

Let It Die: Rushkoff on the economy - dangoldin
http://www.arthurmag.com/2009/03/16/let-it-die-rushkoff-on-the-economy/

======
russell
Where are you guys getting these idiots. Yesterday it was comparing the US
today with the Weimar Republic. Today it's some idiot who says it was better
500 years ago than today because they had local currencies based on grain.
What utter bullshit. The great cathedrals were built as tourist attractions.
The great cathedrals were built 800-900 years ago in a competition to glorify
God. There weren't any tourist then. Tourism is a pretty recent invention. All
our woes are a legacy of the British East India Corporation. The guy doesn't
even understand what a limited liabiity corporation is.

Apologies for the impolite put down, but apply some critical thinking before
you submit this stuff.

~~~
russell
(Edit so to speak :-)

This guy is so wrong that it is hard to know where to begin. He is arguing
from a false premise to a false conclusion. It's like a creationist argument.
He says that things were great in the late middle ages. Wages were the highest
ever. Well that is true for a few hundred years either side of the fourteenth
century. But the real reason is not the superiority of economic system, but
because everyone else was dead. Sure wages were high. but that was because the
hundred years war, the black plagues, and the little ice age had killed off
2-thirds of the population. As soon as the good times were over, it was misery
all over again. Contrast that with now. Half the world's population is middle
class. Three billion vs a few 10's of thousands in the late 14th century. And
middle class today is a lot better than well-to-do of 600 years ago.

Then he conflates a whole bunch of things, government monopoly with
corporations, the British East India with American trade. Government
monopolies have a history as long as history. The medieval guilds are an
example. The American patent system is another. Before the invention of
corporations, investors were partners in an enterprise and all were liable far
beyond their investments in the event of the enterprise's default. Over the
long run the two are independent concepts. If he made the argument that large
corporations tend towards monopoly, he made it in an exceedingly roundabout
way. As far as I know the British East India Company had nothing to do with
the Americas. There was a lot of tension because of a British law that all
trade to and from British ports had to be on British ships. The Americans sent
their cotton to England because we did not have the manufacturing capacity to
produce fine woven cloth. (IP restrictions also.)

He also argues against government monopoly of currency. You get things like
grain based currency when there is no stable currency. Early in US history
currency was privately issued by banks. That proved to be a pretty lousy
system. If the bank went under, not only did you loose any deposits, the value
of the currency went to zero. Yeah, I would really like to be holding AIG
currency right now. It's bad enough they have my life insurance. I live in
California and we damned near had California currency, because Republicans
refused to allow a budget. Nobody here was looking forward to it.

I personally think we have a huge problems with monopolies: the banks, the
energy companies, the information infrastructure, the drug companies. And the
recovery financing is making it worse. Good stuff for HN discussion. It's just
that this guy is so wrong in so many places that he pollutes the discussion.

~~~
anamax
> I live in California and we damned near had California currency, because
> Republicans refused to allow a budget.

"we"? No. The only people who were going to get IOUs were disfavored people
owned money by the California govt. The folks who it liked were going to
continue to get US dollars.

That's what happens when California has a cash crunch.

If you were going to be inconvenienced by receiving scrip instead of dollars,
think of it as California government's way of telling you how important you
are to it.

------
triplefox
While I'd like to believe the article, it doesn't entirely jibe with my B.A.
degree's understanding of good economic policy, of which the fundamental tenet
is to ensure a marketplace that is both fair and stable. Eliminating
corporations would destabilize many sectors of the economy(particularly
infrastructure-oriented ones), and it wouldn't make those sectors more fair
than before.

The point made for human health in the Middle Ages can be interpreted as a
factor of the lower number of people around at that time. The difference is
that we now support a large population via improved disease treatment and
engineered methods of increasing calorie count. We probably still don't get
the same kind of nutrition per person as the people in the Middle Ages.

