Posted by: Tony Shannon | March 31, 2017

Economics: Human Constructs: The Government, The Market

Economics… sounds like a dry word.
In fact its neither a hard science or just a dark art, but a human construct of ideas to describe how we humans live our lives..
To understand Economics, we need to understand it in terms of ideas made by man.
Then we can talk about the “Government”, we can talk about the “Market”.

In Robert Reich’s Book Saving Capitalism for the Many not the Few .. he exposes 5 key human concepts and constructs for further analysis.

 

 

Property
The concept of property ownership is a human construct.

We own land, houses, money , shares and other assets, but though it was “legal” and widely practiced for centuries we don’t own people (i.e. slaves).
In recent years intellectual property has become a huge international business now involving pictures, to moving pictures, to songs, written work, software etc etc.
So our ownership of what can and cannot be owned is subject to change over time.

We know that there is an increasing issue of late, with the wealthy able to acquire capital/property/assets and the poor less able to. It has ever been this. However the gap between the richest 1% and the rest, the 99% continues to grow to the point that folk are not content to stand idly by any longer.

Reich explains;  “In sum, property—the most basic building block of the market economy—turns on political decisions about what can be owned and under what circumstances. Due to the increasing wealth and political influence of large corporations, as well as the subtlety and complexity of the contours of intellectual property, these political decisions have tended to enlarge and entrench that wealth and power. The winners are adept at playing this game. The rest of us, lacking such influence and unaware of its consequences, often lose out.”

Monopoly
Survival of the fittest is a feature of life itself, yet the human concept of monopoly and our tolerance for it is based on a human construct. Simply put a monopoly is a feature of a human activity, when we allow some folk to have more control and power over certain aspects of our lives than others.

The West has lived through periods of monopolisation of property, power and money before. We have seen boom and bust before and seen the consequences of this when the roaring 1920s and depressing 1930s brought the world to war.

Reich states with concern that in recent decades a new group of monopolists have taken control, from Pharma to Finance.

“Unlike the old monopolists, who controlled production, the new monopolists control networks. Antitrust laws often busted up the old monopolists. But the new monopolists have enough influence to keep antitrust at bay.”
“We are now in a new gilded age of wealth and power similar to the first Gilded Age, when the nation’s antitrust laws were enacted. The political effects of concentrated economic power are no less important now than they were then, and the failure of modern antitrust to address them is surely related to the exercise of that power itself”

Contracts

So the 3rd issue flows from the second. Yet again, contracts are a human construct.

Yet again, following on from the earlier construct .. modern monopolies affect and influence the next key construct, that of contracts.

 

“The new contracts do not result from negotiations between two parties with roughly equal bargaining power. They are faits accomplis, emanating from giant corporations that have the power to demand acceptance. Mortgage applicants are required to sign a small mountain of bank conditions to qualify for a loan, even though they may thereby forfeit their right to go to court alleging predatory lending practices. Lower-income borrowers must agree to double-digit fees and interest rates if they fail to pay on time, even though they rarely know they’re accepting those terms. Students seeking college loans have no choice but to waive certain claims. Small-business franchisees must sign agreements setting forth their obligations in such detail that parent corporations can close them down for minor violations in order to resell the franchises at high prices to new owners.”

“When large corporations have disproportionate power—not only over what’s sold, but also over the rules for deciding what contracts are permissible and enforceable by law—those who are relatively powerless have no choice. The “free market” is not, in this sense, free. It offers no practical alternative.”

Enforcement

If the role of Government is seen as looking after one thing in a market economy, it is the setting and enforcement of the rules and regulations that make up the market.
If we see the role of government as nothing else, we see again that government and governance is yet another human construct.
Talk of big or small government, left or right government is somewhat irrelevant here. The issue is that humans, from hunter gatherers, to tribes to city states, nation states and beyond are defined by the borders and boundaries that their respective human collectives set. Without such governance there are no city/nation states, Without such governance there is no market.

“The [next] building block of the market is enforcement. Property must be protected. Excessive market power must be constrained. Contractual agreements must be enforced (or banned). Losses from bankruptcy must be allocated. All are essential if there is to be a market. On this there is broad consensus. But decisions differ on the details—what “property” merits protection, what market power is excessive, what contracts should be prohibited or enforced, and what to do when a party to an agreement is unable to pay. The answers that emerge from legislatures, administrative agencies, and courts are not necessarily permanent; in fact, they are reconsidered repeatedly through legislative amendment, court cases overturning or ignoring precedent, and changes in administrative laws and rules. Every juncture in this process offers opportunities for vested interests to exert influence. And they do, continuously. They also exert influence on how all of this is enforced. In many respects, the enforcement mechanism is the most hidden from view because decisions about what not to enforce are not publicized; priorities for how to use limited enforcement resources are hard to gauge; and the sufficiency of penalties imposed are difficult to assess. Moreover, wealthy individuals and corporations that can afford vast numbers of experienced litigators have a permanent, systemic advantage over average individuals and small businesses that cannot.”

Bankruptcy

Lastly we turn to the bottom line, the topic of money , credit/debt and the issue of bankruptcy. Yet again, another human construct.

Bankruptcy is a human construct aimed at allowing folk a second change.. to avoid years of penury.. for when they have made an honest mistake/miscalculation and cannot pay the debt they owe.
The last years have taught us a few things on this score.
#1 While some banks and other financial corporations went to the wall, others were deemed “too big to fail”, so their debt was passed onto tax payers in many cases.
#2 Many of those people who were involved in developing the capital/asset/property bubble were given the protection of the courts and able to walk away.
#3 Many others, of lessor means have been/unable to get the same protection so we are seeing home repossessions that have laid the ground for the political backlash that has since followed.

 

“Bankruptcy is the system used in most capitalist economies for finding the right balance—allowing debtors to reduce their IOUs to a manageable level while spreading the losses equitably among all creditors, under the watchful eye of a bankruptcy judge. The central idea is shared sacrifice—between debtors and creditors as a whole, and among the creditors. Here again, the mechanism requires decisions about all sorts of issues, and these decisions are often hidden in court decisions, agency directives, and the sub-clauses of legislation. For example, who gets to use bankruptcy, and for what types of debts? What’s an equitable allocation of losses among creditors? And what happens when bankruptcy isn’t available? These questions and hundreds of others related to them have to be answered somehow. The “free market” itself doesn’t offer solutions. Most often, powerful interests do.”

 

In these 5 key aspects we see the building blocks of economics, of human lives, of “government” , of the “market”.
We also see the key elements that can help explain some of the key failings and frustrations of the modern age, from Brexit to Trump-it.

More to follow..

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories