Home > RWER > “The Chart That Scares The “1%” The Most”

“The Chart That Scares The “1%” The Most”

Below is the first part of an article by Tyler Durden on ZeroHedge that relates directly to the Shimshon Bichler and Jonathan Nitzanpaper “The asymptotes of power” published yesterday in the RWER #60.  At the bottom of the excert their is a link to the full article.

      Capitalists have been gripped by ‘systemic fear’ making them worry not about the day-to-day movements of growth, employment, and profit, but about ‘losing their grip’. An interesting recent article by the Real-World Economics Review on the Asymptotes of Power focuses on the fact that the capitalists are forced to realize that their system may not be eternal, and that it may not survive in its current form. The authors fear that, peering into the future, the ‘1%’ realize that in order to maintain (or further increase) their distributional power (their net profit share of national income – which hovers at record highs) they will have to unleash even greater doses of social ‘violence’ on the lower classes. The high level of force already being applied makes them increasingly fearful of the backlash they are about to receive (think Europe to a lesser extent) and nowhere is this relationship between the wealthy capitalists and social upheaval more evident than in the incredible correlation between the Top 10% share of wealth and the percent of the labor force in prison. In order to have reached the peak level of power it currently enjoys, the ruling class has had to inflict growing threats, sabotage and pain on the underlying population.

During the 1930s and 1940s, this level proved to be the asymptote of capitalist power: it triggered a systemic crisis, the complete reordering of the U.S. political economy, and a sharp decline in capitalist power, as indicated by the large drop in inequality.

As we can see, since the 1940s this ratio has been tightly and positively correlated with the distributional power of the ruling class: the greater the power indicated by the income share of the top 10 per cent of the population, the larger the dose of violence proxied by the correctional population. Presently, the number of ‘corrected’ adults is equivalent to nearly 5 per cent of the U.S. labour force. This is the largest proportion in the world, as well as in the history of the United States.

Nowadays, the notions of systemic fear and systemic crisis are no longer farfetched.

In fact, they seem to have become commonplace. Public figures – from dominant capitalists and corporate executives, to Nobel laureates and finance ministers, to journalists and TV hosts – know to warn us that the ‘system is at risk’, and that if we fail to do something about it, we may face the ‘end of the world as we know it’.

There is, of course, much disagreement on why the system is at risk. The explanations span the full ideological spectrum – from the far right, to the liberal, to the Keynesian, to the far left. Some blame the crisis on too much government and over-regulation, while others say we don’t have enough of those things. There are those who speak of speculation and bubbles, while others point to faltering fundamentals. Some blame the excessive increase in debt, while others quote credit shortages and a seized-up financial system. There are those who single out weaknesses in particular sectors or countries, while others emphasize the role of global mismatches and imbalances. Some analysts see the root cause in insufficient demand, whereas others feel that demand is excessive. While for some the curse of our time is greedy capitalists, for others it is the entitlements of the underlying population. The list goes on.

But the disagreement is mostly on the surface. Stripped of their technical details and political inclinations, all existing explanations share two common foundations: (1) they all adhere to the two dualities of political economy: the duality of ‘politics vs. economics’ and the duality within economics of ‘real vs. nominal’; and (2) they all look backward, not forward.

As a consequence of these common foundations, all existing explanations, regardless of their orientation, seem to agree on the following three points:
Read the full article here: http://www.zerohedge.com/news/chart-scares-1-most

  1. June 21, 2012 at 3:52 pm

    Incorrect Diagnosis, Wrong Cure

    Click to access Incorrect_Diagnosis.pdf

  2. June 22, 2012 at 8:58 am

    It seems that the rich people do not enter the prision.

  3. Alice
    June 22, 2012 at 11:45 am

    Rich people in the US do not even get charged (rich people, including law breaking presidents, get exonerated now because their successors, no matter whether republican or democrat, decide and broadcast we “need to move on”).

    That is, Government is an inisider trading organisation in how not to get charged for crime.

    The US moved on from the financial fraud of Wall Street in the GFC because Presidents said ” we need to move on”. Very few were charged. They “moved on” from the systemic corruption within ratings agencies. They “moved on from GW Bushs illegal wiretapping of US citzens under the patriot Act and its gross invasion of civil liberties. The US moved on from Nixon and watergate. The US moves right on past those with means who rarely get charged but they throw the poor in jail for minor dismeanors.

    Its only a law abiding country if you happen to be poor.

