Wednesday, December 7, 2016

There’s a Better Way, Mister Trump, II: What Should Be


If we ignored your private crusade...good.
December is a really bad month in which to blog if you’re trying to focus on things like the Just Third Way.  Today is a very historic anniversary, and we could tie it in to the Just Third Way, but it would be a pretty big stretch, and we’d spend more time justifying it than we would on the subject at hand, which is a bit more immediate.  We get enough flak from people whose personal crusades we’ve forgotten to mention just because they have nothing to do with what we’re talking about.
Yesterday we looked at how President-elect Trump’s carrot-and-stick approach to domestic job retention could be done a little better, cheaper, more productively, and a trifle more diplomatically.  The problem, however, is that, as the system is currently structured, there’s no real solution, only stopgaps until the next seam starts to pop.  After all, when the institutional “thread” holding things together is weak to begin with, and then starts to rot, it might be time to put a new system in place.
And what should that new system be?
Exciting and fulfilling wage system jobs
A Capital Homestead Act, of course.  Right now everyone is worried about job loss — and (as we said yesterday) rightfully so.  Most people expect to gain a living income through a wage system job.
Is that a realistic expectation, though?  As labor costs continue to rise (can you say “$15/hour minimum wage”?), it becomes increasingly attractive for companies either to shift operations to low-wage areas, as Carrier, Rexnord, and a host of others proposed, or replace high-priced human labor with relatively lower cost technology, despite any promises or threats.  After all, Trump may threaten, but only Congress can enact a tariff.
Job loss, however, has its downside for owners as well as workers.  If workers have no income, who is going to buy the company’s products?  As we’ve pointed out a number of times recently, when income drops for human beings, demand for goods and services also drops . . . and machines don’t buy too many goods and services, even during the “Christmas Season” (as Advent is known).
The simple fact is that as labor costs get higher and higher, owners have the choice of going bankrupt, or —
a) Becoming dependent on government subsidies
b) Shifting jobs to lower cost areas
c) Replacing workers with technology
d) All of the above (meaning all of the above are choices, not that companies can choose all three at once)
e) Finding a different test to take
Fabian Socialism
The only real answer is “e” — a way of saying that our leaders are looking at everything wrong.  Having fallen victim to the Fabian socialist concept of “full employment” that John Maynard Keynes borrowed and that has been implemented virtually everywhere on Earth, world leaders can only come up with answers that have the word “job” in them, somewhere:
• Job retention
• Job creation
• Job sharing
• Job market
It’s enough to try the patience of Job. . . .
So, what’s the solution?  It’s the same one Louis Kelso gave in an interview in Life magazine back in 1964: “If the machine wants our job, let’s buy it.”  That is, if technology is displacing you from your job, buy the machine.  As an owner, you will then be the one getting the income from what the technology produces.
And how are you supposed to do that?
Simple (which doesn’t necessarily mean easy, but in this case it comes close).  For centuries, especially since the invention of central banking in the late seventeenth century, people have financed new capital formation (a fancy way of saying putting together a way of producing a marketable good or service using technology instead of labor or land) by expanding bank credit (“creating money”), thereby paying for the capital with the future profits of the capital itself.
In other words, instead of first saving to buy capital, you buy capital and then save.  Since all financially feasible capital is self-liquidating (meaning it pays for itself, which is what “financial feasibility” necessarily implies) out of the income it generates, nobody but a fool would ordinarily save up to buy capital, but would borrow . . . if he or she qualified to borrow, of course.
And what qualifies someone to borrow?  Being a nice guy?  No, being creditworthy.
And what makes someone creditworthy?  Being a nice guy?  No, having collateral.
"If it weren't for bad luck, we'd have no luck at all."
And that is why the rich are, as a rule, the only ones who can borrow money to buy capital.  They are, by definition, the only ones who (as a rule) have collateral.  (There are ways to get around this, but it takes some doing and a lot of luck.  And most of us don’t have that kind of luck.  We’ve got the other kind.)
That’s why Kelso had another idea: replace traditional collateral with another invention from the late seventeenth century, which seems to have been bubbling over with all kinds of new ideas, like chocolate, central banking, chocolate, theories of representative government, chocolate, the new science of economics, and (of course) chocolate.
And insurance.  In 1688 or thereabouts, commercial insurance really started to take off in Lloyd’s Coffee House in London in the United Kingdom even before there was a United Kingdom to insure productive ventures against loss — the same thing traditional collateral does.  Then in 1694 some entrepreneurs formed the Bank of England to make loans for productive ventures . . . and nobody thought to put 2 and 2 together to make 4 until Kelso.
Kelso’s proposal?  Allow everybody to become an owner of the capital that is producing most of the wealth in the world by expanding bank credit collateralized with insurance instead of existing wealth owned by the borrower.  You don’t need money to make money, as the saying goes.  You only need access to money to make money, as Kelso explained.
The nuts and bolts of the system were assembled into the Capital Homesteading proposal of the Center for Economic and Social Justice (CESJ).  That is what President-elect Trump should be looking at, not trying to force an unworkable system to keep on working by threatening to punish people.  A leader leads.  Only bullies threaten.
#30#

No comments: