Immetric

illustration by the Beehive Collective

Over the past few months, to escape my unwilling idleness, I've occasionally written here about the unfolding economic mess. It's certainly causing a lot of suffering, yet the official explanations and remedies are so confounding and counterintuitive that I can't make sense of them. I suppose it's the engineer in me: I discover an unfamiliar, half-broken machine and ask myself, "what does this button do? how well does it run on a cold day? what happens if the power is interrupted? can I fix this myself?"

Unfortunately, the machine analogy is too apt by half: capitalism* is like an engine that only runs in one direction. Since 1991, we've witnessed the triumph of capitalism worldwide, and look at the results--increasingly rapid and irreversible ecological damage, overproduction of armaments and disposable consumer goods, endemic poverty in most of the world, unpredictable crashes in wealthy countries, distortions in democratic political systems, and an irrational and opaque mechanism. Some criticize it for more intangible reasons: robbing people of their individuality, elevating the seven deadly sins to virtues, reducing beauty to a commodity, and subordinating free will to a dollar-maximizing imperative. For my purposes, the flaws I listed above are more than enough reason to discard that economic model.

Others have written at length about these problems, but I'll just clarify what I mean:

♦Ecological damage. Capitalism only assigns value to things which can be commodified. A new computer is $1000; clean air has no value. Since capitalism maximizes financial wealth, society will have many computers and little clean air. (See also "overproduction" below.) Nearly all components of a healthy ecosystem are assigned zero value, so they are routinely despoiled to retrieve those components which are considered valuable. Government intervention can counteract this, but as long as there is economic incentive to pollute, regulation and enforcement will always be a step behind.

This lacuna has far-reaching consequences. Scientists tell us that our best weapon against global warming is our forests because they consume CO2, stabilize climate, moderate floods and droughts, and require no upkeep. But in a capitalist system, lumber has value while a living tree has none. A modified climate, of course, also has no value; the wealth destruction due to freak weather is written off as an act of god. So the world's forests continue to be clearcut while we devise expensive and unproven carbon-capture-and-storage devices.

♦Overproduction. Let's call it the iPhone syndrome. We already have ways of cheaply storing and listening to music; playing games; organizing our affairs; and talking to our loved ones. It would be hard to argue that having one device which combines all those functions would improve our quality of life. Yet millions of iPhones are sold, which consume finite resources and quickly become waste. Financial wealth accumulation is all credit and no debit; a brand-new iPhone adds $500 to the wealth of society, but a discarded iPhone a year later subtracts nothing (in fact, there is a small credit because the garbage man is paid to drive it to the landfill). The engine of capitalism will blindly keep polluting and consuming oil and industrial metals to make iPhones until a new gadget replaces it or the raw materials are exhausted.

Some argue that consumers (species Homo capitalis) demand these products, so their rapid development, production, and distribution is a sign that capitalism works. That's simply not true. After a new consumer good is developed, billions are spent to market it, that is, to create demand for it. I propose an experiment: stop all advertising worldwide for one year, and let consumers decide for themselves what they want.

The arms trade is a privileged niche market of consumer goods. Instead of waiting a few years for the product to break down and be replaced, the manufacturer creates products which are designed to be destroyed in a matter of weeks (bullets, missiles, bombs) or which require a large number of fragile components (stealth bombers, drones, Missile Defense System). Human life doesn't appear on Lockheed Martin's balance sheets.

♦Global poverty. Tent cities, sweatshops, lawlessness, famine, poor sanitation, no medicine, no education. Warlords (state or non-state) displace subsistence farmers to grow cash crops for export and use the money to buy guns from our factories. The sea, which fed the poor since the dawn of mankind, is denuded of fish by industrial fishing fleets. Any useful minerals are "owned" by the rich before they even leave the ground. From a capitalist perspective, all this is considered positive. In this world, if you have no cash, you don't count. The business community is unapologetic: capitalism is all the logic they need. They use their knowledge and resources to mercilessly extract wealth from the poor. Even if foreign aid met the UN target of 0.7% of rich countries' GDP, nearly 100% would still be devoted to this cold and mechanical exploitation. What's worse, the industrialized world has consumed so much of the world's resources that it's now mathematically impossible for the rest of the world to ever live as well as we do--there just isn't enough oil and minerals left.

The global trade imbalance is repeated in microcosm within capitalist countries. The Dow Jones industrial average was above 10 000 for almost ten years, so in theory there was more wealth than ever before; but even then, millions of Americans had inadequate food, shelter, and social services. I'll be charitable and assume that the government is interested in solving those problems; but even so, there are millions of businessmen who can benefit by exploiting the poor who have speed, scope, and flexibility the government can never match.

♦Booms and busts. This is what everyone's talking about, but I never hear any systemic critique or any mention of the dozens of times it has happened before. Because of the imaginary nature of financial wealth, it can be created or destroyed in an instant. In case real-world experience was not enough, stability analysis (a mathematical tool) shows that the financial system is prone to large and erratic oscillations in paper wealth. Although it is supposedly the most effective wealth-creation system, capitalism destroys wealth seemingly at random. From the perspective of a real person, this makes it impossible to confidently plan for the future because assets and employment depend on the emotional state of distant financiers. Only sound monetary policy and financial regulation can avert this, neither of which exist in pure capitalism.

♦Political distortion. In a society with strict property rights and high financial inequality, it is logical that rich individuals who wish to do so can become politically powerful. Prime Ministers and Presidents are almost uniformly millionaires. Elections often become a money-spending contest, which favours the party whose members have the most financial wealth. Many important issues are ignored because they don't interest the rich power brokers. The more purely capitalist an economy is, the more it suffers from such a nation/state disconnect.

♦Opaque mechanics. Although "ideal" free-market capitalism assumes perfect access to economic information by many independent actors, the reality is very different. Most activity is performed by large private companies which have an interest in secrecy. Even with publicly available information, only large organizations can afford to gather extensive data. Some companies falsify internal or public bookkeeping, especially right before a market crash. This makes it difficult to fix systemic problems; when the economy crashes, decision makers' only source of information is public data... which is bit like trying to fix a car engine with your eyes closed. Last year the US government nationalized several bankrupt banks with no idea of their true financial situation. Without transparency, there is no hope of fixing or even understanding modern capitalism.

Academia, which in theory should investigate the behaviour and problems of capitalism, is unfortunately mostly useless. Because so much money is involved, there is a strong incentive for economists to justify the status quo or decisions which the powerful have already taken. For instance, Reagan's tax cuts for the rich led to "trickle-down economics", which even now has some believers. Such theoretical systems are only self-consistent insofar as they ignore contradicting factors. Without well-funded research, it is more difficult to identify solutions for many problems of capitalism.


Unlike me, those we elected to fix the EconoMess still consider the economy a machine to be fixed. They're no fools: most of them benefit directly from the "wealth output" of that machine. But what we really need is not economic "engineers" or "mechanics" but doctors: someone who understands that feeding a hungry man is no use if the man's lungs are collapsing. Even in good times, capitalism simply doesn't work. Let's address the real needs of real people and then worry about the theoretical details.


*My working definition of capitalism is a system of resource distribution characterized by many independent actors, each of whom act to maximize their financial wealth (ie net worth in dollars, euros, etc.). Labour, capital, and goods are bought and sold in a free market. The demand for value-added products will distribute resources so as to maximize the total creation of wealth. All goods and services are produced privately and all wealth is privately owned, that is, individuals have no right to property except through paid labour, capital gains and interest, or gifts and inheritance. Pure capitalism has never occured because it assumes the absence of corporations, labour unions, states, and other collective institutions.