If We Don't Change the Way Money Is Created and
Distributed, We Change Nothing
The only real solution in my
view is to create and distribute money at the base of the pyramid rather than
to those in the top of the pyramid.
by Charles Hugh Smith
Many well-intended
people want to reform the status quo for all sorts of worthy reasons: to reduce
wealth inequality, restore democracy, create good-paying jobs, and so on.
All these goals are
laudable, but if we don't change the way money is created and distributed,
nothing really changes: wealth
inequality will keep rising, governance will remain a bidding process of the
wealthy, wages will continue stagnating, etc.
If the money creation/distribution system
isn't transformed, "reform" is nothing more than ineffectual policy
tweaks that offer do-gooders the illusion of progress.
Mike Swanson of Wall
Street Window and I discuss the The Future of Currencies and CHS's New Book A Radically
Beneficial World (33:21)
Few are willing to
admit that the way we create and distribute money at the top of the wealth
pyramid necessarily generates
increasing wealth inequality because once we admit this, we realize 1) the
money system itself is the source of inequality and 2) we have to change the
money system if we want to stave off the inevitable rise of wealth inequality
to the point that it generates social disorder.
In the current
system, money is created by central and private banks at the top of the
wealth/power pyramid, and distributed within the top of the wealth pyramid. The only possible output of this
system is rising wealth inequality and debt-serfdom for three
reasons:
1. Those with first access to nearly free
money can outbid savers and serfs who must borrow at much higher rates of
interest to snap up income-producing assets. In effect, borrowing unlimited
sums at near-zero rates guarantees that those with this privilege have a
built-in advantage in buying income-producing assets. The only possible output of this
system is the rich get richer as they buy up all the most
profitable and lowest-risk income-producing assets.
2. Those who can borrow virtually unlimited
sums at less than 1% interest skim vast wealth by loaning the money out to
everyone below the top of the pyramid at 4% (mortgages), 8% (other loans), and
18% (credit cards). This funnels much of the national income stream to those
who can borrow cheap and lend the money at much higher rates.
3. Since the wealthy already own most of the
income-producing assets, the easiest way to boost their wealth is to bid up
those assets with cheaply borrowed money. For example, borrowing $100 million
and using it for stock buybacks leverages the value of the shares by far more
than $100 million.
Three different
perspectives of the wealth pyramid illustrate how our money system generates
wealth inequality as the only possible
output of the system:
The system of central banks, private banks
and fractional reserve lending is global. The net result is that globally, the
vast majority of wealth is owned and controlled by those at the very apex of
the wealth/power pyramid: the top 8% own 85% of global wealth.
In the U.S., the wealth-income pyramid can be
represented by an inverted pyramid: the bulk of wealth and income are in the
hands of the top 5%. The bottom 80% own an essentially trivial percentage of
the national wealth.
This pyramid
illustrates how the money creation and distribution pyramid works:
There are a number of proposed alternatives
to this the rich can only get richer
and the rest of us can only get poorer system. The only real
solution in my view is create
and distribute money at the base of the pyramid, to those generating useful
goods and services in the community economy, rather than to those in the
top of the pyramid. This money isn't borrowed into existence, so there is no
interest to be skimmed by its creation.
I explain how this works in my new book A Radically Beneficial World: Automation, Technology and Creating
Jobs for All.
The World of Work Has Changed, and It's Never Going Back to the "Good Old Days”
Wishful thinking is not a
solution.
The world of work
has changed, and the rate of change is increasing. Despite the
hopes of those who want to turn back the clock to the golden era of
high-paying, low-skilled manufacturing jobs and an abundance of secure
service-sector white collar jobs, history doesn't have a reverse gear (tm).
The world of work is
never going back to the "good old days" of 1955, 1965, 1985, or 1995. Jason Burack of Wall Street for Main St. and I discuss these trends in a new podcast, Radical Changes in the Job Market, Now & in the
Future (47:37).
Those hoping for
history to reverse gears place their faith in these wishful-thinking fantasies:
1. That automation
will create more jobs than it destroys because that's what happened in the 1st
and 2nd Industrial Revolutions. The wishful thinkers expect the Digital / 3rd
Industrial Revolution to follow suite, but it won't: previous technological
revolutions generated tens of millions of new low-skill jobs to replace the
low-skill jobs that were lost to technology.
Millions of farm laborers moved to the factory
floor in the 1st Industrial Revolution, and then millions of displaced factory
workers moved to sales and clerk jobs in the 2nd Industrial Revolution.
Even white-collar jobs that supposedly
required a college degree could be learned in a matter of hours, days or at
most weeks, and little effort was required to stay current.
The Digital/3rd
Industrial Revolution is not creating tens of millions of low-skill jobs, and
it never will. Even
worse for the wishful thinking crowd, the 3rd Digital Revolution is eating tech
jobs along with the full spectrum of service-sector jobs.
Those expecting to replace low-skill service
jobs with armies of coders will be disappointed, because coding is itself being
automated.
