Conventional Economics Has Failed, Completely, Utterly And Totally

[Die Neue Zeit]

http://www.businessinsider.com/marx-labors-dwindling-share-of-the-economy-and-the-crisis-of-advanced-capitalism-2011-8



By Charles Hugh Smith (novelist, economic commentator)

All attempts to reform the Status Quo of advanced finance-based Capitalism will fail, as its historically inevitable crisis is finally at hand.

It is self-evident that conventional economics has failed, completely, utterly and totally. The two competing cargo cults of tax cuts/trickle-down and borrow-and-spend stimulus coupled with monetary manipulation have failed to restore advanced Capitalism's vigor, not just in America, but everywhere.

Conventional econometrics is clueless about the root causes of advanced finance-based Capitalism's ills. To really understand what's going on beneath the surface, we must return to "discredited" non-quant models of economics: for example, Marx's critique of monopoly/cartel, finance-dominated advanced Capitalism. ("Capitalism" is capitalized here to distinguish it from "primitive capitalism.")

All those fancy equation-based econometrics that supposedly model human behavior have failed because they are fundamentally and purposefully superficial: they are incapable of understanding deeper dynamics that don't fit the ruling political-economy conventions.

Marx predicted a crisis of advanced Capitalism based on the rising imbalance of capital and labor in finance-dominated Capitalism. The basic Marxist context is history, not morality, and so the Marxist critique is light on blaming the rich for Capitalism's core ills and heavy on the inevitability of larger historic forces.

In other words, what's wrong with advanced Capitalism cannot be fixed by taxing the super-wealthy at the same rate we self-employed pay (40% basic Federal rate), though that would certainly be a fair and just step in the right direction. Advanced Capitalism's ills run much deeper than superficial "class warfare" models in which the "solution" is to redistribute wealth from the top down the pyramid.

This redistributive "socialist" flavor of advanced Capitalism has bought time--the crisis of the 1930s was staved off for 70 years--but now redistribution as a saving strategy has reached its limits.

The other political-economic strategy that has been used to stave off the crisis is consumer credit: as labor's share of the economy shrank, the middle class workforce was given massive quantities of credit, based on their earnings and on the equity of the family home.

The credit model of boosting consumption has also run its course, though the Keynesian cargo cult is still busily painting radio dials on rocks and hectoring the Economic Gods to unleash their magic "animal spirits."

The third strategy to stave off advanced Capitalism's crisis was to greatly expand the workforce to compensate for labor's dwindling share of the economy. Simply put, Mom, Aunty and Sis entered the workforce en masse in the 1970s, and their earning power boosted household income enough to maintain consumption.

That gambit has run out of steam as the labor force is now shrinking for structural reasons. Though the system is eager to put Grandpa to work as a Wal-Mart greeter and Grandma to work as a retail clerk, the total number of jobs is declining, and so older workers are simply displacing younger workers. The gambit of expanding the workforce to keep finance-based Capitalism going has entered the final end-game. Moving the pawns of tax rates and fiscal stimulus around may be distracting, but neither will fix advanced finance-based Capitalism's basic ills.

The fourth and final strategy was to exploit speculation's ability to create phantom wealth. By unleashing the dogs of speculation via a vast expansion of credit, leverage and proxies for actual capital, i.e. derivatives, advanced finance-based Capitalism enabled the expansion of serial speculative bubbles, each of whcih created the illusion of systemically rising wealth, and each of which led to a rise in consumption as the "winners" in the speculative game spent some of their gains.

This strategy has also run its course, as the public at last grasps that bubbles must burst and the aftermath damages everyone, not just those who gambled and lost.

Two other essential conditions have also peaked: cheap energy and globalization, which opened vast new markets for both cheap labor and new consumption. As inflation explodes in China and its speculative credit-based bubbles burst, and as oil exporters increasingly consume their resources domestically, those drivers are now reversing.

Advanced Capitalism is broken for reasons conventional economics cannot dare recognize, because it would spell the end of its intellectual dominance and the end of the entire post-war political-economic paradigm that feeds it.

Let's look at some charts to see what conventional economists must deny to keep their jobs.

Take a look at this chart. What reality does it reflect? A failure to cut taxes enough? A failure to print enough money or extend enough credit? No. What it reflects is labor's dwindling share of the economy.

The structural reality is that employment is declining:

Meanwhile, after-tax corporate profits have steadily climbed to nearly 10% of the entire national income:

Note the recent rise of finance-based profits:

This chart leaves no doubt that the engines of the past 30 years "growth" and "prosperity" have been credit and credit-fueled speculation:

If we look at disposable income, we find that direct government transfers have masked the systemic erosion of labor's earnings and employment:

By at least some measures, the top 1% are paying a greater share of total taxes than they were 20 years ago, which suggests that "tax the rich will solve everything" stopgaps have limited purchase on the deeper structural ills of advanced finance-based Capitalism.

Marx identified two critical drivers of advanced Capitalism's final crisis:

1. Global Capital has the means and incentive to keep labor in surplus and capital scarce, which means that capital has pricing power and labor has none. The inevitable result of this is that wages, as measured in purchasing power, fall while the returns earned on capital rise.

This establishes a self-reinforcing, inevitably destructive dynamic: once labor's share of the national income falls below a critical threshold, labor can no longer consume enough or borrow enough to keep the economy afloat with its cash and credit-based consumption.

We are at that point, but massive Federal borrowing and transfers are masking that reality for the time being.

2. The dual forces of competition and technology inevitably drive down the labor component of all manufactured goods and technology-based services. Mechanization, robotics and software have lowered the labor component of everything from running shoes to computer chips from $20 per item to $2 per item, and that process cannot be reversed. While the wage paid to the workforce designing and manufacturing the products and providing the services may actually rise, the slice of revenues given over to all labor continues shrinking.

This is what I have constantly referred to (using Jeremy Rifkin's excellent phrase) as "the end of work."

Put another way: the return on capital invested in techology greatly exceeds the return on labor. Industries and enterprises which fail to leverage capital invested in technology that lowers the labor component of their good/service eventually undergo rapid and inevitable creative destruction.

We are about to witness this creative destruction in the labor-heavy industries of government, education and healthcare.

Marx's genius was to recognize the historical inevitability of these internal forces within advanced Capitalism. He also recognized the inevitability of finance-capital's dominance of industrial capital--something we have witnessed in full flower over the past 30 years.

Finance capital now dominates not just industrial capital but the machinery of governance, rendering real reform impossible. Instead, the Status Quo delivers up simulacrum "reform" which change nothing but the packaging of the Central State/Cartel Capitalism's exploitation and predation.

Add all this up and you have to conclude the final crisis of finance-based advanced Capitalism is finally at hand. All the "fixes" that extended its run over the past 70 years have run their course. Life will go on, of course, after the Status Quo devolves, and in my view, ridding the globe of financial predation and parasitism will be a positive step forward.

The real solution is to understand advanced finance-based global Capitalism will unravel as a result of the internal dynamics described above, and be replaced with an economic and political Localism that I describe in my new book An Unconventional Guide to Investing in Troubled Times.I don't claim these ideas are unique to me; many others have described the same dynamics and historical trends.

[RGacky3]

great, its nice to see Marx paid attention to again, alhtough they only pay attention post collapse.

[Judicator]

Conventional econometrics is clueless about the root causes of advanced finance-based Capitalism's ills. To really understand what's going on beneath the surface, we must return to "discredited" non-quant models of economics: for example, Marx's critique of monopoly/cartel, finance-dominated advanced Capitalism. ("Capitalism" is capitalized here to distinguish it from "primitive capitalism.")

"Beneath the surface" there are individuals responding to incentives. Fancy econ models try to quantify how individuals will respond to which incentives, with testable predictions. Marx does something similar - saying how wages and returns on capital will change over time in response to competitive pressures, changes in capital stock, government intervention, and so on. However, one of the reasons Marxism has been discredited is that so many of its predictions are either untestable or false.


All those fancy equation-based econometrics that supposedly model human behavior have failed because they are fundamentally and purposefully superficial: they are incapable of understanding deeper dynamics that don't fit the ruling political-economy conventions.


Instead of worrying about the fancy ones, let's start with something simple. Are you really rejecting the Econ 101 supply & demand model that makes very simple predictions like rising prices will induce consumers to buy less and producers to sell more?



1. Global Capital has the means and incentive to keep labor in surplus and capital scarce, which means that capital has pricing power and labor has none. The inevitable result of this is that wages, as measured in purchasing power, fall while the returns earned on capital rise.


Wages measured in purchasing power? If you add up all of the labor income vs. all of the labor income 10 years ago, the number you get now is higher.



once labor's share of the national income falls below a critical threshold, labor can no longer consume enough or borrow enough to keep the economy afloat with its cash and credit-based consumption.


A laborer can buy a pizza for his family, or a restaurant owner can buy a pizza oven for his business. Why are we doomed to economic failure if 90% of income is being spent by capital holders on capital goods and 10% of income is being spent by laborers on consumer goods?



Put another way: the return on capital invested in techology greatly exceeds the return on labor. Industries and enterprises which fail to leverage capital invested in technology that lowers the labor component of their good/service eventually undergo rapid and inevitable creative destruction.

We are about to witness this creative destruction in the labor-heavy industries of government, education and healthcare.


So people invest in technology until the return doesn't exceed the return on labor, and then they invest in labor again. People who over invest in capital fail just as easily as those that under invest.

Healthcare and many other labor intensive industries exist as industries largely because creative destruction occurred elsewhere, freeing up labor to work in healthcare in the first place. This process will simply continue, with other labor intensive industries appearing to take advantage of the available labor.

[RichardAWilson]

Make no mistake, there are methods that can be used to "save capitalism."

Keynesian Macroeconomics can still work, though in a different sense than it did yesterday.

The traditional Keynesian Model is based on a closed-economy.

We live in a global economy where the Asians save too much and consume too little, while we borrow and spend too much.

The trend-line has created serious global imbalances that have to be corrected.

Nonetheless, the objective shouldn't be to save capitalism and the way things are going, one has to question if our political institutions are even capable of "saving capitalism" via implementing the needed solutions.

[RGacky3]

Instead of worrying about the fancy ones, let's start with something simple. Are you really rejecting the Econ 101 supply & demand model that makes very simple predictions like rising prices will induce consumers to buy less and producers to sell more?


No he's not, he's saying behind that you have the capitalist mode of production, the internal contradictions of capitalism and so on, other things that you need to take into account when looking at the economy.


Wages measured in purchasing power? If you add up all of the labor income vs. all of the labor income 10 years ago, the number you get now is higher.


Yeah, because there is more people, and because you need to take into account inflation, also inequality has gone up due to wages staying the same and productivity going up, which leads to ... ultimately unemployment, a surplus of production (marxs way of saying lack of demand), further depressed wages, and ultimately collapse.


A laborer can buy a pizza for his family, or a restaurant owner can buy a pizza oven for his business. Why are we doomed to economic failure if 90% of income is being spent by capital holders on capital goods and 10% of income is being spent by laborers on consumer goods?


A pizza oven is'nt any good if there is no one to buy a pizza ... This is econ 101, you don't even need to get into Marx to get this one.


So people invest in technology until the return doesn't exceed the return on labor, and then they invest in labor again. People who over invest in capital fail just as easily as those that under invest.


Actually they invest in India and China where the return on labor is higher, and workers work 12 hour days for almost nothing and then kill themselves by jumping out of factories ...

eventually both those who invest in labor and tehcnology will fail when you lack demand, and since demand is an externality no one will address it, its not like a company will pay his workers more so they can buy stuff from other companies.

So basically your saying that workers have to work cheaper than machines ... machines don't eat, sleep, have homes, families, go to school ....


Healthcare and many other labor intensive industries exist as industries largely because creative destruction occurred elsewhere, freeing up labor to work in healthcare in the first place. This process will simply continue, with other labor intensive industries appearing to take advantage of the available labor.

Freeing up labor????? Yeah, because we don't have enough unemployed people. There was ALWAYS enough labor for those industries.


