Background

Pandemic Slaves and Their Neo-feudal Masters: Envy-fuelled Insurrection

Uploaded 4/26/2020, approx. 1 hour 4 minute read

I would forever be the author of Malignant Self-Love. I would forever be the author of Malignant Self-Love when the already affluent income inequality, already unprecedented in history, will skyrocket.

The pandemic will also bring about the death of entrepreneurship. Entrepreneurship was the poor man's way out of poverty. It was the main transmission mechanism of social upward mobility, moving from one socioeconomic stratum in which we were born to a higher socioeconomic stratum.

Social mobility is all but dead in the United States, has been since the 1980s, together with wage stagnation. Wages haven't grown in well over four decades. Your children will earn less than you did. That's the first time again in history.

Self-employment and entrepreneurship are decimated by the pandemic. After the pandemic, people would be risk averse. Entrepreneurship is very risky. Self-employment is a gamble on yourself. It's a risk. People will be risk averse.

The financing of entrepreneurship and self-employment will dry up. There will be no money in the system. It will be demonetized. It will be bled dry.

And above all, big business will take over dying small businesses. There will be a process of consolidation of the famous movie, Big, Bigger, Biggest.

In the future, the majority, the bulk of the private sector will have evaporated. And the scene, the landscape will be dominated by two, three major actors, two police in every sector. These mega actors will take over smaller actors.

Consider, for example, Amazon. It's likely to take over the majority of bookstores, independent bookstores throughout the world, not only in the United States.


And so how will people survive?

They would enter, they will enter the gig economy. They will become temp contractors, temporary contractors. They will drive Uber vehicles. They will rent out their apartments or rooms in their apartments via Airbnb, the gig economy. They will do temp jobs.

And the vast majority of people, probably 99%, will have to work two or three jobs in two or three shifts just to make ends meet and they will fail. And they will sink deeper into debt. Their savings haven't been exhausted by the pandemic.

So this is the dismal dystopian future awaiting all of us, economically speaking.

But let's delve now a bit deeper into the philosophy behind all these trends, what brought them about, how are they all interconnected, and how actually they all started long before the pandemic.

The pandemic was a catalyst, like an enzyme, in whose presence processes become much faster.

So the pandemic just kind of fast, was a fast forward in a very old VCR.


Let's start with money.

The more money we make, the less we appreciate its relative, respective and proportional value to other people.

With very few exceptions, rich people, no matter how stingy, seem to lose touch with the pecuniary reality of the 99% of the population who are poor or poor rare.

Indeed, to the wealthy, money is not a store of value. I repeat, to the wealthy, to the super rich, money is not a store of value. It is a token which allows them to participate in economic and non-economic gains. It's all a big gain to them.

I call this process of desensitization to the value of money personal inflation.

Why?

Because, precisely like classic macroeconomic inflation, as far as these affluent people are concerned, it thwarts the price signal. It destroys the price signal, embedded and inherent in money. It distorts the efficient allocation of economic resources.

If you don't value money, you just throw it around or you keep it in the bank and you do nothing with it.

It also misinforms rich people's decisions and adversely affects the motivation to work, to save and to invest.

I contend that rich people don't consume, or even if they do consume, it's a tiny fraction of their wealth. They don't consume, definitely not as much as poor people. Poor people consume 100% plus of their income every single month. Rich people don't. Rich people don't produce. A very tiny fraction of their wealth is tied down in manufacturing or services. Most of it is in assets. Assets such as t-bonds and t-bills and stocks and real estate.

So non-productive assets, they don't produce. And most importantly, it's a myth that rich people invest. Rich people do not invest. They do not invest in the productive economy. Poor people do. Rich people have an inflationary mindset. They prefer to spend their capital, but owing to the amounts involved, they are forced to hold on to the bulk of it.

If you have Warren Buffett and you have 80, 90 billion, that's with a B, dollars, what on earth are you going to do with it? You are richer than most countries in the world. What are you going to do with 90 billion? Where can you invest it?

There are no investment opportunities. There are not enough goods to consume with such an amount. So most of it lies dormant, lies dead. Most of it is tied down in assets, both tangible and financial.

These people wish to consume an inflationary effect, but they end up saving, which is a deflationary effect. They demonetize the economy.

Rich people take money out of the economy and put it in bank vaults and in non-productive assets. Poor people, the poor, have a deflationary state of mind.

So remember, the rich have an inflationary state of mind, but can't use the money. Poor folks, they have an opposite, the opposite. They have a deflationary state of mind. They would like to hold on to their money, but they are forced to spend most of it or even all of it, not to mention avail themselves of additional credits and loans. Saving rate has been negative for many years, and even when it's positive, it's tiny, at least in the West.

Poor people wish to save an inflationary effect, but they end up consuming and having an inflationary effect.

And so all the economic players in the marketplace wind up acting irrationally against their innermost as well as expressed wishes and preferences.

And this gulf between the desires and actions of all the economic agents is the main source of instability and uncertainty in the capitalist system based, as it is, on wealth transfer from the many to the few and on the accumulation in the hands of the few of all the assets and wealth.

Income inequality, the few own the bulk, the many own nothing.

What are the effects of these discrepancies in the perception of money between the rich and the rest of us? How is this psychological gap indeed abyss? How is it manifested in economic expectations and in one's grasp of one's purchasing power based on streams of future income? How does the price signal react to this yawning income inequality?

And as I keep saying, this is only an economic issue. It affects the psychology of the players.

You see, the larger the disparities between rich and poor, the greater the share of national wealth held by the rich, the more deflationary the economy.

Rich people consume only a tiny portion of their wealth. The rest is tucked away in the vaults of financial institutions in real estate, in art.

The money of the rich is effectively taken out of circulation and its velocity drops precipitously. It has no effect on the economy.

The rich bleed the economy dry.

Following the pandemic, most of the money, most of the wealth, most of the assets will be held by the rich and the economy will be dis-ex-sanguinated, will be without blood.

It's like severe car crash or injury.

Admittedly, rich people's savings do serve as a source of investments, but only when the transmission mechanisms of the financial system are intact, which they are not going to be after the pandemic.

And when trust is reasonably high, trust in the system, which is not going to be after the pandemic. When these two are missing, working banking system and trust in the system, you can forget about transmission from wealth to investment. Investment will dry up as well, starting with capital investment.

In times of crisis and recession, financial institutions tend to be rendered dysfunctional and trust abates. Redistribution via schemes of progressive taxation, they do ameliorate some of the deflationary effects of income inequality, but they can never counter it completely, hold it.

So if you look at conservative sociologists, they self-servingly marvel at the peaceful proximity of abject poverty and ostentatious affluence in American, or for that matter, Western cities.

They say, wow, look at that. There's a gated community surrounded by a slum, and these people live in peace. That's the main achievement of capitalism.

Devastating riots do erupt, but these are reactions either to perceived social injustice, Los Angeles, 1965, or to political oppression, Paris, 1968.

The French Revolution may have been the last time the urban Sainton-Coulon raised the fuss against the economically enfranchised.

In other words, the French Revolution may have been the last economic revolution, possibly the October Revolution in Russia.

This Pacific coexistence of the rich and the poor conceals the maelstrom of envy. Envy is the engine and the fuel of capitalism.

Behold the rampant schadenfreude which accompanied the antitrust case against the predatory but loaded Microsoft. Observe the glee which engulfed many destitute countries in the wake of the September 11 atrocities against America, the epitome of triumphant prosperity at the time. Witness the post-World.com orgiastic castigation of avaricious chief executive officers, and of course, Bernie Madoff.

