Re: Re: depressions
G'day again, For those of you who missed Wynne Godley's latest; it's compellingly summarised here. For those of you interested in comparisons between Australia's 'boom' and America's; here 'tis. For those of you who have a view about how legal across-the board import duties would be under WTO and how advisable they'd be as a way to minimise the danger of runaway imports; here's your chance to educate me on the matter. Cheers, Rob. Why the debt binge must stop TIM COLEBATCH *THE (Melbourne) AGE* Tuesday 5 December 2000 "Freedom of mind requires not only ... the absence of legal constraints but the presence of alternative thoughts. The most successful tyranny is not one that uses force to ensure uniformity but the one that removes the awareness of other possibilities, that makes it inconceivable that other ways are viable." - Allan Bloom,The Closing of the American MindWHEN historians look back on this chapter of Australia's unfolding story, they will wonder why, what should have been so obvious at the time, went unnoticed. How did so many clever, well-meaning people overlook the fatal flaw in Australia's economic performance? How did they let pressure build up until it could escape only by severely deflating the whole economy, causing massive unemployment and business collapses? Why did they not see the warning signs earlier, and recast policy while there was time? When Reserve Bank Governor Ian Macfarlane went to Wagga Wagga last Friday to deliver his "no worries" spiel to Federal Parliament's economics committee, his statement did not mention Australia's spiralling foreign liabilities, although they have grown by almost $1billion a week in the past year to a record $410billion - 64per cent of GDP. Nor did he mention private debt, although bank lending to the private sector has soared by $65billion in the past year to $672billion, or more than Australia's annual output. Nor did he mention that households increased their net borrowing by $41billion, which the banks in turn are borrowing overseas. There was nothing unusual in that. Political correctness, as practised by ministers, economic bureaucrats and commentators, dictates that you don't talk about these things unless you have a positive spin to put on them. You do not admit that they are a serious flaw in Australia's economic performance. You do not admit that this decade of growth has been financed by borrowing and selling off assets. And you do not admit that you offer no solution other than to let them unravel however they will. One man who has stared hard into the role of debt in the '90s boom is former Cambridge economist Professor Wynne Godley, now at the Jerome Levy Economic Institute in the United States. Godley's focus is on the US, but his analysis translates directly to the very similar performance of Australia's economy. His latest analysis, "Drowning in debt" (at www.levy.org) makes four key points about the US boom: 1. The US expansion in the '90s has been unusually long, but not unusually fast: its average growth rate of 3.7per cent is only slightly above the post-war average. Similarly, Australia's average growth rate since 1991 has been 3.9per cent, just below the 50-year average of 4per cent. 2. Private sector spending has grown much faster than GDP (4.6per cent in the US, 4.5per cent in Australia). This has been possible only because the balance of payments has deteriorated to allow import growth averaging 10.4per cent a year (8.3per cent in Australia). 3. The private sector has been able to increase spending faster than the economy is growing only by taking on debt. By 1999 the net flow of credit was augmenting private disposable income by about 15per cent (11per cent in Australia). 4. Net private saving has fallen from a historic average of 3per cent of disposable income to minus 7per cent by early 2000. (In Australia, the parallel fall has been far less dramatic: from 7per cent in 1993-94 to 3per cent now.) As in Australia, the orthodoxy has replied by arguing that as asset prices rise, the net worth of households has risen relative to disposable income, and thus households can afford their increased debt. But Godley points out the fallacy of this: asset prices are an unstable base for debtors to rely on. "It is income rather than net worth that is ultimately the criterion of creditworthiness, since in a crisis it may be impossible for everyone to realise assets simultaneously," he argues. And he might have added a second limitation: I can't sell your assets to pay my debt. The bottom line of his analysis is blunt: the US private sector will not keep borrowing at this pace. The debt binge must stop, and when it does, the rush for the exits on financial markets could bring the whole economy to a stop, plunging the US into a severe recession. Australia could escape if policy is reoriented to focus on
Re: Re: depressions
