Social Democratic Economy: Part 2

Written By: - Date published: 4:25 pm, September 27th, 2012 - 32 comments
Categories: Deep stuff, Economy - Tags:

When I first started studying economics at Uni the tutor told us that:-

Economics is the study of the distribution of scarce resources

This seems reasonable but then we started studying the distribution of money and how to make a profit which didn’t. Resources are limited and proper distribution is needed but the drive for profit has left us with massive inequality, overuse of resources and Anthropogenic Climate Change that has us heading for the first (and possibly the last) Anthropogenic Extinction Level Event. The only possible conclusion from these facts is that the present socio-economic system that we use, namely Free Market Capitalism, is a failure.

When thinking about the economy and how it works I realised I had to go back to basics as almost everything that’s taught about economics in the mainstream theories is bollocks – most of its assumptions aren’t even close to being realistic. This led me to two questions:

  1. What is the economy and
  2. What is the purpose of the economy

The Economy

Absolute Resource Base: The resources the nation has in it’s borders and EEZ such as minerals, water, fish, land etc. These numbers will change over time as better methods of counting are developed and resources are used.

Renewable Resource Base: The resources that the nation has in it’s borders that it can use indefinitely. This is the amount that can be used year on year as it’s replaced by the natural cycles of the ecosystem (i.e. limited to what the environment can clean up, the limited amount of water available etc), what can be recycled and electrical power through renewable generation. ATM we have no idea as to what this is in respect to NZ but we know that, in many places, we’ve gone beyond it as the pollution of our streams, rivers and lakes by farm run-off proves.

These are broad categories and each would probably break down into dozens of individual items which I’m not even speculating about ATM. The most important consideration here is the Renewable Resource Base as it’s limited within any time period (the most likely measure would be a year). Contrary to what economists have been telling us for the last couple of centuries the economy really is a Zero Sum Game as what we are able to do is dependent upon the resources available to us and what’s available to us is the Renewable Resource Base. Going beyond that will, inevitably, force a collapse upon society when resources run dry.

Now, what we can do with the Renewable Resource Base is the economy and can change due to increased knowledge and better processes. A good example of such a change would be changing the cold houses that make up most of NZ housing stock by improving their insulation or replacing them with houses that meet or exceed the Passive House Standard. Such a change would, effectively, increase the amount of power available to us without having to build more generating capacity by decreasing the amount of power used and thus allow us to do other things with that power such as power trains or run more factories. It is this point that seems to confuse economists and others into thinking that the economy isn’t a Zero Sum Game but this is wrong as we’re still limited to the Renewable Resource Base as such efficiency gains aren’t infinite, at some point increasing efficiency costs more than the resources saved from that efficiency.

These limits are an inescapable physical constraint.

Purpose

The purpose of a societies economy is simply to provide everyone within that society with the resources necessary to maintain a good living standard, to engage with their society and with rich and rewarding work. Simply stated, not so simple to address in what it actually means. Here’s some thoughts on the matter:

Living Standard:

  1. A healthy place to live in, a home
  2. A healthy and safe environment to live in
  3. A healthy and active community with the resources to be active within that community
  4. Healthy and diverse food on the table
  5. A fast and reliable internet connection
  6. At least one computer in the house and possibly as many as one per individual (In fact I like the idea of giving school kids in year 5 a pad)
  7. Plenty of leisure time

Some will question the need for the internet and PC but it is this technology that will help people to have more say in the governance of their community and country and help to connect with other people of like mind so I see both as essential. This is a minimum standard and so even those who aren’t working (preferably nobody) will have these available to them.

Work:

Work is the hardest one to define. It really needs to be of interest to the person doing it else they tend not to engage with what they’re doing and so aren’t creative within that sphere. Some will complain What if they just want to be surfers? But that brings up two points:

  1. Apparently some people make a good living surfing because a lot more people like to watch thus meaning that surfing is, as a matter of fact, of value to society and
  2. There’s the story of the unemployed surfer out at Piha (IIRC, It was in the Western Leader in the early 1990s, possibly before Ruth Richardson’s MOAB) who couldn’t afford a new board and so he made his own – and then got orders to make more and became a successful board maker

The story of the board maker is the story of why the basic income of people needs to be higher than what is presently paid on the unemployment benefit. ATM, the unemployment benefit is slightly less than enough to support a subsistence level living standard actively preventing the entrepreneurialism that we see in the board maker -€“ the entrepreneurialism that we want to encourage and that can only come about if people have access to resources.

