Brexit and the Crisis of Capitalism
July 1, 2016
If you collapse these extractive, debt-dependent crony-capitalist cartels, you collapse the entire status quo.
Thousands of commentaries have been issued about Brexit in the past week. I've written four myself. Most discuss Brexit as the result of immigration issues, class war, political theater, a reaction against the European Union's bureaucratic power, sovereignty, etc. Other essays focus on the potential upsides or downsides of Brexit.
What few if any commentators present is the idea that Brexit is a symptom of the Crisis of Capitalism.
The current global version of Capitalism is characterized by these overlapping dynamics:
1. Replacing stagnant real growth and income (and thus taxes) with debt.
2. Replacing investment in real-world productivity with speculation (i.e. financialization)
3. Replacing “everyone must have skin in the game” free-market capitalism with protected, privileged Elites crony capitalism in which the few benefit at the expense of the many.
4. Replacing local, decentralized democracy and ownership with central planning.
5. Using “extend and pretend” financial trickery to mask insolvency, impaired assets/ collateral and non-performing loans rather than address the debt overhang directly via write-downs and liquidations of impaired assets.
If real (adjusted for inflation) growth and wages were increasing organically (i.e. as the result of free-market dynamics rather than central-planning manipulation) there would be no need for financialization, “extend and pretend” or central planning.
These ills are the status quo's "fixes" to the Crisis of Capitalism, which arises from these causes:
1. It is no longer profitable to hire people to do an expanding range of work, from minding the jumble store on high street to writing software code that has been automated.
There is no fix for this. As I explain in my book A Radically Beneficial World, the idea that we can "tax the robots" to generate the $2.4 trillion we'd need to make a Universal Guaranteed Income a reality in the U.S. is pure fantasy, as profits collapse as the cost of those commoditized tools decline.
Paying people to do nothing looks like a grand benefit but it is actually terribly destructive because people need purposeful work and a sense of contributing to something meaningful. Paying the majority of people to do nothing is a destructive and financially impossible fantasy.
2. Consumer demand is not infinite, and modern production can over-supply the demand of an aging populace. The supply-demand curve has shifted for demographic and structural reasons. The idea that consumer demand can be endlessly goosed higher is false. As demand stagnates and the tools of production are commoditized, production increases (because the money needed to expand production is essentially free) and profits and wages both decline.
3. What cannot be over-produced burdens the system with a higher cost structure. The core fantasy of neoliberalism is that everything can be made abundant once it is commoditized on a global scale. But this is simply not true of resources such as potash, lithium or ocean fisheries.
As scarcities arise from the fact that the planet we inhabit is not infinite, these scarcities tend to drive innovation and a search for substitutes. But substitutes have limits, too. As costs rise, there is less disposable income to pay interest on rising debt or consume more. Spending and consumption stagnate, along with profits and wages.
4. The status quo is dominated by cartels and crony-state-capital arrangements that raise systemwide costs to benefit the few at the expense of the many. Healthcare (specifically, Obamacare) is a prime example: costs are soaring because the pool of taxpayer money that can be devoted to healthcare is assumed to be limitless.
College costs $150,000 for four years not because education "must cost" $150,000; it costs $150,000 because students can borrow $150,000 from the federal-higher-education cartel. the actual cost is unknown because the cartel has been able to impose staggering price increases for decades.
(I make the case that a four-year college degree should cost no more than a few thousand dollars in my book The Nearly Free University and the Emerging Economy.)
5. If you collapse these extractive, debt-dependent crony-capitalist cartels, you collapse the entire status quo. All the finance, debt-dependent production and consumption, pensions, insurance and tax revenues that the majority depend on for their income implode once you take away the cartel's monopoly pricing.
Reforming the system implodes the system. This is why Brexit has limited
scope to fix the structural causes of Crisis of Capitalism.
A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.
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