Soft-wars

from Blair Fix

Political economist Chris Mouré has a new paper out in the Review of Capital as Power. It’s called ‘Soft-wars’, and it is a fascinating case study of the behavior of big tech.

The story starts in 2011, when Microsoft led a $4.5 billion consortium purchase of Nortel and Novel. Later than year, Google responded by buying Motorola for $12.9 billion. The funny thing is that Google then proceeded to sell off what it had just bought. By 2014, almost nothing was left of Google-owned Motorola. Nothing except patents. And that, Mouré thinks, was the whole point.

Mouré argues that this acquisition war was ultimately a battle over intellectual property. Google and Microsoft were competing to control the mobile market. And the way to do that was not to ‘produce’ anything. It was to command property rights.

The timing of the 2011 patent war, Mouré notes, was no coincidence. It corresponded with the moment when Google’s profits caught up to Microsoft. Figure 1 shows the trend. This is Mouré’s analysis of ‘differential profit’ — the profit of Microsoft and Google measured relative to the average profit of the S&P 500. You can see that Google entered the 21st century as a bit player. But by the 2010s, Google was a behemoth whose profits matched those of Microsoft.

“What is the true value of my property?”

from Blair Fix – http://www.paecon.net/PAEReview/issue97/Fix97.pdf

Putting a fence around something and calling it “property” is step one of capitalization. But property alone is not enough. Romans had property. So did most feudal kingdoms. But these societies did not have capitalization. To capitalize property, there is a second step. You must mix property with finance.

The word “finance” evokes a sense of awe – a sense of other-worldly complexity. But at its heart, finance is simple. It is the act of reducing property to a number – a price. Merge property and finance, and you have capitalization. How this merger happened historically is complicated. But let’s again reduce history to an apocryphal story. To paraphrase Rousseau:

Having enclosed a plot of land, the first capitalist took it into his head to put a number on his property and found people simple enough to believe him.

This act of giving property a number, Jonathan Nitzan and Shimshon Bichler (2009) observe, is the central ritual of capitalism. It is the ritual of capitalization … and it comes with a problem.

Because “capitalization” is literally just slapping numbers onto property, any number is as good as the next one. My property could be a 23. It could also be a 10²³. In other words, property can have any conceivable price. But which price is “correct”? Ever since our apocryphal capitalist put a number on his property, capitalists have agonized over this question: “what is the true value of my property?”

Dominant capital and the government

from Shimshon Bichler and Jonathan Nitzan

This note contextualizes the ongoing U.S. policy shift toward greater ‘regulation’ of large corporations. Cory Doctorow (2021) and Blair Fix (2021) are optimistic about this shift. We doubt it.

1. The Limits of Power

Large U.S.-based corporations are extremely powerful, but the growth of their power has decelerated considerably.

Figure 1, updated from our ‘Corporate Power and the Future of U.S. Capitalism’ (Bichler and Nitzan 2021), shows the earnings before interest and taxes (EBIT) of the top 200 U.S.-based corporations, ranked by market capitalization, relative to those earned by the average U.S. corporation. The top series confirms that this differential – which proxies the relative power of the top 200 firms – has grown exponentially, rising from roughly 1,000 in 1950 to more than 15,000 in the 2000s. The bottom series, though, shows that the rate at which this differential power has grown trends downwards.

Weekend read – How dominant are big US corporations?

from Blair Fix

I recently had a lively Twitter debate with Jonathan Nitzan, Shimshon Bichler and Cory Doctorow¹ about the future of big corporations in the United States. The debate was prompted by Doctorow’s piece ‘End of the line for Reaganomics’, which I reposted on capitalaspower.com.

Doctorow argues that we may be witnessing a sea change in the way governments treat big corporations. Since the Reagan era, the US government has taken most of the teeth out of antitrust enforcement. The reason is not well known. In fact, I’m ashamed to admit that as a trained political economist, I didn’t learn this antitrust history in grad school. I learned it from Doctorow’s blog.

