Why price control doesn’t usually work

This way of posing the problem raises the question: what about minimum wages?

And rent control

So price controls are best for situations where the consumers are people we want to redistribute to, and the producers people we want to redistribute away from, where supply is relatively inelastic. Rent control seems the ultimate example of this, where in the short term and even medium term the supply is pretty fixed, and landlords tend to be a lot richer than their tenants.

I didn’t find the title self-explanatory, because it’s not obvious what the purpose of price-controls are, such that we can tell if they are working. The dynamic you describe could hold, and price-controls might still be effective in reducing the income of sellers, which could reduce inequality- right? I’m thinking of rent-control.

NB. ‘disadvantaging’ relative to established renters – I take it rent control doesn’t actually push up unregulated rents and might pull them down (interested to know what economists believe)

Housing supply is extremely elastic. People can sublet bedrooms, developers can plan for higher density in new projects, and renovations can expand existing buildings. What isn’t elastic are the regulations prohibiting much of this new construction. Even when rent control is supposedly justified by a temporary dislocation, it lasts for a long time as existing tenants get to vote, while those who would move if it didn’t exist don’t get to vote. The same applies to zoning restrictions. That’s essentially the issue in the Bay Area, where what is a major urban area has only two regions of high density.

Unless I am having a brain freeze, I think that in the line below, less is more (or at least should be):

Firms will supply a good as long as the price they receive is less than the opportunity cost.

@peter T

>A price is a very simple signal and so does not tell anyone very much in itself. It could be due to genuine shortages, manipulation, panic or much else.

That’s precisely the genius of prices, that you don’t need to understand the background. Say you mildly prefer cotton socks to wool, but a cotton blight in china destroys 20% of this year’s cotton’s crop. You don’t know that, you don’t really care, all you need to know is that the price of cotton socks is now high enough that you’d rather wear wool. Even better, though, your cousin, who’s allergic to wool, can still buy his cotton socks, because all the people like you, with a mild preference, switch to wool. All of it functions perfectly well without a single sock buyer knowing anything about cotton prices.

“Genius of prices”?

You make my point for me. You’re just putting lipstick on the proverbial pig, dressing up a very basic, self-serving, incredibly selfish tool . . . and trying to make it into something it’s not. All it is is a blunt instrument to enable personal wealth accumulation, which must always come at great cost to workers, consumers and the earth.

Stop romanticizing a fictional system of real oppression, Cassander. It makes you look ridiculous.

I’m not expending much intellectual energy on this (or could it be a simple lack of intellect!), but the way this series is working out for me is that the concept of opportunity cost is crystallising out of the various stories you’re telling about it.

so, for me, the initial presentation of the OC concept makes me nitpick on (probably phony) theoretical points: telling me stories about the economy where the reveal is “the concept you need here is opportunity cost” packs a pedagogical punch. the story motivates the theoretical approach, and motivation is important for me. I mean, I’ve got the opportunity costs of reading and responding to these articles to weigh up!

particularly enjoyed this one about price controls and rationing.

In the UK, the government has introduced fees for universities (tied to loans) which are currently set at a maximum of £9000. If it were a proper market, then elite universities could certainly charge a lot more, but nobody charges less because doing so would signal an inferior product. Despite the protestations of university leaders, it seems likely that £9000 more than covers the cost of some degrees, whilst falling short in the case of others. I don’t know if JQ has any reflections on the somewhat unusual “market” in HE, but I’d be interested to know where it sits with the OP above.

Price control is one thing, rationing is another. When there is a genuine shortage of essentials for reasons beyond the government’s control (I am old enough to remember postwar food rationing in the UK) is there any realistic alternative to rationing?

Hypothesis re minimum wages:

Firms have no idea how much a given worker is marginally worth to them, or even a category of workers.
However,
1) Some categories, being better organised or higher in the hierarchy, can demand raises
2) If the overall level of costs is too high, firms will, in fact, stop expanding/layoff people/raise their prices, depending on market conditions

So that minimum wages might mean a more equitable distribution of wages between workers, though not a higher labour share.

With Marcel P. at 14, my brain is similarly frozen. I think of oppo cost as the foregone gain from doing something else, which suggests “price is less” should be “price is more,” but I’m willing, even eager, to be educated otherwise.

My basic position on Lesson 1 is that it is wrong and deceptive. (Its usefulness for ideological deception is why Hazlitt promulgates it.)

Most prices are controlled. This is normal and universally expected. Which, I suspect, is why the untutored (practically everyone except economists and Matthew Yglesias) find price controls a plausible policy. What’s not normal is controlling a price by fiat alone, while controlling nothing else. So, somehow, the explanation of why price controls “do not work” has to take better account of the fact that most prices are controlled, and it seems to work unremarkably well enough, most of the time.

Apple has little trouble controlling the prices of iPhones, and they do so for reasons not very different from Chris Bertram’s example of higher education fees — that is to say that control of the price fits in with a complex set of supplier and vendor agreements and financing arrangements. Until quite recently, iPhones were mostly sold thru carriers, which financed part of Apple’s revenue thru their service fees. The amounts invested in some aspects of the phone’s design and manufacture are staggering. (There have been some mildly interesting stories circulating recently about the Chinese lady optics magnate, who makes the glass that covers the screen.)

Contra Cassander, it is actually unusual for natural events affecting commodity production from working itself very far down the production-supply chain to show up in price. Retail gasoline is the most salient example. Fluctuations of even fresh produce prices at the supermarket are significantly dampened relative to prices at retail. In the U.S., potatoes and bananas have “psychological” floors under them, as supermarkets fear that prices that are too low will be misinterpreted as quality signals.

Competition among networks of producers and vendors do affect price, of course, but not in the fine-grained way Hazlitt’s facile story-telling imagines. Prices are often fixed in some way, precisely to dampen what might otherwise be “destructive” competition. The prices of theatrical movie tickets are controlled, for example, to channel the competitive efforts of theatre chains and movie distributors (and the studios the distributors represent) along predictable lines. And, yes, predictable distortions result, as in the prices for popcorn and soda. But, the financing of movies is very complex, huge expenditures are made to promote a theatrical release, and a whole chain of releases into pay-to-view/on-demand, basic cable, broadcast, DVDs, Netflix, etc. is already set in motion, before anyone buys the first ticket. Talk about your sticky prices!

Rent control is the most notorious example trotted out by economists. But, rents are controlled, even when it is not the government doing the controlling by fiat. Living somewhere is the stable anchor of most people’s lives. We could hardly put everything into a backpack every morning and visit the spot market for AirBnB rentals. In ordinary circumstances, landlords by custom let long-term tenants accumulate an implicit stake, as rent increases lag for them. The rationale is the cost of turnover.

A city where rent increases are galloping is experiencing significant social stress and disruption. A high degree of transiency can mean that residents are little invested in their temporary neighborhoods, with all kinds of destructive behavioral implications.

My point is not to argue for or against a particular rent control statute, beyond allowing that rent control in some form can be a sensible, and yes, efficiency-enhancing policy response to particular circumstances. My point is to argue against Lesson 1 as Hazlitt presents it, as a descriptively accurate worldview supportive of a default to laissez faire policies.

On the minimum wage, Hazlitt has two gambits — one of which may surprise some, who haven’t read his pamphlet. The first is familiar: it is the lie of “market economy” scrawled in crayon. He says, if you set a minimum wage too high, some people, who cannot generate and sell labor services that valuable, will not be able to find work. Implicitly, he’s imagining a “labor market”, where people sell labor services. And, some people, their labor services are not that valuable.

Here, in the real world, not very many people are in any kind of “labor market” recognizable as a “market” from day-to-day, no matter how far you stretch the metaphor. What most people do, is they get jobs in bureaucratic organizations at some more-or-less fixed wage or salary. Once they are hired, they are removed from the “labor market”. They are still in an economic exchange relationship with the employer, but the details of the deal are important: they are paid, basically, to do as they are told to do, and to work effectively within a system, where their productivity is jointly determined with the product of the whole system. How productive a worker at McDonald’s is, is a matter of how productive the McDonald’s system makes her.

Labor economists have investigated the minimum wage empirically, as is well-known, and what they find, to the ideological horror of right-wing economists, is that a minimum wage may serve to increase employment as well as incomes. The explanation for this paradoxical result offered by economists is a combination of a market explanation — monopsony power exercised in the form of take-it-or-leave it offers to potential employees, which tends to significantly depress wages even where there are apparently a lot of potential employers — and something called “efficiency wages”. “Efficiency wages” tie the wage to the command-and-control production system in which people work, and to the training requirements and turnover costs. Basically, people, who are trained and conform to the requirements of the system (they show up on time, follow direction) are more productive in the system. To get behavioral conformity in the absence of coercion, the wage has to be high enough to make losing the job costly to the employee, and to make investment in training worthwhile, turnover has to be reduced.

In the conservative view, if a minimum wage actually was pareto-improving, profit-maximizing employers would already be paying higher wages. This is the kind of argument offered by the likes of Mankiw. (And, though I am not going to unpack it in this comment, I think it would be a great thing if Quiggin found occasion to confront it in an appropriate passage of his book — please, please!) In real life, just as a price can be too high, a price (or wage) can be too low. Lesson 2, yes?.

My point here, though, is that the worldview of Lesson 1, with its “market economy” is deceptively poor as a description of the actual economic system and its dynamics — particularly its administered prices and wages, with the large component of economic rent return on sunk cost capital and financial “insurance”.

Hazlitt does have an interesting aside about the minimum wage: he acknowledges that there might be a problem in some places and times that results in too low a wage offered. He recommends unionization over a minimum wage. (Of course, the next chapter explains why unions mostly do not work to raise wages.) It is an interesting concession. There are people, who do work, basically, as day laborers, and they are never far from something like a market for labor services. The number may be increasing, in the brave new world of the sharing economy — Uber and so on. In the U.S. day laborers, some of them undocumented hispanics, sometimes gather near Home Depot or lumberyards or U-Haul. Sometimes, the spectacle is too much for the tender sensibilities of people passing in their SUVs, and resentments are expressed, and even restrictions are placed on street-side solicitations. Occasionally, clever Catholic (they are mostly Catholic) social workers and do-gooders have intervened to create a more organized situation — something more like the hiring halls once organized by labor unions for day labor. And, guess what? The wage can increase markedly. I’m not going to google up links — someone else may be familiar with an example and can provide a better guide.

The myth of the market economy often gets in the way of thinking through the actual details of how prices and wages get determined, as the facts of what the government actually decides — quite aside from pure fiat price controls. The price of pharmaceuticals, for example, is tied up, not in any kind of recognizable “market” process, but in complex bureaucratic rules governing intellectual property, drug approvals, imports, reimbursement by insurance (including government directly or at one or two removes) and so on. One of the more interesting cases of “price control” and its effects might be the story of how Japan ended up with cheaper medical equipment in a number of areas, including I believe MRI machines.

Rent control limits the incentive to increase supply. Housing is pretty inelastic in the short term but is pretty elastic in the longer term. If prices are allowed to rise in line with demand that creates an incentive for owners of vacant properties to convert them to residential uses for landowners to build on their land, e.g. converting old mews into flats, building on gardens &c. Secondly if rental increases are capped the expected long term performance of owning a rental property drops. That is the long term income is lower than it would be in a market.

Scott P. @28,

I never said that we would get rid of prices. I said we’d get rid of their use as revenue stream. All revenues for all funding, including public works, benefits and wages, would come from electronic public pools — digits publicly stored and owned, publicly managed. It wouldn’t matter how many units you sold of X at each store. Wages and community funding would no longer come from those sales, directly — or indirectly through taxation. There would be no taxation. The “money” for wages and funding 0f public works would be allocated from an absolutely separate source, making taxation obsolete . . . . making sales irrelevant when it comes to funding what we need.

Sales numbers would only matter in the sense that they would tell us what we consume, how much we should produce, and how we should set wages to match those prices. As in, no longer would we organize the economy to optimize personal wealth accumulation for business owners and the rich in general. We would organize the economy to fulfill the needs of 100% of the population, without exceptions. It would shift radically from business-owner-centric to citizen/worker-centric.

No profit. No private ownership of the means of production. The economy would be fully democratized and optimized for the society as a whole.

Capitalism is a fiction. Money is a fiction. The entire edifice of scholarly work done on their behalf is fiction on behalf of fiction. It’s time to agree to fictions which actually make life really good for everyone, except for just a few. It’s time to agree to completely new fictions which actually work for all of us.

“Capitalism is a fiction. Money is a fiction. The entire edifice of scholarly work done on their behalf is fiction on behalf of fiction.”

Out here the great unwashed masses wait for a critical analysis of this statement that experience tells is as true as “the emperor has no cloths”.

Land prices in London are fairly high, due to it being a big city with highly restrictive planning and little land available for development. All rent control would do is create a bias for selling rather than renting out properties. Landlords making less money reduces the incentive to provide rental properties, conversion or construction that would be a sound investment without rent control becomes a poor investment so resources that might have gone into that are invested elsewhere.

Monty Python sketch:

“market prices represent opportunity costs for the households and business who face them”, except where they are distorted by
– tariffs,
– professional licensing,
– corporate controls,
– social custom,
– intellectual property rights,
– regulation,
– law,
– personal relationships,
– collective needs

and more. But the system would function much better if all of these went away…

the DeLongs will object – your defense of minimum wages is misleading. As you might say, there are policy alternatives that are obviously superior. The anti-BDLs will object – you have conceded that minimum wages are essentially Hazlittian in their behaviour as price controls, when instead labour demand curves slope upwards (or somesuch other non-neoclassical reasoning)

(and, needless to say, the Hazlitts will object too, since you are defending minimum wages at all, and are noticeably evading the canonical opportunity-cost-of-policy impact-on-marginal-labour critique of minimum wages, after spelling out the logic for the whole chapter)

it’s a terrible topic to be flippant about, since most people (even laypeople) have An Opinion, and some loose economic reasoning for it picked up from a columnist somewhere. There’s just no point cheesing readers off by repelling their politics (even by just failing to fully confirm it) before they get to the substance of Lesson Two. This isn’t a journal, nobody’s obliged to finish your text before they reject your argument.

you could move the on-one-hand-on-the-other-hand discussion to a box, or move to to the Lesson Two section – just don’t bring it up in the body of this chapter at all.

(the same applies to ticket-scalping, incidentally; there is no shortage of readers who think that scalpers, and the people who buy tickets from scalpers, are evil subhumans. Likewise there is no shortage of readers who buy tickets from scalpers and regard them as a useful service to those too busy to queue. It’s best to just mention scalping as a phenomenon in passing… but that’s already what your draft does)

30: In the U.S., potatoes and bananas have “psychological” floors under them

Slightly off-topic (or maybe not): Does anybody have an explanation why in the US, bananas are cheaper (by weight) than potatoes? In fact, I find (at my TJ’s) that whatever the season, bananas are cheaper than any other fruit or vegetable. It boggles my mind.

Rents are regulated in almost every city in the world. If they were not and people’s rents could be raised every week without warning, it would result in intolerable social instability. Well designed rent controls are desirable and essential. I am astounded that John Quiggin would be opposed to them.

@Engels

I’ll add to what the Other Brett said by adding that rent control (and often other price controls) also tend to contribute to some rather ugly forms of rationing. Think landlords being incredibly selective about potential tenants, favoring family first and people with high incomes next, to the detriment of poor folks. It’s why New York City has been trying to build in “affordable apartment” mandates if you get subsidies for construction from the city – they’re trying to get around that factor.

As for the minimum wage, it’s important to keep in mind that the studies predicting little to no harm were all for relatively modest increases. We have no idea what the effects of a major increase will be (like the recent plans to roll-out $15/hr levels in Seattle and Los Angeles). My guess is some disemployment, but the workers who have jobs will have boosted incomes and possibly productivity levels if employers put more work into training them.

The poor tend to benefit the most from directly provided public services, run efficiently. Subsidies tend to be the most politically vulnerable and expensive, and price controls tend to leave most of them worse off because they disproportionately bear the weight of search costs and other forms of rationing. Those services can work pretty efficiently, too, when they’re managed right and exist amidst a broader market economy they can work with so they can focus on their core purposes (think libraries contracting for office supplies, buying books from private publishers, etc).

@ Plume

That doesn’t sound like you’ve solved the issue that was pointed out, which is that your prices now don’t actually give you any useful information about what to produce anymore. Instead, you’re back to the Command Economy set-up of the 20th century again, trying to guess necessary production levels and sales through a state planning apparatus (and relying on extensive black markets to ease the burden of mismatches in planning).

@ Cassander

that governments and voters tend to prefer more complicated and less effective subsidization schemes speaks volumes about the wisdom of believing that politics is a reliable method of solving problems

I think of it as the contrast between giving someone a gift card as a gift versus giving them a physical gift. You know exactly what you’re getting with the former, whereas the exact value of the latter is more ambiguous – it might seem more valuable. Plus it might be harder to steal gasoline in a corrupt country than to steal the money for the subsidy program.

I’d appreciate suggestions for a successful example of rent control, that is, one that has made more affordable rental housing available on a continuing basis.

How about examples of what happens when rent control is abolished: the average rent in London for a room is £700 and for a flat £1500 (x1.5=$).

I’m glad 2 other people are having trouble with this line:

“Firms will supply a good as long as the price they receive is less than the opportunity cost.”

Surely it should be “more than”?

Scott Martens says: that it’s more like Soviet-style central planning than market management – but then you risk a No-True-Scotsman fallacy.