Envy is a pathological manifestation of destructive aggressiveness, and it is distinct from jealousy. They're not the same.

The New Oxford Dictionary of English defines envy as a feeling of discontented or resentful longing aroused by someone else's possessions, qualities or luck, mortification and ill will occasioned by the contemplation of another's superior advantages.

Put simply, envy is destructive.

When you are envious, you want to destroy the object of frustration. You want to bring him down to your level. You are poor. You want him to be poor.

When you're jealous, he is rich. You want to be rich as well. Jealous is upward moving. Envy is downward pulling.

Pathological envy, the fourth deadly sin, is engendered by the realization of some lack, deficiency or inadequacy in oneself.

The envious begrudge others their success, brilliance, happiness, beauty, good fortune or wealth. Envy provokes misery. Envy provokes humiliation and impotent rage.

The envious copes with his or her pernicious emotions in five ways.

Number one, the envious attack, the perceived source of frustration in an attempt to destroy it or to reduce it to their sides.

Such destructive impulses often assume the disguise of championing social causes, fighting injustice, touting reform or promoting some kind of ideology, socialism, communism.

Number two, the envious seek to subsume the object of envy by imitating it. In extreme cases, they strive to get rich quick through criminal scams or corruption or by listening to self-styled gurus and coaches.

There's a giant inside you. It's lurking. You can wake it up. If you just put your mind to it, you can do anything you want. You can accomplish anything you put your mind to.

And of course, the law of attraction or the secret or other such frank nonsense.

The envious endeavor to outsmart the system and shortcut the way to fortune and celebrity.

The third tactic is to resort to self-deprecation. The envious idealize the successful, the rich, the mighty and the lucky and attribute to them superhuman, almost divine qualities.

At the same time, the envious humble themselves.

Indeed, most of this strain of envious end up disenchanted and bitter, driving the objects of their own erstwhile devotion and adulation to destruction and decrepitude.


Number four, the envious experience cognitive dissonance.

These people devalue the source of their frustration and envy by finding faults in everything they most desire.

And in every one they must envy.

And finally, there's avoidance.

The envious avoid the envious person and thus the agonizing pangs of envy. Envy is not a new phenomenon, of course.

Baliserius, the general who conquered the world for Emperor Justinian, was blinded and stripped of his assets by his envious peers. I and many others have written extensively about envy in command economies, communism. Envy is also not likely to diminish.

In the 18th century, the political philosopher and novelist Jacques Rousseau made a distinction between amour des sois and amour pomme. Amour des sois involved striking a balance between regard for one's own welfare and well-being and the empathy that one owed and felt towards other people.

It was another phrase for self-love, self-regard and self-awareness.

The latter, amour pomme, was all about grandiose and malignant narcissism, an unseemly conflation of self-gratification and conceited haughtiness and the insatiable need to be reflected in the gaze of others as the only path to self-knowledge and self-consciousness.

Amour des sois was transformed into amour pomme by the acquisition of property and greed and envy that it inevitably provoked in others.

It was Jacques Rousseau, therefore, in the 18th century, who first made the connection between envy, narcissism and modern capitalist economies.

In his book, Facial Justice, Hartley describes a post-apocalyptic dystopia. He calls it New State in which envy is forbidden and equality extolled and everything enviable is obliterated.

Women are modified to look like men and they are given identical, better faces. Tall buildings are raised to the ground.

Joseph Schumpeter, the prophetic Austrian-American economist, believed that socialism will disinherit capitalism. In his book, Capitalism, Socialism and Democracy, he foresaw a conflict between a class of refined but dirt-poor intellectuals and the vulgar but filthy rich businessmen and managers. He said that the intellectuals violently envy and resent the managers.

Samuel Johnson wrote a while before Schumpeter. He wrote, he was dull in a new way and that made many people think him great.

Yes, I'm also reminded of Donald Trump. The literati seek to tear down the market economy which they feel has so disenfranchised and undervalued them.

It's the envy of the mind, it's the mind envies matter. It's like life envies death. Hitler, who fancied himself an artist, you may recall, labeled the British a nation of shopkeepers in one of his bouts of diatribe, vitriolic, raging envy.

John Freiland, the Kenneth Simon Professor of Free Enterprise at Robert Morris University, quotes David Brooks of the Whitley Standard, who christened this phenomenon, Beauzoisophobia.

Beauzoisophobia is middle class. Phobia, fear of the middle class. The hatred of the Beauzoisie is the beginning of all virtue, wrote Gustave Flaubert. He signed his letters, Beauzoisophobus, to show how much he despised stupid grocers and their ilk.

Through some screw-up in the great scheme of the universe, their narrow-minded greed had brought them vast wealth, unstoppable power and growing social prestige.

Reiland also quotes from Ludwig van Mises the empty capitalist mentality. When Mises says, many people, and especially intellectuals, passionately loathe capitalism.

In a society based on caste and status, the individual can ascribe adverse fate to conditions beyond his control. In capitalism, everybody stationed in life depends on his doing. In other words, when you're in capitalism, you can't blame some outside forces. There's no alloplastic defenses.

It all depends on you. Wherever you are is wherever you put yourself.

Van Mises continues, what makes a man rich is not the evaluation of his contribution from any absolute principles of justice, but the evaluation on the part of his fellowmen who exclusively apply the yardstick of their personal wants.

Their desires, their ends determine his wealth.

Everybody knows very well that there are people like himself who succeeded where he himself had failed. It's called relative positioning, by the way, when you keep comparing yourself to other people who are your peers, more or less like you.

Everybody knows that many of those in envies are self-made men who started from the same point from which he himself had started. Everybody is aware of his own defeat.

In order to console himself and to restore his self-assertion, such a man is in search of a scapegoat. He tries to persuade himself that he failed through no fault of his own. He was too decent to resort to the base tricks for which his successful rivals owe their ascendancy.

The nefarious social order does not accord the prizes to the most meritorious men. Such people, such failures, such losers, keep saying it's the crown, the dishonest, the unscrupulous scoundrel, the swindler, the exploiter, the rugged individualist.

And so, in the virtue of prosperity, Dinesh D'Souza accuses prosperity and capitalism of inspiring vice and temptation. Inevitably, it provokes envy in the poor and depravity in the rich.

With only a modicum of overstatement, capitalism can be depicted as the sublimation of jealousy, socially acceptable form of jealousy.

As opposed to destructive envy, jealousy induces emulation. Remember, jealousy is upward-looking. You want to become rich.

Consumers responsible for two-thirds of America's GDP, for example, gross domestic product. So consumers ape, imitate, role models, en vie with neighbors, colleagues, and family members for possessions and the social status that possessions endow.

Productive and constructive competition among societies, among innovators, managers, actors, lawyers, politicians, and members of just about every other profession. Such competition is driven by jealousy.

The eminent Nobel Prize-winning British economist and philosopher of Austrian descent, of course, Friedrich Hayek, suggested in the Constitution of Liberty that innovation and progress in living standards are the outcomes of class envy. The wealthy are early adopters of expensive and unproven technologies. The rich finance with their conspicuous consumption the research and development phase of new products, he said.

The poor, driven by jealousy, imitate the rich and thus create a mass market which allows manufacturers to then lower prices in mass production.

