If you have any doubts about how easy it is for someone who works hard in the US to get ahead, consider this factoid from Martin Wolf’s latest comment in the Financial Times, on Raghuram Rajan’s new book (see Satyajit Das’ review here:
Thus, Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”.
It isn’t merely stunning, it’s destructive.
Rajan isn’t the first to put together the story line recounted by Wolf, but it is likely that his book does it in a more comprehensive fashion. We noted that Thomas Palley (along with others) was writing about the change in economic policy and the drivers of growth in 2007. He argued that policy-makers retreated from full employment as a goal, since it allows workers to demand higher wages, which in turn causes inflation. Reducing worker bargaining power led to disinflation, lower interest rates led to rising asset prices, which in combination with financial innovation, created an until-recently reinforcing cycle whereby rising asset prices funded consumption. Palley further contended that this was inherently a self-limiting paradigm, and we had reached the end of the road. A host of others, such as Steve Waldman in 2008, described the dangers:
Credit was the means by which we reconciled the social ideals of America with an economic reality that increasingly resembles a “banana republic”. We are making a choice, in how we respond to this crisis, and so far I’d say we are making the wrong choice. We are bailing out creditors and going all personal-responsibility on debtors. We are coddling large institutions of prestige and power, despite their having made allocative errors that would put a Soviet 5-year plan to shame. We applaud the fact that “wage pressures are contained”, protecting the macroeconomy of the wealthy from the microeconomy of the middle class.
Yves here. Wolf’s comment is forceful, yet it contains enough econ-speak that its sense of urgency might be missed by generalist readers. He focuses on deep seated political issues that will make it hard to blaze a path out of our financial stress. The first is that social contracts are breaking down in the US and Europe:
I think of it as the end of “the deal”. What was that deal? It was the post-second-world-war settlement: in the US, the deal centred on full employment and high individual consumption. In Europe, it centred on state-provided welfare.
Yves here. Now some readers may simply snort and say, “Well we can no longer afford that.” But that’s simplistic and misleading. We DID afford it. What led to the change in the deal was the staflationary 1970, which was driven both by a commodity prices (most notably the oil crisis) AND labor baragaining power (workers were able to demand that wages keep pace with inflation, which when inflation got beyond a modest level, meant it started to become self-reinforcing).
So the new program was to reduce workers’ bargaining power, both by combating unions, and by tolerating un and underemployment. Rising worker wages had been seen as crucial to greater prosperity; it was quietly abandoned as a policy goal. But this has profound implications. As rising income inequality demonstrates, the benefits of growth accrued substantially to those at the very top. But absent a few wastrels, people with that level of income are not going to spend as much of their income on consumption as those less well off. Thus (in very crude terms) Keynes’ problem of the paradox of thrift, that the understandable desire of households to save can result in insufficient demand, becomes even more acute when it it pretty much only the rich who are getting richer.
Wolf describes the results:
…a number of significant economies have built their economies around exports. The resultant dependence on foreign demand means the credit-dependence they proudly avoid at home emerges abroad. The constraint upon them is what Prof Rajan describes as a “politically strong, but very inefficient domestic-oriented sector”. The problem is that the countries that used to provide the demand – the US, at world level, or Spain, in the eurozone – have over-indebted private sectors. So we see a zero-sum battle over shares of structurally deficient global demand. This is a threat to survival of the eurozone and even the open world economy…..
The west is not the power it was; its debt-fuelled consumers are not the source of demand they were; the west’s financial system is not the source of credit it was; and the integration of economies is not the driving force it proved to be over the past three decades. Leaders of the world’s principal economies – both advanced and emerging – will need to reform co-operatively and deeply if the world economy is not to suffer further earthquakes in years ahead.
Yves here. I am not terribly optimistic about the survival of the “open world economy”. I believe that (absent measures like Keynes’ Bancor proposal) large trade flows over time produce destabilizing international capital flows. Citizens are not prepared to suffer sudden, dramatic losses of savings and high odds of unemployment or reduced income in the name of world trade. Containing the downside would require a considerable loss of national sovereignity, which again few are prepared to accept.
Moreover, much of America seems blithely unaware of our diminished role in the world. Likewise, financiers, having wrested massive concessions from national governments (bailouts with almost no concessions demanded of them) if anything view themselves as even more influential than before the crisis. In other words, both the distorted self image of key players and a reluctance to admit the deep seated nature of the problems make a happy resolution unlikely.
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Good article, but imho, when you have no stable moral ground from supposed leaders and extreme narcissism from the beneficiaries, then revolution is always a possibility. But it is that age old saying that when the gap between the rich and poor widens, revolution ensues.
Maybe we should create a new measure of wealth: GDP per capita barring the income for the top 1 per cent.
The necessary re-balancing, absent global coordination, calls for very high unemployment rates in consumer-of-last-resort countries, including the US and Spain, for an extended period.
That amounts to a political earthquake, especially in the US. Many assumptions will be tested. Solidarity, high taxes for the rich and a new growth model for US workers will be key expressions in the political jargon not long from now.
An appropriate subject for Bastille Day.
“Full employment was abandoned as a policy goal”. – As if any bureaucratic gangster ever had the right to decide upon civilization’s abdication that way.
The whole concept of “trickle-down” still claims to exalt the social contract, it just modifies it in a condescending, authoritarian way: The peasants should allow the criminal rich to exist and to steal the production of their work, because the fruits of this greed and theft will trickle down.
Now, I myself would never accept such a state of affairs even if it did “work”. But evidently most peasants would.
But we’ve now long known that “trickle down” doesn’t work even under the best of circumstances; even if it hadn’t always been an ideological lie.
And by now we know that it was in fact a Big Lie. That the proclaimed stewards of civilization in fact unilaterally abdicated on a core function of civilization, providing full employment, proves it.
And it went way beyond that. Neoliberal globalization sought systematically to destroy all good American jobs. This was part of the same scorched earth worker liquidation project (and part of the same program of temporarily appeasing the slated-to-be-liquidated middle class with debt-based consumerism).
We can put the systematic neglect and destruction of jobs alongside the hijacking of the health care system for gangster extractions as two primary abdications and unilateral social contract breakages on the part of the kleptocracy. It was all done purely with the intent and for the purposes of simple crime: robbery and tyrannical usurpation of power.
Neither corporations (or the super-rich in general) nor government any longer have any legitimacy or rights. They unilaterally forfeited these, because they chose the path of outlawry, intending to be able to rule by neglect, abdication, extortion, and eventually by force.
Why should a terminally unemployed person, who had that status intentionally inflicted upon him from the top down, and who cannot obtain basic decent health care because he can’t “afford” it, something which would be beyond question in a civilized society; why should the victim of these crimes, who no longer lives in a society because those with whom he had a deal unilaterally broke the deal in order to mug him and leave him for dead, why should he have anything but contempt for the empty words the dealbreakers and thieves still mouth at times, about “contracts” and “property” and “laws” and such?
We were only supposed to tolerate their existence in the first place because they were supposed to be such “wealth creators” that it would “trickle down” upon us. That’s the modified deal THEY proposed.
Now that they’ve proven their infinite bad faith by breaking even that obnoxious deal, our tolerance should be at an end.
Neoliberal globalization sought systematically to destroy all good American jobs.
Wow! What an interesting twist. I’m going to assume by NeoLiberal you mean neoliberal economic policies, not policies espoused by liberals.
I’m pretty sure the suits behind NAFTA, the WTO and the multi-national energy companies attend lunch with Dick Chaney, not Noam Chomsky.
Well, yes I do mean corporate liberals as well as real right wingers. (Liberals are just more half-assed and craven about their rightist ideology.) Globalization cadres like Clinton, Krugman, Obama, and their supporters. War criminals like Obama and Hillary and their supporters. Corporatists like every Democrat, almost every liberal advocacy group, most well-known “progressive” bloggers, etc.
A good yardstick is, anyone who supported the health racket bailout is a corporate hack or a liberal teapotter.
Anyone who opposed and rejected it on public interest grounds and demanded single payer instead is, for lack of a better term, some kind of public interest activist.
Noam Chomsky’s not a corporate liberal. I don’t recall what he calls himself, if anything. At any rate he’s a bona fide “leftist”.
It’s a measure of how devastated the political landscape is that there’s even such a problem with terms. That’s exactly what the corporate media and the Republican/Democratic establishment set out to do, basically redefine the “official” political spectrum as running from center (what they call “left” or “liberal”) rightward, with all the most acceptable policies and opinions (what they call “moderate” or “centrist”) running medium to hard right.
Neoliberal is commonly used in economics, not politics. Noam Chomsky is not a neoliberal.
Keeeey-Ryst. I am so sick of the Neo stuff. Where in the hell did it come from?
The liberals call themselves: liberals, progressives, socialists, leftists, and (what) anything else – depending on the decade.
The conservatives now “believe” that anything monolithic is somehow “to GOOD to be broken into smaller pieces” (except, in theory, government – but never the military).
Neo-liberals are conservatives?
Neo-conservatives are fascists?
Is there a neo-libertarian running about some place?
Christ, no wonder the peasants are confused. (Oh, wait a second…. I get it now, sorry).
No “rights”? That sort of anarchy doesn’t solve a thing. If you want to collapse the banksters before they collapse the system (own them instead of them owning us), then you simply engineer a massive withdrawal of deposits from all of the TBTF banks into community banks.
That’s definitely one of the best available tactics for now.
I was talking here about the overall political morality of the situation.
Yves, a link for today:
http://online.wsj.com/article/SB10001424052748704518904575364903228915446.html
Consensus on the certainty of a Greek tragedy may be turning…
My my, what a soccer match can do to global investors’ psychology…
Another link on the same vein:
“With Spanish 10-year bonds trading at a yield spread of 200 basis points over Germany, the market has already priced in a great deal of caution. So long as Madrid keeps delivering, spreads could tighten. For investors, that would be a winning proposition.”
http://online.wsj.com/article/SB10001424052748704288204575362801611563986.html
Emotional Southern Europeans unable to reason have been writing that on NC for weeks now. Pure-white Americans can take note: the WSJ is not emotional nor a PIG, but its analysts are reaching the same conclusion, just later.
Raza pura no existe aqui, so no lo sabes.
SI no lo sabes, of course. ;) damn typos.
@Yves, agree with most everything but following:
“people with that level of income are not going to spend as much of their income on consumption as those less well off. Thus (in very crude terms) Keynes’ problem of the paradox of thrift, that the understandable desire of households to save can result in insufficient demand, becomes even more acute when it it pretty much only the rich who are getting richer”
A couple of points – (and I don’t have one-year’s classwork in PhD economics from a “decent” university so bear with me) – over the longer-term don’t savings (as bank deposits) represent funds that another party can use for investment or consumption? Isn’t that merely a basis of double-entry accounting? While I understand Keynes’ paradox of thrift in the short-term, I would think the effect in the longer-term would be negligible.
I agree massive wealth inequality is a problem, but not as a cause for a deficit in demand over time.
I look at the problem of demand a bit differently – that over the course of 10-20-30 years we as a society increasingly became self-important (across all income levels). Look at any chart of private debt/GDP – an upward sloping line as we increasingly borrowed to increase our standard of living, substituting for the existence of a successful national industrial policy. The debt/GDP line explodes around 2001, which I attribute to Bush telling people to ‘go shopping’ after 9/11 – as an anecdote to terrorism.
Not only was the level of debt increasingly unsustainable, we were merely consuming items with little investment value – handbags, LCD TV’s, etc. More importantly, the marginal utility of all of our consumption has been declining dramatically over time. Getting one TV for a household is high marginal utility, the fourth – not so much. So not only was our consumption on borrowed money, it was of little long-term use or utility.
Which makes it especially vulnerable to cyclical swings and permanent retrenchments – which the Fed has been forestalling with cheap interest rates for years. The Mega-Corporations and rentiers/bankers have been whispering in the ears of the politicians/FinMins for years – “make them borrow more to buy more stuff”.
So I don’t attribute, per se, the insufficiency of demand to the savings of the wealthy. Also, IMHO, for a variety of reasons, much of that demand should never have existed in the first place.
Lastly, one of the causes of my pessimism on an ultimate positive solution is a microcosm of your blog – I see a lot of good thinking here, but not a lot of agreement on the appropriate solutions. More government or less government? More taxes or less taxes, etc. Even now, we seem to be repeating some of the mistakes of the 1930’s. But, some people believe the deflation must come to wipe out the mal-investments. Others want inflation to support the borrowers, etc. The ultimate lack of consensus will be a part of what drags us down…
A couple of points – (and I don’t have one-year’s classwork in PhD economics from a “decent” university so bear with me) – over the longer-term don’t savings (as bank deposits) represent funds that another party can use for investment or consumption? Isn’t that merely a basis of double-entry accounting? While I understand Keynes’ paradox of thrift in the short-term, I would think the effect in the longer-term would be negligible.
That’s what economists claim happens, but in practice that unproductive wealth is never used for productive investment or consumption. It goes into gambling, speculation, asset bubbles. That’s how the finance sectors bloats beyond the small appendage it would be in any healthy economy.