Tom wrote: What if we push the preceding argument "Beyond Capital" (so to speak) to consider the depreciation of wage labour on more or less the same basis? Somewhere in vol. III of Capital (I haven't been able to track down the location), Marx criticized those vulgar political economists who become so enamored of the idea of interest-bearing capital that they even proclaim wages as a form of interest on the labourer's "capital". Gary Becker, eat your heart out. in the International Publishers' paperback edition of volume III, it's on page 465-6. Marx provides quite a relevant critique of those who seen labor-power as a kind of "capital" that pays "interest" to its owner (the worker). Becker was obsolete before he wrote. But couldn't we imagine that by some time around the third quarter of the twentieth century a considerable portion of employment income in the U.S. had taken on the characteristics of a legal claim on revenues, backed by "credentials", similar to what share ownership represents (thereby anticipating the trend of compensating employees with stock options)? By analogy, this would give us "fictitious human capital" and we could view the 1973-1992 period as one of shaking out the fictitious human capitals and concentrating the legal claims on future revenues. Telling the story this way begins to make 1973-1992 look a bit more like 1873-1897 -- or perhaps I should say more like its mirror image. I think this makes sense: individual workers do receive promises on the basis of their education, both their credentials skills. The "capitalized" form of those promises is indeed a kind of "fictitious capital," though I find the phrase "fictitious human capital" to be confusing. As with other promises, a lot of these were violated. A clear case is with those folks in the high-tech sector who were accepting stock options as deferred wages, only to discover that the stock options were worthless. (It's a little like having "frequent flyer miles" (another kind of fictitious capital) from an airline that's gone bust.) Unlike 1873-1897, the 1973-1992 period had clear beneficiaries, i.e., the capitalists who survived the shake-out. In the early period, I can't think of who benefited from the destruction of fictitious capital. Maybe it's because when the stock market goes into panic mode, it has an effect on aggregate demand (sometimes), whereas when bosses break promises, it's business as usual. The identity of surplus-value and surplus-labour imposes a qualitative limit upon the accumulation of capital. This consists of the *total working-day*, and the prevailing development of the productive forces and of the population, which limits the number of simultaneously exploitable working-days. But if one conceives of surplus-value in the meaningless form of interest, the limit ismerely quantitative and defies all fantasy. I don't get this. That qualitative limit on the accumulation of capital is also, *pari passu*, a limit on the extent to which the worker can participate as a "stake holder" in his/her self-exploitation. The problem with the analogy between fictitious capital and fictitious human capital is, of course, that the owners of human capital also have to supply labour-power in order to receive their "interest payments". This might explain why hours worked have become unhinged from productivity considerations over the last 25 years or so -- people are getting paid for "putting in hours", not for performing work. I interpret what's been happening in simpler terms. If given a chance, bosses will pay workers with promises. If given a chance, they'll break them. Are we headed for a crash? I'll be provocative here: I don't think it matters. At this point it seems to me that the end of the recent boom will have immense social and political consequences. That is to say, a "soft landing" may be the worst thing that could happen to the "new economy" -- just as a stalemate was the worst thing that could happen to the two-party political monopoly. My inclination is to expect a lull that after a while will begin to feel uncomfortably entrenched. Since the "market for fictitious human capital" isn't as important as the stock market for the day-to-day functioning of capitalism, I don't read it this way. However, if credentialed workers get enough in the way of broken promises, they might unionize or similar. Here in the US, they sue. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
re: depressions (and needs)
Michael Perelman wrote:
I tried to tell the story of the Great Depression of the late 19th century
in my
book, End of Economics. Not only did the Depression occur in the way Jim
cited
Doug Dowd, but most of the leading economists of the time in the United States
explicitly recognized that reality.
Right. And it's pretty much Michael's story of the late 19th century, from
a piece I came across online, that I had in mind. See:
Marx, Devalorization, and the Theory of Value
http://www.ucm.es/wwwboard/bas/messages/223.htm
also, more specifically:
Devalorization, Crises, and Capital Accumulation in the Late Nineteenth
Century
United States
http://www.mailbase.ac.uk/lists/econ-value/files/96sessions.txt
I was also thinking of an intriguing expression -- "the left-wing of
devalorization" -- used by my long ago Cazadero camp-mate, Loren Goldner, to
refer to proponents of Keynesian welfare state policies. Goldner used the
expression polemically but his usage got me to thinking about its deeper
implications for crisis theory. If we think of welfare statism as the
"left-wing of devalorization", might not we think of NAIRU era labour
supply-side policies as the "right-wing of 'left-wing' devalorization".