So he says there are two phases. The rich buy products at the very beginning, the early adopters. The rich take risks because they're not mind-losing money. And they buy the products at the very early phase.

So this allows for research and development. And then the products are mass produced because the poor envy the rich and they want these products also.

But jealousy is premised on the twin beliefs of equality and a level playing field. I am as good, I am as skilled and as talented as the object of my jealousy is the subtext.

Given equal opportunities, equitable treatment and access and a bit of luck, I can accomplish the same like anyone else even more.

So jealousy is easily transformed to outrage when its presumptions, equality, honesty, fairness, a level playing field, when these assumptions or presumptions prove wrong, people become furious.

In a paper recently published by Harvard University's John M. Olin Centre for Law and entitled Executive Compensation in America. In this paper, the authors argue that executive malfeasance is most effectively regulated by this outrage constraint.

Remember, when people feel injustice, when people feel that the system is unfair, there's outrage.

And the authors claim that this outrage constrains bad behavior.

They say directors and non-executive directors would be reluctant to approve and executives would be hesitant to seek compensation arrangements that might be viewed by observers as outrageous.

You wish, I completely and all heartedly disagree. Rich people and the agents of rich people, for example, top management, they're the object of thinly disguised and big. They're the raw materials of vulgar jokes and the targets of popular aggression. They are what might be called the newly rich, the voyage.

Perhaps they should be dealt with more appropriately within the academic discipline of psychology.

But then, of course, in my view, at least economics is a branch of psychology. There's a hybrid called behavioral economics.

To many, such extravagances represent a psychopathology or a sociopathology.

Let's talk about the newly rich because this pandemic will yield a class of newly rich. People who were upper middle class will now become filthy, obscenely rich. People who have been rich will become richer and the super rich will be rich beyond rich. All the rest, 95 to 99% of population, will become objectively poor, without savings, with lots of debts and with no prospects of employment and working 90 hours a week just to survive.

The newly rich are not a new phenomenon. Every generation has them. They are the upstarts, those who seek to undermine the existing elite, to replace it and ultimately to join it.

Indeed, the newly rich can be classified in accordance with their relations, with well-attested old rich.

Every society has its veteran, venerable and aristocratic social classes. In most cases, there was a strong correlation between wealth and social standing.

Until the beginning of this century, only property owners could vote, for example, and only they could participate in the political process to their own enormous self-interest and benefit.

The land gentry, for example, secured military and political positions for its offspring, no matter how ill-equipped they were to deal with the responsibilities thrust upon them.

Indeed, to this very day, the bulk of the wealth of the super rich goes to pet charities or distributed among their dim-witted, antisocial, indolent and spoilt offspring.

The privileged axis and the insider's mentality, all boys networked, use a famous British expression, so this privileged axis made sure that economic benefits were not distributed or spread evenly.

This skewed distribution, in turn, served to perpetuate the advantages of the ruling classes. One hand washed another.

And in this limited sense, conspiracy theorists are right. The elites have vested interests.

Where conspiracy theorists are wrong is that they are coordinating these interests. They don't need to. They share the same values, same tactics, same coping strategies all over the world.

Only when wealth was detached from the land was this solidarity broken. Land, being a scarce, non-reproducible resource, fostered a scarce, non-reproducible social elite. Money, on the other hand, could be multiplied, replicated, redistributed, reshuffled, made and lost. It was democratic. Money was democratic in the truest sense of the word.

With meritocracy in the ascendance at the time, aristocracy was in dissent. People made money because they were clever. They were daring, fortunate, visionary, but not because they were born to the right family or married into one.

Money, the greatest of social equalizers, wedded the old elite.

So you saw, you know, this upstart, newly rich, nouveauish, marrying into all the aristocracy in Britain. Blood mixed, the social classes with us blurred, the aristocracy of capital, and later the aristocracy of entrepreneurship, to which anyone with the right qualifications can belong.

They trounced the aristocracy of blood, genetic aristocracy, heritage.

For some, this was a sad moment. For others, a triumphant one.

The new rich, at the time, talking about 100 years ago, 50 years ago, 200 years ago, chose one of three paths, subversion, revolution, and emulation. All three modes of reaction were the results of envy, sense of inferiority, enraged at being discriminated against and humiliated by the old elites.

Some new rich chose to undermine the existing order. This was perceived by them to be an ineritable, gradual, slow, and historically sanctioned process.

The transfer of wealth and the power associated with it from one elite to another constituted the subversive element, the ideological shift to meritocracy, to democracy, to mass democracy, as Jose Ortega Ilkasset would have put it.

These shifts served to justify the historical process and put it in context.

I'm not doing it only for myself, the newly rich said, I'm doing it for the masses, for the people, for my nation.

The successes of the new elite, as a class, and of the new elite of a class, and of its members individually, these successes served to prove the justice behind the tectonic shift.

It's like the Puritans used to say, if you're rich, God loves you. It proves your merit, proves that you're rich.

Social institutions and mores were adopted to reflect the preferences, inclinations, values, goals, and worldview of the new elite, and also later their tastes.

This approach, infinitesimal, graduated cautious, all accommodating, but also inexorable and all pervasive. This approach was at the heart of capitalism. The capitalist religion, with its temples, shopping malls, banks, with its clergy, bankers, financiers, bureaucrats, and with its rituals, this religion was created by the new rich.

It had multiple aims, to bestow some divine or historical importance and meaning upon processes which might have otherwise been perceived as selfish or chaotic or threatening, and to serve as an ideology in the Althusserian sense, hiding the discordant, the disagreeable, and the ugly, while accentuating the concordant, conformist, and appealing, the attractive.

To provide an historical process framework, to prevent feelings of aimlessness and vacuity, to give life a meaning, to motivate its adherence, to perpetuate itself, these were the aims of the capitalist meta ideology, philosophy.


When I'm seeing these were and was, I'm using the past tense, because something really, really bad has happened with capitalism. It is transitioning to what I call neo-feudalism.

I thought it's going to take 50 years. And in my interviews with Richard Grenell, that's what I said. But in one of these interviews, I actually said, unless there's a pandemic, there's hasten processes.

That's exactly what happened after the Black Death in Europe.

The rise of laborers and wage earners started in Europe after the Black Death. So many people were left that they could bargain for their wages.

The same is going to happen now.

But let's continue before we discuss predictions for the future.


Let's continue with a little, you know, with a philosophical foundation.

Remember that the first type of the new rich were actually subversive.

The second type of the new rich, also known as nomenclature in certain regions of the world, they chose to violently and irreversibly uproot and then eradicate, kill the old elite, executed sometimes.

This was usually done by use of brute force coated with a thin layer of incongruent ideology. The aim was to immediately inherit the wealth and power accumulated by generations of elitist rule.

There was a declared intention of an egalitarian redistribution wealth and assets.

But reality was different. A small group, the new elite, scooped up most of the spoils.

This happened, for example, in communist country, where the nomenclature of the Soviet apparatus, the nomenclature of the Communist Party, the very few bureaucrats and office holders in the Communist Party, they lived like kings. They traveled abroad to consume foreign products. They listened to rock and roll. All the rest lived like slaves.

And so this kind of thing amounted to a surgical replacement of one hermetic elite by another. Nothing changed, just the personal identities.

A curious dichotomy has formed between the part of the ideology which dealt with the historical process and the other part, which elucidated the methods to be employed to facilitate the transfer of wealth and its redistribution.

While the first part, the ideology, was deterministic, long term and irreversible, and therefore not very pragmatic.

