Dividend income doesn't have the tax advantages of capital gains tax. Many companies don't pay dividends as a result, so shareholders only make money by selling their assets. Therefore, the goal is doing whatever you can in a short amount of time to increase the value of the stock because you DONT want to own it. That's a very different set of incentives from, say, a family business that views their company as a generational annuity.
As a result, companies operate in a very similar manner to real estate agents. The goal is to juice up a purchase price while making very scant investment. You don't want to do to make real improvements. You want to rearrange furniture, but pictures over the holes in the wall, paint over the mold, etc. In a word, you want bullshit.
For the same reason, companies invest in bullshit jobs. Long term investments don't actually help you that much. But glossy PowerPoints, Excel files that are overcomplicated that confuse auditors and make them want to get on with their lives, lots of smooth talkers and story tellers to speak with consultants, and so forth grease the wheels of a sale, or an earnings report.
It's good that you're putting this out there on the right. Far too many people believe in the fractional reserve theory that Richard debunked a decade ago.
Thank you. It's the most important economic and political issue, in my opinion. Essentially no one understands money and banking correctly as far as I can tell. My ideas are novel in certain ways. I don't agree with Werner completely in his policy prescriptions. And my theory of money as equity is certainly something I haven't seen elsewhere, or at least not expressed clearly.
But there won't be any real progress economically if no one even understands how the banking system works now.
"They could be in a temporary situation where the people making the management decisions are sufficiently insulated from the market forces at play that their poor decisions can persist for a while"
What you're missing here is that to win in a competition you don't need to be the best, you just need to be better than the rest. If everyone else is dreadfully bloated and inefficient, then you can beat them by being just slightly less bloated and inefficient. You don't actually have to be lean and efficient. Not the best, but the least worst.
And of course, if you're already the biggest then you're likely to stay so - your sheer size can protect you from competition as you engage in monopolistic practices like dumping and loss leaders and all that. Or if you're part of an oligopoly, collusion can do it, too.
So you can explain bloated inefficient corporations without needing government at all. Though obviously they're involved.
And the thing is, one of the reasons we don't live in a perfectly capitalist society is that in perfect capitalism, the only thing pursued is money. But the simple fact is that money is usually just a tool to achieve status. And bloating enhances status.
If Anna is working and finds herself doing 120% the hours she should be, she'll want to ask her boss Zac to hire her an assistant. But of course, when she hires Bob she finds that as they're doing the same job at 60% each, he regards himself her equal. She'd much rather Bob is under her. This will be easier if she hires Carla, too. Now Bob and Carla are under her, and everyone is doing 40% of a job, and Anna can call herself a Team Leader. Of course Team Leader Anna won't do an equal share of the work - she's a Team Leader! Instead she'll cut her part down to 20%, leaving Bob and Carla with 50% each. Bob and Carla won't complain because they wouldn't have a job without Anna.
Now with just 20% of a job to do, Anna has time to suck up to the boss Zac and enhance her chances of promotion. Of course, formerly Zac was paying a 100% salary to get 120% work, now he's paying about a 250% salary (since obviously Bob and Carla won't get paid as much as Anna) to get 120% work - shouldn't he be unhappy? Well, Anna sucking up to him might make up for that a bit, but what will really help is that Zac's gone from being in charge of Anna, to being in charge of Team Leader Anna - her hiring people has not improved productivity or money, but it's improved his social status.
Of course, Anna has 20% of a job, and Bob and Carla 50%. But none of them will complain about this since that'd make them unemployed, and even in the best case scenario they'd make their colleague unemployed - and make everyone else in the company hate them. So instead they just try to look busy. Training seminars! Diversity training! Cultural awareness training! Time to write up a Process Chart! What about workplace health and safety? Has anyone thought about sexual harassment lately? Let's have a meeting! A powerpoint presentation! Who will order the cakes and coffee, and will they be gluten-free?
Then one day Anna looks like she's going to be promoted. Now Bob and Carla are rivals for her position. What can they do to get up? Well, if Bob says he's really busy, then maybe he can get Anna to authorise him to hire Erica and Fred to help him....
So you can use the evils or government or capitalism to explain bloated inefficient large bureaucratic organisations, or... you can use human nature.