In the second piece, Michael refers to the post-civil-war overinvestment in
fixed capital. To me the striking parallel in the more recent period is the
post-WW II overinvestment in educational credentials, which incidentally
shifted from social overinvestment in the 1960-1970s ("do not fold spindle
or mutilate") to competitive private overinvestment in the 1980s-1990s (the
pursuit of marketable skills). And, yes, Veblen has an uncanny contemporary
relevance, here.
Often when people talk about the historical composition of "needs", they
have in mind simply an enlarging absolute bundle of commodities. But what
about the _specificity_ of many of those needs to labour market entry and
participation? Are life-long learning, home offices, dressing for success,
UMC (upwardly mobile copulation), and owning a car to commute to work final
consumption goods or a subtle repackaging and "putting out" of the more
highly competitive (and less profitable) means of production? Immiseration
may thus be conceived of as not just relative to other people's consumption
-- let alone some absolute standard of subsistence -- but also as relating
to the mix of individually optional and objectively compulsory
(conspicuous?) items of consumption.
If anyone has the slightest clue what I'm rambling on about, I'd appreciate
feedback. I sense that what I'm saying is at the margin of comprehensibility
and hence hard to articulate. The best I can do is pile up metaphors in the
hope that they come crashing down in the right direction. What I'm getting
at is a sense in which "labour" in the late 20th century has come to display
characteristics more or less specific to "capital" in the late 19th -- not a
physical, but a social "cyborganization".
Tom Walker
Sandwichman and Deconsultant
Bowen Island, BC
Re: depressions
Jim Devine wrote: Tom wrote: Somewhere in vol. III of Capital (I haven't been able to track down the location), Marx criticized those vulgar political economists who become so enamored of the idea of interest-bearing capital that they even proclaim wages as a form of interest on the labourer's "capital". Gary Becker, eat your heart out. in the International Publishers' paperback edition of volume III, it's on page 465-6. Marx provides quite a relevant critique of those who seen labor-power as a kind of "capital" that pays "interest" to its owner (the worker). Becker was obsolete before he wrote. Thanks. The passage reads: "instead of explaining the expansion of capital on the basis of the exploitation of labour-power, the matter is reversed and the productivity of labour-power is explained by attributing this mystical quality of interest-bearing capital to labour-power itself. . . Unfortunately two disagreeably frustrating facts mar this thoughtless conception. In the first place, the labourer must work in order to obtain this interest. In the second place, he cannot transform the capital-value of his labour-power into cash by transferring it. . ." The identity of surplus-value and surplus-labour imposes a qualitative limit upon the accumulation of capital. This consists of the *total working-day*, and the prevailing development of the productive forces and of the population, which limits the number of simultaneously exploitable working-days. But if one conceives of surplus-value in the meaningless form of interest, the limit is merely quantitative and defies all fantasy. I don't get this. It's from vol. III again. Although the "total working day" may be hard to quantify, it has qualitative limits, depending upon definite technical, historical and physiological factors. At some unspecifiable (and malleable) point, increasing the length of the working day won't do any more good because it reduces the productivity of labour below the prevailing average. Similarly, at some unspecifiable point, intensifying the productivity of labour won't do any good because it will devalorize a greater quantity of existing capital than it will produce new surplus-value. Fictitious values allow capital to exceed (on paper) these qualtitative barriers to accumulation -- for a while, but only for a while. I interpret what's been happening in simpler terms. If given a chance, bosses will pay workers with promises. If given a chance, they'll break them. Since the "market for fictitious human capital" isn't as important as the stock market for the day-to-day functioning of capitalism, I don't read it this way. However, if credentialed workers get enough in the way of broken promises, they might unionize or similar. Here in the US, they sue. I think this gets to the heart of what I'm asking. Is the stock market _really_ more important for the day-to-day functioning of capitalism or is it simply so much easier to quantify and index? The vote-o-matic gives us President Bush and the NASDAQ index shows an 8.5% gain with an hour of trading left. The vote-o-matic chokes on chad. What does the NASDAQ choke on -- options? Is the stock market really more important for the day-to-day functioning of capitalism or has it simply become -- like American elections -- an icon of capitalism as divinely-guided and spontaneously self-correcting? Tom Walker Sandwichman and Deconsultant Bowen Island, BC
Re: Re: depressions
Tom writes: Although the "total working day" may be hard to quantify, it has qualitative limits, depending upon definite technical, historical and physiological factors. At some unspecifiable (and malleable) point, increasing the length of the working day won't do any more good because it reduces the productivity of labour below the prevailing average. Similarly, at some unspecifiable point, intensifying the productivity of labour won't do any good because it will devalorize a greater quantity of existing capital than it will produce new surplus-value. Fictitious values allow capital to exceed (on paper) these qualtitative barriers to accumulation -- for a while, but only for a while. I think about the key point here as follows: the total amount of profits + interest + rent in society is constrained by the total amount of surplus-value that workers produce. However, the total amount of profits + interest + rent _promised_ or _expected_ is not constrained in this way, so we can see all sorts of craziness. Even for an individual industry, does anyone ever add up all of the profit predictions/promises/expectations and consider the extent to which one company's profits cancel out another's? This is different from the recent political duopoly competition in the US, where the candidates' promises were quantified and found not to add up in terms of budget balance (or at least so it was claimed). Since the "market for fictitious human capital" isn't as important as the stock market for the day-to-day functioning of capitalism, I don't read it this way. However, if credentialed workers get enough in the way of broken promises, they might unionize or similar. Here in the US, they sue. I think this gets to the heart of what I'm asking. Is the stock market _really_ more important for the day-to-day functioning of capitalism or is it simply so much easier to quantify and index? The stock market is not as important as it's implied to be by all the news coverage it gets.[*] But there can be wealth effects and expectations effects (I repeat myself) of big fluctuations of the SM, as in the aftermath of 1929. Of course, as I argue in my 1994 paper (http://bellarmine.lmu.edu/~JDevine/depr/D0.html), the Crash was only a trigger that set off an already implosive situation. This one event, of course, was burned into the historical memory and helps explain why people are so fascinated by the SM. [*] I think that no commercial news outlet wants to start downplaying the stock market, because they'd lose an audience to all the others who don't do so. If all of them started doing so, however, probably no one would miss it. After all, the people who really care about the SM get all their news from the Internet, directly. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~JDevine "From the east side of Chicago/ to the down side of L.A. There's no place that he gods/ We don't bow down to him and pray. Yeah we follow him to the slaughter / We go through the fire and ash. Cause he's the doll inside our dollars / Our Lord and Savior Jesus Cash (chorus): Ah we blow him up -- inflated / and we let him down -- depressed We play with him forever -- he's our doll / and we love him best." -- Terry Allen.
Re: depressions
Doug Dowd's birthday is later this week, December 7th. He's still turning out books as fast as I turn out e-mails. Gene Coyle Jim Devine wrote: [was: Re: [PEN-L:5527] Re: Re: Re: Re: Re: Re: the downturn] Carrol asked: In the history of industrial capitalism, how many "great depressions" have there been? It depends on your definition, some would say two. I would say one. The "great depression" of the 19th century US was different from that of the 1930s. To quote the Doug Dowd who used to be at Cornell and later at San Jose State University, "the most prominent feature of [this] earlier period [1873 to the 1897] was pressure on profits, rather than massive unemployment. That pressure was due to the steady and dramatic lowering of prices through the period, which was in turn the result of great increases in efficiency [meaning: labor productivity, which is a different thing], combined with the inability to cut off domestic or foreign competition..." (THE TWISTED DREAM, 1974: 64). Though this was crucial to the creation of "monopoly capital" and the intensification of protectionism, I don't see it as world-historical as the Depression of the 1930s was. Some might say that the period from 1973 to 1992 or so in the US was a "great depression" of sorts. I don't find this very useful, either. If people want to call it a great depression, that's fine with me, but since the three "depressions" were so different from each other, it's hard to lump them all together. Maybe "times of troubles" is a good substitute... Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~JDevine "From the east side of Chicago/ to the down side of L.A. There's no place that he gods/ We don't bow down to him and pray. Yeah we follow him to the slaughter / We go through the fire and ash. Cause he's the doll inside our dollars / Our Lord and Savior Jesus Cash (chorus): Ah we blow him up -- inflated / and we let him down -- depressed We play with him forever -- he's our doll / and we love him best." -- Terry Allen.
