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Financial capital is crazy OP. Time to strip it back to basics.

Written By: - Date published: 12:08 pm, August 8th, 2016 - 72 comments
Categories: capital gains, capitalism, class war, climate change, cost of living, debt / deficit, Economy, energy, Environment, Financial markets, poverty, socialism, sustainability - Tags:

Power and privilege in the modern capitalist society is primarily dictated by your access to, and ability to generate a return on, financial capital.

In the present delusional economic system, amassing significant liquid, financial capital gives you serious options in life. It gives you authority and security. It allows you to get big things done, by other people, in very little time, at your discretion. It provides you with the freedom and the time to live where you want, how you want and to do the things you want, when you want.

It gives you access to people in authority, the best in professional advisors, and institutions which make the serious decisions.

It smooths out every day in every way.

At least, this is the promise and the aspiration in the minds of the still mostly poor 1%’ers (because only the 1% of the 1% are any where near wealthy enough to live as described. Even the law partner on $350,000 p.a. has to turn up to work Mon to Fri, work occasional nights, put up with irrational neurotic narcissistic clients and pay off a massive mortgage).

Compared to the power of financial capital, the power of human capital in this economic system has been consistently marginalised and deprecated. Human capital which is not in the service of financial capital doubly so (think of how the most valued courses in universities today are the ones in the service of corporations and financial capital: e.g. marketing, finance, banking, business administration, public relations, etc. all of which primarily teach skills and attitudes useful in destroying the future of the planet).

And let’s not even discuss how invisibly the value of ecological, environmental and social capital is ranked in this self-destructive economic system.

For any chance of civilisational survival, financial capital has to be stripped of its vastly OP (overpowered) status. This might include removing profitability from the fossil fuel industry (free but declining petrol anyone?), eliminating capital gains from housing and land, applying a sharp Financial Transactions Tax, crippling all forms of uneconomic growth, implementing serious real democracy, and defanging the rabidly consumer culture we now take for granted.

And on the other side of the ledger, taking irresistable action to enhance the human, social and environmental capital in our society.

Our dire need for political economic alternatives is now at a fever pitch.

Our mad chase for keyboard created electronic dollars is sending this civilisation, not to mention individuals and communities, over the cliff.

72 comments on “Financial capital is crazy OP. Time to strip it back to basics.”

  1. Draco T Bastard 1

    Yes, our present system has it’s values all wrong. That which produces value is devalued while that which causes misery and destruction is massively over valued.

    We need to change this and that means writing laws that will promote that which produces value while ridding us of that which doesn’t. In other words, we need to make it so that the only income people have is from working and not from ownership nor having money.

    We have to get rid of the rich.

    • Chuck 1.1

      “In other words, we need to make it so that the only income people have is from working and not from ownership nor having money.”

      Would that also include no more self employed / private business owners?

      For example; Mr & Mrs Smith start a business that employs say 50 people. Over the course of time the business does well, and they decide to sell for a profit to a new owner?

      What CV suggests will require a complete “reset”. The issue as I see it will be that people in general do not mind working hard to get ahead. That could be owning a business, shares, property (commercial or residential).

      Take away the ability for people to leverage their “time” will indeed close the gap between the rich and poor. Then we have only someones profession or job that will determine the size of their “pay packet” or “wealth”.

      Unintended outcome could be a cleaner or admin person who may aspire to invest in shares not having that option anymore (passive income). While the law partner or MP earn many times more in wages/salary…it locks people into bands of earning potential. And yes education can move them up into a different band, but for lots of reasons not everyone can be a lawyer or doctor etc.

      • Draco T Bastard 1.1.1

        Would that also include no more self employed / private business owners?

        It’d mean a restructuring.

        The business would be a legal entity that would not be owned by anyone and would be run by all of those who work there.

        The issue as I see it will be that people in general do not mind working hard to get ahead.

        People don’t mind working hard to get ahead. The problem is that the majority of people are working hard, producing huge amounts of value and are going backwards while the owners, who pretty much don’t produce any value at all, reap all the rewards of that work.

        That could be owning a business, shares, property (commercial or residential).

        Ownership is not hard work.

        Unintended outcome could be a cleaner or admin person who may aspire to invest in shares not having that option anymore (passive income).

        That’s not an unintended outcome but the fully desired outcome. People should not have income from others work. Passive income is nothing but bludging pure and simple.

        While the law partner or MP earn many times more in wages/salary…

        Did you know that there was an excess of lawyers ATM? Under normal conditions you’d expect that their salaries and charge out rates would be dropping but they seem to think that they’re special.