That’s what happened in the 20s, and that’s what’s happened since the 70s.
You are very perceptive to place the beginnings of the shift of income growth to circa 1970.
What transpired is that we saw the beginnings of the other peoples money syndrome with the corporatization of the NYSE membership. With that move, the industry consolidated and eschewed the partnership structure and evolved into larger and larger corporate structures such as Sandy Weil’s Citigroup which was in violation of Federal Statutes until the repeal of Glass-Steagell. This is the foundation of the other peoples money syndrome.
In 1971,Nixon abetted the shift to an increase in financial services employment by taking us out of the Bretton Woods agreement, effectively taking us off the gold standard for international trade settlement and the silver standard for domestic finance.
The move to a fiat currency was the required and sufficient condition that facilitated and era of extraordinarily easy credit money that fueled our current financial bust. What was created was a structure in which the creation of riches required large quantities of money for what where in reality moderate short term gains; e.g., the trading premise of LTCM. Big leverage for small margins equaled big returns to equity.
This all led to an accelerating rate of loss in purchasing power. What contnues today is the fact that the financial sector wants to continue with its opaque schemes all the while our economic structure becomes increasingly imbalanced in terms of production and services enterprises.
Quite simply there are far too many people employed in the financial services sector. There was a time when a 10 million share day on the NYSE would have brought everything to a one or two day halt. Today, with electronic settlement procedures, we do billions of shares a day without even a hiccup.
Also consider the proposition that if you have a very large trading floor jam packed with individuals, the potential for a rogue trader is greatly increased. Also, does the market really need all those trades to facilitate the productive investment of capital. I doubt it. I think firms require all those traders in order to scalp a couple of basis points on very big leverage. Why else would brokerages seek leverage of 30 to 40 to 1?
I think we would do well to differentiate between riches, the possesion of a lot of money versus wealth, the ownership of the means of production. Might we be better served if our national goal was the redistribution and creation of wealth rather than the saving of the rich who in reality are merely rent extractors?
This current global financial problem is a problem of insolvency. Claims that it is a liquidity problem are little more than a straw man. The harsh reality is that a large number of creditors have made very bad loans. It’s time we imposed reality on those creditors and forced them to absorb the write downs that are necessary to the beginnings of a rebalancing of domestic and global trade.
For relatively rich nations that means a reduction in living standards, for poor nations that means substantial investment in the means of production and the equitable distribution of the ownership of those means of production. The process that is implicit in the foregoing will not be easy nor will it be fast, it may well require a generation to accomplish.
Now that foregoing piece of blind hope is quite improbable in its potential for occurance. More probable is a cataclysmic occurance or a series of seismic disruptions. Much like what we are experiencing today. Quite possible another war, albeit larger and equally unnecessary than the two we are currently engaged in.
What needs to be recognized is that the rich need to be taxed in a manner that incentivises investments in production enterprises.
The goal of economic growth for its own sake needs to be evaluated. Do we need more pure growth, or do we need that growth which provides stability to employment? Do we need a financial intermediation structure that produces fair markets versus some queer concept of free markets?
We have a huge deficit to fund, lets begin by taxing the unproductive accumulated rents of the rent extracting class. Lets reintroduce the confiscatory tax rates we had in the 1950s. Lets expose the the carried interest capital gains tax for what it is, a monstrous benefit to what is essentially a rent extracting industry that has done nothing to enhance the economic strength of this country.
Good comment and good article. In the 1950’s there was a whole world to invest in. Taxing the rich doesn’t work when they have no desire for investment. How many really rich younger people do you know? I don’t know any. The older one gets, the more the impulse to hoard is triggered. The baby boom… And since this generation had it relatively easy to create wealth, being old is an impediment to once again try, especially in a world this group has already felt they built it.
Yves suggesting global coordination would mean that all the world’s wealthy begin funding (VC) simultaneously. It is a nice wish. Mine is that they would invest in abundant energy which could appeal to a portion of the biggest investors with the greed factor. But since that has been repeatedly considered as an ignored urgent need since the 1970’s (also T.Boone Pickens tried to ignite the spark and failed), I don’t see it happening before global calamity strikes first.
Afterward, we will be using coal and wood for a decade or two just trying to survive.
The past leadership created the Golden Calf. Here is a link for those of you that don’t understand: http://en.wikipedia.org/wiki/Golden_calf . A million people marching through the desert should NEVER be centralizing there coin and jewelry. But it is our human tendency. Centralize, decentralize. Breath in, breath out.
The Golden Calf is going to be melted down through war. While I hope for the best, I am not taking a chance my family faces starvation and anarchy from the effects of such. Do you think it is coincidence the power elite are buying property in out-of-the-way non-nuclear countries? As I do not have vast wealth, I am doing my prep slowly but surely. If somehow a miracle occurs and the world doesn’t blow itself up, than I will have a nice investment property that duals as a nice woodsy vacation spot.
I agree with many of your comments. However, it’s a theme I see on this site a fair amount that excess hoarding/savings of the rich is an issue. I don’t agree. One person’s savings is another persons investment – it’s a simple double-entry issue – whether it’s one single $1 million account or 10,000 $100 accounts. You MMT’ers should be savvy to that sort of accounting.
I think it’s a bit more nefarious – it’s the bankers, the fractional reserve system, and the politicians that have created and supported the debt-fueled society. I saw a nice quote on another board. Here’s how it works:
1. I lend you capital I don’t really have – it’s just a made up entry in an accounting ledger, which my fellow clan members accept as real money.
2. However, in exchange for this phantom value, you pledge very real assets as collateral – your farm, your livestock, your commodities, your wife/daughter(s).
3. This debt, which was conjured out of thin air, accrues interest on a compound annual basis.
4. At some point in time (which can easily be mathematically determined), the combined principal+interest payments exceed your ability to service the debt from the income stream derived from the pledged assets above.
5. Once this happens, I repossess your property and throw you & your family onto the streets.
It’s the interest-charging racket, not the excessive savings of the rich.
“The debt/GDP line explodes around 2001, which I attribute to Bush telling people to ‘go shopping’ after 9/11 – as an anecdote to terrorism.”
The credit explosion of the early 00’s was a result of the budget deficits of the late 90’s. The federal surplus pulled income and savings from the private sector, forcing consumers to lever up to maintain standards of living.
I don’t agree. The line did not go down during the Clinton surplus years. The trend upwards is well-established since the ’50s. It just had a burst around 2001 .
You are kinda’ missing the point. If consumers make bank deposits, it SHOULD lead to business lending, which can spur the economy.
But it is not. The banks are paying 1% and buying Treasuries at 3%. No money is flowing back into the economy.
“need to reform co-operatively and deeply if the world economy is not to suffer further earthquakes in years ahead.”
Very true, but how deeply? And what about ecosystems, soil erosion, our over-dependency on oil etc? Human ‘progress’ is powered by economic factors, which themselves run on money. Money is currently a giant, slow-burn, multi-national ponzi scheme systemically dependent on perpetual growth: all money is created as interest bearing debt, which means it is always scarce. The shortfall motivates us all to be more productive, more money is needed, more debt created, more resources are deployed, and so on across the globe. A booklet called “The Ecology of Money” by Richard Douthwaite does a good job of laying this out:
http://www.feasta.org/documents/moneyecology/contents.htm
Monetary reform of the deepest possible kind is required to change this rapacious pattern, and must take into account the finite and fragile nature of the ecosystems upon which our lives depend, and also that perpetual growth is destructive in the end. We cannot outgrow the systems which support us without enduring collapse.
Also important of course is the data on the ill societal effects of income inequality gathered in “The Spirit Level”, published January 2009. A very important book.
Sorry Yves, I disagree with “We DID afford it.”. It’s the same argument as “we did afford the asset price driven consumption”.
Fundamentally, the system was unstable because of the lack of balance of power (leading to extra pressures on wages via unions etc.). In the same way as the system was fundamentally unstable because of (different) balance of power.
It is my belief though that it is impossible to design a system that is balanced, as maintaining the balance is very hard and one slip will lead to someone gaining the upper hand (that is, short of direct external intervention by God/Atlanteans/AI/benign race of ETs, pick your choice). That of course does not mean we should not try to come up with something that will serve for a reasonable lenght of time, but at the same time we should know its limitations (in particular, every success has seeds of its destruction – if it works so well that you forget why you needed it, you’ll get rid of it).
I suggest you read Peter Temin on unions in the post war era. We’ve had a lot of revisionist history here. One factoid: I was at Harvard Business School, 1979-1981, the tail end of the stagflationary period. No one, not faculty, and more important, none of the 800 students, 90% of which had had meaningful work experience (and a much higher % in manufacturing than now) had bad things to say about unions.
The “deal” was MERELY that workers share in productivity gains. This objective had been endorsed by the Federal government in the 1960s, this was hardly “greedy unions” but meant to strike a balance between the needs of workers and capital. The inflation of the 1970s was primarily due to a large fiscal deficit during a growth period (the 1960s) due to a big increase in military commitments, the space program (which was quasi military) and the War on Poverty. The oil shock kicked it up another notch (and also was a further drag on the economy).
Unions were NOT the cause of inflation, but once inflation started, they made it harder to undo (it tended to become self reinforcing).
Yves,
in the 60s, there was full employment and production couldn’t cope with all the demand. The price of labour could be raised with no consequences in terms of unemployment.
The situation since then has changed a lot.
Diego,
Please bone up on the history here. I read a fair bit, plus I lived through it, and I haven’t seen anyone make a credible argument that labor was the cause of 1960s inflation. It is pretty universally agreed that the cause was a fiscal deficit in a period of economic growth, in other words, excessive stimulus (or in the preferred econ lingo then, “demand pull” that later became “cost push”).
No less than Paul Volcker set out to create a pool of unemployed to apply downward pressure on wages. I’ve had numerous posts in 2007 about how our trade policy (which is extraordinarily naive, we pretend there is open trade when our counterparties understand the system is managed trade) allowed demand to “leak” oversaes. Prior to the Reagan era, a persistent trade deficit was seen as a very bad thing, it meant US demand was going to support foreign jobs.
So you can’t look at our situation now and act as if it came about naturally. It is the result of at best abject neglect, arguably design. As I’ve discussed in many past posts and in my book, we had a big change in policy objectives, and one of the biggest was not giving a damn about employment. Should the results we see now be any surprise?
And you are straw manning, big time. We’ve had real GDP growth since 1976. And we’ve had income growth too, only in the top 1%. Pray tell why workers should not share in the productivity gains they helped create? We’ve had period of comparatively low unemployment and milder downturns prior to the bust, remember the Great Moderation? What is the case for workers being screwed, exactly?
Yves,
I can see your point.
However, I think there is always a tradeoff between inflation and unemployment, global trade and unemployment, immigration and unemployment, and price of labour and unemployment. I am not sure pro-employment policies would make for a nicer world, if that meant pro-inflation, anti-globalization and/or anti-immigration policies.
I agree that China distorts global trade, but you are looking at globalization from the US perspective: you read the stats on trade deficit, and you see US jobs disappearing in China. You may think the trade deficit explains US unemployment.
But Europe does have high unemployment, strong unions (especially in some countries) and no trade deficit, while being as committed to globalization as the US.
Moreover, the US was in full employment not so long ago, with the same set of policies it has now.
Diego Méndez wrote:
“But Europe does have high unemployment, strong unions (especially in some countries) and no trade deficit, while being as committed to globalization as the US.”
Sir, this is faulty logic. The world is not one economy. Different parts of the world experience economic difficulties for different reasons.
The major long term problem in the US is ‘global free trade’ which forces us to lower our wages to those of the poorest paid workers in any other country. The only alternative is to see jobs disappear in the US, which has happened since at least the mid 1980s!
The major long term problem in Japan is their dependence on the US consumer market. When other southeast Asian countries began to compete seriously for that market the Japanese economy began its descent!
The major long term problem in Europe is their dependence on exporting their surplus production to the US. When our economy cratered it cost them dearly.
The prosperity of the 60’s led to a lot of rebellion because most anyone could get a job. Keeping ‘order’ has been a paramount concern since that time and opening up the US working class to competition on a global scale has been part of that.
I suspect the reason some elites are worried now is because the rot from within the US working class is starting to reach them.
Just increase salaries enough and production won’t be able to follow demand either. Where is the contradiction?
An increase in salaries, with no corresponding increase in productivity, means more expensive labour, thus lower demand for labour.
When your unemployment rate is 1% and you can’t cope with demand, because investments everywhere are making productivity boom, an increase in salaries means “natural unemployment” goes from, say, -5% (millions of people need to be imported immediately) to -3% (some fewer millions need to be imported).
That was the situation in the 60, but not today. There are no new game-changing technologies (like cars) making productivity boom.
Diego (I can’t reply directly): you are describing the situation in Spain, which is similar to the one in Germany. A gold standard with hoarding of assets by the rich. This does not exclude redistribution from the top via either taxes or group bargaining. It purely is a societal game that is being played by all participants. It seems the goal in a republic would be growth of GDP without shifting to ever extreme Gini coefficients (which seem destabilizing).