I agree with your description of the process of bloat within an organization, but I'm not sure it's relevant to the point of my article.
I'm not focusing on the fact that this bloat and inefficiency exists, or the process by which it happens. My default assumption is that it will exist and happen in the way you describe and for the reasons you describe, unless some stronger incentive exists to prevent it. And that stronger incentive, in my view, is capitalism and the profit motive.
You point out that capitalism looks through the lens of the profit motive, but that status is also a motive. Which is true, but as you rightly point out, money is also a tool to achieve status. And that's crucial, because there are few human motivations that can't be met or at least assisted by having more access to money. That means that if a business is becoming increasingly bloated and inefficient, there should be an opportunity for someone to compete with them for profits, and use that money to improve their own status however they see fit. These office politics you describe boost status for people already within the organization, but they do nothing to benefit any potential competitor outside the organization.
If I'm a motivated person interested in opening my own restaurant, it doesn't matter to me how many useless underlings the CEO of Outback Steakhouse has hired to boost his status within the organization. All that matters to me is how much Outback's food costs and what the quality of their food and service is. And if I'm able to provide better food, cheaper food, or better service in a way that customers will be willing to pay enough for that I can make a profit, I'll start that restaurant and compete with Outback, providing a competitive value to the market. I'll use that lower overhead from being a sole proprietor instead of a CEO employing an office full of inefficient employees to increase my own profit. Then I'll take that money and buy a nice house or a nice car or do whatever increases my status or fulfills whatever goal I'm trying to achieve.
So the real issue I'm trying to address isn't how bullshit jobs come to exist. That part is a given. My question is, why don't we see the creative destruction that's an essential feature of capitalism as new competitors enter the market without that existing bloated overhead cost and out-compete the incumbents? Sure, they don't have to be perfect, just the least bad, as you say. But play that out, and the trend should be toward greater efficiency, not less.
I'm critical of government, for sure. But I don't expect them to be efficient, and I understand perfectly why they're not. I'm also not blaming capitalism, because like I point out, I don't believe the system we have is best described as capitalism. The fact that it doesn't behave according to the incentive principles of capitalism is good evidence of that.
I suppose on some general level, you can blame anything in the world on human nature, but in this case I think there's also a more specific and granular cause.
This answers why our economy *can* have so many bullshit jobs, but I’m not sure it answers why.
Shareholders don’t want to just survive, they want to maximize profits. Even a comfy monopoly should want to trim the fat. You allude to this for some companies, but there’d be so much profit opportunity for shareholders that it seems like they’d demand most companies, at least do it.
I think there’s a heavy psychological piece of this, and various agency problems - people really, really don’t like firing people for various reasons.
A lot of gruebers BS jobs were also collective action traps (like corporate lawyers fighting each other.)
A fair point. In my mind the reasons it might happen are self-evident, and I would expect it to happen by default without some powerful mechanism to prevent it. Bankruptcy being the most obvious solution.
When it comes to shareholders, there's a little nuance to it. In general, in the current system, most stocks don't really pay a market competitive dividend. People aren't buying them to collect the dispersed profits, they're buying them to capture stock price appreciation. And there are more ways to juice a stock price than becoming more profitable. In fact, steady, consistent profitability seems to be one of the worst things for stock price. Compare the stock of an unprofitable company like Tesla or Uber to a boring utility company or something like that.
One of the main ways to do this today is through stock buybacks, which were historically illegal. So now companies can borrow money to buy back their own stock, and since prices are set at the margins, make a profit by doing so. Just another aspect of the fake bubble economy supported by infinite credit creation.
I’m writing a story about how Satoshi Nakamoto invents Bitcoin.
In my book the central conflict is whether humans deserve freedom or are we better off being governed by “elites”.
The banker justifies his power by saying that free market will reward drug dealers and other criminals and by wielding his power he is doing his God given duty.
Are Kelton and other MMTers pushing the same thing you describe in this article about banking. And if so wouldn’t their world of MMT (Modern Monetary Theory) create more bullshit jobs?
Most likely some parallel systems are inevitable at some point. You see that in places like Lebanon and Argentina and Venezuela. Once the currency is bad enough, even the least aware people start to gravitate toward alternatives.
My biggest concern is that people don't understand the real nature and cause of the problem. So even if they're forced into a parallel system by circumstances, they continue to blame all the wrong causes. Then it's easy for the bankers to keep them in the Overton window of discourse, fighting about who to elect or how to structure the government. Inside that window, a "win" means the banks get to keep doing what they're doing, while the people just point fingers at a different batch of politicians and blame them for the continuing issues.
In reality, true improvement requires the destruction of fractionally reserved fiat currency banking as it currently exists, and a complete transfer to a new monetary paradigm. Without understanding the true nature of the problem, "end the Fed" is the closest we ever get to that.
Currencies plural? No. Money always tends to converge to a single currency, it's a winner-take-all incentive structure in a global economy.
I do think one digital currency is a possible solution to the banking problem. And if it succeeds, I expect that to be the reason the Fed disappears. They certainly won't go willingly, but their system is fatally flawed and getting weaker by the day, and at some point, if a viable alternative exists, they might not have any say in the matter.
Are you familiar with the work of Professor Richard Werner? He writes on this topic and he proved the credit creation theory of banking that you described so well - it was simple really, he just went to a bank and watched them create a loan.
There are a lot of situations where "excess capacity" isn't the end of the world.
1) You have excess capacity most of the time, but every once in awhile you are in a crunch where you need all that capacity. You can't really make part time hires work for a variety of reasons, you just need to pay people to sit around waiting for the busy times.
2) You don't make widgets, you make ideas. You want a lot of idea people around hoping one comes up with a good idea. You can a hard time differentiating who is more likely to come up with new ideas and maybe its just random, so you hire a bunch of "idea people" and throw em in a pot like a VC fund takes a bunch of flyers on a bunch of startups knowing most will go bust.
3) The domain specific knowledge your employs have is very valuable to the company, and competitors, so if the price of hanging onto it and denying it to competitors is overpaying for people to lounge around that's a cost of doing business.
Couple other related things:
Dividend income doesn't have the tax advantages of capital gains tax. Many companies don't pay dividends as a result, so shareholders only make money by selling their assets. Therefore, the goal is doing whatever you can in a short amount of time to increase the value of the stock because you DONT want to own it. That's a very different set of incentives from, say, a family business that views their company as a generational annuity.
As a result, companies operate in a very similar manner to real estate agents. The goal is to juice up a purchase price while making very scant investment. You don't want to do to make real improvements. You want to rearrange furniture, but pictures over the holes in the wall, paint over the mold, etc. In a word, you want bullshit.
For the same reason, companies invest in bullshit jobs. Long term investments don't actually help you that much. But glossy PowerPoints, Excel files that are overcomplicated that confuse auditors and make them want to get on with their lives, lots of smooth talkers and story tellers to speak with consultants, and so forth grease the wheels of a sale, or an earnings report.
It's good that you're putting this out there on the right. Far too many people believe in the fractional reserve theory that Richard debunked a decade ago.
Thank you. It's the most important economic and political issue, in my opinion. Essentially no one understands money and banking correctly as far as I can tell. My ideas are novel in certain ways. I don't agree with Werner completely in his policy prescriptions. And my theory of money as equity is certainly something I haven't seen elsewhere, or at least not expressed clearly.
But there won't be any real progress economically if no one even understands how the banking system works now.
"They could be in a temporary situation where the people making the management decisions are sufficiently insulated from the market forces at play that their poor decisions can persist for a while"
What you're missing here is that to win in a competition you don't need to be the best, you just need to be better than the rest. If everyone else is dreadfully bloated and inefficient, then you can beat them by being just slightly less bloated and inefficient. You don't actually have to be lean and efficient. Not the best, but the least worst.
And of course, if you're already the biggest then you're likely to stay so - your sheer size can protect you from competition as you engage in monopolistic practices like dumping and loss leaders and all that. Or if you're part of an oligopoly, collusion can do it, too.
So you can explain bloated inefficient corporations without needing government at all. Though obviously they're involved.
And the thing is, one of the reasons we don't live in a perfectly capitalist society is that in perfect capitalism, the only thing pursued is money. But the simple fact is that money is usually just a tool to achieve status. And bloating enhances status.
