced more doctors and engineers, this would have some benefits, but if every human capable of absorbing the education received it, doctors and engineers would be reduced to the same poverty as garment workers and without eliminating the surplus of the latter. There are just too many people, and technology is getting better and better at replacing even skilled labor.

    Another problem with capitalism is that it deals poorly with what economists call “externalities”. These are costs or benefits of an activity that aren’t automatically charged to the person who causes or benefits from them; it is often infeasible to allocate them at all. National defense is an example; it is very difficult to say who benefits from it or how much. No one is going to mail in a check for what they think it is worth to them, and there is no way to just cut off the national defense service to your house if you don’t pay. Roads and public education also provide major externalities. Pollution is a negative externality – it is not practical for a company which causes some pollution to negotiate with every person who might ever be affected by it to pay them what they think fit to put up with it. Government intervention is required for externalities to be accounted for. When externalities were a minor aspect of the economy (i.e., when things were simpler and nobody cared about pollution), government interference could be minor. In the modern world, however, externalities make up a huge share of the economy, perhaps most of it.

    In the future, the limiting factor in production will no longer be the supply of human labor, or even the supply of capital; it will be factors in the natural environment: energy, land, and above all the need to preserve a livable environment. In fact we have already reached the point where environmental factors should be limiting, even though some countries (China) allow horrendous pollution. The ever-escalating consumption that capitalism demands cannot be sustained or allowed, nor can unrestrained competition, nor are these things even possible under capitalism without massive government interference. We need a different solution, one that can provide a bearable life to the people who inhabit this planet while preserving it for many future generations.

    What about isolationism? Except for oil and tropical fruit, America is capable of producing everything it needs, yet we import most of our manufactured goods, with dire economic consequences. If we banned the imports we don’t need, and expelled the illegal aliens, we could have full employment – for a while. We’d still be dependent on the whim of the public to keep buying unnecessary junk, and we’d run down our environment that much quicker with more manufacturing – infinite growth would still not be possible. And after a generation or two, better automation might bring back mass unemployment anyway.

    What about an economy based on services and intangible (intellectual) products? If people were content to consume mostly software and entertainment, a lot less waste would be generated. Unfortunately, it’s really easy to steal intellectual property – so easy that some people think it isn’t stealing, just like some people think there’s nothing wrong with helping themselves to your wallet if you’re careless enough to drop it. Most people are never going to be good enough at anything creative (or at programming) to be paid for it anyway, and people can abruptly stop buying such things just as easily as they can any luxury goods. Most services are far from necessities, too, or are needed only in relation to consumer goods, or require exceptional talent. The only services that people will reliably purchase are medical. Could we build an economy in which most of the population works full time just to make sure no one-in-a-million disease goes undetected and everyone who is too fat to stand up has their own personal bed pan changer? Maybe, if you don’t mind the slack-jawed girl who got through high school by copying your homework being your operating room nurse – but I’m not exactly looking forward to the world where all of society’s efforts go to extending the average lifespan by three weeks, the only employment for most people is nursing homes, and most of the gross national product is controlled by insurance companies. I think we can do better than that.

    If they were given a choice, many people would likely prefer less work and more leisure to achieving the maximum possible throughput of disposable consumer goods. The main goal of technology and capital in the past has always been to produce more junk, but higher productivity could just as well be used to reduce work. Manufacturing less superfluous crap would alleviate a lot of our environmental problems, it would stabilize the economy against sudden lapses in the crap-buying behavior of consumers, and it would give people more time to educate themselves, exercise, travel, get drunk, or whatever they want.

    If the amount of available labor were reduced or restricted, it would make labor scarce and valuable again. This alone would stop many abuses by employers, who could no longer be guaranteed of replacing any employee at will, but without protecting abuses by workers (which current labor laws do, when they are enforced). The distribution of income problem which has led to the present crisis would be solved by a combination of higher wages and paying people not to work. (We already do the latter, but we try to pretend it is somehow based on “need” or “merit”, which is pure baloney because no one is a worse judge of need or merit than a bureaucracy.)

    Paying people to not work would reduce the oversupply of labor, remedy the distribution of income, and stabilize the economy without frantic unsustainable growth. It could replace many existing programs that subsidize non-work, such as welfare, unemployment benefits, disability, and perhaps social security retirement. Unlike those programs, it would be fair, because everyone would have equal access to the benefits. There would be no need to pay armies of “social” “workers” to recruit “clients”. Every American would be guaranteed at least a minimum survival level of income, and they could decide for themselves whether they should work. With labor scarce and valuable, there would be a strong incentive to work for those able. Production could be limited to what is environmentally acceptable, without depriving tens of millions of Americans of their livelihood; there would be no need for gratuitous wars to accelerate public spending.

    Limiting the length of the work week would help stabilize the supply of labor; shorter hours would encourage more people to take jobs while preventing the more ambitious from creating an excess labor supply through sheer overwork. The so-called forty hour week is a joke; employers can and do demand as many work hours as they want, and overtime pay is no penalty because they just pay a lower base rate to make up for it. Workweek length should be an absolute limitation, or at least there should be a penalty to discourage overtime (a surtax, for instance).

    A simple guaranteed income plan would solve the distribution of income problem and stabilize the economy without the need for any “stimulus” spending or monetary shenanigans, ever again. It would cost a lot, certainly: the simplest and fairest way to do it would be to make a payment to every adult citizen, without trying to find out who is really unemployed and who is cheating the system by working “off the books”, and without punishing anyone for working. That would cost two or three trillion dollars a year. But there is no doubt that we can afford it; after all, we are already affording a basic living to almost everyone. Taxes would have to be higher, of course, but the subsidy would outweigh the tax increase for most people. The rich would have to pay more, but that is far overdue anyway.

    [By the way, don’t believe any liar who tells you that high taxes on the rich will ruin the economy. Some of this country’s biggest booms have happened when the top rate was 91% or even higher.]

    Here are some other things we need to do to fix the economy:

  • End competition with impoverished foreign workers who breed like flies. That means high tariffs or outright import bans targeted at countries with low standards of living – not tariffs designed to protect particular industries. It also means getting rid of illegal aliens, if necessary by closing and mining the Mexican border, and banning the employment of legal aliens. Eliminating imports would also mean we’d quit paying the Chinese to pollute the atmosphere.
  • Provide free training in useful occupations to those with the necessary aptitude. It’s a stupid ideological pretension that people should pay for their own education; the benefit to society outweighs the cost so it’s a common sense investment (provided of course that people are trained in useful things like teaching, medicine, or auto repair, not fripperies like drama and journalism). We also need to reform higher education to make it less wasteful, and lower education to make it effective – but that’s a different topic.
  • Fix the broken healthcare system before it devours us. We don’t need to spend more on healthcare; that only makes the problem worse. We can have better medicine for a lot less money – maybe I’ll explain how sometime.
  • Abolish labor unions. They prevent businesses from having the flexibility they need, and all they accomplish is allowing freeloaders to be grossly overpaid – largely at the expense of real workers and taxpayers. The workers who actually need protection are never unionized.
  • Get rid of regulations like the notorious Americans with Disabilities Act that are supposed to promote social justice. They’re a huge burden and more often abused than not. If the supply of labor is kept proportionate to the demand, workers will have the bargaining power to take care of themselves as they see fit.

