Relentlessly Progressive Political Economy

That seems to be the central message of REAL economics.  In a world of mobile capital and immobile labour this is all the more the case.

In response all I can say is this:

There is always the problem that those who control the means of production can, within limits, pass on the misery to those who don’t.  Sounds dogmatic I know.  But I have always experienced the effects of power as a kind of dogma.

By way of preempting where the conversation on income distribution is likely to end up–on the topic of consumption–I thought I would throw up this graph. Check out that savings rate!

Anyone notice the date of the peak?  And check out them credit lines.  Notice all figures are per labour income dollars.  Thanks to the Lonely Economists for the graph.

There has been a flurry of editorial activity in relation to the Stats Can report on growing inequality in income distribution. Quite why we should be more interested in income distribution as opposed to asset (wealth) distribution I am not totally sure–although I have my suspicions. But I do know why there has been such a flurry of interest in the Stats Can reports on income.

Initially neoliberalism was sold to the public as a policy paradigm for the restoration of economic growth, full employment and ultimately the restoration of post war consumption norms. That is, each new generation being better off than the last with a greater choice between increased consumption and increased leisure or a little of both: more steaks for the grill and more time to savor them.

This indeed was the cold war gold standard. It was a powerful economic image which settled right down in the bowels of the post-war compromise and supported a particular conservatism within organized labour and social democratic parties. Amelioration was at hand for the patient man.

It is no wonder then that when neoliberalism was being formulated and pushed on the public it was framed according to the gold standard. It is hard for anyone under forty to appreciate that the initial packaging of neoliberalism was quite erotic. To be sure there would be some short term pain (costs of adjustment) but these would be temporary and would be dwarfed by the orgy of consumption that would follow in train: some of us knew it was all bullshit. Alas bullshit is as bullshit does.

As the eighties wore on and the assault on working class freedoms continued apace the rhetoric of neoliberalism shifted in the face of persistently high unemployment and stagnant wage growth. Indeed there was no orgy of consumption to be had for the working classes; although Michael Milken and his ilk were doing exceptionally well.

The new generation (my generation) was told we had been living above our means; that the very organizations and values which had promoted our interests were in fact the cause of the Great Fall. Unions were corrupt little organizations which stood in the way of managerial rationalizing efficiency which would make the country competitive and provide jobs for all those who wanted one.

In a curious twist of fate it became the greedy employed who were responsible for the misery of the unemployed! It became the greedy unionized worker jealously guarding their privileged status within labour markets that was responsible for the misery of the unprotected and temporarily employed. It became the cheap public university that housed untold layabouts who had the audacity to take three different degrees while playing at being refugees from the vicissitudes of the labour market that was responsible for the immanent bankruptcy of the liberal democratic state. I mean how the heck does one justify a degree in medieval literature anyhow–where is the value added in that?

As the eighties came to a hetrodyne conclusion–the recession of the early nineties–the gold standard became a delirious dream only contemplated by mad men and unrepentant Stalinists. The collapse of the Evil Empire which was precipitated on the blood soaked mountains of Afghanistan would in turn precipitate a liberal symphony of triumphalism in the midst of massive global recession. Here we discovered that the cause of the great American decline was caused by, above all things, single black women with children. Canada had a problem. There were not enough black women in the country to make a convincing argument in the great white north of the ubiquitous parallel–no matter, daemons were needed and daemons were found.

As the recession wore on and unemployment failed to mitigate in the headwinds of growth we were entreated to new fantastical theories of hysteresis and a NAIRU above 8 % (12% or more if you lived on the east coast). The cause: workers had failed to make the right training choices and were therefore the victims of their choice to not adequately predict the skill sets required for the new economy. One would think that the talk about rational expectations could blossom in such an environment was laden with some irony to say the least. But no, such musings were uttered with a straight face. Former members of the left intelligencia scribed infantile books entitled The End of Work (which dovetailed so well with th end of ideology) and high school councilors gave the good council that in the new economy one must be prepared to have at least six careers with six different skill sets: to expect anything less was to be unreconstructed romantic of the old economy or worse an unreconstructed soviet.