Singapore might well be the closest example we have left of Soviet-style central planning, or at least of government-managed common ownership of the means of production.

It ties into Bruce Wilder’s points above. Most prices in the economy are controlled, with only a faint resemblance to the spot price mechanisms of economics textbooks. But it’s rarely only the price that is under deliberate control. Price controls from the government become a problem if that government limits itself to price control, without much further involvement.

London has a shortage of supply, this means that prices are going to be high. It has very restrictive planning laws which artificially limit construction and conversion. NIMBYism is a real problem, existing owners a strong incentive to resist further building as that reduces the value of their assets and planning is controlled by local government. London is also built on clay which makes building tall structures rather difficult; which limits density.

Regarding rent control, it should be noted that NYC style rent control – whatever its merits – isn’t the only approach. You can’t make sweeping generalizations about “rent control” based on that one experiment. We’d need to at least see an empirical study of the outcome of rent control from different jurisdictions.

One important intervention in the rental market that isn’t precisely rent control but affects rents is municipally owned housing rented at below “market” rent. It is often conflated with rental subsidies but in fact, the rent doesn’t have to be subsidized to be below market. The market rent in big cities is much higher than the actual maintenance cost (and older buildings should have been amortized long ago). Berlin for example owns 16% of the city’s housing stock (https://crookedtimber.org/2015/05/16/is-the-uk-benefits-system-a-cdo/#comment-629478) and that should have an effect on the market.

“If prices are fixed by law, they cannot tell us anything about the true opportunity cost of goods and services”

Except free market prices don’t tell you anything about that either, since such prices are administered, they don’t freely float in the way you imply:

http://socialdemocracy21stcentury.blogspot.co.uk/p/there-is-mountain-of-empirical-evidence.html

Physically, provision of utilities such as water and sewage is “rent,” at least from the renter’s perspective. Provision of these things at controlled prices would be relevant to the analysis, then, I think. Perhaps the OP should look at Hanoi.

I’d like to see an introduction to economics that recognizes right from the start the difference between descriptive and prescriptive economics, is dynamic rather than static, and that acknowledges the implications of behavioral economics, and the policy implications of “elasticities” as a central feature and not an afterthought.

The picture you’ve drawn is going to be more accurate wherever both supply and demand are relatively elastic, and markets move quickly toward equilibrium. Tinkering with prices will be a more potent policy tool — for good or for ill — in those circumstances.

But wherever either supply or demand are relatively inelastic, and wherever markets are “sticky” and slow to move toward equilibrium, price signals become a less salient policy lever.

And this includes many of the markets we care about — e.g. labor markets, housing markets which are very slow to adjust to price changes — and has a bearing on many of the issues we care about — e.g. the relative effectiveness of resource taxes.

There is no reason for policy makers to focus exclusively on price signals, while assuming that the “elasticity” of either demand or supply is a brute fact that no one can do anything about. To say that demand is “inelastic” is to say that people either don’t want to change their behavior, or else they have no alternative. And it’s possible to work with people to change either their motivations or expand their range of options.

For example, if you want people to drive less, it’s a purely empirical question whether you get more bang for the buck by levying a gas tax, or by introducing car pool lanes, or even educating people about the reasons they should drive less. It depends on whether people are driving because it’s cheap, or because it’s customary, or because they have no choice.

“it seems bizarre to choose this as a hill to die on”

Good thing noone did. (A hill I would happily die on: opposing ‘progressive’ neoliberal BS about how if government intervention benefits anyone who isn’t sufficiently poor it should be abolished, to make way for properly targetted programmes which oddly never seem to actually appear.)

I think I see where you are going wrong. For transport purposes bananas are effectively non-perishable. Bananas have a very low transport cost. You buy them green and stick them on a ship. They ripen in transit. Sea transport is ridiculously cost effective. It emits less carbon shipping a container round the world than transporting it across the UK by road. Essentially the additional shipping for bananas uses very little fuel and occurs when you would have to be keeping them in storage anyway. Basically transport costs are only very slightly higher production costs roughly the same so the price largely reflects production costs.

Regarding the title: “Why price control doesn’t usually work” – it may be helpful to clarify what is meant by “work.” If the goal of rent controls is for Marc’s great-aunt (@66) to pay 1/10th the rent of her neighbors, then it seems to have worked just fine. Nixon’s price controls on gasoline worked just fine, in the sense that people paid the price ceiling at the pump.

‘Not a single square foot of housing is created by subletting’

No, but new dwellings can be created and more people housed (and by division of large properties into smaller ones, which is preferable). London has generally moved in opposite direction, cf. Dorling above

In the paragraph beginning something like “A firm will supply a good…” you say words to the effect “as long as the price they receive is less than the opportunity cost…” I think you meant to say “more than” rather than “less than”.

Who deregulates the deregulators?

Regarding the minimum wage, doesn’t it matter rather a lot how minimum wage earners are employed? In developed countries, where the ‘jobs fleeing overseas’ horse has already bolted and minimum wage work is almost invariably sevice work, increasing the minimum wage is simply increasing the wages paid by locals to locals. Until the vernae are replaced with robots, I don’t see employment dropping because of it.

Brett @50,

Instead, you’re back to the Command Economy set-up of the 20th century again, trying to guess necessary production levels and sales through a state planning apparatus (and relying on extensive black markets to ease the burden of mismatches in planning).

JQ debunked the myth of the efficient market in his excellent Zombie Economics. He could have added another zombie myth. That the only alternative to American capitalism is 20th century style state capitalism, a la Russia and China, etc. There are hundreds of different alternatives, and it’s another zombie myth that “the left” favors state command and control.

Riffing off the writings of anarchist communists like Kropotkin, Morris and Reclus . . . . what I’m talking about is true decentralization, back to the community, where orders for goods and services would be taken in democratic town meetings. Orders taken, orders met. Which is a thousand fold more efficient than our current system of mass overproduction in hopes of future sales, pumped up by debt in various forms. Nothing could be less efficient than what we do right now. For example, Americans through away literally half of the food they buy. Our landfills attest to the mountains of goods thrown away soon after purchase. “Planned obsolescence” has only increased in the last few decades. And anyone who has ever worked in retail knows how many items are sent back to be “remaindered” in one form or another. If “price signals” really worked as well as the cheerleaders say they do, we wouldn’t produce so much waste and pollution . . . . and if the system worked even remotely as well as those same cheerleaders claim, the allocation of that overproduction wouldn’t be concentrated at the top . . . . . leaving most of the world’s population without even basic necessities.

I should have added one more aspect to price in the capitalist system. It also contains the cost of unsold merchandise or services. Obviously, the consumer receives no added value for this . . . . for the extra markup involved in waste, pollution, insurance, the unsold, etc. etc.

James @57,

Yes, the consumer’s choice is a factor. Of course. But only insofar as it factors into maximizing ownership’s profit/compensation. They’re not doing it to empower the consumer. They have to find that sweet spot that leads to Yes, rather than No. But this doesn’t mean the buyer is on equal footing in any of these transactions, or that he/she is part of some “democratic” process.

The buyer is virtually always the loser in any capitalist transaction. If they aren’t, the seller can’t make their profit/accrue personal wealth, etc. etc. They must come out on top, at least in the aggregate. And the consumer has nothing more than the illusion of choice. What they get to choose from is forced upon them, with mass production meaning very little real difference between products and services. Kind of like our political system.

Those “choices” bring to mind the scene from The Hurt Locker when the protagonist comes back from Iraq and goes grocery shopping. Not sure if the director intended this as a comment on the illusion of consumer “choice,” but it struck me as exactly that.

forgot to close parens. after “days”.

Naturalnews has negative credibility as a source. Mike Adams is a dangerously irresponsible anti-vaccine loon.

A recently evolved strain of Panama Disease is threatening the Cavendish the way an older strain wiped out the Gros Michel by 1960. This meant that the entire industry shifted from one monoculture to another in about a decade. Due to different ground conditions the Panama Disease fungus didn’t spread to Thailand or Malaysia which still cultivate the Gros Michel, mainly for export to China and Japan. Banana growers have had to deal with this before.

Sebastian H@87,

From his Foreign Policy Article:

The Efficient Markets Hypothesis: the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment. (In the version most relevant to public policy, the efficient markets hypothesis states that it is impossible to outperform market valuations on the basis of any public information.)

There is nothing in the way I “used” the term that goes against the above. I think you’re reading that into your critique.

And this?

Further, you have repeatedly made the mistake of taking evidence of market inefficiencies as automatic evidence that non-market measure will be better.

I never tried to make that particular connection, and I showed why an alternative would be better. Not just because it’s different from our current system — and radically so — but the way it’s different. Again, because it would be “produce to order,” rather than produce in hopes of future sales, which always results in waste, loss, pollution and debt. It would be truly democratic, directly connected to the citizen/buyer, would present actual choice for once, and would no longer be business-owner-centric. It would be citizen-centric. All of us would benefit, instead of a tiny percentage of the population. This would be true “empowerment,” for 100% of the population.

Radically decentralized, linked directly to actual need (and use-value), egalitarian, democratically structured, the lowest possible amount of waste, pollution, loss, etc. etc. . . . and no need for debt. For starters. It’s not just better because it’s different. It’s better because it’s simply far more logical, rational and humane.

Also, the reason why our system needs to be abandoned are legion. Perhaps the most important: Capitalism generates massive inequality, massive waste and pollution and is obviously incapable of allocating resources or compensation in an even remotely adequate way. It has never, ever “worked” for more than a small percentage of the world. Its history is one of endless carnage, theft, resource depletion, the destruction of eco-systems, cultures, “the commons,” etc. etc. And whenever its cheerleaders talk about it, they talk as if it never has recessions and depressions, mass business failures, endless bailouts by taxpayers, etc. etc. As in, they talk as if its real world effects don’t exist, and that it actually functions according to sanitized theory. They talk about it just like slavery was once depicted in American textbooks, especially in the South.

It’s waaaay past time to stop believing in the fiction of capitalism, and fictions about capitalism. We won’t survive as a species if we don’t move beyond them.

Dunbar @86
As I said, that link was at random; there are plenty of others. I originally heard it on NPR:

http://www.npr.org/2011/07/22/138610585/yes-we-do-have-bananas-for-now

http://www.popsci.com/article/science/has-end-banana-arrived

Wouldn’t rent control reduce inequality, just by among landlords poorer?

I don’t see rent control as a plausible solution.

Why on earth not? There certainly is public support:

http://www.independent.co.uk/news/uk/politics/almost-nobody-in-the-uk-is-opposed-to-rent-controls-for-housing-9955679.html

And how else would you fix the problem, that you simply cannot afford to live in London anymore on an average salary:

http://www.londonrents.org.uk/

Id say the german rent control system before the recent reforms ( you cant increase rents above market rate ) is a minimum control level that does increase supply ( renting is much more desirable for the better off if the us style risks of renting are avoided, making the business in turn more attractive ) and makes life easier for everyone.

Plume: The profit motive isn’t the only reason why businesses create things in advance of consumer demand. It takes time to make things. Obviously you can’t grow crops the moment someone wants to eat a sandwich, you need to do things in advance. Having people make their consumption decisions in advance is one way to address that, but there’s a cost in not allowing people to change their minds.

Not shure what extend of regulation is considered rent control in this context. Either way a regime that simply bans increases for long term tenants above some ceiling that is below market rates is not crazy either in terms of a targeted subsidy/mandatory insurance against the social cost of a used environment change. I tend to think constraints on kicking people out are still to lax for some high moving cost groups e.g. people above arround 67 or with some mental health issues.

“Why on earth not? There certainly is public support:

And how else would you fix the problem, that you simply cannot afford to live in London anymore on an average salary:”

There is public support for getting free unicorns, but that doesn’t provide unicorns.

If you want people (in some general sense as opposed to just the people who live there right this second) to be able to afford housing in a specific area, you need to either build more housing, incentivize building more housing, or give them more money. Any of those three are plausible solutions. The reason rent control is not a plausible solution is:

A) it ties you to a particular location so you can’t afford to ever move;
B) if you don’t allow the rents to go up even after a move (to avoid the problem of [A]) you cause the new building market to collapse, and you cause landowners to never want to improve or fix up properties;
this causes
C) even tighter rental markets which means MUCH more expensive housing for anyone who wants to move around in the area or move into the area.

Would you support a 20 year moratorium on poor people moving to London? If not, the rent control is much worse idea than just giving poor people money for rent, and is also a much worse idea than spurring a massive building effort (which is what San Francisco needs for example). San Francisco is fascinating because it tries to ram progressive politics and NIMBY anti-building rules together, and look what happens–the poor are essentially expelled from the city even though they have very strict rent control laws.

Yes. Look it up on google.

Sebastian H,

“If you want people (in some general sense as opposed to just the people who live there right this second) to be able to afford housing in a specific area, you need to either build more housing, incentivize building more housing, or give them more money. Any of those three are plausible solutions.”

As I said above types of rent control are currently being considered by urban policy makers for Sydney and Melbourne.

I went to a talk by the Lord Mayor in Melbourne (Robert Doyle who is former Victorian Liberal party leader but as head of the City of Melbourne council he is now a very strong voice for good urban planning) and he was bemoaning unaffordable house prices in the Eastern suburbs as it meant his daughter had to move to the Inner Western suburbs away from their family. As well as for the general population, unaffordable housing is a great problem for “essential workers” i.e. people who are teachers and nurses and cleaners and paramedics etc.

The problem of unaffordable housing in the established suburbs is made worse due to the newer interface suburbs not being provided with sufficient government and commercial infrastructure. As well as a lack of public transport and civic centres etc there is, for instance, a lack of nearby places to have bar mitzvahs.

“The reason rent control is not a plausible solution is:
A) it ties you to a particular location so you can’t afford to ever move;”

If the government applied inclusionary zoning then there would be more affordable houses overall and so a greater choice of housing for people who wanted to move. Renters typically move frequently in Australia unlike in Germany where renters have to put in their own kitchen cupboards and so on so they stay longer.

Australia has a much lower share of public housing than the UK and in public housing here there is less of a problem of “residualism” (this is when people stay in public housing for a very long time and even over generations).

“B) if you don’t allow the rents to go up even after a move (to avoid the problem of [A]) you cause the new building market to collapse, and you cause landowners to never want to improve or fix up properties;”

The benefit of utilising a statutory tool like inclusionary zoning is that is gives certainty to developers.

You would stage the implementation of inclusive zoning, have a period of consultation with the community and developers etc, then you implement the inclusionary zoning and all developers have to comply as it is the new condition of the market.

I spoke to a project manager from Arup last year about how to get developers to build more sustainable buildings, and he said the government needs to make the developers assess the environmental and social costs of their proposed developments in the planning stages.

If this social and environmental costing analysis was mandated to be done before planning permission could be granted for a development then inclusive developments would be favoured and developments that are not inclusive might never get planning permission.

I want to believe that it might be possible to design a rent control system that was not hideously biased in favor of incumbent tenants and against newcomers, but it would clearly need to be paired at the hip to a massive and permanent increase in the ability and will to build new housing (whether private or state-owned and probably both) regardless of its effect on existing property values. In theory this could be done, in practice I don’t see anyone — very much including most advocates for rent control — agitating for it, so I remain pessimistic.

A shift to land-value taxation, combined with plowing the money thus raised back into public housing, seems like the great un-touched arrow in the dusty quiver of urban housing policy these days.

And in passing, I will note that Plume’s vision of “orders for goods and services would be taken in democratic town meetings” is possibly the most nightmarish idea I have heard in the last few months. Say what you will about the failings of capitalism (and there is much to say), but at least I do not presently need to submit my grocery list to a vote by my neighbors a month before I make dinner.

Sebastian H @103,

Yes, I know what it is. And I didn’t say it was a criticism of “an pear a blanket or gasoline.” You just read the first sentence and assumed the rest of the post was still referring to it. Throughout.

And I already showed you why it would be better. Because it would be direct order taking. Repeated. Which do you think more accurately reflects need?

A marketing campaign, followed by production of X items, in hopes of future sales?

or

A democratic town hall meeting, where citizens of that particular community, (among other things) bring their lists of needs with them?

Think of a small workgroup. It’s lunch time. A person takes a food order. Fills it. Is that not much more efficient than someone just buying a bunch of food, without asking anyone what they want or might consume, etc. etc.? Extend that outward to a community, federate the communities, throw in pattern-recognition software used to track, chart and enhance those lists. Democratic meetings throughout the year, data collection running parallel to those meetings, communities sharing that aggregate data, rather than keeping it secret from one another, as capitalist businesses do when they collect data.

The real “sharing economy.”

It’s obviously going to be more efficient to take and fill orders, rather than produce and market in hopes of future sales.

JQ,

Is the profit margin a factor in the success or failure of such price controls, in your scenario? It makes sense that an industry with fat margins would have far less trouble with those controls than one with is a tight margin. And by that I mean the actual profits, not the differing profit margins corporations often give, depending upon their audience in that moment.

Another factor has to be the time frame for those controls. It makes sense that caps on housing rents would work for a specified period of time, but not if they’re kept indefinitely. Finding the right length of time would be key as well.

Doctor Memory,

Oh dear. The Soviet Union as cautionary tale again. Please read Kristin Ross’s Communal Luxury, Chomsky on Anarchism, google Parecon, Richard Wolff’s WSDEs, or Gar Alperovitz on the subject.

