/The algorithms of wealth accumulation

The algorithms of wealth accumulation

from Ikonoclast  (originally a comment)

Capitalism is already an algorithmically determined system on the financial economy / financial accounts side and it has been so at least since the 1850s. The axioms and algorithms of private property, income, finance and national accounting determine the vectors of wealth/money flows and the depositories of wealth/money stocks, all as denominated in the numéraire. This is not to devalue the thesis of machina-economicus. Indeed it magnifies the importance of the thesis.

Humans are and can become many things. One thing they can become is rational (and heartless) calculators and here I mean NOT the consumers at all, who are existentially and hedonistically motivated, but the producers and purveyors of capitalism. It is this group which implements the algorithms of wealth accumulation for themselves and the blandishments and enticements for (over) consumption by the consumers.

The human brain can be inculcated into being a calculator employing instruments of calculation. Those with the wealth, leisure and developed intelligence – often from inherited wealth but not always – to become educated and sit, research, think and calculate are those who can run and benefit from the algorithmically determined financial system. The advent of AI, as their machina-economicus proxies, will simply multiply their power. As Marx pointed out, remember that capitalists engage in intra-class competition as well. Expect the rise of new styles of capitalist. We have already seen this with the rise of hi-tech capitalists but this process will intensify. The field of competition will become more and more “cyber” for want of a better word.

Without human revolutionary change coming up from the base of the system, the concentration of capital will accelerate, ultimately producing cyber- and crypto- trillionaires who will need few, if any, human functionaries but will rather employ and deploy, bots, drones and ai “crawlers” in system nets. Imagine “1984” blended with “The Matrix”. The physical world will look like 1984, vast slums, ruined hinterlands and sacrifice zones governed from gated secure-wealth communities in metropoles and trillionaire tech-hermit bunker-bug-out mansion complexes in remote areas. The control systems will “look like” the matrix, albeit not with human consciouness but with machine pseudo-consciousness used to manipulate and control the real humans proles left in the “1984”-like catabolic and collapsing landscape of decaying built environment and collapsing climate and ecosystems.

It’s worth looking at this very interesting document in this context.

“Upside-Down Markets: Profits, Inflation and Equity Valuation in Fiscal Policy Regimes” by JESSE LIVERMORE” (pseudonym).


It deals with what could transpire from nominal growth targeting. Here is an excerpt.

“Unfortunately, monetary policy is limited in what it can accomplish as a form of stimulus. It therefore offers a weak foundation for upside-down markets. We can celebrate economic problems (sic) as catalysts for interest rate cuts, but the cuts won’t usually avert the problems, at least not in full. They may buoy stock prices through portfolio preference channels, but the damage to fundamentals will tend to outweigh the buoyancy.

Fiscal policy is an entirely different matter. If deployed in sufficient quantities, it can achieve any nominal level of spending or income that it wants. When policymakers commit to using it alongside monetary policy to achieve desired economic outcomes, markets have solid reasons to turn upside-down.

To illustrate with a concrete example, imagine a policy regime in which U.S. congressional lawmakers, acting with the support of the Federal Reserve (“Fed”), set a 5% nominal growth target for the U.S. economy. They pledge to do “whatever it takes” from a fiscal perspective to reach that target, including driving up the inflation rate, if the economy’s real growth rate fails to keep up. Suppose that under this policy regime, the economy gets hit with a contagious, lethal, incurable virus that forces everyone to aggressively socially distance, not just for several months, but forever. The emergence of such a virus would obviously be terrible news for humanity. But would it be terrible news for stock prices?

The virus would force the economy to undertake a permanent reorganization away from activities that involve close human contact and towards activities that are compatible with social distancing. Economically, the reorganization would be excruciating, bringing about enormous levels of unemployment and bankruptcy. But remember that Congress is in-play. To reach its promised 5% nominal growth target, it would inject massive amounts of fiscal stimulus into the economy—whatever amount is needed to ensure that this year’s spending exceeds last year’s spending by the targeted 5%. To support the effort, the Fed would cut interest rates to zero, or maybe even below zero, provoking a buying frenzy among investors seeking to escape the guaranteed losses of cash positions.

The interest rate cuts, possibly into negative territory, would make stocks more attractive relative to cash and bonds. Additionally, the massive issuance of new government securities to fund the spending would shrink the relative supply of equity in the system, making stocks more scarce as growth-linked assets. Finally, the virus would give corporations financial cover to cut unnecessary labor expenses, allowing them to capitalize on any untapped sources of productivity that might be embedded in their operations. This action, which takes income away from households, would normally come back to hurt the corporate sector in the form of declining demand and declining revenue. But if the government is using fiscal policy to achieve a nominal growth target, then there won’t be any income or revenue declines in aggregate. The government will inject whatever amount of fiscal stimulus it needs to inject in order to keep aggregate incomes and revenues growing on target, accepting inflation as a substitute for real growth where necessary.

If you are a diversified equity investor in this scenario, you will end up with a windfall on all fronts. Your equity holdings will be more attractive from a relative yield perspective, more scarce from a supply perspective, and more profitable from an earnings perspective. The bad news won’t just be good news, it will be fantastic news, as twisted as that might sound.

It may seem strange to think that stocks could benefit from bad news, but other asset classes that offer insured income streams, such as government bonds, behave that way. If the government is effectively insuring the income streams of the aggregate corporate sector, why shouldn’t a diversified portfolio of stocks behave in the same way?

To be clear, the upside-down situation that I’ve described here is not the situation that we’re currently in. From a policy perspective, legislators and central bankers have not implemented a nominal growth targeting regime, and the policy hawks that would normally serve as obstacles to such a regime have not yet been run out of town. But people on both sides of the aisle are increasingly coming to realize that fiscal policy is the “cheat code” of economics. If you’re willing to tolerate inflation risk, you can use it to achieve any nominal outcome that you want.

As people become more aware of this fact, they’re going to increasingly challenge traditional approaches, demanding that fiscal policy be used to safeguard expansions and eliminate downturns. Upside-down markets will then become the norm.”

My comment is that if nations go down this path, without other changes, it will strengthen the position of shareholding capitalists even further and aid the rise of the techno-cyber-crypto capitalists. Yet, like many on the left, I advocate this very fiscal stimulus. The document goes on to explain how the flows of fiscal stimulus, in the current system, will always end up in the mega-capitalists’ pockets, expanding their balance sheets, increasing their wealth ad infinitum except for planetary limits. It’s a “trickle up” system in its current conformation. Without other measures, the concentration of the ownership of capital will increase continuously. Without a revolutionary expunging of capitalists and capitalist power, this future cannot be avoided. It’s already programmed for this destination. New modules of more and more effective AI guidance towards this destination are being added continually. The masses have to take over the system or crash it. That’s what kidnapped captives have to do.