“It was a beautiful dream but it does not work in practice” was screamed by everyone with a pension for morale rectitude. What does not work was never really spelled out but rather left to abstraction: A kind of elegant tombstone for all those who would stand in the way of capitalist progress.

By the middle of the decade the grand neoliberal plan which had promised the gold standard delivered up what we were told was a bankrupted state. Not of course bankrupted by the high interest rates set by the central banks in their vigilance for what was euphemistically called “price stability”. For it certainly was not price stability in what the hourly wage could purchase. Nor was it stability the cost of borrowing for the state or households. Nor was it stability in the personal income tax revenue stream as the jobless recovery continued well into the twilight of the decade.

And what was the cause of so much unemployment? Certainly not the pursuit of “price stability at all cost” nor the off-shoring and restructuring of manufacturing capacity but rather the insurance scheme for the income of workers and their bad training choices. I mean whose fault is it that individuals did not predict adequately the six different skill sets they would need to stay gainfully employed in jobs that did not exist? Certainly not the markets and certainly not the state!

“The problem with kids toady;” it was often heard, “is that they think the world owes them something; they think they are entitled to at least as much job security and consumption as their parents.” “Lazy bastards!, where did they get such a dumb ass idea?” I dunno.

The grand litany of daemons from the 90s: from single mothers, to First Nations, to immigrants, to unions, to crown corporations, to government itself. The embattled middle class was offered up no end of bogymen to blame. Politicians pandered and euphemistically named “think tanks” churned out one spurious argument after another.

And then Prosperity finally returneth along with a consumer credit (not wage) inspired orgy of consumption. And come to think of it, more blood on the mountains in Afganistan.

I expect it will be to the metrics average annual family consumption where the debate on income inequality finally turns as neoliberals attempt to prove that in the end they delivered the gold standard…sort-of.

Some Ironies just should not be passed over.

The Collapse of Monetarism and the Irrelevance of the New Monetary Consensus
25th Annual Milton Friedman Distinguished Lecture at Marietta College, Marietta, Ohio
March 31, 2008.

by James K. Galbraith

The Conclusion….

On November 8, 2002, then-Fed Governor Ben S. Bernanke spoke in Chicago to honor
Milton Friedman on his 90th birthday. Bernanke said, “As everyone here knows, in their
Monetary History Friedman and Schwartz made the case that the economic collapse of 1929-33
was the product of the nation’s monetary mechanism gone wrong. Contradicting the received
wisdom at the time they wrote…Friedman and Schwartz argued that ‘the contraction is in fact a
tragic testimonial to the importance of monetary forces.” In that era, Bernanke argued, the Fed
tightened to thwart speculation. One would argue that in 2005-7 it tightened to pre-empt
inflation. No matter. You can see the difficulty without my help. At the close of his speech,
Bernanke stated, “Let me end my talk by slightly abusing my status as an official representative
of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great
Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

26. Less than six years later, Chairman Ben Bernanke faces an intellectual dilemma. He can
stick with Milton, in which case he must admit that the only possible cause of the present
financial crisis and evolving recession is the tightening action of the Federal Reserve, against
which, when it started back in 2004 only two voices were heard: that of Jude Wanniski, the
original supply-sider, and my own, in a joint Op-Ed piece no one would publish except the
Washington Times. Or he can stick with the so-called “new monetary consensus,” which holds
that the Fed should now return to its inflation targets, pursue a much tighter policy, and that no
recession will result. If Bernanke chooses the first, he must of course assume responsibility for
the unfolding disaster. He cannot, logically, stay with Friedman without admitting the error of
the late Greenspan years and his own first months in office. If he chooses the second, he must
repudiate Friedman, and hope for the best. The two courses are absolutely in conflict.