    Capitalism was once a great economic system; it would have been perfect 300 years ago (i.e., before it was realized). Capitalism industrialized the world and gave us enormous wealth – including luxuries like education that enables us to find better solutions now that capitalism has died. It’s been gone for eighty years now; with dramatic but simple reforms we can replace its bastard child, the corrupt corporatist quagmire that we facetiously call “free enterprise”, with a functioning, stable economic system that will provide for the needs of all, preserve the environment from the consequences of profligate consumption, remove the economic imperative for continual warfare, and give us a solid foundation for adapting to future change.

Hippies Cause Global Warming

“Against stupidity the very gods Themselves contend in vain.”

-Johann von Schiller, The Maid of Orleans

    Virtually everyone now agrees that global warming is a real phenomenon; even the oil companies grudgingly acknowledge that much. It’s also undeniable that the atmospheric content of carbon dioxide and other greenhouse gasses has been rising due to human activity. Conceivably the warming isn’t the result of greenhouse gasses, but it’s certainly a very plausible theory – and we should consider the alternative: if global warming is due to non-anthropogenic causes, like the Sun getting hotter, there’s probably nothing we can do about it and we’re doomed anyway. So we might as well take a shot at getting rid of greenhouse gasses – the worst that can happen is that we die a little poorer.

    While there may be some hope of actively removing greenhouse gasses from the atmosphere, the most obvious thing to do is to stop putting them there. The single worst culprit is carbon dioxide, most of which (the human contribution, at least) comes from burning fossil fuels. We use a great deal of these, having dumped so much fossil carbon into the biosphere that the original amount has been substantially diluted. (This is why carbon dating on living organisms sometimes shows them to be thousands of years old; it isn’t because science is a Satanic ploy to deceive the Faithful, it’s because everything now living is made up partly of the aeons-old coal and oil we’ve been burning.)

    The largest uses for fossil fuels are electricity and transportation; heating takes a fair chunk as well. Right now there are no alternatives to fossil fuels for transportation, and using anything else for heating is very expensive, but electricity, which is the single biggest energy use and could at least theoretically replace fossil fuels for transportation and heating as well, can be produced with negligible carbon dioxide output at a competitive cost, and we’ve had the ability to do this for forty years.

    So why haven’t we? Mainly because of a psychotic paranoia inflamed in the Seventies by radical environmentalists (some of whom were funded by the coal industry, which was feeling threatened by the new, superior energy source). By a decades-long campaign of disinformation, irrational panic-mongering, fraudulent conflation of nuclear energy with nuclear weapons, and brazen lies, the largest (and least informed) part of the American population was persuaded that nuclear power is uniquely dangerous, that nuclear waste is an insurmountable environmental problem, that uranium is running out, and of even more outrageous falsehoods. I don’t intend to deal with all of them in detail right now, but one thing should be blindingly obvious: since the advent of nuclear power, nuclear waste has never been a problem. Coal, on the other hand, has added vast amounts of carbon dioxide to the atmosphere, and we have every reason to believe that we will suffer major adverse climatic changes that will last for centuries as a result.

    Coal isn’t the only offender, of course, but it’s the worst and it’s the one we could have eliminated if we’d wanted to. Since the Industrial Revolution, something less than a trillion tons of net carbon dioxide have been added to the atmosphere. About half of that could have been avoided by phasing out coal in favor of nuclear electricity as soon as the technology was available, and by now carbon dioxide levels would be coming back down. In other words, if we’d gone nuclear, we would not have global warming. We have to deal with it now only because so many people were taken in thirty years ago by corrupt activists and delusional fanatics – some of whom are still around, still doing their best to accelerate global warming.

    In general, the self-proclaimed “environmentalists” are the worst enemies the environment has. Global warming is just the most glaring way in which they harm the environment through their ignorant fanaticism. Most people know by now that the obsession some idiots have with preventing all logging, anywhere, has resulted in many huge forest fires. Not many people are yet aware that the recycling of waste by industry is being jeopardized by the equally absurd obsession many “environmentalists” have with recycling glass.

    Forty years ago glass was a large part of the waste stream and a major industrial material. Soda pop, milk, peanut butter, salad dressing, and dozens of other things that are now packaged in plastic were then packaged in glass. Glass was worth recycling. These days, it’s totally different. Only a few percent of the waste stream is glass and there’s so little demand for it that it’s cheaper to put it in landfill than to pay someone to haul it off. Furthermore, many large cities are now switching to “single stream” recycling methods where people dump all their recyclables in one bin to be sorted out later at a central plant, partly by machinery. This works well enough for most things, but glass ruins the whole system because it gets broken and winds up contaminating the valuable paper. So the glass, which is worthless and doesn’t use significant landfill volume, winds up reducing the value of important recyclables – and landfill space is wasted on sorted paper and plastic that have to be trashed because they’ve been impacted with crushed glass. Trying to recycle glass is a net loss not just economically, but environmentally.

    So why do many recycling programs (including single stream) continue to take glass? Because “environmentalists” go into hysterics if they don’t. The average “green” has no clue about the realities of recycling (or anything else) – and doesn’t see her total ignorance as being in any way limiting. Glass recycling is an utterly retarded policy based on nothing other than nostalgia. Like every other idea that self-styled “environmentalists” keep in their tiny brains, it’s the result of obsession combined with astounding ignorance and, worst of all, a self-righteous arrogance so intense that they consider having any actual knowledge at all, or even giving a moment’s thought to their opinions, to be irrelevant or even immoral. Environmentalism isn’t so much a movement as it is a cult of brainwashed zombies.

    In “Big Oil, Big Lies,” I described the environmental holocaust we are approaching as a result of overpopulation, unsustainable farming methods and bio-fuel production. You will seldom hear any “environmentalist” talk about that! You’ve heard them sniveling about how we’re running out of landfill space, no doubt. We’re not, and won’t for hundreds of years – there’s plenty of room for landfills, in this country at least. The reason landfill costs are going up is because we now have high standards for building them (as opposed to no standards at all). We now have landfills that won’t contaminate the groundwater, thanks to listening to engineers who know how to do things instead of “environmentalists” who just scream about how we should all learn to live off of moonbeams and turkey shit so we don’t create any waste.

    The number one snivel of your average “environmentalist” greentard is nuclear power. Here are some facts about nuclear power, which could have prevented global warming:

  • More people die in coal mining accidents every year than were killed by the Chernobyl accident.
  • More land is ruined by farming every year than was contaminated by Chernobyl.
  • No civilian nuclear reactor in the West is capable of a Chernobyl type event.
  • A nuclear power reactor cannot be used to make bomb-grade material without shutting down every few weeks – it could not be done secretly.
  • The environmental impact of a half century of nuclear power generation in the U.S. is zero. Not even the Three Mile Island accident released significant radiation compared to background radiation.
  • About 95% of the mass of nuclear “waste” is reusable as fuel. Most of the rest is non-radioactive within a few years.
  • We have had the technology for decades to separate the dangerous parts of the spent fuel and store them in an inert form (glass) that will last for millions of years.
  • The waste components that are really dangerous last only for a few hundred years. By comparison, we release larger amounts of chemicals that are more toxic and will last for millions of years, instead of storing them safely, and we don’t even solve global warming in return.
  • If we dumped all the long-lived isotopes from all the spent nuclear fuel we have into the ocean with no containment at all, the increase of background radiation would be too small to even measure.
  • You would get more radiation dosage from taking a couple of long plane flights every year than from working in a nuclear power plant.
  • Nuclear power costs about the same as power from natural gas, but without producing any carbon dioxide.
  • There is enough uranium to last for as long as we will need it. If we stick with today’s inefficient (but proven safe) technology, we’ll have to use lower and lower grade ores, but it doesn’t really matter. The cost of recovering uranium is a trivial part of the cost of nuclear power.
  • Nuclear power plants don’t need any more cooling water than coal or gas plants do. All large scale electric power requires cooling water.
  • Nuclear energy costs a fraction of what wind energy does and, unlike wind, it is very steady and reliable.
  • You can confirm any of these things for yourself with a little reading (and maybe some fourth grade math).
  • If you’re a greentard, you’d rather continue to wallow in ignorance, spout bullshit that you “heard somewhere” and think that you’re an expert merely by virtue of having a big mouth. But then, if you’re a greentard, you probably can’t do fourth grade math and you probably didn’t get this far.

