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Capitalism's End Game 33 comments
"Gallows humor" is popular during depressions. No one is looking for a belly laugh - just a little smirk to brighten up the never-ending string of despair people usually have to deal with. Films were a popular means of escape in the 1930s and we were very into IMAX when they were below $12.50 during the crash as we expected a similar move up in movies audiences as we moved through this century's Great Recession.
(click to enlarge)
However, it only cost a dime to go to the movies in 1930 and, to put it in perspective, the price of gas was .20 at the time. Now it costs $15 to see an IMAX film and gas is $4 a gallon this weekend and we're beginning to see a bit of blow-back from consumers - who simply can't afford to spend $30 for two tickets when they just spent $60 to fill up the car.
Gasoline was also persistently high in the 30s (relative to inflation) but came down from a relative $3 per gallon in 1940 to $2 a gallon in the 70s as the US entered an age of prosperity and we built this nation around the idea of having an inexpensive and readily-available fuel source.
After the initial price shock of the 70s, which pushed us into another recession, things were improving all the way through about 2002, when gasoline prices soared to inflation-adjusted records. While the supply is still plentiful, the prices are no longer affordable and 86M barrels of oil a day at 42 gallons a barrel x 365 days a year at $3.50 per gallon comes out to $4.6Tn a year. Of course, not all oil converts to gasoline but you get the idea. Also, our friends in Europe are reading this and saying "$3.50 a gallon - in your dreams!" as they pay roughly $9 at the pumps.
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Add in the effect the high price of oil has on food and other downstream products that rely on oil and you are looking at oil alone diverting 5% of our global GDP - in EXCESS of the realistic $70 per barrel price - away from more productive uses than buying a commodity that literally goes up in smoke as soon as we use it (see "Goldman's Global Oil Scam Passes the 50 Madoff Mark" for more details).
(click to enlarge)
This is why Capitalism is the enemy of mankind. Since rising oil prices had and have very little relationship to the cost of extraction - it is fantastically profitable for the oil companies when we have these little price spikes.
It is also fantastically profitable for the speculators, who insert themselves between the commodity producers (who take the actual risks) and the consumers (who create the actual demand) and the goal of the speculator is, of course, to pay the producers of the commodities as little as possible while charging the consumers as much as possible.
(click to enlarge)
I have warned people for years that these same speculators are now, even as I warn you, circling their wagons and looking to insert themselves between you and your water as well. One day they will go after the air that you breathe but water is already on the table and will one day be as manipulated as gasoline if we don't stop them now.
This isn't an article about that but I do think it's important to keep you alert for the signs to come as we move into the final phases of corporations controlling everything you need to live. As I was saying, Capitalism is the enemy of mankind because, as we saw in the early 2000s, when oil companies and commodity producers make a lot of money - then the "hot money" flows into them. In real Capitalism, that's a good thing as more people drill wells and plant corn, etc. and, ultimately, drive prices back down to a level that meets the demand curve properly.
Unfortunately, we don't even have true Capitalism, we have a perversion of it that has spawned a Corporate Kleptocracy where companies are rewarded for monopolizing resources and delivering the lowest quality product for the highest possible price across the board. This is not a long-term benefit to anyone except for those few who end up making all the money. In fact, if you are in the top 10%, it's likely you often choose quality over price and for very good reason - but more and more that choice is denied to the masses and the lifestyle of Americans since the early 70s is very easily summarized as getting less for more - year after year.
(click to enlarge)
Corporations are rewarded for shipping our jobs overseas and, as the consumers get poorer and poorer, they are willing to sacrifice things like being able to try on clothes at an actual store or having knowledgeable salespeople answer their questions before they purchase durable goods and the lack of knowledgeable salespeople and closing of actual retail stores (that employed actual people) encourages more and more people to shop on-line, giving Corporations more and more profits and encouraging them to cut more staff and more stores - perpetuating the cycle.
(click to enlarge)
As I said, this is how Capitalism becomes the enemy of mankind: We reward Amazon, who employ 56,200 people, with a price-earnings ratio of 141 while Best Buy, who employs 180,000 people garners a p/e of 6.
What kind of business do we encourage entrepreneurs to build and invest in? Efficiency is a noble goal and works wonders when you have an ever-expanding market but what happens when you saturate the planet with efficiently-produced goods and services?