27. My own view is that Friedman and Schwartz were right on the broad principle — monetary
forces are powerful — but wrong in its application. The Federal Reserve alone did not “cause”
the Great Depression. Intrinsic flaws in the financial, corporate and social structure, combined
with bad policy both before and after the crash, were jointly responsible for the disaster, while
the crash itself played a precipitating role. The danger, today, is that something similar could
again happen. Thus I do not think that rising interest rates alone caused the present collapse, and
I do not think that cutting them alone will cure it. They did so in conjunction with the failure to
regulate sub-prime loans, with the permissive attitude to securitization, with the repeal of Glass-
Steagall, and with the general calamity of turning the work of government over to bankers.

28. But if Friedman was wrong, the “new monetary consensus” is even more wrong. That
consensus, having nothing to say about abusive mortgage loans, speculative securitization and
corporate fraud, is simply irrelevant to the problems faced by monetary policy today. Its
prescriptions, were they actually followed, would lead to disaster. Its adherents, who of course
never had a consensus on their side to begin with, have made themselves into figures of fun.
There is, mercifully, no chance that Ben Bernanke will actually choose to follow their path.

29. And if both sides of Bernanke’s dilemma are wrong, what is a beleaguered central banker to
do? I have an answer to that. Let Ben Bernanke come over to our side. Let him acknowledge
what is obvious: the instability of capitalism, the irresponsibility of speculators, he necessity of
regulation, the imperative of intervention. Let him admit the intellectual victory of John
Maynard Keynes, of John Kenneth Galbraith, of Hyman Minsky. Let him take those dusty tomes
off the shelf, and broaden his reading. I could even send him a paper or two.

Travis Fast

Sometimes when I read my brain just skips over the revolting hyperbola of certain social scientists–especially the exceedingly smug variety (usually economists). It must be said that Krugman ranks atop of the list in this regard. However, today I was forced to reread this nonsense and my brain just could not suppress. Krugman writes of Keynes that:

There has been nothing like Keynes’s achievement in the annals of social science. Perhaps there can’t be. Keynes was right about the problem of his day: the world economy had magneto trouble, and all it took to get the economy going again was a surprisingly narrow, technical fix.

This is so odd because it flies so directly in the face the historical record, a historical record which Krugman partially relates some paragraphs prior:

In fact, the arrival of Keynesian economics in American classrooms was delayed by a nasty case of academic McCarthyism. The first introductory textbook to present Keynesian thinking, written by the Canadian economist Lorie Tarshis, was targeted by a right-wing pressure campaign aimed at university trustees. As a result of this campaign, many universities that had planned to adopt the book for their courses cancelled their orders, and sales of the book, which was initially very successful, collapsed. Professors at Yale University, to their credit, continued to assign the book; their reward was to be attacked by the young William F. Buckley for propounding “evil ideas.”

So how was it that Keynes was right? That is, how could it be that the ideas of Keynes had been proved right if his ideas, “narrow and technical” as they were, were repressed until after the crisis of global capitalism had been resolved?

But for argument sake let us assume that there was a shadowy group of economic mandarins who had covertly read Keynes, who were staffing the back rooms of advanced capitalist states and secretly implementing policies of the Keynesian variety. What then was the narrow “technical fix” which remedied the crisis? Let me answer just in case my readers are as dumb as Krugman thinks his are: The Second World War!

It is nice to know that Krugman regards the Second World War as a “narrow technical exercise”. Come to think of it Krugman might just have more in common with the Bush administration than he thought.

With such high caliber social scientists staffing the hallowed Ivy halls no wonder Keynes and the rather confused General Theory stands out as a singular achievement in the social sciences.

Compared to what… indeed.

Things must be getting really hot given that the chairman is down to defending the hard core by nefarious means in the pages of the FT. Inter alia Greenspan claims that it is not possible for central bankers to lean against the prevailing winds. This seems odd given that monetarism and its subsequent incantations was and is entirely premised on the capacity of central bankers to lean against the prevailing winds. It makes me wonder why credibility therefore matters at all, if at the end of the day central bankers are so helpless. The problem is that the evidence suggest the contrary and thus the chairman’s defense seems rather like a put for posterity.

Here is the chairman’s concluding paragraph.