    In summary: the number one cause of environmental damage isn’t evil corporations, it’s stupid hippies – we can thank them for global warming. Thanks, hippies.

Why the “Stimulus” Will Fail

“Those who cannot remember the past are condemned to fulfil it.”

-George Santayana, Life of Reason

    The ultimate objective of any “pump priming” plan is to motivate producers to hire more workers and generate more goods and services. Simply spending a lot of money isn’t the real purpose. Even if they see an increase in sales, employers will only step up production (and employment) if they are reasonably confident that the demand will continue. If they are pessimistic, they will “wait and see” instead of taking the risk of investing in higher capacity, and the extra demand will only result in a price increase. This is especially true of industries that are monopolistic or near-monopolistic (which is most American industries these days). A company with no competition, or a few friendly “rivals”, doesn’t need to worry about its competition stealing an opportunity from it – it can afford to hold off. Both the high degree of monopolism in our economy, and the general pessimism that has reigned since the massive act of naked corruption perpetrated in the form the bank bailout, mitigate against any positive business response to higher demand.

    A stimulus program can only work by putting money into the hands of consumers who will actually spend it on domestic product. Money that winds up in the hands of the wealthy does no good at all; they’re already consuming as much as they want. Money that gets hoarded because of deflation or simply because people fear for their jobs does no good either. Money that is spent on imported goods (meaning almost any goods) mostly helps China, not us.

    What happens to the money the Federal misgovernment spends on construction programs? Well, in the first place, most of it will be balanced by cuts in State spending. The States normally pay for construction themselves, and right now almost all of them are in dire financial straits. Federal construction spending will just allow the recipients to cut back their own construction spending – with the taxpayers of other States picking up the tab instead of their own.

    Out of whatever increase is left, a good bit will be siphoned off by the inevitable corruption of the bureaucracies involved, and then the big contractors will get a healthy cut. None of that money goes into consumption; it goes into the hoards of the rich (who, if they’re wise, will invest it overseas). What about the part that goes to the workers? Well, it keeps the citizens off of unemployment, meaning once again that the States can cut their spending further. The construction industry also employs a large number of illegal aliens, who typically send as much money as they can to Mexico (where a U.S. dollar is still worth something). Of the small portion that does turn into higher consumer spending in the U.S., the bulk will probably go straight to Asia.

    Why would Obama pick such an ineffective economic plan? The construction industry is usually considered a leading economic indicator, but only someone as stupid as an economist would think this meant that the housing slump was the cause of the depression. The housing slump was just one of the early symptoms of a deeper cause (which I may get around to explaining someday). The real reason all the money is going into construction is that it’s an easy way to reward not just states, but cities and counties, very selectively. It’s a simple wealth transfer, from Obama’s political enemies to his supporters. That’s Chicago politics – it has crap to do with national economic recovery.

    A real economic plan would address the underlying causes – but failing that, even a makeshift scheme should take some cognizance of reality. This depression is similar to the Great Depression in many ways, but different in others. The so-called “stimulus” not only ignores the differences, but contradicts the similarities. Consider:

    FDR financed the New Deal largely through very heavy taxation of the very wealthy. He borrowed some money, but not more than the country could afford. Taxation of the rich was a necessary remedy at the time, and it is a necessary remedy now. Obama’s plan is to depend entirely on borrowing and allow the wealthy to continue paying very little taxes. Thus the continual drift in the maldistribution of income is not addressed, and surpluses of investment funds will continue to fuel speculative bubbles.

    The U.S.A. entered the first Great Depression with very little debt and could afford considerable borrowing. We have entered the current depression already carrying a crushing debt load. To continue this colossal spending (and it must be sustained, if it is to have any impact) can only be done by borrowing or printing money, since taxation of anyone but the poor has already been ruled out. With the U.S. government insolvent and hyperinflation looming, it’s doubtful whether borrowing can continue much longer. How fast can the government print money before people stop accepting it as payment? We’ll likely find out soon enough.

    Why does the spending have to be sustained? Because, once again, it’s not enough for consumers to spend money; producers must first sell off all the surplus inventory they have accumulated and then be persuaded that the sales increases will continue for long enough to justify the expenses of bringing production back up to speed. It will be a slow process because each of them will be waiting for the economy to take a definite upward turn before proceeding, yet that upturn will not happen until enough of them have gone ahead on faith. This is one reason the Bush “stimulus” package failed to accomplish anything; everyone knew that any sales increase in April 2008 would be temporary, not something to base business plans on until after it worked – which it plainly couldn’t, with such a small time window.

    Another key difference between this depression and the Great Depression is the nature of international trade. Until the Seventies, America was the world’s great exporter, and had large trade surpluses. The notorious Hawley-Smoot protective tariff was a disastrous mistake because it was the rest of the world that needed protection from cheap American goods – which is certainly no longer the case! The modern American economy needs protection from the impoverished labor of Asia and the Caribbean, if we are to maintain a standard of living higher than theirs. Any economic stimulus that allows the money to flow overseas to nations from whence it will not return, can only succeed in boosting those economies.

    Mr. Obama cultivates the appearance of thinking that history has cast him as Franklin Roosevelt; if he truly believes this, he is sadly mistaken, as he has not one-tenth of the latter’s political courage and has merely continued with business as usual, instead of undertaking radical reform (or any reform at all). He has cast himself as Herbert Hoover.

Anatomy of a Depression

“Let us all be happy and live within our means, even if we have to borrow the money to do it with.”

Charles Farrar Browne

    The sudden unravelling of the global financial structure seems to have caught a lot of people by surprise, even (especially!) those who profess knowledge of economics and finance. But it should have been (and was) easily predictable, by a simple application of the most basic principles of economics and a rudimentary knowledge of history. The current Depression is rooted in U.S. policies not just of the last ten years but of the last thirty years and even older. When we understand the nature of economic reality, it is easy to understand why the collapse had to occur and why it will inevitably worsen.

    It isn’t my intent here to explain the whole of macroeconomic theory, but there are two fundamental facts that every human being over the age of twelve ought to understand: the nature of wealth and the balance of income and expenditures.

    Every economics text teaches in its first chapter that money is not wealth. Economists seem to hardly ever remember this, though it is the foundation of their discipline. Wealth consists only of goods and services – money is a convenient way of arranging for goods and services to be produced and exchanged, but it is has no value on its own. You might think of your labor as being “worth” fifteen dollars an hour and a satellite phone as being “worth” five hundred dollars, but if you were stranded on a deserted island with nothing but five hundred dollars and your wits, you would quickly realize that five hundred dollars are not necessarily worth a satellite phone, and your labor is worth your life, even without a paycheck! Likewise, money can never be capital; capital (to an economist) consists only of things that are used to produce goods and services. A factory is capital, or a farm, or an education; a billion dollars might buy capital – that is, transfer it from one owner to another – but it does not embody any capital whatsoever.

