Paul Phillips wrote: > Tom is quite right to challenge the prevailing
view that we are not already witnessing many of the manifestations of
depression that were the hallmark of the depression of the 1930s....
But, equally, we will not relive the recovery of the '40s, '50 and
'60s. <
Of course! history does not repeat itself, yadda yadda.
> The whole discussion of Fed and US gov't policy that I see in the financial
> press ... seems to me to be an Alice in Wonderland dreamscape because it
> assumes that once we settle the subprime debt problem [and more!] and get the
> housing market back on course and get consumers buying ... again, the economy
> can resume its upward and onward course without major deviations from the
> path of the last half-century.<
For some folks, hope springs eternal.
> Nothing could be more delusionary because it ignores several immutable [!!]
> facts: global warming, peak oil, peak water, peak food (and other
> commodities), overpopulation, deforestation, etc. etc.<
Overpopulation? is Parson Malthus back? breeding like rabbits,
therefore dying like flies? it's not just the problem of externalities
(causing global warming, peak water, etc.) but also
Ricardian/Malthusian diminishing returns? is a one child policy
needed?
> Let me be more explicit. The 1930s were, as Keynes clearly pointed out, a
> period of insufficient demand, and indeed the whole canon of Keynesian
> thought pushed for supplementing aggregate demand with government
> expenditures, tax cuts, investment incentives, redistributive transfers ...
> But fundamental to this prescription was the underlying understanding of
> insufficient aggregate demand relative to excess aggregate supply. Many
> Marxists, including our Jim, attribute it, at least in part, to an
> 'underconsuption undertow' resulting from an increasingly unequal income
> distribution which robbed the working class of the ability to consume. <
I didn't know that others invoked the "undertow." Anyway, I am
flattered to be "our Jim."
(We should remember that even though the increasingly rightward tilt
of the income and wealth distributions may be "robbing" workers of the
ability to consume, we see it being "given back" by credit expansion
-- temporarily, of course.)
> One should also, of course, mention the collapse of international demand that
> resulted when Germany's access to borrowed funds to pay Britain and France
> its war reparations were cut off. Certainly, in Canada's case, it was the
> collapse of export markets for our commodities, in particular, grains, which
> triggered the depression.<
Right, 2008 is not 1930, 1931, 1932, 1933 -- or even 1929. No analogy
between now and the past can work perfectly -- or even well.
> The 2nd World War 'solved' the problem for North America by creating
> excessive aggregate demand ('military Keynesianism') but, what is readily
> apparent, is that this massive increase in aggregate demand ... was
> relatively easily met with existing resources and capital stocks. That is,
> there was massive excess capacity in both capital and in commodity
> resources....<
That's a major difference between the beginning of a collapse and the
end of one. At the beginning (1929 or 1930) the degree of unused
capacity is low, while in the middle (1935, say) and toward the end
(1939) it is high. It's only in the latter cases that Keynesian
stimulus can work in a massive way. We haven't seen a situation where
massive Keynesian expansion can work more than once or twice in the
last century.
> There was some rationing and inflationary pressure but, in general,
> macroeconomic balance was maintained and, when the war was over, capacity was
> switched to consumer products – and to capital goods to restock Europe --
> with relative ease. Productivity increase prompted by the war, unions and the
> 'labour-management accord' [and the technological boom?] meant that for the
> majority industrial workers, income increases were sufficient to absorb the
> increased output of US industry and to the extent it was not, the government
> expenditure on the military for the 'cold war' sufficed. Hence the 'golden
> age', otherwise known as 'mass-production for mass-consumption.' <
Part of the story that allowed this "nice SSA," "Fordism," or Rostow's
"stage" of mass consumption was US hegemony within capitalist
imperialism.
>However, this was coming to an end in the late 1960s. Though much of
the analysis of this period stressed the re-emergence of excess
capacity or, the other side of the coin, falling profits, little
attention has since been paid to another phenomena that caused
considerable comment among post-Keynesian economists at the time, the
secular rise in real commodity prices. <
I'd noticed that trend during the 1970s. In my understanding of the
falling profit rates at the end of the 1960s, it wasn't just a wage
squeeze on profits (forgotten above) but also rising real raw material
costs (initially spurred by demand growth) and capacity constraints
hurting "capital productivity."