Eventually, perhaps 700M people plus machines will be able to produce and distribute everything that 7Bn people on this planet require. What then? 6.3Bn people won't be just unemployed, they will be unnecessary - except for as consumers. But there's obviously no point in paying them not to work but if it's not profitable to employ them and we're not going to support them but we need them to buy our stuff - what then? If we kill them they can't consume - this is a conundrum that we're already facing, somewhere between the 1/3 of the population that "needs" to work today and the 1/10th that will need to work in the future - we'd BETTER figure this out!
(click to enlarge)
As you can see from the above chart, we certainly don't share the benefits of increased productivity with our workers, do we?
Out of an 80% increase in Productivity since 1980, less than 7% of those gains showed up as wages - not even enough to keep up with inflation. This is what Capitalism REWARDS, this is what Capitalism steers us to - and it's still not enough - it will never be enough as the hot money chases the companies that make the most by doing the least - day after day, year after year - shaping our economy, our social structure and our Government the way a river shapes a canyon.
Creating an underclass - even a slave class - is the natural end-game of Capitalism - a Corporate Kleptocracy simply seeks to hurry things along to their inevitable conclusion while making sure the players who are currently on top remain on top. In other words, they won the first round - and now they want to change the rules to make sure there are no surprises for the rest of the game.
Marx argued that, due to economic inequality, the purchase of labor cannot occur under "free" conditions. Since capitalists control the means of production (e.g., factories, businesses, machinery) and workers control only their labor, the worker is naturally coerced into allowing their labor to be exploited. Labor historian Immanuel Wallerstein has argued that unfree labor - by slaves, indentured servants, prisoners, and other coerced persons - is compatible with capitalist relationships.
While in major capitalist economies the minimum wage is legislatively imposed by the state, there is no maximum wage limit, which is supposedly determined by the forces of the free market. They further argue that the minimum wage measure does not serve to set a lower limit in a worker's earnings; it actually functions as an upper limit on the earnings of a person that just enters the workforce. The existence of minimum wage, coupled with the absence of maximum, permits rapid wealth accumulation and leads to a phenomenon termed "plutonomy" by Citigroup. In effect, wages are kept low for almost all of the population while the remaining minute percentage is allowed to meet overwhelming profits.
This IS what's happening folks and it's getting worse and worse every year and it is not going to end well...
Disclosure: I am short DIA, QQQ, IWM, USO, GLD, PCLN, CMG.
Additional disclosure: Positions as indicated but subject to change.
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This post has 33 comments:
If capitalists are so bad, and they treat their workers as slaves or indentured servants... how come the "wage slaves" just don't thumb their noses at those mean 'ole capitalists, pool their funds, and open up their own "employee owned" factories or businesses?
Wouldn't it seem logical that the ultimate source of revenge, would be for the under-privileged workers to get together, and undercut those mean 'ole capitalists by offering products or services at lower price points, and retain all the profits to be equally distributed amongst themselves?
Have you ever tried to start a business? Unless you are rich, you need the cooperation of people with money or bankers to finance you so barrier to entry number one.
When you do get started there are numerous regulations, inspections, certificates, professional training required that to some extent offer consumer protection but in other cases really protect the status quo - like good luck coming up with a better car design if you aren't already a Billionaire, or a new drug. In fact, I don't know if you are following the smart-phone patent wars but even huge companies like Apple, Samsung, RIMM, NOK, MOT - are all spending hundreds of millions suing each other - do you think the average person can play that game?
Patents and trademarks have their uses but their main use is to make sure the bottom 99% can't build a better mouse-trap and compete with the established top 1%. Big corporations can break you even when you are right - as long as they can raise the "benefit of doubt" they can drag you into court and break you with legal fees - that's done all the time to small businessmen.
Union busting has been popular in this country for years - even President Reagan busted unions - that is the workers attempting to get together to bargain collectively.
Wage slaves are every bit as trapped in their positions as regular slaves were 150 years ago. At least a slave was provided food, shelter, clothing and medical care for himself and his family by the masters - good luck affording all that on what Wal-Mart pays you. What funds do you think those people have to pool?
You seriously don't believe 30 people working in a McDonalds for $8.50 an hour couldn't open up a restaurant that made better burgers (maybe not better fries) if they had the money? Think of all the barriers that stop them from competing on an even field.
It's a good thing to think about in all the businesses you visit every day. 100 years ago, if you were good at something, you could put a sign outside your house and you had a business and, if you were really good, word spread in your town and you became successful. That was fair and that's where the American Dream took root and helped us build a great nation.
Unfortunately, as we modernized (and Marx warned of this), the people who were successful consolidated their wealth and built barriers to stop other people from competing until now, we no longer have a level playing field.
The bottom 99% didn't start the class war, they already lost it.