    Gains or losses of money are never gains or losses of wealth! They represent only a change in the ability of individuals to affect the distribution of wealth, and even that is only by social convention. If one person gains a million dollars at someone else’s loss, that may matter very much to each of them, but the total amount of wealth hasn’t been changed at all. If a bank error erases a billion dollars from existence, or (more likely) a government prints a billion dollars of cash, no wealth has been destroyed or created. The distribution and use of money can indeed have a huge influence on the creation of wealth in the long run, as we shall soon see, but critical errors (like investing in stock markets) arise whenever it is forgotten that money is not wealth and cannot create wealth.

    It may seem perversely wrong at first to say that income and expenditures always balance, but remember we’re not talking about an individual bank account here, but an entire world economy (or a national economy, give or take its foreign trade balance). On an instantaneous basis (thought not in the long run!) it’s a zero-sum game. An expense for one person (or corporation or government) is always an income for someone else – every transaction has a zero balance in the world economy as a whole. Even if money is printed or destroyed, everything still balances because money is not wealth. It’s only a yardstick for measuring wealth – an imperfect one, but the best we have. Although the yardstick gets remarked all the time, the real value of the things being exchanged doesn’t, and every transaction still balances – each gain is lost by some other party.

    Economists divide wealth into two categories – consumer goods (including services) and capital. Consumer goods are things that go directly to the end consumer to be used up, like packaged bratwurst, dental examinations, or refrigerators. Capital is everything used in the process of creating and delivering the consumer goods – factories, mines, unpackaged brats, trucks, dental schools, shopping malls, etc. Sometimes the line between capital and consumer goods isn’t completely clear, but the principle should be. Everything that the economy produces is either capital or a consumer good – so consumption comes at the expense of capital growth, and vice versa.

    And now we approach the crux of it. If people consume everything that they produce, nothing at all is left over to go into capital. In economics, we usually ignore any production that isn’t paid for in money, and that’s a good enough approximation for most purposes – a few people might do a little unpaid work at a hospital, but no one is going to build a hospital in their spare time and give it away. Therefore, we consider either the total of all incomes or the total of all expenses (they’re the same amount, remember?) in any period to measure the total economic output for that period. If everyone spends 100% of their income on consumer goods, 100% of the output must be consumer goods. If people spend 20% of their income on capital, 20% of the output must be capital.

    But what if all the income doesn’t get spent? What happens to the money that people save? The answer, surprisingly, is that there is nothing to save. Recall that money has no value – nor do any of the monetary obligations that most people think of as “savings” – bonds, CD’s, stocks, bank accounts, etc. are all quite devoid of value. Their accumulation adds nothing whatever to the wealth of the future. The only real kind of savings – the only kind that contributes to wealth in the future – is the the stockpiling of actual goods and, much more importantly, the building up of capital that will produce more wealth in the future.

    When you “save” or “invest” money, you are not saving anything at all! By forgoing some amount of consumption in the present, you do not save anything to consume in the future; rather, you allow someone else to consume the share of current production you would otherwise have enjoyed. Hopefully the money you accumulate will allow you to transfer future wealth from other people to yourself (that’s the purpose), but your savings are not wealth and do not in themselves create any wealth for the future. More than saving is required.

    The building up of capital is referred to in economics as “investment”. This is not the same thing as “investment” in finance! Economic investment is that portion of all production which goes to build capital rather than to provide consumer goods. It is equal to the total output of the economy minus all consumption. Whenever you save money (unless you stuff cash in a mattress, in which case you’ve simply reduced the money supply), someone else spends it – the bank loans it out, or the person who sold you securities pays their taxes, or whatever. The money itself may go through many transactions before it’s used to buy something real (i.e., wealth), but ultimately someone else will purchase the wealth that you didn’t. They will buy either consumer goods or capital.

    “Net” savings refers to the amount of savings which are loaned out for real investment (as opposed to consumer loans), as well as corporate profits (or even personal income) that is spent on business expansion without any intermediaries like banks or stock markets. That is, net savings are equal to the amount of current production which hasn’t been consumed. By definition, this is also the amount of capital produced. Thus we see that savings are necessary for investment to happen, but do not guarantee investment – consumer borrowing can cancel them out.

    There’s another catch, and it’s a major one. In fact, it’s the point of this whole discursion. Net savings must, by definition, be used to purchase capital, but not all capital is created equal! In economics, everything that’s not a delivered consumer good is capital – including not just things like steel mills or engineering software, but raw materials, intermediate products, and even inventories of finished goods that haven’t been sold yet. This little accounting trick is necessary to make net savings equal investment, but it means that “investment” doesn’t always translate into genuine economic growth. Sometimes it’s just unwanted goods piling up. It can also be investment in capital that’s not really useful, like liberal arts educations or sociological research, but that’s a different issue.

    Investors – the people who actually spend money on capital, not the people who loan them money – can’t be forced to build productive things like oil refineries or research laboratories instead of producing goods that might go unsold. Well, they could be, but Communism is a whole different can of worms. Sane people (government is of course excluded from this category) will only invest in new capital when they think they can make a profit from it, and this will vary a great deal depending on what kind of new ideas and technologies appear, on rates of interest and taxes, on how strong the market appears to be, and on many other things – consequently, there’s no reason why useful investment should match up with net savings, and it never does.

    The amount of useful capital that investors try to purchase is called autonomous investment. When net savings are less than this amount, some investment won’t happen because too much is being consumed, the economy will grow more slowly than it should, and prices tend to rise because people are trying to consume more than what is being produced. Theoretically, if the discrepancy is too large, the economy could even shrink as not enough investment is available to even replace the capital that is being worn out and depleted.

    On the other hand, if net savings exceed autonomous investment, someone will be forced to make an investment they didn’t intend. This unplanned “investment” will take the form of inventory accumulation. Another way to look at it is that goods are going unsold because people saved money instead of buying them. This situation will normally result in a recession; plenty of resources are available to build capital but businesses are unlikely to expand production when they aren’t even able to sell what they’re already making. They are more likely to cut back, which means fewer jobs, less income, even less consumer buying, and more cuts in production, a vicious cycle which if left unchecked will continue until production has sunk to whatever level the consumers are willing (and still able!) to purchase.

    A corollary is that net savings can’t exceed autonomous investment, at least not for long. When we try to save too much, the economy will shrink until we are unable to save more than just enough to fund whatever demand for real investment is left! This is called the Paradox of Thrift. Beyond a certain point, the more people try to save, the less they are actually able to save.

    You can see that it is necessary, in a free market economy, to have a certain proportion between spending and saving. Either too little saving (too much spending) or too much saving (too little spending) is disastrous. Capitalism inherently tends strongly toward excessive savings, and here’s why:

    The division between spending and saving is heavily dependent on the distribution of wealth. Those with extremely high incomes usually save a very high proportion of it, sometimes nearly all; those with moderate incomes rarely save much more than they borrow. Lower income people don’t even have the option of saving. In the U.S., the top 1% of income earners account for more investment than everyone else combined. If income was evenly distributed, the median income wouldn’t rise that much (less than double) and few people would save anything; the result would be that GDP would decline while prices soared. But if income is too severely concentrated at the top, there isn’t enough spending – the billionaires would prefer to reinvest their funds, but nothing is profitable because there are no customers.

