
Lessons from the Long Depression - jajag
http://www.coppolacomment.com/2019/04/lessons-from-long-depression.html
======
kangnkodos
The author refers to creating economic opportunities as making watering holes.
In the Florida everglades, each alligator makes a watering hole in the flat,
hard limestone ground. I don't know how big the holes are. About 20 feet
across and 6 feet deep? The alligator mostly lives in it for several years.
The hole fills with water when it rains, and tends to stay full of water
during the dry season. This is a huge benefit to all animals around it. And of
course, the alligator benefits by occasionally eating one of the visitors, but
fewer than you might think. But even with the alligator eating, making the
watering hole is a huge net benefit to the ecosystem as a whole.

I think the question boils down to, "How can the government encourage the
creation of new job-creating watering holes, instead of pushing policies which
increase the rent of existing watering holes?"

~~~
dsfyu404ed
Why is it the government's job to encourage the creation of job creating
watering holes? Why can't it just curtail rent seeking? It's much easier to
identify bad behavior as you see it than encourage good behavior of a yet
unknown form.

~~~
kangnkodos
I agree that if the government only discouraged rent seeking, that would be an
improvement. The article shows how the government is encouraging rent seeking.

~~~
snidane
'Rent seeking' is a straw man. Of course everybody searches for opportunities
yielding rent. Nobody wants to set up a business to see its profits competed
away in 2 years. They'd prefer long term stable profits.

The real problem instead is unearned rent extraction. Lot of rent which is
unethically taken away from workers and business is given to the extractors at
the expense of those workers and businesses who provide it. Largely through
taxes on labor, but also through increased prices.

There is no such thing as passive income without work. It's just that the
profit is collected by someone else than who provided the labor.

Example 1. open source community building free stuff resulting in near
trillion dollar valuations of cloud providers.

Example 2. taxes collected from labor (income and sales taxes) used for public
works and new infrastructure resulting in increase of land and real estate
value in vicinity of the new construction. Common with a new subway or highway
systems.

Example 3. Communication, Pharma industry and other network systems. Any
innovation funded by public money or other individuals can only benefit those
who already operate the network infrastructure, because of the impossibility
to compete with these established monopolies. Especially when regulations are
set up to protect the incumbents from new entrants to their markets.

These cases illustrate not only redistribution of value from those who provide
it to those who sit on it. It also shows that the goods these people helped to
create then become even more expensive for them. The more of it they produce,
the more expensive it gets - higher living rents, more expensive drugs, more
expensive railroad services, etc.

This phenomenon is called the paradox of progress and poverty. You get it
every time you set up the society in a way where the profits are extracted
from the laborers and redistributed to the rentiers.

Blame the system I guess. Don't tax the workers, tax the rentiers collecting
their results.

~~~
skybrian
It seems like natural resources are a counterexample to your "no passive
income" rule? In Alaska and Norway, the profits go into government funds that
benefit everyone. Even if it were possible, would you want all the money to go
to oil workers? They didn't create the oil.

~~~
snidane
I don't see how natural resources alone would make a passive income. Energy
has to be exerted to extract the resource. By human labor or by machine. Then
the extraction operation needs protection. If they left an oil well
unprotected in Alaska forest somewhere then soon bandits would take over it
and collect the profits. Nowadays this is resolved by private ownership of
land which is maintained and provided by the government. Then of course the
payment for this protection for exclusive rights of use needs to be paid to
said government. Simply by collecting a land tax priced at a percentage of
market value of that land. Workers and business collect profits due to their
labor and government collects the natural resource rents. Any excess the
government collects in the tax can be then reinvested into public works or
paid as a dividend to citizens. Like in Alaska and Norway.

~~~
skybrian
There is certainly work involved, but it's passive income to the citizens, who
didn't work for it and aren't the ones guarding it. I agree that it's fine. (I
am in favor of basic income.)

But I'm wondering, how do you think we distinguish between good and bad income
streams? You seemed to be making a moral distinction.

~~~
snidane
Well people actually guard it indirectly. They could at any time randomly
decide to go on a rampage and start taking over other people's property. Which
actually happens when things boil over, eg. during revolutions. So they should
be paid for remaining calm and keeping order.

I don't think we need to make the distinction between good and bad incomes.
However we as a society should be concerned about giving somebody certain
privileges without getting any compensation for it. That makes the society
inherently unequal, because one group of people is forced to provide the
privileges or services for another group of people.

Eg. people born in generation 2 are forced to accept and maintain private
property privileges on land for those born in generation 1 even though they
were never invited to discussions of land distribution in gen 1.

Simply stated, the infinite-length land rights are unethical to people in
later generations. Continuous payment system would be ethical.

This alone could then help resolve other issues in other monopoly related
problems as people would have more options to decide how to allocate their
life, as you well know it is the case of basic income and when people are not
stifled by excess taxes and excess rent payments.

------
andrepd
Reading this sort of things is getting gradually more grating for me to read.

We organise ourselves in a system where: "a world in which goods and services
are so cheap to produce that less and less capital is required for investment,
and so easy to produce that less and less labour is required to produce them"
is not a _life-transforming utopia_ , but a catastrophe. The author constantly
points this, points how growth in the "long stagnation" never materialised
into better conditions and a better standard of living, and how that didn't
change until war came.

Yet he never ceases to operate in the same system and to try to find the
answers _within_ the system. It never even crosses his thought that... perhaps
the fundamental tenets of the system should be changed, or at the very least
questionable. All he does is find convoluted ways of patching the a broken
system _from within the system_.

~~~
rsync
"We organise ourselves in a system where: "a world in which goods and services
are so cheap to produce that less and less capital is required for investment,
and so easy to produce that less and less labour is required to produce them"
is not a life-transforming utopia, but a catastrophe."

I understand - and sympathize with - your reaction.

However I have a suspicion that the authors stance is correct and, indeed,
there is something catastrophic involved. If not due to the circumstances,
then to our response to the circumstances (which, as you say, would _seem_ to
be heavenly).

If, however, you place stock in the notion that (most) humans find happiness
and meaning and fulfillment in completing meaningful and valuable work, I
think it starts to make sense.

 _You and I_ might have the personal makeup - or find ourselves in a stage of
generational or familial development - to find meaning and joy in a post-
scarcity, post "work", nuanced and refined existence. I like to think I do.

But I can imagine not having that makeup and while I might not be able to
point to "the absence of scarcity" or "not having meaningful work" as my
affliction, I think without a doubt _something_ would be afflicting me.

~~~
jdietrich
We can find meaningful work for everyone; we cannot necessarily find
remunerative work for everyone. We have the economic capacity to provide
remunerative work for everyone, but make-work is (almost by definition) not
meaningful, especially when it is overtly designated as such. We probably
don't have the economic capacity to provide everyone with the opportunity to
find their own meaningful work and we certainly don't have the political will.
Solving that conundrum is equal parts opportunity and crisis.

------
nostrademons
The other part of the Long Depression that's frequently glossed over is the
substitution effect. While prices _in aggregate_ declined, some prices
declined extremely rapidly while others (thanks to Baumol's Cost Disease)
declined slowly or not at all. The resulting cost differential led to a
fundamental change in the _structure_ of society and its values.

What represents wealth in an agrarian society? Land, livestock, horses,
slaves, servants, leisure time, and social connections. Many of these goods
_increased_ in price during the Gilded Age, or became impossible to obtain. No
more homesteading the West, no more slave plantations, independent ranchers &
farmers were driven out of business by the meatpacking & agribusiness
industries, the domestic servant class largely disappeared.

But what happened, eventually, is that these definitions of wealth became
marginalized in favor of ownership of new luxury goods. What represented
wealth in the 1950s? Having an expensive car. Owning a house in the suburbs
with electricity & running water, and a washing machine, dishwasher, and
vacuum cleaner. Flying on jets. None of these even existed during the Gilded
Age.

It's possible we'll see a similar resolution to the current crisis, where the
expensive and un-automatable pillars of a middle-class existence - health
care, education, housing - simply get marginalized as a backward remnant of a
previous era, and new status symbols - perhaps control of virtual currencies,
prowess in computer games, neural net uplinks, bionic implants - take their
place.

~~~
existencebox
So while I concur with your thesis, that events like this can motivate
fundamental changes in the structure of a society and its values, I'm going to
nitpick the "why", as I think the context of how these changes are forced is
at the heart of understanding their nature.

As such, I think your enumeration isn't quite accurate. Prior definitions of
wealth only became impossible to obtain if you didn't have enough money. You
cite land, certain notables in our own government owe much of their empire to
land (real estate.) While there certainly is a transferrance of many
technological goods via progress, key pillars such as social connections and
leisure time continue to be significant carriers of value, and as you say,
potentially become more difficult to obtain.

If health care, education, housing, become marginalized, I don't believe it's
as an anachronism, but out of unavailability, and new social signifiers will
inevitably emerge out of our very animal nature, but within our new price
range, and not out of lack of want for "more traditional luxuries". (to cite
anecdata, the number of peers who are at peace with their housing/commute/work
life situations, increasing inversely corresponding to pay)

------
imtringued
Honestly the problem doesn't appear to be very complicated.

Basically people primarily buy stocks (maybe housing too?) not for the income
they produce but for the price gains of the stock itself.

The goal of the central bank is to meet it's inflation target by injecting
money into the economy via policies like QE. The stocks rise in price as
intended and therefore the yield decreased. What was not expected is that the
stock owners do not care about the low yield because the capital gains caused
by QE outweigh the comparatively low dividend payments (in some cases none at
all).

So why not tax capital gains more and dividend payments less?

Capital gains happen whenever anyone (central bank or other investors) buys
stocks for more than you bought, the profits are not bounded by the success of
the company.

Dividend payments however always have to be paid out by the company based on
how much profit it made and therefore they are independent of the share price.
A stock with low yields is unattractive and therefore gets sold to buy a stock
with higher yields.

~~~
tabtab
RE: _The goal of the central bank is to meet it 's inflation target by
injecting money into the economy via policies like QE._

Not really. QE was a semi-emergency move. The hope was that managing interest
rates _alone_ would be sufficient, but it turned out not to be for deep
slumps. QE creates a lot of nasty side-effects and draws criticism to the
Central Bank they'd rather not have. I think the chairman once said the job of
stimuluses outside of interest rates was or should be Congress's job, not
them. But Congress bungles it with debt and reverse Keynesian timing due to
political and tax squabbles.

------
simonh
That's a log way from being the whole story, then or now. In the 1870s ok
unemployment was high at 25%, but the rate of growth of the population had
only just dipped below 30% per decade. Job growth was actually also booming,
just not as much.

Similarly if we take a global view over the last few decades, China added
hundreds of millions of people to the labour force. It's been the period of
the greatest reduction in poverty ever. That's got to count for something.

EDIT In fact enormous wealth has been created, and it's not all been
concentrated in the top 1%. The bottom 30% or so globally has also benefited
massively. It just hasn't really benefited mid range workers in the West, but
let's not pretend the last few decades have been a disaster, or even
particularly bad in the grand scheme of things.

~~~
dsfyu404ed
Agreed. And the post-civil war south adds a bunch of confounding factors that
make comparison hard.

In the 1870s there were a lot of newly free blacks who were saying "fuck
sharecropping, fuck being scared of the klan, I'm gonna work in a factory up
north" and they weren't moving north with jobs already lined up.

~~~
padobson
Wow. So do you see an analagous relationship between the freed blacks entering
the American labor market in the late nineteenth century and the Chinese
peasants entering the global labor market in the last 4 decades?

~~~
bwanab
It's not that far off. In both cases, it involved agricultural laborers in a
mass migration to jobs in newly opened factories that were building stuff for
mostly far off other people.

------
11thEarlOfMar
"..for production costs to fall, either there must be fewer people earning
wages, or wages must be lower."

Prices can go down without production or labor costs falling. Equipment is
frequently capitalized. The approach that CFOs take to applying both the
payments (interest) and depreciation are valves they can turn to modulate the
P&L. This is totally disconnected from supply, demand and pricing.

Moreover, the margins earned can be very high at the beginning of a product
cycle and therefore, still robust enough to justify the investment and labor
costs even when prices have dropped.

Finally, in many cases, the lower prices induce more demand. Average selling
price drops, demand grows, offsetting the price decrease.

This is all modus operandi for the display, semiconductor and computing
industries, among others.

~~~
1PlayerOne
I think you will agree that high tech industries fall into the higher end of
the bifurcated labor market.

------
roenxi
The paragraph starting "Some people regard this sort of deflation as benign."
is a lead in to some interesting observations and raises classic questions
about what 'success' means in an economy.

Consider a case of demand deflation where farmers decide they don't need
anything any more, stop growing crops in excess of what is needed to feed
themselves and sit on productive land like stone toads. I think there would be
near-absolute consensus that the situation was very bad.

The same situation but with coal and oil swapped for farmland would be
different. I happen to think that would still be a bad outcome, but there is a
pretty sizeable environmental lobby that wants exactly that and would call it
good. Assuming it happened over a bit of time so that alternatives could be
bought on line.

There is a key question here - who exactly should have the power to deny an
economy access to primary resources (particularly those linked to land
ownership)? Under what circumstances is that acceptable and unacceptable? That
is the mechanical underlying issue for why bad employment numbers correlate to
bad outcomes.

At the end of the day, reflecting on these issues makes me think we just need
a land tax based on an assessed value of land + mineral wealth underneath the
land. Something large enough that families have to repurchase their land once
a generation. That is the only idea I have that is even a little consistent
with property rights. The issue with dropping demand isn't that people are
unemployed - I _like_ being unemployed in the classic not-looking-for-work
sense. The problem is that people are willing to work and don't have enough to
live comfortably but are unable to get raw resources to do so.

The correct solution is to acknowledge that land is maybe the only resource
that a human can't fabricate through hard work and then construct a gentle
system of rewards and incentives to make sure that resources are deployed.

~~~
pixl97
>stop growing crops in excess of what is needed to feed themselves and sit on
productive land like stone toads.

I see some of the same problems in housing. It seems every homeowner wants the
value of their house to increase, and many times will lobby in such a manner
that causes their home prices to increase significantly by limiting
development. I've had people argue with me on Reddit that home values _must_
continually increase or people will stop making homes?! The insanity required
to believe that has become endemic in our society.

~~~
padobson
I had the exact same thoughts watching this:
[https://youtu.be/A5xKz5AcuXE](https://youtu.be/A5xKz5AcuXE)

Right around 4:20 he actually argues that real estate investment is a bad
thing.

What really blows my mind is that the production value of this video far
surpasses that of the average Reddit comment, though the argument is
essentially the same.

------
paulpauper
_However, the well-off don’t like paying taxes to support the unemployed and
the low-paid, so they use their electoral muscle to pressure governments to
cut welfare bills. As welfare bills are cut, poverty rises among the
unemployed and poorly paid. Governments may adopt draconian measures to force
the unemployed into work, even at starvation wages, and to quash civil
unrest._

The opposite has happened. In spite of low taxes, entitlement spending keeps
rising, such as dissablty, healthcare, education, and housing. Who is paying
for it? Bondholders. Other countries are unable to sell so much debt so
cheaply and thus have to resort to austerity.

~~~
kasey_junk
At the US federal level that’s largely only true for entitlement spending for
the elderly which is spread across large swaths of the economic spectrum.

The trend of the last 40 years or so has been relative cuts to entitlements to
the poor specifically.

------
PeterStuer
If only we could price in negative externalities, we would see a very
different supply/demand point. Since this is completely antithetical to the
current socio-economic powers and mores, I'm confident that true costs of
consumption and thus production will never be charged to the culpable.

------
microcolonel
(2013)

A lot of this essay is about "right now", which at the time was November 2013.

~~~
foobarbecue
Yes - and conditions are not the same. You might say we still have high
underemployment, but we certainly don't have high unemployment in the USA
today.

~~~
shusson
> we certainly don't have high unemployment in the USA today

When you take into account labor participation it's not such a clear cut
picture. [1]

[1]
[https://en.wikipedia.org/wiki/Labor_force_in_the_United_Stat...](https://en.wikipedia.org/wiki/Labor_force_in_the_United_States)

