In our continuing discussion of crisis theory and its application to current events, Fred Moseley writes:> You make a distinction here between the MICRO effects and the MACRO effects of a wage cut. There is a further distinction between the SHORT-RUN macro effects and the LONG-RUN macro effects, and I think the latter distinction is the key to the differences between us.
>I agree that, in the short-run, a reduction of wages would reduce consumer spending, and thus make the recession worse. And an increase of wages would increase consumption, and thus make the recession less severe. Therefore, in the short-run, workers' struggles to increase wages are good for capitalism in the short-run, and there is no conflict of interests. < I should emphasize that this lack of conflict of interests is only at the macro-level: in simple terms, if wages rise for all of society, this will help the realization of profits. However, individual capitalists don't see it this way. They continue to push down wages (and speed up labor) because from their perspective, "in the trenches," any increase in wages hurts them vis-à-vis their competitors. Only the richest capitalists - those most secure from competition - can afford to raise wages in a recession. Pressure from organized labor - often through the state - needed. "Far sighted" capitalists may use their influence in this direction. It should be remembered that this isn't always pleasant: the depression-era National Recovery Administration had its semi-fascist elements. >However, what is required in the long-run for a sustained recovery from this recession and for a return to the more prosperous conditions of the 1950s-60s "golden age" is an increase in the long-run rate of profit (i.e. the rate of profit adjusted for fluctuations in capacity utilization). Unfortunately, this long-run rate of profit varies inversely with wages, not directly. An increase of wages would reduce the long-run rate of profit, the opposite of the necessary adjustment. What is necessary to increase the long-run rate of profit is to reduce wages, not to increase wages. Therefore, in the long-run, there is this fundamental conflict of interests. < I think it's a mistake to see the "golden age" [GA] of the 1950s & 1960s in the U.S. as the benchmark for comparison. Rather, it seems to be the exception rather than the rule. Capitalism has "muddled through" during a lot of decades without enjoying the kind of profits seen during that era. Further, it should be noted that during the GA, it wasn't just profit rates that did very well. It was also real wages, at least in the US. At least superficially, this suggests that there's no necessary conflict between profits and wages. Why was it possible for both profits and wages to do so well during the GA? Obviously, the fact that labor productivity was rising pretty quickly by today's standards had something to do with it. If labor productivity is rising quickly, it's possible for wage levels and profit shares to rise, as they did from 1960 until 1965. Also, the rise in wages - combined with the stabilizing role of the government budget (O'Connor's warfare/welfare state) - would help realize profits, allowing them to persist. It also helped during the 1950s and 1960s that US economic competitors such as Japan were still recovering from World War II and that most third-world countries were still pretty tame. The rate of profit (R/K) doesn't just respond to the profit share (R/Y) but also the fixed capital-output ratio (K/Y). The rise in labor productivity (Y/L) also helped counteract the rise in the fixed capital-labor ratio (K/L), so that K/Y didn't rise (depressing the profit rate) until the late 1960s. >As I said before, that which is necessary to solve the fundamental long-run problem of insufficient profitability (e.g. cutting wages) will make the current recession worse. And vice versa: what is necessary to avoid a worse recession in the short-run will exacerbate the problem of insufficient profitability in the long-run. I don't see any way to avoid this dilemma. < All else constant, the share of wages needs to be cut (with wages falling relative to labor productivity) to restore profitability. However, all else isn't constant: the profit rate could rise without the profit share rising if the fall in the fixed capital/output ratio that's been going on since the 1980s is sustained. Or the terms of trade could turn in favor of U.S. industry, redistributing profits from other countries. >The same kind of dilemma between short-run pain and long-run recovery is also true of the other main ways to increase the rate of profit: the devaluation of capital or a reduction of unproductive labor. That which is necessary to increase the rate of profit in the long-run will make the current recession worse in the short-run. And that is especially a problem right now, because of the high levels of debt of all kinds in the US economy. < I agree with you that a shake-out of existing fixed capital or of unproductive labor would encourage the current recession to get worse. The former hurts investment demand, while the latter hurts consumption demand. It's very hard to draw the line between productive and unproductive labor, as you know. So if we look at "gross labor productivity" (output/(productive + unproductive labor)), laying off of unproductive labor would boost this ratio, at least in the short run. If it rises relative to (gross) wages, that encourages underconsumption problems. However, as noted, the fall in the fixed capital/output ratio could continue, boosting the profit rate. >Of course, we don't know for sure how long the short-run pain will continue before the long-run recovery begins. In the Great Depression, the short-run pain lasted for a decade. I fear that something like that might be in store for us as well. < I want to emphasize that the notion of raising wages being good for profitability only applies in what I call the "underconsumption trap," in which the accumulation of fixed capital is blocked by corporate debt, unused capacity, and pessimism. This is a clear depression case and not one that prevailed in say, 1991. We also don't see it in 2002. It's the exception, not the rule. Further, in the "over-investment relative to consumer demand" scenario that I think is a reasonable interpretation of the late 1920s and an important part of the late 1990s story, it's true that low consumer demand - due to low wages - play a role. But that does not mean that "raising wages" is an easy or sure-fired solution, since that could easily put a spanner in the works of capitalist accumulation, killing the "animal spirits." The rise in wages would have to be gradual, but a trade-union effort is hardly gradual. On the other side, the capitalists who benefit most from the go-go nature of this type of era are also likely to have the most political influence, even after the go-go has went-went. again, thanks to Fred for his useful contribution. Jim Devine