  4. davetaylor1
    June 22, 2012 at 2:34 pm

    Whether the rich are sufficiently in the real world to be scared by anything in it is a moot point, but Tyler Durden is definitely wrong to assert that “ALL existing explanations share two common foundations: (1) they all adhere to the two dualities of political economy: the duality of ‘politics vs. economics’ and the duality within economics of ‘real vs. nominal’; and (2) they all look backward, not forward”.

    My theory exists, whether or not anyone else has taken the trouble to understand it; and in it, duality is replaced by [geometrical as against quantitative] complexity, wherein one dimension abstracts from time and the other includes it to maintain the dimensionality and continuity of the real. (Cf. latitude and longitude, where the degrees of the one translate into linear measure and the others do not, i.e. they are themselves two-dimensional. C.f. the complementarity of an object and the context it has been abstracted from). Processes occur in time and hence look forward, though representations of them may not. (However, graphs of them are two-dimensional and directional).

    Paul, so I’m agreeing with you to the extent of “Incorrect Diagnosis, Wrong Cure”, but you are missing the point on gift and fairness. The point of the gift is that it is MORE than fair, it is generous. Fairness is the abstraction, gift the reality.

    The economy starts with the gift of mother’s milk, not the lending of money, and it is only sustained if the kids are not spoiled, i.e. learn to appreciate the alternative, to be grateful, to be graceful and hence to sustain the cycle by supplying “mother’s milk” in their turn. That moral education is not something just happens: it has to be patiently worked at – and more so with some types of kid than others. Its failure in our times in our pursuit of the appearance of “fairness” in our monetary “something for nothing” is anticipated in Jesus’s story of the workers in the vineyard (Matthew 20). His many economic stories are of course to be taken figuratively, not literally, but the Gospels were not called “good news” for nothing. Don’t fall for the atheist’s trap of bundling them with the Old Testament, Muslims, Mormons, Moonies etc, trying to persuade you to dismiss the lot unread, as mere “religion”.

    • June 22, 2012 at 3:02 pm

      I’m only answering the question why there are a rash of defaults whenever the supply of new bank credit slows down. Once you grasp “twice-lent money” the answer why there must be mathematically inevitable defaults leading to economic collapse is so embarrassingly simple it seems all economists, including the progressive ones, prefer to ignore it in favor of a range of complex explanations such as those mentioned in this article.

      As for gifting. I have been gifting all my life and continue to do so every day.

      No exchange economy has ever existed apart from the gifting economy and exchange does not prevent gifting. How am I missing any point? When banks gift us our mortgages, then your comment will have relevance to my purely mathematical argument why ANY system based on money as a “quantity” will run into trouble whenever the same money is lent twice.

  5. davetaylor1
    June 24, 2012 at 8:22 am

    Paul, apologies for any offence. I was reacting to this:

    “But those promoting gifting as the necessary evolutionary reform seem to want to eliminate “fair exchange”. If there is no fair exchange, how can I earn what I want? I can’t. Someone will decide what I can have.”

    in the context of discussion elsewhere about why one can no longer assume an understanding of Christ’s logic and ethical positions.

    So “How am I missing any point?” If your argument is purely mathematical, then surely it is missing the point that economics is an applied “science”, where the social ethos, the understanding of labels like “exchange economy” and the relevance of the mathematics are all relevant? On the relevance of quantitative money to exchange of goods of different types, aren’t we already ignoring the mathematical maxim that “you can’t add apples to bananas”? But accepting that, I accept YOUR point, understood as pre-earned interest being incommensurate with an imaginary loan. You seem to be missing MY points, not just about the need to develop a more appropriate social ethos in which normal generosity grounds mutual trust, but also about a Copernican inversion of the understanding of money so that its mathematical incommensurability disappears.

    If money is accepted to be no more than accounting, then a bank loan is not yet accounting for anything: it is like a credit card limit before you use the credit card to buy something. Only at the point of purchase is the loan generated, and the loan does not come from the bank: it comes from the supplier of goods trusting society’s credit notes and card accounts will increase his own credit rating at his bank. [In the old days, for those without cheques or ready money, shopkeepers used keep their own accounts “on a slate”; now chain stores have store cards]. When it comes to earning one’s keep, one has, so far, survived on goods supplied on credit, so the work is simply repaying one’s debt, in aggregate by renewing the goods one can be credited with. One’s monetary earnings therefore amount to a renewal of credit rating so suppliers will continue to supply you with real credit.

