You predict (or have insider information) that the price of lawnmowers will fall. The current market price of a lawnmower is $1,000. You go to Eddie’s Lawnmower Rental Company and rent a lawnmower from Eddie for $10 a day. He doesn’t care about you returning the same lawnmower; he just wants you to return a lawnmower (assume that all lawnmowers involved in this story are in great working condition).
You sell this lawnmower to your neighbour for $1,000.
Ten days later, and as you predicted, the price of lawnmowers falls to $500. Now you buy another lawnmower for $500 and return a lawnmower to Eddie. So now you have gained: $1,000 - ($10 x 10 days = $100) - ($500 on the lawnmower you bought) = $400.
Now say you made a bad prediction and the price of lawnmowers went up to $1,500. So now you have lost $1,000 - ($10 x 10 days = $100) - ($1,500 on the lawnmower you bought) = $600.
Theoretically, there is no bottom to your losses. So you have to be very careful when you short things. It’s not for everyone. Stick to Index Funds if you don’t understand what you’re doing.
Though capitalism has had a longer lease of life than some of us would’ve predicted or that many of our ancestors of the socialist movement did predict or allow, it still produces the fax machine and the microchip and still able to lower its costs and still able to flatten its distribution curve very well. It’s central contradiction remains the same; It produces publicly, it produces socially, it conscripts and it mobilizes and educates whole new work forces of people, it has an enormous transforming liberating effect in that respect but it appropriates privately. The resources and the natural abilities are held in common, the earth belongs to us all. You can’t buy your child a place at a school with better ozone. You can’t pretend that the world is other than what it is which is one and human and natural and in common. Though capitalism must do that because it must make us all work until the point when the social product is to be shared. When suddenly the appropriation is private and suddenly Donald Trump outvotes any congressman you can name and anyone with a vote because of the ownership of capital and its that effect, that annexation of what we all do and must do — the influence of labor and intelligence and creativity on nature; the same air, the same water that we must breathe and drink. That means that we may not have long in which to make this critique of the system sing again and relevant again and incisive again.
Christopher Hitchens, Is Socialism Obsolete? (Recorded in Washington DC on October 11, 1989)
It’s important to state though, particularly since our current economic structure has pushed that “there is no such thing as society”.
That might sound insane, but it is not hyperbolic. In 1987, Margaret Thatcher, Prime Minister of the UK, said that “There is no such thing as society. There is [a] living tapestry of men and women and people and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us prepared to turn round and help by our own efforts those who are unfortunate.”
It was supposed to be on the people: they look to themselves, they help their family and their neighbor. Aid is individualized, then can be reciprocated. But, at the same time as “individuals” were supposed to be stepping up, Thatcher’s policies were stepping on them, especially the most vulnerable. This all making it harder to even look to oneself. Is it on the child to look to oneself? The child whose development was stunted by environmental pollution exacerbated by a history of systemic factors?
That has become one of Thatcher’s most famous quotes, this rejection of society in favor of individualism, a backbone of ideology that drove her move towards deregulating the British economy, towards privatizing the British services, towards turning the commons to the few, towards “tough to swallow” austerity measures. Meanwhile, today, Republicans meet with Biden to “compromise” by proposing relief 1/3 the size of the Democrats proposal (which is arguably lower than needed as is). The ever fading in, fading out, debt concerns rising again. Austerity does not work, but it is slow to die. An idea slow to die, but fast to kill.
A week after Thatcher won, Milton Friedman sent a letter to her saying “The battle has now begun. We must win.” Friedman would be an adviser to both Thatcher and Reagan, pushing his economic view of “freeing the individual”. Out of the tax cuts, the deregulation, the privatization, there was to arise the “free” market. A market that was never free up to that point, and has not been free since. Just transformed. What “individual” was freed?
The promise didn’t deliver, except to those that knew they would be made richer. They all knew the rich would get richer. That’s why the basis was “trickle down”. Sure they would get rich, but it would eventually come down. It didn’t. Even in Thatcher’s own terms of “saving the economy”, it did not deliver..
The economist John Kenneth Galbraith noted that “trickle-down economics” had been tried before in the United States in the 1890s under the name “horse-and-sparrow theory”, writing:
Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: ‘If you feed the horse enough oats, some will pass through to the road for the sparrows.’
Galbraith claimed that the horse-and-sparrow theory was partly to blame for the Panic of 1896. While running against Ronald Reagan for the Presidential nomination in 1980, George H. W. Bush had derided the trickle-down approach as “voodoo economics”. In the 1992 presidential election, independent candidate Ross Perot also referred to trickle-down economics “political voodoo”. In the same election during a presidential town hall debate, Bill Clinton said:
What I want you to understand is the national debt is not the only cause of [declining economic conditions in America]. It is because America has not invested in its people. It is because we have not grown. It is because we’ve had 12 years of trickle-down economics. We’ve gone from first to twelfth in the world in wages. We’ve had four years where we’ve produced no private-sector jobs. Most people are working harder for less money than they were making 10 years ago.