I’m talking about something 180 degrees removed from the Soviet system. Day to their night.

Btw, are you okay with our current system? Do you think it “works”? Not only do we throw half of our food purchases away. We have tens of millions of hungry people living here. Millions die of hunger worldwide each year. Millions starve to death, can’t get the medical attention they need, the education, the safe environments, etc. etc. While we in the developed world throw away trillions of dollars worth of necessities each year. We toss them, without much thought about it. They fill up our landfills to the bursting point . . . to the point where we export even that to already impoverished nations.

And if meeting with your neighbors is something you’d rather avoid, at least when it comes to groceries . . . modern technology provides all kinds of ways to work around that. You wouldn’t have to be physically present, if you didn’t want to be. The data shared would be enough to match need with production. It happens in our current system, too, but it’s far flung, depersonalized, labyrinthine, radically detached from the local and never accurate because of that.

What I’m talking about is localizing it again, bringing it back to the old ways of doing things, with the community providing for the community, as much as possible and sustainably. Small is beautiful, local production for local consumption, etc. Old ways, with new technologies.

As other people have said, one would have to look and see how other countries manage successful regulation. Speculation also is clearly harmful for society and ought to be curbed. Decent, affordable housing is a human right.

Plume@122: That link isn’t using the Soviet Union as a cautionary tale, it just mentions the country because the discussion was inspired by the book Red Plenty. It’s just the basic mathematical problem: to run an economy you have millions of different goods people might choose to buy, which then have to be factored against the millions of inputs you could use to produce such goods. High-dimensional optimization problems can’t be solved just by having people talk what they’d prefer, the scale is simply too big for human beings to consider all the options explicitly.

Capitalism doesn’t exactly do a perfect job doing the calculation either, but just saying that your system will reduce waste from excess inventories (which I’m skeptical of for other reasons, but whatever) doesn’t really address the problem.

Now all your talk about small is beautiful does point at a solution: if we simply optimize over a much smaller set of possible options, then we can arrive at a reasonably efficient option much more easily. But it does that by radically taking options away from people. Food is one thing, people can eat perfectly tasty and nutritious food locally. But what about computers? Or hell, what about pencils? So much of modernity depends on pulling together resources which cannot really be plausibly be sourced in one small area. Giving that up, even if it guarantees that nobody actually starves, that’s a rather big price to pay.

@128,

It would radically reduce the scale of inputs, shrinking it both in number and geography. Logically, when producers live in the same community they produce for, you’re going to sync up a great deal more easily. When they produce to order, you take yet another step closer to a match of production and actual usage. Federating these communities, as was the goal of anarchist communists like Morris, Reclus and Kropotkin, keeps the input scale small, while radically extending the pool of knowledge, tests for variables, contingencies and so on. It would also bring in more choice for each community. The sharing of community data with all communities would sustain the syncing up, the matching of usage and production. And because there is no profit, and no private ownership of the means of production, there is no need to “compete.” There is no need to hide the knowledge one community gains.

In our current system, each individual business has a vested interest in keeping its knowledge base secret from its competitors. That greatly degrades the overall accuracy of the already atomized data collection. Businesses don’t “share” that kind of information, typically, except if they make their money via its sale. So “price signals” are heard often third or fourth hand, metaphorically speaking, instead of how it could be — directly. In a federation of communities, the signals would be immediate, open to all, flow freely throughout the federation, with no fees attached and no additional costs. “Knowledge” wouldn’t be yet another commodity to be bought, sold, hoarded or hidden. It would be shared equally among everyone.

Yes, it would be far more efficient, far less wasteful and radically more inclusive.

Brett,

That’s not true at all. The amount of waste created by the capitalist system is astronomical. Again, the proof is buried in our landfills, our oceans, the air, etc. etc. We produce so much waste in America we’re exporting it to places like India and Malaysia. We have too much of it to keep here now. And, as mentioned above, the prices of goods and services factor in that waste and those unsold units. It’s built in. No value is added, obviously, for the consumer. But he/she has to pay for what is thrown away or unsold.

And overproduction has an aesthetic element to it as well. Our stores want to show a surfeit of goods. They want to show “plenty” too. They need to do that for aesthetic and psychological reasons and to make sure consumers can get what they want without waiting. If it’s not on the shelf when they’re in the store, they’re going to go elsewhere, usually. And they won’t shop in a place with empty or near-empty shelves. It doesn’t look right. We always produce far more than we need for those reasons and more. Capitalism isn’t a produce to order system. It’s future and debt oriented. And its modern, electronic age form, especially, is all about marketing in hopes of future sales.

Again, companies don’t typically share data on consumer patterns. They keep their data collection secret, for internal use only. It would be far more accurate if they did share with one another, but they want to keep their particular competitive advantages, so they don’t. And in globalized capitalism, the distance between consumer and corporation can be thousands and thousands of miles. All of this plays into the ungodly amount of waste, pollution and overproduction inherent in the system.

“You just decentralise the price control and rationing and have different computers and departments and logistics people working it out.”

You could decentralize it all the way to the level of individual consumers!

#114

UK before Thatcher

Harold, which cities are you offering as your counterfactuals? You appear to be quoting a single journal article, published in 1995 which hoped that “well-designed” rent control would be effective. We are 20 years since that article, surely the well designed rent controls should be working? Your comment on New York is instructive. Even destructive rent control like SF or NYC are almost impossible to get rid of once implemented.

Berlin’s rent control system appears to avoid the ‘but it’s unfair on the newbies’ slamdunk

http://www.citylab.com/housing/2015/07/berlins-brand-new-rent-control-laws-are-already-working/398087/

You can’t make a blanket statement that rent control doesn’t work when it obviously works in Germany and other places. Plus, I get rather irritated when people say things like “rent control doesn’t work” when there are so many things in our society that “don’t work”: our healthcare system, our criminal justice system, our infrastructure repair system, our educational system, our public transportation system, our prison system, our pension system, our foreign policy, our financial system, the intellectual underpinnings of the “discipline” of economics. And on and on.

We ought to be saying, rent control ought to be improved so that it helps the people it was intended to help, namely the citizenry at large that is in need of proper shelter. Other countries can do it, why can’t we?

By the way. John Kenneth Galbraith had a bee in his bonnet about price controls and was always writing articles on the topic. He believed they worked. I suppose John Quiggin will address his arguments in his book, at least in passing.

It also depends on what you mean by “not working”. Because the article cited in wikipedia stated that while rent control was problematic in NYC, cities that didn’t have rent regulation were in much worse shape. Now that we have gotten rid of rent control, we have one third or more of the apartments in NYC shuttered/ uninhabited at any given time — would you call that “working”? I wouldn’t.

“Because the article cited in wikipedia stated that while rent control was problematic in NYC, cities that didn’t have rent regulation were in much worse shape. ”

No, even the wikipedia paraphrase of the single sourced 1995 study doesn’t suggest that other cities were in worse shape. If you believe it, you should try naming the cities for which you believe that is true. It is very difficult to name US cities with worse rental markets than NYC–arguably Washington DC, San Francisco, Seattle. Which non-coincidentally are the large cities in the US with the most restrictive rent control.

“Now that we have gotten rid of rent control, we have one third or more of the apartments in NYC shuttered/ uninhabited at any given time”

NYC hasn’t gotten rid of rent control. They just call it rent stabilization. You’ll have to give me statistics on 1/3 of the rentable apartments being shuttered. I’m not clear on what you’re talking about. As far as I can tell the vacancy rate in NYC is in the 3-4% range, not the 33% range.

to get back on-track – if the Two Lessons chapter degenerates into a literature review of the bleeding-edge empirics of minimum wages or rent control, it’s already gone wrong somewhere

constructing!

@150. To tell the truth I am agnostic about price controls. But “artificially” keeping prices high to benefit exploiters and speculators with no stake in the community is not a good idea either. I am pretty certain of that.

I don’t understand what you are trying to show with that link Harold. It doesn’t show a 33% vacancy rate. The timeframe it quotes is all time under which NYC had rent stabilization laws. When you ask “does this work” you are asking about a very big city THAT HAS very restrictive rent controls. So your answer would appear to be “No, rent control does not work”. But I don’t think you mean that, so I don’t understand.

“A low-wage employer should relocate to areas with low living costs”

Good idea. Let’s just move low-wage employers like bars, hotels, shops, cleaning services, childcare services, schools, hospitals, public transport systems, water and sewage systems out of London. Wait. Duh. Maybe you didn’t think this through?

Well I did suggest increasing building. Severe restrictions on construction are largely responsible for the high prices. I live in an area where prices are pretty low due to it being relatively easy to build.

If housing costs are high then employers might have to pay their employees more if they cannot relocate the business. Basically housing should be priced into pay, it isn’t an externality.

Employers could also provide accommodation themselves. Again ultimately the cost of employing a person in a high cost area should fall on the employer.

http://gothamist.com/2015/08/27/wait_landlords_did_what_now.php
Excerpt:
The state Attorney General’s office says nearly 200 city landlords are illegally charging tenants market-rate rents on units for which they received significant tax breaks, which is news that is far less surprising than it should be.
Indeed, according to a release sent out yesterday, about 2,400 units in NYC have not been afforded the rent-regulated leases they are entitled to under the state’s 421-a property tax exemption program—the majority of these units are located in Williamsburg, Greenpoint, Bedford-Stuyvesant and Astoria, though the AG’s office notes that the violations are spread citywide. Initially, these units were designed to be condos, thus exempting them from the rent-regulation requirement—when the economy slumped in 2008, the apartments were rented out at market rate.

Employers could also provide accommodation themselves.

Yes, let’s go back to the days of the company town…

One of the reasons in my last comment I mention comparing NYC to London is that comparing it to most US cities doesn’t take account of geographical constraints. In Dallas or Atlanta, you just blatt out some more suburbs – rather reminiscent of Sydney too…

Don’t look at the oligarchs– look over there, it’s all the fault of the unions raising construction costs and unworkable rent controls.

The problem is that a lot of people have an intuitive belief that there is a fair price for property. This is well below the actual value of the property.

London has a housing market that bears little resemblance to the rest of the country. For example a far higher percentage rent and prices are massively higher than the rest of the UK. For example Labour’s mansion tax proposal it was calculated that it would affect just 96 properties in Wales. High prices in London should lead to investment in cheaper parts of the UK and more house building in London. At the moment what is happening is that poorer parts of the UK are subsidising low-wage employers in the richest part of the UK. Rather than high costs pricing employers out of London, which is what should happen.

Given that the flats in that development have already sold they may actually have been under priced at £711,000 for a studio flat. Contra that article it seems rather unlikely that you would pay that much unless you intended to use the flat fairly regularly rather than use a hotel. By way of contrast near here Top Y Fron Hall an 18th century grade II* listed seven bedroom mansion with 20 acres of land failed to sell for £775,000 in 2013. The owner is rather a hoarder, it was the house featured in the first episode of series four of obsessive compulsive cleaners on Channel 4.

Rather than high costs pricing employers out of London, which is what should happen.

Except that they don’t bear the cost, do they? It costs the employers the same to pay for a person in Leeds or London; it costs the employee more if they’re working in London, but that’s not the employer’s problem.

Getting differential employment cost requires either differential wage rates or differential payroll tax rates and that pragmatically requires english regional devolution. In the interim I’d be moving to scotland or wales.

It costs the employers the same to pay for a person in Leeds or London;

I don’t know about Leeds vs. London, but it certainly does not cost the same to hire someone in NYC and Peoria.

I don’t know about Leeds vs. London, but it certainly does not cost the same to hire someone in NYC and Peoria.

I actually originally had a note on how this manifested in the US with the southern industrial-policy wage-rates stuff, but deleted it because the southern US industrial policy wage-rates stuff also has nasty tie-ins with union-busting and racism that aren’t directly relevant here.

The solution to the london problem remains english regional devolution.

Again, the fact that rising rents can be a social problem does not at imply that rent control is a good solution. Can you explain how NYC and SF have such horrible housing shortages and some of the most strict rent control? The normal explanation is that strict rent control causes housing shortages. You apparently believe something else is going on, but you won’t tell us what.

Ok, if you don’t want to be reality based I can’t help. Look up Sweden wait times for housing if you do though.

Sebastian H @179,

You’ve locked onto one possible variable, ignore everything else and claim victory. It’s quite similar to conservative nonsensical views on tax cuts. If the economy happens to do well after they go into effect, no other variable matters. It’s all on the tax cuts, apparently. And if things fall apart? The government did that. Which boils down to: you opened your umbrella, it starts to rain, therefore your umbrella caused it.

Rent control is one possible variable, one possible factor among many. To prove it’s the cause of housing problems in Sweden, New York, San Fran or anywhere else, you have to do process of elimination, find a control group and deal with all relevant factors. You haven’t. You’ve chosen your magic bullet and see nothing else.

Peter T, that is only typical when the government sharply restricts the np total number of units to well below growth levels.

Sebastian @188: as in Sheffield, Birmingham, London, New York, Chicago, Sydney and many others in the C19?

Considering the rather boneheaded but fervently defended “arguments” against any sort of rent regulation I wonder if “rent control makes matters worse” is some sort of conservative meme with a long history or an economics 101 textbook example.

“Can you explain how NYC and SF have such horrible housing shortages and some of the most strict rent control?”

Doctor can you explain how the patient has such a horrible case of cancer and is on one of the strictest drug regimes?

JQ,

I get a lot of what you’re saying in the OP about the contradictions created by rent control on supply. But I think you suggest, without actually saying so, all kinds of ways out of those contradictions. First off, there isn’t an unlimited supply of families in need of affordable housing. There is a finite number. Not only because people already own/rent homes, many of whom are happy with them, but also those below a certain income threshold are also finite. So if the government — local and federal — were to contract for new housing, at fixed rents, and build them according to census data/application numbers — to order, in effect — you don’t have the issue of lines, rationing, supply and demand screwups. It’s a specific program to solve a specific problem, which doesn’t occur (and won’t ripple) throughout the entire economy.

This would also be done in a non-profit manner, which removes another trigger for supply/demand changes. Residents could send their monthly rent checks to local governments, which don’t have to make profits, and don’t have to please shareholders, and the rest of the ripple effects that come with that. Builders of said units would know, going in, they’re not going to make a killing on these projects, either. This would probably attract smaller builders, looking to create portfolios, rather than killings on individual projects . . . . and this also wouldn’t ripple outward. It would be a specific problem, targeted with specific redress, using a limited supply chain, for preset rationales. To the degree possible, in would be its own enclave, literally and metaphorically — as “closed” as can be within the larger capitalist structure.

In short, saying that “rent controls” don’t work, when surrounded by all the variables working against them, “naturally,” is kind of like saying “dieting” doesn’t work when surrounded by 24/7 smorgasbords. Change the variables and the context to the degree possible and you change the results.

david @ 189: “just prices” themselves are too obscure as a label

Less obscure, and more apropos, might be an explanation of the concept of economic rent, a concept closely related to opportunity cost. (Indeed the Paretian variation is defined in relationship to opportunity cost, as a return over and above opportunity costs, or the normal return necessary to keep a resource in its current use.)

The logic of a market economy directs income to economic rent, which, as the classical economists observed, is “unearned”. Some highly productive activity brings people together in a city, and mutatis mutandis, it is not the skilled workman or the entrepreneur or the visionary city planner that ends up earning the big bucks from all this productivity, it is the drone, the landlord, whose only contribution is owning an abstraction, a location. All the expected return on investment in education, or in building a business, or the infrastructure of transportation, power, public health et cetera is drained away in higher rent.

This is not the economics of virtue, where unregulated price solves all problems and everyone is better off. The landlord is better off. With no particular virtue or social contribution matched to his gain. If the business he rents to succeeds, he raises the rent. If successful business attracts a large concentration of employees and pays them well, the landlord raises the rent. The landlord doesn’t produce more land. The landlord doesn’t produce land. The landlord doesn’t produce the location, or the productivity of the location. That’s largely a matter of city planning and business development. The landlord doesn’t produce the productivity of the business or the workers that drives their incomes higher, or the streets that makes his location accessible and central; he just drains those incomes away into his own pocket.

It is not necessary to reach back to medieval musings on just price to tell a normative story that calls into question the social logic of economic rent. It is right there in the history of economics itself, and the key reason for the concept of opportunity cost, economic rent.

Novakant, what do you consider bone headed arguments? You aren’t being clear. Does 15-20 year waits for rent controlled apartments with sub-let tenants being forced to move every year or so (Stockholm, one of the rent control ‘success’ cities) really not give you pause at all? Would you care to strongly distinguish your non-contributed ideas against SF and NYC, both of which have some of the longer experiences with rent control?

Instead of speculating whether or not the actual effects of rent controls are well investigated (and assuming that they are not), you could have used google scholar.

“An econometric analysis of rent control” EO Olsen 1972.
“Residential Rent Controls” Downs 1988 by that definitely not Repbulican Brookings Institute (interesting side analysis on how UK rent controls caused the collapse of private rental units between 1950 and 1986).
“Rent Control and Rental Housing Quality” Gyourko and Linneman 1988
“Equity and Efficiency Aspects of Rent Control” Gyourko and Linneman 1989 (showing especially that after a generation, rent control ended up not particularly helping poor families more than middle class and rich ones due to grandfathering effects).

The effects of rent control on housing are one of the more empirically well investigated questions in economics. Which I suppose might be damning with faint praise. ;)

Okay. Perhaps I’ll let the London-NY comparison go but personal experience was that apart from Manhattan (non-rent-controlled) NY compared quite favourably price-wise (I understand things like protection from eviction are generally worse across US).