Some things though, need more than a single person and the resources that that person has to create and so we also need to encourage and broaden peoples networking which is another use for having a PC and internet connection in every house that will allow people of the same interests to connect with each other and thus take a cooperative and creative approach to researching and producing what they want to produce.

The first part of the economy’s purpose provides enough so that people are free to choose the work that they want to do. That they are not forced through poverty and deprivation to do that which they don’t want to do. It also provides them with enough, either individually or as a cooperative, so that they can create their own work.

Draco T Bastard

Also see Part One

32 comments on “Social Democratic Economy: Part 2 ”

  • Comments are now closed

  1. karol 1
    27 September 2012 at 4:41 pm

    I’m not very knowledgeable about economics, especially when it gets down to finer details.

    But it has always seemed to me that economic policies should first serve the kind of society you want, and not start with “wealth creation” and “growth”. So, I do like this principle:

    The purpose of a societies economy is simply to provide everyone within that society with the resources necessary to maintain a good living standard, to engage with their society and with rich and rewarding work.

    What about some resources being community based, rather than necessarily household based? e.g. computers and internet connections?

    • Draco T Bastard 1.1
      27 September 2012 at 5:38 pm

      What about some resources being community based, rather than necessarily household based?

      I suspect it would be a combination of the two. Larger capital expenditure such as research facilities/libraries would be community based.

  2. johnm 2
    27 September 2012 at 4:47 pm

    Neoliberalism completely ignores, hoping it will disappear, a concept that’ll die in the outer cold, the public taught that it doesn’t exist, the fundamental basis of happy and sustainable societies, The Common Good. Rather it clings to competition which leads to an ever increasing Income and Wealth disparity, exploiting the environment mercilessly along the way, which leads to social instability and collapse eventually. This is now happening where ordinary people are having their living standards destroyed by the financial greed machine determined to extract as much fiat interest garbage out of the people it can get away with. But The Common Good hasn’t really gone away and if we want a decent future instead of neofeudalism we must enshrine this economic, social, political concept again! Or Else! 🙂

  3. Bored 3
    27 September 2012 at 4:49 pm

    Bloody hell Draco, where to start? I love the quote “Economics is the study of the distribution of scarce resources”….on which basis you have a paragraph saying that over use of resources is heading us towards an anthropogenic extinction event. You then go to condemn free market capitalism as a failure.

    Before the RWNJs do it for us I will point out that burning oil, over using resources etc is our modern industrial equivalent of Easter Island tree burning, we would do it whatever the industrial system was (socialist or capitalist). The Aral Sea springs to mind….Soviet factories were fueled by fossil fuels.

    With the free market….yes it is very good at doing the scarce resource use, and excellent at distributing it to those who claim ownership. It works very well for those few people. It does not fail them. Just fails the rest of us……..

    All good otherwise except I am not so sure the internet and computing have as long a shelf life as others assume.

    • Draco T Bastard 3.1
      27 September 2012 at 5:30 pm

      You then go to condemn free market capitalism as a failure.

      Of course I do as free-market capitalism is the major cause of the over use of resources.

      Before the RWNJs do it for us I will point out that burning oil, over using resources etc is our modern industrial equivalent of Easter Island tree burning, we would do it whatever the industrial system was (socialist or capitalist).

      I don’t think so if we knew the limits of the resource base available to us which is why I defined the Renewable Resource Base. One we know the physical limits that the we need to live within then we can make rational decisions about how to use those resources. Both capitalism and nineteenth century socialism have always looked to more resource us to make society richer which really is just a euphemism for having more money which always seems to end up in the hands of the few.

      The Aral Sea springs to mind….Soviet factories were fueled by fossil fuels.

      The Aral Sea is a great example of doing something without knowing its full effect. In fact, I’d say that it’s an example along the same lines as anthropogenic climate change. Factories don’t have to be fuelled by fossil fuels – renewable power generation works just fine.

      All good otherwise except I am not so sure the internet and computing have as long a shelf life as others assume.

      They’ll continue as long as we have the resources and skills to make them and they’re not about to disappear.

      • Bored 3.1.1
        27 September 2012 at 7:12 pm

        I think we are on the same wavelength Draco, I really wanted to make the point that resources being used unwisely is as much part of the human condition as a result of a particular “ism”. You quite rightly point out that once the problem is known you should stop: which as you say neo libs are incapable of doing.

