Demon Profit

We have all heard that money is the root of all evil, or perhaps that the love of money is the root of all evil. Some people equate profit with the love of money and therefore with evil. As a result, many of those who speak about "profit" and the "profit motive" load the word "profit" with negative connotations.

At tosoc.org we do not have feelings one way or the other about profit because one of our principles is that those who can produce more than they consume should do so. Or, if you prefer, we should all make more than we spend so that we can build up savings. Savings, which is profit in the accounting sense. See our post Theory of Wealth.

While we think that the word "profit" has an undeserved bad reputation, the rich do tend to increase their own profits at times when the poor are losing their savings. For example, hedge fund manager John Paulson is said to have earned, personally, almost $4 billion in 1987 by using credit default swaps to hedge against the US housing market. Mr Paulson and his investors were raking it in while the rest of us were suffering. Yet Mr Paulson and investors like him did nothing illegal or even overtly immoral as far as we know.

Even so, there is currently an economic ratchet effect in which the rich get richer in good times and bad times while the rest of us lose our savings in bad times. (See also our post Left for Dead.) Unstopped, the ultimate result of this trend will be that the rich will end up with almost everything and the rest of us will end up with almost nothing. Ever-greater income and wealth inequality is not sustainable. It is a harbinger of the breakdown of the social contract between the rich and poor in the US.

See also our posts The Capitalist Road To Serfdom, No Sauce for the Gander, The Guilty Innocents, and our very first post, The Other Side of Capitalism.

So what is the real problem here? Are profits good or evil? Should profit be our goal or not? The tosoc.org answer is that profit should be our goal, but only in the context of balanced competitive markets. Right now the markets are not as balanced or competitive as they should be. Mr Paulson and his investors made extraordinary profits only because he and other rich people were able to hedge against our home loans, while, in effect, the rest of us were not.

If we are to feel that our toil is really leading to a better society instead of being, as we wrote in another post, The Capitalist Road to Serfdom, then when we build up savings, they should not be so vulnerable and so easily destroyed by the worldwide financial shenanigans of the rich. But how can we do that when the rich make the markets and have direct access to our savings; our invested profits? We cannot.

Again, the only solution is to deny the rich direct access to our markets and thus to our invested profits. That is what tosoc.org's plan of multiple exclusive markets and currencies is all about. So yes, we want profits. We need to produce more than we consume so that we are not stuck in lives of mere subsistence, of bare survival. We need the extra resources so we can increase our capital and at the same time, build an ever-better, ever-wealthier society. But it is pointless to do that when the capital that we build up is so vulnerable to mistakes, thoughtlessness, or even ill-will on the part of the rich. Support tosoc.org.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (admin@tosoc.org)

Copyright © 2014 TheOtherSideOfCapitalism

Brutal on the Population

See the Wall Street Journal opinion piece Mi Amor, I Shrunk the Peso by Mary Anastasia O'Grady (February 2^nd, 2014). The article is about Argentina's devaluation and history of devaluations, but there are also notes from an interview with Irish Finance Minister Michael Noonan. Here is what caught our attention:

"Marking down the currency is the least-painful path for the state when it cannot meet its obligations. But as Mr. Noonan pointed out, it's brutal on the population. Devaluation reduces the purchasing power of the nation. Real wages and the real value of nest eggs belonging to ordinary people are cut from one day to the next. 

What is worse, Mr. Noonan observed, is that few countries go through a mega-devaluation only once. 'It becomes a habit.'"

We suspect that the rich in Argentina keep their wealth in commodities or in external financial instruments denominated in strong currencies. Or perhaps they own strong external currencies outright. Otherwise we do not see how they could remain rich in global terms. Owning the Argentine peso is clearly not the way to secure one's wealth.

To us this is yet another example of the rich using arbitrage to transfer our wealth to themselves. See for example our post Take from the Poor about how this is done. Based on what we see in Ms O'Grady's opinion piece, the rich in Argentina have been playing this game and "brutalizing" the Argentine population (to use Minister Noonan's word) for about two hundred years.

This means that the rich marginalize themselves. They "raise" themselves "above" local populations, becoming more citizens of the world than citizens of any particular nation. It is a side-effect of putting oneself in a position to take advantage of arbitrage.

Several points come out of this line of thought. First, if one is concerned about the stratification of society, it already exists. The rich think of themselves as being on a higher level. Therefore the issue is not so much how to prevent stratification but how to structure it in a reasonable way to prevent abuse.

Second, multiple worldwide currencies and markets already exist. The problem once again is how to structure them in reasonable ways to prevent abuses like the ongoing "brutalization" of the Argentine population.

Third, capitalism as it is now conceived will not fix itself. Capitalism is working as designed. We see in Ms O'Grady's article that the rich in Argentina have been taking advantage of that for a few hundred years.