But is the rise of real materials costs "secular"? after all, real oil
prices fell drastically in the mid-1980s.
>Though the increase was fairly widespread, it was the rapid jump in
oil prices in 1973-4 accredited to OPEC that caught the attention of
most. Over the next half decade or so the battle between capital and
labour over who was to absorb the cost of oil rents ... resulted in
inflation which again accelerated in 1978 with the second oil shock.
This necessitated, from capital's point of view, the destruction of
labour's countervailing power and the virtual destruction of the
labour movement, at least in the capitalist surplus value sector.<
I think it's a mistake to reduce this story to being simply the result
of raw materials costs. Monocausal theories about human events are
usually wrong.
>This was accomplished by monetarism and the severe recession of the
early 1980s. It is no coincidence or accident that real wages have
remained stagnant (or declined for the lower waged and minimum waged
workers) since the mid-1970s...<
Right. As part of the US one-sided class war, there were also direct
strikes against the working class, such as rampant reinterpretation of
labor law or (more spectacularly) the smashing of PATCO.
>The '70s seem to me to be a kind of pivotal decade in the post-war
period. As mentioned real commodity prices began to rise even before
the OPEC oil crises, real wages peaked and began falling, Bretton
Woods was abandoned, the unions entered a secular decline in the face
of a monetarist-neoliberal response to stagflation. <
US unions started their secular decline in the 1950s; the 1970s
started their death spiral. BTW, I don't see why the end of fixed
exchange rates ("Bretton Woods") is relevant here. Maybe it's because
it shifted the locus of macro-policy power from fiscal policy (which
responded more to democratic pressures) to monetary policy (which
responds more to Wall Street and banks).
The 1970s were also a "watershed" in the sense that they set the stage
for the drastic fall of oil prices in the 1980s.
>At the same time Ehrlich published his "Population Bomb" (1968) and
the Club of Rome, "The Limits of Growth" (1972) which highlighted for
the first time since Malthus the physical resource limits to economic
expansion and population growth. <
The "first time since Malthus"? Malthusian theories have been used
regularly against the poor for centuries, even before Malthus wrote.
(Marx has a nicely nasty passage in CAPITAL about the predecessors of
Malthus.)
By the way, the assumptions that went into the Club of Rome's model
have been criticized up and down. Should we ignore such criticisms, or
simply accept their model because we like their conclusions? As for
Ehrlich, if I remember correctly, his theory is simply warmed-over
Malthus.
>Malthus' prediction was countered by colonial expansion opening up
the food resources of the new world.<
Whatever happened to the improvement of agricultural technology? is it
totally irrelevant or totally a sham?
And what about the demographic transition? didn't that put a major
spoke in the Malthusian wheel? His "breeding like rabbits" bit doesn't
seem to work well at all in the richer countries since the 19th
century. Some countries' populations are declining, even without his
"dying like flies" part. The populations of even many poor countries
have seen a declining rate of growth in recent decades.
>Ehrlich's and the Meadow's projections were countered by North Sea
and other non-OPEC oil discoveries, the 'green revolution' in
agriculture (made possible by the expansion of fossil fuel
availability) and a renewed expansion of mineral discovery and
development. This made possible the demand-led recoveries from the
'81-'83, '91-'94, and 2001-'02 recessions based on easy credit and
monetary expansion and ridiculously low prices for oil. <
Why "ridiculously low"? do we want the oil producers to get large
resource rents? Is it possible that oil prices were "ridiculously
high" during the 1970s, i.e., high above the price justified by cost?
Why are prices "ridiculous" in one era but not another? That is, how
can we say that oil prices reflect the "real scarcity" of oil now or
during the 1970s but didn't do so in the middle 1980s or the late
1990s?