        I think the interesting (and brave) thing about what you are trying to write is that you are doing it, well done. I myself are unsure that social democracy will get us there but for want of a better alternative (and in the face of worse scenarios) I will come along for the ride.

        On the longer term general availability of computers and internet I want to be wrong: I will be disappointed and deeply distressed when I am right,

        • Jokerman 3.1.1.1
          27 September 2012 at 7:20 pm

          bet ya not “bored” now?

          🙂

        • Colonial Viper 3.1.1.2
          29 September 2012 at 11:12 am

          Bored:

          On the longer term general availability of computers and internet I want to be wrong: I will be disappointed and deeply distressed when I am right,

          There is going to be a huge trade in fixing up old computers and canabalising others for parts, in the future.

          The internet will be around in some form for a very long time I believe, but the massive amounts of bandwidth and cloud storage many are used to or are expecting may not be.

          And remember, the internet is quite a different thing from the world wide web.

          The internet can run quite happily on much less resources and energy input than is needed today to support the web.

          Can’t wait for John Michael Greer to come back from holiday haha.

      • karol 3.1.2
        27 September 2012 at 8:25 pm

        They’ll continue as long as we have the resources and skills to make them and they’re not about to disappear.

        I think the future will involve some mix of old, low tech, low-resourced technologies mixed with digital capabilities and recycled waste. Kind of what I was thinking of with my latest gravatar. First I was looking at images of steam punk keyboards. But they are too dark, fiddly and indistinct for a small avatar. And steam technology isn’t great for the environment and resource base.

        In the end I just opted for a clear image of an old fashioned typewriter – back to the future. New technologies meet old tech.

    • Lou 3.2
      28 September 2012 at 7:46 am

      If we collectively ‘let go’ of our consumerist ideals forced on us by higher powers and stopped feeling the pressure to own our own overinflated houses and cars, we could see clearer and possible shift our voting power to a shared (MMP) govt that was more thoughtful about environmental and people issues before money making issues – eventually we’d all use less resources.

  4. BloodyOrphan 4
    27 September 2012 at 5:26 pm

    Why haven’t we regulated ?
    (I’m fairly sure it’s cause they are being told not too, and old spineless can’t say no)

  5. Richard 5
    27 September 2012 at 6:04 pm

    This treatise on how to construct a better society is such a laugh, keep it coming!

    P.s. your argument for higher benefits on the basis that this would free up capital for entrepreneurship is possibly the best joke I’ve heard all day. 1) It disincentivses entrepreneurship by decreasing the relative benefit of working for a living 2) It ignores the fact that in the majority of circumstances an entrepreneur with a good idea could simply needs to convince someone to fund them – if you make good surf boards, just ask for payment of material costs in advance. If you have a demonstrably quality product, this is not hard. 3) Most of the additional money will actually be spent on consumption, making this policy ridiculously indirect 4) If you want to encourage entrepreneurship, why not have the government make available small low interest loans? Oh that’s right, because this is actually just a lame excuse for increasing welfare.

    • Colonial Viper 5.1
      27 September 2012 at 6:07 pm

      NZ lenders and investors are exceedingly conservative. It is far far easier to get a $500K loan for a non-productive asset like a house than it is to start a new business.

      I’m afraid there are a lot of real world realities you glossed over.

    • Draco T Bastard 5.2
      27 September 2012 at 7:40 pm

      1) Actually, it does the exact opposite. A Universal Income, which is what I’m specifically talking about, is far better than the ~70% marginal tax rate that we have going from a benefit to work now.
      2.) Convincing someone to fund them requires being able to pay interest which is a prime cause of present the failing of the economy, need to know the hoops and loops of getting your way through the laws and, quite often, you also need the social connections.
      3.) Oh noes, people might have money enough to spend and so encourage people to look for ways to make the spending happen in their direction. What was your problem again?
      4.) Actually, I’d have the government make 0% interest loans available. As to you’re whinge, no, really, it isn’t. It really is about giving people the resources needed to be creative.

      • xtasy 5.2.1
        27 September 2012 at 7:48 pm

        Warming for Gareth Morgan’s ideas, are you? I cannot agree with a fair bit he suggess, but with a minimum community wage and so, he has some “revolutionary” ideas, the present polticians appear to be unable to cope with.

        • Lou 5.2.1.1
          28 September 2012 at 7:54 am

          Redistribution of ‘tax’ (esp to address rich/poor gaps) is not ‘revolutionary’, it founded our country and earliest governments.

    • xtasy 5.3
      27 September 2012 at 8:55 pm

      Richard: I admit the examples here may appear to be a bit “simplistic” and unconvincing to you. It may also not have been welll explained what the issues are. Really what my and other person’s concern is to find a healthy, fair balance, between people’s need to work, contribute, to be part of enterprising activity, and at the same time get the income, housing, welfare, health service and what else is needed in a decent, modern, humane society.

      Now if I may just refer to history a bit, it was after the last great war, that most “developed” and also less “developed” countries all over the world experienced sound economic activity and growth. There was construction, industrial output, increased transport and trade, more consumption and the works. This happened in ALL societies, east and west, capitalist, semi capitalist and socialist.

      You also had a country like the USSR send space ships into the sphere up there.

      Of course there were differences, of course the “east” and pseudo “communist” or “socialist” countries were technoligically struggling. But bear in mind the fact, that they were never allowed free exchange of trade and other values, they were also treated as the big enemy, so their dictatorial ruleers decided to spend more on defence than anything else, neglecting other development. It was maybe more the not truly labour focused and corrupt elites that ran the Eastern European countries, that sabotaged the economic development. It was not necessarily so much the “social system” problem.

      Hence things went as they did, and hence the wall came down, but what came after?

      The US, UK, France, Germany and so loved it, the governments betrayed their own workers and forced them to compete with low demand labour from the east, dismantled industries, services and introduced a ruthless capitalist system benefitting the elite already in power.

      In the end worker’s and social standards in the west were compromised, for the excuses, that this was needed to make workers competitive with the new low wage workers from the east. So it all went on and on, in cycles, led to rigid welfare cuts and margianalisation, more divide between haves and have-nots, thus dividing workers and society beyond repair as it is now in Europe.

      Look forward for real radicalisation, unrest, violence and more, and I suggest, in moderate forms, this will happen here too. We know who is responsible and wants this.

    • Polish Pride 5.4
      27 September 2012 at 10:06 pm

      Well then Richard get rid of the money and thus the profit motive and you will solve these problems. Entreprenuers will be replaced by inventors, you know those people that find new and better ways of doing things because they have a very strong drive and paassion to do so. Those People that have been responsible for arguably the greatest technological advances throughout human history. This is vs your entreprenuers that have money as their primary motivation. No money no advancements with entreprenuers. Inventors on the other hand, supplied with the resources they need will be responsble for new advances with or without money.

      I agree with everything Draco says except the need to continue with money in the long term and the need for people to have to work. The goal of a well designed system should be to provide the resources that society needs and wants in a sustainable manner and to free people wherever possible from having to work.

    • Lou 5.5
      28 September 2012 at 7:50 am

      “entrepreneurship” thats ultimately how society ended up in the pile o shit we call present, often has signified greed at the cost of crawling over someone else to get it.

      • Colonial Viper 5.5.1
        29 September 2012 at 11:21 am

        Entrepreneurship and SME activity is generally fine. One reason being that those business owners live in the very same communities that they operate in and affect the most.

        Multi-national corporations, banksterism and corporate ticket clipping is what has really torn things. A chemical plant owner is not going to dump waste into the water table of a town that he and his own family live in and use the tap water of. A Board of Directors on the other side of the world is likely to care much less.

  6. Herodotus 6
    27 September 2012 at 6:40 pm

    Interesting post, but keep you opinions commi g.
    Regarding resources I notice that you did not mention the pop. And the carrying ability of the planet. We in NZ are fortunate that our carrying ability is inxs of our pop., but at some stage the world will be unable to cope with the pressure which IMO there will be a major rebalancing with some pandemic/ WWIII?
    Problem for me is those who control the resources also control the politicians

    • Draco T Bastard 6.1
      27 September 2012 at 7:52 pm

      Carrying capacity would be a function of the renewable resource base. Once we know that then we will know the carrying capacity.

      Problem for me is those who control the resources also control the politicians

      yep, that is the big problem with capitalism.

    • Polish Pride 6.2
      27 September 2012 at 10:19 pm

      Pop = Population???
      What this means is that we need to change the methods by which we currently do things in order to still meet the needs of the population. Because of ‘Capitalism and Corporatism we still use intensive ‘modern’ farming methods where permaculture has been shown to be able to produce far greater yields 2 – 10 times greater. Then we could look at options such as vertical farming especially in more densely populated areas of the world. That is not to say that both of these methods will not come with their own set of unique problems to overcome but they will get us closer to ensuring that population does not pose an insurmountable problem when it comes to creation and distribution of resources.
      Additionaly increases in the use of sustainable design and recycling will also help ensure that this isn’t an insurmountable problem in areas other than food supply.

