The Problem With Slavery

This essay has been simmering for quite some time. Recent events and others' essays have proven too much. It will out.

Let's start with the head exploding op-ed page of today's dead trees NYT: in the left column is the Right Wing Brooks and in the right column is the Left Wing Krugman, whilst in the center is one Evan Mandery. The Wingers have different, surprise, takes on Piketty, and Mandery takes on the furtherance of privilege ensconced by the Roberts courtiers.

Not very surprisingly, I've mulled writing about Piketty, but most of what I have to say has been said by the mainstream pundits. The privilege of legacy, strengthened by Roberts, was about to emerge from these fingers, until Mandery did the work. I wouldn't have gotten into the Times, not a known pundit of course.

Another piece which is part of the stew is this discussion of Simpson's Paradox. I was moved to comment, not to question Simpson one way or the other, but rather choice of data. Not my most literate comment on record. The UCB data is built into the R distribution, so has been used many times. The piece, however, committed Type III error, and my error was in not being clear about that. Too often, stats/quants are applied to human events as if those events were existentially equivalent to events in the natural world. The natural world, chemical or physical or animal, obeys God's/Nature's rules and the participants don't have the option to amend the rules to suit. Human participants can and do change the rules to suit. Quant modeling, with the notable exception of those now labeled Behavioral Economist, remains wedded to the notion that the rules of engagement are external. They're not. As I've stated oft many times: when policy conflicts with data, data loses. We see this in the Right Wing reaction to Piketty's book, Roberts' increasingly transparent perfidy, and in the insistence in using the UCB data to make inferences about college students. Mandery's piece eviscerates one of the forks in that road.

The notion of black swans is instructive. To beings of the time, the asteroid slamming into the Yucatan was a black swan, an entirely unpredicted catastrophic event. Were an asteroid of that size to put the Earth in its crosshairs today, we'd have plenty of notice. And, if Bruce Willis isn't making some other movie, we would deal with it. On the other hand, the Great Recession isn't really a black swan event. Not least because some of us predicted it and said why. But more to this missive's point, the housing collapse happened because some humans decided to change the rules of mortgaging and securitization. God didn't do that, nor did Nature (for those not of the Deist persuasion).

So, why the title of this missive? How do we travel from the cites to slavery? Follow the Yellow Brick Road.

Aside from the moral issue, why is slavery a problem? After all, those who would rather that working folk get no more than subsistence wages (which is the essence of slavery, don't you know) quote from The Bible. And up through the middle of the 19th century USofA, slavery made some economic sense. It's not often discussed, but at the time of the American Revolution and for some decades hence most hard currency in the colonies came as the result of Southern plantation exports to Britain and Europe.

Exports, get it? With goods nearly wholly from pre-industrial agriculture. In capital lite production, slavery (and its first cousin, indentured servitude) is perfectly sensible. The goods are not to be consumed by the labor, or even for the most part, within the producing economy. What China does today with rather primitive capitalism, the USofA did in the early 19th century: make stuff, mostly from the ground, to ship to Europe to get hard currency. Did I mention that the head of Foxconn, when the suicides became such a distraction (oh why won't they live like slaves quietly?), announced that he was going to replace as many humans as possible with robots. Since Foxconn didn't, and still mostly doesn't, depend on domestic consumers, this makes perfect sense.

For modern uses of capital, all things compute related in particular, universal slavery is a problem just because it kills the consumer goose needed to lay all them golden eggs. While soft currency nations like China can engage in what amounts to wage arbitrage, the gag ultimately (and since the world isn't linear, 'ultimately' is closer than it appears in the mirror) collapses since there are no longer consumers for the burgeoning output. Piketty makes the point that returns on capital have outstripped overall growth, and thus powered concentration. There will come an inflection point, already passed in my estimation with regard to compute related capital, where capital ceases to have value since value is grounded in consumption, said consumption provided by a consumption (middle) class. And without consumption, there's no return on capital. Kind of like petro; you can't eat it or drink it or wear it. Its value is derivative. One capitalist can gain, momentarily, advantage by replacing humans with robots. But, as your Good Mother used to say to you, "what would the world be like if everybody behaved like you?" Bad grammar aside, the answer of course, is collapse. Capital requires consumers, and the mass of them work for wages. Get over it. But capitalists, and the quants and economists who churn the data for them, are basically knuckleheads. The obvious idea that the well goes dry if everyone pumps it furiously is quite beyond them. The micro(math)-economists are heavily to blame for this, in that they've implemented the naive` notion of dog-eat-dog which they base on Adam Smith (the real one), which he mostly disavows within his text. That is to say, he wasn't all that happy with capitalists.

There isn't any new continent, laden with resources as North America was in 1800, to exploit. What you see is what there is. Well, in a diminishing sort of way. There's a summer replacement TV series (CBS, if I recall) which I've only seen the promos for, "Under The Dome". The conceit is that some town wakes up one morning to find itself sealed in by a transparent bubble. A closed system. Well, the world economy is just that. We're likely, save great political will on the part of the hoi polloi (most of whom worship at the feet of God and guns), in a world of a few masters and many slaves. Just don't get uppity. The problem for capital is going to be ever diminishing returns: there's no New World to export from to the Old World. Mercantilism worked well for the Brits for a couple of hundred years, as well as various other European monarchies, not so much today.

Recent reports are that "some" want to replace the Almighty Dollar as reserve currency with some other, likely bundle, currency(ies). The problem for China, should we assume that the renminbi displaces the Almighty Dollar, is that it instantly loses the ability to attack the ROW. Now, it has to depend on its domestic market to absorb output. The best it can hope for is to get back alien renminbi for its exported output, of which there currently isn't all that much. The shoe will be firmly on the other foot. The days of collecting somebody else's reserve currency are over. All those Foxconn slaves become an instant problem, since their output no longer brings in hard currency from ROW, and they don't earn enough to clear burgeoning output. Oops.

Sometimes it makes more sense to be the mouse that shuts its damn mouth.