I got a link forwarded to me. It is a load of utter crap. Let me first go over in detail why Umair Haque has dropped a load of utter crap on the world, and then why it shows how your world is fucked up. The reason is that constantly people are told what the problems are, and then told complete bullshit for a solution. The people who sell them the bullshit collect a great deal of money and run, leaving things a mess for the next load of utter bullshit.
The ability to do this is heavily rewarded, and is a pre-requisite skill for being part of the elite. Elites sell bullshit to ordinary people, who then devote themselves to one elite cult or another, hoping to charge rent to the next wave.
Let me hammer this out, because it is a particularly egregious example of how one generation of elite fuck ups lead to the next generation of elite fuck ups.
First he talks about Ponzi schemes, and gets what a Ponzi scheme is wrong. But using the language of Ponzi Scheme is a dog whistle. That dog whistle is anti-central bank gold standard. It’s the “fractional reserve accounting is a giant Ponzi Scheme!” meme. This meme is moronic. A Ponzi scheme does nothing other than give the money of new investors to older ones. Fractional reserve accounting dates back a couple hundred years, and the only way to call economic growth over that time a Ponzi scheme is if you ignore little things like electricity, the steam engine, computers, and the rest of the global economy. Fractional reserve accounting has it’s problems, but we are where we are not because it is a Ponzi scheme but because of the Market/Rent problem outlined by Adam Smith, namely, the winners of the Free Market will want to buy the free market, which they can’t be allowed to do.
Let me go over the whiz bang points he makes one by one, in that background.
1. The first one is a call for some kind of private gold standard. I recognize the lingo. In fact calling currency a store of value is wrong. Currency is the mechanism of exchange. Money is the measure of store of value. And, gold bug ranting aside, there is no such thing as a permanent store of value, because what we value changes. Back in 3000 BC Iron was more valuable than gold, because there was a lot less of it available. In 1700 aluminum cost more than gold, because, again, there was a lot more gold available. Now Iron and Aluminum are cheap.
This problem requires implementation of things we already know. Keynes had the basic idea over 60 years ago. The math isn’t that hard, the ideas are there, what is hard is wading through the bullshit and vested interests. Bullshit such as the sort that this individual is promulgating in his idea free whiz bang piece.
Instead the solution is to have an exchange rate mechanism which penalizes volumes of trade beyond sustainable levels, and includes externalities. The solution here isn’t whiz bang “hedged, insured…” yadda yadda, because the currency regime that blew up just now was hedged and insured. The key problem isn’t that it lacked mechanisms to deal with equilibrium problems, but that it allowed people to push costs to the disequilibrium case. The disequilibrium case, it was correctly assumed, would result in a public bail out. “Well if that happens, we are all eating babies so it doesn’t matter.”
The simplest approach would be a KPT regime where a Keynesian trade exchange mechanism is backed by Pigou taxes on Tobin currency transactions. Currencies would be able to float to a limited extent, and even be revalued, but watch out for the “national currency” dog whistle, what he is really hoping for is a private currency so that everyone has to pay rent to the private currency.
2. Institutional share holders are often forbidden from getting involved, and there are often barriers in corporate governance. It isn’t about cost, it is about structural barriers. Mutual funds etc support management, because they bought the company because they liked the management in the first place. It also connects to a problem he lists, but gets wrong, below. Managers and executives are in possession of the company. This was pointed out by Berle and Means over 70 years ago. In economics it is called “the agent problem.” He fails to realize that (2) and (4) on his list are versions of the agent problem. Investors must have agents (4), but those agents have every incentive to insulate themselves from the actions of owners. This is exacerbated by (3) which creates more hot money.
If he were being sensible then, he’d start with problem (3), that is the large flows of hot currency looking for parking returns, which would then actually connect with bringing up Madoff, who supplied the demand for parking returns above the market rate. He would then have a merged (2) and (4) as the agent problem, building on the solution to (3). If there is much less hot money, then corporate democracy will not lead to thrashing instability, and there will be far smaller rewards for agents to betray owners in order to get huge pay outs.
Corporate Democracy isn’t particularly hard either, the innovations have, in fact, been the other way – ways of selling shares without selling real ownership. That’s one of the reasons that the Taxpayer Anal Rape Program is so violently vomatious – money given, and the public gets non-voting shares in return. Nothing but protection for incompetent executives.
Grade F (Wrong cause)
3. This problem was solved it is called “the progressive income tax.”
And ignoring the solution makes hash of (2) and (4). Progressive income taxes mean that there is much less incentive to rapidly shift money around, because it is taxed as a drag on churn.
Grade F (Problem already solved)
4. Zero management confuses management with executive functions.
Managers are often over loaded in companies and cutting management is a good thing. The executive class, however, are the people who rat race, and they don’t spend their time doing budgets, but making
connections. The theory that we can do without management and the executive class is all well and good, until you see it in action. Or rather in action. Failing to connect problem (4) as an outgrowth of
problems (2) and (3) is singularly obtuse. In a world where investment money has a high velocity, and the implications for being on the wrong side of velocity are high, and there is little to no oversight, the executive class becomes all about massaging signals that move liquidity.
D (He’s at least got the right idea here)
Now let me talk about why this means that your world is fucked up, and is going to continue to be fucked up for a while yet. You see, you, and I mean you, support giving power, privilege, and position – the ability to do shit and make enough money to live – to people just like this wunderkind who can act as if four relatively solved problems require “innovation.” In fact, we’ve had two generations of “innovation” to get around the known solutions, because they didn’t have what a business goon really wants: the ability to create a “solution” that becomes so pervasive that everyone else has to pay rent. Consider credit cards. They represent a 3.5% tax on virtually the entire economy. Now that’s innovation a business thug can get behind: resolving a problem that has been solved, and collecting hundreds of billions in rent, because not everyone can set up a credit card.
Wake me when you people are serious about getting serious.
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