  2. mikesh 2

    Getting rid of tax deductibility of interest would help. Intrerest is a capital cost rather than a production or business cost, and tax deductibility reduces that cost to the benefit of the owner of capital.

    • Lanthanide 2.1

      Not really. Interest is an on-going cost, that is paid as a fee for using someone else’s money.

      It’s not any different than if you own a factory producing widgets – if you stop paying the power bill, you won’t be able to make widgets, you won’t be able to sell them, and your business will go under.

      If you stop paying the interest bill each month, the lender will eventually declare you in default and take measures to reclaim their principal, and any outstanding interest they were due.

      Paying interest is just as much an ongoing expense as paying the power bill is. The power bill is deductible, so the interest should be as well.

      • Draco T Bastard 2.1.1

        Or we could just make it so that there was no interest being charged which is far more rational.

        • mikesh 2.1.1.1

          “Not really. Interest is an on-going cost, that is paid as a fee for using someone else’s money.”

          But the person using someone else’s money is the proprietor. Therefore it is a personal cost rather than a business cost, and personal costs are not deductible.

          It makes no difference to the business whether the monies financing it are borrowed, or whether they come from the proprietor’s, or shareholder’s, own pocket.

          • Lanthanide 2.1.1.1.1

            1. Start a company
            2. Have the company buy a rental property, using a mortgage
            3. Mortgage interest is a business cost

            However, in New Zealand, a Sole Trader doesn’t need to do step #1, but step #2 and step #3 still follow.

            • mikesh 2.1.1.1.1.1

              A limited company is to all intents and purposes a proprietor, and should be subject to the same tax rules as a sole trader.

              Interest has the the same role in a company, when it comes to producing taxable income, as it does in the case of a sole trader: ie it makes no contribution at all.

              • Lanthanide

                “Interest has the the same role in a company, when it comes to producing taxable income, as it does in the case of a sole trader: ie it makes no contribution at all.”

                Right, so you’re saying that when it costs $1M to build a new factory, and you have to take out a loan to do that, and the cost of that loan is interest, that actually paying the interest, which enables you to get the loan, has no bearing on whether the factory exists and can produce output for you?

                It’s pretty silly to claim that A is worthless to a business, when it is A that allows the business to do B, which is what actually creates their product.

                • mikesh

                  The cost of the factory is accounted for through the depreciation allowance. The cost of the capital involved contributes nothing to the business. It is the proprietor or shareholder who benefits from borrowing since he is provided thereby with cash to invest – a personal benefit.

                  • Lanthanide

                    “The cost of the capital involved contributes nothing to the business.”

                    Correct. But if they didn’t pay that cost of capital, they wouldn’t get the capital in the first place, and there would be no business.

                    • Colonial Viper

                      That capital is created using a keyboard. What cost is there associated with it?

                      Oh, you mean the fees of usury, allowing another party to make a living off the control of the money supply.

                      Why should that be allowed?

                    • mikesh

                      “Correct. But if they didn’t pay that cost of capital, they wouldn’t get the capital in the first place, and there would be no business.”

                      Quite. The proprietor would not benefit from being the proud owner of a, hopefully, lucrative business.

                    • Lanthanide

                      “Quite. The proprietor would not benefit from being the proud owner of a, hopefully, lucrative business.”

                      Neither would the economy, from jobs, and taxes, and economic activity.

                      Also, not all businesses are profitable, or even particularly lucrative. So writing off interest on capital against cashflow is one way to encourage people to go into business in the first place.

                      I think ultimately the government would receive less tax revenue from less total economic activity, and it would be even harder to start a new business under the rules you are proposing, leading to more entrenched bigger players and worse prices for everyone. Overall, I think your proposals might be “fairer”, but worse for the economy as a whole.

                      Now if you’re Draco and hate capitalism, or Bill and want to crash the economy to avoid climate change, that might be favourable to you.

                      A better idea would be to allow private homeowners to deduct their own mortgage interest against their income, and not restrict this to only landlords.

                    • mikesh

                      “A better idea would be to allow private homeowners to deduct their own mortgage interest against their income, and not restrict this to only landlords.”

                      I doubt if this is a better idea. There is no better reason, in all fairness, for a homeowner to obtain a taxation benefit, from a personal expense, than for a landlord to do so.

                      As far as the economy is concerned I think interest deductibility tends to lead to overleveraging.

                  • RedLogix

                    The cost of the factory is accounted for through the depreciation allowance.

