[p2p-research] The problems of debt

Tue Jul 13 17:39:11 CEST 2010

On Tue, Jul 13, 2010 at 8:55 AM, Michel Bauwens <michelsub2004 at gmail.com>wrote:

> hy ryan,
>
> I'm supposing you are not familiar with the 'tendency of the rate of profit
> to fall',
>
> the key thing is that there are periodical workarounds, that work for a
> period, then get exhausted,
>

Michel, this is well understood in business.  The average life of a product
at HP is 18 months...any product.  FIrms continuously innovation to maintain
margin levels.  ROA and ROE are key indicators of this practice in
business.  Profits have always fallen.  Marketing and innovation must step
in to block the process and reverse it.

>
> I'm not sure about your WW2 thing, I actually think that profits went up
> again, and only started declining in the 70's again, financialization is a
> workaround against that, which is now exhausted. Do you have a link to that
> evidence? My own evidence for the 70's link (actually it started earlier but
> its infection point was in the 70's) is the Big Shift report, by john hagel
> and seely brown, see here at
> http://blog.p2pfoundation.net/the-crisis-of-value-is-for-real-return-on-assets-has-declined-by-75-since-1965/2009/11/06
>

Actually I just posted recent evidence from Invictus on Big Think here that
shows each recovery since WW2 is more anemic.  Automation has been bighting
into human wages for a long time.  In short, humans just aren't as
interesting and powerful as they were in 1940.  We are more productive, but
that productivity has little to do with us...and everything to do with our
tools, machines, computers, software and innovative processes.  Profits are
relatively unimportant unless they are driven sustainably by innovation and
productivity.  Windfalls, fads, etc. are not very interesting though they
may skew profits for a time.  Almost 40% of profits earned in the US are
earned by the top 200 financial firms.  Think of that.  It is hard to
imagine we don't live by making hamburgers, steel, airplanes, corn or shoes
as much as we live by making CDOs, government bonds, trades on FX, etc.
Interestingly, about 50% of US stock exchange volume is in 50 top
issues...that's because it is very hard to succeed as a small distributed
firm at a level of profit and productivity that is globally competitive.  In
short, Amazon clobbered Main Street.  In England, by the way, the ratios are
far worse.

>
> of course, we differ on austerity, I think austerity intensifies collapse,
> but does not prevent it, but stimulus alone is not sufficient, unless it is
> also structure-transforming ... this is what the west fails to do, but China
> has devoted one third of its stimulus to greening reforms ... again, to
> repeat, productive investments by their very nature DO NOT CAUSE INFLATION
> ..
>
>

I do not disagree on either of these points.  I am a Keynsian...like
Krugman, like Bagwhati.  I agree, productive investments do not cause
inflation.  Inflation is caused by too little product being available for
too much demand.  We have the opposite now...huge amounts of idle
manufacturing capacity and too little money.  That causes deflation.
Inflation is nowhere in site except for gold bug lunatics who have no clue
as to how an economy works.

> umair haque has a good entry on propsperians, see the blog, which cuts
> through the fog of the austerity-stimulus debate as carried on at mainstream
> media, as usual to obfuscate  the real issues, he proposes a third way, with
> which I agree, as a way forward within the current system, to create the
> conditions for a new kondratieff upswing, after deleveraging has carried out
> sufficiently,
>

I don't know what causes these "swings".  That they seem to be patterns of
the past, I find interesting but uncompelling.  I need causality and process
for it to be useful to me.  Deleveraging will not likely be carried out at a
level that is necessary in the next 25 years.  After that, all bets are off
anyway.

>
> Michel
>
>   On Tue, Jul 13, 2010 at 12:12 AM, Ryan Lanham <rlanham1963 at gmail.com>wrote:
>
>> Hi Michel,
>>
>> There is good evidence profit has been harder since World War 2.  It
>> appears to be a power law sort of thing...we are in the 20% hardness period
>> now.
>>
>> It was obvious that starting a business was hard to venture capitalists in
>> 1970.  Now venture capitalists are regularly failing because it is too hard
>> for them, even.
>>
>> 2008 was a watershed in that the ways people used to simply cheat and
>> transfer bad debt to governments hit a wall.  Whether that wall is
>> permanent, I can't say.  I suspect it is.  Governments seem to have died in
>> the last ten years.  Nearly all but those sitting on lakes of natural
>> resources or vast hordes of cheap and highly skilled labour are bankrupt.
>>
>> That isn't going to change soon.  Japan re-entered collapse yesterday.
>> Electorates will not vote for austerity.  It won't happen.
>>
>> R.
>>
>>
>> On Mon, Jul 12, 2010 at 1:03 AM, Michel Bauwens <michelsub2004 at gmail.com>wrote:
>>
>>> Hi Ryan,
>>>
>>> when do you place item 8, I think this would be crucial in your theory,
>>>
>>> if you place it in 2008, then obviously, this is right,
>>>
>>> but if you place it before, it's totally against the historical record,
>>> as debt and credit is precisely the strategy that was chosen to jumpstart
>>> the economy, i.e. the social product going to labour was dramatically
>>> diminished, forcing the middle class to resort to debt-fuelled lifestyles
>>> ... It is the collapse of this strategy that led to the meltdown of 2008 and
>>> the death of the neoliberal model (but not of the power of the elite that
>>> sustained those policies, as you rightly say, they were 'saved' and remain
>>> in place)
>>>
>>> as any enterpreneur or capitalist knows, in real production, profit only
>>> comes from monopoly, i.e. preventing as long as possible that innovations
>>> are shared, once this happens, super-profits become impossible, and start
>>> declining very rapidly; this is of course why IP is crucial,
>>>
>>> in a world of open and social innovation therefore, and I think this is
>>> happening, profit tends to be distributed much faster, and therefore
>>> declines much faster,
>>>
>>> as you can see in the RSA animate presentation by David Harvey, and this
>>> is confirmed by The Big Shift of Hagel/seely brown, production-based profit
>>> has dramatically declined, and only financial rent is now providing profit,
>>> or at least it was until 2008
>>>
>>>
>>>
>>>
>>>   On Sun, Jul 11, 2010 at 10:33 PM, Ryan Lanham <rlanham1963 at gmail.com>wrote:
>>>
>>>>  I've been asked to explain debt problems as influenced by technology.
>>>> I'll try.
>>>>
>>>> Here's my "theory".  Many others share or have versions of something
>>>> similar.  I claim no originality.  I've posted several versions on this
>>>> list.
>>>>
>>>> 1. Growth occurs when someone produces something others value.  The sum
>>>> total of value is the economy.
>>>> 2. In the past, it was a matter of work and labour to produce something
>>>> of value...like digging a hole where a hole was wanted.
>>>> 3. People learned to take money that was not in use and to use it by
>>>> borrowing it and then buying value-production which was then placed on sale.
>>>> 4. The process of 3 entails risk.  Risk was rewarded by profit.
>>>> 5. The system of 3-4 really works quite well so long as profit is
>>>> likely.
>>>> 6. In a world where learning and high productive machinery requiring low
>>>> skill levels is readily available (i.e. post 1990 or so) making profit is
>>>> harder.  7. Item 6 is especially true if innovation is not protected by the
>>>> state (e.g. through intellectual property.)
>>>> 8. Because profit is harder especially in tangible goods and services
>>>> (because of technology and learning distribution) credit is harder.
>>>> 9. When credit became hard, the incentives to cheat increased.  People
>>>> lent money badly and then cleverly sold the bad loans to others who didn't
>>>> understand.
>>>> 10. When 9 happened, the state had to decide whether huge firms
>>>> fulfilling important institutional roles would die, or be saved.
>>>> 11. Nearly all states, especially in Japan and Europe, chose to save old
>>>> institutions (e.g. Royal Bank of Scotland), or in the US, AIG.
>>>> 12. There is now an open question as to whether markets can still create
>>>> value (e.g. the iPod) in such a way that debt is justified.  If not,
>>>> capitialism in the form that creates ready growth through using unused money
>>>> is screwed.
>>>> 13. When money goes unused, it is difficult to create new money and
>>>> growth of value.  There is no/little incentive to innovate.  This can be
>>>> called "deflation."
>>>> 14. Deflation is more dangerous to capitalism by far than inflation.
>>>> Deflation means shrinkage of an economy because unused money becomes more
>>>> valuable by sitting than by being used.  Thus, people become even more risk
>>>> averse.
>>>> 15. When 14 happens for a long time (e.g. Japan) then demographic and
>>>> institutional patterns start to become unsustainable.
>>>> 16. When 15 happens, we do not understand the long term outcomes, but
>>>> they don't seem good.
>>>>
>>>>
>>>> --
>>>> Ryan Lanham
>>>> rlanham1963 at gmail.com
>>>> Facebook: Ryan_Lanham
>>>> P.O. Box 633
>>>> Grand Cayman, KY1-1303
>>>> Cayman Islands
>>>> (345) 916-1712
>>>>
>>>>
>>>>
>>>>
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>>>>
>>>
>>>
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>>
>>
>> --
>> Ryan Lanham
>> rlanham1963 at gmail.com
>> Facebook: Ryan_Lanham
>> P.O. Box 633
>> Grand Cayman, KY1-1303
>> Cayman Islands
>> (345) 916-1712
>>
>>
>>
>>
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>> p2presearch mailing list
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>>
>
>
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>
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>
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>
> Think tank: http://www.asianforesightinstitute.org/index.php/eng/The-AFI
>
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-- 
Ryan Lanham
rlanham1963 at gmail.com
Facebook: Ryan_Lanham
P.O. Box 633
Grand Cayman, KY1-1303
Cayman Islands
(345) 916-1712
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