In Bork we trust

The antitrust story revolves around a judge named Robert Bork, who came up with a way to defang antitrust law by changing how it was interpreted. His 1978 book The Antitrust Paradox argued that antitrust law should be interpreted narrowly in terms of ‘consumer welfare’. And ‘consumer welfare’, in turn, meant one thing: low prices.

To make an antitrust case, Bork argued that you needed to show that the offending firm had used its monopoly power to raise prices. Moreover, you needed to demonstrate that government intervention would do more good than harm. The paradox, according to Bork, was that by interfering in the ‘free market’, antitrust prosecution tended to protect inefficient firms from competition, and so led to higher prices.

From a scientific standpoint, Bork’s arguments are a flaming pile of garbage. But they are fiendishly clever ideology.

RWER issue no. 97

download whole issue

Has economics become a new theology?           2 Andri W. Stahel

Beyond dollar creditocracy: A geopolitical economy           20 Radhika Desai and Michael Hudson

A black-swan shock exposes the deep fissures, endemic imbalances, and structural weaknesses of the U.S. economy           40 John Komlos

Fuck the market           62 Terry Hathaway

The ritual of capitalization           78 Blair Fix

Economic hypocrisies in the pandemic age           96 Raphael Sassower

The politics of economics           106 Shu Shimizu

Putting Minsky into space: The geography of asset price bubbles in the United States, 1994–2018           123 John Posey

How financial bubbles are fueled by money creation a.k.a. bank lending: An explanation for public education           143 Ib Ravn

China, the exception that proves the growthist rule?  REVIEW of Smith, R. (2020) China’s Engine of Environmental Collapse            155 Jamie Morgan

please support this open access journal

Weekend read – With great power comes great fear

from Blair Fix

Over the last year, I’ve watched with horror and amusement as health agencies around the world flip-flopped their advice on how to deal with COVID.

My horror comes from knowing this flip-flopping breeds mistrust in science. But I am (morbidly) amused because I know that uncertainty is a basic part of real research. For the public, ‘science’ tends to mean authoritative knowledge. But for researchers, ‘science’ is an iterative process, filled with wrong turns, new evidence, and revised ideas.

With COVID flip-flops in mind, I thought I’d tell you a story about science in progress. It’s a story about how we should understand the stock market.

Three stories about the stock market

Here are three stories about how the stock market works.

The first story says that the stock market reflects the productivity of the underlying economy. When stocks go up, the thinking goes, everyone should celebrate because the tide of productivity is rising. This is the story that neoclassical economists believe.

Weekend read – The evolution of ‘big’: How sociality made life larger

from Blair Fix

The game I play is a very interesting one.
It’s imagination in a tight straitjacket.

— Richard Feynman

Like Richard Feynman’s game of science, evolution is stuck in a straitjacket. It is driven by chance. But evolution is not free to explore every path.

Take, as an example, the evolution of organism size. While it seems like there are many routes to bigness, I propose that there is fundamentally only one: sociality. In the march towards ever-larger organisms, there have been three major revolutions. All of them involved the merger of previously autonomous organisms into a new communal creature. I call this route to bigness ‘size through sociality’. It is a tale 4 billion years in the making.

The drive towards sociality, I argue, is a response to a basic feature of geometry. As objects get larger, their volume grows faster than their surface area. This fact of space causes problems for harvesting energy. It requires that big organisms harness and distribute energy on a limited surface-area budget. The easiest way to solve this problem, it seems, is to merge existing structures. Hence the evolution of bigger life is deeply connected to the evolution of sociality.

The evolution of ‘big’ is also connected to human culture.

Modern human institutions may represent a new transition in the evolution of life — a transition from massive organisms to supermassive superorganisms. But as with the rest of life, this evolution occurs in a straitjacket. The size distribution of human institutions seems to follow the same pattern as the size distribution of other organisms. In fact, it is an extension of this pattern, upping the size of life to new proportions.