"Beneath the surface" there are individuals responding to incentives. Fancy econ models try to quantify how individuals will respond to which incentives, with testable predictions. Marx does something similar - saying how wages and returns on capital will change over time in response to competitive pressures, changes in capital stock, government intervention, and so on. However, one of the reasons Marxism has been discredited is that so many of its predictions are either untestable or false.


yeah no shit, but beneith the incentives are institutions and the such which shape those incentives.

[Judicator]

No he's not, he's saying behind that you have the capitalist mode of production, the internal contradictions of capitalism and so on, other things that you need to take into account when looking at the economy.


He's saying conventional econ is completely wrong. Standard econ includes supply and demand. Therefore he's saying econ 101 supply and demand is completely wrong.



Yeah, because there is more people, and because you need to take into account inflation


More people have more total purchasing power. Even inflation adjusted you should still see this effect.



A pizza oven is'nt any good if there is no one to buy a pizza ... This is econ 101, you don't even need to get into Marx to get this one.


Sure, but the income to buy the pizza needn't come from wage labor.



Actually they invest in India and China where the return on labor is higher, and workers work 12 hour days for almost nothing and then kill themselves by jumping out of factories ...

eventually both those who invest in labor and tehcnology will fail when you lack demand, and since demand is an externality no one will address it, its not like a company will pay his workers more so they can buy stuff from other companies.

So basically your saying that workers have to work cheaper than machines ... machines don't eat, sleep, have homes, families, go to school ....


What's that? They invest in labor instead of capital when ROI on labor investment is higher? Just like I said, you invest in whatever gets you higher ROI.

You'll never lack demand in the long run because of unlimited wants. Rich people will always want a bigger yacht.

Workers don't have to work "cheaper than machines," both get paid the same amount per unit produced.



Freeing up labor????? Yeah, because we don't have enough unemployed people. There was ALWAYS enough labor for those industries.


No, there really wan't. Not so long ago economies were 90% agriculture. This leaves 10% of the labor force to do productive thing other than just feed the country. It's hard to have a modern economy with 80% of GDP being services when you need 9/10 of the workforce in the wrong industry.



yeah no shit, but beneith the incentives are institutions and the such which shape those incentives.


You don't need Marx to know that institutions matter.

[RGacky3]

He's saying conventional econ is completely wrong. Standard econ includes supply and demand. Therefore he's saying econ 101 supply and demand is completely wrong.


No thats not what he's saying, he's saying conventional economics as in neo-classical economics and keynsian economics. Not the basic supply and demand.


More people have more total purchasing power. Even inflation adjusted you should still see this effect.


Not really, the rich yes have more purchasing power, the working class nad middle class do not, and guess what, the rich arn't the ones driving the economy.


Sure, but the income to buy the pizza needn't come from wage labor.


Then who's gonna buy the pizza? Not the rich they buy stakes and sushi.

Most of the world is wage labor, so that falls and consumption falls.


What's that? They invest in labor instead of capital when ROI on labor investment is higher? Just like I said, you invest in whatever gets you higher ROI.


Yeah, but you ALWAYS need capital and labor, and they will ALLWAYS go where labor is cheapest, and as production becomes more efficient labor demands will drop ... See my thread in learning about the rate of profit to fall.


You'll never lack demand in the long run because of unlimited wants. Rich people will always want a bigger yacht.


Look out the window, WE ARE LACKING DEMAND, Rich people cannot hold up an economy.


Workers don't have to work "cheaper than machines," both get paid the same amount per unit produced.


Machines don't get paid, any way see the rape of profit fall in learning. If you have a machine that makes it possible for a worker to produce double, your gonna loose workers, because demand has'nt changed even though supply has gone up.


No, there really wan't. Not so long ago economies were 90% agriculture. This leaves 10% of the labor force to do productive thing other than just feed the country. It's hard to have a modern economy with 80% of GDP being services when you need 9/10 of the workforce in the wrong industry.


actually 90% agriculture was a LONG LONG LONG time ago, we've had efficiant farming for a long time now, its basically the begining of civilization.

But either way your just factually wrong, the crisis here is'nt that we don't have enough workers, its not that industries are DYING to hire people but they just can't find them.

ITs a surplus of production and a lack of demand, its a classic marx crisis, along with financialization of capital causing all kinds of problems.

Your arguments can be shot down by looking out a window.


You don't need Marx to know that institutions matter.

No you don't, but if you ignore marx you'll miss a lot.

[piet11111]

You'll never lack demand in the long run because of unlimited wants.

Thats the problem with Capitalism as demand is measured by the bucks in your wallet and the starving masses of Africa by Capitalist logic are lacking "demand" for food.

[Judicator]

No thats not what he's saying, he's saying conventional economics as in neo-classical economics and keynsian economics. Not the basic supply and demand.

It's probably just easier to ask the OP, as this is a question of fact.

He claims: "All those fancy equation-based econometrics that supposedly model human behavior have failed because they are fundamentally and purposefully superficial: they are incapable of understanding deeper dynamics that don't fit the ruling political-economy conventions."

Basic supply and demand is one simple model that supposedly models human behavior.



Not really, the rich yes have more purchasing power, the working class nad middle class do not, and guess what, the rich arn't the ones driving the economy.


If rich workers have more purchasing power, then workers have more purchasing power. A rich person spending $1,000,000 "creates" as much demand as 10 middle class people spending $100,000 each.



Then who's gonna buy the pizza? Not the rich they buy stakes and sushi.

Most of the world is wage labor, so that falls and consumption falls.


Okay, so then producers make sushi.

I doubt over 50% of world income is from hourly wages...too much capital and salaried positions.



Look out the window, WE ARE LACKING DEMAND, Rich people cannot hold up an economy.


Lack of demand isn't an issue in the long run.



Machines don't get paid, any way see the rape of profit fall in learning. If you have a machine that makes it possible for a worker to produce double, your gonna loose workers, because demand has'nt changed even though supply has gone up.


Individual firms lose workers when they become more efficient, but to say that economies lose workers is to commit the "lump of labor fallacy." When production becomes more efficient the economy expands.



actually 90% agriculture was a LONG LONG LONG time ago, we've had efficiant farming for a long time now, its basically the begining of civilization.

But either way your just factually wrong, the crisis here is'nt that we don't have enough workers, its not that industries are DYING to hire people but they just can't find them.

ITs a surplus of production and a lack of demand, its a classic marx crisis, along with financialization of capital causing all kinds of problems.

Your arguments can be shot down by looking out a window.


"The beginning of civilization, lol?" Just 100 years ago, we had 41% of people employed in agriculture. Go back another 100 years and it's double that.

What part of the sentence you quoted are you saying is factually wrong now?

Last I checked there weren't econ policy recommendations and models predicting human behavior "out a window."

[RichardAWilson]

If rich workers have more purchasing power, then workers have more purchasing power. A rich person spending $1,000,000 "creates" as much demand as 10 middle class people spending $100,000 each.

Shows how much you know about Macroeconomics.

Have you ever heard of the propensities to consume and save?

I apologize for being rude and would never wish to censor you for your positions. With that said, debating you is futile because your mastering of macroeconomics is far too questionable. Have you ever taken a college course in macroeconomics? Have you even read classics on the matter?

[RGacky3]

If rich workers have more purchasing power, then workers have more purchasing power. A rich person spending $1,000,000 "creates" as much demand as 10 middle class people spending $100,000 each.


What rich workers? most rich people are not workers.

Rich people spend a less percentage of their income ... no one disputes this, trickle down failed.

A rich person with 1,000,000 won't spend 1,000,000 in a year, a person with 100,000 will probably spend a much bigger chunk of it.


Okay, so then producers make sushi.

I doubt over 50% of world income is from hourly wages...too much capital and salaried positions.


You doubt, but I don't because most people make wages, even if they make saleries thats still basically labor (depending on the relation to MOP), capital makes a ton of money, but the percentage of that money that is spend in the economy on commodities is much lower than that of wages.

So the producers make sushi, and sell a lot less because there are a lot less rich people and end up sacking half their workforce.


Lack of demand isn't an issue in the long run.


Yes it is, its a problem right now and it won't get fixed by markets themselves.


Individual firms lose workers when they become more efficient, but to say that economies lose workers is to commit the "lump of labor fallacy." When production becomes more efficient the economy expands.