The only external constraints to organization of society are natural resources. Hence my suggestion would be to raise salaries of people that are light on consumption of resources, end consumers themselves and under appreciated so far. Start with artists. San Francisco is still full of murals from the 30s. Sounds like that was great investment then. Now we could have more of it!
I saw two (I think independent) articles in the last few days on how family trusts are becoming stronger in the US, while they never were completely phased out in Germany.
http://www.nytimes.com/2010/07/12/opinion/12madoff.html
http://www.faz.net/s/Rub5C2BFD49230B472BA96E0B2CF9FAB88C/Doc~EADDA94B6CD8E4DF987E7A742FEA9E13C~ATpl~Ecommon~Scontent.html
If the 19th century could agree that the dead should not rule over the living (which seems to have been tracking back a bit recently as I wrote, especially in the US), then why should the old have special privileges over the young (via indebtedness)? Manufactured goods slowly rot away – why should money behave differently? It is credit (and interest higher than inflation) – not money that seems to be at the source of our problems.
I’m all for higher taxes on the rich and higher equality.
But I don’t think unions or policies fostering wage increases are good per se. You will always have a tradeoff between demand for labour (employment) and price of labour (wages).
You must take into account that the US has received millions of people from Third World nations, who have seen their real income raise to First World levels. This would not have been possible if labour had been set too high in the US.
I am not sure if “poor” US workers have the moral ground on wage setting, since following higher-wage policies would mean the *real* poor stay poorer.
So I am for more equality, but not for less trade, less immigration or any other policy creating a worse world in the long run.
Marginally higher inflation may be good for other reasons (avoiding liquidity traps, reducing real wages faster in recessions), but I cannot see how inflation, per se, would prevent extreme inequality.
Yves,
I can’t comment on US unions. I can comment on (some, to be fair) UK and to an extent Australian unions, and they are clear special interest group which has more interest in getting best deal for their members than for sustainability of what they do. I’m sorry, but if train drivers on salaries 2/3xmedian wanted 5% increase at the time when people were laid off, they did not exactly made themselves popular.
And that exactly is my point – the fact that something can have good effect does not mean it can ONLY have good effects. There will be people who misuse it for personal gain (and I’m sure that sooner or later it would happen with unions in US too, if it didn’t already), which means credibility of the idea goes down and something else has to replace it to “fix it” (fighting the last war).
I 100% agree with you that (much) more of the real income should go to the rest of the population (and it would be in EVERYBODY’s interest). I even think that unions in some cases can be the way to get there. I just don’t think it will solve our problem forever and we will be living happily ever after without any swings in the other direction.
“So you can’t look at our situation now and act as if it came about naturally. It is the result of at best abject neglect, arguably design. As I’ve discussed in many past posts and in my book, we had a big change in policy objectives, and one of the biggest was not giving a damn about employment. Should the results we see now be any surprise?”
I was going respond to your comment above to the “insularity” of your HBS experience and the neutral, if not overt hostility, to unions, suggesting that outside of Cambridge this wasn’t the case. But as I read on and came to the above comment, I felt compelled to respond.
First, if one draws a line on a map from Pittsburgh, PA to Toledo, OH the concentration of industry – steel, auto, rubber, machining, paint and chemicals, building trades – in this region is a case study in what you’re describing. But it also reveals how insular perhaps this supposed tolerance for unions was at HBS because “unions” were powerful only in the types of region/enclaves I’m describing. Outside of them “unions” were despised or often seen as the lesser of two evils. If one traveled from Akron to rural SE Ohio back in 1970 there was a distinct “cultural divide” – if not jealousy – between us and them. Even unionized mineworkers looked upon us as “outsiders” with different ideas. This warm cozy relationship between management and unions was tenuous at best even in Akron – the former rubber capital of the world. Anecdotally, my sister who graduated from high School in 1971 in Akron and went to work at Firestone Tire and Rubber had the temerity to state at the dinner table one night that “unions” were forcing companies to move and she was voting for Nixon in 1972. My father, a first rate union carpenter [Local #639] stopped eating, put his fork down, pointed to her, and stated that if she did so, she had better plan on moving – BEFORE the election! I’ve observed on more than one occasion how a son or daughter from a unionized household went on to university, acquired a degree in business/finance, and then went on to become an ardent Republican as they climbed the stairway to heaven, disparaging unions with a venom that I find incongruous. Even now many a “salary worker” still enjoying the benefits of good wages and benefits obtained by unions and passed on to them makes no connection… But I digress.
What transformed this region described above into the industrial wasteland that it is today? Technological innovation, environmental regulation, as well as the fact that employment in manufacturing had begun to decline by the early 1970s [US Census of Manufactures – States] in the NORTH [band of states stretching from Massachusetts across the Great Lakes states into Minnesota]. Indeed, the decline in manufacturing employment in this region from 1970 onwards is offset by that in the SOUTH [Old Confederacy and California] until 1979 when national statistics for employment in manufacturing “peaked” and the decline of manufacturing accelerated. But this outmigration of manufacturing employment from heavily unionized industries/sectors in the North to those in the South – RIGHT TO WORK – began even earlier, textiles for example, but by 1970 the confluence of technological innovation and environmental regulation followed by the 1973 energy crisis put the nails in the coffin. So long as production – plant and equipment – was located in the NORTH, however, the “deal” of which Yves speaks obtained. There was no way for management to break this stranglehold on production and labor’s ability to extract benefits from productivity increases from it so long as it remained physically located there. The political clout of political parties with support from blue-collar unionized voters was simply a fact of life. But if production – plant and equipment – could be relocated to where unions were much weaker or better yet, nonexistent, then the union/political nexus could be broken and the “postwar deal” between management and labor ended once and for all.
So from 1970 onwards as plant and equipment relocated from the North to the South, the “deal” predicated on this set of circumstances unraveled. The South was more than eager to whore for business with tax holidays and generous incentives encouraging the greenfield construction of new plant. Workers in the South have always been more leery of “unions” than their Yankee brothers and sisters. Companies aware of this would pay wages better than local business but far less than those wage/benefit packages paid formerly in the North. It was a WIN-WIN for both the company and the SOUTH, both the states and their workers. For a while it seemed to work as the “rustbelt” was relegated to the past and the New South “sunbelt” rose to prominence. But it too was short lived as NAFTA and globalization soon rendered wages in the South less profitable than those to be had in Mexico or the Asian Tigers and China. CAPITAL packed its bags and moved west to the new Asian frontier where “shareholder value” could really be maximized.
The fact that employment in manufacturing peaked in 1970 in most OECD countries – US NORTH, Canada, Western Europe, and Japan a decade or so later – suggests that the relocation of production to more profitable locations is not an accident. Couple the effects of the “green revolution” and population growth in the developing countries orchestrated by the IMF, World Bank, and AID during the same period [1950-1980?] that unions in both the NORTH of the US and Western Europe were able to extract wages and benefits commensurate with increases in productivity, it is not surprising that since 1980 there has been a steady relocation of production to the former. Low wages with abundant labor supplies, few taxes and even fewer environmental restrictions, along with authoritarian regimes make for a very conducive investment climate absent the need to share any productivity increases with workers. Even there, wage claims are insignificant in the overall scheme of things. The conditions created in the periphery now tested and proven are being slowly introduced back into the center under the guise of AUSTERITY – the most debiltitating of which is INVOLUNTARY UNEMPLOYMENT.
While some may impute “conspiracy” to this scenario, I see it more as the logical outcome/confluence of several forces coming together to produce this particular set of circumstances that has acquired a certain momentum of its own. Merely by adhering to the economic theories underlying these circumstances and implementing policies conducive to their realization results in the outcomes described. One thing is certain though, the “hand” steering the wheel is not invisible. It is the result of conscious decisions. On this score, Yves and I are in full agreement.
Very interesting Mickey, thanks for posting that.
Great post. But to me it’s obvious who’s benefiting from this policy, and it’s the first percentile that has been mentioned. I understand the complexity of running a modern multinational organization, but the stellar growth of the rate comparing the wages of the management vs. those of a normal employee that has occurred lately, it’s theft.
Mickey good post!
It is a ‘conspiracy’ of the ‘invisible hand’ of class. Going back a bit further. Some background on Ronnie Reagan’s GE mentor commie bashing (read union busting, working man demonizer) Lemuel Boulware …
Excerpt;
“In the course of advancing its own proposal which is treated later in
this report, the General Electric Corp., through Mr. Lemuel Boulware,
criticizes the tripartite feature of the IUE proposal. The function of
deciding the important question “of whether an individual or organi-
zation is serving the interests of a Communist foreign government” is
not properly a matter for tripartite determination butone that should
be determined by a Government agency. The special interests of
unions or employers should not be permitted to affect national policy
on an issue of such great moment (pt. III, p. 9).
Mr. Boulware’s positive proposal is in line with the category of
i emedies which would lodge the responsibility for making determina-
tions of Communist-dominated unionism in an all-public Government
agency. He supports legislation to achieve this purpose on the ground
19
Page 22
20
COMMUNIST DOMINATION OF CERTAIN UNIONS
that the unions have not really demonstrated their capacity to rid
their organizations of Communist leadership. The expulsion of the
Communist unions by the CIO, Mr. Boulware attributes to the refusal
of the Communist unions to follow the “political” line of the CIO and
not “because they were found to constitute a danger or threat to the
country” (pt. IV, p. 4).
Mr. Boulware makes threespecific recommendations as to the
principles which should be followed in such legislation.
1. Official Government investigation and identification of Communist-domi-
nated unions and Communist union leaders.
2. Establishment of criteria, pursuant to which the independent agency would
make its determination.
3. Disabilities and penalties resulting from determination by the Commission”
More here …
http://webcache.googleusercontent.com/search?q=cache:yidP5_ysAb8J:content.cdlib.org/ark:/28722/bk0003z4x85/FID1+Lemuel+Boulware+GE+nazi+connections&cd=5&hl=en&ct=clnk&gl=us
Deception is the strongest political force on the planet.
Mickey,
Harvard Business School is not in Cambridge. It’s in Allston. And in those days, they referred to the rest of the university as “the Kremlin on the Charles.”
HBS then had a class of 800 people, roughly 90 per section (teaching unit). Students were most decidedly not chosen based on their ideological orientation. And it was the STUDENTS who were notably not anti union. I think the prevailing attitude might be summed up as “yeah, they are an inconvenience, best to find a way to co exist productively.” But to be honest, they weren’t even seen as that much of an intrusion on managerial authority, again contrary to how they are depicted now.
So why would HBS be “insular”? It had a very large class selected precisely to get diversity of work/industry experience. And (at least back then) it wasn’t as elite as its PR would have you believe.
Yves,
“And it was the STUDENTS who were notably not anti union. I think the prevailing attitude might be summed up as “yeah, they are an inconvenience, best to find a way to co exist productively.” But to be honest, they weren’t even seen as that much of an intrusion on managerial…”
If you had stated this at the outset, I probably wouldn’t have even bothered to respond. But suggesting that 800 students with varied work/occupational experiences attending an elite business school is reflective of the “managerial population to be” in general is a bit of a stretch, don’t you think? Assuming there were a few Southerners in this 800 and allowing that they might be more enlightened than their compatriots, such tolerance for unions by management-types in right to work states is hard to believe. I lived in northern Alabama – Huntsville – in the mid-80s and the hostility to unions was palpable… The fact that I was from NE Ohio made me suspect in some peoples’ eyes! Likewise in the rural hinterlands, antiunionism was prevalent not only among local elites but also many a good ole boy, both in Northern Alabama and NE Ohio. Even in the latter, once you got outside of the large urban industrial cities – Youngstown, Canton, Akron, Cleveland, Lorain, and Toledo – the prounion sentiment was more mixed or along the lines of a necessary evil or something that you had to live with just like you said. But in the row-house neighborhoods characterizing these cities, most of your neighbors worked in the mills with you or across town, so “scabbing” or crossing THEIR picket line was TABOO – it was out of the question! They were your friends/neighbors. Solidarity reinforced by shared experience explains this. Subsequent white flight and suburbanization, as well as the closing of many a factory/mill, has emasculated this “solidarity” – this sense of shared experience.
My referencing employment in manufacturing statistics was also intended to suggest that the “policy changes” and the shift in attitudes underlying them began before 1982… [And I know you would not disagree here.] This shift away from a commitment to “full employment” did not occur in a vacuum but grew out of the social conditions that characterized the 60s. What caused or led to this policy shift in US/Canada and Western Europe? If it was one country we could dismiss it as an outlier. But the fact that employment in manufacturing has steadily decreased and unemployment has steadily increased since the late 60s in all of these countries suggests a major structural shift in the balance of power between CAPITAL and LABOR. When 90% or more of the population is dependent on the “sale of their labor-power” for their existence/subsistence, reinforcing this “dependency” via involuntary unemployment shifts the balance of power decidedly in favor of CAPITAL. And WE agree on this as well.