The average I quoted was for within 10 miles of NYC.

On apples versus bananas, to a consumer neither is a plausible substitute for the other, and I don’t think the same agricultural land can ever be used for both. So there is no market-based reason why they should have the same price, consequently they don’t. Don’t know if there us any more to it that that.

On the other hand, renting is a plausible substitute for buying, building a house is a plausible substitute for literally any other form of investment. So all those things are coupled together by market dynamics, which means that anything that interacts with one interacts with all. Consequently, any argument for a proposal that ignores those interactions and proceeds directly from cause to effect is only going to right by coincidence.

novakent @207,

Conservatives tend to be oblivious to the gross illogic of their own stance. That “the markets” are the answers, always, to something caused by “the markets.” And then to go further into la la land, they think it makes sense to let the very people who drove the economy into the ditch (and keep doing so) — business owners — to have even more freedom to do it again. Boiled down, it’s a combination of “blow up the city to save it” and “let arsonists run the fire department.”

Novakant (how far did you have to dig to get the last name, I haven’t used it in comments anywhere on the internet in about 5-6 years. I’d think you of all people would understand pseudo-anonymity norms). Talk about bad faith argumentation.

Which problem don’t I acknowledge? Skyrocketing rents absolutely can be a problem, which is why I propose attacking the supply side and give direct housing support on the poverty side. I can’t speak to the whole world, but in the US the cycle is restrictive building zoning, rent control, NIMBYism by rent controlled people and property owners combined to make even more restrictive building zoning (London also suffered from that cycle).

In New York and London particularly, the fact that the financial markets capture nearly all of the profit from the productive economy is an enormous problem which also fuels the skyrocketing market. That is a problem which should be dealt with which is well beyond the scope of this post, but certainly speaks to my ‘acknowledgment’ of the problem.

The effect of price controls in causing (yes causing) shortages is well known. The effect of rent control particularly in causing shortages is well documented. Even those economists who think that different types of rent controls should do better admit that it is well documented. The fact that London is discussing “NYC-style” rent controls suggests that the political direction of rent controls may not be in line with even the VERY few economists who think that “well designed” rent controls maybe could work. NYC-style rent control is definitely NOT what those very few are proposing. The fact that Sweden can’t significantly change their controls despite 15-20 year waiting lists in its biggest city suggests that the danger of lock-in is very real. The distributional effects of rent control (middle class and wealthy people quickly begin to capture the rent controlled apartments–probably because they can afford to not move when they get hit with problems) are also very well documented.

John Quiggin isn’t a right-wing hack, and the fact that you strongly suggest that believing rent control very likely causes shortages–directly in the face of one of the most researched empirical questions suggests that I’m not the one arguing in bad faith.

So, to sum up. Skyrocketing rent can be a dangerous and bad thing. One of the best ways to deal with it is to allow MUCH more building in cities that lots of people want to live in–places like SF and NYC haven’t done that. Another way to deal with it is to attack the stranglehold that the financial sector has gained on profits in the real economy. Yet another is to provide direct rent support to the poor. Rent-control is much worse than any of those things.

Destroying the built environment that makes cities attractive for short term profit does not “work” either. It is a version of slash and burn. Rent control works for what it is designed to do, protect tenant rights. Housing shortages will not be fixed by building junky high rise condominiums any more than by building junky McMansions. The so-called “free-market” is what doesn’t work and the arguments of the free marketeer-speculators and their bought-and-paid-for shills is collapsing of its own weight.

Building more houses will reduce market prices. I am very dubious of the assertion that building more housing wouldn’t reduce prices. It is utterly in contradiction to all established economic theory. Making an area less attractive reduces demand which may also reduce prices, depending on what part of the demand curve is affected.

Another way of looking at the middle-class capture issue is that under RC some middle-class people rent (whereas without it they’d have bought property). The political effects of this seem likely to be positive (renters aren’t a politically voiceless underclass, as in UK).

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

Nightmare.

Bernard @218,

It’s hard to think of anything more ridiculous than your strawman vision. It’s not my world. It’s far, far from my world. It’s just your silly projection of your own ignorance and biases onto an alternative you truly don’t understand.

Ironically, what you describe isn’t that far from our current reality under capitalism. Right now, people wear the same basic clothes, with very little difference. It’s mass-produced, mass-marketed, and tens of millions of people have the same exact stuff. “The collective” is the corporation, and you do the job it chooses for you. Though, in the capitalist version of collectivism, unlike left-c0llectives, you have zero say in the matter. The collective works for the boss, not itself. It’s autocratically arranged. There is no democracy. There is no choice.

As for housing — or clothes, or anything else, for that matter. It’s pretty strange to think that a non-profit, fully democratic and locally controlled economy would have to produce “sameness.” There is no logical reason why it would. In fact, as mentioned above, with millions of different communities, federated but autonomous, there would be far more diversity than we have now. Radically more. Instead of having autocrats a thousand miles away telling you what to wear, building your McHomes and your McClothes, which you get from your McStores, individual artisans and artists would produce quality, excellence and use value, not junk and planned obsolescence for profit. Our goods and services would last and last, and would get to show off the individual craftmanship, the individual genius, of the men and women behind them . . . . rather than the one-size-fits-all corporate model.

Another irony: The inherent structure of a truly left-collective society of autonomous but federated communities . . . would all but guarantee diversity. The structure itself. The radical change from a top down, severely hierarchical model to a horizontal, fully democratic one would do this. And for me, one of the great reasons for changing to this, aside from issues of morality, ethics and ecology, is to smash the sameness of our present system. It is to return to the potential (untapped) force inside individual artisans, artists, craftspersons, unleashed from capitalist modes.

William Morris is a great guide for this, as were Reclus and Kropotkin. Individual excellence unleashed, because there is no longer any corporate apparatus crushing the life out of it. Individual artisanship and craftsmanship unleashed, because there is no need to obey corporate masters, make profits, or make sure your production breaks down quickly enough to force new purchases. We would make things beautiful again, and beautiful things that last — without worrying about the next quarterly report, shareholder complaints, debt, markets being flooded by cheap knockoffs, etc. Produce the highest quality goods and services possible, without capitalist restraints, which are legion. The biggest being, perhaps, that it costs too much to build excellence into each and every product, if profit and high executive compensation are the goals. Which is why mass production took hold in the first place. Producing the same thing endlessly, using the same factory/structure, radically reduced business costs, thereby wildly increasing profits and comp for executives/ownership.

That would go the way of the dodo bird in “my world.”

Mass production reduced the price to the consumer. Businesses are in competition with each other and one way of doing that is on price. You cut your prices relative to competitors cutting your margin in order to increase sales. Your competitors do likewise and soon you are operating on rather narrow margins and the consumer has captured much of the gains. Your scenario applies only in a monopoly or cartel situation with high barriers to entry. If barriers are not high then if you attempt to extract monopoly rents outside businesses will see a large opportunity to profit by entering the market and undercutting the incumbents. One function of the state in a capitalist system is the prevention of monopolies in order that the market can actually function correctly i.e. the state needs to protect capitalism from the capitalists. Every business aspires to be a monopoly; capitalism requires competition.

Morris was a reactionary snob like the rest of the arts and crafts movement. They claimed to be socialists but opposed anything that made quality products available at a price affordable to anyone but the rich.

You can buy hand made products if you want. Not everything can be hand made of course, you cannot hand make a microprocessor for example they are far too complex. Still many traditional products can be hand made and are available, however it turns out that for most purposes a £5.92 mass produced spade from B&Q is just as good as a £30 forge made spade from bulldog.

If you actually believed in choice then you would allow the individual to decide which they prefer. The democracy of the marketplace means that both are freely available. If I want a hand made spade I can get one, I don’t need the approval of some committee of local busybodies telling me the cheap spade should be adequate for everyone in my town. Conversely If I just want a cheap spade for very occasional use I don’t want a committee of local busybodies telling me I have to spend six times as much on a spade intended to cope with heavy use for decades.

Bruce Dunbar @ 3:28: an interesting illumination on your point IMHO can be found in the artifacts recovered from the wreck of the steamboat “Arabia”, sunk and buried in mud on the middle Missouri river in 1854. The people on and awaiting supplies from that boat were undertaking a life of pioneering self-sufficiency [1], yet about 20% of the recovered objects are niceties: china from the UK and Germany, ornamental flatware from Sheffield, fancy clothing from Massachusetts, etc. Not choices that would be available at reasonable opportunity cost from small collective manufactures.

[1] Or so it was thought; modulo the Army, eastern industry, global financial network, etc. Still, not a life of ease in the suburbs of Boston.

Brett,

Cheap products for consumers means low wages and automation for workers. There is no free lunch. It also means cheap quality that doesn’t last and must be frequently replaced. As per design.

You don’t know what you’re talking about when it comes to Morris. He was an anarchist communist, not a reactionary.

No, capitalism doesn’t require competition at all. That’s just a myth. And it naturally leads to monopoly and cartels, as it’s naturally a “survival of the fittest” set up. Your example of price cutting is one of the oldest proofs for this. The biggest companies can undersell their smaller competitors, until they die, and those bigger companies gain more and more market share. Their goal is to wipe out their competition. Their natural state is to do this, because their overriding goal is to make money for ownership. Competition hurts their ability to do this. It stands in the way of them maximizing their profits and executive compensation. They want all of the market, if they can get it.

And there isn’t any “democracy of the marketplace.” You have the illusion of choice, and nothing more. You choose only what you’re offered by MNCs, which keep snuffing out small producers in an ongoing process of “primitive accumulation.” Marx was wrong in limiting this to some early stage of capitalist expansion. It’s still happening.

And, seriously, just like Bernard, you’ve projected your demons onto socialist theory that won’t support them. That’s not how autonomous, federated communities would function.

Actually that is incorrect. Markets can function within a non-capitalist system. Indeed it’s very hard to prevent them. Black markets are a lot less efficient and operate without the support, indeed in direct opposition to the state. Nonetheless they do operate.

Smith was able to give examples of a freely operating market (non-guild craftsmen in the suburbs (favelas effectively)) in contrast with a very similar regulated system (guild craftsmen within town boundaries). The unregulated sector had more competition, lower prices, higher quality and better service compared to the monopolistic guild. This led him to argue that de-regulation would be generally beneficial. And as an idea it could be tested by de-regulating parts of the economy and seeing what happened.

Morris claimed to be a socialist. I do not agree with his claim. If you actually follow the implications of his ideas he was a reactionary. He opposed mass production and indeed anything that offered the non-wealthy the opportunity to own good quality consumer goods.

Any individual company wants to make as much as possible, they want to have a monopoly as then they can extract monopoly rents. For a market to function there needs to be competition. The state needs to protect capitalism from the capitalists. I’m not in any way disagreeing with the proposition that most businesses would like a monopoly. I am disagreeing about the solution. Basically leave the market alone if there is plentiful competition. If there isn’t use legislation to harshly penalise collusion and break up monopolies. As a last resort regulate natural monopolies like piped water supply.

The democracy of the marketplace is that I can buy a cheap mass produced spade that will be adequate for a little light gardening I can also buy a traditional forged steel spade which would get me decades of heavy use. I don’t need anyone else’s approval. They get made by various manufacturers, bought by the various retailers and are made available to any member of the public who wants one. I don’t need the approval of a committee of my neighbours or anyone else. No one has a veto on my purchases if B&Q don’t want to sell me an expensive spade then there are numerous other retailers that will. They are not a monopoly and have no realistic prospect of ever being one. The barriers to entry in the DIY sector are fairly low and most of the supermarkets sell some DIY products.

Brett,

No. Morris favored the production of good quality, artisanal goods, available to everyone. He was an egalitarian and a radical democrat. He also called himself a “socialist” and often used “anarchist communist” to describe himself and his theoretical work.

Honestly, I have no idea how you make the leap from “against mass production” to “against the non-wealthy owning quality goods.” His anger at mass production was primarily from the workers’ point of view. He knew the slave wages factory workers made, their horrific conditions, the way they had been herded into those factories in the first place. He also knew that “mass production” killed (and still kills) small producers, producers of quality goods and services, who suddenly could not compete and were wiped out by that “mass production.”

And, again, you’ve imagined this “veto” thing all on your own. It’s not what the federated communal system would be about. Yes, we’d vote, democratically, for the production we want in our communities up front. But we wouldn’t be tagging your individual purchases to votes or vetoes. You buy what you want. The key is to make sure the goods and services are what people want and need from the getgo, that they can be locally produced to the degree possible, that they can be sustainably produced, in harmony with the environment, and that everyone can afford what they need. Everyone would have all the work they wanted to have, and wages would be matched with prices and vice versa to ensure a high standard of living for all.

It wouldn’t be the micro-management you imagine. You’d be far more free to do your own thing, with far more leisure time, within a far more diverse system of individual expression and excellence.

We operate in a cash based economy. That long preceded capitalism. It makes things operate more efficiently but using state backed currency is hardly essential. Post war Berlin used cigarettes as a de facto currency. You could also use gold or any other commodity, cash happens to be practical.

Inter state treaties are not essential to a currency’s value. It’s that it has value to the other party in the transaction. It does not require that the jurisdiction in which you are operating give it any special status.

Black markets in things like heroin don’t use state structures, the state is actively working to suppress them. The market would operate a great deal more efficiently with lower costs if it were legal could operate in the open and use the courts to enforce contracts.

Importation of legal goods includes a lot of sea bourne transport, which is largely privately owned. The container ports and container ships are private. Airports and airlines in the UK are private.

Sebastian H,

You have no way of knowing that a democratic, egalitarian community wouldn’t want smartphones too, and it’s not logical to assume they wouldn’t. And with no profit in the picture, they could be made for less, with all the work done here . . . . instead of 9 out of 10 manufacturing jobs overseas, often for 70 cents an hour under brutal conditions.

Morris was a bullshiters he may have claimed sympathy for the working class but he was actually a romantic reactionary both in economics and his faux-medieval art. Artisanal production has a per unit cost several times what a mass produced item had. The mass produced item was affordable the artisan produced item was and is several times the price. I despise Morris as a smug, rich, reactionary, pseudo-socialist. He could afford expensive hand printed wallpaper and hand made furniture. And despite a claimed sympathy for the working class opposed anything that would make good quality mass produced consumer goods available to the working class.

The market system makes the expensive handmade products available if you want them, it’s your choice.

I apologize for engaging Plume on the “what goods will be made” front. It has nothing to do with price controls and why they don’t usually work.

Brett,

Right off the bat, if you take away profits, shareholder dividends, ginormous executive salaries, you can radically reduce costs. Society-wide costs can also be radically reduced, once capitalism is gone. No economic system in history requires so much state support, infrastructure, police and military protections, endless bailouts, treaties, corporate welfare, social welfare, etc. etc. Maintenance costs for our current economic system on all fronts are astronomical, and will always be present in any system that works through the redistribution upward of “wealth.” Throw in ecological damage, debt and it’s beyond astronomical.

You should read The Making of Global Capitalism, by Sam Gindin and Leo Panitch. Really excellent history book.

Again, on the individual production level, and society wide, the switch to a cooperative, non-profit, egalitarian model would radically reduce up front costs and those which are externalized. When everyone has a job, and all jobs pay well, there is virtually no need for extra-governmental subsidies. And when, as mentioned, funding for wages and public projects come from an absolutely separate source, 100% divorced from sales, “costs” becomes a radically different issue.

Yes, we could make them “cheaper.” Prices and wages won’t have the same meaning anymore, to begin with. And there won’t be the other burdens I list above. But, yes, they’d be cheaper.

Go ahead then, If you can make mobile phones more cheaply (that is to say using fewer resources) than Apple do so. No one is going to stop you.

There are some very large non-profits around right now Ikea is owned by a charity, John Lewis Partnership is employee owned and is by some estimates Britain’s third largest retailer.

Prices incorporate the cost of all the resources in creating the product, including the labour of the sales staff. The business owner is trying to maximise profits, as are their competitors, the consumer is also attempting to maximise consumer surplus. So will tend to look for the cheapest supplier at the desired quality. This means that if by cutting your margin you can increase sales you can increase profit you do so. Then your competitors must also cut prices in self defence. If you can gain the agreement of your direct competitors to fix prices you may find that outsiders are drawn in by the abnormal profits of monopoly.

Your proposal by totally de-linking pay and continued employment from sales gives retail staff an incentive to minimise sales, as that reduces the amount of work they have to do. If you get the same pay for working flat out for eight hours a day as you would get for “forgetting” to unlock the shop and doing sod all. You’ll take the easy option.

J.K. Galbraith thought it worked. Usually an emergency measure, though.

@249 “It’s been tried and didn’t work”. Yes, price controls were in place throughout the whole of the history of civilization — until very recently, when it was asserted that they “didn’t work.”

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

It’s almost as if he doesn’t understand that people can reasonably object to things he finds unobjectionable.

Unfortunately, those objections rarely are about things I’ve actually said, propose or advocate for.

You have to expect that other people will see genuine problems that you haven’t in areas that you have not properly considered: to you, these problems will appear to be unrelated to the issues you’re discussing, but that would essentially just be an optical illusion caused by the limitations of your own perspective.

[sometimes it happens that the perceived connection would be an error and your reaction that there’s no connection to the point you’ve made and the point you’re being asked to would be correct, but by-and-large people can be treated as of equal cleverness: this means that it’s more likely that this sort of pattern-of-observations is caused by an error on your part than by errors by others. “You missed this” is usually a correct statement.]