                    No … that is not what depreciation is for. It is essentially a ‘tax loan’ to cover the costs of maintaining an income producing asset in a productive state.

                    And again what many people don’t look at is that down the track if the asset is sold or disposed of for an amount that is different to it’s adjusted (written down) tax value, then the loss or gain this represents must be accounted for as taxable income that year.

                    In other words the depreciation is in the long term still only a cash flow smoothing mechanism, intended to account for the extra cost associated with maintaining an asset. It has nothing to do with the costs of financing the asset.

                    • mikesh

                      “No … that is not what depreciation is for. It is essentially a ‘tax loan’ to cover the costs of maintaining an income producing asset in a productive state.”

                      I made no claim about the purpose of depreciation. I merely sought to explain how the cost of a fixed asset is accounted for in a bookkeeping system, and for tax purposes.

        • mikesh 2.1.1.2

          “Or we could just make it so that there was no interest being charged which is far more rational.”

          Agreed. Though it does have some value in rationing finance there are probably other ways of rationing.

          The lender also needs to cover his costs but these could be met by charging a fee,

          • Colonial Viper 2.1.1.2.1

            The lender also needs to cover his costs but these could be met by charging a fee

            There is little reason for private sector for profit lenders to exist (social lending co-ops are all that is required), and in the age of electronic accounting the “costs” involved are negligible.

            • Lanthanide 2.1.1.2.1.1

              “and in the age of electronic accounting the “costs” involved are negligible.”

              Charging interest has never been about “costs”, it’s always been about the opportunity cost of not using that capital for some other purpose.

              • Draco T Bastard

                No, interest has always been about getting something for nothing.

                • Lanthanide

                  Funny, because most people don’t actually have $500,000 saved up to buy a house outright. Instead they have to get a loan to pay the up-front cost, and then pay the loan back over time.

                  The owner of the money is very much getting interest in return for the use of their money. Hardly “nothing”.

                  If you think it is “nothing”, you should be perfectly happy living a life of poverty and donating all of your money to other people, since you claim it has no value.

                  • Draco T Bastard

                    The owner of the money is very much getting interest in return for the use of their money. Hardly “nothing”.

                    No, it’s nothing as there’s no money actually lent out. The banks create the money when they make the loan. This, of course, means that a) it’s impossible tactually pay back the loan and b) that there’s far too much money being created and pushed into the economy pushing up inflation – especially house price inflation.

                  • Colonial Viper

                    Lanth – I think Draco’s position, slightly restated – is why should those entities who have been given the privilege of creating the nation’s money – also be given the privilege of charging us poor souls for it?

                    Alternative systems of finance can be developed which avoid this.

              • mikesh

                Opportunity costs are a sort of fiction. Interest, I think, is more of a rationing tool. While the banks can create money, there are limits to how much of it they can create; too much and we get inflation.

          • Draco T Bastard 2.1.1.2.2

            Though it does have some value in rationing finance there are probably other ways of rationing.

            I have never seen interest rates ration finance in any way. Even when interest rates were at 20%+ we were still seeing people buying and selling houses and creating businesses. We had high interest rates in the mid 00s and yet still the housing bubble started.

            If someone can provide a good, well researched business plan or show that they can afford a mortgage then they should get financing.

            The lender also needs to cover his costs but these could be met by charging a fee,

            A government bank can cover their costs via taxes and, due to the dead-weight loss of profit not being included and simpler accounting systems, it would be far cheaper than any private bank.

            It’s one of the pieces of info that I recall from the 1970s/80s in that the private sector were complaining that they couldn’t compete with government provided services. The reason is obvious once you think about it – the private sector costs far more to run.

            • Lanthanide 2.1.1.2.2.1

              “If someone can provide a good, well researched business plan or show that they can afford a mortgage then they should get financing.”

              Well that’s the point. By charging X% interest, you ensure that whatever business is generated from the lending is capable of raising a profit.

              If you gave money away without any expectation of the principal being repaid, or at very low (or 0) interest rates, then you could expect a lot of mal-investment to result from that.

              • Draco T Bastard

                By charging X% interest, you ensure that whatever business is generated from the lending is capable of raising a profit.

                No you don’t as the massive mortgagee sales just after the GFC proves.

                If you gave money away without any expectation of the principal being repaid, or at very low (or 0) interest rates, then you could expect a lot of mal-investment to result from that.

                You’re assuming that just because there’s no interest rates that there’s no rules. Even interest rates don’t actually govern if someone gets a loan or not – the rules around the loans do.

                • Lanthanide

                  “No you don’t as the massive mortgagee sales just after the GFC proves.”

                  Nothing is certain in life. Businesses are started with the expectation of providing a return, banks and others making loans expect a certain amount of due diligence and modelling before they make the loan. But sometimes, the debtor’s plans just don’t go right. But just because some loans go bad, doesn’t mean that banks and others aren’t making an effort to minimise loan losses.

                  “You’re assuming that just because there’s no interest rates that there’s no rules. Even interest rates don’t actually govern if someone gets a loan or not – the rules around the loans do.”

                  The interest rates are one of the components taken into account when assessing risk. More risky loans generally have higher rates of interest charged – for example you can go to a ‘2nd tier’ lender in order to get a house mortgage if the banks don’t want to deal with you, but the interest rate they charge will be higher.

                  But, if there weren’t interest rates as you’re proposing, the rules to get a loan would be MUCH stricter – they’d have to be, because the lenders would be facing considerable risks with no profit motive to lend their money in the first place.

                  • Draco T Bastard

                    because the lenders would be facing considerable risks with no profit motive to lend their money in the first place.

                    Banks create money when they make loans, ergo, no lenders. But, yes, I do expect that the rules would be stricter than those that apply now and will bring about better results. You certainly wouldn’t see a housing bubble from them.

                • mikesh

                  “No you don’t as the massive mortgagee sales just after the GFC proves.”

                  Most of those mortgagee sales came from ‘adjustable rate mortgages’. The interest rate was low originally to suck in borrowers, then raised to a more acceptable, but unaffordable by the borrower, level later.

      • Graeme 2.1.2

        But there’s a logic in our tax system that say’s there’s no GST on financial services. That includes interest as well as bank fees. It’s about all that’s exempt from GST.

        If interest is to be deductible, then it should incur GST, or if it’s going to be exempt GST then it shouldn’t be deductible.

        • Lanthanide 2.1.2.1

          Accommodation costs, eg rent, doesn’t attract GST either.

          You haven’t really mounted any argument as to why if interest is deductible it should also incur GST. You’ve just stated that it should be true.

  3. adam 3

    Yes, let’s reform capitalism again.

    It worked so well last time. /sar

    Sorry Colonial Viper, I’m not really interested in reforming this mess – capitalism has too many flaws. Have no doubt, the stupid inherited classes will throw off any yoke – so they can exploit to their heart’s content again.

    • Draco T Bastard 3.1

      Capitalism has never been reformed. It’s always been about accumulating wealth at everyone else’s expense. Thus the only option we really have is to remove capitalism.

      • Stuart Munro 3.1.1

        I think a lot of people would be satisfied if we merely pulled a few of its teeth.

        • Colonial Viper 3.1.1.1

          Indeed. We start by weakening and defanging it. Otherwise we have no chance.

      • Paul 3.1.2

        Unless capitalism is removed, catastrophic climate change will occur.
        It’s a no brainer.

    • Colonial Viper 3.2

      adam, these reforms would give people the time and opportunity to move to the alternative political economic systems – which do not quite exist at scale yet.

      BTW we are in the last 30 or so years of our industrial civilisation. The people who have accumulated huge sums of electronic numbers are going to find themselves very surprised when they try and redeem those digits for real goods and services.

      • Chuck 3.2.1

        “BTW we are in the last 30 or so years of our industrial civilisation.”

        Not sure what you mean CV…back to the stone age? and why 30 or so years?

        But I assume this is when the opportunity will present it self to “reset the system”.

        “The people who have accumulated huge sums of electronic numbers are going to find themselves very surprised when they try and redeem those digits for real goods and services.”

        If the current system crashes and burns, no matter if a person has a small bank deposit or owns the bank, both are stuffed. Paper money will also be worthless…so gold, silver, wheat, sheep etc…the new currency?

        • Colonial Viper 3.2.1.1

          In 30 years, only the highly privileged will be able to easily access fossil fuels, everyone else will be on tight rationing; that and the fact that climate change disasters will be destroying the last of the ecosystems we depend on to live.

          If the current system crashes and burns, no matter if a person has a small bank deposit or owns the bank, both are stuffed.

          Correct. This is the great leveller. The people with good food and clean water won’t be selling it for all the electronic digits in any financial account anywhere.

    • Bill 3.3

      The free petrol idea CV refers to (I’ve thrown in the link CV – hope you’re okay with that) would essentially be the beginning of the end for capitalism. It would be an explicit admission that ‘price signals’ do not work (and they don’t – not in relation to AGW).