How we redress the imbalance is our principal concern, right? Please don’t feel obliged to respond to such a minor difference, especially my dribble, when you’re supposed to be on vacation – precious personal TIME. It’s apparent to me that we’re on the same page and same paragraph, if not the same sentence or word. Maybe I’m missing something or presumptuous but we’re in the same age cohort as well and much of this is [too] PERSONAL. Yes, we were there…
Mickey
Indeed that was the period of LBJ’s ‘Guns & Butter’ administration and that fraudulent Gulf of Tonkin excuse for an unnecessry war.
My dad waa an IRS agent and a member of the NTEU. Unfortunately, they couldn’t go on strike (like the air traffic controllers, who went on strike and were summarily fired by Reagan). He hates the union, because they give him no bargaining power, but take a portion of his income.
This is wrong. Any union should be permitted to go on strike. Imagine if all of the IRS went on strike at once. The government could hire new people, but think of the lost revenue from training them while they are not collecting income taxes. The same thing for police officers (though we have way too many of them–they investigate past crimes in a desultory manner, and spend most of their time raising revenue for the state giving out speeding tickets, or busting people who are just selling what someone wants, but the gov’t has outlawed–most of their work is in the victomless crime category). But I digress. The real point is that the only reason we have a middle class at all, and aren’t like Brazil and Mexico, are the existence of unions and the GI Bill–which should be reinstated in full, promptly.
This is spot on. We’ve completely lost a successor generation of leadership.
My self absorption is getting the better of me but the significance of the time period they chose is interesting.
I liked the free markets kool aid from late 70s-late 90s, to a degree , (junk bonds were useful, once abuses were tamed, Soros shorting the pound was a useful and painful check on gov’ts, tax arb strategies are a reasonable check on govt, global trade vs global war seemed like a good idea, reasonable mortgage terms were a boon to us and a satisfaction to our middle class parents , to whom it wasn’t available, Bill Black still lived to keep the S&l crisis alive) as a healthy antidote to the pre-76 labor/captial dichotmy.
And it seemed to work, till it didn’t.
Pre 76 Labor was corrupt, Capital was corrupt. Pick your poison.
The late 70’s- 80s was focused on managing that balance.
’76, for those of us who were coming of age at the time, was a transition period at the tail end of the baby boomers. We were safe from the draft threat, had an adolescent appreciation and experience of the draft terror from our older siblings, a solid appreciation of our parents post-war struggle with labor vs capital, and we had a connection to the depression through our still living grandparents and our parents siblings.
I think we generally understood that we were poised to reap (not rape) benefits unavailable to our parents, and older siblings. Their struggles made them crazy, Labor wasn’t the answer, Capital wasn’t the answer. Finding an equitable balance was the post ’60s generation’s mission, or so I, and many of my peers in bus school thought.
Fast forward to today, that generation and their heirs, never expected their older siblings, (Clinton,Summers, Rubin, et al) to ever get in bed with their Republican foes and leave their younger siblings with such a distorted mess. And so they never organized to combat that threat.
The irony today is the current generation of leadership (Obama ,Geithner (70s kids)) has meekly submitted to their elder (Rubin, Summers, Bernanke) siblings. Those siblings, about to die, were the dilitantes their families despaired of.
I’m pretty sure that this generational thing is the reason financial reform has gotten such tepid support, despite the arguments in favor from those of us with a few years left, and some kids to leave our folly to.
The Summers (and pre Summers in Congress) generation are too tired (and wealthy) to care anymore, and the post Summer’s generation of leader believes they’ve made it to the top 2% and have such little substance that they really don’t care at all. And they’re getting older too, and they simply don’t give a shit about their kids once their gone.
I’d like to be wrong so please point me to a leadership group younger than 50 (with any power) that really have an ice cube’s chance of making some substantive changes before the debacle.
*cough* China. *cough*
He who holds the rembi peg, rules the world…
You’re right, there is no clear power block below the boomers in the U.S. (it’s partly just demographics, I was born in ’76, and let me tell you, it’s not fun living your whole life in a world where all markets, services and social policies are geared for people 20 years older).
But if you look to China and further west (indonesia, india) where they actually still make things, AND have pipeline access to the middle east, I think you can already guess where the next powerful policy makers will come from.
Just in case you’re interested (most boomers arn’t), my 20-year question (aside from the environment/population problems, which are frankly terrifying) is if the U.S. military/industrial complex can withstand the collapse of economic supremacy without falling back into some hideous balkanization of the states and/or attempt to jump start the economy through WWIII or the like. We’re almost there now- 54% of the federal budget this year is military spending?!?! For what? Why?
Ugh. Soylent Green. Made of people.
“the post Summer’s generation of leader believes they’ve made it to the top 2% and have such little substance that they really don’t care at all. And they’re getting older too, and they simply don’t give a shit about their kids once their gone.”
No, they give a shit about them. They just think, in their insularity, that their very insularity will protect them.
You don’t think that Obama thinks he’s doing better by his kids in following Clinton’s path in going with the Rubin contingent, than would he do for them by going with the people who worked in the trenches to elect him?
He may, in his insularity, have picked wrong, but right now he guesses he picked right.
No, they care about their kids–and that’s about the limit of what they care about. Such people, contrary to popular opinion, don’t necessarily belong in public life.
(Apologies for the length, but I’m not a good editor) So, to summarize a lot of stuff I’ve read over the past year or so from different authors: If the ‘West’ had had more income raises, they would be in less of a pickle now, because they would’ve more able to save, and less forced to borrow stuff to keep the US (and world) economy running. However, these raises did not happen, and the most obvious time that this happened was during the period we call the stagflationary period, which was “solved” by deregulation. Or was it?
During the past 40-50 years, we saw two important movements. First and most directly important and influential was the gradual entry of women into the labor force. This slowly lead to increases in family income (esp. once women’s wages started rising), but more importantly, it also increased the supply of workers. As we’ve all seen in the historical wage graphs posted recently and less recently (Elizabeth Warren mentioned them in 2004 already), we know that male wages have hardly risen, meaning that the increase in family income came from the women starting to participate. This, however, allowed governments (and economists &c.) worldwide (but esp. in the US) to misdiagnose and/or ignore the underlying problem. The addition of women would’ve been fine, if not for the fact that the goods produced in those economies could only be consumed in the same economies. This meant a relative decrease in the supply/demand balance.
Secondly, and at least as importantly, the Asian countries became important producers of manufactured goods. Because they were cheap workers, this lead to decreases in the production costs of products consumed in the US and elsewhere, which means that the net effect was that the purchasing power of most consumers increased (however, jobs were lost; see next paragraph); similarly, food started to become ever cheaper because companies started looking for and using ever cheaper ingredients (with terrible health effects). These cost decreases weren’t across the board, though, and the most important consumer ‘goods’ that didn’t become cheaper over time were first of all the housing market, where the enormously increased demand for good housing – and especially in good school districts – lead to a sharp rise in housing prices, which could be paid for because of the two-income family that had come into existence (See Warren’s The Two-Income Trap), and second of all in healthcare and tuition-related fees, which have grown ridiculously. (This probably because the higher educated workers working in these sectors did expect, and could enforce, raises) This helped to further obscure the problem of wages not growing any longer for most of the population.
So now to the question why men’s (and women’s) wages couldn’t rise past a certain level. It seems to me that this should be explained in light of Yves’ recent posting on Grove’s piece in BusinessWeek, and the discussion that resulted from it on this and other blogs. That is – and I’m very grateful for this point made over and over again by CynicusEconomicus – we should seek the explanation in the fact that the world’s labor force (specifically, the part of the labor force that has access to sufficient technology to compete in the export market) has grown enormously in size in the past 40-50 years, whereas demand has only really risen in the West, and then only because women also started to work. Specifically because of that increased supply, Western wages could not rise substantially: western products became less competitive, and ever less relevant as a share of the world’s production, and most of these products could only really be consumed in the West, which results in s/d mismatches. And because the West also has to buy everything produced in the East (not only because they produce a lot of essential goods), because of the lack of consumers there (while consumer demand is increasing, it’s still horribly out of whack with production), this meant that there wasn’t enough money to go around to do both. It seems to me that the West would be fine, if only it could produce goods the rest of the world actually demanded; but for that you need demand in the rest of the world. And because demand for specifically ‘high-tech’ products (except western education) is still low, and also because the East is rapidly learning how to also produce those goods, this may well be a pipe dream.
In any case, it seems fair to say that the problem that caused the stagflation was never really solved, but only papered over, by the decreases in Western wages made possible by the break-up of the unions etc. In that light it seems important to point out that people with a bachelor’s degree and above (although even there most of the growth is concentrated in the upper decile) were not affected by this trend, as it encourages us to look at specific industries rather than economies. So with regard to the statement ‘Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”’: it is certainly true that the elites are no longer interested in the fates of the rest of the population, but it seems to me to be worthwhile to ponder to what extent having higher wages for low- to middle-income Americans is possible, given that their line of work is the most heavily competed on world-wide. What role does the fact that the ‘top’ competes in different markets play when it comes to explaining why they could still demand wage increases? “Deregulation” did to some extent solve the problem of competition, but the problem is that the people who were made redundant by technology upgrades in specific industries had nowhere else to go because of the global mismatch between supply and demand. It seems to me that national borders (and specifically, GDP/tax regimes) make it enormously harder to understand the effects of globalization, as they encourage people to look at economies as a whole, rather than at how well the different industries within economies do when it comes to competing with the same industries in different countries. And this is problematic because those different countries have different coins, and (thus) different costs of living, making it terribly hard for those industries to compete if they are in countries with a high cost of living or expensive coin (such as the UK, which lost most of its manufacturing/exports because the finance industry increased demand for the GBP, thus decreasing the competitiveness of the rest of the economy). Because of that it might well be better if “low-income-industry” Westerners had a separate coin to use, which could then be devaluated to better reflect their bargaining position compared to the other industries in the same country.
So while I agree that wage inequality is terrible for social cohesion, antisocial towards the rest of the population, etc., I think it is inadequate to put the blame squarely on ‘upper-class greed’. While they certainly are greedy, they cannot help the fact that Asia has entered the labor market. And while they could certainly have chosen to outsource less, all this would have resulted in was in China etc. learning how to compete (that is, produce high-tech goods) more slowly. In the end, a new balance has to be found, and it can only really be solved by increased demand world-wide. Right now, 30-40% of the world’s population (‘billions’ of Asians) are underconsuming and ‘overproducing’ compared to the rest of the world, and this cannot but have an impact on the rest of us.
Exactly. China is the ultimate paradox of thrift and mercantilist to the nth degree. You might even say a large part of the sharp drop in velocity of money over past decade is their hoarding. Everyone better wake up. I think google and ge are pretty good leading indicators.
“I think it is inadequate to put the blame squarely on ‘upper-class greed’. While they certainly are greedy, they cannot help the fact that Asia has entered the labor market. And while they could certainly have chosen to outsource less, all this would have resulted in was in China etc. learning how to compete (that is, produce high-tech goods) more slowly. In the end, a new balance has to be found, and it can only really be solved by increased demand world-wide.”
Errrr …. more slowly — without the greedy wealthy ruling elite accelerating the process for excessive profit — would have been nice. In the end the “new balance” will require getting rid of all of these elite parasitic slime ball bastards who thrive on the pain and suffering of others and at the same time think that their shit does not stink!
Deception is the strongest political force on the planet.
I’m not trying to argue that the ‘elites’ aren’t greedy, self-absorbed and/or evil and callous, but they’ve always been that way, so something external must’ve influenced their being able to develop these traits more than before. That’s the issue we have to address. A lot of it is reaganomics, as well as a popular belief in the right to free enterprise (not exactly in the constitution, but close), but there are other factors at work as well, such as said increase in the size of the labor force.
(Also, I’d appreciate it if you didn’t respond to single lines)
Money supply? Check out the graphs. Since we left the gold standard money supply went from linear to exponential.
(I’m not a goldbug, but fiat currency requires, uh, non-corrupt regulation or it eventually blows up. It’s just too tempting for short-term power groups to inflate away budget problems. Commodities are always commodities, but paper comes and goes…)
I responded to more than a signal line that appeared to summarize your comments.
Re this;
“I’m not trying to argue that the ‘elites’ aren’t greedy, self-absorbed and/or evil and callous, but they’ve always been that way, so something external must’ve influenced their being able to develop these traits more than before. That’s the issue we have to address. A lot of it is reaganomics, as well as a popular belief in the right to free enterprise (not exactly in the constitution, but close), but there are other factors at work as well, such as said increase in the size of the labor force.”
The new influence is that the externalization’s of humanity (which I believe are deceptions and tools of dominance given that humans are cannibalistic in nature – but leave that aside for now) have increased exponentially, i.e., computers, weapons, surveillance systems, broadcast technology, transportation systems, etc., — all amplifications (leverage) of human cerebral and motor skills — and the wealthy ruling elite have gained by that added leverage. They are fully aware of these externalization’s and the power of them and deploy them far better than the world population as a whole. Their scum bag wealthy elite traits of greed and elitism have also shifted from good old fashioned ‘profit’ driven Vanilla Greed to a more ‘control’ driven Pernicious Greed due to another external factor. They realize that global society has hit the wall of sustainability and so have given their ears to the neocon Full Spectrum Dominance plan of reduced populations and consumption by throwing the world into financial chaos so as to create a ruler and ruled world.