If Anna is working and finds herself doing 120% the hours she should be, she'll want to ask her boss Zac to hire her an assistant. But of course, when she hires Bob she finds that as they're doing the same job at 60% each, he regards himself her equal. She'd much rather Bob is under her. This will be easier if she hires Carla, too. Now Bob and Carla are under her, and everyone is doing 40% of a job, and Anna can call herself a Team Leader. Of course Team Leader Anna won't do an equal share of the work - she's a Team Leader! Instead she'll cut her part down to 20%, leaving Bob and Carla with 50% each. Bob and Carla won't complain because they wouldn't have a job without Anna.
Now with just 20% of a job to do, Anna has time to suck up to the boss Zac and enhance her chances of promotion. Of course, formerly Zac was paying a 100% salary to get 120% work, now he's paying about a 250% salary (since obviously Bob and Carla won't get paid as much as Anna) to get 120% work - shouldn't he be unhappy? Well, Anna sucking up to him might make up for that a bit, but what will really help is that Zac's gone from being in charge of Anna, to being in charge of Team Leader Anna - her hiring people has not improved productivity or money, but it's improved his social status.
Of course, Anna has 20% of a job, and Bob and Carla 50%. But none of them will complain about this since that'd make them unemployed, and even in the best case scenario they'd make their colleague unemployed - and make everyone else in the company hate them. So instead they just try to look busy. Training seminars! Diversity training! Cultural awareness training! Time to write up a Process Chart! What about workplace health and safety? Has anyone thought about sexual harassment lately? Let's have a meeting! A powerpoint presentation! Who will order the cakes and coffee, and will they be gluten-free?
Then one day Anna looks like she's going to be promoted. Now Bob and Carla are rivals for her position. What can they do to get up? Well, if Bob says he's really busy, then maybe he can get Anna to authorise him to hire Erica and Fred to help him....
So you can use the evils or government or capitalism to explain bloated inefficient large bureaucratic organisations, or... you can use human nature.
I agree with your description of the process of bloat within an organization, but I'm not sure it's relevant to the point of my article.
I'm not focusing on the fact that this bloat and inefficiency exists, or the process by which it happens. My default assumption is that it will exist and happen in the way you describe and for the reasons you describe, unless some stronger incentive exists to prevent it. And that stronger incentive, in my view, is capitalism and the profit motive.
You point out that capitalism looks through the lens of the profit motive, but that status is also a motive. Which is true, but as you rightly point out, money is also a tool to achieve status. And that's crucial, because there are few human motivations that can't be met or at least assisted by having more access to money. That means that if a business is becoming increasingly bloated and inefficient, there should be an opportunity for someone to compete with them for profits, and use that money to improve their own status however they see fit. These office politics you describe boost status for people already within the organization, but they do nothing to benefit any potential competitor outside the organization.
If I'm a motivated person interested in opening my own restaurant, it doesn't matter to me how many useless underlings the CEO of Outback Steakhouse has hired to boost his status within the organization. All that matters to me is how much Outback's food costs and what the quality of their food and service is. And if I'm able to provide better food, cheaper food, or better service in a way that customers will be willing to pay enough for that I can make a profit, I'll start that restaurant and compete with Outback, providing a competitive value to the market. I'll use that lower overhead from being a sole proprietor instead of a CEO employing an office full of inefficient employees to increase my own profit. Then I'll take that money and buy a nice house or a nice car or do whatever increases my status or fulfills whatever goal I'm trying to achieve.
So the real issue I'm trying to address isn't how bullshit jobs come to exist. That part is a given. My question is, why don't we see the creative destruction that's an essential feature of capitalism as new competitors enter the market without that existing bloated overhead cost and out-compete the incumbents? Sure, they don't have to be perfect, just the least bad, as you say. But play that out, and the trend should be toward greater efficiency, not less.
I'm critical of government, for sure. But I don't expect them to be efficient, and I understand perfectly why they're not. I'm also not blaming capitalism, because like I point out, I don't believe the system we have is best described as capitalism. The fact that it doesn't behave according to the incentive principles of capitalism is good evidence of that.
I suppose on some general level, you can blame anything in the world on human nature, but in this case I think there's also a more specific and granular cause.
