Friday, June 17, 2016

Innovation vs. Immiseration

Larry Kramer is doing his usual self,  promoting the idea of Trump as “a disrupter.”
The last 15 years of economic policy, especially the last eight years, represent a relapse that harks back to the 1970s… It's a government-planning approach in the U.S. and around the world.
And a government planning approach to the economy means a special-interest carve-out, with the powerful sitting around a table in a room just off the corridors of power deciding who will get what. That’s how they did Obamacare, buying the support of the insurance companies and the medical system and the drug companies so they could get the votes to put it over the top. And you thought that the Democrats were the sworn enemies of insurance companies and drug companies.

What is needed is Growth, writes Larry. “Growth is the key, not inequality.” Yes, but “growth” is not the right word to use.

That’s why I think that “innovation,” the word used by Deirdre McCloskey, is the right one. Not growth. 

Why? Because growth is too close in meaning to “accumulation” as in the left’s catchphrase about the “accumulation of capital.” The assumption in both cases is that you are growing a new bud from an existing tree, or accumulating a bigger heap of gold coins.

And that is wrong. It is the innovation, the disruption, the permissionless economy that powers the Great Enrichment in 200 years from $3 per day to $100 per day. And that means an economy where the established players do not have the power to order a special interest stitch-up and a government man with a gun shouting Stop.

Right now we are seeing an attempt, ordered by the Obama administration, to start bringing the internet under the control of the regulators. And this "is beginning to strangle a great engine of freedom," says Wayne T. Brough in The American Spectator.
[A]s the internet matures, it is becoming the target of special interests and overzealous regulators seeking to control the bounty that the internet provides.
And the trouble is that our liberal friends, from President Obama on down, believe in a managerial solution to most problems. They want to control and regulate to avoid sharp swings in the economy and to prevent large extremes of wealth and poverty. Their faith is a faith that of Napoleon, après moi, le dèluge

I am reading a conventional-wisdom history of postmodernism, The Condition of Postmodernity by a Brit, David Harvey, written in the late 1980s. Harvey is knowledgeable about architecture and urban planning and Jane Jacobs. But his account of modernization is pure Marx. Really? 150 years after Marx, with detailed histories and accounts available, and he goes back to the largely mythical accounts in The Communist Manifesto and Capital?

Now the big thing about Marx is that he got a lot right. He got the idea of innovation, the “constant revolutionizing of production” and that the bourgeoisie did it.  But then he goes off the rails and assumes that the benefits will all go to the rich while the working class and the petite-bourgeoisie will suffer from immiseration. He thinks that someone needs to control and regulate capitalism. In the event, that is not what happened; that is not what is needed. And that is a big deal.

Following this setup, Harvey goes on to talk about Fordism and Keynesianism and a post 1970s era of “flexible accumulation” which may or may not rescue capitalism from its contradictions. Always the question is, who will control the capitalists?

I am not reading Harvey to gain any new insights into life, the universe, and everything. I am reading him to look into the conventional leftist account of the postmodern turn. What does he and his lefty buddies think is going on?

The point is that the left has a static view of the economy. They see workers being thrown out on the street while moneybag capitalists accumulate wealth by stealing from the workers part of the socially necessary labor needed for production.

But that’s not how it really works. What really happens is that an entrepreneur makes a breakthrough in something that radically reduces cost or provides a completely new product or service. If the idea works then he starts to hire people and swamps the market with his new innovation. At this point the established players start trying to compete by lowering prices and trying to lower labor costs, so the workers of the established players find that their apparently secure jobs at good wages are not secure at all. But that doesn solve their problem, so the workers strike, and the CEOs go to the government for help, perhaps by hobbling the new entrant. It is the wailings of the disappointed that Marx and Co interpret as the exploitation and immiseration of the working class.

In fact, even as the workers of established businesses suffer and the old-line businesses get taken over and repurposed, the overall income of society increases, because the new innovation benefits nearly everyone. But that doesn’t make it any easier for the disappointed and the impoverished.

So that is why it is vital to keep the eye upon the prize. Our present prosperity is built upon innovation, not accumulation, on people having a go and not being stopped by the powers-that-be. Or, if you like, by growth and not by government programs to promote equality.

This is very hard for many, even most, people to understand. So it cannot be said enough.

Innovation, new ideas, new products, new services. That’s the key. Management, regulation, accumulation, special-interest carve-outs. That’s the problem.

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