When The Commons is in the hands of Pirates

I've been studying, talking to people and blogging about infrastructure for a number of years now. What is happening in California is a stark example of the inevitable result of our tradition of privateering with infrastructure. It's an old cycle:

Privateering in Infrastructure

Promise something for nothing; "cheaper, better, faster."

Take over ownership, control of a vital public commodity.

Promise maintenance, refresh and updating of said infrastructure.

Collect payments from consumers who have little choice but to pay or suffer.

Pocket those payments instead of maintaining, refreshing, updating or protecting the public capital goods they now own.

Neglect updates, maintenance, refesh of said infrastructure.

Eventually the infrastructure degrades to the point of failure.

Declare bankruptcy and make the state pay for refreshing public capital.

Why?!!!

Back in the 19th century, the pioneer economist, Henry George divided the properties necessary for production into 3 categories:

1. Natures Bounty, land and natural resources
2. Capital Goods, “wealth in the course of production”
3. Labor

Capital is defined as that wealth that is used as input into making more wealth. In Henry George's world Capital is not the money itself, unless that money is spent on capital goods;

Capital Goods:

• Tools, Factories, Equipment
• Fuel, water, raw materials,
• But NOT bank accounts or land.

Privateering Versus Actual Investment

In Adam Smith's "Wealth of Nations" Capital Stock were things like Sheep or Goats kept to breed to produce more sheep and goats. With material goods one can tell a capital good from something more abstract because a capital good depreciates unless additional resources are put into maintaining, updating, refreshing it. Capital Goods cost money. We protect income from capital goods because it will be consumed by the use of those goods. In

Henry George did a good job of explaining all those things and his ideas informed the early stages of industrialization in the United States, with common sense definitions and clarity. See:

• http://www.henrygeorge.org/def2.htm
• *note, the website purports fealty to Henry George, but it focuses on the workaround to his ideas implemented on his death and land rents.
Also:
• https://holtesthoughts.blogspot.com/2019/09/capitalism-has-lane-socialism-has-lane.html

Borrowing the Virtue of Capital for Loot

Henry George was soon shoved aside by others, including some people who had initially been his disciples and who hijacked his movement. They wanted land property, natural resources, and simple wealth to be treated as capital and borrowing its virtues, taxed as if it were productive wealth. Actual capital, needs constant refresh. But corporations need guaranteed income. Investing in capital or wages is a cost. For a corporation profit is defined as wealth minus those costs. The course of investment in capital is a fine one, but the temptation to live on rents and coast is ever-present. At one time policy makers understood this. They exempted ONLY capital type expensing. But by lumping all wealth, including financial wealth and rents from property or hijacking wages, as "capital", wealthy people can make money by renting their wealth. They no longer have to invest their money in the constant refreshing and updating that is needed to keep a property up. They can live on depreciating investments and by even junking them, instead.

We've seen this with leveraged buyouts. A company is bought, loaded with debt, the debt is backed by depreciating assets, but purchased premised on the notion that it will be invested in capital goods. The people doing leveraged buyouts lend money, get their money back with interest, pay themselves godawful salaries and then junk or bankrupt the companies they purchased with investor money. This is not capitalism, this is privateering.

California

The latest example of this is Pacific Gas and Electric and their power outages. It has been easier for the owners of PG&E to use decades old infrastructure and put bandaids on it, than to refresh or modernize it. Their mandate is to make as much short term money as possible. Long term profit in the old sense, as a strong, modern, vital, robust system, was secondary to maximizing payments to top executives and stockholders. When that failure combined with climate change to disastrous consequences, they declared bankruptcy. Like the Turnpikes of old, revenues were diverted to pockets not maintenance because they see a monopoly situation

I would suggest that folks in California invest, big time, in solar, wind and stored water energy. We also need to stop pretending that privateering works. Although that is not the line pedaled by Cato and such. Champions of privateering will tell you that public and private partnerships "Work better" because they mix investor money with government money. The downside of that is that in cases where there is an underlying monopoly they also profiteer with tolls and fees. There is also no incentive to continue investing in refresh and update once the monopoly is established. The worst effect of privateering with public goods is that they become private goods available to an elite and excluding others. In the end that usually has led to alternative technologies coming along. But that doesn't make it an optimal solution.

And PG&E illustrates what happens when a public good is privatized. Just as Enron did. Just as we are seeing with internet platforms like facebook or twitter.

Cato article (which spins like a Tazmanian Devil):

• https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/1989/5/cj9n1-9.pdf
Gavin Newsom:
• https://www.sacbee.com/news/politics-government/capitol-alert/article235959502.html

I'm in the process of disambiguating older posts. This is part of a series, I'll come back to it later.