One way to see the central problem is that the rich want to elevate themselves above the rest of us, but not so far that they cannot still control our economies for their own profit. Tosoc.org says that we should complete the separation by moving them into their own markets with their own currencies. Then we will be able to negotiate with the rich on a more equal basis and prevent abuses like the Great Recession and the devaluation in Argentina.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (admin@tosoc.org)

Copyright © 2014 TheOtherSideOfCapitalism

Truth and Reconciliation

Those of you who are managers may have been offended by our last two posts, Stupid Management Tricks and Ambition? Or All In?. If so, we want you to know that we wish you well. We just think that you wield too much power over your employees.

We know that some of you are wonderful managers who are beloved by your employees. Hey, can we come work for you? On the other hand, some of you are not wonderful managers.

If you are familiar with South Africa's Truth and Reconciliation Commission, you know that it was set up to deal with the effects of apartheid as part of the end of apartheid. We think it was a very wise approach because the purpose was not to identify and punish the guilty, but to bring the truth into the open. They recognized that trying to punish most everyone in an entire society guilty of discrimination, human rights violations, and violence was an impossible task, one in which the truth would get lost among all the lies. The attempt itself would become an open sore on the society, leading to many more years of violence, and give rise to witch hunts.

Instead, the Commission just asked for the truth. Those who testified could apply for amnesty and receive no punishment for their actions. Victims were identified and compensated. This approach rapidly led to peace and to the end of apartheid. Reconciliation was accomplished very quickly, in our view.

In the same spirit, it is not our purpose to criminalize managers or rich people. It is our purpose to get them to see what they do in a new light. Some of the things they must do, the things they would rather the public not know about, are no longer necessary.

For example, take the period of the Great Recession in the US. Some of you were managers in that period. Some of you knew about coming layoffs and concealed that information from your employees. In answer to their anxious questions, you outright lied to them. Perhaps you even painted a rosy picture of the future for them. After all, morale had to be maintained.

Then you laid off your employees. In tens, hundreds, even thousands. There you were, knowingly dumping them into a terrible job market, knowing that many of them would lose their homes and not be able to support their families. Perhaps their families would break up. No one we want to know would feel good about that.

You had to do it because you were ordered to do it. It was your job and your responsibility. They told you it had to be done. But if you are a decent human being, you did not like it and you wish it had not happened.

The trouble is that it was not necessary. These days most human suffering is caused by humans. For example, here is what John Maynard Keynes said at the beginning of the Great Depression:

"This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life ... and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time."

We generally agree with Keynes here, especially regarding our times and the Great Recession. We are now many generations off the farm and we are generally much better educated than people were in 1930. We all know the work that we have to do to keep everyone fed, clothed, sheltered, and in as good health as nature allows.

Despite that, we allowed our highest economic and political leaders to blunder (as Keynes said) in the control of the delicate machine. The competency and good will of our leadership was and is in question. How could the Great Recession happen? If it was not intentional, then why is the system so delicate? How is it that our highest leaders would allow digits on their balance sheets to lead to a huge economic mess and increased human suffering?

The tosoc.org explanation is that the natural result of capitalism is rich people, but rich people are not devoted to capitalism. They are devoted to keeping and increasing their riches. Once the rich become rich enough, Adam Smith's "invisible hand" suddenly becomes visible, and at that point, things are wide open. You can then pick your metaphor for how the rich destroy the system that made them. The heavy finger of the rich tilts the playing field in their favor—something that can only be expected. They just take advantage of their advantages, but they have a lot more advantages than we do. They change the game in their favor. They distort the markets in their favor. The rich cheat, if you will, although in general we do not think of it that way. See our post The Guilty Innocents.

It seems obvious to us, therefore, that the way to make the system more robust is to separate the rich markets from the poor markets. Make the competition balanced in every market. The rich can only destroy the markets in which they compete.

Naturally, splitting up markets and currencies is not a capitalist thing to do. It must be done by governments. Some might not like that, but we ask you. How much less capitalist would that be compared to what we do today? When governments borrow trillions (from the rich) to keep the private banks from collapsing?

Coming back to management and today's managers, we think it would be a lot less stressful for well-intentioned managers if laying people off meant just lost income, not also lost livelihoods, loss of homes, and possibly the breakup of families. The whole employer-employee relationship would be less tense than it is today. Especially during economic downturns, employees would never feel themselves under the almost life-or-death pressure to keep their jobs. Employers would not have to deal with those emotions.

For those of you managers who enjoy having an almost life-or-death whip hand over your employees, we do not have much use for you. We think you are bad managers. We are not out to punish you, but we want to take the whip out of your hand.

For those of you managers who are well-intentioned and sympathetic toward your employees, we want you to be able to exercise your leadership rather than a whip that you are uncomfortable using. We think that under our system, the employees of bad managers will migrate to you and your benign leadership. Ultimately bad managers will have no more employees and be driven out of the system, improving life for everyone.

Finally, managers would be able to both hire and fire faster and easier. We think that under the current system, the consequences (or costs) of firing someone is too severe for both the employee and the employer. This feeds back into the hiring process, where taking someone on must be weighed carefully against the possibility that you will have to let them go. If workers could change jobs faster without fear of personal financial destruction, they would find their best-fit employment more quickly. There should be major economic advantages to that for our entire system. Economists these days talk about the problem of "sticky wages" in economic downturns. Perhaps we have a solution to that for them here at tosoc.org.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (admin@tosoc.org)

Copyright © 2014 TheOtherSideOfCapitalism

Ambition? Or All In?