The new jobs that
are being created are few in number and highly demanding.Jobs are no longer
strictly traditional boss-employee; the real growth is in peer-to-peer
collaboration and what I term hybrid work performed by Mobile Creatives, workers with
highly developed technical/creative/social skillsets who are comfortable
working with rapidly changing technologies, who enjoy constant learning and are
highly adaptive.
The work that is
being created in the Digital/3rd Industrial Revolution is contingent and thus
insecure. The
only security that is attainable in fast-changing environments is the security
offered by broad-based skillsets, great adaptability, a voracious appetite for
new learning and a keenly developed set of "soft skills":
communication, collaboration, self-management, etc.
I cover all this in depth in my book Get a Job, Build a Real Career and Defy
a Bewildering Economy.
The problem is the
number of these jobs is far smaller than the number of jobs that will be eaten
by software, AI and robotics. The number of workers who can transition
productively to this far more demanding and insecure work environment is also
much smaller than the workforce displaced by software/robotics.
In short, we need a new system; wishful
thinking isn't a solution.
2. That the U.S. can
unilaterally demand the right to export its goods and services to others at
full price while refusing to accept competing imports. In effect, the
fantasy is to return to 1955, when the U.S. could export goods at full pop to
the allies who were rebuilding their war-shattered economies. Imports were few
because those economies were busy focusing on their own domestic needs.
Trade is a two-way
street. Fair trade is a
moving target, depending on which side of the trade you happen to be on.
Everybody wants to export their surplus at top prices, but competition lowers
prices and profits. This forces global corporations to seek cost advantages by
lowering the cost of components and labor.
3. The wishful
thinkers want strong corporate profits to prop up their stock market and
pension funds, but they don't want corporations to do what is necessary to reap
strong profits,
i.e. move production of commoditized goods and services overseas or replace
human labor with cheaper automation.
You can't have it both ways.
Wishful thinkers choose to ignore the reality
that roughly half of all U.S. based global corporate sales and profits are
reaped overseas. It makes zero financial sense to pay a U.S. worker $20/hour,
and pay the insanely expensive costs of sickcare/"healthcare" in the
U.S. when the work can be done closer to the actual markets for the goods and
services at a fraction of the cost.
Memo to all the
armchair wishful thinkers: if you want to compete globally with a high-cost
U.S. work force and no automation, be my guest. Put your own money and time at
risk and go make it happen. Go hire people at top dollar and provide full
benefits, and then go out and make big profits in the global marketplace.
The armchair pundits and ivory tower
academics would quickly lose their shirts and come back broke. That's why they
wouldn't dare risk their own security, capital and time doing what they demand
of others.
4. The wishful
thinkers decry the lack of "good-paying" jobs yet they refuse to look
at the reasons why employing people in the traditional boss/employee hierarchy
no longer makes sense. The
armchair pundits and ivory tower academics have never
hired even one person with their own money. These protected privileged
are living in a fantasy-world of academia, think tanks and foundations, where
workers are paid with state money, grants, venture capital, etc.
As I have often
noted here, Immanuel Wallerstein listed the systemic reasons why labor overhead
costs will continue to rise even as wages stagnate. This means
employers see total labor costs rising even if wages go nowhere: it gets more
and more expensive to hire workers.
Why I Will Never Hire Anyone,
Even at $1/Hour (November 10, 2015)
Then there's the staggering burden of
liability in a litigious society, the costs of training and supervising
ill-prepared employees and the hard-to-calculate costs of increasingly complex
regulations.
5. We can solve the
decline of the traditional work model with more education.This is also wishful
thinking, as not only is higher education failing to produce workers with the
requisite range of skills, the emphasis on higher education has produced an
over-supply of people with college diplomas.
In the real world, even wages of the most
highly educated are stagnating.
The structural
changes in the world of work are visible in these charts:
The civilian participation rate is
plummeting, despite the "recovery:"
The civilian participation rate for men is in
a multi-decade decline:
Part-time jobs do not provide enough income
to have an independent household or raise a family, nor do they pay enough
taxes to fund the Savior State. The only jobs that count are full-time jobs,
and they haven't even returned to 2007 levels despite a higher GDP and a rising
population.
As a percentage of GDP, wages have been
declining for decades.
Self-employment is the wellspring of
entrepreneurs and small business. As you can see, it has also been declining
for decades.
It's time to get
real, people. Wishful thinking is not a solution. We need a new system for
creating paid work and money, and here's my proposed alternative system: A Radically Beneficial World: Automation, Technology and Creating
Jobs for All.
Wall
Street for Main St. podcast (47:37): Radical
Changes in Jobs Market Now & in Future
The Most Profitable Work Will Be Automated: The Rest Will Be Left to Us
A new system is self-organizing
before our eyes. We just have to stop obstructing its rise and start
facilitating its expansion in self-evident ways.