You don’t really seem to understand that everyone around you is as clever as you are. Everyone you talk to has the about the same number of clever insights that you do: if you’re not seeing them, it’s because you’re not looking, and because you’re not learning from what others could offer you.

Collin 256,

Seriously. They’re not objecting to things I’m talking about. I’m not missing anything. They keep repeating things that are 180 degrees from anything I’ve suggested, as if they’re stuck in a time warp. The favorite memes are “The Soviet Union tried all of that and look what happened.”

And the quote you chose is a perfect example of that.

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

Nothing I said comes remotely close to suggesting the above. And as mentioned, it’s actually quite the reverse of things. Autonomous, fully democratic, federated communities would produce far more diversity than our current system, and I demonstrated why.

Plume @ 255

Since as usual there seem to be people lining up to tell you how wrong (if not evil) you are for theorising about how more equal societies might work, can I just say good on you.

I’ve also thought a lot about this and agree with some of your points (I’ve probably got some of my ideas from reading your comments in fact).

And for those who cling to the idea that we can’t ever achieve equality because communism is so awful and capitalism is so great, just a reminder about what capitalism did to Russia http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1116380/

Val,

Thanks. And thanks for the link.

“Price signals are used solely to help track consumption, and match it with production and wages.”

That is pretty much what they do in a market economy. The price charged has to be sufficient to cover the cost of all of the various inputs. The revenue has to cover the costs. The margins on which large business operate are very narrow. The total profits made may be large but that is more due to the sheer size of the operation, supermarkets typically operate on a margin of around 2%.

Employee owned businesses like John Lewis Partnership are just as keen on making a profit as any other business. It’s just that the profit is distributed as a bonus to the employees there is still a management and unproductive employees are still liable to be fired. You have indicated repeatedly that you do not believe that productivity and pay or continued employment should be related. This means that there is no reason to do anything. There is no reason to work hard and do a good job when I can drift along doing very little for the same pay.

Businesses that plan badly go out of business they either go bankrupt (Woolworth’s for example) or get bought by better run competitors (Wm Morrison buying Safeway (UK)). The survivors in a highly competitive market are the well run efficient businesses. Where the market is uncompetitive badly run inefficient businesses can persist for years. http://web.stanford.edu/~nbloom/DMM.pdf gives some examples of what seems like obvious managerial changes that inefficient Indian textile businesses had not made as they had been operating in a very uncompetitive market. The paper was a world bank funded blinded placebo controlled study by the management consultancy Accenture. Basically the World Bank wanted to know if paying for management consultants was a good way to help development. It turned out to be a far better buy than anyone imagined, even with fairly generic advice.

Plume: “In the alternative I describe…”

If only you would, but you never do. Where will vaccines come from? Who will build and staff hospitals, and what will they eat? Who will oversee policing, and how will they be constrained? Who will build suspension bridges, and why would they bother?

Brett Dunbar: “The survivors in a highly competitive market are the well run efficient businesses. ”

The notion is absurd. At the slightest bit of a downturn, every single one of them would suddenly discover 10-15% of inefficiency which somehow went unnoticed before, and then do the same thing again next year. Large organizations are never efficient, and decision makers generally have only the vaguest of ideas about what’s going in in their company. Profitable isn’t the same thing as efficient.

Plume,

It’s just your silly projection of your own ignorance and biases onto an alternative you truly don’t understand.

Well, it’s true I don’t understand it, despite having read numerous comments by you an some who agree with you. Maybe it’s your explanation that is lacking, or perhaps it is you who don’t understand your own theory, or maybe the theory itself is so incoherent that no one can understand it.

Those libertarian phantasies about the labour market hurt my eyes.

Back to the op, not a fan of rent control in the narrower sense , but it seems rather unfair to judge rebt control based on a failure to increase supply, since thats unlikly to be a goal.* A lack of significant adverse effects on supply would be sufficient if other goals that are considered important are achieved.

*Thinking about it, since a lack of housing supply has often to do with real estate owners lobbying for unnecessary constraints on further construction that argument does not sound that crazy either.

Maybe the people who can believe that we need a ‘benefit system’ for those humans who are simply not productive enough, are the people who lack an ability to see the patterns in human nature/culture and these patterns do provide coherence to the system that Plume explains.

Perhaps some people can only understand personalities and abilities that are like their own personality and abilities that conform to their experience of intelligence/ability, and therefore they are unable to imagine that there could be a system that provides dignity and inclusion for all humans?

Perhaps I am stupid but I don’t find it difficult to see that there are ‘patterns’ in human behaviour that could allow for the production of bridges and the other wonderful products of capitalism in non-capitalist societies.

After all bridges and cathedrals were built by non capitalist systems were they not?

It is possible to lack employability under any reasonable circumstances. You might have significant disability for example. The benefits system is one way of dealing with this.

Layman @266,

Who builds those things now? Workers. We would still have workers. In fact, many more of them than we do now — a far, far higher percentage. Why? Because everyone would be guaranteed work, and work wouldn’t be dependent upon privately held business owners, dependent on their whims, their cost-cutting riffs, or their desire to make their fortune. Work would be generated by communal need, for the community, by the community, owned and controlled by the people. We wouldn’t ship jobs overseas to make more money, or automate jobs out of existence to make more money, because making money isn’t the goal in any way, shape of form. Providing for the welfare and well-being of the populace, within a sustainable context, is all that matters. So, yes. We’d make those vaccines and build those hospitals, staff them, grow enough food, organically, sustainably, and not one iota of this would be in the service of making anyone rich.

No one would be left behind. Everyone would have access to all the fruits of societal production, including free quality education, health care, cultural venues. Everyone would have an equal say in that production, in what was produced, how and why.

And, as Julie mentions above, are you saying that nothing was built or made prior to capitalism? Are you under the impression that workers are making profits and wouldn’t work otherwise? Cuz that’s not the case. The vast majority of workers are on salary, as they would be in this alternative. But instead of working to make a very few people rich at the very top, they’d be working for a much higher standard of living for themselves, their families, and to build a much, much better society for everyone.

Are you suggesting that isn’t enough incentive to do those things you list?

Layman @277,

Feudalism? That’s basically what we have now, only it’s a new set of lords and it’s no longer based on the land. It’s portable, exportable. But it’s still really serfs and lords.

I’m talking about no lords and no serfs, though I do think we need to return to the land and to the local, the small is beautiful model. Break up all centers of power. Disperse power back to individuals, with newfound and equal voices, democratically. And we federate those small is beautiful co-ops, we link them and network them and they work synergistically, sharing knowledge, labor, skills, produce, etc. The cooperatives cooperate, because there is no need to compete. There’s nothing to compete for. No more capitalism. No more profits to chase. And our communal funding allows us to build what we need, share it and make sure no one goes hungry, no one is homeless, no one knows poverty.

But it goes much, much further than that, which takes it light years away from “feudalism.” Because funding comes from a communal pool, and has absolutely nothing to do with sales/revenues (or inheritence), we can build all the schools we need, all the hospitals, all the clinics, all the cultural venues. We can teach and train anyone who wants to learn trades, skills, the arts and so on. And because the funding is never tied to revenues, and unlimited, we can always pay wages for staff, and everyone who wants to work can, and those who wish to save a bit more, and move up the four steps/tiers, can. If they want to have a bit more, some options to take trips away from that particular egalitarian society, they can train to do so. Four steps — to me, the sweet spot for egalitarianism with enough room to incentivize more time spent on improving skills sets/knowledge.

We could call it anything the people want . . . . Apprentice, Apprentice-teacher, Teacher 1st class, Teacher-admin . . . . or something entirely different. But the ratio of top to bottom would be no more than 4-1 . . . . unless the Demos votes otherwise.

See? Ask a question about Plume’s solution, and you get a lot, but it’s crickets.

Layman @279,

It’s not a utopia. It’s not meant to be one. It’s just a far better, far more humane, moral, just, practical, workable and efficient way to organize society.

What you consider “practical problems” only exist in your head. How does the current capitalist system deal with these things? Does it solve the problem of better pay for rotten work that no one wants to do? No. Does it solve the problem of hunger, homelessness, poverty, inequality? Quite the opposite. It tends to pay even shittier wages to people who do the dirty work for the rest of us. It generates poverty, homelessness, hunger and inequality.

Your criticism is nothing new. And its mode of attack is nothing new. You simply hold my alternative to a much, much higher standard than the existing system, and if it can’t solve every problem on earth, you get angry and dismiss it.

Rinse and repeat.

Now, ask yourself this. Psychologically, do you think most people are going to do nothing, rather than something, knowing they have at least the basics covered? Or do you think they’d rather work, earn their own wages, feel productive and independent, feel like they contribute to society, for their family, etc.?

I know for a fact it’s the latter. It’s always been strawman nonsense to suggest that if we make sure everyone has at least all of their needs met, no one will work. It’s always been bogus nonsense.

Layman @277,

What you describe is a broad problem that Plume has never addressed with other than platitudes. Who is going to assign labor to various tasks? Someone has to. If it is decided, according to mysterious mechanism, that 1000 pairs of shoes are to be produced this week then there absolutely must be a way to get workers to the shoe factory to turn out those 1000 pairs.

How will this be done?

Layman,

Seriously. You think I haven’t gone through all of this here before? Hell, I’m told I post too much about it, and others scold me for responding to criticism. You can’t be seriously suggesting that I’m unwilling to flesh this out.

The alternative is a democratic, egalitarian, Parecon-like system of federated, autonomous communities. Participatory economics and politics. Networked, linked. Production is done to order. Not based on hopes for future sales. No profits. No private ownership of the means of production. The means of production are fully public. Not via proxies. But literally publicly owned. The focus is entirely on making things based on community needs, derived democratically, at town hall meetings, using pattern-aware software to extend and enhance this, and algorithms which learn from those orders and those meetings. Shared across the entire system.

Leadership is rotated and temporary. It’s as non-hierarchical as possible, while still getting things done. People do their public service, as local, regional and national reps, then go home. Temporary. Everyone gets free education, cradle to grave, and free health care, access to cultural venues, public transport. Everyone can train for whatever job they want, or study whatever they want. Communities cooperate on filling employment gaps if this doesn’t match up to needs. People shift around temporarily as needed, but they concentrate on their chosen field. If there are dangerous and dirty jobs no one wants to do, this becomes a part of community service as well. Temporary. It can be chosen by lottery, as are the reps. The autonomous communities exchange labor, knowledge, supplies, food, etc. etc.

For starters.

We aren’t holding your system to a higher standard. It’s just we have a system that works better than those we have tried before. Capitalism is the only system in history where obesity is a problem of poverty. Not only are the poor not hungry, they’re fat. In any previous system to be fat you had to be rich.

Your rhetoric is both emotive and factually wrong. Some jobs that very few people are willing or able top do are pretty well paid. Most people would not consider clearing fatbergs from the sewers of London under any circumstances. In the absence of forced labour the only way to get even the few people prepared to consider it to actually do it is to pay them quite well. It’s somewhat dangerous (the sewerage can produce flammable and toxic gases) fairly skilled (it can be very slippery) and extremely unpleasant (it’s in a sewer) work.

It’s not so much that people won’t work at all as they won’t work all that hard.

Bernard @286,

I’ve repeatedly said who assigns labor roles and did again this evening. We do this democratically. We do this as a community. We rotate leadership, and all leadership is temporary. The entire community has an equal say in this, in all the decisions that affect them. Which is radically different from our current system which hands over this power to a tiny fraction of society. Within the new framework, each one of us pursues whatever line of work we choose. If there is no need to shift labor around, we remain in our chosen field . . . . and everyone gets a shot at pursuing our dreams. Money is not the entrance ticket. Education and training, cradle to grave, is free. That means no one is denied, which can’t be said about capitalism. No one is left behind. Again, that can’t be said about capitalism.

. . . .

There are fewer than 7 million business owners with employees in this country. But that tiny fraction decides your wages, what you do at work, whether to ship your job overseas, kick you to the curb, or automate your position out of existence. And you have zero say in the matter. I think that’s insane. To allow that. To allow so few to decide so much for so many.

In the alternative I’m talking about, that can’t happen. The decision is a truly democratic one. Direct democracy, btw. Not via political parties or other proxies. One person, one vote, literally.

That sounds awfully like a command economy with corvee labour. You seem to be advocating drafting people to do unpleasant jobs.

The problem is that what you advocate either sounds like something that has already been tried and rejected or is vacuous handwaving.

If you can study for as long as you like at any subject you like you get perpetual students. Saudi Arabia has a really excessive number of perpetual Theology students as does Israel among its Hasidic community. They spend years and years studying for a degree in the most totally useless subject imaginable. Many Saudis are in university very few are employable at the end of it, however being a student gives social status the way layabout doesn’t.

No, Brett @294,

I’m talking about communities pitching in and helping their neighbors. Oh, the horror!!

And, again, yes, if they want to be students all their lives, they can do that. But, again, without working, they won’t earn their credits and they will be a bit constrained on what they can buy and where they live. They won’t be able to buy their own place. I doubt many will choose to be students forever, and they can always teach. That’s an actual job in which they’d earn their own wages. I think the vast majority would choose that route. But there will always be exceptions and that’s fine. That’s “freedom and liberty,” etc.

I’ve repeatedly said who assigns labor roles and did again this evening. We do this democratically. We do this as a community. We rotate leadership, and all leadership is temporary. The entire community has an equal say in this, in all the decisions that affect them.

Well, that’s the problem. What you’re dressing up in a lot of rhetoric is a system where I can’t decide what kind of work I’d like to do. Instead “the community” or whoever, tells me to go make shoes, whether I want to or not. If you can’t see the difficulties with that then you are blind.

But that tiny fraction decides your wages, what you do at work, whether to ship your job overseas, kick you to the curb, or automate your position out of existence.

No. It doesn’t.

The decision is a truly democratic one. Direct democracy, btw. Not via political parties or other proxies. One person, one vote, literally.

This is just silly. Do you really imagine that in a system where things are decided by vote there won’t be coalitions, blocs, vote trading, whatever? And even so, why should my life be subject to a vote, however wonderfully democratic? I don’t want to work on an assembly line making shoes, and even if the vote is 999-1 that I should I still shouldn’t be forced to.

Your worship of collective decision-making is frightening. I see no difference between my boss telling what to do and The Collective telling me. Except that I might be able to get away from the boss.

Obesity is a problem of poverty in the established rich capitalist states. which is a position absolutely unique in history. Capitalism has proved far more productive than any other system in history. It has also seem a large decrease in the Gini coefficient relative to agricultural societies. Especially the after tax Gini coefficient.

Democracy is a bit of a second best to personal choice for decisions that really have to be taken collectively. What tee-shirt I want to buy it’s simply a matter for me and the seller. The wider community has no reason to get involved.

Opportunity cost

The problem with price controls is simple when we think in terms of opportunity cost. If prices are fixed by law, they cannot tell us anything about the true opportunity cost of goods and services. Nevertheless, the logic of opportunity costs still applies to firms and consumers.

Firms will supply a good as long as the price they receive is [more] than the opportunity cost [of the resources employed]. If the price is fixed at a low level, then firms will supply only small amounts, or none at all.

People will be willing to consume more of a good as long as the opportunity cost is less than its value to them. The opportunity cost consists of the price, along with any other costs involved in obtaining the good. If the price is fixed at a low level, and the good is freely available, they will choose to consume a lot.

Paraphrasing Wikipedia: the opportunity cost of a choice is the value of the best alternative foregone, in the context of a choice among mutually exclusive alternatives

It seems to me that JQ is trying to make a very useful point, which is that people respond to price strategically. Price becomes their reference point for estimating opportunity cost in their decision-making, and if price is not “truthful” in some sense, the subsequent game-playing can become quite wasteful and counter-productive.

The point I have tried to make, upthread and previously, is that there is almost always a gap between price and opportunity cost for the firm: some portion of the firm’s income constitutes an economic rent. This economic rent relates to the structure of the economy; you can think of it as a buffer against variability and uncertainty. The firm is organized around the factor or factors earning an economic rent, and the control structure of the firm directs residual income to these factors.

So, from the firm’s perspective, the choice of whether to produce Good A or its next best alternative, Good B, means that the firm’s opportunity cost is not represented by the price of A, so much as by the price of B (relative to A). The price of A has to be higher than the price of B (roughly) the opportunity cost, and as long as the price of A is higher than the price of B, the firm will choose to supply A. The margin between A and B becomes a stability buffer, as the firm will not switch its owned or controlled resources from producing A to producing B, unless and until that margin disappears.

Devotees of the doctrine of market utopia often believe in an imperative to eliminate economic rents. Competition will eliminate rents and that will be a good thing goes the reasoning. Government policy that creates or protects rents is a bad thing. It is not at all a realistic appreciation of the mechanisms governing economic behavior. Many of the most productive firms have made sunk-cost investments in organization that are realizing increasing returns to scale, network effects and so on (that in turn, are driving the economics of urban growth). The only return they can possibly earn on a sunk-cost investment is an economic rent, because there is no opportunity cost for a sunk-cost investment. Their business models are dependent on the arcana of property rights and government policy to enable them to generate a return.