In this light, human cultural evolution may be a variation on an old theme: size through sociality.

The tyranny of geometry

As I child, I loved playing with toy cars. I made the little vehicles jump over great distances, usually with the gleeful hope that they might explode. But the toys always took the beating with ease. When I imagined doing the same stunt with life-sized cars, however, I knew that they couldn’t withstand the punishment. But I didn’t know why.

Today I do. It’s because the size of an object changes how it behaves. The reason owes to a simple feature of geometry. As objects get larger, their volume grows faster than their area. This fact affects the objects’ properties.

Weekend read – Is human probability intuition actually ‘biased’?

from Blair Fix

According to behavioral economics, most human decisions are mired in ‘bias’. It muddles our actions from the mundane to the monumental. Human behavior, it seems, is hopelessly subpar.¹

Or is it?

You see, the way that behavioral economists define ‘bias’ is rather peculiar. It involves 4 steps:

1. Start with the model of the rational, utility-maximizing individual — a model known to be false;
2. Re-falsify this model by showing that it doesn’t explain human behavior;
3. Keep the model and label the deviant behavior a ‘bias’;
4. Let the list of ‘biases’ grow.

Jason Collins (an economist himself) thinks this bias-finding enterprise is weird. In his essay ‘Please, Not Another Bias!’, Collins likens the proliferation of ‘biases’ to the accumulation of epicycles in medieval astronomy. Convinced that the Earth was the center of the universe, pre-Copernican astronomers explained the (seemingly) complex motion of the planets by adding ‘epicycles’ to their orbits — endless circles within circles. Similarly, when economists observe behavior that doesn’t fit their model, they add a ‘bias’ to their list.² 

Weekend read – Essentialism and traditionalism in academic research

from Ryan Kyger¹and Blair Fix

Philosophy of science is about as useful to scientists as ornithology is to birds.

— attributed to Richard Feynman²

Most scientists don’t worry much about philosophy; they just get on with doing ‘science’. They run experiments, analyze data, and report results. And by so doing, they fall repeatedly into known philosophical pitfalls.

This essay is about two such pitfalls: essentialism and traditionalism.

‘Essentialism’ is the view that behind real-world objects lie ‘essences’ — a type of eternal category that you cannot observe directly but is nonetheless there. Racial categories are a common type of ‘essence’. To be racist is to attribute to different groups universal qualities that define them as people.³

Given the long history of racism, it’s clear that humans need little impetus to impose categories onto the world. Still, our instinct to categorize is not always bad. In fact, it’s a key part of science. Looking for patterns is how Dmitri Mendeleev created the periodic table. It’s how John Snow discovered that cholera was water-borne. And it’s how Johannes Kepler discovered the laws of planetary motion.

So if categorizing patterns can be helpful, what makes essentialism bad?

Weekend read – Free speech for me, not you

from Blair Fix

They say that Americans love two things: freedom … and guns. The trouble with guns is obvious. The trouble with freedom is more subtle, and boils down to doublespeak.

When a good old boy defends his ‘freedom’, there’s a good chance he has a hidden agenda. He doesn’t want freedom for everyone. He wants ‘freedom for himself, not you’. I call this sentiment freedom tribalism. It’s something that, given humanity’s evolutionary heritage, is predictable. It’s also something that has gotten worse over the last few decades. And that brings me to the topic of this essay: free speech.

When the talking heads on Fox News advocate ‘free speech’, they’re using doublespeak. What they actually want is free speech for their own tribe … and censorship for everyone else. This free-speech tribalism extends far beyond the swill of cable news. It’s clearly visible (and growing worse) in the pantheon of high thought — the US Supreme Court.

To make sense of this free-speech tribalism, we need to reframe how we understand ‘free speech’. And that means reconsidering the idea of ‘freedom’ itself. Behind freedom’s virtuous ring lies a dark underbelly: power. Free-speech tribalism, I’ll argue, amounts to a power-struggle between groups — a struggle to broadcast your tribe’s ideas and censor those of the others. When you look closely at this struggle, it becomes clear that ‘free speech’ is not universally virtuous. In modern America, free speech has become a kind of slavery.