    This is the typical situation in a capitalist economy, because capitalism favors inequality. The more money you have, the more leverage and opportunities you have to make more money. Even if growing wealth for the richest also meant a better living for the workers (and it does sometimes work that way), the distribution becomes more uneven (i.e., the rich gain proportionately more), and that eventually causes the system to fail. The masses might be much more prosperous than the previous generation, yet they still can’t consume what the very wealthy could have ordered into production.

    Historically, economic growth is typically associated with a shortage of labor. A scarcity of workers means an increase in wages (through the “law” of supply and demand). Higher wages mean more customers for whatever goods anyone might think to provide, and thus more business opportunity. The European Renaissance was driven by the Black Plague, which killed so many workers that wages doubled, creating vast new consumer markets. The rapid growth of the U.S. economy for centuries was largely due to underpopulation and the resulting high wages. Other New World nations (and the Southern U.S.) fell behind partly because they depended heavily on slavery and so never developed strong consumer markets. China and India, cheap-labor nations whose modern growth depends on foreign markets, are doomed to the same fate.

    One thing that happens when consumer markets are deficient is that people who have money to “invest” (in the financial sense) will look for other places to “invest” it when there are not enough good opportunities for productive growth. One of these places is government securities (government borrowing is more or less a way of getting the rich to buy things for other people that they can’t buy for themselves, but with the contradictory expectation of being somehow, someday, repaid). Sometimes the money goes overseas. Another common place for dumping surplus “investment” funds is the stock market.

    Naturally, when people spend more on stocks, the price of stocks is driven up – that’s just supply and demand. Also, new investment vehicles will appear to absorb the cash, financial constructs that are just ways of selling the same thing twice. In the Twenties it was holding companies and mutual funds; in the Nineties it was derivatives. The stock market reflects the availability of surplus savings much more than it reflects the health of the business sector. This is why a “bull” market (the nickname is well chosen) is often a sign of approaching recession, and the growth of indirect investments – crap like mutual funds or derivatives – is a warning of dire economic weakness.

    The recent stock market bubble began in 1985, when Reagan was President, and as a result of Reagan’s policies. The bubble (and the underlying economic malaise) has stayed with us; every time consumer spending has failed, the Federal Reserve has manipulated interest rates to encourage more consumer borrowing to prop it up. Obviously, this process can’t go on forever, because it causes consumer debt to grow out of control – sooner or later, the consumers as a whole are unable to service their debt loads and banks will refuse to make low-interest loans to borrowers who can’t repay.

    This is the wall we have run up against. The stock market isn’t the problem, and the root cause of the credit crisis isn’t panic or irresponsible banking. Banks made shit tons of bad loans because the government deliberately made it easy for them and they believed (apparently correctly) that the taxpayers would take the risk while the lenders made the profits. The reason the government encouraged this was to keep Americans borrowing so that Americans could keep buying and keep the corporations in business. The root cause is simply that the American consumer isn’t getting a large enough share of the pie.

    Note that I don’t say a “fair” share of the pie. I don’t give a rat’s ass about vague ideological crapola like economic “fairness”. If the world was fair, there wouldn’t be any really wealthy people able and willing to make the big, risky decisions necessary for growth. If the world was fair, millions of lazy deadheads would be getting euthanasia instead of a welfare check. The right distribution of wealth is that which makes the system work; then everyone is better off whether they deserve it or not.

    And here is why we still blame Reagan for the Depression, twenty years after he left office: his policies are still in force! Reagan gave a truly colossal tax break to the wealthy, cutting the top rate from 70% to just 27%. It’s been raised only slightly since then – in spite of all the rhetoric from Democratic Presidents and Congresses who (rightly) blame Reagan for every recession, no effort has been made to reverse Reagan’s policies.

    The Reagan tax cuts obviously caused a big shift in the distribution of disposable income; even though taxes on the poor were increased only slightly, and consumer incomes did rise for a few years in the Eighties, the very rich enjoyed a far larger increase in income. Naturally they tried to save most of it, but the consumers, who hadn’t gotten the same windfall, couldn’t support rapid growth. Instead of being used to acquire capital, the excess savings had to go into bogus “investments”, i.e., financial instruments like stocks and bonds. The U.S. government sold a huge amount of bonds to the rich, to replace the revenues it had lost by cutting taxes (causing enormous growth of the Federal debt). This helped keep consumption up for a while, since government expenses run almost exclusively to consumption.

    The other big dumping ground for surplus savings was the stock market. The stock market went on a binge that continued with little interruption even after 1985, when economic growth fell off sharply. It’s the same bubble that is now collapsing; the adjustments of 1987 and the early years of this decade were the bursting of secondary additional bubbles-on-bubbles – the real correction has yet to be completed, although it appears to be in progress.

    Reagan wasn’t the only one responsible for too much money being diverted into the stock market. Also to blame are all of the institutions and financial “advisors” that badgered people for the last thirty years to put their savings into the stock market for “retirement”. You know by now that this was very bad advice, and (since I’ve so generously explained it), you know why: the stock market is a zero-sum game, strictly for speculators; it does not create wealth but only exchanges it. For every person who makes a retirement on the stock market, someone else has to lose a retirement. Unfortunately, a lot of people bought into the scam, and pumped even more money into the stock market. This made it go up and therefore seem like a good investment, which attracted more suckers to feed the spiral…

    The other big mistake of Reagan’s administration was to lower the bank reserve requirement. This was what allowed banks to leverage themselves at 30:1; it was part of the easy money policy that helped reverse the Carter recession. It worked, but fractional reserve banking is risky and running a bank with only enough money to back 3% of the deposits is begging for disaster (as we all know now). It would have been better just to print money, which would have done the same thing without the risk and reduced the Federal deficit a little as well. The drop in the reserve requirement would have been easier to undo, but of course it never was because that would reduce the loaning capacity (and profits) of banks that operate at taxpayer risk. The savings and loan crash of 1989 was primarily the consequence of the lowered reserve requirement, and it continues to bear fruit today as overextended lenders are ruined when even a small percentage of their assets go bad.

    So now you have a picture of how the whole thing works (or did work): Consumers don’t have enough money to buy enough crap, so the owners of the crap factories indirectly loan them the money – with nothing but these loans to back up the country’s bank deposits. The consumers take advantage of easy credit to buy houses, causing a bubble in the housing market that gives banks an excuse to make ever larger loans (with over-valued real estate as collateral) to people who can’t pay them back. Consumer spending is still never enough, so excess funds fuel bubbles in stock and commodities markets and drive the real estate bubble even harder. The rising markets create a climate of false optimism when they are actually a sign of deep systemic weakness.

    This obviously can’t work forever because consumer debt keeps piling up, but the government has kept it going for a generation by making it as easy as possible for the consumers to keep right on borrowing whenever the system falters, and by borrowing money on its own account for even more spending. This policy has prevented a crash until now, but it means that the final collapse will be enormous – the consumer debt, the government debt, the bad loans, the inflation of real estate prices and stock prices have all been accumulating for more than twenty years. Mortgage loans and credit cards are now the major source of consumer buying power, and valueless, speculative markets are the basis of many people’s (formerly planned) retirements.