The second part, how to, you know, take over the goods and redistribute them, the second part was an almost undisguised recipe for pillage and looting of other people's property.

Communism and the Eastern European to a lesser extent, the central European versions of socialism. They all suffered from this inherent poisonous seed of deceit.

So did fascism. It is no wonder that these two sister ideologies fought it out in the first half of the 20th century.

Both ideologies prescribed the unabashed, unmitigated, unrestrained forced transfer of wealth from one elite to another.

The proletariat enjoyed almost none of the loot.

The third way of the newly rich was that of emulation.

The newly rich, who chose to adopt it, tried to assimilate the worldview, the values, the traits and the behavior patterns of their predecessors. They tried to walk the same way, tried to talk the same way. They clapped themselves in the same fashions, bought the same status symbols, ate the same food, educated their children in the same institutions.

In general, the newly rich looked like pale imitations of the real thing.

In the process, the newly rich became more Catholic than the Pope itself, more old rich than the old rich. They exaggerated and caricatured gestures and mannerisms. They transformed refined and delicate art to kitsch. Their speech became hyperbole, their social associations dictated by ridiculously rigid codes of propriety and conduct.

One could argue that the entire Victorian era, Victorian age, was this, exactly this, an imitation, a caricatured imitation of the elites.

As in similar psychological situations, patricide and matricide followed.

The newly rich rebelled against what they perceived to be the tyranny of a dying class. They butchered their objects of emulation, sometimes physically.

Realizing their inability to be what they always aspired to be, the newly rich switched from frustration and permanent humiliation to aggression, violence and abuse.

These new converts turned against the founders of their newly found religion with a raging conviction, reserved to true but disappointed adherents.

And this, I think, is what's going to happen after the pandemic. I think social unrest will coalesce around the world. New revolutionary movements will erupt all over the place.

Many of them will be violent. There will be a lot of bloodshed. I foresee a future on this planet like the October Revolution writ large.

Everything has been globalized. Exports, imports, products, values, mass media show business. Revolution, terrorism, revolution will be now globalized.

Regardless of a method of inheritance adopted by the new rich, all of them share some common characteristics.

Psychologists know that money is a love substitute. People accumulate money as a way to compensate themselves for past hurts and deficiencies. People attach great emotional significance to the amount and availability of the money. People regress when they're confronted with money, they show people money and they become children. They play with toys, they buy fancy cars, watches, laptops. They fight over property territory and privileges in a Jungian archetypal manner.

Perhaps this is the most important lesson of all.

The new rich are children, entrantile, aspiring to become adults. Having been deprived of love and possessions in their childhood, these people turn to money and to what money can buy as a substitute, a poor substitute because it's never fulfilling, but still the only available substitute.

Social distancing broke us apart, atomized us much more than before.

Prior to social distancing, about 11% of all households in the United States consisted of a single person following social distancing, the fear of each other. This fear will not go away with the virus. And I think we are headed towards totally atomized, a norming society to use those kinds of terms.

And I think because of that, we will all regress.

The future is infantile. We are traveling back to the future. Our future is our past. We're all going to become children. And so as children, we are going to be cruel, insensitive, unable to delay the gratification of urges and desires.

In many countries, children are the only capitalist to be far, I mean, childlike, capitalist. These people spun off a malignant pathological form of chronic capitalism.

As time passes, this immature new reach will become tomorrow's old reach and a new class will emerge, the new reach of the future.

And this is the only hope, however inadequate and meager that the developing countries, for example, have to develop such a class.

It's a sad, decrepit and frightening picture. It's a picture of people who can find happiness in nothing except abrogating their adult chores and responsibilities, renouncing other behaviors and traits and becoming children again.

We have seen this trend in the West long before the pandemic. And there will be a lot of manifest expressed envy, institutionalized.

I think, for example, the whole phenomenon with Donald Trump is institutionalized envy.

And so we're going to incorporate envy ostentatiously and conspicuously into our daily behaviors, human to human transmission, if you wish, human to human interaction, political institutions, the way we arrange our intimate lives, what's what will be left of them.

And there will be a public outcry, the public outcry against the old range, the new range, and the enormous injustice which capitalism would become. Capitalism is transitioning from envy to injustice, to mis-distribution or wrong distribution of wealth as a founding principle.

Consider, for example, the public outcry against executive pay and compensation, which followed disclosures of insider trading, double dealing and outright fraud.

But even honest and productive entrepreneurs make more money in one year than Albert Einstein did in his entire life.

And this strikes many people, especially academics, is unfair.

Surely Einstein's contribution to human knowledge and welfare far exceed anything ever accomplished by sundry businessmen.

Fortunately, this discrepancy is caused for constructive jealousy, emulation and imitation, but it can lead to an orgy of destructive and self-ruinous envy, which is, I think, where we're headed.

And such envy is reinforced by declining social mobility in the United States.

Recent, relatively recent studies by the OECD, Organization for Economic Cooperation and Development, clearly demonstrate that the American dream is a myth, it's a lie.

In an editorial dated July 13th, 2007, the New York Times described the rapidly deteriorating situation this way.

Mobility between generations, people doing better or worse than their parents is weaker in America than in Denmark, Austria, Norway, Finland, Canada, Sweden, Germany, Spain, and France.

In America, there is more than a 40% chance that if a father is in the bottom fifth of the earnings distribution, his son will end up there too. In Denmark, the equivalent odds are under 25%, and they are less than 30%, even in the United Kingdom.

America's sluggish mobility is ultimately unsurprising. Wealthy parents, rich parents, not only pass on their wealth in inheritances, they can pay for better education, better nutrition and healthcare for their children.

The poor cannot afford this investment in their children's development and the government doesn't provide nearly enough help.

In a speech earlier this year, in 2007, the Federal Reserve Chairman of the time, Ben Bernanke, argued that while the inequality of rewards fuels the economy by making people exert themselves, opportunity should be as widely distributed and as equal as possible.

The problem is that they don't have many opportunities either, end of quote.


So what about entrepreneurship?

Entrepreneurship was the big white hope. Big white hope. It was the only, essentially the only transmission mechanism for upward mobility.

And now after the pandemic, it's dead.

Entrepreneurs recombine natural and human resources in novel ways. They do so to respond to forecasts of future needs or to observations or failures and shortcomings of current products or services.

Entrepreneurs are professional, though usually intuitive, futurist, they're future oriented. This is a valuable service and is financed by systematic risk takers such as venture capitalists.

So surely these people deserve compensation for their efforts and the hazards they assume. Exclusive ownership is the most ancient type of such remuneration.

First movers, entrepreneurs, risk takers, owners of the wealth they had generated, exploiters of resources, all of these people are allowed to exclude others from owning or exploiting the same things.

Municipal concessions, patents, copyright, trademarks, they're all forms of monopoly ownership, limited in time but still.

What moral right to exclude others is gained from being the first?

Nozick, a philosopher, advanced locks provisor, an exclusive, exclusive ownership of property is just only, is just, I mean it's okay, only if enough and as good is left in common for others.

In other words, if you're not a pig, if you're a bear, if you're a bear or you're a bull, you should never be a pig. That's an old Wall Street credo.

So if you're not a pig, you monopolize your field because you were the first, first mover advantage. You invented something, you own your invention, whatever, but you leave room for others to survive.

If it does not worsen other people's lot, exclusivity is morally permissible. It can be argued though that all modes of exclusive ownership aggravate other people's situation as far as everyone but the entrepreneur.

Exclusivity also prevents a more advantageous distribution of income and wealth.

Exclusive ownership reflects real life irreversibility.

A first mover has the advantage of excess information and of irreversibly invested work, time and effort.

Economic enterprise is subject to information asymmetry. We know nothing about the future and everything about the past. This asymmetry is known as investment risk.

Society compensates the entrepreneur with one type of asymmetry, exclusive ownership, for assuming another type of asymmetry, the investment risk.

One way of looking at it is that all other people are worse off by the amount of profits and rents accruing to owners, entrepreneurs.

Profits and rents reflect an intrinsic inefficiency.

So you could argue that entrepreneurship is a form of inefficiency.

Another way of looking at it is to recall that ownership is the result of adding value to the world. It is only reasonable to expect it to yield to the entrepreneur at least this value added now in the future.

So you could argue either way, the entrepreneur is adding something to the world, so he's compensated for making the world better. Or you could argue that the entrepreneur is skewing the free market so that he accrues monopolistic profits and rents.

Either way, depending on your worldview.

But in the future, after the pandemic, the first view will prevail. People will be so envious, disenchanted, disillusioned, so furious, so fearful, so risk averse, so paranoid, so hateful, so conspiracy minded, that they will regard anyone, anyone with excess profit, income or rent as the enemy.

We are heading to a really, really bad place, to an undermining of the very foundation, philosophical and ideological foundation of capitalism, which was meritocracy. You work hard, you're clever, you have an idea, you're talented, you're skilled, you deserve excess compensation.

In a theory of justice published in 1971, John Rawls described an ideal society and he described it this way.

He said, number one, each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all. Number two, social and economic inequalities are to be arranged so that they are both, A, to the greatest benefit of the least advantage, consistent with the just savings principle, and B, attached to offices and positions open to all under conditions of fair equality of opportunity.

So Rawls' perception of a just society has a lot to do with scarcity of resources.

Because look, if resources are infinite, then there is no meaning to the word excess. I mean, never mind how much money I make, because resources are infinite, you can make same or more if you wish. But if resources are scarce and limited, it's a zero sum game.

If I get something, you get nothing.

The scarcity of resources, land, money, raw materials, manpower, creative brains, these are all scarce. Those who can afford to do so, they hoard resources to offset anxiety regarding future uncertainty and others wallow in paucity and poverty.

The distribution of means is skewed. Distributive justice deals with the just allocation of scarce resources.

I'll read to you Rawls' definition once again of a just society, because it's really, really, really very crucial.

It's in the theory of justice. A just society, an ideal society, is where, one, each person is to have an equal right to the most extensive total system of equal basic liberties, compatible with a similar system of liberty for all. Number two, social and economic inequalities are okay, are to be arranged, but they must conform to two conditions.

Number one, that the greatest benefit to the greatest benefit of the least advantage, consistent with the just savings principle. And number two, in other words, he says that the least advantage should be taken care of in such a system.

And number two, these excess profits or rents or whatever, they should be attached to offices and positions which are open to all under conditions of fair equality of opportunity.

So this is, these are crucial.

But you see, even the basic terminology is fast.

What constitutes a resource? And what is meant by allocation? Who should allocate resources? Adam Smith's invisible hand, or maybe the government consumer business, one major revolution, nothing short of revolution, in the wake of this pandemic, is that governments took over the allocation of resources. Now everyone has a guaranteed basic income from the government. Checks are arriving in the bank. Now governments stepped in, they are paying the salaries, they're paying salaries, wages in the public, in the private sector. Now companies don't approach their shareholders for capital, they approach the public purse, they approach taxpayers. The pandemic did in four weeks or four months what Marx and all his minions failed to do in a century. America now is totally, a totally socialist country. I would even say Marxist, to some extent communist. So let's go back to allocation. Should allocation reflect differences in power, in intelligence, in knowledge, in heredity? Should resource allocation be subject to a principle of entitlement? Is it reasonable to demand that allocation be just or merely efficient? Or maybe justice and efficiency are antonyms? Or maybe synonyms?

The philosopher Jean-Jacques Rousseau aforementioned, yes. His work is an example of these irreconcilable tensions.

On the one hand, Rousseau assures us that succumbing to an amorphous general will guarantees the simultaneous attainment of both the common good and the individual's welfare and well-being of that which is objectively best for him.

But just as we begin to equate this cloud-like general will with the market, Rousseau launches into a tyrant against the economic dependence fostered by the efficient division and allocation of labor in line with each agent's comparative advantages.

In other words, Rousseau says some general will will allocate things in a just way, but he refuses to identify the general will and he definitely says the general will is not the market.

He regards trading property and money as the roots of all evil, not the harbingers of a just distribution of wealth. He says they bring about injustice, moral decay.

Marx took Rousseau to his logical conclusion with his theory of alienation in industrial societies and philosophers in Nietzsche's mode believed that the very concept of justice was unnatural. Men-made justice sustains the weak and the individual at the expense of the strong, the collective, and nature by comparison is squarely on the side with the fittest, the well-adapted and the group.

So there was this Darwinist or Darwinian mindset which prevailed. Let the fittest and the strongest survive. All the others go to COVID-19.

But justice is not concerned with survival. It's a big mistake.

Justice is about equal access to opportunities. Equal access does not guarantee equal outcomes, invariably determined by idiosyncrasies and differences between people.

Of course, no, I mean, only a fool would say that if you have equal access, you will have equal outcome.

And this is the message of various self-styled coaches and gurus. All you need is access and the outcome is guaranteed.

Get rich quick. Access leveraged by the application of natural or acquired capacities translates into accrued wealth.

Disparities in these capacities, of course, lead to discrepancies in accrued wealth. Some people will get rich. Some people will not get rich. Some people will even get rich quick. Majority will not.

The doctrine of equal access is founded on the equivalence of men. That all men are created equal and deserve the same respect and therefore equal treatment is not self-evident.

European aristocracy, well into this century, would have probably found this notion abhorrent.

A philosopher, a social philosopher, Jose Ortega Ika said, writing in the 1930s, preached that access to educational and economic opportunities should be premised of one's lineage, one's upbringing, wealth, and social responsibilities.

A succession of societies and cultures discriminated against the ignorant, against criminals, in the United States, criminals cannot vote, most states, against atheists, against females, against homosexuals, members of ethnic, religious, and racial minorities, the old, the immigrant, the poor, children.

I mean, discrimination is a hardwired feature in societies.

Communism ostensibly a strict egalitarian idea founded because it failed to reconcile, failed to reconcile strict equality with economic and psychological realities within an impatient timetable.

So philosophers try to specify a bundle or a package of goods, services, and intangibles, like information or skills or knowledge.

Justice, though not necessarily happiness, is when everyone possesses an identical bundle.

Happiness, though not necessarily justice, is when each one of us possesses a bundle which reflects his or her preferences, priorities, predilections. None of us would be too happy with a standardized bundle, selected by a committee of philosophers or bureaucrats or any committee, as was the case of the communism.

The market allows for the exchange of goods and services between holders of identical bundles. If I seek books, but I detest oranges, I can swap my oranges with someone in return for his books. That way both of us are rendered better off than under the strict egalitarian version, where we all have the same number of books, same number of oranges.

Still, there is no guarantee that I will find my exact match, a person who is interested in swapping his books for my oranges.

So, illiquid, small or imperfect markets inhibit the scope of these exchanges.

Additionally, exchange participants have to agree on an index, how many books for how many oranges. This is the price of oranges in terms of books.

And here, the post-pandemic world is going to implode. It's going to implode because markets will be rendered illiquid, small and imperfect by risk aversion and by illiquidity, generally.

In other words, people will not have money to invest. So, markets will become smaller and smaller and smaller, less and less liquid. Prices will not signal reality properly. They will be subject to manipulation, for example. And sellers and buyers will find it difficult to match. They will be inefficiencies, as we call it.

And money in the obvious index does not solve this problem. It merely simplifies it to facilitate its exchanges.

But it does not eliminate the necessity to negotiate an exchange rate. It does not prevent market failures.

In other words, money is not an index. It is merely a medium of exchange and a store of value.

The index, as expressed in terms of money, is the underlying agreement regarding the values of resources in terms of other resources, the values of oranges in terms of books, the relative values.

The market and the price mechanism increase happiness and welfare by allowing people to alter the composition of their bundles.

The invisible hand is just and benevolent.

But money is imperfect.

The aforementioned roles demonstrated in 1971 that we need to combine money with other measures in order to place value on intangibles. And again, this is where we are going to have serious problems after the pandemic.

The disruption is so enormous that many, many transmission mechanisms have been disabled. And I find it difficult to believe that many of them will kind of spring back to action within days or months or even years.

The very foundational, the very foundation and the superstructure, they both crumbled at the same time. Both supply and demand were disrupted and also the meeting places between supply and demand and the ways to negotiate agreed prices for supply and demand.

In other words, the signaling.

The prevailing market theories postulate that everyone has the same resources as some initial point. They call it the starting gate. It is up to them to deploy these endowments and thus to ravage or increase their wealth.

While the initial distribution is equal, the end distribution depends on how wisely or improvementally the initial distribution was used.

A egalitarian think has proposed to equate everyone's income in each time frame, for example, every year. But identical incomes do not automatically yield the same accrued wealth.

The latter depends on how the income is used. Is it saved? Is it invested? Is it squandered? Relative disparities of wealth are bound to emerge regardless of the nature of income distribution.

And that's not a problem with the pandemic. We're emphasizing income. We are ignoring conveniently, of course, and self interestingly.

The rich who control the political apparatus and mechanism, the rich ignore the issue of wealth. They ignore the issue of capital. They ignore the savings or lack thereof. They ignore investments. They focus the public's attention on two relatively irrelevant issues, income and products consumption.

Some say that excess wealth should be confiscated and redistributed. Progressive taxation and welfare state, welfare state aim to secure this redistribution. Redistributive mechanisms reset the wealth clock periodically at the end of every month, for example, or every fiscal year.

In many countries, the law dictates which portion of one's income must be saved. And by implication, how much can be consumed.

This conflicts with basic rights like the freedom to make economic choices. The legalized expropriation of income is known as taxes. It's morally dubious.

Anti-tax movements have sprung all over the world and their philosophy permeates the ideology of political parties in many countries, not least the United States.

Taxes are punitive. They penalize enterprise. They penalize success, entrepreneurship, foresight, and risk assumption.

Welfare, on the other hand, rewards dependence up to the point of parasitism.

According to Rawls' difference principle, all tenets of justice are either redistributive or retributive. This ignores non-economic activities and human inherent variance, of course.

Moreover, conflict and inequality are the engines of growth and innovation, which mostly benefit the least advantage in the long run.

Experience shows that unmitigated equality results in atrophy, corruption, and stagnation.

Thermodynamics teaches us that life and motion are engendered by an irregular distribution of energy, by a gradient entropy, and even distribution of energy equals death and status in economics as well.

So what about the disadvantage and the challenge? 95%, 99% of the population.

What about extreme cases of disadvantage, like mental retardation, mental insanity, paralyzed people, chronically ill? For that matter, what about the less talented, less skilled, less daring people?

Dworkin, in 1981, proposed a compensation scheme. He suggested a model of fair distribution in which every person is given the same purchasing power. That's like basic income plans.

And then, once given this same purchasing power, the person uses it to bid in a fair auction for resources that best fit that person's life plan, goals, and preferences.

Having thus acquired these resources, we are then permitted to use them as receipt fees. Obviously, we end up with disparate economic results.

But we cannot complain. We're given the same purchasing power and the freedom to bid for a bundle of our choice.

Dworkin assumes that, prior to the hypothetical auction, people are unaware of their own natural endowments, but are willing and able to ensure against being naturally disadvantaged.

Their payments create an insurance pool to compensate the less fortunate for their misfortune.

And this is, of course, highly unrealistic. It's unrealistic because we are usually very much aware of our natural endowments and liabilities and limitations, unless we are narcissists.

We are aware of our limits, skills, talents, liabilities, and others.

Therefore, the demand for such insurance is not universal. Nor is it uniform. Some of us badly need it. Badly want it. Others don't want it at all.

It is morally acceptable to let willing buyers and sellers to trade in such coverage, for example, by offering charity or owns, but it may be immoral to make it compulsory.

Most of the modern welfare programs are involuntary Dworkin schemes. I repeat, most of modern welfare programs are involuntary Dworkin schemes where everyone gets the same payment.

Worse yet, they often measure differences in natural endowments arbitrarily. They compensate for lack of acquired skills. They discriminate between types of endowments in accordance with cultural biases and fads.

Libertarians limit themselves to ensuring a level playing field of just exchanges where just actions always result in just outcomes.

Justice is not dependent on a particular distribution pattern, whether as a starting point or as an outcome.

Robert Nozick's entitlement theory proposed in 1974 is based on this approach.

That the market is wiser than any of its participants is a pillar of the philosophy of capitalism.

In its pure form, the theory claims that markets yield patterns of merited distribution. In other words, capitalism says that the market rewards and punishes justly.

Capitalism generates what we call just desserts. Market failures, for instance, in the provision of public goods should be tackled by governments, but a just distribution of income and wealth does not constitute a market failure, and therefore should not be tampered with, for example, via taxation.

And then, of course, it leads us to income inequality.

Even in the most egregious and extremely libertarian theory, the level of income inequality today poses a serious question, a serious problem, because there's no mathematical model that could yield this income inequality, unless the playing field is not level in very significant and foundational ways.

In his programmatic and data-laden tone, Capital in the 21st Century, published in 2014, Thaumapiketi makes several assertions, two of which marry a closer look.

One, that R, the return on capital, is in the long run always greater than G, the growth of the real economy, thus enriching the rich.

He says, if you have capital, you make more money than if you operate in the real economy.

In number two, he says, inherited wealth tends to create a patrimonial form of capitalism akin to the aristocracy in the French and British ancient regime.

Putting aside the somewhat artificial and dubious distinction between real and financial economy, because I think financial economy is very real, I mean, ask anyone who has been damaged in the financial crisis in 2008.

But put that aside for a minute. R and G are efforts and origins, and they cannot be compared.

Economic growth, G, is not the return on the real economy in the same way that R is the return on capital and its assets.

R is intended to compensate for a monopoly of risks. It's comparable to the weight function in quantum mechanics. It incorporates all the publicly and privately available information about future uncertainties, and then it provides a distribution function of all plausible scenarios.

Let's put it more simply.

Subject to political and market vicissitudes, ups and downs, capital can vanish overnight.

But the real economy cannot vanish. Capital is a property that the real economy doesn't have.