And with those incendiary words, let’s jump into the free-speech fire.

The quant case for open-access COVID vaccines

from Blair Fix

Around the world, rich countries are celebrating as their COVID numbers fall. Their success is no mystery — it’s because of a massive rollout of COVID vaccines. While we should celebrate the development of these vaccines, their deployment highlights the tyrannies of capitalism.

Most of the basic research for COVID vaccines was funded by the public. Yet their manufacture is controlled by Big Pharma. The predictable result is that vaccines flow to the highest bidder and Big Pharma reaps the profit. Thus, the world is now ‘blessed’ with 9 new pharma billionaires.

Since we’re stuck with COVID for the long haul, we need to end the privatized vaccine model. The alternative is surprisingly simple. Let governments continue to fund basic science. And let private companies continue to manufacture vaccines. Just don’t let these companies have a monopoly on property rights. Instead, put vaccines in the Creative Commons. The result will be cheap vaccines, available to all.

To make the case for open-access vaccines, it helps to run the numbers. To date, the vast majority of COVID vaccines have gone to rich nations. It’s plutocratic healthcare in action: more money = more vaccines.

Let the data speak.

The global distribution of COVID cases

We’ll start by looking at how the global distribution of COVID cases has played out since the beginning of the pandemic. Figure 1 shows the global share of cases by continent since February 2020.

The ritual of capitalization

from Blair Fix

. . . the clergy aren’t priests … they’re economists.

There’s something mysterious about finance. The symbols are arcane. The math is complex. The practitioners are impressively educated. And the stakes are high. All of this gives finance the veneer of higher truth — as if quants are uncovering a reality not accessible to the rest of us. In a sense they are. But the ‘reality’ is not what you think.

When you look at stock-market numbers, they do point to a truth about the world. But it is a truth not about natural law or of human nature. It is a truth about human ideology. The reality is that finance is a quantitative belief system. At its center is a universal ritual — the ritual of capitalization. It is this ritual that underlies all stock-market numbers.

In this post, we’ll look at the regularities that stem from the ritual of capitalization. They are astonishing in scope — a breathtaking consistency to human behavior. They beg the mind to look for some material basis for their existence. But that is a mistake. The reality is that the regularities of capitalization are an artifact of ideas — a manifestation of capitalist ideology itself. A regularity from ritual.

Giving property a number

The ritual of capitalization starts with the institutional act of exclusion — namely property.¹ Property, of course, has a deep history that long predates capitalism. I won’t wade into this history here. Instead, I’ll defer to Jean-Jacques Rousseau’s succinct (but apocryphal) telling of property’s emergence. Property arose when

[t]he first person who, having enclosed a plot of land, took it into his head to say ‘this is mine’ and found people simple enough to believe him …

(Jean-Jacques Rousseau, 1755)

Putting a fence around something and calling it ‘property’ is step 1 of capitalization. But property alone is not enough. Romans had property. So did most feudal kingdoms. But these societies did not have capitalization. To capitalize property, there is a second step. You must mix property with finance.

Weekend Read – Radically progressive degrowth: Reducing resource use by eliminating inequality

from Blair Fix

Pity the billionaires. High in the towers on Billionaires’ Row, life is hard. The pencil-thin buildings groan as they sway in the wind, keeping penthouse dwellers up at night. Water pipes break, ruining posh décor. And elevators are unreliable, interrupting billionaires’ highly productive lives. So reads Stefanos Chen’s recent piece about the pitfalls of sky-high living.

Chen admits (thankfully) that “the plight of billionaires won’t garner much sympathy.” He is correct. As I read Chen’s piece, I shed no tears. Instead, I was fantasizing about an alternative world, one in which the super-rich would be problem free … because they wouldn’t exist.

