Wednesday, April 30, 2014

Concentrated Wealth as an Enemy of the People and their Liberty




Some obsess over the idea that the only enemy to a person's liberty is a tyrannical government.  This seems to be a carryover from the Cold War, where, in the East, the government was indeed its own instrumentality. Disallowing the private accumulation of capital, the governments of the Soviet Union and the Peoples Republic of China had no rivals in their power to oppress their people.
In the United States, in 2014 however, the government has become the instrument of wealth, and it is the wealthy who use it to oppress the people. Thus the source of this oppression, and the ultimate enemy to a person's liberty, is concentrated wealth.  

A person's liberty comes in different forms.  First is the time to do things.  Time spent in labor is time spent which cannot be spent doing other things.  

Second is the freedom to do things.  The nation's laws forbid some activities, mostly those that harm other people.  And the law grants persons the freedom to do other things, things which a person finds desirable to do, which do not harm other people.  

Third is having the resources, or the money,  to do things.  There are many things a poor person cannot do, that a rich person can.  A poor person cannot pilot his yacht, or vacation in distant places, or buy expensive cars and houses.  Neither can he invest his financial capital, since he has little.

The laborer gives up his liberty for his labor. He may enjoy his labor, but it is a loss of liberty all the same.    In exchange for this liberty, he is paid.  Depending on  how much he is paid, and how he values the liberty his time provides him, he gains or loses liberty.  Indeed, it might be said he exchanges one form of liberty for another.  He exchanges some of his time for money.  But money is necessary for him to profitably employ his time. What is time, when you have no money, and no resources? 

Some of what he is paid he must spend on his subsistence.  The longer he has to work for his subsistence, the more liberty he must surrender.  If he is paid above his subsistence, and he has the time to do things, he gains liberty, for that money he may spend on what he chooses.  It grants him the resources to do things.  If he is paid less than his subsistence, he must make up the difference, somehow, if he is to survive.  If he makes up the difference by borrowing, he loses liberty, for he must pay back the lender, with interest.        

So when the wealthy take an increasing share of his income, they are taking liberty away from the worker.  First, by making him work longer for his subsistence.

Second, by leaving him less income, and fewer resources to do and buy things.

Third, by charging rent, by taking more than normal profits on all activities, they reduce the quantity of the goods and services his money purchases.  He must work even harder for his subsistence, and has less discretionary income.  

Further, the goods and services his discretionary income buys are less, thus reducing his liberty in a fourth way.

Fifth, the wealthy, by avoiding taxes, reduce the common wealth, which is the liberty shared equally by all.  

Sixth, the wealthy run up the national debt.  Much of what the government spends is on them.  Since they are responsible for it, as they effectively  control the government, they thus devalue the commonwealth.  

And who is the debt owed to?  Why, the wealthy.  So seventh way they take from the liberty of the people is by charging rent on this money, which interest reduces the amount available to the people. They are charging rent on money, loaning money to the government which they should be paying in taxes.  

Eighth, they force the worker to pay more for his government, for the commonwealth.

Ninth, by privatizing public services, and taking extra-normal profits for them, they further reduce the liberty of the people.    

Tenth, by compromising the regulations, the wealthy enable themselves to charge more and deliver less in the way of goods and services. 

In each of these ways, the wealthy take from the liberty of the people, using the government to oppress.  Yet the wealthy are not oppressed.  They grow even wealthier, while the people do not.  And the laws that seek to bind the wealthy, to limit their depredations on the people, grow ever looser. Their crimes, the harm they do to society, is ignored or pardoned, while great numbers of t he people lose liberty for doing small or even no harm to others.  And from even this imposition of tyranny, some of the wealthy profit.   

Thursday, March 6, 2014

3 Quarks Daily is Having a Contest, and I am Entering

3 Quarks Daily is having a contest::

Friday, February 28, 2014


Mark Blyth to Judge 4th Annual 3QD Politics & Social Science Prize

NOTE: Please nominate good political blog writing for our prize in the comments section of this post.
- See more at: http://www.3quarksdaily.com/3quarksdaily/2014/02/mark-blyth-to-judge-4th-annual-3qd-politics-social-science-prize.html#disqus_thread

Friday, February 28, 2014


Mark Blyth to Judge 4th Annual 3QD Politics & Social Science Prize

NOTE: Please nominate good political blog writing for our prize in the comments section of this post.
- See more at: http://www.3quarksdaily.com/3quarksdaily/2014/02/mark-blyth-to-judge-4th-annual-3qd-politics-social-science-prize.html#disqus_thread


Friday, February 28, 2014


Mark Blyth to Judge 4th Annual 3QD Politics & Social Science Prize

NOTE: Please nominate good political blog writing for our prize in the comments section of this post.
- See more at: http://www.3quarksdaily.com/3quarksdaily/2014/02/mark-blyth-to-judge-4th-annual-3qd-politics-social-science-prize.html#disqus_thread
http://www.3quarksdaily.com/3quarksdaily/2014/02/mark-blyth-to-judge-4th-annual-3qd-politics-social-science-prize.html#disqus_thread

Prizes are being offered.
I have entered:
http://anamecon.blogspot.com/2014/01/walmart-oligopoly-and-community-economy.html

It may be a bit technical to make it past the first round, so, if you care to, wish me luck.  Thanks.

Wednesday, March 5, 2014

Are Unions Necessary?



Unions are necessary, or rather, what is necessary is an institution, or institutions, powerful enough to balance the concentrated powers of capital, in order to create a robust economy, and a robust democracy.

In the absence of this power, capital unchecked accumulates and concentrates, to the detriment of the economy and society.  As capital concentrates, the growth of the buying power of labor, (and we see with the austerian policies promoted by the Right, government, also) first slows, then stops, then starts to decline.  And we are starting to enter the period of decline, after years of stagnant income by labor.  Capital is destroying its market, and with it, opportunity for continued profit, and the incentive to invest. This leads to a gradual decapitalization of the economy, although this will first be concealed by investment bubbles in enterprises which do not produce real goods and services. That is, the economy will continue to appear to grow, even while in real terms, in terms of industry and infrastructure, it actually declines.

Government itself, and certainly after Citizens United, is not strong enough to provide this countervailing power.   Indeed, its policies show it has clearly become the captive of capital, and so aggravates the already mal-distribution of power.

So this countervailing power once, inadequately perhaps, partly provided by unions, but now largely absent, is necessary even for the survival of capital. 

Thursday, February 27, 2014

Graphs on Inome Inequality


A graph that has been doing the rounds, lately.
And here:
And here:


 The source is:

The World Top Incomes Database:

This is my own version, taken from an EXCEL download of the relevant data, the graph drawn using the EXCEL graphics wizard, (since I couldn’t figure how to copy the graph itself directly to my website.)  All data includes capital gains, which for the bottom 90% isn’t much.  All data is for the United States.



Note that the .01% are doing really well. Their average income is currently at almost $22 Million.  So well, in fact, that we have to redraw the graph with out the top two brackets get some sort of perspective:



With this graph, we can see that the top 10 - 5% bracket have made some progress since oh, say 1985, say,  and the top 5 - 1% a little more.  And the other two brackets have done quite nicely, though, as Washington says, peanuts and chump change respectively compared to the .01%.  If we look at the bottom 90% however, it seems as if their glory days are in the past.  From 1941 or so to 1975 their income more than tripled.  It has remained largely static since then, however, and since the 2007 recession has declined about 15% from its peak. 

Of course, looking at the graph of the top percentages, we could say: “Hey, that’s the income of just a few.  There’s still plenty to go around for the rest of us.”  

But let’s look at that.  Here’s the Share of Total Income for the top percentiles, starting at the top 10%., which we see now take home about 50% of the country’s personal income. (To recover the brackets in the above graphs, take the difference between two adjacent curves.  Thus, the top 10 – 5 % bracket is the difference between the top line and the magenta line, about 12% in 2012, the 5 – 1% bracket the difference between the next two lines, in 2012 about 15%, etc.)   