The evidence on real oil prices seems to fit a long-cyclical pattern
as much as a secular story. BTW, how do we know that new oil supplies
can't be found? or that major ways of recovering oil from old oil
fields and of economizing on oil use can't be found? It is simply a
matter of faith that oil has "peaked"?
>These conditions have changed since 2002. Oil and commodities are no
longer in elastic supply ... and the 'green revolution' is failing, in
part due to global warming, a growing shortage of water, soil
degradation, rising resistance to pesticides, herbicides, and the
rising cost of fossil fuel based fertilizer.<
I think the "green revolution" was a failure from the start, since it
involved the ejection of the rural poor from the land. (Hmm... isn't
that called "primitive accumulation"?) There are other paths of
agricultural improvement besides the "green revolution" -- and they
shouldn't be forgotten. To my mind, the "green revolution" is a simply
a capitalist approach to agriculture -- farming for profit in a hungry
world (to coin a phrase). It's not the _only_ approach.
>This implies that we can not expect a Keynesian 'demand side'
solution to the current slump/crisis nor that we can 'grow' (invest,
consume) our way out of a recession-depression. It also suggests that
any longer term solution must involve both a declining population [!!]
and a major redistribution of (a declining) GDP, as well, of course,
of a major change in our 'style' of living necessary to offset the
increase and impacts of global warming, never mind of peak oil. <
It depends on the context, i.e., what one means by "solution." It's
not supply-side constraints that created the housing/debt bubble
that's sinking the US economy at this point. Even higher oil prices
were more of a _trigger_ than the actual cause of the current slump.
So it's possible -- perhaps not likely -- that demand-side "solutions"
could be used. What about a Jubilee (debt cancellation)?
On the other hand, it's possible that Paul's Malthus-Ricardian story
is happening in the background, even if it wasn't involved in causing
the US recession and financial crisis. If this story describes what's
happening, then obviously it can't be solved by demand-side stimulus.
"declining population"? Malthus predicted mass plagues and wars due to
over-population (assuming, of course, that all technological progress
was bogus), which would cause declining populations. Genocide is
another approach. He didn't like those results, of course, so he
preached sexual abstinence, to the poor and working classes,
naturally. (The rich could have as many kids as they wanted. No iron
law of wages for them!) But he did argue against poor relief and even
against draining the swamps to stop malaria, because they spur those
poor benighted blighters to have more kids.
Is that who benefits from the "redistribution" you want, Paul? the
rich? Wouldn't it be better to get rid a lot of the blatant waste in
the system, increasing efficiency.
(Water is a real problem. But did you know that Los Angeles has been
increasing in population and production without anything close to
proportional increases in the demand for water during the last decade
or so? that's efficiency for you.)
> Any short term 'fix' of credit and consumption expansion will immediately run
> up against rising real energy (and food) costs, inflation, rising emissions
> (and hence climate change) and, even in the short run, increased shortages of
> water (it takes thousands of litres of water to produce one litre of ethanol;
> 3 to 6 barrels of water to produce one barrel of synthetic crude, etc.) <
To some extent, these factors will simply represent the reversal of
the opposite process that's happening in the recession phase:
recessions drive down real energy costs, inflation, emissions, water
shortages, etc. That is, the recovery's negative effects are to some
extent canceled out by the recession's positive effects. So we can
imagine a situation where the recession doesn't happen, which ends up
pretty much with the same result.
Rather than getting into such imaginative gymnastics, I think it's
good to separate the cyclical ("Keynesian") issues from the secular
("Malthusian/Ricardian") issues _before_ assuming that one can be
reduced to the other. On top of that, we should get away from the
Malthusian/Ricardian world-view.
> In view of these realities, I think we have to look at a quite different
> family of policies to get us out of the current recession. What is perhaps
> the most disheartening is that in the current [US] presidential primary
> debates, one hears next to nothing from Clinbama indicating even an awareness
> of the problem....<
disheartening? it depends on one's expectations. I never expected
anything deep out of any of the candidates. They react to current
events, not structural problems. After all, it's a US election, not an
academic seminar. And academic seminars are usually sterile, too.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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