Sunday, April 27, 2014

Piketty, Princeton and Robots -- Oh My!

Let's start with three related data points.  First, the economics community has been abuzz over Thomas Piketty's seminal work "Capital in the 21st Century".  It's a dispassionate, non-ideological examination of rate of return on capital over history, and how it relates to the rate of return on labor and the rate of economic growth.  The upshot is that it is pretty clear that return on capital is always greater than the rate of growth, resulting, all other things being equal, in an increasing concentration of wealth at the very top.

Second, the recent study by Princeton scholars Martin Gilens and Benjamin I. Page that looked at policy outcomes in detail and found - somewhat unsurprisingly, to me - that political outcomes skew to the outcomes desired by wealthy elites. The important contribution of this study is the stated conclusion that the US can no longer be considered a democracy, as dollars have a greater impact on policy outcomes than votes.

Third, the percentage of the population with a job - what the Fed calls the Civilian Labor Force Participation Rate - has been in freefall since it peaked in late 2000. There's a lot of argument about what causes might be contributing to this process, but there can be no doubt that the replacement of human labor, even skilled human labor, with intelligent machines has been a major factor. Just watch the TeeVee show "How It's Made" and you'll discover that the larger the factory, the fewer workers per unit of output are required.

OK. So given these insights into modern America, what have we learned? The important thing to realize is that you can no longer separate economics from politics. EVERYTHING is about money, wealth, interest rates, tax policy and corporate regulation. There is no longer any way to view political policy or ideology without considering economics and financial policy. That alone makes it obvious that there is something terribly wrong with our political process, but with recent high court decisions that corporations are citizens and money equals speech, it's impossible to think about policy without thinking about money.

Here's the thing. I can make a solid case that we're doomed. In an economy starved for demand sufficient to create full employment, with human labor being steadily replaced by intelligent machines and economic policy being driven by wealthy elites to favor their interests, the next couple of decades are going to be brutal to mainstream interests. Increasing inequality, decreasing opportunity, flat or declining wages, low interest rates or even deflation - everything favors capital and nothing favors labor. The political goals of the 1% - lower taxation, reduced regulation, reduced social welfare spending, zero real inflation - are firmly in place and those outcomes are completely party independent.

I'm prepared to listen to any more optimistic take, but I can't find a way to construct one, even one I don't actually believe. The militia/tea party take on the decline of America is ridiculous. The system won't collapse due to economic failure or foreign intervention. But it's hard to take the position that this system is sustainable. The US is too big, too diverse and too polarized to survive as a single nation with 350 million citizens and a $14 Trillion dollar economy. There's no way that works, and with an unnecessary and wasteful trillion dollar military budget sucking the life out of the ability of the system to support its own citizens, there's just no chance that the desires of the plutocrats won't ultimately generate rebellion. By 2050 the US will be between three and five separate nations, with different constitutions and different economic and social policies.

And that might not be the worst possible outcome.