Wednesday, September 14, 2011

A fetish for decline (part one)

Greg at Another Amateur Economist links to Marx, Labor's Dwindling Share of the Economy and the Crisis of Advanced Capitalism at Of Two Minds. I have comments on excerpts from the Of Two Minds post.

Marx, Labor's Dwindling Share of the Economy and the Crisis of Advanced Capitalism   (August 31, 2011)

All attempts to reform the Status Quo of advanced finance-based Capitalism will fail, as its historically inevitable crisis is finally at hand.

It is self-evident that conventional economics has failed, completely, utterly and totally. The two competing cargo cults of tax cuts/trickle-down and borrow-and-spend stimulus coupled with monetary manipulation have failed to restore advanced Capitalism's vigor, not just in America, but everywhere.
I read that far and knew I'd be writing this post.

Why self-evident? Why not just evident?

Why completely, utterly and totally? Why not: "conventional economics has failed"?

And I don't know what "cargo cults" are. But please don't tell me. I don't want to know.

But wow, I like the way Two Minds identifies those cults. We have tax cuts and trickle-down on the one hand, and on the other borrow-and-spend stimulus plus monetary manipulation. The Republican electoral strategy of the last thirty years on the one hand, and on the other the BOB response -- the Bush-Obama-Bernanke response of deficits, stimulus, and quantitative easing.

That sums it up nicely.

Conventional econometrics is clueless about the root causes of advanced finance-based Capitalism's ills. To really understand what's going on beneath the surface, we must return to "discredited" non-quant models of economics: for example, Marx's critique of monopoly/cartel, finance-dominated advanced Capitalism...
That's three times so far, Two Minds refers to "finance-based" or "finance-dominated" capitalism. I like it. Finance is the problem. Completely, utterly and totally.

Marx predicted a crisis of advanced Capitalism based on the rising imbalance of capital and labor in finance-dominated Capitalism. The basic Marxist context is history, not morality, and so the Marxist critique is light on blaming the rich for Capitalism's core ills and heavy on the inevitability of larger historic forces.
Four times.

Huh. I am also "light on blaming the rich". And "heavy" on larger historical forces. But not on inevitability. Once you opt for inevitability, you have no choice anymore. We always have choice. It's what we choose, that matters.

...Advanced Capitalism's ills run much deeper than superficial "class warfare" models in which the "solution" is to redistribute wealth from the top down the pyramid.
This redistributive "socialist" flavor of advanced Capitalism has bought time--the crisis of the 1930s was staved off for 70 years--but now redistribution as a saving strategy has reached its limits.
Has reached its limits.

Says who?

This is not economic analysis. This is looking at the surface of the problem, throwing up your hands, and saying it's the end of the world.

It's not economic analysis. It is a sad, perverse way to take comfort in our troubles.

The other political-economic strategy that has been used to stave off the crisis is consumer credit: as labor's share of the economy shrank, the middle class workforce was given massive quantities of credit, based on their earnings and on the equity of the family home.
The credit model of boosting consumption has also run its course, though the Keynesian cargo cult is still busily painting radio dials on rocks and hectoring the Economic Gods to unleash their magic "animal spirits."
Cargo? Hectoring?? Painting rocks???

Yes, consumer credit. I wouldn't say it "has been used to stave off the crisis". But it certainly has been used. That's finance, again.

...the middle class workforce was given massive quantities of credit...

Was given? No. This is just the way we chose to run our economy. Finance.

The third strategy to stave off advanced Capitalism's crisis was to greatly expand the workforce to compensate for labor's dwindling share of the economy. Simply put, Mom, Aunty and Sis entered the workforce en masse in the 1970s, and their earning power boosted household income enough to maintain consumption.
That gambit has run out of steam as the labor force is now shrinking for structural reasons. Though the system is eager to put Grandpa to work as a Wal-Mart greeter and Grandma to work as a retail clerk, the total number of jobs is declining, and so older workers are simply displacing younger workers. The gambit of expanding the workforce to keep finance-based Capitalism going has entered the final end-game. Moving the pawns of tax rates and fiscal stimulus around may be distracting, but neither will fix advanced finance-based Capitalism's basic ills.
I agree: tax rate changes and fiscal stimulus are distractions. Pawns. Inconsequential, ineffective tools. I agree. But the rest of that?

I wouldn't say that greatly expanding the workforce was a "strategy". It was a response to conditions. Income was not keeping up with costs, so people took second jobs, and more family-members went to work, and like that. It was a response.

And buried in the middle of that paragraph, the problem remains unexplained: "the total number of jobs is declining".