Alternative currencies are worth considering(for example, the scrip used in
Germany and Austria historically.) in isolation as a means of balancing local
economies with national ones.

~~~
cturner

        Eliminating corporations would destabilize many
        sectors of the economy(particularly infrastructure-
        oriented ones), and it wouldn't make those sectors more
        fair than before.
    

Instability needn't be a bad thing. Newspapers are destabilised by the
internet. This doesn't indicate that the internet is a bad thing.

I knew a guy who ripped the guts out of a regional beef market cartel with a
simple program on an Apple II. There was lots of instability there and it was
definitely a good thing.

It's interesting that you identify stability and low risk as being a strength
of corporations - the only strong argument I've ever heard in favour of the
idea of creating a structure with an individual's rights but without its
responsibilities is that the limited liability of a corporation gives people
the opportunity to take risks they otherwise wouldn't, and that the net effect
on the system is positive. I'm dubious about this too.

    
    
        We probably still don't get the same kind
        of nutrition per person as the people in
        the Middle Ages.
    

The improvement to quality of life, health, friends, freedom, and opportunity
for self-actualisation in general is profound. We support a large population
and anyone in regular employment has an opportunity to access education, food
and resources that are so luxurious to people of the middle ages that many
would be incomprehensible to the people of that setting.

------
jwilliams
Do people really buy the "it's because bankers are evil" line? (I'm
oversimplifying I know).

If you'd been a highly conservative/prudent investment manager a couple of
years ago - well - you probably wouldn't have had many customers. People were
happy to throw money at people that promised these huge returns. That's how
they got to the position they were in.

Not to say there isn't something to answer for - some things went very wrong,
and some people crossed the line in a very significant way - but if you don't
look at the root causes, you're not really addressing the problem.

I've worked in financial services for a decade. There are a lot of dubious
people in the industry, and a lot that are purely driven from self-interest
(this was colloquially thought to be good as their self-interest usually meant
bigger returns).

... But, I've also met people that are in finance because they love it. These
people are really an inspiration. They really want to build genuine wealth -
to enable people to do great things. It turned me onto the power of the market
and economics.

All you need is the right _intent_ , and it's up to everyone to drive that.

~~~
menloparkbum
_Do people really buy the "it's because bankers are evil" line?_

Yes, I think that's actually a common sentiment.

~~~
Rod
It's funny that just 2 or 3 years ago, bankers were _rock stars_. I lost the
count of how many friends and acquaintances left Science & Engineering to try
a career as investment bankers... and failed miserably.

Bankers deserve neither admiration (their job is not particularly noble), nor
everyone's hatred (the economic crisis is not entirely their fault).

~~~
jwilliams
True - But the same happened in the dotcom boom. There were some pretty
terrible coders around. A lot of bad entrepreneurs lost people a lot of money
on some bad ideas.

I'd disagree that being a banker can't be noble... but you'd really need to
meet/know a counterexample to argue that point to it's end conclusion - and
that's not necessarily a simple thing to do at this point in history.

~~~
Rod
The one good thing about crises such as the _dotcom boom_ and the current Wall
Street meltdown is that they weed out the _mercenaries_. The coders who stayed
in the business after the crash were the ones who did it for the passion, not
for the buck. I would say the same applies to bankers, but I never met one
banker who admitted to love his job. I have met traders who loved their jobs.
But not bankers.

Unless by "banker" we mean anyone who works at a bank, not just investment
bankers...

I would argue that bankers are not particularly noble, but I am not bashing
them either. Guys like Steve Jobs, Bill Gates, Marc Andreessen and others
became rich because of their companies' IPOs, which were carried out by
bankers. Not all is black & white, right?

------
CWuestefeld
Rushkoff's conclusions don't follow from his argument (such as it is, setting
aside such silliness as middle-ages tourism).

He seems to be arguing against mercantilism and fiat money. Luckily, we've
progressed past mercantilism in many ways, and fiat money _could_ be easily
replaced without destroying the economy.

His conclusions about the banking system seems a hopeless confusion between
_central_ banking and a market for capital. He indicts the former, yet wants
to tear down the latter.

While he seems to be aiming at corporatism (or corporate fascism), he only
takes an unsupported swipe at corporations in general, placing all blame on
their shoulders without acknowledging any blame that might fall on the
government and democracy.

Saying "For one business to pay back what it owes, another must go bankrupt",
he reveals a childish idea that all business must be zero-sum, so that there
must always be a winner and a loser. But it can plainly be seen, when two
parties freely enter into a transaction, that _both_ feel that they are coming
out ahead.

He seems never to have considered that business can actually _create_ wealth.
And apparently dismisses the idea that new markets are being created at a
furious pace, ignoring the giant strides in communications, healthcare,
computing, transportation, etc, that have been made in the last half a
century.