Imagining this world without billionaires got me thinking about degrowth. In a world without billionaires, the ridiculous towers on Billionaire’s Row (below) wouldn’t exist. And that means the stupendous amounts of energy required to build these towers could have been spent on something else … or not spent at all. In short, ridding the world of billionaires sounds like a great policy for reducing resource consumption (a.k.a. ‘degrowth’).

Weekend Read – Power … and the dialect of economics

from Blair Fix

If you’ve ever taken Economics 101, then you’re familiar with its jargon. In the course, you probably heard the words ‘supply and demand’ and ‘marginal utility’ uttered hundreds of times. As you figured out what these words meant, you gradually learned to speak a dialect that I call econospeak.

Like all dialects, econospeak affects how you express ideas. The vocabulary of econospeak makes it easier to express certain ideas (such as ‘market equilibrium’), but harder to express others (like ‘imperialism’, as we will see). This trade-off is a feature of all specialized dialects. Physics-speak, for instance, makes it easy to talk about the dynamics of motion, but difficult to talk about emotion.

While all scientific languages share this kind of trade-off, econospeak is different from natural-science dialects in one key way. The natural sciences have a solid empirical footing. Mainstream economics does not. As Steve Keen showed in his book Debunking Economics, when the ideas in Econ 101 are subjected to scientific scrutiny, they manifestly fail.

Despite this scientific failure, Econ 101 charges on like a juggernaut, largely unchanged for a half century. Why? The simplest (and most incendiary) explanation is that the course is not teaching you science. Rather, it is indoctrinating you in an ideology.

Weekend Read – Stocks are up. Wages are down. What does it mean?

from Blair Fix

If you listen carefully, you can hear Jeff Bezos getting richer. There’s the sound again. Another billion in Bezos’ coffers.

Let’s put some numbers to this sound of money. Since 2017, Bezos’ net worth has grown by about $4 million per hour — roughly 500,000 times the US minimum wage.¹ This accumulation of wealth would be absurd during normal times. Today, as many workers lose their jobs to a brutal pandemic, it’s obscene.

While Bezos is the pinnacle of capitalist excess, his wealth is part of a larger story. Over the last 40 years, stock prices have surged while wages have stagnated. What does this trend mean?

In this post, I take a deep dive into the stock market. I’ll first tell you what the stock market is not. It’s not an indicator of ‘productive capacity’. Nor is it ‘fictitious capital’. So what is it?

The stock market, argue Jonathan Nitzan and Shimshon Bichler, is how capitalists quantify their power. To understand what Nitzan and Bichler are talking about, we’ll unmask the ritual that defines our social order — the ritual of capitalization. Read on to take the red pill and lift the veil of capitalist ideology.

What do stock prices mean?

When it comes to the stock market, many people believe they have original insight. Often, however, they’re parroting old ideas. Noting this tendency, economist John Maynard Keynes wrote:

Why do economists never mention power?

from Lars Syll

The intransigence of Econ 101 points to a dark side of economics — namely that the absence of power-speak is by design. Could it be that economics describes the world in a way that purposely keeps the workings of power opaque? History suggests that this idea is not so far-fetched …

The key to wielding power successfully is to make control appear legitimate. That requires ideology. Before capitalism, rulers legitimised their power by tying it to divine right. In modern secular societies, however, that’s no longer an option. So rather than brag of their God-like power, modern corporate rulers use a different tactic; they turn to economics — an ideology that simply ignores the realities of power. Safe in this ideological obscurity, corporate rulers wield power that rivals, or even surpasses, the kings of old.

Are economists cognisant of this game? Some may be. Most economists, however, are likely just clever people who are willing to delve into the intricacies of neoclassical theory without ever questioning its core tenets. Meanwhile, with every student who gets hoodwinked by Econ 101, the Rockefellers of the world happily reap the benefits.

