Monday, October 7, 2013

The Great Dichotomy

Many commentators are bemoaning the extremism of American politics today where moderates on both sides have ceded a lot of ground to the poles.  Neither side seems willing to compromise, partially because many constituents fear any compromise is another loss in a zero sum game.  This reminds me of an old story my grandparents read to me where a bunch of blind dudes are feeling up an elephant.  The guy touching the ear swears that it's a giant fan while another person gripping the giant hind leg is sure that it is a pillar. Meanwhile, a third feels the nose and says we have a hose.  Unable to experience any other viewpoints, each is adamant that he is right and the others who argue with you are not only wrong, but dumb, ignorant, or evil.  This is understandable in politics where narcissists with power are mixed with too much money and too little accountability, but it is lamentable, although arguably unavoidable that this has spread to economics as well.

The easy dichotomy is the conservatives' disdain for big government compared to liberals' contempt toward big business, particularly Wall Street.  Somehow they have become mutually exclusive things with nobody (who matters) suggesting that concentrated power is the true culprit, whether public or private.  It is almost as if the moneyed and powerful had secret meetings where they divide up blame to keep the balance of power.  Big government will take the rap for rampant disability fraud to give ammo to the Fox News crowd while big business making record profits laying people off will rally the Reddit crowd.  So at end of the day, it's like the Simpsons episode when Mr. Burns has every disease ever and all of the germs are stuck trying to enter his cells, like two fat people in a doorway.  Status quo continues with both sides adamant that things would be much better if it weren't for the other side, which is wholly incompetent or corrupt. 

But that was the easy example.  Let's tackle the grand daddy of them all: labor versus capital.  Almost zeitgeist is the chart of corporate profits compared to earned wages respectively.  

Labor of course makes money via wages while capital owns the corporations and gets a share of the burgeoning profits.  But why frame the issue as a direct comparison?  That forces the conversation down the same old political party lines that gets everyone riled up and ends with no changes.  Rather, suppose that labor is nothing more than a stepping stone towards capital--and capital is the endgame.  This is not me shitting on the middle class.  This is simple logic.  Would you rather sacrifice your time (the only scarce resource) or present consumption for survival and pursuit of happiness?  Once the question is framed thusly, I believe most people would change their tune.  

Instead of seeing labor and capital as different ways of making money, look at labor as the most basic way that should be improved upon as soon as possible through allocating savings towards ownership of productive assets.  Over time, your savings will produce enough income streams as you own more and more means of production.  As a side note, I think the temporarily golden post-war era for labor has made people forget that for 99% of human existence, being labor sucked.  Most of the time, labor meant slaves, serfs, peasants, or Industrial Age factory workers.  In fact, you can argue the downward trend in labor compensation is reversion to the mean.  The only difference in today's world is that it has never been easier to make that transition from labor to capital.  All you have to do is to stop throwing away your savings on shiny gadgets.  Once you realize that, you realize it is not labor versus capital (as capital always wins in the long run), but it is labor THEN capital.

Of course, if everyone chose to defer consumption, then corporate profits would suck and so would capital. That probably explains why there is so much emphasis on marketing and advertising as from a young age, almost everyone is deluged with opportunities to turn over his savings (capital) for discretionary goods and services. Capital conforms to supply and demand like everything else.  If the vast majority of people have none, then the few that do are that much more powerful.  Call it a conspiracy theory if you want, but ultimately, each individual made his own choice.