Last time we were pretty hard on managers (see Stupid Management Tricks). This time we will change our focus to the reasons why managers do what they do. We are not intentionally trying to be hard on managers again, though it may seem that way. We are saying that their behavior is understandable given the logic of their psychology and the imperative forces that drive them.

The primary characteristic of managers in general is personal ambition. The stronger your desire to get ahead, the better chance you have of getting ahead. Take for example Eike Batista, the Brazilian entrepreneur who built a multi-billion-dollar commodities empire over a few years starting in 2006. According to an article in the online Wall Street Journal (see Eike Batista's Empire), Mr Batista wants to be the world's richest man. Brian Gibson, "then a senior vice president with Ontario's Teacher Retirement Plan," is quoted as saying

"As an investor, you are looking for someone who is hungry. I didn't know if he was going to be the richest or not, and I didn't care."

We are speaking more of attitude than actual behavior here, but you have to be willing to give your "betters" the impression that you are "hungry" enough to do anything in order to get ahead. You must create the perception that on command, you would steal candy from babies. That you would steal candy from your own baby. If you are not willing to compromise your integrity in order to get ahead, then you will not likely rise very far in a management hierarchy.

Second, managers are joiners, joiners who plan to be invited into ever-more-exclusive socioeconomic strata, level by level. They are never fully in one stratum—never fully on one rung of the ladder—because no sooner do they reach a level than they begin reaching for the next one. The logic of "getting ahead in the world" requires it.

This means that they also have to leave any baggage behind that might tie them down to a lower level. Any inconvenient friendships, love relationships, or business relationships must be terminated quite deliberately. In part that is because they must be seen by the current occupants of the next-higher level as someone who can help them achieve their ambitions. You cannot do that if you have tied yourself down. This need to cut bonds and betray promises that are no longer useful is what we mean we say that managers are professionally faithless. There are those who are "in" and those who are "out," and managers must always work to be "in."

Finally, the more that managers invest in climbing the ladder, the longer they have been climbing, and the higher they climb, the more vulnerable they are to the threat of losing their places. Thus the process of climbing the ladder is generally also a process of increasing anxiety and fear. Not that managers can often display these things openly. Look for the anxiety and the fear in their underlings instead. They are very unusual managers who can control their own anger and keep from inflicting it on those who report to them. Think Donald Trump's famous line "You're fired!" from NBC's reality TV show, The Apprentice.

All this affects the rest of us because the workplace can be one long personality test to see if you have what it takes to become and succeed as a manager. How far will you go to be accepted? How glib are you and how well can you lie? How high a personal price are you willing to pay in your other commitments and your personal life to succeed at work? This gives rise to bragging and one-upmanship about how many hours one works every week. Another way to brag is to mope about how you had to miss your daughter's birthday party because of some urgent task at work. Of course, it is often hard to tell whether these claims are lies, especially in a wider culture that has the unspoken rule that if you accept my lies, I will accept yours.

The main point is this, however. If we train ourselves to accept lies unchallenged, how will we keep any hold on reality? If we train managers to be liars and betrayers, how will they manage us? If they are the ones who will lead our society, where will they lead us? Beyond Friedrich Hayek's chapter "Why the Worst Get on Top" in his book The Road to Serfdom, are we training those who are on their way to the top to do their worst?

The recent economic crisis tells us that indeed, they are doing their worst. The unwritten economic contract between workers and leaders in the US is broken, the one that says that economic security for the workers will improve as economic security for the rich and their minions improves. Instead we find that economic security for the workers is only a bit better than it was during the Great Depression. At the same time, the rich in comparison have almost perfect security, as do their favorite minions. The workers have less and less stake in the system. It will get harder and harder for them to support it if we let this trend go on.

However, no matter how badly we handle it, the management function is necessary and will not go away. Therefore we cannot solve the problems simply by getting rid of managers and expecting workers to self-organize. If not that, then what can we do?

First, we need to change our own attitudes. We are not "out" and the rich and their minions are not "in." We are all "in." We all deserve to be here and have jobs. Allowing ourselves to look down on those who cannot keep a job—feeling that we are "in" because we can keep a job—these are traps, lures by the rich to fool us into supporting their system against our own interests.

Another thing we can do is take the worst economic whips out of management hands. Yes, managers should have signficant control of worker incomes so they can use incentives, but they should not have any control of our livelihoods in the sense of necessities. Using the "carrot and stick" metaphor, managers should only be allowed to use carrots, not sticks. Then they would have to lead rather than rule. We need better leaders in this country.

Finally, we can put government back on the side of the people. US government income is controlled by the rich and their managers, not the workers. Therefore it is only natural that the US government favors the rich over the people. We can stop that by separating the rich out into their own markets and currencies. If the US government operates on an internal currency (or currencies) used only by the workers, then the interests of the government and the people will once again be aligned.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (admin@tosoc.org)

Copyright © 2014 TheOtherSideOfCapitalism