> Shanghai Daily (2/1/08)
>
> Would Marx say rising tide today lifts all boats?
> By: J. Bradford DeLong
>
> A century and a half ago, Karl Marx both gloomily and exuberantly
> predicted that the modern capitalism he saw evolving would prove
> incapable of producing an acceptable distribution of income.
"acceptable"? Marx wasn't much concerned with such moral terms
(especially since his predecessors had been overly fond of moralistic
phrasings), nor did he care about the distribution of income as much
as the distribution of power.
> Wealth would grow, Marx argued, but would benefit the few, not the many:
> the forest of upraised arms looking for work would grow thicker and
> thicker, while the arms themselves would grow thinner and thinner.
>
> Ever since, mainstream economists (in the West) have earned their bread
> and butter patiently explaining why Marx was wrong.
that's why they're paid? Hmm... somehow I thought so all along.
> Yes, the initial
> disequilibrium shock [!!!] of the industrial revolution was and is associated
> with rapidly rising inequality as opportunities are opened to
> aggressiveness and enterprise, and as the market prices commanded by key
> scarce skills rise sky-high. But this was - or was supposed to be -
> transient.
The history of actual capitalist industrial revolutions suggests that
"aggressiveness and enterprise" is a euphemism for theft. (The latter
does not have to be a moralistic term: a lot of Marx's arguments are
stated in terms of the bourgeoisie breaking their own laws, of their
practice violating their own theory.)
> A technologically stagnant agricultural society is bound to be an
> extremely unequal one: by force and fraud, the upper c lass pushes the
> peasants' standards of living down to subsistence and takes the surplus
> as the rent on the land they control.
>
> By contrast, mainstream economists argued, a technologically advancing
> industrial society was bound to be different.
>
> First, the key resources that command high prices and thus produce
> wealth are not fixed, like land, but are variable: the skills of craft
> workers and engineers, the energy and experience of entrepreneurs, and
> machines and buildings are all things that can be multiplied.
It's true that skills of the craft workers who initially benefited
from industrial revolution in England (and I presume the US) later
found that their skills were obsoleted (as their bosses mechanized,
de-skilled, etc.) It's also true of engineers and other "knowledge
workers," since they are in very much the same boat as the craft
workers, i.e., dependent on the capitalist accumulation process and
the capitalist effort to end dependence on any group of high-paid
workers. (Computer programmers paid too much to allow abundant
profits? I have a visa program for you...)
It's also true that the capitalist competitive effort to profit by any
means necessary can cause over-accumulation: like fools, they rush in,
over-investing in and over-producing machines and (especially)
buildings. This eventually causes a crash, which obsoletes some
capitalists. (Marx tells this story in volume I: it's called the
"concentration and centralization of capital.")
The problem with deLong's story (or what he might call a "model") is
that some of their crowd get out while the going is good. They convert
their machines and buildings (or, more generally, corporate equity)
into liquid cash before the markets crash. (Even if they aren't
personally thieves themselves, they follow many a criminal's dream:
steal a million and turn it into cash (without being caught) and then
"go legit.") The ones that succeed can then hold a nice diversified
portfolio of assets (hedged by holding lots of government bonds),
which allows them to weather most storms.
On top of that, they can build on their initial advantages, taking
their property income (a.k.a. surplus-value) and increasing the size
of their nest-eggs, until they grow to the size of Roc eggs. They can
regularly take some risks with their portfolios (while sheltering the
rest), get a high return, and accumulate even more of the safer
assets. Next, they can buy some politicians to help them grow their
wealth and power and major-domos to help them spend their money.
This, of course, is why we dynasties established and lasting for
centuries. It's true that the scions get decadent and want to break
the First Commandment ("thou shalt not dip into capital") or the
Second ("thou shalt not put all thy eggs in one basket"). But that's
why God invented trust funds with all sorts of rules.
> As a result, high prices for scarce resources lead not to zero- or
> negative-sum political games of transfer but to positive-sum economic
> games of training more craft workers and engineers, mentoring more
> entrepreneurs and managers, and investing in more machines and buildings.