      And if one instance of direct resource management works where notions of using an intermediary financial framework couldn’t offer up any workable plan, then the failed ideas around chrematistic or market economies become that much closer to being dustbin material.

      ….loosely thinking back on the illustrative chicken feeding example I threw out there a month or so back, where I’m not permitted to just shovel a scoop of grain and feed my chooks, according to neo-classical economic theory or market economics, because there is no financial exchange taking place – ie – the action, having no $ value assigned to it, is deemed worthless and therefore ought not to be taken.

      My memory of the responses is that some people couldn’t get their heads around the madness of the example – meaning that they don’t appreciate the madness at the base of the economic theories that would dictate our activities around services and resources.

      • adam 3.3.1

        Reform, mmmmm. Look I don’t disagree with what you are saying Bill or Colonial Viper. But what was started by the fourth labour government is the rotten fruit we bear today.

        The problem as I see it, is the labour party. They are deeply teether to liberalism and capitalism. I can’t see Grant Robertson or anyone on their front benches actually weaken capitalism. Just not going to happen.

        The labour party as it stands, is never going to interven. It won’t rock the boat of business, nor do anything to harm its financial backers. Plus it knows it can offer the party faithful meaningless carrots for them to cheer about.

        So my criticism stands, all we get from this is some watered down reform, which won’t work, and we stay on this treadmill.

        • Bill 3.3.1.1

          No Labour Party in any country at any time was ever going to undermine capitalism – I kind of take that understanding as a read.

          But does that mean that ideas should never be put out there or discussed? I don’t think CV mentioned the Labour Party in this post, let alone suggest that they would adopt policy that would seriously challenge current economic orthodoxies.

          But again. Why not generate ideas and discussion?

          None of it has to be tailored to fit the parliamentary requirements of any party – not the Labour Party, nor any of the others. They’re all always going to be last off the block, that’s if any of them ever get off the block at all.

          • adam 3.3.1.1.1

            I definitely think the ideas should be discussed, and more importantly we have more ideas than we need.

            Never has line in human history been worth its salt like ” I was just thinking…”

            I’m just pointing out the elephant in the room. I know it is obvious to you and many people here, but not to everyone.

            And we need to be aware that for some people, they think the system is fine.

            Take for example the car – everyone thinks you are nuts if you say cars are a very good representation of the problem, and they embody it. They look around and get head nods from people who agree with their assertion then sneer. At no point are they willing to engage because you mentioned their baby. They are unwilling to go beyond it was your car that you demonised, and they are not a bad person for having a car. When what you really are saying is the car is the symbol of everything wrong with the current system. It consumes carbon to run, it consumed a huge amount of carbon to be constructed, then all the behaviours and patterns once you have a car are designed around consumerism, which is another huge problem. But I’m guessing the majority of people who read what I just wrote will go, I’m crazy and I have no idea.

            So yes for discussion, love it. But the elephant in the room is real, and that particular elephant keeps the madness rolling by pretending to represent sanity, when they themselves have left the reservation a long long time ago.

            • Bill 3.3.1.1.1.1

              Always thought the elephant was charging off in direction ‘a’ while a freight train was heading to destination ‘x’ and somewhere – location ‘y’ – elephant was going to meet train. Messy outcome.

              I’m buggered if I can figure a way to make the elephant stop or change direction. And even if it changed direction, I suspect another ‘inevitable’ collision with a different freight train would be on the cards anyway (resource depletion, over-population, hell – an expanding sun at some point if everything went really, really well and luck always bounced on our (the elephant’s) side)

      • Lanthanide 3.3.2

        “It would be an explicit admission that ‘price signals’ do not work (and they don’t – not in relation to AGW).”

        Except we saw SUV sales plummet (worldwide) when the price of petrol went up. And now the price of petrol has gone down, SUV sales are picking back up. In fact SUVs are now the most popular from-new light car in New Zealand.

        “….loosely thinking back on the illustrative chicken feeding example I threw out there a month or so back, where I’m not permitted to just shovel a scoop of grain and feed my chooks, according to neo-classical economic theory or market economics, because there is no financial exchange taking place – ie – the action, having no $ value assigned to it, is deemed worthless and therefore ought not to be taken.”

        Only because you have a bizarre idea of value, and also no-one is preventing you from doing anything. Also, market economics allows for the destruction of value anyway (generally called mal-investment).