As is clearer in the next graph, the top 1%  pull in about 23% of the nation’s total personal income.  This is up from a low of about 9% in the late 1970’s. The top .01%, that is the richest 30,000 people or so, in 2012 took down over 5% of the nation’s personal income, up from less than 2% in 1980.

Looking at it share-wise, one person’s share is a share denied another. So where in 1979 the bottom 99% of the population shared 91% of the nation’s production, in 2012 they shared only 77%.  If we consider just the bottom 90% of the population, in 1979 they shared 67% of the nation’s production.  In 2012  the bottom 90%  shared less than 50%. That's a 17% decrease in their share of the nation's production.     But to them, it's a 30% decrease in their income.  That is, instead of $30,000 per year, the bottom 90% would be averaging over $40,000 per year.  

The question for the second 9% is are they doing better than they would it the top 1% had not absconded with so many of the gains.  The answer may be no, and even if it is yes, they have to realize that much of those gains were at the expense of the 90%.

Thursday, January 16, 2014

Walmart, Oligopoly and Community Economy



We wish to estimate the effects of a Walmart on a community economy. Some of the general considerations of: http://anamecon.blogspot.com/2012/05/sound-you-dont-hear-is-sound-of-money.html are here made more concrete.

 Figures for Walmart are taken or calculated from: http://wallstcheatsheet.com/stocks/top-30-retailers-of-2013.html/?a=viewall  We will see Walmart has about 3200 stores in the US, approximately one store per 100,000 people, which we will consider the size of the community we are interested in. It’s a size most people can relate to.

We have, for 2012  $328,704,000    US Sales for Walmart.
USA % of total Sales is 70%, from 4570 Stores Worldwide
So we estimate the number of US stores at about 3200. 
That’s about 1 store per 100,000 people.

Walmart has 1.4 Million employees in the US, so we can estimate about 300 employees per store.  (We’re including the employees at the 158 distribution centers and the Headquarters.  It won’t affect the main conclusions. If anything, it will lead to them being understated.)

We have: sales (revenue) per person at $1100, or $110,000,000 per our community of 100,000 people.
(Walmart makes $236,000 in revenue per employee. Keep that in mind when we talk about employee pay.)

From the table here:
http://smallbiztrends.com/2010/11/how-much-money-do-small-business-owners-make.html we find that in the retail trade, the average owner makes about $63,000 on just over $3,000,000 in sales.
We go over to:  Statistics about Business Size (including Small Business) from the US Census Bureau, (data for 2007) and page:  http://www.census.gov/econ/susb/  It seems to be the latest figures, so we’re going to assume that the relevant figures have not changed all that much since then.  (They have, but in ways which won’t affect the argument much.)

From the Excel spreadsheet ‘US all industries,’ downloaded from that page, line 19464 etc, we have data in a different form.  We take the bin that contains the average receipts for retail establishments, line 19469: firms whose receipts are between $2.5 Million and $4,999,999, and use the figures from that bin.  We estimate the average retail establishment has somewhere around 12 employees, with average pay of around $25,000, or a payroll per firm of about $300,000.  Ballpark figures, and on the conservative side, I think.  

which quotes Glassdoor.com, puts the average at about $18,000 for a sales associate at Walmart   From the Excel spreadsheet, line 19482, we get an average salary for employees in retail firms with receipts over $100,000,000, of which Walmart is one, of a little over $22,000.  We’ll use that figure instead, though it includes the salaries of the bosses in Bentonville, Arkansas, and so is  higher than the average store worker makes. It’s bad enough.

So that’s the data we’ll use.  What can we conclude?

First, how many small businesses are wiped out when a Walmart moves in?  Well, as we see, average receipt for a small retailer is $3 Million, so $110,000,000* would support, say 35 such businesses.  That’s most of a downtown. Since small businessmen are much of a community’s leadership, the social consequences are far beyond the mere economic consequences. Indeed, this destruction of these leadership opportunities in a community is perhaps the most pernicious effect of a Walmart moving in.

Walmart says they provide jobs.  However, we estimated the average small retailer employs 12 people, which times 35 retail establishments gives a total of 420 jobs.  Walmart provides about 300 jobs for a net loss of 120 jobs. 

What about payroll? Our local retailers provide 420 times $25,000, or a payroll of $10.5 Million.  Walmart provides 300 jobs at $22,000, for payroll of $6.6 Million.  Or about $4 Million less. This $4 Million is taken out of the community, which money would otherwise remain.  That $4 Million is enough to support another 40 jobs at $100,000 per job. (This is the average capital required to support jobs of all types.)   So the total loss in employment is about 160 jobs, which if we consider about 50,000 persons of our community of 100,000 to be in the labor force, adds almost 1/3 of 1% to the unemployment rate in our community.

(Admittedly, this calculation is hugely sensitive to the number we take as the average number of employees in the average retail firm. If we instead take 10 as the average number, the displaced payroll is only 350, for a net of only 50 lost jobs, 70 lost jobs if we include the effect of loss of capital.  If 14 it is 490, for a net of 190 lost jobs, over 240 counting the loss of capital effect.)

Of course, Walmart provides income and employment to Bentonville, Arkansas and the surrounding area, but this is small compensation to the thousands of communities which are not Bentonville.   And similarly for other large corporations.  Their headquarters are surrounded by islands of prosperity, created by the extraction of money from other communities, which are materially poorer for their efforts.  

That’s just Walmart.  If we consider the top 30 retailers, their combined total revenue is $1320 Billion, about 4 times that of Walmart alone, or say about $4,400 per capita.  That is 1/3 of all retail business in the US is done by the top 30 firms. (The total revenue of all retail firms is about $13,000 per capita. Of course, all the top 30 retailers are not present in all communities. But this is still the average effect, though the reality is ‘lumpier.’)  This indicates that organization, that is, the organization of the retail industry into oligopoly, accounts for over 1% of the unemployment rate, or about 600 jobs in our community of 100,000.  About ¾ % is direct reduction in payroll, and ¼ %, or 160 jobs, is due to $16 Million capital being taken out of the community by combined reduction in payroll in the community by the largest 30 retailers.

Finally, we note that the 30 largest retailers combine to eliminate, and replace, about 140 local retailers from our community of 100,000, (about $440,000,000 divided by $3,000,000.) 

Since retail is about 6% of the economy, we might think that if the entire economy were organized into similar oligopolistic structure,** the unemployment rate would be about 16 to 20% greater than- what?-  minus 10%? This seems impossible. Clearly, some oligopolistic organization is required to maintain the output of the economy at its current level. Indeed, in the absence of large corporations, labor would not be sufficiently organized to produce enough to sustain our current level of consumption. (Actually, we would expect the increase in unemployment to be much greater than 20%, since we are only figuring the contribution of the very largest firms, and not, say, the 20,000 largest firms in the US, all of which are over $100,000,000 in receipts.)  However, increasing the degree of oligopoly beyond a point will increase the unemployment rate while at the same time creating an excess of supply.  (This increase in degree of oligopoly is one change from the 2007 data we might expect.) Note this is a purely a structural effect.  So we would expect greater scale of organization, to a point, the point of diminishing returns, to increase supply.  Beyond that point, increasing scale will result in a decrease in supply.  Ordinarily, we would expect negative feedback about that point.  That is, we would expect a tendency for scale of organization to settle at that point.   

However, it is the tendency of oligopoly, unchecked, to concentrate into fewer and fewer firms. This is because, as we have noted elsewhere, the tendency for oligopolies to collect extra-normal profits, or rents.  An oligopolistic company thus expands, and accumulates power, at a rate greater than companies in more competitive industries.  There is thus external pressure on industries to organize as oligopolies, since an industry which fails to do so will lose power and influence relative to those industries which do concentrate.   

 Now we have not discussed the increase in consumer's surplus, brought by the lower prices, which motivates, for a community, the intrusion of a Walmart into that community.  That we will discuss in a subsequent post.    

__________________
*The fact that the average single Walmart store has receipts greater than the lowest margin of the top bin in the table ($100,000,000 receipts) highlights the limits of the Census data presentation, and so the limits of its usefulness.  
__________________
**The data from the table seems to imply at least a comparable degree of oligopoly through out the economy.  In retail, firms over $100,000,000 account for 62% of all retail receipts.  For all private industry, the comparable figure for receipts for all firms over $100,000,000 is 68%.  So, if anything, the rest of the economy would seem to be, on average, more oligopolistic than retail.   However, for the entire economy, the average pay for the average firm seems to be about $35,000, whereas the average pay for firms over $100,000,000 is $50,000.   We can still have it both ways, though.  Consider, the $22,000 average pay for retail.  Included in this average is the salary of the bosses at the corporate HQ, so the average in a given store is much less.  Similarly, we can consider the average of large corporations in other industries, in the communities in which they operate, ie get their receipts, as opposed to the communities in which they have their headquarters, to be less than the average for that industry. Or, more precisely, to be less than, or at least comparable to, the average of the average sized firm.  This is so in order for them to compete, locally, despite the larger corporate overhead.  Of course, there are other savings, but these can all be considered as reductions in compensation to operational employees, along the chains of supply.  For instance, a large corporation will have its own warehousing, but the cost of labor for this warehousing must be less than the local competition. Increases in efficiency can only save so much, and will eventually be copied. (Referring to the previous post, efficiency is a multiplicative factor. It is necessarily less than 1, and can only be increased at ever increasing expense.)  Other things being equal, then, this means its compensation for its warehouse employees must be less. (But consider Costco. It pays its employees more, so we  must consider that it employs them more efficiently.)  Similarly for its factories and transport, on average.   Where research and product development are also involved, the savings in overhead for production must be even greater. 

Thus a large corporation will (almost) always take more, in the case of stores, or in the case of factories, add less, than a locally run business, to a local economy. In fact, consider a corporation purchasing a local business.  It is the belief of the purchasing corporation that the local business is undervalued by its local owners, else it wouldn’t buy it.  That is, that more can be extracted from the local business’ community, in the case of a store, or, in the case of a factory, less put into the community, than is currently being done by the local owners.    

Tuesday, December 31, 2013

Sectors Combine in Non-Linear Manner.



This is a work in progress:

Sectors are considered to add value to each other.  However, sectors combine in nonlinear manner.  That is they do not just add value between each other, they also multiply between each other, and with themselves.   

Consider transportation.   Transporting an object across country does not add value to that object.  It multiplies that object’s value, say by a factor of, for example, 1.3.  This would ‘add’ 30% to the value of the object, but the real process is not addition. If the process were addition, then driving an empty truck across country would add value to nothing. (Unless the truck were more valuable on one side of the country than the other.  Then the truck’s value would be multiplied.)  But this is absurd.  On the other hand, multiplying with nothing still gives you nothing. 

Manufacturing a good is multiplicative. Each step in the manufacturing process multiplies the value of factors, and the value of the final product is the ‘product’ of these steps. 

Profit is multiplicative.  Where nothing is produced, no profit can be made.  A product or service is sold at a multiple of its value:  Greater than one for a profit, less than one for a loss.   

Government, then, which is basically in the business of redistributing, transferring, demand, is multiplicative.  It is in the business of rearranging factors, seeking to maximize the total produced by the economy.  However, it can really only tax agriculture and other extractive sectors, mineral mining and energy extraction. This implies that the product of the tax (a factor less than one), and the subsidy (greater than one), is always less than one, because of the cost.  That is the cost is always greater than the benefit. But where the government transfers demand from non-productive sectors to productive sectors, that is, where the subsidy is fictitious, an economy can experience real benefit.    


There are cross terms  And powers of terms. The church (charity) is another. It transfers demand down the social scale,  thus expanding the base of consumption and giving more members of society a stake in that society.    

Libertarian states minimize the government source of cross terms, and thus cannot compete against larger effective governments which increase cross terms, and thus greatly magnify the economy.