This answers why our economy *can* have so many bullshit jobs, but I’m not sure it answers why.
Shareholders don’t want to just survive, they want to maximize profits. Even a comfy monopoly should want to trim the fat. You allude to this for some companies, but there’d be so much profit opportunity for shareholders that it seems like they’d demand most companies, at least do it.
I think there’s a heavy psychological piece of this, and various agency problems - people really, really don’t like firing people for various reasons.
A lot of gruebers BS jobs were also collective action traps (like corporate lawyers fighting each other.)
A fair point. In my mind the reasons it might happen are self-evident, and I would expect it to happen by default without some powerful mechanism to prevent it. Bankruptcy being the most obvious solution.
When it comes to shareholders, there's a little nuance to it. In general, in the current system, most stocks don't really pay a market competitive dividend. People aren't buying them to collect the dispersed profits, they're buying them to capture stock price appreciation. And there are more ways to juice a stock price than becoming more profitable. In fact, steady, consistent profitability seems to be one of the worst things for stock price. Compare the stock of an unprofitable company like Tesla or Uber to a boring utility company or something like that.
One of the main ways to do this today is through stock buybacks, which were historically illegal. So now companies can borrow money to buy back their own stock, and since prices are set at the margins, make a profit by doing so. Just another aspect of the fake bubble economy supported by infinite credit creation.
I’m writing a story about how Satoshi Nakamoto invents Bitcoin.
In my book the central conflict is whether humans deserve freedom or are we better off being governed by “elites”.
The banker justifies his power by saying that free market will reward drug dealers and other criminals and by wielding his power he is doing his God given duty.
Are Kelton and other MMTers pushing the same thing you describe in this article about banking. And if so wouldn’t their world of MMT (Modern Monetary Theory) create more bullshit jobs?
Yes they are, and yes it is.
Great stuff
Do you think a parallel economy could work?
Most likely some parallel systems are inevitable at some point. You see that in places like Lebanon and Argentina and Venezuela. Once the currency is bad enough, even the least aware people start to gravitate toward alternatives.
My biggest concern is that people don't understand the real nature and cause of the problem. So even if they're forced into a parallel system by circumstances, they continue to blame all the wrong causes. Then it's easy for the bankers to keep them in the Overton window of discourse, fighting about who to elect or how to structure the government. Inside that window, a "win" means the banks get to keep doing what they're doing, while the people just point fingers at a different batch of politicians and blame them for the continuing issues.
In reality, true improvement requires the destruction of fractionally reserved fiat currency banking as it currently exists, and a complete transfer to a new monetary paradigm. Without understanding the true nature of the problem, "end the Fed" is the closest we ever get to that.
Currencies plural? No. Money always tends to converge to a single currency, it's a winner-take-all incentive structure in a global economy.
I do think one digital currency is a possible solution to the banking problem. And if it succeeds, I expect that to be the reason the Fed disappears. They certainly won't go willingly, but their system is fatally flawed and getting weaker by the day, and at some point, if a viable alternative exists, they might not have any say in the matter.
Are you familiar with the work of Professor Richard Werner? He writes on this topic and he proved the credit creation theory of banking that you described so well - it was simple really, he just went to a bank and watched them create a loan.
Yes I am. banklies.org is a good resource on that topic that references his work heavily.
I'll check it out!
Bullshit jobs exist so that women and tall guys can be made part of the soycity.
Short men never get hired for bullshit jobs.
Brilliant, thank you
There are a lot of situations where "excess capacity" isn't the end of the world.
1) You have excess capacity most of the time, but every once in awhile you are in a crunch where you need all that capacity. You can't really make part time hires work for a variety of reasons, you just need to pay people to sit around waiting for the busy times.
2) You don't make widgets, you make ideas. You want a lot of idea people around hoping one comes up with a good idea. You can a hard time differentiating who is more likely to come up with new ideas and maybe its just random, so you hire a bunch of "idea people" and throw em in a pot like a VC fund takes a bunch of flyers on a bunch of startups knowing most will go bust.
3) The domain specific knowledge your employs have is very valuable to the company, and competitors, so if the price of hanging onto it and denying it to competitors is overpaying for people to lounge around that's a cost of doing business.