The Main Problem of Capitalism or “Unemployment” in a Nutshell

The renowned physicist Stephen Hawking just posted in a Reddit Q&A session the most compact formulation of the problem of capitalism and “unemployment” I have ever seen to date:

“If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.”

(Source: Reddit.com)

Hawking refers to “machines” that can produce without any labour. Such machines are actually a hypothetical special case of productive capital in general. Hawking uses the extreme (infinite labour productivity) to make the case that distribution matters. But his argument is actually valid for all kinds of non-hypothetical existing productive means that make society require less labour to produce more goods.

If those means of production are well distributed or at least the produce is distributed in a reasonable manner everybody benefits. Everybody can enjoy more spare time and consume more or better goods.

If, however, the means of production are ill-distributed there will be a “surplus of goods” and a diminished demand for labour. The capital owners will benefit but the workers will suffer from diminishing wages due to the increased competition for productive jobs, whereby a productive job requires access to the means of production that make labour more productive.

Kudos to Stephen Hawking for this perfect summary!

The Debt Crisis

Dirk Bezemer (Univ. of Groningen, INET) has published a four-piece video series on the current economic crisis. Those videos are exceptionally well made, very clear, very good to understand.

He points out the important role that credit and debt play in an economy. He then distinguishes between the two alternative ways to use debt economically:

• investment in production and
• investment in speculation (buying assets and hoping for a rising asset price)

The video makes the case that the use of credit for speculative purposes increases the debt-to-income ratio (“debt burden”) of a society and that this can lead to a debt crisis when the debt service (interest, repayment) is too high in relation to income.

Predicate: “must see!”

INET webpage with the videos

Episode 1: Debt, A Great Invention

Episode 2: How Bubbles Grow

Episode 3: Why crises occur

Episode 4: The post-bubble economy

Addendum:

One small piece of nitpicking (does not affect the argument made in the movies): Prof Bezemer says: Money = debt. That is actually not correct. Money ≠ debt! Debt is normally about money. So both can not possibly be the same.

Modern money is a type of token issued by a government agency. Economic subjects are required by law to accept that kind of token (the “legal tender”) as means of payment.

Debt, on the other hand, is a contractual obligation (with a corresponding right) about a sum of money.

Now, sellers of goods may accept a debt claim, e.g. against a bank, as a substitute for money. But they don’t have to. They can theoretically insist on payment in “cash”. And in the case of a bank run they will do so.

The Effects of Inequality on Societies

Everyone should see Richard Wilkinson’s talk about the effects of inequality on societies.

Inequality: The Enemy Between Us?

He presents data with pretty high negative correlations between the level of inequality in a society and different kinds of indicators for social well being. In short: unequal countries have more social problems than equal countries. All people, rich and poor, are better off in a more equal society.

The talk was organized by the ARC CUNY (Advanced Research Collaborative—City University of New York). View on YouTube: Video page, ARC CUNY Channel.

Richard Wilkinson, together with Kate Pickett, is author of the book

“The Spirit Level: Why More Equal Societies Almost Always Do Better”.

Kate Pickett held a presentation on the 2010 INET conference (as noted on this blog):

View on YouTube / INET YouTube Channel

Does Livestock Help Against Desertification?

There is a very interesting TED presentation by Allan Savory on the effects of livestock and herding on desertification and climate change:

“How to green the desert and reverse climate change”

He basically claims that you can revert desertification by increasing livestock and mimicking the natural herding behaviour that grazing animals display when they fear predators. You can have more livestock which helps securing food. You can keep wild animals around. The reversal of desertification and the increase in soil helps to store carbon and thereby to prevent climate change. It almost sounds too good to be true. But he presents evidence that this works. Definitely worth watching!

YouTube page / TED talk page

Inequality Talk with Paul Kruman and Tony Atkinson

Great discussion with economics professors Paul Krugman and Tony Atkinson about the political and economical implications of inequality. It covers a lot of important topics like for example:

• the effects of inequality on democracy,
• the goals of taxation,
• optimal levels of top tier tax rates,
• how taxation can be enforced internationally.

The talk was organized by the ARC CUNY (Advanced Research Collaborative—City University of New York).

View on YouTube: Video page, ARC CUNY Channel.

Wealth Distribution – Desired vs. Perceived vs. Real

An interesting visualization of the distribution of wealth in the USA – the distribution desired by most, the perceived distribution and … reality:

(Via Mashable)

Dirk Müller zur Notwendigkeit einer Umverteilung

Börsen-Kommentator Dirk Müller hat der FTD ein interessantes Interview gegeben, in welchem er sich positiv zu einer Umverteilung äußert und sich u.a. auf den New Deal Franklin D. Roosevelts bezieht:

»Dirk Müller sieht das Finanzsystem am Ende«