Posts Tagged ‘capital’

blog-puerto-rico

It’s hard to imagine any kind of utopian project in Puerto Rico—especially after a decade of mounting economic crisis and a savage series of austerity measures, and then of course the widespread devastation of and notably slow recovery from Hurricane Maria.

But that’s exactly what’s taking place on the island, according to a recent report by Naomi Klein in The Intercept.

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In fact, in the midst of the disaster, two radically different utopian visions are taking shape: one is a libertarian project of privatization and gated communities for newly minted cryptocurrency millionaires and billionaires; the other aims to create a decentralized form of sovereignty—of energy, food, and much else—for ordinary Puerto Ricans.

Neither vision is new; aspects of both were being articulated before the hurricane reduced much of the island to rubble. But they’ve taken on new urgency, in the midst of the collapse of the old model and the series of shocks—both economic and environmental—that have made contemporary Puerto Rico such a disaster zone.

In many ways, it’s a familiar story. We’ve seen this kind of battle of utopian visions in many cases of “disaster capitalism”: from Chile in the 1970s through post-Katrina New Orleans to the largest ever municipal bankruptcy in Detroit. Each created the possibility of criticizing the existing model and then radically remaking the economic and social landscape.

Puerto Rico is the latest site of this battle of fundamentally different utopian visions.

One such vision is sponsored by the administration of Governor Ricardo Rosselló Nevares, backed by the Financial Oversight and Management Board (which consists of seven members appointed by the President of the United States and one ex-officio member designated by the Governor of Puerto Rico, created by the Puerto Rico Oversight, Management and Economic Stability Act of 2016). Even before Hurricane Maria hit the island, the goal was to cut back on and eventually privatize government services, especially the power grid and public school system, and attract wealthy individuals and create corporate tax havens with massive tax breaks to an island that is functionally bankrupt. The latest step in this plan was announced at Blockchain Unbound, a three-day “immersive” pitch earlier this month at San Juan’s ornate Condado Vanderbilt Hotel for blockchain and cryptocurrencies with a special focus on why Puerto Rico will “be the epicenter of this multitrillion-dollar market.”

Department of Economic Development and Commerce Secretary Manuel Laboy Rivera

used the conference to announce the creation of a new advisory council to attract blockchain businesses to the island. And he extolled the lifestyle bonuses that awaited attendees if they followed the self-described “Puertopians” who have already taken the plunge. As Laboy told The Intercept, for the 500 to 1,000 high-net-worth individuals who relocated since the tax holidays were introduced five years ago — many of them opting for gated communities with their own private schools — it’s all about “living in a tropical island, with great people, with great weather, with great piña coladas.” And why not? “You’re gonna be, like, in this endless vacation in a tropical place, where you’re actually working. That combination, I think, is very powerful.”

The various elements of the other, opposing utopian vision also preceded Maria. Casa Pueblo, a decades-old community and ecology center with deep roots in the Cordillera Central, is one source.

Already a community hub before the storm, the pink house rapidly transformed into a nerve center for self-organized relief efforts. It would be weeks before the Federal Emergency Management Agency or any other agency would arrive with significant aid, so people flocked to Casa Pueblo to collect food, water, tarps, and chainsaws — and draw on its priceless power supply to charge up their electronics. Most critically, Casa Pueblo became a kind of makeshift field hospital, its airy rooms crowded with elderly people who needed to plug in oxygen machines.

Thanks also to those solar panels, Casa Pueblo’s radio station was able to continue broadcasting, making it the community’s sole source of in- formation when downed power lines and cell towers had knocked out everything else. Twenty years after those panels were first installed, rooftop solar power didn’t look frivolous at all — in fact, it looked like the best hope for survival in a future sure to bring more Maria-sized weather shocks.

But there’s also the Segunda Unidad Botijas 1 farm school in Orocovis (where students learn and practice (“agro-ecological” farming), Organización Boricuá (a network of farmers who use traditional Puerto Rican methods), the Citizens Front for the Audit of the Debt (which in the year before Hurricane Maria called for an audit of the island’s debt), and now JunteGente (the People Together, which has begun drafting a people’s platform, one that will unite their various causes into a common vision for a radically transformed Puerto Rico).