    This whole process has happened, more or less exactly, before. The Twenties were a close parallel to the Nineties: there was economic growth that benefited mainly the wealthy, a rapid growth in consumer debt, a surging but erratic stock market laden with leveraged securities, and eventually a decline in sales followed by a drop off of real investment and growth followed by a huge stock market bubble after the economy had already begun to sour. In both cases ordinary people who had no business in speculation put their savings into the stock market bubble. In both cases, people borrowed money for “investments” – buying stocks on margin or real estate on interest-only loans. In both cases the Federal Reserve exacerbated the problem by feeding the system with cheap money. In both cases new “tech” industries of dubious viability led the bubble – dot coms in the Nineties, radio and others in the Twenties. In both cases, a lot of rhetoric was thrown around to “justify” why the economy was somehow fundamentally different and there would never be another crash. In the Twenties the buzzword was “New Era”, in the Nineties it was the “New Economy”. Anyone who remained visibly skeptical was scoffed at as living in the past or worse. And in both cases, then as now, most “authorities” continued, throughout the cataclysm, to announce that nothing had really changed, things were about to turn around, and the pre-crash “prosperity” would return promptly.

    The reality, of course, is that only a change in the distribution of income can do more than postpone the inevitable. As long as consumers are unable to buy without borrowing, the economy is doomed to a cycle of declining sales, declining production, declining employment, and growing poverty. The longer the cycle runs, the worse the outlook will appear to any prospective business venture, and the harder it will be to break out of. Having the government borrow and spend, in place of consumers, is just a temporary delaying tactic that has probably run its course – not even governments can carry infinite debt.

    There are important differences between the new Great Depression and that of the Thirties, of course. One is that the Fed has managed to keep the illusory “boom” going for a longer time, so we are more heavily dependent than ever on borrowing and bubble pricing. Another, perhaps more ominous, difference is that the U.S. government entered the first Great Depression with little debt. Now, the government is already burdened with crippling debt, even before tax revenues have really fallen off. There does not seem to be any possibility of financing a “New New Deal” through borrowing (as if the government wasn’t big enough already!). The Washington regime is also hopelessly corrupt, as was demonstrated by the appalling brazen betrayal that culminated on October 3, 2008. Unlike that of 1929, our government will not hesitate to intervene, but it seems likely to do more harm than good.

    Another weakness we have, relative to the Thirties, is our higher degree of interdependence. During the first Great Depression, most people were prepared to survive without electricity or gasoline and many could grow their own food or at least lived close to a food source. Many people could get water from a well and relieve themselves in an outhouse. Those options are no longer available. Almost everyone now depends on fuel, electricity, and remote food sources, and the supply of these things depends on complex nation-wide industrial networks and financial arrangements. Even city water and sewage services are rarely locally self-sufficient. A failure of key industries would leave tens of millions of people entirely without food, water, sanitation, communications or transportation. Can you spell A-N-A-R-C-H-Y?

    I knew you could!

    So what is there to do? The usual borrow-and-spend-and-fix-the-interest-rates might postpone the landslide for a bit, but after the last couple of weeks it seems unlikely. Government actions so far even seem to have accelerated the panic (although that may only be because blatant corruption has destroyed whatever faith in government was left). It is too late now to avoid the Second Great Depression; there is no political possibility of undertaking the necessary reforms and there probably won’t be until things have gotten very bad – hopefully not to the point of complete meltdown, but this is a prudent time for gun ownership.

    Of course the situation could be remedied, if the political means existed. I could draw up a plan, but the essential element is just this: tax the rich and give to the rest. Would that be fair? Maybe not. Would it make the lackeys of the power elite in Washington and the media, and their Libertopian dupes, squeal like stuck hogs? Hell yes! But it would also restore the economy.

The Future of Creation

“Opportunity makes a thief.”

-Francis Bacon, Letter to the Earl of Sussex

    No one snivels more loudly or less convincingly than a three year old child deprived of a toy or a record exec unable to squeeze every last drop of profit from someone else’s talent. No one sympathizes with a lazy tycoon who wants to put a teenager in prison for downloading a song, and the rantings of the RIAA and other aggrieved exploiters of creativity serves only to undermine public sympathy for the very existence of copyright laws.

    Not that the laws themselves are wrong. When anyone puts his or her own precious time, energy, and skill into creating something, it is rightfully his or her own property. It is no less real, no less an investment of human effort, and no less worthy of ownership than a steer – moreso, because the latter is directly a product of grass, land, and bovine ancestors that came originally to human hands ready-made for the taking. That a thing is easy to steal does not mean it is not property, anymore than I forfeit ownership of my furnishings by leaving my door unlocked. Nor does the argument that the creator is not diminished by the theft have any weight; the person who has made the exertion to create something, or purchased it by voluntary exchange, has the right to deny any other person the use of his labor. One might as well say that rape should not be a crime, if the victim be uninjured.

    And what of the argument that copyright exists only to encourage the production of creative work, and that such work actually requires no encouragement? Beside the fact that property remains property even in the absence of laws to protect it, that claim is certainly fatuous. To make bad music, write bad poetry, publish unfounded speculations, make a crude video of one’s living room or paint a canvas with random colors is easy and common enough, and indeed the world is deluged in such items, made at no profit and even for a loss. What is not so common is worthwhile instances of creation; to attain mastery of an art, and to put that mastery to full use, is no trifling thing. Rarely do people take the trouble to produce powerful music, good poetry, reliable texts, quality films, or artistic images with no thought of reward for their effort. Nor do they release them to the public in the hope that others will take them, distort them, present them falsely, expand on them in any direction they please, or even claim authorship. Any “artist” who submits a work to the public domain admits implicitly that such work is inferior, and unworthy of reward, or else has abandoned all hope of being rewarded.

    Instructively, those persons who are opposed to the idea of intellectual property are invariably those who have never created any worthwhile intellectual property and have no prospect of ever doing so. What they propose is parasitism, by the lazy and the inept, of the few who possess the talent and industry necessary to create the things they want but would rather not pay for. They have duped themselves into believing that good artists, writers, and inventors will work just as hard absent any prospect of profiting thereby, just as inferior artists, writers, and inventors are always willing to work for mere fleeting attention. They think that confiscating all intellectual property would enrich the public – but the reality is that free art and free information are generally worth what you pay for them.

    The difficulty with copyright laws is not – in spite of the excesses sometimes committed (like the inevitable periodic extension of copyrights on material by the long-dead Disney) – moral, it is practical. The extant laws simply cannot be enforced. In a perfect world, those who create would own their creations absolutely, whether those are tangible or not. But in the real world, it is no longer possible to have much control over information products. Technology has made reproduction perfect and virtually free, and methods of copy prevention range depend on artificial constraints that are not only intrusive, but defeatable.

    The root of the problem, perhaps, is that most people don’t see anything wrong with taking intellectual property for their own use. The author thereof is not thought diminished thereby, and certainly not if the taker is not reselling it and would not have otherwise purchased it. When people see no harm in breaking a law and are accustomed to seeing it broken, they will not refrain from breaking it, will not report others breaking it, and will not support the draconian punishments or intensive hunting for violators that would alone furnish a deterrent. (The loss of credibility of government in general also contributes to the disrespect of law, but that’s another issue.) The result is massive disobedience, impossible to suppress, just as hundreds of millions of people speed every day in spite of the huge amount of resources devoted to fighting it. People won’t stop copying things for each other unless they’re convinced it’s wrong, which seems improbable.

    On the other hand, those who condone or even practice “piracy” often consider the selling of copies, and perhaps the stealing of material by those who could easily afford it, to be wrong. Most of us sympathize more with the homeless man who shoplifts than the lawyer who pilfers from the offering plate, or with the jobless teen downloading music as opposed to a businessman using stolen software. Moreover, it’s much more difficult to sell pirate copies without being caught, since non-cash transactions can be traced and also because people tend to resent such profiteers and are more likely to turn them in. Compared to the volume of illegal copying, very little reselling of it occurs.

