Posts Tagged ‘economy’


Special mention

172168_600 172108_600


Robert Reich is right: the standard explanation of—along with the standard debate about—inequality misses the point.

The standard explanation for why average working people in advanced nations such as Britain and the United States have failed to gain much ground over the past several decades and are under increasing economic stress is that globalisation and technological change have made most people less competitive. The tasks we used to perform can now be done more cheaply by lower-paid workers abroad or by computer-driven machines.

The left’s standard solution has been an activist government that taxes the wealthy, invests the proceeds in excellent schools and in other means that people need to become more productive, and redistributes to those in need. These prescriptions have been opposed vigorously by those on the right, who believe the economy will function better for everyone if government is smaller, public debt is reduced and taxes and redistributions are curtailed.

Reich’s view is that the existing common sense, among both liberals and conservatives, “overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs.”

But what Reich, for his part, overlooks is that, during the postwar period he views nostalgically and to which he’d like to see us return, there was no shared prosperity. And there couldn’t be. Even though real wages were rising, it was still the case the members of the “corporate and financial elite” were allowed to keep control over the surplus. What that means is they had the interest and the means to rewrite the rules so that they could appropriate, capture, and do what they wanted with the surplus produced by workers in the United States and around the world.

It is clear, during the postwar period, the economic elite wanted both more surplus and the ability to keep in their own hands more of that surplus, which meant attempting to evade and eventually rewrite the “rules by which the economy runs”—the rules governing labor unions, intellectual property, bankruptcy, finance, and so on. And, given their control over the surplus, they had the means to do so.

There’s no doubt the capitalist class succeeded both in undoing many of the existing regulations and in making sure few new regulations were put in place. Or, to put it differently, that the only regulations that would be passed and enforced were ones that favored a growing gap between them and everyone else.

While I’m all in favor of campaign finance reform, in order to level the playing field when it comes to choosing and electing candidates, it is still the case that the fundamental “rules by which the economy runs” keep the surplus in the hands of a tiny group at the top that has the right to do with it what it wants.

An effort to change those rules is what the United States needs now more than ever.


Special mention

-8601ad5a31be6188 download


Special mention

169938_600 late_cycle_cartoon_10.08.2015_large

René Magritte,

René Magritte, “Song of the Storm” (1937)

Are we seeing the signs of a global economic meltdown?

Marxist and other radical economists often remind people of the inherent instability of capitalism—unlike their mainstream counterparts, who tend to focus on equilibrium and the invisible hand of free markets.

But, right now, the warnings about new sources of instability are coming from quarters that are anything but radical. And they’re all saying pretty much the same thing: National monetary policy is increasingly ineffective. Central banks are largely impotent. The IMF points to increased global economic risk because of impossible amounts of debt that will never be repaid. Creditors are way too overextended. Finance capital is out of control. Growth everywhere is threatened. China and emerging-market nations are mostly to “blame.” And so on and so forth.

Here’s a recent sample of three recent articles [ht: ja]: from the BBC, Reuters, and the Guardian.

Andrew Walker (for the BBC) cites the latest IMF World Economic Outlook, according to which emerging and developing economies will register slowing growth in 2015 for the fifth consecutive year, to argue that (a) economic growth in China is slowing down (and helping to pull down the rest of the world, both directly and indirectly) and (b) lackluster growth in rich countries is failing to pull the rest of the world along. In addition, according to the latest IMF’s Global Financial Stability Report, the explosion of dollar-denominated credit in recent years, along with the rise in the value of the dollar, is going to make it difficult to repay those debts, a growing problem which is in turn exacerbated by the reverse “flight to safety” of financial capital. And then, of course, there are the negative effects—in Russia, Brazil, Venezuela, and elsewhere—of falling oil prices.

David Chance (for Reuters) cites the recent report by the Group of Thirty according to which low interest-rate rates and money creation not only were not sufficient to revive economic growth, but risked becoming problems in their own right.

The flow of easy money has inflated asset prices like stocks and housing in many countries even as they failed to stimulate economic growth. With growth estimates trending lower and easy money increasing company leverage, the specter of a debt trap is now haunting advanced economies.

At the same time, we’re listening to a growing chorus, at least in the United States (first from Federal Reserve Governor Lael Brainard and then Fed governor Daniel Tarullo) against the prospect of changing central bank policy and raising interest-rates anytime soon.

Finally, Will Hutton (for the Guardian) warns that capital flight and bank fragility threaten to create new asset bubbles and the eventual bursting of such bubbles—and there’s no prospect of global coordination to prevent the resulting economic dislocations.*

The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.

The upshot? My view is these three commentators are on to something, backed up by the research taking place within the IMF and other international entities. Clearly, they are concerned that the anarchy of production—the anarchy of both “real” production and of finance, within and across countries—and the absence of any new ways for central bankers to regulate that anarchy are creating new fissures and cracks within the global economy.

The problem of course is, the same search for profits mainstream economists and policymakers hoped would lead the recovery from the crash of 2007-08, along with the initially hesitant and then increasingly desperate measures central bankers have adopted to enhance the prospect of that search, now seems to be undermining that fragile recovery.

That’s the gathering storm they—and we—should be worried about.

*I do have one bone to pick with Hutton, who argues that excessive credit is created by banks lending out money based on existing deposits, which in turn is based on “the truth that not all depositors will want their money back simultaneously.” The latter may be the case but Hutton gets the order wrong: it’s bank credit that creates deposits (like fairy dust), not the collection of deposits that serves as the basis for the expansion of credit.


Special mention

1008toonwassermanCOLOR 169789_600


Special mention

042415-toon-luckovich-ed IFxLCkY