So, Puerto Rico is now the home of two radically different utopian visions—one that promises a playground for the super-rich, the other a new model of self-management for the majority of the island’s population.

But there are two problems confronting the second, more popular vision. First, it requires a level of political participation of the population “that has a lot of other things on its plate right now.” Thinking big and scrambling just to survive in the midst of disaster are often difficult to articulate and sustain simultaneously.

The other problem is time—the difference between “the speed of movements and the speed of capital.” As Klein explains,

Capital is fast. Unencumbered by democratic norms, the governor and the fiscal control board can whip up their plan to radically downsize and auction off the territory in a matter of weeks — even faster, in fact, because their plans were fully developed during the debt crisis. All they had to do was dust them off and repackage them as hurricane relief, then release their fiats. Hedge fund managers and crypto-traders can similarly decide to relocate and build their “Puertopia” on a whim, with no one to consult but their accountants and lawyers.

Clearly, the libertarian utopian project clearly has time—and the power of capital and government, in Puerto Rico and on the mainland—on its side. But that doesn’t mean it will win. It can be imposed by decree but it still requires popular consent.

Arguably, the power of that consent is more closely aligned with the

dream of a society with far deeper commitments and engagement — with each other, within communities, and with the natural systems whose health is a prerequisite for any kind of safe future.

The future of Puertopia will be the outcome of the battle between two radically different visions of utopia for the island and its people.

profit shares

wage shares

Economic journalists, like Neil Irwin, are falling all over themselves celebrating the strength of the current economic recovery.

According to the latest data from the Bureau of Labor Statistics, 313 thousand new jobs were added in February. The official unemployment rate remained at a relatively low 4.1 percent. Hourly wages grew at an annual rate of 2.6 percent. And so on.

Here’s Irwin:

This is not the kind of data you expect in an expansion that is nine years old, or out of a labor market that is already at full employment. . .

the February numbers are a delicious sweet spot for the economy. Many more people are working, including people who hadn’t even been in the labor force. If that trend continues — and it’s worth adding the usual caveat that each month’s jobs numbers are subject to revision and statistical error — there’s no reason to think this expansion is reaching its natural end.

What Irwin and his colleagues fail to mention is this is an economic recovery that, as in previous years, continues to be spectacularly one-sided. It’s all on capital’s terms.

Let’s look at some other numbers, as illustrated in the charts at the top of the post. The profit share (the blue line in the top chart) has in fact rebounded nicely since the depths of the Great Recession—from a low of 6.2 percent in the fourth quarter of 2008 to 11.9 percent in the third quarter of 2017 (the latest period for which data are available). And that’s true across the board—in both major sectors, nonfinancial (the red line) and financial (the green line). Profits quickly recovered from the crash and, as a result of government economic policy and capital’s own decisions, they’ve stayed at or near the peak of the pre-crash period.

Meanwhile, workers are still waiting for their recovery. The wage share (in the second chart), while currently higher than its nadir (52.1 percent in the third quarter of 2014), is still (at 53 percent) only equal to its previous low (in 2006)—and therefore much lower than it was in the midst of the Great Recession and, on average, for much of the postwar period. Even with lots of new jobs and low unemployment, workers are still getting the short end of the stick.

So, Irwin is right about one thing: the current numbers are a “delicious sweet spot”—for capital, not labor. Capital is getting all the workers it wants, to make even more profits. And workers continue to be forced to have the freedom to find jobs and then to labor in return for a historically low share of what they produce.

No, there is no natural end to this one-sided expansion. Only a fundamental transformation in economic institutions, not pie-in-the-sky promises, will actually benefit American workers.

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And the Republican Congress. . .

The premise and promise of the House and Senate versions of the Tax Cuts and Jobs Act are that lower corporate taxes will lead to increased investment and thus more jobs and higher wages for American workers.

Marx, it seems, would have endorsed the idea:

Accumulate, accumulate! That is Moses and the prophets! “Industry furnishes the material which saving accumulates.” Therefore, save, save, i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital! Accumulation for accumulation’s sake, production for production’s sake: by this formula classical economy expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth. But what avails lamentation in the face of historical necessity? If to classical economy, the proletarian is but a machine for the production of surplus-value; on the other hand, the capitalist is in its eyes only a machine for the conversion of this surplus-value into additional capital. Political Economy takes the historical function of the capitalist in bitter earnest.