    The current marketing method of most copyrighted material creates a feedback cycle that keeps piracy at a maximum. When some consumers of a product fail to pay for it, the cost is passed to the others – those who create the product must be compensated somehow. As the price becomes more burdensome, more and more consumers will choose to steal the product instead of buying it, and the price goes higher still. Some software vendors are now in the position of dealing more or less exclusively with businesses; no one else can afford their product. But if the cost were spread among all those who would like to use it, it would be too cheap to bother stealing. If twenty million copies were sold at just a dollar each, the revenue would be adequate for many programs – programs that otherwise might be free but more likely won’t get written at all. The problem is collecting the money without putting the buyer through too much trouble or spending too much on processing.

    Likewise, how many people would be too miserly to shell out fifteen cents for a song? Probably most people would donate that much even if they could legally get the song free. Yet that’s more than most musicians get from royalties. Again, the only obstacle is processing the transactions.

    Of course, the record labels wouldn’t like that – where music is concerned, they are strictly middlemen, and they would be eliminated. But it isn’t music per se that they are selling in the first place.

    When Americans (at least) pay for entertainment, they are not just buying the content, they are buying something even less tangible – participation and image. In our society, music and movies are an important way of being accepted into a larger group (whether society at large or some small clique of fans) and are also a tool by which people build their self-images. Listening to music and watching movies is an induction to the common culture and earns a place therein – tastes and experiences that are (somewhat) individualized, but fit into a framework that we have in common. Thus we can discuss among ourselves which entertainments we like and which actors or musicians we admire, and each of us can have different opinions, but we (mostly) share the conviction that such things are important personal identifiers and worthy of discussion.

    The business of Hollywood and the record companies and the television studios is not so much producing content is it as producing cultural referents. The conventional view is that the millions spent on “promotion” and the images so expensively cultivated serve to facilitate the sale of the content – the reverse is true. The content, music and movies and shows, is rather an inducement to buy the real product, which IS the promotion and the image – the cultural and personal referents.

    The cost of actually producing music (at least) is not very great; advances in technology may do the same for movies in the future. The talent required to produce good music is not common, but is hardly so scarce as to create a dearth of supply. Copyright laws or not, the cost of music sold for its own merits could be expected to fall toward the cost of its production, which is not very great. The issue, for the RIAA and its ilk, is the image and social valuation of music. This is what they are really selling, and it not so cheaply created. Their problem is that their existing means of charging for this service is to bundle it with music, a commodity which is now so cheap that many people prefer to acquire it separately (for free) – and they get the image along with it, at the same price.

    If groups like the RIAA are to continue successfully milking the public appetite for referent images, they’ll have to quit bundling image with recorded music, and find some other way to induce people to pay for cultural participation. If they don’t, the funds for “promotion” (their real product) will eventually dry up, “rock stars” will be a thing of the past, and some other industry will step into the gap and market some other kind of image. If they want to get into the music business, “record” companies could sell their marketing services to artists, or even to consumers (for instance, providing personalized music recommendations to subscribers). This wouldn’t support any billionaire record execs, but they themselves are the only ones who see that as a problem.

    For the actual producers of content, there are several potential solutions to the problem of copytheft. One has already been mentioned – basically volume selling. The cost of a billion copies being essentially the same as one copy, the object is to sell the product so cheaply that no one would bother stealing. If the cost of transaction processing can be reduced to a few pennies, this might be a very effective way of marketing low cost, easily copied content like songs, magazines, images, or small programs – much like iTunes, but without the high prices and spyware.

    For established artists, or those who are good at self-promotion, one marketing option (which as far as I know hasn’t been tried yet) would be to sell works to a buying audience collectively. Potential buyers would tender a minimum sum to an escrow account, and when (if) the total balance reached the selling price, all would receive a copy, and perhaps resale rights as well, or rights to publish derivative works, depending on how much the buyer paid. If the sale expired without meeting the price, the money would be returned. There would be fewer and larger transactions than with the above scenario, ameliorating the burden of transaction costs.

    Another possibility, something like the GNU Public License, would be to sell certain rights along with the product itself. An artist might, for instance, sell the original work to distributors with the right to not only sell copies but to resell that right (perhaps to smaller distributors). Individuals who bought the work would get the right to make copies, and perhaps even to sell copies. In this kind of system, the artist would get the money up front, based on speculation, instead of after the fact based on end consumption. This system wouldn’t finance any millionaire rock stars, because no one would pay too much up front for a property that would rapidly depreciate as pirate copies inevitably began to circulate. It might, however, allow content producers to make a living. For a little while after a new release, the only owners of copies would have paid dearly for them, and would presumably be more reluctant to give the property away – and they might be more vulnerable to detection if they did, since there would be a limited number of sources to investigate for any leak. Such a method of distribution might work for things like movies and tv shows, or inventions, that are harder to copy than music or software and can be profited from without giving every customer the ability to produce more.

    Finally, there is the possibility of giving content away as a means of marketing something else, thus making the content valuable at least to the marketers. Software vendors often do this, giving away an inferior version of a program as an advertisement for the real one (which includes customer service that can’t be copied). It also works for radio and broadcast television, and seemingly now for some internet services. It does require that copyright laws exist and be enforced; luckily, it’s hard to use stolen material for advertising without being detected. Unfortunately, this system depends on the existence of some suitable (non-stealable) product or service that can be sold, and the profitability of the creative content itself depends on the value of the secondary product, not the demand for the content itself.

    One might wish that intellectual property could be guarded as an absolute monopoly, but the reality is that it cannot, and some new way of profiting from creative effort must evolve. Clinging to the models of the past will, as ever, be fruitless: the days of vinyl are gone and the days of paper are numbered. It will be interesting to see what new models are tried and how they work out. It would be nice if certain business concerns would place less emphasis on futile rearguard struggles and start preparing for the future.

Third Stage: Transhumanity

“Man is something to be surpassed.”

-Friedrich Willhelm Nietzsche, Thus Spake Zarathustra

    Every once in a while a revolution occurs that totally changes everything. I’m not talking about petty makeovers, like the introduction of air travel, or mere paradigm shifts in human thought, like the Enlightenment, or even civilization-transfiguring events like the Industrial Revolution. No, there have only been two first-class revolutions so far. The third one seems likely to roll over us during this century.
    The first revolution happened around three billion years ago with the appearance of living organisms. This was a very, very dramatic break with the past: up until then, Earth was just a ball of rock covered with slush, like any other planet, and totally dreary and monotonous (like 99.9999999999% of the cosmos still is). Then living organisms appeared, even the simplest microscopic germ a fabulous chemical machine more complex than a galaxy of stars and dead planets, and they totally transformed the surface of their world, clothing it in oxygen and soil and an astounding panoply of living things. This was something utterly new.
    A second revolution came about some three billion years later when one strain of these remarkable life forms evolved intelligence and began to apply it to the manipulation of its environment. In the blink of an eye (geologically speaking), everything was transformed again. By actually understanding nature – a monumental achievement for even the most complex biochemical machine – homo sapiens gained power over it and created something entirely new. Things happened very fast now; new and fantastic things appeared at an accelerating rate – controlled fires, cities and roads, purified metals, machines, electrical devices, exotic chemicals, atom bombs, computers, genetically modified organisms. The surface environment, which had been first a barren wasteland and then a carpet of life, became in large part Man’s creation – buildings, machines, asphalt, carefully landscaped parks and fields planted with specially bred crops. Everything was different again.
    A third revolution is now approaching, promising to uproot everything we know, redefine existence and create a whole new kind of world. It will probably happen very quickly, relative to the great revolutions of the past, although it might wind up taking several of the brief lifespans of our species. We cannot predict with any confidence what it will bring, anymore than a Neanderthal could predict the invention of the steam engine; it is beyond us. But we have begun the process, and set the forces in motion; we can see something of how it will it come about and what some of the intermediate results, at least, might be.