Let me get this straight. According to you we no longer have a level playing field... right?
So if you were King for the day, what would you propose that would help level the playing field?
< http://bit.ly/HCIKuQ >
Phil is a great socialist for such an exceptional capitalist. Maybe it takes one to know the other. I'd vote for him! Although, he overestimates the abilities of the poor, huddled masses.
The math doesn't make sense either. A 99% majority can easily control a 1% minority. The majority of 100% is 51% (rounded to the nearest percentage). The majority in the US might be a little higher, as some votes require 2/3 majority in the house or 3/5 majority in the senate. Another good reason to get the tired, poor, tempest-tossed NON-VOTERS. The glass is almost 2/3 full!
Here's the math that counts, especially in light of the Citizens United case:
Money is political speach, so we now have a monetary democracy - votes are, esentially, weighted by the wealth of the voter. Got a billion dollars? Your vote is weighted 1 billion times that of someone who has only one dollar.
So, since the top 1% control more financial wealth than the bottom 99%, its pretty easy to see how the 1% control the political process and the 99% are rendered pretty much mute.
Good comment and observation. And that is exactly the underlying reality and dysfunction of the american political process today.
Citizens United, of course
The Supreme court also, in the last couple of weeks, has determined that being strip searched, even when arrested for the most trivial of offenses, such as riding a bicycle without an audible bell, failure to use a turn signal, or violating a leash laws, does not violate ones consitutional protection "against unreasonable searches" - even though this is an invasive and degrading action, meant to intimidate and humiliate prisoners, is far more severe punishment than would be meted out IF found guilty of the original offense.
http://ti.me/IjvgQd
http://bit.ly/xd6iTr
The top 1% own 43% of the nation's financial wealth. The next 19%, rounding out the top quintile, own 50%; leaving just 7% divided among the bottom 4 quintiles. Financial wealth is defined as total assets, excluding the equity in your primary residence.
So, 7% of assets divided among 4/5 of the population works out to 0.0875% per percentile for the bottom 80%.
For the next fifth, excluding the top 1%, you have 50% shared by 19% of the population, or 2.63% per percentile.
And for the top 1%, they own 43% - 16.3x the rest of the top quintile on average, and a whopping 49,142x (per capita) of what the bottom 4/5ths of the country own.
So, no. The top 1% are pretty much all that count in our political system. The 2012 presidential election will, I'm sure, be by far the most expensive in history, and will play out almost entirely as a battle between the pro-Obama and pro-Romney superPACs. In otherwords, a few dozen millionaires and billionaires and their financial muscle are going to crowd out the entire rest of the nation from the political process.
I do agree, "middle class" according to "wealth-math" is tiny, certainly way less than 1/3 of the population. BTW, a 3-way split seems more intuitive than quartiles. "Middle class" implies a top, bottom, and of course, a middle. Income distribution is much wider, but as it turns out, spending more than you make, an easy task even with insurance, produces zero wealth. Bloody circular logic!
Isn't that the truth ... the big guys get away with murder but the little guys get prosecuted to kingdom come for relatively trivial infractions that have orders of magnitude less effect than the outrageous infractions of the big guys. To wit Roger Clements, Martha Stewart, or even Raj & the hedge fund guys. Their stuff is in the thousands or even millions. But the really big guys cause damage and fraud in the billions and trillions and by and large get away with it. Meanwhile they ruin millions of people's lives and investments.
One of the most irksome being the Countrywide guy and some of their insiders. They should have consfiscated 100% of their assets and sent them away for life. The moral seems to be you have to steal and defraud at very very large levels, instead of minor levels. If you steal and defraud enough, then you can pay big enough settlements and fines to get away with it and still keep multi-million/billion dollar fraudulent profits.
Truly sad and outrageous.
The 99% can do something to change the status quo?
or
The 99% can't do anything to change the status quo?
Increasing government increases income disparity.
In other words, the article title is wrong. The problems you identify have nothing to do with with capitalism. It is a problem with increasing government power.
Compare with Communist totalitarian societies. The more China adopts Capitalism, the better off the people. They were all rural agrarian 40 years ago. Cuba has just about ended itself thru starvation even as the Castro's and other top figures live lives of relative luxury.