Re: depressions
Jim Devine wrote: Some might say that the period from 1973 to 1992 or so in the US was a "great depression" of sorts. I don't find this very useful, either. If people want to call it a great depression, that's fine with me, but since the three "depressions" were so different from each other, it's hard to lump them all together. Maybe "times of troubles" is a good substitute... Jim's comment on great depressions frames an issue that I've been wanting to bring up but haven't figured out how to express. Suppose the period 1873 to 1897 might be best characterized with regard to Marx's observation that: a large part of available capital is constantly more or less depreciated in the course of the reproduction process, because the value of commodities is not determined by the labour-time originally expended in their production, but by the labour-time expended in their reproduction, and this decreases continually owing to the development of the social productivity of labour. What if we push the preceding argument "Beyond Capital" (so to speak) to consider the depreciation of wage labour on more or less the same basis? Somewhere in vol. III of Capital (I haven't been able to track down the location), Marx criticized those vulgar political economists who become so enamored of the idea of interest-bearing capital that they even proclaim wages as a form of interest on the labourer's "capital". Gary Becker, eat your heart out. But couldn't we imagine that by some time around the third quarter of the twentieth century a considerable portion of employment income in the U.S. had taken on the characteristics of a legal claim on revenues, backed by "credentials", similar to what share ownership represents (thereby anticipating the trend of compensating employees with stock options)? By analogy, this would give us "fictitious human capital" and we could view the 1973-1992 period as one of shaking out the fictitious human capitals and concentrating the legal claims on future revenues. Telling the story this way begins to make 1973-1992 look a bit more like 1873-1897 -- or perhaps I should say more like its mirror image. The identity of surplus-value and surplus-labour imposes a qualitative limit upon the accumulation of capital. This consists of the *total working-day*, and the prevailing development of the productive forces and of the population, which limits the number of simultaneously exploitable working-days. But if one conceives of surplus-value in the meaningless form of interest, the limit is merely quantitative and defies all fantasy. That qualitative limit on the accumulation of capital is also, *pari passu*, a limit on the extent to which the worker can participate as a "stake holder" in his/her self-exploitation. The problem with the analogy between fictitious capital and fictitious human capital is, of course, that the owners of human capital also have to supply labour-power in order to receive their "interest payments". This might explain why hours worked have become unhinged from productivity considerations over the last 25 years or so -- people are getting paid for "putting in hours", not for performing work. Are we headed for a crash? I'll be provocative here: I don't think it matters. At this point it seems to me that the end of the recent boom will have immense social and political consequences. That is to say, a "soft landing" may be the worst thing that could happen to the "new economy" -- just as a stalemate was the worst thing that could happen to the two-party political monopoly. My inclination is to expect a lull that after a while will begin to feel uncomfortably entrenched. "Business is always thoroughly sound and the campaign in full swing, until suddenly the debacle takes place." Tom Walker Sandwichman and Deconsultant Bowen Island, BC
Re: Re: depressions
I tried to tell the story of the Great Depression of the late 19th century in my book, End of Economics. Not only did the Depression occur in the way Jim cited Doug Dowd, but most of the leading economists of the time in the United States explicitly recognized that reality. Tom Walker wrote: Suppose the period 1873 to 1897 might be best characterized with regard to Marx's observation that: a large part of available capital is constantly more or less depreciated in the course of the reproduction process, because the value of commodities is not determined by the labour-time originally expended in their production, but by the labour-time expended in their reproduction, and this decreases continually owing to the development of the social productivity of labour. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