No necessarily, it only expands if demand expands with production, and which workers are being laid off, that depresses demand, thus you have a crisis in capital, that along with a compeditive depressoin of profits (tendancy for the rate of profit to fall), which requires more cuts.

The only time the economy expands is when there are untouched markets to exploit or when demand increases due to more people, or a better off working class.


"The beginning of civilization, lol?" Just 100 years ago, we had 41% of people employed in agriculture. Go back another 100 years and it's double that.


I thought it was 90%, 200 years ago Capitalism was barely begining.


What part of the sentence you quoted are you saying is factually wrong now?


The part that was factually wrong was that in the last 100 years, lack of workers was a problem.

Actually a labor demand was a problem in the US for a while, which is why wages went up and the econoy boomed, but it was not a problem in europe really ever since capitalism was established.

Your implying that lack of workers would be a problem, its as if we have 100% employment and compnaies are just dying ot hire more.


Last I checked there weren't econ policy recommendations and models predicting human behavior "out a window."

Yes actually they all do that, its called looking at the way the world works, the only ones that do not do that are austrians that aparently don't have windows or access to the real world.

[Blackscare]

Individual firms lose workers when they become more efficient, but to say that economies lose workers is to commit the "lump of labor fallacy." When production becomes more efficient the economy expands.


This is the basic assumption that underpins contemporary capitalist discourse. It also happens to be dead wrong. The "infinite growth" economic paradigm is unbelievably naive and has no basis in empirical evidence or, dare I say, common sense.

It's remarkably short-sighted to claim that an economic system spanning a scant few centuries and which is now crumbling after decades of credit based life-support is somehow destined to continue forever. It's worth pause to consider that Marx somehow predicted these events well over a century ago. Clearly, the most advanced capitalist economies have been experiencing a decline of growth for some time now. The massive increases in credit and financial speculation over the past 30 years or so served to mask this inherent structural crises and are currently failing. The question is, where do you see this magic growth coming from now? All sorts of schemes have been used to get around this problem throughout the 20th century. World wars, colonialism, imperialism, abstraction, the credit economy, all part of a long process of economic hop-scotch, jumping from one quick fix to another. The period of relative prosperity of the 90's, in which Fukuyama famously proclaimed the "end of history" was largely a result of a massive opening of markets globally following the collapse of the USSR and various hangers-on. Growth today just cannot match or exceed the number of people put out of work by advances in technology.

Do you really think that it's so certain that an economy can grow, in perpetuity, at a pace that can absorb jobs lost by technological advances? How is it possible that, on a finite planet, with few barriers to global trade remaining, we could continue on in this fantasy forever as if it were perpetually the dawn of the industrial age? The basic assumptions you make originate in a period of dynamic, young capitalist development that shares very few points in common with today's. You realize this, right? That your whole world view is predicated on the assumptions of men who were dealing with an absolute tabula rasa and thought such conditions would always remain? The history of capitalism is one of continual expansion first as a bi-product of capitalist production and later as a means of staving off certain collapse. Interesting that you cannot seem to envision a world were there is no room to expand at a sufficient rate to sustain capitalism. This is the flaw inherent to capitalism; it cannot abide the fruits of it's own success.

[RGacky3]

http://thinkprogress.org/wp-content/uploads/2011/09/CorpProfitsVsTaxJobs.jpg

[Judicator]

Do you really think that it's so certain that an economy can grow, in perpetuity, at a pace that can absorb jobs lost by technological advances? How is it possible that, on a finite planet, with few barriers to global trade remaining, we could continue on in this fantasy forever as if it were perpetually the dawn of the industrial age? The basic assumptions you make originate in a period of dynamic, young capitalist development that shares very few points in common with today's. You realize this, right? That your whole world view is predicated on the assumptions of men who were dealing with an absolute tabula rasa and thought such conditions would always remain? The history of capitalism is one of continual expansion first as a bi-product of capitalist production and later as a means of staving off certain collapse. Interesting that you cannot seem to envision a world were there is no room to expand at a sufficient rate to sustain capitalism. This is the flaw inherent to capitalism; it cannot abide the fruits of it's own success.

You seem to be arguing against the claim that (1) "capitalism will ensure growth forever." This is different from the claim that (2) "higher productivity means economic expansion." Productivity growth could stop, and economic expansion would stop. This is fine for claim (2), the one I'm making. So first we should clarify exactly what we're arguing about.



What rich workers? most rich people are not workers.

Rich people spend a less percentage of their income ... no one disputes this, trickle down failed.


What's rich? The top 50% are certainly mostly workers, and probably the top 20%.

Rich people have high purchasing power because they spend lots of money. While low as a % of their income, it's high as a % of the economy.


You doubt, but I don't because most people make wages, even if they make saleries thats still basically labor (depending on the relation to MOP)

Lots of people make wages, but wages are low, so if you compare dollars in wages vs. dollars in capital gains, capital gains come out ahead. Anyway this seems like now it hinges on your idea of relationship with MOP.



Yes it is, its a problem right now and it won't get fixed by markets themselves.


"Right now" we are in the short run.

Why do you think wages won't adjust so that markets clear?


No necessarily, it only expands if demand expands with production, and which workers are being laid off, that depresses demand, thus you have a crisis in capital, that along with a compeditive depressoin of profits (tendancy for the rate of profit to fall), which requires more cuts.

On the labor market side: if people are laid off wages adjust until you get full employment. Full employment gets you full production.

On the supply side: If you have full production for any level of demand, price levels adjust until the market clears. That is, production = consumption.


The part that was factually wrong was that in the last 100 years, lack of workers was a problem.

You were saying that there was "ALWAYS enough labor for [healthcare, education, etc." I'm saying there wasn't - it would be impossible to employ the number of people that are employed today in the service sector with the manufacturing-service split we had in the 1950s. This is a problem, which was solved gradually by shrinking the manufacturing sector (as a % of GDP) and expanding the service sector.


Yes actually they all do that, its called looking at the way the world works, the only ones that do not do that are austrians that aparently don't have windows or access to the real world.

What? I say:

"there weren't econ policy recommendations and models predicting human behavior "out a window.""

You say "they all do that??"

[RGacky3]

What? I say:

"there weren't econ policy recommendations and models predicting human behavior "out a window.""

You say "they all do that??"

Yes they all look in the real world, thats what I mean when I say look out a window, you have to see what the real world is like.


"capitalism will ensure growth forever." This is different from the claim that (2) "higher productivity means economic expansion." Productivity growth could stop, and economic expansion would stop. This is fine for claim (2), the one I'm making. So first we should clarify exactly what we're arguing about.


I'm saying you have a paradox, higher productivity means economic expansions in the short term, but due to dropping the rate of profits and due toe lack of demand it leads to a major contraction later.

RIght now productivity could stop and the economy expand just because we have so many unemployed.

Capitalism requires purpetual growht, thats another MAJOR problem with it.


What's rich? The top 50% are certainly mostly workers, and probably the top 20%.

Rich people have high purchasing power because they spend lots of money. While low as a % of their income, it's high as a % of the economy.


NO ONE consideres the top 50% to be "the rich" not even the top 20%, usually its more like the top 1%.

But if your claiming that the top 20% demand can hold up the economy your insane.

The richer someone gets, the less of a percentage of their income they'll spend in the economy, so thats why tax cuts for hte rich are stupid economic policy.


Lots of people make wages, but wages are low, so if you compare dollars in wages vs. dollars in capital gains, capital gains come out ahead. Anyway this seems like now it hinges on your idea of relationship with MOP.


Not when it comes to dollars spent buying goods and services, and thast what really counts, most of that comes from wages/saleries.


"Right now" we are in the short run.

Why do you think wages won't adjust so that markets clear?


Why would wages go up? THere is high competition for jobs, low profitability, and weak organized labor, there is no way wages are just gonna go up for no reason.

REmember, lack of demand is an externality for industry, no one's gonna take it into account, other than perhaps move their industry where there is demand.


On the labor market side: if people are laid off wages adjust until you get full employment. Full employment gets you full production.

On the supply side: If you have full production for any level of demand, price levels adjust until the market clears. That is, production = consumption.


No, wages continuely drop, and with it demand drops, and with it competition for labor goes up and with that wages still drop, and profetibility goes up while demand drops.

You won't ever have full employment, because its just impossible in a market system, as productivity goes up you need continually expanding markets or you need to cut labor, which ends up contracting the market.


You were saying that there was "ALWAYS enough labor for [healthcare, education, etc." I'm saying there wasn't - it would be impossible to employ the number of people that are employed today in the service sector with the manufacturing-service split we had in the 1950s. This is a problem, which was solved gradually by shrinking the manufacturing sector (as a % of GDP) and expanding the service sector.


Ok, its not ALWAYS, let me rephrase, since the 1970s its ALWAYS.

I'm not arguing manufacturing vrs service sector, thats a different discussion.

[Judicator]

I'm saying you have a paradox, higher productivity means economic expansions in the short term, but due to dropping the rate of profits and due toe lack of demand it leads to a major contraction later.


Lol how long is the short term? We have had economic expansion over the past 300 years, also since 1970 (since you seem to think history or capitalism don't exist before then).



Capitalism requires purpetual growht, thats another MAJOR problem with it.


Requires perpetual growth to do what?


NO ONE consideres the top 50% to be "the rich" not even the top 20%, usually its more like the top 1%.

But if your claiming that the top 20% demand can hold up the economy your insane.

Consider the global economy. Consider the top 20% of countries. Look at where goods are produced and consumed. Guess what? The top 20% IS the economy.


No, wages continuely drop, and with it demand drops, and with it competition for labor goes up and with that wages still drop, and profetibility goes up while demand drops.

You won't ever have full employment, because its just impossible in a market system, as productivity goes up you need continually expanding markets or you need to cut labor, which ends up contracting the market.

This is a "deflationary spiral"...the existence of which is debateable, and it can be easily remedied by printing more money.

Anytime the unemployment rate fell below 5%, or the natural rate, (which has happened dozens of times in the past 50 years), you had full employment.



Ok, its not ALWAYS, let me rephrase, since the 1970s its ALWAYS.

I'm not arguing manufacturing vrs service sector, thats a different discussion.


Healthcare employment (in total and as a % of labor force) in the 1970s was much lower than it is today. The workers had to come from another industry, so no there still weren't ALWAYS enough workers.

[RGacky3]

Lol how long is the short term? We have had economic expansion over the past 300 years, also since 1970 (since you seem to think history or capitalism don't exist before then).


Since 1970 we've had basically bubbles, before then we had heavy keynsianism, before that we were recovering from a world war, before the world wars we had both vast poverty vast industrial disontent, and colonialism, before that we had massiave imperialism and industrialization (due to technology) and mechentalism, before that it was basically the begining of Capitalism.

economic expansion can happen with growing productivity IF you have constantly new markets and if you have other factors countering the falling rate of profits.


Requires perpetual growth to do what?


Exist and not collapse on itself.


Consider the global economy. Consider the top 20% of countries. Look at where goods are produced and consumed. Guess what? The top 20% IS the economy.


We arn't talking about the global economy, we are talking about the United States and Europe (i.e. the financial crisis).


This is a "deflationary spiral"...the existence of which is debateable, and it can be easily remedied by printing more money.


Well we've been doing that ....

And this is the result.

http://thinkprogress.org/wp-content/uploads/2011/09/CorpProfitsVsTaxJobs.jpg

http://thinkprogress.org/wp-content/uploads/2011/06/fredgraph-1-1.png

You never have had full employment naturally (i.e. without huge government intervention)


Healthcare employment (in total and as a % of labor force) in the 1970s was much lower than it is today. The workers had to come from another industry, so no there still weren't ALWAYS enough workers.

There was a lot less old people in the 1970s ...

[RichardAWilson]

A Libertarian that advocates printing more money? Wow! I'm always one to call for printing more money and it's reasonable for me.

[RichardAWilson]

Also, the above graph is misleading, here's a more accurate view:

Corporate Profits: +550%?
S&P 500: +300%
Wages: +60%

The graph minimized the rise of stocks relative to the consumer price index.

[RGacky3]

the graph was supposed to show wages vrs profits