09 November 2018

Economic models

There's this stylized fact that the point of the economy is to increase the general prosperity.

Since that's obviously not the case -- the general prosperity is in the "prosperity decreasing" side of the post-1980 bimodal distribution -- it's reasonable to ask what is actually going on.

This tends to collapse into a mess as people start arguing esoterica, such as about how much market power labour has.  (This is about like arguing about how much market power farmers have; it's none, and it's obviously none because productivity has tripled since 1950 and farm income (in the family farm sense) is flat or declining in constant dollars.  You know there's no political power there when they can't keep that from happening to them.)

I think it's much much simpler in the general economic case.

You can increase prosperity through innovation; it takes less work per unit useful thing.  Incumbents hate this and try to prevent it. (If you're on top of the heap, any change is overwhelming likely to move you further down the heap.)  There's the recent example of the VLSI breakout, which no incumbent anticipated and which they're still struggling to get back into the can.  Plus, it's difficult.  Especially at the end of the logistic curve (which were are at for the current toolkit), innovation is a tough way to make money.

You can concentrate; if you can get control of more of the economy, you get richer.  Nothing has changed about how the economy runs, but your degree of oligarchical status increases.  "Concentration" was the post-1970 policy goal of the US and American oligarchies; the early-20th innovation set and the Hitler's War/Great Pacific War capability investment had about spooled out, you weren't going to get anything else with predictable results.  (and indeed VLSI did NOT have predictable results.)  There are some nastier looting variants on concentration -- I just want the money, not the business -- but it's all the same basic pattern of fewer and fewer sources of decision.  (Decision and control are not the same thing!)

BUT!, you can also loot the public purse.  This is what happened in post-Soviet Russia; if you can get control of the public infrastructure and public institutions, you can obtain a lot of money.  You can pretty readily find credible analysis suggesting Putin's cabal divied up the equivalent of a trillion-with-a-T USD.  This isn't graft; this is straight up long-term control of the power to tax and to legislate.  Quite literally "give me the money".

This is the model being pursued by Trump, by the US neo-conservatives generally, by Doug Ford, and by pretty much everybody coming into politics from organized crime.

No one else is currently advancing another model.  The US Democrats, Canadian (federal) Liberals or NDP, are the parties of the status quo, and this means they're the parties of (to various degrees of humane constraint) parties of economic concentration.  Conservatives have become the party of aristocracy, which is what you get when a small group controls the public sphere for their specific direct benefit.

To change this, it is necessary to create a widespread belief that the status quo cannot persist and that some specific achievable alternative is preferable.


Zeborah said...

Some kinds of innovation do work well if you're at the top of the heap: specifically, the kind that a) requires investment only those at the top of the heap can afford, and b) result in concentrating said heap as a result of everyone else, unable to compete, giving up or going bankrupt.

But this is almost always going to be a "cheaper" (cheaper to the innovator, not necessarily cheaper to society) way of doing the same thing; vanishingly rarely will it be any kind of way to do a better thing.

Graydon said...

+Zeborah That's a thing -- that's the Henry Ford sort of "I want the whole auto market" thing -- but it's rare for a couple of reasons. It's always inherently risky (it might not work!) and oligarchs tend not to be mathy in the anglosphere; it's something of a class requirement to disdain quantitative analysis. (A more perfect aristocracy indicator cannot be imagined.)

And I can't think of a recent -- since 2000 -- example, which is plausibly my lack of knowledge. The "really big ante" areas (e.g., smart phone manufacturing) are getting that way out of stuff inherent in the technology, and I'm pretty sure all the players would get it to stop if they could.