It can disappear. The real economy never disappears.

What the pandemic had done is that for the first time, it is challenging the resilience and very existence of the real economy because it's been so global and because both the demand and supply collapsed.

So while in the past we used to say that capital can vanish, but real economy cannot, today, after the pandemic, we are far less certain of this. We are far less certain that the real economy will always be there regardless of upheavals, political meddling, taxation, inflation, which is a kind of tax, and pandemics and disruptive technologies.

Still, push comes to shove. Some vestiges of the real economy always remain.

You have to buy food. Capital can vanish, outwardly and completely.

For example, in the 1930s in Germany, capital wealth can be construed as a call option on the real economy, especially on real estate and emerging technologies.

Our amounts, therefore, to the premium on this option.

The income inequality is growing because of the decline in the role and importance of labor, which is being gradually supplanted by capital assets, such as robots and computers, as well as being offshored, outsourced and downsized. Labor is no longer an important input, as it used to be, and because the vast majority of people, all they have to offer is their muscles. They're in trouble. The vast majority of people are in trouble.

Income inequality reflects the structural shift in the relative value of inputs.

Capital can buy a lot more labor nowadays, and hence the apparent lopsidedness of the distribution of wealth.

Luckily for the 99%, the bulk of the nation's wealth is inactive, dormant in deposits and other long-term assets, or languishing in hordes of cash in the form of non-distributed profits.

Such capital exercises political clout and muscle, but is irrelevant in terms of wage compression.

Inherited wealth is no different to any other form of capital. It is merely an extension of the investment horizon, a kind of immortality by proxy via your children.

If Warren Buffett lives to be 300, or if what's left of his wealth to future duration of Buffett's, that's immaterial in terms of economic impact. Whether he physically has it in his pocket or his son physically has it in his pocket is absolutely irrelevant.

There is no evidence that inherited wealth is less productive or more productive than riches obtained via entrepreneurship.

Such claims have more to do with seething envy than with scholarly erudition.

Inherited wealth concentrated in the hands of a few may be compared to an oligopoly, which is not necessarily a bad thing.

There is no basis to prefer one type of economic activity over another on strictly scientific grounds.

Investment is as important as entrepreneurship, and finance is as crucial as manufacturing.

Wealth, inherited wealth, is always invested, either in the financial sector or in the real one.

To rank economic activities as more or less preferable is ideology, not science. Such judgment is driven by values and predilections, not by hard data.

Yes, you could distinguish productive investment from non-productive investments, but they are both investments.

Similarly, to talk about a monolithic, immutable oligarchy is laughable. As any casual perusal of Forbes list of richest people would show, the mobility inside this group is remarkable. Its composition is in constant flux. Most of its new members are bared by virtual wages and bonuses, actually. They are managers, agents of principles.

These nouveau riche, these are evisces, they raise the thorny issue of agent principle conflicts.

How the executive class, managers, institutionalized the robbery of their own firms and shareholders, and rendered this plunder a fine legalized art. And this travesty may be one of the main engines of skyrocketing income inequality, together with the banality of politicians in an increasingly plutocratic world.

It is a political failure. It has to be resolved politically. It has nothing to do with economics.

Once the pandemic is over, I think there are two things that are going to survive.

Basic income guarantee to all. I don't think people are going to give up on this. I don't think small businesses are going to give up on this.

I think once it's been done, there's no way of going back. It's like you're losing your virginity. The cherry has fought.

And the second thing I think is that the managerial class is going to come under severe and aggressive and potentially violent scrutiny. They have been robbing all of us blind for ages. No amount of taxation, progressive or flat, and no quantity of transfers from the state to the poor will solve the issue of income inequality. The state should encourage wealthy people to invest in trade jobs. It should penalize wealthy people if they do not by taxing their wealth repeatedly. It should help the poor this way.

There's very little else it can do. And of course, it should guarantee their income.

That's the basic bundle.


I mentioned at the beginning of this discourse that poor people have a deflationary effect. And because poverty is going to explode, there's going to be a supernova of poverty. There's going to be a tsunami of unemployment. And these things are going to take a whole generation to reverse.

The situation we are in right now has nothing to do with the depression. In the depression era, there was a one-sided internal shock. Today, we have an external shock that is both supply and demand and has an effect on the real economy on Main Street and has a universal, globalized, atomized effect so that every single individual anywhere in the world is affected one way or another.

Something like three quarters under strict lockdown currently. There's nothing in human history has prepared us for this. Nothing. Not even the biblical phalanics. Nothing like that has ever happened since records began.

And so we are looking at the deflationary future.

Traditional economics claims that deflation actually increases the value of cash to each holder by enhancing its purchasing power in an environment of declining prices. There's a negative growth in the average price level, so your money is worth more.

Though highly intuitive, this is absolutely wrong. It is true that in the deflationary cycle, consumers are likely to delay consumption in order to enjoy lower prices later.

But this precisely is what makes most asset classes, including cash, precarious and unprofitable.

Deflationary expectations, let alone actual deflation, lead to liquidity traps and zero interest rates. This means that cash balances and fixed-term deposits in banks yield no interest or even negative interest.

But even zero interest translates into a positive yield in conditions of deflation. Theoretically, this fact should be enough to drive most people to hold cash.

Yet what economies tend to overlook is transaction costs. If you keep your cash in the bank, okay, you get no interest. The bank charges account fees that outweigh the benefits of possessing cash, even when prices are decreasing.

So the bank is charging you money, prices are decreasing, but very often the transaction costs, even the money in the bank, offsets the price decreases.

Only in very extreme deflation is cash with zero interest, profitable proposition, when we take transaction costs, bank fees, charges into account.

But extreme deflation usually results in the collapse of the banking system as deleveraging and default set in. Cash balances and deposits evaporate together with the financial institutions that have helped them.

We have had numerous deflationary cycles. Last one brought Hitler to power. More of a deflation results in gross imbalances in the economy, this delayed consumption, delayed capital investment, and increasing debt burden in real deflation adjusted terms. All these adversely affect manufacturing, services and employment. Government finances worsen as unemployment rises and business bankruptcy soar.

Sovereign debt, another form of highly liquid safe investment, is thus rendered less safe, more default prone in times of deflation and exactly like inflation.

Deflation is a breakdown in the consensus over prices, over the price signal. Prices are embodied in the currency and in other forms of debt, and a prudent investor would stay away from these investment classes during periods of economic uncertainty.

At the end, and contrary to the dicta of current economic orthodoxy, both deflation and inflation, erode purchasing power. All asset classes suffer equity, bonds, metals, currencies, even real estate.

The sole exception is agricultural land. Food is a preferred means of exchange in barter economies, which are the tragic outcomes of the breakdown in the invisible end of the market. We're heading there. We're heading to a deflationary barter economy.

Economies revolve around and are determined by anchors, stores of value that assume pivotal roles and lend character to transactions and economic players alike.

Well into the 19th century, tangible assets such as real estate and commodities constituted the bulk of the exchanges that occurred in marketplaces, both national and global. People bought, people sold, land, buildings, minerals, edibles, and capital goods. These were regarded both merely as means of production, but also as forms of wealth. And if you wanted them, you were wealthy.

Inevitably, human society organizes itself to facilitate exactly these exchanges. The legal and political systems sought to support, encourage, and catalyze transactions by enhancing and enforcing property rights, by providing public goods and by rectifying market figures.