The fourth and final strategy was to exploit speculation's ability to create phantom wealth. By unleashing the dogs of speculation via a vast expansion of credit, leverage and proxies for actual capital, i.e. derivatives, advanced finance-based Capitalism enabled the expansion of serial speculative bubbles, each of which created the illusion of systemically rising wealth, and each of which led to a rise in consumption as the "winners" in the speculative game spent some of their gains.
Phantom wealth? Y'know, words are funny. People who write to convince will choose words that sound magical or mystical, words like "phantom wealth." It's not defined. I don't know what it is. Nobody knows what it is. Some people think they know what it is. But those people are looking at the world through rage-colored glasses.

It isn't phantom wealth or fake wealth. It is real wealth. If it wasn't real it would be easy to make the problem go away. But the thing is, some wealth creates output, and some wealth creates debt. Financial wealth creates debt.

The emphasis on finance, again.

This strategy has also run its course, as the public at last grasps that bubbles must burst and the aftermath damages everyone, not just those who gambled and lost.
The strategy has run its course. By proclamation, the end is near. It is the end of life as we know it. It is the inevitability view, again.

Nonsense. This is not economic analysis. This is a fetish for decline. A desire to make Marx true by calling for the end of life as we know it. This is worse than sad. This is dangerous stuff.

Two other essential conditions have also peaked: cheap energy and globalization, which opened vast new markets for both cheap labor and new consumption. As inflation explodes in China and its speculative credit-based bubbles burst, and as oil exporters increasingly consume their resources domestically, those drivers are now reversing.
Worse than sad.

Globalization is clearly part of the failed economic policy. The "peaking" or down-turn of globalization -- if that is the situation -- is part of the failure. It is not a cause of the failure. It *is* the failure.

Out on a limb, I would say the same about peak energy. Energy prices are going up like other key prices: Health care. Education. The things we value most. The things we think will keep us alive and help us get ahead in these troubled times.

The things we value most are the things that show the true extent of inflation.


Jazzbumpa said...

I agree with most of your quibbles, but I also recognize a great deal of underlying truth in the excerpts.

I think this dovetails rather nicely with my post yesterday.

I agree: tax rate changes and fiscal stimulus are distractions. Pawns. Inconsequential, ineffective tools. I agree.

Really? Why? Tax rate changes profoundly affect the distribution of wealth in a society. Fiscal Stimulus has been proven to be effective, both in the 30's and again most recently with the Obama stimulus - Rethug lies of ineffectiveness are the distraction.

Huh. I am also "light on blaming the rich".

Again, why? The stagnation of the economy and increasing wealth disparity are closely correlated - historically, and again now.

Forced redistribution downward, using tax policy, regulation, and strong collective bargaining gave us the golden age. Abandoning all those things gave us the great stagnation. Looks pretty straight-forward to me.


jbpeebles said...

I wonder how much of our problems are founded in the limitations of the field of economics. Economics is far more vague then the economists would like. When things go wrong with the capitalist model, we look for logical causes but use the wrong tools and methodologies, so how can we correct what ills it?

The quantity of labor is too high, especially with minimum wage, unemployment insurance, and other burdens associated with hiring people. In a supposedly endless population growth, we constantly need to put people to work and periodic retraining on a massive scale is vital. Labor resources need to redeploy.

If the deregulation mantra were true, we'd see a lot more business activity rather than accentuating the peaks and valleys like Kondratieff said it would every 70 years or so. Trying to sustain a business cycle may be impossible, especially if Greenspan's (perhaps BOB deserves the addition of a "G") free money created artificial, and unsustainable, demand.

Peak oil and the scarcity of resources crimps demand and growth. We now consume 70% of our oil from abroad. Toss in our insatiable appetite for imports and you have a massive outgoing cash flow.

Then there's too much G, making Keynesianism only work if it's of a scale beyond our comprehension. Then the debt will be un-repayable (sshhh--it is already.)

I think the Fed like the unemployment, what George Ure calls "the deflation monster." (Sept. 14th post)

David Rosenberg is calling this a "modern-day depression" as opposed to a traditional one. See him in the Financial Post article here.

I like staying on this theme that:

1) policymakers are fighting the last economic crisis, using the same tools that worked last time to address this challenge (just like we fight this war just like the last war)

2) population trends will reduce economic growth in the developed world

3) US manufacturing has been gutted due to unfair globalization, destroying middle class jobs

At some point those who know why the system has failed have a moral obligation to let people know they need to mobilize themselves poltiically. This is real Marxism, as he knew economic realities paint political priorities. In his view, it's the owners at the top of the capitalist economic pyramid who use political power to enrich the owners of the means of production.