May 21, 2019

If you want to understand how the economy is being transformed, look at the intersection of Big Tech, financialization and the central state.

The two dynamics transforming the economy--technology and financialization--are intertwined yet widely viewed as unrelated. Critics and proponents of each largely ignore the other dynamic: critics of institutionalized fraud and other manifestations of financialization implicitly assume the economy will return to some golden age if we get rid of financialization's skims and scams.

They are largely blind to the reality that the speed with which technology is transforming the economy is increasing: there is no golden era to return to. The economy they long for (strong unions, full employment, rising wages, declining inequality, political bipartisanship, financial stability and security, etc.) has already slid into the dustbin of history.

They are equally blind to the reality that the central state they revere as the "solution" to financialization is itself the source of wealth/power asymmetry and the enforcer of Big Tech and Big Finance domination.

Proponents of technology implicitly assume that financialization's skims and scams have no impact on technology's golden promise of glorious advances which both enrich the few who own the technology and free the many to enjoy robots doing their work and endless entertainment (for a modest monthly fee, of course).

They are largely blind to the inconvenient reality that replacing tens of millions of workers with robots and software means there is no longer a mass-consumption economy for all the technological wonders, as the supposed solution--Universal Basic Income (UBI)--can't provide either paid work or enough income for the millions who will be receiving UBI subsistence to borrow or spend enough to keep the consumer economy afloat.

Financialization's solution--creating more credit / debt-- simply insures that the UBI recipients will be devoting much of their subsistence income to debt service rather than tech toys.

In reality, both dynamics reinforce the disruptive effects of the other on non-elites. Financialization concentrates wealth and political power in the hands of those closest to the sources of cheap credit--central banks and private-sector banks.

Financialization enables tech companies to borrow billions on the cheap and use the money to buy back their own shares, increasing the value and further concentrating ownership of the most profitable tech companies.

With billions in profits and credit (via selling low-yield bonds), giant tech corporations have the wherewithal to invest in bleeding-edge technologies--and pay the top researchers sums that cannot be matched by lesser firms.

Companies are faced with Andy Grove's famous summary of technological change: adapt or die . As the chart below illustrates, companies in virtually every sector are being forced to adopt technologies that reduce human labor while increasing productivity. Those who fail to do so effectively enough and soon enough will be outpaced by global competitors.

Unless of course the corporations have enough capital to purchase political power: once a corporation is powerful enough to buy regulatory moats and other forms of political cover, they reap the monopolistic benefits of what analyst Simons Chase calls the negative network effect : they "lock in" their monopoly via regulatory capture and the enforcement of the state.

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