    The three major elements of this revolution are information processing, genetic engineering, and nanotechnology. The first is already well underway, and the foundations have been laid for the second. The potential of nanotech remains speculative, but has been well established on a theoretical basis – the greatest question is how long it will take to reach fruition.
    The fantastic increase in the power of computers in recent decades is well known. What is perhaps less appreciated is the fact that the number of computers and their interconnectedness is also rapidly increasing, along with the amount of information accessible to them. There is the possibility that computing power will continue to advance by multiple orders of magnitude; yet even if it does not, present technology is vastly underutilized. We can (and by all appearances, will) produce far more computers, connect them at greater speeds, and provide them with greater information storage.
    Artificial intelligence of human problem-solving caliber (though it would probably not resemble a human mind very much in other ways) will be a reality within a generation. The only reason we don’t have high-level AI already is because we put almost no resources into developing it. Despite the lack of support, however, progress is bound to accelerate, as better tools are evolved. Sooner or later we will reach a point where AI systems can work out improvements to themselves, and then their intelligence will only be limited by our willingness to supply the hardware. Inevitably, computers (or computing systems) will wind up being smart than us. A lot smarter. One consequence is that just about every conceivable human occupation – except perhaps for prostitution – will be able to be performed by a computer or a robot. Another is that scientific progress might come far faster. If it took thousands of human geniuses over two hundred years to get from f=ma to e=mc2 and unleash the power of nuclear reactions, how soon can thousands of superhuman geniuses, working twenty-four seven with instant access to virtually infinite calculating power and to each other’s ideas, reach the next great breakthrough in physics and unleash – who knows what? The repeal of every physical law we now think inviolable?

    Biotechnology is not so far along – at present we are still trying to figure out how the absurdly complex machine we call a living organism works. But we’re on our way. We’ve mapped out a number of genomes, including our own, and even worked out the entire structure and functioning of a few viruses. We have crude techniques for splicing up new genes, and the techniques are getting better. It’s only a matter of time before we can make any change we want to the structure or biochemistry of any organism – at least, whatever can be done with proteins, which judging by the immense variety of traits of existing species is one hell of a lot. Curing cancer and every genetic infirmity or weakness ever known is just the beginning. We can make ourselves twice as intelligent, add extra limbs or sensory organs if we want to go to the trouble, and probably increase our lifespan to thousands of years or more. With enough design work (probably done by intelligent computers), we could engineer a human that could stay underwater for hours and swim with the help of webbed feet – or we could make a dolphin smarter, give it hands and a larynx. Need more land? We’ll design microorganisms to make more of it by assembling chemicals from seawater (corals already do it), or to digest Martian rock and shit out oxygen and water. Need more fuel? We’ll design a plant to turn sunshine directly into hydrocarbons. Polluted the Earth? All we need are microbes designed to break down toxic wastes or sequester carbon dioxide or whatever. Many of our machines and robots could be augmented or replaced by genetically engineered organisms – if only because they’re self-replicating, self-repairing, and don’t require mining for raw materials. We can design our bio-tools to be plugged directly into the global computer network – hell, we can plug ourselves in too.

Genetic engineering will probably also be the route by which we acquire nanotechnology. As vast as the potential for biotechnology is, compared to nanotech it’s sandlot stuff. In case you don’t know (and you should), nanotech means building machines out of individual atoms. I’m not going to go into the science of it here unless someone asks, but the essential things are that nanomachines can be extremely small (obviously), so that thousands of them can fit into a single cell and a supercomputer can fit in a thimble; they can do certain things quite fast, that can be divided into a large number of very small operations (like assembling a large object); they can have a long, perhaps unlimited, working life, if properly designed; they can theoretically have a power to weight ratio millions of times greater than ordinary machines; they can be made to operate from a fairly complex program even if they are very small; and, perhaps most importantly, nanomachines can be designed to replicate themselves – and very quickly at that.
    Nanotechnology is something like biotechnology multiplied by a thousand. It’s like taking the minute processes of cellular biochemistry and replacing the clunky soup haphazardly shaped by random evolution with custom-built machines. It’s like automobiles over horses, but at the cellular level – and the machines can be programmed to repair themselves, too. Wheels and gears – which nature has failed to create in three billion years – will replace sloppy, bulky enzymes with their endless chains of non-functional amino acids. Nanotech is still a long way off (and I’m not going to go into the obstacles here, either), but there’s every reason to believe that it will be achieved, and probably within this century.

    If genetic engineering is certain to redefine “human” in radical ways, nanotech will erase the definition entirely. It would be entirely possible to make an exact record of your brain – by sending in trillions of robots to map every connection, or by freezing your brain and dismantling it atom by atom (which is what the cryogenics people are hoping for) – and then transfer its function to a programmable computer. You could even simulate the effects of your glands, if you wanted to; you could also be reprogrammed (voluntarily or otherwise) or merged with someone else’s mind or with other kinds of programs. When medical science finally allows a direct interface between brain and computer, the mind-body connection is likely to become blurred; when nanotech allows the separation of mind from body, the connection will disappear and mind will become something other than what it has been.
    What the outcome of such a process, or even of advances in AI and biotech alone, might be is unknowable, but I am of course willing to hazard a guess. What I expect is that individuals as we know them will either cease to exist or become marginalized. A super-intelligence will emerge, composed of many interconnected minds (organic or electronic), that will control most of the material entities and processes on Earth. The minds making up this macro-organism might be unaware of its existence, and might still consider themselves autonomous, but they would act in unison. Those outside it would be under its firm control in all significant matters, though perhaps indirectly enough to allow them to maintain an illusion of individuality. They might even serve a vital function, mediating between the world-mind and its “body” – the material organisms and machines of the Earth. Otherwise, they would be merely parasites – and dispensable.

    We may (if we harbor a certain nostalgia for humanity per se) hope that something human-like will still exist in the future, and that it will perhaps even exist in some comfort. It might, after all, be easier to maintain the existence of inferior entities that serve an organic function, than to eliminate them and replace them with something more efficient. Every cell in your body contains hundreds of mitochondria – descendants of parasites which invaded our single-celled ancestors billions of years ago and made themselves useful. Without them, you’d die in a split second. The job they do could probably be done more efficiently by a custom-made system, without the burden of the mitochondrial DNA and membranes and so on, but why bother? We can readily afford whatever resources they waste, so there’s no reason to mess with them even if we thought we could.
    A century or two from now, whatever is left of humanity may have the same kind of security that mitochondria do – that of being useful, humble, and powerless. After billions of years of symbiotic existence, mitochondria are still very successful by bacterial standards – there’s a hell of a lot of them – but they have no say in the control of the organism, don’t even comprehend its existence. We ourselves may be similarly left behind – in degenerate dependency, prospering by our own standard, but having no influence over the macro-organism that we are a part of, whose nature and goals we do not comprehend because they are so far beyond our scope.

    If we’re lucky, that is. We might turn out to be easier to ditch than mitochondria, after all.