What's abundant and
what's scarce? The
question matters because as economist Michael Spence (among others) has noted, value and profits flow to
what's scarce.What's in over-supply has little to no scarcity value
and hence little to no profitability.
What's abundant is unprofitable work, commoditized
goods and services, and conventional labor and capital (which is why wages are
declining and yields on capital are near-zero).
What's scarce is profitable work, highly profitable
niches that are immune to commoditization/ automation, and meaningful work.
Drew Sample of the samplehour.com and
I discuss scarcity and profit in the contexts of Decentralization,
Entrepreneurship, Bike Paths, Craft Brew, Automation & more (1:12)
The conversation is
not between two ivory-tower types who have never started an enterprise in their
life;
it's a conversation between a young mobile creative(Drew) who is establishing a hybrid work career of
multiple micro-enterprises and paid work and a grizzled veteran of multiple
careers and businesses (me--with plenty of failures that gave me the necessary
experience to learn how to accumulate all forms of capital and own my own means of production).
In other words, this is a conversation
between people who are walking the walk, not just jawjacking about abstractions
that somebody else is supposed to make real with their own money and time.
So let's get
started.
Everyone wants an abundance of "good
paying" jobs, but employers can only afford to pay employees if the work
being done is profitable. Paying people to do unprofitable work is a one-way
street to bankruptcy.
Those who want the government to fund
"good paying" jobs forget that government tax revenues depend on
profitable enterprises and the private-sector wages they pay.
(Borrowing from our grandkids to pay
public-sector wages today is immoral and financially unsustainable.)
If we look at urban slums and impoverished
rural communities, we find the problem isn't a lack of work that needs to be
done--it's a lack of paid work and a lack of profitable work.
Businesses have
pushed unprofitable work onto the customer. Paying people to pump customers' gas is
not profitable (if it was, some corporation would be doing it). Rather than
lose money by paying employees to pump gas, the industry shifted that
unprofitable labor onto customers.
A great amount of useful work is not profitable and can
never be profitable. We
need to differentiate useful work from profitable work. One example that illustrates the
difference is building and maintaining bikeways to serve commercial areas. (By
this I mean bikeways not devoted to leisurely rides through parkways but
bikeways that one can use to reach grocery stores, banks, post offices, cafes,
childcare centers, etc.)
The work of building
and maintaining safe bikeways is clearly useful. Safe bikeways have multiple
benefits for commerce, communities, the environment and for individuals: safe
commuter bikeways cut traffic congestion, improve the health of the bicyclists,
lower healthcare costs, boost small businesses along the bikeways and reduce
air pollution.
Safe bikeways (i.e. those which are dedicated
to bikes so riders aren't sharing the road with semi-trucks and autos wandering
over the pavement while the driver is texting) are win-win-win, yet they can
never be profitable unless bicyclists are charged a toll, which defeats the
entire purpose of the bikeway.
Impoverished areas are impoverished because there
are few highly profitable scarcities to fill and few people with the surplus
income to pay for profitable services. Taking money from one community to fund
make-work jobs in another community (the essence of government redistribution
schemes) deprives one community of income while providing a temporary injection
of income in the other community--income that is controlled by a government
that is itself controlled by lobbyists and privileged elites.
Redistribution schemes act as bread and
circuses to suppress social disorder, but they don't address local scarcities
in a sustainable way or foster the expansion of long-term solutions to a lack
of work.
There are two
fundamental solutions to a lack of profitable work. One is to pay people to do useful work that
is not profitable and do so with a labor-backed crypto-currency that
isn't borrowed or taken from some other community, and the second is to nurture
community-economy entrepreneurship that works within decentralized networks and
groups rather than through central states and global corporations.
I explain how these solutions work in my new
book A Radically Beneficial World: Automation, Technology and Creating
Jobs for All.
Slums get government
transfers and remain slums. Communities that rely on global corporations sink
quickly into impoverishment when those corporations pull up stakes and move to
cheaper locales or automate the profitable work.
Communities that foster small-scale
entrepreneurship, local efforts to address local scarcities and paid useful
work thrive in ways that contrast sharply with communities dependent on bread
and circuses and global corporations.
The model of
expecting global corporations and Big Government to solve the scarcity of paid
work is broken. Paul
Mason does an excellent job of explaining why in this article from mid-2015: The end of capitalism has begun: the rise of non-market
production, of unownable information, of peer networks and unmanaged
enterprises.
We need a new
system. A
new system is self-organizing before our eyes. We just have to stop obstructing
its rise and start facilitating its expansion in self-evident ways.
From Of Two Minds
@ http://charleshughsmith.blogspot.com.au/2015/12/if-we-dont-change-way-money-is-created.html
, http://charleshughsmith.blogspot.com.au/2015/12/the-world-of-work-has-changed-and-its.html
and http://charleshughsmith.blogspot.com.au/2015/12/the-most-profitable-work-will-be.html
For more information about employment see http://nexusilluminati.blogspot.com/search/label/jobs
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