As the battle for our lives against the novel coronavirus pandemic rages, another battle is being ready to be fought: for the economy. It is not an exaggeration to say that that the second quarter of 2020 will see the most severe decline in global economic activity in the history of human civilization, and the question is whether we can come up with the right policies to ensure that the this does not deteriorate into another great recession or worse, another great depression.
For starters, let’s understand the scale of the carnage. Entire sectors of the economy like restaurants, hospitality, and travel have already collapsed. Entirely collapsed. The millions of workers that are now unemployed or which will be soon unemployed as a result of this will require a social safety net of epic proportions in order to survive the 3 or more months of lockdowns, with no guarantee that their jobs will still be there when the crisis is over. For countries that have pushed forward a comprehensive package of corporate lifelines and worker’s support (pay guarantees, moratorium on interest, utilities, mortgages, and rent, etc.), it is estimated that these may end up costing as much as 10% of GDP (maybe even more), putting further strains on national finances which in many cases have not yet recovered from the 2008-09 crisis. And for developing countries, with masses of informal workers and lack of social safety nets, the outlook could end up being as apocalyptic as the virus itself. Continue reading
It’s impossible to ignore the fact that we live in the Age of Hedonism. An age in which people’s lives, or at least the fictitious online manifestation of them, seems to be dedicated primarily to the obsessive pursuit of pleasure with no attempt at restraint. That the 2008-09 global financial crisis not only failed to contain this excess but perhaps even amplified it is all the more surprising and unprecedented. In 2009, the cultural critic Mark Fisher wrote about “capitalist realism”, the idea that capitalism had so permeated every aspect of our existence that we have been unable to imagine a future without it. One can easily argue that our cultural self-indulgence, so tied in with capitalism’s image of how we must look, think, and behave, is part of this phenomenon, producing the contradiction that the more individualistic we are made to be, the more we become like everyone else.
To me, one of the most visible manifestations of how the Age of Hedonism is upon us is the rise in popularity of music festivals. Granted, music festivals are hardly new, but it’s the “festival culture” that is now inescapably attached to it that is more notorious. It seems that festivals are less about the music nowadays and more about the “experience”, this being the pleasure in dressing in obnoxious boho chic, rave, or cybergoth outfits, behaving equally obnoxiously and taking as many pictures of oneself as possible. In a sense, festivals are now three-day long fancy dress or stag/hen parties, music be dammed. By far the most egregious offender is Burning Man, which nowadays resembles a hyper-sexualized Mad Max carnival filled not with marauding gangs but very affluent tech bros and Instagram influencers. If capitalism has ever had its greatest cultural victory, it is by perverting the original intention of this festival from an experience in communal self-reliance, to an orgy of Silicon Valley excess. Continue reading
Capital has an exorbitant privilege. With capital we are able to undertake productive investments and reap a potentially infinite amount of rewards. However, capital is not the only factor of production: for those investments to succeed, we also need labor. Unfortunately the rewards received by labor are infinitesimal and declining. In the majority of the industrialized world, the share of national income received by labor has been dropping over the past decades as a result of a myriad of factors like globalization, deregulation of labor markets, and the neutering of the power and influence of unions. The root of this privilege goes back to the origins of capital and its historic process of accumulation.
Where does capital come from? One source is from capital itself. Any increase in the value of an asset provides the owner with additional income which can then be reinvested into other capital assets. Similarly, some assets like stocks and bonds provide a regular stream of income in the form of interest payments or dividends. Additionally, physical capital like robots or other types of automated equipment can also produce additional capital without human input. However, the main source of capital is labor. Your work, as an employee of any firm, contributes to the profits of the firm through which the firm is then able to accumulate further capital. No amount of capital will make a firm thrive in the absence of labor which is why the two are not perfect substitutes. But capital’s exorbitant privilege comes from the fact that, unlike labor, it can generate infinite returns. Let’s see how this process takes place in practice. Continue reading
The economic rise of China since the 1980s has been one of the most, if not the most, impressive feats of economic progress ever. It has eradicated poverty by the hundreds of millions, created an industrial sector that has dwarfed anything ever seen in human history, and despite the country’s size and maturity, continues to grow at a pace that any Western democracy and even most developing economies can only dream of. This has been largely been achieved by the Chinese government’s adoption of market policies. China is now the world’s greatest trading nation and also a massive receptor and supplier of foreign investment. Capitalism works, and it follows that China is the perfect example of why countries should liberalize their economies and embrace free markets unconditionally.
Except it doesn’t follow.
If you were tempted to draw this apparently obvious conclusion, congratulations, you are a victim of what I like to call the Spectrum Fallacy, possibly the most pernicious flaw of logical argumentation in policy circles. What is the Spectrum Fallacy? It is the flawed premise that just because something is demonstrably better than something else, more of that something is necessarily better than only some of it. It is very similar to a well known logical fallacy, the false dilemma. Like the false dilemma, the spectrum fallacy assumes that there is a false choice, that one must necessarily choose between two mutually exclusive options (statist communism or laissez-faire capitalism). However, here we are assuming not that there are more choices but that either of these two choices can be better when they are applied less extremely across the spectrum of possibilities. Continue reading