Capitalism Has Gone Off the Rails

Going back to the start of the DAX tracking (mid-2011), we see okay performance in German DAX index, stagnation for the French CAC and British FTSE, and strong performance in the US S&P 500 and Japanese Nikkei. [1] Eurozone unemployment has soared into double digits of late, while in the US and Japan it is converging with the natural rate, The economic situation in Europe is truly awful, in contrast to the US and Japan where growth has been respectable. But you would never have guessed this from the tone of the article.

The article raises a second narrative about inequality. Fair enough! But this is an orthogonal issue to Europe's economic malaise. The US is infamous at not distributing the benefits of growth. In the US, we have one thing that's working (growth) and one thing that's not (inequality). This is due to many institutional problems and governance decisions and it will be a lot of work to improve the situation.

The thing I found alarming about this was the way they denigrated stimulus. This is an area of major divergence between Japan/US and Europe. Nominal GDP growth, the measure of the 'easiness' of money (it's the sum of all money trading hands), has stagnated under the European Central Bank (ECB) while the US Fed (FOMC) has used stimulus to keep it growing in the United States [2]. If anyone believes the central banks have "run out of ammunition" as the article suggests, look what happened just last Friday in Japan: The BoJ announced unexpectedly high stimulus and the Nikkei instantly soared 4%, despite the fact that interest rates were already 0. [3]

The ECB needs to be more like the FOMC and BoJ. The Spiegel seems to think the opposite. It seems like the ECB's policy reflects this hawkish European perspective. And that's scary for Europe.

PS It's true that Japan has been stagnating for decades. That is likely related to the ultratight monetary policy they've pursued since the early 90's (as well as structural issues of course); NGDP actually shrunk there over 2 decades [4]. But they've been moving in a different direction lately, and the shift seems to be paying dividends.

[1] Drag the slider here back to mid-2011 to get a long-ish view: https://www.google.com/finance?chdnp=1&chfdeh=0&chdet=141499...

[2] http://static.cdn-seekingalpha.com/uploads/2014/9/11/sauploa...

[3] http://www.huffingtonpost.com/2014/10/31/nikkei-japan-stimul...

[4] http://uneasymoney.com/2012/02/13/japans-2-decade-experiment...

I don't know if it's similar enough, but, a good extreme example is Al Capone. He wasn't charged with organized crime, but I don't think you could argue he wasn't jailed for it. Conversely (although that may be the wrong operation) and by design, you can do a Wrong Thing and not be jailed because it's a new Wrong Thing and thus there's no law against it - there's actually a technical term for this, and AFAIK it's one of the basic principles of our judicial system.

> Not viable...

I think you're reading in that I think we shouldn't have bailed out those institutions, since you're using examples with emotional impact.

And actually, there may be an interesting correlation here... What do you think of the "Right to Die"? To continue with the medical analogies, if you have someone in a vegetative state (for the purposes of the analogy, they are no longer a viable person), you don't pull them off life support immediately, because it IS about more than just them. But you do let them die, eventually.

So let's say you have this retirement and mutual fund that has - by virtue of a CONTINUED need for financial life support - demonstrated that it has entered a zombie state. Well, if you consider the invested funds as the organism's energy... redistribute that energy to new organisms (aka, break up the company). Energy still exists, energy is still invested - and yes, of course I'm simplifying this and it could be non-feasible due to the effort involved in that break-up, but the idea remains.

> Where all those...

...Protesting? :D Joking aside, well - again, that energy isn't lost. Where does it go? I'm very much not enough of an economist to say what circumstances money is actually destroyed, but... as Lewis CK put it: nothing's on fire and nobody's dead.

Now, want to say that energy doesn't go someplace appropriate? We could go the angry route and say it's going to the wall street bankers that caused the collapse, which in turn then looks like a whale eating krill. At some point the whale needs to die so there can be nourished krill, and the Cycle Continues, as they say.

I'm OK with more than old corporations dying but I don't think either of these positions have anything to nihilism. Then again, SMBC is my understanding of nihilism. (http://www.smbc-comics.com/?id=2394)

I'd say (and then pointing out my lack of formal or amateurish study of economics) that the issue you're pointing at is that capitalism doesn't function well in a post-scarcity environment, which we're entering. This is because our means of determining value is primarily based on supply/demand dynamics - aka, scarcity. As scarcity goes away, our ability to determine value goes away, and with it, our ability to distribute energy throughout our civilization.

Burning Man (which is definitely NOT a viable economic model and I am NOT aruging that) demonstrates the viability of a new principle: YOUR value is based on what you give away.

Which gets really interesting when you look at economics as a sort of directed thermodynamic problem: What defines where energy (aka money) goes? Right now, it's defined by supply/demand dynamics and wants and needs - what if it were primarily defined by altruism?

You can come at this from a different angle, going back to that grade school career question: If you had a million dollars, what would you do? Or to rephrase, if all your needs were taken care of, what would you do?

Blah, blah, blah, I'm throwing out a bunch of ideas to see how they react. What're your thoughts, given what I've described?

There is not less productive work to go around, it's just not being done in the US. We are in a difficult situation because we have free trade with lower cost labor markets. Until labor market costs in free trade enclaves reach equilibrium, capitalism will continue to raise more people out of poverty, and prevent wages from rising in places where they are above the demand level in the global market.

The extraordinary amount of government debt being created is an interesting phenomenon, as it is failing to cause inflation in most large currencies as they are increasing the money quantities in a correlated fashion. The financial entities are spending a lot of energy pricing these various instruments, and can make low risk money on the spreads.

Japan did have a real estate bubble. The thing about bubbles is not "coming back", it's that the wealth wasn't real in the first place. We weren't as rich as we thought we were. Their problem is demographics, an aging population, low birth rate, and a society that is not practiced at encouraging positive immigration.

"What capitalism gives us by default is a small number of rich people and a large number of poor people competing for a shrinking pool of low-paying jobs." This is just wrong in every way...the number of rich people in the world is growing, the number of jobs in the world is growing. Just because every country is not moving linearly up and to the right does not mean things are falling apart.

So howsabout this rephrasing:

> people who through [their free actions] can shape their societies as they see fit...