~~~
jibiki
> Saying "For one business to pay back what it owes, another must go
> bankrupt", he reveals a childish idea that all business must be zero-sum, so
> that there must always be a winner and a loser.

I think he's making a comment about the fact that fiat money bears interest.
So if there's $1000 of fiat money in the system, then there's a total of (say)
$1200 owed to the central bank. So we have 2 corporations, each of which has
borrowed $500 from the central bank, and owes $600 to it. If the bank were
unwilling to increase the money supply through further loans, then one of
those corporations would necessarily default (assuming that they have to pay
it back in the currency they borrowed.) But fiat money doesn't really work
this way, so it's a very moot point.

------
tjic
> In a perfect world, the stock market would decline another 70 or 80 percent

"The economy" is a measure of the value being created and enjoyed.

Anyone who says that they want "the economy" to decline 80% is saying that
they want EVERYONE'S standards of living to decline 80%. You, your brother's,
your retired parents - they should lose 80% of their housing, 80% of their
nights out, 80% of the books they'd like to buy, 80% of the movies they'd like
to watch, 80% of the vacations they hope to go on.

Except for the dead bodies piled on the sidewalks, he's basically hoping for a
genocide.

"I feel alienated and I feel like a failure and I hate everyone and therefore
I want it all to burn" is a fine sentiment for a high school heavy metal band
or an idiot 14 year old goth, but it's an absolutely shameful thing for an
adult to say.

~~~
mechanical_fish
Without getting into the rest of Rushkoff's argument, he said _the stock
market_ , not _the economy_. Though the media tend to confuse these things,
they are not the same. At all.

The S&P 500 is down nearly 50% since last year. Obviously, this has not
produced a 50% drop in the standard of living.

Here's a calculation of the historical total-market P/E ratio from 1871 to
2003:

[http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B236...](http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B23663E61%2DC865%2D46F2%2DB83E%2D4EEC2DDEC0C0%7D&dist=morenews&param=archive&siteid=mktw&garden=&minisite=)

The historical average is 11 to 14, depending on how it is calculated. The
same source reports that the S&P 500 P/E ratio on February 12 was 29.1:

[http://www.marketwatch.com/news/story/how-current-pe-
ratios-...](http://www.marketwatch.com/news/story/how-current-pe-ratios-
stand/story.aspx?guid=%7B13BD1A19-0A04-4FEE-97A6-0A1C410D6881%7D)

That implies that, in mid-February, the market needed to drop another 52% to
62% to get back to the _average_ P/E ratio of the market over the last
century. Obviously, an average P/E of 11 implies that the market has
historically spent quite a bit of time at an even _lower_ P/E.

Obviously, this is a facile analysis. The Marketwatch guy himself hedges it
quite a bit (e.g. he points out that during a big recession P/E can surge
temporarily due to the relative timing of economic events). But it does go to
show that, when Rushkoff suggests that the market might drop another 70% or
80%, he's not talking about something unprecedented -- he's merely talking
about a market-average P/E of 6. Nor is he suggesting a drop of 80% in a
_real_ economic measure, like employment, or GDP.

------
kamidev
Well... I have no idea what Rushkoff really knows about economy. But I see
nothing wrong with the kind of questions he asks: is the current crisis just
another unavoidable cycle? Should we just hope for the economy to "get back to
normal or seriously think about something better? Who benefits if most of us
think there is no alterative?

Perhaps this really is the best of all possible worlds. Perhaps we already
know everything we need to know about economy and politics. But personally, I
don't think so. And I enjoy when hackers speculate about these things.

------
jwhitlark
Rushkoff seems to subscribe to the daddy model of wealth.
<http://www.paulgraham.com/gap.html> <http://www.paulgraham.com/wealth.html>

Seriously, there is an optimum level of debt for countries as well as people,
and it's NOT zero.