I completely agree with everything in this article except the title. As you point out yourself the system that is bleeding us all dry is no longer capitalism, it is a kleptocracy. What we had during the Great Prosperity was capitalism, tempered by a Christian-based (and/or socialist-based) belief in mutual obligation expressed through a robust democracy. The point is that it is not capitalism that is the problem, but its abandonment, and the perversion of politics by the influence peddling of all the new 'robber barons'. If we blame 'capitalism' we may end up 'shooting the goose that laid the golden egg' in the first place. We need more capitalism. Traditional capitalists actually made things and then reinvested the profits into making new and better things. The union movement, with broad social support, ensured that the wealth was shared. Unfortunately, the union movement became corrupt (anyone remember the teamsters?) and lost credibility. That needs to be restored, but how?
We have replaced capitalism with financial 'services' that serve none but the middlemen skimming all of the fat, while allowing these sleazebags to pretend that they are the 'new capitalists'. We need to recognize that bankers are not capitalists, they are money lenders, and that a salary received as stock is still a salary, and tax it accordingly. We need to have rules to distinguish between grossly overpaid employees and true owners of businesses that risk their own capital to create real wealth that benefits society, and who deserve to have this recognized in the tax system.
I greatly enjoy your articles.
Elizabeth
...or, it might take an Antichrist to pull off a relatively nondestructive reset (fascist in form) with the subjugation, rather than the elimination, of the existing ruling class--kill a few, cow the rest. After all, the author of monetary power can certainly bring it to its logical conclusion by vesting it one, perfectly loyal, subject. We've seen approximations before this, but these days, there are now the tools to make it happen.
A nice story, which may never come true...but if it does....
In any case 'higher productivity' should not mean higher wages. Only higher capital costs and hence greater risk. Hence we need negative real interest rates to prevent the whole shebang from collapsing... #! shebang
Sorry to expose the dirty secrets but there it is...
I think if that if you toured a few modern manufacturing facililties, you'd quickly realize that the level of sophistication in the production facilities needs to be mirrored by the level of sophistication of those responsible for operating, adjusting, and maintaining the facilities.
Gone are the days of long assembly lines manned by low-skilled manual workers... That manual work is now done by sophistiate production equipment, and the workers must understand how the equipment works, how to know when its not working properly, how to set the equipment up for a specific task, and how to adjust, maintain, and trouble shoot the equipment, as well as how to do sophisticated measurements and inspections to assure product quality.
Come by my shop someday, we're still about 10 years behind (at least) the current cutting edge, but my problem is finding people qualified to work in this environment.
Maybe you are arguing the worker is smarter and better trained than production workers 50 years ago. But were they better educated and smarter than the top 5 percent of workers 50 years ago? Or have the other 95 percent just left the building? I like to look for the unchallenged assumptions in an authors arguments.
And you are right the last time I was in a production facility was 30 years ago.
The statement that "labor comprised 15% of the cost of producing a car" is probably only true in a very narrow sense. For an auto manufacturor, purchased components are the lion's share of the cost of production.... Electronics, fuel injection systems, ABS, systems, electronics, drivetrains, engine accesories, are accounted as purchased items, but each contain a significant unit labor cost. There is also a significant amount of labor costs buried in "capital investment" - after all, the construction workers who built the plant and the machinists who built the equipment all have a labor cost associated.
Actual raw material cost - Steel, aluminum, glass, plastic, rubber, etc. - are actually pretty minimual. And even they include a labor and energy component which is a high multiple of the actual raw material they represent - iron ore, bauxite, silica sand, crude oil.
When you get right down to it, the actual RAW material to make a care from might cost a couple hundred bucks. The rest is energy and labor.
----
Anyone capable even of working in my shop likely knows more, understands more, and is capable of more than 99.9% of manufacturing workers 50 years ago. 50 years ago, sintered carbides (about the only material used for cutting tools today) was rarely seen other than in HIGHLY specialized applications. There were a very few crude NC controlled machines in use in the aerospace industry. Process control technology was non-existent 50 years ago. SPC unheard of. We perform DAILY even our our shop inspections which were impossible 50 years ago. All of these improvements allow shops like mine to produce parts at levels of consistency and accuracy impossible 50 years ago, and at a cost a TINY fraction of what similar parts would have cost in the past.
Even metal working fluids have undergone 2 or 3 complete revolutions over the last 50 years - from petroleum based cutting oils, to the first water soluble mineral oils, to vegetable based oils, and now to sophistocated blends of pure synthetic and vegatable based water solubles with the addition of stabilizing chemistries, anti-microbials, corrosion inhibitors, film strength enhancers and a whole lot more... Gone are the days when machine shops smelled like solvent. Almost everything used is water based, non-toxic, biodegradeable, and renewable; and performs better than at any point in the past. (And you can thank agencies like the CARB, EPA, and OSHA for driving these technological advances.)
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