The fact that firms have a cost structure that earns them an economic rent, as I said, accounts for the structural stability of the economy, for the apparent permanence of firms and routines. The baker from the broken windows scenario, possesses a shop and skills dedicated to baking. His marginal cost for making a pastry is much less than the opportunity costs facing customers, who might be interested in making their own. He chooses a price schedule that more than covers his costs and earns him (and/or his landlord) an economic rent, while being an appealing option to some proportion of local consumers, in the sense that he’s made it cheaper or more convenient than household production. Chances are he routinely makes more than he usually can sell, because he doesn’t want to miss out on a sale, in case an unexpected customer calls, because his unit costs, even at the margin, are much less than price, a price he administers with an eye on his competition.

This cost structure is pervasive in a capitalist money economy. It is key to why Keynesian demand management can work: it is because the bakers in this world want to sell more at current prices. (That’s not true in Hazlitt’s imagined world.) It is also why, JQ’s prescription for the poor — to give them money — can work: because there are lots of people producing things, who want to produce more, if they can do so, in exchange for additional money. And, because the government can tax firms’s economic rents, and so tax without appreciably curtailing willingness to produce.

Economic rents are behaviorally important. They motivate people, toward good, ill and trivial behaviors, and I would include political behaviors. They can be a sharp stick, since not just a marginal payment can be put at risk, but a whole capitalized value.

Economic rents are socially important: their very existence points to the interplay between individual and collective choice. The market utopia, where many choices are essentially private and they just add up, so a natural decentralization is possible and even desirable is not the world where economic rents show up or are important.

This is where I think the disconnect on rent control was unfortunate. Every decision is not a private decision or a natural outcome of private decisions. The public authority that makes all kinds of infrastructure and urban planning decisions is shaping the rents landlords can earn. There are centralized, as well as decentralized, decisions, and economic rents relate the two. The problem of adequate housing in NYC cannot be pried away from these other public planning choices and management of the whole is a complex problem, for which there may not be ideal policy solutions at the ready, short of truly centralizing choice, as Singapore has done.

I think Harold was heroically trying to keep a realistic perspective on the consequences of “markets” where the market solution may not be desirable or desired. There is a large component of economic rent in NYC rents, the interests of landlords and tenants are in conflict, and the landlords are not in a position to “solve” the problem on their own. If central Stockholm can only be preserved at the price of waiting lists a mile long, maybe that is still a reasonable political choice.

“Really, Sebastian [horrible housing shortage] -> [strict rent control] isn’t a “normal” explanatory sequence? So alien to your way of thinking that you accuse your interlocutor of not being reality-based?”

So here’s the thing. Rent control was supposed to fix the horrible housing shortage problem and make sure that rent was affordable. It has been in place in New York for about 100 years. New York has worse housing shortages than ever and is one of the least affordable places to rent in the entire world. Therefore, I can say with a fair degree of confidence that in New York, rent control hasn’t made sure that rent is affordable in New York.

On a one year basis your criticism has some force. On a 100 year basis it doesn’t.

@302 I know people who got on these waiting lists in NYC and sometimes the 3-year waiting list turned out to be 6 mos. because people dropped out. Waiting lists are not bad, per se. It depends what you are waiting for.

“there is absolutely no reason to think that people’s choice of jobs, given equal pay, will remotely resemble the jobs needed to meet the demands for goods and services that are expressed through your ordering system.”

What reason do you have for believing that the demands for goods and services that are currently expressed through ‘your’ ordering system are needed or are such that they actually contribute to the well-being of people?

Very few of the products that you seem to admire as wonderful contributions to the human condition are just not so wonderful, and do not in any way provide for the growth of happiness.

Very few of the leaner type people I live among would want to write poetry or paint pictures as a way of life. Some people enjoy digging ditches or speaking from experience shovelling gravel for my own driveway. Motivation is the key and you seem to imagine that your value system – profit – is the only one that can motivate human beings.

Your thinking is pedestrian and ignorant of how real people in a free society would work things out.

Pity the poor billionaire who can’t muscle his way to the front of the line!

Amen.

Bernard @305,

Not sure where you get any of that. Certainly not from my posts. Unless, perhaps, you’re skimming every fourth or fifth word and then responding.

I never said that I expect frequent labor shortages, or that “everyone can go back to being poets or pianists.”

Tragically, their percentages in any population are pretty small. That wouldn’t suddenly change in the alternative, though it would go up. Fewer poets and pianists would feel the need to throw away their art in order to avoid things like bankruptcies, which would no longer happen, and more would discover their innate talents, due to free cradle to grave education. But the overall percentages would still be (unfortunately) all too low.

You’re inventing problems here and it sounds desperate.

Beyond all of that, you haven’t made a case for why there could never be a match of production and need, with plenty of jobs created in the process. I’m actually a bit confused by that first paragraph to begin with, but if I understand you correctly, you’ve just put your foot down and said no, without actually explaining why that would be the result. And, remember, if you give that explanation a shot, you can’t use the “logic” of capitalism to make your case. It would no longer exist. It’s “rules” don’t apply.

I find it telling that one of the biggest complaints about the alternative is both a misunderstanding of that alternative and an incredibly trivial and silly complaint as well.

That you wouldn’t able to buy the spade or T-shirt of your choice, that you’d have to get permission from the community before buying something. In reality, the community is most concerned about what is produced, where and how, up front. Once it’s produced, there is no need to interact with communal democracy before purchasing anything you want. You go to the outlet, use your debit card, buy what you want. Your card contains units earned from work. Buying stuff removes them. You work more, and more credits are added and so on.

Having the community decide what is produced, where and how is just a change in decision-makers. From private corporations, to democratic, communal bodies. It’s a change from the few deciding for the many, without your consent, to the many — rather, everyone — deciding, with your consent. Same basic concept. Different decision-makers, using democratic processes to get there. The current way is radically limited and woefully exclusive. The alternative is radically open and incredibly inclusive.

To me, it’s pretty obvious which one is better.

Layman @317,

In this alternative, as I envision it, anyway, “private housing” would be the default. Public housing would be there for those who don’t or can’t work, and with the full guarantee of jobs, I just don’t see many people unemployed. Communities would naturally allocate resources to build those homes because they, themselves, would be buying them and living in them. The same people making the decisions are the people who live in, or will live in, those houses.

And since the entire economic system is non-profit, with no exceptions, without shareholders, investors or debt, there is no need for mortgages or finance. Prices for homes would be set at a level that the vast majority of people could afford, after a certain time period of work. Chosen by democratic process, hopefully with consensus. The goal isn’t to make money for anyone via housing sales. The goal is simply housing for all citizens. That radically changes the entire dynamic.

Also, as mentioned, all workers don’t make the same wages. There are four tiers, and a max ratio of 4 to 1, top to bottom. Time on the job, continued education, increased skill attainment, democratic reviews of work quality, would all factor into moving up that short ladder. The four steps.

And even if the wages were exactly the same, there is no reason to build the same houses. No logic to that. People are unlikely to elect to build McHouses, when they can choose an unlimited number of designs. How many people really want to live in a neighborhood that looks exactly the same? In this alternative, the people of the community choose. They’re not likely to choose McSames.

(to shorten the post, will respond to the rest below)

Layman @ 317
What about medical professionals? Will everyone be a trained doctor, and rotate the duties? Or will only some people handle that? When and how are they selected for training? Are they exempt from ditch digging duty? Or hazardous work – you wouldn’t want your doctor to be the injured party, right? So I guess they’ll be, well, privileged, won’t they?

Don’t know how Plumes’ society will deal with patriarchy (or the legacy thereof). (I know a number of people here have told me that patriarchy doesn’t exist, doesn’t exist any more, wasn’t as big a thing as I think anyway, etc, etc, but as usual I just go on putting my faith in evidence).

As to the rest. In this alternative, because the people choose, not corporations, and there is no production with the intent to make ownership rich . . . . we can flat out eliminate all kinds of dangerous jobs. Nothing will be produced simply for the sake of driving personal wealth accumulation. The whole point is to radically change this dynamic to production of what we actually use, need and can sustain, as opposed to what a few people try to trick us into thinking we need, want or can’t live without. As in, marketing campaigns.

We wouldn’t produce anything for its exchange value. We produce it for its use value, and, again, it’s always citizen-centric. Done for society, by society, on behalf of society, not for the rich, by the non-rich, for the 0.01%’s personal wealth accumulation.

That means we can rid the planet of massive amounts of waste, pollution, excess, which also means a radical reduction in dangerous occupations. And with the things we can’t eliminate, again, people would pitch in. It’s actually how humans lived for a good 250,000 years, prior to the advent of concentrated city life, etc.

We would also radically reverse the severely hierarchical acceleration of the division of labor, which is one of those fictions we think we can’t do without. It’s a fiction in service of making a few people very wealthy, which we now accept on faith as necessary. It’s not. It’s just a bad fiction. We can radically simplify things and, ironically, increase our standard of living, while reducing our stress levels ginormously.

(again, more below)

Layman,

One of the main purposes of that division of labor also tends to escape our attention. It is to separate and atomize workers from each other and their work. Often against one another. It is to establish a disconnection from fellow workers, and a sense of superiority, when applicable. This aids ownership in obvious ways. It helps them use workers against workers, to keep them from any kind of solidarity, or any kind of demand for better wages and conditions.

In the alternative I envision, to the extent possible, we teach people how to do many things at the same time. We teach them how to tackle an entire job, not just one tiny part of it. For example, building a house. All of it. From the ground up. Doing all the parts of that building. Learning how to do all parts. That builds self-sufficiency, independence and solidarity with one’s neighbors. Instead of thinking of oneself as above one’s neighbors, because you have, say, a desk job and they have, say, a job as a plumber, you learn to do all of this, side by side.

The Paris Commune and the theorists behind it showed how this works.

Yes, there are certain skills that would require sustained immersion. But if we teach holistically, there are fewer things in life that would require those separate skills. This would be more than “cross-training.” It would be a revolution in the way we view work itself. Not as our ticket up the neck-breaking verticality of current ladders. But as the way we discover the full horizon of our skills, our self-sufficiency and our common purpose with our neighbors.

So if I want a tee shirt printed with the slogan “Abolish the collective” or “Do it yourself I’m Lazy” I can’t have it unless “the community” agree? That is exactly what I am objecting to, I do not believe that the community should be involved except when the decision needs to be collective.

What I am objecting to is the community being able to veto production. At the moment anyone is free to print tee shirts with any design they like and place them on sale, if they misjudged the demand they make a loading they were correct they make a profit. Your proposal introduces an additional stage for no apparent purpose.

Capital

Plume: “Also, as mentioned, all workers don’t make the same wages. There are four tiers, and a max ratio of 4 to 1, top to bottom. Time on the job, continued education, increased skill attainment, democratic reviews of work quality, would all factor into moving up that short ladder. The four steps.”

Sorry, I missed that. Who decides the wage at the 4 levels? Are there limits on how many people can be at each level? If not, won’t human nature quickly move everyone to the top tier (“you vote for me and I’ll vote for you”)? If there are other constraints, what stops the majority from relaxing them? From creating another tier, at 10x?

Can you say something more about the level at which this democracy is happening? Are there companies or firms, within which this democracy is functioning; or is the community basically just one big going concern?

BTW, apparently Bezos and Amazon like the idea of giving your peers control of your future. The news about their immediate feedback model, by which workers denounce each other, and organize into gangs to protect each other, does not bode well.

Brett @326,

If you want to make your own T-shirt with those words on it, go for it. The community wouldn’t even think of trying to stop you. It honestly couldn’t care less.

Beyond that, is the absence of certain shopping choices a deal breaker for you?

Hypothetical: You get to choose between two societies, as is. You can’t change them, for purposes of the hypothetical. And you have to choose one of the two. Which one would it be?

1. The current capitalist system, as is. Which means no free health care for everyone; rampant poverty, homelessness and hunger; health care costs bankrupt a million people a year; students currently have roughly 1.2 trillion in debt, etc. Yes, you can make your personal fortune. Which means being roughly 1 in a 1000 who gets there. Greater than 99% of the population never will. The richest 400 Americans hold more wealth than the bottom 60% of the population.

2. You have fewer consumer choices in some areas, but many more in others. Everyone gets free cradle to grave education, health care, cultural venues and transport. Communities decide what is made in their backyard, how, when. No corporation thousands of miles away decides. The community itself does, democratically. No one goes hungry, homeless or lives in poverty. Everyone at least has their basic needs met. At least. The trade off is that no one can accrue great wealth. There are no millionaires or billionaires. The entire economy is non-profit, publicly owned and democratic.

Plume,

I never said that I expect frequent labor shortages,

No, you haven’t. That’s the problem. It’s not shortages but mismatches I’m talking about.

Beyond all of that, you haven’t made a case for why there could never be a match of production and need, with plenty of jobs created in the process. I’m actually a bit confused by that first paragraph to begin with, but if I understand you correctly, you’ve just put your foot down and said no, without actually explaining why that would be the result.

I haven’t made the case??? The case is common sense, statistics, probability, human behavior, all things you utterly ignore. Surely match between production and need is wildly unlikely to occur naturally. Why this isn’t plain as day to you is a mystery.

Production requires labor. If you are going to produce X pairs of shoes and Y shirts you will need a certain number of shoemakers and shirtmakers. Why the number of people who want to be shoemakers and shirtmakers will exactly, or even approximately, match those needs is something for you to explain. But you can’t, at least not without coercion, which you deceptively describe as some sort of wondrous “direct democracy.”

Julie,

What reason do you have for believing that the demands for goods and services that are currently expressed through ‘your’ ordering system are needed or are such that they actually contribute to the well-being of people?

Well, they are actually ordered. Is it your position that you are so wise as to able to tell others what goods will or will not bring them happiness? You’re not.

This is part of my criticism. There is an implicit assumption here that there are those like you, and Plume, and others, who know what is good for others, what is good and healthy and worthwhile, and what isn’t. Sorry, I don’t buy it.

So the community isn’t getting together go decide how much of anything should be produced? I can start a business for my own profit without needing anyone else’s approval? That is what we have right now.

Oh I reject both. I live in a capitalist democratic society that has free at the point of use health care. Capitalism is fully compatible with democracy all of the advanced democracies are capitalist. Non capitalist economic systems are seen in despotisms like North Korea (command economy) and Saudi Arabia (rentier state) or anarchic he’ll holes like Somalia (kleptocracy).

Your description is now sounding more like a market system where the size of an enterprise is limited. We actually have a few examples of that. Weak legislation in India causes corporate governance issues which make recruiting managers from outside the immediate family very risky. This results in a textile sector where there are a lot of small inefficient businesses as the better run ones are unable to expand. It works less well and working conditions are worse. That’s quite apart from that some things have to be done on a large scale. Building an A380 needs a lot of skilled workers and the prospect of at least a few hundred sales to cover the cost of building the factories and sell at a price competitive with the 747. No local community could do that.

Bernard @332,

No, you haven’t made the case. You’ve just made the unfounded assertion. Backed up with crickets.

I haven’t made the case??? The case is common sense, statistics, probability, human behavior, all things you utterly ignore. Surely match between production and need is wildly unlikely to occur naturally. Why this isn’t plain as day to you is a mystery.

Common sense says that a system designed to match production and need would do a far better job of it than a system designed to match production with personal wealth accumulation for a few people. And stats? What stats? You haven’t provided any, first of all. Second, how would they apply to an alternative so radically different from capitalism? Common sense tells us that when you switch the game from Risk to Chess, you stop trying to use Risk rules, data, forecasts, etc.

Layman @334,

No. You miss the point. I set up the hypothetical knowing — well, at least being pretty confident — that someone like Brett would still choose the first one. I wanted to see him make that choice. I wanted to see his ideological stubbornness in action.

Second, in those societies that do slightly reduce the ill-effects of capitalism, it’s done though democratic processes that have nothing to do with the natural mechanics or functions of a capitalist economy. As in, they’re done outside its purview and against its normal activity, if left to its own devices.

What “liberals” and “social democrats” don’t seem to get . . . . and I used to be one of them . . . is that it makes zero sense to cling to a system that requires these offsets in the first place. It makes zero sense to continue with a system that requires so much governmental or institutional countering to even slightly reduce the destructive things this system always, always and forever will do.

An analogy:

The capitalist system is like cigarettes. Liberals think it’s best to filter them to reduce their cancerous impact. Conservatives think it’s best just to leave them alone. No filters. Puts hair on your chest.

Leftists like me think all of that is just nutz. Get rid of the freakin cigarettes themselves!!! That’s the source of the problem, which liberals admit each time they say they need filters!!

“It makes zero sense to continue with a system that requires so much governmental or institutional countering to even slightly reduce the destructive things this system always, always and forever will do.”

This is quite funny. You’re advocating a system in which wages, advancement, production, job choice, housing, etc, are all fixed by a constitution. That’s a lot of governmental regulation, isn’t it?

“Do you not think that a system set up 180 degrees from this would yield different results, naturally?”

No. Bezos is using the same tools as did Mao’s Cultural Revolution – denunciation, public self-criticism, etc – yet the latter was hardly cast as a private for-profit enterprise. The means matter. You can’t make them better by claiming you have different ends in mind.

Layman @339,

Not sure why you’re not getting this. This alternative would prevent, from Day One, the need to augment, redirect, supplement, redistribute wages, wealth, access, etc. It would prevent the need to endlessly react to ill-effects of the existing economic structure, day after day, year after year, decade after decade. And given the continued level of inequality, even in the best of current conditions — Scandinavia, for example — these offsets are only partially effective.