Except for one thing (as Bruce Norton has explained): Marx never presumed capitalists would follow any kind of fixed rule, including using their surplus-value to accumulate capital. That’s only what the mainstream economists of his day—classical political economists like Adam Smith and David Ricardo—attributed to, or at least hoped from, capitalists. They’re the ones who thought capitalists had a “historical mission” of accumulating capital.

As I explained to students in class yesterday, you only get the accumulation of more capital out of corporate tax cuts if you assume everything else constant.

Consider, for example, the general law of capitalist accumulation:

K* = r – λ

where K* is the rate of capital accumulation (∆K/K), r is the rate of profit (surplus-value divided by the sum of constant and variable capital, s/[c+v]), and λ is the rate of all other distributions of surplus-value (including taxes to the state, CEO salaries, stock buybacks, dividends to stockholders, payments to money-lenders, and so on).

So, yes, if you hold everything else constant, corporate tax cuts, and thus a lower λ, will lead to a higher K*.

But that only works if everything else is held constant. If capitalists choose to use the tax cuts to increase CEO salaries, stock buybacks, and/or dividends to stockholders, then all bets are off. The Tax Cuts part of the act will not lead to the Jobs part of the act.

And even if capitalists do use some portion of the tax cuts to accumulate capital, that will only result in new jobs if technology is held constant. However, if they use it to invest in newer constant capital (e.g., automation and other labor-displacing technologies), then again we’ll see few if any new jobs.

And even if and when new jobs are created, the effect on workers’ wages will depend on the Reserve Army of Unemployed, Underemployed, and Low-Wage workers.

Clearly, there are lots of hidden steps and assumptions between slashing corporate taxes and more jobs.

That’s why Donald Trump and House and Senate Republicans have decided not to even attempt to justify the tax cuts but only to ram it through Congress in the shortest possible time.

They pretend they’re taking “the historical function of the capitalist in bitter earnest” but, in the end, they’re just attempting to line their benefactors’ pockets.

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Almost very time MFA hears a mainstream economist speak—on topics ranging from the danger of raising the minimum wage to how we all benefit from free trade and globalization—she responds, “Where did they get their degree, from a Cracker Jack box?”

No doubt, she’d react in the same manner if she listened to the members of the closing panel at the 2017 Lindau Meeting on Economic Sciences, who were asked to answer the following question: what could and should we do about inequality?

It’s a terrific question, given the obscene—and still rising—levels of inequality that characterize contemporary capitalism, in the United States and around the world. But those who take the time to watch the video (available here) just aren’t going to learn much about either the causes of inequality or what we can do about it.

Nobel-inequality

The panel consisted of three winners of the so-called Nobel Prize in Economic SciencesDaniel L. McFadden (2000), James J. Heckman (2000), and Christopher A. Pissarides (2000)—and one “young economist,” Rong Hai.

Individually and together, the panelists simply don’t have anything interesting or insightful to say about inequality.

It’s true, none of the men received their Nobel Prizes for research on inequality, although Hai is currently doing research on inequality (e.g., in relation to credit constraints and tax policy). That itself is a comment on how little inequality has figured as an important concern within mainstream economics. And, given the venue, they’re all mainstream economists. Because of that, there’s little they can say—and a great deal they simply can’t say—about inequality.

Their comments (only some of which were actually prepared) range from the obvious—the issue of poverty is different from that of inequality—to the all-too-frequent sidestep—inequality is caused by globalization and technology.

But they don’t have anything to say about contemporary economic and social institutions, especially those of capitalism, or about history. They don’t discuss in any detail the changes in recent decades that have led to the current obscene levels of inequality or, for that matter, the relationship between the factor distribution of income (e.g, between labor and capital) and the size distribution of income (e.g., the growing gap between the 1 percent and everyone else).

Their concern about and knowledge of the causes and consequences of inequality are, at least to judge from their presentations in this panel, stupefyingly limited.

Maybe MFA is right: they did get their degrees from Cracker Jack boxes.