Scum bag Reagan and his commie bashing mentor Lemuel Rickets set the stage for the neocon ideology of Full Spectrum Dominance.
Deception is the strongest political force on the planet.
In a single word “race”.
What most non American can’t comprehend (and what most REAL Mericans can’t admit) is that the social structure of the US was radically changed by the civil rights movement.
This changed EVERYTHING and it all came to a head in the 70’s.
Most white Americans have been voting since the 70’s to cut-off-their-nose-to-spite-their-face in order to “get even with what those people did to this great and glorious nation”.
Regarding unions (specifically). It’s very simple.
Who likes “those people”? Liberals.
Who likes unions? Liberals.
Therefore: Unions, liberals, and “those people” are the same thing.
You figure it out.
Pre 1960’s unions had one very simple task. To organize the peasants against the smart amoral scumbags who WILL own everything in any society. The Republicans were able to take control of the peasants (post 1960’s) by promising to “get even with those people” – which resulted in what we see now. The peasants got exactly what they vote for (but, like all dumbass peasants NOT what they expected).
Than you Sean Hannity.
Shouldn’t you be at a Freedom Concert right now?
Deception is the strongest political force on the planet.
Re: Shouldn’t you be at a Freedom Concert right now?
No time for that. I’ve got gold to sell.
Power is the strongest political force on the planet.
Wow. Another really insightful comment. This thread is loaded to the gills with them today and I am really enjoying it.
I have been there and back on economics. Demand must increase world wide. To that, I fully agree. The only solution is to increase the energy supply vastly making all other sectors affordable. We missed that train by a long shot. Now deflation will do the ugly job for us with the side effect same as the GD, world war. Monetary policy cannot replace s/p balance it always distorts it.
Capital will go to where it is best served. But attempting to integrate East and West in such a time line was madness.
The evolutionary plus side of the current and coming violent chaos is that Central Banking has proven itself obsolete. The coming new paradigm can be explained simply not as top down pyramid but circular in nature. Some of you know exactly what I am talking about. For the rest of the deep intellectual, fractal completion is the circle with each fractal representing patterns of thought. For all of us remember something. After the darkest night comes a new dawn. 2/3rds of us still go on after the next decade. Find methods to be in the 2/3rd camp.
“In the end, a new balance has to be found, and it can only really be solved by increased demand world-wide. Right now, 30-40% of the world’s population (‘billions’ of Asians) are underconsuming and ‘overproducing’ compared to the rest of the world, and this cannot but have an impact on the rest of us.”
Yes, that’s true. I’ve called for carbon taxes (which make transport more expensive, hence limiting outsourcing) several times on this blog.
But a succesful trade war is the only way to produce a globally coordinated response. I am very skeptical that this will happen.
Let me quote my first comment: “The necessary re-balancing, absent global coordination, calls for very high unemployment rates in consumer-of-last-resort countries, including the US and Spain, for an extended period.”
I looked at this last week and did a detailed breakout of the numbers on my blog:
http://www.disequilibria.com/blog/?p=119
When you run the numbers you see it’s not even so much just the top 1%, it’s the top 0.1% that have seen almost all of the gains in share compared to (and at the expense of) everyone else.
Now it’s pretty easy to see why median wages haven’t been rising in a long time. We are slowly redistributing wealth upwards from the middle class (and almost everyone else) to the Top 0.1%.
Why?
This is the costs of the Vietnam War coming home to roost.
Wait until the bills come due
for iraq, afghanistan and that war against Iran that the US is planning on.
Why the endless wars?
The ability of a nation to prosper is a product of the relationship between physical resources, natural law… and ‘net’ social energy (the path resulting from the decisions made by the individuals and groups within it.)
Excessive concentration literally collapses that net energy.
As such concentration is one of a number of missing central metrics in economics.
Decision Technologies: Currencies and the Social Contract
http://culturalengineer.blogspot.com/2010/07/decision-technologies-currencies-and.html
A viable social contract and a viable currency are both dependent on a very difficult to define, but critical metric: the fairness consensus.
What happens when the individuals within a social body come to believe the system is fundamentally unfair?
A collapse of group cohesion
The rise of internal and external predation.
Degradation of the Commons upon which all depend.
Agree with both your comments.
Everything that I’ve read in fields related to social psychology and anthropology offer up some good recent research to support your claims.
‘Fairness’ is a decision criteria that people use to determine choices.
If you want to constrict social relationships, or muck them up, then introduce unfairness into the mix: the system becomes unstable. Instability sucks energy, as the systems attempt to right themselves (using energy less efficiently as they go more and more off-kilter).
In other words, inefficiencies appear and the system becomes self-reinforcing toward incoherence.
I tend to assume that too many economists read too narrowly; a little more environmental studies in their reading lists might alert them to the dangers of any system in which 1% is sucking up 58% of the goodies.
I don’t make this observation from any specific ideology; it’s simply that I can’t recall ever encountering any examples, anywhere, of any system in which 1% could control 58% of the resources, whether ‘mineral, vegetable, or animal’.
Do you have a turd in your pocket?
Does Financial Times Martin Wolf have a turd in his pocket as he writes?
Who is the ‘we’ he keeps referring to?
Does he not really mean ‘the wealthy ruling elite’?
By referring to them as ‘we’ he validates and further empowers them by giving the impression that he, and you, and I, had some say in their decisions. We do not and did not. He is an overly pretentious, powerless twit, who has no right to speak for others, no right to use the word ‘we’ …
“Credit was the means by which we reconciled the social ideals of America with an economic reality that increasingly resembles a “banana republic”. We are making a choice, in how we respond to this crisis, and so far I’d say we are making the wrong choice. We are bailing out creditors and going all personal-responsibility on debtors. We are coddling large institutions of prestige and power, despite their having made allocative errors that would put a Soviet 5-year plan to shame.”
Take the sell out Financial Times Martin Wolf turd out of your pockets and start speaking truthfully. This is not econo-speak, this is simple Orwellian bullshit that needs to be exposed in each and every post.
Election boycotts as a ‘vote of no confidence’ in this crooked government are in order.
Deception is the strongest political force on the planet.
Re: Election boycotts as a ‘vote of no confidence’ in this crooked government are in order.
This can’t happen IF 40% of the population are voting blindly to “get even with those people” (as they have been for the last 40+ years). And another 40% of the population is voting to “Bring Steven Home” (even tho he’s now in Afghanistan) but the same people will blindly vote against “the SARAH MONSTER” this November.
80% of the population are clueless (ie dumbasses).
If you want change you need a political system that allows people to (somehow) identify the sociopaths or (somehow) keep the sociopaths from always “winning it all”.
There is NO WAY to keep the dumbass Americans from not voting. Voting is part of their goofy-ass mythology of America’s greatness.
Thank you Sean Hannity.
Shouldn’t you be at a Freedom Concert right now?
Deception is the strongest political force on the planet.
Re: Shouldn’t you be at a Freedom Concert right now?
No time. Gotta sell that gold.
So the new program was to reduce workers’ bargaining power, both by combating unions, and by tolerating un and underemployment. Rising worker wages had been seen as crucial to greater prosperity; it was quietly abandoned as a policy goal. But this has profound implications. As rising income inequality demonstrates, the benefits of growth accrued substantially to those at the very top. But absent a few wastrels, people with that level of income are not going to spend as much of their income on consumption as those less well off.
Yves – a few quick questions on this point – wouldn’t the U.S. have been considered at full employment from roughly 1995 – 2007 (obviously with some volatility over that time period, including the 2001 recession, but even then, it only peaked at ~6.5% and the participation rate was pretty high throughout). Secondarily, hasn’t consumption as a percent of GDP risen dramatically over the time period to which you’re referring?
The belief that 6.5% means full employment is part of the trick. To quote Nobel Prize-winning economist William Vickrey–
“The last time we had in peace time, what I would consider an acceptable level of employment, was in 1926 when it is estimated that unemployment in terms of the currently used definition was about 1.8 percent for the year as a whole. We have not had anything like that since, except in war time. Unemployment did get down to 1.2 percent at the height of World War II… Currently, there has been in some quarters a move to speak of a rate of between 4 and 6 percent as a “non-inflation-accelerating rate of unemployment” or NIARU, and even to term this the “natural” rate of unemployment in one of the most vicious euphemisms ever coined.”
http://www.allbusiness.com/government/465277-1.html
Good point.
I’d like to add that you can’t sneak ‘healthy’ natural unemployment upwards without technological developments rendering much human labour unnecessary. Increasing productivity should lead to growing need for labour, which should in turn exert upward pressure on wages and employment. I don’t believe keeping wages and employment low during GDP growth and improving productive efficiencies can be achieved minus technological unemployment. (Sure outsourcing is important (though even there where factory work was outsourced to unemployment is often a growing problem), but alone it’s not sufficient to explain this dynamic I feel.)
‘What led to the change in the deal was the staflationary 1970s, which was driven both by commodity prices (most notably the oil crisis) AND labor bargaining power (workers were able to demand that wages keep pace with inflation, which when inflation got beyond a modest level, meant it started to become self-reinforcing).’
I would argue that these manifestations were only symptoms. The root causes lie deeper.
One was the fateful U.S. decision not to demobilize after World War II. U.S. troops still occupy Europe, Japan, Korea, and dozens of other countries. Excessive U.S. ‘defense’ [read ‘overseas empire’] spending has steadily misallocated capital that should be have been invested in productive capacity. The US military empire does not pay for itself. It is a corrosive deadweight drag.
The second root cause was the central reserve role given to the US dollar at the Bretton Woods conference in 1944. This seeming ‘exorbitant privilege’ proved to be a ‘Midas curse.’ It was only natural that the US would succumb to the temptation to run chronic trade deficits, which in turn led to deindustrialization. These baleful trends accelerated after Nixon closed the gold window in August 1971.
Paper money is a system of war finance, so the far-flung, hollowed-out empire and its depreciating scrip currency are mirror-image twins. Evidently this suits the ever-wealthier one-percenters, many of whom enjoy a direct pipeline to zero-percent Federal Reserve ‘free money,’ just fine.
The so-called ‘world’s only superpower’ has managed the anatomically challenging feat of auto-sodomizing itself.
That ending the ruinous foreign wars and shutting down NATO’s anachronistic clown posse are not even on the political agenda, shows that the freefall to ruin is not going to be reversed. The Anglosphere has become a benighted backwater, dependent on the ‘affirmative action’ program of Chinese lending.
Help us — we’re culturally retarded.
Which the peasants enthusiastically supported in the lame hope of “getting even with those welfare queens”.
The smart amoral scumbags rule the earth, the dumbasses don’t even know who the enemy is.
Jim Haygood…
“Anglosphere has become a benighted backwater, dependent on the ‘affirmative action’ program of Chinese lending.”
Do not depend on the kindness, or charity, of creditors…
“CHINESE RATING AGENCY DOWNGRADES USA, UK, GERMANY AND FRANCE”
by Dylan Lobo on Jul 14, 2010 at 15:37
“In what could be seen as a sign that the world has been turned on its head, China’s leading credit rating agency has stripped the UK, the USA, Germany and France of their AAA-ratings.
Dagong Global Credit Rating, has cut the US to AA, while the UK and France are have been cut to AA- with Spain and Italy ranked at A-.
At the same time, Dagong has upgraded China to AA+, putting in it the same category as Germany, Holland and Canada.
The rationale is based on the simple prognosis that the growth potential in China is far greater than in the debt-laden economies of West.
Dagon chairman Guan Jianzhong said: ‘The reason for the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor’s repayment ability.’
Dagong also sees Australia and New Zealand as among the strongest nations, slapping an AAA-rating on them. They are joined by Norway, Denmark, Switzerland and Singapore.”
Remainder of article at link… http://citywire.co.uk/new-model-adviser/chinese-rating-agency-downgrades-uk-usa-germany-and-france/a414523
I’m just a little concerned about how these kinds of statistics are gathered and how they are interpreted. I’m in my mid-fifties and I’ve made a great deal of money over the last 25 years. I started out a lawyer and ended up a banker. I’m not going to make any claims about getting what I deserved or any such nonsense, only that I am certainly in the top 1 percent and have been for some time.
However, I come from nothing. Today I support my parents and give money to my sister because they have very little. That’s not to make the point that I’m generous or anything of the sort, but merely to say that I come from the bottom 20% of income earners from 30 years ago. Is the money I make showing that the top 1 percent is getting 58 cents on every dollar? Or am I someone from the bottom 20% who get’s more than his share of the other 42 cents?
How you treat someone like me really does impact how you interpret those statistics.
Very good point on who is included in the 1% of the population.
I imagine that the total list of the top 1% in 1976, if it could be constructed (which I think it could with reasonable accuracy from tax records etc) would look very different than the list in 2007.
For example I highly doubt that Warren Buffett, Bill Gates, Steve Balllmer Steve Jobs, Larry Ellison, and many others were not on the top 1% list in 1976 but were on the list in 2007.