        Feeding your chickens is an investment; a future date those chickens will provide you eggs and/or meat and/or pleasure/companionship. It’s possible to assign a $ value to all of those things, and hence it’s possible to assign a $ value to your action of feeding them.

        • Colonial Viper 3.3.2.1

          In fact SUVs are now the most popular from-new light car in New Zealand.

          Well, one doesn’t necessarily follow the other.

          You can get a new BMW SUV which will do 0-100 in under 8 seconds, that will sip less than 6L of diesel/100km. That’s what modern direct injection diesel turbocharging technology enables. That’s less than half the fuel running cost of a year 2000 HSV V8, in comparison.

          And anyways, the kind of people who buy a $60K or $120K SUV brand new don’t worry about pump prices.

          • Lanthanide 3.3.2.1.1

            And yet, the sale of SUVs went down worldwide when the petrol prices peaked.

            • Colonial Viper 3.3.2.1.1.1

              OK that’s a correlation Lanth. Unless you can come up with more.

              • Lanthanide

                Didn’t take much to google this: http://www.rff.org/blog/2016/how-do-gasoline-prices-affect-new-vehicle-sales

                The first question is: How do gas prices affect new vehicle sales (or market shares)? Several studies have demonstrated a strong link between gasoline prices and market shares, particularly when gas prices were high or rising. For example, between 2003 and 2007, rising gasoline prices explain about half of the shift from large sport utility vehicles (SUVs) to smaller crossovers.

                finding that although recent changes in gas prices have had substantial effects—including a reverse of the previous trend of falling SUV market shares—the effects were smaller than they were in the mid-2000s when gas prices were rising. We find some evidence that new vehicle sales respond more to rising prices rather than falling prices, but the underlying reasons why falling gas prices have had a smaller effect remain an open question.

                • Colonial Viper

                  Geezus Lanth, how does selling 70 SUVs plus 30 Toyota Corollas in a week instead of selling just 100 SUVs alter the trajectory of climate change the slightest miniscule bit.

                  Allow me to swear now to demonstrate my frustration at this discussion: fuckity fuckity FUCK. Ans: it doesn’t.

                  • Lanthanide

                    That’s not the claim that was made that I was replying to, which is that “price signals do not work”.

                    Surely you would agree that there exists a price at which petrol could be sold, where no petrol would be sold.

                    Lets call that 1 trillion dollars per litre.

                    Once we accept that fact, it is clear that price signals do in fact affect demand. Perhaps if petrol cost $100 per litre, we could reasonably expect that that would make the necessary impact on climate change.

                    The reason it doesn’t cost that much, is because the world economy would stop functioning all together. Even putting the petrol price at $6 per litre would substantially disrupt the world economy. Any politicians that attempted to artificially set the prices at those figures would be thrown out of office, because the voting public, as a whole, don’t understand or believe that climate change is an issue, or for some of them, are simply in denial about it and would rather go on living their comfortable life than have to face hard problems.

                    It is not pricing signals that are failing to combat climate change – it is society as a whole, and the way we distribute money to people, and the fact that there is a whole ‘entertainment’ industry that doesn’t truly create necessities of life, but acts as if it does. Imagine what the world economy would be like without tourism, cinemas & movies, TV, music, jet skis, health spas etc. It’d be a lot smaller and sustainable – but there’d also be a huge number of people out of work, and our current economic structures have no answer for that.

                    • Colonial Viper

                      Hi Lanth, if I say tea cups could not have saved the Titanic and you say having a million people on board with tea cups bailing out the hold would have saved the Titanic, who is right?

                      Yes prices have an effect on demand. Sometimes, higher prices can even increase demand.

                      I personally think for instance that the carbon fee and dividend system ( http://citizensclimatelobby.org/carbon-fee-and-dividend/) is worth implementing as part of a suite of measures, even though Bill thinks it would be ineffective at reducing carbon usage.

                      My view is on things like air travel, which is a major source of ghg emissions procedurally ignored by Paris, even a 5% or 10% reduction in seat utilisation will be enough to cause certain routes, if not entire airlines to lose profitability and be shut down.

                      However I think Bill is also right in thinking that the ticket price increase required to dissuade a large proportion of people travelling by air is going to be big and so a carbon price in isolation has very limited utility in slashing the amount of air travel used.

                    • Colonial Viper

                      By the way I completely agree with your sentiment that our current political and electoral system will not provide us with any answers (this is one reason why both Guy McPherson and John Michael Greer regard climate change as an insoluble civilisational predicament, as opposed to a soluble problem).

