WHAT WOULD KEYNES DO NOW? Part III 

Billions and Billions Hoarded

BILLIONS AND BILLIONS HOARDED

A broad reading of Keynes suggests this.  Equilibrium in market economies is a special case, but not a universal one.  Hoarding becomes evident when the aggregate difference between quantity demanded and quantity supplied, grows.  During the Great Depression, hoarding took the form of “gold hiding under mattresses” in anticipation of exploding economic dysfunction.

Under normal circumstances, household saving is loaned through banks and other intermediaries to businesses, where it is invested.  Saving is a passive activity, whereas investment is active, economically productive and growth-inducing. There was no investment in feudal society.  “Saving equals Investment” is the idealistic rule-of-thumb learned by college freshmen in macroeconomics.  In disequilibrium however, actual saving may exceed actual investment by the amount being hoarded.

How “shares” are distributed among economic classes is crucial to understanding how America’s economy is evolving.  Workers receive wages; capitalists receive profits.  Rentiers, members of the third class, received ground rents on leased land, historically.  The feudal landlord contributed little or nothing to productivity and therefore nothing to economic growth.  It was the capitalist class that contributed productively to society’s wellbeing through industrious utilization of hired labor.  (Karl Marx of course, attributed the economy’s mainspring to workers instead, not to capitalists.)

As capitalism accelerated in the transition away from feudalism, an agricultural entrepreneur might rent land and borrow seed.  Once lease and loan had been fulfilled, the balance was retained by the capitalist.  If successful over time, then the capitalist’s wealth increased and consequently, so did the community’s wealth and well-being.  Of course, the relative size of the “piece of pie” claimed by capitalists in the new system’s early days was growing, whereas the relative size of the piece claimed by rentiers was shrinking.

America’s national income accounts track the particulars of who receives what, although as the economy evolves and changes, categories and their definitions may require updating occasionally. Surely rent has a more expansive meaning now than at the time of Adam Smith, for instance.  In recent decades, rent-seeking behaviors have increased dramatically.

RENT-SEEKING AND PSEUDO-CAPITALISM

The hoarding hypothesis endorsed here, runs as follows.  Economists are trained to expect equilibrium.  The profession is not poised to recognize disequilibrium hoarding and it tends to be ignored until rooting it out becomes excruciating.  Gold hoarding defined the Great Depression but was outlawed as the popular place to stash nonproductive wealth hoards.  Now, novel types of hoarding are exploding, even beyond anticompetitive, monopoly-type corporate behaviors.  Taken together, all forms of pseudo-capitalism are growing as threats to stability and prosperity.

As a practical taxonomy, rent tracks the payment, over and above that which an economic resource might receive under competitive circumstances.  Late-Nineteenth Century trusts, such as the Standard Oil monopoly, are excellent illustrations of how economic rent is claimed.  Beyond these monopolistic and oligopolistic forms, we also spread the canvas broadly, to include legal and illegal frauds such as rigging and gaming schemes. The most recent characteristics of disequilibrium hoarding have been building since about the time of the Vietnam War.

Taken as a whole, pseudo-capitalist behavior constitutes the siphoning of saving into wealth hoards rather than into business investment.

In this post our practical focus begins with a description of some conventional rent-seeking behaviors such as those for which the Sherman Anti-trust Act (1890) and Clayton Act (1914) were intended to remedy.  Tragically however, conventional antitrust strategies are losing the battle, beset by shifting and novel opportunities to hoard, and by expansive corporate and individual greed.

Casually, the difference between conventional capitalism and nonproductive pseudo-capitalism may be visualized in this simplistic illustration.  For productive capitalism, consider businesses helmed by Elon Musk and Warren Buffett and similar entrepreneurs.  For illustrations of nonproductive pseudo-capitalism, consider businesses helmed by the cohort that includes President Donald Trump.  There, gambling and deal-making are emphasized, often to the exclusion of economically productive activities structured to actually “make America great again.”

FINDINGS FROM BROOKINGS

Economic researchers are showing an increasing interest in rent-seeking behaviors, connecting the market dominance and power of certain industries and businesses.  To illustrate, Brookings focuses on some top retail and grocery chains that have raked in billions during the pandemic, even as they have shared little of their windfall with frontline workers.  Amazon and Walmart come in for special criticism.  These two companies, Brookings points out, “…could have quadrupled the extra COVID-19 compensation they gave to their workers…and still earned more profit than last year.”

This is characteristic of pseudo-capitalism.

Stock prices for Amazon and Walmart have soared as much as 70 percent, due to the pandemic.  Meanwhile, worker wages at the two companies have increased only about six or seven percent.  Specifically, Brookings’ Molly Kinder and Laura Stateler observe that typical pandemic-related worker wages at Walmart rose an extra 71 cents per hour since the start of the pandemic.  In comparison they point out, compensation received by the three siblings who are heirs to the Walton fortune, “…have risen $6.2 million per hour, even while they sleep.”  The equivalent increase for Amazon is 99 cents for employees, and for Jeff Bezos, comparable wealth “…has risen $11.5 million an hour.”

These Brookings researchers observe that while pay at Walmart has increased modestly during the pandemic, some other peer companies have offered considerably more COVID-19-compensation.  Costco, Target, and Home Depot, to illustrate, granted compensation approximately three times more generous than Walmart and two times more generous than Amazon.

Brookings concludes.  Even if corporate giants are not forced to share their pandemic wealth with their workers, they have a moral imperative to do so.  “Their frontline essential workforce, who have helped nearly all the rest of us get through the pandemic, certainly deserve it.”

THREE THINGS

America’s culture wars, fundamentally, are about a combative, competitive search to nail down capitalism’s mission.  Within this struggle to redefine mission, recently I logged three germane points.  Each rest upon a crucial need to sort through mission, backstopping the analysis of each aspect of American capitalism with clarification of the contemporary context in which it operates.

First, demarcate productive capitalism.  Then, draw a bright line around what capitalism is not; about what capitalism should not be.  Screen out anticompetitive behaviors.  Screen out frauds, scams, and cons.

Pseudo-capitalism is about free rides for dealmakers and scam artists who also win big through tax and regulatory breaks. However, what pseudo-capitalists offer in return is akin to what America gets when another casino opens.  Pseudo-capitalism is about a few big winners and endless hordes of disaffected losers, like those who feel they’ve had their pockets picked as they exit.

Ask yourself this.  Do you want America’s commercial future to look more like the business empire of Donald Trump?  Or do you prefer instead that the future we pass to our kids look like the business strategies of Musk and Buffett?

Second, to get to a Buffett-Musk-type capitalism that actually serves America’s interests, we must distinguish what productive capital is, and what it is not.  Capital is not finance per se, although finance is a necessary component used to purchase productive capital in order to make world-class goods and services.  Assets used by pseudo-capitalists must be taxed and regulated at a higher rate in order to dissuade monopolists, fraudsters, scammers and con artists.

Third, to demarcate productive capitalism and capital, America requires a renewed vision of the future we want to create, and the capital needed to create it.  This won’t just happen.  Mission must be consciously constructed.  America’s culture wars are about this.  The two sides are fighting in a free-for-all about what America’s mission shall be.

Next on Carpe Diem:  George Stigler (Nobel, 1982) and Martin Wolf (Financial Times) on how pseudo-capitalist-type corporate strategies are damaging liberal democracy.

~ Jim Sawyer