A theory that “elite overproduction” leads to political instability (2020)
Honestly, the political instability is just plain old incomplete capitalism.<p>The idea behind capitalism is that economic power is in the individual. The ideal is that there is an owner for everything, including the &quot;means of production&quot; and sometimes even public goods like land. Because each decision maker has a small impact on the rest of the economy misbehaving (behaving = perfectly optimizing for current market factors) actors will quickly be weeded out.<p>The difference in agility between a startup vs a slow moving large company vs the government is pretty obvious. When that start up fails nobody is going to remember it and that is a good thing. The bigger the organization the less likely it is going to obey market forces.<p>It does have its positives and negatives but I am not here to talk about the small fry problems like monopolies.<p>I&#x27;m here to talk about the fact that the free market is built around the idea that local decision making by individuals is superior to global decision making by a large organization. The truth is that we need both. To be more exact, we need to use the government to transfer information and put a share of the burden of global decision making onto individuals so that the local optimum for individuals is the same thing as the global optimum for the economy as a whole. We need to break the prisoner&#x27;s dilemma and the paradox of competition that arises from it.<p>Here are the three factors:<p>1. Get rid of all trade imbalances<p>It is very easy to intentionally run export surpluses at the expense of other nations. The importing nation has to take on debt and in the case of a perpetual surplus the debt cannot be repair, ever.<p>The only ways export deficit countries can defend against this is either via protectionism which ends in trade wars (and decision making errors by politicians) or they must increase their own competitiveness through devaluation of their currency. Both are a race to the bottom. When every country is trying to achieve an export surplus then global absolute trade will trend to 0. I&#x27;m not talking about export surpluses going down, I&#x27;m talking about ceasing trading entirely.<p>Keynes suggested an ICU that sanctions export surplus countries and distributes money to workers via a UBI (or tax cuts) to raise their purchasing power and thus eliminate the import deficit which involves handing out more and more loans. If you never buy anything from the borrower then a default&#x2F;bailout is inevitable.<p>2. Sanction large savings accounts<p>There is no mechanism in capitalism that forces investments, other than the dreaded &quot;inflation&quot;. Inflation creates risk and erodes the value of idle money that is doing nothing. Thus it becomes obvious that you must run a business or keep working to get ahead of inflation by obtaining a future income stream. This is necessary for money to fulfill its purpose as a medium of exchange. It must pass from hand to hand all the time. It is not allowed to get stuck anywhere.<p>When inflation is very low there is barely any incentive to invest. People start hoarding money, which fuels a deflationary spiral. Central banks all around the world are trying new party tricks to get the private sector to invest again. They drive yields on safe assets to nothing to create more risk. They make borrowing cheaper so that investments are profitable and old unprofitable investments can be refinanced under better terms. All that QE isn&#x27;t ending up anywhere except maybe real estate. The cheap financing costs are also letting large companies hoard money and do stock buy backs, which further reduces their incentive to invest their money. Young people take on mortgages which drives up prices high but buying an old house for double its original price isn&#x27;t investing. Old people pay their mortgages off before they retire and don&#x27;t take new ones during their retirement.<p>Instead of hoping that investments happen on their own because the economy just happens to encourage them via inflation we could just skip the middle man and maybe even get rid on the dependence of inflation and reintroduce the mechanism in an official fashion. We introduce wealth taxes on money in bank accounts of private individuals and large companies. 2% per year and they get to deduct debt to reduce the wealth tax. The money can then be handed back via a UBI or tax cuts. The point isn&#x27;t funding welfare, it&#x27;s to punish behavior that is globally suboptimal.<p>3. Land value tax<p>It&#x27;s actually the same mechanic as with money. People hoard land instead of money. However, we can&#x27;t create more land to catch up with demand if people move to cities for jobs. Real estate tends to go up in value much faster than money because of the fixed supply. The owners of the land didn&#x27;t work to earn this money, they simply waited for the population to grow. Buying land as an investment should be a terrible idea. People taking on bigger and bigger mortgages for a low productivity investment like buying a house shouldn&#x27;t happen. If anything, land values should be shrinking over time. The only way someone should be able to make money off of real estate is by building a house and renting it out or by saving money through owner occupation. The fundamental problem is that living in suburbia only works if some people do it. If everyone does it, then the system collapses as early homebuyers get their land and house for dirt cheap at the expense of future generations who no longer can afford them. You&#x27;re going to see a lot of pitchforks.<p>The land value tax is just a flat (% or fixed amount) tax on land that reduces the benefit of holding onto land. Again, we can use the proceeds of punishing suboptimal behavior to fund a UBI but I personally would just do wholesale tax cuts on income and replace capital gains and corporate income taxes with the lowered income tax. (a simpler tax code is fairer for those who cannot exploit it).<p>1. and 2. bring back jobs and create financial stability, 3. reduces living costs by punishing rent seeking.<p>All these proposals are built around the same idea: local decision making may lead to a benefit for the decision maker at the expense of everyone else, thus decision making should be based on what the global optimum is, so that all decision makers make decisions that benefit everyone in the long run instead of focusing only on themselves. This is actually strongly in favor of capitalism as it shows that local decision making can reach a global optimum. The idea that local decision making inevitably leads to infighting and thus mass exploitation is something the communists always criticized about capitalism. The hope was that fixing core problems like housing by avoiding the prisoners dilemma would lead to a better society even if it is at the expense of individual freedom and thus efficiency. To be honest, they got housing right (although they neglected maintenance). They built a lot of housing in east Germany. Even west Germany built a lot of social (=affordable and government owned) housing that made renting extremely affordable in Germany. The problems started as soon as the government sold its social housing. They made a quick buck but then housing prices started rising. Private ownership of land just doesn&#x27;t work.