I wish people would drop the lame "game theory" metaphors. In any
case, it says nothing about the accumulation of money wealth and money
power.
> Second, democratic politics balances the market.
Where does this "democratic politics" come from? does it fall from the
sky? is it innate in the mind? No. They come from social practice, and
from it alone. (Gee, I wonder if people reading the "Shanghai Daily"
know who I plagiarized that from.)
In 19th century England, as in most other capitalist countries,
democratic politics came from below, from movements such as the
Chartists. That is, working people fought back -- and the moneyed
rulers weren't interested in democracy. (In the US, the story is
different, because many democratic rights were won without
working-class struggle because a big chunk of the male population
owned land in the early stages. Still, US workers had to fight pretty
damn hard.)
And of course, the growing money potentates used their friends in the
government (or hired scabs) to fight the working-class upsurge. They
also developed ways to control democracy so that it wouldn't get out
of hand, while (1) keeping working people quiet because it was "their
government" and (2) making them alienated from politics because "their
government" was corrupt (owned by -- guess who?)
Of course, it's wrong to over-generalize from the corrupt system of
managed democracy we see in the US. The workers don't always lose. But
they don't win if they rely on the "condescending masters" in the
government to solve the problems.
> Government educates and invests.
and who pays for that? and what good is a public information if the
government destroys its scarcity value by educating lots of people,
creating your competition? it's great to be literate, numerate, etc.,
but it doesn't give you a leg up to compete with the moneyed powers.
> It also provides social insurance by taxing the prosperous and
> redistributing benefits to the less fortunate.
As Otto von Bismark (who invented it) knew, social insurance is almost
completely a matter of redistribution within the working class, not
a redistribution from the rich. Like most insurance, it's needed. But
we pay for it, not the rich. (Your employer contributes to
unemployment insurance, it's true, but all economists (though maybe
not deLong) know that that tax is passed on and is really paid by the
employees.)
> Economist Simon Kuznets
> proposed the existence of a sharp rise in inequality upon
> industrialization, followed by a decline to social-democratic levels.
As Doug Henwood has said, we've gone beyond the Kuznets curve. His
curve has inequality up followed by inequality down. Even it this
happened, we in the US are now in a new "inequality up" phase, since
1980 or so.
> But, over the past generation, confidence in the "Kuznets curve" has
> faded. Social-democratic governments have been on the defensive against
> those who claim that redistributing wealth exacts too high a cost on
> economic growth.
These people who are defending "economic growth" are neoliberals, by
the way. In recent decades, they have been successful at feathering
their own nests and those of their employers. They also define
"growth" in totally market-driven terms (GDP). If you do that, you've
lost the game (as it were).
> The consequence has been a loss of morale among those of us who trusted
> market forces and social-democratic governments to prove Marx wrong
> about income distribution in the long run - and a search for new and
> different tools of economic management.
>
> Increasingly, pillars of the establishment are sounding like shrill
> critics. Consider Martin Wolf, a columnist at The Financial Times.
>
> Wolf recently excoriated the world's big banks as an industry with an
> extraordinary "talent for privatizing gains and socializing losses ...
> (and) get(ting) ... self-righteously angry when public officials ...
> fail to come at once to their rescue when they get into (well-deserved)
> trouble ... (T)he conflicts of interest created by large financial
> institutions are far harder to manage than in any other industry."
>
> For Wolf, the solution is to require that such bankers receive their pay
> in installments over the decade after which they have done their work.
> But Wolf's solution is not enough, for the problem is not confined to
> high finance.
>
> The problem is a broader failure of market competition to give rise to
> alternative providers and underbid the fortunes demanded for their work
> by our current generation of mercantile princes.
What? _now_ Mr. deLong recognizes the existence of "mercantile
princes"? and now his only response is totally ambiguous? Is he hoping
that "democratic politics" is going to fall from the sky again? is he
going to convince those mercantile princes to be nice for a change?
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