Also it appears as if the wealth generation in the US is considered a closed system, i.e. the top 1% generated their wealth at the unfair expense of the 99%. However this is certainly not the case since we do know that Microsoft, Intel, Apple, etc. generate over 50% of their revenue from overseas.
i really like this interesting observation by “Paul in TO”, which his ending remark gives me a lot to think about.
for me though, i just really want to know what is fair and just- something which the common man can relate to.
I guess that’s the problem isnt it? Every nation plays by its own rules and then hope that the “free markets” can solve things as a whole, thinking that all our actions should fit pretty well into the gaussian curve.
it would be foolish to think that law can exists without guns backing it… and unfortunately, the US still has the biggest and baddest guns in the world, so you guys still call the shots- for now anyway.
if only we could have the SAME economic rules and regulations for every country… but i fear the amount of guns needed to enforce the laws!
then again, the stupid global monetary system still needs some major tweaking… the problem is, i’ve read quite a bit and no one seems to have a good idea of what to change.
that’s enough blabbering.
I guess what I was really saying was that although I’m in the top 1% of income, I really view myself as an example of how the system works and provides opportunity for those who start with nothing. I’m not sure how many others fit into this category, but while I suspect I add fuel to the statistics, my example — especially if reflective of the experience of others — actually refutes what is being derived from those same statistics.
you are also right Paul, because it made me realize that there are also people who have dropped out of the 1%… i guess this is obscured by my own ‘sensationalizing’ of the article when i read it; although i’ve been trying to do so, i definitely see a need to be even more aware of my own biases and keep them in check.
having said that, i think there is an ideological battle going on; are we kidding ourselves if we think that the rest of the population (the 80% in the 80-20 rule) can generate more wealth than then top 20%? After all, this is what the data has been showing right? So why should we bother?
I think the key issue has been well explained by Yves in her book, which I’ve recently finished; that the wealthy has a tendency to prey on the 80% to generate more wealth, coupled with faulty economics.
I do not claim to know much about businesses, but I think there’s a sorry state of affairs when it comes to “humility” in the top echelons of society and that clearly needs to be corrected… whether the govt should take charge of this I do not know, but that is clearly a tall order when policymakers make their decisions with suggestions coming from the “predatory wealthy”.
In a society that has a winner-takes-all tendency, there is an inclination for the winners to go against the old saying, “Men may have different statuses, but surely no man’s integrity can be deemed as more important than the other.”
I guess this is another perspective on the matter today; that the common folk sees people with no integrity running the show over themselves, who have by their standards, led a honest life?
That’s enough blabbering! thanks paul!
Excellent post Yves…
Let’s enter the way-back machine for a moment to examine what Yves described as ‘The Deal’…and why The Deal is breaking down.
One aspect of America’s success after WW2 was the fact that almost all manufacturing plant facilities in the producing and exporting countries had been bombed to smithereens during the war. The US was the sole manufacturer left intact and it took many years and a great deal of financial help from the US to the economies of Europe, Japan and England to enable them to return to competitive large exporter status. Anecdotally, I remember very well seeing the first VW auto dealership in my home town in 1960…and they were not selling like hot cakes, at least not for the first few years after introduction.
So, I conclude that America had a ‘grace period’ of at minimum 20 years after WW2 (1945 – 1965) with little competition from foreign manufacturers on American soil.
During this same grace period America was producing at full or near full capacity and was selling everything domestically and abroad that it produced. Boom time USA, iow.
During the same 20 year period, and to this day, America, and capitalism, was engaged in a cold war…and some hot wars, with Russia and communism. Part of the cold war was propaganda and this is where America’s workers did very well. America put on display to the world the American Way Of Life. A home, appliances, autos, blossoming infrastructure, awsome military and economic might, world reserve currency, good jobs where mom could take care of the home and kids while dad made enough to afford a good life style for the family. All of this was accomplished while the very high marginal income tax rates put in place by FDR were declining, but not by much. The wealthy were paying as much as 96% of their incomes to the Federal Government. Is it any wonder that there was much less disparity between the factory worker take home pay and the CEO take home pay?
Since communism has declined sharply as a threat to the capatialist system (semi communism in China aside), the American Way Of Life has declined in kind. American oligarchs no longer need fear the communist threat and no longer need The American Way Of Life to hold up as a sparkling contrast to a Russia where the waiting list for an auto was 10 years and new washing machines needed repair before they would function.
America now faces extreme manufacturing competition from abroad while still needing a large military to protect the far flung oil/gas fields abroad which America and other soverigns are competing for and dependent upon. Meanwhile, the marginal income tax rate for oligarchs has declined precipitously.
Viewed from this perspective I can only conclude that the loss of Russia and communism as a competitor has been a disaster for the American middle class.
I am not a Marxist or communist but I believe that Marx, like most people and economists, got some things right…Besides, I think it is good for all of us to understand what competing histories and economies have to say for themselves, and not only what various government organs have to say about them.
‘Capitalism can stimulate considerable growth because the capitalist can, and has an incentive to, reinvest profits in new technologies and capital equipment. Marx considered the capitalist class to be the most revolutionary in history, because it constantly improved the means of production. But Marx argued that capitalism was prone to periodic crises. He suggested that over time, capitalists would invest more and more in new technologies, and less and less in labor. Since Marx believed that surplus value appropriated from labor is the source of profits, he concluded that the rate of profit would fall even as the economy grew. When the rate of profit falls below a certain point, the result would be a recession or depression in which certain sectors of the economy would collapse. Marx thought that during such an economic crisis the price of labor would also fall, and eventually make possible the investment in new technologies and the growth of new sectors of the economy.
Marx believed that increasingly severe crises would punctuate this cycle of growth, collapse, and more growth. Moreover, he believed that in the long-term this process would necessarily enrich and empower the capitalist (oligarchs) class and impoverish the workers.
According to Marx, capitalists, take advantage of the difference between the labor market and the market for whatever commodity the capitalist can produce. Marx observed that in practically every successful industry input unit-costs are lower than output unit-prices. Marx called the difference “surplus value” and argued that this surplus value had its source in surplus labour, the difference between what it costs to keep workers alive and what they can produce.’
Marx famously modeled capitalism in extreme detail several times using the best assumptions (no misallocation of resources or fraud) and convinced himself and many others that capitalism is doomed to failure.
I don’t think that total failure of capitalism is possible…because, a wonderful feature of capitalism is that it can clear the decks of bad debt (when left to function as it’s supposed to) and, in effect, get a do-over.
“a wonderful feature of capitalism is that it can clear the decks of bad debt (when left to function as it’s supposed to) and, in effect, get a do-over.”
Boy, that’s hopeful. The reality is that lots of financial institutions are hiding a lot of debt, besides loads of bad mortgages, and don’t want to come clean.
That’s a side issue. The real issue is that the economy has been increasingly rigged by the wealthy – illegally and immorally – to enrich the wealthy at the expense of the general population and to the detriment of the economy itself. And it’s not just the US.
The sad, sad truth is that the economy isn’t going to recover until serious structural changes are made which ensure that people who work for a living can profit from their own labor and not just feed the greed of the rich. That’s very unlikely to happen because the rich like things the way they are, and they have political control.
It hasn’t even gotten ugly yet.
Walter Map…
You failed to notice that I did not say ‘the US capitalist economy will get a do-over’. Nor did I say the US Government will get a do-over. America will still be a continent although it might be called by some other name but even if American Capitalism collapses it will be followed by barter and capitalism springs from barter economies…unless it is intentionally suppressed…which is what we are now witnessing in America and around the world.
At any rate, capitalism will get a do-over somewhere because it has been around, in various forms, since the Sumerians ruled in the vicinity of Persia…and, perhaps longer.
Bates’s summary of U.S. manufacturing dominance in the postwar period is very good. This is where I lose the thread, though:
‘America now faces extreme manufacturing competition from abroad while still needing a large military to protect the far flung oil/gas fields abroad.’
The tens of thousands of US troops in Japan, Korea and Germany aren’t protecting oil fields. The price of crude quadrupled in the four years after the Iraq invasion.
Crude oil producers need the income from selling their oil, and will find a way to sell it. The U.S. doesn’t need to protect oil fields, any more than I need to personally hire armed guards to protect the supermarket. Groceries are going to be for sale with or without my armed intervention.
By the way, the current U.S. sanctions on Iran’s petroleum industry will reduce oil production. These unilateral sanctions aren’t the behavior of a country that is seriously concerned about an insufficient energy supply, as it works to restrict it.
Jim Haygood
“Crude oil producers need the income from selling their oil, and will find a way to sell it. The U.S. doesn’t need to protect oil fields, any more than I need to personally hire armed guards to protect the supermarket. Groceries are going to be for sale with or without my armed intervention.”
Perhaps you are not aware that the US long ago made a commitment to Saudia Arabia…Price your oil in dollars and we will provide military protection for your royal family.
If mid east oil stops flowing into the US you will definitely find less groceries on the store’s shelves.
The US has mutual cooperation agreements with many contries, including those that you named. I will ask you a question: How long would Japan remain in the US sphere of influence without US troops there? How long would Germany remain in the US sphere of influence without American Troops present there?
The rich CREATE the money, it’s as simple as that.
Did ya think they were gonna share it?
The ONLY reform that will make any difference is monetary reform.
The government creates the nation’s money.
The Money System Common
Only the Congress assembled shall…
We don’t need a social revolution to overturn these facts.
Democratize the money system.
It’s all laid out here.
http://www.economicstability.org/history/a-program-for-monetary-reform-the-1939-document
Open the WORD Doc.
Supported by over 400 economists at the time.
That would include Graham, Fisher, Douglas, Whittlesey and Friedman, among others.
It’s all there.
Waiting for the NCers to discover the way out of this mess.
Thanks.
Friedman??? Don’t hold your breath waiting for Friedman to lead anyone anywhere. He is another one that is a fair scribbler but is otherwise clueless. LOL
There’s the nobility, the vassals, and the peasants. Anybody in MSM is probably a vassal.
“….and going all personal-responsibility on debtors.” This statement doesn’t bear scrutiny. Mortgage debt is certainly the most obvious debt that millions are struggling with. The non-recourse nature of most mortgages comprehensively relieves much of any practical “personal-responsibility” burden of this debt. If it is too much, let it go. Foreclosure is undoubtedly a stressful process, but for most people it terminates any obligation to pay back what was borrowed and spent. Additionally, the Federal government has waived forebearance income tax requirements, although no all states have done the same. Non-recourse lending is contractual in most states and it serves a good purpose and mostly only causes problems for lenders when their underwriting was lousy. Forebearance tax relief is a tremendous benefit that puts hugely benefits debtors notwithstanding any issues of personal responsibility considerations. Sure blog comments can be pretty harsh, but when you concentrate on how mortgage debt is actually treated (in most cases) we are definitely not overburdening folks in the name of personal responsibility on a practical basis.
Reset button -‘Free Entry’
It truly is a startling fact. I’ve also heard of an estimate that the richest 2 percent of Americans possess more wealth than the other 98% combined.
Think about it in a less abstract manner: If we replaced “wealth” of the populace with its height, it would be as though the richest 2% stood at a commanding height of almost 140 feet, and the rest came in at a diminutive 2 feet. If we reduced the super rich down to a human size we can appreciate, say 6 feet tall, then the rest of us would barely reach one single measly inch. We wouldn’t make it past the soles of their shoes.
We’ve all known there is a wealth gap in this country. Many don’t mind it though. They simply want the opportunity to succeed, and to reach to the stars. Many admire the courage of those who took the risks to get to the top, knowing that if they failed, they’d have to suffer the consequences.
But this absurd concentration of wealth is not a part of the “American Dream” Narrative. Springsteen’s line from The River comes to mind: “Is a dream a lie if it don’t come true, or is it something worse?”
But what is the alternative? Should the super rich pay a special “Super Rich Tax” and let the government decide how this largess should be spent? This option is not appealing. The government would waste the money and create a whole new set of problems. Then, it would come to the rest of us and demand more money to clean up the mess that it just created.
It seems as if we’re left with this Morton’s Fork: Grotesque Greed or a Grotesque Government. And this is not an exaggeration.
We have a cabal of Super-Rich, controlling a vastly disproportionate share of this country’s wealth. We have a government incapable of putting itself to good use. We have people on the Left who claim that such a mass concentration of wealth in so few people is unfair, and should be more widely distributed amongst the rest. We have people on the Right who claim that our government is a bloated bureaucracy that has lost the right to meddle in the affairs of individuals and private enterprises.
Beneath the crossfire, under the cover of light, look at what unfolds:
The government pledges our tax dollars to bail out the financial institutions that managed engineer the most reckless and irresponsible expansion of bank lending since the Tulip Bubble of Holland in the 1600s. All the while, these same financial institutions have enjoyed the most profitable boom that any industry has ever experienced in our nation’s history. In these “difficult” times, Wall Street manages to squeak by and pay itself over $40 billion in bonus money—on top of its already generous salaries.
Big Auto Makers have announced that they are cutting health benefits for retired workers over 65. If this was a one-off event, the travesty would be limited to those few auto retirees. Unfortunately, this type of cut is at the cutting edge of a new trend. It is widely expected that many corporations and local governments will follow suit.