It would set up an economy that doesn’t require this. It would set up an economy that actually functions as it should. Yes, as with ANY modern society, we’d have laws, rules and regulations. But, for the first time in history, they would truly be created by and for the people, instead of by and for the ruling class.

Do you think the United States was founded without massive state regulations, rules, laws, etc. etc.? And just who set all of this up? A coupla dozen white guys, with less than a handful coming up with the vast majority of the docs.

Again, I’m not at all sure why you’re arguing against this in the way you are.

Brett @341,

You are simply asserting that what someone wants to produce will match desired consumption. This strikes the rest if us as magical thinking. The market uses price signals to match production to consumption, what do you intend using?

Funny. That’s exactly what capitalism is all about. And, you’re right. It’s magical thinking to assume that what some business owner wants to produce will sync up with consumption. They hope it will, of course. And they run their ads to increase their chances. But most business fail. Most never do sync production with consumption.

In the alternative, it’s going to be a community decision what to produce, how and where. And they’ll decide based upon initial requests to do so. Votes to do so. The decision by the polity that this is a need or something the community really wants. They’ll see how much popular support there is for new production. Gauge it directly before moving to production.

Once the production is established, they’ll continue to take orders, augmented by software designed to recognize patterns, aided by algorithms that track, collate and suggest future requests. Those would run parallel with the orders. With the passage of enough time, if they’ve found the match and can maintain this, they can, if they want to, stop the direct orders and go with the forecasts. Or not. It would be flexible. Up to the community.

And what if you get it wrong or the underlying circumstances change? The current system is constantly adjusting to circumstances. Writing it into the constitution makes it very inflexible.

Brett @348,

As mentioned, the basicstructure is written into the constitution. Exact wages and prices aren’t set there in stone. They can and will be adjusted, again, as mentioned above. The goal of matching price, wage, need and usage is in the constitution, as are human rights, etc.

But, instead of doing this to enable greater wealth accumulation for ownership, as is done in capitalism, this will be done to ensure high standards of living for everyone. Citizen-centric. Not business-owner-centric.

Brett @351,

Yes, that is the capitalist theory. But it seldom works in practice. Again, most new businesses fail in this system.

But, again, none of this applies to the alternative for the obvious reason that there is no goal to “sell more.” There is no goal to make more money. There is only the goal of matching production with need, always from the point of view of the citizen. For the billionth time, it’s all focused on the citizen/consumer. There is no private ownership in the mix to coddle, pamper, support or bail out. Nothing is done with them in mind, because they don’t exist in this alternative.

In the capitalist system, the purpose of prices is to maximize profits and compensation for ownership. I think you’d rather not admit this and stick with abstract theory instead, because it sounds better. It almost sounds as if “the market god,” to borrow the phrase from Bruce, bestows his divine and benign knowledge on all and sundry to empower and enlighten the populace. It almost sounds like this, at least until you wake up and realize it’s a croc of silly fictions, designed to obscure the real reason for any of this:

To make private ownership wealthier.

There is no benign hand at work. Capitalism is, at best, amoral. At best. Businesses don’t come into being or do their thing in order to empower or enlighten consumers, or save them money. They come into being to make money for themselves, which necessarily involves taking it from workers and consumers. What you’re talking about is just lipstick on the pig of reality, and you actually want us to believe that individual business owners are acting on behalf of the entire population and doing their best for them.

Come on, Brett. No one’s buying that snake oil.

Layman @353,

First off, were all of these questions asked and answered when our current system was thrust on us without our consent?

No. Again, you’re holding my alternative to impossibly high standards of solving every single possible issue that might come up, before they come up. We’re still working on problems in our current system, some 226 years after our Constitution was ratified. It appears you want to compress that into a couple of days when it comes to the alternative.

On to your questions. I hardly would call it “coercion” when you can decline and still have a solid, well-built roof over your head and never go hungry, plus maintain your access to free schools, training, health care, cultural venues, public transit, etc. etc. Even in the most generous social democracies, you’re not getting close to that if you don’t work. You don’t get them if you do.

As for wages and prices. I can’t win here. It seems that you have a problem with no wage and price increases, and wage and price increases. You have a problem with an absolutely flat system, and a slightly tiered system. You complain that there is no incentive to work if people don’t think they can improve their lot a bit. And you complain that if they can improve their lot a bit, it will screw up prices and wages.

It strikes me that you are bound and determined to find fault with whatever I say, with however I respond, with whatever “solutions” I propose. They seem to just spawn more complaints and criticism. In short, you’re seeking perfection and panacea before considering this alternative, which you obviously don’t apply to the current system. Seriously, if the new alternative is just “better” — and it obviously is — that’s all it needs for consideration. Better. Is. Enough.

(Despite the above, will try to answer your questions below)

Btw, did you watch the Wolff video? He does a great job of explaining how the democratic workplace functions. Notice there are no “committees” in the sense you probably mean. It’s participatory democracy, which means no set leadership. Leadership is always temporary, and that temporary nature induces a kind of humility and care that otherwise wouldn’t exist. No one is permanently in charge and everyone knows it will be their turn down the line. People will make decisions with that foreknowledge.

Yes, you own your own stuff. You can buy your house, fill it with stuff, and that’s yours. There is no private ownership of the means of production, but your own home is yours. Do what you want with it.

Food. We’ll set high quality standards for all of it, and guarantee safe food and water supplies. All organic, all sustainable, from the getgo. There won’t be separate markets, niches and the like for a wide range of quality, and no need to separate prices. All food with be grown under the highest standards.

Consumer goods, like electronics. Same thing. No need to offer a thousand different cosmetic differences, augmented by clever marketing campaigns. The highest quality standards for all goods and services. We can keep prices within a small range because of this. Again, communities decide what to build, why, how and where. They’re going to vote for the best quality stuff. It’s only in for-profit systems, that create massive inequality, that you even need to have radically different prices. They generated radically different compensation. The top isn’t making more than 4 times the very bottom, and the very bottom makes enough to afford a high standard of living — by design.

Plume @ 344: “Not sure why you’re not getting this. “

Yes, and you should stop and consider why that might be. You say that the problem with capitalism is that it must be constrained with lots of regulation (I agree, BTW); but you propose to replace it with a system constrained by lots of regulation. If heavy regulation is acceptable to you, then there’s no need to replace capitalism with a mystery – just regulate it instead.

I agree with you whole-heartedly about the ills of unconstrained capitalism. I’d regulate the heck out of it. I’d find a way to outlaw financial engineering. I’d try to limit stock trading and penalize it heavily to discourage markets as casinos and refocus them on their role as a means of capital allocation. I’d tax capital gains at higher rates than income, to promote the value of labor and redistribute wealth and income downward. I’d constrain management compensation. I’d establish a universal minimum annual income adequate to provide a decent minimum standard of living.

If you can’t convince someone like me, who will you convince?

(An earlier version of this went into moderation. Sorry for the repetition.)

Consumer goods, like electronics. Same thing. No need to offer a thousand different cosmetic differences, augmented by clever marketing campaigns. The highest quality standards for all goods and services. We can keep prices within a small range because of this. Again, communities decide what to build, why, how and where.

As I said, to much derision from you,

It’s hard to think of anything less attractive than Plume’s world, where we all wear the same clothes, live in the same basic functional apartments, and work at jobs assigned to us by some collective.

No this wasn’t worked out in advance, classical economics was descriptive describing how the existing system worked. Can you give a working example of your system?

Capitalism has worked a lot better than anything else we’ve tried. Most attempted alternatives have been far worse. Capitalism developed in an essentially mercantilist system. Some parts were highly regulated, with price controls, subsidys, tariffs &c. Others were more or less unregulated. E.g within cities guilds controlled many trades with job protection and long apprenticeships serving as barriers to entry. Outside in the sub urbis the guilds lacked authority and anyone could enter the trade without any formalities. The result was the suburban trades had lower prices and better service. This led Smith to a suggest that it would be generally beneficial to deregulate. This could be done piecemeal and reversed if necessary. The argument convinced Pitt who for practical reasons brought it in piecemeal and as it actually worked well it was extended as opponents were convinced by practical success.

Brett @361,

Do yourself a favor. Please read The Invention of Capitalism, by Michael Perelman. It will knock off those rose colored glasses. It’s a seminal historical study of political economy, exhaustively researched and sourced.

I think there are some legitimate reasons for an economy producing goods of a range of quality. Sometimes lower quality goods are all one needs.

“I’ve responded to all of your questions, and when I do, you ask another batch.”

Because your answers are incomplete, or digressions, or reveal the need for a follow up question.

Food for example. Meat takes more resources to produce than does grain, and some meats take more than other meats. Some crops require much longer to come to maturity. Some foods spoil quickly, while others can be easily stored. Some foods are more appealing due to our evolutionary heritage than others. These things lead to different prices for nutrition content today.

So I asked you about food prices, and you gave a broad, vague answer which doesn’t address the question. Will beef cost more per calorie than potatoes? Will filet cost more than rump? They would have to, since the production costs are so different. Of course this means there are rich and poor, those who can afford the nicer, more desirable things and those who can’t. You’re closing the gap, but there are other ways to do that.

Similarly, I asked you about property and inherited wealth, and you agreed that people would own property and inherit it. So some people will be born wealthy, in relative terms. If I want what they have, I have to dig ditches, while they sit on their asses.

Perhaps some people will buy two houses, or more. Can they rent them to people who can’t pay the purchase price, but don’t want to live in public housing?

You’re basically trying to reinvent what we have now, without the capitalists.

BTW, you can have equitable, democratic enterprises within a capitalist framework.

Val @ 313: Plume and I sometimes agree on points of critique, but Plume’s positive program, his “possible”, often seems to me to fall into the same category as the “possibility” of eating without shitting. According to Plume, we’re going to have cooperation without conflict, production without waste, management without bosses. I can’t reconcile my personal experience of the politics of committee meetings with his confidence in their judgment and decisiveness.

I’m not unrelentingly hostile to what he calls capitalism, as if it were a definite thing (and oddly immutable for being so dynamic). We do have a loosely-coupled, emergent system of economic cooperation, mediated by money and finance, and imperfectly governed by law and public policy. Like any machine system (metaphor!), it works and it malfunctions and it entails mistakes and waste. I am grateful for and admire many amazing accomplishments of human beings working in that emergent system of cooperation, and like any sensible person I worry about indications of our imminent self-destruction. That it provides some scope for the independent pursuit of individual preferences and ambition and multiple experiments and discoveries and adaptiveness seems like a mostly positive thing. Like other commenters, I think Plume criticizes the system for resistance to adaptative change, but tends to overlook the system features that make adaptiveness possible.

I am interested in understanding that system of economic cooperation. Raising consciousness about how that system works and by extension how to better govern ourselves seems like an important task. The Hazlitt-Hayek-Friedman story about how the economy is a system of self-regulating markets nearing equilibrium in this, the best of all possible worlds, seems to me like a dangerous lie or delusion (depending on how sincere you think the narrator is). I was educated and trained as an economist and value my own education, so my critique of those ideas can be a little close, but it comes down to the complaint that Friedman’s facile, propagandistic storytelling constitutes demonstrably bad, wrong economics. Even when I am being hyperbolically emphatic (“There are very few actual markets!”), my immediate goal is disenchantment from a set of seductive, but misleading stories, leading to a better appreciation of how the actual system works, and fails to work. I’m not much for Plume’s politics of now for something completely different. I’ve never been able to embrace even “heterodox economics” — to me, the point is that economics should not be a religion, so a protestantism of multiple sects and theologies is not an attractive path. It is not my view that economics as a body of knowledge is wrong or useless, because I don’t think economics is coincident with the lazy, ideological ravings of, say, Greg Mankiw; it is also not my view that we have the option of taking capitalism to the returns desk at Macy’s and exchanging it for The Alternative.

The actual political economy, qua system, is in a continuous process of emergent self-organization. A bit of consciousness-raising about how it works might add some intelligent self-awareness to the adaptive “design” path it takesand that would be a good thing (did I mention indications of imminent self-destruction?) That’s where I would place the OP: an attempt to advise on the efficacy of a policy intervention. Here we have a system that runs on money and price; will an attempt to fix price by political fiat, be an effective governor on the system? Correct Answer: certainly not, if that’s your whole program.

I don’t know that Plume got that message from the OP. His program seems to involve a lot of ungrounded faith in the power of political fiat — writing things into the constitution and so on.

My objection to the OP was far more subtle than Plume’s, I think. I think, at a minimum, you need an analysis of how the system works that includes economic rent as a source of stabilization, to appreciate why rent regulation is commonplace policy, and why rent control might be implemented in particular circumstances. And, I think it is necessary to reject the Chicago-style fairy tale of the market economy, where free market prices magically take us to optimal states of the world, and interventions like rent control can only cause problems and can be the only cause of problems; if you can see that the “free market” prices and private entrepreneurship can sometimes carry the system in dystopian directions, then you can appreciate why NYC might adopt strict rent control as a way of applying the brakes on a runaway system (which I think is more or less historically accurate). You don’t have to take the view that panic braking is an example of skillful driving.

Bruce,

Never said there would never be conflict, or waste. I’ve always talked about the alternative being much “better” than the current system. But not perfect by any means. It would generate its own set of new problems and there would be plenty of conflicts. But on balance, it would surpass current systems in several key areas, including the allocation of necessary resources, compensation and access to the fruits of society. It would radically shift the locus of concern from making rich people richer to making sure everyone has at least enough. It would drastically shift the focus from the ability of the few to accumulate vast fortunes to what an economy really should be all about:

Ensuring at least adequate and sustainable allocation of resources, comp, access, etc for the entire population, with no one left out.

From my POV, “liberals” are okay with leaving a certain percentage behind. They think this is a necessary price to pay for allowing a tiny percentage at the top to make their fortunes. We leftists don’t think that’s a bargain we should ever have made, or had a right to make. We don’t see the “freedom” of the few to become rich as a legitimate pursuit in the first place, and certainly not when it requires massive losses for a large percentage of society — and the earth. They can’t become rich without others paying dearly for that, and the earth can’t handle it for much longer.

Makes far more sense to “sacrifice” the chance to become millionaires and billionaires in exchange for no one being left behind. Can’t do both. And I see the current arrangement as obscenely immoral, arrogant and blind.

“Your suggestion that prices would have to be increased for X, because of Y and Z, is dependent for its cause and effect on for-profit logic and the logic of capitalism, basically.”

Capitalists didn’t invent the laws of nature. Some things take more resources – finite resources! – to produce than others. Will your prices reflect that, or not?

“As mentioned, there wouldn’t be any rich or poor people.”

Yes, you say that and then contradict it. Some people will be paid more than others. Some will own houses, while others will not. Some will own multiple houses, and take on tenants, squeezing rent from others. Some will eat steak, while others eat soya. Some will work in climate controlled environments, doing things they love doing, while others will dig ditches. But there won’t be rich and poor, never that!

I think it would only be a matter of a few generations before inequality would be restored.

Assume we found ourselves in Plume-world and person A, being brilliant of mind, was chosen to be a doctor and we would presume that (I will use her as my pronoun for this person, but obviously it applies equally to any gender) her skill and gentle manner would be revered by all such that she would get the top-end of the scale in compensation – 4x the base.

Person B was born strong of back and hearty of spirit. If there was a ditch to be dug, he (I chose he this time, but gender isn’t relevant here either) did it and chose from an array of well honed spades which society had generously provided him, so he could complete his tasks with an economy of effort and thus he was quite productive in the world of ditch digging. As excellent as the ditches were however, clearly best in class, society had only so much demand for the well made ditch and thus in its wisdom bestowed the ditch digger compensation equal to 1x the base.

Base salaries, of course, were quite adequate to all of the basic needs. Both person A and B were well fed, had reasonable entertainments available to them (free cable TV and wi-fi!) and their healthcare was provided according to their needs and quite competent. Other reasonable necessities were also furnished from the largess of the well functioning society.

Person A loved her work and spent most of her time doing it such that, despite earning 4x the base, she really only spent about half of it so was able to set aside 2x the base each year for about 30 years of the 50 years of her working life. It should also be noted that person A was married to a lovely partner, person M, who was also a skilled physician (they met in med-school). Person M also earned 4x the base and was likewise able to save 2x the base each year for 30 years. By the time A and M died they had accumulated savings of 120x the base which, together with their nice, but not outlandish house and other modest necessities was passed along to their only offspring, who we shall call Person Z.

Person B of course had what he needed, but earning no more than the base he wasn’t in much position to produce any savings. He did marry, person L, who did some compensated work from time to time, but chose primarily to tend their home and see to the needs of their children X and Y who were each the spitting image of their parents.

The second generations of these two families progressed in exactly the same way, which statistically is quite common and also to some extent consistent with the genetics which in this case I’ve reduced to ‘intelligence and caring’ for Person A and her offspring and ‘strength and hardworking’ for Person B and their respective offspring. All positive traits incidentally but ones which are quite often rewarded differently depending on what milieu a person finds themselves.

By the time the third generation rolled around (i.e. the grandchildren of A and B, respectively). The grandchild of Person A would be sitting on at least 240x the base in inhereited wealth + whatever their skill could earn them. They would have spent their life in the company of highly educated and skilled parents and grandparents and would be born understanding that they had ample credits to acquire possessions at a rate well in excess of those around them.

We as society might like to hope that this grandchild, with such advantage, would pursue the caring, intellectual heritage of their parent and grandparent as a physician or some other source of good, but we could likely understand why this advantaged soul might instead become an asshole and use their credits in an ostentatious manner that would be demeaning to the relative poor they occasionally came in contact with.