                      And also yes, the current economic system requires people to have paid jobs and currently a whole lot of those paid jobs are in things like waging war, designing nuclear warheads, mining tar sand, moving factories to China, and destroying rain forests.

                    • Lanthanide

                      “Hi Lanth, if I say tea cups could not have saved the Titanic and you say having a million people on board with tea cups bailing out the hold would have saved the Titanic, who is right?”

                      That’s not an accurate analogy, because price signals do work – at all levels – depending on the resource/commodity that’s being talked about. I already said that earlier, that for necessities, there is much high price inelasticity of demand than for luxuries, and oil is effectively a necessity of our modern economies.

                      So when there is clear evidence that price signals do change demand, making the statement

                      It would be an explicit admission that ‘price signals’ do not work

                      is factually incorrect, and that is what i am arguing with.

                      I think what Bill meant to say, is:

                      Price signals on oil, with our current socio-political structures, are not sufficient to combat AGW

                      then I would agree with that statement. However, its only fair for me to reply to what Bill said, otherwise I’d be mis-interpreting his words.

        • Bill 3.3.2.2

          On the first bit, there is not one proposal based on price signals that even claims to produce the 10 – 15% reductions that we need. Price signals only ever produce changes around the edges, ie – quite small changes. NZs tobacco policy is a neat example of how price signals don’t bring about large changes. (The idea was to have zero smoking within 15 years and to use a price signal as the main way to bring that about) It’s all in ‘the camel’ post alongside other woeful failures of taxes and levies in bringing about large changes.

          On the second bit, you’re ignoring that it was an illustrative example only, ie – what would be the case if market principles were strictly adhered to. In that case, there is only one value ($), and if a $ value can’t be attached, then there is no value. And if there is no value, then there is no “financially optimising rationale” to act… that being the only reason that’s “allowed” to inform action in a market system.

          • Lanthanide 3.3.2.2.1

            The effect of price signals depends on lots of things, it’s called the (in)elasticity of demand.

            For ‘necessities’ like petrol and electricity, they are fairly unresponsive to price rises, especially in the short term. But for things that are luxuries or simply unnecessary, price changes can make a big difference to demand.

            Saying “price signals do not work” with regards to AGW is one thing. Saying “oh, well lets just make fuel completely free then” is going in completely the opposite direction.

            On the second bit, you’re ignoring that it was an illustrative example only, ie – what would be the case if market principles were strictly adhered to. In that case, there is only one value ($), and if a $ value can’t be attached, then there is no value.

            Except you haven’t actually provided an example where it was not possible to attach a $ value to your actions.

            And if there is no value, then there is no “financially optimising rationale” to act… that being the only reason that’s “allowed” to inform action in a market system.

            I don’t think there is anything in economic theory that says all actions must be financially optimising. And, it depends entirely on your scope. I might find it very enjoyable (and therefore very valuable to me personally) to go and blow up Mount Rushmore, but the world as a whole would find a loss of value in that action. In fact the Taliban did this with the Buddha statues of Bamiyan.

            • Colonial Viper 3.3.2.2.1.1

              You can make a lot of money blowing things up of value. There are financial instruments which allow you to do that.

              Essentially, taking out fire insurance on your neighbours’ house. And then taking out an insurance policy on that insurance policy. And another one on that one. And so on.

      • Colonial Viper 3.3.3

        The free petrol idea CV refers to (I’ve thrown in the link CV – hope you’re okay with that) would essentially be the beginning of the end for capitalism.

        No probs, it’s why I made reference to the idea. Part of the beauty of your suggestion is how it directly fucks with financial capitalism.

        This direction is the only way out for our species now.

        Financial capitalism needs to be undermined, consumerism needs to be undermined, the power of the profit motive needs to be undermined.

        Also I didn’t reference National, Labour, Greens etc. in this post because none of them have any interest in committing to and promoting this post-capitalism agenda.

        • Draco T Bastard 3.3.3.1

          This direction is the only way out for our species now.

          Financial capitalism needs to be undermined, consumerism needs to be undermined, the power of the profit motive needs to be undermined.

          QFT

      • mikesh 3.3.4

        The benefits from keeping chooks should theoretically be taxed. They don’t attract tax because (1) these activites are considered too trivial, and (2) they cost of trying to collect tax on these sorts of activities would exceed what the IRD would receive from such a tax.

  4. Paul 4

    Life as we know it on this planet is incompatible with continued capitalism.
    Abandon it.
    It’s a killing machine.