    As I see it, therefore, the system AS A WHOLE does not operate with earned money and not-yet-earned monetary credit. Mankind is so much in debt to nature that our work is like most people’s credit card repayments: graphically, these lift the bottom line rather than unnecessarily increase our credit limit. Mathematically, our wealth should be represented by negative numbers – this being consistent with the way money is created -since we operate continuously in debt. So seen, money represents on the one hand our continuing indebtedness to nature (including each other), and on the other the on-going credit-worthiness of society (i.e. its ability to so organise work – this organisation being work – that the goods and resources we use are more than [i.e. generously] replaced).

    All this changes nothing but the interpretation, but it belies the right of banks (as against a State acting on behalf of the whole community) to demand mortgages of property and profit from interest (a tax on time). Personal responsibility for late payments or loss of credit-worthiness, when demonstrated, might justify fines or seizures of property, but responsibility for people becoming unable to pay may actually lie with self-serving bankers, self-righteous governors, mean or idle employers and the naive economists who teach them what Roy Grieves called “codswallop”. A nice meaningless word with which to describe an economics that values the households from which its name derives only by their monetary throughput: not for what they do for free by way of humanising the next generation of mankind, looking after themselves and maintaining their own little bit of the world. Which, insofar as it is believed, enables banks, land lords and employers to “decide for us” what lifestyle we can have.

  6. June 24, 2012 at 4:14 pm

    “I accept YOUR point, understood as pre-earned interest being incommensurate with an imaginary loan.”

    HUH? What led you to believe that my argument has ANYTHING to do with interest?

    Twice-lent money is a problem independent of interest. It applies to ANY form of money in which money is a single uniform commodity in limited supply that is ‘a thing in itself’…
    gold, silver, cowrie shells, fiat cash, bank credit, BitCoin etc.

    “responsibility for people becoming unable to pay may actually lie with self-serving bankers, self-righteous governors, mean or idle employers and the naive economists…”

    Or… how about the impossible math of twice-lent money? Show me how $200 of Principal debt can be paid off with only $100 of Principal in existence. It can’t be done.

    So, instead show me how the borrower can avoid default ad infinitum.

    That’s the situation the “system” is trying to stay in right now.

    • davetaylor1
      June 26, 2012 at 4:59 pm

      So your argument is a mathematical one and I need to relate it to what’s happening in the real economy, where with the system of reserve banking new money can be “printed” faster than it has to be paid back. Its quantity is limited only by a political decision to keep a temporary reserve of money not written off on repayment, so recycled as interest and thereby available to become “twice-lent”.

      Your argument recognises the dynamism of the sitution, but is still using conventional static logic on symbols. Mine is using dynamic logic in which symbols (like money – in the language of cowrie shells, gold, ink on paper or whatever) merely refer to real Principle in the forms of land, property, consumables and capacity for work, where debt is created by consumption of these and (with the help of the sun) repaid by their regeneration, each on its own timescale.

      The apparent need for economic growth arises when money is recreated faster than the world’s real capital is regenerated. Due to entropy (the running down of the universe) we borrowers cannot avoid default ad infinitum.

      What we can do is keep our cumulative real borrowings down, our contributions to regeneration up, and to write off personal debts on death as “water under the bridge”. With modern automation the monetary side of this can be represented by a credit card economy, where we are all given personal credit limits and loans for our specific purposes. These only become debts as purchases are accounted for, and are written off without the penalty of interest repayments insofar as repayment from accumulated savings and [voluntary] work is accounted for in the agreed time. Even the unemployable can so live, their incentives to thrift and gratitude being their ration of credit and our forebearance on accumulations of debt unrepayable by voluntary contributions.

      So far as I am concerned, Paul, this is not about disagreeing with you, it is about getting people to see past the problem to the solution. My comments must be getting terribly boring, but the Gestalt or Eureka experience only seems to occur by repeatedly looking at the evidence until the different way of looking at it gells.

      • June 29, 2012 at 4:09 pm

        ” Its quantity is limited only by a political decision to keep a temporary reserve of money not written off on repayment, so recycled as interest and thereby available to become “twice-lent”.

        Have I not said repeatedly that this issue has NOTHING to do with interest? ALL Principal at all times is twice-lent by being deposited at a bank. Some of it is guaranteed to remain twice-lent by being lent again as existing money.

        “The apparent need for economic growth arises when money is recreated faster than the world’s real capital is regenerated.”

        Money growth not accompanied by economic growth causes DEVALUATION of the money
        which I illustrated in Money as Debt 1.

        It does NOT cause MATHEMATICALLY INEVITABLE DEFAULTS, which are caused by twice-lent Principal, as illustrated in Money as Debt 2

        Your credit card solution would only work if Principal is lent only ONCE. ie. there is only ONE source of “lending”, a one-world exclusive MONOPOLY BANK.

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