Blair Fix

The sentiment behind eugenics thrives in human capital theory

from Blair Fix and current RWER issue

A key problem with eugenics is that it neglects the social nature of human traits. It assumes that productivity is an innate trait of the individual, and that breeding for this trait would lead to a better society. It is a seductive idea that is deeply flawed. In all likelihood, selectively breeding people for productivity would, like chickens, lead to a psychopathic strain of human.

The rise of human capital theory

After the horrors of the Holocaust, eugenics fell into disrepute. As a result, few people today dare argue that we should selectively breed humans for productivity. Still, the sentiment behind eugenics (that some people are far more productive than others) lingers on in mainstream academia. It survives – even thrives – in human capital theory.

The ground work for human capital theory was laid just as eugenics fell out of favor. In the 1950s, economists at the University of Chicago tackled the question of individual income.[1] Why do some people earn more than others? The explanation that these economists settled on was that income resulted from productivity. So a CEO who earns hundreds of times more than a janitor does so for a simple reason: the CEO contributes far more to society.

issue no. 95 – Real World Economics Review

download whole issue Is a capitalist steady-state economy possible? Is it better in socialism? Theodore P. Lianos The “ideal market” as a normative figure of thought Tanja von Egan-Krieger The rise of human capital theory Blair Fix How downward redistribution makes America richer Steve Roth The moral dilemma and asymmetric economic impact of COVID-19 Constantine E. Passaris Pigou and the dropped stitch of economics Duncan Austin Third world development: Simpler way critique of conventional theory and practice Ted Trainer The American Gordian Knot and Alexander the Great is not in sight John Komlos Unbridgeable: why political economists cannot accept capital as power Shimshon Bichler and Jonathan Nitzan A modest proposal for generating useful analyses of economies: a brief note Geoff Davies On the relevance of the Church-Turing Thesis for theoretical economics Ron Wallace From finance to climate crisis: An interview with Steve Keen Steve Keen and Jamie Morgan please support this open access journal

Why are most textbooks still proprietary?

from Blair Fix

Today a rant about textbooks. Every year governments spend billions of dollars on public education, teaching students knowledge that was itself created by publicly funded research. Yet each year, university students must pay anew for this information by purchasing high-priced textbooks.

It needn’t be this way.

Most university textbooks are written by tenured (or tenure-track) professors. These are people who are paid by the public to generate and disseminate knowledge. Professors are expected to write academic articles for free. Why not add textbooks to the list?

With a stroke of the pen, universities could make writing open-access textbooks a part of tenure-track expectations. And if there are costs associated with creating textbooks, fine. We can have grants that cover these costs. It will cost money, yes. But the benefit of liberating information will be enormous.

Weekend Read – Energizing exchange: Learning from econophysics’ mistakes

from Blair Fix

Let’s talk econophysics. If you’re not familiar, ‘econophysics’ is an attempt to understand economic phenomena (like the distribution of income) using the tools of statistical mechanics. The field has been around for a few decades, but has received little attention from mainstream economists. I think this neglect is a shame.

As someone trained in both the natural and social sciences, I welcome physicists foray into economics. That’s not because I think their approach is correct. In fact, I think it is fundamentally flawed. But it is only by engaging with flawed theories that we can learn to do better.

What is important about econophysics, is that it demonstrates a flaw that runs throughout economics: the idea that we can explain macro-level phenomona from micro-level principles. The problem is that in all but the simplest cases, this principle does not work. Yes, complex systems may be reduced to simpler pieces. But rarely can we start with these simple pieces and rebuild the system. That’s because, as physicist Philip Anderson puts it, ‘more is different‘.

What follows is a wide-ranging discussion of the triumphs and pitfalls of reduction and resynthesis. The topic is econophysics. But the lesson is far broader: breaking a system into atoms is far easier than taking atoms and rebuilding the system.

Let there be atoms!

To most people, the idea that ‘matter is made of atoms’ is rather banal. It ranks with statements like ‘the Earth is round’ in terms of near total acceptance.¹ Still, we should remember that atomic theory is an astonishing piece of knowledge. Here is physicist Richard Feynman reflecting on this fact: