The Overlapping Crises of Neoliberal Global Capitalism
by ilene - September 10th, 2010 9:04 pm
The Overlapping Crises of Neoliberal Global Capitalism
Courtesy of Charles Hugh Smith, Of Two Minds
Conventional wisdom holds that today's global financial crises are political rather than systemic to Neoliberal Global State Capitalism.
It is tempting to place the blame for the U.S. economy's deep woes at the feet of our corrupt, captured political system of governance and those who captured it via concentrated wealth and power. But that would avoid looking at the crises unfolding in global capitalism itself.
From the "progressive" ideology, the "problem" is inequality of income and wealth, and the "solution" is to take more of the wealth and income away from "the rich" (i.e. those who make more than I do) and redistribute to the "have-less" citizenry.
From the "conservative" ideology, the "problem" is that the Central State, in cahoots with public unions and Corporate Overlords, grabs an ever-larger share of the national income to redistribute to reward its cronies and favorites. In so doing, it mis-allocates the nation's capital away from productive investments and strangles free enterprise, the only real engine of wealth.
There is of course a grain of truth in each point of view. As I describe in Survival+, there is a positive feedback in the process of concentrating wealth and thus political power: the more wealth one acquires, themore political influence one can purchase, which then enables the accumulation of even more wealth as the State/Elite partnership showers benefits and monoplies on those who fund elections, i.e. the wealthy.
This process eventually leads to over-reach, when the nation's capital and income are so concentrated that the economy become precariously imbalanced and thus vulernerable to devolution and collapse. Returns on favoritism and capital become marginal, and it take more complexity and capital to wring ever-smaller profits and power from ever-greater investments.
It is also true that the State and the Power Elites mask their massive redistribution to the wealthy and powerful behind politically popular redistributions to the lower-income and/or unproductive citizenry, garnering their loyalty and complicity.
It is also true that as the State and its private-sector Elites channel an ever-larger percentage of the national income to the Central State and its fiefdoms, both public and private, then the productive…
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The Perils of Prediction
by ilene - September 3rd, 2010 4:30 pm
The Perils of Prediction
Courtesy of Charles Hugh Smith, Of Two Minds
Nobody knows the future, so the best we can do is strive for an open mind and flexibility in our thinking and responses.
In 1904, the "fact-based" consensus was that rising prosperity would stretch into the future as far as imagination allowed. The prosperity was so widespread that war, it seemed, had been abolished as bad for business.
In 1904, Imperial Tsarist Russia, though suffering from the usual spot of bother now and again, was stable and enduring. In 1904, Great Britain viewed France as its continental rival.
Ten years later, advanced, peaceful, hopeful Europe stumbled into the Great War, and three years into that war Tsarist Russia fell to revolution.
In 1928, permanent prosperity was again the consensus. Two years later, that hope was reduced to ashes.
In 1930, Germany and Japan were economically troubled, as were the other great nations of the world, but neither were seen as threatening. Less than ten years later, the two nations had declared war on the world.
In 1980, fear of a sudden massive Soviet tank attack on West Germany sparked a series of "what if" books and a push for short-range nuclear-armed missiles in Germany--a U.S. plan which galvanized the Western European peace movement.
Ten years later, the Soviet Empire had crumbled into dust and abandoned gulags.
In 1975, scholars and pundits confidently declared that the "cult of Mao" which fueled China’s Culutral Revolution was so entrenched, so pervasive and so central to China’s Communist regime that would outlast Mao the mortal and thus into the next century.
Three years later, Mao was dead and the Gang of Four lost power. Ten years after 1975, when the Cult of Mao was universally viewed as a permanent feature of China, that nation was four years into the state-controlled, limited-capitalist model of engaging the world that created its present-day pre-eminence.
I think you see my point: consensus predictions of what the future holds are generally wrong. The consensus in the U.S. about the world of 2020 is that it won’t be much different from the world of 2010. All the actuarial tables of Social Security run to 2040 and beyond, as if the road ahead will be an extension of the past sixty years of American global dominance and credit-based prosperity.
That alone tells me 2020 will…
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The Root of Economic Fragility and Political Anger
by ilene - July 18th, 2010 2:32 pm
The Root of Economic Fragility and Political Anger
Courtesy of Robert Reich
Missing from almost all discussion of America’s dizzying rate of unemployment is the brute fact that hourly wages of people with jobs have been dropping, adjusted for inflation. Average weekly earnings rose a bit this spring only because the typical worker put in more hours, but June’s decline in average hours pushed weekly paychecks down at an annualized rate of 4.5 percent.
In other words, Americans are keeping their jobs or finding new ones only by accepting lower wages.
