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Special mention

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Clearly, Pope Francis’s criticisms of capitalism (as I have discussed here and here) have touched a nerve. They certainly have in the case of Harvard’s Ricardo Hausmann, who attempts to argue both that capitalism is not responsible for causing poverty and that more capitalism will eventually eliminate poverty.

Hausmann’s story is a very familiar one. What it comes down to is the idea that the majority of people before capitalism arrived one the scene were poor and as capitalism develops and more and more people became wage-laborers with rising real wages. But areas of the world still remain outside of capitalism and those people will remain poor unless and until capitalism is allowed to fully develop.

It’s a story that is as old as Adam Smith’s Wealth of Nations, and it’s been told and retold by generations of classical and neoclassical economists ever since.

Their story is certainly right about one thing: capitalism does create the promise of ending poverty.

The problem is, their story conveniently overlooks important aspects of the development of capitalism—all the ways capitalism has over the course of its history created more, not less, poverty. I’m thinking of four instances in particular.

First, Hausmann never examines the actual emergence of capitalism, the so-called primary of accumulation of capital, when noncapitalist producers (feudal serfs, members of family and tribal communes, and so on) were dispossessed of their land (as large landowners took possession of their lands) and then forced to have the freedom to sell their ability to work in both rural and urban labor markets.

Second, Hausmann fails to mention the working poor, all those people who work for someone else and yet remain (along with their children), because of low wages and intermittent employment, below the poverty line.

Third, there’s nothing in Hausmann’s story about capitalist instability and all the times (including, most recently, during the Second Great Depression) wage-laborers are thrown onto the unemployment lines and forced (together with their families) to try to survive on food stamps and other poverty-level programs.

Finally, Hausmann presumes all the poor self-employed workers in India and elsewhere somehow exist outside of capitalism, when in fact they are often producing commodities either for capitalist enterprises or for the other workers who are directly employed by those enterprises. They’re not outside capitalism; their work is inextricably connected to how capitalism operates, especially (but certainly not only) in the Global South.

Those are four main ways (and, of course, there are many others, which I don’t have the space to discuss here) capitalism does in fact cause poverty, in both the North and the South, now and over the course of its history

They are the reasons why, as Pope Francis said in a recent speech in Bolivia: “This system is by now intolerable: farm workers find it intolerable, laborers find it intolerable, communities find it intolerable, peoples find it intolerable.”

Keep calm?!

Posted: 24 August 2015 in Uncategorized
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All the advice today—as the the Dow Jones Industrial Average fell by 1,089 points in the morning and, at this writing, remains almost 450 points below the opening—has been the same: keep calm and carry on investing.


Ron Lieber is typical:

The impulse when the stock market falls hard for a few days in a row is to do something. Anything. Our life savings are often on the line, after all.

But that’s just the thing: Stocks are most useful for long-term goals. So unless those goals have changed in the last few days, it probably doesn’t make much sense to overhaul an investment strategy based on a blip of market activity. . .

One final point for new investors (and their parents and grandparents, who ought to be counseling them right about now): This is what markets do. There is absolutely nothing abnormal about what is going on here.

Most of us have to save somewhere, and history suggests that stocks are the most accessible route to get the returns you’ll need to retire someday. It would take decades of systemic economic erosion to prove otherwise, and a few days of market declines do not suggest that anything like that is upon us.

It’s true: many of us have been forced to have the freedom to keep our retirement funds in the stock market, as our employers in recent decades have gotten rid of defined-benefit plans and replaced them with defined-contribution plans. Thus, they’ve managed to shift the risk from themselves to us.

But the ownership of stocks remains profoundly unequal—and the responses to downturns are similarly unequal.

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According to the Wall Street Journal, from the 1980s to the peak of the dot-com bubble, families of all income levels were increasingly likely to own stocks, either directly or through retirement accounts. From 2001 to today, however, ownership of stocks has only increased among the top 10 percent of families; families at all other income levels have been getting out of the market entirely. Thus, as of 2013, nearly 50 percent of stocks and mutual funds were owned by the wealthiest 1 percent of Americans and an additional 41 percent were held by the next 9 percent. Meanwhile, the bottom 90 percent of U.S. families owned only about 9 percent of stocks and mutual funds.


Not only are the ownership patterns different between a small group at the top and everyone else; the people in those groups also behave differently.

According to Josh Zumbrun,

The Fed’s Survey of Consumer Finances shows that among the bottom 90% of households by wealth, families bailed out of the stock market between 2007 and 2010—the central bank’s study is conducted every three years—and between 2010 and 2013. The total share with stockholdings declined by 4.4 percentage points. That’s the equivalent of 5.4 million households selling stocks, even as the market rebounded. Only households in the top 10% have been increasingly likely to own stocks.

In other words, the ownership of stocks both reflects and contributes to the profound inequalities of U.S. capitalism.

“We haven’t come up with the solution to prevent people from doing it yet,” said Shai Akabas, an economist at the Bipartisan Policy Center in Washington who works on the center’s Personal Savings Initiative.

“But there certainly is a widening gap there in terms of the return that higher-income people are receiving in the market,” said Mr. Akabas. “Lower- to middle-income people aren’t privy to those gains. That’s exacerbated by the fact that many of them have taken their money out of the stock market.”

“Keep calm and carry on investing” is really only a rule those at the top can follow. The rest of us are caught between the Scylla of investing in the stock market (in order, someday, to be able to retire) and the Charybdis of getting out (so as to limit our losses on days like today).


You have to appreciate the language of some stock market observers, such as Valentijn van Nieuwenhuijzen, head of multiasset strategy at NN Investment Partners:

The selloff has developed a momentum of its own, says Mr. van Nieuwenhuijzen. “It comes against the backdrop of some fundamental reasons. Most obviously this is about China and the risk of a financial system crisis there. But sometimes the market organism takes over and develops a logic of its own,” he says. “We are at our most cautious positioning in the last few years,” with more cash in the firm’s portfolios that at any time in roughly the last four years, Mr. van Nieuwenhuijzen adds. [emphasis added]

And Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management LLC:

“Investors need to decide whether the recent moves are a sickness unto death, or just a bad hangover,” says Mr. Jacobsen. He says that he personally think that this is “just a hangover and requires time, perhaps in the form of a nap, to work-off.”


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Travel days

Posted: 22 August 2015 in Uncategorized
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A few travel days ahead. No posts then until I arrive. . .