Meanwhile, we’re subject to a tax code so voluminous (7500 pages!) and complex that even the IRS doesn’t understand it. Future generations will not be able to believe we actually were saddled with such an abomination. They’ll look at us in the same way that we look back at peasants in the 1700s who never bathed, and were treated for illnesses by blood-letting.]
And what do we get for our tax-prep troubles?
Here’s an example: A few years ago, the Treasury issued a report stating that that “$25 billion is missing”. A further investigation revealed: “The government knows that $25 billion was spent by someone, somewhere, on something, but auditors still do not know who spent it, where it was spent, or on what it was spent.” Since chronicling government waste would take volumes of books, I’ll just give one more: A recent audit revealed that the Defense Department purchased and then left unused approximately 270,000 commercial airline tickets at a total cost of $100 million. Even worse, the Pentagon never bothered to get a refund for these fully refundable tickets.
OK, so you need a break from the obscene greed and incompetence. What better way to escape it than to take your son to a professional ball game? How about a hot date to the next big concert?
If you don’t mind nose-bleed seats, you’ll spend a minimum of $250.00—and this is if you’re frugal. If you want to experience the event in better seats, you’ll spend $500-$1,000—easily. The average person has been priced out of regularly attending sporting events or concerts. Be prepared, instead, to enjoy them in a rapidly depreciating house, while consuming rapidly appreciating corn chips and soda.
There is no escape….
We have a collapsing health-care system; evaporating social security benefits; and disappearing pension plans. These are facts and this isn’t “make believe”.
And it’s not as if these things are simply happening BEFORE us; no, they are happening TO us.
We have a government that cannot account for our hard-earned money, nor can it pave our roads. Yet, it manages to bail out a cadre of the super-rich. Additionally, we have a private enterprise that cannot manage its business properly, reneges on its promises, while demanding “conservative principles” when times are good (so that all gains are private) and “liberal principles” when times are tough (so that all losses are public).
Our government that lacks competence, and our private enterprises that lack integrity. It doesn’t matter if you’re on the Left or the Right: Our institutions are failing us.
Despite all this, many of us are happy with our lot in life. We make-do, while looking forward to the opportunity of improvement. We don’t resent the fact that in wealth terms, we’re no taller than the soles of the shoes of the rich. We know there are more important things “that money can’t buy”. As a result, we’ve been able to live with the reality of a bloated, bureaucratic government and an astronomical wealth gap.
But don’t push it. We can make-do with crumbs…not excrement.
Our “leaders” may wake up soon to a populace that’s awoken from a slumber of its own. Our “leaders” will look down upon an angry 90%, where the ideological gap has disappeared. At first, they won’t be too concerned, though, because they’ll resort to their old stand-bys. Some of them will say, “Can you believe California is going to allow Gay Marriage? This is terrible! Oh yeah, and don’t forget: Liberals are the cause of ALL your problems.” Others will say, “Did you know that they are threatening to revoke gay marriage in California? This is terrible! Always remember: Conservatives are the cause of ALL your problems.”
Maybe, just maybe 270 million people are going to finally stand up and say: “Not today.”
Good to see you pondering along these lines Dan, but I think the market/state dichotomy you follow is a false one — they are two parts of one system, and right now the system itself is out of date. The ideologies, philosophies and sundry assumptions that paved the way to this point in history cannot take us any further. Until we address, deeply and impartially, core assumptions about matters such as money and its creation; how real wealth is produced, sustained and distributed; scarcity and abundance; competition/cooperation and others, discussions about whether the market or the state should be at the wheel are, in my view, wasted effort. We need to redesign the car itself, which will yield a very different market/state relationship indeed.
Re: deeply and impartially,
!!!
Is this an intellectual exercise done at a dinner party (with a good Chardonnay)?!
The government / system we have now didn’t happen by accident. The peasants voted for it. The nobility sponsored it. The vassals worked to make it happen.
It’s the only system possible (without some extraordinary external circumstances).
Good post!
I like the giant ‘size’ metaphor but your units of analysis here are the stumbling block for me;
“We have a cabal of Super-Rich, controlling a vastly disproportionate share of this country’s wealth. We have a government incapable of putting itself to good use. We have people on the Left who claim that such a mass concentration of wealth in so few people is unfair, and should be more widely distributed amongst the rest. We have people on the Right who claim that our government is a bloated bureaucracy that has lost the right to meddle in the affairs of individuals and private enterprises.
The cabal of Super Rich control not only “a vastly disproportionate share of this country’s wealth”, but they also own and control the government, and the illusionary ‘left’ and the ‘right’, and so they “meddle in the affairs of individuals and private enterprises” with so many unchallenged prohibitive and divisive schemes.
People have been lulled into the false belief that going to the polls once every two or four years after watching a little well orchestrated TV along the way is sufficient to have good government. It is not. Never was and never will be. Good government is a twenty four seven process that requires daily attention by all citizens.
Creating and forming a government that is truly responsive to the will of the people is job one. It will have to be done outside the present too corrupt framework.
When the student is ready the master appears. Be ready with your lesson plans.
Deception is the strongest political force on the planet.
Yves,
this post has somehow triggered my “creativity” so I have decided to systematize my thoughts and share them with you… whatever their intrinsic value or novelty.
The conflict between “rich and poor” or “capitalists and workers” or whatever you like to call them is one of the leitmotivs behind most of current discussions. We might call this “social imbalances”.
Imbalances among nations (or regions) are the other factor we must deal with. Though basically different, these two factors have become increasingly interconnected thanks to international commerce and globalization, and as a consequence we have a system with two non-independent equations to solve.
Governments are asked to deal with these two imbalances… but the suggested recipe varies depending on the source, usually opposite strategies are suggested and people fight for their thesis like Catholics and Protestants during XVI century…
Speaking of internal imbalances, when workers prevail their wages tend to significantly increase year after year, which is nice, but there is at least one negative consequence: increasing salaries lead to inflation. This happens because it’s faster for a free market to react to the stimulus (raise of salaries) raising prices than offering new or better goods. The relation to external imbalances is the loss of competitiveness, which in this context forces to currency devaluation and/or protectionism to keep a reasonable trade balance.
This is obviously a very unstable solution, since you have to keep endlessly high inflation and high devaluation.
On the other hand, when capitalists prevail the capital increases year after year, and so do the level of investment, which is nice again, but the negative consequence is that such investments are in turn increasingly focused on purely financial speculations. This happens because it’s faster to get returns by such schemes than from “real economy” when capitalist’s money is abundant (and worker’s is scarce). Now, financial speculations produce bubbles, which can lead first to “localized inflation” as in the case of the house-bubble and then to “localized deindustrialization” (when the bubble go bust, this was especially the case for the dot.com bubble).
Internally, both outcomes are destructive for the workers, which loose both their work and their purchasing power, externally, it means that some competitor will gain industrial ground. To keep this path, internal and external debt must be issued, so we have again an unstable solution.
In time, and in a globalized world, capitals will flow towards countries with a “capitalists prevail” situation and/or workers will immigrate in “workers prevail” countries, smoothing the imbalances. Will this really provide a stable solution? At least, a bit more stable solution?
And finally: will we be all dead by that time?
So what replaces the global free market? How does a neo-mercantilist world order develop? Or is it something else?
The last one collapsed in the Great War. But I’d argue that the origins of that conflict were not economic, but political, social and perhaps even cultural. In any event, the resulting economic regime was derivative of that conflict, not illustrative of what we’re currently undergoing–which I’d say is the internal contradictions of a form of capitalism playing out.
“Moreover, much of America seems blithely unaware of our diminished role in the world.”
Bingo.
One Tea Party mantra for example: “We want our country back.” (or We want the 1950s or 1980s back — i.e. what can never happen again)
What is the global outcome of this whole grand impass?
Another world war, of course, is one probable outcome. Many lesser variations are possible.
Re: We want our country back.
The “unstated” full sentence is:
We want our country back from those people. The old-fart whites still haven’t gotten over the civil-rights movement.
When the peasants were successfully split over the civil-rights movement, the country was permanently lost to the nobility. And there’s no way back until the peasants are hungry again.
Keeping people divided with artificial distinctions such as black/white, liberal/conservative, Democrat/Republican is how your ‘nobility’ rules. Divide and conquer.
It must get tiring, bounding at full speed inside their custom-fitted ideological squirrel cage.
Re: It must get tiring…
While I’m not all that smart – over the years – I have been working on perfecting my “amoral scummyness”; and as a result I think a natural “enlightened” smart amoral scumbag might get lots of pleasure from manipulating masses of people into working against their own self-interest and THEN laughing at them.
I can kinda picture a group of PhD fratboys (from the finest economics universities) doing so.
For 99.9% of the country, they have suffered from (1) the enormous growth in world populations since the end of WW2 and (2) bringing back on line of world wide manufacturing ability during WW2.
On the other hand .1% of the population were able to increase their earnings during this period.
So, if you took the earnings and net worth of the .1% (and I am not in this group) and spread it around evenly to the other 99.9% you would barely see an increase in earnings and the increase in net worth would probably allow everyone to buy a car.
Ishmael,
You KNOW better than that, or I presume you do. The US now has the most unequal income distribution among advanced economies, Latin American levels.
And as we’ve discussed here, unequal income distributions have major impacts not merely on living standards of the unwashed, but on all kinds of social indicators. It hurts the life expectancy even of the wealthy, is associated with much greater crime levels, etc. Pretty much every social wellbeing indicator is worse in highly unequal societies.
Yves wrote: “What led to the change in the deal was the staflationary 1970, which was driven both by a commodity prices (most notably the oil crisis) AND labor baragaining power (workers were able to demand that wages keep pace with inflation, which when inflation got beyond a modest level, meant it started to become self-reinforcing).”
Younger readers may not fully appreciate your point here. This is a link to historical oil prices per barrel:
http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp
The price of oil hovered between $20 and $25 per barrel from 1946 to 1973. (Adjusted for inflation) That price jumped to $41 (40% increase) in 1974 and peaked at $98 in 1980.
The effects of that increase in price permeated every niche in our economy. Any product requiring oil for production or transportation was dramatically affected.
Workers had some bargaining power and wages rose.
Fighting inflation became the major political goal during that period. (See President Ford’s “WIN” compaign.) Paul Voucker broke the inflationary pressures by raising interest rates and forcing the economy into a deep recession. The price of oil receded to about $28 dollars by 1986.
President Reagan broke the air traffic controllers union, signaling industry that breaking unions was possible. I saw companies hiring replacement workers, something which I had never seen before. After that American workers did not have the same bargaining power.
If you want to understand the stagflation of the late 1970s, the cause was oil, oil, and oil.
But breaking the unions was only possible because of race race race.
Commodity prices are a symptom. The cause of the oil shock was flooding the world with dollars, then making them unredeemable. The numeraire lost its value because its quantity increased.
I agree that the workers should get a piece of the productivity, but how much of it? ESOP is a great system, but requires that the owner is willing to give up complete control and keep it a private company.
I think that if the worker gets to play in the productivity, the worker must also play in the losses. I think this is why the workers have never wanted to play in the gains by starting their own firms. The workers that are risk adverse, take a pay check. The workers that are risk tolerant, start their own firms. That is why we have small business in my opinion.
I think that it would be a grave mistake to give workers extras in good times and then not cut them back in bad times, which is exactly what union’s cause. This creates a situation where the whole business fails and everyone is worse off.
To the blame the ultra-rich crowd… I think that they do control way too much, but what is the system to stop that?
Progressive Tax system, or put Fed under control.
But, it is would be the same as the death sentence to them; ruling class won’t ever do anything like that. This is simply situation known as a class warfare.
Re: This is simply situation known as a class warfare.
Yes, and pre civil-rights movement there was a social structure that addressed this problem. Unions manipulated their peasants against the nobility extracting wage increases – using the usual stories that the peasants could understand.
The civil-rights movement allowed the nobility to split the peasants against each other with the result the union are broken.
Life is about screwing people to get an advantage (which any smart amoral scumbag intuitively knows). The nobility is supposed to screw the peasants. The peasants NOW have no way to screw back.
It turn to be out in that way. Does has to be in that way is difficult question and dilemma! Maybe Einstein has answer on that question.
http://monthlyreview.org/598einstein.php
That’s area of the “murky water” called a class conscience. That’s why we have for example: race or nation, ethnic/sectarian violence ultimately warfare state both, internally and externally. This fictional categories introduced and invented by ruling elites around the world with single one objective: holding the power and exploitation of the labor and national wealth.
“When will it all stop? It will not stop until we act upon one simple axiom: that the power system continues only so long as individuals want it to continue, and it will continue only so long as individuals try to get something for nothing. The day when a majority of individuals declares or acts as if it wants nothing from government, declares it will look after its own welfare and interests, then on that day power elites are doomed. The attraction to “go along” with power elites is the attraction of something for nothing. That is the bait. The Establishment always offers something for nothing; but the something is taken from someone else, as taxes or plunder, and awarded elsewhere in exchange for political support.”
Antony C. Sutton, Wall Street and the Rise of Hitler
Re: That is the bait.
I suspect it’s worse than you think.