Meanwhile the grandchild of Person B would still have basically a 1x base job, a life spent in public housing, few successful role models and the option to continue digging first class ditches (like his father and grandfather before him) or sit and watch as much free cable TV as his eyes could tolerate while requisitioning as much peoples-vodka as his budget allowed.

This would be the point at which Plume-world and the current world might look somewhat the same as what we see today to the eyes of many.

Layman @373,

Asking for the fourth time, did you watch the Richard Wolff video? And, to make the response to the following easier to understand, I suggest the following TED talk from Yuval Harari.

Capitalists didn’t invent the laws of nature. Some things take more resources – finite resources! – to produce than others. Will your prices reflect that, or not?

Capitalism is a fiction people have agreed to treat as a reality. Its rules and logic are fictions and fictional conventions within that larger fiction. There is no “natural law” that says prices must reflect things like scarcity. Prices don’t exist in nature. Pricing things doesn’t exist in nature. They are a human inventions/conventions, as is capitalism in total.

If, for example, we all agreed that the price of something extremely rare should be lower than things that are plentiful, that’s the way it would be. It’s all in the agreement. And though it would be more difficult to pull off, this could even be the case if consumers, alone, agreed to this or other variations, and didn’t deviate. What could a seller do, for instance, if they could find no buyers unless they priced their rare gems the same as their plentiful ones? It’s all an agreed upon fiction. Capitalism “works” to the extent it does because few people are willing to say no to it, to its fictional conventions, pricing, wages, “logic,” etc. etc. But all it would take to turn it completely on its head is a new agreement to completely refuse any existing arrangements, conditions, pricing, wages, supply chain arrangements, etc. etc.

“Asking for the fourth time, did you watch the Richard Wolff video?”

No. As for the rest of your response, it would be better if you’d just answer a simple question: Will the prices for goods in your model reflect the resources committed to producing them, or not?

Just in case you think I didn’t answer you:

No. Prices wouldn’t reflect scarcity or other “costs.” There’s no reason for them to in the alternative system. They have a different purpose, burden, rationale than in the capitalist system. And the alternative rejects the fictions of capitalism and everything related to those fictions, absolutely.

No you couldn’t. Prices reflect the value of the inputs required to make something. They are not arbitrary. Basically things have different availability. If something is common it is going to be cheap, even if most customers would still buy it if it were expensive, they are still going to opt for the cheapest supplier. The laws of supply and demand are based on observing what happens in a market without price regulation.

If you have a maximum price less than the cost of production then you get no production. If you set a price well below the marginal price you get shortages as the demand at that price is far higher than the supply at that price. What you get then is a lot of queuing and under the counter payments. It’s not as if setting prices by legislative fiat hasn’t been tried thousands and thousands of times.

Brett @383,

You keep insisting on using capitalist theory/logic in a non-capitalist context. Currently, producers won’t produce something if they can’t make money on it, and that “logic” carries throughout the entire capitalist system. But if everyone owns the means of production together, and we produce what we want according to need, not to make our personal fortune, then all capitalist bets are off. The rationale for producing anything is absolutely, 100% different, and that permeates the entire alternative economy. And when sales are absolutely, 100% divorced from funding, funding from sales, the price of something is irrelevant to the nth degree.

Funding comes from a totally separate pool. It doesn’t matter how many sales you make. Price doesn’t generate any usable revenue. All of that comes from a separate, publicly owned source. That source isn’t impacted in the slightest if you raise prices, lower them, sell 100 units, or sell a million.

That’s the truly “revolutionary” aspect of this alternative. It severs price and revenue from all funding. It makes it so we no longer need prices to contain taxes, benefits, worker pay, executive pay, profits, etc. etc. They don’t have that burden any longer.

It’s an entirely different game, with entirely different rules and logic.

Bruce Wilder @369,

One of the best comments I have read in a long time.

I wholly agree that we need to avoid the fantasies of stick-figure economics, where this line must meet that one, and all will be for the best. What I am objecting to here is Plume’s ideas which seem to me to be even more fantastical.

BY @ 387 Thank you. I am reluctant to engage with him– I don’t think I am the only one.

Layman @384,

Why are you banging on about ditch diggers? And why would you think they’d have to still be doing that at 58?

As for time to go back to school and study. A coupla things: First off, we work as much as we do now, as many hours as we do now, to make profits for our bosses. Take out the need to generate profits for a few, and we can slash several hours off a day, easily. A worker at a car parts assembly line, for instance, produces enough in his or her first hour to match their day’s pay. All the rest of their time is working for free. Ending for-profit employment instantly enables far more leisure time for everyone.

Capitalism operates on the grotesque underpayment of workers. That’s how it generates profits and high comp for executives. The more unpaid labor it generates, the more the folks at the top make. It’s built on the premise of slavery, with a twist. Instead of appropriating all the production and giving nothing back to the worker, it appropriates all the production and gives back a pittance.

In the alternative, that doesn’t exist. There is no capitalist appropriation of surplus value to begin with. There is no profit. There is no need to work long hours to generate that unpaid labor, to increase surplus value, etc. etc. No need to lengthen the work day to squeeze out as much profit as possible. It’s the opposite. We can and do radically shorten it.

And, again, if someone wants to take a break, they get free schooling/training. If they’ve already bought their home, they don’t need to move into public housing. If they’ve managed to save up, they can still use their debit card to purchase things as per usual. It’s their call as to how long they want to study and live on savings. They’re not trapped, like you want to imagine. There are all kinds of different ways society will help them achieve their goals.

388.penultimate: Why don’t we have those things already, or as lost, why have they been lost? I’m sure you have a narrative with white and black hats, and likely some kind of plan. Elect more and better Clintons, or try for Warrens and Bernies, and patiently work real hard for a century. Ooops. Melting. What makes you think “they” aren’t out there working and failing, and that your or my additional effort will do the marginal trick?

Not even heterodox, BW? Now I know you better. Conservative.

I watch who likes Plume, and who not so much, and learn.

Market trades are wagers in the same way that insurance is a wager. One party takes risk that they can bear more than the other party. To some extent that depends on a judgement of what the market will do in the future.

“Market trades are wagers in the same way that insurance is a wager.”

Not really, no.

“And they do nothing to even slow down the ecological trainwreck were heading toward, thanks to capitalism.”

This may be part of the problem: I think the ecological train wreck has more to do with human nature and human expectations than with capitalism. It’s about what people want now, and their inability to see or care about long-term consequences. If that’s what your plan is meant to address, then it isn’t about ending capitalism, it’s about reducing standards of living at the top and in the middle. Focus on that. And if you want to do it quickly, you’d better use the system you have to make drastic changes instead of trying to invent a new one out of whole cloth.

They actually are. Most of them involve hedging against a risk. Say you are a baker and cannot afford it if the price of flour rises 10% above the current market price as you have contracted with a supermarket to supply them with bread at a specified price. You take out an option contract at 5% above the market price. If the price is above that you exercise your option. If it is not then you don’t exercise your option and the seller keeps the fee you paid for the option. The seller is gambling on the price of flour not rising. The more esoteric bonds were mostly based on various combinations of conditional bonds.

Brett Dunbar @ 402

I see a baker who can make a profit even while paying 5% more than the current market rate for flour, and a flour seller who can make a profit even while getting 4.54% less than the market rate for flour. Why can’t they make a straightforward deal, between themselves – an agreement on a set price, say at 105% of the starting market rate, for a defined period? Why is an ‘esoteric bond’ necessary in order for both of them to flourish? Other than greed, I mean?

If they insist on a wager, why can’t they make a wager between themselves? Why must there be a market instrument to represent the wager, one which can be manipulated for profit by people who’ve never baked a muffin or even seen an oven?

“The baker took an option as they wanted to be able to buy on the spot market if that was lower.”

I understand the transaction, but it doesn’t answer the question.

They didn’t want a future contract. They wanted an option. A 5% rise might only allow breakeven or a loss all enough for the baker to survive. Maybe they expected the price of flour to fall but were worried about the small but unaffordable risk of a severe crop faliure leading the price to increase 25%. They are buying the option to limit their exposure to the risk of a sudden large price increase. Without losing the opportunity to profit if the price of flour fell. Being bound to a future contract might prevent you competing with other bakers if the price of flour fell, as you are already committed to buy flour at a higher price. The option is acting as insurance against price rises.

And, isn’t it the case that, for any particular exchange of the instrument denoting this wager, neither party is likely to be a baker or a flour seller; that most such transactions are taking place between third parties who are simply gambling?

Layman,

Last comment on this — no, really.

:>)

First off, I find it beyond puzzling that anyone who recognizes capitalism’s ill effects would still cling to it. It makes no sense to accept such an unequal, oppressive and unjust system, whether one thinks they can mitigage for its effects later or not. If my alternative is not to their liking, they should at least want one that doesn’t do what capitalism does, that prevents the radical divisions and segregations it creates, all on the basis of arbitrary fictions regarding how our time is valued, why one person’s time is valued thousands of times more than another’s, and so on. Add the fiction that one person should be able to claim the work of many as their own, and it’s even more baffling.

And because of this bizarre, arbitrary, grand canyon gap in time valuation, power is distributed in a massively unequal way. This inequality renders your reforms dead in the water. Because the system itself creates its own defense. Wealth is power in this system. Great wealth is great power. And they’re not going to let the good wishes of liberals or anyone else take that away from them. History tells us this in no uncertain terms.

It also makes no sense to allow gross inequalities to happen, and then try to fix them after the fact. It’s like letting people beat the hell out of each other, thinking after-the-event triage units are the best route to go. It makes far better sense to prevent the mayhem in the first place, so those triage units are saved for emergencies. Creating an economic system that allocates resources and access in the most equitable way possible, up front, makes those after-the-event fixes unnecessary.

As for ecological concerns. Again, the logic of capitalism radically multiplies and accelerates the process toward an unsustainable world. As I tried to show, capitalism does production solely to make money for ownership. It doesn’t produce to order, or for the good of humankind. It doesn’t produce use-value. It produces whatever, however, whenever, in order to make money for ownership, regardless of the effects. And the vast majority of that production requires volume, and more volume, and more volume. To survive, it must grow. It must engender more and more consumption, more and more production, on and on. Capitalism uniquely conflicts with finite resources and the planet’s health. No previous system was ever so deadly for the planet.

If you have umpteen problems with my alternative, fine. But I think any alternative that does not get rid of the root cause of our problems — for-profit, private ownership of the means of production — is guaranteed to fail. Not only is it deeply immoral for the few to control the entire economy, take from the many, decide wages, time-valuation, prices, and appropriate workers’ production for themselves . . . . it automatically creates far too many unnecessary conflicts. Between ownership and labor; ownership and consumers; ownership and community; ownership and the planet. The few should never have that kind of power over the many. Any alternative that doesn’t try to radically flatten the pyramid, and radically broaden equality of voice, access, autonomy, resource sharing and so on . . . . is destined to fail.

If you can find a counterparty then yes. Options on prices in agriculture are effectively bets on weather already. Weather has a large effect on food prices and it can be sensible to pay someone else to take the risk. You might want to hedge against the risk of an event being cancelled due to the weather. Say you have the contract for a tennis tournament on grass.

Should there be a market instrument, traded on the exchange, to accommodate their desire?

What difference does it make? The purpose of the option, or other derivative, is to assure the baker of a tolerable price for flour. This has obvious benefits to the baker in terms of entering into contracts to deliver bread and so on. It is in fact a sort of insurance. It insures against the disaster of a huge jump in the price of flour.

The reason the intermediary enters the picture is that it is hard to find a counterparty – a flour seller – who wants to take exactly the opposite side of the transaction, in terms of quantities, price, and delivery schedules. The intermediary’s job is to contract with this baker and others, and then to find counterparties who, as closely as possible, will, in the aggregate, take the other side of these deals. To the extent there is not a perfect match the intermediary assumes the risk of the contract.

This costs both buyer and seller something, as insurance policies do, but they are spared the need to locate their own counterparties, negotiate contracts, and even check creditworthiness. The intermediary is responsible for fulfilling the contract, whatever happens to the counterparty.

Is there an option to hedge against financial crises?
Absolutely. The problem is that it costs you during times of growth which are far more prevalent.

I’m not going to suggest that no one uses derivative contracts to make money – but “hedge” means just that – to hedge one’s bets – its making money in one area to offset money lost elsewhere. The baker doesn’t pay less for flour, but uses the gains on his hedge contract to offset the higher cost he pays.

Even in the most actively speculated commodity markets (usually gold, sometimes oil) over 2/3 of all contracts by value are executed by companies actively involved with the commodity in question, which is to say they use or supply the item as part of the actual business they do – not just to make speculative profits.

Airlines do this constantly with fuel costs. Right now, most airlines are paying more for fuel than buying at the spot price, but that’s to avoid paying an insufferable amount when prices are high.

The problem is not the speculation, few speculators defaulted in the financial crisis since there are capital controls to minimize the size of both their positions and losses. The problem is when a working counterparty (such as AIG or Lehman) is judged unable to pay, usually due to liquidity constraints. That sets off forced sales which exacerbate the problem and all the attendant negatives.

Layman,

You asked:

“Should there be a market instrument, traded on the exchange, to accommodate their desire?” referring to those who want bet on football games or the weather. It may be obvious to you why that matters, but it is not to me.

“They provide liquidity – that is, they buy and sell so that a buying baker doesn’t have to look for a miller willing to be counterparty to that exact risk-package (such a counterparty may not even exist – e.g., if there are many bakers but only a few large agribusiness millers, who may have better ways to diversify).”

While I agree with the general thrust of this, liquidity is something with a diminishing marginal return. We could probably scale back on the liquidity of many products without damaging economic growth at all, and while also reducing the amount of volatility.

. . . there’s no fundamental reason for the risk-management and logistics to be done by the same entity, and many such goods are perishable anyway (which would prohibit hedging through adjusting inventory levels).

Of course if no one in this net is financing the adjustment of inventory levels, it does raise the question of what the principle of operation is.

Bruce @ 370
Thanks Bruce for your reply. I would like to respond in equal depth but I am too tired at present. It’s funny because there have been discussions here previously about issues around the use of teaching associates in universities and I guess I’m example of some of those at present – anyway some other time perhaps (after I finally retire, whenever that may be)

Anyway, it sounds like – as I think Bob or someone said upthread – you are still a mainstream economist in some ways, like John Quiggin also I think, and my sense is that rather than debating with you, I should concentrate on writing a good thesis and getting some publications, so that my ideas may be taken seriously.

In the meantime, I think Marilyn Waring is a really good feminist heterodox economist – what do you think?

Bernard Yomtov @ 420, I have a response to you, currently in moderation. I wish I could figure out why that keeps happening!

@428

That Philadelphia potato number looks suspiciously high. I can assert that NYC potatoes don’t cost that much (looks more like a 5kg than a 2kg price) so there is no reason Philadelphia should. NYC is usually +/-2.00 per 2kg.

TM @ 428.
I went out my to local met food and found the following:
Bananas $.69 /lb
I bought several bananas and peeled weighed one, fruit and skin, on my home scale.

Result:

3.35 oz banana fruit
2.20 os skin

I’d say that a nearly a third of the weight of the banana comes from the skin.

Potatoes
Met food special: Idaho potatoes 5 lbs for $1.99

10 lb Idaho russest burbank potatoes $4.99
loose potatoes $.99 (both white and red)

The Korean grocery on the corner had comparable prices with loose potatoes at 69 cents

Potato skins are edible, BTW.

If the great bulk of the potatoes grown are going to the processed food industry, then to me that would explain why retail customers can be charged more. They are becoming a specialty food for the home consumer, but I doubt very much that McDonalds pays $1.00 a pound for potatoes. In any case, as I said before, at Trader Joe’s and places like that you are getting specialty organic potatoes with a big markup. You need to check out prices at Pathmark, Key Food, or Foodtown where most people actually shop.

Layman @ 427,

I agree with much of what you say. But you miss a key point. The more exotic derivatives are not traded on exchanges. A big advantage of an exchange is that the price and size of transactions are public, and that the contracts are standardized. Further, amounts owed due to price changes are calculated, and paid, daily.

If you want to know what it costs today to buy wheat for delivery in December the information is at hand. Further, if you want to know exactly what the commitments made by the participants are you can look up the standard contract.

Exotic derivatives are indeed hard, if not impossible, to regulate. These are, or should be, traded only by those seriously knowledgeable, but of course that doesn’t happen and there are traders who don’t understand the risks they are taking and do the kind of damage you talk about.

I think there are several ways to improve the situation. One is to be stricter about leverage requirements. Too much leverage will bring you down even if you never touch a derivative. Another is to restrict those allowed to trade these things. Municipalities have gone broke fooling with this stuff. It is not for nothing that Warren Buffett calls them “weapons of mass financial destruction.” There are other things I could go along with.

TM @ 432 (again) Not only the price of potatoes but prices of all grocery items vary considerably from week to week and day to day. That is because, as someone pointed out on this thread, the grocery business operates on an exceedingly thin profit margin. Thus the store managers have to take losses on some items (usually staples) to attract people to the store, and mark up others (often, but not always, non-food items or luxuries), to make up for the losses. The constant shifting of prices means whoever does the grocery shopping has to be very alert and savvy. Sometimes bulk items are cheaper, sometimes not, for example.

@437 !! Best comment!! Thanks.