~~~
kiba
I thought the opposite. He didn't subscribe to the daddy model of wealth but
rather he understood that what those bankers are doing are not creating real
wealth.

------
chasingsparks
This feels a bit too much like the Zed Shaw "Two Flaws of Libertarianism"
submission.

------
darkhorse
i think this fellow is right on the money.

our economy borrows against future real growth to finance itself, and that
will never work in the long term - that real growth is physically constrained,
but the debt is not.

just look at our national debt - our economy will never grow fast enough in
real wealth terms to be able to pay back the debt that is accumulating much
faster. debt is just a number on paper, without bound. growth has to contend
with the real world.

~~~
Xichekolas
Why must we pay off the national debt?

It's not like the US Government is going to get old and lose it's income (like
a person that retires would). Provided the economy grows (and tax receipts
grow along with it) the government has an ever-increasing ability to service
its debt.

Just look at the ratio of tax receipts to interest on the debt. The recent
financial crisis has obviously made it dive a bit, but in general it's been
quite steady or increasing over the last half century or so. In the corporate
world, this figure is known as Times Interest Earned, and is a generally
accepted measure of credit quality of a company.

Paying back the principal is less of a concern, because when it comes due,
there is always a willing buyer of another t-bill to roll it over.

With some pretty charts: [http://www.optimist123.com/optimist/2008/12/the-
usas-debt-bu...](http://www.optimist123.com/optimist/2008/12/the-usas-debt-
burden-according-to-the-tit-ratio.html)

~~~
bprater
Why pay off debt? First, it seems like the honorable thing to do. Honor? Right
thing to do? In the US? I guess we lost that a long time ago.

If money that is servicing debt were freed up, wouldn't it be logical that it
could flow to other useful places?

~~~
jwilliams
_First, it seems like the honorable thing to do._

Paying off debt and defaulting on debt are two different concepts.

Most companies are permanently in debt in some fashion.

------
Rod
I get the impression that Rushkoff does not know much about Economics, nor
Finance. I do agree that Wall Street was making way too much money and that
this _new gilded age_ had to end sooner or later. However, I do NOT agree that
the collapse of the financial services industry would benefit the United
States.

The truth is that the U.S. needs the financial services industry to serve as
the economy's lubricant. Ultimately, an efficient marketplace benefits us all.

~~~
kiba
You can't have profit without loss. It is the twin engine of capitalism that
make the economy run.

When these companies failed, their asset get liquatated. Those assets that got
liquatated will hopefully end up in companies that were sound, financially and
bottom line wise. That is the purpose of the bust, to clean out unprofitable
activity and correct the misallocation of resource.

If you subscribe to the Austrian business cycle theory, than you also realize
that these booms and bust are not natural, and are largely due to the nature
of the federal reserve. For example, if you lower the interest, you're
signalling lot of resources are availiable because of the high saving rate.
But since the feds control the banking system, the interest its mandate are
unnatural and not based on real market condition. This cause a chain reaction
in the market(as people are tricked that there are more resources availiable)
in which a number of factors lined up perfectly to cause a spectuative boom
and than a market correction, thus creating a large cluster of entrepeneural
errors.

That is not to say that there won't be a boom and bust. It will probably
happen in a true free market as entrepeneurs are fooled, but it will happen
less. Entrepneurs will make mistakes, but not in such large clusters to cause
such a crazy business cycle, which by the way the federal reserves was
supposed to protect us against.

For some reason, the federal reserves fails to prevent business cycles from
happening.

~~~
kiba
Ok, people have voted down my comment.

Can people point out why they disagree with my assesement?