I do have an ideology. So does each member of the forum. I trust our views are subject to the same standards of evidence that apply to all rational discourse. My view of how the efficiency of global capitalism has evolved over the decades as new evidence has appeared contradicts some earlier judgments and confirms others. I have been surprised by the fierceness of investors in retrenching from risk since August. My view of the range of dispersion of outcomes has been shaken but not my judgment that free competitive markets are the unrivalled way to organise economies. We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?

If you are going to read one article from the financial press this is it.

False ideology at the heart of the financial crisis

By George Soros

Published: April 2 2008 18:11 | Last updated: April 2 2008 18:11

The proposal from Hank Paulson, US Treasury secretary, for reorganising government regulation of financial institutions misses the point. We need new thinking, not a reshuffling of regulatory agencies. The Federal Reserve has long had authority to issue rules for the mortgage industry but failed to exercise it. For the past 25 years or so the financial authorities and institutions they regulate have been guided by market fundamentalism: the belief that markets tend towards equilibrium and that deviations from it occur in a random manner. All the innovations – risk management, trading techniques, the alphabet soup of derivatives and synthetic financial instruments – were based on that belief. The innovations remained unregulated because authorities believe markets are self-correcting.

I am starting to get a sense of why they picked Guadeloupe .

Travis Fast

This post was stimulated by Andrew Jackson’s post today

There is by now a broad consensus that the problems in the sub-prime sector were intimately linked with, on the one hand, a gush of global liquidity caused by too many investors seeking too few outlets and exacerbated by low interest rates and on the other hand, by demand underwritten by a property bubble and a deluge of consumer credit–again underwritten by low interest rates.

All of this points to the fatal flaw at the heart of, what for lack of better term I will call, «the neoliberal growth model». Namely that it is premised on the continual expansion of consumer demand at a pace that exceeds wage growth. At some point workers were going to get over leveraged and at that point a vicious cycle had to set in. We have only seen the collapse of housing thus far (in the US and starting in the UK) but there is an equal if not greater tranche of bad consumer debt floating around.

When the ‘public’ i.e., the state steps in to underwrite all this bad debt, which they have already begun in the US, we are going to see the (re)nationalisation of private debt of all kinds. This would in effect mark-off the end of the privatisation of national debt onto the backs of workers as individuals but not collectively as tax payers.

In the short term, therefore, it seems key that we would want to argue that workers cum consumers and homeowners get the first bailouts (as it is they who will have to collectively pay it all back through taxes) and secondly that any cash that does go to the financial sector comes at a high price in terms of large public ownership. AND not the kind where the public buys the toxic junk and lets J.P Morgan buy the performing assets!

We ought to recall just how savagely public assets were raided by capital during the last 20 years. Why not insist on a reverse fleecing whereby the only shareholders which get reasonable treatment are institutional investors such as pension funds the rest are left to eat cake.

In the more medium to long term something has to be done to reverse the situation whereby workers wages are stagnant and at the same time capital has so much cash on hand that they can’t find legitimate places to invest and so buy into pyramid schemes masquerading as financial innovations or bubbles or both as the case now seems to be.

All of this points in the direction of extremely strong labour rights clauses and enforcement mechanisms in trade agreements because the present imbalances are being driven by the core neoliberal imbalance between workers and capital. If workers are given the legal tools to organize and take on employers at the bargaining then some modicum of parity could be restored between wages and profits which would go some way to resolving the demand flaw at the heart of neoliberalism.

On the mass cultural front I alway seem to be a dollar short and a day late. Intense, poetic, political and beautiful. In short, a working definition of revolution.

The artist, a graduate student, calls it cheezie. I would hate to know what he thinks qualifies as serious. Too bad he feels the need to give a nod to post-modern chic to keep his cool. I would call that the consequence of vanilla rain: Shhhhh…don’t mention the war–class, race and gender = revolution.  But then you would have to believe in progress.  Happy easter.

My favorite quote:

Chocolate Rain
Dirty secrets of economy
Chocolate Rain
Turns that body into GDP
Chocolate Rain
The bell curve blames the baby’s DNA
Chocolate Rain
But test scores are how much the parents make
Chocolate Rain

Chocolate Rain by Tay Zonday

2007 Chocolate-Rain.com