Perhaps, human social organizations with lots of loot naturally end-up with the sociopaths running it. In which case America is reflecting a perfect natural ecosystem for humanity.
If it IS evolutionary, then intellectuals can talk all they want about a “new social order”, but it ain’t gonna happen.
Robert Reich had a good article in The Nation on this-
http://www.thenation.com/article/36893/unjust-spoils
dear posters
‘How the economy was lost’
Paul Craig Roberts
nothing else falks
best regards from Barcelona
“policy-makers retreated from full employment as a goal, since it allows workers to demand higher wages, which in turn causes inflation. Reducing worker bargaining power led to disinflation, lower interest rates led to rising asset prices, which in combination with financial innovation, created an until-recently reinforcing cycle whereby rising asset prices funded consumption. Palley further contended that this was inherently a self-limiting paradigm, and we had reached the end of the road.”
this is exactly what happened. and this is why Obama won’t spend gov’t money creating jobs for the unemployed. we are trapped right where they wanted us.
The experience of the’60’s scared the elite in the US
As a result they consolidated their power, broke the unions,
and engaged in a new colonialism to secure oil
the movement from democratic republic to
empire governed by mandarins is in place
the idea that minorities and the underclass have equal vote has been off the table for quite a while….
Bush v Gore formalised the process of disenfranchement.
that would be
“disenfranchisement”..
sorry
Re: the idea that minorities and the underclass have equal vote has been off the table for quite a while…
And, of course, how many of the peasants don’t understand they are the underclass as long as they’ve got “those people” to despise.
Propaganda much?
You start with wage disparities and state It isn’t merely stunning, it’s destructive. But give no reason why this is so. It might seem odd to your way of thinking, but someone making much, much, much more money than I have over the past decade has NEVER negatively affected my life.
You continue… We DID afford it which is, using your terms, simplistic and misleading.
We afforded social spending based upon a ponzy scheme where more people paid in than those who took out (basically the young pay, the old take).
Changes in educational levels are known to reduce children per family so as time moved forward, fewer and fewer were paying in and more and more people were taking out. This is unsustainable.
Secondarily, the idea that large trade flows over time produce destabilizing international capital flows is not only simplistic, but wrong.
Capital flows reversed (capital was/is flowing from developing countries to developed countries instead of the other way around) because the governments in most of those developing countries make it very difficult for true investment to happen. When an arbitrary decision by a local political boss can change my tax rate by 100% and I have no recourse…. well, let’s just say I won’t be setting up a retail shop in China anytime soon. Think about all the businesses that were simply shut down by government fiat when they displaced 100 million people to build their Olympic Village. NBER has research to back this assertion up.
Lastly, Moreover, much of America seems blithely unaware of our diminished role in the world. means what exactly? Is this our foreign policy role? Our economic role? Our military role? All of them? None of them?
It might be something you believe, but it has nothing to do with the overall post and you have failed to support it with any evidence at all, not that it differs from the rest all that much.
Carmen Reinhart and Kenneth Rogoff have a dataset extending over 800 years that shows a strong correlation between high levels of international capital flows and financial crises. This isn’t even controversial at this point, but you choose to call it propaganda.
There is also a robust literature, I’ve linked to it on previous posts, on how highly unequal societies suffer worse outcomes on virtually every metric, INCLUDING LIFE EXPECTANCY, EVEN AMONG THE RICH.
Your “argument” about social transfers is simple hatred. Good luck with that.
The discussion brings to mind the wonderful animation of David Harvey’s talk done by theRSA
Sorry if this has already been covered.
I think ‘our’ military role is expected to increase not decrease. ASEAN countries seem to want the US military to contain China and Chinese expansion into their domestic turfs. The dispute in Thailand is but a small part of this, with domestic capital interests versus Chinese capital interests.
SE Asian waterways are going to become very militarized in sort order.
We get what we pay for, including the wealthy.
But sadly, as outlined in this article – with a conclusion completely I agree with – it’s a penny-wise pound-foolish policy; even the wealthy end up paying dearly for this kind of shortsightedness.
The wealthy in this scenario end up paying by having to pay for securing their families and property with guards and security systems. Wouldn’t it be better for the wealthy to pay their fair share of taxes in a system of progressive taxation, where all citizens enjoy a good quality of life? By making sure all citizens have the basics of life, the wealthy don’t have to spend as much locking themselves up in gated communities, etc. – less poverty means less crime which equals less need to worry about spending their money securing their wealth. It’s literally a win-win proposition.
The rich and wealthy end up paying one way or another – either with taxes or security guards.
Of course, there are a million other reasons why the increasing disparity of wealth and poverty is a bad thing.
Much more than the weakening of labor has occurred since the 1970s. Today’s “industrial policy” favors capital over labor, the financial economy over the real economy, multinational firms over domestic firms, exploitation of the environment and the commons over conservation and protection, sellers over buyers, oligopolies and big firms with market power over multiple small participants, short term results over long term, speculation over investment, M&A and other balance sheet transactions over operational excellence and organic growth, lower incomes and benefits for sole performers instead of higher, entrenched interests over innovators, open borders instead of tariffs and immigration controls, redistribution upward instead of downward, putting elected officials more in the thrall of the highest bidders instead of less.
Some of us have been writing on this for a while. 30 years of flat wages, justified by our elites who argued any wage growth was inflationary. A maldistribution of wealth upward. The creation of the paper economy and a succession of bubbles and financial scandals meant to provide outlets for all the extra investment money the rich were accumulating. Wealth destruction via the scandals and bubbles dumped back on middle and lower income Americans, either as taxpayers or via 401K, mutual or pension fund losses.
I harp on this a lot but all this did not just happen. It tracked with the growing corruption of our political system. Now that system is totally corrupt. There is no one in the White House or among the 535 members of Congress who truly represent ordinary Americans. You have only to look at the votes in the healthcare debate for confirmation of this. We need to understand that we have a series of systemic crises that touch every part of our elite structure of governance, finance, business, politics, academia, and media. We are not going to get out of this with piecemeal fixes here and there. We are going to have to have a complete overhaul. I do not even see the grounds for that happening before another collapse.
Re: We are going to have to have a complete overhaul.
A complete overhaul initiated by (?):
* The elite (nobility)? Why would they?
* The peasants? How could they – either from the perspective of the American peasants history of worshiping the same elite (of course, worshiping the Red/Blue team of the rule Republicrat Party) – or from the perspective of their education level (would we really want a Palin / Obama Constitution?)
Nope, the system we have is the only one possible because it’s the only natural one: dumbasses manipulated by the smart amoral scumbags.
Hey, Sean Hannity, that’s what Mussolini said — “The peasants? How could they?” — here’s a picture of him with his smoking hot mistress …
http://4.bp.blogspot.com/_YYMeAu4i7gA/SssFZe4Z0_I/AAAAAAAAFxs/Fz_d31AEETM/s1600-h/mussolini-dead-mistress-milan-may-1945.jpg
Deception is the strongest political force on the planet.
I have also written on this before. We are in a pre-revolutionary period. We have had at least a half a dozen of these in our history. In the past, there was always some leader, faction of our elites, or a broad social movement to push the elites overall into compromise and reform. This often came at a very high price as witness the Civil War and the Great Depression. But this time around, there is no leader or social movement and our elites have shown themselves irredeemable. The system is unsustainable and our elites can’t change or reform. Meanwhile pressure, still diffuse and unfocused, is building up from below. Economically, the result of this dynamic will be collapse and depression. Politically, we will move from pre-revolution to revolution. As things currently stand and in the absence of any alternative leaderships, it is this that will sweep most of the elites and corps from power. But revolutions are highly destructive. They destroy far more than the bad guys. They are seldom led by reformers and can lead to reaction, civil strife, indeed civil war, and dictatorship. It is why I have been calling since before Obama’s election for the creation of a true reformist movenment or party to be the vehicle of populist anger, but also their hope. To be honest this has fallen on deaf ears even among most progressives. There are really very, very few people who realize not only that it can happen here but the odds are that it will happen here. The events of the last 30 years should have shown us that there is nothing inherently exceptional about us, that there is no manifest destiny, that insulates, immunizes, and exempts us from the same kind of historical and revolutionary processes that we have seen play out many times before. Corrupt, out of touch elites, a fearful and impoverished populace, economic collapse, it is not hard to see in what direction this all leads.
I actually think a military coup is more likely, perhaps excused by some kind of not very threatening “peasants’ revolt” somewhere in the US.
This would be the old South American pattern, dear and familiar to the US ruling class. Some kind of junta, followed by a “return to democracy” of a very regulated and repressive kind, with any sort of populist or popular movement ruled out. Final abandonment of any ritual acknowledgement of human rights or citizens’ rights, deferential courts and lots and lots of police and paramilitaries.
Hispanics in the US would, for once, feel quite at home.
Great, hopeful post, Hugh. Not all ears are deaf; we hear you. You’re a pillar of the new revolution. Is 2012 too soon?
Great article and even better with all of the good comments.
I think that one of the promises of economics was to allow for some rational basis for economic policy.
Unfortunately I think it has devolved into something where the measurements become the reality rather than being seen as what they are…imperfect measurements of an underlying reality.
The problem is that the stakes are so high that economic talk everything devolves into an ideological generalization. Free markets! No! Social welfare!
The free marketers have a point in a way. Certainly properly set up markets are the best way to properly allocate resources. But they skip over the “properly regulated” and have adopted the completely euphemistic “free’ moniker. The “free” somehow then becomes the focus which then gets transmuted into all sorts of ideologically charged generalizations.
Economics is simply about equilibrium points. The way the market works to establish that equilibrium is a function of the regulations adopted. With due regard to our “free market fundamentalists” who believe that government should melt away and the “market” will somehow take over, he bottom line is that Government really regulates EVERYTHING. At a fundamental level, it establishes rules that must be followed. It enforce contracts (or not). Yes, ideally, we should establish “markets” where the need for government enforcement is minimal (from an efficiency point of view), but that ignores the fact that often markets are not good with dealing with certain kinds of externalities. Nor, as we are now learning, are markets necessarily very good at pricing long term risk, or the risk of rare but clearly possible event.
This is not an “attack” on markets or the truth that “they” work, but simply a call for better understanding of how they work and possibly their limitation.
It is as if now that we understand the law of gravity, we should be able to fly! Of course in some way, that knowledge did allow us to build a plane but obviously a bit more is involved.Market fundamentalists are no different. They constantly tell us that we know how to fly only to send us running off the end of a cliff yet again.
Great comments!
Some here mentioned an impending revolution. Well, while I don’t rule that out, I tend to think a new civil war is more likely. And I think the primary cause may be the same as for the first: the desire of some otherwise potentially successful states such as California to want to leave the Union, in order to divorce themselves from thie current ruinous federal policy.
I also expect other, primarily coastal states to wish to split from the more backward non-coastal ones (coincidentally, also home of most teapotters).
I see this as an ironic reverse of the first Civil War, with the more developed states wishing to leave the backward ones they fought so hard to keep in this shotgun marriage that just isn’t working anymore.
Finally, while China and others mey seem relevant, it is important to remember that great empires have more often fallen from within. Similarly, it is aldo important to accept that while the 80% of voting ignoramuses in this country (that also, coincidentally live in the aforementioned teabagger states) may be able to control public discourse and elections for a while, there is only so long and so far you can get on stupididy.
Vinny
:)
Early in the last great depression, Marriner Eccles saw clearly that income concentration had caused excess savings, investment, infrastructure, and capital stock (all relative to final demand). But a few years later, Keynes held that only frail and flighty “liquidity preference” perpetuates excess savings. The Keynesian economists then compounded this error, formalizing the theory as suboptimal equilibrium. So the “jump-start” will occur any day now, right? Just ask the Dr Pangloss of our era, any garden-variety Keynesian economist.
Since 1980 or thereabouts, income inequality has grown rapidly in nearly every nation. There is an obvious and straightforward Malthusian explanation for this growth. But as if they were imitating dead Bolsheviks, many neoliberals claim without a shred of evidence that their utopia is exempt from Malthusian pressure.
This time around financial globalization has introduced a second cause of excess savings–competition for capital (excluding land) among national states. Each state tries its best to save as much as it can–given its land, technology and institutions–and so total world saving is excessive (relative to world demand). Moreover, one way a state can boost its saving is to concentrate income. Thus plutocratic policy adds to Malthusian pressure.
Because of income concentration and interstate competition, the international economy will experience chronic asset bubbles and mass defaults until finally it disintegrates. Along the way, some states may try to dampen financial instability by means of centralized management. Hhhmmm. Does that look vaguely familiar?
Besides the fossil-fuel exporters, the east Asian states have been the big winners in interstate competition. The USA has been the biggest loser. The USA is losing because it is stuck with both (1) a dimwitted ideology (neoliberalism) and (2) powerful vested interests in old-fashioned military competition for land.
What will the USA do now? Go gentle into the night? Or rage, as did Germany?
I can only suggest that the very rich, living in their gated communities, build the walls higher, thicker, stronger. It is going to be very unsafe for you to ever leave there. Nice prison you built yourself though. Set one foot outside and deal with us poor folks. You won’t like it at all. NOT AT ALL!