    • Colonial Viper 4.1

      Amen to that. Destroying the world and destroying communities chasing electronic numbers. It’s turned our societies into an electronic game writ large.

  5. The lost sheep 5

    So to summarise CV.
    This is the self-proclaimed most important Left Wing Blog in NZ, and a post proposing an end to Capitalism attracts support from 4 posters?

    Think there may be a message for you in that?

    • Colonial Viper 5.1

      Yeah I noticed that too, the lost sheep.

      Nevertheless, I’m not looking for support per se, I’m just expressing some of the political economic alternatives which need to be put out there.

    • One Anonymous Bloke 5.2

      I can think of reasons CV’s posts might not attract comment and the subject isn’t one of them. Just saying…

      I further note that the post is about the financial system, not “Capitalism” per se, and wonder if you are still desperately clinging to the notion that “Capitalism” (“Show me some!” Chomsky) is the system we have. Shall I rub your face in the facts again or can you do it yourself?

  6. Henry Filth 6

    I love The Standard when it’s time for economics and economic systems! I always learn something.

    And it’s so much more fun than taking a seat at the Coliseum, eating hot dogs, drinking beer, and watching the Accountants vs the Economists.

    Thank you all very much. Bring on the next round

  7. Olwyn 7

    Although this article is about the UBI it seems compatible with this post, since its focus is on the ability of financial power to bend things to its will for as long as it occupies the driver’s seat. The writer questions the ability of the UBI to eliminate or significantly reduce poverty, and sees it as a pseudo-solution to inequality that suits the financial industry because it is compatible with its aims and poses no real threat to its power.
    http://www.furtherfield.org/features/articles/universal-basic-income-neoliberal-plot-make-you-poorer

    A couple of key quotes, UBI will end up in the hands of capitalists. We will be dependent on these same capitalists for everything we need. But to truly alleviate poverty, productive capacity must be directed toward creating real value for society and not toward “maximizing shareholder value” of profit-seeking investors.
    and Rather than a basic income, we need to demand and fight for a basic outcome — for the right to life and justice, not just the right to spend.

    The core idea is that a UBI can be used to get rid of other forms of support, and then squeezed until it is ineffective as a defense against poverty, and that so long as the financial sector remains in control we will lack the levers to prevent this.

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  • Christchurch Hospital Hagley ICU to open to support COVID-19 response
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  • Face masks flowing to DHBs
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  • $27 million for NGOs and community groups to continue providing essential services
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  • COVID-19 updates
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  • Canada, Australia, Chile, Brunei and Myanmar join NZ and Singapore in committing to keeping supply a...
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  • Working together to protect businesses and workers
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    6 days ago
  • State of National Emergency declared to fight COVID-19
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    6 days ago
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    6 days ago
  • Deadline for domestic travel extended
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    6 days ago
  • Mortgage holiday and business finance support schemes to cushion COVID impacts
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  • Government working to keep air freight moving
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    7 days ago
  • New Zealand moves to COVID-19 Alert Level 3, then Level 4 in 48 hours
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    1 week ago
  • Prime Minister: COVID-19 Alert Level increased
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    1 week ago
  • Govt takes significant economic decisions as NZ readies for Alert Level 4 in COVID-19 fight
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    1 week ago
  • Govt backs RBNZ move to support economy with lower interest rates
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    1 week ago
  • Government statement on commercial cooperation during COVID-19
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  • New Zealand temporarily closes diplomatic posts in Barbados and Myanmar due to COVID-19
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  • Supporting Māori communities and businesses through
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    1 week ago
  • Guidelines for hospitality establishments released
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  • Nation steps up to COVID-19 Alert Level 2
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  • PM Address – Covid-19 Update
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  • NZ and Singapore commit to keeping supply and trade links open, including on essential goods and med...
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  • Joint Ministerial Statement by Singapore and New Zealand -Covid-19 situation
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  • Transit between Australia and New Zealand
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    1 week ago
  • $100 million to redeploy workers
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    2 weeks ago
  • More support for wood processing
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    2 weeks ago
  • Govt steps in to protect Air New Zealand
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    2 weeks ago
  • Stronger border measures to protect NZers from COVID-19
    The Government has taken further measures to protect New Zealanders from the COVID-19 virus, effectively stopping all people from boarding a plane to New Zealand from 11:59pm today, except for returning New Zealanders, Prime Minister Jacinda Ardern announced today.  New Zealanders’ partners, legal guardians or any dependent children travelling with ...
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    2 weeks ago
  • Action on indoor gatherings and events to protect public health
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    2 weeks ago