Meanwhile, a much smaller group of Americans’ earnings are back in the stratosphere: Wall Street traders and executives, hedge-fund and private-equity fund managers, and top corporate executives. As hiring has picked up on the Street, fat salaries are reappearing. Richard Stein, president of Global Sage, an executive search firm, tells the New York Times corporate clients have offered compensation packages of more than $1 million annually to a dozen candidates in just the last few weeks.
We’re back to the same ominous trend as before the Great Recession: a larger and larger share of total income going to the very top while the vast middle class continues to lose ground.
And as long as this trend continues, we can’t get out of the shadow of the Great Recession. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing.
America’s median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class could boost its purchasing power was to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn’t pay their bills, and banks couldn’t collect.
Each of America’s two biggest economic downturns over the last century has followed the same pattern. Consider: in 1928 the richest 1 percent of Americans received 23.9 percent of the nation’s total income. After that, the share going to the richest 1 percent steadily declined. New Deal reforms, followed by World War II, the GI Bill and the Great Society expanded the…
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GDP Deflator at a Five Decades Low While Income Inequality Is at Record Highs
by ilene - May 4th, 2010 3:29 am
GDP Deflator at a Five Decades Low While Income Inequality Is at Record Highs
Courtesy of JESSE’S CAFÉ AMÉRICAIN
From this chart sent out this morning by David Rosenberg, we can see that the GDP deflator is at a five decades low.
I tend to believe that the modifications to the inflation measures, including the deflator, that have accumulated by the federal bureaucracy over the past ten years are greatly understating the actual inflation in the economy.
There are very positive benefits for the government to do this. The lower the deflator, the better and higher the real GDP figures will appear. And a low measure of official inflation reduces increases in payments in Social Security and other programs with Cost of Living Adjustments (COLA), including official debt payments on the bonds and the TIPS.
Gold gives the lie to this, which is why it is so hated by financial engineers and statists.
On the other hand, the inequality of income distribution in the US is at level not seen since the 1920′s.
There is some good reason to think that government tax and fiscal policies, as well as the monopolistic makeup and subsidized growth of the Banking sector facilitates this wealth transfer and concentration, which has a highly negative impact on real economic growth.
There will be a change, and the trends will be reversed. How they are reversed and what changes will accompany those reversals are very much open to debate, and divergent historical examples. But these changes almost invariably involve a shift from individualism to statism.
"Those who make peaceful revolution impossible make violent revolution inevitable."
John F. Kennedy
Change will come if the system remains as unsustainable as it is now. And what gives me a somewhat pessimistic view is that people never seem to learn the lessons of history.
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Wealth Dispersion and General Thoughts on the Future of Economics on a Saturday Afternoon
by ilene - April 18th, 2010 2:04 am
Wealth Dispersion and General Thoughts on the Future of Economics on a Saturday Afternoon
Courtesy of Jesse’s Americain Cafe
Here is an interesting graph of wealth distribution, or dispersion, as I call it from Cherchez La Verite.
I am not sure I agree with his conclusions or even his premise, not because I disagree but because it requires some thinking and leisure to digest it. But the data is most interesting.
I wonder if any of the quant economists have performed simulations on virtual populations, and then examined the results of varying different tax rates, and concentrations of wealth because of fiscal policy and regulatory structure, among other things.
I have an hypothesis that great concentrations of wealth lead to economic stagnation, but I am afraid that I have not the means or the talent anymore to conduct that type of research.
The difficulty in a study like this is that the assumptions are greatly magnified into the results. If you assume certain buying, spending, and savings behaviours, the downstream impact can greatly alter, and even distort, the outcomes.
And when people reason through this verbally, rather than perform a structured simulation based on transactions, the distortions increase by an order of magnitude or more based on their own biases.
I used to create simulations like this all the time, for industrial and commercial purposes, and also did a decent amount of econometric modeling. So I am sure someone is doing it somewhere. But I suspect they are doing it in think tanks and places where the outcome is predetermined by the basis of their grant.
Concentrated wealth magnifies the needs and predispositions of the holder. Since the amount they require for basic necessities can only consume so much, one would think that the amount spent on the aggregate of necessities will eventually be reduced. And what they do with their excess of necessity wealth is going to be greatly influenced by their character. Are they a gambler, who inherited the wealth? Are they productive and beneficent? Are they dissolute and venal?
And what about government? Taxation can concentrate enormous wealth in the government. What sort of government does one have, or does one assume? Are they warlike, productive, redistributive, and how corrupt? What about corporations? They can be like small governments, and levy taxes through monopoly…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site