  7. xtasy 7
    27 September 2012 at 6:41 pm

    You can maximise the use of available resources by using them in a way of getting the most use and output out of them. You can apply a minimum use approach, and use resources by getting out of the limited resource available, what you need. There are other aspects and considerations to be applied.

    Fact is: Resources are limited by natural realities (only so many minerals available, only so much arable land and water is available), yet demand tends to increase with growing populations, and also with higher living standard expectations.

    Supply and demand are going to determine the price of commodities, resources and services, which is of course all based on the above limitations.

    So nobody will wonder that a growing world population will increase demand, and thus lead to higher prices. Same will a reduction in availability of resources and/or services.

    As limits to resources and services based on access to them exist, that demand may be controlled and reduced, creating a sort of balance.

    From region to region, country to country, there are differing circumstances, different resources and services available, and populations, economic activity and resulting demand also differ.

    Hence “wealthy” countries with high living standards can “demand” a lot, and this is usually only based on them having technologically advanced economic activites, or core resources, the rest of the world needs more, than these countries may need the rest of the world for.

    Economic realities are also largely dictated by wealth (as a consequence of advantageous trading conditions, or exploitation) being accumulated and available to the participating members of societies able to “enjoy” these.

    Hence Europe, North America, Japan and a few other countries are where they are now.

    Free trade is a farce for a start, it exists NOWHERE. It is only a phrase used to accommodate the preferred practices of certain trading economies gaining some advantages by applying some degrees of “freer” trade and exchanges. If there was true free trade, the EU, US, Japan, even Mainland China would collapse as economic powers within a short period.

    We are all sold a farcical system of free trade, which is merely a propaganda instrument by those supposed free market” and “right wing neo con” supporters and stake holders, who want to force certain other countries and economies to lower access restrictions, so they (the stronger economic operators) can get access to their markets.

    Social Democracy has appeal. The purely ‘socialist” economic system was not tried properly anywhere, but where it was attempted in rudimentary ways, it failed badly. Regulating and managing in very minute details production to meet demand seems to be almost unworkeable.

    So some incentivised mechanisms appear to be necessary, for motivation workers, enterprises, managers, inventors and other participants, to make the best effort to improve, keep running well and maintain production and service delivery. That means some wage and salary structures may well be justified.

    At the same time there must be sufficient controls for avoiding exploitation, unfair trading, monopoly creation, inefficiencies, lagging efforts to improve processes and the likes, so that negative social, environmental and economic damage is avoided.

    It is a fundamental belief of Social Democracy, that the worker and citizen have a right to participate in every aspect of economic and social activity in society. Participation in the work place, by worker’s councils and the likes meets this.

    This also means that capitalism in its present form is not an option. I do therefore support this debate about an alternative, fairer, more workable, sically just and responsible economic system, which may lead to nations trading some commodities and services, but otherwise focusing also more on the local economy and social needs.

  8. Ben 8
    27 September 2012 at 8:11 pm

    For my two cents: People need to wake up to the fact that our economic system will not survive as it stands today, and it’s important people realise that there are alternatives. You present some good ones. Thank you for that.

    One small thing, though: Is it really so hard to write “at the moment”?

  9. xtasy 9
    27 September 2012 at 10:08 pm

    My hope is limited. Nationalists “create” their own economies, same as “liberals” and other f-wits to their pleasure, it is just a f-you game:

    http://www.youtube.com/watch?v=_uCC-venMtU

    So it s a bit of “spirit”, the economic game is more complicated. The needed solutions also willl mean to be paid, which no petrol heaeded Kiwi wants, so there is a challenge! Brain is not a strentht in NZ. Most will carry on to go to the last gasp of petrol and oil and die at the front of no-hopers. Nothing new, Gallipoli repeated.

  10. fatty 10
    28 September 2012 at 12:05 am

    I consider a computer and the internet as a requirement for social inclusion. Its at the point now where access to information requires it. Just as the radio was before the TV

  11. Colonial Viper 11
    28 September 2012 at 12:22 am

    Good job DTB.

  12. MrSmith 12
    29 September 2012 at 7:06 pm

    Good stuff Draco, the saying goes something like: some people talk about other people, others talk about things and other people, great people talk about ideas.

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