Thursday, September 18, 2014

Economics is still a choice

Doug Muder sums up Michael Greer's "The Long Descent" and applies it to Ferguson, MO, arguing that car-oriented suburbs are doomed to decline, because of economics.

A key paragraph of a long and excellent article is this:
And finally, we need to figure out how to rebuild or write off the mistakes of the past. Places like Ferguson — and there are a lot of them — are not sustainable in their current form. They will never generate the capital to remake themselves, and the outside capital they attract will be mainly from vultures who want to squeeze the last bits of value out of the community’s decline and despair.
The problem with this scenario is that enormous amounts of Capital is created and invested everyday in these wealthy United States. It is not being invested in the infrastructure of towns like Ferguson, MO, that is true. But it exists.

The problem is not just that our priorities are so askew. The problem is that the process by which it is determined where Capital is invested is distorted. The wrong people are using the wrong process to choose how we plan for and invest in the future; as a consequence we are making poor decisions.

There are two giant pools of Capital that is looking for opportunities: the pool in the hands of Finance Capital, on what we call "Wall Street" and there is a pool in the hands of the governments. The first pool is all the money held in the form of stocks and bonds and other financial interests. A lot of that money, by the way, is money owned by ordinary people in the form of 401K's and IRA's etc. The second pool is fed by taxation, and by the sale of government bonds. Where and how these pools of money are invested determine our future.

The taxation system has over time, impoverished the state sector, so its investment pool is small. In
addition, the political choices we have made have prioritized military spending over other forms of investment. We have seen the numbers of what the country could be investing, if we chose not to have a military as large and as capable as we now do.

An ideological choice has been made that the lion's share of investment in our future will be made through the capital markets. But capital markets work on short-term goals of profit and loss. Investment opportunities compete against each other for the capital. Of course, investing in Apple stock will be smarter, in that context, than in buying bonds to build out a St. Louis mass transit system. Investments in Apple will pay off now. Mass Transit will never pay off directly. That is why we have 21st century pocket sized computers with which to call home from our cars when we are stuck in traffic jams on potholed streets through dying inner-ring suburbs. 

Economics, and the workings of finance capital, seem immutable, unchangeable, like the weather or acts of God. They are not. We could radically change the course of our country by putting more money in the hands of the government, and investing it wisely, and less money in the hands of Finance Capital to be invested in the capital markets. We could choose to not make towns like Ferguson generate enough capital to maintain themselves, but supply that investment from other sources. We could choose to make inner ring suburbs more attractive places to live, making our cities more dense and sustainable. There is the money in our economy to do all of that, and more. 

Oh, if only there was a way to gather money from the general population, especially the wealthier members, and use it for the common good. 

Oh, if only there was an institutions that could fairly represent all of the conflicting opinions and interests of the people, and then make decisions that carry out their will for the future. 

1 comment:

Ralf said...

There is another option, which you begin to allude to above: we can wrest control of our 401(k)s and other retirement plans from the Wall Street short-termers and profiteers.
This will not be easy, but it may be essential. And it may not have to be direct control. Look at CALPERS, the California retirement pension system. They just announced they're dumping all hedge funds as overly expensive and ineffective, and flatly pointing out that the exorbitant fees paid to the managers are not at all worth it. Excellent start.
The divestment campaign is another example of wresting control away fromfund managers: the social pressure to act is growing, even if the 350 folks are not the direct investors.
I trace a lot of the problem back to undemocratic mutual funds. In the 'old days' investors owned stock and voted the shares at annual meetings. Corporate leaders were at least somewhat accountable.
Now, we plunk our money, maybe 2% of a paycheck at a time, in some set of funds far away and hard to understand. Those fund managers vote the underlying share's proxies, and never consult with us, the actual investors. Guess what? They perpetuate the insider's club. We as the actual investors have to change this!
I'm still formulating how, mind you, but reform is desperately needed.