Later on, well into the 1980s, symbolic representations of ownership of real goods and profit. For example, shares, commercial paper, collateralized bonds, forward contracts, all these symbolic financial instruments, they were all the rage.

By the end of this period, financial instruments surpassed the size of markets in underlying assets.

In other words, the real economy was dwarfed, was dwarfed by derivatives. The real economy was dwarfed by the financial instruments based on the real economy.

We all know this. This was the reason for the mortgage crisis.

Thus, the daily turnover in stocks, bonds, and currencies dwarfed the annual value added in all industries combined.

And again, mankind adapted to this new environment. Technology catered to the needs of traders and speculators, businessmen and middlemen, advances in telecommunications and transportation, followed inexorably.

The concept of intellectual property rights was introduced. A financial infrastructure emerged replete with highly specialized institutions, such as central banks, and businesses also adopted. And we had investment banks, jobbers, private equity funds.

Everything became geared towards the bigger part of the economy, which was finance.

And I think the real economy has been so wounded in this pandemic, that if we want to have any real, if we want to have any economic outcomes and derive any economic benefits, we will have to gravitate to the financial markets.

I think this is precisely the reason that stocks haven't collapsed so substantially, despite the fact that the entire real economy has done it.

We are in the throes of a third wave.

Instead of buying and selling assets, one way is tangible, or the other way is symbols, where we increasingly trade in expectations.

In other words, we transfer risks. The markets and derivatives, options, futures, indices, swaps, collateralized instruments.

So these markets are flourishing, even now.

Society is never far beyond. Even the most conservative economic structures and institutions now strive to manage expectations.

Expectation is the main commodity. Used to be goods, then services, then information. Now expectations.

Thus, for example, rather than tackle inflation directly, central banks currently seek to subdue inflation by issuing inflation targets. In other words, central banks aim to influence public expectations regarding future inflation.

It works, works perfectly. The more abstract the item traded, the less cumbersome it is, the more frictionless the exchanges in which it is swapped. The smooth transmission of information gives rise to both positive and negative outcomes.

On the one hand, more efficient markets, and on the other hand, contagion. On the one hand, less volatility. On the other hand, swifter reactions to bad news, which kind of destabilize markets, hence the need for market breakers. On the one hand, the immediate incorporation of new data in prices, and on the other hand, asset bubbles. Either to even the most arcane and abstract contract, which was traded, even the most outlier, extreme type of contract, was somehow attached to and derived from and underlying tangible assets, no matter how remotely.

But this linkage may soon be dispensed with after the pandemic. The future may witness the bartering of agreements that have nothing to do with real world objects or values because there will be left no real world.

In days to come, traders and speculators will be able to generate on the fly their own custom-made one-time investment vehicles for each and every specific transaction. They will do so by combining off-the-shelf publicly traded components. Gains and losses will be determined by arbitrary rules or by reference to extraneous events.

Real estate, commodities and capital goods will revert to their original forms and functions, their necessities to be utilized and consumed, not speculated on.

Civilizing, perhaps.

Economic expectations are often based on the reputation of the actors and agencies involved. Past behavior is widely considered to be the most reliable predictor of future behavior. Trains are assumed to continue indefinitely, barring some external shocks or shifting externalities. Reputation-based expectations are frustrated.

For example, goods that used to be free now require payment. That's a kind of frustration and a change in expectations.

Stakeholders, suppliers, consumers, clients, management, shareholders, government, community. When their expectations are frustrated by some change, for example, the pandemic, they feel cheated and deceived. It's a natural human reaction. They react by either avoiding the situation altogether, opting out, withdrawing, or by acting aggressively or passively.

They demand, they complain, they bad-mouth, they sabotage, they engage in conspiracy theories. We have seen it happen in the pandemic. And gradually, the new information is incorporated into the reputational matrix and expectations of consequent behaviors and choices are modified accordingly.


Finally, I would like to discuss the forthcoming recession.

I want to discuss the recent recessions.

Did you bother to ask yourself, why do recessions happen? Why capitalism is an up and down, bipolar disorder economic system?

The fate of modern economies is determined by four types of demand. The demand for consumer goods, the demand for investment goods, the demand for money, the demand for assets, which represent the expected utility of money. Let's call it deferred money.

Periods of economic boom are characterized by a heightened demand for goods, both consumer and investment, the rising demand for assets, and low demand for actual money, low savings, low capitalization, high leverage. Investment booms offer foster excesses, for example, excess capacity that invariably lead to investment busts.

But economy-wide recessions are not triggered exclusively and merely by investment busts. There are the outcomes of a shift in sentiment, a rising demand for money, and the expense of a demand for goods and assets, which is where we are heading.

In other words, a recession is brought about when people start to rid themselves of assets and in the process de-leverage and they consume and lend less when they save more and when they invest less and hire fewer workers.

A newfound predilection for cash and cash equivalents is a surefire sign of impending and imminent economic collapse. We are beginning to see this.

People are spending less. They are more risk averse. They have cash. They're keeping it for bedtime.

And one of the main reasons for that is because we cannot predict the trajectory in the path of the pandemic. We don't know if it's going to last until summer. We don't know if it's going to last until summer, three years from now. We don't know how bad it's going to be. We don't know if it's going to be a second wave or not, etc.

When uncertainty is so total, there's an immediate preference for cash and a commensurate, utter economic collapse of Main Street and the real economy because people have to put their money somewhere. Financial assets maintain their value. Everything shifts to virtual reality. Virtual reality is far less dangerous and frightening than real reality.

And this ideology indicates a cure, reflation. Printing money and increasing the money supply are bound to have inflationary effects. Inflation ought to reduce the public's appetite for a depreciating currency. And inflation pushes individuals, firms and banks to invest in goods and assets and reboot the economy.

And essentially, that's why the stimulus packages are very useful. Government funds can also be used directly to consume and invest, although the impact of such interventions is far from certain.

This has been an economic, behavioral economic, philosophical economic overview of the pandemic and its impacts.


When the pandemic is over, if it is ever over, because the virus could become endemic, we could have such a breakout. We could have such outbreaks every year. We could have COVID-19 pandemics every year from now on. And as long as there's no effective vaccine or effective cocktail of medicines or single medicine, we're going to have to lock down.

And the horizon of uncertainty is right now, right this very second, as a minimum 18 months, if not two years, and possibly infinite. We may discover that no vaccine works with the coronavirus, as we had discovered with felines when we tried to develop viruses for other coronaviruses. We may discover that people who are infected with COVID-19 need to consume medicines for the rest of their lives, like people who are infected with HIV, the AIDS virus. We don't know. Nothing is known. We may discover to our horror and shock that antibodies developed after a single infection have no bearing on future infections and people can get reinfected again and again and again, infinitely. We don't know yet. It's unlikely, but we don't know, simply don't know.

And it is because we don't know that these profound changes that I've described are going to come to pass. These people can wait a month. They can wait two months.

The economy cannot wait more than a month or two. It has to operate. It has to operate on new principles. And the new principles, these are the new principles.

The real economy is dead in the world. The abstract symbolic economy is the only place to go, be and invest and try to preserve the value of your money. It's a pyramid scheme, simply a pyramid scheme, a policy scheme. You put your money in and you hope the next sucker will take it off your hands. I mean, give you value. Something.

How long can this last? Well, pyramid scheme with 340 million people in the United States could last for a while. Enough, perhaps, to develop a medicine or a vaccine and maybe not.

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